“I hope your first deal is a loser, otherwise you’ll think you’re a lot smarter than you are.”
That was how Charles Koch described what his dad, Fred Koch, the founder of Koch Industries, told him before handing over the CEO leadership. His advice was genuinely embraced by Charles, and he went on to grow the family business into a global giant with $115 billion in sales and 100,000 employees making it America’s second-largest privately held family business next only to the Cargill group.
Koch Industries: The Biggest Company You've Never Heard
Fred is credited as installing a strong work ethic in his children and Charles has often quoted his father as saying "I don't want to have any kids that are country club bums", adding that from as young as six he was expected to help out with the chores.
The family business was founded in 1940 that started with a method of refining heavy oil into gasoline, then oil refineries and pipelines. But under the leadership of the second generation, the family business grew into a multinational conglomerate encompassing lumber, paper, chemicals, coal, fertilizer, and sophisticated financial-trading operations.
Second son Charles has been chairman and CEO since 1967 and Forbes magazine estimates that siblings Charles and David are worth approximately sixty billion dollars each ranking them as America’s ninth-richest men.
Despite embedding a deep sense of traditional family values on the Koch children, unity and harmony was never a guarantee. With unclear rules on management and ownership for family members, mounting challenges related to family and business relations became a constant struggle. Eventually the pressures gave in to strained relationships amongst the offspring right after the father passed away.
Kochs vs Kochs
Charles, David and Bill followed their father in earning engineering degrees from the prestigious Massachusetts Institute of Technology. While eldest son Frederick was more of an outlier as his interest was into arts.
When the father died in the 1960s, Charles took charge. As the business grew, younger brother Bill, feeling sidelined and concerned over the company's direction joined forces with Frederick in 1980 and attempted to unseat Charles. The power struggle shook the organization and the Board stepped in and sided with Charles.
In 1983 Charles and David bought out their brothers' share. Unfortunately, more lawsuits followed, with Bill and Frederick alleging they had been cheated on the valuation. It would take almost two decades for a court to rule in favor of Charles and David and finally put a closure on this storied sibling rivalry.
The payout was resolved but the animosity was so deep that the brothers ignored each other at their mother's funeral in 1990. Blood and money usually spells conflict. And Bill emphatically calls it “a very explosive issue!"
Hubris is Just One Step Ahead of Loss of Integrity
Learning from the conflict with his brothers that left a deep scar in the family, Charles now 83, would always say, “Hubris, arrogance is just one step ahead of loss of integrity, because if you think you’re better than other people, you know more, then you’re going to think as many leaders have that the rules don’t apply to them. So they lose their integrity.”
To reiterate what I highlighted in my previous article, allow me to borrow a quote from Charles Koch when he said, “Success is one of the worst enemies of success, because success tends to breed complacency and lack of humility.”
Consultant Steve Tobak has an abridged version, “hubris kills businesses, and humility saves them.”