Christopher Leonard is a business reporter whose work has appeared in The Washington Post, Fortune and Bloomberg Businessweek. He is the author Kochland, which won the J. Anthony Lukas Work-in-Progress Award. The opinions expressed in this commentary are his own.
When David Koch passed away on Friday, he left behind one of the largest fortunes in America. David and his brother Charles have been near the top of Forbes’ list of the richest people for decades. The Koch brothers’ net worth is based on their shared ownership of Koch Industries, one of the largest, most secretive and most influential corporations in the country. This year, David and Charles Koch were worth $50.5 billion each, making their combined net worth larger than that of Bill Gates or Warren Buffett. David has become well known for using his fortune to advance the Koch brothers’ conservative political agenda.
David always took a back seat to Charles when it came to running the corporation. But he was more willing to be the public face of the privately held firm. Although his family was from Wichita, Kansas, David spent time in New York and was generous in his philanthropy. He gave money to a cancer research center at the Massachusetts Institute of Technology. and a major exhibit at a Smithsonian museum in Washington, D.C. David also became the face of the Kochs’ political activities as well, giving speeches at public events and eventually becoming the poster child of conservative causes, with this face plastered on protest signs wielded by his opponents. For these reasons, David became more widely known than his brother Charles.What hasn’t been as publicly visible is the source of the Koch brothers’ wealth. Virtually no one buys anything with the Koch brand name on it. The Koch brothers didn’t invent the iPad or Microsoft. So how did they get so rich?Koch Industries specializes in the kinds of businesses that underpin modern life, and it makes the kinds of products you couldn’t boycott if you were inclined to because of the Kochs’ massive conservative political donations. Koch refines crude oil and sells the gasoline people use to drive to work. It makes the insulated wall panels, windows and carpeting in homes and offices. It makes nylon, Lycra and spandex that are woven into everything from diapers to yoga pants. It makes the nitrogen fertilizer that is the foundation of the modern food system. It makes sensors inside cell phones, paper towels and napkins. The list goes on. Basically, if you eat, live in a house, wear clothes, drive to work or use a phone, Koch Industries is probably making money at some point in the supply chain. The company’s annual revenue is larger than that of Facebook, Goldman Sachs and U.S. Steel — combined. Read MoreMore Perspectives on Management & Leadership
This is a stunning thing, especially considering where Koch Industries started. Back when David Koch was born, the family company was a privately held firm based in Wichita, Kansas. The company was founded by Fred Koch, a fire-breathing conservative who co-founded the John Birch Society, a secret organization that believed the federal government had been co-opted by Communists. Fred Koch had four sons: his oldest Fred, then Charles, and then twin boys, David and Bill. Fred died of a heart attack in 1967 and his son Charles took over the company. That’s when the real story of Koch Industries began. Charles and David Koch forged a partnership and agreed to split their ownership of the family company roughly 50-50. Together, they own about 80% of the firm (the rest is split among distant relatives, early investors and others). Under their ownership, Koch Industries became the corporate goliath it is today.Charles and David Koch had an unmovable vision for how to run the company. They kept Koch Industries private rather than selling shares on Wall Street. This freed Koch from the tyranny of short-term thinking, which compels so many companies to focus energy on what they will earn during the next three months and what bank analysts think about it. Staying private also meant that Koch Industries could plow roughly 90% of all its profits back into the company. With this cash on hand, Koch was able to make a series of giant acquisitions, buying companies like Invista, which makes clothing and carpet materials, and Georgia-Pacific, which makes paper towels and building materials, for several billion dollars at a time.The company David and Charles Koch built has weathered volatile economic periods, and it seems built to endure, regardless of the political situation in Washington. David’s shares of Koch Industries, and his considerable fortune, will be kept within his family, according to the company. His legacy will be felt for decades as the company he helped create continues to grow.