Triad laundered political contributions in a way that was extremely difficult to discern from the outside. The Senate report laid out a basic picture of the money trail: (1) Koch Industries supported the Economic Education Trust; (2) that trust gave cash to Triad; (3) Triad gave the cash to campaign groups like Citizens for Reform, which, in turn, (4) pumped money into elections to defeat Koch Industries’ opponents. (Koch Industries also gave at least $2,000 directly to Triad.)
Triad was a new kind of campaign finance machine. It acted as a third party that didn’t directly donate money to politicians. Triad hired consultants who created attack ads for Republicans in tight races. Triad was careful in its language. It never used words like “vote for,” “support,” or “defeat” that might have triggered oversight from campaign regulators like the Federal Election Commission.
Triad was particularly active in Koch’s home state of Kansas. The company spent money on four of six federal races in Kansas in 1996, supporting candidates such as Congressmen Sam Brownback and Todd Tiahrt. Republicans won all four of the races in which Triad intervened. One of Triad’s consultants, Dick Dresner, said that the campaign company was designed specifically to shield the wealthy donors who supported it. “They use three or four or five or six different ways so they aren’t discovered,” he said. “Even if their names came up once or twice, the extent of their activities is underestimated.”
The Senate report about Triad’s activities was a document of frustration. It conceded that the financial shell game behind Triad was so complex that investigators could not make sense of it even two years after the election. The report was clear in its condemnation of Triad’s activities, however, and it sent a public warning:
“Most disturbing, Triad is poised to become a model for future elections.”
* * *
Koch Industries’ political operations only continued to expand, but Charles Koch focused most of his efforts inside the company. In 1992, Koch Industries built the largest office tower in Wichita. The structure was located on the north side of Koch’s campus and was constructed with dark granite and black windows. The building was the perfect symbol of Koch Industries. The stone gleamed in an enticing way but was dark and inscrutable. People soon referred to the new building simply as “the Tower.”
The Tower was a testament to Koch’s growth and an expression of its desire to grow even faster. Koch Industries moved two thousand employees into the building. That was more than triple the number of employees who’d been there when Charles Koch took over the company, and it represented just a fraction of the thirteen thousand employees who worked for the company worldwide. But even 2,000 employees couldn’t fill the Tower. Almost half the building was empty. The table was set for expansion.
Charles Koch’s office was located on the third floor of the Tower, on the north side of the building. His large desk was covered with neat stacks of papers and a telephone placed near the left corner. There was an oil painting of Fred Koch on the wall above Charles Koch’s chair. Directly across from the desk, there was an open area with a conference table for small meetings and a small sitting area with a couch surrounded by chairs. The northern wall of the office was all windows, offering a panoramic view of the Kansas prairie and tall grass. The rest of the walls were lined with built-in bookshelves. These books seemed to be Charles Koch’s prized possessions. There was a multi-volume edition of the Oxford English Dictionary. There were works by his favorite philosophers, economists, and historians.
Charles Koch liked to tell people that “true knowledge results in effective action.” True knowledge was the important part of the equation. Charles Koch aimed to discover the truths undergirding society and business by reading all the books in his library. He wasn’t satisfied anymore to borrow the thinking and methods of people like W. Edwards Deming. Charles Koch wanted to codify his own understanding of the truth. In 1990, he put a name to this effort. His set of rules would be called Market-Based Management.
One of the first things Charles Koch did in his new office was to get the rules written down. He hired two academics to help him: Jerry Ellig and Wayne Gable. They were both employees of think tanks that Charles Koch funded. The men had meetings and hashed out lessons from Hayek and von Mises and all insights gleaned from decades of running Koch Industries. They began to distill all of this into a framework that could guide Koch Industries in its next phase of growth.
In 1993, the team produced a glossy booklet, sixty-three pages long, called Introduction to Market-Based Management. The booklet was an operator’s manual; the rulebook for working at Koch Industries. Charles Koch taught Market-Based Management with the same rigor that he had instituted the teachings of Deming. He held seminars for managers, and then those managers held seminars for their employees. Copies of the booklet were printed and shipped to Koch facilities everywhere. The unionized workers at Pine Bend sat through lectures about it. Managers looked at charts describing it and broke into small groups to learn it. A new vocabulary was disseminated throughout the company ranks. Employees didn’t have responsibilities, they had “decision rights.” They weren’t managers anymore, but “process owners.” The vocabulary was drilled into everybody.
The words of Market-Based Management were not simple slogans. They were a code of conduct that would guide life inside Koch Industries during the 1990s. This was a decade of explosive growth for Koch; a time when it would take full advantage of economic conditions that favored complexity and bigness.
But it was also a time of dysfunction and challenge. Charles Koch liked to say that growing was a lot like the process of scientific inquiry: You came up with a hypothesis, and then you tested the hypothesis against the hard rocks of reality. You did this again and again until you found out what was true.
The 1990s were a time that tested Charles Koch’s deepest hypotheses. He believed that he had discovered the “true knowledge.” He believed he had cracked the code for building a prosperous and enduring company, but the hard rocks of reality would not be kind to this hypothesis. As Market-Based Management was rolled out through the company, it would wreak its own kind of havoc. There would be accidents and spectacular business failures. There would be public humiliation and, worst of all, a host of criminal charges brought against the company.
One of the worst debacles happened right inside the company’s crown jewel: the Pine Bend oil refinery. And all of it started with the best of intentions.
* * *
I. Ballen said that a few other instances of oil theft were discovered, but they were isolated incidents perpetrated by very small companies. It was not the “systematic” theft indicated by evidence collected from Koch Industries.
II. During an interview in 2016, Senator Dole had a hard time recalling details about his relationship with Koch Industries. Dole was ninety-two years old at the time, but even at that advanced age, he regularly went to work at his law office in downtown Washington, dressed in a neat suit and crisp red necktie. Dole recalled working with David and Charles Koch, and remembered attending a fund-raiser at Charles Koch’s home in Wichita. However, the senator did not recall any events regarding Koch’s oil measurement practices or the Senate investigation into them. The topic did not seem to spark a hint of recollection from Dole’s long and storied political career.
III. Leonard is not related to the author.
IV. Schmidt declined to comment on the case.
CHAPTER 8
* * *
The Secret Brotherhood of Process Owners
(1995–1999)
A business firm is not just a piece of society, but a mini-society in its own right.
—Introduction to Market-Based Management, 1993
Heather Faragher arrived for her new job at Koch Industries’ Pine Bend refinery in the winter of 1995. During those long, cold months, the refinery landscape was frozen and bone white. The empty fields surrounding the facility were covered in snow, and the sky was often slate gray. The gloom was broken only by
the twinkling lights of the refinery towers in the late afternoon when darkness started to fall.
In spite of this barren landscape, the refinery itself was a vital place, full of life and excitement. Faragher joined the company as an environmental engineer, specializing in wastewater treatment. The refinery produced millions of gallons of water each day tainted with toxic chemicals, and it was Faragher’s job to make sure that the water was purified—as much as it could be—before it was flushed into the Mississippi River. This was Faragher’s third job as a wastewater engineer. She was only twenty-eight years old but had already done two stints at large paper mills in New York and Alabama.
Faragher’s new boss was a kind and energetic young woman named Karen Hall. Hall seemed like a former hippie, a positive woman who was fluent in the language of environmental protection. Soon after Faragher arrived, she got a tour of the environmental engineering office at Pine Bend. It was located in the main refinery office complex in a U-shaped complex of cubicles and offices. Everything was wide open and bright. The offices had big glass windows—the employees called them fishbowls—which made the whole floor seem like one big collective space. And everyone inside it was so young. There must have been thirty environmental engineers, and most of them seemed to be in their twenties. There was energy everywhere, and it was more than just youthful exuberance. The employees had a sense that they were part of something big. They belonged to an enterprise that really mattered.
Faragher quickly discovered why this was. During her orientation as a new employee, Koch Industries flew her to Wichita. She joined a group of other new recruits from around the country, and they were shepherded into the opaque glass edifice of the Tower. Just entering the Tower felt like gaining admittance to a secret society. It was obvious that not just anyone could get past the security guards in the hushed lobby. Faragher and the other recruits were ushered deep inside the building and delivered to a large auditorium.
It would be inaccurate to describe what happened next as corporate training. Corporate training can often be little more than a gimmick, one that usually involves a captive audience of employees sitting in a meeting room while bosses recite a script of vaguely inspiring catchphrases—like “living with integrity,” “thinking outside the box,” and “a sum being greater than its parts”—which are promptly forgotten once employees get back to their desks and actually start working.
This is not what happened in Wichita. Faragher and her new colleagues were told that they were being let in on a secret. They were about to learn the Koch way of doing business. And Charles Koch, the CEO himself, would arrive to reveal the secrets in person.
Even decades later, Faragher would vividly remember seeing Charles Koch walk out onto the stage to address the crowd. He had bone-deep confidence, the kind that expresses itself in the weird way of making a man simultaneously humble and also completely certain of his beliefs.
During such meetings, Charles Koch explained that there were fundamental laws guiding the natural world: the law of inertia, the law of gravity. These were immutable forces that dictated events. And there were also immutable laws that governed human affairs. History showed, inarguably, that the laws protecting individual liberty and free-market capitalism were the only principles that could form the bedrock of a healthy society. The same held true for creating a healthy company. Individual liberty and free-market capitalism were the cornerstones. These principles would guide every action of every employee inside the company. Commitment to these laws was a precondition to employment at Koch Industries. It was also the surest path to a virtuous and prosperous life.
This wasn’t a pep rally. This wasn’t corporate training. As Heather Faragher would soon discover, this was her introduction to a new society. She joined this secret society eagerly. But after a year or so at Koch Industries, Faragher was exposed to the dark side of this society, too.
She watched while her bosses and coworkers broke the law and flagrantly poisoned the environment. She stood up and tried to stop them, and that’s when the secret society turned against her. Faragher saw firsthand how toxic a workplace could become when everyone spoke the same language and thought the same way, and how dangerous this could be to those who challenged the culture from the inside. She would lose her job, face the risk of doing time in jail, and have her career permanently damaged. All because she tried to do the right thing.
Faragher’s experience was not unique. The conduct she witnessed was emblematic of problems at Koch Industries during the 1990s. Throughout the company—from the pipeline division to the Corpus Christi refinery and elsewhere—a common problem emerged from the teachings of Market-Based Management. All too often, an emphasis on boosting profits took precedence over the need to operate safely or to obey the law. A belief in the power of markets created a disdain for the government agencies tasked with regulating Koch. And the people who didn’t agree with the principles of Market-Based Management were all but labeled apostates. Understanding what happened to Heather Faragher is the key to understanding why Koch Industries racked up a shocking number of criminal charges and civil complaints throughout the 1990s, branding the company as a kind of corporate outlaw.
When Heather Faragher joined the company in 1995, she only saw the promise of it—the potential. This was years before the sleepless nights, and the federal agents with guns on their hips showing up at her doorstep, and the pressure from her bosses to lie to authorities. All of that came later. In the beginning, there was only the thrill, the thrill of being part of something much larger than herself.
* * *
Heather Faragher had grown up about thirty-five miles north of the Pine Bend refinery, in the small town of Bayport, Minnesota. About three thousand people lived in Bayport back in 1990. It was a sleepy community carved into the western bank of the St. Croix River. This was the kind of town where conformity was the norm and where neighbors quickly learned each other’s business. But even from a very early age, Faragher knew what it was like to stand apart from the crowd. She learned this from one of the people she idolized most in the world: her father, Ted Lawrence.
Ted Lawrence described Bayport as a “redneck town,” and he made it abundantly clear that he did not consider himself a redneck. Lawrence commuted every day to his job in the city of Saint Paul. He worked for the county’s child protection services, counseling abused children and their families. He and his wife, Henri, had two kids. The oldest was Heather, and four years later came her little brother, Steven.
The Lawrence household was filled with politics. Ted Lawrence made sure of that. He wasn’t just a state social worker; he was also president of his local union. Lawrence spent hours of his free time working on union business and stumping for local politicians. He lived and breathed by the progress of the liberal wing of the Democratic Party, of which he considered himself a lifelong member. In September of 1966, the month Heather was born, Lawrence joined a march with Dr. Martin Luther King Jr. from Chicago to the town of Cicero, Illinois, the site of race riots in the 1950s. Lawrence told the story for many years to come; a story that showed how common people could take action to change a public wrong.
The Lawrence family often accepted foster children into their home on a temporary basis, giving them a place to stay before the state could find them something permanent. The foster kids were often minorities from urban Saint Paul, setting them apart from their neighbors in overwhelmingly white Bayport. The Lawrence home was different.
Ted Lawrence didn’t just encourage his kids to be Democrats. He encouraged them to do the right thing. Even more important, he encouraged them to argue. “It was always all right for [Heather] to argue with her mother and father if there was something she disagreed about,” Lawrence recalled. “There was lots of humor in our house. There was a lot of yelling in our house.”
Heather was a bright kid who always seemed to have a book in her hand. Like many first children, she was a rule follower who was a high achiever in school. She skipped the fourth
grade and excelled in the fifth grade. She read far more books than were required. Also, like many firstborns, Heather made a point to walk in her parents’ footsteps. During her time off, she helped her dad walk door to door and stuff political pamphlets in mailboxes and hammer campaign signs into the ground. As a union president, Ted Lawrence was on the phone constantly with his union peers, discussing disputes or arranging campaigns. Lawrence was amused when he’d later hear Heather repeat the things he said over the phone. Heather and her little brother, Steven, had been absorbing it all. “That’s what amazed me the most, was how much they heard of my phone conversations,” Lawrence said. When little Steven was in grade school, he could name every major politician in Minnesota—he had helped campaign for many of them.
Argument was a form of art at the Lawrence dinner table. Ted Lawrence encouraged it. Family dinners became political debates, and Heather was expected to join in. Sometimes this rankled her.
Ted Lawrence remembers an exasperated Heather asking him, “Can’t we just talk about the weather?”
“I said, ‘No we can’t! That’s not how it works in this house,’ ” Lawrence said. Over the years, Heather Lawrence learned how to hold her own. “She got good at arguing.”
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