不上市，如何把科氏工业做到 1500 亿美元：查尔斯·科赫与蔡斯·科赫

David Friedberg (00:00:00): What an honor to be here. Thank you for hosting us Forbes and welcome. This will be put out as the all in interview, so I'm really excited to share this conversation with everyone on the world, on the internet, and to get some time with Charles Koch, Chase Koch. Chase and I have known each other since 2013. Chase Koch (00:00:18): Yep. David Friedberg (00:00:19): When we overlapped in the agriculture industry, got to know each other, we've been business partners and Charles and I have gotten to know each other a few times over the years, but I'm really excited for this conversation tonight. So Charles, thank you for being here. Charles Koch (00:00:31): Thanks for having us. David Friedberg (00:00:32): It's an honor. Charles Koch (00:00:33): I'm going all of you David Friedberg (00:00:38): Every few years, a new ad channel opens before the market catches on. That's axon.ai right now. The AI ad platform behind one of the biggest runs in tech with access to over a billion daily active users. Full screen video ads in mobile games watched for a median of thirty five seconds. Businesses are profitably spending hundreds of thousands of dollars a day on it, and most advertisers don't even know it exists yet. The window is open at axon.ai/ all in. In Silicon Valley, entrepreneurs and even mature company CEOs always like to learn about the story of other businesses and the success of those businesses. And I've always felt like Coke Industries was that untold story. Probably the most profitable private family owned business in the world, maybe I'm off on a couple points, but certainly up there. And one of the most impressive business stories because of the evolution of the business, which I'm hopeful we can hear a little bit about how that evolution came to be tonight. And just for some statistics, if Coke were publicly traded, the revenue would put it easily in the top 25 of the Fortune 500. It's a family owned business based out of Wichita founded in 1940 by Fred Koch with businesses ranging from energy, agriculture, chemicals, building products, consumer products, even cloud computing, and a very active minority investment portfolio with a 120,000 plus employees. That statistic might be off across 60 countries. Very unique operating model, which we'll get into today, including principles around disruptive innovation of the business, reinvesting 90% of profits in new businesses and growth, meritocratic values. And I'm hopeful that tonight we can take an opportunity to hear about the evolution of the business and talk about some of those principles. And maybe we can get started, Charles, if you could give us a sense of the scale of the business, what are the business lines that you operate today and maybe provide a little more color to those high level statistics I shared today. Charles Koch (00:02:34): I can go back through some of the history and the failures and successes, but I'll go through what we've grown since the early 1960s. And then we had 300 employees, now we have more than 130,000 in 60 countries. And we have increased in value 9,000 times over that period. In 1961, full time I'd been working. Well, my father, we lived on a farm and he told me at age six he didn't want me to be a country club bum. So he made me work in all of my spare time, which I hated and so I was always in trouble. And so he was kind of tough on me, rightfully so, And thank God he did. Years later I asked him, Pop, why were you so much tougher on me than you were on my younger brothers? And he said, Son, you plum wore me out. David Friedberg (00:03:50): When you came into the business, what was the scope of the business, what was the We business Charles Koch (00:03:57): had two main businesses, one was to design and make fractionating trays, that is that they separate liquids by differences in boiling points. And then our largest business was a crude oil gathering system in Oklahoma. And so my father, and I was, I had finished just a few years earlier, finished MIT and I was working for Arthur D. Little, then a leading consulting firm. And I was, and you'll think this is a joke, at age 25 I was doing management consulting. I I have to laugh at the absurdity of that, but they were paying me for it, believe it or not. So my father called me and he said, Son, I want you to come back and join the business. And as tough as he had been on me, and as I say rightly so, I declined. So he called me a few weeks later and he said, son, either you come back to run the company or I'm going to have to sell it because my health is bad and the companies aren't doing well and I don't have long to live. So I agreed because, well for a number of reasons. One, the first one is I got three degrees at MIT in engineering and I sucked as an engineer. So how did you get through MIT? Because I was real good at the math and the science and the theory. And I was no good at making or operating things. So I figured out pretty quickly that I wasn't going to make it as an engineer, so I needed to be an entrepreneur. And because I was good at principles and that's why we led, so I was always looking for principles that would help me contribute and succeed. And that's what transformed our company. David Friedberg (00:06:24): So you come into the business, a couple 100 employees you said? Charles Koch (00:06:28): 300 employees. David Friedberg (00:06:28): 300 employees. And how did you think was the mandate to grow the business? Was it just to keep it stable? Charles Koch (00:06:34): No, it was could I take a few minutes to go through those first two businesses? David Friedberg (00:06:38): Your show, I'm in Okay, Charles Koch (00:06:40): sounds great. The first one was making fractionating trays, designing those. We had a president then who was one of our principals, you don't wanna be, the negative is top down and obsessed with controlling everybody. So he would send out memos every week demanding on what they spent, how did you spend it on, what did you do, did you do this right. So they were frustrated, as a matter of fact they started ignoring him. And then the whole culture was protectionist. That is when they sold the internals for a fractionating tower, they wouldn't tell them the design. And why we need to know the design so we can correct it. No, they wouldn't give it to them. And then what's even worse, to satisfy the European market, they didn't even build a plant plant there. They had multiple subcontractors do parts of a tray and then bring them all together and assemble with another contractor. Now you can imagine how that was for speed and cost. So we were losing our ass, if you can excuse the expression. And so I changed the management and changed the philosophy. Okay, the first thing we're gonna focus on is creating value for our customers. And then the second thing, we're gonna empower our employees so they want to do this. And the third thing, we're gonna do a plant, we're gonna build a plant in Italy to satisfy the European market. We're gonna do it all ourselves. And so we became profitable and then we started adding related products. And I'll get to that later, but so we started growing. David Friedberg (00:08:57): Can I ask you a question? Yeah. You come in at twenty five plus or minus a little bit and you see the problems at the business, it's not profitable, it's not being well managed, and you overturned the management team. How did you have the confidence at this age coming with the experience you had to take that level of action that quickly? Charles Koch (00:09:18): Well, was life or death. And my father said, you can run this business any way you want, the only thing you need my approval on is to sell. That's the way he talked me into coming back after I said I didn't want to or I wasn't going to. And then in 1970, what really helped is my brother, younger brother David joined the business and then he continued that growth. David Friedberg (00:09:50): And then you're now running a profitable operation, you've got a European business and at that point did you start to think about expanding into other products and other Charles Koch (00:10:00): Well that's it, and this is, so I was learning all these different principles and what I saw we were doing, not just here but in other things, is we were building capabilities. That is, I looked at it, we need to be capability bounded, not industry bounded. Like, okay, you could say to a certain extent, because we were in crude oil gathering, we're in the oil industry. Oh, that means everybody would say you need to be an integrated oil company. You need to be in everything. And I was applying to visual labor by comparative advantage. No. You need to be in the part the industry, in the part of the value chain where you can create more value than others. Otherwise, you're gonna fail. And that's what we're seeing happening now. There's more specialization by comparative advantage. And so that's what, so I started this, created this principle called creating virtuous cycles of mutual benefit. And what that led us to do is to start this never ending cycle of growth, innovation, success and failures, and failures that when we did it right, that we learned from and made us better and taught us better how to apply principles to create value. And we're still going through that, we have a lot of failures and that's when you when you apply creative destruction in your new things. If you're not failing at everything, you're not doing anything new. David Friedberg (00:11:53): Where did you learn that lesson? So what was the first major failure that, you know, they always say you gotta plan until you get punched in the face, what was the first punch in the face? Charles Koch (00:12:00): Well I had a bunch of them with that company, it was called Koch Engineering then. And like I said, okay, we got into refining, we created petroleum coke. I said, well, let's come up with a way to use that as base to make activated carbon. And that was a fair amount of money on that. And we had a whole bunch of those. And we've had many more. David Friedberg (00:12:32): How did you make the decision to shut it down or walk away? At Some point, a lot of entrepreneurs have this problem, they build something, they're too in love with it and they don't know when to say enough is enough. Charles Koch (00:12:41): Yeah, well that's when enough is enough, when we lose our ass enough. No, it's when we decide we don't have capability to create superior value for our customers and that we're gonna be rewarded for. And sometimes it can be the structure of a business, Like, like, the company that case founded, Coke disruptive technology, Insight Tech, it's been it it does tremendous things, but it is a structure that makes it hard to make it profitable. And so that's the other thing is so that's another these are principles that we've learned. Okay, we didn't apply that. What were the principles that we didn't apply that caused us to fail? That's what I mean we learned from failing. So the businesses where you ask the businesses we're in now, Jason, there's Coke people here, you all can catch me up if I, the ones I miss, but we have engineered projects, engineering construction. We have, we build solar plants. We have commodity trading and distribution. We have fertilizers, we have refined products, we have chemicals and polymers, we have glass, we have forest and consumer products, we have four different investment firms with different comparative advantages. And we have electrical products and we have software systems for management. Chase Koch (00:14:32): Dave, let me just hit one point, something No, you got it. You did a great job. Cool. Cool. I mean, basically, like eight eight wholly owned business unit platforms that he described and then four investment different businesses. But I just wanted to kind of really drill a point home because when I when I came out and I started really hanging out with you and the whole tech community and trying to like build that network, a lot of people have the same question that you did about who is Coke, what are you guys all about. You know, I know it's a large private business, but being in Wichita, Kansas, we don't know that much about it. I think this point that is so different about Coke versus almost any other company out there is what my father said on being capability bounded, not industry bounded. And, you know, how do you get from a small crude oil gathering company in Southern Oklahoma to all of those businesses that he described? And there's, I mean, the principles obviously throughout, which we'll be talking about in this discussion. But one of the absolute core differences is that whole approach to capabilities. And, I would encourage anyone that's in a business and trying to scale, think about it from that lens. What capabilities have I demonstrated that I can add value to customers? And then point it at new industries where I can experiment. This is one of our one of our principles as well, experimental discovery. Not trying to do everything at once and trying to conquer the world, but experiment and test, does the customer value my product or not? And then along the way, you know, those those core capabilities for us started off as operations, logistics, trading. In the very early days of Coke, that's what we demonstrated we were we were good at. We were getting great customer feedback. But then when we had the capability approach to say, okay, we started in energy, we started in crude oil gathering pipelines and refineries, can we point those same capabilities into natural gas? Chase Koch (00:16:38): Can we point those into chemicals? Let's experiment there. Can we point those into fertilizers because then we learned about natural gas? And then then the Georgia Pacific opportunity comes along. And it's like, hey, these are wood products. It doesn't seem similar to these other businesses, but it's the same core capabilities. We buy Georgia Pacific and along the way, it was somewhat of a happy accident that we started learning learning about consumer products and branding. So branding became a new capability for Coke through acquisition, but it started with where do we think we can add value and do a good job on that and collect new capabilities along the way. So I think that's like a really simple way to think about Coke and it's over the course of time, like how we're different. One other thing I'll mention too, because I've been asked many times, it's like, well, so is it sort of like, you know, Berkshire Hathaway, where you have all these different businesses, a conglomerate? And, I would say no. I mean, obviously, Warren Buffett and his team have done an unbelievable job operating the business the way they have. But we think about our business very differently. Instead of operating them all as independent businesses and almost like in silos, think about it as a republic of science. We're not a conglomerate. We're an integrated set of capabilities. David Friedberg (00:18:02): Is it fair to say that you wouldn't consider an acquisition or a new business line if there wasn't some relatedness to an existing competency at the company? Charles Koch (00:18:10): It depends. I mean, as you see when you read the book, we went through one chapter on creative destruction and what Schumpeter called all the different ways to do that. And one is to create a new management approach. Okay, that's our biggest one. So the question is when we bought Molex, makes electrical connectors, which has done fantastic. And at first it wasn't doing great. So we said, we think if we can get them to apply these principles, it will turn them around. And we didn't, the problem when we do that, the tendency is to learn the lingo And so you can call everything by these names and you still do what you always did. And that's what was going on there. And so finally we got in, no, had changed the management. And once we did that and they started applying these principles, they took off and now they're knocking it out of the park. But let me go back to failures, because I mean, we are understating our great strength in failures. And that is, I'll give you our worst failures and what caused it. And it caused us by violating the principle of hiring people first on values and second on talent. What I've for years I've told our people, look, if you want to hire somebody with bad values because you like them or some, hire them slow and stupid until we can catch them real quick and get them the hell out. Maybe get them to go to work for our competitors or something. David Friedberg (00:20:17): Help them get a job. Charles Koch (00:20:18): But anyway, that was huge. And then we made that even worse by by taking people who were had terrible values and made them leaders. And so what we call that is rather than we want everybody in the company to be contribution motivated, that I wanna succeed by contributing, I wanna be rewarded for my contributions, not for anything else. And the value I create for our customers or for the future. So would, some of these people were destructively motivated. What they wanted was power or control and they would hide their failures and make up their successes. And so I'll give you two examples, one goes back to 1973, you remember the war in the Middle East and everything. And they had gotten us into all kinds of wild reckless trades. So that could have bankrupted the company. And then later, because I mean much later shows you that repetition penetrates even the dullest of mine. So I needed this to happen a bunch of times. Finally, okay, got it. I got it. God, don't punish me anymore, please. So this was, we did it about the same time, our ag group. We put leaders in who were destructively motivated and in refining, we got a leader and they were destroying those businesses. And so it didn't almost bankrupt, but it almost wiped out all of Coke's earnings in the in the late nineteen nineties. Chase Koch (00:22:28): You you'll appreciate this. Charles Koch (00:22:29): So does that give you a flavor? Yeah. Chase Koch (00:22:30): So you'll appreciate this being an ag guy. To go a little deeper on what happened in the late nineties in our ag business, we we called it a strategy the gas to bread spread. So we wanted to basically be in every element of the value chain, all the way from pulling the natural gas out of the ground, converting fertilizer, making the nitrogen products to grow the crops that would ultimately then end up on the grocery store shelves and being bread we got in pizza crust, all this crazy stuff. When you look back, like, what the hell are you doing? Right? But it was it was what he was saying is like the like leadership thinking about we can do we can do anything and if we could like basically kind of control the the entire value chain, like we can be make that successful, completely violates probably all 41 principles in in the book. Experimental discovery, knowing where your capabilities are, right people, right roles. And so the yeah. We called it the gas to bread spread. Some people call it the ass to bread spread too. Charles Koch (00:23:35): So And there's another one in there, integrity because Integrity. When they knew there were losses in some of these and then wouldn't tell us they wanted to go ahead anyway. Chase Koch (00:23:45): We had a we had a deal within that, you know, like Purina dog food. So one of the one of the things that was acquired was the large animal feed. Mainly Charles Koch (00:23:56): hogs. Mainly hogs. Chase Koch (00:23:57): Yeah, so hog, hog feed. And did no diligence, and this is one of our principles, apply the scientific method. So disprove your hypothesis as much as you try to prove it. And, and so we we closed that acquisition and within days we found out that we had hundreds of millions of out of the money hog contracts. We didn't didn't even look at the contracts. So I mean that's when I think this is really important for founders that want to grow. Right? You have this growth at all cost mindset, and you start not, like, asking why not. This is the kind of trouble that you get yourself in. David Friedberg (00:24:33): So let's go back to the management piece. How do you take these principles which you've applied successfully to I would use the term iterate because for me, like failure is all about iteration to success and finding paths that work, finding businesses that work and ultimately finding people that work. But how do you drive that culture that represents the principles? Because you could create a book and give it to all your employees and say, here's 41 principles. We've sat down, we've thought about it, we've written them, they're gonna work. But actually live them, to realize them, to hold people not just responsible but accountable to them, how did you do Because that as you developed these over the Charles Koch (00:25:13): at first we tried to get them to do it through sheep dipping. That is you take everybody in, you give them a big seminar, now go do this. And from Polanyi, you wanna read a book that's hard to read, I mean if you want really hard one, can read Human Action. This is even harder, called Personal Knowledge by Michael Polanyi, who was a chemist and then became a philosopher. And he goes through what it takes to develop personal knowledge. It's, you have to rewire your brain to have it work differently, right? You have a habit, so you don't need to think about it and then if you wanna change, like do I brush my teeth first or do I comb my hair first? No, I wanna start combing my hair first and all of a sudden you're back brushing your teeth first because you're not thinking about it. And so, because your brain gets, I mean, you know your body, let's say you're a weight lifter and you wanna be a marathoner. Okay, it's gonna take work with intensity over time to change your body. Well, your brain's part of your body, so you've gotta do the same thing. So we said, okay, we've got to start with, okay, let's find a group that's really interested in this. They're struggling, they're having problems, and here are the principles and we'll coach them, we'll help them start doing it. And if they work with intensity on it and then they succeed, then we don't need ship dipping because then the other businesses and capabilities says, gosh, I'd like to do that. So you don't need to call them in, then then we have more demand for people who can help them. The hardest thing is have our people in strategy or or our principle based management group who are really good at helping them and boy, they're in they're in more demand than anybody. David Friedberg (00:27:20): So the best thing is success will drive social mimicry. You'll see other Charles Koch (00:27:24): That's it. Chase Koch (00:27:24): Here here's another Yeah. Like take on what he's saying that I think like really connects about culture to your question. And that is like the essence of like principle based management and all the principles in this book as well, is like what if you could have a business and a culture, small, medium or large, where everyone knew what to do without being told? And so that's like hard to get your head around, right, because I think most businesses come at it from top down. There's the iconic leader that's the smartest guy in the room building the strategy and then telling everyone what to do. And so I think one of the most important principles in this that we tell a lot of stories around is to flip that on its head. And it's about bottom up empowerment with principles and empowering your your talent, your team, your leaders with these principles. So So that then you use the collective knowledge of everyone, not a couple smart guys at the top of the company. David Friedberg (00:28:22): Most people in most enterprises that aren't owner operators don't want to fail. They want to keep their job. They want to move up the ladder by being repeatedly successful. And if you want to create a culture of creative destruction, if you want to create a culture of failing and learning from failure, it's very hard to get individuals who live on an income on a salary to do that because if they make a mistake, if they fail and then they fail again and they fail again, I'm worried about losing my job. So what you typically see in most scaled organizations is middle management and even senior management when founders or owners don't operate it anymore saying, I'm going to take the less risky path. I'm going to do the less creatively destructive thing, I'm going do the thing that's least likely to fail because I don't want to lose my job. I want to keep my job, get my bonus, move on to year two and go home to my kids and my wife and take care of the family or whatever the family situation is and that's Charles Koch (00:29:13): But see my and that approach creates perverse incentives. And so we try to align our incentives that we wanna reward people according to their overall contribution to Coke's future. So for example, if they have an experiment and that doesn't mean doing this thing in ag where you buy all these hogs and you lose hundreds of millions of dollars over what, that's not an experiment. It's an experiment, a good experiment is where what you learn from this is higher value from this failure than the cost of the experiment. And so when we do that and we're evaluating what the person you are building capability for the future. That's why we're so we put so much emphasis on are you building capability? And capability part of it is the culture and what Chase did with with Coke Labs when he started Coke Disruptive, he said, Coke Labs, I want every business to be a laboratory for what we find, both to help us source these opportunities, these tech opportunities and then we'll let, if they're just trying some, we'll try it out in that business. And being in all these different businesses that that touch almost every part of the economy, it gives us a big advantage in that. So but that affected the whole culture. I mean, none of your business, don't you wanna be part of Coke Labs? We're we're an experimental discovery group. We're just not a bunch of grunts here grinding stuff out. Chase Koch (00:31:08): Yeah. I think the KDT example is a really good one because you asked about motivating and like what if you fail and then what if you get fired and and all that. We we tried to basically take a little bit of the Silicon Valley approach and bring the, you know, of experimental discovery. You learn more and you you pivot and learn, have a failure. But then now I know what I don't wanna do. I'm gonna pivot my strategy to what maybe we're gonna keep trying as long as you don't go sync the company with some massive bet. Right? And I think KDT was a great experience. Like I call, you know, when when we did that, when when we made the those first investments, you know this in venture, you're the the losers fall out first and the winners take a hell of a lot longer to to materialize. So if we would just judge that based on, okay guys, you got three or four years to figure this out, we would have shut down KDT. Because we you have the but but it was that experimental discovery principle and mindset that we applied to it. And oh, by the way, we were learn we were learning so much as Coke from seeing the technologies that were coming around the corner that might disrupt our core business. And so we value that learning and we rewarded the people that were bringing that knowledge in. If you just look at it on the bottom line basis in the first couple years and say, just shut this down. Right? But then over time, like all these different things and that and then the returns are starting to come because we thought long term about it. But it all came from that experimental discovery, one principle, principle, and then creative destructions. Like if we're not in the game on technology and we don't see what's coming, something's gonna happen, especially with how fast technology is moving today. Some of our businesses are gonna become dinosaurs. David Friedberg (00:32:53): How much of that risk were you willing to take and did you take on acquisitions? So doing homegrown experiments on new business ideas and strategies and products can be lower cost, but if you're gonna do an acquisition, do you have less room for Charles Koch (00:33:07): Well, how about this? We were a much smaller company and we bought Georgia Pacific for 20,000,000,000. David Friedberg (00:33:12): Well, can you just tell us what Georgia Pacific is for those who don't know? Chase Koch (00:33:15): It's a wood products company and it's got two big pieces to it, building products and consumer products. Charles Koch (00:33:22): Well, it's got it's got a third one, but Chase Koch (00:33:25): yeah. Okay. I'm so I'm generalized. But go ahead. Charles Koch (00:33:28): Sorry. No. No. Chase Koch (00:33:33): No. No. No. But but anyway, but on on that one Charles Koch (00:33:38): So when David Friedberg (00:33:38): when did you buy it? Yeah. And how big of a betting the company move was that? Chase Koch (00:33:42): 2005. Charles Koch (00:33:44): Oh, that was yeah. We were much smaller in 2005. I can't remember how much smaller, but it was a lot smaller. Chase Koch (00:33:51): It was a massive bet. David Friedberg (00:33:52): How did Charles Koch (00:33:53): it come up? Okay, we were, like, applying this virtuous cycles of mutual benefit, we were saying, okay, what's one of these cycles are chemical process industries. And wood creating the pulp and stuff was, matter of fact we found in my father's thesis, he did a study in Maine on this very thing on pulping, I mean I found it later, but then then then then David Friedberg (00:34:30): His MIT thesis. Charles Koch (00:34:31): Yeah, yeah. Wow. So we said, okay, let's look at the Oh, and they were saying they need to spin off some of those parts, the pulping part. And we said, okay, let's buy that. And we bought that as an experiment and we did real wealth with it. And so we said, wow, they have other because that was a commodity business and they were trying to get their price to earnings ratio, it was like six and if they became more of a consumer products, they could get it up to nine. So we proposed, we met with them and proposed that we buy the commodity part and we'll pay them a high enough price that then they can be all consumer products and get their price and we showed them all the economics and they said, that's fine, but we'll be sued for constructive fraud because we all have all these lawsuits against us. And so we can't do it, but we like the value. And so we went home and said, well, okay, what if we just offered the whole thing? And a couple of them were getting ready to retire and the senior officers, so they were really liking it. And they were kicked out of all the board meetings from then on, but anyway. So we sold them and that was a time when money was tight and stuff, so nobody came in and topped us. I'll give you just one funny story. Sent one of our people end up to be the CEO, Joe Moeller, who had been president of the company. He, they had, it was totally top down bureaucratic. They were, in Atlanta they had this 51 story building, is it 51? You can correct me. Chase Koch (00:36:42): That's right, yeah, Charles Koch (00:36:43): you got it. And they had a private elevator to get up there and you didn't have to wear a coat and tie, but if you came up to visit, all the management was on this 51st Floor and you had to put on a coat and tie and get permission to come up there. And so Joe immediately kicked them all out, well we fired a bunch of them and then set the remaining ones down to work with their groups. David Friedberg (00:37:11): On the regular floor. Charles Koch (00:37:12): And then regular floor and then turned it all into offices, I mean into meeting rooms open anybody. And so that, I mean you asked about how you get culture change, a lot of business signals like that. Particularly when a bunch of them get fired for being so bureaucratic and hierarchical. David Friedberg (00:37:30): Would you say that that business unit operates like the rest of Coke Industries today? Charles Koch (00:37:34): Oh, absolutely. But how long Chase Koch (00:37:36): did it take by? David Friedberg (00:37:37): I'll I'll just say, like, that is such a rare and difficult thing to pull off. I mean, there's just countless stories of acquisitions where the acquirer thinks that they have culture, thinks that they know how to transfer culture, and literally no one seems to be able to do it. This was one of the insights from Warren Buffett is you find great managers, you let them continue to operate as owners of that business and they get some profit share or whatnot and they've got a durable moat so he can make a long term investment and he just leaves them Charles Koch (00:38:05): Yeah, but that's, say that wouldn't work for us, the stuff we buy. Well, let me give another one if I could that was even more difficult. And that is, sadly my father died not too long after I came with the company in 1967 and we had owned an interest in a small refinery in Minnesota. So, but two years later, we were able to buy it. And it was not being operated very well, because the management had let the union control how it was run and so it was run very inefficiently. And so the first thing we tried to do is change the work rules. So they went out on strike and by the way, that was at the start of my honeymoon, thanks a lot guys. And it was violent, I mean they ran a switch engine and tried to knock down one of our units, they shot high power rifles in there and they blocked the gates. I mean, it was impossible to get in there. We had to take helicopter, but we were successful in operating without the union workers for nine months, bringing people in from our other plants and it operated better than they did. So finally we got the work rules changed and then we said, okay, we're gonna empower the employees, we're gonna change the culture. Now you think that Georgia Pacific was tough, this was much tougher than that. And so we worked and worked on it to try to make their jobs better, get their opinions, get them to work as teams, get them to come up with innovations, when they did, we reward them and we got the union to agree with that. And like one they said, a group of them said, God, we're buying all these spare parts we need, we can, if you build a machine shop, we can do it cheaper and faster. And they did. And then other things, they saved ton of money for us, made things more efficient. And now the culture there is fantastic. I mean, we're talking about, we're not talking about Wichita, we're talking about Minnesota. So I mean, we're so proud of what they've done and it just, it still blows me away how much they've taken these principles to heart and using them to make that place so it's, so we've increased the capacity tenfold and it's one of the best refineries in the country. Chase Koch (00:41:08): Pop, wouldn't you say that I mean, the common theme on all of these because we have the same story on Molex, you know, similar similar but different than Georgia Pacific. This was a technology company, a connector and a cabling and connector company, one of the largest in the world, that makes products in your iPhone and med tech products, your automobile. And, when we bought that in 2013, it was a a paradigm that needed to be changed. You know, you described Georgia Pacific top down versus bottom up. There was a lot of that too. But it was top line thinking versus bottom line thinking. It was all about revenue growth. Right? This is a technology company and it was also a public company for thirty plus years as well. Charles Koch (00:41:51): Because that's what the market rewarded Chase Koch (00:41:53): them And so, like, the whole The stock price. The public versus private discussion is interesting here, and it just what we've learned is it takes a hell of a lot lower than you think to change the culture. And almost in every case I mean, pop, tell me if you agree with this. Yeah. But in almost every case, requires changing leadership that has the paradigm of bottom up empowerment and that learns and applies the principles. Almost every time when we fail, it comes down to ignoring the principles. You can and that's what the the book is about. You can kind of reverse engineer these stories like, well, we missed that principle, we missed this principle. But it comes down to talent and the right people with the right mindset. And I wanna share just one story with you that really shows like how we apply this at Coke. He talked about our talent vision being you start with basically culture first, you know, skills second values first, skills second. I always add a third dimension to that as well. Values first, skills second, credentials last. And that is a very very different skill, mindset than than most companies because most companies I think look at it and say, I want I want the guys, you know, that have the four o from the Ivy League school and all that. And there's some incredibly smart, obviously, folks from that. But by by our experience, and also is one of the reasons why we stayed in Wichita, Kansas, is that we can basically hire the farm team. Right? Kids that have grown up on the farm, that have that contribution motivated mindset that work their tails off and wanna come in to make a contribution as opposed to coming in expecting all this stuff and coming in with more of an entitlement mindset. So we case in point, our CIO today, his name is Jared Benson, he start his first interaction with Coke was based striping lines in our parking lot. So no college degree whatsoever, but he found his way into Coke because he demonstrated that, hey, he knows a little bit about data science and he could help us. Chase Koch (00:43:59): This was about twenty years ago. And then ultimately he came in, he proved himself. He was running circles around a lot of the team and like just, know, contribution mode of mindset, adding value. He saw the cyber security risk and that wave coming, built a whole capability to protect us from cyber attacks, and then now he's CIO of the company, guy with no college degree. So I mean that kind of mindset in terms of our talent vision and like that values first and someone that just wants to come in and they they just love the job and they wanna make a difference. David Friedberg (00:44:35): Do you actually cod these principles and everyone at the company has a handbook that lists them out and then they're part of the assessment process for quarterly or annual reviews with people? Chase Koch (00:44:45): Yeah, mean obviously there's the book and he's, this is his fifth book, it's my first. But but so Good Profit, Science of Success. Charles Koch (00:44:53): Chase, have nice it's my best book because of Chase. Hey, Brian, the one we did is pretty good too. Chase Koch (00:44:59): Hooks won't like that. Right. But yeah, no, there is a there is a discipline. Right? And and really it comes down to the leaders taking it seriously and the leader's first responsibility is to help their people. David Friedberg (00:45:14): Okay, I'm gonna put my analyst hat on for a second. Yeah. And I'm gonna say my observation would I would create a theory. We could test the theory right now that being in Wichita, being founder or owner operated, and having this ability to be isolated from a monoculture. I just feel like Silicon Valley, a lot of companies replicate each other. You have to kind of, there's this term that's being used lot now over socialization. You have to operate like everyone around you or you're not part of the you have to fundraise in the right way and do these deals. You have to hire people this way. You have to do this sort of vesting schedule, this sort of equity everyone's the same. And if you don't, you're kind of a weirdo, but by being in Wichita you don't really have that problem. You can think your own way. You can challenge yourselves, you can debate, you can come up with your own principles without feeling like everyone else is conforming to the groups around you. Charles Koch (00:46:08): But they can because they're a bunch in Silicon Valley that are challenged. Yeah. So they're not all that way. David Friedberg (00:46:15): They're not all. Charles Koch (00:46:16): Yeah. And this David Friedberg (00:46:18): what is it always been a competitive advantage? I mean, you ever think to move the headquarters to New York City Charles Koch (00:46:22): No. Or No. But the main thing, moment we've we've never thought of that. But but what we've sorry about that. I mean, there are advantages of being in New York City. I mean, you have a great mayor now, so we're good to go. But anyway, so we we that's a That'll competitive advantage of be a cool comment. But this is, no, but the main threat we've had is we had saws that wanted to go pub, take us public. And I said it would be over my dead body and some of them thought that would be a good idea. Just like they're thinking that about Trump, well, a lot of people thought, still think about it, I get a lot of nice notices of my imminent death. And they say, okay, your brother died, we hope it was, I know this is painful, but I hope it was slow and painful and I hope Charles is even worse. That's the kind of crap we get. But anyway, the biggest push has been for us to go public, God, we'll be worth so much and stuff. I think our view, we never could have accomplished what we've had. First of all, we never would have built a principle based framework. And then we never would have been able to pull off this capability bounded versus industry bounded. Because then, I mean, people don't understand it. Now, if you're Buffett and you've sold that long, then people okay, but he wasn't trying to integrate them the way we do, no one would believe it. And that's because got to have a story that the analysts can understand. Otherwise we would, like Georgia Pacific, we would have a low price earnings ratio. David Friedberg (00:48:27): And so being private, being in Wichita, competitive advantages, what about being owner operated or founder operated? There's this argument that the the best Silicon Valley companies are those who are founder led for as long as possible because the founders are willing to destroy the business creatively. They're willing to think about what's over the hill, make the tough decisions, reinvent the company, hire and fire as needed, be willing to take the short term financial loss for the long term. Have you been able to get that to distill down into the organization? Because that's the thing that most public companies that are not owner operated deal with and struggle with is managers that are short term incentivized and aren't and can't take the big risks and the risks of failure that you're able to embrace. Charles Koch (00:49:11): No, but I think it depends on the values of the owners. If, like one of our principles is that any good partnership of any kind, whether it's marriage, friend, employee, partner requires three things. It requires shared vision, shared values, and having complementary capabilities that you use to make each other better. And if you miss any one of those, you're not going to have a lasting good partnership. And so I remember I was to the YPO group in Wichita, this was like twenty years ago, presenting what we were doing and why. One of them said, well how do you get that to work in a private company? And I answered, well no, it's easier than in a public company just like I did. And then I thought who it was and he was talking about his father. His father was a total dictator. And there's no way he could apply any of these principles in that. So it all matters who the owners are and what their values are. David Friedberg (00:50:30): Can a public CEO that doesn't have a big ownership stake in the company adopt these principles transform the culture Charles Koch (00:50:36): Well, of that you can sell it like Buffett has, but I mean he wasn't doing these principles, but he had a different principle, and that is I'm gonna buy a company that's not gonna take top price, but what's meaningful to them is they run it, so I'm gonna buy it and let them run it. And so that was his value that he sold that made him tremendous. Well, the other one was buying insurance companies, you'd have a lot of liquidity to go do all these things. Those two things are what made him successful. David Friedberg (00:51:11): Right. Chase, I want to just go back to your getting involved in the business. We didn't get into that, but how did you get started at Coke? How did and were you always a believer in the principles from a young age? Were you around the organization? Charles Koch (00:51:24): I'm a Chase Koch (00:51:28): chip off the old blocks. It took me a while to come Charles Koch (00:51:33): remarkable transformation I've ever been talking about them all. Is the primo. Here we go. Unbelievable. Chase Koch (00:51:41): Do I get to tell my story? Charles Koch (00:51:42): To the absolute bottom to the absolute top. Chase Koch (00:51:46): He'll correct me. Charles Koch (00:51:46): He's blown beyond me. He's doing things I wouldn't even dream of or have the capability to do. Chase Koch (00:51:53): He'll correct me he'll correct me 10 times as I tell Charles Koch (00:51:56): the story. But Well, because you're too damn humble. Chase Koch (00:52:01): So I didn't start when I was six. I started when I was 15. So he caught me some slack, but it's because I was a pretty competitive tennis player and Charles Koch (00:52:09): so He was nationally ranked. Say the humility. He was nationally ranked. Chase Koch (00:52:13): That's first first time. So but at 15, I got burned out, you know, tennis, like typical story where I wanted to hang out with my friends. I wanted to have a good time. I was tired of playing six hours a day. So I I started throwing tennis matches intentionally to get out of it out of these tournaments. So I go home and party with my friends and and he he said, look, your attitude is terrible. You can either give a 100% on the tennis court and apply yourself or I'm gonna get you a job. I said, I'm sick of tennis. I'm done with it. And so I had his my the job was figured out the next morning for me. Charles Koch (00:52:50): Yeah. But let me again because this is important. He thought he would get a nice cushy job in Wichita so he'd go out and party with his friends at night. Yeah. Well, you know, I'm I may be old and slow, but I'm not that slow. Chase Koch (00:53:07): Yeah. He was kicked out of a number of Charles Koch (00:53:08): school I was born at night, but not But last Chase Koch (00:53:12): yeah, so David Friedberg (00:53:13): Probably parallel story movie that could be made. Chase Koch (00:53:16): Yeah. Know. Seriously. There there really is. Yeah. But basically all my shit was packed for me. Yeah. And it was thrown in the back of a truck and six hours later I showed up at a at a feed yard and I lived in a single wide trailer the whole summer with with my boss. I slept on the floor, worked seven days a week and just shoveled couch in and dug post holes. No. And so that was my oils. Charles Koch (00:53:39): Forgot about that. Your Let's keep Chase Koch (00:53:41): it manageable here. So so anyway, but the the the interesting part of that story, even though I went from literally being like, you know, kind of country club rich kid to to doing that within twenty four hours, it was an absolute transformation for me. The the fact that he kinda he he made me do that. And I chose, but I didn't know what I was exactly, you know, choosing. But by after, you know, I was like a month or two into this job, I started like actually feeling like better my better about myself. You know, it's like I hadn't really made a contribution up till that point in life. And then I'm actually I'm working with a team, getting paid minimum wage, I'm working my tail off, I'm adding value even though it may be like just menial work. And this is I go back to a letter that his father, you know, wrote to him and the and his other three brothers. Charles Koch (00:54:42): No. No. My my older brother. Your older brother. Because I was three months old when Chase Koch (00:54:46): he Yeah. Wrote This letter about basically, like, when I pass on, you're gonna get what seems to be a large sum of money. I hope you don't squander it. I hope you don't use it for I hope you actually apply yourself because I want you to feel the glorious feeling of accomplishment. And it's a it's a really amazing letter. He has it hung in his office. But I, you know, that was the first time I felt that. Even though I was working at a feed yard, was like, this feels good actually. You know, could I have gone down the path of of, you know, just kind of staying on the tennis circuit. I had no idea where I'd end up in life had I had I not gone down that path. And so I basically worked every summer for Coke from that summer on. Worked in a gas liquids plant, I worked in our refineries, refineries, all the way through junior year in college. I always had a coke, you know, kinda summer job. But another so that was an absolute, like, transformation for me in my life. Charles Koch (00:55:48): Let let me may I give you one more Chase Koch (00:55:50): credit here? Charles Koch (00:55:52): See, what he he has great humor, which is great. And that is, Chase has I I have this gift for abstractions. He's he's like his mother. He has a gift for people. He understands people and can relate to them and he can go around like she can or Sterling Garner, who was our president in early days, who by the way, was born. His father ran mules in an oil field camp and he was born in a tent and there damn near died, never went to college whoever he met with wanted to do business with us. And that's the way Chase is, he goes around and meets these people and all of a sudden they're friends and they wanna do business and that's true for Stand Together too. Gold people you think, oh, they don't want these capitalists or these free enterprise people to do business with them. And and and he gets them on our side and shows them the value of these prints. Chase Koch (00:57:06): Well, let me let me make Charles Koch (00:57:07): Is that fair? Chase Koch (00:57:09): Whatever you said. No. I mean, that's my job. That that's what I do now. You know, origination and partnerships. And about the time I met you, that's when I started, you know, getting into technology and trying to build a new community so that we could get access to the most disruptive founders. But one quick story I want to tell, because I think it'll be helpful for your audience as well, that we haven't touched on yet, is the principle of comparative advantage. It's another meaningful total shift in my job at Coke and my role at Coke, but also in my my personal life, was when I was running the ag business. This was this was later on. We talked about the late nineties, the the gas to bread spread and all that. This is a separate business with Coke Fertilizer. I spent ten years in that business really understanding the operations of a business. I worked in sales and and in marketing and the accounting, the finance, like every piece of it, the trading. And I ran a lot of the smaller business units, but at one point my boss at the time wanted to add a whole natural gas trading business to it. So he's like, hey, I got to, I want to put a parent company called Ag and Energy Solutions and I want you, I'm gonna throw you the keys to the fertilizer business, you're ready to run it. And so I was promoted to president of Coke Fertilizer at that time and about nine months in, I realized that I was not the guy for the job, but I walked in my boss my boss's office and fired myself. And that's humiliating. Right? It's like, especially being the boss's son and like thinking about, oh my god, I'm a failure. I could I couldn't make this work. The business was still doing fine, but I wasn't doing a good job as a leader. And I knew there was someone else that had the comparative advantage to be a great operator operator CEO, CEO, you know, president type role. And so I learned through all that, you call it a failure in in that job that that I wasn't an operator. And I wasn't a good optimization type leader and I was a builder. Like, all I wanted to do was go work on the innovation stuff. Chase Koch (00:59:19): That was about the time I met you and I learned about Climate Corp and all that. I just wanted to go focus on that and and go build the stuff, you know, this whole idea of creative destruction that would disrupt the core business that I was running. And so that whole thing around, like, understanding your comparative advantage, what you're good at and what you're not relative to others that could be doing that job was a huge deal. And like my hope was that that was a little bit of an example for other, like, Coke leaders as well. It's like if you're not in the right job, like, you know, you don't have to like fire yourself, but but figure out where what your power alley really is and where you can contribute and and add the most value. So that experience for me, what was amazing if you look at like what happened after that, we we got a great president to continue to transform the fertilizer business. It's one of our most exciting businesses today and we keep we keep growing with it. So that that did better than it would have done had I stayed in the role, but then all of this led to Coke Disruptive Technologies, which we talked about, which is a totally, you know, an innovation platform for Coke to to see around corners. So like that one move made one large business much better and and also created a whole new thing. Right? And so like I always think about it, it's like we have a 130,000 employees. What if that one principle, comparative advantage, what if everyone like deeply understood that and and redesigned their role to where they're truly like in their power alley? And what what what are the results of the business if we could do that? You're never never gonna be perfect, but that's the vision that we have and how we David Friedberg (01:01:04): For the organization. Chase Koch (01:01:05): For the organization. David Friedberg (01:01:05): So think thinking about individuals. How do I self actualize? How do I find my path of purpose, happiness, success in life by leveraging these sorts of principles in a world that feels radically transforming and continuously constrained? I don't have infinite flexibility. I'm not on the board of Coke. I'm not on the board of my company that I'm employed by. How do I find a path in this world? Because I do think many people today are struggling for that sense of purpose, for that sense of identity, for that sense of realizing their potential and feeling fulfillment in work today? Charles Koch (01:01:48): Well that's critical and that's what we have, what, 20 some thousand supervisors in the company and so this is one of their top jobs, is making sure that each employee is in the right role. For example, they are working hard and trying and part of the work they're doing well in and others not. Well rather than beaten up, you gotta keep doing better. Like there's certain things that you told me I had to do, I mean I'm good at concepts and logic and math. And to go do something else that's quite different, I mean, I'd be a total failure. And you could whip me till I was a grease spot on the floor and I couldn't do better. And so that's the role of the supervisors, to not go tell them, okay, your role is to go do this, and they're just trying harder and harder, and so you're making them miserable, and so they hate you, they hate the company. And so that's the way you empower them, that's what Maslow said, he said that everyone has capability, And if you don't develop it and apply it in a way that creates value for others, you may be successful monetarily or in some way, but you'll be deeply unhappy your whole life because you won't be fulfilling your nature. Your nature and I know what mine is, I know what makes people say You're 90. Why don't you go out and lie on the beach? I said What, you want me to die? I'd be dead in a week. David Friedberg (01:03:39): It's not your nature. Charles Koch (01:03:40): No, it's not my nature. My nature is to I have this gift and a lot of our people here may say, yeah, you're damn right, you use it too damn much. David Friedberg (01:03:51): What keeps most people from realizing their gift? Charles Koch (01:03:53): Well I think part of it is an education system. So the schools need to be set up, okay we're gonna help you find your gift and what you're passionate about and what is motivating to you. So the whole system demotivates you and that's what the way businesses are managed, demotivate our whole deal. That's why we have five dimensions in the way we apply this. The first is vision, you gotta get the right vision, capabilities of creating value for others. Then it's virtue and talents, we've talked about that. Then it's knowledge, that's Republic of Science, Creative Destruction, all those things. And then the final one is motivation. And so that's what we need to do Joe Lamont has created the schools, he says it's 90% or 80% motivation. And so you have games, you have other things that the kids can do that they learn from and enjoy doing, they wanna do more. And that's, I mean, I raised our kids with these principles and I made them do it, so I was piss poor at applying my principles in teaching them this and he's doing it, he makes a game out of it. He has them reading the book and parts of it and then they have competition on who can do it better and who's living up to this better, who's applying this principle better and they're loving it. Chase Koch (01:05:27): Yeah, I'm not having my kids listen to books on tape from Milton Friedman when they're 10 years old. Charles Koch (01:05:32): No, Aristotle is Chase Koch (01:05:33): aware Aristotle, there's there's plenty of them. But but let let me just make a You David Friedberg (01:05:40): were told or suggested or encouraged to listen to Aristotle on tape as Chase Koch (01:05:46): Yeah. Charles Koch (01:05:46): Yeah. No, he wasn't encouraged, no. We'd go Sunday evenings. David Friedberg (01:05:52): I gotta take a note for my Charles Koch (01:05:53): Elizabeth and Chase and I would go over to my library and I would play these tapes, I'd only play it for ten minutes because I knew Chase's attention span. Was on it. Boy, she was on it. Chase Koch (01:06:05): She ran circles around it. Charles Koch (01:06:06): She was getting straight a's and everything. And Chase would fall asleep and then I'd then I'd after ten minutes, I'd wake him up and, okay, what was his point here? Chase Koch (01:06:17): He's a test every 15 Charles Koch (01:06:19): And then you may have seen on where was it where you talked about about we worked together to do your paper. Yes. And why don't you tell that story? Chase Koch (01:06:32): Okay. Well, I mean, we had a it was like a fifth grade paper, like, choose your philosopher, write about it. You know, it's gotta be 500 words or whatever. So I came up and I like, I don't know, like, what philosopher am I gonna write about? And so he's like, you're gonna write about Aristotle and we're gonna work together on it. But I learned a hell of a lot about Aristotle in in fifth grade. And I turned in the paper and the professor had lot of red ink all over it and said, F, you did not write this. And I'm and so I'm Charles Koch (01:07:04): like, oh god, you know, this Chase Koch (01:07:05): is so embarrassing. And so I took it back to him and I told him, I said, Pop, we got an F on our paper. Charles Koch (01:07:13): No, you said you got an F. Yeah. And so Chase Koch (01:07:17): and then I didn't think he was gonna pick up the phone and call the the teacher. So he said, you know, Doctor. Cohen, I'll never forget this. I was hiding under the table during this phone call. He said, Doctor. Cohen, you know, I helped my son write this paper and he learned a lot from it. And yet, you know, do you not want me to help my son? Do you not want any parents to help their kids, like, learn? And and he said, you know, I think you have a point, mister Coke. And so the next day Charles Koch (01:07:48): sure he did. Chase Koch (01:07:49): And next day I come back and it had 99 written on the Charles Koch (01:07:52): top. See? I I made a contribution. Yeah. Chase Koch (01:07:57): Let me let me let me go back. It's a great story, I know. But let me go back to something I think you were getting at around how do you remove more barriers for more people. And this is really kind of the stand together story. He mentioned education. I just wanna use one example of how important we feel like transforming education is. Then we also feel like it's a movement with tremendous opportunity right now. And so our vision for education is to go from a teach to test model, teacher at the front of the classroom, you know, talking at kids to one that's individualized education. Because we all as we we talked about, we all learn differently. Everyone learns differently. And our kid all all of our kids learn learn differently as well. So we did the research at Stand Together and prior to COVID David Friedberg (01:08:52): And Stand Together just Chase Koch (01:08:53): Oh, yeah. Sorry. Stand so Stand Together for those that don't know, this is really, you know, comes from my father's efforts on social change, which he's been working on for for sixty years. And Stand Together in 2003 was created that really, I think we have the insight of we can do a lot more together versus do it alone. If we operate in philanthropy and social change in silos, we're just not gonna get the leverage to drive the change that we want to. And so Stand Together is made up of, you know, close to a thousand business leaders. It's it's just like the name describes. It's a community of business leaders that align on vision and values on where we want to see the country. And it's really around this this this pretty simple idea that every human has a gift, but there's so many barriers across all our institutions, education, broken education system, a broken criminal justice system, bad policy holding people back so you can't chase the American dream and build a business, all of these things. So we're very broad in terms of the issues that we focus on, but education is the one of the biggest ones. And so I described the vision of where where we're trying to help take it and be a catalyst for change. And one of the things that, you know, we do a lot of research on where public opinion is and prior to COVID, roughly twenty percent of families were open to a new model of education, very low, right? And then everyone saw during COVID how screwed up the system was. They saw their kids come home and they learned a hell of a lot more on YouTube learning than they actually did in the classroom. So after COVID three or four years later, you look at that same data and it's seventy to eighty percent families are open to a completely, you know, to transform the education system because everyone now understands that it's just broken. Chase Koch (01:10:47): So we're supporting, we have these amazing preferred partnerships as my father described, whether it's Joe Limont with what he's doing at the Alpha School, like closing the motivation gap and meeting kids where there are and bringing like gamification and like the principles of Fortnite into education in a way that kids are like he's taking kids that are failing students to top of the class in three months. He's meeting David Friedberg (01:11:14): them where they're at. Chase Koch (01:11:15): Meeting them where they're they're at and solving the motivation gap and like making learning fun and cool. Right? Sal Khan did the same. He's a huge partner with Khan Academy. And a really interesting one that we partnered with the Walton family on is the Vela Fund, basically applying venture capital to education entrepreneurs. So coming out of COVID, there were thousands of pissed off parents and teachers that were just fed up with the system. Like, I'm just gonna create my own school. You know, these small micro schools. And so with a relatively modest amount of money, over the last five, six years, we've helped create and seed over 5,000 schools. So what's happening is there's this huge movement where people see as like, my kids are learning the the the skills of what the the future is going to be like. Not this teach to test model where you don't know how to interact with people. The reality is it's project based learning. They need to have exposure to these AI models. You don't ban them. You empower them with these models. Right? And so so we're it's one of the most exciting movements that I think Stand Together is really leading on. And we need more partners that are willing to get behind this. David Friedberg (01:12:31): I wanna go back though, Charles. This work at Stand Together has taken off. I know a lot of people that are engaging with you Chase on this work. And everything you say is so sensible and we're all it's also it always feels so obvious. Can we go back to the work you've done historically in social change and what you got right, what you got wrong? Because the narrow view of the word coke comes from a broad public perception of political activity that I think has been amplified and the narrative's been written for you. And I don't think I've personally seen a lot of conversation publicly from you about what you did when, how you were thinking about social change. Maybe you can go back to the origins of the work you started to engage in and trying to drive social change and over time what you got right, what you got wrong. Charles Koch (01:13:15): Well, it started with these principles. To me they are the principles of human progress. But rather than as Frederick Douglass say, I'll work with anyone to do right and no one to do wrong. I was only working with the people who believed in all of these. And so we were limited. I worked with the Libertarian Party and that got so narrow and then they started fighting over who has bigger, greater, more purity in these principles to get it exactly like. And that one brilliant guy, but totally this way, he says, I He said, my libertarian is this plumb line, anybody that disagrees, he purged. So it's almost like the communist party doing the same thing that Len did. And they admired Len, yeah, he had the right strategy, well no, you can't go murder anybody that does life, so it doesn't work for liberty, it works for totalitarianism. And so, and then I started reading Maslow, Eusychian Management and his strategy. And then Viktor Frankl is the one that really got me going. And Viktor Frankl, this tremendous insight. He says, The problem today is ever more people have the means to live and no meaning to live for. So if you can't find a path to a life of meaning, which comes from, as I said, from finding your gift and using it to succeed by helping others succeed in a way that gives your life meaning, then you have two choices. You can either choose to go for power or you can go for pleasure. And you see this today and you see this through the history of the world. So if you choose power, then you're always gonna want, you become addicted to power. I want more power. I need more power. And we've seen that, as I said, in our businesses. But you damn sure see that in politicians. You see that in all the dictators in the world. Then, if you say, if you've given up and you say, well, I've given up, I'm going to go for pleasure And you dedicate yourself to pleasure without considering the long term consequences, then you're gonna experience failure. You also have a tendency to become addicted, to an addict, to become suicidal and to even engage in crime. And we see both of these today. Charles Koch (01:16:35): So the problem today is when you have a world that is based on power and pleasure, it's a slippery slope to totalitarianism, authoritarianism and socialism. And that's what we're saying today. So that's the solution, is to help people find their gift and a way to apply it that enables them to succeed by helping others succeed. And so what does that mean? That means we need to, all of us, fully live up to the promise and the declaration of independence to better apply these principles of human progress. And then the other thing that I screwed up on is for the first, I've been at this more than sixty years, and for the first fifty, I avoided politics or major party politics. I mean, being a libertarian party, there was no thought of winning. The only reason I got into that is, well, this is a time people are listening. They're interested in politics, so we'll engage in that because people are talking, so we'll throw that in the hopper in hopes it takes on. Well, the way that we did it, it didn't take on at all. It blew up in our face. So then but we decided we needed to get in because we desperately needed some principle based policies. Look at all the policies that we have today. They're destructive. They're leading to more and more power and pleasure, socialism and authoritarianism. And the mistake we made or I made is trying to do it through one party. You can't do that. So now we follow Frederick Douglass' advice to work with anyone to do right and no one to do wrong. David Friedberg (01:18:44): Where are we in the cycle? So there's a rising number of political leaders around the country. Initially it was in local elections and now it's on kind of the national stage declaring themselves socialist or some form of socialism. Are we kind of on an upswing and Charles Koch (01:19:03): what Swing David Friedberg (01:19:05): I thought Charles Koch (01:19:07): hell was down not up. Damn. David Friedberg (01:19:13): So where are we? Charles Koch (01:19:15): Either we continue this, but we're going to hell in a basket. It's what it's what Thomas Jefferson said, he had slaves, but what he said about slavery, he says, If God is just, I despair for the future of our country. That's kind of where I am. If God is just, I despair for the future of the country. The people we're electing, both Republicans and Democrats, I mean, and the mistreatment, I mean, you look at what's being done, I mean, occupational licensure, way they're treating illegal immigrants, you name it, across the board, and the socialists, the way they're treating all the crime, all of that is, it's what we we've got to elect people who have some principles beyond power and pleasure. David Friedberg (01:20:22): What are your principles for changing people's minds? Charles Koch (01:20:24): It's what Chase says. We find them where we are, just like we have in the company, and we show them this doesn't get results. Now, if you're a dedicated communist, if you're like Trotsky, is if we can get rid of private property, we'll get rid of greed. And then every man will be a Goethe and a Beethoven and we will be able to create ever ready warehouses of all the goods and everybody can go in because out of their goodwill they'll be making all this stuff. If people still have those fantasies, it's never worked in history and David Friedberg (01:21:13): But it's different this time. Charles Koch (01:21:14): Yeah. Yeah. That's well, that's right. And so that's what we're trying to do at Stand Together and Chase Koch (01:21:21): Dave, what what we've learned on this is to change minds and change paradigms, you show versus tell. And go back to what we were talking about before, bottom up empowerment as opposed to top down control. I mean, I think that's like a overarching umbrella principle on all of these. So our whole thing was staying together. And that's, I think, why it's growing exponentially is because we have stories of we believe in people. We don't need top down to come in and tell people how to to solve problems. Charles Koch (01:21:51): That's the that's the book that Brian Hooks and I wrote, which we just we have a new edition based on the 250. And we got Martin Luther King the third wrote a forward to it. And that's another book besides this one. If you're interested in these ideas, we're talking about social change, there's much more in that than this book on that, although we have quite a bit on this book. Chase Koch (01:22:19): The one one of the key concepts in that is if you believe that people aren't the problems to be solved, the people that are in the problem, they're the ones with the best ideas and they're the source of the solution. That's a totally different mindset. Right? And I mean that's what Stand Together does. We talk about venture capital a lot. We bet on people that have found something that works. I'll just give a quick example, Scott Strode from the Phoenix. We found Scott his story is amazing. It was about eight years ago where he battled addiction most of his life. He had a mentor that put him in the in the gym and got him boxing gloves and like exercise was the thing that that helped him kick addiction. And what he did is like, Well, if this helps me, I think I can help other people with this this same concept. He built a gym called the Phoenix, combined the power of community with others that are struggling with the same thing, you know, multiplied by the power of of exercise and he was getting insane results, like relapse rates that were below ten percent. So what we do is like instead of like some top down program to handle addiction, go bet on Scott. And that's what we've done the last seven or eight years is we've gone from he had a couple gyms in Colorado when we met him, you know, impacting a couple thousand people. He just hit a million people basically overcoming addiction in this last year. That's a movement. Right? And I mean, that's a key difference, I think, of Stand Together is like, how do you do what you're talking about at scale and help people change paradigms? You show them with stories like Scott that let's be let's believe in the people, let's bet on them to transform society. David Friedberg (01:23:59): So for addiction and crime, that resonates wholeheartedly. Let me ask about the economic condition of America. Kids are graduating college. They got hundreds of thousands of dollars in student loan debt. No one can afford to go to the doctor. Grocery bills are too high. People are worried about paying for their next grocery bill. You look at the polling data, the survey data, the average American is really struggling. I think more than half of Americans, 60 plus percent, maybe 63% have negative equity. They have more debt than they have assets and everything's getting more expensive and no one's moving up the economic ladder. There's no mobility anymore. People are really struggling and then they're looking on TV and they're seeing spaceships launching up to space, holding flowers out the window, smiling and laughing. And it's a really dark time and it really leads people down this path of I need the government to help me, I need support, I need help, I need to elect the people that will fix this for me. How do we address the economic crisis that's facing the average person in America, the lack of economic mobility, the principles around these distraught situations? Fantastic, but this fundamental economic crisis that we're facing? Charles Koch (01:25:04): That's a damn good question. It's like, here's the question. Okay, the eggs have been scrambled, it's your job to unscramble them. David Friedberg (01:25:13): Right. Charles Koch (01:25:14): So that's the problem. Once you create these entitlements, I mean you almost can never get rid of them. You almost need, well, maybe Argentina, if he can pull off what he's doing, because they were in worse shape. David Friedberg (01:25:34): But they went through it. Charles Koch (01:25:35): Yeah. We haven't gone David Friedberg (01:25:36): through it. We're getting there. Well, let me ask a question. Does capitalism work long term? And let me give you a a an argument why it might not. The success at Coke Industries is built on an algorithm, your principles, and you've been able to adapt that algorithm and as a result scale your business, generate cash, reinvest that cash, generate more cash, reinvest that cash and so on. And you've scaled 9,000 X. You've built a compounding advantage in your business. Right. As is the case with all successful capitalists, you build a compounding advantage. The problem with compounding in any system is it eventually eats all of the whatever is in the system or it makes it hard for others to compete in that system or participate effectively in that system. And that's the argument that's being made today against capitalism. How do we counter that idea and share that capitalism should be more accessible to all, that everyone can participate and everyone can benefit, that it doesn't end up in this monopolistic end state where no one Charles Koch (01:26:29): Well, starts from removing the barriers. That's what I said. We've got to work for a system where we remove the barriers that are holding people back from realizing their potential, finding their gifts, realizing their potential, and succeeding by contributing. Okay, so we should start, like occupational licensing. All of this, there are hundreds, as you know, of occupations where they make it so tough. All the local people who are in that business make it impossible for anybody who starts with nothing to do it. And then the way we're treating illegal immigrants, the one here working and contributing, we harass them and are going to kick them out. No, we ought to welcome them and kick some of the others, the bad ones out. So some of this is basic and then we've got to reward people who want to contribute. That's why we keep you've got to get people to be contribution motivated. Then you're going to have a life of meaning. And that's what Viktor Frankl was trying to tell us. And if we don't, we're gonna fail. And we're failing because we're taking away the chance for most people to have a life of meaning, because we're setting up all these obstacles. And and I'm not picking on one party or the other, they're both doing it. And then set up all these tariffs, which undermine the division of labor by comparative advantage, which makes everything more expensive. So it's just, I mean, everywhere you look, it's a tragedy. David Friedberg (01:28:19): There's a debate happening at this moment on AI, regulating AI. How does AI become an enabler of self actualization giving every individual the capacity to develop themselves, accelerate and succeed versus making a fewer number of people even more wealthy and taking jobs away from the masses? What's your view on where AI is taking us? Charles Koch (01:28:38): Well, depends on how it's done. I mean, that's why we backed Cosmos who is who is doing backing people who do AI based on these principles of market based management, based on these these principles of human progress. And and and why don't you tell everybody what you've done in the in the book with AI? Chase Koch (01:29:01): No. I mean, it was just one principle on, like, our approach to AI is just simple concept of permissionless innovation. But, I mean, the cost of AI to get it in people's hands is dropping it just to an incredibly cheap level that hopefully everyone can have access to that. And then combine that with their gifts to unlock their potential and learn ten, one hundred x faster. That's, I mean, from an AI standpoint, that's that's that's our mindset on it. But and that's what we're doing internally at Coke, as well. Like I think one of the most exciting innovations that we have is all around human empowerment, back to bottom up empowerment with principles. So not only are we, you know, try to make sure that we have the right supervisors that are helping people, you know, understand their principles so they can apply them. You know, with the book, we've created an app. I sent it to you, Dave. I don't know if you you played with it or not, but it's called Principal Companion. You can download it in the app store. And it's really taking off within Coke because it's just another way to engage with principals in a very simple way and meeting people where they are, whether it's ChatGPT or Claude and solving a problem in five to ten minutes that otherwise would have taken a long time, we're basically powering it with the principles that are in the book to like any problem. So it's one field, you know, whatever your problem is in business and philanthropy. If you run a sports team or you're having problems with your kids Yeah. Yeah. It helps you with that. Right? And so I think that's just one example of how we're trying to, like, really drive human Charles Koch (01:30:35): And it doesn't give you an you can't say, well, I got this problem. What's the answer? No, it asks you questions. Okay. Okay. Given that, have you thought about this? Have you thought about that? So it's a Socratic method and we know what happened to Socrates. Yeah. David Friedberg (01:30:51): Okay. So listen, we're gonna need to wrap in a minute, but before we do, Chase, you know, what was the experience like writing the book with What's your it like working with your dad? Chase Koch (01:31:02): Yeah. And There's lot of ways I can go David Friedberg (01:31:04): with think it's lessons lessons learned Chase Koch (01:31:06): from Yeah. Your David Friedberg (01:31:07): I want to give you a Yeah, chance. Chase Koch (01:31:09): Absolutely incredible. I'd say it's probably the most important project that I've ever worked on. I'm getting invited into writing this book and I've said to many people, I've learned more in last eighteen months than I probably have the last eighteen years just because when you write something, as you know, the depth of learning and going back into the details of the stories, figuring out how to tell that story in a book in a way that connects with as many people as possible. I always say like, you really don't know something until you have to teach it, and writing a book is a form of like trying to to teach others with it. So my depth of learning because I got to be, you know, be alongside this guy, and then there's many others across Coke that that contributed to this to this book as well, but learned a tremendous amount. The other thing of just doing this with him, he applied the principles to the book writing process. Right? So it's like everything and it's so consistent, it almost like drives you nuts, right, in terms of of applying principles to everything. But principles like openness, creative he's written this is his fifth book, this is my first, but he wanted to drive creative destruction of his first four. Right? And so I think bringing me into it, just bringing a fresh perspective, bringing technology to it and telling stories in a different way, that's an open mindset. He could have easily looked, I'm the boss. I've done this before. What the hell do you know? But he he had that mindset to it and, you know, applied the principles to it. But I will say, he's such a stickler with words. And you should talk to my mother about this and how it drives her effing nuts. But so I got I got kind of a an eighteen month window on what it's like to be mom, maybe. But but the you know, we had one chapter in there on on stewardship, and I think we're on we're on version 27 of it or something like that. Charles Koch (01:33:15): I rewrote it at Chase Koch (01:33:15): least I like pop. Charles Koch (01:33:17): 15 times myself. Chase Koch (01:33:18): You are not applying the principle of marginal analysis. Version 26 was pretty damn good. And so anyway, but we had a lot of fun with it. Yeah. Of course, there was tension in terms of how you'd you'd write something or whatever, but overall, most important project I've ever worked on. Charles Koch (01:33:37): Yeah. Now words have meaning. I mean, people say the proof is in the pudding. No, the proof of the pudding is in the eating. For God's sake, that means nothing. The proof is in the pudding? Yeah. What, you stuck your foot in it? Chase Koch (01:33:53): Yeah. He corrects the Coke leader on that in about every meeting we're Yeah. In, Charles Koch (01:33:57): Oh, and then I used to give grammar lessons in our discovery board. David Friedberg (01:34:01): What's it like working with Chase? What's it been like writing the book? Charles Koch (01:34:05): I is, I thought he'd help some with the book and he would get us a different perspective on how to reach young people and do some things and improve it from his perspective. But he's taken it to a whole level, like bringing in AI and have AI as a principal companion to the book and all of these that are way beyond me. So he's taken the, as he has in everything, taken it to a whole level beyond where I am. David Friedberg (01:34:39): You've written a lot of books, you've built an unbelievable business, one of the greatest on earth. You've engaged in extraordinary social and civic engagement. What do you want the legacy to be? Charles Koch (01:34:52): I want us, I want our country to more fully live up to the promise and the declaration of independence. David Friedberg (01:35:00): Charles Koch, Chase Koch. Thank you. Chase Koch.