The Battle That Defined the Koch Family Business

The Battle That Defined the Koch Family Business
David Koch. By Gage Skidmore [CC BY-SA 3.0 (https://creativecommons.org/licenses/by-sa/3.0)], from Wikimedia Commons

Their name is synonymous with hard-nosed business practices and conservative politics in the United States. To the left they are a two-headed monster that represents everything that is wrong with the influence of money in Washington politics. To the right they are champions of the anti-government movement and agents of reform and positive change.

They are Charles and David Koch, better known to the world simply as the Koch brothers.

What is not in dispute is, worth more than $44.3 Billion each, they are among the richest men in the world. For most of their adult life their, wealth was rivalled only by their desire for privacy. Their company, worth more than $115 Billion, is the second largest privately owned agricultural enterprise in the U.S., behind only Cargill. When pressed for information about Koch Industries, the standard response is, “We are privately held and don’t disclose this information.”

So why are two men who built their empire anonymously cherishing their privacy suddenly the face of the small government conservative movement in the nation? Each has given tens of millions of dollars to conservative interest groups and candidates over the last 30 years. Surely there are quieter and more cost-efficient ways of advancing their business interests on Capitol Hill and in Statehouses across the country.

To fully understand why these two brothers have started their own political movement, you have to go back more than 30 years to the battle that defined the Koch Brothers.

A Family Dynasty is Born

Fred Koch was a skilled and ambitious worker whose ability led him to become co-owner of an oil engineering firm. He and his wife Mary settled in Wichita Kansas and had four sons:

  • Frederick (1933) – Constantly a disappointment to his father, he was drawn to drama, the arts, and literature.
  • Charles (1935) – A rebellious bad boy who later went straight and became the heir apparent.
  • Fraternal twins David and Billy (1940) – David was athletic and popular, close with Charles. Billy was obsessed and jealous of Charles’ position as the favorite.

When their father died in 1967, the company he left to his four sons was worth $250 Million. Frederick was left a smaller share than his brothers and he was not involved in the family business. Charles took the helm and, under his guidance and leadership, grew it into to the corporate behemoth it is today.

But all of the success couldn’t completely quash the sibling squabbles that went back to when the brothers were boys. Billy was always jealous of Charles who was clearly their father’s favorite. In business, Charles was more results based while Billy was more deliberative. As a result, Billy’s division was not doing as well as it should have been.

By the early 1980s with the brothers in their mid-40’s, long simmering family tensions finally boiled over. At issue were how the company was being managed and the role of politics in Koch Industries.

The Koch Family Anti-Government History

The Koch family’s anti-government leanings can be traced back to Fred who helped build the USSR’s oil industry in the 1930’s. This experience led him to become rabidly anti-communist and anti-government. He would later become one of the national leaders of the John Birch Society, a conservative advocacy group supporting anti-communism and limited government.

Charles would pick up the fight against the perceived intrusion of big government in their lives by becoming a major Libertarian Party financial contributor. The Koch family influence in the Libertarian party was sufficient enough to place younger brother David on the ticket as the party’s Vice-Presidential nominee in the 1980 election where they garnered 1% of the vote.

Fueling this anti-government push was the fact the family seemed to be constantly under investigation for one issue or another. In 1980, the Department of Energy was investigating Koch industries for allegedly violating price control regulations. The government, they believed should leave them alone and let them run their business. A point David repeatedly made on the campaign trail when he was calling for the eradication of the Department of Energy.

Brothers Against Brothers

This was the point where Billy felt he could no longer be silent. Their father had stressed privacy in how they do business but now Charles and David’s Libertarian advocacy was drawing unwanted attention to the family business. Billy was concerned that too much of the company money was going to support their political cause and all the investigations were damaging the Koch name in the business community. Billy concluded that something had to be done.

In his book, Sons of Wichita: How the Koch Brothers Became America’s Most Powerful and Private Dynasty, Daniel Schulman details the contents of the 11-page single space letter Billy sent to Charles and some of the key shareholders on July 3, 1980. Among the issues he raised were shareholder liquidity and the regulatory run-ins. At one point in the letter Billy wrote, “The directors and shareholders must look on helplessly as the corporation’s good name is dragged through the mud.”

One of Billy’s requests was that they take the company public to ensure greater transparency for the board and the public. Charles knew this would make them an even bigger target for the government which he believed would stop at nothing to take them down. He had a choice – give in to some of what his brother demanded or refuse even if it meant war within the family. Rather than acquiesce and open up Koch Industries to become a government target, he refused and risked war within the family.

That’s exactly what he got.

Later he would learn that Billy had been aligning the shareholders to execute a coup and remove Charles from his leadership role. The plan involved bringing in Frederick’s shares to Billy’s side as well as a select group of shareholders. At the eleventh hour, Charles convinced an ally to buy out another shareholder thus giving them 51% of the votes. The coup had failed and Charles felt he had no choice but to fire his brother from Koch Industries. When the dust had settled, Charles and David were the only two Koch brothers left standing in the family business.

Legacy

The messy and prolonged disputed resulted in several court battles which went on through the late 1990’s. As for the family, Charles would not take Billy’s calls or even recognize him as part of the family. More importantly, it established once and for all that anti-government politics was woven into the DNA of Koch Industries and the men who run it. Given a choice between keeping the family peace or maintaining the crusade against the over-reach of big government in America, the Koch brothers made their choice and never looked back.

And in doing so, forever changed the political landscape in the 21st century.