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  Charles Koch resisted Bill’s challenges on every front. He dismissed the idea that Koch should pay higher dividends—he had already explained to the board of directors how dividend money could be put to better use by reinvesting it in the company. He also dismissed the idea that he was secretive and kept important information hidden from the board. He gave directors all the information they needed, he said, and didn’t need to give them more.

  On April 27, 1980, Charles Koch sent his youngest brother a handwritten note:

  Dear Bill,

  What is the purpose of these attacks on me? I hear from all over the country that you’re constantly criticizing me. Each of your recent reports to the board includes a slam at me. Even your memos to me are acerbic and accusatory. It seems to me that none of this serves any useful purpose; that, in fact, it is destructive, destructive to you and to the company. Whatever I’ve done to make you so bitter toward me is in the past. The best course for us both to follow now is to attempt to work together, if not in friendship, at least civilly and in mutual respect without the past suspicion and ill feeling. I, for my part, will do my best to accomplish this.

  Your brother,

  Charles

  Bill did not stop.

  On June 12, 1980, he sent a memo to Charles that carried the title: “The Right of Directors to Be Informed on Substantive Issues That Could Affect the Company.” It was a broadside against Charles and his leadership, implicitly accusing him of deception and abuse of power. But most importantly, the memo stabbed at the most sensitive nerve that the Koch brothers possessed. It suggested that their father, Fred, would be ashamed of Charles.

  “The corporation’s good name is dragged through the mud by one set of indictments [in the Denver case]. . . . The corporation’s good name is threatened by more such actions,” Bill Koch wrote in the memo. The corporation’s good name, of course, was their father’s good name. Bill implied that Charles was tarnishing it.

  During the month of June, Charles recalled getting between six and ten similar memos from Bill. The younger brother was asking for more staff and more money that he could control for a new investment fund. He wanted more responsibility and a stronger voice.

  When Bill recalled this period later in media interviews, his explanations for his behavior always quickly devolved into a bitter thicket of childhood resentments and tensions. In a lengthy interview with Vanity Fair magazine, Bill recalled a mother who was distant, a father who was severe and parsimonious with his affection, and an older brother, Charles, who was relentlessly manipulative, controlling, and a bully. All of it seemed to come gushing out of Bill in those memos during the summer of 1980. Charles appears to have seen it the same way: “Whatever I’ve done to make you so bitter toward me is in the past.” He saw Bill’s complaints over the business as a means for complaining about things that were deep-seated, personal, and largely irrational.

  While Charles dismissed Bill’s concerns, he also kept trying to sue for peace. Charles called Bill at the end of June and asked him again to stop the “emotional attacks.” Bill told Charles that he wanted to have more access to him, more time to ask him questions and have his concerns addressed. Charles agreed to that, and remembers Bill saying that the attacks would stop.

  If the attacks did stop, it was only for a few days. On July 3, Bill sent Charles a memo that ended their relationship forever and nearly split the company apart.

  The memo was ten pages long, single-spaced. But one paragraph stood out.

  “I’m not interested in a battle and would like to settle the problems between us,” he wrote. “Since I’m not alone in these concerns, the failure to solve them, which can be done quite easily, will be destructive to everyone concerned. Indeed, if they are not solved, the company will probably have to be sold or taken public.”

  The company will probably have to be sold or taken public, Bill had written.

  There was no going back after that.

  * * *

  In early July, Koch Industries held an emergency meeting of the board. Both Charles and Bill attended. Charles confronted each of Bill’s accusations and defended himself. Bill told the board that shareholders, himself included, needed to get more cash out of the company than they were getting. The board agreed to take actions that might address Bill’s concerns. Charles agreed to form a “liquidity committee” that would look at paying out more dividends. He also agreed to explore the idea of taking Koch public. Going public would not only entail selling ownership of the company to ordinary investors through Wall Street brokers—it almost certainly would mean that the Koch family would lose control of the firm. But by losing control, the Koch family and other shareholders would get a onetime windfall of at least hundreds of millions of dollars. Bill Koch would be a very rich man, and not just on paper. He would never need to borrow money to buy a house again.

  Bill seemed satisfied with the deal. But he had seemed satisfied before. During the board meeting, Charles Koch told the directors that if the attacks from Bill did not stop, he would seek the authority to fire his younger brother.

  For a while, the attacks did stop. During this time, Charles called Bill and made a proposition. He asked Bill if he would be the co-executor and trustee of Charles’s two children if Charles and his wife, Liz, were both to die. If that happened, Bill and David would split authority for the kids. It was the ultimate expression of trust in Bill, and the kind of agreement that would seem to cement their tie as brothers again. Bill told Charles he “would be delighted.”

  What Bill did not know at the time was that Charles was working on a memo of his own. It was a long memo that Charles would deliver to the board of directors, and one that would bring about the end of Bill Koch’s tenure at the family company.

  This memo would not be sent immediately, in part because Bill’s twin brother drew everybody’s attention elsewhere.

  * * *

  Bill Koch never found a comfortable place for himself in Charles’s shadow, but his twin, David, did. David Koch discovered that he had one crucial skill his older brother Charles lacked: he could tolerate being in the public eye.

  Charles lived in Wichita, and he spent most of his days either at home or inside Koch Industries’ secluded headquarters building. David made his home in New York City, where he attended galas and charity balls and developed the reputation as a rakish bachelor, dating one beautiful debutante after another. He became the public face of the company—to the degree that such a secretive company could have a public face.

  Starting in 1980, David also became the public face of Koch Industries’ political activity. He joined the US presidential campaign, running as the vice presidential candidate on the Libertarian Party ticket. In doing so, David became the public face of a battle that Charles Koch had long been fighting behind the scenes. In the preceding years, Charles had become a major financial backer and advisor to the Libertarian Party, exchanging letters with successive party chairmen who sought out his advice and support. Charles gave at least tens of thousands of dollars in donations to the party, using his own money and coordinating contributions from his mother and brother Bill. The Libertarian Party’s national director, Chris Hocker, wrote Charles Koch a thank-you letter in 1978, saying, “Right now, of course, we’d be in terrible shape without your support.” Charles Koch advised and even chastised Libertarian leaders over the years, telling Hocker that he didn’t want his large campaign donations to create “false economics” for direct mail solicitation within the party. Perhaps for that reason, Charles Koch often specified how the money should be used.

  The Libertarians were a relatively new and profoundly unpopular political party at this time. They made Republicans look like liberals, which is what drew Charles Koch to the cause. He wrote a Libertarian campaign letter in 1975 in which he said that he once supported Republicans but had “abandoned them with disgust.” Only the Libertarians, Koch wrote, would fight the “rapidly increasing government control over all aspects of our lives.” T
he campaign document was printed on Koch Industries letterhead, which seemed fitting. It was through his company that Charles Koch was most antagonized by the government. Richard Nixon’s newly created EPA enforced a host of complicated new rules that were cleaning the nation’s water and air supply. Another agency, OSHA, enforced an array of codes for workplace safety, a category that covered almost every kind of activity inside an oil refinery. The Department of Energy, meanwhile, continued to impose a complicated system of price controls while levying enormous fines on companies that violated the limits.

  While this burden grew on Koch Industries, there were some signs of hope that the Libertarian Party might be able to do something about it. Public opinion was turning against government. Vietnam, Watergate, inflation, and economic recession had corroded public faith in the government’s ability to solve big problems. Support for deregulation was growing, making it seem like the moment for America to try a more conservative approach to governance.

  While Charles Koch continued his political work in the background, David Koch contacted the Libertarian Party and pitched himself to be their candidate for vice president in 1980. The Libertarian presidential candidate was Ed Clark, a popular Californian who won 5 percent of the vote for governor of that state in 1978, which was a remarkably high result for the party. David Koch suggested that he should be Clark’s running mate. It appears that one of his chief qualifications for the job was his ability to bankroll it. David Koch’s memo stated as much:

  “So my proposal is basically as simple as this: as the vice presidential nominee of the Libertarian Party, I will contribute several hundred thousand dollars to the presidential campaign committee in order to ensure that our ideas and our presidential nominee receive as much media exposure as possible.”

  David Koch was given the vice presidential spot on the ticket. He had warned in the memo that he wouldn’t be able to do much campaigning, but it appears that he enjoyed being in the spotlight once he was there. David Koch ended up visiting twenty-seven states, meeting with college students, voters, and activists who were interested in the Libertarian platform.

  The Libertarian Party sought to abolish a vast set of government agencies and programs, including Medicare, Medicaid, Social Security (which would be made voluntary), the Department of Transportation (and “all government agencies concerned with transportation,” including the Federal Aviation Administration, which oversees airplane safety), the Environmental Protection Agency, the Department of Energy, the Food and Drug Administration, and the Consumer Product Safety Commission. And this is just a partial list. The party also sought to privatize all roads and highways, to privatize all schools, to privatize all mail delivery. It sought to abolish personal and corporate income taxes and, eventually, the “repeal of all taxation.”

  While David Koch had promised to spend several hundred thousand dollars on the campaign, he ended up spending $2.1 million. The Libertarian Party received just over 1 percent of the vote in an election that put Ronald Reagan in the White House with a landslide.

  It must have been disappointing for David Koch to spend so much of his own money, to travel to more than half the states in the country, and to have very little to show for it the morning after the election. But he didn’t have time to reflect on this defeat or to step away from work and heal his wounds over his election loss.

  Back in Wichita, the familial contest for power was about to explode.

  * * *

  While things appeared peaceful between Charles and Bill Koch during the final months before the 1980 presidential election, Charles Koch had been working on his long memo. Bill was still not aware of the memo, and Charles was planning to give it to the board of directors.

  Charles wanted to share his thoughts on two issues that the board was considering: the idea that Koch Industries should pay higher dividends to its shareholders, and the complaints about how the company was being managed overall. Charles Koch’s memo was a distillation of his corporate philosophy. As such, it was unyielding. To begin with, the CEO must have far-reaching authority:

  “Being an opportunity-seeking company, it’s imperative that our management structure be such that prompt decisions can be made,” he wrote. “We simply can’t function effectively if every business opportunity needs to have months of research and clearance through several tiers of committees. . . . [A]s long as I’m CEO, I’ll resist any effort to impede our efficiency by the imposition of any such bureaucratic committee or board structures.”

  The memo made it clear that the best approach to dividends was Charles Koch’s approach: to keep plowing profits and cash back into the company, where it could multiply faster than if it were pulled out. “Our short-term returns aren’t going to be as high under this policy, but I believe that if we continue to have this kind of success, that long term, everyone’s going to be better off,” he wrote. If shareholders disagreed with this approach, Charles Koch offered to buy out their shares and send them on their way.

  Charles Koch sent the memo to the directors on November 18. A week later, Charles met with Bill in his office to discuss the matter. Bill ambushed him with an idea: he wanted to call an emergency meeting of the board to immediately consider a “liquidity plan” for the company.

  “I said, ‘Bill, what? Why are you doing this?’ ” Charles recalled later during court testimony. Bill replied that “he needed to be a man; he needed to take charge.” Charles told him, “If this is what you’re determined to do, then we need a divorce. Because this—this isn’t going to work.”

  By “divorce,” Charles Koch meant a division of their assets and a separation as business partners. He wanted Bill to figure out what parts of the company he could take with him, and Charles and David would take the rest. Their differences were irreconcilable, and it was time to split up.

  The meeting lasted only ten minutes. Bill left the office, and Charles left soon after. It was the end of the day, and as Charles was leaving the building, he noticed that Bill was inside Sterling Varner’s office, talking over something in private.

  The next day was the Wednesday before Thanksgiving. People were planning their holiday trips, including the company’s top lawyer, Don Cordes, who was heading out to visit family in western Kansas for the long weekend.

  Charles and Sterling Varner met to talk about Bill. Varner said that during their conversation the day before, Bill had given him three conditions that would entice him to drop his request for an emergency board meeting. Bill wanted to reestablish the executive board committee that included himself, Charles, and David; he wanted to run a large program to invest in new deals; and he wanted roughly $25 million out of the company.

  Before he left town for vacation, Don Cordes got a call from Bill’s lawyer. The attorney said that Bill was calling for an emergency meeting of the board after all, but he didn’t plan to ask for anything drastic. Bill would use the meeting to request that two new directors be elected to the board, a move that would not change the balance of power. Neither Cordes nor Charles Koch was worried about it. Cordes decided to leave for Thanksgiving break.

  The day after Thanksgiving, Charles got a call from David Koch. David had gone into the office that day and found a notice delivered to him about Bill’s emergency board meeting. The meeting was not nearly as innocuous as had been described to Don Cordes. The purpose wasn’t to elect two new directors—it was to fire the entire board and replace it with a new one. And the notice said something even more alarming: it was being sent not just on behalf of Bill Koch but also on behalf of the eldest brother, Frederick Koch, along with J. Howard Marshall III, who had inherited shares in the company from his father.

  David and Charles immediately knew what was happening. These three shareholders, when acting together, would gain a slim majority of voting power on the board of directors if Bill had his way. If they replaced the entire board, they would win control of the company. The obvious goal would be to fire Charles Koch as CEO and find a replacement. Bill Koch
would be a natural choice. It was clear that Bill had been working hard behind the scenes to arrange this surprise coup. But Bill made a critical mistake: he had given Charles time to respond.

  * * *

  Charles Koch boarded a private jet Thanksgiving weekend and flew to Houston. There he picked up his father’s old business partner, J. Howard Marshall II, and Marshall’s wife, Bettye. On Sunday night, they all boarded another private jet that took them to California.

  Howard Marshall had been unaware of what his son was planning. He only learned of the plot on Saturday, when Charles had called him. Marshall hung up afterward and called his son. When he called Charles back, the elder Marshall confirmed Charles’s worst suspicions: “Howard [the younger] is going to vote against me,” Marshall said.

  Charles asked Marshall what they should do. “He said, ‘Well, there’s one thing that Howard III understands, and that’s money. And I’ll go buy my stock back,’ ” Charles Koch recalled.

  Howard III lived in Los Angeles. His father wanted to go there and meet with him personally to close a deal to buy back his son’s stock. Charles agreed to fly to Houston and take the seventy-five-year-old Marshall to California himself.

  Charles Koch and the Marshalls arrived in California on Sunday night. The next morning, Howard Marshall met with his son and agreed to buy back his stock for $8 million. The deal would move the voting shares back to the elder Marshall and back into the column supporting Charles Koch. It would effectively end Bill Koch’s coup. Bill caught wind of the deal and offered $16 million for the shares, according to Howard Marshall II, but the son refused. He didn’t want to break the deal he’d made with his father.