Sons of Wichita: How the Koch Brothers Became America's Most Powerful and Private Dynasty (10 page)

“It’s always been the discovery that turns him on,” he continued.
“And that’s why he made all the money.… He just loves the discovery and the wealth followed.”

Pursuing expansion with his signature intensity, Charles worked six, sometimes seven days a week and expected the same of his inner circle. He grew so accustomed to fielding middle-of-the-night calls from employees operating in different time zones that one evening he awoke from a deep sleep believing the phone was ringing and walked out of his bedroom to answer it. He realized a few moments later that he had dreamt the call—and was now standing in the hallway of his apartment building in his underwear. Charles even designed his exercise regimen—he ran a few miles several days a week—so it wouldn’t detract from his productivity. “My objective,” he once said, “is to get the most exercise in the shortest possible time.”

Charles often seemed oblivious to the demands he placed on his employees. In August 1968, in an episode executives still shook their heads at years after the fact, he convened a meeting on a Sunday afternoon that ran until midnight.

But his methods worked. The company was growing at a head-spinning pace. Charles had inherited an enterprise with 650 employees and a value of about $50 million. Over the next fifteen years, Koch Industries’ value rose to $1.5 billion and the company employed 7,000 people. Its small group of shareholders reaped the rewards of this growth in dividend checks that kept adding zeros, increasing from the thousands into the millions; the year of Fred Koch’s death, the company paid out less than $300,000 a year. By the early 1980s, the Koch brothers and the other shareholders divided up a pot of close to $28 million.

Even though Charles, as Koch’s chairman and CEO, charted the direction of the company, it remained a family enterprise. By the late 1960s, Bill and David had joined the company’s board of directors and took a more active role in plotting its future course.
At the time, Bill was still in Boston, completing a doctorate in chemical engineering at MIT; David had moved to New York City, where he worked as a junior engineer at a chemical company.

Frederick, as in childhood, remained the odd man out. His 14 percent interest in the company entitled him to a board position of his own, but he elected not to get involved with the management of Koch Industries. This was just fine with Charles, whose relationship with his older brother was distant at best. “Frederick and I had quite different interests, so we were never close,” he once explained. But this was an understatement. Charles held his bon vivant brother in contempt. “Over the years,” Charles once said, “I had accepted my father’s analysis of Freddie of not really being a whole person, of being a person who was amoral and not capable of true feelings towards other people.”

As Charles had made clear to J. Howard Marshall, he disliked partnerships, especially with people he didn’t trust—like Frederick, a wild card. He displayed no interest in the company’s affairs now, but what about in the future?

Eight months after their father’s death, Charles made a play for Frederick’s shares, but in doing so he badly underestimated his older brother. During the summer of 1968, Charles made an appointment to visit Frederick to discuss the possibility of acquiring his stake. Befitting their cool relationship, they convened in formal fashion at the midtown office of Frederick’s attorney S. Hazard Gillespie, a partner with the white-shoe law firm of Davis, Polk & Wardwell.

Gillespie was a legal legend, who in the late 1950s and early 1960s served as the U.S. Attorney for the Southern District of New York, where he was known for his aggressive prosecution of securities fraud and for unsuccessfully making the government’s obscenity case against
Lady Chatterley’s Lover
. In private practice, the bow-tie-wearing litigator represented a string of high-profile clients, including actresses Mary Pickford and Tallulah Bankhead.

Charles had worked out what he considered a fair price for Frederick’s holdings, $120 per share. He handed Gillespie a document on which he had calculated how much annual interest the proceeds would accrue if invested in various mutual funds—that is, how much yearly income Frederick would have to live on. Why keep his money tied up in a private company like Koch Industries, Charles seemed to be suggesting, when Frederick could make a tidy living investing in the public markets?

Frederick heard Charles out, but found his brother’s effort to separate him from the stock their father had gifted him rather brazen. “I thought it was presumptuous of a younger brother to map out my financial future for me,” Frederick recalled.

Gillespie had commissioned a study of Frederick’s holdings, based on years of financial statements, in advance of the meeting. The lawyer told Charles that this review had determined that Frederick’s stock could be worth up to three times what Charles was offering. With that, Gillespie picked up the document Charles had handed him, and, with the young executive watching, theatrically dropped it in a waste bin.

“Goodbye,” the lawyer said coolly.

David officially joined the family company in 1970, taking a mid-level position, at a salary of $16,000 a year, as the technical service manager at Koch Engineering, the same division where Charles got his feet wet in the family business. Unlike his older brother, who was summoned home to learn the ropes, David was spared from returning to Wichita; he established an office in Manhattan.

After college, David and Bill each earned master’s degrees in chemical engineering from MIT. From there, David entered the working world, while Bill remained in graduate school. David’s first job, in 1963, was as a research engineer for a Cambridge-based company called Amicon. He went on to spend three years at Arthur D. Little, the consulting firm where Charles had gotten
his start, developing cigarette filters and conducting engineering feasibility studies.

David had a reputation as a hardworking playboy, who enjoyed regaling friends and dates with tales of exotic travel—polar bear hunting in the Arctic Circle, stalking boar in the Hungarian countryside.
The Boston Globe
’s “Hobbledehoy” column captured his globe-trotting persona in 1967: “Dave Koch of Cambridge, who works at Arthur D. Little and plays just about everywhere, just returned from three weeks of traveling in Switzerland and Germany with a store of gamesman-like remarks.” Among his Gatsbyesque pronouncements: “St. Moritz is to the Alps as St. Tropez is to the Riviera.” And: “Kitzbuhl’s where the swingers are, but the good skiing is at St. Anton.”

Later that year, David left the Boston area for the more glamorous metropolis of New York, a city crowded with other wealthy heirs who held their own turgid opinions on St. Moritz and Kitzbühel. He went to work for the chemical company Halcon International, and its subsidiary, Scientific Design. Some of his coworkers knew of his wealthy background, but he didn’t seem to possess a noticeable air of entitlement. What colleagues noticed most was his intellect and work ethic.

“David was a sponge for information,” one of them recalled. “He came knowing almost nothing. And he tried to learn everything he could possibly learn. He worked as hard as anybody, in fact probably harder than anybody.”

David often worked late into the evenings. During the summer months, his Park Avenue office building shut off the air-conditioning at 5:00 p.m. As the sun went down, David could often be found in his office, stripped down to his boxer shorts and a T-shirt, plunking away at his calculator. In 1970, after the company denied David’s request for a transfer to the company’s sales department (“he wasn’t the sophisticated man he now is,” the colleague
said), he joined Koch Engineering, where before long he was selling products to his former employer.

Charles had put the once-struggling engineering subsidiary firmly into the black, but Sterling Varner credited David (“very technical, but also sales oriented”) with transforming Koch Engineering from a relatively small company into a “world-wide business.” Rising over the next decade to vice president and then president of Koch Engineering, David expanded its limited repertoire to include a host of product lines that catered to the petrochemical industry, including an assortment of internal components for the fractionation towers used by oil and chemical companies.

In 1977, David’s responsibilities expanded to include running Koch Membrane Systems, a company that specialized in wastewater treatment technology. The subsidiary was located in Wilmington, Massachusetts, a northern suburb of Boston. Originally called Abcor, the company had been started by MIT professors, including Ray Baddour, one of Bill’s chemical engineering teachers. Bill had convinced Charles to invest in the business, which Koch Industries later acquired outright.

Running Koch Membrane required David to spend at least a couple days a week in the Boston area. When he was in town, he typically bunked with Bill, who had remained in Massachusetts after completing a doctorate in chemical engineering. Bill had joined the family business in the mid-1970s; by now he ran a new subsidiary called Koch Carbon, through which Koch Industries hoped to gain a foothold in coal mining and the trading of petroleum coke. Known within the energy industry as “petcoke,” the carbon residue created through the refining process had a market of its own as a coal-like fuel source. “I took great pride in working in my father’s company with my brothers,” Bill recalled.

The three brothers were working together, expanding their father’s business in ways that he couldn’t have imagined. They
were tasting the “glorious feeling of accomplishment” Fred Koch had always wanted his sons to experience for themselves. It was, for the moment, exactly how Fred would have wanted it.

In late 1972, a wave of relief rippled through the senior ranks at Koch Industries as word spread that Charles, then thirty-seven, had gotten engaged. This meant that overworked executives might finally get to spend a little more time with their families.

To say that Charles was a workaholic underplayed the depth of his addiction. He spent what spare time he had studying heady books on economics, philosophy, and organizational psychology, amassing knowledge that he could channel into Koch Industries. Charles wanted to show the world that he wasn’t just a trust fund kid who had been handed the keys to the kingdom; he was an empire builder in his own right.

“He almost killed us, because this was his whole soul,” Varner remembered. “He worked long hours, weekends, holidays. He finally got married, and we were delighted to see that because he stopped working weekends.”

Elizabeth Buzzi was nine years younger than Charles. When they met in 1967, the twenty-three-year-old had already been married once before. A petite, pretty blonde, Liz had a feisty nature and the profanity-laden vocabulary of a longshoreman. She had attended Catholic school in Wichita and an all-women’s college in Columbia, Missouri. She hailed from a well-off family of her own, though nothing like the Kochs. The Buzzis owned a chain of department stores called Hinkel’s, which, from its flagship location in downtown Wichita, had expanded into Texas, Oklahoma, and New Mexico.

Their engagement wasn’t exactly storybook. Charles delivered his marriage proposal with businesslike efficiency, over the phone and while paging through his calendar for an opening in his schedule. The couple had dated for five years. Charles and Liz had
decided, family friend Nestor Weigand explained, “Well, within five years, we’re either going to be married or we’ll break up.” In 1972, when their fifth anniversary approached, “They had a private discussion. ‘This is the fifth year. Are you a person of your word or what is this?’ Bang! They were married like that.” The couple, who married two days before Christmas, wed so quickly that an already-planned ski vacation to Vail with Weigand and other friends doubled as their honeymoon.

After their marriage, the couple moved into a five-bedroom, nine-bath contemporary-style house that Charles built on the compound where he grew up, near his childhood home, where his mother still lived. Charles’s friends credit Liz with drawing him out of himself, and opening the aperture on his narrow life, in which there had been room for little other than Koch Industries business. “Charles would no question have been very successful if he hadn’t met Liz, if he’d remained a bachelor, but Liz brought a sense of reality, if you will, to him,” his friend Leslie Rudd said. “She brought Charles down to earth. I think he lived a normal life because of Liz.… She’s important to making him the kind of person he is.”

Charles has said: “I am so goal-oriented that I can get withdrawn from relationships, and Liz really taught me how to have a close, loving relationship.”

The birth of their children, Elizabeth Robinson in October 1975 and Charles Chase in June 1977, also added a new emotional dimension to his life. Like his own father, he worried that privilege would corrupt the initiative of his children; he lectured them often about his value system, including on Sunday afternoons, when Charles subjected his kids to lengthy discourses on economics.

“Whatever they participated in, they needed to participate the best they could,” Weigand said. “And it didn’t mean that they had to be the best at it, but they had to work to the maximum of their own abilities.” But Charles was not his father. He was the kind of
dad who didn’t miss Chase’s Biddy Basketball games at the local YMCA and encouraged Elizabeth’s interest in literature. Charles’s kids, Weigand said, got the kind of love “that Fred, being the John Wayne that he was, didn’t have the ability to articulate or to express. Because [Charles’s] kids understood the love part.”

Outside of the firm and his family, there was a third crucial influence on the CEO’s life. It not only changed the way Charles saw the world, but it inspired him to embark on a lifelong crusade to change the world itself.

On a summer day in the early 1960s, Charles drove up a rutted dirt road that climbed into the heavily wooded foothills of the Rampart Mountain Range. Dense with second-growth Douglas firs and Ponderosa pines, the steep terrain rose 1,000 feet in elevation in the space of a quarter-mile. Nestled into this pastoral tableau, located midway between Colorado Springs and Denver, were a handful of log cabins sited near a long, three-story lodge.

With its gurgling brook, horse stables, and walking trails, the compound looked like a sleep-away camp. In fact, it was a libertarian mecca, where freedom seekers from around the world made pilgrimages to learn at the feet of a gray-haired, bolo-tie-wearing guru. More than a few attendees of the intensive two-week sessions at Robert LeFevre’s Freedom School, who prior to their enrollment had perhaps experienced faint stirrings of libertarian identity, emerged as fierce free-market crusaders.

Though LeFevre was the primary instructor, the school’s cast of guest lecturers during the 1960s included movement luminaries such as University of Chicago economist and future Nobel Prize winner Milton Friedman, a vocal foe of the Keynesian approach to economics, in which government plays a central role in guiding the economy; Leonard Reed, founder of the Foundation for Economic Education, a pioneering free-market think tank; and the journalist Rose Wilder Lane (daughter of Laura Ingalls Wilder of
Little House on the Prairie
notoriety), whose broadsides against socialism, Social Security, and the income tax elevated her to a libertarian heroine on par with Ayn Rand. The campus’s three-story lodge, where classes were taught, was named in her honor.

LeFevre established the Freedom School in late 1956. In those early years, he had spent mornings churning out libertarian-tinged editorials for his employer, the
Colorado Springs Gazette
, and the remainder of his days building, often by hand, what he hoped would become the world’s premier institution for disseminating the gospel of free enterprise and unbridled liberty.

LeFevre was tall, with the melodious voice of a radio announcer (which he had once been). He had the theatrical flair of a showman—or a charlatan. Though he was married, LeFevre’s “family” included three other women who had moved with him from California to Colorado in search of a refuge from the oppressive reach of government. He was a onetime devotee of the cultish “I Am” movement, which at its peak in the late 1930s had as many as 1 million followers. It was a theosophical sect that believed in a collection of supernatural beings called the Ascended Masters, a group that supposedly included Jesus, Confucius, and St. Germain, whose souls were reincarnated into new human forms throughout the ages. The movement’s cofounder, a former mining engineer named Guy Ballard, claimed he had encountered St. Germain while hiking California’s Mount Shasta; Ballard also professed to be the reembodiment of George Washington, among other ancient souls.

LeFevre, who coauthored a 1940 book titled
I Am: America’s Destiny
, told of undergoing a religious experience of his own in which he heard a voice intoning, “with the power of thunder,” the mantra “I Am.” He also spoke of having an out-of-body experience in which he floated through the air to Mount Shasta and of driving a car while asleep with the divine assistance of his “higher mental body.” LeFevre worked his way into the upper echelons of
the I Am movement, and when the Justice Department targeted the group’s leaders for mail fraud—for sending books containing outlandish claims, including that Ballard, his wife, and their son could cure diseases using supernatural powers—he was among those who were indicted. (The charges were later dropped.)

LeFevre’s motley background ran the gamut: He had been an actor, soldier, restaurateur, real estate broker, hotel owner, traveling salesman, TV anchorman, congressional candidate, and newspaper columnist. His experiences dealing with city bureaucrats and union bosses as a landlord and restaurant owner in San Francisco had ultimately soured LeFevre on government. In the 1950s, he aligned himself with a variety of antiunion and anticommunist causes, hitting the lecture circuit to decry the nexus between organized labor and the Communist Party. He worked with right-wing groups including the Wage Earners Committee, which picketed Hollywood films and targeted studio bosses and producers for their supposed communist sympathies.

LeFevre grew into such an ardent foe of government that he refused to vote lest he legitimize it. “Voting is the method for obtaining legal power to coerce others,” he argued. He held that any rights government conferred on its citizens it had already robbed them of, and he taught his students that “slavery is rationalized, under the name of government and politics, because of the belief that if we didn’t enslave others, the others would enslave us. Thus, we practice slavery on some in order that others should be free.” As Brian Doherty detailed in his definitive history of libertarianism,
Radicals for Capitalism
, LeFevre was so puritanical in his philosophy that he “held it to be an impermissible violation of the property rights of an assailant to destroy the ropes he’d tied you up with (just so long as they were his ropes) and just as bad to take a necklace back from a blackguard who stole it from you as it was for the blackguard to take it from you in the first place.” His belief in pacifism was equally uncompromising: Once, in the face
of a physical confrontation, he’d simply lain down on the ground and played possum.

By the early sixties, LeFevre had found a receptive audience at the top tier of the John Birch Society by way of Wisconsin steel magnate William Grede, who became an early financial backer of the Freedom School. Grede was a founding member of the Birch Society who, along with Fred Koch, had been present at the organization’s birth in Indianapolis.

Bob Love, the Koch family friend with whom Charles had opened a Birch Society bookstore, became deeply involved with LeFevre’s school. So did Charles, who was so taken with LeFevre that he roped David into enrolling with him in a two-week Freedom School session.

Charles was an ideal pupil for LeFevre’s teachings, which played an important role in shaping the businessman’s political views. Not long after he returned home to Wichita from Boston, while browsing his father’s wood-paneled library, its shelves crowded with tomes on history and free enterprise, he discovered Austrian economics. He had grown up with his father’s dinner-table disquisitions about the depredations of government, the serpentine creep of socialism and communism into American society, so Charles was well primed to receive the wisdom of the Austrians. This school of thought, which formed one of the intellectual pillars of libertarianism, held that economics could be understood only through the prism of human behavior, and its adherents opposed government efforts to meddle with the “spontaneous order” of the markets.

A voracious reader like his father, Charles was driven by a burning curiosity to understand the mechanics of society, the hidden order of things that caused some cultures to founder where others flourished. In his free time, Charles often sequestered himself in his North Woodlawn Street apartment among precarious stacks of books, living a “hermit”-like existence, he has said. With classical
music playing faintly in the background, Charles devoured the works of Austrian economists Friedrich Hayek and Ludwig von Mises, read classical liberal thinkers such as Milton Friedman and Joseph Schumpeter, and he studied the theories of Hungarian polymath Michael Polanyi, who pioneered the concept of spontaneous order.

While Charles read widely across an array of disciplines—from political theory to psychology—he credited two works in particular with launching his intellectual odyssey. The first was the bible of the Austrian school, Mises’s
Human Action
, in which the economist wrote that “economics is not about goods and services; it is about human choice and action.” Mises, whose controversial views were often condemned by his economic contemporaries, stated in this treatise that “a society that chooses between capitalism and socialism does not choose between two social systems; it chooses between social cooperation and the disintegration of society.”

The second, and perhaps more formative tract when it came to Charles’s worldview, was F. A. “Baldy” Harper’s
Why Wages Rise
. In this slim volume, first published in 1957, the Cornell-trained economist made the case that unions and government intervention do not lead to wage increases, which come solely through “increased output per hour of work.” Harper argued that the “greatest opportunity… for a quick increase in wages is to reduce the cost of governing ourselves,” and suggested that “compulsory employment devices, such as child labor laws” cause societal ills such as “juvenile delinquency.” Harper’s book provoked a realization in Charles that he likened to a “peak experience,” the term coined by psychologist Abraham Maslow (another thinker Charles admired) for a near religious state of harmony and understanding. Imbued with this euphoric clarity, he later said, “I’ve never looked back.”

His scholarship reinforced his belief, instilled during his
boyhood, that “societal well being was only possible in a system of economic freedom.” By his late twenties, Charles had become a full-throated libertarian evangelist. It was an extreme ideology, in which the role of government was nearly nonexistent, and one that fell well outside the traditional left-right poles of political thought.

His appearance in December 1965 at Kansas University’s “minority opinions forum” typified his thinking. At a moment when The Byrds’ “Turn, Turn, Turn” was topping the charts, this young, square-jawed businessman, who wore thick Buddy Holly–style glasses, blasted the federal government for nurturing a welfare state through “interventionist” policies. The government’s sole role in the capitalist system, he told the two-dozen audience members, should be “only to keep a check on those who might attempt to interfere with the laws of supply and demand.”

His belief in the cold logic of capitalism was absolute and unforgiving, without room for equivocation or shades of gray. For those businessmen who did not adhere to the laws of the market—who did not create value—he had not a shred of pity. “Every time I hear of an entrepreneur going out of business I cheer,” Charles said. “He did not serve the consumer and for that he should be a janitor or a worker.”

LeFevre encouraged attendees of his libertarian retreats to pack Western wear and “sturdy shoes.” Students bunked in austere wood-paneled rooms, and an outdoor “barbecue breakfast” was held on Sundays. During these two-week sessions, students had mornings to themselves to ride horseback on the mountain trails, pitch horseshoes, play volleyball or badminton, or peruse the school’s 3,000-volume library. Classes began after lunch and ran until 9:00 p.m., with a two-hour break for dinner.

Courses delved into the “banalities of socialism” and the “philosophy of freedom,” and workshops explored topics including “Education in a Free Society” and “Explorations on Freedom.”
LeFevre held a special seminar, “Explorations in Human Action,” for business executives that focused on “management and labor relations problems.” The school invited participants to bring their wives, but warned that “they would be excluded from class discussions, though they may sit in as observers.” (They weren’t the only ones excluded from participation. In 1965, LeFevre told
The New York Times
that his school had yet to admit a black person; finding accommodations for them, he said, might prove challenging because of the segregationists among the student body.) LeFevre awarded his students a “certificate of proficiency” at the completion of their courses.

After attending Freedom School classes, Charles joined the school’s board of trustees, along with fellow Birchers Bob Love and William Grede. In 1964, Charles became one of six officers at the school, and he personally donated nearly $7,000 to LeFevre’s institution—among the largest contributions the Freedom School received that year. Later, he became a trustee of Rampart College, an unaccredited four-year school LeFevre founded on the Freedom School campus.

By the late 1960s, there was no longer room to be both a Bircher and a LeFevre acolyte. Birch Society founder Robert Welch, who demanded absolute loyalty from his followers, disapproved of LeFevre’s offbeat teachings and his approach—which focused on steering clear of government, not engaging it via a quasi-political movement.

The two spheres coexisted uneasily for a time, but Vietnam forced a schism, which was part of a larger split between conservatives and antiwar libertarians. Welch had taken a tortuous position on the war. He at first opposed U.S. involvement, believing America was being lured into a communist trap. But faced with alienating the flag-waving conservatives within the society’s fraying ranks, he adopted a more nuanced stance. “Victory, Then Peace” became the society’s slogan.

Charles and Bob Love, steeped in LeFevre’s pacifist teachings, took a different view, thoroughly opposing the war. In May 1968, they took out a full-page antiwar ad that ran in
The Wichita Eagle
. “Let’s Get Out of Vietnam Now,” it demanded. Coming from two high-profile John Birch Society members, this was no minor act of defiance. In a May 31, 1968, letter to Charles, William Grede called the advertisement “almost sabotage from within the Society.” Charles and Love ultimately parted ways with the Birch Society over Vietnam. Later, in a letter Welch asked Grede to personally deliver to Charles, the Birch Society founder begged him to return to the society: “You belong with us in this fight, Charles, and we need you.” But the young CEO was now on a different path.

Many years later, Koch Industries sought to distance Charles and David from Freedom School founder Robert LeFevre, a controversial figure even within his own movement. After
The New Yorker
ran a 2010 article critical of the brothers, describing them as “devotees” of LeFevre, the company responded with an extensive rebuttal. It noted that “while Charles and David Koch both have met LeFevre, they were never ‘devotees’ of LeFevre…”