Well October 8, 2015 I looked out on my doorstep and saw a package from Penquin Publishing and was surprised that I received Charles Koch new book "Good Profit". The book had on it uncorrected proof/not for sale on the front cover and the book. Also the copy I received ended up being 250 pages as opposed to the 288 pages for the final version. I have covered Koch Industries for years as I have written about the estate planning/succession planning here and even talked about the daughter (Elizabeth Koch) here. Of course any blog post I have written can be found here. I ordered the book from Amazon back in March 2015 but I guess I got the book earlier then the release date of October 13, 2015.
As soon as I got the book I couldn't put it down. What is nice about the book is that it is written with more of a personal side of Charles Koch and his family. Throughout the book stories, anecdotes, and analogies are used to get across the points Koch tries to make. For instance Koch in his free time likes to read praxeology, golf, work out, and eat heart healthy meals. The book mainly is about how Koch Industries operates and its history (both the good and the bad) is a great look into how Koch Industries truly operates and what Market Based Management (MBM) is truly about which has led Koch Industries to tremendous growth sine 1961. The company in 1961 was valued at $21 million and now in 2015 is valued closer towards $110 million (27 times better than an investment in the S&P 500-assuming dividends were reinvested). The company plans to grow 12% per year for the continual future. During the 2008 recession Koch increased doubled its shareholder equity and increased its workforce by 40%. The book emphasis the five dimensions of MBM which are Vision, Virtue and Talents, Knowledge, Decision Rights, and Incentives.
What I think readers willl find interesting is that Charles Koch didn't begin out as a Libertarian he read the "entire political spectrum from "left" to "right" and everything in between. This means he even read John Maynard Keynes, Karl Marx, and Vladmir Lenin. Two books for Koch that ended up being life changing were Mises Human Action and F.A. Harper's Why Wages Rise.
Charles points out that growing up Frederick Koch (the oldest son) wasn't one for physical labor. Since Fredrick Koch didn't develop a work ethic Fred Koch was harder on Charles Koch making him work at age 6 and made sure work occupied most of his time. Koch writes that even at age 79 he still works 9 hours a day. His work history started out digging dandelions and then went on to bail hay and milking cows. In high school Charles was working on the ranch fixing fences, digging ditches, shoveling wheat in a grain elevator. Growing up Charles wasn't easy to deal with and attended 8 schools by the time he graduated high school. During his junior year he got thrown out of Culver Military Academy for drinking beer on a train). One summer Koch has so much homework he would wake up in the middle of the night and sight on the shower bench in the communal bathroom to finish it. Charles improved and was accepted into MIT. While at MIT Charles was maintaining a B- average (he was majoring in engineering too/enjoying himself having a social life) when he came home for summer break is dad told Charles that he would only pay for his education if Charles fully applied himself. After this talk Charles improved his grades a full point. After Charles graduated he went to work for Arthur Little were he designed a plant that produced a potent marijuana derivative. It was after father Fred Koch passed away that Charles Koch took the reins at Koch and growing it by leaps and bounds.
The personal side of Charles Koch is somewhat interesting he from an early age was a trouble maker and sometimes got into fights. You can't be an entrepreneur playing follow the leader. Charles once had a heated debate with a girlfriend of David Koch during the 1960's when she was taking views that the government should run people's lives. This girl mentioned that the government should act however the majority wanted. Charles most likely got frustrated and asked her if she was a redhead (knowing David he was probably dating a brunette or blonde) and the majority of the population voted to kill redheads would she be in favor of that. The girl started crying and even cried the next day which Charles still remembers after 50 years when it happened.
When it comes to subsidies Charles Koch is against all forms of corporate subsides. Koch for years has been against ethanol mandates (this actually increases the cost of food for the least advantaged people). Koch dispels the myth that Koch would profit from the Keystone Pipeline. He write that Keystone would increase the cost that Koch pays for crude by $3 per barrel which would lower Koch profits by $260 million per year. However, Koch takes the position that the pipeline in the long run would be better for the economy as a whole even if the company loses money from it.
Charles Koch is open and honest about the successes and failures of Koch Industries. In 1974 Charles Koch and his wife Liz Koch were breaking ground on their first home. During this time Koch Industries had to deal with price controls, the Arab oil crisis worried Charles that Koch Industries would go bankrupt. Charles Koch also discusses the 1996 pipeline leak that killed 2 teenagers Texas. Koch reflects openly and honestly how that incident along with a few others changed the company view about safety. It was after this incident that Koch switched to a 10,000 percent compliance (100% of employees acting in compliance 100% of the time). Koch discusses how the company when it had dramatic growth it had internal fraud issues were employees were setting themselves up as vendors, taking inventory, and receiving kickbacks which Koch quickly shut down.
Overall the book is well written and easy to read and includes a personal side of Charles Koch not seen before-like the 153 death threats he got in 2014. The book discusses how Koch has grown tremendously since the 1960's (Charles didn't simply inherit the company as some might say). The company has grown so much by reinvesting 90% of their earnings back into the company. What is interesting is how Koch Industries despite having 100,000 employees doesn't appear to be bureaucratic and individuals are always asked to challenge and consider continuous improvement which sometimes never occurs at even Fortune 500 companies. Overall the book is a mix of economics, business, behavioral finance, philosophy, and good story telling of business failures. What I enjoyed was Charles Koch is honest about his failures. Koch is apply to apply Market Based Management to every day examples (including the NFL and even how much time he should spend working editing grammar of the book he wrote). The book is really a great book for anyone who wants to try to live there life to their maximum potential.
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