Koch Industries Discovery newsletter

Discovery
january 2013
THE QUARTERLY NEWSLETTER OF KOCH COMPANIES
Moving forward
After another year of record results in 2012,
Koch Industries is pushing ahead with
billions of dollars’ worth of expansions,
acquisitions and improvements in 2013.
In just one month, last December,
Koch companies announced several
significant developments that typify the
growth and dynamism of the company.
On Dec. 13, Georgia-Pacific announced
its pending purchase of Temple-Inland
Building Products assets from International Paper for $750 million.
Temple-Inland, founded in 1893, operates 16 facilities in seven southern states
plus Pennsylvania. It makes a variety of
products for residential and commercial
construction, including gypsum, lumber,
fiberboard and particle board.
Less than a week later, Koch announced
it had purchased a minority stake (about
45 percent) in Guardian Industries, a
privately held manufacturer of architectural glass, automotive components and
specialized coatings for plastics.
Based in Auburn Hills, Mich., Guardian has nearly 18,000 employees in 25
countries, including Russia, Thailand,
Poland and India. It also has a presence
in 22 states. Ron Vaupel, the former head
of Koch’s business development group, is
now the president and CEO of Guardian.
Last December was also the month
Flint Hills Resources acquired a Nebraska ethanol plant, INVISTA acquired
a Dutch manufacturing facility and
this issue…
Koch Nitrogen acquired South Dakotabased Farmers Plant Food, Inc.
These transactions are in addition to the
hundreds of millions of dollars’ worth
of plant expansions and improvements
for FHR’s Pine Bend and Corpus Christi
refinery complexes announced earlier
in the fourth quarter.
Innovation
One of the common threads throughout
all this activity is a very strong emphasis
on innovation.
Charles Koch, the chairman and CEO
of Koch Industries, routinely challenges
business leaders to make innovation a
key part of their vision and then build
the necessary capabilities.
“When we say innovation, we’re not just
talking about new technology or products,”
Koch said. “We need innovation in every
aspect of the company, including compliance, recruitment, purchasing and legal
services, to name a few.
“If we’re structuring an acquisition or
other transaction, we need to think of
ways to improve that process to the
benefit of all concerned, rather than
just using the same old boilerplate.
“Innovation can help us be safer, more
productive, less wasteful, more energyefficient and more customer-focused.
“We have to drive innovation faster than
our competitors to have any hope of longterm success.”
Post-election letters
Year in review
pg 2
pg 5
Opportunity
To accomplish so much growth in so
many different areas, one of the first
challenges to overcome is finding the
right employees.
Koch already has at least 2,500 open
positions across all its companies. Finding
even more people with the virtue and talents to succeed in the company’s marketbased culture is a constant challenge.
Space constraints have become an issue,
too. At Koch Industries’ Wichita headquarters, more than 1 million square
feet of office space is no longer enough.
In December, Koch Industries announced
plans to build a 210,000-square-foot office
building (pictured above) on its Wichita
campus. When completed in 2015, the
three-story building will have enough
room for 745 additional employees.
Another and even more worrisome concern is the ongoing challenge of an everworsening regulatory environment. It is
difficult to justify billions in investments
and the creation of thousands of new jobs
if policymakers – whether in Brussels,
Santiago, Toronto or Washington –
keep making the rules more restrictive
and costly.
“In a difficult environment like this,”
Koch said, “the one constant has to be
our commitment to our MBM® Guiding
Principles. If we lose our integrity, fail to
be compliant or stop creating long-term
value, we cannot succeed.”
Perspective: Charles Koch pg 10
The other Rock Islands
pg 12
Postal Pipeline
December – Koch company employees provided for almost 2,300 needy children during 2012 Salvation Army Angel Tree campaigns in (left-right) Wichita – 1,325
angels, Pine Bend – 283 angels, and Atlanta – 660 angels. All three of those totals were records. This was the 21st year for the Angel Tree campaign in Wichita.
The same public that is screaming for
job creation fails to realize that successful businesses produce jobs, drive the
economy and grow our GDP.
About 10 years ago, I was talking to a
lady who does pedicures for a living. She
told me she was from Ukraine, where she
and her husband worked as engineers
until they emigrated to the U.S. in 1979.
I felt sorry for her, because, based on
her occupation, I felt she had failed to
achieve the American Dream.
When I asked if she missed Ukraine, she
sharply replied “No!” and told me that
she and her husband had raised two sons
Dear Charles and David,
Regarding what we might have done
better and what we might do better for
the next election…
I have been in the television business
for a long time and I know it is not
possible to sell a bad product when
another choice is perceived to possibly
be better. It is easy to create an image,
but very difficult to change an image.
My bottom line is that the Republicans
made it extremely difficult, if not
impossible, to convince the American
people to vote for their candidates.
Charles and David, please know that
you can count on me, my wife and our
family to stand foursquare with your
ongoing efforts to preserve our unique
American way of life.
Stanley S. Hubbard
Chairman and CEO
Hubbard Broadcasting, Inc.
Saint Paul, Minn.
2
who were in college and pursuing their
own American Dreams.
Then she said something I’ll never forget:
“What the rest of the world sees and
this country fails to realize is that, in
America, your poor people are fat.”
This speaks volumes to the prosperity
we have all enjoyed.
I fear that if government continues to
gain favor and power, we’re on a collision
course with real poverty.
Dear Charles,
The Dean of the Graduate School
of Princeton University often began
speeches by saying: “What should be said
often goes unsaid…and so he said it.”
I am grateful for your leadership in many
causes of liberty. I am also grateful to be
included in your bi-annual conferences.
I am the same age as you, and in the
past five years I have returned to work
in the hope that I can generate more
significant dollars for the worthy causes
Christopher Jarrett you espouse.
District sales manager
American Cast Iron Pipe Co.
Lake Mary, Fla.
It’s really good seeing Koch get some
positive recognition, including the
great cover story in the Dec. 24 issue
of Forbes and a very positive editorial
in The Wichita Eagle after your announcement of expansion plans.
I think your story is one that should be
continuously pushed to our legislators
Nate Bachman
The Bachman Group
Cincinnati, Ohio
and economic development officials in
Topeka. Yours is the most positive economic development in Wichita in several
years, and the most positive story for the
state in 2012.
Compare that with the “border wars” in
Kansas City, where Kansas and Missouri
are giving away tax dollars to companies
that move across the border, with a net
zero gain. What could be more senseless
than luring companies to move where
they don’t need to relocate?
I am encouraging the Wichita Independent Business Association to make Koch
“Exhibit A” in economic development.
Studies tell us that approximately 90 percent of economic growth comes through
existing businesses. The key is making the
economic climate beneficial to all businesses and let the free market determine
the winners.
Pete Schrepferman
Johnstone Supply Co.
Wichita, Kan.
We are so thankful for the Fred and
Mary Koch Foundation’s continued
partnership in helping us forge freedom in the hearts and minds of young
people. This idea of “forging freedom”
was first envisioned during General
Washington’s trying winter at Valley
Forge (a scene that adorns the cover
of our annual review).
In the winter of 1777, a time when
progress seemed hopeless, Washington rallied his men, and during that
Tony Woodlief
President
Bill of Rights Institute
Arlington, Va.
www.BillofRightsInstitute.org
Thank you for Koch Industries’ investment of $375,000. By choosing to invest
in our organizational structure, Koch
will allow us to realize greater efficiencies, serve more kids and create a more
sustainable model for future little brothers and little sisters.
We value our long-term relationship
with Koch Industries and its many
amazing employees who have invested
their money – and
more importantly,
their time – to
change the life of a
child. Thousands
of Kansas kids have
benefitted from
that investment.
Dan Soliday, CEO
Kansas Big Brothers Big Sisters
Wichita, Kan.
winter developed his troops
into a unified fighting force.
Looking at the national stage, it’s easy
to feel discouraged. Unemployment
threatens to climb higher and our debt
continues to grow, but “the greatness of
America,” wrote Alexis de Tocqueville,
“lies not in being more enlightened
than any other nation, but rather in
her ability to repair her faults.”
Last year, we readied 519,999 students to begin the process of repairing those faults. What’s more, we
equipped 4,892 teachers, who will
each impact 100 students a year with
historically grounded materials to tell
the true story of our heroic Founders.
Together, we will restore a constitutional culture.
Dear Mr. Koch,
I want to thank you and your family for
all you have done during this past election.
The results are tough to acknowledge; however, the efforts that you put forth make me
very proud of the company I work for.
Charles and David Koch
Dear Mr. Koch,
Thank you, thank you, thank you – to
your brother David and you – for being
such fine and patriotic Americans.
The courageous and principled stands
that you take to help us retain and
restore our liberty are truly inspiring.
You are doing so much good for so many.
Larry Saunders
Registered commodities rep.
Franklin, Tenn.
Dear Charles,
I wanted to write you a note of personal
thanks for all that you, Liz and David
are doing on behalf of all of us, to try to
Gretchen Chartier educate the American public about the
Koch Industries, Inc. destructive direction that our country
Scottsdale, Ariz. (and the world, for that matter) is going.
By speaking out publicly you are undertaking courageous work. It is shocking
to see what the “enemies of truth” write
and say about you.
I can see that I need to ensure that
our students are being educated in the
innate value of freedom. They need to
understand that it is freedom that
unlocks the human spirit, unleashing
it to do great things.
Stay strong and courageous, knowing
that there are many others standing
with you.
www.BBBS.org
Koch Industries is Kansas Big Brothers Big Sisters’ largest corporate donor. Almost
50 Koch company volunteers in Wichita are “bigs” for at-risk children.
Tom Davis
President and headmaster
Wichita Collegiate School
Wichita, Kan.
3
I just read Charles Koch’s editorial in Newsmax, “Why we fight
for economic freedom.” If you
ever bump into Mr. Koch, please
convey to him my utmost appreciation for everything he has
done in the cause of freedom
and liberty. I know he and his
brother have spent vast sums
trying to restore a modicum of
common sense to our fellow
Americans, and I know that it
has been an uphill battle. But,
without the Kochs’ efforts, it’s
likely our country would now be
all but thoroughly socialized.
Dear Charles,
This is a short note of thanks and appreciation for your efforts promoting free
enterprise and limited government.
It saddens me that you have received
threats of violence against you and
your loved ones for expressing your
convictions.
If more people knew you as “Charles”
instead of the totally biased caricature
the media portrays, you wouldn’t have
as many haters.
Thanks again for taking the stands that
you have.
Dakin Cramer
Financial consultant (retired)
Wichita, Kan.
If there’s ever anything I can
do to help the cause and it is
remotely within my capability
to do so, he need but ask.
Dave Gell
Ammonia buyer
Keokuk, Iowa
Newsmax also published an interview with David
Koch, who discussed the need for greater economic
freedom and better policy-making in Washington.
Dear Mr. Koch,
I have intended to write you ever since
my retirement from Koch Industries in
2004. I have obviously procrastinated,
but hope you will share this with David
and both your families.
Having endured another political season
that is so troubling, I wanted to tell you
of my appreciation for the time I spent
with Koch. I never felt that I was just
an employee. The lessons of business and
life that I learned watching you have
always been something special.
1998 – Former Koch pilot Butch Rose receiving a
service award from Charles Koch.
As a former fighter pilot, I have said
many times that there were parts of
business that terrified me more than
combat, but I never once felt I was
working for or with individuals who
were underhanded or lacking in
compassion for the welfare of others.
It troubles me greatly to see the
heart and soul of our nation, the free
enterprise system, characterized as
something evil and only for the ultrawealthy. I have seen you and David
vilified in TV ads and have done all
I can to set the record straight.
I suppose these TV shots are the price
you pay for sticking your head up to
support and speak for the American
heritage we hold so dear.
Thank you for helping to fight the
good fight and please know that you
have touched many people (myself
included) with your straightforward,
honest approach to what you believe.
Charles A. “Butch” Rose
Former Koch Aviation manager
Land O’ Lakes, Fla.
As a Flint Hills Resources employee, am
I free to copy and send any part of the
Discovery newsletter that I want, or are
there restrictions? Mr. Koch’s “Perspective” in the July issue is something I would
like to share with friends and customers.
Charles Boan
FHR marketing manager
Rosemount, Minn.
We encourage employees of Koch companies
to share Discovery articles with whomever
they wish. To assure worldwide access, every
issue is posted at www.kochind.com.
To “like” and follow Koch companies and leaders –
including Georgia-Pacific, INVISTA, Flint Hills
Resources, Matador Ranch, Koch Pipeline and
Charles Koch – visit Koch Industries’ Facebook page.
Letters and other submissions become the property of Koch
Industries, Inc., and may be reproduced in whole or in part,
including your name, for any purpose and in any manner.
Letters may be edited for length or clarity.
Discovery
Editorial board
Philip Ellender
Rich Fink
Jeff Gentry
Dale Gibbens
Greg Guest
Charles Koch
Jim Mahoney
Dave Robertson
January 2013 | Volume 19 | Number 1
Questions? Comments?
Contact: Rod Learned
316.828.6136
rod.learned@kochps.com
Publication design
Amber Vogts
Jessica Buchanan
Koch Creative Group
www.kochind.com
©2013, Koch Industries, Inc. Koch is an EOE. M/F/D/V.
4
15 Georgia-Pacific completes the sale of its stake
in a joint venture in Turkey.
13
Georgia-Pacific co-sponsors the national premiere
of the PBS documentary, Slavery by Another Name,
raising awareness about a little-known aspect of
American history.
9
8
7
7
1
JAN
Georgia-Pacific Professional receives two Partners in
Performance Awards from Grainger, including Green
Supplier of the Year.
KS&T launches a global natural gas and
LNG trading business.
KII and Koch company employees in Wichita
donate and raise more than $200,000
for Kansas Big Brothers Big Sisters.
The Metropolitan Museum of Art announces
David H. Koch’s $65 million gift for renovation
of its Fifth Avenue plaza.
FE
B R U A RY
3
2
UARY
11 KMS announces the launch of its new website:
www.kochmembrane.com.
17 Georgia-Pacific completes the sale of
its consumer tissue business in Italy.
27 KII’s Wichita campus receives
Clean Air & Sustainability award.
30 Jim Hannan, Georgia-Pacific CEO
and president, is recognized by
the National Safety Council as
one of nine business leaders who
“get it” when it comes to safety.
MARCH
12
Koch Industries sponsors Green School Grants
to promote innovative environmental ideas
in classrooms.
15 Koch Exploration Canada receives conditional
approval for its Gemini oil recovery project
in Alberta.
21 INVISTA announces expansion of its nylon facility
in Rozenburg, the Netherlands.
20
19
Koch Pipeline receives the American
Petroleum Institute’s Distinguished
Award for Outstanding Safety
and Outstanding Environmental
Performance as well as
(for the second year in a row) API’s
Environmental Performance Award
for large pipeline operators.
29 INVISTA resolves its indemnity lawsuit (arising from
the 2004 acquisition of INVISTA from DuPont)
on a favorable basis.
17 After 97 tornadoes touch down in Kansas
in one night (the state’s annual average
is 57), KII announces $300,000
in tornado relief donations.
12
1
22 Koch Alaska Pipeline Co. gives notice of its intent
to relinquish its 3.08 percent interest in the
Trans-Alaska Pipeline System.
Union Pacific Railroad awards three Koch businesses –
FHR, GP Chemicals and Koch Sulfur Products – Pinnacle
Awards for safe transport of hazardous materials.
4 FHR Renewables establishes a joint development
relationship with Edeniq, with an eye toward
integrating cellulosic and corn-based ethanol
production technologies.
The U.S. becomes the country with the highest
corporate tax rate (among developed nations).
A PR I L
JUNE
4
5
6
M AY
1
FHR Corpus Christi announces it will voluntarily post
publicly available emissions reports on its website.
3
David H. Koch agrees to donate $35 million to fund
a new Dinosaur Hall at the Smithsonian’s National
Museum of Natural History.
17 INVISTA unveils new, energy-efficient
and environmentally-friendly technology
for producing nylon intermediates.
25 Georgia-Pacific’s Brawny brand, in partnership
with Wounded Warrior Project™ , launches
its “Support Our Heroes” campaign to help
meet the needs of injured service members
and their families through financial
contributions and consumer promotions.
12
27
Matador Cattle Company expands its Akaushi
breeding program by sending pure-bred cattle
from Spring Creek Ranch in Kansas to both its
Matador, Texas, and Dillon, Mont., ranches.
23 FHR announces it is evaluating a $250 million
project to process more Eagle Ford crude oil
at its West Refinery in Corpus Christi, Texas.
Y E A R
R E V I E W
14
INVISTA’s Orange, Texas, facility is chosen as
the first to receive an investment of more than
$100 million in next-generation nylon technology.
13
INVISTA and biotechnology firm LanzaTech enter
an agreement to jointly develop a bio-based
butadiene process. (Used in the production of
synthetic rubber and various plastics, butadiene
is an important intermediate chemical.)
3
Launch of the “new” kochind.com.
A U G U ST
8
7
J U LY
1
Koch Pipeline starts up a 250,000-barrels-perday pipeline to carry Eagle Ford crude from
Pettus to Corpus Christi, Texas.
3
In Texas, Matador Ranch, Optimized Process
Designs, Koch Pipeline and Flint Hills Resources
distribute more than $80,000 to local emergency
responders and community fire departments.
19 GP completes the €1.32 billion sale
of its European tissue business to SCA.
25
Dedication of the Habitat for Humanity home
built by 430 Koch company volunteers, family
members and friends in June. This was Koch’s
sixth Habitat home in Wichita.
25 INVISTA establishes a new textile research
center – its first in mainland China.
27 The first crude oil moves from FHR’s
new Ingleside dock.
SE
9
PTEMBE
R
2
GP sells its reusable plastic container business
to Tosca, Ltd.
1 0 Charles Koch’s op-ed on cronyism appears in the
Wall Street Journal.
14 The Quivira Council of the Boy Scouts of America
announces it received a cash donation from KII which,
along with the company’s donation of 5 acres of land,
will help enable construction of a new Boy Scout Center.
14
INVISTA’s Athens, Ga., site celebrates earning VPP STAR
status. (Nearly 100 Koch company sites have earned
either federal or state STAR certification. VPP STAR
status is OSHA’s highest safety designation.)
18
GP announces plans to ramp up production at its
oriented strand board facility in Clarendon County,
S.C., in early 2013.
26 KII and the Fred and Mary Koch Foundation
announce $814,000 in funding to support
diversity programs at Kansas State University.
31 For 2012, Koch companies earn 119 awards for safety,
environmental excellence, community stewardship, innovation
and customer service (and 565 such awards since 2009).
24 Charles Koch appears on the cover of Forbes magazine, where he
discusses his philosophy for improving well-being in society.
19
30 Koch Fertilizer announces it will add a
$10 million, state-of-the-art control center
to its facility in Ft. Dodge, Iowa.
13 Georgia-Pacific announces an agreement to acquire the assets
of the Temple-Inland Building Products business from International
Paper Co., for $750 million.
23 GP reports its Bucket Brigade program
has totaled more than $1 million in donations
to community fire departments across the U.S.
16
13 KII reveals plans for a major expansion of its Wichita campus.
13 KCBX buys a Chicago petcoke storage and distribution facility.
7
INVISTA Performance Surfaces & Materials
invests $20 million to optimize its North American
carpet fiber capacity, which will increase
production at its Camden, S.C., site.
O CT
Koch purchases a 45 percent interest in Guardian Industries, a global, privately-owned maker of architectural glass, specialty plastics coatings and building products.
3
FHR acquires an ethanol plant in Fairmont, Neb.
KS&T expands its global nat gas trading program to include the
U.K.natural balancing point and French Point d’Exchange Gaz.
OBER
DE
10
NO
2
CE MBER
12
VEMBER
Georgia-Pacific announces it will contribute truckloads of
consumer products to support Hurricane Sandy relief efforts
in the Northeast.
9
Georgia-Pacific receives the Better Practices, Better Planet
2020 Sustainability Award from the American Forest &
Paper Association for comprehensive energy management
programs at GP’s manufacturing facilities.
12 FHR’s Pine Bend Facility is awarded an international habitat
conservation award from the Wildlife Habitat Council.
16 FHR announces it will make $400 million in improvements to
its Pine Bend Refinery, allowing it to reduce emissions while
improving efficiency and reliability.
26 FHR, GP and INVISTA sites are further recognized after the
KII Energy Leadership Conference for substantially reducing
energy intensity and energy consumption.
27 Nutrients for Life, sponsored by Koch Fertilizer, launches
a free program to show Kansas school kids how science
can help feed the world’s growing population.
International News
China – INVISTA’s fourth textile research center – its
first in mainland China – is now open.
China – It has been more than 30 years
since INVISTA built an HMD (hexamethylene diamine) plant. But that
is about to change in a big way, as the
company moves forward with plans
to construct the most energy-efficient
HMD plant in the world.
HMD is a colorless, organic compound
essential for making nylon polymers,
including those that go into several of
INVISTA’s signature products, such as
STAINMASTER® carpet fiber, automotive air bag fiber, TORZEN® reinforced
plastic resin and nylon for apparel.
On Jan. 5, INVISTA announced it
received Environmental Impact Assessment approval from the Shanghai
Environmental Protection Bureau to
build an HMD plant at the Shanghai
Chemical Industry Park in China.
The EIA approval is a big step forward in
INVISTA’s plans to have a new plant up
and running there by mid-2015.
When completed, the plant will be able
to produce 215,000 tons of HMD per
year. It will also feature INVISTA’s best
and most innovative technology.
Global innovation
According to Steve Kromer, INVISTA’s
Shanghai-based senior vice president
who is leading the project for INVISTA’s
Intermediates business, work on this
new plant has involved resources from
Koch companies which have extensive
experience with petrochemical plants
and contributed knowledge to the
planning process.
“HMD is the first phase of an integrated
9
A hexamethylene diamine molecule. HMD is an essential Shanghai – Steve Kromer (standing) is overseeing one of
component of many popular INVISTA products.
the largest capital projects in KII’s history.
its Victoria plant. “It is an ambitious goal
to do all this by the end of the decade,
but we believe our team is up to the
challenge,” Greenfield said.
Production from the Shanghai plant is
From Texas to Shanghai
intended for customers in the Asia-Pacific
Both the process design and execution
region, where about one-fifth of
phases of this project have been quite
INVISTA’s employees currently
complicated and innovative.
live and work.
“The company plans to follow this invest- Jeff Gentry, INVISTA chairman and
ment in HMD with an investment in its
CEO, said: “The project team has done
most advanced proprietary ADN technol- an outstanding job of understanding and
ogy, which resulted from more than
advancing our commitment to environ$40 million in research and development mental excellence while navigating the
during the past four years and was led
often complex permitting and process
primarily by the team at our research lab
requirements associated with a project
in Orange, Texas,” Kromer said.
of such scope.”
He noted that the project’s early front-end Innovation = growth
engineering and process design were led
Gentry sees the shared knowledge
by a team from the Gulf Coast of Texas,
and innovation that are going into the
with significant support from China.
Shanghai plant as a way of expanding
“Now, two years after the Texas team
some of INVISTA’s other capabilities.
started its work, leadership for the design Gentry says the Shanghai project will
completion and execution phases has
also benefit INVISTA Intermediates’ vishifted to the local team here in Shanghai.” sion for aggressive growth in its EngineerINVISTA has two sizeable plants in Texas ing Polymers business, which produces
– one in Victoria and the other in Orange reinforced polymers for cars, electronics
and other high-performance applications.
– with combined employment of more
than 1,300 people.
“We want to expand and improve our
compounding capabilities to produce
According to Bill Greenfield, executive
reinforced products for Engineering
vice president of INVISTA Nylon Intermediates, the knowledge gained from the Polymer applications all around the
company’s current project to implement world,” Gentry said.
its new ADN technology in Orange will
“By sharing our knowledge and leverbe incorporated into the new ADN plant aging our innovations, we can bring
in China.
additional and significant value to the
downstream market.
Ultimately, the business will use the
learnings from the Orange and China
“That’s great news for INVISTA employprojects to implement new technology at ees and customers everywhere.”
nylon facility in China,” Kromer said.
“The phases that follow will employ technology innovations developed at other
INVISTA locations around the world.”
Charles Koch Perspective
Chairman and CEO, Koch Industries, Inc.
Noteworthy
Too True
The Financial Crisis and the
Free Market Cure
by John Allison
For 25 years, John Allison was CEO of
BB&T, one of the nation’s biggest and
soundest banks. As a result of that experience, his view of the financial crisis is based
on reality, not politics or media spin.
In his book, Allison
discusses six fundamental themes:
1. Government
policy is the
primary cause of
the financial crisis.
2. Government
policy created a
bubble in residential real estate.
3. Individual
financial institutions (including Wall Street)
made very serious mistakes that contributed to the crisis.
4. Almost every governmental action taken
since the crisis started, even those that may
help in the short term, will reduce our standard of living in the long term.
5. The deeper causes of our financial challenges are philosophical, not economic.
6. If we do not change direction soon, the
United States will be in very serious financial trouble in 20 to 25 years.
Allison’s book – which includes a hearty
recommendation from Charles Koch on the
cover – is a stiff tonic for anyone who wants
to get a grip on financial reality.
“This is not the land of security. People
did not get on a boat and travel to Jamestown to be secure. America is the land of
opportunity – the opportunity to be great,
and the opportunity to fail and try again.”
When someone asks me what last
November’s election results mean for
our country, my answer is simple:
They are part of a trend that, if not reversed, will destroy the American dream.
The majority of those elected last fall,
both Democrats and Republicans, seem
determined to continue the spending,
borrowing, taxing and money printing
that got us in this mess.
Their compromise to prevent us from
going off the imaginary “fiscal cliff ”
does nothing to address our trilliondollar annual deficits and liabilities
exceeding $100 trillion. This is America’s
real fiscal cliff.
The deficits and debts of the U.S.
threaten our future as a nation. They
are exacerbated by massive government
spending, rampant corporate cronyism
and the escalation in destructive regulations. Together, these things hurt
business, reduce employment and
lower the standard of living for the overwhelming
majority of Americans.
No nation can maintain
its living standards by
continuing to consume
more than it produces.
Ultimately, its standard of
living is determined by the
ability to produce goods and services
that make people’s lives better. To bring
this about, the government must pursue
policies that enable individual productivity to be maximized rather than extend
the crippling policies we have experienced in recent years.
But ever-more restrictive permitting
requirements for building new plants
or improving old ones make it challenging for us and other businesses to
expand and improve our products and
facilities. Such obstacles undermine
U.S. competitiveness and jobs. Today’s
permitting process for large plants can
delay approvals for years and greatly
increase the project cost, often making
it uneconomic.
Onerous occupational licensing
requirements and other unnecessary
regulations impede business start-ups,
making it difficult, and at times, impossible for entrepreneurs to launch new
ventures. This not only hinders people
from improving their lot in life, it reduces innovation and limits competition.
On top of all this, blatant cronyism –
the favorable treatment of a few at the
expense of many – undermines the
power of a free economy in which businesses properly
earn a profit only
by benefitting
others. For crony
corporations,
the chief focus is
pleasing government, not satisfying customers.
Crony favors, such as subsidies and mandates, waste resources and increase costs
for consumers while hurting productive competitors. Cronyism also helps
unprofitable companies stay in business,
even when those businesses are undermining the nation’s social welfare.
Citizens everywhere need to understand that productivity and innovation are lost when their government
takes over an increasing share of the
economy through spending, regulation
and subsidies.
Consequently, fewer goods and services are available. Those that remain
come at higher prices with lower quality. In the end, there are shortages of
virtually everything, as we saw in the
old Soviet Union and see today in the
new Venezuela.
“No nation can maintain
its living standards by
continuing to consume
more than it produces.”
Cause and effect
When considering the effect of U.S. government policies on Koch Industries,
consider that 85 percent of our employees live and work in the U.S., and the
great majority of our assets are here.
Koch is eager to make large investments – billions of dollars’ worth, in
fact – in further improvements for
many of those facilities. By doing so, we
can make better, lower-cost products,
reduce emissions and energy consumption, and create new job opportunities.
- John Allison
10
Innovation
Governments that
truly want the best
for their citizens
– most especially
the poor – should
not undermine
productivity and
innovation.
Innovation is one
of Koch’s six core
capabilities and
represents one of
our greatest competitive advantages. We define
innovation as the discipline of discovering, developing and commercializing
new ways of making people’s lives better.
We live better lives because of the creative genius of people with innovative
ideas who had the courage and initiative
to bring those ideas to life. Less-invasive
surgical techniques, smart phones and
the Internet are innovations that have
helped us all.
But the need for innovation is not limited
to the world of technology. Innovation is
just as important for business organization and for understanding customers
and meeting their needs. It is the driver
of what economist Joseph Schumpeter
famously called “creative destruction.”
Although the term may sound slightly
ominous, creative destruction is the
very positive process of transformation
by which innovation replaces older and
inferior methods and products with new
and better ones.
I like Abraham Maslow’s perspective
on innovation:
Each new invention, each great
discovery creates turmoil behind the
lines. The people who have settled
down comfortably are shaken and
disturbed out of their comfort. They
must learn new ways of doing things.
They must see things in a different
way… It is clear that any great discovery, any new invention, anything
which requires a reorganization of
the conquered territory will be fought
against, and will not be accepted easily.
With this in mind, we should not be
and diversity of business opportunities,
surprised to encounter significant resisboth internal and external.
tance to innovation – especially from
Just as important is the fact that we are
those businesses that rely on government building capabilities to do all of this even
favors for their existence instead of
better in the future. This is how we are
creating value for society and bettering
able to expand our employment and
people’s lives.
increase the number and quality of
I suspect it is because we have spoken out opportunities for existing employees.
so strongly in favor of economic freedom What if more businesses focused on
and innovation, and against cronyism
practicing Principled Entrepreneurship™
and fiscal irresponsibility, that we have
rather than seeking political favors? What
been the target of so many political and
if they tried to profit by benefitting others
media attacks.
(a win-win philosophy) rather than by
Special interests feel threatened at the
persuading the government to take from
prospect of rules and policies that are no others (a win-lose mentality that is really
longer rigged and don’t offer unearned
a lose-lose proposition)? I am convinced
advantages. They shudder at the thought those businesses would be much better
of having to compete, without subsidies
off for the long term – and so would
or other special treatment, for voluntary
almost everyone else.
customers in an undistorted
marketplace. Many attackers
Principled Entrepreneurship
have falsely tried to lump us in
with the cronies who seek govMaximizing long-term profitability by producing
ernment protection and special
products and services that make people’s lives
treatment. The truth is just the
better while using less resources and always
opposite. At Koch we consistently oppose such policies as
acting lawfully and with integrity.
a matter of principle, including
those that might benefit us.
The real harm from today’s destructive
public policy is not just to start-ups and
Although one of our companies, Flint
entrepreneurs. Poorer Americans are
Hills Resources, owns and operates five
those who suffer most from a governethanol plants, we were happy to see
ment that attempts to control people’s
the ethanol tax credit expire at the end
lives instead of letting them be free to
of 2011 and would be even happier to
create and produce. It is the poor who
see the ethanol mandate end, just as we
would all energy subsidies and mandates. bear the brunt of higher unemployment,
lower-paying jobs and products with
Making people’s lives better
higher costs and lower quality, as they
do when less innovation leads to fewer
In spite of such a poor political and
new products.
economic environment, many Koch
companies have been achieving record
November’s election results underscore
results, as some of our critics are quick to a dangerous trend in the United States.
point out. How has this been possible?
That trend is for the problems I’ve outI believe we owe our success to our focus lined to grow worse, not better. Current
policies – especially those that favor a few
on Principled Entrepreneurship™ and
at the expense of many – are putting the
to the significant increase in the undereconomic wellbeing of America at risk.
standing and practice of Market-Based
These policies have global consequences.
Management®, or MBM®, throughout
Koch companies. As a result, we have
As a company, we are committed to doimproved our compliance, safety and
ing what is right in every aspect of our
environmental performance, and brought business. That is why we will continue
doing everything we can to persuade
about a marked increase in innovation
politicians to put what is good for the
across the board. We are also generating
country first, before it is too late.
a significant increase in the number, size
TM
11
Looking Back
1955 – A loading rack at the Rock Island Refinery in
Indianapolis built by Simmons, Winkler and Kincannon.
From 1959 to 1968, what is now known as Koch
Industries was known as Rock Island.
Lewis Winkler (above) and Fred Koch
became business partners in 1925.
The other Rock Islands
It’s hardly surprising when a familyowned company uses the family name
for its businesses. Koch Fertilizer, Koch
Minerals, Koch Pipeline, Koch Supply &
Trading and Koch Industries are obvious
examples of this.
It was also Rock Island Oil and Refining Company that acquired a fleet of
Douglas A-26 Invader bomber airplanes
in 1959. Fred had his engineers modify
those planes in hopes of selling them as
luxury business aircraft.
What is surprising is how significant a
seemingly random name, Rock Island,
has been in Koch’s history.
In 1959, Rock Island and Wood River
Oil and Refining Co. (co-founded by
Fred Koch in 1940) merged and the
name of the firm was changed to the
Rock Island Oil and Refining Co. That
was the same year Rock Island Oil and
Refining bought a 35 percent share
of Great Northern Oil, owner of Pine
Bend Refinery, for $5 million.
The story begins
In 1946, the Rock Island Oil and Refining Company was formed (with Fred
Koch as president) to acquire assets
of the Rock Island Oil and Rock Island
Refining companies of Duncan, Okla.
When L.B. Simmons, Fred’s uncle, built
that Rock Island refinery in 1921, he
reputedly named it after his previous
employer, the Rock Island Railroad.
That Oklahoma refinery was the first
to install the popular Winkler-Koch
thermal cracking process developed
by Fred Koch in 1927.
The Rock Island Refinery was shut
down in 1949 and sold in 1953, but the
Rock Island Oil crude gathering system
had a bright future with Koch. That
small business was the foundation for
what became the largest crude oil gathering system in North America.
It was the Rock Island Oil and Refining Company that acquired much of
the Matador Ranch in 1952, including
rights to the famous “flying V” and “50”
cattle and horse brands.
12
It was only after Fred Koch died in 1967
that Rock Island Oil and Refining was
renamed Koch Industries. But even then,
the Rock Island name didn’t disappear.
End of the line?
It wasn’t until Jan. 1, 1972 that the Rock
Island name was officially retired by
Koch Industries.
In a letter to employees written a month
earlier, Rock Island Oil’s president,
Sterling Varner, explained how the Koch
name would become a unifying standard.
“Rock Island Oil Company will change
its name to Koch Oil Company,” Varner
wrote. “Matador Chemical Company
will become Koch Chemical Co., Inc.,
and Great Northern Oil Company will
become Koch Refining Company.
“While many of us will miss the name
we have used over the years, no longer
will we be confused with ‘Rock Island’
companies engaged in other businesses.”
Rock Island redux
Not surprisingly, L.B. Simmons used the
Rock Island name again in 1940 when
he partnered with Lewis Winkler (who
had co-founded Winkler-Koch Engineering in 1925) and L.E. Kincannon
to form Rock Island Refining Corp. That
company built an independent refinery
in Indianapolis. (Fred Koch was not part
of that project.)
That same year, Fred Koch and two
other partners co-founded Wood River
Oil and Refining Company, which built
an independent refinery near St. Louis.
Both refineries were completed in 1941
and both sets of owners suffered greatly
when World War II prompted a crude
oil shortage, and excess profits taxes
hammered their new businesses.
The Hoosier Refinery
During the post-war boom years, Rock
Island Refining Corp. was one of the
sponsors of the Hoosier Hundred, a
shorter, dirt-track version of the famous
Indianapolis 500 race.
(Race fans take note: Tulsan John Zink
designed and sponsored consecutive
Indy 500-winning cars in 1955 and 1956.
Certain assets of his company were later
acquired by what is now Koch Chemical
Technology Group.)
The Rock Island Refinery in Indianapolis
was eventually acquired by Marathon Oil
Co., which closed that facility in 1993.