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.

Koch Industries Collection Reading List: What Koch Employees/Charles Koch Read

So Koch Industries every quarter publishes a company newsletter (mainly for employees of the company). The news letter is posted online for everyone to see though. Former newsletters can be seen here.  Usually the newsletter will have a recommended book to read. I thought I would compile a list of all the books they have recommended over the years. I started with the Discovery newsletter from April 2007 and worked my way on from there. Charles Koch himself credits F.A. Harper's Why Wages Rise which can be purchased here and Ludwig von Mises' Human Action which can be read here. What is interesting is that most of these books from Amazon start at 1 penny.

Economics in One Lesson by Henry Hazlitt
Changing Minds by Harold Gardner
Basic Economics (5th edition-recently was published)- by Thomas Sowell (probably the best and easiest economics book to read since there are no charts or graphs and Sowell is very clear as a writer)
Common Sense Economics by James Gwartney
Cool It by Bjorn Lomborg
Scared To Death by Christopher Booker
Climate Confusion by Roy Spencer
Pride, Prejudice, and Politics: Roosevelt Versus The Recovery by Gary Best
President's Ronald Reagan's Initial Actions Project by Art Laffer
Getting Off Track by John B. Taylor
Think Twice: Harnessing the Power of Counterintuition by Michael J. Mauboussin
The Big Ripoff by Timothy P. Carney
The Battle by Arthur C. Brooks
The United States Constitution-A Graphic Adaptation by Hennessy and McConnell
Civilization: The West and the Rest by Niall Ferguson
Throw Them All Out by Peter Schweizer
The Road To Freedom-How to Win The Fight for Free Enterprise by Arthur C. Brooks
The Miracle of Freedom: From Seven Tipping Points that Saved the World: By Chris Stewart
The Financial Crisis and The Free Market Cure by John Allison- I have actually read the book and find it pretty insightful. John Allison is probably one of the few people to actually comment on the causes of the financial crisis (he actually ran a large bank during the time of the financial crisis).
Coolidge by Amity Shales
Conscious Capitalism by John Mackey
Heaven on Earth-the Rise and Fall of Socialism by Joshua Muravchik
The Myth of Robber Barons by Burton Folsom
Creativity Inc. by Ed Catmull

Bonus-Books in the office of Charles Koch as seen in this photo
All It Takes Is Guts by Walter E. Williams
A Conflict of Visions by Thomas Sowell
The Road to Serfdom by F.A. Hayek
The Fifth Discipline by Peter Senge
The Keys To Excellence: The Story of the Deming Philosophy by Nancy Mann
Is Reality Optional? by Thomas Sowell

1984-2014 Charles and David Koch Historical Net Worth..Increasing 17% Per Year

So Forbes recently came out with their wealth rankings and it appears Charles and David Koch are the 4th and 5th richest people in America. Earlier this year their net worth was $40 billion each. Today it was announced that Forbes estimates Charles and David Koch are each worth $42 billion each (a 16% increase from 2013). It is interesting to note that the standard deviation of the return of the percentage annual change in net worth is roughly 44%. Usually the stock market (S&P 500 is roughly 13% over many years) while the standard deviation of the returns of Charles and David Koch is 44%!

Standard deviation is a measure of risk in terms of how much returns deviate from the mean or average return. The higher the standard deviation the more risk an investment is. So simply the Koch brothers have increased their wealth at an annual compound rate of 17%/year (greater than the long term return of the S&P 500 of about 10%) while taking on 3 times the risk! Koch Industries reinvests 90% of their earnings back into the business which explains the rapid growth rate. Charles Koch mentioned in a recent Discovery newsletter that the company is targeting a annual compound growth rate of 12%/year. If the growth rate of Koch Industries is only 15% per year (which is under their historical average) by 2020 they each should be worth around $100 billion each.

In an earlier blog post I covered the Koch family estate planning situation. In this recent article David Koch mentioned that Koch family stock will go to his children so Koch Industries can continue to prosper.

New Koch Book "Sons of Wichita" by Daniel Schulman

So on May 20, 2014 a new book will be released entitled Sons of Wichita which is primarily about the Koch brothers. Over the years I have uncovered some interesting documents like the trial between the Koch brothers which can be found here. I also covered Koch estate planning here, and did a three part series on the trial Koch brothers here (I, II, and III).Actually I pre-ordered record the book from Amazon in November when I first learned about it. The book had a sales rank near 10,000 over this past weekend and jumped today to about 500 or so on Amazon. I would be willing to predict it becomes a best seller (given how many people actually have no idea who the Koch brothers are/they have some interesting stories to tell: billionaires, family battles, and building a business). I was glad to see the book is over 400 pages and according to the book website will be based on thousands of "never before seen documents" and "hundreds of interviews".

Personally I think the book should be a good read. My own prediction is the book will cover much of their political activities. Also I think the average person who reads it (maybe Harry Reid included) will learn how the Koch brothers actually built a business and the personalities of each of the Koch brothers.

Most likely I will read the book in a night (okay let's be realistic most likely over Memorial Day weekend) so and provide a review on here.

Koch Industries (Koch Brothers) Actually Decreases Pollution and Recycles

So I have been following the Koch brothers/Koch Industries for a while. You often hear of many reports about how Koch Industries pollutes and is making the air and water dirty for everyone else to breathe. However, do Charles and David Koch breathe different air then the rest of us?

I have to admit even I thought Koch Industries made pollution a tad worse until I actually looked at some data. I found reports (this link has all years I will refer to) that showed they do indeed reduce their pollution, recycle, and are actually more green than most people think. The latest Koch EHS report from 2014 is here. 

Currently about 90% of Koch facilities are STAR certified. STAR certified is a voluntary program from OSHA that companies voluntary join in order to make their workplaces safer than even OSHA regulations. A better explanation of this program is explained here. Because STAR sites are safer (because of voluntary actions of the company) they are rechecked every 3-5 years instead of every year. OSHA reviews incident rates every year though. However, as we will see Koch through continuous improvement has reduced emissions and made their work environment safer.

From 1997-2006 Flint Hills Resources refinery in Rosemount, Minn (this facility is very large-as I have actually driven past it) decreased emissions of carbon monoxide, nitrogen oxide, and sulfur dioxide by 53%. Also in 2006 criteria air emissions were .07 pounds per barrel of refining capacity, which was 65% less than the industry average of the 50 largest refineries in the country. As of 2012 the Flint Hills Resources in Corpus Christi, Texas went 12 years without a lost-time incident. Even the Obama administration praised Flint Hills Texas facilities. In 2000, a senior EPA official praised Koch because their Koch Petroleum Group agreed to reduced emissions by 60,000 tons annually. 

Koch invests 90% of their earnings back into the company. Much of this is to improve or upgrade existing facilities. In 1999 Koch introduced a low sulfur product six years before federal standards would be mandated. The company spent $200 million at the Pine Bend refinery (which produces low sulfur fuels). At a Koch Mont Belvieu, Texas facility decreased plant flaring by 95% which decreased emissions from 40,000 pounds in 2000 to about 2,000 pounds by 2003. 

People forget Koch Industries has a division that actually purifies water (Koch Membrane-which David Koch is in charge of). Koch Membrane provides drinking water to municipalities which use cartridges to clean out the water and can clean millions of gallons of water every day. In fact Koch's reverse osmosis module removed 99% of total arsenic in order to provide clean water to agencies and municipalities. Is is ironic that critics claim Mr. Koch is polluting the earth when he runs a division that purifies water!

In 1997, Koch Petroleum's refining operations had 45% fewer criteria air emissions that the average amount peer refiners. By 2000, Koch Pipeline transported 650 million barrels of liquids (including crude oil, natural gas, and other chemicals) and only one quart of product even touched the water. Between 1995-2000 Koch operated pipelines were able to reduce their leaks by 92%. In order to run these pipelines Koch spent $33 million in order to build a control center that had a fiber optic cable, customized software, plus a power supply that isn't uninterrupted.  In December 2012 Koch Pipeline and Flint Hills Resources went 8 years without a lost time incident. Speaking of Flint Hills from 1997-2012 the company reduced its emissions by 76% and emissions were 38% lower than peer refiners for 2012. 

Koch Industries is also into recycling between 1999 and 2000 Koch Industries more than 326 tons of material which was a 19% increase.  From 2000-2003 the recycling amount per person increased 29%.

Koch operates in a pretty safe environment.  Koch's Matador Cattle company for many years has operated with no incidents. Koch Aviation which flies about 2,300 hours per year had a four year OSHA recordable injuries in the mid 2000's that was 80% lower than the industry average. John Zink worked more than 4 million hours and 850 consecutive days without an injury resulting in time away from work. John Zink at this time had 700 employees working 1.7 million years annually. In 2006 six Georgia Pacific facilities had more than 1 million hours in each facility without a lost day of work. A Koch Nitrogen facility in Oklahoma recorded 3 years with no lost time injuries. An Invista facility in the Netherlands went 15 years without a lost workday case and Invista site in Brazil went 32 years without a lost time injury! At the same plant from 2003-2011 which makes LYCRA fiber reduced the amount of water used and actually saved enough water to fill 80 million one litter bottles.

To my knowledge Koch no longer explores for oil/gas. The company does refine oil which is turning the crude oil into other byproducts that are used into everyday goods like plastics. Koch just purchased Molex which is a connectors company that makes connectors for iPhone and other electronic devices. The company makes plastics, fibers, refines oil/gas, minerals, fertilizer, sends oil and gas through pipelines, and even does ranching. It seems as if though Koch Industries voluntary invests 90% of their earnings back into the company to make company assets and employees safer. By reinvesting the earnings back into the company Koch increases productivity and reduces lost work time due to accidents. By reducing the amount of waste Koch is able to make more money and use fewer resources. How many people would have guessed that Koch Industries actually reduces pollution and makes the world a greener place?

FDA Make Another Boneheaded Move on Lemtrada: Meanwhile Patients Suffer

I recently was reading this article and started to get somewhat frustrated while reading it. Basically the FDA recently announced that last December a drug called Lemtrada which is used to treat people with multiple sclerosis (MS) was not approved because according to the FDA the studies were not adequate and well controlled.

The drug Lemtrada is used to currently treated people with leukemia. The drug is an intravenous drug and produced by a company called Genzyme. The drug has been approved in Canada, Australia, and even all members of the socialist European Union (according to this Wall-Street Journal article). One no brainer for the FDA is to have reciprocal approval with other countries-so if Canada or Switzerland approve a drug by their equal FDA than it should be okay for the United States.

When the trials were conducted they found a 50% decrease in symptoms (1,400 patients took this drug). The nice thing about the drug is that you only have to administer it essentially once a year as opposed to taking numerous pills and multiple weekly injections from other MS drugs.  We have to remember that these patients are real people with a real illness who I would imagine spend a fair deal of time worry if they will ever get better. The FDA said the issue with the trial was that it was not double blind (which is the gold standard for FDA trials). However, if you have a serious chronic illness and you actually do get the placebo (sugar pill) and get worse and worse who does that help? Doctors and patients correctly pointed out that Rebif which already FDA approved did not used double blind trials when it was going through approval.

The only thing Genzyme can do now (after it has already spent many years and hundreds of millions of dollars in running the drug trials) is to run a double blind study trial which would take at least 2 years and would cost another $100 million for a drug that nearly every other rational country has approved.

The FDA approval panel should have a rule that states "you must have a loved one, family member, or someone you deeply care about that suffers from the illness from the drug you are trying to decide on". If this where the case I would imagine different results if they actually stopped to think how many people are harmed by the FDA holding back drugs to people with chronic illnesses. Maybe the FDA needs a mental evaluation.

Charles Koch Wichita Business Journal Interview

                                          Photo Credit: Kellen Jenkins of WBJ 

So last Friday morning the Wichita Business Journal (the article is only unlocked for a week) in an effort to revamp their journal came out with a profile of Charles Koch. Koch is not known to give very many interviews. Although in the past few years he did one with Forbes and one with the Wichita Eagle. The story of how the interview came about is interesting (more on that later).

In the interview done in February 18, 2014. From the pictures Charles Koch looks very relaxed wearing an Oxford Polo Shirt (who would think a billionaire would wear Ralph Lauren-that isn't Ralph Lauren). Koch talked about a number of different things like why Koch Industries is still in Wichita (I was even surprised he quoted Hayek on that). On innovation when asked why Charles Koch who is 78 years old and still shows up up to work everyday. According to Koch "I may be old, but I'm not dead yet". Koch Industries is still trying to integrate Molex from their merger last year. I would imagine Molex employees are learning more about Market Based Management. Koch said that Molex has to "get an idea built and get it commercialized immediately". Molex makes connectors that go into computer and electrical products (wait I thought Koch Industries was an oil giant). What is really interesting was Koch discussing products that can learn themselves. He discussed about building a computer into a glass mirror that could learn to adjust the temperature or the amount of light to come through the mirror all with the press of a button. Koch Industries has also made some interesting investments like into American Greetings (a card company). Essentially, Koch provided capital to American Greetings in order to take the company back. Charles Koch points out that it is hard to give a loved one the same message from a digital card as a hand delivered card. Koch said he liked the new technology in the drilling business (however he doesn't want to get back into that industry).

Chase Koch is the son of Charles Koch and earned his BBA in Marketing from Texas A&M University and has been with the company since 2003. I talked about Chase Koch and possible estate planning here. Charles Koch even challenged if his son would be the best person for the job. I honestly believe that if Charles Koch didn't believe his son was ready he would not have him on board with the company. Koch Industries has a large bench to pool from in terms of talent in the future if needed.

When talking about his political views Koch is really trying to save the country by promoting limited government and free markets. He talks about cronyism and the barriers to entry (taxi medallions or required schooling for hairdressers). Koch does correctly point out that make it harder for poor people to advance "for disadvantaged people trying to get started, its unconscionable in my view". Honestly, it seems clear the Charles Koch does want to help poor people. Thomas Sowell once said that the difference between Democrats and Republicans is that Democrats want to give the poor money while they are poor and Republicans want to help poor people stop being poor. Koch talks about long-term interest instead of short-term interests. Since Koch is private they don't have to worry about analyst meetings or quarterly earnings. In this interview from 2007 Koch said "a public company has to cope with the extreme focus of the analysts and the equities market on quarterly earnings. Someone misses quarterly earnings projections by a penny, and their stock goes down 10 percent". Most people actually incorrectly believe that companies are just into the bottom line for the short term. However, if you constantly make bad decisions in the short run you won't be around for the long run. Koch points out that "people should only profit to the extent they make other peoples lives better. You should profit because you created a better restaurant and people enjoyed going to it. You didn't force them to go, you don't have a mandate that you have to go to my restaurant on Tuesdays or Wednesdays or you go to prison". Gee, for some reason I have this feeling if I don't purchase healthcare I get some time of penalty. When talking about political contributions and his interests it should be noted that Charles Koch, David Koch, and Koch Industries are subjected to death threats, cyberattacks (speaking of which a 24 year old Iowa man got busted for trying to launch a cyberattack on the Koch website). I saw someone from Young Turks explaining how it was nice that young people were realizing that Koch Industries was a bad an evil corporation and even liberals should feel a little proud when the company gets hacked.

It was interesting to see the Charles Koch Foundation is working with Michael Rowe from  "Dirty Jobs" in order to explain to people they don't need to get a liberal arts degree and that some people who have certain talents can make very good money my satisfying needs and wants of people.

A nice feature of the article is when former Koch employees reflected on there time at Koch. Nearly all of them said it shaped how they thought and had a positive effect on who they become as business people. Former employee Patrick Ahern said that in one year he learned so much he would have paid to work at Koch Industries.

According to reports Koch Industries decided at the last minute not to allow video during the interview (probably for security reasons). It is pretty clear that Charles Koch and his brother David Koch unfortunately have to have armed guards 24/7 to protect them because people fundamentally don't agree with their ideology. The ironic thing is that these people who complain are most likely using a Koch Industries product. If they use the toilet they most likely used Georgia Pacific toilet paper. If they dried their hands they used a paper towel from Georgia Pacific. After the purchase of Molex, if anyone has a iPhone it was created partly by Koch Industries. The list goes on and on of products that Koch creates that every day people use (probably without even realizing it). What is even more interesting is that Koch to my knowledge doesn't explore for gas like actual companies (Chevron, ExxonMobil, and the rest).

1984-2014 Charles and David Koch Historical Net Worth & Bill Koch Loses $200 Million in Net Worth

Forbes came out with their ranking of billionaires today. Charles and David Koch are each worth $40 billion. I have followed the net worth of the Koch's for some time now (30 years worth of data. What is interesting though is that the compound annual growth rate of Charles and David Koch's net worth is close to 17%/year which is much better than the market.

If Koch were a publicly traded stock it would be outperforming the S&P 500! However, the standard deviation is 44% which is vastly much higher than the stock market which has a standard deviation of a large fraction of that. Koch prefers to remain private because they don't like to have to be meet quarterly numbers or care what Wall-Street analysts think and instead rely on the long-term view. Koch does invest 90% of their earnings back into the company (which I estimate to be about $5.5 billion/year). Most corporations pay a dividend and buy back shares (in order to provide a return to shareholders). Bill Koch once remarked (when he was a shareholder) that Koch Industries was so low he couldn't afford to purchase a nice house. Speaking of Bill Koch his net worth actually went down from $4 billion to $3.8 billion. Yes, a Koch brother did lose $200 million in one year! What is even more interesting is that Oxbow Energy (founded by Bill Koch claims returns of 30%/year while Charles Koch declared a 12% annual return in their 2014 January Discovery newsletter.  Interesting how 3 out of 4 brothers from one family are billionaires. What happened to Frederick Koch?