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