4 Pages

Koch Industries is one of the most profitable privately held corporations in the country. In spite of being owned primarily by four brothers, it has not been immune from intense internal power plays and intrigue. A decades-long dispute between CEO Charles Koch and his younger brother Bill Koch led first to an internal battle for control of the company and ended with a lawsuit between the brothers.

Carefully review the background materials regarding sources of power within an organization and influence tactics. Examples of sources of power include reward power, coercive power, legitimate power, and expert power. Examples of influence tactics include forming coalitions, pressure, and exchanging favors. Make sure to understand the main power sources and influence tactics and know the vocabulary and definitions from the background materials before starting the assignment.

The epic battle between two of the Koch brothers tested the limits of both of their power bases within Koch Industries. Both used multiple tactics before Charles Koch ultimately secured his position of almost unrivaled power within the corporation. Here are some articles to get you started:

Schulman, D. (2014, Jul). Koch vs. Koch. Mother Jones, 39, 16–27,64,2

Tomsho, R. (1989, Aug 09). Blood feud: Koch family is roiled by sibling squabbling over its oil empire: Fired by his brother, William sues often, helps feds to probe Koch Industries, haling mother into court. Wall Street Journal

Pfeffer, J. (2010). Power play. Harvard Business Review, July-August, Vol 88 Issue 7/8, p. 85-92. [Business Source Complete]

Robbins, S. (1997). Chapter 11: Power and politics. Essentials of Organizational Behavior. Pearson Education, New York, NY. Retrieved from www.rim.edu.bt/wp-content/uploads/2014/09/OBCDCH116

Hellriegel, D. & Slocum, J. (2004). Chapter 9: Power and political behavior. Organizational Behavior 10th Edition. Mason, Ohio: Thomson/South-Western. Retrieved from http://www.swlearning.com/management/hellriegel/ob10e/isc/web_chapters/00-032C09

Case Assignment

Once you have finished your research, write a 4- to 5-page paper addressing the following issues. Make sure to cite at least 3 of the required background readings in addition to articles about the Koch brothers in your paper:

1. What were Charles and Bill Koch’s sources of power within Koch Industries? Did they have reward power, coercive power, legitimate power, or expert power? Any other sources of power? Refer to Bauer and Erdogan (2012) or Luthans et al. (2015) in your answer, as you should demonstrate a solid understanding of these readings as part of your answer.

2. What influence tactics did each of them use in their battle for control? Refer to Bauer and Erdogan (2012) or Luthans et al. (2015) in your answer.

3. Ultimately what do you think led to Charles Koch’s victory in this battle, and what do you think are the most important lessons on organizational power that you learned from reading about this power struggle?

Assignment Expectations

· The paper should be double-spaced, using 12 pt. type in the Times New Roman font. It should consist of a 2- or 3-sentence introduction, a body, and a 2- or 3-sentence conclusion. The reference list page must be in APA format.

· Assignment content should include a brief introduction to the assignment, background information about the organization being studied, and discussion in terms of the concepts or theories being applied in the assignment.

Blood Feud: Koch Family Is Roiled By Sibling
Squabbling Over Its Oil Empire — Fired by His
Brother, William Sues Often, Helps Feds To Probe
Koch Industries — Haling Mother Into Court

By Robert Tomsho . Wall Street Journal , Eastern edition; New York, N.Y. [New York, N.Y]09 Aug 1989: 1.

ProQuest document link

ABSTRACT (ABSTRACT)
WICHITA, Kan. — To hear William Koch tell it, his brother Charles is a liar, a cheater and a racketeer. Charles

responds that William has “various psychiatric ailments” and is dead set on ruining the family business.

The siblings are squabbling over Koch Industries, the second largest closely held company in America after Cargill

Inc. of Minneapolis. Koch, pronounced “Coke,” is a big oil pipeline operator, driller and refiner, a chemical maker, a

coal miner and a cattle rancher. Although it is virtually unknown outside the oil patch, Koch had net income last

year of about $400 million on revenue of about $16 billion, according to people close to the Koch family, which

owns almost all of it.

Charles, 53 years old, is the company’s chairman, and that alone enrages William, who is 49 and doesn’t work there

because Charles fired him. In the past decade, William, sometimes in concert with the eldest brother, Frederick, has

sued Charles and the company four times in federal court seeking a bigger share of the $3 billion family fortune

and alleging a host of management misdeeds including racketeering.

FULL TEXT
WICHITA, Kan. — To hear William Koch tell it, his brother Charles is a liar, a cheater and a racketeer. Charles

responds that William has “various psychiatric ailments” and is dead set on ruining the family business.

The siblings are squabbling over Koch Industries, the second largest closely held company in America after Cargill
Inc. of Minneapolis. Koch, pronounced “Coke,” is a big oil pipeline operator, driller and refiner, a chemical maker, a
coal miner and a cattle rancher. Although it is virtually unknown outside the oil patch, Koch had net income last
year of about $400 million on revenue of about $16 billion, according to people close to the Koch family, which
owns almost all of it.

Charles, 53 years old, is the company’s chairman, and that alone enrages William, who is 49 and doesn’t work there
because Charles fired him. In the past decade, William, sometimes in concert with the eldest brother, Frederick, has
sued Charles and the company four times in federal court seeking a bigger share of the $3 billion family fortune

and alleging a host of management misdeeds including racketeering.

Until recently, William’s lawsuits and other wrangling have been nothing but a powerful nuisance. He and Frederick

haven’t won any of the court battles, and they lost — albeit narrowly — the proxy fight they mounted in 1980. They

both sold their stakes to Charles and another brother, David, in 1983 for a combined $800 million, leaving

themselves with no say in company affairs but with plenty of money for lawyers and private investigators.

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Last year, William turned over to a U.S. Senate committee evidence his private eyes had gathered suggesting that

Koch Industries had been stealing oil from wells owned by American Indians. The committee later began

investigating Koch, and in May an agent of the Federal Bureau of Investigation told the Senate committee he had

actually witnessed the oil theft.

Koch executives, who insist they are innocent, are awaiting the results of a Justice Department review of the

investigation. They fret about the damage that an indictment could do to their business.

Sitting near a portrait of his late father and company founder, Fred Koch, that hangs in his office, Charles says dad

would be “mortified” by the blood feud that has developed. “Why would someone in your own family try to get the

U.S. government to brand you as a racketeer?” he asks.

Basically, says William, because all is fair in brotherly love and war. “When you go into battle, the only way to do it

is to assume you are going to fight to the finish.”

The feud, which has drawn in the entire Koch clan, has ranged far beyond the family business. Charles and David

have sued William for allegedly breaking an agreement to yield his stake in the family homestead in return for their

share of father Fred’s gold coin collection. That suit is still pending.

Concerning a lawsuit they filed last year over the operation of the family’s nonprofit foundation, William and

Frederick, through attorneys, subpoenaed their 80-year-old mother Mary to appear in court as a defendant only

weeks after her doctor said she had suffered a slight stroke. The lawyers insisted that she was just fine. “She was

able to play tennis with her stroke,” grumbles William’s attorney, Joseph R. Ryan of Boston.

Mary “just cried like a baby” over the incident, says businessman and family friend George Ablah. Mary, who

declined to be interviewed for this story, was later spared a court appearance by the judge.

All this feuding has torn apart what was never a close-knit but was at least a cordial family relationship. “Christmas

used to be a time when we would all get together,” says David, a Koch Industries executive vice president. “Now it’s

just Momma, Charles and myself.”

Funny thing is, patriarch Fred Koch realized many years ago that his young boys might have trouble sharing the

empire he was building. In 1936, the refinery builder wrote his sons a letter: “When you are 21, you will receive what

seems now to be a large sum of money. It will be yours to do with what you will. It may be either a blessing or a

curse.”

Fred Koch was stubborn and fiercely competitive. The son of a frontier newspaperman, he developed a new

method of refining crude oil in the 1920s and then spent the next 23 years battling the big oil companies that were

determined to shut him down. Fred’s larger competitors were making good money at the time selling their own

refining process to a slew of smaller, independent oil companies.

While he was being sued repeatedly by Big Oil in the U.S., he built refineries abroad, the only place he could find

clients. Among them were the Soviet Union.

By the early 1950s, Fred Koch had beaten back some 40 lawsuits, but the prolonged battle had forged him into a

hard-edged, intensely private man, people who knew him say. He shunned interviews and refused to attach his

name to most of the corporate entities he controlled. His experiences working in the Soviet Union made him an

ardent anti-Communist, and he was a co-founder of the ultra-conservative John Birch Society.

Fred’s four boys grew up around the family business, then known as Rock Island Oil &Refining Co. They spent

summers cutting brush and digging ditches at company pipelines, but working together didn’t make them close.

Charles stood out from the start as the most aggressive of the siblings. William remembers Charles as the bully

standing at the top of the family’s Kansas storm cellar pushing his siblings down a mound of dirt in games of “King

of the Hill.” Says William, “I almost wish I would have started a fight with him 30 years ago.”

The eldest son, Frederick, was an artistic and sensitive child who didn’t take to the physical labor demanded by

father, family members say. Frederick, now 55 years old, refused to be interviewed for this article.

William was a gawky boy who says he wanted to be like the rambunctious Charles but never quite made it. Even

his successes were overshadowed within the family. While William made the varsity basketball team at

Massachusetts Institute of Technology, twin brother David became captain of the same squad and set a still-

standing MIT record by scoring 41 points in one home game.

Fred Koch, plagued by heart troubles throughout the 1960s, died in 1967 and was succeeded by Charles, who had

earned an engineering degree at MIT.

Charles Koch moved quickly to put his own stamp on the profitable but stodgy firm, which earned $8 million on

revenue of $250 million in 1967. He renamed the company Koch Industries, built a gleaming new headquarters on

the outskirts of Wichita, acquired control of a refinery and of an oil-trading company, moved the company into new

businesses such as chemicals and lured young talent away from major oil companies with hefty raises and the

promise of an entrepreneurial environment.

In the tradition of his father, he used to call only one or two board meetings a year. He watched spending so

closely that executives joked that he knew how many vegetables were sold in the company cafeteria, and he

logged so many hours at the office that he proposed to his wife over the telephone.

Charles also grew somewhat reclusive, carrying on his father’s suspicion of outsiders and of publicity; he even

replaced the split-rail fence Fred had built around the family compound in Wichita with a six-foot-high brick wall.

He shared his father’s taste for fringe politics, pouring $5 million into causes espoused by the generally anti-

government Libertarian Party. He has since split with Libertarian Party regulars, who named his party faction “The

Kochtopus.”

Occasionally under Charles, Koch’s aggressive nature has gotten a bit out of hand. In 1972, Koch lost $4.8 million

in a civil fraud suit in federal court in Wichita that involved Koch’s purchase of an oil-trading unit. Two years later,

the Federal Energy Administration ordered Koch to refund $10 million in fuel overcharges. In 1980, the company

and three of its nonfamily executives pleaded guilty in federal court in Denver to charges of illegally obtaining oil

and gas leases on federal lands. And that same year, the Carter Administration inflation fighters blasted Koch for

refusing to voluntarily supply the government with pricing information.

William and David Koch joined the company in the early 1970s as executives. Like Charles, they sat on the seven-

member board of directors, and each sibling owned 21% of the company. Frederick was written out of his father’s

will when he moved East to study the arts, but he owned 14% of the company through his share of a family trust;

he had a representative on the board. Also represented on the board were the families of two men who were close

to Fred Koch: his cousin, L.B. Simmons, and his early partner, J. Howard Marshall II. The two families together

owned about 22% of Koch Industries.

William received regular promotions and pay raises at Koch Industries. By 1979, people familiar with the company

say, William was earning more than $1 million a year in salary and bonus as vice president for corporate

development. David was also rising up the company ladder and says now he was always happy with brother

Charles’s leadership.

But William, a chemical engineer, felt he deserved more power. He owned 21% of the company, after all, but Charles

kept him on a $10,000 expense-account limit and forced him to report to nonfamily executives. William’s pet

projects, such as a cholesterol-fighting drug known as “the onion pill,” got lukewarm support at best from Charles.

For William, the last straw came in 1979, when he learned that Charles had asked a Koch Industries attorney to

draft a plan dealing with how William’s stake in the company would be disposed of in the event of his death. In a

burst of memo writing, William accused Charles of hoarding power, withholding information from shareholders and

making it hard for them to sell any part of their stake.

Teaming with eldest brother Frederick, who had become a well-known New York arts patron, William nearly toppled

Charles in a 1980 proxy fight, but Charles was saved by the support of brother David and other shareholders. He

then fired William and consolidated his power by handing out shares of stock to loyal company executives.

Charles also returned unopened the Christmas presents William sent to Charles’s children that year. Christmas for

the Koch’s hasn’t been the same since.

William launched his first legal assault in 1982, alleging in federal court in Wichita that Charles and David had used

fraud to defeat his proxy fight by hiding from shareholders the extent to which they were running the company for

their own benefit: allegedly paying themselves extravagant salaries and bonuses and giving company funds to

Libertarian Party causes.

In response, Charles and David filed a $167 million libel suit against William. Aware that Koch Industries had paid

for William’s visits to a psychiatrist in the 1970s, the brothers charged in their suit that William was mentally

unstable. (William says he is in fine mental health, adding, “I had gone to a shrink a few times a week for about

three years.” Charles “thinks that qualifies me as being insane.”)

The suits were dropped in 1983 when Charles and David borrowed more than $1 billion from banks to buy out

William, Frederick, and some other dissident shareholders. William took his $470 million and spent three months

hiking in Switzerland and racing sailboats in the U.S.

(Charles and David now together own 80% of Koch; the Marshalls own 16% and Koch executives the other 4%.)

In 1985, William sued again, charging in federal court in Wichita that Charles had shortchanged him on the sale of

his stake by, among other things, hiding the company’s ownership of certain properties. When he lost this suit,

William revamped it with some new charges and filed it in Kansas City, Kan. There, he accused his two brothers of

a pattern of racketeering and sought $3 billion in damages. In May of last year, that court dealt William another

loss.

This time, Federal Judge Dale E. Saffels rebuked William for “running to a different city within the district and filing

a new case” every time he loses elsewhere. William appealed the decision to the 10th Circuit in Denver, where the

case is still pending.

William wasn’t through. He hired a raft of private detectives to investigate various rumors he had heard about Koch

Industries’ operations. The private eyes interviewed dozens of former Koch employees about such things as the

way it measures oil that it picks up from producers who sell to Koch.

Armed with the investigators’ evidence, William then revived his 1985 lawsuit filed in Wichita to add the charge that

Koch systematically stole oil from producers. William also shared this information with the U.S. Senate Select

Committee on Indian Affairs.

Last October, investigators from the committee appeared at Koch Industries headquarters to depose 12 top

executives, including Charles. Senate committee staffers say William in no way influenced their decision to begin

investigating Koch Industries, but that they were aware of the information William developed as part of his legal

campaign against the company.

At a Senate hearing in May, FBI agent Richard Elroy, on assignment for the committee, testified that, while hiding in

ditches and among some cattle, he observed Koch employees mismeasuring oil at six of eight tanks owned by

American Indians in Oklahoma. “They were stealing oil,” he testified. Other witnesses told the committee that Koch

made at least $7 million from the allegedly systematic oil-skimming scheme.

People familiar with the investigation say evidence is now being reviewed by the U.S. attorney’s office in Oklahoma

City. The acting U.S. attorney there, Robert Mydans, declines to comment.

The company has strenuously denied any wrongdoing. Once-publicity-shy Koch produced for customers and the

media a 57-page response to the Senate hearing and a videotape of company executives rebutting the allegations.

Koch officials note that the oil-purchasing and refining operation that is under scrutiny produced only a tiny portion

of its profits, that its dealings with the Indians actually lost money for Koch, and that Koch hasn’t lost any

significant business since the allegations surfaced.

In June, a federal judge in Wichita dismissed William’s latest racketeering charges against Charles and David,

which included William’s allegations about oil theft. The judge’s ruling allows William, however, to continue to

pursue allegations that Charles and David gypped him in the 1983 buy-out, since William’s latest suit includes what

he claims is new evidence that certain company assets were hidden and others undervalued. And even if that court

effort ends in failure, William is unlikely to yield. Says Charles, “I fully expect {the feud} to continue as long as he

has breath or money.” Darn right, says William, who is now running his own energy company in Boston. “I don’t give

up.”

Credit: Staff Reporter of The Wall Street Journal

DETAILS

Subject: Family owned businesses; Executives

Business indexing term: Subject: Family owned businesses Executives; Corporation: Koch Industries Inc

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Publication title: Wall Street Journal, Eastern edition; New York, N.Y.

Pages: 1

Number of pages: 0

Publication year: 1989

Publication date: Aug 9, 1989

Publisher: Dow Jones &Company Inc

Place of publication: New York, N.Y.

Country of publication: United States, New York, N.Y.

Publication subject: Business And Economics–Banking And Finance

ISSN: 00999660

Source type: Newspapers

Language of publication: English

Document type: NEWSPAPER

ProQuest document ID: 398207828

Document URL: https://search.proquest.com/newspapers/blood-feud-koch-family-is-roiled-

sibling/docview/398207828/se-2?accountid=28844

Copyright: Copyright Dow Jones &Company Inc Aug 9, 1989

Last updated: 2021-02-01

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• Blood Feud: Koch Family Is Roiled By Sibling Squabbling Over Its Oil Empire — Fired by His Brother, William Sues Often, Helps Feds To Probe Koch Industries — Haling Mother Into Court

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Using power and influence tactics for better results
Anderson, David A
Marine Corps Gazette; Dec 1998; 82, 12; ProQuest One Academic
pg. 37

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