Koch Industries, Inc.
A CFO’s Perspective
Wichita State University
May 19, 2014
Confidential and proprietary information of Koch Industries, Inc.
Do not copy without receipt of express written permission.
Agenda
1. Koch Overview
2. Innovation Matters
3. Market-Based Management®
4. Prosperity, Freedom, and Well-Being
2
Koch Industries, Inc. - Overview
• Presence in nearly 60 countries; approximately 100,000
people worldwide.
• Koch is the 2nd largest private company in America,
according to Forbes.
• 30% of Koch’s $115 billion in revenues are generated
outside of the US.
• $60 billion in acquisition and capex in the last 10 years.
3
Diverse Independent Companies
Not Rated
(A+/Baa2)
(AA-/Aa3)
Flint Hills Resources (AA-/A1)
• Petroleum Refining
• Chemicals & Lubricants
• Renewables
Fertilizer Products
Process Technology
Commodity Trading
Minerals Sourcing & Handling
Pipelines
Ranching
Not Rated
Consumer Products
• Retail
• Commercial
Packaging
• Medium
• Liner
• Board
• Pulp
Building Products
•
•
•
•
Plywood
OSB
Lumber
Gypsum
(BB+/Baa3)
Intermediates
Apparel
• Spandex
• Nylon
(BBB/Baa3)
• Commercial Connectors
• Micro Connectors
• Integrated Products
Performance Surfaces
& Materials
•
•
•
•
Carpet
Air bag
Retail
Commercial
4
Well Known Brand Names
5
Historic Growth
Index of KI Book Value Growth
Index of S&P 500 Growth
Growth History Since 1960*
6
Fortune 500 Top 20
Koch would be #15
Source: http://money.cnn.com/magazines/fortune/fortune500/2012/full_list/
7
The Power of Reinvestment and Good Decisions
5 Year
Increments
1
2
3
4
5
6
7
8
9
10
15%
Compounded
200
400
800
1,600
3,200
6,400
12,800
25,600
51,200
102,400
Year
1967
50
Years
2017
8
Koch’s Presence in Kansas
• 3,400 direct employees, 7,080 total jobs supported
• ~$431 mm in direct compensation and benefits
–
–
–
–
~$25 mm in state income taxes annually
~$15 mm in state sales tax annually
~$15 mm in property taxes annually
~$15 mm in philanthropy annually
• 1.2 mm square foot office complex
• 20% additional square footage under construction
• 3 significant manufacturing sites in Kansas
• Future: potential for significant new investment which
could double our presence in the next 10 years.
9
Why Innovation Matters?
• Sales and productivity gains
• Share and profit erosion
• Post office and the internet
10
Types of Innovation
• Product
• Function
• Logistics
• Processes
• Business models
11
Koch Examples
• Pet protect / Quilted Northern Ultra®
• Renewable fuels
• Gas purchasing
• Methanol
• Plywood
• ADN catalyst
• Accounting / tax management
• Board governance
• Evolution of MBM
12
U.S. Manufacturing
Unit Labor Costs in Global FX Terms
Source: Bridgewater
14
Electricity Costs
($/mwH)
Source: Bridgewater
15
U.S. Share of Global Fixed Investment
Source: Bridgewater
16
Market-Based Management®
Market-Based Management®
We define MBM® as a philosophy that enables organizations to succeed
long term by applying the principles that allow free societies to prosper.
Market-Based Management® is a holistic approach to management that
integrates theory and practice and prepares organizations to deal
successfully with the challenges of growth and change.
It draws on the disciplines of economics, ethics, social philosophy,
psychology, sociology, biology, anthropology, management,
epistemology and the philosophy of science.
Market-Based Management ® also draws on the lessons learned from
the successes and failures of humans to achieve peace, prosperity and
societal progress. Thus, it includes the study of the history of economies,
societies, cultures, politics, governments, conflicts, businesses, nonprofits, science and technology.
18
The 5 Dimensions of MBM®
• Vision
• Virtues and Talent
• Knowledge Systems
• Decision Rights
• Incentives
19
MBM® Guiding Principles Provide the Framework
for Our Culture
Integrity
Compliance
Value Creation
Principled Entrepreneurship™
Customer Focus
Knowledge
Change
Humility
Respect
Fulfillment
Without these
two you will not
be allowed to
stay in business.
20
Importance of Integrity, Compliance, and Culture?
21
Areas of Compliance
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
Environment, Health and Safety
Anti-Boycott
Anti-Corruption (Foreign Corrupt Practices Act)
Anti-Money Laundering
Anti-Trust
Commodity Trading (Dodd-Frank)
Customs and Import Regulations
Data Privacy
Export Controls and Trade Sanctions
Government Contracts and Interactions
Intellectual Property
Interstate Commerce Act
Lacey Act
Records and Information Management
Securities and Equities Trading
Venture Governance
Employment Law
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MBM® Guiding Principles: Overview
Integrity
Compliance
Value Creation
Principled Entrepreneurship™
Customer Focus
Knowledge
Change
Humility
Respect
Fulfillment
This is the reason
a business exists
and what we are
here for!
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MBM® Guiding Principles: Overview
Integrity
Compliance
Value Creation
Principled Entrepreneurship™
Customer Focus
Knowledge
Change
Humility
Respect
Fulfillment
How you
make the
first three a
reality
24
Defending Our Freedom and
Prosperity
Economic Freedom and Quality of Life
26
Index of Economic Freedom – 2014
Ranking of Societies
Top 10
1.
2.
3.
4.
5.
6.
7.
8.
9.
10.
12.
Hong Kong
Singapore
Australia
Switzerland
New Zealand
Canada
Chile
Mauritius
Ireland
Denmark
United States
Bottom 10
169.
170.
171.
172.
173.
174.
175.
176.
177.
178.
Argentina
DRC (Congo)
Timor-Leste
Turkmenistan
Iran
Eritria
Venezuela
Zimbabwe
Cuba
North Korea
Source: The Heritage Foundation/WSJ, 2014
27
Economic Freedom Measures
• Limited Government
– Fiscal freedom, low government spending
• Rule of law
– Private property rights, freedom from corruption
• Regulatory efficiency
– Business and labor freedom, sound monetary policy
• Open markets
– Free trade, investment and financial freedom
28
Economic
Freedom
and Prosperity
Economic
Freedom
and Prosperity
$50,000
$45,000
United States
Ireland
$40,000
Hong Kong
2006 Per Capita GDP
Switzerland
$35,000
United Kingdom
Singapore
$30,000
New Zealand
$25,000
$20,000
Argentina
$15,000
$10,000
Venezuela
$5,000
Zimbabwe
Angola
Syria
$0
2.5
3.5
4.5
5.5
6.5
7.5
8.5
9.5
Economic Freedom of the World
Source: The Fraser Institute, 2007
29
Most Free vs. Least Free Countries . . .
•
•
•
•
•
•
•
•
•
8x higher average incomes per capita
10x higher incomes for the poor
The most free country residents are happier
Better civil rights
Cleaner environment
Longer life expectancy (20 years longer!)
Less corruption
Lower child labor and lower infant mortality
Less unemployment
Learn more:
www.CharlesKochInstitute.org
Facebook.com/EconomicFreedom
30
Economic Freedom – 2014 vs. 2007
Ranking of Societies
Top 10 (2014)
1.
2.
3.
4.
5.
6.
7.
8.
9.
10.
12.
Hong Kong
Singapore
Australia
Switzerland
New Zealand
Canada
Chile
Mauritius
Ireland
Denmark
United States
Top 10 (2007)
1.
2.
3.
4.
5.
6.
7.
8.
9.
10.
Hong Kong
Singapore
Ireland
Australia
New Zealand
United States
United Kingdom
Chile
Switzerland
Canada
Source: The Heritage Foundation/WSJ, 2014
31
Policies Proposed Today
•
•
•
•
•
•
•
Ever increasing regulations and subsidies
Large increases in taxes and spending
Further deterioration in the rule of law
Over-criminalization
Increasing protectionism
Socialization of health care
Private property and civil rights violated
Learn more:
www.CharlesKochInstitute.org
Facebook.com/EconomicFreedom
32