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Why Koch Values Economic Freedom
October 4, 2008 By: Mark Arzoumanian Official Board MarketsWhen Wichita, Kan.-headquartered Koch Industries, the largest private company in America (according to Forbes), purchased Georgia-Pacific Corp. (GP) in Nov. 2005, the two companies first went through the traditional honeymoon phase, says Ben Pratt, senior vice president, Market-Based Management, GP/Koch. Pratt discussed Koch’s business philosophy at the Association of Independent Corrugated Converters’ Annual Meeting in Atlanta, held Sept. 24-26. But once that phase faded, communicating Koch’s philosophy was a struggle, as GP personnel tried to understand its substance and form.
“GP wasn’t broken when Koch came in [and bought it],” Pratt stresses. “We learned from them as much as they learned from us.”
And what are GP employees learning from Koch? How to use Koch’s values and practices to create a successful and more sustainable business. Charles Koch, Koch’s chairman of the board and chief executive officer, is a big proponent of economic freedom. Rules govern societies that practice this freedom and he makes certain that his employees are acutely aware of them. In free societies you will fine:
•An ease in starting, licensing, and closing businesses;
•A level of taxation;
•Tariffs, quotas, and bureaucratic delays in trade;
•Government expenditure as a percentage of GDP;
•Monetary discipline and a rate of inflation;
•Foreign investment ease;
•A level of government involvement in the financial sector;
•Strength and security of property rights;
•A certain amount of corruption; and
•Labor market flexibility and ease in firing and hiring a worker.
“Freedom allows people to serve their self-interests,” says Pratt. “Because people are free, they develop new things. The old ways are going to go away.”
At Koch, Market-Based Management (MBM), developed by Charles Koch, focuses on how organizations can best achieve long-term peace, civility and prosperity. It integrates theory and practice and prepares organizations to deal successfully with the challenges of growth and change. It also encourages innovations that create value. MBM can be broken down into five dimensions. First is vision.
“People need to understand what they need to achieve,” says Pratt. “They need to prioritize work and ask how they can create value at the company.”
Second is virtues and talents, which help ensure that people with the right values, skills and capabilities are hired, retained and developed. Third is knowledge processes, which is all about creating, acquiring, sharing, and applying relevant knowledge and measuring and tracking profitability. Fourth is decision rights, or ensuring the right people are in the right roles with the right authority to make decisions. Finally, incentives reward people according to the value they create for the organization.OBM
