When we think of the richest families in the world, we think of people like the Walton
family and the Saudi Royal family.
And though they do have enormous amounts of wealth, they’re not exactly 100% family
businesses today.
Walmart is a public company and half the company is owned by investors.
Meanwhile, the Saudi Royal family is more of a dictatorship than a family business.
There is one hundred billion dollar conglomerate though that is still almost completely owned
by the founding family and that is of course the infamous Koch brothers.
Today, the richest two Koch heirs themselves are worth $122.6 billion.
So, here’s how the Koch brothers ended up owning the world’s richest private family
business.
It all started on September 23, 1900, when Fred Chase Koch was born in Quanah Texas.
Fred’s father Harry Koch was a Dutch immigrant who originally worked as a printer’s apprentice
back in the Netherlands.
Harry had immigrated to the US with the American dream and he bought the Tribune-Chief Newspaper
after he arrived in America.
This provided the family a decent living, but nothing too crazy.
Fred would end up attending Rice University in 1917 where he spent two years before transferring
to MIT.
Fred finished up his chemical engineering degree at MIT in 1922 and instantly jumped
into the workforce.
Fred scored a job at Texaco probably as a chemical engineer.
He jumped around from job to job, working up the corporate ladder with each switch.
Within a few years, Fred had secured a job as chief engineer at the Medway Oil & Storage
Company.
Though this was likely a super nice gig, Fred wasn’t quite satisfied.
He wanted to follow in his father’s footsteps and start his own company.
So, in 1925, he reached out to a classmate from MIT named Keith who had started his own
company called Keith Winkler Engineering Company.
Keith eventually quit the business and the company would be left to Fred.
Being an extremely small player within the oil industry, Fred had to think of some creative
solutions to efficiently compete against the big players.
And Fred’s first step in this direction was developing a more efficient thermal cracking
process which allowed small refineries to turn crude oil into gasoline.
Larger oil companies quickly caught sight of this invention and decided to crush Fred
with litigation.
They launched 44 lawsuits against Fred which of course drowned him for many years.
Given that most of these lawsuits were utter BS designed to simply push out Fred from the
business, Fred ended up winning basically every single lawsuit.
Fred won 43 out of the 44 lawsuits filed against him, and it was eventually discovered that
the lawsuit he lost was due to a bribed judge.
So really, he won every single one of them.
Anyway, as Fred dealt with the litigation, it was extremely difficult for him to conduct
business in the US.
So, he took his invention to the Soviet Union.
At first, Fred was extremely cautious when it came to the Soviets as he was worried that
they wouldn’t pay him.
So, Fred demanded that he be paid upfront and the Soviets agreed.
In 1929, Fred started working with Soviet officials to set up 15 oil refineries in the
Soviet Union.
He also trained Bolshevik engineers to operate and run these refineries.
For many years, it seemed like the partnership was progressing phenomenally.
Fred had earned about $500,000.
But once the Soviets got a hang of things, they decided to cut out Fred.
Stalin started taking out Koch employees which quickly pushed Fred out of the Soviet Union,
regretting the collaboration altogether.
Back at home, Fred was still handling the onslaught of lawsuits, so he looked for other
international opportunities and he would land on Germany.
Germany was being led by some crazy people with crazy beliefs, but there was no denying
that the country was progressing rapidly, so Fred took on the opportunity.
Fred ended up building a massive refinery in Hamburg which was personally approved by
Hitler himself.
The Koch family has since tried to cover up this part of the story for obvious reasons,
but the high frequency of Fred’s visits to Germany suggests that Germany was indeed
a major part of his business during the 1930s.
Fun fact, rumors suggest that Fred almost boarded the Hindenburg during one of his trips
to Germany.
But, a scheduling delay saved him from the accident.
By the end of the 1930s, Fred finished up with his commitments to Germany and things
were looking better than ever before.
Fred had become quite wealthy from his business in the Soviet Union and Germany and he was
able to form international connections.
In the meantime, the 44 lawsuits were finally winding down after 15 years, and they actually
turned out to be a good thing as Fred ended up winning $1.5 million through the lawsuits.
Ironically, that’s three times the amount he was paid by Stalin.
With all of this money, connections, and experience, Fred was finally able to turn his attention
onto the American market in 1941 with the founding of Koch Engineering Company.
The next 20 years were pretty much smooth sailing for Fred.
Having worked with Stalin and Hitler and defended himself from the oil giants, actually growing
an oil company in America wasn’t that difficult for Fred.
He made a plethora of partnerships, acquisitions, and deals, and soon enough Fred become a multi
decamillionaire businessman by the 1960s.
And this is when he would face his last major challenge which was figuring out what to do
with his business after his death.
Fred had four sons and was hoping that as they grew up, they would develop an interest
in the family business.
But this wasn’t the case, while his children did care about preserving the family wealth,
none of his children really cared about running the business itself.
This was especially true with his oldest son Fred Koch Jr. Fred Jr. attended Harvard, but
he got a humanities degree which was not very applicable to the family business.
Moreover, Fred Jr. joined the US Navy after graduation, so Fred Jr. wasn’t really a
choice.
As a result, Fred would end up choosing his most educated son Charles Koch.
Charles had also attended MIT like Fred, and he had a bachelor’s in general engineering
and a dual master’s in nuclear and chemical engineering.
Despite being well qualified to run the business, Charles also wasn’t interested in taking
over the family business.
It wasn’t until Fred made an ultimatum that he was going to sell the company if Charles
didn’t take over that Charles joined the company.
Charles joined the company in 1961, and it was pretty good timing as Fred passed away
just 6 years later in 1967 due to a heart attack.
Charles would of course the new CEO and chairman of the company.
A couple of years later, Charles’s brother, David, would also join the company as a technical
services manager.
David also had a bachelor’s and master’s in chemical engineering from MIT, so he fit
right in.
David would eventually end up opening a new office in New York and become the president
of one of the company’s divisions.
At this point, Charles had done most of the heavy lifting when it came to actually running
and growing the business after his father’s death.
And David was the second most involved.
Bill didn’t join the company until 1974, but he would stir up the pot quite heavily.
Bill had also gone to MIT and not only did he have a bachelor’s and master’s, but
also a doctoral degree in chemical engineering.
So, you would think that he would fit right in, but this wasn’t the case.
According to Charles, Bill wanted higher-level positions, but the divisions that Bill ran
were usually not as profitable.
So, it didn’t make sense to promote him up the corporate ladder.
Bill also had a massive problem with how Charles was spending the company’s money.
Charles was and still is a super capitalist and despises socialistic ideas.
His father had gotten screwed over by Stalin, so Charles felt that nothing good could come
out of socialistic programs like social security, minimum wage requirements, and welfare.
And, Charles had been spending large amounts of money funding libertarian presidential
candidates who upheld these beliefs.
Bill hated this and these tensions would blow over in Christmas of 1979 when Bill ignited
a flame at the family get-together.
Bill suggested that just because Charles had grown the company doesn’t mean that the
other brothers don’t have a right to the decide future of the company.
At this point, their mother was still alive and she was technically the one who owned
the company.
So, Bill asked their mother how she was going to split up the company.
Their mother started crying that it had come down to this and left the dinner table, and
this was the last Christmas the Kochs spent together.
Bill went ahead and got some other board members on his side along with their other brother
Fred Jr.
Ironically, the two brothers who had done the least for the company were trying to take
over the company.
Bill organized a coup to fire Charles and takeover, but fortunately for Charles, he
would have just barely enough votes to keep him in power.
Though Bill’s coup had failed, it was clear how big of a threat he was, so Charles decided
to give Bill what he wanted and move on.
Both Bill and Charles called in a bunch of financial institutions like Morgan Stanley
and Goldman Sachs to value Koch Industries.
On June 4, 1983, Charles arranged for a buyout of Bill and Fred Jr’s stakes in the business.
Bill was given $470 million and Fred Jr. was given $330 million.
Charles hoped that this would finally bring peace to Koch industries, but the peace was
short-lived.
Just a few years later, Bill started to complain that he was underpaid for his stake in the
business and starting filing a bunch of lawsuits against Koch Industries.
Bill pursued these lawsuits up until the late 1990s and he did get a little bit more money,
but eventually, Bill did give in.
Bill walked away would a great amount of money, but he destroyed his relationship with Charles
and David and just sticking around would’ve resulted in way more money.
But this is the path Bill chose.
In the meantime, Charles owned 42% of the company and David owned another 42%.
The final 16% was owned by one of their father’s friends Howard Marshall II.
Today, Koch industries has roughly 100,000 employees and pulls in $115 billion in revenue
annually.
To put that into perspective, that’s $30 billion more than Facebook.
So, it’s not surprising that either David and Charles’s fortunes are each worth $62
billion.
Unfortunately, David died about two years ago due to prostate cancer, and his wealth
is now managed by his wife Julia.
Charles on the other hand is still alive at 85 years old, and he is still the CEO and
chairman of Koch industries.
He’s literally been CEO for 54 years.
It doesn’t look like Charles and Bill ever made amends and they’ve been living completely
separate lives since 1979.
And that’s the story of the world’s richest family business.
Do you guys think Bill’s fight was justified?
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