Charles Koch was in his early 30's when he became the CEO and John Rockefeller created Standard Oil before he was the age of 30. Even though Charles had inherited Koch Industries it should be pointed out that Charles was in charge of the engineering division which had $2 million in sales but was just breaking even and the refining business earned $1.8 million on $68 million of revenue (a little under 3% profit margin). Rockefeller who started out as an assistant bookkeeper was known in his younger days for knocking on the doors at the age of 15 of businesses in Cleveland for 6 days a week for 6 weeks until one business made him a job offer. The first year Rockefeller went into business for himself he had revenue of $450,000 and a profit was $4,400 (profit margin of less than 1%). It is interesting that both had businesses early on that were low profit margin businesses.
Rockefeller even though he would work hard According to biographer Ron Chernow Rockefeller was a "classic workaholic". Although Rockefeller worked very hard he would nap daily after lunch and after dinner doze off in his lounge chair and would spend 3-4 afternoons during the week at home (gardening and enjoying the outdoors). John Rockefeller felt it was better and more efficient to work hard but then to have down time to recoup to improve his productivity (sounds like a work life balance to me). In his younger days Charles was a workaholic who in August 1968 called a meeting at 4 P.M. on a Sunday that ran until midnight and it was expected that executives to work Saturday mornings (when Charles Koch had children he would always "have lunch at Wendy's). Charles would put in 12 hour days at Koch Industries and then work from home some more. Charles according to his wife Liz plays golf 2 times a week but also gets to the office around 7 A.M. and also works until 6 P.M. (he works this late even when he isn't into Wichita). It appears that Charles Koch would be hardcore in his working habits compared to Rockefeller. Also it is important to note that Charles Koch who is 83 years old is still working. Rockefeller retired at the age of 57 years old and had a 40 year retirement. I wonder if Charles would call John a slacker for having so many years of his life in leisure.
Rockefeller was always obsessed with business efficiency. He would study a process and always see if things could be improved to make products cheaper and more efficient. Given the size of standard oil if there could even be a small incremental improvement it could ripple through the organization and lead to massive cost savings. One example of this was when Rockefeller visited a plant that made kerosene and asked a worker if the cans could be sealed with less solder. At the time 40 drops of solder were being used and Rockefeller questioned if fewer drops could have been used. The worker tested 38 drops but that led to leaks in the cans so 39 drops of solder were used and that didn't result in any leaks. Rockefeller in retirement said that small change in the first year saved $2,500 and the company increased their exports of kerosene which ended up saving the company over time hundreds of thousands of dollars. Every cost at Standard Oil was computed to several decimal places (Charles Koch would find this type of analysis useless as he writes in Good Profit "when measuring, accuracy should always be emphasized over precision. As we use the terms, accuracy is the degree of correctness that creates value. Precision goes beyond that, to near perfection. Perfection, thus, is the enemy of progress".
The hard work from both Koch and Rockefeller would be seen in the results of their businesses. Over a 25 year period from 1882-1906 Standard Oil increased earnings on average 11% per year and their dividends 11% per year. It should be pointed out that John Rockefeller retired in 1896 (however the earnings and dividends didn't drastically change after Rockefeller left). Charles Koch continuously grew Koch Industries as he invested 90% of the earnings back into the company. The annual growth rate of the Koch Industries from when Charles took until the present I calculated was about 21%/year. Koch Chief Financial Officer Steve Feilmeier said in this video that Charles Koch took over Koch Industries when the company had a net worth of $12 million back in 1966 and increased the amount by 7500 times. This would say that Koch Industries is worth $90 billion today and the annual compound rate over the past half a century has been 19% per year which would say that Charles Koch had a higher rate of growth than John Rockefeller over an extended period of time. However, it is important to remember that John Rockefeller started Standard Oil from almost nothing. Koch Industries paid out a lower percentage of their dividends than Standard Oil did. Between 1882 and 1906 Standard Oil paid out about 65% of their net earnings as dividends. Koch Industries would pay a fraction of their net earnings as dividends as the company only paid between 6%-7% of their net earnings as dividends which would allow Koch Industries to reinvest 90% of the earnings back into the company.
The hard work and reinvestment paid off personally for both Koch and Rockefeller. Currently it is estimated that Charles Koch is worth $45 billion. The net worth of John Rockefeller adjusted for inflation today would be $395 billion today. It was said that Rockefeller had a net worth that would be equal to 2% of the national GDP. In the 1890's Rockefeller was receiving $3 million per year in dividends which would be close to $80 million per year (in 2018 dollars). In 1918 it was estimated Rockefeller had taxable income of $33 million (or about $555 million in current 2018 dollars) with a fortune of $800 million (or a dividend yield of around 4%). I calculated in this post Charles Koch earns roughly $377 million per year in dividends from Koch Industries which would say the dividend yield on the stock is only 1%. Koch traded a lower dividend yield for a higher growth rate.
Charles still maintains the same home in Wichita (built in 1974) and has a 5 bedroom, 6,000 square foot home (with a caretaker apartment) in Aspen and a home in Indian Wells, California. John Rockefeller had a home in New York City, an estate in Lakewood, New Jersey, and estate called Kykuit, a home set on 3,000 acres of Tarrytown, New York, and a winter home in Ormond Beach, Florida. Rockefeller had two passions God and golf (he played golf every day). He tended to sometimes show Rainman like tendencies doing the same things the same time everyday. John Rockefeller would spend his time working, with family, charity work in his later years, exercising, and gardening. Charles on the other hand still enjoys reading, he does his 90 minute workout (30 minutes on the elliptical, 30 minutes of weight lifting, and 30 minutes of Pilates)
Charles doesn't like to waste any time. Nancy Pfotenhauer once said that if Charles is in the elevator with you he will take the time to make it a learning opportunity. Also when Charles would drive himself to work he would listen to books on tape for his 10-15 minute commute as Charles says "there is so much to learn". Charles was also a voracious reader and at least in the 1990's would spend 2 hours a day reading of economics, philosophy, psychology (he would read Tom Clancy novels for fun).
Charles Koch would be a master negotiator and was said to even negotiate the hyphen on a 50-50 deal. John Rockefeller would always look at the numbers of the business to see how the company was doing (Rockefeller had an accounting background as a bookkeeper). He made sure the company kept track of all the costs for everything it did and could account for all the financial statements. Charles probably wouldn't be as focused on the precision of the numbers but when Charles Koch does deals he looks at the bottom line and looks at the numbers and doesn't get emotional according to Koch Industries Chief Financial Officer Steve Feilmeier.
In terms of management Rockefeller valued employees who were honest, intelligent, hard working, and efficient. In meetings he often would poll other employees first before making a decision and
would make a compromise to maintain cohesion. Also even when employees or others could get angry at Rockefeller he kept calm and didn't yell or loose his cool. Decisions however had to meet unanimous approval before proceeding. It has been said that Charles Koch as a boss can be fair, but demanding, but will give Koch employees the ability to make decisions (and reap the benefits/consequences of those decisions). One of the biggest things with Charles Koch is integrity. Once Richard Fink had someone call for him at Koch Industries and wasn't honest about the reason he could take the call. Charles Koch had a discussion with Fink on the important of being honest no matter how small the lie is.
Charles almost had a nervous breakdown in the 1970's when the company unfortunately had lost a substantial amount of money on oil tankers-it was estimated to be $500 million (Charles would have to fly back and forth between London to renegotiate the debt). John Rockefeller at the age of 55 was on the verge of a nervous breakdown and had to seek medical attention. Rockefeller who was working hard and also getting more involved. Rockefeller's physician Dr. Hamilton Biggar said that "a little more would have killed him". At the time Rockefeller was under a lot of stress (getting some 50,000 "begging letters") and suffered from insomnia. The doctor told John Rockefeller to relax, exercise, and watch his diet. As a hobby John D picked up golf to relax. Breakdowns seemed to run in the Rockefeller family as John Rockefeller Jr. suffered similar issues. His son joined Standard Oil at the age of 26 with the intent of working at the company his whole life. Even before going to work he wrote a letter to his mother stating he didn't have very much confidence in his abilities but was ready to work hard. However, over time John Jr. became disenchanted with the work and the controversies surrounding Standard Oil and at the age of 36 (only after 10 years) left Standard Oil and took took off 6 months to recoup (John Jr. had a history of breakdowns from the time he was 13 years old) to get more involved with philanthropic efforts.
At the end of the day even though Charles Koch and John Rockefeller created wildly successful business in the oil and gas industry that did have some similarities and some differences. Both started with businesses that were large margin businesses. Charles was much more hard driving then John D. was. Even though both have been called tyrants in reality they delegated tasks and never commanded to their workers what should or shouldn't be done. Both almost had mental breakdowns during their tenures of running large enterprises. Both were interested in improving processes to better improve the companies they worked for. Both valued integrity and honesty. Rockefeller had a history of reinvesting earnings back into the company to grow the company, however Koch religiously invested 90% of the annual earnings back into the company. Standard Oil would on average invest 35% of their earnings back into the business. However, adjusted for inflation John Rockefeller had a larger net worth than Koch and more annual dividends. It is hard to compare both head on given they were of different eras and no one could answer how John Rockefeller would do in modern times. Both were brilliant in their methods for running, growing, and preserving their businesses over an extended long period of time. Truly Charles Koch and John D. Rockefeller stand out as two of the best businessman of all time and the ways they ran their respective companies could be learned by modern business people.
No comments:
Post a Comment