Charles Koch Explains Business Success in New Book

Charles and David Koch and their family are favorite bogeymen for extremist left-wing activists and mainstream liberal politicians like U.S. Sen. Harry Reid (D-Nev.). Charles reports he received 153 death threats in 2014 alone. Yet for all the demonization this family has received, most Americans don’t know who they are. This led Washington Post writer Chris Cillizza to refer to them jokingly as “Koch Zero.”

A new book by Charles Koch, board chairman and CEO of Koch Industries, moves beyond the noise and tells his own family story, one of hardworking, bootstrapping Dutch immigrants who built an empire from the ground up through grit, sacrifice and world-class academic prowess in chemical engineering.

koch book

Good Profit: How Creating Value for Others Built One of the World’s Most Successful Companies” humanizes a family relentlessly pilloried for exercising their constitutional rights to free expression and civic participation. Though a favorite punching bag of the Left, the Kochs’ commitment to personal freedom and capitalism stems in part from personal experience. Liberty was no abstraction for the Koch patriarch. Fred Koch became firmly anti-Communist after sour business dealings with the Soviet Union.

“Fred was very suspicious of the Soviets and demanded 90 percent payment up front,” Charles writes. “The Soviet engineers who worked with my father confirmed his fears about doing business in the Soviet Union (and of Communism in general) when they told him about their methods and plans for world revolution. Stalin eventually purged almost all of Fred’s Soviet counterparts, along with tens of millions more of his own people. My father described the Soviet Union as ‘a land of hunger, misery and terror.’”

Charles’s writing is heavily imbued with memories of his father, a man quick with quips. “You can tell the Dutch, but you can’t tell them much,” Fred would say. After brother David took over his father’s business, Fred told him, “I hope your first deal is a loser; otherwise you will think you’re a lot smarter than you are.”

While the Hillary Clintons and Bernie Sanders of the world use the Kochs as a rhetorical piñata for living lives of excess and materialism, “Good Profit” paints a different picture. This is a family with a keen interest in pursuing the social good by helping others rise through free enterprise. David Koch, for example, slept on a cot during the first struggling years of founding Winkler-Koch Engineering Company with a colleague.

“He didn’t care about social status; he treated everyone in a manner consistent with his values,” Charles writes. “It’s probably a reflection of his character that good people wanted to be around him too and offered him opportunities for work.”  

A plainspoken narrative about basic economic principles, “Good Profit” helps explain how Koch Industries helps create value by serving others. Charles describes the problem of Soviet government nail factories dictating the weight and modeling of nails, which results in unused products and wasted labor and materials.

“But when people and companies are free to innovate using their knowledge of what they and others value, consumers benefit, enabling business to generate good profit,” he explains of the invisible hand. “Only spontaneous order, resulting from unscripted human action, can answer the demand of people who need nails. By harnessing the principles of free societies — which generate knowledge obtained from prices and profits and loss — organizations benefit tremendously.”

“Remember that often adversity is a blessing in disguise and is certainly the greatest character builder”

“Good Profit” devotes an entire chapter to the Kochs’ business challenges. “Remember that often adversity is a blessing in disguise and is certainly the greatest character builder,” Fred Koch told his sons. The book does not shy away from controversy, including the story of the tragic death in August 1996 of two teenagers, innocent bystanders near a liquid butane pipeline explosion in Lively, Texas.

“That was one of the darkest days on the job,” Charles writes. “I am a father and grandfather, and if anything like this were to happen to my own children or grandchildren, I know I would be devastated. I am also an engineer who places the highest priority on safety and compliance. In fact, I constantly insist it is ‘Job One’ for every Koch employee. Why? Because I cherish the value of human life.”

Koch also details the challenges the Koch Petroleum Group has faced with its Environmental Protection Agency filings, which have since been resolved despite onerous prosecutorial action against four innocent employees. This harrowing experience in part has inspired the Kochs to fight for criminal justice reform, an issue gaining bipartisan traction.

At times, “Good Profit” reads like a business school handbook. Koch shares lessons learned on management and governance, and the brothers have established an entire curriculum called Market-Based Management (MBM) to impart their business know-how.

In a chapter called “Virtue and Talents,” Koch lists the company’s guiding principles: integrity, compliance, value creation, principled entrepreneurship, customer focus, knowledge, change, humility, respect and fulfillment. He describes how his company seeks to retain talent by designing roles to fit based on an individual’s gift. He says this is why the firm is able to retain 70 percent of its interns, compared to just 50 percent across the industry. And if the Kochs weren’t providing value to consumers, their enormously successful businesses wouldn’t endure.

“The main reason we strive to increase our capital and our business is to enable us to make a greater contribution to our customers, communities, employees, and society as a whole,” Charles writes. “That same focus will help any company create good profit as well. The greatest gift we can receive or pass on is the opportunity to find and pursue our passion, and in doing so, to make a difference by helping others improve their lives. To be truly rich is to live a life of meaning. This was impressed on me at an early age and it is a legacy I try to share.”

The process of creative destruction can be competitive and sometimes messy and imperfect. But the real story of “Good Profit” is how a great American family is striving to do well by doing good.

Carrie Sheffield is a Senior Writer for Opportunity Lives. You can follow her on Twitter @carriesheffield and on Facebook.