Interesting review. Are the Koch Brothers truly as evil as Soros?
Joseph Maciariello reviews “Good Profit: How Creating Value for Others Built One of the World’s Most Successful Companies” in the WSJ:
Though Charles G. Koch, with his strong libertarian views and willingness to fund political causes, may be a lightning rod in some circles, few can argue with his business success. He joined Koch Industries in 1961 and, upon his father’s death in 1967, became its chairman and chief executive. During the next 48 years, the value of the company—whose products range from wood and paper materials to fertilizer and petrochemicals—rose at a rate 27 times faster than the S&P 500 index. Extraordinary results by any standards.
In “Good Profit,” Mr. Koch outlines the methods by which he has built a business that is now worth more than $100 billion and has created a thriving institution—a place where, as the management guru Peter Drucker once wrote, each member is encouraged to reach an “intellectual and moral growth beyond a man’s original capacities.”
The phrase “good profit” is defined by Mr. Koch as profit that results from creating value for customers—as the customers themselves define value. As Mr. Koch puts it: “No one can decide which products and services a customer values better than the customer. Dedicating ourselves to satisfying what she values is showing respect for her. This is what generates good profit.” Conversely, he notes, what might be called “bad profit” comes from “disrespecting customers,” by allowing politicians in Washington to choose winners and losers and forcing customers to subsidize companies “with their tax dollars.”
But there is more to “Good Profit” than a broad philosophy of consumer choice and free-market competition. Mr. Koch describes what he calls a system of “Market-Based Management” and outlines its core principles. Some of these involve both business logic and an explicit ethical dimension: humility, integrity, respect. Integrity, for instance, is “the foundation for mutually beneficial relations”; if it were steadily honored, he notes, there would be less need for the controls and security measures that add an “enormous drag” to transaction costs. Respect, for its part, means “treating people based on their individual merits,” not according to the rigid categories of identity politics. Merit will show itself in diverse ways, he says, and it will always create value.
Other principles of Market-Based Management—e.g., knowledge, change and compliance—define various qualities behind innovation and efficiency, also with an ethical dimension. Mr. Koch notes that when a management team at Georgia-Pacific, a Koch subsidiary, noticed a suspicious new conformity in the pricing of its competitors, it combed its own policies and prices to be sure that they were indeed independent and legally defensible. And when a price-fixing lawsuit was filed against the industry, GP was exempted thanks to its scrupulous compliance records. Relatedly, Mr. Koch defines “principled entrepreneurship” as the effort to maximize profit by “creating superior value,” as well as by “acting lawfully and with integrity.” What is good for business, he says, is good for society—another aspect of good profit.
The culture of a company is formed, Mr. Koch observes, when employees internalize such principles and practices. Although employees should be urged, he says, to be agents of change, to think critically and, when necessary, to challenge the decisions of their bosses, they will find that their most significant motivation is a sense of accomplishment and fulfillment. “We cannot ignite a passion for creating the greatest value,” Mr. Koch writes, “if there is no meaning in our work.”By yoking moral values to market-based economics and social welfare, Mr. Koch is echoing some of the themes in Adam Smith’s “Theory of Moral Sentiments” (1759) as well as in Smith’s more famous “The Wealth of Nations” (1776). From “The Wealth of Nations,” Mr. Koch highlights this resonant passage: “By pursuing his own interest [an individual] frequently promotes that of the society more effectually than when he really intends to promote it.”
It is important, Mr. Koch observes, for all the members of a company to understand what its management system, as a whole, is trying to accomplish. The embedded principles cannot be transferred as a mere bag of tricks, he implies, but must be conveyed holistically. And of course any management system is only successful if it helps a company achieve its desired results.
Koch Industries, with headquarters in Wichita, Kan., has become a global powerhouse employing nearly 100,000 people in its nine business groups. In appendices to “Good Profit,” Mr. Koch names these groups as well as, interestingly, the dozens of businesses that the conglomerate has “exited” over the years for lack of competitive advantage: grain trading, coal mining, venture capital and even tennis-court surfaces, among much else.
C. William Pollard, chief executive emeritus of ServiceMaster, has posed the question: “Can the business firm make money, create wealth, and also be a moral community for the development of human character and social concern?” In “Good Profit,” Mr. Koch not only makes a strong argument in the affirmative but also provides a systematic framework—aimed at honing the vision and talent of executives and employees—for how it can be done.
Mr. Maciariello, the author of “A Year With Peter Drucker,” is a professor emeritus of social science and management at the Peter F. Drucker and Masatoshi Ito Graduate School of Management at Claremont Graduate University.
Source: The Company He Keeps – WSJ