Charles Koch || Believe in People

One of the graduate students says, 'Well, you talk about all this focus on creating value for others. Isn't that a little naive?' He said, 'I mean, shouldn't you just maximize your profit?' Oh my gosh. I said, 'Well, maybe it is a little naive, but it's working pretty well for us.'

Hey, this is an honor. Oh, it's an honor to talk to you. I've wanted to talk to you for such a long time. Well, yeah. I mean, I thanked Elizabeth for sending me your book in the first place, and now I got to thank you for writing it, for goodness' sake.

Well, I liked it all, but those footnotes were so powerful, particularly about Maslow's mother, and that made me think more deeply about my parents and what I learned from them that I wanted to use and what I didn't want to use. So, it wasn't that I hated everything; certain things I didn't like, and we can get into that if you want, because I think that kind of forms...

Well, yeah, there were many other footnotes in there, but that was the one that really gripped me, because I had no idea that he hated, as he put it, he hated everything she stood for. Yeah, so I think that is so cool, because, you know, he had a lot of these insights mostly in the last 2 years of his life, you know? And that's the really interesting... That's what he said. He said, 'Took me 61 years to figure this out?' Yeah, and he only lived to 62, you know? So, that was the last couple years of his life he was having all these transcendent awakenings, we can call them.

Um yes. June 8th, 1970. That's how much of a nerd I am that I know that. He was born in '08. Yeah, correct. '08 he was born. So, he was almost identical to my mother's age. She was born in '07.

Yeah, no, that was the one thing I was good at. You just did that computation on the spot, 1908. Yeah, yeah.

Well, I've got a different theory than all of them in that I think everyone's intelligence is unique to them. And that's my personal experience because my father and one of my brothers and I all were really good at math and logic, and they were both very good engineers. And although I got three degrees in engineering, I sucked as an engineer. I mean, I really sucked. I couldn't... You'd think, okay, I was good at all the theory. You know, I'm through 6 years at MIT, but I wasn't good at making or operating anything. So, how could I be an engineer? See, we're not good... I was dreading the math and the science and I loved thermodynamics, and that's a big... as maybe you've seen, I use that in everything in our management, everything. That is, as many of the top scientists say, that is probably the most fundamental law of nature. Is the second law of thermodynamics and entropy is always virtually always increasing.

Well, let me may I finish though my point on the difference in intelligence. So, I knew I wouldn't be good in engineering so I kept trying to experiment, and that's what it's about. Finding your gift is not somebody can tell you, 'Oh, you have this intelligence. You go take an aptitude test.' I mean that might help but you've got to go experiment to what turns you on and what enables you to contribute. Do things that will turn you on, will make you excited, wake up at night wanting to do more of it and contribute and that others will value. So, you're contributing to the lives of others through that. And when you have that combination... I mean and that's what happened to me but not through engineering. If I said when my father persuaded me to come back and run our small business at the time, I mean I was successful in helping that because it was in bad shape because he had such bad health as you saw I wrote about. But I was as Maslow said, I wasn't developing my capacities. I felt this huge void. And I know I have a capacity to do more. So I've got to find it. So I started studying every discipline and history to find what I call principles of human progress, principles of human flourishing. And that's how I found Maslow and Howard Gardner, but I also found Polanyi and Mises and Hayek. And you name it. And each one I wouldn't take what they said literally. I would then try to find arguments against it. Because as who said that if you know only your side of the case, you know little of that. I like it. I don't know who said it. Yeah. That's... well, it'll come to me. But so I did that and as I started finding these principles, then I had to apply them in every aspect of my life. Find out how to apply them in business, in our family, in my other relationships, in my charitable work, in everything. And as I did in each area, I would learn things that would help me in the other aspects of my life. So that was my real gift is not that I'm better at math than some mathematician or nearly as good or better at science than some. No, I'm not. But what I'm good at is taking abstract principles and applying them to get results.

And that's but that was through trial and error, a lot of failures. And then finding principles in the different disciplines that were consistent. Like what in economics fits psychology, fits what in philosophy fits in sociology, that's reinforcing, and that worked through history that made people's lives better.

Well, Koch Industries back... Well, when I joined it wasn't Koch Industries. We had two businesses. One was a Rock Island Oil Company and the other was called Koch Engineering. And Rock Island Oil had a gathering crude oil gathering system in Southern Oklahoma. That is it took oil from the lease and took it a relatively short distance to a major pipeline. And so we'd get a small fee for that. And but that was a good business, but it was stagnant and they limited it to just doing it there. And so we said... I personally had a great partner who I wrote about who was wonderful. He grew up in a tent and was born in a tent in an oil field, had all kinds of ailments, never finished college and he was terrific. Terrific with people as an entrepreneur. And that's part of our philosophy now. We don't look for credentials. We look for somebody with a gift that can help us create value for others and who's, to paraphrase Maslow, who's contribution motivated. Yeah. Wants to succeed by contributing rather than manipulating or hurting others or falsely making themselves look good. And anyway, so we made that much more entrepreneurial and spread and became the largest crude oil gatherer in North America. And so and then now we've sold that business and we're out of it. And then the other was Koch Engineering where we made internals for distillation columns. You know, in a chemical plant or refinery you see these columns. What has internals in them that cause the separation by difference in boiling points. And that business was stagnant. And just like the other one was. And it was top-down and going nowhere. Matter of fact, it was break even. It wasn't making any money. So we started applying some of these humanistic concepts and good economic thinking combining those two, and it just took off. And then we applied what I call virtuous cycles of mutual benefit, which is my way of applying the process of self-actualizing to an organization. And so I look at creating virtuous cycles of mutual benefit by an individual is the process of self-actualizing.

I'd like to think I knew all this stuff, but I didn't. You educated me. And Elizabeth is great. She's... I love it. is a great thing. Yeah. Uh having kids that now are educating me more than I'm educating them. I mean, this is... Well, get any better than that.

Yeah, let me tell you when I wrote Good Profit, then since I spent all this time at MIT, the dean of the business school at MIT wanted to come and interview me in front of the students and they could ask questions. So, he was interviewing me and then during the Q&A, one of the graduate students says, 'Well, you talk about all this focus on creating value for others. Isn't that a little naive?' He said, 'I mean, shouldn't you just maximize your profit?' Oh my gosh. I said, 'Well, maybe it is a little naive, but it's working pretty well for us.' And is that more naive or is more naive just to think about yourself? What's you then why is anybody going to want to do business with you? And it's not just if you're just thinking about yourself and not the value you create for all those who are important to you, and not just your customers, but how about your employees? How about your suppliers? Do you want to just beat them down as a lot of companies do rather than reward them for innovating and help you succeed? And how about your communities? And how about society as a whole? If you don't have good stewardship that is acting in a way that with due regard for the rights of others, they're not going to want you to exist. So, you have to focus on creating value for others, and then focus in areas where you have the capability to do that. And that's the same for an individual, and an organization, and we would hope a society.

Well, we have failed and continually failed to fully apply our principles. And our success... And so, yeah, we've had many failures. I write in the books about shipping, about dealing with employees, narcissistic employees who have the idealized self, and the more feedback we give them, then the more destructive. So, we need to apply the principle. They need to go somewhere else and get treatment. We can't do it. The more we try to help them, the worse they get. So, that's a violation. And then safety problems. When we particularly with companies we acquire, but with our own, and I remember preaching about boy, we're having safety problems and other problems. We got to do better and just preaching rather than really getting in and intervening. And when we started having it affect their bonus and their position and their authority, then they started to change. So, there have to be consequences to people. There have to be accountability. You can't just be lecturing. And that's a big mistake we made with our framework and applying these principles. You know, I thought, 'Okay, we just talk and everybody will get it and be turned on by all the concepts like I am.' And that doesn't work. I mean, it works for some, but for most people, there have to be accountability. They have to have a cost to this behavior and then they say, 'Okay, now I get it.' You know, one way of phrasing that I would say is yeah, motivating from within.

Right. Well, yes. Top-down is what Hayek called the fatal conceit. That you think you know better than everybody how to do their job, how to run their lives, everything. So, rather than empower them and use their knowledge and help them develop and realize their potential and have meaning in their lives and get excited about what they're doing. And so they can innovate, you stifle, you control and stifle them and make them dependent on you. And we see that everywhere. And I give you some... for example, the use of technology today. There's some companies who use it like in certain manual jobs to time them and watch their motions. And then they go in and they're being... you know, if you move this way, you can do it quicker and do everything faster. And I mean, that's like treating people as a slave. Is that like McGregor's Theory X? Yeah, exactly. Yeah, yeah. And so that's still out there. And so we've invested heavily in technology, but we try to use it to empower people to make the people's jobs interesting. And so they get turned on. And I give you an example... this individual named Pedro was working in the night shift in the building cleaning the building. And he wanted something better and he said, 'God, there's no future in this.' So, he took a job much higher pay breaking up concrete. He was getting $25 an hour. And he said, 'This is going nowhere and I hate this.' So, he said, 'I'm going to get a job where I can learn. And as I learn, then I can have a more fulfilling work and fully use and develop my abilities.' And so he got a job doing manual work on a laser cutting business. And as he started in that, he started to gain more skills. So, he said, 'Well, I want to go back to Koch because they will give me the opportunity to then develop now that I've got a track where it leads somewhere.' So, he came back, and now he's a programmer for these laser systems. Because he had a gift in that which he never knew. And so, that's why I say we don't hire on credentials, we hire on values and talent. And that is being contribution motivated, and you've got some talent that will help us create value, then we want you here. As a matter of fact, the head of our IT security never graduated from college. Wow. And he's terrific.

We need to show both educators and business people that there's a better way. And this top-down one size fits all, like our education system that teaches to test, run it on averages rather than an individualized education that helps each person find their gift. And there's a little book on that, which I have right here somewhere called Unschooling Rules. By Aldridge. And in it he says education ought to be three-dimensional. That is you learn to be. That is you learn who you are. And then you learn to learn. You learn the things that you need to know to contribute and develop. And then you need to learn how to apply. And that's what I did. Okay, I learned that I had these gifts in this narrow area. And I wasn't good at... The other thing is important is to learn what you're not good at. And I learned through trial and error all the different jobs I had and all the things I wasn't good at. And then I learned through studying engineering I wasn't good at that. But it took me 20 years of floundering around in the wilderness to find my particular gift, which is applying these abstract concepts to help organizations get results. And get results by contributing to others. And but it took me 20 years. And I like my daughter and son, you know, I taught all this stuff to them when they were little or most of it. And then it took them to find their own unique path that would be fulfilling to them and give meaning in their lives and let them fully realize their potential and now they found it and they're both just blowing me away. I as I tell them both, you all at your age are doing much more and much better than I did at your age.

Well, that's what we're doing through this charitable community that we're involved in. We support hundreds of experiments in education to find that and find things that would connect. And we have one that Liz, my wife and I started 30 years ago called Empowered. It used to be called Youth Entrepreneurs. But it was to help, particularly in schools in troubled neighborhoods, to go into there and offer a class that taught them the basics of success and to help them find their gift, then have them prepare a business plan based on something they have a passion for, and then the ones that look good provide a little seed capital maybe $100 or a few hundred dollars so they could start. And then they find their gifts, find how to apply it, and start to believe in themselves because a lot of these are considered throwaway kids as they call them. Yeah. And there's no one who's a throwaway. And so I just want to example of this girl named April. She was one of the winners and she told the story at graduation how she was failing everything her her

Her mother was into drugs, her father was gone, her brother was shot. She thought it was hopeless and was failing everything. Then she heard about a class where she could get some money. She realized she had to learn how to write, speak, and do math to prepare a business plan, and treat people with respect. She said it transformed her life and she started getting straight A's. That's the waste we're seeing with the current system. We brought that to Empower to show teachers a better way: a three-dimensional education to help them learn who they are, where they have aptitude and passion, then learn everything necessary, and how to apply it in a way others value. As my father said, learn everything you can because you never know when it'll come in handy. This is what Maslow said about management being revolutionary. He said education was most important, then maybe business, because everyone works somewhere. In this atmosphere, it changes their whole being. Our number one job of every supervisor is to help their people self-actualize. That means helping them find a gift and passion, designing a role around them, not punishing them for failing. If they're trying and failing, it's our fault. We find a role where they can succeed, mentor them, and give them tools and information to be independent. When that happens, results go through the roof.

Absolutely. That's what we're trying to do in our education experiments too. Youth entrepreneurs being empowered is what that is. We're working with Sal Khan. We have a partnership to take his materials and combine that with a live coach. These will be volunteers, like retired people good at math, or high school students with a gift. We're building an inventory of thousands of volunteers. We need to work more fully together. I know you've talked to some of our people at Stand Together. We're absolutely on the same page. When I was reading Believe in People, I could have highlighted every sentence. It would be so exciting to transform education where teachers bring out students' best potential.

Oh, yeah. That's our goal. And then get businesses to stop hiring on credentials and start hiring on values and talent, and design roles around people's talents rather than sticking round pegs in square holes.

Oh, yeah. We've been working with Todd. Great work in the education space.

Well, I always had it, but I didn't live up to it. As Michael Polanyi pointed out, innovations come from seeing gaps between what you're doing and what you could be doing. We try to get every employee to realize there's a better way, and to set up experiments to close that gap. In politics, I started studying these principles almost 60 years ago. We got into politics and fell into picking a side, violating Frederick Douglass's principle: unite with anybody to do right and no one to do wrong. I developed the principle of partnerships: find someone who shares vision and values and has complementary capabilities. All good partnerships, including with my wife, have that. I was applying it too broadly. We narrowed down vision to a particular problem, like criminal justice or poverty. Then we can partner with almost anybody who really wants to help people.

Well, these are central, but they're broader principles for society. Globally, we would like a society that fully lives up to the principles in the Declaration of Independence: a system based on equal rights and mutual benefit, where people succeed by contributing to others and everyone has the opportunity to realize their potential and live a life of meaning by finding a calling that helps others.

Well, we're against all those policies. What we want are policies that empower people, treat everybody equally, and give everybody an opportunity to realize their potential.

I think we get everybody to read Eupsychian Management, or Maslow on Management. Maslow and Hayek are the two authors that have influenced me the most. I was ordering Eupsychian Management continually until it went out of print. We got approval from Bertha Maslow to reprint it and distributed thousands to our employees. I have a copy right here.

No, I didn't meet her, but we contacted her and got approval. It says printed by Koch Industries for promotion from Bertha G. Maslow.

Yes. When the 1973 printing went out of print, we contacted her and printed several thousand. There's so much we could nerd out about. Have you read Maslow's journals?

I think me and you are the only ones in the world who have ever actually read Maslow's personal diary. I also have The Farther Reaches of Human Nature, first edition, third edition. Elizabeth found that for me. I've got Personality and Growth, Motivation and Personality, Toward a Psychology of Being, and Transcend. I've got McGregor's The Human Side of Enterprise, and Frankl's Man's Search for Meaning. Maslow and Hayek are the two authors that have influenced me the most, and the two social entrepreneurs are Frederick Douglass and Frankl. People talk about the hierarchy of needs, but it's possible to go directly under the worst conditions to realizing your potential and being contribution motivated. Frankl and Frederick Douglass proved that.

Frederick Douglass was a slave. He was a house slave in Baltimore when he was eight. He saw the mistress teaching her kids to read and asked her to teach him. She did, but the husband said no, he would be unfit to be a slave if he learned to read. Douglass realized he was enslaved not because he was inferior, but because he was kept ignorant. He taught himself to read. When he was sent back to the plantation at 16, he secretly taught other slaves to read. He said, 'At last I found a way to contribute.' When he escaped and got his first job moving coal for a dollar, he said, 'I'm not just a free man, I'm a free working man.' It brings tears to your eyes. Frankl, in the death camps, dedicated himself to helping others, which kept him alive. That's why I pay so much attention to them. They are our model for the over 200 social entrepreneurs we partner with.

Yes, that was to deal with COVID. We raised over 100 million for that. It was about getting money to people who needed it quickly. These were people working their way out of poverty who were knocked back by COVID. We gave them a leg up and developed communities where they helped each other. It was based on mutual benefit and dedicating yourself to helping others even when in need. It really got a response.

Absolutely. For example, no one was allowed to privately develop the test. Only government agencies could, and their test failed, setting us back months. If it had been allowed, like the vaccines with different companies and researchers doing it on their own, it would have been better. That's why we need a system of empowering everybody because you don't know who will solve it. If you think you have all the answers, you're dead. That's why multiple intelligence theory grabbed me. I'm dumb in most ways but smart in that area. So why throw me out with the bathwater?

No, I haven't.

No, I'd love to. That's right down my alley. Here's something I picked up from you: in Maslow's book, it says under ideal conditions there would be a mutual selection between the person and his self-actualizing work, like a good marriage. That's our goal in the company. We've helped people find new roles, and they are thrilled because the whole thing fits them. The results are great for them and everybody.

I am trying to better understand and apply principles and learn new principles. I have over 100 principles I regularly use. I'm constantly trying to find the gaps between what I'm doing and what we as an organization are doing. I challenge all our people. I get criticized for not celebrating enough. But we need to work on how to do better. The gap between what we're doing and what we could be doing to create value for others in a mutually beneficial way. That's my life's work. I have a long way to go. I'm learning every day how to be more effective because society has a long way to go.

Yeah, his concept of synergy is right on. That's what we need, a society that rewards synergy. Charles, thank you so much for being on my podcast. This was a real delight.

Thank you.