Koch "Secret" Meeting Summary of the Transcript of June 2014 Meeting

Well for a while now I have had the Koch transcript from their meeting from June 13, 2014-June 16, 2014 at St. Regis Monarch Bay resort, an agenda of the conference can be found here. It is clear the the people at these meetings are truly dedicated to free markets as the meetings start at 8:45 A.M. and go on until 9 P.M. Some of the meetings included titles like "Saving America: Our Fight to Advance Freedom and Reverse the Country's Decline", and a book discussion with Amity Shales on Calvin Coolidge as the forgotten President, and "Collectivism: Exploring Its Nature and Consequences" by Dr. Victor Davis Hanson. The actual transcript for the meeting fills about 80-90 pages worth of material which is pretty incredible. I have to actually thank Lady Libertine for posting the transcripts on her blog and also providing the audio which can be found here (if you go to the YouTube chanel you can see all of video from the meetings).

Mark Holden Chief Counsel for Koch Industries starts the meeting talking about Democracy Alliance which is the equal on the other political side. Rob McCay heir to Taco Bell fortune, George Soros, Tom Steyer, and Chris Hughes (co-founder of Facebook) are all majors contributors to Democracy Alliance. This is interesting because you generally hear about all the Republican funding even though there is just as much funding on both sides. Mark Holden points out that he will no longer eat at Taco Bell (even though he likes it)  after he learned that McKay was a big supporter of Democracy Alliance. Actually according to Holden, Democrats have 172 groups in the "donor network" which is more than 31 groups within the Republican donor networks. Holden points out if you add in Big Labor (labor unions), Democracy Alliance, PACs, and super PACS, will spend around $2.2 billion (we shall see if this actually happens).

Norman Reimer discusses the criminal justice system and how it is is overly abusive (Charles Koch and Mark Holden wrote this op-ed that was published in Politco discussing the overcriminalization of America). What people on the left forget is that libertarians like Charles and David Koch believe people no matter what race, sex, color, or income should be treated equal in the eyes of the law. Reimer quotes interesting statistics "2.1 million people are in prison..the United States has 5% of the world's population yet 25% of the world's prisons".

Richard Fink who earned a PhD in economics from Rutgers gives a lecture on the current situation of America and how to change this course. Fink starts out by giving some stats on the current debt which currently is $16 trillion however including the present value of the unfunded liabilities is roughly $200 trillion. What Fink stresses is the "middle third" or 30% of voters who don't have any ideological preference. The problem with what "collectivists" do according to Fink is "they take people and tell them that you're a victim and the American dream no longer exists..and if they know anything about psychology and about people who have "victimitis" they are the most depressed, unproductive people. They become depressed, they become addicts, or they become aggressive". He goes on to quote that "90% of alcoholics are not psychologically built. They see their lives as without purpose. Same too with addicts same percentage. 85% of students who attempted suicide said life had [had no] meaning".

Charles Koch is one of the last speakers on the final days. He tries to rally everyone together explaining how the fight for liberty needs more freedom fighters. What many people may not realize is how Charles Koch and his family are at risk (Koch has received hundreds of death threats which he discusses in this article) and David Koch has to have security detail travel seen in this article. Koch Industries according to Charles the company has "10 million malicious hacker attempts on [their] IT systems every month"  What Charles Koch explains that we have two choices for the future of collectivism or freedom. The definition of collectivism to Charles is "based on the belief that people aren't capable of running their own lives, and those in power are capable of running it for them". One great example of this is the war on poverty which since 1954 we have spent $20 trillion. What is even more interesting is that the rate of poverty has virtually been almost unchanged even after spending vast sums of money. Another interesting statistic is that 1 in 3 jobs now require government permission. If you think about it so many professions (doctors, lawyers, accountants, financial planners, dentists, even repair people) have to be certified by some bureaucratic organization saying that they are deemed okay to work with the general public. Also government subsidies like ethanol increase the cost of food about 35% which generally affects the people who generally elect collectivists.

What seems evident is that the presenters at the Koch seminar don't really say anything that is crazy or evil. What is ironic are the people who often say the Koch brothers are evil, want to pollute the planet, and are just old and rich greedy guys are also the same individuals who want to resort to violence which leads to the death threats. Everyone no matter what political side of the spectrum should be treated with respect. Whether or not you agree with them Charles and David Koch are firm believers in individual liberty and trying to get support from individuals to make sure we can continue being free and prosperous. Society can't prosper when you have few producers and everyone else consuming what the producers create. As of January 2015 close to 93 million people were not working. The economically illiterate usually look the unemployment rate. However, the better measure is the labor participation rate which is near the same percentage as it was in the late 1970's (despite the fact that people can now work at home, some employers offer flexible working  hours, and medical care has greatly advanced). What is interesting is that the Koch brothers are attacked for just wanting to get rich and making everyone else poor. However, allowing people to pursue their own interests given their level of capability and talents and allowing them to create value would make everyone better off. By the government requiring permits, certifications, and training (some of which are not needed) makes it financially prohibitive for the people on the lowest rungs of the economic ladder to move up. Not allowing people at the bottom of the economic ladder to improve themselves increases income inequality since they don't have the financial capital, resources, or time to comply with regulation and rules. Charles and David Koch want everyone to succeed which we should find praiseworthy and laudable.

Elizabeth Koch (Daughter of Charles Koch) Views on: Relationships, Sex, Money, Traveling, and Mental Illness

Update: My response to the 2023 New York Times profile of Elizabeth Koch can be found here. 

So Elizabeth Koch is the daughter of the CEO of Koch Industries Charles Koch and really is not known for being in the tabloids or news. I find this interesting considering how often we hear about other kids of billionaires who sometimes get drunk, blow through trust funds, and lead wild and interesting lives. While reading Sons of Wichita I stumbled upon an interesting quote from Elizabeth Koch about her views on money, dating, sex, and even how she views herself. Actually I looked to see where the source of the quote was from and it was from a series of articles that Elizabeth ad published in the mid 2000's on Memoirville. Some of the articles are no longer online and I had to use the Internet Wayback Machine (which is an archive for the internet).

So I stumbled upon something that Elizabeth Koch had written back in 2006. It really is interesting, enlightening, dark, funny, and somewhat sweet/sad at the same time. Back in 2006 (Elizabeth would have be roughly in her early 30's she was dating a guy named Todd Zuniga (they even published a book together which is available on Amazon here). At the time Todd is the founding editor and President of Opium magazine. Elizabeth worked as an executive editor at Opium. He is also the co-creator with Elizabeth of Literary Death Match (were people read their work for 7 minutes or less and then judges decide who had the best material).

So apparently Elizabeth and her boyfriend Todd planned a travel trip that would serve as a compatibility test to see whether or not their relationship would last. Elizabeth moved in with Todd in San Francisco. During this Elizabeth and Todd were running a around the world seeing various places just two months after meeting. During the trip they went to Tokyo, Shanghai, Beijing. During the trip it is apparent that Todd and Elizabeth are constantly arguing but in some rare moments show compassion and love towards each other.

Elizabeth Koch was born in 1975 grew up in Wichita, Kansas and attended Princeton University from 1994-1999 and earned a degree in English. She then earned a graduate degree from Syracuse in creative writing in 2011. Elizabeth Koch is tall, thin, with model looks, and really does not look close to her age as evidenced in this photo.

When reading the articles it is clear that Elizabeth great at writing fiction (I personally am more of a non-fiction reader but found her writing very interesting and it very clear an concise). During the trip Elizabeth takes an introspective view of herself and her relationship with Todd. After losing Todd for a few hours Elizabeth comments, "I cannot go back to panic attacks and meltdowns and doctors and pharmaceuticals and terrifying my parents and staring down that dark well of nothing you do will ever be good enough you privileged waste of flesh". Elizabeth admits to having a "mental illness period" and taking drugs to help and is over it. What is interesting is that Elizabeth is pretty self aware of who she is a person. She describes herself as a "pinwheel of anxiety, a black cough of misery, critical and disgruntled to the extreme". I can't even imagine what it would be like to have Koch after your name.

Upon arriving in Tokyo (tired and hung over) and spending $40 for a cab they find a place that seems run down and not well maintained. So after realizing this they take a cab and book a room at the five star Park Hyatt (one of the more expensive hotels in Tokyo). Currently as I write this post rooms for Park Hyatt are roughly $560 (after converting back to American dollars).  Elizabeth has an interesting quote when talking about staying at the hotel saying "I realize that I'm not one to judge rich people who walk around depressed and semi-suicidal for no apparent reason. Nor am I one to judge rich people who hemorrhage money when their surroundings fail them, as much as I detest that sort of person, for that's precisely what I'm about to do". What is ironic is when pulling up to the hotel Elizabeth feels guilty and almost sick. Elizabeth goes on to say that she knows that her boyfriend Todd is aware of her views on money saying "Todd is fully aware of my disturbed and convoluted relationship with money...I do not toss money around like garden fertilizer, especially not in places where anyone is likely to see me. I want people to like me, and as a small child growing up in a small town, I learned that having money makes people sort of hate you on the spot, so for most of my life I've invested great amounts of creative energy into pretending I don't have any". Elizabeth goes on to talk about being thrifty saying that she prefers "moth-eaten sweaters and flea market jeans", rarely does she wear make up, and her mother (Elizabeth Koch-yes this can get confusing) disapproves that her daughter is "poor-boying it". The daughter feels like she has to spend money to get approval from her mother. Elizabeth admits when it comes to buying items she doesn't like to haggle (compared to her father Charles Koch who will take the hyphen in a 50-50 deal).

Todd and Elizabeth get into a fight over headphones that Todd needs after his headphones are broken. Elizabeth offers to buy the $200 headphones for Todd but then feels bad and doesn't want to deny him something because she knows she has been a pill to deal with. This makes Elizabeth think back to 6th grade when girls on the playground called her "rich bitch" because her last name was Koch.

Speaking of approval Todd went to visit the Koch family for a weekend in April 2006. During dinner Elizabeth felt that she had to justify her accomplishments in the form of a PowerPoint presentation to avoid questions from Charles Koch (her father) like "Are you sure you are busy enough?".You have to remember Charles Koch worked around the clock for many decades (even on Saturdays and holidays) trying to build and grow Koch Industries. During the trip Elizabeth opines about her work history and between 1996-2006 she quit five jobs in publishing and writing, did freelance publishing for 6 months, thought about a quasi memoir (I would have been the first one to buy that book!).The remainder of the weekend Elizabeth was showing her father (Charles) articles about corn subsidies (to prove to her father that she was curious). Although Charles would be proud of his daughter when she observes a hotel and a large train station in Kyoto together which seems to be creating issues that "this is a perfect example of the clusterfuck of misery from central planning". Well I guess those Sunday economic lessons with father Charles Koch paid off.

Elizabeth has a dark view of the world saying that she will kick people out of her life who make her feel uncomfortable, until there is no one left to kick out but her. During the whole trip Elizabeth seems bored, anxious, depressed, and irritable. One morning (they both wake up late) and Todd is interested in having sex and Elizabeth wants to feel some type of connection so they have sex and after sex Elizabeth starts to cry and comments that "For the record sex has never made me feel closer to anyone. Sex has always made me feel like a mutant". Todd also expects to have sex in every country too and when Todd tries to make an advance after they have a fight Elizabeth says he "fucked that one up". On the third date with Todd Elizabeth said that Todd was narcissistic and egotistical and thought that all of these traits would be part of his downfall. Elizabeth says " I want my boyfriend to be strong and confident, and when behaving badly, to verbally knock me around a little".

During her entries Elizabeth does have some funny comments saying if she goes to bed hung over and stuffed (with food) she doesn't want to be touched. Elizabeth has interesting taste when it comes to food as she likes to dunk candy into hard liquor. During the trip Elizabeth gets her mother (Liz Koch) a long bill cap because she knows her mother is out in the sun six days a week paying tennis despite having skin disease.

These journal entries give a rare view into the world of Elizabeth Koch. For some reason there is some mystique about her since she is smart, dark, complicated, irritable, yet can be caring at times. What I find interesting is how much detail she has in the entries she posted. She appears to  have a very good memory and is able to remember the slightest detail during their trip.

These days Elizabeth live in New York and in 2010 founded Black Balloon Publishing (which publishes the unusual, odd, and quirky pieces of work) and continues to run it. Actually her father published a book on Market Based Management (currently he is working on a second book "Good Profit"), Harry Koch (grandfather of Charles Koch) was in the publishing business. It appears the Koch family does have a literary gene.

The future should be interesting as Elizabeth Koch will most likely inherit Koch Industries stock in some form or fashion. The question is will there be a battle with her younger brother Chase Koch (who is now President of Koch Argonomic Services) over the direction of the company which could lead to the lawsuits and legal battles between Charles, David, Bill, and Fredrick. Not only will Chase and Elizabeth be likely shareholders of Koch Industries stock but in addition to this David Koch said in this interview that most of his net worth is in Koch Industries stock and his children (David Koch Jr., John Mark Koch, and Mary Julia Koch) will inherit the stock. So between these five children will own about 84% of Koch Industries stock with the remaining 16% held by the Marshall family. This could lead to an interesting situation where the family has to offer multi-billion dollar buyouts to relatives if certain family members simply just want to cash out. I would be interested to see how Elizabeth Koch will respond to this. Will she continue to be a publisher and writer or will she change her mind once she sees how much Koch Industries pays in dividends and begin living a different life style? I personally could see her inherited billions and continue to publish and write and continue to do with what makes her happy. Her writings show a very complicated, guilty, and almost torturous  relationship with money. However, it will be interesting if the money will make her have feeling of guilt and anxiety. After doing this research on Elizabeth Koch I truly find her the most fascinating Koch of all.

Koch Industries Dividend Analysis: How Much Do Charles and David Koch Earn a Year?

Update: Recently in 2021 I updated this analysis which can be found in this post. 

For a while I have wondered how much Koch Industries pays out in the form of a dividend. I know the company has a history of a low dividend payout as Bill Koch complained in this 1992 Sports Illustrated article that he "had to borrow money to buy a house.. and [he] is one of the wealthiest men in America". Using publicly available data I estimated how much Koch Industries shareholders earn in the form of a dividend.

So there has been no question that Koch Industries has grown dramatically since Charles Koch has taken over. Speaking of Koch Industries growth recently in the Koch Industries newsletter Discovery (archives of the newsletter can be found here) Charles Koch in the last page talks about the growth of Koch Industries over time. Koch Industries has grown 4600 fold since 1961 while the S&P 500 has grown 160 fold over the same period.

Add to this Charles Koch is coming out with a new book on October 13, 2015 called Good Profit: How Creating Value For Others Built One Of  The Most Successful Companies which discusses how "Charles took a company from a $27 million company in 1967 into a company with $110 billion company over many decades". This would say that Koch Industries has increased at a rate of 19%/year since Charles Koch took over which is quite impressive when you consider the stock market over a long period of time has earned roughly 8-9%/year. However, I do remember the current CFO Steve Feilmeier saying in this video that since Charles Koch took over the company has grown about 15% per year. According to this Wichita Eagle article from 1994 (last page) Koch Industries had $177 million in revenue in 1966 (the year before Charles took over). This would say at current revenue Koch Industries has really grown ~15%/year. 

Charles Koch took over Koch Industries after his father Fred Koch passed away in 1967 from heart issues. At the time Koch Industries had some divisions that were barely breaking even. With Charles Koch taking over he grew the company by literally working long hours (according to this Fortune article from 1982 Charles was working 10 hour days) during the week, weekends (he once had a meeting in August 1968 that began at 4 P.M. and ended at midnight) and it was expected that Koch executives were expected to work Saturday and sometimes well into Saturday night-so much for a social life) . What is even more interesting is that Charles Koch is 79 years old and according to this recent article from the Wichita Eagle these days Charles wakes up around 6 A.M. gets to the office by 7 A.M. and then works until 6 P.M. and is in bed by 9 P.M. (brother David Koch told Avenue magazine recently that at the age of 74 he still gets to the office around 9 A.M. and usually leaves by 7 P.M. and 12 hour days are not unusual for him). It is important to keep in mind that many people with this type of money would be on the beach or off vacating somewhere. You can't become a billionaire working 40 hours a week.

All the hard work that David, Charles, and Bill put into Koch Industries during the 1970's and 1980's paid off. In 1979 David and Bill Koch were earning $250,000 working as vice presidents of divisions at Koch Industries. To give you some perspective $250,000 in 1979 dollars would be worth a little over $800,000 in current dollars. In addition to their salary David, Charles, and Bill were earning $3 million a year in dividends (back then-which would today would be $9 million today). In 1978 Bill Koch was earning $1.167 million in salary with $747,000 in dividends. The following year (1979) Bill Koch was earning a salary of $1 million in salary and $1.9 million in dividends. By 1980 Bill Koch was receiving $3.7 million in dividends. Around this time Bill, David, and Charles Koch each owned roughly 20% of Koch Industries stock (Fredrick owned about 14% of the Koch Industries stock, however didn't work at the company). So doing a roughly estimate the total dividends payouts for Koch for 1978, 1979, and 1980 were roughly $3.7 million, $9.5 million, $17.5 million respectively. When Fred Koch passed away in 1967 dividends for all of Koch Industries was $300,000 (according to the book Sons of Wichita) and by the early 1980's was about $28 million. Fredrick Koch complained 1980's here that the dividend that was paying out only 1% (take into account that Fredrick in the early 1980's was earning roughly $4 million didn't even show up to work!

Charles and David Koch however are not the only current shareholders of Koch Industries. Elaine Marshall and the Marshall family own the other roughly 14% of Koch Industries stock. According to This file (a 2007 trust tax return for Elaine Marshall who owns about 15% of Koch Industries stock that she inherited from E. Pierce Marshall-who is the son of J Howard Marshall (the guy who married Anna Nichole Smith) in 2007 had dividends of about $72 million of dividends from various trusts that she had. Koch Industries had $90 billion of revenue in 2006 (according to a book Charles Koch wrote called Market Based Management). What is interesting is that in addition to the dividends are about roughly just $11 million of interest income (so total income received by the Elaine Marshall and family is about $83 million in 2007).The trust earned roughly $413 million between 1996-2006)  Koch Industries regularly reinvests 90% of the earnings back into the company which actually results in a lower short term dividend, however in the long run if you are growing your dividend will also continue to grow.

Daniel Fisher from Forbes estimates that Charles and David Koch could borrow from Koch Industries a $40 billion dividend. Fisher also estimates Koch Industries for 2014 earned roughly $10 billion per year. From 2003-2014 Koch Industries spent $70 billion in capital expenditures and acquisitions. So on an annual basis this is about $5-6 billion per year of re-investing. Since Koch Industries reinvests 90% of their earnings back into the company this would say that Koch earns roughly $6-$7 billion per year. This would say that the annual estimate that the annual earnings is between $6-$10 billion. Of course this amount is before taxes. So take out roughly $3 billion for taxes and it would leave a net profit of about $7 billion.

So assume net profit is about $7 billion and the payout of Koch Industries is about 7% (which matches this article from 1992). Assume 90% of the earnings are reinvested back into the company, 7% of the earnings are paid out as a dividend, and 3% is held for short term liquidity/cash needs. Also assume Elaine Marshall (and the trusts she owns) have continuously held a 15% ownership of Koch Industries stock. This would mean that Elaine Marshall would have about $74 million in dividends (which is very close to her 2007 trust tax estimate showing $72 million of dividends). Charles and David Koch own the other 84% of Koch Industries (assume the other 1% is held by Koch executives/employees).

 If Charles and David Koch each own 42% of the company then if we take $7 billion in net profit x a 7% dividend payout x a 42% ownership interest it could be estimated that Charles and David Koch each pull in about $200 million a year from Koch Industries stock. Forbes has Charles Koch worth $42 billion as of March 2015. According to Bloomberg Billionaires Index Charles Koch is worth roughly about $51 billion (with $1 billion in cash-which would barely cover estate taxes since they are at 40%-Charles would need roughly $20 billion just to cover the estate taxes-I covered Koch estate planning in this post). At any rate if you take $200 million and divide it by say $42 billion that would mean that the dividend yield for Koch Industries is less than .5% which is fairly low compared with other large companies in the S&P 500 (usually these companies have a yield between 2-3%). So in essence Charles and David Koch are trading off a lower dividend payout for higher long-term growth.

This illustrates the result of compound interest. As Koch Industries has grown at roughly 15%/year over a four decade period would mean that every 5 years the company would double in size. Over time this would increase the dividends that are paid out to shareholders. As Koch Industries continues to grow the dividends will grow as well. The billion dollar question is what happens to the ownership of Koch after Charles, David, and Elaine Marshall are no longer around.