Koch Will, Growth, and $1.3 Billion Lawsuit Sources

Here is part 1, part 2, and part 3 of my coverage of the Koch family in the 1990's.

I primarily used the Newsbank database website for finding articles which is offered through a university I attended (I am sure local libraries have access to this same database). When I copied and pasted the articles in a Word document it was close to 80 pages.  I am very grateful to The Wichita Eagle for their great reporting throughout the 1990's. In particular Bob Cox did a fantastic job covering the Koch trial which led to easy to read and interesting articles.

“Koch Begins $33 Million Project 8 Story Office Building Will be Largest in State”, Wichita Eagle. June 5, 1990 by: Guy Boulton

“Koch Family Feud Takes a New Twist William Koch Offers to Drop Probate”, Wichita Eagle. November 26, 1991 by: Frank Garofalo and Guy Boulton

“Experts Say Koch’s Mind Affected”, Wichita Eagle, December 5, 1991 by Nickie Flynn

“Camps in Koch Battle Turn to PR fight appears to be for Wichita’s heart”, Wichita Eagle. April 12, 1992 by Jim Cross

“Koch buys pipeline company acquisition cost put at $400 million”, Wichita Eagle. November 10, 1992 by Guy Boulton

“Learn, Patient, Ready to Pounce More Growth Likely As Company Moves Into New Businesses, Expands Old Ones”, Wichita Eagle. June 27, 1994 by Guy Boulton

“Koch Employees Put Money on Tiahrt Incumbent’s Free-Market Stance Appeals To A Cadre Of Company’s Managers Executives”, Wichita Eagle. July 28, 1996 by Jim Cross

“Koch’s Hidden Message Houston Expansion Is About More Than Business. It’s A Strong Signal To State Officials To Stop Courting Bill Koch”, Wichita Eagle. March 23, 1997 by Bob Cox

“Judge Rejects Much Of Suit Against Koch Both Brothers Claim Victory As Key Parts of Suit By Bill Koch Still Remain Against Charles Koch, Company”, Wichita Eagle, July 17, 1997 by  Sarah Lunday   

“Judge Issues Gag Order In Upcoming Koch Trial N Ruling Prohibits Both Sides From Pretrial Polling, Talking To The Media Or Running Ads”, Wichita Eagle. March 25, 1998 by Molly McMillin

“Testimony Recounts Events Leading To Bill Koch’s Firing N Charles Koch Testifies That His Brother’s Actions Threatened The Company”, Wichita Eagle. March 30, 1998 by Bob Cox

“Koch vs. Koch: It’s an oil family feud- Escalating legal battles involving Koch Industries have bitterly divided the four Koch brothers”. Star Tribune: Newspaper of the Twin Cities. April 1, 1998 by Greg Gordon

“Koch lawyers fire opening shots in trail during opening statements, Bill Koch faction is characterized as greedy, and Charles Koch is described as unscrupulous”. Wichita Eagle. April 9, 1998 by Bob Cox

“David Koch testifies in lawsuit he is the first Koch brother to testify in the suit brought against Koch Industries by his twin brother, Bill”. Wichita Eagle. April 15, 1998 by Box Cox

“Koch brother gives emotional testimony David Koch breaks down on the witness stand while talking about his relationship with his twin brother bill”. Wichita Eagle. April 16, 1998 by Bob Cox

“Brother Disparaged in Koch Trial”. Associated Press. April 18, 1998

“Layoffs follow Koch setbacks hard hit by economic downturns in its bedrock businesses Koch Industries Inc dismisses hundreds of employees, contractors”. Wichita Eagle. April 11, 1999 by Box Cox

“Bill Koch discusses takeover attempt, He would have ended his bid to take control of Koch Industries in 1980 for access to $25 million and more power over company decisions”. Wichita Eagle. April 23, 1998

“Bill Koch was willing to chop up company, After takeover bid, he was prepared to sell stake to corporate raiders”. Wichita Eagle, April 24, 1998

Frederick Koch takes stand n ally of Bill Koch upholds his brother’s version of dispute”. Wichita Eagle. May 1, 1998 by Box Cox.

“Cousins sided with Bill Koch to get more money for their stocks”. Wichita Eagle. May 2, 1998 by Box Cox

“Koch tried to placate dissents, exec says, chief counsel for Koch Industries says Charles Koch tried to make peace with his brother Bill”. Wichita Eagle. May 21, 1998 by Bob Cox

“Charles Koch takes the stand chief executive’s long-awaited testimony comes as the trail enters its eighth week in Topeka”. Wichita Eagle. May 27, 1998 by Bob Cox

“Charles Koch: Brother’s accusations ruined bond He says Bill Koch’s attacks follows a business-plan rejection”. The Kansas City Star. May 28, 1998 by Grace Hobson

“Testimony recounts events leading to Bill Koch’s firing N Charles Koch testifies that his brother’s actions threatened the company”. Wichita Eagle. May 30, 1998 by Bob Cox

“Brother: Bill Koch bullied mother”. Tulsa World. May 30, 1998

“Charles Koch faces hostile questioning”. Tulsa World. June 2, 1998 by Associated Press

“Long day on stand for Charles Koch and he is cross-examined for a third day as the Koch lawsuit enters its ninth week”. Wichita Eagle. June 2, 1998. Bob Cox

“Charles Koch praised by longtime top Koch exec, Sterling Varner, the retired president of Koch Industries, says he made the motion to fire Bill Koch from the company’s board of directors”. Wichita Eagle. June 11, 1998 by Bob Cox

“Kochs’ friends prepare for more legal action and Koch Industries workers and supporters celebrate victory for Charles and David Koch, while Bill Koch’s backers look forward to his appeal”. Wichita Eagle. June 20, 1998 by Stan Finger

“Koch Inc. prevails company executives Charles and David Koch win jury verdict, but brother Bill vows to appeal”. June 20, 1998. Wichita Eagle by Bob Cox.

“Charles Koch confident about company’s future battles”. Tulsa World. July 3, 1998 by Knight Ridder/Tribune Service

“From trial’s ordeal, a stronger Koch chief executive Charles Koch feels vindicated and is ready to tell the world more about Koch Industries.” Wichita Eagle. June 28, 1998 by Bob Cox

“Charles Koch to undergo treatment for prostate cancer disease in early stages for Wichita-Based Koch Industries Chairman”. Wichita Eagle. September 4, 1999 by Lillian Zier Martell

“Bill says he wants to reconcile with Charles through spokesman, Charles urges brother to live his own life”. Wichita Eagle. September 26, 1999 by Dion Lefler.

“Supreme Court refuses appeal”. Associated Press. October 14, 2000 by Knight Ridder/Tribune Service

Charles Koch: Corporate Cronyism Harms America

Today in the Wall Street Journal op-ed section was an article by Charles Koch about crony capitalism. As you may know I did an extensive three part series on the Kochs here, here, and here.

The main gist of the article is that Charles Koch opposes crony capitalism and doesn’t want the government to come help him out (too bad more business leaders are not like this). People on the left claim that Koch Industries takes subsidies from the government but their arguments are shaky at best. Let’s examine some of their claims. The first claim is that Fred Koch (father of Charles) helped construct refineries for Joesph Stalin. What they don’t explain is how free market the father became after realizing how communism didn’t work in the former Soviet Union. Also even though no one is fond of Stalin I am not sure how the U.S. government is subsidzing this. Another claim is that Koch is trying to lobby politicians by making campaign contributions and then in return the politicians will help out the business. Koch has been against subsidies like the NAT Gas Act, against ethanol subsidies (which actually increase the price of food), and alternative energy subsidies. You could take away all of these subsidies and Koch Industries would be just fine. Also sometimes the government forces companies into taking subsidies even when they don’t want them (giving banks money in 2008 that were financially stable). This is like when people claim that oil companies get subsidies. This of course is nonsense since oil companies get no unique tax credits or deductions. In fact in 2005 when oil company CEOs were called in front of Congress about “excessive profits” each executive said these so called subsidies wouldn’t make a difference in their bottom line because it doesn’t even apply to them.  

Charles and David Koch believe in free markets which is actually against their self interest which  so many people fail to point out. They want free markets not to make them rich but to make everyone else rich while enhancing the standard of living for everyone. Liberals often say the Koch brothers just want to pollute to make more money. My question would be do Charles and David Koch breath different air then everyone else? Also if these accusations of pollution were as true as so many claim why wouldn’t there would be criminal action against Koch Industries? Yes, the company has had incidents were sometimes bad things go wrong. However, when you are operating a company with over 60,000 employees dealing with chemicals that are not so friendly bad stuff can and will happen. The question is what trade off are people willing to accept. We could have so much regulation that gasoline would cost $6 at the tank in order to be safe, however how many people could be able to afford to go to work every day? I would argue the Koch brothers have done more to increase standard of living than politicians by giving people a place to go every day to earn a living, a place to help them pay bills, a place to give them purpose, and most importantly a place to create value. If you know if any welfare problems that have similar results without taxpayer money please let me know. 

Koch vs. Koch Battle of the 1990's: Part 3, The $1.3 Billion Lawsuit

Part 1 can be found here and Part 2 can be found here

The battle between the Koch brothers actually began in 1983 however took many years to actually settle. William Koch, Freddy, and some distant cousins sold their stock for around $1.3 billion. With the sale of stock in 1983 William got $470 million and Freddy got $345 million. In addition to William and Freddy other distant relatives got money as well. William, Freddy, and the distant cousins claimed they were shortchanged $340 million. By this time the company had annual revenue of $17 billion and profit of $300 million, and 7,000 employees. However, after Koch paid for their stock fairly quickly William began to question if the company really had more money than they let on to believe.

Ann Alspaugh and Holly Farabee inherited tens of millions of dollars in Koch Industries stock. Alspaugh’s grandfather L.V. Simmons sold his refinery to Fred Koch after World World II. The stock passed through the family via a family corporation and trusts that owned oil interests. The Simmon’s family owned 13.7% of Koch Industries and as a result of the 1983 buyout got $300 million. The stock paid out a low dividend and could only be sold to the company for what Alspaugh and Farabee felt was a low price. The stock also had estate tax consequences. If someone died with Koch Industries stock in their estate and if Koch valued its own stock at a low price the IRS could later come in and say that the stock price was actually higher then what Koch claims it is (this is not untypical for the IRS to do either). This happens because Koch Industries is privately owned and not traded on the market. The beneficiaries or inheritors of an estate would be left with a large estate tax if this occurred.

In 1992 William Koch was busy working on competing in the American Cup for sailing. He spent $60 million and as a result won. In addition to this he set up the America Foundation which was a nonprofit corporation that would extend even after the race. As of 1992, the non-profit had raised $11 million in contributions. During this time before the trial started William hired Lane Marketing to help purchase commercials that aired in Wichita, Cape Cod, and Palm Beach. Charles Koch decided to go with the local firm of Sullivan, Higdon, and Sink to try to make the company look better.

William who earned a PhD in chemical engineering at MIT and went to work at Koch Industries rising from a chemical salesman to vice president of corporate development. Charles during this time period was chief executive officer. William however had problems at work. As he moved up he wanted more money and more power which is ironic because in the trial he was claiming that Charles was doing the exact same thing.  In addition to this, according to Sterling Varner who was at Koch Industries for 40 years and worked for Charles Koch claimed that William wasn’t happy running Koch Carbon (even though he founded it). Varner also believed that no one could trust William. When Varner was cross examined they asked him if it was true he got $30 million to $50 million in stock. Varner correctly points out “Excuse me. Stock I bought”.

William was not making bad money either. William made more than $1,167,000 in 1978 ($747,000 of that in dividends). By 1979 this figure increased 148% to $2.9 million (including $1.9 million in dividends). Then by 1980 William was making $3.7 million in just dividends and still asking for dividends to be double of what they were. Part of this money was going to fuel William’s art appetite. Some years he would purchase 10 to 20 paintings of museum quality art. He stashed 60 pieces in a rented La Jolla, California home. He was also paying to exhibit art work and paying for the security and transportation which ran between $100,000 and $200,000.

By 1980 Freddy was making $2.4 million a year from Koch stock and he didn’t even show up to work! Koch Industries in 1980 celebrated $276 million in profits (their best year thus far). In addition to higher pay, bigger title names, he wanted $25 million to invest in a computer company or to do whatever else he wanted. This plan to invest $25 million was rejected in March of 1980 by the board of directors. William also had some legitimate concerns about the liquidity of Koch stock and estate planning since the stock was privately owned and couldn’t be sold in the open market like publicly traded securities. In the fall of 1979 Don Cordes who was an executive for Koch Industries and also legal counsel for the company met with William, Freddy, along with Marjorie Simmons Gray (distant relative also suing) to talk about the estate planning concerns they had about the stock.  William had wanted to make it easier for Koch stockholders to sell their shares however according to Charles, Koch was already working on doing that and wanted to wait for the lawyers and investment bankers to work out the details first. 

On July 9, 1980 in a board meeting that lasted four hours Bill sent an 11 page single space letter to Charles detailing his complaints. By this time William was one of the seven directors for Koch and was president of Koch Carbon. Then on November 28, 1980 (one day after Thanksgiving) David received notice by mail saying that a special meeting would be needed to elect a new board of directors (essentially William was trying to take over the company).  David having spent that Thanksgiving in 1980 with William and Freddy felt betrayed. The family during these couple of tough years did not always have a good holiday season. In 1979, William Koch verbally assaulted his mother Mary in a Christmas celebration. William was sitting next to Mary and just went into attack mode accusing her of being a bad mother and his problems were because of her. Of course Mary was in tears over this as any parent would be. As Charles told this story his voice cracked somewhat with emotion.  William also was trying to make sure he was going to get property and art equal to all of his brothers. Charles told his brother said he was not going to fight his brother over the property and that he should leave Mary Koch alone. Charles didn’t even feel comfortable discussing what to do with her estate because he didn’t feel it was appropriate for the discussion. Freddy in a letter to Mary Koch felt his trust fund should be increased but Mary told him that he was already getting adequate amounts. Then in the 1980 Christmas year after a traumatic year William had sent gifts to Charles his wife Liz and their children. Charles didn’t believe the family should accept the gifts so decided to send them back.

William in his quest for a corporate takeover of Koch Industries was planning on selling the company to T. Boone Pickens or Carl Icahn who at that time period where corporate raiders (took over companies). In the trial William had said it would be foolish if someone if someone came along and offered you twice as much for your company and you didn’t take it. The value of Koch Industries ranged from $140 per share to $160 per share according to estimates from Morgan Stanley and Lehman Brothers. William got the idea of selling since he claims Charles Koch and Don Cordes were making offers to buy existing Koch stock at high prices. An offer was made of $140 a share with half being paid in cash and the other half being paid over a ten year period. When doing a net present value calculation William felt that the deal really wasn’t that great. William owned 20.7% of Koch Industries or 2,300,000 shares of common stock. Brothers Charles and David also owned similar amounts and Freddy owned only 13.7%. Koch was also owned by the employees, some shareholders, and relatives of shareholders. In June 1983 Charles tried to buy out William and Freddy by offering $200 per share in addition to an offshore California oil field. William still thought he could get higher prices from Arab or Japanese investor who owned Koch stock. Freddy really didn’t get into the finances as he was a screenwriter, producer, and busy living in New York, Monaco, and Austria. During his testimony Freddy spoke with a British accent even though he was raised in Wichita, Kansas. He never worked a day of his life at Koch Industries even after he attended Harvard and Yale and did some military service in the Navy. When asked about what he did Freddy said he was involved with charitable activities and worked on the Metropolitan Opera and Royal Shakespearian Co in New York.  Freddy rejected a $120 a share offer in 1967 from Charles to purchase his 14.2%. share of the company because his counsel believed the stock was worth between $360-$480 per share.

By June 19, 1998 a verdict from the six men and six women jurors had been reached after spending 11 weeks in court and nearly over 13 years in litigation. The case was overseen by Judge Sam Crow (who is still serving today). The U.S. District Court of Topeka jury found that Charles and David Koch did not cheat William and Freddy out of the $1.3 billion stock sale. The two questions the jury had to answer were did Koch Industries hide plans to increase production from one of its refineries, and did the company misrepresent their profitably by failing to write down certain assets on their financial statements.  The jury said there were some omissions however they were not material enough to affect the price of Koch stock in the sale. After the verdict Charles called David who was in his office in New York and told him the good news. Freddy was traveling in Europe and couldn’t be reached for comment. William wanted to appeal claiming the judge made mistakes. William Koch who was represented by Fred Barlitt declined to comment as he claimed he never talks about a case. Koch Industries was represented by Foulston and Siefkin. Charles and David both wept with tears of joy.  David Koch claimed at that moment “To have our life’s work vindicated…I feel like the happiest guy on earth right now”. The trial for Charles was not only physically draining but emotionally draining as well. In his first interview after the trial Charles claimed “What doesn’t kill me makes me stronger”. While Charles was gone the company he had help build Koch Industries was still able to operate because Charles had structured the organization to run even if he was not there which goes against William’s claim about his brother “Prince Charles” being controlling and wanting to make decisions on everything. Charles’s wife Liz said she woke up every morning feeling queasy and the whole process being very painful during the trial. What is ironic is that William referred to his brother Charles as being a dictator and greedy when William was doing the exact same thing.

Shortly after the summer of 1998 in September of 1999 Charles was diagnosed with prostate cancer. I am not a physician but perhaps the trial was so draining to Charles that it might have contributed to this. Charles starting in September 1999 spent two weeks undergoing treatment. Doctors caught the disease in its early stages. Charles had been tested every 6 months for the disease (brother David was diagnosed in 1995 with prostate cancer). All the Koch brothers have been diagnosed with prostate cancer. Luckily prostate cancer is highly curable. Charles also did not take a leave of absence from work after being diagnosed. After William heard the news he wanted to make-up with Charles for all the traumatic years of pain he had caused. William offered to take Charles on a sail and share several nice bottles of wine in addition to Charles meeting William’s family of wife and six kids. A spokesperson essentially said that this peace offer was too little too late. 

Sources

Koch vs. Koch Battle of the 1990s: Part 2, Growing Koch Industries

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

Koch vs. Koch Battle of the 1990s: Part 1, The Will

I want to thank Bob Cox for inspiring me to write these posts. Cox was a journal reporter for the Wichita Eagle in the 1990's who covered the Koch vs. Koch trial. Without his excellent journalism these posts would not be possible. Sources are down at the bottom.

As you may know by now I am pretty interested in the Koch brothers. I talked about their historical net worth here and a family history here.  I personally think that the Koch family  is one of the most interesting families of all time given their wealth and family feuds.  When I was doing research I learned of the court case Koch vs. Koch and think it would be pretty interesting if someone published all the transcripts of the case since it went on for so long. However, I looked up the cost for transcripts and they start at $3 per page.

In doing some research through Newsbank I found some interesting articles about the Koch brothers from the 1990’s. The 90’s got off to a rough start when William Koch challenged his mother’s will. Mary Koch (mother of Charles, David, William, and Freddy) had an estate of $10 million when she died on December 21, 1990 from a stroke she had the day before. Keep in mind that during this same time Charles and David were each worth $1.8 billion. Mary had suffered a stroke a year before and entered Wesley Medical Center for a checkup.  The will Mary left $150,000 each to the Wichita Center for Arts, and Wellesley College in Massachusetts. In addition to this she left $100,000 each to Wichita Collegiate School and Pembroke Hill in Kansas City, Missouri. Mary attended Wellesley College and majored in English and French. Mary met her husband Fred at a polo match after Fred had come back from Moscow on business.  They got married one month after they met. On their seven month honeymoon to South America Mary could only bring one piece of luggage on a train. She had a trousseau (bride out fit) in the luggage and was worried about it. Fred Koch promised Mary that she should would not have to worry because he would buy her ten trousseaus. Once they took off on the train and there was a little charter plane following them. Fred told Mary that it was the plane that was carrying Mary’s trousseau. She thought he was a keeper. 

In the last years of her life David Koch would frequently visit his mother in east Wichita since he worked in New York. She was always looking out for her boys as in one visit in 1989 David brought a girlfriend over and his mother really seemed to like her and she asked why David didn’t marry her. David as I have mentioned in this post was known for his playboy bachelor days in the 1980’s where often had three dates per day.

Mary’s will had stated that she would disinherit the sons if they have a pending lawsuit against their brothers (disinheritance clause). David said that he believed it was an ingenious idea since Mary knew money would make more of an impression on William and Freddy. William and his older brother Freddy tried to contest this. Mary’s will went through what is known as the probate process. In the probate process the will is open and can be seen as a public document by anyone.

Mary in her older age suffered from Alzheimer’s and Mary told psychologist Charles Schalon in October 1989 that she had a hard time remembering things. Mary Koch was 82 when this occurred. Despite all this Mary was able to understand her will (she had her will redone in January 1989). Mary had hoped that the will would prevent her sons from fighting however this was not the case. The fighting between the brothers got so bad that in 1982 she suggested that she didn’t want to host Christmas parties with all four sons at one time. Instead she suggested the Fred and Bill visit for Thanksgiving while Charles and David visit for Christmas. William even filled a lawsuit against his own mother claiming that he, Mary, Charles, and David all had an oral agreement to direct how part of $300,000 in annual contributions from Mary’s trust would be disbursed. 

On April 2, 1993 a Kansas Court of Appeals in Sedgwick County under Judge Hal Malone ruled that this disinheritance clause was valid. William and Freddy were disinherited from Mary’s estate as a result.  Mary Koch really did care about her boys and tried to bring peace to the family, however other family members had different ideas. 

Sources

Statement from David Koch about Federal Debt

Below is a statement from David Koch of Koch Industries

"It is my hope that Democrats, not just Republicans, will become part of the effort to reduce the federal debt by right sizing government and restructuring unsustainable entitlement programs. For that to happen corporate subsidies and tax preferences not applied equally should be eliminated or simplified in a revenue-neutral way, which I alluded to last week ("The Republicans' new Koch," editorial, Sept. 3). Broad-based tax increases make no sense; they would only slow an economy in tremendous need of growth. The Democratic Party has a perfect opportunity at its convention to join Republicans in pledging to stabilize America's finances. They should seize it."

Trevor Rees-Jones on Uncommon Knowledge

Very interesting interview given by Trevor Rees-Jones who rarely does interviews and his worth close to $1.5 billion. He is very interesting and should really do an autobiography. He is also on the board of trustees for TCU.

David Koch Team Builder and Generous Guy

I am across this interesting article a while ago published in the Summer 2012 Philanthropy Magazine about David Koch. Koch started at MIT when he was 19 years old in 1958 and was team captain of the MIT basketball team leading the team to a 17-4 record his senior year. What is interesting is that his final game was played against the University of Chicago (home of Milton Friedman) which is known for free-markets. David was the second highest in scoring average and had 545 rebounds. Not bad for a future billionaire and philanthropist.

The article talks about how even before Koch Industries became large David was still philanthropic. In the mid-1980’s he joined the New York University-Presbyterian board. He became more interested in medical boards in the 1990’s when he was diagnosed with prostate cancer. Koch first went through radiation therapy, then had his prostate removed, then the cancer came back again and he had hormone therapy. That didn’t work so now Koch is using Zytiga for his cancer. In addition to this not too long ago Koch suffered from diverticulitis. To treat this Koch received intravenously antibiotics which if they were not available would have torn up his colon and might have killed him.  I am not sure if the media truly understand the battle David Koch has already fought. This has caused him to pore millions into cancer research ($25 million to M.D. Anderson where he is treated), $30 million for Memorial Sloan-Kettering, and $20 million for John Hopkins. He has also had 10 special surgeries at Hospital for Special Surgery in New York. Koch has donated since 1998 close to $400 million to medical research. His donations have even created jobs to help fight research. His gift to MIT to create a cancer institute has 650 researchers after his $100 million gift. Koch believes that in the next decade or so we will see breakthrough discoveries and treatments. As long as the FDA can limit their involvement everyone will be better off.

 Much of the money David Koch makes comes through his dividends. As I pointed out in this post in the 1980’s William Koch was getting what would be today equal to an $11 million dividend and that was when Koch Industries was much smaller than it is today. I have no way of knowing but if the company still does pay 7% dividend and you take a modest return (7%) on $110 billion in revenue and factor in 42% ownership from David Koch I would estimate maybe $200-$250 million in dividends per year (again back of the envelope calculation ). This is also in line with the analysis I did of the Koch net worth from 1984-2012 here. Koch does plow back 90% of their earnings into the company so 7% may be reasonable for a dividend. Also David Koch has around $25 billion in net worth in addition to his dividends which makes him pretty flush with cash. If taxes for dividends increase then he will give less. Dividends on taxes next year will jump from 39.6% up from 15% if Congress fails to act.

I think sometimes people forget that people respond to incentives. People forget that John Rockefeller with a little less than 5% of his net worth created the University of Chicago. M.D. Anderson was named after a successful cotton trader who gave his estate to charity. Capitalists are needed in building future charities.

Markets In Everything: Speaking Fees

With the election coming up it is interesting to see what Presidents do after they retire. Many do speaking engagements where they are paid to give a speech. There is actually a market for people to do this. Presidents can pull in big bucks for doing this. However, it isn’t just former presidents that do this economists do it as well. For instance, Milton Friedman made around $30,000 per speech when he did it. Walter Williams charges at least $10,000 when we talks. My question would be for the people paying these fees is if what they are getting is really worth all that money when you could probably find a similar if not same speech on YouTube.

Presidents and political figures however can make millions of dollars per year by just talking. The biggest name in this area is former President Bill Clinton. People still love this guy despite what he did or has done. Whatever you think about his politics there is no denying that he is pretty charismatic. In 2011, Clinton gave 54 paid speeches. Phone maker Ericsson paid him $750,000.  Since he left office Clinton has given over 470 speeches and averages around $189,000 per speech. In 2011, Clinton earned $13.4 million which was an increase from the prior year by 25% according to this article.

Republican nominee Mitt Romney made $374,327 in speaking fees in speaking fees from February 2010 to February 2011. Romney is also worth between $190 and $250 million according to this article. Actually this is nothing compared to Donald Trump who was paid $1.5 million to speak at the Learning Annex real estate expo.Former President George W. Bush has made at least $15 million since he has left office with 140 paid speeches which average around $110,000 per speech. His brother Jeb is a deal at only $15,000 per speech. 

Clearly, there is a market for speaking engagements. Some people are well compensated for this. Although, this is probably the top 1% of all speakers it is interesting that people will pay for other people to speak. No one has yet contacted me about public speaking although for the right price I think I could push back the frontiers of ignorance. 

Charles and Liz Koch Wichita State Alumni Presentation

I found this clip on YouTube which is a presentation from Wichita State's appreciation for Charles and his wife Liz Koch. Charles Koch donated $6 million for the Charles Koch Arena where the basketball team plays. So many people make Charles Koch out to be some evil guy when really is a wealth creating charitable individual.