Koch
Rolling Stone has an explosive piece on how the infamous Koch brothers—now major financiers of Republican causes across the US—amassed their vast fortune. Much of it came from the oil business and involved dubious business practices. One of the most eye-opening revelations for me was:
Koch entered the 1990s on a pipeline-buying spree. By 1994, its network measured 37,000 miles. According to sworn testimony from former Koch employees, the company operated its pipelines with almost complete disregard for maintenance. As Koch employees understood it, this was in keeping with their CEO’s trademarked business philosophy, Market-Based Management (MBM).
For Charles Koch, MBM—first communicated to employees in 1991—was an attempt to distill the business practices that had grown Koch into one of the largest oil businesses in the world. To incentivize workers, Koch gave employees bonuses that correlated to the value they created for the company. “Salary is viewed only as an advance on compensation for value,” Koch wrote, “and compensation has an unlimited upside.”
To prevent the stagnation that can often bog down big enterprises, Koch was also determined to incentivize risk-taking. Under MBM, Koch Industries booked opportunity costs—”profits foregone from a missed opportunity”—as though they were actual losses on the balance sheet. Koch employees who played it safe, in other words, couldn’t strike it rich.
On paper, MBM sounds innovative and exciting. But in Koch’s hyperaggressive corporate culture, it contributed to a series of environmental disasters. Applying MBM to pipeline maintenance, Koch employees calculated that the opportunity cost of shutting down equipment to ensure its safety was greater than the profit potential of pushing aging pipes to their limits.
The fact that preventive pipeline maintenance is required by law didn’t always seem to register.
Basically, Koch ignored externalities, which is clearly a short-sighted approach. If it was good for the short-term share price, they did it, regardless of other costs—especially to “the environment”—further down the line.
And now these dinosaurs plan to spend almost $600 million running political ads in support of the Republicans. And people wonder why there’s skepticism about big money in politics.