On Christmas Day 1979, the four Koch brothers gathered in the wood-paneled dining room of their childhood home, where their mother had set the long table with lace placemats, gold-rimmed crystal wineglasses, and an arrangement of white poinsettias. Also at the table were Charles’s wife, Liz, and Joan Granlund, the ex-model who doubled as Bill’s secretary and live-in girlfriend.
Mary was hosting Christmas dinner, as was the family custom, and the Koch patriarch was never far from mind as he peered down from an oil painting on a nearby wall. Over the course of the evening, the festive mood evaporated thanks to Bill, who chose the occasion to unload years of emotional baggage.
Bill was Mary’s enfant terrible. As long as anyone could remember, he’d been excitable and tempestuous. He never outgrew the feeling of being slighted by Charles. Since joining the firm in 1974, he’d felt like the third and lesser wheel in the brotherly triumvirate that controlled Koch Industries. He brooded over his role within the company, as well as over how Mary, who had just turned seventy-two, planned to distribute her estate among her sons. As in his boyhood, Bill’s inner swirl of emotions whipped into a maelstrom with little warning. This storm had been building for some time.
Seated across from his mother, Bill vented a series of grievances.
Growing up, he had perceived Mary as cool and distant, more interested in society gatherings than child rearing. He now blamed her for laying the foundation for the emotional turmoil that had ebbed and flowed throughout his life. She had not loved him as she did his brothers; she had treated him unfairly. According to Charles, Bill also pressed her on the disposition of the family’s art collection. Their father had given Charles some paintings before his death; Bill insisted Mary “equalize” the brothers by leaving more of the art collection to him in her will.
“Billy,” Charles said, “just leave her alone.” Charles tried to calm his brother down. “I’m not going to fight you over any property, but just leave Mama alone.”
Bill laid into Charles, too, whom he faulted for running their father’s company like a dictator. Fred may have selected Charles as his successor, but Koch Industries belonged to all of them. One recent episode in particular had made Bill suspicious of his brother’s motives. That November, at Charles’s request, a company lawyer had presented Bill with a draft estate plan. It specified that on his death, Bill’s stock in Koch Industries would automatically be sold back to the company at a predetermined—and in Bill’s view, laughably discounted—price. Under the plan, the IRS might wipe out much of his wealth, while Koch Industries took control of his lucrative holdings. It was a plan designed to further the company’s interests, not his. Bill had no heirs yet (though he and Joan would later have a son), but he viewed the episode as symbolic of Charles’s controlling nature. His brother was trying to cheat him out of his birthright, even in death.
Mary struggled to hold back tears. The discord, occurring on one of the few occasions when the Kochs still gathered as a family, finally overcame her. Sobbing, she pushed back from the table and hurried from the room.
It was the last Christmas the Kochs spent together.
Bill lingered at MIT long after his brothers entered the working world, spending a leisurely eight years completing his doctoral work. He finally received his degree at age thirty-one. During that time, David had begun referring to his twin as “the student,” and Charles had started to wonder whether their wayward brother would ever enter the real world. “He had a country-club attitude,” David told an interviewer. “Boston was a wonderful place to be. Billy got distracted. He lost his direction.”
In 1968, as Bill completed his Ph.D., Charles began easing him into the family business, asking him to establish a small venture capital fund to both invest in high-tech start-ups and identify potential acquisitions for Koch Industries. MIT’s Cambridge campus, a hub of innovation, seemed an ideal perch from which to do this. But the endeavor was ultimately a bust, eventually bleeding $90,000, according to Charles. Mistakes and occasional bad investments were part of doing business, but what bothered Charles more was the feeling that Bill didn’t approach the project with the drive he expected from Koch employees. “Bill couldn’t get to work on time,” he said. “Couldn’t get himself out of bed.” In 1973, Charles shut down the operation.
Bill officially joined the family company, in 1974, as a salesman for a Wellesley, Massachusetts–based Koch subsidiary that specialized in buying and selling agricultural chemicals and other products in China. Affable and able to dial up the charm with customers, he displayed a talent for sales and deal making. In a complex transaction that impressed Charles and Koch Industries’ upper management, Bill, on his own initiative, engineered a deal to provide Louisiana natural gas to a Texas sulfur plant, and Texas sulfur to the company’s Chinese customers. The deal netted Koch $5 million. Charles soon promoted Bill to run the subsidiary. By 1976, Bill was running Koch Carbon, the company’s newly established mining and petroleum coke subsidiary.
Still, Bill’s style at times clashed with the aggressive, streamlined ethos that Charles cultivated. Koch had grown into a large company, but its success lay in the fact that it could still operate like a small one, without the layers of cumbersome bureaucracy that hindered its competitors. Where its rivals lumbered along, Koch moved swiftly and decisively. Part of this was because it was a private company and largely family owned, meaning deals and strategic decisions didn’t require a laborious board approval process.
Like Charles, Bill was highly analytical. But in meticulously studying every facet of an issue, Koch executives felt he could waffle. He sought the opinions of high-priced consultants, commissioned studies, and snowed Koch managers in with reports and memoranda. He asked endless questions, many of them astute, but to what end? At Koch, it was results that mattered. Profits. And under Bill’s leadership, according to Charles, Koch Carbon did not fare well.
Bill nevertheless pressed for more and more responsibility, petitioning Charles to elevate him to vice president for corporate development in charge of identifying strategic acquisitions. “Bill was never happy running a division,” Sterling Varner, who’d risen to company president, once observed. “He wanted to get more involved in the overall management of the company.”
William Hanna, the Koch Industries executive to whom Bill reported (and who later succeeded Varner), noted: “It was important for Bill to be important.”
Charles reluctantly gave Bill the promotion, despite doubts about whether he deserved it. Once in his new position, Bill pushed for more, requesting a large budget and a sizable staff to analyze potential deals. “He wanted unilateral authority to spend $25 million a year investing in acquisitions and other deals of his choice,” David recalled. “And Charles and Sterling felt, as I did, that this was way too excessive. He hadn’t proved that he could manage investments of that magnitude properly.” As part of his new position, which hadn’t existed at the company previously, Bill also requested to undertake evaluations of Koch business units in order to identify their strengths and weaknesses.
Ahead of a March 1980 board meeting, Bill flew in from his home in Massachusetts to plead his case to Charles. The evaluations seemed to Charles like a surefire morale killer—his managers would feel as if they were being second-guessed. Charles’s management philosophy centered on investing his employees with as much decision-making authority as they could handle and letting the results speak for themselves. Charles considered the acquisition budget Bill proposed overkill. He told Bill he couldn’t endorse the proposal and urged his brother to start small, go slow: “We don’t want to go out and acquire the world.”
But when the board meeting arrived, Bill bypassed Charles, handing out bound copies of his proposal and appealing directly to the company’s seven directors, which in addition to the three Koch brothers, included Sterling Varner; Tom Carey, the company’s chief financial officer; Texas oilman J. Howard Marshall II, who’d helped Charles gain control of the Great Northern Oil Company; and Fred Koch’s cousin Marjorie Simmons Gray, the daughter of L. B. Simmons, whose Oklahoma-based refinery and pipeline Fred had acquired in 1946.
The directors were dubious of Bill’s proposal and ultimately sided with Charles. Struggling to persuade them, Bill grew more and more distraught. David, who was in town from New York for the board meeting, recalled him beginning to sob; he cringed at the sight of his brother embarrassing himself. “He was very upset, and I thought he presented his case tremendously badly,” David said.
Bill’s behavior concerned David, and after the meeting ended, he pulled his twin aside.
“Bill, you didn’t handle that at all well,” David said.
By then Bill had regained his composure. “Yeah, I was too emotional, I agree with you,” he responded, according to David. “I just didn’t do a good job. My emotions carried me away.”
By college, the boyhood animosities between Bill and Charles had largely dissipated. Or so Charles thought. Beginning in late 1979 and continuing through 1980, tensions between the brothers built, then built some more until relations between them were worse than ever. Bill was openly dismissive of Charles in front of David and, worse, other Koch employees. Behind his back, Bill referred to him as “Prince Charles” and derisively compared his stewardship of Koch to a member of royalty lording over his court and kingdom. Over dinner at Boston’s Algonquin Club with David and Wichita real estate developer and family friend George Ablah in early 1980, Bill trashed Charles. The Kochs had recently joined with Ablah in a $195-million deal to purchase Chrysler’s real estate holdings. As the three men sat beneath the pewter chandelier in the dining room of the McKim, Mead & White clubhouse, Bill commented that Koch had a reputation for screwing over its business partners, David recalled. David was outraged. “You’ve got to retract that statement,” he said.
Bill was not terribly discreet. Nor did he seem to care. Word of his belligerent comments soon got back to Charles, who in late April 1980 angrily scrawled out a note to his brother: “What is the purpose of these attacks on me? I hear from all over the country that you’re constantly criticizing me.” Lately, Charles went on, Bill had gone out of his way to criticize his management during reports to the board and his memos carried “accusatory” undertones. Charles warned his brother that he was on a “destructive” path. “Whatever I’ve done to make you so bitter toward me is in the past,” he wrote, adding that if the brothers could not work together “in friendship,” they should at least do so “civilly.”
Bill’s criticisms of Charles—intemperate as they could sometimes be—were not merely rooted in sour grapes or in a bitter sibling rivalry. Bill and other Koch Industries shareholders had developed some legitimate worries about the direction the company had taken under Charles’s management.
Koch’s record of growth was unassailable. That wasn’t the issue. What concerned Bill and other shareholders was the company’s increasing run-ins with the government. Lately Koch Industries had managed to run afoul of agencies ranging from the Department of Energy to the Internal Revenue Service. The company faced not just civil penalties, but criminal prosecution.
In early 1980, the Justice Department empaneled a federal grand jury to investigate whether Koch Industries and a half-dozen employees of Koch’s oil exploration division, based in Denver, had conspired to rig a Bureau of Land Management lottery for federal oil and gas leases. By June, the grand jury had returned criminal indictments against Koch Industries and its employees.
The Department of Energy, meanwhile, was auditing Koch (along with other oil and gas companies) for violating federal controls on the price of oil and overcharging customers. In the worst-case scenario, the company’s top accountant confided to Bill, Koch could be liable for more than $1 billion. Perhaps enough to sink the company. (Just a few years earlier, federal regulators had accused Koch of overcharging on sales of propane by $10 million.)
Bill initially supported Charles’s libertarian projects, but he had grown troubled by the increasing amounts of company money Charles diverted to his “libertarian revolution causes”—causes Bill now considered loony.
“No shareholders had any influence over how the company was being run and large contributions and corporate assets were being used to further the political philosophy of one man,” Bill said later.
Charles’s activism had drawn unwanted attention to the company and the family. Their father had loathed publicity, scrupulously guarding the family’s privacy, especially after his John Birch Society involvement landed his name in the paper. Now that Charles had coaxed David into running as the Libertarian Party’s vice presidential candidate, the family was in the media spotlight as never before.
Bill and other Koch shareholders—who by now included Marjorie Simmons Gray’s daughters, second cousins to the Koch brothers, and the two sons of J. Howard Marshall II—also had concerns about liquidity. Bill was one of the richest men in America, worth hundreds of millions of dollars. But only on paper. He had needed to borrow money to buy a mansion in the tony town of Dover, on Massachusetts’s South Shore, which seemed ludicrous given the scale of his wealth. Nearly all of his net worth was locked up in a closely held, private company. Unlike a publicly traded company, the market value of Koch stock was opaque and there were strict rules over to whom the shares could be sold. If any of Koch’s shareholders wanted to cash in their holdings, they would likely be forced to do so at an extreme discount.
Koch shares did pay a dividend (about 6 percent of the company’s earnings), but Bill considered it stingy. The growth-obsessed operating style of Charles and his right-hand man, Sterling Varner, called for plowing almost all of Koch Industries’ earnings back into the company. “That was our religion… to make things grow… to push, push, push,” according to Varner. This strategy expanded Koch Industries, though not the bank accounts of its shareholders, at least not immediately.
Bill’s brothers, meanwhile, considered his appetite for money “insatiable.” He earned nearly $4 million in annual dividends and another $1 million in salary and bonuses—how much was enough? To Bill’s mind, though, what was the point of being filthy rich if you couldn’t enjoy it? He had other interests he wanted to pursue outside the firm: art, fine wine, yachting. And he wasn’t getting any younger. In May 1980, he had turned forty.
Frustrated with his role at Koch and the paltry dividends he received—and frightened by the government investigations looming ominously over the company—Bill began furtively meeting with Koch shareholders, including the Marshall brothers, Pierce and Howard III, to discuss the liquidity problem and other issues of concern. Some of them, it turned out, shared his frustrations. The most obvious solution was taking the company public. But Charles vehemently opposed this option. (Koch Industries would go public “literally over my dead body,” he later emphasized.) He preferred keeping a tight rein on Koch; the last thing he wanted was more oversight and interference from government bureaucrats. When Bill raised the possibility of going public with Koch’s top lawyer, Don Cordes, he immediately shot the idea down. “This should never be a public company. If this were a public company, all the officers and directors would be in jail,” Cordes told him without elaborating, according to Bill.
Charles had maintained that the oil-lottery-rigging mess which resulted in criminal charges and fines for the company and three employees was the fault of a few bad apples working in the company’s Denver office. But knowing that his brother kept close tabs on every aspect of the business, Bill wondered whether Charles—and perhaps even Sterling Varner—had known about the illegal activities that had led to the charges. (His suspicions were never proven.)
On Thursday, July 3, 1980, an eleven-page single-spaced letter landed on Charles’s desk. He had learned to greet Bill’s frequent, overheated missives with a mixture of dread, annoyance, and mild anxiety. His blood pressure rose as he read. This wasn’t a memo. It was an indictment that blasted Charles on everything from his supposedly autocratic management style to his libertarian activism and his role in pushing David’s vice presidential candidacy. Though the letter was addressed solely to Charles, he soon discovered that Bill had circulated it to some of the shareholders. Bill had taken Charles to task on several fronts—his lack of concern about regulatory violations and his insensitivity to shareholders’ demands for dividends, among them.
Bill accused Charles of keeping the board in the dark about key corporate matters, including “the pricing policies and activities” that “resulted in the government alleging both civil and criminal violations” of wage and price control regulations. “As a result… the directors and the shareholders must look on helplessly as the corporation’s good name is dragged through the mud by one set of indictments and is threatened by more such actions.”
Bill delved into the “extremely frustrating” liquidity issue, complaining that it was “absurd” that shareholders who were “extremely wealthy on paper” had almost no ability to utilize their assets. “What is the purpose of having wealth if you cannot do anything with it, especially when under our present tax laws on death they will undoubtedly end up in the hands of the government and politicians?” he asked. Bill accused Charles of “creating Koch Industries as a monument to business success” and neglecting the “desires of the shareholders” in the process.
Then he threw down the gauntlet. “Since I’m not alone in these concerns, failure to solve them… will be destructive to everyone concerned. Indeed if they are not solved, the company will probably have to be sold or taken public.”
The memo Charles held incredulously in his hands was nothing short of a declaration of war.
Six days later, on July 9, 1980, Charles took his customary place at the head of the long, polished table in Koch Industries’ conference room. A large world map, pinpointing the locations of Koch’s global operations, hung on the wall behind him. As usual, David sat to Charles’s right, and Sterling Varner to his left.
Charles was not someone who allowed his emotions to color his judgment. He was better known for his inscrutable impassiveness. But that afternoon, as the directors gathered for a board meeting, he was visibly angry. Charles had added a last-minute item to the agenda: “W.I.K. Has Leveled Serious Charges.”
Once the seven directors had assembled, Charles explained that Bill’s letter had finally convinced him that his brother’s behavior and allegations were so serious that they needed to be addressed by the full board. To Charles, Bill’s continued attacks and behind-the-scenes rabble-rousing posed a mortal threat to the company, perhaps the most serious peril it had faced since their father had fended off Universal Oil Products and the oil majors.
During the contentious four-hour meeting, the CEO went point by point through Bill’s memo, eventually coming out with his suspicions: He accused his brother of angling for his job, or possibly Sterling Varner’s. Charles ultimately unveiled a resolution giving him the authority to terminate Bill from the company, should he continue to attack the management and cause unrest.
“Charles Koch is the boss and will always be so long as he’s the chairman, and he won’t hesitate to run anyone off—anyone off—if that’s indicated,” Varner told the board. Varner had received complaints from middle managers, who felt Bill meddled in aspects of the business outside of his purview and expressed alarm at his hostility toward Charles. “You can’t refer to the management group, Bill, as the prince and his court,” Varner chastised. “Middle management thinks you are unfair to Charles, and they are upset. They like you, but they can’t figure out what you’re up to.”
Marjorie Simmons Gray, their father’s cousin, spoke up. The in-fighting had gotten out of hand, she said, urging Charles to table the resolution. “I don’t believe I have misread Bill’s intention,” she said. “He’s got the company’s best interest at heart.” Gray said that a mountain had been made out of a molehill, that past hostilities should be forgotten and forgiven, and that everyone should go on working for the company.
J. Howard Marshall II, a lawyer by training who prided himself on his skills as a mediator, also implored Charles to back off. Sometimes family blowups, he said, were beneficial, resulting in better relationships once the air was cleared.
Charles relented. He would allow Bill to stay on at the company under one condition. Bill would have to formally pledge to discontinue his attacks and to cease fomenting dissent among the shareholders. “I said I would live up to the rules of the corporation, but I would not give up my rights as a shareholder and as an individual,” Bill recalled. Charles, for his part, agreed to convene a committee to explore liquidity concerns.
Watching the escalating strife between Bill and Charles anguished David. The last thing he wanted was for Bill to be cast out of the company. He just wanted his brother to keep himself in check, to stop stirring up trouble and antagonizing Charles.
Following the board meeting, David felt a temporary sense of relief, even optimism. It had been tense, but the issues were now all out on the table. He thought “progress had been made in clearing up these harsh feelings, that we were back on the same page, and that Billy would continue to work in the company and make contributions, and that it was a very healthy experience to have opened up and discussed all these things very frankly.”
Bill, however, came away with a different feeling. He was as uneasy as ever about Koch Industries and his future there. He didn’t trust Charles. And he had no intention of backing down.
By the following month, Bill was back to jousting with Charles, writing in an August 18 letter, “If you have irrevocably decided that you cannot tolerate me in the company simply because I disagreed with some of your management practices, then you should directly and forthrightly state it to me personally, man to man and brother to brother… rather than to fire me on the grounds that I may be disloyal.…” He told Charles that under no conditions would he be “subservient to somebody else’s autocratic desires.”
In August and September, Charles dispatched emissaries, including Varner, to test the waters with Bill on whether he might consider selling his Koch shares. Bill declined. During the summer and into the fall, he had quietly lined up a coalition among Koch’s small circle of shareholders who agreed that the company’s board should expand from seven to nine members in order to more accurately reflect their full spectrum of interests. “Corporate democracy,” Bill called it. He had argued in his July letter to Charles that the board should take a “stronger and… more active role” in the management of the company, and this would be their mechanism for doing so. His allies included the Simmons clan. These cousins held a sizable 13.1 percent bloc of Koch voting shares. Also in Bill’s corner was J. Howard Marshall’s eldest son, J. Howard Marshall III, who owned 4.1 percent of the company. When Marshall’s sons had married, their father had gifted them the bulk of his prized Koch stock—what the elderly businessman referred to as the “family jewels.”
Most important, Bill had persuaded his oldest brother, Frederick, to back his cause. Though partially disinherited by their father, a slight whose sting never truly went away, he still owned 14.2 percent of the company. Next to his brothers, who held 20.7 percent apiece, Frederick was the largest shareholder. Armed with Frederick’s shares, Bill’s consortium would technically control a little more than 52 percent of Koch Industries, enough to push through whatever changes they wished. Charles and David, meanwhile, together held 41.4 percent of the company’s stock; Pierce Marshall and his father owned 4.5 percent; and Sterling Varner and other veteran employees controlled 2 percent of the company’s shares. That brought the combined holdings of Charles’s loyalists to a little under 48 percent.
Though Frederick’s stake in Koch Industries entitled him to representation on the board, he had never exercised this right. The extent of his involvement with the company consisted of attending a handful of shareholder meetings in the early 1970s.
Frederick, who was already away at boarding school when his siblings were growing up, was perhaps closest with Bill, with whom he shared a love of fine art. The two were logical allies. Frederick had his own tensions with Charles. His younger brother’s attempt to buy him out of the company after their father’s death had angered him. And when that effort failed, Bill alleged, Charles later resorted to more devious means—what Bill described as a homosexual blackmail attempt to force Frederick to sell his shares, a charge Charles has denied. (“Charles’ ‘homosexual blackmail’ to get control of my shares did not succeed for the simple reason that I am not homosexual,” Frederick said.)
Like Bill, Frederick’s lack of control over his wealth—all of it tied up in Koch Industries shares—frustrated him. He had ambitions as a collector of art and antiques, and as a patron of the theater. Frederick strongly favored taking the company public in order to unlock their assets.
Bill’s coup attempt, which had evolved over the months, hinged on calling a special shareholders meeting, its purpose to both expand the board and elect a new slate of directors, a move that would require first dissolving the existing board. Together, Bill and his alliance controlled a small majority of Koch stock and enough votes to elect five directors. Since Charles refused to accede to shareholder wishes, they would have to force his hand. Taking over the board would give them control over the direction of the company; they could marshal their influence to take the company public, raise dividends, or make whatever other strategic (or management) changes they desired.
They had agreed to vote their shares to elect Bill, Marjorie Simmons Gray, J. Howard Marshall III, Frederick’s longtime lawyer S. Hazard Gillespie, and Jimmy Linn, a prominent Oklahoma City attorney who was also Marjorie Simmons Gray’s son-in-law. Charles and David and their backers would possess the votes to elect four board members. Charles and David were a given, but the chances were good that in this shake-up, J. Howard Marshall II, who had passed the majority of his shares down to his sons, might lose his seat, while Sterling Varner and Koch’s chief financial officer, Tom Carey, retained theirs.
Sensing dissension—though unaware of any plans afoot to expand the board—Charles circulated a strongly worded, four-and-a-half-page letter to shareholders on November 18, 1980, less than three weeks before Bill and his faction planned to convene their meeting. “My primary effort has been and will continue to be to assure the ongoing profitability and growth of the company,” he wrote. “Some have alluded to this objective as a desire to build a monument to Charles Koch, but this is an unfair assertion and reflects a lack of understanding of economics and human nature. A company cannot remain viable if its management objectives are confined to staying even.”
Failing to follow a growth-oriented mission, Charles noted, would make it impossible to retain and recruit top talent and doom the company in the long run. “That, in any event, is my firm conviction, and it is a conviction I will continue to follow.” He warned that he would “resist any efforts to impede our efficiency by the imposition of any… bureaucratic committee or board structure.”
Bill, meanwhile, had called the First National Bank of Wichita, which administered his and Frederick’s trusts. He requested proxies to vote the Koch Industries shares held in trust. After swearing a bank official to secrecy, Bill explained that he wanted to call a stockholders meeting in order to elect a board that would more accurately represent the interests of shareholders. He described his brother’s maddening obstinacy and failure to address shareholder desires. To underscore his point, he told the banker a parable involving a farmer and his prize mule.
“He couldn’t train him because the mule would never listen to him,” Bill explained, “so he took him to the best mule trainer in the world and negotiated a price with the mule trainer to train him, and the price came up to be $1,000. And the farmer said, ‘My God, $1,000. Hell, the mule is only worth $5,000.’ He said, ‘Well, I’m the best in the world.’ So, he paid it. First thing the mule trainer did was to pick up a two by four and swat that mule by the side of the head. And the farmer said, ‘What the hell did you do that for? That is a prize mule. You hurt it.’ The mule trainer said, ‘If I’m going to train him, I got to get his attention.’ ” The implication was clear: Charles needed a blow to the head for the good of Koch Industries.
On November 25, 1980, as dusk spilled across the plains surrounding Koch’s Wichita headquarters, Bill stepped into Charles’s office. It was the Tuesday before Thanksgiving and the brothers had scheduled a meeting to discuss liquidity, but Bill had other matters on his mind. He told Charles that he and other stockholders wanted him to call a special shareholders meeting to, among other things, discuss Bill’s role in the company.
Charles was stunned. “You’re embarking on a program that’s going to destroy the company,” he seethed. “You’re out for revenge against me. You won’t get your self-respect from attacking me. You and the shareholders should be cheering on what I’ve done for the company instead of complaining.”
“Charles, let’s talk about what we want to do here.”
Charles laughed sarcastically. “Billy, you’re the type of person that if the bullet is ricocheting around the room and I say duck, you want to debate the merits of the bullet.”
“Charles, all I want to talk to you about is how to improve the company.”
“Well, Billy, you hate me, you’re out to get me.”
“No, Charles, that’s not true.”
There was no sense forestalling the inevitable. If Charles and Bill could not get along as brothers, how could they continue on as business partners?
“We need a divorce,” Charles said finally. They would have to divide the company, or one brother would need to buy out the other.
“Well, Charles, if you’re not going to call the meeting, then I’ll call it,” Bill said. He walked out of Charles’s office, leaving the shell-shocked CEO to fume and fret.
“One piece of advice my father gave me was that, ‘If you want someone to hate you, make him a lot of money,’ ” Charles reflected later. “I didn’t understand it at the time. I understand it now.”
As Charles anxiously spent the holiday in Wichita with his family, David celebrated Thanksgiving in New York with Frederick, dining in the tenants-only restaurant located off the lobby in Frederick’s residence at 825 Fifth Avenue. The prewar co-op, designed in the 1920s by J. E. R. Carpenter, was one of the jewels of Fifth Avenue. It had a striking double-gabled roof of red terra-cotta tile, and a roster of upper-crust tenants.
David lived in a U.N. Plaza duplex overlooking the East River, perhaps a ten-minute cab ride from Frederick, but the brothers tended to see each other only when their mother visited. Today, however, David had an agenda. Charles had told him about his conversation with Bill, and the possibility that their brother might call a shareholders meeting. He wanted to gauge where Frederick stood.
David turned up at Frederick’s apartment 40 minutes early, before the other guests had arrived, and he filled him in on the recent strife between Bill and Charles. He incorrectly assumed his eldest brother was in the dark about developments at their family company. “Fred listened attentively,” David recalled, “and I thought I was educating him for the first time about what was happening.… Obviously, I was very naïve.” According to Frederick, he remained quiet because “at this point in time William had asked that I not reveal my reaction to the proxy fight.”
Charles had told David to keep an eye out for a letter announcing a shareholders meeting, and David fished it out of the mail at his office the Friday after Thanksgiving. “Enclosed is a notice for a special stockholders meeting of Koch Industries that a number of Koch stockholders are calling to consider increasing the Board of Directors of Koch Industries to nine members…” the cover letter read. “This broader representation will be important in making decisions on stockholder liquidity and dividend issues which will be decided by the board.”
David phoned Charles in Wichita, reading him sections of the letter in disbelief. Bill’s name was on the announcement. Even more alarming, so was Frederick’s. David had spent hours with his oldest brother the previous day; Frederick had played dumb, never mentioning the plan they had set in motion. It seemed plain to Charles and David that a hostile takeover attempt was under way and that Bill might be angling to oust Charles.
When he hung up with Charles, David phoned Frederick. “I got this notice, Freddie, what’s going on?”
“Well, I think it’s time for a change in management of Koch Industries,” Frederick responded.
“Why do you want to fire Charles? He’s done a great job.”
“Well,” Frederick said, “are you surprised?” It was no secret that Frederick and Charles disliked one another. (Frederick would later say that the goal was not to remove Charles as CEO, but as board chairman.)
On Saturday, David tracked down Bill, who was spending the weekend in Oklahoma City with members of the Simmons family.
“Are you going to fire Charles?” David demanded when Bill came on the line.
“No we’re not,” Bill said. “We have no intentions to.”
David didn’t buy it. “You’re lying,” he said. “You’re no brother of mine. I never want to have anything to do with you again.” He slammed down the phone.
That day, Charles heard from J. Howard Marshall II. The elderly oil tycoon, then seventy-five, had been friends with Fred Koch and was fiercely loyal to Charles. Marshall considered his decision to swap his interest in Great Northern Oil for Koch stock “either the smartest or the luckiest thing I ever did, and maybe a combination of both. It turned out to be the best deal I ever made.”
Earlier in the week, when Charles informed him of Bill’s machinations, Marshall had reassured Koch’s worried CEO that neither of his sons, who together controlled a little over 8 percent of the company stock, would be involved; they’d never cross their father. By Saturday of Thanksgiving weekend, Marshall, however, was shocked to learn that this was precisely what his elder son, Howard III, intended to do. When Marshall finally spoke to his son, who confirmed his role in the unfolding proxy fight, Howard II pleaded with him, making “a case based on family obligation and loyalty,” but Howard III remained committed to Bill’s plan.
“What do we do now?” Charles asked after Marshall had explained the situation.
“Well,” Marshall said, “there’s one thing that Howard III understands, and that’s money.” Marshall would attempt to buy his stock back from his son. Without Howard III’s small, yet decisive, percentage of voting stock, the dissident shareholders would lack the shares necessary to ram through the changes to the board they desired.
The next day, Sunday, Charles and Koch’s general counsel Don Cordes flew from Wichita to Houston, where they picked up Howard Marshall, and continued on to Los Angeles, to present an offer to Howard III. It was less than a week before Bill’s shareholder meeting was scheduled to commence, on Friday, December 5.
“I’m going to offer Howard III $8 million, take it or leave it,” Marshall said as they were en route.
When Bill learned of Marshall’s offer to his son, he offered to double it. A few agonizing days passed in Los Angeles, as Howard III pondered his next move—selling out to his dad or going against him. He had underestimated his father’s reaction to the shareholder insurrection. The prospect that his son might betray Charles had brought the old man to tears. Marshall looked so frail as he laid out an $8 million cashier’s check in front of his son. It was as if the dispute was sapping the very life force out of him.
Family loyalty eventually won out. Howard III rejected Bill’s offer. He accompanied Marshall Senior and Koch’s lawyer, Don Cordes, to his bank, where he relinquished his Koch shares, stored in a safety-deposit box. The balance of power had abruptly shifted: With the Marshall family’s shares, along with a small amount of stock owned by longtime Koch Industries executives, Charles controlled 51 percent of the company.
With Bill’s rebellion falling apart, he called off the shareholders meeting scheduled for that Friday. But Koch’s board did convene that day: its purpose to decide Bill’s fate. He’d crossed a line. His scheming had sparked a wildfire of panic among Koch employees. Bill had lost the trust of Koch’s senior managers. How could he continue on with the company’s employees wondering what he might do next?
Charles had wanted to fire Bill that summer. The narrowly averted putsch confirmed to him that he shouldn’t have relented. Charles entrusted Varner, with his gentle though direct manner, with the task of convincing Bill to resign quietly. But Bill refused, forcing Varner to make a formal motion to the board calling for his ouster. In the dark-paneled boardroom, one by one four hands went up.
But David’s wasn’t among them.
Over the past year, David had been torn apart, between loyalty to his twin and fealty to his older brother. He was furious with Bill for throwing the company into turmoil; in a surge of anger he had even told his brother that he wanted nothing to do with him. But that wasn’t true. David wanted desperately to maintain a connection to Bill. Charles, in raising his hand in support of Bill’s firing, had made a choice not just to excommunicate his brother from the company, but to sever him from his life. David couldn’t bring himself to do the same, and thankfully he didn’t need to. The vote carried without him taking sides.
The following week, on December 10, Koch’s general counsel met with members of the dissident shareholders group at the Oklahoma City law offices of Jimmy Linn to begin negotiations between the opposing factions. Cordes floated an offer to buy out the dissidents at $140 a share (which would have made Bill’s stake worth about $329 million). He also delivered a warning—or was it a threat? He cautioned that Bill and his shareholder allies should steer clear of Wichita. The dissidents had stirred up such hostilities, the lawyer said, that their safety could not be guaranteed.
As Christmas 1980 approached, Bill sent gifts to his niece and nephew, Elizabeth and Chase, who were then five and three, respectively. Even this seemingly harmless gesture filled Charles with suspicion. He sent the presents back. When Bill called his brother to wish him a Merry Christmas, Charles refused to come to the phone. Mary, as usual, had invited her sons to spend the holidays in Wichita, but Charles told his mother that he and his family would not attend Christmas dinner at her home if Bill and Frederick were there. Because of the discord, Mary told Bill and Frederick not to come home for Christmas. (Frederick doesn’t recall being disinvited. If the brothers “chose not to come, the decision was theirs.”)
Bill’s efforts to assert himself had failed spectacularly. If he had felt like an outcast before, now he truly was the family’s black sheep. Since childhood, when Fred and Mary Koch sent their tantrum-prone son to a psychologist to get over his intense resentment of Charles, Bill had periodically lapsed into deep depressions. But the six months after his firing from Koch were among his darkest. Cloistered in his Dover, Massachusetts, mansion, he spent his days plotting with his lawyers and vegetating in front of the television. “This was the worst time I’d ever seen him in his life,” David recalled. “He was almost paralyzed, almost lifeless.”
David tried to help his brother get back on his feet. In late 1981, Bill and his girlfriend Joan urged him to visit a Boston psychiatrist they’d been seeing; they believed this would help to improve communication between the twins. David, who made weekly business trips to Massachusetts, warily obliged.
The experience was surreal. The psychiatrist “spoke for about an hour and a half on why I needed psychiatric care,” David remembered. Growing angry that he had been lured to the psychiatrist’s office under false pretenses, David finally forced the conversation back to Bill. “I asked a number of questions… to the psychiatrist and one was why was Billy so angry and nasty to our mother and made her cry all the time, upset her so much, and he said, ‘Well, that’s a very positive sign because people with your brother’s problems have to climb out of their depression on the backs of the people they love the most.’… I asked him about why Billy… started this fight to get control of Koch Industries and he said, ‘Well, Billy has a secret desire to fail’ and that he knew that when he started this fight with Charles that he couldn’t win. I asked the doctor what I could do to help my brother and get him out of this depression and terribly unhappy state that he was in, and he said, ‘… there is nothing that you can do… until you straighten yourself out.’ ”
David left the two-and-a-half-hour session deeply shaken, and with the suspicion that this shrink had prodded Bill to take a stand against Charles. The experience shocked him so much that he wrote everything down. According to David, when he spoke to Bill a few days later, Bill reported that the psychiatrist had told him that his twin was “totally under the control of Charles.”
Back at Koch Industries, Bill’s firing had removed one threat to Charles’s hegemony. But Bill, Frederick, and the dissident shareholders (all of them family members) still controlled nearly half of the company. Like his father, Charles demanded loyalty from his business associates and employees, and he couldn’t pursue his plans for Koch Industries always looking over his shoulder for the next coup attempt by malcontented stockholders. The company and the dissidents needed a “divorce,” as Charles had put it. And it would be a messy one.
All options were now on the table, including taking the company public. In early 1981, Koch entered preliminary merger talks with Kerr-McGee, a publicly traded oil and gas company. The deal would have exchanged Koch shares for Kerr holdings, solving shareholder liquidity problems. But the companies could not reach any middle ground on a valuation of Koch.
Meanwhile, Koch hired Morgan Stanley and Lehman Brothers to conduct parallel valuations of the company. Both investment banks determined that Koch shares should fetch in the vicinity of $160 a share, a price Bill (who stood to net about $376 million) and his allies deemed far too low. Bill subsequently retained Goldman Sachs and the Boston-based consulting firm Bain & Company (where a young Mitt Romney was cutting his teeth) to conduct their own analyses. As was his style, Bill was not a passive client; he grilled his advisors and pressed them to scrutinize every corner of the sprawling conglomerate. “Bill was a very demanding client,” remembered Alfred Eckert, who led the Goldman Sachs team evaluating Koch Industries, “very involved, asked very good questions, spent a lot of time making sure that no stone would be left unturned.”
By 1982, with negotiations faltering, Bill hired a New York lawyer named Arthur Liman, a high-profile litigator who had served as the chief counsel on the Senate’s Iran-Contra investigation. Bill realized that the threat of litigation might goose Koch to raise its offer, and Liman’s hiring alone sent a clear signal. Another pressure point was publicity, a powerful motivator for a company that played it very close to the vest. Charles, Bill observed, “was very sensitive to publicity at that time.”
Both sides had agreed to keep the delicate negotiations confidential, and the company had so far managed to keep news of the boardroom acrimony out of the media. Koch Industries did not want to spook its already worried employees or allow its competitors and business partners to smell weakness. But in July 1982, the corporate discord spilled into the press when Fortune magazine ran a feature story titled “Family Feud at a Corporate Colossus.” Charles and David had given interviews for the story without mentioning the tense talks under way, but Bill and his allies had violated the family’s vow of omerta, anonymously disclosing information about the rift among Koch’s owners.
“Keeping a company with estimated annual revenues of more than $14 billion out of the public eye is a task that one of its principal owners describes as ‘sort of like trying to hide an elephant behind a telephone pole,’ ” the article began. “… But these days the shy elephant is stomping around in a traumatic fit. A family feud has erupted among the four Koch brothers, who own 75% of the company, dividing them into two rival camps. Blood and money, that most volatile of mixtures, makes their fight over the corporation’s future especially bitter.”
Charles, predictably, was horrified by the story, which quoted an anonymous member of the dissident faction—who later turned out to be Bill—saying: “It’s a classic dispute between stockholders who want yield and liquidity and a management that wants power and authority.”
That October, when negotiations had still failed to progress, Bill finally unleashed a suit against Koch Industries and his brothers. He alleged a laundry list of mismanagement, including Charles’s lavishing of company funds on libertarian causes. Frederick, under intense pressure from their mother to do his part to deescalate the family hostilities, declined to join the lawsuit.
Charles and David retaliated with a $400 million countersuit, claiming that Bill and his supporters had used Fortune to defame Charles by portraying him as “no less maliciously creative than the willful J. R. Ewing of the television show ‘Dallas’ in devising ways to control his brothers and the family fortune.”
Through the end of 1982 and into early 1983, the two sides remained far apart on a buyout. In November, Koch had offered $160 (the valuation suggested by Morgan Stanley and Lehman); Bill’s team countered with $240. But as discovery in the lawsuit began to heat up, so, too, did the pace of negotiations.
On May 25, 1983, the dissident shareholders, accompanied by a phalanx of lawyers and investment bankers, convened at the Marriott Hotel near New York’s LaGuardia Airport. Desperate to rid itself of the suit and the problem shareholders, Koch had substantially raised its bid to $200 a share, plus an interest in an oil concession off the coast of Santa Barbara, California.
Bill thought he could still squeeze more out of his brothers. Nevertheless, as he opened the meeting, he stressed that it was “very important for our group to stick together. We came into this fight together, we should go out together.”
Lawyer Arthur Liman, Bill recalled, told the shareholders that Koch Industries “was our heritage and we had to decide whether we wanted to keep our heritage or get away from it and pursue our own endeavors in life and he viewed that as the essence of the decision.… He said this was a good opportunity to get away from Charles, who in his opinion was going to run the company in his own way for his benefit without regard for anybody else.”
A consensus emerged, as the rest of the advisors chimed in: Take the offer. The shareholders asked the gaggle of lawyers and bankers to clear the room so they could deliberate. Hopeful of restoring family peace, Marjorie Simmons Gray, whose close relationship with Mary Koch had suffered because the Koch matriarch blamed her for siding against Charles, urged that they settle. Frederick agreed, telling the group he had better things to do in life than get dragged into a long and nasty lawsuit. When the shareholders took a vote, Bill was the lone holdout.
“I advocated going back at a higher number and then horse trading to around $220,” Bill recalled. “That was the number I was shooting for.” But keeping their coalition together had been a struggle as it was. He likened his role to Dwight Eisenhower’s during World War II: The general had spent most of his time simply holding the Allies together. In the interest of maintaining a united front, Bill reluctantly agreed to accept the deal.
But he wanted it to happen quickly, before Koch could pull the offer or attempt to chisel on the price. The company was equally eager to settle the matter. By the following day, May 26, the company had sent a draft agreement to Liman. “Bullshit,” Bill told his lawyer, “I’m not going to go with their draft.” Bill so thoroughly distrusted Charles by this point that he insisted Liman’s firm draft the agreement. Koch tried to “slip things by the other side” in contracts, Bill told his lawyer.
Over two days in early June, lawyers for both sides completed a marathon of contract negotiations in the midtown Manhattan offices of Liman’s firm, Paul, Weiss, Rifkind, Wharton & Garrison. Near midnight on June 4, 1983, the finalized agreement sat before Charles in the law firm’s large conference room, where Bill was also seated. (David and Frederick were not present.) Under the terms of the deal, Koch would buy out the dissident shareholders for $1.1 billion, of which Bill would receive $470 million and Frederick $330 million. Such was the price of peace at Koch Industries. Charles signed. So did Bill.
The deal completed, Bill stood up from the conference table and smiled. “We’ve got our business affairs separated, and the war is over,” he told his brother. They were after all relatively young men—Bill was forty-three and Charles forty-seven—with many years ahead of them. “We’re still brothers, and I care about you.” Bill extended his hand. Charles ignored the gesture. He turned and strode briskly out of the conference room, trailed by his lawyers. After he left, Bill crumpled heavily into his chair and buried his face in his hands. Tears were in his eyes.
Closing this acrimonious chapter brought a wave of relief to Koch employees, who had experienced several years of uncertainty about the company’s future. At the 1984 annual stockholders meeting, fifty-six of Koch’s top managers signed onto a symbolic resolution celebrating Charles for navigating the company through the recent tumult. Noting that “1983 saw the conclusion of one of the most traumatic periods in the Company’s history,” it lauded Charles “for the leadership abilities, high principles and strength of character which he displayed not only in leading the Company to its outstanding success over the years but in leading the company through its recent crisis without sacrificing the principles for which he and the Company have stood.”
But the testing of Charles’s mettle had just begun. The long war between the Koch brothers was only starting.