OCTOBER 2017 Discovery THE QUARTERLY NEWSLETTER OF KOCH COMPANIES

Like a rolling stone

At a board meeting in July, develop a mindset that promotes need for dissatisfaction with our current raised more than a few eyebrows when personal growth and embraces change. state of affairs, a vision for a better state he quoted Bob Dylan, the iconic singer- Internally, we have to convince ourselves and a path to achieve that vision. songwriter who was awarded the 2016 that we can and will do what’s needed. “But that goal of self-transformation is Nobel Prize for literature. “But there are also external factors to impossible to achieve if we’re unwilling — To illustrate a point Koch was making, consider. We all need an environment or afraid — to drive change.” he repeated a line from Dylan’s song, that makes transformation possible. “It’s Alright, Ma (I’m Only Bleeding)”: That’s true for an organization and it’s VIVID MENTAL MODELS “He [who is] not busy being born is also true for society. The Dylan quote wasn’t the only busy dying.” memorable — or “That’s so very true,” explained Koch. surprising — phrase “We can’t afford to stand still, to get Charles Koch mentioned comfortable or settle for the status quo. at that summer board That’s the equivalent of dying. meeting in Wichita.

After discussing What we’re looking for the importance and are opportunities to create inevitability of creative destruction, and the value with our capabilities. natural human tendency – Charles Koch to resist change when things are comfortable, “Because of creative destruction, Koch suggested an everything around us is constantly unexpected remedy. reborn. So we have to incessantly rethink Microfilmed records, such as this reel “Sometimes,” Koch and reimagine what we can do. of Koch credit card receipts from 1980, were once considered state-of-the-art. quipped, “we need a “Either we drive creative destruction, Few would settle for such outdated mental enema.” or it will drive us out of business.” technology today.

GATHERING NO MOSS “What we’re trying to do internally with THIS ISSUE... ® Koch went on to describe the two MBM and externally with our various 2 Freakonomics feedback dimensions of transformation that are social and political investments,” Koch 4 Exposing ourselves to the future essential for improvement. said, “is to get rid of barriers so that people are more likely to succeed.” 7 “We can’t afford that!” “For self-transformation to be 8 Perspective: Brad Razook and Jeff Ramsey possible,” said Koch, “each of us must In both cases, Koch noted, there is a Letters and other submissions become the property of Koch Industries, Inc., and may be reproduced in whole or in Postal Pipeline part, including the author’s name, for any purpose and in any manner. Letters may be edited for length or clarity.

The following are social media responses to Charles Koch’s interview on the Freakonomics blog this summer.

Luis Alberto Luzania Michael Ameres

The best takeaway I gathered is that the Great interview. A smart and humble economic way of thinking is critical, guy. I love the idea that Koch Industries and when applied does wonders for will reward excellence no matter the managing one’s affairs — specifically Michelle and Mike Godown position in the company. Too much of when he discussed leveraging your our society is set in stone and excellence comparative advantage to create Great interview with an amazing American. gets the same rewards as mediocrity. maximum value for others. I think this Thank you for providing the unbiased can be applied not just to business but facts the rest of the media ignore, and all other aspects of people’s lives. respecting us enough to allow us to form Jason Wallbaum our own opinions. The most important takeaway for me Lyle Gray was that Koch is willing to work with Denis Bernicky anyone — whatever their ideas and While I would probably agree with values — to better society, even if they Mr. Koch on half of his views and I really enjoyed this interview and have to disagree on other items. They do what compromise on others, I have to give say it profoundly altered the way in which they feel will be best for society, even if him huge credit for participating in this I think about Charles Koch and the Koch it will hurt their profits. podcast. It was well done, entertaining brothers. Far more nuanced and frank and enlightening. Both parties in the than I expected and in the end, even where U.S. try to demonize opponents … I disagree, I understand and respect his usually very much unfounded. motivations. Well worth the listen. http://bit.ly/2gtMrL1

Dear Mr. Koch, I can’t thank you enough for the support of the Koch Endowed Scholars Fund. I just finished the Freakonomics podcast Discovery containing your interview. I had not Thanks to your company’s generosity, dancer Gabi Ponio and October 2017 previously heard you speak, and I found cellist Jennifer Ripley, both of Broken Arrow, received full Volume 23 | Number 4 the content surprising and refreshing. scholarships to study at this year’s institute.

Most often I have supported Democratic On behalf of the thousands of students whose lives have been DISCOVERY ONLINE candidates, which puts me at odds with the changed by this one-of-a-kind program over the past 40 years, KOCHnews.com/media- candidates [often] receiving your support. thank you again for your contributions and ongoing support. resources It was comforting to hear that your support Julie Cohen, president and CEO for any one party or issue is not blind, EDITORIAL BOARD Oklahoma Arts Institute – Quartz Mountain but instead based upon a rationale for Susan Armitage nationwide improvement. It made me want Oklahoma City, Oklahoma Philip Ellender to reach across the aisle more and seek Jeff Gentry non-political solutions to our problems. Greg Guest Great articles in the July 2017 Discovery newsletter. My big Jim Hannan Primarily, I do criminal defense work. You takeaway was the reminder that, as a supervisor, I need Amy Hennes are exactly on point with criminal justice to model the behaviors that facilitate transformative AND Charles Koch reform. It is irresponsible, unnecessary, incremental change. Steve Lombardo and unfair for us to incarcerate individuals Walt Malone for drug offenses. Rehabilitation and Matthew Hall Brad Razook treatment is a much better option. KBS Benefits Dave Robertson Atlanta, Georgia Peter Ventimiglia I encourage you to continue to do interviews and podcasts. I have a better opinion of you afterward, and I am sure I just wanted to say thank you for the GREAT newsletter. EMAIL US that others feel the same. I always enjoy the inspiration and information. [email protected]

Chad A. Gaddie Tammy Dailey www.KOCHind.com Attorney at Law Guardian logistics supervisor © 2017 Koch Industries, Inc. St. Joseph, Missouri Carleton, Koch is an EOE. M/F/D/V.

2 International News

Charles and Liz Koch talk about their journey and joys as parents in this new video.

On June 18 (Father’s Day in the United States), the latest in the “CGKon” series of videos was released. Thank you. This was very, very nice. As a father of four children, I appreciate this even more so. I guess we can “CGKon Parenthood” featured Charles Koch, together with be proud to work for such a gentleman! his wife of 44 years, Liz, and their two children, Elizabeth and Jean Ries Chase. The video included many never-before-seen images and Director of Government and Public Affairs a frank discussion of the joys and challenges of parenting. Bertrange, Luxembourg For many employees of Guardian affiliates, that video was their first exposure to Charles Koch. Here are some of the unsolicited comments they shared after viewing the video. Key takeaways for me as parent (besides not teaching our kids anything about life that we aren’t willing to live by) is to spend much time with them as they tend to grow Thank you very much for pointing to this very interesting very fast. The last thing you want to be remembered for link! I think that every responsible parent should watch as a parent is being the one who was never there when this material! they were growing up! DISCOVERY ONLINE Pawel Hubka Thanks heaps and please keep them coming. They are KOCHnews.com/media- Automation & Control Engineer | Częstochowa, Poland quite inspirational! resources Darshan Nagarsekar National Head, Sales & Marketing - Agricultural Products Gujarat, Waouhhh, impressive, I like it a lot! Thanks for sharing it with us.

Sandra Reslinger Thank you! I think it is a wonderful video! HR Business Partner | Bertrange, Luxembourg Natalia Pace Marketing & Communications Coordinator | Liria, Spain

Thanks for sharing this. The videos are truly so inspirational and full of exciting facts about the I love them! Great Man & his family. Sophie Weckx Tajender Kumar Media Relations Specialist - Europe Bertrange, Luxembourg EMAIL US Area Sales Manager | Gujarat, India [email protected]

charleskoch.com 3 EXPOSING OURSELVES TO THE

An important part of Koch Industries’ Vision is the desire to double earnings, on average, every six years. That goal requires a compounded average growth rate of 12 percent per year.

For most mature companies, 12 percent growth is not just a challenge, it’s an outright impossibility.

But the realities of Moore’s Law put Koch’s growth goals to shame.

Gordon Moore, the co-founder of Intel, predicted computing speed would double every two years — which it did for more than 40 years in a row.

That exponential increase in computing power not only made computers more powerful, it made the cost of computing much less expensive.

And it is computing power — the technological ability to do so many things Above: KII CFO Steve Feilmeier (left) — that is driving creative destruction, and CEO Charles Phillips make a affecting almost every business, including presentation at Inforum 2017 in July. those at Koch Industries. Left: Charles Phillips, is a former Marine Captain and was president ATTENTION, PLEASE of Oracle Corporation.

This past summer, 7,000 people from 68 countries gathered at a convention center in New York to learn about the latest PARTNERS WITH KOCH developments in computing technology. Infor calls itself the world’s “fastest-growing enterprise cloud company.”

Most of the attendees at the conference It provides business software that is exceptionally powerful but much easier to install (75 of them from Koch companies) were and use than traditional options (which often require massive modifications and businesspeople with lots of questions about extensive on-site hardware). artificial intelligence, cloud computing and Last November, Koch made headlines when it invested $2.5 billion in Infor, acquiring the Internet of Things. about half of the company. But the relationship between the two companies goes back Imagine their surprise when one of the much farther than that. first things they were shown was a quote “Several Koch companies have been Infor customers for many, many years,” explained attributed to Socrates, a Greek philosopher Richard Dinkel, Koch Industries’ corporate controller and chief risk officer. who lived more than 2,400 years ago: “Georgia-Pacific’s building products business has used Infor software for at least 15 or 20 “The secret of change is to focus all of years. (acquired by Koch in February) is another longtime user and so your not on fighting the old, but is Koch Chemical Technology Group.” on building the new.” For years, most of Infor’s customers tended to be companies with complex That was the advice that kicked off Inforum manufacturing assets. But that business profile has changed. 2017, an annual gathering sponsored by Infor, a global software provider based in “Today,” Dinkel said, “Infor’s appeal goes far beyond railroads or refineries. It is creating New York. products capable of transforming everything from carrot farming to human resources.” 4 HCM IS ON ITS WAY Georgia-Pacific. Frustrated with the high costs and slow progress being made by a traditional software vendor, GP decided to switch to Infor. According to Walt Malone, vice president of human resources for Koch Industries, one of After successfully completing that project, Infor went on to provide customized the biggest developments in the talent field is solutions for other GP businesses. “When you complete an important project under called HCM — Human Capital Management — budget at Koch,” smiles Phillips, “that news travels fast.” and it is software that makes HCM possible. “Based on what we’ve already seen,” Dinkel said, “we’re confident Infor’s software “For years we’ve struggled with integrating can help us increase our productivity and production capacity, decrease our downtime our HR information companywide, especially and energy costs, and create a much better environment for employees.” internationally or after acquiring large No wonder, then, that subsequent meetings with Koch businesses and capabilities companies with lots of employees,” have led to a significant list of projects and possibilities. Malone said.

“If you wanted to know about job opportunities with Koch in another country, or possible candidates for those roles, or even the number of employees in a given location, it was tough to get an accurate answer quickly.”

Malone says that Infor not only created software that helps Koch integrate those sorts of HR data quickly and more accurately, it also provides tools for optimizing talent more effectively.

“Thanks to Infor, we believe we can dramatically improve our understanding of Infor’s software, combined with drone technology, our talent as well as our opportunities. can transform inspections and maintenance. “What that means for employees,” says Malone, “is that we can do a much better job “One of the best ways to expose yourself to where the future might be is to put money of getting the right people into the right jobs into something. It sharpens the focus,” Feilmeier said. at the right time.” “So when we put $2.5 billion into Infor, it was because we believe in the industry and Steve Feilmeier, Koch’s chief financial officer, we like what Infor is doing. But it was also to help sharpen our engagement as a user.” zeroed in on this aspect of HCM when speaking at Inforum 2017. EVERYWHERE, ALL THE TIME

“Good supervisors need tools with up-to- Another area where Infor excels is Enterprise Asset Management — the popular term date information to help their employees,” for the concept of looking at a company’s physical assets from an overall point of view. Feilmeier said. When Infor’s EAM software is paired with drones, for example, businesses can safely “In a global organization where you have make difficult inspection assessments quickly and more often, spot problems sooner 130,000 employees, technology can help us and better understand when to schedule maintenance. know which employees are available for our That same software also allows companies to do a better job of tracking construction job opportunities. progress while getting more information, better insights and faster access to data. “That’s just one of the big benefits we “We view EAM as one of Infor’s best products,” said Feilmeier. “It could do a lot of can realize by installing human capital predictive work for us in the future, which would help us keep our assets running management software.” more efficiently.

NEWS TRAVELS FAST “We’re excited about working with the Infor team to help us do that.” Charles Phillips, Infor’s CEO, calls Koch’s EFT ANALYTICS HCM initiative — which is being launched in tandem with a massive financial software Last year, a subsidiary of Koch Minerals acquired a unique software and analytics rollout — “one of the largest global company called EFT Analytics. implementations ever.” Although not as big or widely known as Infor, EFT, founded in 1998, has a strong Although he has led Infor for more than seven track record of working with blue-chip clients, including some of the world’s biggest years, Phillips is “surprised at how aggressively automotive manufacturers and consumer products giants. we’ve gotten projects started in such a short “What we’re best at,” explains Craig Ennis, EFT’s founder, “is analyzing industrial amount of time across all of Koch Industries.” processes and figuring out ways to help companies run their assets more efficiently. Phillips credits this huge vote of confidence Story continues on page 6. to a project Infor recently completed for

5 EXPOSING OURSELVES TO THE explains Peter Ventimiglia, managing director of communications and marketing for Koch Companies Public Sector.

“They have also helped us evaluate the many versions of ads developed by our creative team.

“Targeted messaging is a tougher challenge than you might think,” Ventimiglia said. “Anyone can aggregate data, but it takes some real skill to understand what it means and apply it effectively.

“Ideally, i360 will help us eliminate waste by making sure we deliver the right message to the right audience.”

DON’T DABBLE

Thanks to innovations such as those developed at Infor and EFT, Koch’s Brent Youngers (left), is president of EFT Analytics. Craig Ennis leadership is even more convinced that is the company’s founder and chief technology officer. almost anything is possible.

“We believe whole industries will change,” “Our software can help predict when a empowering thing for employees at predicts Feilmeier. “What you’re seeing problem will occur, which enables operators manufacturing sites.” with Amazon, Uber or Roku is just the start. to deal with a potential issue before it EFT is in the process of delivering happens. We call that predictive analytics.” “So whether it’s our refining business, solutions to several Koch companies where we see new technology coming, Ennis points to Georgia-Pacific’s Port — as well as working on external joint or our agriculture business, where seed Hudson facility, where EFT software helped marketing partnerships. genomics can create plants that don’t need predict (and prevent) breaks on huge rolls “We see some real opportunities for EFT to as much water, nutrients or pesticides — of paper, as an example. continue working with an expanded group no business is exempt. EFT’s software is also helping operators at of external (non-Koch) customers,” said “That’s why we need to keep working FHR’s Corpus Christi refinery complex to Vance Holtzman, Koch Minerals’ CFO. closely with innovators,” Feilmeier said. do an even better job of preventing flaring “We want to leverage their innovations — an issue of special concern as refineries in a way that drives creative destruction in came back online after Hurricane Harvey. It’s about making strategic our businesses.” “We’re also good at helping assets improve decisions rather than When it comes to driving creative their energy efficiency,” said Brent destruction and embracing change, Youngers, president of EFT Analytics. waiting for things to fail. Charles Koch believes “there’s no “For many facilities, energy is the No. 1 point in just dabbling around the edges. cost, so even a small increase in efficiency i360 What we’re striving to do is transform — say, 3 or 4 percent — can make an all of our businesses.” Technology is also transforming the way enormous difference.” Koch communicates with people outside Koch stresses the importance of knowledge FIX IT YOURSELF of the company. sharing between Koch companies as a way of driving transformation. There is an important difference between For example, when Koch invests in a major the solutions EFT offers and those of many ad campaign — such as the “Challenge “Frankly, it doesn’t matter what business competing software providers. Accepted” ads now appearing in the U.S. you’re in. We expect that software will — one of the difficulties is to ensure those disrupt almost all traditional industries in “What usually happens with a software messages are effectively delivered. the next 15 to 20 years. company is they come in and ask, ‘What’s your problem?’ and then they go find a That’s where the extensive database “That’s why we can’t just talk amongst way for them to fix it using their product. built and managed by a group called ourselves. We need to look at the world and When you have a new problem, they repeat i360 can help. see what’s changing, then use what fits to enable us to lead the way forward.” the process,” Ennis said. “We have worked with the team at i360 to “At EFT, we give you the tools and training develop better targeting capabilities for to fix problems yourself. That’s a very our TV and digital advertising efforts,” EFTAnalytics.com | Infor.com

6 Looking Back

Noteworthy

Deep Thinking – Where Machine Intelligence Ends and Human Thinking Begins by Garry Kasparov Left: Sterling Varner (left) and Charles Koch. Top: The Koch Engineering building completed Garry Kasparov used to in 1967 is now home to Koch-Glitsch. be famous for being one of the most successful chess players of all time. New address, new vision At 22, he was the youngest world champion In a 1954 letter to a business associate in New SAME SONG, DIFFERENT VERSE in chess history. He was Jersey, Fred Koch explained why he wouldn’t be In 1967, Fred expressed his doubts ranked No. 1 in the world building a new refinery near Chicago. about a different sort of project: the for 20 years in a row. He “[I] was going to have to put myself in hock construction of a new manufacturing even ran for president of pretty heavily,” wrote Koch, “and that, plus facility for Koch Engineering. Russia in 2007. my high blood pressure seemed too much of a “My father had bought farmland along 37th But today he’s probably best known for battle to undertake, so I checked out. Street here in Wichita as an investment,” playing against — and losing to — a “It seems as I grow older that I am losing my said Charles. “I told him we should use it machine during a much-hyped matchup nerve — if I ever had any.” to build a bigger, better facility to handle in 1997. Koch Engineering’s growth.” As he grew older and his health worsened, Fred What is forgotten by many is that Koch began to fixate on the amount of money “How much would it cost?” Fred asked. Kasparov had played, and handily beaten, needed to pay what he called his “death taxes.” that same computer just a year earlier, “About a million and a half dollars,” winning four games to two. (Fred’s concern was understandable. In the replied Charles. 1960s, the maximum estate tax rate was Kasparov’s description of these chess “A million and a half! We can’t afford 77 percent of everything over $60,000.) matches makes for interesting reading, that!” sputtered Fred. Immediately after joining the family business but even more interesting are his “But we’ve run out of room at our old in 1961, Charles Koch began working hard, not thoughts regarding artificial intelligence. facility,” explained Charles, “and we can’t just to maintain or stabilize the company’s Will robots take over all our jobs? Can grow if we don’t have room to expand.” businesses, but to transform and grow them. computers really “think”? Or drive? In particular, Charles worked with Sterling THE VERDICT “The worries about operatorless Varner, a Koch employee since 1946, to rapidly elevators,” Kasparov reminds us, “were The new Koch Engineering facility — now expand Koch’s crude oil gathering business. quite similar to the concerns we hear home to Koch-Glitsch — allowed the today about driverless cars.” In 1962, Charles and Sterling approached his company to dramatically expand and father about purchasing two crude oil trucking improve its product offerings. In other words, as far as Kasparov is companies in North Dakota. concerned, we should accept the fact that Sadly, Fred didn’t get to see that success. some things — but by no means all — are Fred, who was packing for an extended trip to He died 50 years ago, on Nov. 11, 1967, just better done by machines or software. Africa, told his son that — if he and Sterling as construction was close to completion. They have comparative advantages. could agree — they could buy one. Nor did he ever get to see the Koch Tower — the largest office building in . “I am convinced that we must stop seeing “I’ve got to save my money to pay death intelligent machines as our rivals.” taxes,” Fred said. It’s worth remembering what both of those buildings — one of them 50 years old, the “Of course,” Charles recalled, “we couldn’t other 25 — signify for Koch. They represent resist buying them both, due to the synergies. more than just growth and far more than You have to think bigger “When I went to pick him up at the airport, just success. he made it clear how unhappy he was. But he They represent a willingness to transform than what you know. eventually forgave me. I learned my lesson and — no matter how challenging the never made that mistake again.” – Rachel Joyce circumstances might be.

7 Perspective Brad Razook and Jeff Ramsey KII EVP and CEO – Resources | President and CEO – Flint Hills Resources

As recently as 2007, newspaper headlines insisted that the world was quickly running out of oil.

The so-called “peak oil” theory had people all over the planet fearing the prospect of $10 per gallon gasoline and contemplating a future without oil. The hydrogen car was considered a pretty safe bet.

But, as it turns out, North America and much of the world is awash with oil and thanks to technological advances made by the drilling industry. By one estimate, the U.S. now has more proven oil reserves than any other nation on earth, including .

This realization, coupled with market-driven innovations throughout the value chain, has unleashed an energy renaissance in North America — creating jobs and making energy more affordable.

Keep in mind that this all happened in a span of 10 years without a government plan.

Thanks to private sector innovation, products derived from oil and transportation industries in which we compete are ripe for continue to play a fundamental role in our modern society. They disruption, change and transformation. represent much of the energy used for manufacturing the things that That’s why we need to fundamentally change our mindset. we want and need in our lives — essential products such as cement, , steel, , , and pharmaceuticals. We have to pivot from focusing on opportunities that are based on assumptions looking out 15-20 years to opportunities that Oil-based products make up the majority of our transportation are more immediate. We need to adapt quickly to an increasingly fuels and the substrate for our roads and highways. The agricultural competitive and unpredictable marketplace. industry depends on -derived fuels to cultivate and dry grain, and then transport it worldwide. In response to this, Flint Hills Resources has already shifted its primary focus from rapid growth and expansion to pinpointed FHR’S ROLE growth and optimization of its existing assets, with a heavy Flint Hills Resources has helped people make their lives better by emphasis on digital innovation. making reliable energy available and driving innovation. We believe we can create a tremendous amount of value by But that’s not all. In the last 15 years, FHR has enhanced its improving our existing capabilities and applying new technologies petrochemical business with major acquisitions and capital projects, that transform how we do our work. If we can do that, we established connectivity between new terminals and pipelines to are confident we will be able to compete well in any market facilitate the delivery of feedstock and finished products for strategic environment and shape our own future. markets, and invested heavily in value creation projects at both Corpus ROCK THE BOAT Christi and Pine Bend, making those refineries even more competitive. We’ve also expanded into biofuels. In addition to optimizing its base business, FHR continues to explore new platforms for growth, including disruptive technologies. We’re Because of these investments, Flint Hills continues to be competitive in already partnering with technology companies such as , Infor a very competitive industry. As a leader, the company is also constantly and i360, as well as other Koch companies, to accelerate our pace of evaluating its point of view about the future. innovation and drive transformation.

LOOKING AHEAD We’re convinced Flint Hills Resources will be just as important to Koch Industries’ future as it has been to its past. We are not going to As we all know, the energy landscape today is rife with divergent sit back and just wait for the future to happen. That’s not a strategy. points of view. Many believe oil and gas will remain the foundation of our economy for many years to come, while others are convinced We intend to drive transformation by encouraging experimentation that history museums everywhere need to quickly clear space for and exploring new business platforms that complement — or even combustion engine, industrial heater and boiler exhibits. diverge from — our current business.

While we believe the products FHR makes today will remain in As the famed computer scientist Alan Kay once said, “the best way to demand for the foreseeable future, we also believe the energy predict the future is to invent it.”

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