Charles & Chase Koch on Bottom-Up Solutions for a Top-Down World

You seem like a person who goes to first principles, to use that expression. And I had Thomas Rix on the podcast, the historian, not long ago. But the idea of getting to the root of whatever you think... I've got to imagine part of the reason you wrote the book was just to, not just to teach other people, but there's something about writing that forces you to examine what you think and why you think it. And is that sort of why you did the book?

Chase, I was going to ask you, these are probably ideas you have heard over and over again through your life. Is it weird to see them on the page? You must have a strange relationship with it because it's their ideas that I imagine you have a certain amount of agreement with, but then also when they're coming from your dad, you probably see them differently.

No, I mean, I think we probably all have interesting perspectives here and just hearing his story and getting to know you and your story as well.

You know, when you started in business and working with American Apparel and becoming this kind of marketing rock star and the whole thing, at some point my understanding of your story is you kind of said, 'Hey, it's all about these ideas, and it's about these principles, and you're going to go all in on that and dedicate your life to helping make stoicism actionable so people can improve their lives.' So what's so cool about you two kind of having this conversation is I see a lot of similarities, it's almost uncanny.

But yeah, with my relationship with these principles, at the age of four or five years old I had no choice. It was kind of like, I remember at the dinner table, my sister and I, we had our five principles growing up: love, courage, faith, honor, and loyalty. And so as a kid, you got to break it down and make them really simple. We weren't quite to stoicism at that level, but we had to every single night start dinner with, 'All right, tell me one principle and how did you exemplify that over the course of your day?' So that's kind of how it all started. Then 9, 10, 11 years old, we'd be in his library on Sunday afternoons listening to books on tape from Milton Friedman and Hayek. Like, are you kidding me? At age 10, 11. And Aristotle as well. But over the course of my life, you start to learn the importance of the principles and how to apply them. When you're exposed to them as a kid, it all starts to make sense. There's a Plutarch line where he talks about you learn the words and then you have experiences that bring meaning to the words.

I've got to imagine you both, you know, this is sort of what you think and then you see these ideas play out in the business world or your personal life. So you learn them at 10, but then it's a totally different thing to actually see, 'Oh, dad wasn't just making this up.' And then Charles, for you, 'Oh, Aristotle actually knew what he was talking about 2000 years ago.'

Yeah, I think like writing or playing the violin or being a woodworker or something, we understand that obviously is a craft and there's a certain skill to it. What I get from studying your company and reading your books is this sense that you applied that mindset, the idea of being a master violinist, to managing people. And it must be something extraordinary to manage. I mean, how many people work for the Koch companies? Like a hundred thousand, 150,000? Yeah, 130,000 roughly. So the instrument you're playing is enough people to fill a college football stadium, each one being an expert in something they do. That must be an extraordinary feeling, but it also must be extraordinarily difficult.

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Ryan, I think on this idea that he's hitting on one of the most important things that I've learned and how Koch Industries has been built. Not only he's talking about having the vision and thinking about it from a capability-based mindset, and then where can we capture opportunities based on our capabilities. It's this idea of focus on your gift. And this is highlighted in the book as well, believing in people and understanding that every single person has a gift. Using him as an example, he's an atypical CEO. The reason I say that is that he doesn't call himself CEO, he calls himself Chief Philosophy Officer because his comparative advantage is to put the philosophy out there, come up with new ideas. And if you can get those ideas across to the 130,000 employees, you empower those people with ideas and they run with it. They innovate around those ideas in their own way, versus a top-down approach where 'here's how you do it, here's the book.' That's how you grow a company. There's no way in today's day and age with technology moving so fast you can have a top-down approach. So his role is a very good example of how we try to do that within the firm and how we believe that it works in society to unlock people's potential as well. So I love the idea of being a Chief Philosophy Officer.

What does that actually look like day to day? I mean, I imagine your role has shifted over time. But we have this idea of the philosopher being someone who just maybe writes books or reads books. But how do you come up with and continue to study and engage with the philosophy that's sort of your job to come up with?

And another practical way that he does this is he has two direct reports. Wow. So if you want to be Chief Philosophy Officer and focus on ideas and carve out time to think, as opposed to being in meetings all day like a lot of CEOs, you look at that's what they've got, 10 direct reports. He organized his life and the structure of the organization so that he can spend time on where he has the strongest gift. And so if you can apply that 130,000 times over and really get that right, that's a very powerful model. I imagine that takes a lot of discipline. There's probably a lot of things you would like to be involved with, or given that you seem very exacting and have high standards, there's probably things you'd like to get in there and micromanage. It probably takes discipline to be the owner or the head of a company and only have two people reporting to you.

Yeah, I mean, I break it down to getting out of the way where you don't have a comparative advantage and empowering others to do that. It seems like a simple concept but hard to apply in reality.

There's a story from Marcus Aurelius that I think you'd both love. He's an old man at this point, the emperor, the most powerful man in the world, and he's seen leaving the palace. One of his friends is walking by and says, 'Marcus, where are you going?' And he says, 'I'm off to see Sextus the philosopher to learn that which I don't yet know.' And his friend sort of marvels. The quote that survives to us says, 'Here is an old man still taking up his tablets and going to school.' You seem remarkably curious. You're continuing even though you're reading mostly old ideas, you're always looking for something new. How do you stay intellectually curious? I imagine you've read thousands of books, you've seen it all. How do you stay curious?

Well, I was going to say, Chase, sort of rubber meeting the road. How much does your dad enjoy being disagreed with or challenged, and how has that gone throughout your relationship?

I'll give him a lot of credit. I'll start with a story. When I was a kid, my first role at Koch Industries. I grew up a pretty competitive tennis player, nationally ranked. By the time I was 15, I just got burned out. I was playing five, six hours a day, and I just wasn't into it anymore. I remember my mother coming back to my father and saying, 'Look, this kid's going off the rails, he's not trying anymore, he's throwing matches intentionally, what's going on?' So he pulled me aside and said, 'You can either give 100% on the tennis court and give it your all because you have a gift there, or I'm going to get you a job.' I immediately said, 'I want a job. I'm so sick of this sport, I just can't take it anymore.' So I thought I was going to be folding clothes at a clothing store here in Wichita and still hanging out with my friends. The next morning, I was in an old beater pickup truck on the way to Syracuse, Kansas. Six hours later, I show up with 60,000 of my new best friends, and they're all cattle. So I went from playing tennis to shoveling cow for 60,000 of my new best friends. There wasn't much of a challenge process there with my dad. But I look back on that experience. This whole idea goes back to the key principle of the book: believing in people and how do you help people find their gifts so they can unlock their potential. Ironically, that first job was the first opportunity I had to believe in myself. It's strange that it takes a job like that to do it, but I was working with people of diverse backgrounds and learned how to work with people as a team. First time I learned the value of a dollar, first time I felt good about myself. So then I wanted that feeling over and over again. It also helped me discover a gift that I still use today in terms of what I do in business: I originate, I build relationships to get access to technology and companies that we can help. I started learning that at the feed yard at age 15. So it's one of the core principles: how do you discover your gift as early as possible in life and experiment with a lot of different things to do that.

Yeah, it's like so...

I think part of it, Ryan, is starting with an open mindset. And I think that's if you look at what's happening in our country today with the divisiveness that's been built up over time, I think we all recognize that openness is the starting point to actually bring people together, whether they disagree on things or not. That's how you get things done. And Elizabeth, my sister, has really helped us. She even has an organization called Unlikely Collaborators that does nothing but this: do your internal work first before you think about the external work. Because if you can't be open yourself to new ideas, back to this idea of the scientific method, then you really have no chance of figuring out how to reach across divides and make things happen.

Yeah, it's very much like what you teach. I mean, the only person you can really control is yourself, so you better start with that. And that's what her whole effort is based on.

Well, let's talk about some challenges to assumptions. I generally agree with the premise of the book, which is that bottom-up is better than top-down and that central planning tends to fall short. And when you give people the tools, the incentives, and the freedom, they sort of come together and do the right thing. I'm talking to you from Florida, not from Texas, because we just went through this insane freak storm and then electricity and water crisis. How do you feel some of these bottom-up methodologies have weathered the last 12 months with the pandemic, with some of the things we're seeing in the world? How do you see something like what happened in Texas and the market failures there, and where does that work with your worldview?

No, that makes sense. I totally agree with the idea that the role of government is to protect equal rights. I guess I would also say that the role of government, or in a business as well, is to solve collective action problems. So it strikes me that whether we're talking about climate change, racial injustice, a pandemic, or in Texas's case a power grid failure, what we have are these large collective action problems. It feels like both sides, whether it's the free market approach or the top-down approach, is falling short in solving these difficult collective action problems because it's not quite anyone's problem, and on the other hand, not quite anyone has the authority or the power to do what obviously needs to be done.

It seems like maybe Operation Warp Speed is a good example of that hybrid approach where you have the government or the central planners setting some incentives, setting some guidelines, eliminating some obstacles, and then the hybrid of the business community coming in and the scientists creating something that's never been created on a timeline that's never been done. With the things that might have ordinarily held them back, worried about who's going to buy them, the risk of experimenting with this new vaccine. So it works there, and then the rollout, which does require a certain amount of central planning and logistics, seems to have floundered for the exact opposite reason.

I totally agree with that. I think there's this stoic idea that just because you can do something, just because it's legally allowed, just because you can get away with it, doesn't mean that you should. That's the virtue of temperance or moderation or self-discipline. It strikes me that culturally we're reaping the whirlwind. It's like you and I know what the norms are, we know what the rules are, we know what the abstract principles are because we've studied them, we've read about them, we fell in love with them through our books. And I think we're struggling when you have a culture where people haven't been taught these ideas, they don't know any of these thinkers, they don't understand why the system is set up the way it was. And so we see not only bad actors overriding the norms, whether on the left or the right, we see the public not able to fully understand why this particular norm is important, and then we're not able to enforce it politically or culturally, and we're really not able to enforce it legally, and we kind of just watch the system crumble in front of us.

Well, I'd be curious, and there's a question for both of you. This idea that just because you can do something doesn't mean you should. It must be strange to become successful at a level where essentially anything that a person can do, you are able to do. How does one have that sense of, whether it's as a parent or a business person or just a human being, how do you manage that idea? 'I could buy this, I could get away with this, I could just have the lawyers take care of that, but I'm not going to do it because it's not right, it's not good for me.' How do you manage that idea of 'I can but I'm not going to because I don't think it's the right thing to do'?

Well, what I've learned since I was a kid is go back to first principles. If you have a framework for what principles are most important and what your own personal north star is, which ties to your gift, what am I going to focus on? Because you have all these resources, what am I going to choose? And is it the right decision? Does it add value to society? Does it harm society? That's the way I've grown up. But without principles, you fall into the trap that I think you're talking about. You could go down the wrong path and do harm with resources, and you see that time and time again. But the way I answer your question is you have to start with a framework of core principles and then your own personal north star of where you're going, and then say no to everything else that doesn't fit into that.

Hey Ryan, one example of this is a key mental model or principle we use: who do you partner with? Whether in business or philanthropy, we want partnerships with one aligned vision, two aligned values, and three complementary capabilities. An example in the book is about Scott Stroud, who created an organization called The Phoenix. He battled addiction for many years and found that exercise—getting on his bike—got him over the hump. He created a gym with a community effect for others going through the same problem, combining the power of exercise with the power of community. He started two or three gyms, and the results were that about 80% of folks didn't relapse within three months—mind-boggling results, an order of magnitude better than some of the best programs. So we partnered with him because he has an innovative, bottom-up approach that gets real results. We helped scale with capital and capability. In the last couple of years, he's gone from three locations to almost 60, and now with COVID, he's using virtual, and people in France and the UK are tapping into it. It's a global solution that we believe can create a movement around overcoming addiction. Those are the kinds of partnerships we want to have.

That's fascinating—the idea of finding something that's working and putting more fuel behind it, as opposed to the ego-driven approach of thinking 'I'm a genius, I'll come up with the perfect solution and throw my resources behind it until it works.' That's the logic behind most philanthropic endeavors, instead of the investor model: who is solving this problem and how can I support that?

I wanted to go back to the idea of money, because there's a philosophical tension in Stoicism. Seneca was the richest man in Rome other than Nero, and there's a knock on him for being a rich philosopher. There's a joke from Musonius Rufus about a super obnoxious, unethical man in Rome. Everyone was complaining, and Musonius ordered him to be given a large amount of money. Someone said, 'How could you do that? He's a horrible person.' Musonius said, 'Isn't money exactly what this man deserves?' because a large fortune would be a punishment for someone who doesn't know how to use it. As someone who loves books, ideas, and doing right, how has your fortune tested these ideas? How have you integrated that in your life?

That was Seneca's line: a philosopher can be rich provided his money is not stained in blood. Did your success come from good principles, creating value, or from extraction and seeing the world as zero-sum?

It makes a mockery of the ends if the means contradict them.

Ryan, this also ties to creative destruction in business. The way we grow and succeed is by constantly drawing new curves. That's Koch Industries' core vision: apply creative destruction, come up with better products while consuming fewer resources. For example, Georgia-Pacific toilet paper: we make it more environmentally friendly, use less water, so consumers choose it because of its lowest environmental footprint. That mindset of continuous improvement makes our products best in the market while consuming the fewest resources.

To go to this idea of ends and means, from what I understand of your lifestyle, you don't seem motivated by a particular end. You seem to genuinely love the process—making the process more efficient, building a better culture. It's not to get Koch Industries to a certain level or make a certain amount of money; you love the craft of the machine and have dedicated your life to it.

A friend of mine, videographer Casey Neistat, said we don't do the work to make money; we make the money to do more good work. He said if we were doing this just to make money, we'd direct TV commercials. The point is you're building the business so you can do work you actually like to do.

How can this help your audience? What are their passions, injustices they see, experiences they can use to improve things and empower people?

In Marcus Aurelius's 'Meditations,' he uses the phrase 'the common good' more than 80 times. I don't think he means it in the communistic sense; I think he means the Epicureans turned inward, retreating to the garden, focusing on intellectual and spiritual pursuits. That's fulfilling, but what I find inspiring about the Stoics is the belief that we have to contribute—politically, civically, from a business perspective, starting a family. I think people struggle with the magnitude of problems facing us—things are falling apart politically, environmental issues, the world going through fits and spasms. Some despair at the magnitude and think about it top-down: what can I magically do to solve this? What advice do you have for someone about making a difference at a small, individual level?

Hey Ryan, an example that brings this to life: I was always passionate about music, and I thought, how can we take this idea and combine it with the power of Stand Together's ideas and community? During COVID, we launched a virtual Stand Together Jam Together tour with musicians we didn't have relationships with before. They saw we have capabilities getting real results, not just a one-off concert. Now we're partnering with a community of artists excited about issues like addiction. Matt Sorum from Guns N' Roses is part of our group. He's 13 years sober and sees this as a platform to use his voice and align with The Phoenix, a concrete organization getting real results. These are unlikely collaborations; we weren't doing this a year ago. It opens a whole new world of unlikely coalitions, working with anyone to do right. It's working—more artists are coming to us.

There's a joke about despairing over the 'great man of history' theory—that an individual can't make a difference. The joke is: you think an individual can't change the world? Talk to the person who ate a bat in 2019. One person changed the entire scope of the world. If it can be done negatively, it can be done positively. I'm writing about this in my next book—the guy who started the ice bucket challenge, which had a bigger impact on finding a cure for ALS than any person in history. It's just some guy starting an internet video. The Stoic thing is you don't know if it's going to work, but you try and try, and eventually something happens. It might not be you, but you're part of a tradition of people trying, and something sticks.

So Ryan, the way we think about it is to get more people engaged: ask what is that issue they care about, that passion, that injustice they see. Then how can we partner with them to expose them to a broader coalition, have unlikely collaborations to get synergy behind it, and make sure everyone involved has the courage to act. It's easy to say there are all these problems and not do the experiment. Instead of going through the motions, jump in and try something new that can transform your life and others'.

It's funny: if it was a business idea, you'd start networking, ask around, look for investors and collaborators. But when you see a problem in the world, you default to a top-down solution: 'What can I do individually as a mandate?' If we were more entrepreneurial, it would unlock a lot more solutions and creative energy that otherwise sits unused.

The frustrating thing about America is that change happens very slowly and then very quickly. All these movements had years of no progress, and then suddenly it all changes. It's easy to get depressed and tell yourself it's broken, but you don't know that three years from now we'll make 30 years of progress. I was going to ask you about the premise of 'Believe in People.' I blurbed it and totally agree, but there's a tension in Stoicism: the more you study human nature and history, the easier it becomes to be jaded, cynical, and depressed. The last year has been a bit like that for me. How do you believe in people when they show you maybe they shouldn't be believed in? How do you retain optimism in human potential and that change is coming when we just spent 12 months with people struggling to take basic health precautions for the sake of their neighbors?

Marcus opens 'Meditations' by saying the people you will meet today are jealous, stupid, angry, mean, and frustrating—all the things. You think you know where it's going. There's a certain philosophical value in anticipating how unpleasant things will be. But then he says they are only like this because they don't know good from evil, they are the same as me, made from the same thing, and he won't let them implicate him in ugliness. As a writer, you hear from fans and from people who are definitely not fans, and you have to go, 'Okay, that's them. I'm going to keep doing what I think is right and try to connect with as many people on that same page to do as much right as we can.'

I wanted to thank you for everything you do to take these ideas and present them in an innovative way to your audience. I'm a fan and have called you the modern-day Maslow. If they're just ideas and you can't help people turn them into action to improve their lives and then help others, there's not a lot of value. But you have a creative way of doing that. The more people you reach, the more we can internalize these ideas and act with courage to spark movements and change the trajectory of the country. Thank you for your leadership.

Zeno says well-being is realized by small steps, but it's no small thing. It's about that day-to-dayness. All right, last version of this question: you employ hundreds of thousands of people, you've met all these people through your nonprofit work, traveled all over, have fingers in every industry. You have this idea: you believe in people. What fundamentally keeps you believing in people? What gives you hope that things can get better? What is that core thing you believe in inside people?

So it sounds like what you really believe in ultimately is not just people—you believe in potential. Human potential.

I love it guys. This was so great. I can't wait to see you both in person again.