Charles Koch does not need to look at the menu before lunching with the FT. The billionaire has chosen a restaurant he knows well: the in-house canteen at his company headquarters in Wichita, Kansas.
Few outside the US business community would be able to pronounce Koch’s surname correctly (it is ”coke”, like the drink) or identify the lanky 71-year-old as the man who has built the world’s largest privately owned company.
Fewer still would know that Koch Industries, the conglomerate he took over upon his father’s death in 1967, generates annual revenues of $90bn - more than Boeing and Google combined - from business assets ranging from oil fields to cattle ranches to Lycra.
Koch’s choice of lunch venue - lamentable for an interviewer who has volunteered to descend from New York’s culinary heaven for a full two days - is in keeping with his no-frills persona. He may be worth $12bn but, as his aides have dutifully and repeatedly told me, he eats in the cafeteria, complete with piped music and soda fountains, almost every day, patiently queuing behind some of the 80,000 people he employs.
Reasoning that frequent visits must lend Koch an in-depth knowledge of the place, I follow him to the ”healthy choice” station for the menacing-sounding ”chicken with 40 cloves of garlic”. Sadly, the sight of the bird’s breast smothered in a brownish, gooey substance prompts me to hedge my culinary bets with a ponderous slab of chocolate cake.
Koch appears to be on the same wave-length, picking up a packet of M Ms while we are at the till.
Slipping the candies into the pocket of his brown trousers - paired with an open blue shirt and brown jacket in ”billionaire-casual” style - he justifies the indulgence. ”Someone once told me chocolate is good for you. You know who that was?
M M’s chairman,” he says with a smile that creases his rugged face.
As soon as we set down our trays on a window table, Koch is itching to discuss his unique, and controversial, business philosophy. Having recently published a book on the matter, Koch is eager to spread the word, oblivious to the sound of ”My Heart Will Go On”, Celine Dion’s tear-jerker hit from the film Titanic, emanating from the canteen’s Tannoy.
As the title of his book - The Science of Success - suggests, he believes that the art of running a company can be distilled down to precise and measurable rules. ”As an engineering student, I understood that the natural world was governed by fixed laws and it’s possible to understand and apply them,” he states matter-of-factly.
And while younger entrepreneurs venerate contemporary management gurus such as Jim ”Good to Great” Collins, Koch’s sources of inspiration come from the previous century.
Free-market economists such as Ludwig von Mises and Friedrich von Hayek, whose works he studied in a intense burst of youthful reading, are in Koch’s pantheon.
His own contribution is to apply their teachings - that societies should be designed to reward individual initiative and foster the unfettered exercise of private property rights - to companies. At Koch Industries, this means that employees are rewarded, promoted or fired, based on whether or not their work adds to the bottom line.
Similarly, the company’s business units are encouraged to innovate, replacing old techniques with newer thinking and jettisoning unsuccessful businesses in favour of new acquisitions.
I am about to interject that Joseph Schumpeter, the Austrian economist who fascinated the young Koch with his ”creative destruction” theory, would have been proud, when Blur’s ”Girls Boys” begins blaring. I manage to ask Koch whether you really can transfer macro-economic theories to a real-life company.
He concurs just as Damon Albarn’s falsetto hits the last line (”Always should be someone you really love!”).
”You never get out of this hospital, and that is what makes it fun and that’s what keeps me going,” he says, pointing to the long period of trial and error that preceded the crystallisation of his business credo.
He has used Koch Industries as his own utopian community, testing ”market-based management” - the name he coined for his theories - and has been creatively destructing what was not working for over 40 years.
The results have been impressive: $1,000 invested in Koch Industries in 1960 would be worth $2m now, a rate of growth 16 times faster than the US stock market. Except that no one, apart from Koch, his family and a few associates, has ever been able to invest in Koch Industries because, as he once put it, the company would only be listed ”over my dead body”.
Which is why I wonder whether Koch’s managerial prowess has been aided by being shielded from the glare of publicity and the pressure of shareholders hell-bent on getting results every quarter. He nods and puts his fork down: something is rotten in today’s corporate America. ”All this hype: ’Oh they missed quarterly earnings by a penny,’ well who cares?
” he says, his right thumb pressed against his index finger in a pose of Clintonesque determination. ”What were the managers doing? Did they have an effective research and development programme?
Do they have all the employees they need? Do they have good strategies for the future? These are the measures that count - not whether they make a penny more or less.
”
Koch’s displeasure extends to business leaders for their meek acceptance of the status quo. ”They need to stand up and say: ’Guys, you do this and it is going to hurt our ability to create value and create prosperity and make your lives better.’ The leaders in business should show some leadership instead of being just victims.
”
Business’s failure to fight back is in danger of giving rise to a nightmare scenario for rich arch-libertarians: more regulation and higher taxes. ”What happens when the public loses faith that business people are creating value, if it starts saying, ’Well let’s tax them all, let’s take it away. If they are making our lives worse rather than better, who needs them?
’”
Raised by a fervent anti-Communist father, Koch was a founder of the free-market Cato Institute and bank-roller of the Libertarian party (his brother David was its vice-presidential candidate in 1980 on a ticket that got 1 per cent of the vote).
He must feel like a political dinosaur at a time when the Democrats control Congress and have a good shot at the White House next year. But he relishes the role of political outcast, cheerily listing the epithets that have been thrown at him over the years: ”Communist, Nazi, anarchist, even Calvinist.
Man, that should make me feel good. I got the whole spectrum.”
Still, I insist, is there anything he likes in the 2008 candidates, perhaps the strong business background of the Republican Mitt Romney, or the aura of hope that surrounds Barack Obama?
For once, the canteen Muzak gets the mood right, with Oasis’s melancholic ”Don’t Look Back in Anger” overlaying the disenchanted response. ”I haven’t seen any evidence, and if I don’t have evidence now..
. It’s like if you don’t get along before you get married. What makes you think that after you say those words it is going to be bliss?
” says Koch, who knows something about marriage, having been with his wife Liz for 34 years.
As he finishes the sentence, Koch notices I need a fork for my cake and, in a blink, the world’s biggest private entrepreneur - a man described as such a tough negotiator ”that in a 50-50 deal, he keeps the hyphen” - is on his feet to fetch me the missing cutlery.
During his brief absence, I muster the courage to tackle both the mammoth cake and a delicate subject: the epic feud with his younger brother Bill, a Cain and Abel-type confrontation that dogged Koch and the company for more than 20 years.
The internecine strife ended in a legal settlement seven years ago but Koch is still reluctant to talk about Bill, who accused Koch Industries of, among other things, stealing oil from an Indian tribe and underpaying for his stake in the company. (Koch Industries denied both allegations.)
Once again, Koch draws inspiration from the past, likening himself to the ancient rulers.
”I was watching the History Channel last night as I was working out - most of the murderers of the kings were by the wives or sons,” he says. ”At least nobody murdered me.”
In typical fashion, he maintains the family rift has taught him a business lesson.
”The only partnerships that are gonna work - no matter whether they are family or best friends - are those with people with whom you share visions and values.”
But does this belief, allied with his strong views on management, lead to a cult-like atmosphere at the company - a charge sometime levelled at Koch Industries?
Tellingly, Koch responds with an analogy from sailing, a sport beloved of his brother Bill, who sponsored the winning yacht in the 1992 America’s Cup.
”If it is too much like a cult, well, let’s get rid of that, you have to challenge that...
get rid of me, I might be an anchor. I would like to be a sail but I might be an anchor.”
Then, perhaps recognising that he has just advocated the use of creative destruction on himself, he adds: ”You will find that I may be wrong but I am consistent.
”
It seems like a good note on which to end. Koch has to rush to Los Angeles for a business meeting. As his tall, lanky frame heads for the exit, he cuts an almost heroic figure: a super-wealthy Don Quixote, fighting to make his eccentric voice heard in an increasingly hostile business and political world.
Francesco Guerrera is the FT’s US business editor.
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