Kochland Read online

  The American economy in 2003: Souleles, interviews by author, 2017; Appelbaum and Batt, Private Equity at Work, 18–21.

  Between 2000 and 2012 . . . took companies private: Applebaum and Batt, Private Equity at Work, 37.

  There was a large table: Packebush, Terry, interviews by author, 2013.

  Agrium was the largest . . . producer: Robert Westervelt, “Full-Year Earnings Disappoint,” Chemical Week, May 21, 2003; Seewald, “Koch Wins.”

  The glossy photos . . . were taken down: Packebush, interview by author, 2013; notes from Packebush’s office, 2013.

  Koch Nitrogen was renamed Koch Fertilizer: Packebush, Beckett, interviews by author, 2013–16; notes from reporting at Koch Fertilizer offices, 2013; Leonard, “The New Koch.”

  CHAPTER 15: SEIZING GEORGIA-PACIFIC

  This time . . . dispatched to Atlanta: Hannan, Wesley Jones, interviews by author, 2016; Christopher Leonard, “An Inside Look at How Koch Industries Does Business,” Washington Post, July 1, 2017.

  The team from Koch . . . Georgia-Pacific tower: Hannan, Wesley Jones, interviews by author, 2016; notes and photos from reporting at Georgia-Pacific tower, 2016; Georgia-Pacific, 10-K filing for fiscal year 2003.

  When they arrived . . . a hushed cocoon of luxury: Hannan, Wesley Jones, interviews by author, 2016; notes and photos from reporting at fifty-first floor of Georgia-Pacific Tower, 2016.

  Georgia-Pacific was founded in 1927 . . . lumber yard: Doug Monroe, The Maverick Spirit: Georgia-Pacific at 75 (Old Saybrook, CT: Greenwich Pub. Group, 2001); Claudia H. Deutsch, “Georgia-Pacific to Acquire Fort James,” New York Times, July 18, 2000.

  Georgia-Pacific’s stock price was still struggling: Hannan, Wesley Jones, interviews by author, 2016.

  After their trip to the Pink Palace . . . pulp mills: Hannan, interview by author, 2016; “Koch Cellulose and Subsidiaries Acquire Fluff, Market Pulp Business,” BusinessWire, May 10, 2004; Roxana Hegeman, “Koch Industries to Buy Georgia-Pacific’s Pulp Operations,” Associated Press, January 29, 2004.

  This acquisition . . . was just a down payment: Hannan, Wesley Jones, interviews by author, 2016; Charles Koch, Good Profit, 48–50.

  In November of 2003, Koch agreed to buy DuPont’s synthetic fiber plants: Hannan, interview by author, 2016; “Koch Industries Subsidiaries to Purchase Invista,” BusinessWire, November 17, 2003; Randall Chase, “DuPont Sells Textile Unit to Koch Industries,” Associated Press, November 18, 2003; “Koch Completes Acquisition of Invista Textile Business,” Associated Press, May 1, 2004.

  Invista became a laboratory: David Hoffmann, interviews by author, 2016–17.

  After Koch bought Invista . . . compliance attorneys: Ibid.

  Hoffmann worked in the new Invista headquarters: Ibid.; reporting notes from Invista headquarters, 2013, 2018.

  Koch Industries backed up the philosophy with drastic actions: Hoffmann, interviews by author, 2016–17; Invista B.V. et al. v. E.I. Du Pont de Nemours and Co., Complaint, March 26, 2008.

  The Brunswick pulp mill . . . southern charm with a futuristic: Wesley Jones, interviews by author, 2016; reporting notes and photos from Brunswick mill, 2016.

  Karen Marx, a logistics manager: Karen Marx, interview by author, 2016; reporting notes from Savannah mill, 2016.

  Charles Koch gained confidence: Charles Koch, Good Profit, 48–50; Georgia-Pacific 10-K filing for fiscal year 2005; Michael Arndt, “Koch: Very Private, and a Lot Bigger,” Bloomberg Businessweek, November 15, 2005; Dennis K. Berman and Chad Terhune, “Koch Industries Agrees to Buy Georgia-Pacific,” Wall Street Journal, November 14, 2005.

  To make a debt-fueled deal work: Souleles, interviews by author, 2017; Souleles, Songs of Profit, Songs of Loss: Private Equity, Wealth, and Inequality (Lincoln: University of Nebraska Press, 2019).

  A key part of making the whole strategy work: Former Koch Industries senior finance employee speaking on background, interviews by author; Appelbaum and Batt, Private Equity at Work, 45.

  Koch Industries . . . largest acquisition in its history: Arndt, “Koch: Very Private”; Berman and Terhune, “Koch Industries Agrees”; Hannan, interviews by author, 2016; Georgia-Pacific, 8-K filing, November 13, 2005.

  Georgia-Pacific . . . roughly $8 billion in debt: Charles Koch, Good Profit, 221–22; Georgia-Pacific, 8-K filing, November 13, 2005; Arndt, “Koch: Very Private”; Berman and Terhune, “Koch Industries Agrees.”

  When Koch bought Georgia-Pacific . . . seventeen employees: Hannan, Wesley Jones, interviews by author, 2016.

  The desk, the furniture, and the art on the walls were replaced: Reporting notes from Georgia-Pacific Tower, 2016.

  Hannan moved to Atlanta and bought a house: Hannan, interview by author, 2016; descriptions of Hannan’s office and Dunkin’ Donuts cup from notes during interview with Hannan in his office, 2016.

  Hannan led a $200 million acquisition: Hannan, interview by author, 2016; “Insulair Announces Agreement with Georgia-Pacific,” BusinessWire, June 29, 2006.

  CHAPTER 16: DAWN OF THE LABOR MANAGEMENT SYSTEM

  When Koch Industries . . . giant paper mills and timber operations: Notes, photos, and video from reporting at Georgia-Pacific mills in Portland, Oregon, 2014, 2017.

  Steve Hammond was embroiled in this battle: Hammond, interviews by author, 2013–17.

  The Georgia-Pacific warehouse . . . squealing tires: Notes, photos, and video, Georgia-Pacific mills, 2014, 2017.

  Hammond was hired at the warehouse in 1972: Hammond, interviews by author, 2013–17.

  The union guys tended to give each other nicknames: Hammond, Brian Dodge, Adam Smith, Travis McKinney, David Franzen, Dennis Trimm, interviews by author, 2013–17.

  Hammond started hanging around with a pretty girl named Carla Hogue: Hammond, interviews by author, 2017.

  One of Hammond’s close friends . . . to become a manager: Hammond, Trimm, interviews by author, 2017.

  As the warehouses and their timber mills . . . chain of CEOs: Trimm, interviews by author, 2017.

  In one video . . . sitting in front of a black screen: Charles Koch video address, viewed by author.

  some of the employees expressed their concerns: Trimm, interviews by author, 2017.

  Increasing the bottom line became Trimm’s prime directive: Ibid.

  Just when Koch bought Georgia-Pacific . . . software system in its warehouses: Hammond, McKinney, Franzen, Trimm, interviews by author, 2013–17; “Georgia-Pacific Selects North American Transportation Solution Provider,” Supply & Demand Chain Executive, August 19, 2005; “Georgia Pacific Cuts Distribution Centre Overheads by 22% with Warehouse Management System from RedPrairie,” BusinessWire, October 16, 2007, https://www.businesswire.com/news/home/20071015006673/en/Georgia-Pacific-Cuts-Distribution-Centre-Overheads-22.

  The LMS tracked workers . . . the pallets: Hammond, McKinney, Franzen, Trimm, Dodge, Smith, interviews by author, 2013–17.

  the forklift drivers arrived for work: Hammond, McKinney, Franzen, Trimm, Smith, interviews by author, 2013–17.

  McKinney was hired in 2004, shortly before the LMS went live: McKinney, interviews by author, 2017.

  People were clamoring to be a forklift driver . . . had all but disappeared: Ibid.; Jacob S. Hacker, The Great Risk Shift: The Assault on American Jobs, Families, Health Care and Retirement and How You Can Fight Back (New York: Oxford University Press, 2006), 63, 68–70.

  Trimm, their supervisor, monitored the drivers: Trimm, interviews by author, 2017.

  On pa day . . . Nicolai Street Clubhouse: McKinney and Franzen, interviews by author, 2017. Descriptions of the Nicolai Street Clubhouse taken from notes and photos during reporting trip in 2016. The establishment has since been converted from a strip club to a bar and grill. Photos of neon signs behind the old stage are taken from outdated Google Maps photos. Descriptions of stripping are taken from interviews and notes from reporting at Annie’s Saloon in Astoria, Oregon, an establishment with the same stage setup and floor plan.

  LMS accrued
huge volumes of data on each employee: Trimm, Hammond, McKinney, Dodge, Smith, interviews by author, 2017.

  This system seemed harsh: Charles Koch, The Science of Success, 89–93.

  Life at the warehouse . . . LMS rankings: Trimm, Hammond, McKinney, Dodge, Smith, interviews by author, 2017.

  Alt lived in the red zone: Kerry Alt, Shirley Alt, Trimm, interviews by author, 2017; Charles Koch, The Science of Success, 90.

  The drivers weren’t the only employees who were ranked: Trimm, interviews by author, 2017.

  The warehouse could not get rid of Travis McKinney: McKinney, interviews by author, 2017; Erin El Issa, “2016 American Household Credit Card Debt Survey,” NerdWallet, accessed 2017.

  Hammond often felt sick when he arrived: Hammond, interviews by author, 2013–17; Harvey Schwartz, Solidarity Stories: An Oral History of the ILWU (Seattle: University of Washington Press, 2009).

  CHAPTER 17: THE CRASH

  David H. Koch was in a charitable mood: Robin Pogrebin, “Billionaire Pledges $100 Million to New York State Theater,” New York Times, July 10, 2008; Gary Weiss, “The Price of Immortality: Does Charity Bring Status? Ask the Second-Richest Man in New York. How David Koch Is Changing Big Philanthropy,” Condé Nast Portfolio, October 15, 2008; David Koch net worth figures taken from Forbes’ lists of world’s richest people, 2002, 2008.

  The first signs of trouble . . . trading floor: Franklin, Jeremy Jones, interviews by author, 2013–16; “Dealing with Difficulty,” Discovery: The Quarterly Newsletter of Koch Companies, January 2009.

  Cris Franklin, the young trader in Houston: Franklin, interviews by author, 2016.

  The risk extended all the way into the foundation: Debt figures from Alan S. Blinder, After the Music Stopped: The Financial Crisis, the Response, and the Work Ahead (New York: Penguin Press, 2013), 49–50.

  debt was carried in the form of home mortgages: Blinder, After the Music Stopped, 19. Insight into the economic crash also derived from the author’s time as a national business reporter for the Associated Press from 2008 to 2012, when he was covering unemployment, the labor market, and the Great Recession.

  Then the loans were packaged into . . . CDOs: Michael Lewis, The Big Short: Inside the Doomsday Machine (New York: W. W. Norton, 2010); Adam Tooze, Crashed: How a Decade of Financial Crises Changed the World (New York: Viking, 2018).

  All of these derivatives bets were opaque: Doyle, Georgetown Law School class, “Complex Derivative Transactions,” spring semester of 2013.

  a Clinton Administration regulator named Brooksley Born: Peter Coy and Silla Brush, “Top Clinton Aides Blew a Chance to Avert the Financial Crisis,” Bloomberg Businessweek, May 1, 2014.

  The black box financial system swelled: Blinder, After the Music Stopped, 59–65.

  Lehman Brothers declared bankruptcy: Carrick Mollenkamp, Susanne Craig, Serena Ng, and Aaron Lucchetti, “Lehman Files for Bankruptcy, Merrill Sold, AIG Seeks Cash,” Wall Street Journal, September 16, 2008.

  The losses on Cris Franklin’s trading desk: Franklin, interviews by author, 2016.

  others who worked with Charles Koch saw him behave in the same way: Franklin, Jeremy Jones, interviews by author, 2013–16.

  Jeremy Jones came into frequent contact with Charles Koch: Jeremy Jones, interview by author, 2013.

  His venture fund, Koch Genesis, was shut down: Ibid.; “Naturally Advanced Technologies Appoints Industry Veteran VP to Advisory Board; Industry Veteran Jeremy K. Jones to Consult on Partnership and Business Development Initiatives,” PR Newswire, March 2, 2009; Jefferson Weaver, “Georgia-Pacific Plant to Close Dec. 1,” News Reporter (Whiteville, NC), October 6, 2008; Gary Haber and Dan Shortridge, “Invista to Lay Off 400 at Nylon Plant,” News Journal (New Castle, DE), October 15, 2008; Geoff Folsom, “Flint Hills Closing: Vest Vows to Find Use for Plant,” Odessa American (TX), November 7, 2008; Geoff Folsom, “Flint Hills ESOP,” Odessa American (TX), January 28, 2009; Jeff Amy, “Monroeville Area to Lose 300 Jobs,” Mobile Register Press (AL), November 12, 2008; “Invista Will Halt Nylon Production in Waynesboro, Vice Mayor Says It’s a ‘Strong Blow’ to City,” News Virginian (Waynesboro, VA), December 10, 2008; Dan Heath, “70 to Lose Jobs at Georgia-Pacific,” Press-Republican (Plattsburgh, NY), December 11, 2008; Jimmy LaRoue, “Invista Cuts Debt by 63 Percent,” News Virginian, February 10, 2009.

  The bloodletting at Koch . . . was mild: National job-cut figures compiled from historic database of the US Bureau of Labor Statistics.

  Many of the jobs lost in 2008 never came back: Blinder, After the Music Stopped, 10–14.

  Things looked very different from Charles Koch’s office: Charles Koch, Hall, Beckett, Markel, Feilmeier, interviews by author, 2013–16.

  It’s difficult for outsiders to even understand . . . a contango market: Beckett, former senior Koch Industries trading executives speaking on background, interviews by author, 2013–16.

  When the market goes into contango . . . to profit: Ibid.; Robert Tuttle and Alexander Kwiatkowski, “In Troubled Times, Stockpiling Crude May Be the Way to Hit a Profit Gusher,” Bloomberg News, December 9, 2008; “Pricing for Oil, Gas Seems Peculiar,” Times Record News (Wichita Falls, TX), February 8, 2009; Guy Chazan and Russell Gold, “Big Oil Still ‘Printing Money’ Despite Slump in Crude Prices,” Wall Street Journal, April 30, 2009; “Hoarding Crude Boosts Futures Prices: Companies Stockpiling in Supertankers,” Bloomberg News, December 9, 2008.

  Outsiders . . . were denied: Steve Everly, “Speculators Profit by Locking in Higher Oil Prices,” Kansas City Star (MO), February 10, 2009.

  even David Koch was forced to adjust his behavior and his outlook: Mike Spector, “Big Players Scale Back Charitable Donations,” Associated Press, November 25, 2008.

  One evening in Houston . . . an exclusive social event: Franklin, interviews by author, 2016.

  First came a giant federal bailout plan: David M. Herszenhorn, “Bailout Plan Wins Approval: Democrats Vow Tighter Rules,” New York Times, October 3, 2008; Edmund L. Andrews, Michael J. de la Merced, and Mary Williams Walsh, “Fed’s $85 Billion Loan Rescues Insurer,” New York Times, September 16, 2008.

  What was unspoken . . . was that all of this would also mean more taxes: “Charles Koch: Perspective,” Discovery: The Quarterly Newsletter of Koch Companies, January 2008.

  This moment was dangerous, in Charles Koch’s view: Ibid., January 2009; Bill Wilson and Roy Wenzl, “The Kochs’ Quest to Save America,” Wichita Eagle, October 13, 2012; Jake Tapper, “Billionaire Conservative Activist Charles Koch on 2012 Election: ‘We Have Saddam Hussein, This Is the Mother of All Wars,’ ” ABC News online, last modified September 6, 2011; Charles G. Koch, “Anti-Capitalism and Business,” address to the Institute for Humane Studies, April 27, 1974.

  After these crashes . . . the American people blamed capitalism: “Charles Koch: Perspective,” Discovery: The Quarterly Newsletter of Koch Companies, January 2009.

  message found a receptive audience in Steve Mawer’s living room: Franklin, interviews by author, 2017.

  On the wall . . . painting that was quite unpleasant: Notes and photos from reporting in Charles Koch’s office, 2015.

  CHAPTER 18: SOLIDARITY

  In the early morning hours . . . Koch Industries’ headquarters: Notes from reporting at Koch Industries headquarters, 2015; current and former Koch Industries employees, interviews by author, 2013–18.

  training began . . . a certain kind of employee: Pohlman, Charles Koch, Hall, Markel, interviews by author, 2013–15; Charles Koch, Science of Success, 77–94.

  Koch began training them immediately: Notes from guided tours at Koch Industries headquarters, 2013, 2018; Abel Winn, Andrew Methvin, Hoffmann, interviews by author, 2013–16.

  The unity among Koch Industries’ employees: General analysis based on interviews with dozens of current and former Koch Industries employees, 2013–18.

  One of the true believers . . . Abel Winn: Winn, interviews by author, 2013.

  Winn helped desi
gn a large laboratory: Ibid.; Amy Geiszler-Jones, “New Center to Teach Successful Koch Industries Strategy,” Inside WSU, September 22, 2006; Michael D. Parente and Abel M. Winn, “Bargaining Behavior and the Tragedy of the Anticommons,” Journal of Economic Behavior and Organization 84 (November 2012): 475–90.

  Hammond . . . worked in a crummy little office: Hammond, Gary Bucknum, Franzen, Dodge, Smith, interviews by author, 2013–17; descriptions of IBU office from notes, photos, and video taken during reporting trips, 2013, 2017.

  The size of the task . . . more severe than many of them understood: These figures and analysis are based on copies of IBU labor agreements for workers at the warehouse dating back to 1975, excluding several contracts during the 1980s and 1990s. The contracts from the 1970s provided a historic baseline, while more recent contracts showed the trajectory of working conditions since 2000. During this time, ownership of the warehouse changed several times, but the facility and the IBU remained constant. IBU labor contracts: 1975, 1978, 2000, 2005, 2010 (the first contract negotiated with Koch Industries), 2014, 2016.

  economic stagnation . . . Georgia-Pacific warehouse workers: Lawrence Mishel, Elise Gould, and Josh Bivens, “Wage Stagnation in Nine Charts,” Fig. 2: “Workers produced much more, but typical workers’ pay lagged far behind,” Economic Policy Institute, January 6, 2015 (analysis of data from the Bureau of Labor Statistics and Bureau of Economic Analysis); “Real Median Family Income in the United States,” data from the Federal Reserve Bank of St. Louis: https://fred.stlouisfed.org/series/MEFAINUSA672N.

  Hammond and Bucknum were elected: Hammond, Bucknum, Franzen, Dodge, McKinney, Smith, interviews by author, 2013–17.

  Abel Winn closely scrutinized the data he developed: Winn, interviews by author, 2015; Parente and Winn, “Bargaining Behavior.”

  Hammond and Bucknum negotiated: Hammond, Bucknum, Franzen, Dodge, McKinney, Smith, interviews by author, 2013–17; LinkedIn data from LinkedIn website search.