1. Chosun Ilbo Saturday Section
Number 27241 Weekly BIZ
July 26-27, 2008, Saturday – Sunday 10th Edition C1
Interview in Depth
“Secretive Businessman” Takes off the Veil
Kyung Up Ho, Business Reporter
What is the largest private company in the world? Koch
Industries, which is not well known to the general public, is
number one according to the private company ranking list
published annually by
Fortune. Koch Industries is Chairman of the
a large company that owns World’s Largest Private
subsidiary companies Company, Koch
involved in a variety of Industries
businesses including energy,
oil, forestry, and chemicals.
Koch Industries’ revenue was
98 billion dollars last year
and rose past the global crop
giant, Cargill (88 billion
dollars), which is also a
private company. Koch
Industries has about 80,000
employees in 60 countries
worldwide.
When compared to the
“Fortune 100” public
companies, Koch Industries
would be the 16th. Its annual revenue exceeds P&G, Microsoft,
Dell, or Hewlett Packard by a large margin.
The asset of Charles G. Koch, the chairman of this group,
has reached 17 billion dollars this year and is listed as Forbes’
9th richest person in the U.S. Although he inherited the
company from his father, he expanded the company to more
than 2,000 times since 1967. Despite all this, he frequently
stands at the center of criticism as a “secretive businessman.”
This criticism is mainly because he is opposed to opening up
the company to the public, even though he has developed such
a successful company.
Weekly BIZ requested Koch for an interview several times
to hear about his philosophy on a private company and
succeeded at interviewing him via an email.
According to his explanation, the reason why he is not
opening his company to the public is because “private
companies do not become pressured by short-term goals,
unlike public companies.” He said, “In other words, private
companies can invest with long-term goals in mind even if the
short-term revenue decreases.”
► Continued on C5 hok@chosun.com

2. Chosun Ilbo Saturday Section Weekly BIZ Number 27241 Interview in Depth July 26-27, 2008, Saturday – Sunday 10th Edition C5
“Invested 32 billion dollars
over 5 years boldly…
It wouldn’t have been possible
if the company was public.”
Charles Koch, the leader of the
world’s largest private
company
Provided by Koch Industries
► Continued from C1 Then what are the weaknesses of “Market-Based Management.” This
Kyung Up Ho, Business Reporter private companies that he book was written originally for
recognizes? training new employees. Koch
Does a private company perform “Public companies get emphasized that wrong decisions can
better than a public company? This tremendous pressure every quarter to be minimized by following this
has been one of the hot topics in achieve short-term goals to satisfy principle. The book makes readers
economics. the stock analysts. The stock value of feel that a management system
Charles G. Koch, the chairman a company that does not meet the functions like a toothed wheel.
of the world’s largest private expectation by even one penny will Can you explain “Market-
company Koch Industries, can be plummet. Due to such pressure and Based Management” in a simple
considered as the spokesperson who the private equity fund market, which phrase?
represents private companies. This is buys and sells rights to manage “Market-Based Management
because he kept his company private companies, public companies are contains five components: vision,
even though it has grown into a 98- having a hard time making goodness and talent, knowledge
billion dollar company. successful long-term investments. process, right to make decisions, and
He said, “I was able to invest These companies must give up long- incentive. These five components
several millions of dollars with a term performance for a short-term interact with each other closely and
long-term perspective, and merge benefit.” show the power of management.”
and acquire successfully because the But private companies have About the first element of
company was private.” He added, been pointed out as having their own the market-based management which
“We use 90% of the profit for problems. The most common is vision, he said, “An effective
investing.” Actually, the growth of criticism is that there is no business vision starts with the
Koch Industries is made of endless accountability for possible creation of value and ends with
mergers and acquisitions (M&A). Oil mismanagement by the owner. creation of value.” Here, creation of
refining and forestry, which are the Is it possible to implement value means that a resource creates a
company’s main businesses, are all some accountability in a private greater value than when it is used
the results of M&A. company? How does Koch Industries elsewhere. And a failed business
“We have had a vision to make a manage mistakes and avoid wrong damages society rather than benefits
great company that creates decisions? human lives.
exceptional revenue for a long time. “Sufficient accountability is He mentioned that a
Because of such a vision, we have possible for private companies. Koch company must come up with a
been investing most of our money in Industries operates a strict check Schumpeteresque innovation
the biggest opportunity, which is our system to make sure that we are continuously. Related to this, he also
company. We gladly gave up the meeting expectations, and our mentioned that a company must be
thought of getting returns in a short employees are following the disposed if one thinks someone else
period of time. This was the reason company’s principles.” can do this business better.
why we were able to spend more Koch introduces his secret in Actually, he disposed as
than 32 billion dollars in M&A since detail for maintaining compliance as many companies as the ones he
2003.” good as public companies in his book acquired. One of the most
(The Science of Success), titled, representative incidents was giving

3. Chosun Ilbo Saturday Section Weekly BIZ Number 27241 Interview in Depth July 26-27, 2008, Saturday – Sunday 10th Edition C5
up crude oil collection business to create values through a correct Koch did not reveal the
(transporting crude oil to the principle. He said, “Our goal is to number of employees in the A and B
refinery). As he was moving over to have all employees comply 100% to categories who had been in the C
oil refining, he gave up the crude oil all the regulations 100% over time.” category. Koch is a believer in
collection business. He also gave up He calls this the “10,000% law.” scientific management, and says
grain transportation and meat “Several years ago, a “Everything that needs to be
processing. In addition, there are manager of one of our manufacturing measured must be measured,” but
almost 51 businesses that he gave up facilities asserted that the also asserts that he must not lose a
including pizza dough, livestock government’s request was not big opportunity by chasing after a
feed, mineral mining, and truck efficient and need not be followed. small benefit.
transportation. We fired him immediately thinking He said that employees must
“A company must know how that such behavior will damage the not have a fearful attitude. “Taking a
to decide when to sell the assets or company severely.” risk carefully must be encouraged.
the entire company. This is very The employee evaluation To do this, we must see the giving up
important. Generally, if an asset is system of Koch is similar to Jack of an opportunity as the same as the
more valuable to another person than Welch in that all employees are loss occurred by the failure of an
me, it must be sold. If the buying divided into three categories, A, B, adventurous business.” He said that
party is already doing a and C. It is similar in that employees the amount of money lost by missing
complementing business or has an in the C category are given a chance out on an opportunity should be in
ability to do it better, it is the right to improve, but if they don’t show the employee’s evaluation and let
timing. The businesses that we have improvement, they are released. other employees know about it.
sold are not failures, but they simply However, Welch divides into Also, he warned that if
have not become our central focus or the upper 20%, middle 70%, and achievement for present profit
basis as a part of the business life lower 10%, whereas Koch divides creation is only measured rather than
cycle.” into the upper 15%, middle 15-50%, their contribution in long-term
What is the reason behind and lower 35-70% with a much benefits and company culture, then
why you acquired the largest forestry broader lower category. This can also the employees are led in the wrong
processing company in the U.S., mean that he is that much stricter. way.
Georgia Pacific, for 21 billion dollars How do you categorize into Koch is one of the
in 2005? three categories and manage the businessmen who is very critical of
“Georgia Pacific was the employees? governmental regulations.
largest acquisition since the company “Employees in the A category “I fully support regulations
was established. The relationship bring significant competitive edge to set forth based on market principles.
between Georgia Pacific and Koch the company. Employees in the B But regulations must establish
Industries goes back to 2004. At that category are the ones who are at least standards based on health science
time, we acquired two pulp factories at the same level as those who are in and be applied consistently. The
from Georgia Pacific. As we got to the competing companies. On the government can play an important
know more about the company, we other hand, employees in the C role in protecting and maintaining
found out that our core capability category interfere with our rights, but excessive intervention can
could create an exceptional value in competitive capacity. We improve harm economic freedom. Regulations
their business area, forestry and productivity of the employees in the by the U.S. federal government have
consumer products.” C category through training, become ever more complex and
He emphasizes integrity and development, mentoring or job make it difficult for business people
compliance in regards to the transfers. But, employees who do not and companies to be successful by
employees. He does not put talent improve to be in the B category burdening them.
before integrity. He said, “In my despite these efforts should not be in Expenditure that the U.S.
experience, employees lacking the company. By releasing government put into regulations has
integrity and compliance cause more employees in the C category who do increased 10 times since 1960, and
damage to the company than those not improve, managers can spend the amount of money the economy is
lacking talent.” their time on developing, instructing, spending to keep these regulations
He also mentioned that all and compensating the employees in exceeds 1 trillion dollars. We are
employees must perfectly share the the A category and instructing the greatly wasting time and resources
company’s vision and principle of employees in the B category so that that need to be used to create true
market-based management. “The they can go into the A category.” wealth.”
only way for a company to survive is hok@chosun.com

4. Chosun Ilbo Saturday Section Weekly BIZ Number 27241 Interview in Depth July 26-27, 2008, Saturday – Sunday 10th Edition C5
“The superiority of public or private
companies should not be typified too simply,
but the company specific conditions must be
considered.”
Nam Kyu Park, Professor of Economics, Seoul
National University School of Management
Does a private company perform better than a
public company? Also, is professional
management system better than owner
management system?
There are many researches coming out on these
issues, but we must be careful not to determine
too easily by typifying everything when
comparing.
Comparisons between professional
management and ownership management have
been carried on since the beginning of the 90’s.
However, most of theses asserting that one of
them is better are based on specific conditions.
For example, there are many cases where this
conclusion is made based on a variety of factors
such as size of companies, characteristic of the
industry, ability of the manager, and
authorization in decision making process.
Comparing the managerial success of private
and public companies too lightly should also be
prohibited. Whether the company is public or not
is not the most important element in determining
the company’s managerial success.
One of the reasons why a company goes public
is to fund money needed for the company. Thus,
a generalization, of which a public company is
better since it delivers needed funds for the
company to grow, is a very dangerous thought.
For us, we are very familiar with a public
company such as Samsung, but there are many
private companies that are very successful.
Cargill in the U.S. is such company. This is the
largest company in the world that has taken more
than 50% of the worldwide grain market. About
85% of the company’s stocks are owned by the
descendants, but there are not many who think
the company has bad managerial success.
The risk of bi-directional theories on the
company management systems is proven by 20-
30% sustainability of most theories that compare
the success of private and public companies.
There is an expression that is frequently used
by economic strategy researchers, “strategy does
not travel.” Comparing private and public
companies also requires such careful attention,
and we must be careful not to make hasty
generalizations.

5. Chosun Ilbo Saturday Section Weekly BIZ Number 27241 Interview in Depth July 26-27, 2008, Saturday – Sunday 10th Edition C5
Chairman Charles Koch
He owns 40% of the stocks of Koch Industries
Chairman Charles Koch (73) was born as the and said that there will be no way that he will list
second son of a Dutch-American who had four his stocks in his lifetime.
sons. He worked for a consulting firm, Arthur D. He chooses his father as the person he respects
Little, for 2 years after receiving two master’s the most. He said that he became a free-market
degrees in mechanical engineering and chemical person because of his father’s influence. “Once,
engineering from MIT (Massachusetts Institute my father ran a business in ex-Soviet Union, and
of Technology) in the U.S. all engineers who worked with my father were
He inherited the management of Koch imprisoned by Stalin later. My father, who had
Industries, which was created by his father, Fred experienced this, became an anti-communist and
Koch in 1940, at the age of 32 in 1967. The main thought the value of economical freedom and
business at the time was focused on oil transport prosperity was more important than ever
and refining, but Koch expanded the business before.”
through mergers and acquisitions. This included He supports free market and related research
raw material trade, oil, chemicals, energy, textile, through supporting a conservative think tank,
fertilizers, pulp, chemical equipment, CATO, in Washington, U.S. His younger brother,
construction materials, ranch, and banking. David Koch, owns a part of Koch Industries and
Headquarters is in Wichita, Kansas. has run as a candidate for U.S. president in 1980
as a member of the Liberal Party.
“Public companies focus on short-term profit and sacrifice long-term returns.
Employees are categorized into A, B, and C, and employees in the C group are released.
‘Bad law’ is still a law, adhere to it. There should be no government regulations.”
Used by permission of Chosun Ilbo and translated into English.