Business Model Spotlight: Koch Industries Chairman and CEO Charles G. Koch

In the book, you explain how you go beyond teaching the importance of safety and compliance in particular, not just by drilling employees on rules and procedures, but allowing them to experience the emotional and psychological consequences that result when compliance failures lead to a devastating accident and loss of lives.

Absolutely. We’ve learned that we can’t just say, ‘Gosh, we had three deaths this past year; that’s terrible.’ No, we now make videos of the people who worked with [those involved in the accident], with tears in their eyes, saying, ‘Oh, it’s the worst thing that ever happened,’ and then send that around. These are real people talking.

 Not just numbers.

Not just statistics. You have to learn how you can reach people’s hearts and values with this. The first two principles: integrity and compliance, we view as the necessary–but not sufficient–conditions for long-term success. The sufficient condition is number three, value creation. People would ask, when I explain this: why do you need 10 principles, when you say the first three are the necessary and sufficient ones? Because the other seven [principled entrepreneurship, customer focus, knowledge, change, humility, respect, fulfillment] are the values that people have to have to make those first three a reality. Otherwise, it’s just on paper, and form over substance. These principles are who we are as a company and they guide everything we do; who we hire, who we retain, who we promote, how we compensate people. It instructs everything, and if someone isn’t living by these–I mean we’ll try to help them if it’s because they misunderstand. But if they just don’t think these principles are important, they can’t last here.

The 10 guiding principles and your market-based management philosophy, and the value of principled entrepreneurship in particular, are not only integral to the operational culture of Koch Industries; they also drive the causes you champion outside the company, in the broader political and economic arena, such as prison reform and your youth entrepreneurs non-profit. Why are these issues so important to you?

We have a society that’s destroying opportunities for the disadvantaged and creating welfare for the wealthier. That’s driven, in my view, by some misguided policies; one result of which is creating a permanent underclass, and then it’s also crippling the economy and corrupting the business community.

How do we select issues? We work on those things for which we can get broad-based support. Otherwise, it’s tilting at windmills. Where we want to put most of our efforts is where people are starting to see this is an issue and we can get broad-based support, like we have on criminal justice reform. Koch Institute is going to be [a] leader in that, but so is Koch Industries. The next issue is poverty-causing regulations, and at the top of that list is occupational licensure.

More  from Koch on reform and community issues on the next page …