Monday, March 31, 2014

What the Kochs Do as a Corporation - Understanding the Koch Business Model

Although the Kochs pay lip service to values, for instance hard work and innovation, they ignore the absolute need for accountability, for themselves as well as others as a foundation for hum an action to maintaining a civil society, both as a community and in business. Business, commerce is an element Instead, they adopt a strategy to externalize their costs of doing business, allowing them to increase profits, which they keep for themselves. This impacts all of us and raises questions about their corporate culture which are now being answered from multiple directions.

It is Charles who, without question, makes all senior decisions and creates the corporate culture for the privately held company. His is the intelligence which drives decisions and which built the corporate culture existing in Koch Industries today. David, who has been described as a 'lunk,' is an intelligent man who always agrees with his older brother.

It is Charles who obsesses over privacy and control and is relentless in pursuit of his goals, in business, politics and personally. Charles Koch is the source of the corporate culture which created the monumental wealth he and his brother hold today.

For good and ill, Charles is personally responsible.

Despite the extreme secrecy the Kochs attempt to maintain, information about these methods have seeped out. Now, those of us on the outside can see the extreme disincentives for failing to follow Koch policy. Violating the tenets of the Koch internal culture brings extreme consequences. This policy is referred to by former insiders as the ‘Koch Method.’

In an article published in the Wichita Eagle titled, Charles Koch relentless in pursuing his goals, by Roy Wenzl and Bill Wilson on October 11, 2012, the writer noted Charles saying, “Americans are drifting dangerously away from traditions of honesty, independence and personal responsibility.” Koch went on to state he hired for, “values rather than talent.” Continuing, Charles Koch said, “A lot of companies, and we’ve been guilty of this in the past, want to hire the smartest person, the most talented person. Well, the worst thing we can do, as we found, is hire a very talented person with poor values. If we’re going to hire somebody with poor values, we want somebody who’s not very smart. ’Cause he or she will do less damage.”

It is impossible to square these statements which claim a history of integrity and honesty with the record the Kochs have built in politics and business over the last 35 years. The Koch Method, though I did not know it by that name, was active in Koch's political dealings at the time he entered Libertarian politics in 1977 and this parallels what has happened in his business dealings. This great a deviation from the truth, documented through multiple sources, would embarrass Edward Bernays, the high priest of propaganda.

The political issues which document this pattern are taken up in Why the Koch Brothers and Koch Industries are at the top of our list. The history of the Koch family in America is titled, Meet Charles and David's Ancestors. The series was prepared for our website, Koch Truths.

Charles and David have been attacked for some time now, their strategy for privacy having yielded to the investigative attentions of the left. But because of the successful campaigns of previous generations of corporates the left failed to see the reoccurance of of previous applications of the Koch Method in other venues and times.

The Koch Method – Lie, Cheat, Steal

An article in Bloomberg, titled, Koch Brothers Flout Law Getting Richer With Secret Iran Sales, written by By Asjylyn Loder and David Evans, appearing October 3, 2011, included several instances which illustrate the enormous divide between what Charles, David, and other representatives of Koch say, versus how they operate within Koch Industries.

The article provided a statement from Phil Dubose, a Koch employee. Dubose, who testified against the company, saying he and his colleagues were shown by their managers “how to steal and cheat -- using techniques they called the Koch Method. “

The Bloomberg article gives the sense the Koch Method was a long understood practice, foundational to Koch's corporate culture. This impression is reinforced by the many instances cited by an array of individuals from within the corporation.

According to whistleblowers, this method involves lying, cheating and stealing. These are their words, confirmed by objective evidence in legal proceedings.

The full article is well worth reading. Here we cite two instances to illustrate the point.

Sally Barnes-Soliz, now an investigator for the State Department of Labor and Industries in D.C., reported to a grand jury about being asked by her bosses and a company attorney at the Koch refinery in Corpus Christi, TX, to falsify data in a report to the state on uncontrolled emissions of benzene, which is known to cause cancer. She refused.

Barnes-Soliz reported the bafflement when she cited ethical reasons for refusing. The Koch refinery unit pled guilty in 2001 to a federal felony charge for lying to regulators. Koch paid $20 million in fines and penalties.

One might, sympathetically, imagine Charles flouting the law when doing so could be construed as a victimless crime if he actually held Libertarian or Conservative principles. But causing cancer in uncounted people by not reporting carcinogens brings this interpretation under examination.

It is possible Charles divides hjmanity into 'real' people, those who he knows personally or works with, and others, who can be viewed as disposable. Certainly Charles had treamed people as disposable during his political activities as well as in business. Let us simply note he is acting outside of the principle with which most Libertarians and many Conservatives, and Liberals, would agree.

In the same article a Bloomberg Markets investigation reported finding Koch Industries, “ in addition to being involved in improper payments to win business in Africa, India and the Middle East sold millions of dollars of petrochemical equipment to Iran, a country the U.S. identifies as a sponsor of global terrorism.” 
Perhaps Charles saw himself acting in the same fashion as his father, Frederick Chase Koch when he contracted to provide refinery technology and plants for Stalin. But in Fred's case he later said he knew nothing about Communism. It was a business deal, bringing to a foreign nation the means to have energy they produced themselves. The deal was not illegal. From what Fred has written about this time I suspect he was apolitical. 
That Koch Industries engaged in the deal with Iran says something to us about how Charles Koch, the head of a private corporation which is larger and wealthier than many countries, views foreign policy dictated to him by some other power. 
Charles may well believe he can have his own foreign policy, though I doubt he would say this. It is also possible, along with other Americans, Charles Koch does not view Iran as a threat. I would agree. However, this does not change the fact he was violating the law and also, despite the millions the Kochs spend on political change, has not lobbied to lift the sanction on Iran, which would have made his actions consistent. 
The Bloomberg article enumerated five instances where lying, payoffs, or other illegal practices were used under instructions from management. Each originated in a different part of the company. While a couple might have gotten Charles excited about 'over regulation,' this was not always the case. Additionally, this raises two further questions. 
If the Koch Method was not routinely successful then its use would not have persisted. Charles is not stupid and this would have cost him far more than he has been forced to pay. How much of the wealth accumulated by the Kochs has its origin in illegal deals? The second question is what laws does Charles Koch decide to follow and which does he believe he can disregard with impunity? What principles is Charles following? Inquiring minds want to know. 
If Charles Koch was a libertarian or conservative he would be following the non-aggression principle, which mandates doing no harm to others. Carcinogens should be immediately reported. Since this was not done Charles is not following the principle. 
Is he then following the principle of taking responsibility for damage you cause others inadvertently, making what restitution is agreed on or mandated when the matter is heard in a court of law? The evidence says not. 
In the instance above the $20 million was paid, but for Koch Industries this is not even the equivilent of a parking ticket. 
And then, there is the 1996 case, when Koch Industries incinerated two teenagers.

Danielle Dawn Smalley and a friend, Jason Stone, were burned to death while on their way to report a break in a pipeline near the Smalley home on August 24 of that year.

In the subdivision impacted one home was destroyed, 50 people were evacuated from the neighborhood. It is amazing more did not die.

Danielle and Jason were both 17.

Engineers from Koch Industries admitted the pipeline was not properly maintained, this resulting in the largest award for personal damages ever made to that point in time, $296 million. This is exactly the kind of case for which punitive damages were intended. Instead of paying up the Kochs appealed and settled for a far smaller amount. George W. Bush, then governor of Texas, is believed to have intervened for the Kochs. The first verdict was justice. The 'arranged' verdict was a gift which fostered the lack of accountability which characterizes Koch operations.

Punitive damages are exacted when otherwise the amount paid would not be sufficiently punishing to the guilty. What was paid was chump change to the Kochs. They would have at least noticed $296 million.

So, we know the Kochs have a long history of acting with seeming calloused disregard for the damage they do to others, positioning themselves as, somehow, the damaged party. If possible, their strategy has been to maintain silence and ignore inquiries. 
If it is deemed necessary their PR department kicks in and begins issuing news releases which, depending on the circumstances, deny responsibility, claim they are being unfairly attacked, or assert they have noticed their deficiencies, if there were any, these usually blamed on the size and complexity of their business interests. Now, the PR department announces, they have changed their ways. 
No comments on, perhaps, shrinking their operation to a size which makes it possible for them to manage all this complexity is ever broached, either by the Kochs or the authorities.
All will be different in the future. But the future never arrives.
People who lie routinely, says our attorney, should not be believed, having proven they are unreliable. The court is obligated to note this. 
So, how reliable are the protestations by Charles Koch, and his employees, when they claim these methods, long accepted and practiced, have actually been abandoned? Given the lack of guilt or shame shown an alternative explanation should be considered. 
What if the instances which lead to exposure, in these and other cases, were closely studied and the 'Koch Method' simply modified to evade future exposure? If this is the case how often has this rethinking taken place and the Koch Method modified and improved? 
What if Charles Koch, wealthy all of his life, believes his methods are justifiable because he has not achieved the kind of freedom he thinks is due him? 
Perhaps Charles should remember that the regulatory infrastructure grew in response to corporations which ignored the damage done to others, the overwhelming majority of these folks lacking the options which could have given them justice? 
A better system would exist if, instead of buying decisions with money or political pull, every person was treated equally when harmed and ensured a real justice instead of being buried in lawyers. 
Our founders lived with a system where most people were capable of using the court system without recourse to paid representation. That was the system intended and that was the system with which they were familiar. They also knew, and accepted, a local government, which held most of the power, and was directly in the hands of the people. People were accustomed to solving their own problems in their own communities. 
Charles lives in a world where is spent most of his life not being confronted by the contradictions in his 'ideology.' Ed Crane might have snickered behind Charles' back to his cronies, but he knew when to nod and look serious. Also, the Koch Method likely received some tuning up from its use by Ed in his ongoing attempts to take over the Libertarian Party and then the larger movement. 
There is a nice irony in Ed's removal from his love-child, birthed between the two of them.
And for Charles, now in his mid-70s, he is finally hearing the opinions he evaded knowing. Charles Koch has lived a life of affluence in a tightly controlled environment which denied him a real understanding of the world in which the rest of us can't easily avoid.

You can't enforce freedom from outside. It is built from within the individual, by the individual. The manipulations of Charles Koch send shock waves of despair into activists who struggle to empower themselves in their own communities. 
The business applications of the Koch Method, cited in the Bloomberg article, and elsewhere, took place in parallel with the Koch attempts to achieve their political agenda using the same covert and illegal methods. Sound familiar? The Koch Method appears to be the same in each case and we know because of recent events these methods have not been abandoned politically. 
Friends, and his wife, Liz Koch, say the relentlessness in his character comes from his determination to win, no matter what. But what does winning mean when it results in deaths and the destruction of communities, jobs, and people's health, impacted by toxic waste? In all things, those in positions of power need to balance the full costs against what is to be gained – and by whom. 
While externalizing the costs of fracking and tar sands benefits Koch Industries in the short term it exacts enormous costs from individuals, who are vulnerable and effectively unprotected by the very regulatory system they support through taxes. Individuals are unable to muster the resources needed to litigate successfully in our present system. They can no longer represent themselves and would be stone-walled by the consistent refusal of corporations, such as Koch Industries, to make information available which is essential to proving the case. 
If Charles Koch was the man he pretends to be he would never let people suffer and die so he could increase his bottom line. A man who lived the values Charles Koch speaks would not have to be sued to do the right thing. 
We understand both Charles and David, along with their brothers Frederick, Jr., and William were produced by parents who could spare little time for them, witness their own statements. Born to a multi-millionaire father, they know nothing about what the rest of us have to give up to pursue put time and effort into enacting change and they take every possible advantage of the situations they, themselves, produce. 
This is why Charles Koch, and little brother David, need to be sued. Seriously. Personal injury and fraud causes are thick upon the ground.

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