Charles Koch: CEO of Koch Industries – The Tim Ferriss Show

Check out The Tim Ferriss Show Episode Page & Show Notes

Key Takeaways

  • Attack problems, not people
  • “The more labels you apply to yourself, the stupider you become and the more prone you are to groupthink” – Tim
  • “When you meet somebody, rather than try to find something you disagree on… search for something you can work together on that will help people improve the lives of other people”
  • Instead of seeking evidence to support your ideas and theories, do the opposite – go seek criticism 
  • Collectively, we’re all smarter than we are individually
  • How to create good profit:
    • Step 1 – Understand what capabilities you have which others might value
    • Step 2 – Find the opportunities for those capabilities that will create the most value for others
    • And don’t forget – always be improving
      • “Today, with the rapid improvements in technology, within a year or two you’ll be obsolete if you just rest on your laurels”
  • The Components of a Great Partnership (or a relationship)
    • A shared vision
    • Shared values
    • Complimentary capabilities
  • Always keep creative destruction at the front of mind (you want to constantly be searching to replace what you’re doing with a better way/product/or technology)
  • Instead of seeking instant gratification, focus on the long-term
    • Aim to find a calling you can use to create value for others – that’s where success, fulfillment, and passion come from

Books Mentioned

Intro

  • Charles Koch is the chairman of the board and CEO of Koch Industries, Inc.
    • Koch is one of the largest privately held companies in the world, and by revenue, is larger than both Boeing and Disney.
  • Charles has quite the education background – He received a bachelor’s degree in general engineering and two master’s degrees, in nuclear and chemical engineering, from the Massachusetts Institute of Technology
  • And lastly, Charles is the founder of Stand Together which teams up with social entrepreneurs aiming to tackle poverty, K-12 education, and bring justice to our criminal justice system
  • Tim prefaces the interview by saying:
    • “The more labels you apply to yourself, the stupider you become and the more prone you are to groupthink”
      • As background, Charles is a large donor for the Republican party
    • “Attack the problems, not the people”
    • “Instead of asking how to most effectively fight against someone, first ask what you might have in common in terms of priorities so you can align in some fashion. Without that, we’re all doomed.”

Charles’ Dad

  • Parenting tip – don’t lecture your kids on anything you don’t live up to yourself
  • Charles’ dad always told him – “Learn everything you can. You never know when it’ll come in handy.”
  • In preparation for this interview, Tim found the following piece of advice which Charles’ dad had given him:
    • “I hope your first deal is a loser. otherwise you’ll think you’re a lot smarter than you are.”

Favorite Books

  • In his book, Good Profit, Charles wrote “I’m a bonafide book person. My home contains more books than I’ll ever have time to count
  • The books (and authors) which have had the largest impact on Charles’ thinking:
    • Why Wages Rise by F.A. Harper
    • Human Action: A Treatise on Economics by Ludwig von Mises
    • The two authors: Abraham Maslow and Friedrich Hayek
      • Maslow was one of the earliest positive psychologists
        • He famously stated: “What you can be you must be” 
          • Maslow identified the state where one is fulfilling their nature as “self-actualization”
        • Another one of his insights:
          • “People can live and work together in peace and to their mutual advantage under generalized rules of just conduct. Generalized rules enable people to succeed by assisting others rather than detailed rules which result in conflict and people trying to undermine each other.”
        • On the above – “You put those two together and it forms the core of my philosophy and what’s enabled me to accomplish more than I was really capable of doing”

Drawing Inspiration from Scientific Philosophers

  • Check out one of Karl Popper‘s famed essays – Science as Falsification
    • In the essay, Karl states – “The true scientific method is to develop a testable proposition… and then your obligation is to not go find evidence that supports it, but to go seek criticism if it. Go find what’s wrong with it.”
      • Charles applies this broadly in both life and business –“The first thing to do with any project or acquisition is to find what could go wrong”
        • Charles will typically think through the drivers of success for a specific project and then go find the people who can best articulate what might go wrong within each (as as way to mitigate the downside)
  • Charles is also fond of Michael Polanyi
    • Check out his essay The Republic of Science: Its Political and Economic Theory
      • One of the key points – the reason the scientific community has been so productive and innovate is because no one’s in charge
        • Consensus, debate, and knowledge sharing are the root of innovation
      • Another – Innovation comes about from taking old ideas and combining them in new and novel ways

Recreating the Republic of Science

  • Koch Industries places a large emphasis on knowledge sharing
    • “Many companies, particularly large companies, operate in silos. You have an incentive where if you have an idea, you might not want to share it because you won’t get credit. We consider that the kiss of death. We expect everyone to share and build mechanisms and incentives within the company to encourage internal knowledge sharing.”
    • Newton has said – “If I see further, it’s because I’m standing on the shoulders of giants.”
      • Charles adds – They don’t need to be giants, anybody working on a similar problem might have an idea which can help you
        • “Collectively, we’re all smarter than we are individually”

The Root of Good profit

  • The 2-step process:
    • Step 1 – Understand what capabilities you have which other might value
    • Step 2 – Find the opportunities for those capabilities that will create the most value for others
  • But don’t forget:
    • Always be improving – “If you’re the best in the world, it’s not good enough”
      • “Today, with the rapid improvements in technology, within a year or two you’ll be obsolete if you just rest on your laurels”
    • Constantly be searching for new opportunities to utilize your value
  • The above is the root of Good Profit, Charles’ book
    • It’s all about creating value for customers, society, and others, driven by a mutually beneficial relationship
    • Charles adds – “Our job is to produce products and services that our customers will value more than their best alternative and in doing so, to constantly reduce and become more efficient related to the resources we consume”
    • What’s bad profit?
      • Trying to cheat your customers
      • Misrepresenting what you’re doing
      • Getting corporate welfare
      • Getting protection from foreign and domestic competition (AKA protectionism)
  • The governing question behind everything Koch does – “Will this enable us to fulfill our obligation as a business – to profit by helping others to improve their lives?”

The Driving Principles Behind Koch Industries

  • Having a focus on on human progress and human flourishing
  • Building capabilities that enable Koch to create value for others
  • A focus on conceptual knowledge
    • Conceptual knowledge was discussed in a book by Michael Polanyi – Personal Knowledge: Towards a Post-Critical Philosophy
      • Personal knowledge is when things become second nature (ex. – the position of a violinist’s hands)
      • Conceptual knowledge is a focus on the bigger picture (ex. – making great music)
  • Three-dimensional learning
    • Discover your gifts and aptitudes
    • Do what you can to develop your gifts
    • Learn to apply your gifts in order to contribute to society
  • Division of labor by comparative advantage
    • What does this mean? – Basically, labor should be divided based on what people are/aren’t good at
  • Creative destruction
    • What does this mean? – You want to constantly be searching to replace what you’re doing with a better way/product/or technology
  • Self-actualization (as mentioned above, this means fulfilling your potential)
  • Synergy – “A system and state of mind where what’s selfish and unselfish merge”
    • AKA becoming contribution-motivated (focusing on helping others in a way that’s also rewarding to you)
  • Free speech and open inquiry
  • Property and decision rights
  • Basic values – integrity, humility, and respect
  • Utilizing the human action model
    • People only act if these 3 requirements are satisfied:
      • 1) If you’re dissatisfied with your current state
      • 2) If you have a vision of a better state
      • 3) If you have a path to get there

If the above are so obvious, why are they so often neglected by other companies?

  • It has to do with being more short-term oriented as opposed to long-term oriented
    • “That’s been the demise of so many companies”
      • The GREAT majority of the top 50-100 companies from 100 years ago no longer exist

The Components of a Great Partnership (or a relationship)

  • A shared vision
  • Shared values
  • Complimentary capabilities

Let’s Get into the Good Stuff

  • Charles, a notable conservative, has supported causes from the other side of the political divide:
    • He opposed George Bush on many issues
    • He’s pro choice and pro same sex marriage
    • He worked closely with President Obama and his administration on criminal justice reform
  • How has has Charles’s approach to policy changed over time?
    • The one thing Charles has always been most concerned with – helping as many other people as possible realize their potential and find/utilize their gifts
      • Charles has been fighting this cause since the 60s, but mostly stayed out of politics for the first 40 years or so
        • Looking for policy changes, Charles realized he had to get acquainted with politicians who wanted to help the country long-term
          • “The Republicans, although from ideal, seemed more sympathetic to these issues so we started supporting Republicans”
          • “We would go back and support ANYBODY who would advance these policies in order to bring about a society of mutual benefit where people have the opportunity to utilize their potential”
    • Looking back to what makes a good partnership (see above), Charles now only looks for one commonality of who he supports/works with – sharing a vision on a specific issue
      • “We may disagree on everything else, but if you can help us advance a policy which would help people improve the lives of others, we can work together”
      • “When you meet somebody, rather than trying to find something you disagree on… search for something you can work together on that will help people improve the lives of other people”

Stand Together

  • Charles is the founder
  • “Everybody has the capability to realize their potential if they have the right mindset and support”
    • Stand Together’s aim – help people gather the right mindset and support so they can make a better life for themselves
  • How do they do this?
    • Find and work with social entrepreneurs closest to the specific problem they’re trying to solve
  • What do they fight?
    • Addiction, lack of economic opportunity, homelessness, criminal justice reform, etc.
      • Charles adds – “90% of people who go to prison get out. Do you want prisons to be incubators for more hardened criminals compared to when they went in or do you want prisoners to have a second chance and come out with skills and values that will enable them to contribute to society?”
  • Who are they working with?
    • More than 1,000 professors at more than 350 universities, tens of thousands of K-12 teachers, more than 700 business leaders, 140+ community groups tackling poverty and addiction
    • 150 social entrepreneurs with the goal of adding ~70/year to their roster
  • To add:
    • A side venture of Stand Together – Youth Entrepreneurs 
    • One of the programs Stand Together supports, Hudson Link, runs college accredited courses in prisons
      • Graduates of their programs have a recidivism rate of 2% (compared to the normal of 70% nationally and 40% in NY)

A Brief Monologue from Tim

  • “In very polarized times where you have the President, or any number of people, being portrayed as the second coming on one channel and the anti-Christ on another… it IS possible to attack the issues or the problems and not the people.”

(Submitted Question) Does Charles have guilt over the millions of Americans made poorer, sicker, or dead by unfettered capitalism?

  • Expanded: Does Charles prefer a world where the majority struggle in misery so a few can hoard billions? Why are higher profit margins worth polluting the environment and how does Charles square this with the animals and people sickened and killed by unregulated and industrial pollution?
  • “I don’t like the term capitalism. That assumes that what we’re after is a system where certain people have a lot of capital. That’s not what we’re about. What we’re after is a system where everybody has the opportunity to realize their potential, including those who start with nothing.”
    • “Businesses should only profit to the extent they’re helping other people improve their lives”
  • Over the last 5 years, the Environmental Protection Agency has ranked Koch as #1 or #2 of U.S. companies in pollution reduction initiatives
    • “That is our second top priority after keeping people safe”

What does Charles think are the most legitimate extensional threats to humanity?

  • “I think the biggest threats, as they were for millennia up until the 18th century, are top down”
    • Specifically – people at the top who can tell others how to live their lives
    • “Top down solutions, all they do is create partisanship and conflict”
  • Charles adds – “Politics is a win/lose game. Working together to a mutual benefit is win-win. We need to maximize the amount we allow people to do in order to advance their interests in a way that benefit others.”
  • What else worries Charles?
    • Current policies on trade – “If goods don’t cross borders, soldiers will”
    • The fact that the U.S. is involved in too many wars/situations
      • The US has over 800 military bases around the world
      • “We’re involved in everything trying to control the world and it doesn’t work”
    • Nuclear weapons

For what would Charles be willing to bet his entire personal fortune?

  • He’s investing all his liquidity in Stand Together
    • “Pay attention not to what people say, but to what they do”

What would Charles put on a billboard?

  • “Greater your good”
    • This is Stand Together’s slogan
    • Expanded – “Discover your gifts, develop them, and apply them in a way that helps others in a way that’s also beneficial for you”

Check out Charles’ Op-Eds

Additional Notes

  • Charles is a middle child – he has an older brother and two younger twin brothers
  • Instead of seeking instant gratification, focus on the long-term
    • Aim to find a calling you can use to create value for others – that’s where success, fulfillment, and passion come from
  • A third of occupations require some form of government approval (AKA occupational licensing)
    • This inhibits many people from actually living out their occupation (i.e. not being able to go to school or pay for the appropriate certifications)
      • Examples – hairdressers, yoga instructors, interior decorators
  • The U.S. is responsible for ~15% of the world’s man-made CO2 emissions
  • Charles is named after Charles de Ganahl, an entrepreneur his father worked with
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