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The Truth About Koch Industries

But while Charles owned the refinery, he didn’t control it, thanks to a deeply entrenched and notably hostile union. In the first of the book’s intricate set pieces, Leonard chronicles how Charles and his handpicked field general, Bernard Paulson, outlasted the inevitable strike and smashed the union.

The company’s phenomenal growth rested on three pillars. The first was culture: Charles was a thinker, a devotee of the Austrian free-market economists Friedrich Hayek and Ludwig von Mises, and in time he codified his philosophy into something he calls Market-Based Management, or MBM, which is drilled into every Koch employee. The unity of thought inside the company, some may sense, carries the faint whiff of a cult.

The second pillar was market intelligence. Over time Charles would build a network of trading desks in Houston, Moscow, Geneva, Wichita and elsewhere that dealt in every imaginable commodity. While they were profitable, their real value lay in gathering intelligence on every market Koch was in or considered getting into. Leonard makes a persuasive case that a principal strength of Charles and his management team was their ability to analyze and act on this intelligence before their competitors could.

But as Leonard also makes clear, the third and most important pillar underlying Koch’s growth was the simple fact that it was private, meaning it wasn’t beholden to masses of shareholders and their nattering demands for rising quarterly profits. This freed it in dozens of ways. Charles, for instance, not only stopped judging managers on their profits, he stopped most budgeting demands. Because he refrained from paying steep dividends, he reinvested 90 percent of Koch’s profits into the business, further fueling its ability to make acquisitions. This has taken Koch far afield from its origins in oil, into fertilizers, lumber, feed lots, even greeting cards.

There were stumbles along the way — the 1990s-era acquisition of Purina was a disaster — but Charles learned from each. The company first gained public attention in the late 1980s when its pipeline crews were discovered systematically taking too much oil from customers’ storage tanks, which nearly resulted in criminal indictments. In the following years it drew steep fines and criminal convictions on pollution-related charges at several facilities. Charles reacted by initiating a program called “10,000 percent compliance,” meaning all of Koch’s operations would be in 100 percent compliance with every law and regulation 100 percent of the time. The company has rarely run afoul of the law in the years since.

If Charles couldn’t evade nettlesome regulations and laws, he decided to try to change those he disliked, part of the reasoning behind his push into the realm of politics. Leonard aptly traces how the company’s Washington lobbying machine mushroomed in size and efficacy during the Obama-era fight over so-called cap-and-trade limits on emissions, a victory that emboldened Charles to influence regulations and Congressional races across the country.

This and other stories Leonard tells in clear, unadorned prose. Could the book be 50 pages shorter? Probably. There is a certain amount of repetition, but given the complexity of the company’s operations and trading strategies, I found I didn’t mind. And “Kochland” delivers on its seemingly facile subtitle: A reader actually does learn not just about the growth of the power of Koch Industries, but also about that of corporate America’s as well. Not since Andrew Ross Sorkin’s landmark “Too Big to Fail” (2009) have I said this about a book, but “Kochland” warrants it: If you’re in business, this is something you need to read.

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