Continued
from Part 1 here…
I
am indebted to the Wichita Eagle for covering this story on June 27, 1994 in an
article called “Lean, Patient, Ready to Pounce More Growth Likely As Company
Moves into New Businesses, Expands Old Ones” by Guy Boulton
During
this same time of Mary’s will Koch Industries was growing by leaps and bounds
providing customers with products they wanted at reasonable prices. In June 4,
1990 Koch Industries began construction on a $33 million building since they
were clearly in a growth mode. The building was eight stories high with 500,000
square feet of space and at the time was the largest office building in Kansas.
Koch Industries was able to get a 10 year tax abatement for the building. Also
during this time period on November 9, 1992 Koch purchased United Gas Pipeline
for $400 million. United Gas at the time had sales of $370 million and 9,600
miles of natural gas pipeline compared to Koch who owned 27,000 miles of
pipelines. This is a long way from where the company started in 1967 having
sales of $200 million, 600 employees and profits of $6 million.
From
1985-1994 Koch Industries doubled from 6,500 people to 13,000 people. Revenues
in 1966 were $177 million and by 1993 they were $24 billion. By 1997 revenues
increased to $30 billion. In December of 1993 Forbes had estimated that the
company was earning $2.8 billion before interests, expenses, and taxes. The
company was also putting profits back into the company. From 1987-1994 the
company invested nearly $2 billion in refineries. The company at one point
owned retail outlets and sold a chain of their 300 convenience stores and gas
stations in the 1980’s.
Koch
has a unique management style that did away with annual budgets in the early
1990’s and gives more power to employees to make decisions. The company
reinvests 90% of its profits and doesn’t like debt. When the company does
borrow money it uses a mix of bank loans and notes that are sold to private intuitions.
The company likes hard workers who want to stay with the company a long time
and often recruit from Kansas schools. The interview process is extensive and
employees are often people with engineering backgrounds who have business
experience.
When
the company started employees worked on Saturdays. Charles Koch essentially worked all the time. Eventually this changed to
half a day on Saturdays. Then employees had Saturday off but it was expected
they would show up. Many employees work on Saturday and sometimes on Sunday as
well. Employees also showed up early as
cars can be seen in the parking lot as early as 6 a.m. Even the lunches are
short. In late 1993 lunch was limited to 30 minutes but then extended to 45
minutes. Employees can pick from a variety of foods such as pizza, sandwiches,
entrees, a salad bar or even Chinese food. Employees from the bottom to the top
all eat in the same lunch room (even Charles Koch). Executives at the company wear white shirts
with ties (however no jackets).
In
the 1993 selling a barrel of oil would add $16 to revenue. However, the profit margin
on this deal was very small. The company stands cycles by purchasing assets
when the market takes a downturn. The company prefers to buy assets instead of
whole companies. The company rewards those who work hard. Company executives in
the early 1990’s were making between $300,000 and $500,000. As we will find out
later members at the very top did extremely well when considering salary,
bonuses, and stock dividends.
Cy
Nobles joined Koch Industries in 1979. Nobles oversaw the refining and
petrochemical business and in November 1981 after being up all night working on
negotiations to purchase a refinery and petrochemical plant from Sun Oil in
Corpus Christi, Texas. Charles Koch called Nobles into his office and said he wanted to
name Nobles to the head of the Sun Oil. Nobles however said, “No sir you are
not. You’ve just spent $265 million, and it deserves someone better than me to administer
the investment" (Nobles was running on very little sleep). Nobles claimed that
when other companies are buying they are selling. Cy eventually ended up being
president of Koch Chemical.
This
little taste of the corporate culture of Koch Industries makes it pretty clear
why the company is so successful. Employees are constantly working trying to create
value and show up sometimes six days per week. Working long hours and taking
short breaks will not make anyone poor. Also the idea of accomplishing is very
satisfying. The company does not have a lot of bureaucracies and Charles Koch
himself doesn't dictate everything that goes on in the company. The company today
follows Market Based Management which I discussed in this post.
Sources
Sources
No comments:
Post a Comment