Julia Koch Joins Koch Industries Board of Directors

Recently I learned that Julia Koch was added to the board of directors of Koch Industries. Honestly, this is not that shocking after David Koch passed and since David Koch had been an executive a Koch Industries since at least 1980 and given his experience with the company it would be logical for her to join after David would pass. Remember Elaine Marshall is also on the Koch Industries board of directors (she has been on the board of directors since 2006) after E. Pierce Marshall passed (son of Howard Marshall II). It would make sense from an estate planning perspective to give Julia Koch shares of Koch Industries and by doing that allow her to be on the board of directors since she is a major shareholder. In terms of estate planning usually when someone passes most of their assets will pass to the spouse (due to an unlimited martial deduction that allows an infinite amount of assets (including Koch Industries stock) to pass to Julia without incurring any estate taxes. However, when Julia Koch passes (which won't be for many decades since she is only currently 58 years old-an interesting fact is that David Koch was 56 when he married Julia-who at the time was only 34) there could be a large estate tax bill that will be paid (assuming no planning has been done which I doubt). The same logic would apply when Charles Koch passes (most likely his wife Liz Koch will receive his shares of Koch Industries stock). 

According to Bloomberg Koch Industries lists the board of directors as Charles Koch, Martin Slack, Richard Fink, Dave Robertson, Elaine Marshall, Steve Feilmeier (former CFO of Koch). In addition to this on March 07, 2013 Jim Hannan, Chase Koch (who is also a Koch Industries shareholder), and Brad Razook were added to the board of directors of Koch Industries. With the addition of Julia Koch this would say Koch Industries has at least 10 people on the board of directors. 

The question is what role will Julia Koch play the board of directors? She hasn't been involved in the company business however still retains a large ownership of the stock. Will she just delegate the corporate decisions to other in the business or have a voice at board of director meetings? As I mentioned previously Koch Industries would generate a fair amount of dividends to help Julia Koch provide for her lifestyle. My last estimate shows that Julia Koch would pull in a little less than $400 million per year just in dividends (which should be sufficient to provide for her spending needs/wants). David Koch in a 1999 MIT Spectrum article mentioned that he/Julia gave away 50% of his income. Even if Julia gave away half her income she would be left with $200 million (before taxes of course) to live off of. She could purchases different homes, remodeling, (she apparently was working with a interior designer to remodel her $40 million New York townhome), and traveling. David Koch once made the comment that one time Julia was given the task of renovating a home for years and he told Julia there was no budget and David commented "she still managed to go over the budget". However, will Julia want more of Koch's earnings paid out as dividends if she wants to increase her lifestyle and possibly lead her to selling her Koch shares to other Koch shareholders?  

Speaking of the Koch finances after David Koch passed when I look at the 2019 David Koch Foundation tax return it shows only $10 million for the assets of the foundation (or said another way Koch Industries shares didn't fund the foundation). I wonder why they even have this set up given for this small amount of money (relative to the overall net worth). What is interesting is the return shows about $7.3 million of a retirement distribution (David Koch may have had his Koch 401k plan/pension plan/other retirements go directly to his foundation upon his death to avoid income taxation). 

The Koch family a number of years established a family office. In general a family office is created to management to handle the day to day financial operations of a wealthy family. For example a family office primarily will handle the investments of the family, tax planning, estate planning, and even be delegated the duty of philanthropic work, making travel arrangements (if the family wants to take trips), paying bills, and other administrative duties. According to this source the Koch family office is named 1888 Management (based in Denver, Colorado) and manages $2 billion of assets. According to this family office source the Koch family office is focused on taking a directs investments and take a sizable stake in certain companies. For example 1888 Management purchased a stake in a telecommunications company X5 OpCo LLC. 

An old article mentions there are seven family officers of the 1888 Management Richard Dinkel (who is currently now the CFO of Koch Industries, Steve Feilmeier (who was the former CFO of Koch Industries), Daniel May (he overseas the investments for the family office, David Koch (this has probably changed to Julia Koch, Anna B. Koch (wife of Chase Koch-son of Charles Koch), and Elizabeth B. Koch (which is the wife of Charles Koch-the daughter is also named Elizabeth Koch but her middle name is Robinson). Usually the family office will mix family members with people that work for the corporation have the family background and vision for where the family wants to go while at the same time putting into place a sense of corporate governance so family members can't run wild. 

I previously covered allegations against Julia Koch made by security detail of the family (however this seems to have stayed quiet and maybe perhaps some type of settlement was reached). Within the past month Julia has been spotted eating out near her Florida home. During the pandemic in June 2020 she retreated to her Hamptons residence from Florida. Her children are growing up too. The oldest David Koch Jr. is attending Duke University and appears to be majoring in political science and government and expected to graduate in 2021. Mary Julia Koch is a history major at Harvard University and is expected to graduate in 2023 (she is also the editor in chief of the Harvard Independent). The youngest John Koch is attending a Manhattan prep school (Mary Julia attended The Spence School). The question is will the children get involved with Koch Industries business over time? Chase Koch has worked within Koch Industries for many years and understands the ropes of the business. He is currently the only next generation Koch involved in the family business. Remember back in the 1980's Charles, David, and Bill Koch were involved in the business (Frederick Koch was not involved but that is still a 75% participation rate). However, over time though as there are more shareholders who each have different needs (some shareholders want more dividends paid out to support their lifestyle-like Bill Koch did back in the 1980s which lead to a corporate coup/people like Charles Koch who regularly reinvests 90% of the earnings of Koch back into the company to grow it-which over time actually leads to an increase in dividends. It is worth pointing out that when Fred Koch passed in 1967 the dividends of Koch Industries were only $300,000. The hard work and growth of Koch Industries of the company reinvesting 90% of their earnings back into the company also helped grow the company size and dividends too. This growth even exceeded even the wildest dreams of Charles Koch who recently said back in 2015 that he looked back in 2013 at his goal for growing the company and it exceeded his own expectations by 70 times. I estimated that his net worth back in 2013 was $35 billion which would say that Charles Koch expected to retire with only $500 million! 

This outstanding growth rate has benefitted all the other shareholders who don't even work for Koch Industries. The Marshall family for example I estimated pull in $140 million of dividends with their 16% interest in Koch Industries and again they don't even work for the company. However, at some point Elaine Marshall will pass and her shares may go to her family members and there will be a new generation of owners. The question will be will there be a revisit of a company battle of the shareholders over control/direction and the dividends of the company. The more shareholders you have the more diverse group of wants you have and the harder it is to keep everyone happy. Usually when a shareholder of a private company wants out the company will offer them a price to buy out their shares so they can walk away and do what they want. Frederick and Bill Koch did this back in the 1980's and got close to a billion dollars. I however pointed out they would have been better off holding on to their Koch Industries shares in the long run (again given the impressive growth of the company). Time will tell however what happens with Julia Koch her role on the board of directors for Koch Industries and how involved she gets (or doesn't get) and whether or not she continues to keep a low profile. My own personal view is that she will keep a low profile. She has managed to keep a low profile (other than going to galas) for over three decades and out of all the Koch family members I have never read about or seen an interview with her.  As Charles Koch one time mentioned "I always followed the mama whale's advice to the baby whale: Son the time you get harpooned is when you come up to spout off".