JULY 2017 Discovery THE QUARTERLY NEWSLETTER OF KOCH COMPANIES

“’ success has attracted For example, all four of the new ADDED BENEFITS growing interest in what we do and how “Challenge Accepted” television “In addition to telling our story, we believe and why we do it — both from admirers commercials were filmed and edited by these messages will also enhance the and critics,” wrote in members of Koch’s in-house video team. company’s ability to recruit the best and “.” They feature actual employees (not brightest candidates,” Lombardo said. That’s why, in 2015, Koch Industries ran actors) at a Koch Agronomic Services “It’s no secret that the better we tell our its first-ever nationwide advertising site in California, a Flint Hills Resources story, the more appealing we become as a campaign, branded with the tagline biofuels site in Nebraska and two potential employer.” “We Are Koch.” The ads featured Koch Guardian sites in . company employees and products from “These messages are an important way of Whether created for TV or social media, across the U.S. and around the world. sharing and explaining a bit of our culture,” each mini-story illustrates some of the said Dave Robertson, president and chief This year, Koch is launching a new many ways that Koch companies are operating officer of Koch Industries. campaign with a different message — dealing with challenges and embracing ® one that helps explain the company’s technology-driven change. “Our MBM Guiding Principles emphasize unique culture and eagerness to drive the importance of accepting challenge. The ad filmed at Guardian’s SRG Global positive change. The theme for this new site in Detroit, for example, shows how “We believe in embracing change, driving campaign is “Challenge Accepted.” new designs for automotive grilles are improvement and never settling for the The new ads appear online, in social making many popular vehicles more status quo. media and on many U.S. television fuel efficient. “That’s why we’re pushing so hard to stations. They began appearing on “This campaign is part of our continuing innovate and transform by incorporating network TV in July and will continue effort to tell our story and educate the more technology in our businesses,” throughout the remainder of 2017. public,” explained Steve Lombardo, Robertson said. chief communications and marketing “Our new campaign stresses the mindset In business, it can be far more officer for Koch. we must all have if we’re going to succeed challenging to overcome “We’re celebrating what makes Koch — long term.” and our employees — unique. Challenge success than adversity. ChallengeAccepted.com is in our DNA. It is expected of us and – Charles Koch drives us to never settle or rest on our past successes.” HOME GROWN THIS ISSUE... All of the messages in this new campaign 3 A cold furnace Unlike most ad campaigns, which are include either a link to a Koch website, usually developed by advertising agencies such as kochind.com, or the hashtag 4 Challenges accepted — and met but paid for by clients, much of this #ChallengeAccepted. 7 Lessons from a 94-year-old campaign was developed and executed by 8 The challenge of transformation Koch Communications Marketing. 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.

I am delighted to acknowledge Summer interns are now at Georgia-Pacific for its outstanding work at Koch companies contributions to the University of across the U.S. As they began Washington — especially its recent gift their internships, Koch used and ongoing commitment supporting social media to ask a question: the Washington Pulp and Paper “What advice would you give Foundation Scholarship Fund. these students as they begin For many years, Georgia-Pacific has their summer internships?” assisted countless UW students, but the Be humble and make company’s impact has been most widely the most of this amazing felt through this particular scholarship opportunity to learn inside one of the fund, attracting the best and brightest best-managed corporations in the world! Welcome to Koch. It’s an students in bioscience and engineering. – Greg Donahoe amazing place to work. Be Strong stewardship of our natural a sponge. Soak up all that is offered. environment and forest resources is Process it and when it’s time to Everyone knows you are learning. critically important for UW and we are share, release what you have soaked Don’t be afraid to ask questions! glad to have Georgia-Pacific’s support. up and share the knowledge. – Jennifer Worrel Ana Mari Cauce, president – Russ Eckert University of Washington Seattle, Washington

The Charles Koch Foundation and economic research as well as On behalf of families and residents in Utah — thank you! John Huntsman have made the sponsors conferences, seminars To see this type of funding helping our community is very largest gift in the history of Utah and workshops for students. humbling. State University: $50 million to The Huntsman Scholar Program It is great to be associated with Koch Industries, Koch launch a Center for Growth and gives more than 400 students Business Solutions and all the Koch enterprises. Opportunity, and expand the the chance to learn about David G. Wilkins, managing director Huntsman Scholar Program at principled entrepreneurship Marsh USA, Inc. USU’s business school. and engage with top thinkers Salt Lake City, Utah “This gift will be transformational and business leaders outside of for the Huntsman School,” said traditional academic settings. USU president Noelle Cockett “I am thrilled that John when the contribution was Huntsman and his friend, announced in May. “It represents Discovery Charles Koch, believe in what July 2017 a tremendous expansion of we have done and in what we Volume 23 | Number 3 opportunities for students.” can become,” said Douglas

The Center for Growth and D. Anderson, dean of the DISCOVERY ONLINE Opportunity is focused on Huntsman School. KOCHnews.com/media- better scientific understanding resources of how people, businesses and governments interact. It conducts EDITORIAL BOARD Susan Armitage (L-R): Kari Nadeau, M.D., Ph.D., Philip Ellender , Jr. and . Jeff Gentry Greg Guest Jim Hannan Julia and David Koch are donating Amy Hennes $10 million to establish a clinical Charles Koch research unit for life-threatening Steve Lombardo allergies and asthma at Stanford’s Walt Malone Lucile Packard Children’s Hospital. Brad Razook Dave Robertson “We made this gift with the goal of Peter Ventimiglia GoCreate, A Koch Collaborative, celebrated bringing better treatments to more its grand opening in April. Located on children and adults suffering from EMAIL US Wichita State University’s Innovation dangerous allergies,” said Mrs. [email protected] Campus, this community makerspace Koch. The number of people affected provides hobbyists and entrepreneurs of any by severe food allergies has doubled www.KOCHind.com gocreate.com age with a wide range of tools and resources, in the last decade, prompting some © 2017 Koch Industries, Inc. ranging from a metal shop to 3-D printers. to call the problem an epidemic. Koch is an EOE. M/F/D/V. 2 International News

Wichita, – In early June, a group of international MBM® facilitators met in Wichita for a weeklong Market-Based Management® summit at Koch Industries’ headquarters.

While in Wichita, the international group discussed supervisory roles, technology, collaboration and compensation. They also attended a two-hour session with Charles Koch.

These employees from Brazil, China, Japan, Germany, Switzerland and the U.K. are responsible for teaching MBM to more than 55,000 Koch company employees outside the U.S.

Not only do they face the challenge of presenting MBM in different languages, they must also deal with the challenge of different cultures.

“In Japan and Korea,” explained Chieko Yamamoto, a Japan-based senior business consultant for , “there is an overall mindset that demands respect for the elderly. This is just as true in a business environment as it is in society in general.

“So when we talk about our challenge culture, or teach employees who are significantly older than we are, we must be sensitive to their cultural norms.

“We explain that challenge is a way of respecting a person. We also make sure they know that this is an expectation for all employees, regardless of age, title or gender.”

“It’s common for international employees to think MBM equals capitalism, and that capitalism equals the U.S. way,” said Elisa Wang, an MBM leader for Molex. “So that’s another one of our challenges; to explain how and why MBM is different from what most businesses teach and do.”

“One of the most valuable portions of our trip was the chance to interact directly with Mr. Koch,” added Shannon Tan with ’s MBM team in Singapore.

“Given how much he’s accomplished in his life, his humility and constant quest to learn and develop is inspiring.

“It reminds me that I need to continually learn, stretch and grow, and never get comfortable or complacent. It is always possible to improve what we are doing. He is a great example of that.”

Thalheim, Germany – To make the products most people take for granted, Guardian Glass relies on a series of float glass plants DISCOVERY ONLINE around the world. These facilities get their name from the way KOCHnews.com/media- extruded glass literally floats on a bed of molten tin. resources With 25 plants on five continents, operating 24/7 at temperatures of up to 1100° C (more than 2000° F), Guardian Glass faces a challenging maintenance schedule for those facilities.

“After about 15 to 18 years, each furnace needs to be rebuilt, brick by brick,” said Kirk McMenamin, director of float process equipment engineering. “We call it CTR, which stands for cold tank repair.”

McMenamin said Guardian’s CTRs in Rayong, Thailand, and Thalheim, Germany, were completed earlier this year. “We’re also working on several others in the U.S., Europe and South America over the next two years.”

Guardian’s techniques for maintaining its float glass plants are proprietary, but the outcomes are no secret.

EMAIL US “Each cold tank repair provides the opportunity for innovation to [email protected] increase our efficiency and usually results in more capacity for the float line,” said McMenamin. “It also gives us the chance to include the best available control technologies for emissions.”

3 “We have a choice: we can either be forward-looking or backward. I believe the only way we can meet our challenges is to move outside our comfort zone so we can continually transform ourselves for the better.” challenges Met – Charles Koch

TOUGH DECISIONS

A few years ago, INVISTA’s intermediates high-cost and lacked many of the new business faced a tough situation: two of technologies and efficiencies of its legacy assets — a plant in Argentina competing facilities elsewhere. and another in Tennessee — had “What made the situation especially become uncompetitive. challenging was their location,” “We were making chemical feedstocks in Greenfield said. “It was not just a and sending them to these plants matter of updating their equipment. The in South America and Chattanooga,” fundamental problem was they were in explained Bill Greenfield, president the wrong place to serve the market.” of INVISTA Intermediates. “We would After extensive deliberation, INVISTA convert those feedstocks into polymer, made the tough decision to shut down then ship that product to our internal both plants. It then began shipping and external customers in Asia, feedstocks directly from Texas to especially China.” Shanghai, where INVISTA’s new plant Once the polymer arrived in China, it could process the feedstocks more was typically spun into fiber for airbags, efficiently for Asian customers. tires and textiles, or converted into “At our plant in Shanghai, we not only compounds for making automotive have the best technology, we have for the Asian market. much better infrastructure. Now we “The more we looked at the situation, can respond to customer orders more the more we realized these plants were promptly and be more competitive in our poorly placed in the supply chain. pricing,” Greenfield added. Because of their age, they were also very

TECHNOLOGY-DRIVEN TRANSFORMATION

One of the challenges in making premium plywood is the need to “patch” some of the natural blemishes in wood veneer.

Georgia-Pacific employees have done this manually for years, but it is a difficult job, physically demanding, ergonomically challenging and prone to errors.

After considering the possibility of robotic patching and working with vendors to develop technology applications, GP discovered that an automated process could be deployed to improve the quality of 4 Above: GP PRO has added a new tier of premium innovations, including the new ONE = THREE Dixie Ultra® SmartStock™ Automated Napkin System.

In 2013, the year before it was acquired by Left: GP PRO is working alongside food service companies to increase their Koch, Molex lost its role as a supplier of an profits through many avenues, including in-vehicle charging module developed for technology-driven ways of reducing waste. a major automotive manufacturer.

Although there were several reasons for packaging needs by millions of pounds this, the two most important concerns LESS IS MORE per year. were the customer’s desires to move to a modular format and at a lower cost. The average fast-food restaurant dispenses “Waste and contamination are chief concerns among food service facility Challenged to regain that business, anywhere from 5,000 to 10,000 napkins owners and operators, because they can Molex began developing a custom smart- daily, but how many of those are actually affect everything from customer safety charging module that would use an used in the restaurant? and the dining experience to operational application-specific integrated circuit. Georgia-Pacific research indicates about performance and stakeholder return,” 40 percent of quick-service napkins are Molex’s design integrated several discrete said Craig Yardley, vice president and wasted. Customers typically take a handful parts onto one chip, making it more general manager of napkins and food of napkins from a dispenser when they efficient and more cost-effective for packaging at GP PRO. the customer. only need one or two. The unused napkins are left on tables, thrown away or stored in “By maintaining a customer focus The solution met the customer’s needs customers’ vehicles. and listening to our partners, we have and helped Molex renew its position as a developed a legacy of inventing and Using technology and experience gained supplier of choice. Even better, other car then improving Dixie® products and from its hands-free dispensing systems, companies in the U.S. and Europe are now solutions. We’ve helped them streamline Georgia-Pacific’s away-from-home interested in Molex’s technology. operations, enhance their image and consumer products business, known enabled them to stand out as they as GP PRO, has developed an effective compete for business.” solution to this problem: the Dixie Ultra® SmartStock™ Automated Napkin System. GP PRO is already working on further improvements to the system. The goal This new system dispenses a pre-set patching while eliminating injuries is to automatically deliver the correct number of napkins per customer or order, and lowering costs. number of napkins (as set by the reducing overall napkin usage. Because it operator) the moment a food order is “It took a lot of patience and has fewer touch points, the Dixie Ultra® placed. Plans are also in place to develop some redesigning to get it right, system also helps reduce germs collecting a system that can automatically reorder especially from a material handling on napkins or the dispenser. And its digital napkins, provide usage analytics and alert perspective,” said Hudson Pope, GP’s technology notifies the operator when it operators to performance problems. vice president of plywood operations. needs refilling. “But today the project is running As a result, the system can help a See more stories on page 6. very well with increased productivity restaurant chain reduce paper and and product quality.” 5 multibillion-dollar factor for way,” Tatum said. “Ultimately, I Koch, but Tatum still wasn’t relented and allowed their evaluation convinced about buying EFT. to progress. That eventually led to an indication of interest, and last “When they reviewed the deal September we completed the with me, it just didn’t fit my acquisition of EFT.” paradigms,” Tatum admits. “I had all kinds of objections based on Dave Robertson, president and COO vision, fit, capability and its path of Koch, sees the EFT acquisition to profitability. Because it was process as a valuable lesson for all Koch different, I couldn’t get my companies and their employees. head around it.” “Humility, which is one of our Guiding Principles, emphasizes self-knowledge Tatum was not alone in his thinking. Other and intellectual honesty — being willing IT’S ALL IN Koch businesses had already passed on to admit what you know and don’t YOUR HEAD acquiring EFT, mostly because they had know,” Robertson said. other priorities at the time. Fortunately Sometimes the business challenges we for Koch, the Minerals team had already “In this case, Steve had the humility face are more mental than mechanical. anticipated Tatum’s objections. to let his team provide him with better knowledge. That’s essential for success. Last year, when the Koch Minerals They not only explained EFT’s potential for acquisition team was looking at the helping Koch companies, they envisioned “Whether you’re a leader or an intern, possibility of acquiring EFT, Steve Tatum, ways Koch could help EFT. They persisted you always need to keep your pride in president of Koch Minerals, had some in recommending further consideration, check and be open to the ideas of others. serious doubts about the transaction. despite Tatum’s challenges, and made a “Steve and his team made the right convincing case for the acquisition. EFT makes predictive analytics software decision. I’m convinced that the EFT that can, among other things, reduce “The challenge for me was to get away acquisition will be transformative for downtime. These unplanned costs are a from my paradigms and think in a different many Koch businesses.”

That online site is now selling thousands of tons of product. At least 60 percent of its volume is incremental — meaning over and above what GP was selling to the same customers before.

“GPnow has not only answered the challenge, it has become a win-win,” said Darren Barker, president of GP’s bleached board business.

“Our customers have found it easier to order and get their deliveries on time, and we can now process our PLUG AND PLAY simple way to order GP’s products online, the company felt compelled to develop transactions much more efficiently.” an e-commerce solution for meeting that What’s more, the off-the-shelf tool has Georgia-Pacific’s bleached board challenge promptly. improved the business’s profitability business makes the white paper used GP’s commercial team, which wanted an while giving it plenty of opportunities in disposable cups and plates, food online store just as much as customers to experiment with other online cartons, retail packaging and many did, was disappointed with what it found. services and innovations. other popular products. Bleached A custom solution would take too long to board is made at plants in Alabama, When GP’s kraft papers group had a develop (nine months) and cost too much Arkansas and Georgia. similar need, it was able to quickly (at least $350,000). adopt the platform for its customers. The advertising for this business Fortunately for the business, a GP employee, includes a bold statement: “The Shape “Based on what we’ve seen so far,” Arthur Little, suggested trying an inexpensive of Things to Come.” Barker said, “we expect our online sales off-the-shelf product he had discovered. to double in the next six months.” So when more and more of GP’s bleached Six weeks and $27,000 later, the interactive board customers began asking for a GPnow website was up and running.

6 Looking Back

HEADED SOUTH

Shortly after buying Purina, the company was suffering substantial Noteworthy losses. This was driven by the collapse of pork futures — a huge investment for Purina. To Be a Genius, Think Like A 94-Year-Old by Pagan Kennedy And as if all that wasn’t bad enough, Koch’s other Who is more creative — a young person, non-ag businesses also or a senior citizen? According to this took a hit as brief article in a recent New York Times prices — especially for Sunday Review, “some people actually products — become more creative as they get older.” took a nose-dive at the Researchers have found that the same time. highest-value patent applications often Unraveling Robertson, who started at Koch in 1984 come from inventors over the age of 55. as an marketing coordinator, left (The average age of a U.S. applicant is refining to lead Koch Beef in 1996. Less 47.) Since 1980, the average age of In both of his best-selling books, Charles Koch than three years later he was promoted to Nobel Prize winners has been rising, mentions Koch Industries’ failed agriculture president of Koch Ag and asked to manage with most physics laureates making experiment of the 1990s. its downsizing. their key discoveries at age 50. “We were going to produce superior steaks to “That was not easy,” Robertson recalled. When it comes to creativity and making sell at premium prices, revolutionize milling “A lot of lives were affected by those a contribution, it appears that lifelong and baking, convert garbage into animal feed decisions. But had we not cut our losses, learners — especially those who make … and bring about several other breakthroughs things could have been much worse.” a point of studying outside their area in agriculture,” wrote Koch. Robertson supervised the sale of Koch’s of expertise — are much more likely to “Alas, none of this came to pass and we again feedlots to a syndicate based in Amarillo; increase their contributions at any age. suffered sizeable losses.” the sale of Koch’s 50 percent interest in an Exhibit A for this concept is 94-year-old One of the employees who was involved in Idaho flour milling facility to its co-owner; Dr. John Goodenough, who co-invented creating Koch Ag and then given the challenge and the divestiture of four grain elevators. the lithium-ion battery in 1980 when he of dealing with its failure is the man who is Months later, Koch finally exited Koch- was 57. now president and chief operating officer of NCM Foods, its shelf-stable pizza crust Goodenough and his team recently filed Koch Industries: Dave Robertson. business, and shut down Koch Nutrient for a patent on a revolutionary “solid- Services, which made animal feed. Then, EXPERIMENT? state” battery that replaces liquid in October 1999, Purina Mills filed for electrolytes with a kind of glass. He got “Using the word ‘experiment’ implies some Chapter 11 bankruptcy. the idea after reviewing the work of a sort of limitation,” Robertson says, “but we Portuguese physicist. didn’t limit ourselves very well when it came to LOW POINT “I’m old enough to know you can’t our ag business in the 90s.” Nearly 20 years later, Robertson says, “If close your mind to new ideas,” After Koch Agriculture was incorporated in you want proof that you can survive at Koch Goodenough said. 1994, the company began making investments even after being associated with a failure, and expanding its presence on many fronts. then look at me, because I was associated http://nyti.ms/2nSSS9l It bought feedlots in Texas and Kansas, grain with one of our biggest failures ever. elevators in Nebraska and Missouri, and flour “We fooled ourselves into thinking we had mills in Idaho. the right capabilities, but we didn’t, and Clear Creek Ranch, one of Koch’s few consumer couldn’t execute the vision properly. I hope brands until the purchase of INVISTA, was never to repeat that sort of experience.” We have to accept the created to promote Koch Beef’s genetics-to- Charles Koch agrees. “We should always challenge of embracing table strategy. Plans were made to feed and make a point of learning from our process at least half a million cattle per year. mistakes,” Koch said. “But I don’t think I ideas outside of our And then, on March 12, 1998, came the biggest could stand that much learning again.” comfort zone. investment of all: the purchase of Purina Mills – Charles Koch for about $660 million.

7 Perspective John Pittenger and Steve Daley KII Senior Vice President – Strategy | President – Market-Based Management, LLC

The essence of Koch Industries’ Vision is to create greater value SUPERVISORS FIRST for our customers more efficiently and improve faster than our In the April issue of Discovery, Charles ® competitors. This is the approach — grounded in MBM — that Koch said, “I expect leaders and supervisors has helped make Koch successful for decades. to be the examples for making this For many years we have improved our rate of value [transformation] happen.” creation through continuous improvement For years, Koch leaders have used a tool driven by innovation. As a result, we have called “The Role of the Supervisor” to help enjoyed attractive returns and them do a better job. That framework, substantial growth. which has evolved many times, has But in today’s hyper-competitive proven to be an important tool in the environment of constant change, entire application of MBM. value chains are being transformed. In We have already started to revise some sectors — such as retail, distribution, that framework (never settle for the the media, communication, transportation status quo, remember?) with a goal of and entertainment — changes have emphasizing the changes necessary for realizing the full occurred so quickly that former industry value of our human resources and helping employees adapt leaders are realizing they must and continue to succeed. reinvent themselves if they are to have any hope of survival. That may seem daunting, but the concept is simple: leaders not only need to set expectations, promote MBM culture, drive Given this environment, continuous innovation and make sure we have the right person in the right improvement is not enough; we also need role, they also need to be good examples themselves. to drive transformation. At the very least, Koch companies need to find new, more powerful ways of creating value for customers. All of us have a responsibility to embrace the changes — whether incremental or transformational (because we need both) — that will That is why we are so committed to our pursuit of technology- create greater value, which is the best pathway to personal fulfillment. driven transformation across Koch. Slow and steady progress will not win this race. It will require creative destruction. TRUE FULFILLMENT Around the world, many businesses and their employees are having EASY VS. HARD a hard time. They realize what used to be sufficient is no longer good In order to make this radical approach a reality, we need the help enough. Products and processes that seemed time-honored and true of cutting-edge information systems, data analytics, modeling, are being improved and transformed at a pace that seemed impossible process controls and decision tools. just a few years ago.

Whether you’re a coordinator or an analyst, an operator or an Faced with challenges like these, can we ever win? Is it really possible engineer, you must be willing to adopt new mental models, refuse to stay ahead of the tide of creative destruction? to settle for the way things are today and always be willing to learn. At Koch, we believe true fulfillment is achievable, but it does not When new technology transforms your role, you not only need to come from some idealized end state. It comes from being engaged embrace those changes, but think of other ways your role could be in the never-ending process of creating real value for our customers, made more effective. company and society as a whole. Finding good technology — such as that created by Molex and There is always going to be a better way of doing everything, so it’s INVISTA, or our newly acquired companies EFT and — is usually up to each of us to constantly strive to find those breakthroughs the easy part. What’s hard is changing the way we do our jobs. and discoveries. No, we’re not expecting everyone to become a tech guru. But we As Charles Koch mentioned in the last issue of Discovery, we have are expecting everyone to raise their expectations and — as always — already been through four transformations as a company and are now be accountable for results. entering our fifth. Those transformations not only resulted in a better, To help employees with the challenge of transformation, our MBM stronger company, they created more value for customers and greater and innovation capability teams are working together to upgrade opportunity for employees. existing training content, and create new tools and educational We know our environment is challenging, but we also know we can materials. They are also providing additional guidance for the RR&E master it. The changes we are making, the transformations we are process — including how we should think about every employee’s promoting and the roles we are rethinking are all part of our expectation of personal transformation. commitment to continuing to succeed for decades to come. We are using an experimental discovery approach; improving what has worked in the past while testing new and better methods.

8