How We Grew Koch Inc. to $150 Billion Without Going Public: Charles & Chase Koch

What an honor to be here. Thank you for hosting us, Forbes, and welcome. This will be put out as the All-In interview, so I'm really excited to share this conversation with everyone around the world on the internet and to get some time with Charles Koch and Chase Koch. Chase and I have known each other since 2013—

Yep.

—when we overlapped in the agriculture industry. We got to know each other, and we've been business partners. Charles and I have gotten to know each other a few times over the years, but I'm really excited for this conversation tonight. So, Charles, thank you for being here.

Thanks for having us. It's an honor.

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In Silicon Valley, entrepreneurs and even mature-company CEOs always like to learn about the story of other businesses and their success, and I've always felt like Koch Industries was the untold story of probably the most profitable private, family-owned business in the world. Maybe I'm off on a couple of points, but certainly it's up there. It's also one of the most impressive business stories because of the evolution of the business, which I'm hopeful we can hear a little bit about tonight—how that evolution came to be.

Just for some statistics, if Koch were publicly traded, its revenue would put it easily in the top 25 of the Fortune 500. It's a family-owned business based out of Wichita, founded in 1940 by Fred Koch, with businesses ranging from energy, agriculture, chemicals, building products, and consumer products to cloud computing, as well as a very active minority investment portfolio. It has more than 120,000 employees—that statistic might be off—across 60 countries.

There's a very unique operating model, which we'll get into today, including principles around disruptive innovation, reinvesting 90% of profits in new businesses and growth, and meritocratic values. I'm hopeful that tonight we can take the opportunity to hear about the evolution of the business and talk about some of those principles. Maybe we can get started, Charles. If you could give us a sense of the scale of the business, what are the business lines that you operate today, and maybe provide a little more color to those high-level statistics I shared?

I can go back through some of the history and the failures and successes, but I'll go through what we've grown since the early 1960s. Then, we had 300 employees. Now, we have more than 130,000 in 60 countries, and we've increased in value 9,000 times over that period.

When did you join the business?

1961, full-time. My father and I lived on a farm, and he told me at age 6 that he didn't want me to be a country-club bum. So, he made me work in all of my spare time, which I hated, and I was always in trouble. He was kind of tough on me, rightfully so, and thank God he did.

Years later, I asked him, “Pop, why were you so much tougher on me than you were on my younger brothers?” And he said, “Son, you plumb wore me out.”

When you came into the business, what was the scope of the business? What was the business operating?

We had 2 main businesses. One was to design and make fractionating trays—that is, trays that separate liquids by differences in boiling points. Our largest business was a crude-oil gathering system in Oklahoma.

I had finished MIT a few years earlier, and I was working for Arthur D. Little, then a leading consulting firm. I was, and you'll think this is a joke, at age 25, doing management consulting.

I have to laugh at the absurdity of that.

But they were paying me for it, believe it or not. My father called me and said, “Son, I want you to come back and join the business.” As tough as he had been on me—and as I say, rightly so—I declined.

So, he called me a few weeks later and said, “Son, either you come back to run the company, or I'm going to have to sell it, because my health is bad, the companies aren't doing well, and I don't have long to live.” I agreed for a number of reasons. The first one is, I got 3 degrees at MIT in engineering and I sucked as an engineer. Get that.

So, how'd you get through MIT?

Because I was real good at the math, science, and theory, and I was no good at making or operating things. So, I figured out pretty quickly that I wasn't going to make it as an engineer, so I needed to be an entrepreneur. Because I was good at principles, I was always looking for principles that would help me contribute and succeed. That's what transformed our company.

So, you come into the business—300 employees, you said, at the—

300 employees.

And what did you think the mandate was for growing the business? Was it just to keep it stable?

It was. Can I take a few minutes to go through those first 2 businesses?

I'm listening. Okay, that sounds great.

The first one was making fractionating trays—designing those. We had a president then who was the kind of leader you don't want to be: top-down and obsessed with controlling everybody. He would send out memos every week demanding to know what they spent, what they spent it on, what they did, and how they did it. They started ignoring him.

Then the whole culture was protectionist. When they sold the internals for a fractionating tower, they wouldn't tell the customer the design. The customer would say, “We need to know the design so we can correct it,” but they wouldn't give it to them.

What's even worse, to satisfy the European market, they didn't even build a plant there. They had multiple subcontractors do parts of a tray and then bring them all together and assemble them with another contractor. You can imagine how that was for speed and cost. We were losing our ass, if you'll excuse the expression.

So, I changed the management and changed the philosophy. The first thing we're going to focus on is creating value for our customers. The second thing is we're going to empower our employees so they want to do this. And the third thing is we're going to build a plant. We're going to build a plant in Italy to satisfy the European market, and we're going to do it all ourselves.

So, we became profitable, and then we started adding related products. I'll get to that later, but that's how we started growing.

Can I ask a question? You come in at 25, plus or minus a little bit, and you see the problems at the business. It's not profitable. It's not being well managed. You overturn the management team. How did you have the confidence, at this age and with the experience you had, to take that level of action that quickly?

Well, it was life or death. My father said, “You can run this business any way you want. The only thing you need my approval on is to sell.” That's the way he talked me into coming back after I said I didn't want to—or I wasn't going to.

In 1970, what really helped was that my younger brother David joined the business, and then he continued that growth.

And then you're now running a profitable operation, you've got a European business, and at that point, did you start to think about expanding into other products?

Well, that's it. I was learning all these different principles. What I saw we were doing, not just here but in other things, was building capabilities. I looked at it as: we need to be capability-bounded, not industry-bounded.

You could say, to a certain extent, because we were in crude-oil gathering, we were in the oil industry. Everybody would say, “You need to be an integrated oil company. You need to be in everything.” I was applying division of labor by comparative advantage. No, you need to be in the part of the industry, the part of the value chain, where you can create more value than others. Otherwise, you're going to fail.

That's what we're seeing happen now. There's more specialization by comparative advantage. I created this principle called creating virtuous cycles of mutual benefit. What that led us to do is start this never-ending cycle of growth, innovation, success, and failures—and failures that, when we did it right, we learned from and that made us better and taught us better how to apply principles to create value.

We're still going through that. We have a lot of failures. That's when you apply creative destruction in your new things. If you're not failing in everything, you're not doing anything new.

Where did you learn that lesson? What was the first major failure? They always say you've got to plan until you get punched in the face. What was the first punch in the face?

I had a bunch of them with that company, which was called Koch Engineering then. Like I said, when we got into refining, we created petroleum coke. So, I said, “Let's come up with a way to use that as a base to make activated carbon.”

And that was a failure. We spent a fair amount of money on that. We had a whole bunch of those, and we've had many more.

How did you make the decision to shut it down or walk away? A lot of entrepreneurs have this problem. They build something, they're too in love with it, and they don't know when to say enough is enough.

Yeah, well, that's when enough is enough: when we lose our ass enough. No, it's when we decide we don't have the capability to create superior value for our customers and that we're going to be rewarded for it.

Sometimes it can be the structure of a business. The company that Chase founded, Koch Disruptive Technologies, has done tremendous things, but its structure makes it hard to make it profitable. That's another thing—these are principles that we've learned. We ask, "Okay, we didn't apply that. What were the principles that we didn't apply that caused us to fail?" That's how we learn from failure.

The businesses we're in now—and Chase and the Koch people here can catch me up if I miss any—include engineered projects, engineering and construction. We build solar plants. We have commodity trading and distribution, fertilizers, refined products, chemicals and polymers, glass, and forest and consumer products. We have 4 different investment firms with different comparative advantages, electrical products, and software systems for management.

Dave, let me just hit 1 point.

Anything? No, you got it. You did a great job.

Basically, there are 8 wholly owned business-unit platforms that he described, and then 4 different investment businesses. I wanted to really drill a point home because when I came out and started hanging out with you and the whole tech community and trying to build that network, a lot of people had the same question that you did about who Koch is and what we're all about. They knew it was a large private business, but being in Wichita, they didn't know that much about it.

I think the point that's so different about Koch versus almost any other company out there is what my father said about being capability-bounded, not industry-bounded. How do you get from a small crude-oil-gathering company in southern Oklahoma to all of those businesses that he described? The principles obviously run throughout, which we'll be talking about in this discussion, but one of the absolute core differences is that whole approach to capabilities. I would encourage anyone who's in a business and trying to scale to think about it from that lens: What capabilities have I demonstrated that I can add value to customers? Then point them at new industries where you can experiment.

This is 1 of our principles as well: experimental discovery. Don't try to do everything at once and conquer the world. Experiment and test: Does the customer value my product or not? Along the way, those core capabilities for us started off as operations, logistics, and trading. In the very early days of Koch, that's what we demonstrated we were good at, and we were getting great customer feedback.

But then we had the capability approach and said, "Okay, we started in energy. We started in crude-oil gathering, pipelines, and refineries. Can we point those same capabilities into natural gas? Can we point them into chemicals? Let's experiment there. Can we point them into fertilizers, because then we learned about natural gas?" Then the Georgia-Pacific opportunity comes along, and it's like, "Hey, these are wood products. It doesn't seem similar to these other businesses, but it has the same core capabilities." We buy Georgia-Pacific, and along the way it was somewhat of a happy accident that we started learning about consumer products and branding. Branding became a new capability for Koch through acquisition, but it started with where we thought we could add value, do a good job, and collect new capabilities along the way.

I think that's a really simple way to think about Koch and how we're different over the course of time. One other thing I'll mention, too, because I've been asked many times is, "Is it sort of like a Berkshire Hathaway, where you have all these different businesses—a conglomerate?" I say no. Obviously, Warren Buffett and his team have done an unbelievable job operating the business the way they have, but we think about our business very differently. Instead of operating them all as independent businesses, almost in silos, think about it as a republic of science. We're not a conglomerate. We're an integrated set of capabilities.

Would it be fair to say that you wouldn't consider an acquisition or a new business line if there wasn't some relatedness to an existing competency at the company?

It depends. As you see when you read the book, we go through 1 chapter on creative destruction and all the different ways Schumpeter described to do that. One is to create a new management approach. That's our biggest one.

When we bought Molex, which makes electrical connectors, it had done fantastic work, but at first it wasn't doing great. We said, "We think if we can get them to apply these principles, it will turn them around." The problem when we do that is that the tendency is to learn the lingo. You can call everything by these names and still do what you always did, and that's what was going on there. Finally, we got in and changed the management. Once we did that and they started applying these principles, they took off, and now they're knocking it out of the park.

Let me go back to failures, because we're understating our great strength in failures. I'll give you our worst failures and what caused them. They were caused by violating the principle of hiring people first on values and second on talent. For years I've told our people, "Look, if you want to hire somebody with bad values because you like them or something, hire them slow and stupid so we can catch them real quick and get them the hell out. Maybe get them to go to work for our competitors or something. Maybe help them get a job."

That was huge, and then we made that even worse by taking people who had terrible values and making them leaders. What we call that is being destructively motivated, rather than contribution-motivated. I want everybody in the company to be contribution-motivated: I want to succeed by contributing, I want to be rewarded for my contributions and for the value I create for our customers or for the future.

Some of these people were destructively motivated. What they wanted was power or control, and they would hide their failures and make up their successes. I'll give you 2 examples. One goes back to 1973. You remember the war in the Middle East and everything. They had gotten us into all kinds of wild, reckless trades, which could have bankrupted the company.

Then later—much later—which shows you that repetition penetrates even the dullest of minds, I needed this to happen a bunch of times until finally—okay, I got it. God, don't punish me anymore, please, for my stupid mistakes.

We did it about the same time in our ag group. We put leaders in who were destructively motivated. In refining, we got a leader, and they were destroying those businesses. It didn't almost bankrupt us, but it almost wiped out all of Koch's earnings in the late 1990s.

Does that give you a flavor?

Yeah. So, you'll appreciate this, being an ag guy, if we go a little deeper on what happened in the late 1990s in our ag business. We called it the gas-to-bread spread. We wanted to be in every element of the value chain, all the way from pulling natural gas out of the ground, converting it into fertilizer, making the nitrogen products to grow the crops that would ultimately end up on grocery-store shelves. We got into bread and pizza crust and all this crazy stuff.

When you look back on it, you're like, "What the hell were you doing?" It was leadership thinking, "We can do anything. If we basically control the entire value chain, we can make that successful." It completely violated probably all 41 principles in the book: experimental discovery, knowing where your capabilities are, the right people, and the right roles.

We called it the gas-to-bread spread. Some people called it the ass-to-bread spread, too.

And there's another one in here: integrity. When they knew there were losses in some of these, they wouldn't tell us. They wanted to go ahead anyway. We had a deal within that, like Purina dog food.

One of the things that was acquired was the large-animal feed business.

Mainly hog feed. We did no diligence, and this is one of our principles: apply the scientific method. Disprove your hypothesis as much as you try to prove it. We closed that acquisition, and within days we found out that we had hundreds of millions of dollars in out-of-the-money hog contracts.

Because we didn't even look at the contracts. That's when I think this is really important for founders who want to grow, right? You have this growth-at-all-costs mindset, and you stop asking, “Why not?” This is the kind of trouble you can get yourself into.

Let's go back to the management piece. How do you take these principles—which you've applied successfully? I would use the term “iterate,” because for me, failure is all about iteration to success: finding paths that work, finding businesses that work, and ultimately finding people who work. How do you drive a culture that represents the principles?

You could create a book and give it to all your employees and say, “Guys, here are 41 principles. We've sat down, we've thought about them, we've written them, and they're going to work.” But to actually live them, to realize them, and to hold people not just responsible but accountable to them, how did you do that as you developed these over the decades?

At first, we tried to get them to do it through sheep-dipping. That is, you take everybody in, give them a big seminar, and say, “Now go do this.”

From Polanyi—if you want to read a book that's hard to read, I mean, a really hard one—you can read Human Action. This is even harder; it's called Personal Knowledge by Michael Polanyi, who was a chemist and then became a philosopher. He goes through what it takes to develop personal knowledge. You have to rewire your brain to have it work differently.

You have a habit, so you don't need to think about it. If you want to change—say, “Do I brush my teeth first, or do I comb my hair first? No, I want to start combing my hair first”—all of a sudden, you're back to brushing your teeth first because you're not thinking about it. Your brain gets wired that way.

Your body—let's say you're a weightlifter and you want to be a marathoner—it's going to take work with intensity over time to change your body. Your brain is part of your body, so you've got to do the same thing.

We said, “Okay, we've got to start by finding a group that's really interested in this. They're struggling, they're having problems, and here are the principles. We'll coach them; we'll help them start doing it. If they work with intensity on it and then succeed, we don't need sheep-dipping, because then the other businesses and capabilities say, ‘Gosh, I'd like to do that.’”

Then we have more demand for people who can help them. The hardest thing is having our people in strategy—or our Principle Based Management group—who are really good at helping them. They're in more demand than anybody. The best thing is, success will drive social mimicry.

That's it. Here's another take on what he's saying that I think really connects to your question about culture. The essence of Principle Based Management, and all the principles in this book as well, is: What if you could have a business and a culture—small, medium, or large—where everyone knew what to do without being told?

That's hard to get your head around, right? I think most businesses approach it from the top down. There's the iconic leader who's the smartest guy in the room, building the strategy and then telling everyone what to do. One of the most important principles in this is to flip that on its head. It's about bottom-up empowerment with principles: empowering your talent, your team, and your leaders with these principles so that you use the collective knowledge of everyone, not a couple of smart guys at the top of the company.

Most people in most enterprises that aren't owner-operators don't want to fail. They want to keep their jobs. They want to move up the ladder by being repeatedly successful.

If you want to create a culture of creative destruction, a culture of failing and learning from failure, it's very hard to get individuals who live on an income, on a salary, to do that. If they make a mistake, if they fail, and then they fail again and again, they're thinking, “I'm worried about losing my job.”

What you typically see in most scaled organizations is middle management, and even senior management, when founders or owners don't operate it anymore, saying, “I'm going to take the less risky path. I'm going to do the less creatively destructive thing. I'm going to do the thing that's least likely to fail because I don't want to lose my job. I want to keep my job, get my bonus, move on to year 2, and go home to my kids and my wife and take care of the family—or whatever the family situation is. That's my objective.”

That's right, and that approach creates perverse incentives. We try to align our incentives so that we reward people according to their overall contribution to Koch's future.

For example, if they have an experiment—and that doesn't mean doing this thing in agriculture where you buy all these hogs and lose hundreds of millions of dollars. That's not an experiment. A good experiment is where the value you learn from it is higher than the cost of the experiment.

When we do that, we're evaluating what the person is doing to build capability for the future. That's why we put so much emphasis on asking, “Are you building capability?”

Capability is part of it—the culture—and what Chase did with Koch Labs when he started Koch Disruptive Technologies. He said, “Koch Labs, I want every business to be a laboratory for what we find, both to help us source these technology opportunities, and then, if they're just trying something, we'll try it out in that business.”

Being in all these different businesses that touch almost every part of the economy gives us a big advantage in that. But that affected the whole culture. In your business, don't you want to be part of Koch Labs? We're an experimental discovery group. We're not just a bunch of grunts here grinding stuff out.

Yeah, I think the KDT example is a really good one, because you asked about motivating: What if you fail, and then what if you get fired and all that?

We tried to take a little bit of the Silicon Valley approach and bring the experimental discovery mindset. You learn more, you can pivot, and you can learn from a failure: “Now I know what I don't want to do. I'm going to pivot my strategy and maybe keep trying.” As long as you don't sink the company with some massive bet, right?

KDT was a great experience. When we made those first investments in this venture, the losers fall out first and the winners take a hell of a lot longer to materialize. If we had just judged it based on, “Okay, guys, you've got 3 or 4 years to figure this out,” we would have shut down KDT. But it was that experimental discovery principle and mindset that we applied to it.

We were learning so much at Koch from seeing the technologies that were coming around the corner that might disrupt our core business. We valued that learning and rewarded the people who were bringing that knowledge in.

If you just look at it on a bottom-line basis in the first couple of years, you'd say, “Just shut this down,” right? But then, over time, the returns are starting to come because we thought long-term about it. It all came from the experimental discovery principle and then creative destruction.

If we're not in the game on technology and we don't see what's coming, something's going to happen. Especially with how fast technology is moving today, some of our businesses are going to become dinosaurs.

How much of that risk were you willing to take, and did you take on acquisitions? Doing homegrown experiments on new business ideas, strategies, and products can be lower-cost, but if you're going to do an acquisition, do you have less room for failure?

We were a much smaller company, and we bought Georgia-Pacific for $20 billion.

Can you just tell us what Georgia-Pacific is for those who don't know?

It's a wood products company, and it's got 2 big pieces to it: building products and consumer products.

Well, it's got a third one, but yeah.

Okay, I'm generalizing. But go ahead.

Sorry, no, no, no. I'll shut up.

Shut up, you old guy. No, no, no. But anyway, on that one—

When did you buy it, and how big of a bet-the-company move was it?

2005. We were much smaller in 2005. I can't remember how much smaller, but it was a lot smaller.

A massive bet.

Okay, we were applying these virtuous cycles of mutual benefit. We were saying, “Okay, what's one of these cycles?” Chemical process industries—and creating wood pulp was part of that. In fact, I found my father's thesis later. He had done a study in Maine on this very thing, on pulping.

That MIT thesis?

Yeah, yeah.

Wow.

So we said, “Okay, let's look at it.” They were saying they needed to spin off some of the pulping operations, and we said, “Okay, let's buy that.” We bought that as an experiment, and we did really well with it.

And so you said, “Wow, they have other opportunities”?

That was a commodity business, and they were trying to get their price-to-earnings ratio—it was like 6—and if they became more of a consumer products company, they could get it up to 9.

So we proposed—we met with them and proposed that we buy the commodity part, and we’ll pay them a high enough price that then they can be all consumer products and get their price-earnings ratio up. We showed them all the economics, and they said, “That’s fine, but we’ll be sued for constructive fraud because we have all these lawsuits against us. So we can’t do it, but we like the value.”

We went home and said, “Well, okay, what if we just offered the whole thing?” A couple of them were getting ready to retire, and the senior officers were really liking it.

And they were kicked out of all the board meetings from then on.

But anyway, so we bought them. That was the time when money was tight and everything, so nobody came in and topped us. I’ll give you just one funny story. We sent one of our people in to be the CEO, Joe Moeller, who had been president of the company.

It was totally top-down and bureaucratic. They were in Atlanta, and they had this 51-story building. You can correct me.

That’s right. Yeah, you got it.

They had a private elevator to get up there. You didn’t have to wear a coat and tie, but if you came up to visit, all the management was on this 51st floor, and you had to put on a coat and tie and get permission to come up there.

Joe immediately kicked them all out. We fired a bunch of them and then sent the remaining ones down to work with their groups on a regular floor. Then we turned it all into offices—I mean, into meeting rooms open to anybody. That’s how you get culture change. A lot of it is signals like that, particularly when a bunch of them get fired for being so bureaucratic and hierarchical.

Would you say that business unit operates like the rest of Koch Industries today?

Oh, absolutely.

But how long did it take? I’ll just say that this is such a rare and difficult thing to pull off. There are countless stories of acquisitions where the acquirer thinks that they have a culture, thinks that they know how to transfer culture, and literally no one seems to be able to do it.

This was one of the insights from Warren Buffett: You find great managers, you let them continue to operate as owners of that business, and they get some profit share or whatnot. They’ve got a durable moat, so he can make a long-term investment, and he just leaves them.

Yeah, yeah, but that’s to say that wouldn’t work for us. The stuff we bought—let me give you another one, if I could, that was even more difficult.

Sadly, my father died not too long after I came with the company in 1967, and we had owned an interest in a small refinery in Minnesota. Two years later, we were able to buy it. It was not being operated very well because management had let the union control how it was run, so it was run very inefficiently.

The first thing we tried to do was change the work rules, so they went out on strike. By the way, that was at the start of my honeymoon. Thanks a lot, guys.

It was violent. They ran a switch engine and tried to knock down one of our units. They shot high-powered rifles in there, and they blocked the gates. It was impossible to get in there. We had to take a helicopter, but we were successful in operating without the union workers for 9 months, bringing people in from other plants, and it operated better than they did. So finally, we got the work rules changed.

Then we said, “Okay, we’re going to empower the employees. We’re going to change the culture.” Now, you think Georgia-Pacific was tough? This was much tougher than that.

We worked and worked on it to try to make their jobs better, get their opinions, get them to work as teams, get them to come up with innovations, and when they did, we would reward them. We got the unions to agree with that.

One group of them said, “God, we’re buying all these spare parts we need. If you build a machine shop, we can do it cheaper and faster.” And they did. In other things, they saved a ton of money for us and made things more efficient.

Now the culture there is fantastic. I mean, we’re not talking about Wichita; we’re talking about Minnesota. We’re so proud of what they’ve done, and it still blows me away how much they’ve taken these principles to heart and used them to make that place so successful. We’ve increased the capacity tenfold, and it’s one of the best refineries in the country.

Pop, wouldn’t you say that the common theme on all of these—we have the same story with Molex, similar but different from Georgia-Pacific? Molex was a technology company, a connector and cabling company, one of the largest in the world. It makes products in your iPhone, medtech products, and products in your automobile.

When we bought that in 2013, it was a paradigm that needed to be changed. You described Georgia-Pacific as top-down versus bottom-up. There was a lot of that too, but it was top-line thinking versus bottom-line thinking. It was all about revenue growth, right?

It was a technology company, and it was also a public company for 30-plus years, because that was what the market rewarded them for. The whole stock-price, public-versus-private discussion is interesting here. What we’ve learned is that it takes a hell of a lot longer than you think to change the culture.

In almost every case, it probably requires changing leadership that has the paradigm of bottom-up empowerment and that learns and applies the principles. Almost every time when we fail, it comes down to ignoring the principles. That’s what the book is about: You can reverse-engineer these stories. We missed that principle; we missed this principle.

It comes down to talent and the right people with the right mindset. I want to share just one story with you that really shows how we apply this at Koch.

He talked about our talent vision: values first, skills second. I always add a third dimension to that as well: credentials last. That is a very different mindset from most companies, because most companies look at it and say, “I want the guys that have a 4.0 from an Ivy League school and all that.”

There are some incredibly smart folks from that, obviously, but in our experience—and it’s also one of the reasons why we stayed in Wichita, Kansas—we can basically hire the farm team. These are kids who have grown up on the farm, who have that contribution-motivated mindset, who work their tails off and want to come in and make a contribution, as opposed to coming in expecting all this stuff and coming in with more of an entitlement mindset.

Case in point: Our CIO today is named Jared Benson. His first interaction with Koch was basically striping lines in our parking lot. He had no college degree whatsoever, but he found his way into Koch because he demonstrated that he knew a little bit about data science and could help us. This was about 20 years ago.

Ultimately, he came in and proved himself. He was running circles around a lot of the team—just a contribution mindset, adding value. He saw the cybersecurity risk and that wave coming, built a whole capability to protect us from cyberattacks, and now he’s CIO of the company. A guy with no college degree.

That kind of mindset, in terms of our talent vision, is someone who just wants to come in. They love the job and want to make a difference.

Do you actually codify these principles? Does everyone at the company have a handbook that lists them out? And then are they part of the assessment process for quarterly or annual reviews with people?

Yeah, obviously there’s the book, and this is his fifth book. It’s my first. There’s *Good Profit* and *The Science of Success*. We have our values.

Best book because of Jack.

Hey, Brian, the one we did is pretty good, too. Hooks will like that, right?

But yeah, no, there is a discipline. It really comes down to the leaders taking it seriously, and their first responsibility is to help their people.

I’m going to put my analyst hat on for a second. My observation would be—I would create a theory, and we could test the theory right now—that being in Wichita, being founder- or owner-operated, and having the ability to be isolated from a monoculture gives you an advantage.

I just feel like Silicon Valley has a lot of companies that replicate each other. You have to operate like everyone around you or you’re not part of the group. You have to fundraise in the right way and do these deals. You have to hire people this way. You have to do this sort of vesting schedule and this sort of equity structure. Everyone’s the same, and if you don’t, you’re kind of a weirdo.

But by being in Wichita, you don’t really have that problem. You can think your own way. You can challenge yourselves. You can debate. You can come up with your own principles without feeling like everyone else is conforming to the groups around you.

There are a bunch in Silicon Valley that are challenged, so they’re not all that way. Has it always been a competitive advantage? Did you ever think to move the headquarters to New York City?

No.

No, but the main thing is that we've never thought of that. Sorry about that. There are advantages to being in New York City. You have a great mayor now, so we're good to go. But anyway, that's a competitive advantage of ours.

But the main threat we've had is that I wanted to take us public. I said it would be over my dead body, and some of them thought that would be a good idea, just like they're thinking that about Trump. A lot of people still think that about me. I get a lot of nice notices of my imminent death.

They say, “Okay, your brother died. I know it's painful, but I hope it was slow and painful, and I hope Charles is even worse.” That's the kind of crap we get. But anyway, the biggest push has been for us to go public. “God, we'll be worth so much,” and stuff.

I think our view is that we never could have accomplished what we've accomplished. First of all, we never would have built a principle-based framework. And then we never would have been able to pull off this capability-bounded versus industry-bounded approach, because people don't understand it. If you're Buffett and you say that line, then people think, “Okay,” but he wasn't trying to integrate them the way we do. No one would believe it.

You've got to have a story that the analysts can understand. Otherwise, like Georgia-Pacific, we would have a low price-earnings ratio.

Being private and being in Wichita are competitive advantages. What about being owner-operated or founder-operated? There's this argument that the best Silicon Valley companies are those that are founder-led for as long as possible because the founders are willing to destroy the business creatively. They're willing to think about what's over the hill, make the tough decisions, reinvent the company, hire and fire as needed, and take the short-term financial loss for the long term.

Have you been able to distill that down into the organization? That's what most public companies that are not owner-operated deal with and struggle with: managers who are short-term incentivized and can't take the big risks and the risk of failure that you're able to embrace.

No, but I think it depends on the values of the owners. One of our principles is that any good partnership of any kind—whether it's marriage, friendship, employee, or partner—requires 3 things. It requires shared vision, shared values, and complementary capabilities that you use to make each other better. If you miss any 1 of those, you're not going to have a lasting, good partnership.

I remember I was at the YPO group in Wichita, presenting what we were doing and why. This was about 20 years ago. One of them said, “How do you get that to work in a private company?” I answered, “It's easier than in a public company, just like I did.” Then I thought about who it was, and he was talking about his father. His father was a total dictator, and there was no way he could apply any of these principles in that situation. So it all depends on who the owners are and what their values are.

Can a public CEO who doesn't have a big ownership stake in the company adopt these principles and transform the culture of that company?

If you can sell it like Buffett has. He wasn't doing these principles, but he had a different principle: “I'm going to buy companies. I'm not going to take top price, but what's meaningful to them is that they run it. So I'm going to buy it and let them run it.” That was his value that he sold, and it made him tremendously successful.

The other one was buying insurance companies, so he'd have a lot of liquidity to go do all these things. Those 2 things are what made him successful.

Right. Chase, I want to go back to you getting involved in the business. We didn't get into that, but how did you get started at Koch? Were you always a believer in the principles from a young age? Were you around the organization and around your dad?

I'm a chip off the old block, so it took me a while to come around.

No, this is the most remarkable transformation. I've been talking about him all evening. This is the primo.

Here we go. Unbelievable. Do I get to tell my story? The absolute bottom to the absolute top. He'll correct me.

No, he's blown me away. He's doing things I wouldn't even dream of or have the capability to do. So he'll correct me 10 times as I tell the story.

Well, because you're too damn humble. I didn't start when I was 6. I started when I was 15, so you cut me some slack. I was a pretty competitive tennis player.

He was nationally ranked. See the humility. He was nationally ranked.

At 15, I got burned out. Tennis is a typical story: I wanted to hang out with my friends and have a good time. I was tired of playing 6 hours a day, so I started throwing tennis matches intentionally to get out of these tournaments. I'd go home and party with my friends, and he said, “Look, your attitude is terrible. You can either give 100% on the tennis court and apply yourself, or I'm going to get you a job.”

I said, “I'm sick of tennis. I'm done with it.” He had my job figured out the next morning.

He thought he would get a nice, cushy job in Wichita so he could go out and party with his friends at night.

Yeah.

I may be old and slow, but I'm not that slow.

He was kicked out of a number of schools.

At night, but not last night.

A parallel-story movie that could be made.

Yeah, no, seriously. There really is. Basically, all my stuff was packed for me. It was thrown in the back of a truck, and 6 hours later I showed up at a feed yard. I lived in a single-wide trailer the whole summer with my boss. I slept on the floor, worked 7 days a week, shoveled cow manure, and dug post holes.

And the boils. I forgot about that. You were popping boils.

Manageable, yeah. Anyway, the interesting part of that story is that, even though I went from literally being a country-club rich kid to doing that within 24 hours, it was an absolute transformation for me. The fact that he made me do that—and I chose it, but I didn't know exactly what I was choosing—was meaningful.

After I was a month or 2 into the job, I started actually feeling better about myself. I hadn't really made a contribution up to that point in life. Then I was working with a team, getting paid minimum wage, working my tail off, and adding value, even though it was menial work.

This is where I go back to a letter that his father wrote to him and his other 3 brothers.

No, no, my older brother.

Yeah, your older brother, sorry. He was 3 months old when his father wrote it. The letter was basically, “When I pass on, you're going to get what seems to be a large sum of money. I hope you don't squander it, but I hope you actually apply yourself because I want you to feel the glorious feeling of accomplishment.”

It's a really amazing letter. That was the first time I felt that. I could have gone down the path of staying on the tennis circuit. I have no idea where I'd end up in life had I not gone down that path.

I basically worked every summer for Koch from that summer on. I worked in the gas liquids plant and in our refineries all the way through my junior year in college. I always had a Koch summer job.

That was an absolute transformation for him in his life. Let me give you one more credit here. He has great humor, which is great, but Chase has something different. I have this gift for abstractions. He's like his mother: he has a gift for people. He understands people and can relate to them.

He can go around like she can, or like Sterling Varner, who was our president in the early days. By the way, Sterling's father had run mules in an oil field camp, and Sterling was born in a tent. They damn near died. He never went to college, and whoever he met with wanted to do business with us.

That's the way Chase is. He goes around, meets these people, and all of a sudden they're friends and they want to do business. That's true for Stand Together, too. You go to people and think, “They don't want these capitalists or these free-enterprise people to do business with them,” and he gets them on our side and shows them the value of these principles.

Is that fair? Whatever you said.

That's my job. That's what I do: origination of partnerships. About the time I met you, that's when I started getting into technology and trying to build a new community so that we could get access to the most disruptive founders.

One quick story I want to tell, because I think it'll be helpful for your audience as well, that we haven't touched on yet, is the principle of comparative advantage. That's another meaningful, total shift in my job at Koch and my role at Koch, but also in my personal life.

It was when I was running the ag business. This was later on. We talked about the late 90s, the gas-to-bread spread, and all that. This was a separate business with Koch Fertilizer.

I spent 10 years in that business really understanding its operations. I worked in sales and marketing, accounting, finance—every piece of it—the trading, as well. I ran a lot of the smaller business units, but at one point my boss wanted to add a whole natural gas trading business to it. He said, “Hey, I want to put a parent company called Koch Ag & Energy Solutions around it, and I want you—I’m going to throw you the keys to the fertilizer business. You’re ready to run it.”

So, I was promoted to president of Koch Fertilizer. About 9 months in, I realized that I was not the guy for the job, and I walked into my boss’s office and fired myself. It was humiliating, especially being the boss’s son and thinking, “Oh my God, I’m a failure. I couldn’t make this work.” The business was still doing fine, but I wasn’t doing a good job as a leader, and I knew there was someone else who had the comparative advantage to be a great operator—a CEO or president-type role.

So, through all that, you could call it a failure in that job, I learned that I wasn’t an operator and I wasn’t a good optimization-type leader. I was a builder. All I wanted to do was go work on the innovation stuff. That was about the time I met you and learned about Climate Corporation and all that. I just wanted to focus on that and go build the stuff—the whole idea of creative destruction that would disrupt the core business I was running.

Understanding your comparative advantage—what you’re good at and what you’re not, relative to others who could be doing that job—was a huge deal. My hope was that it was also an example for other Koch leaders. If you’re not in the right job, you don’t have to fire yourself, but figure out where your power alley really is, where you can contribute and add the most value.

What was amazing about that experience for me, if you look at what happened after that, is that we got a great president to continue transforming the fertilizer business. It’s one of our most exciting businesses today, and we keep growing with it. That did better than it would have done had I stayed in the role.

All of this led to Koch Disruptive Technologies, which we talked about—a totally new innovation platform for Koch to see around corners. That one move made one large business much better and also created a whole new thing. I always think about this: We have 130,000 employees. What if everyone deeply understood the principle of comparative advantage and redesigned their role so they were truly in their power alley? What would the result be for the business if we could do that? You’re never going to be perfect, but that’s the vision that we have and how we apply it.

For the organization.

So, thinking about individuals, how do I self-actualize? How do I find my path of purpose, happiness, and success in life by leveraging these sorts of principles in a world that feels radically transforming and continuously constrained? I don’t have infinite flexibility. I’m not on the board of Koch, and I’m not on the board of the company I’m employed by. How do I find a path in this world? I do think many people today are struggling for that sense of purpose, that sense of identity, that sense of realizing their potential and feeling fulfillment in work today.

Well, that’s critical. We have 20-some thousand supervisors in the company, and this is one of their top jobs: making sure that each employee is in the right role. For example, they’re working hard and trying, and they’re doing well in part of the work and not in others. Rather than beating them up—“You’ve got to keep doing better”—there are certain things that, if you told me I had to do them, I would be a total failure.

I’m good at concepts, logic, and math. If you told me to go do something quite different, I’d be a total failure. You could whip me until I was a grease spot on the floor, and I couldn’t do better. The role of the supervisors is not to tell them, “Okay, your role is to go do this,” while they just try harder and harder, making themselves miserable so that they hate you and hate the company.

That’s how you empower them. That’s what Maslow said: If everyone has capability, and if you don’t develop it and apply it in a way that creates value for others, you may be successful monetarily or in some way, but you’ll be deeply unhappy your whole life because you won’t be fulfilling your nature.

People say, “Well, you’re 90. Why don’t you go lie on the beach?” I say, “What do you want me to do, die? I’d be dead in a week.”

It’s not your nature.

No, it’s not my nature. My nature is to use this gift. A lot of our people here may say, “Yeah, you’re damn right. You use it too damn much.”

What keeps most people from realizing their gift?

I think part of it is the education system. The schools need to be set up so that we’re going to help you find your gift, what you’re passionate about, and what motivates you. The whole system demotivates you, and that’s the way businesses are managed. You’re demotivated.

Our whole approach—that’s why we have 5 dimensions in the way we apply this—the first is vision. You’ve got to get the right vision: What capabilities are creating value for others? Then it’s virtue and talents; we’ve talked about that. Then it’s knowledge—that’s the Republic of Science, creative destruction, all those things. The final one is motivation.

That’s what we need to do. Joe Lamond has created the schools, and he says it’s 90% or 80% motivation. You have games and other things that the kids can do. They learn from them and enjoy doing them, so they want to do more.

I raised our kids with these principles, and I made them do it. I was piss-poor at applying my principles in teaching him this, but he’s doing it. He makes a game out of it. He has them reading the book and parts of it, and then they have competitions about who can do it better and who’s living up to this better—who’s applying this principle better. They’re loving it.

Yeah, I’m not having my kids listen to books on tape from Milton Friedman when they’re 10 years old.

No, Aristotle is the one that—

There are plenty of them. But let me just make a comment. You were told, suggested, or encouraged to listen to Aristotle on tape as a child?

Yeah. No, he wasn’t encouraged. We’d go Sunday evenings. Elizabeth and Chase and I would go over to my library, and I would play these tapes. I’d only play them for 10 minutes because I knew Chase’s attention span. Elizabeth was on it—boy, she was on it. She was getting straight As in everything, and Chase would fall asleep. After 10 minutes, I’d wake him up: “Okay, what was his point here?” I’d test him every 15 minutes.

And then you may have seen—where was it?—where you talked about how you worked together to do your Aristotle term paper.

Yes. And why don’t you tell that story?

Okay. We had a fifth-grade paper: Choose your philosopher and write about them. It had to be 500 words or whatever. I thought, “I don’t know—what philosopher am I going to write about?” He said, “You’re going to write about Aristotle, and we’re going to work together on it.”

I learned a hell of a lot about Aristotle in fifth grade. I turned in the paper, and the professor had red ink all over it and said, “F. You did not write this.” I thought, “Oh God, this is so embarrassing.” I took it back to him and told him, “Pop, we got an F on our paper.”

I didn’t think he was going to pick up the phone and call the teacher. He said, “Dr. Cohen, I’ll never forget this. I helped my son write this paper, and he learned a lot from it. Do you not want me to help my son? Do you not want parents to help their kids learn?” The teacher said, “You know, I think you have a point, Mr. Cohen.” The next day, I came back, and it had 99 written on the top.

See? I made a contribution.

Yeah. Let me go back to something I think you were getting at: How do you remove more barriers for more people? This is really the Stand Together story. You mentioned education, and I just want to use one example of how important we feel transforming education is. We also feel that it’s a movement with tremendous opportunity right now.

Our vision for education is to go from a teach-to-test model, with the teacher at the front of the classroom talking at kids, to one that’s based on individualized education. We all, as we talked about, learn differently.

Everyone learns differently.

And all of our kids learn differently as well. We did the research at Stand Together prior to COVID. Stand Together, for those who don't know, really comes from my father's efforts on social change, which he's been working on for 60 years.

Stand Together was created in 2003. We had the insight that we can do a lot more together versus doing it alone. If we operate in philanthropy and social change in silos, we're just not going to get the leverage to drive the change that we want to.

Stand Together is made up of close to 1,000 business leaders. It's just like the name describes: a community of business leaders who align on vision and values for where they want to see the country. It's really around this pretty simple idea that every human has a gift, but there are so many barriers across all of our institutions: education, a broken education system, a broken criminal justice system, bad policy holding people back so you can't chase the American dream and build a business.

All of these things, right? So we're very broad in terms of the issues that we focus on, but education is one of the biggest ones. I described the vision of where we're trying to help take it and be a catalyst for change.

One of the things we do is a lot of research on where public opinion is. Prior to COVID, roughly 20% of families were open to a new model of education. Very low, right? Then everyone saw during COVID how screwed up the system was, and they saw their kids come home and learn a hell of a lot more through YouTube learning than they actually did in the classroom.

Three or 4 years after COVID, you look at that same data and it's 70% to 80% of families who are open to completely transforming the education system, because everyone now understands that it's just broken.

We're supporting these amazing preferred partnerships, as my father described. One is Joe Lee Mott and what he's doing at the Alpha School: closing the motivation gap, meeting kids where they are, and bringing gamification and the principles of Fortnite into education in a way that makes kids excited. He's taking kids who are failing students to the top of the class in 3 months because he's meeting them where they are, solving the motivation gap, and making learning fun and cool.

Sal Khan did the same. He's a huge partner with Khan Academy. Another really interesting one that we partnered with the Walton family on is the Vela Fund, basically applying venture capital to education entrepreneurs.

Coming out of COVID, there were thousands of pissed-off parents and teachers who were fed up with the system. They said, "I'm just going to create my own school," creating these small microschools. With a relatively modest amount of money over the last 5–6 years, we've helped create and seed over 5,000 schools.

What's happening is there's this huge movement where people see that their kids are learning the skills of what the future is going to be like, not this teach-to-test model where you don't know how to interact with people. The reality is that it's project-based learning. They need to have exposure to these AI models. You don't ban them; you empower them with these models.

So it's one of the most exciting movements that I think Stand Together is really leading on. We need more partners who are willing to get behind this.

I want to go back, though, Charles. This work at Stand Together is taking off. I know a lot of people who are engaging with you, Chase, on this work. Everything you say is so sensible, and it always feels so obvious.

Can we go back to the work you've done historically in social change—what you got right and what you got wrong? The narrow view of the word “Koch” comes from a broad public perception of political activity that I think has been amplified, and the narrative has been written for you. I don't think I've personally seen a lot of public conversation from you about what you did and when, or how you were thinking about social change.

Maybe you can go back to the origins of the work you started to engage in and try to drive social change, and over time, what you got right and what you got wrong.

Well, it started with these principles. To me, the principles of human progress are what matter. But, as Frederick Douglass said, “I'll work with anyone to do right and no one to do wrong.” I was only working with the people who believed in all of these principles, and so we were limited.

I worked with the Libertarian Party, and that got so narrow. Then they started fighting over who had greater purity in these principles. It got into exactly that: one brilliant guy, but totally this way, said, “My libertarianism is this plumb line. Anybody who disagrees, I purge.”

It's almost like the Communist Party doing the same thing that Lenin did. They admired Lenin. He had the right strategy. Well, no, you can't go murder anybody that you don't like. It doesn't work for liberty; it works for totalitarianism.

Then I started reading Maslow's Eupsychian Management and his strategy. Viktor Frankl was the one who really got me going. Viktor Frankl had this tremendous insight. He said, “The problem today is ever more people have the means to live and no meaning to live for.”

If you can't find a path to a life of meaning—which comes from, as I said, finding your gift and using it to succeed by helping others succeed in a way that gives your life meaning—then you have 2 choices. You can either choose to go for power, or you can go for pleasure.

You see this today, and you see this throughout the history of the world. If you choose power, then you're always going to want more. You become addicted to power: “I want more power. I need more power.” We've seen that in our businesses, but you damn sure see that in politicians and in all the dictators in the world.

Then, if you've given up and say, “I've given up. I'm going to go for pleasure,” and you dedicate yourself to pleasure without considering the long-term consequences, then you're going to experience failure. You're also going to have a tendency to become an addict, become suicidal, and even engage in crime. We see both of these today.

The problem today is that when you have a world based on power and pleasure, it's a slippery slope to totalitarianism, authoritarianism, and socialism. That's what we're seeing today.

The solution is to help people find their gift and a way to apply it that enables them to succeed by helping others succeed. What does that mean? It means we all need to more fully live up to the promise in the Declaration of Independence and better apply these principles of human progress.

The other thing that I screwed up on is that, for the first 50 of the more than 60 years I've been at this, I avoided politics, or major-party politics. Being in the Libertarian Party, there was no thought of winning.

The only reason I got into that was, “Well, this is a time when people are listening. They're interested in politics, so we'll engage in that because people are talking. We'll throw that in the hopper in hopes it takes on.” But the way we did it, it didn't take on at all. It blew up in our face.

Then we decided we needed to get in because we desperately needed some principle-based policies. Look at all the policies that we have today. They're destructive. They're leading to more and more power and pleasure, socialism, and authoritarianism.

The mistake we made—or I made—was trying to do it through one party. You can't do that. Now we follow Frederick Douglass's advice: work with anyone to do right and no one to do wrong.

Where are we in the cycle? There's a rising number of political leaders around the country. Initially, it was in local elections, and now it's on the national stage, with people declaring themselves socialist or some form of socialist. Are we on an upswing, or what are—

What upswing? What are we talking about?

Is there a socialist—

Hell was down, not up. Yeah.

So, where are we?

I think if we continue this way, we're going to hell in a handbasket. It's what Thomas Jefferson said. He had slaves, but what he said about slavery was, “If God is just, I despair for the future of our country.”

That's kind of where I am. If God is just, I despair for the future of the country. Look at the people we're electing, both Republicans and Democrats, and the mistreatment—you look at what's being done. Occupational licensing, the way they're treating illegal immigrants, you name it, across the board.

The socialists, the way they're treating all the crime—all of that is what we've got to deal with. We've got to elect people who have some principles beyond power and pleasure.

What are your principles for changing people's minds?

It's what Chase says. We find them where they are, just like we have in the company, and we show them that this doesn't get results.

Now, if you're a dedicated communist, if you're like Trotsky—“If we can get rid of private property, we'll get rid of greed, and then every man will be a Goethe and a Beethoven, and we'll be able to create Eveready warehouses of all the goods, and everybody can go in because, out of their goodwill, they'll be making all this stuff”—then that's different.

If people still have those fantasies, it’s never worked in history.

This time. Yeah, that’s right. And so that’s what we’re trying to do at Stand Together. Dave, what we’ve learned is that to change minds and change paradigms, you show versus tell. Going back to what we were talking about before, bottom-up empowerment as opposed to top-down control—I think that’s an overarching umbrella principle on all of these.

Our whole thing with Stand Together, and I think why it’s growing exponentially, is that we have stories of people. We believe in people. We don’t need top-down authorities to come in and tell people how to solve problems.

That’s the book that Brian Hook said I wrote. We have a new edition based on the 250, and Martin Luther King the Third wrote a foreword to it. That’s another book besides this one. If you’re interested in the very ideas we’re talking about on social change, there’s much more in that than in this book, although we have quite a bit on this book.

One of the key concepts in that is that if you believe people aren’t the problems to be solved, the people who are in the problem are the ones with the best ideas, and they’re the source of the solution. That’s a totally different mindset, right? That’s what Stand Together does.

We talk about venture capital a lot. We bet on people who have found something that works. Let me give you a quick example: Scott Strode from The Phoenix. We found Scott, and his story is amazing. About 18 years ago, he had battled addiction most of his life. He had a mentor who put him in the gym, got him boxing gloves, and exercise was the thing that helped him kick his addiction.

What he did was say, “Well, if this helps me, I think I can help other people with this same concept.” He built a gym called The Phoenix, combining the power of community with others who were struggling with the same thing, multiplied by the power of exercise. He was getting insane results, with relapse rates below 10%.

So what we do is, instead of some top-down program to handle addiction, we bet on Scott. That’s what we’ve done over the last 7 or 8 years. When we met him, he had a couple of gyms in Colorado and was impacting a couple thousand people. He just hit 1 million people basically overcoming addiction in the last 18 years. That’s a movement, right?

I think that’s a key difference with Stand Together: How do you do what you’re talking about at scale and help people change paradigms? You show them, with stories like Scott, that we should believe in people and bet on them to transform society.

Addiction and crime—that resonates wholeheartedly. Let me ask about the economic condition of America. Kids are graduating college with hundreds of thousands of dollars in student loan debt. No one can afford to go to the doctor. Grocery bills are too high, and people are worried about paying for their next grocery bill.

You look at the polling data and the survey data, and the average American is really struggling. I think more than half of Americans—60-plus percent, maybe 63%—have negative equity. They have more debt than they have assets. Everything’s getting more expensive, and no one’s moving up the economic ladder. There’s no mobility anymore.

People are really struggling, and then they’re looking on TV and seeing spaceships launching into space, holding flowers out the window, smiling and laughing. It’s a really dark time, and it leads people down this path of, “I need the government to help me. I need support. I need help. I need to elect the people who will fix this for me.”

How do we address the economic crisis facing the average person in America, the lack of economic mobility, and the principles around these distraught situations? The principles are fantastic, but what about this fundamental economic crisis that we’re facing?

That’s a damn good question. It’s like—here’s the question: The eggs have been scrambled. It’s your job to unscramble them, right? So that’s the problem. Once you create these entitlements, you almost can never get rid of them. You almost need—well, maybe Argentina, if he can pull off what he’s doing, because they were in worse shape. But they went through it. Yeah.

Gone through it. Well, we’re—

Maybe we will.

Getting there. Well, let me ask a question: Does capitalism work long term? Let me give you an argument for why it might not.

The success at Koch Industries is built on an algorithm—your principles—and you’ve been able to adapt that algorithm and, as a result, scale your business, generate cash, reinvest that cash, generate more cash, reinvest that cash, and so on. You’ve scaled 9,000×. You’ve built a compounding advantage in your business.

Right. As is the case with all successful capitalists, you build a compounding advantage. The problem with compounding in any system is that it eventually eats all of whatever’s in the system, or it makes it hard for others to compete in that system or participate effectively in that system. That’s the argument being made today against capitalism.

How do we counter that idea and share that capitalism should be more accessible to all, that everyone can participate and everyone can benefit, and that it doesn’t end up in this monopolistic end state where no one can participate?

Well, it starts with removing the barriers. That’s what I said. We’ve got to work for a system where we remove the barriers that are holding people back from realizing their potential, finding their gifts, realizing their potential, and succeeding by contributing.

We should start with occupational licensing. There are hundreds and hundreds, as you know, of occupations where they make it so tough. All the local people who are in that business make it impossible for anybody who starts with nothing to do it.

And then the way we’re treating illegal immigrants: The ones here are working and contributing, and we harass them and are going to kick them out. No, we ought to welcome them and kick some of the others—the bad ones—out.

Some of this is basic. We’ve got to reward people who want to contribute. That’s why we keep— You’ve got to get people to be contribution-motivated. Then you’re going to have a life of meaning. That’s what Viktor Frankl was trying to tell us.

If we don’t, we’re going to fail. We’re failing because we’re taking away the chance for most people to have a life of meaning, because we’re setting up all these obstacles. I’m not picking on one party or the other. They’re both doing it.

And then they set up all these tariffs, which undermine the division of labor by comparative advantage, which makes everything more expensive. Everywhere you look, it’s a tragedy.

There’s a debate happening at this moment about regulating AI. How does AI become an enabler of self-actualization, giving every individual the capacity to develop themselves, accelerate, and succeed, versus making a fewer number of people even more wealthy and taking jobs away from the masses? What’s your view on where AI is taking us?

Well, it depends on how it’s done. That’s why we back Cosmos, which is backing people who do AI based on these principles of market-based management, by selling these principles of human progress.

Our approach to AI is the simple concept of permissionless innovation. The cost of AI to get it into people’s hands is dropping to an incredibly cheap level, so hopefully everyone can have access to it. Combine that with their gifts to unlock their potential and learn 10–100× faster. From an AI standpoint, that’s our mindset on it.

That’s what we’re doing internally at Koch as well. I think one of the most exciting innovations we have is all around human empowerment—back to bottom-up empowerment with principles. Not only are we trying to make sure that we have the right supervisors helping people understand their principles so they can apply them, but with the book, we’ve created an app.

I sent it to you, Dave. I don’t know if you played with it or not, but it’s called Principle Companion. You can download it in the App Store. It’s really taking off within Koch because it’s another way to engage with principles in a very simple way and meet people where they are.

Whether it’s ChatGPT or Claude, it can help solve a problem in 5–10 minutes that otherwise would have taken a long time. We’re basically powering it with the principles in the book for any problem. It’s one field: Whatever your problem is—in business, in philanthropy, if you run a sports team, or if you’re having problems with your kids—it helps you with that.

That’s just one example of how we’re trying to drive human empowerment. It doesn’t give you an answer. You can’t say, “I’ve got this problem. What’s the answer?” No, it asks you questions: “Okay, given that, have you thought about this? Have you thought about that?” It’s a Socratic method, and we know what happened to Socrates. So—

Okay. So listen, we’re going to need to wrap in a minute, but before we do, Chase, what was the experience like writing the book with your dad? What’s it like working with your dad?

Yeah.

There are a lot of ways I can go with this—lessons learned from that. I want to give you that chance.

Yeah, absolutely incredible. I’d say it’s probably the most important project that I’ve ever worked on. Being invited to write this book—and I’ve said to many people, I’ve learned more in the last 18 months than I probably have in the last 18 years, just because when you write something, the depth of learning and going back into the details of the stories, figuring out how to tell that story in a book in a way that connects with as many people as possible—is extraordinary. I always say you really don’t know something until you have to teach it, and writing a book is a form of trying to teach others with it.

I learned a tremendous amount because I got to be alongside this guy, and there were many others across Koch who contributed to this book as well. The other thing about doing this with him is that he applied the principles to the book-writing process. He’s so consistent in terms of applying principles to everything that it almost drives you nuts. Principles like openness and creative destruction.

He’s written 5 books; this is my first. But he wanted to drive creative destruction of his first 4. I think bringing me into it, bringing a fresh perspective, bringing technology to it, and telling stories in a different way—that’s an open mindset. He could have easily said, “Look, I’m the boss. I’ve done this before. What the hell do you know?” But he had that mindset and applied the principles to it.

I will say he’s such a stickler with words. You should talk to my mother about this and how it drives her effing nuts. I got an 18-month window of what it’s like to be Mom, maybe. We had 1 chapter in there on stewardship, and I think we’re on version 27 of it or something like that.

Yeah, I rewrote it a little bit.

I like Pop.

15 times myself.

Not applying the principle of marginal analysis. Version 26 was pretty damn good.

And so, good enough. Anyway, we had a lot of fun with it.

Yeah. Of course, there was tension in terms of how you’d write something or whatever, but overall, it was the most important project I’ve ever worked on.

Yeah, now words have meaning. People say, “The proof is in the pudding.” No, the proof of the pudding is in the eating. For God’s sake, that means nothing. “The proof is in the pudding”? What, you stuck your foot in it?

He corrects the co-leader on that in about every meeting before it ends.

Oh, and then I used to give grammar lessons in our Discovery Board.

What’s it like working with Chase? What’s it been like writing the book?

I thought he’d help some with the book and bring us a perspective on how to reach young people and do some things to improve it from his perspective, but he’s taken it to a whole other level. He’s brought in AI and had AI as a principal companion to the book, along with all of these things that are way beyond me. He’s taken it, as he has in everything, to a whole level beyond where I—

You’ve written a lot of books. You’ve built an unbelievable business, one of the greatest on Earth. You’ve engaged in extraordinary social and civic engagement. What do you want the legacy to be?

I want us—I want our country—to more fully live up to the promise in the Declaration of Independence.

Charles Koch, Chase Koch. Thank you.

I'm going all in.

[music]

I'm going all in.