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Koch Industries: Charles and Bill’s Sources of Power Case Study


Introduction

Koch Industries is a business that was started by Fred Koch who later left it in the ownership of his sons but with Charles Koch as the CEO. Two of the remaining brothers, William (Bill) and David would later join the management of the company while the eldest brother, Frederick, followed a different career. As such, Koch stayed away from Koch Industries. This paper discusses a power struggle between two of Koch’s brothers, Charles and Bill, which lasted over three decades. As such, the paper will discuss the different sources of power that Charles and Bill relied on on in their attempt to oust one another.

Charles and Bill Koch’s Sources of Power within Koch Industries

The two brothers applied different sources of power in their protracted battle against each other. The sources relied on by the brothers included reward power, legitimate authority, coercive influence, and expert supremacy. To begin with, coercive power has been utilized for a long time in the Koch family. For instance, the family members have funded presidential elections, a move that illustrates their willingness to force things their way (Schulman, 2014a). When Charles learned about his brother’s plans to oust him, he coerced the respective shareholders to reject the move. Through Howard Marshall II, an old ally, Charles was able to reacquire shares from a dissident shareholder, hence retaining the 51% required to head the company.

Regarding legitimate power, the two brothers were both entitled to the leadership of Koch Industries. As Anderson (1998) points out, while Fred left the business in the hands of Charles, it belonged to all the Koch brothers. As such, both brothers were justified in their different causes. In other words, while Charles was justified in leading the company as he deemed fit, Bill was also justified in questioning his elder brother’s leadership skills. Further, when Charles decided to get rid of the troublesome brother, Bill, he chose a legitimate path. In 1983, Charles sought to buy out William and Fredrick, the eldest brother, from the business for $1.1 billion.

Charles possessed expert power since he had attended schools that imparted his skills in management. Charles used these skills to turn his father’s business into a multi-billion enterprise. Also, he had worked at a management-consulting firm before joining Koch Industries. According to Anderson (1998), Charles possessed the requisite expertise to drive Koch Industries to international success. However, the same claim cannot be said of Bill. Charles always complained that the division of business under Bill’s leadership performed dismally. This observation is an indication that Bill did not possess expert power. Regarding reward power, Charles was able to win the loyalty of his brother David. Hence, David remained an important pillar for Charles during the family feud.

Power Tactics used in their Battle for Control

Tactics utilized in the battle between the two brothers varied. Charles utilized political power in his quest to remain at the helm of the Koch business. For example, in 1980, David sought the position of the US vice president through the Libertarian Party. Throughout his campaign, David argued for the removal of social security and public schools. It is important to mention that David’s elder brother, Charles, had carefully planned his (David) candidature. By going after political power, Charles was seeking to emphasize his outlook as a networked individual as a way of stifling Bill’s opposition. Bill bitterly opposed David’s candidature arguing that it would draw too much publicity to the family. True, their father had chosen a quiet life. He particularly preferred to keep his family’s wealth out of the public scrutiny. Notwithstanding, while Bill’s concerns about the publicity could be justified, he was motivated by his inherent urge to oppose any move made by Charles.

Bill’s tactic mainly involved opposing every move that Charles made. For instance, he would secretly meet shareholders, most of who were disgruntled in the way Charles managed the company. The agenda for these meetings would be to plot a path to making Koch Industries a publicly-traded company. Charles was opposed to this move, guided by his mistrust for government bureaucracy (Gold, 2014). Later, Bill would commence a series of lawsuits targeting his brothers. While he lost all of them, he managed to win the loyalty of the eldest brother Fredrick.

Charles Koch’s Victory in this Battle

Just like his father, Charles was a ruthlessly ambitious man who believed in never backing down. For this reason, he was always ready to defend the company from what he believed were ill intentions by Bill. Gold (2014) describes Charles as a decisive and determined leader. When Bill sought to oust him as the CEO of the company, Charles worked tirelessly to ensure that the dissident brother would not raise a 50 plus share required for the purpose. Also, because of Charles’ decisiveness, he commanded a dedicated following among shareholders and employees who believed he had the company’s best interests at heart. As such, his managerial skills played an important part in his victory. On the other hand, Bill appeared like an embittered brother whose ultimate interest was to orchestrate his elder brother’s failure. Also, David’s role was important in securing Charles’ position as the CEO of Koch Industries. Even though David sympathized with his twin brother, Bill, he chose to align with Charles. Arguably, without David’s support and unwavering loyalty, Charles would have lost to the conniving Bill.

One of the lessons learned from the Koch story is that a business leader must be prepared to take the risks involved in safeguarding his or her business. Charles and David went through the pressure and costs of numerous litigations to preserve the heritage that was the company their father began. Ironically, this battle was being fought against a Koch brother. This case further offers a lesson to future industry leaders that family businesses may not always be easy to maintain. Additionally, the huge cost of litigation incurred by the Koch business is a lesson to leaders that legal actions can be expensive. As such, it would be prudent to seek alternative ways of solving disputes and only approach the courts as a last resort. Charles recounted that his father had advised that litigation should be left to tough disputes (Vogel, 2014).

Another lesson relates to the need to be cordial while maintaining an affable relationship with colleagues. Perhaps, had Charles and Bill been in a good relationship, the entire scenario discussed above would not have occurred. Therefore, the costly litigations would have been avoided, hence allowing Koch Industries to be even more prosperous. The final lesson is that it is important as a professional to be well skilled. Charles succeeded in turning a family fortune into a multi-billion company because of his ardent skills in leadership management (Schulman, 2014b). As a result, he earned great respect from the organization. Therefore, it was out of his tact in leadership that his position as the legitimate leader of the Koch brothers was reaffirmed.

The Manager’s Main Sources of Power

I once worked at a branch of a small company where the manager exercised power obtained from different sources. These sources were legitimate, expert, and reward power. Sometimes, the manager would demonstrate coercive power, although in rare circumstances. The company, which manufactured and distributed chocolate candy, was the most successful in the small town. Success was attributed to the manager, Eric Benet. The previous manager had almost run the branch down, owing to his lack of managerial experience. During the manager’s tenure, the company had listed its worst losses, as well as the highest employee turnover rate. Thus, the management decided to hire a highly qualified and dedicated manager, namely, Eric. Under Eric’s leadership, the branch’s returns soared and the profit margin increased gradually. By the end of the second year since his arrival, the branch was the best performing, an outcome that caused Eric to be declared the manager of the year. This scenario is a demonstration of Eric’s use of expert power.

Eric also exercised legitimate power during the times when he disagreed with other senior employees regarding business decisions. While careful not to appear like a bully, he would remind them of his qualifications and his record of accomplishment. This approach can be termed as using legitimate power since Eric was referring to a position he rightly held at the branch. At the same time, the same approach can be termed as coercive power. True, Eric had a history of being labeled a dictator, particularly in the previous organization he had worked before joining our company. Finally, Eric used reward power to keep close those employees he considered loyal to him.

Power Tactics used by this Manager

Eric was a charismatic man who commanded the respect of employees. As a manager, he would use his charisma to rally employees behind him. For those who objected, Eric would attempt to sway them to his perspective. Also, Eric maintained close ties with the CEO of the company, a strategy that always earned him timely favors. The strategy would also serve to consolidate his image as a manager with the interests of the company at heart. Similarly, the Koch family concentrated its power through backing politicians who it deemed suitable to protect the organization’s interests (Anderson, 1998).

The Manager’s Degree of Power Use/Abuse

I believe that Eric used his power in the right way, particularly, his expert power. While he sometimes used this expert power to stifle opposition, his proposals would prove competent in the end. However, modern business practices require managers to not only be flexible but also take into consideration the proposals of their employees. Given this case, Eric could have been more accommodative of different opinions. This way, he would not have been branded a dictator. Similarly, Eric should have relied less on coercive power and instead opt for an inclusive type of leadership where all employees could consult. Had that been the case, the branch could have attained even greater success. As Yang and Konrad (2011) argue, employee involvement contributes to organizational success through motivating workers. Finally, I believe Eric made good use of his legitimate power. He never fired or admonished employees unfairly.

References

Anderson, R. (1998). Fundamentals of educational research. London, England: Psychology Press.

Gold, M. (2014). An amazing map or the Koch brothers massive political network. Web.

Schulman, D. (2014a). Web.

Schulman, D. (2014b). Sons of Wichita: How the Koch brothers became America’s most powerful and private dynasty. New York, NY: Grand Central Publishing.

Vogel, D. (2014). Web.

Yang, Y., & Konrad, A. M. (2011). Diversity and organizational innovation: The role of employee involvement. Journal of Organizational Behavior, 32(8), 1062-1083.

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