Supported by Greenhaven Road Capital, finding value off the beaten path.
Charles Koch was on the Freakonomics podcast – Why Hate the Koch Brothers?. Hate doesn’t preclude learning. Charles Koch does some things right, things we can learn from. Let’s look at three.
1/ Create good conditions to argue well.
“A critical part of our management philosophy is building a challenge culture. We find this is one of the biggest problems in acquisitions we make, in many of them if you challenge your boss it hurts your career. Here if you don’t challenge your boss …(because you see a problem in what’s being done)…if you don’t challenge you’re not really doing your job.”
“We partner with people and look for people who disagree with us on most everything…my philosophy on partnerships is you need three things; vision, values, and bring complementary capabilities.”
Challenge culture is great phrasing. Good organizations create the right conditions for people to argue well. Some of those conditions include.
- Checking your ego at the door.
- Not taking sides with a boss, or, splitting the bosses on each side.
- An expectation for sound arguments.
Michael Mauboussin put it this way in his book More Than You Know, “A final dimension of learning is creating an environment where everyone in the organization feels they can voice their thoughts and opinions without the risk of being rebuffed, ignored, or humiliated.”
2/ The dichotomy of centralized and decentralized command.
“The way we look at it is that certain things need to be centralized,” Koch says it’s the people who can see how one business affects another. “But there are other things where the people at the plant have better knowledge…we’re very centralized on some things and decentralized on others. It’s not perfect. It’s a constant balance and rebalances and reworking and trial and error.”
The person pulling the lever should be the one with the best view.
SoulCycle has a certain process for building stores, training staff, and creating a brand. These are centralized decisions because one thing affects the others. They want people who go to a class in Texas to be familiar with the class in New York.
But the actual classes operate in a decentralized way. Melanie Whelan “Here’s the format for the class but you’re free to lead it however you’re inspired. What’s meaningful in Seattle is different from what’s meaningful in Coral Gables.”
3/ Systems or goals. When asked about his principles, Koch said that he tries to think in terms of principles rather than policies. Ideas like the division of labor, creative destruction, the rule of law, benefits of trade, earned success, and experimentation tend to work well.
Scott Norton also weighs ideas against principles rather than policies.
Systems work better than goals because they have flexibility. Seth Klarman said that rather than have a goal based approach (benchmarked returns in a specific sector) he uses a systems-based approach (no benchmark and investments in any sector).
This system approach is a process without silver bullet answers.
“Don’t get sucked into hubris, that I know all the answers,” said Koch. Better is to be “out here experimenting, fumbling around, trial and error, to try and find a better way.”
Thanks for reading. If I missed something you can let me know on Twitter @mikedariano.