Rising Profits, Rising Injuries: The Safety Crisis at Koch Industries’ Georgia-Pacific

August 8th 2019

By Christopher Leonard

In March of 2014, Jim Hannan joined a group of executives at Georgia-Pacific to discuss a burgeoning crisis.

Hannan was CEO of Georgia-Pacific, reporting to Charles Koch, the CEO of Koch Industries, which had bought the paper and pulp company in 2005. Hannan, a longtime Koch employee, had been doing a stellar job by some standards — the maker of Brawny paper towels and Quilted Northern toilet paper was paying down debt and delivering higher profits. But there was a hitch: The workplace was becoming more dangerous.

In 2013, two Georgia-Pacific employees had been killed on the job. Injuries had continued to rise, and Hannan was upset. During the meeting, Hannan berated his leadership team. “The last six months is unacceptable,” he said, according to notes taken by someone who observed the meeting.

Hannan suggested that the future of the company was on the line.

“If we can’t keep safe, why invest?” Hannan asked.

Senior managers and executives at Koch were aware of the growing safety problem for years, company documents obtained by ProPublica show.

“What happened?” Hannan asked in the 2014 meeting, according to the notes. All divisions of Koch industries operate using Charles Koch’s philosophy called Market-Based Management. MBM, which at Koch Industries is used to address all business questions from sales to safety, should have been solving this problem. But it was not.

Indeed, the dangers only got worse. When Hannan held the meeting in early spring, no workers had yet died that year. By the end of the year, six Georgia-Pacific employees were killed on the job. Accidents kept rising in the years after. More worrisome, the accident rate also increased during that period, meaning that each employee faced a higher chance of being hurt on the job, according to internal Koch documents.

One internal Koch presentation showed that Georgia-Pacific’s safety record in 2016 by one measure ranked in the bottom half of U.S. paper and pulp companies. Most important, Georgia-Pacific’s safety record was worse than its major competitors’, including Weyerhaeuser and Pratt Industries.

The story of Georgia-Pacific’s safety crisis, revealed in internal corporate documents obtained by ProPublica, interviews with executives and workers, and Koch’s own data, shines a rare light on the inner workings of Koch Industries, one of the nation’s largest and most secretive corporations. The company is adept at making brilliant investments, streamlining operations and boosting profits. But in the shadow of this success, work has become more dangerous for many Georgia-Pacific employees.

In March of 2014, Jim Hannan joined a group of executives at Georgia-Pacific to discuss a burgeoning crisis.

Hannan was CEO of Georgia-Pacific, reporting to Charles Koch, the CEO of Koch Industries, which had bought the paper and pulp company in 2005. Hannan, a longtime Koch employee, had been doing a stellar job by some standards — the maker of Brawny paper towels and Quilted Northern toilet paper was paying down debt and delivering higher profits. But there was a hitch: The workplace was becoming more dangerous.

In 2013, two Georgia-Pacific employees had been killed on the job. Injuries had continued to rise, and Hannan was upset. During the meeting, Hannan berated his leadership team. “The last six months is unacceptable,” he said, according to notes taken by someone who observed the meeting.

Hannan suggested that the future of the company was on the line.

“If we can’t keep safe, why invest?” Hannan asked.

Senior managers and executives at Koch were aware of the growing safety problem for years, company documents obtained by ProPublica show.

“What happened?” Hannan asked in the 2014 meeting, according to the notes. All divisions of Koch industries operate using Charles Koch’s philosophy called Market-Based Management. MBM, which at Koch Industries is used to address all business questions from sales to safety, should have been solving this problem. But it was not.

Indeed, the dangers only got worse. When Hannan held the meeting in early spring, no workers had yet died that year. By the end of the year, six Georgia-Pacific employees were killed on the job. Accidents kept rising in the years after. More worrisome, the accident rate also increased during that period, meaning that each employee faced a higher chance of being hurt on the job, according to internal Koch documents.

One internal Koch presentation showed that Georgia-Pacific’s safety record in 2016 by one measure ranked in the bottom half of U.S. paper and pulp companies. Most important, Georgia-Pacific’s safety record was worse than its major competitors’, including Weyerhaeuser and Pratt Industries.

The story of Georgia-Pacific’s safety crisis, revealed in internal corporate documents obtained by ProPublica, interviews with executives and workers, and Koch’s own data, shines a rare light on the inner workings of Koch Industries, one of the nation’s largest and most secretive corporations. The company is adept at making brilliant investments, streamlining operations and boosting profits. But in the shadow of this success, work has become more dangerous for many Georgia-Pacific employees.

Charles and David Koch’s political activities, and their company’s inclination to be private, have concealed an epic corporate success story. Charles has been CEO of Koch Industries for more than 50 years, responsible for building a juggernaut with annual revenue of around $100 billion, Forbes estimates, more than that of Facebook, Goldman Sachs and U.S. Steel combined.

Their success has made the Koch brothers some of the most powerful and wealthiest people in the world. The two are worth an estimated $101 billion, according to Forbes, a combined fortune larger than that of Bill Gates or Warren Buffett.

People know Koch Industries as an energy company because of its large holdings in oil refineries, pipelines and commodities trading. But it is more like a giant portfolio of companies, akin to a private-equity firm. The Kochs buy up companies like Georgia-Pacific and load them up with debt. To make their gamble pay off, Koch pushes them to cut costs and boost productivity.

Georgia-Pacific has been one of the Koch conglomerate’s shining successes. Koch paid roughly $21 billion for Georgia-Pacific in 2005. Koch bought the company in part with borrowed funds that it put onto Georgia-Pacific’s balance sheet. This reduced risk for Koch — if the deal went south, the losses could be contained within the Georgia-Pacific division. But in keeping with its track record with other acquisitions, the company’s finances improved dramatically. Georgia-Pacific’s debt was rated as junk when Koch bought the company — by 2013, Koch had brought the debt rating up to an A+, just two notches below Standard & Poor’s top grade of AAA. Georgia-Pacific earned $623 million in profit in 2004, the year before Koch bought it. Now it earns an average of more than $1 billion a year.

To make the deal pay off, Koch had to boost production and profits at Georgia-Pacific, paying down the debt as it went along. This job has largely fallen to Hannan. He would attribute his success to Charles Koch’s MBM philosophy. Charles Koch has published two books that outline his investment and management strategy, and he makes his workers and executives live by his creed.

Few embraced the teachings more than Hannan, who was promoted to CEO of a large division of the company called Koch Enterprises in 2017 and now oversees the new CEO of Georgia-Pacific. He is trim, athletic and arrives at work in the Koch executive uniform — sport coat, button-down shirt, no tie. He is fluent in the highly detailed code taught to every new Koch recruit during multiday seminars after they are hired. To an outsider, the ideas may seem fairly quotidian, the kind of slogans that are widely embraced by companies all over the world. MBM’s tenets like “integrity” and “compliance” and “value creation” are printed on coffee cups in the company break rooms, and its guiding principles are taped to cubicle walls at headquarters. But to insiders, these words hum with an almost religious cadence. The philosophy aims to re-create the laws of a free-market system within Koch Industries. Managers are treated like property owners whose holdings expand when they make good decisions.

Hannan was hired as chief financial officer of Koch’s minerals division back in 1998, and he later worked in a group that made private-equity style acquisitions. Hannan scouted Georgia-Pacific in 2003 when Koch was planning to buy its pulp mill division, a deal that later led to Georgia-Pacific’s acquisition. When he visited Georgia-Pacific’s headquarters in Atlanta, he saw the large executive suites located next to a private dining room with white tablecloths, fine china and floor-to-ceiling windows with a commanding view of the city. All Hannan said he could recall thinking, as he looked around, was: “Too lavish.” When Koch bought the company, it turned the executive suites into meeting rooms and moved the leadership team down one level, into smaller offices.

During an interview in 2016, Hannan’s CEO office reflected his campaign against glitz. On the 50th floor of the Georgia-Pacific tower, he had a big desk and a small conference table surrounded by tasteful wooden chairs. He had prominently displayed a paper Dunkin’ Donuts coffee cup on a polished wood credenza directly across from his desk. The insulated cups, made by a company he encouraged Koch to purchase years earlier, were a bust because they were too expensive. He liked to keep the reminder of his failure in front of him, every day.

When asked in the interview what kept him up at night as CEO, Hannan didn’t mention the competition, profits or productivity. He leaned forward and said that what worried him most was that one of his employees might be hurt on the job.

“There is nothing worse than getting a phone call at 2 in the morning and saying somebody has been seriously injured or killed in one of our facilities,” he said. “And that is something we cannot let happen. And so we invest an enormous amount of resources” to prevent accidents.

Nonetheless, something wasn’t working.

At first, the safety data looked promising. Georgia-Pacific’s safety record had been spotty before Koch arrived. During the early 1990s, Georgia-Pacific was reporting six worker deaths a year, according to an internal Koch Industries presentation. But under Koch ownership, safety initially improved. By 2010, Koch was using an internal injury-tracking system, called TRAX, that gave the company a granular view of workplace accidents, with an annual tally of everything from electrocutions to bruises, burns and amputations. TRAX showed improvement in the early years.

But the good news was short-lived. Accidents began to rise, and it became apparent that some of the improvement may have had to do with the slower pace of the company’s business after the slowdown in the economy after 2008. Much of Georgia-Pacific’s business is tied to the housing industry and overall economic growth.

After 2013, as economic growth gained steam and business started to pick up at Georgia-Pacific, working conditions started to become more unsafe every year. As demand for the company’s products increased, deaths also began to rise, as did the number of injuries. Injuries jumped sharply between 2013 and 2014, from 527 to 644. And a measure to track the amount of time lost to injuries, called the DART rate, jumped 37%. (A Koch spokesperson disputed the notion that increased economic growth and new orders at Georgia-Pacific contributed to workplace injuries but did not provide an alternate explanation.)

The company’s internal tracking system also was sending out klaxons. The total number of accidents increased by 30% between 2010 and the end of 2017, according to the most recent full-year TRAX data available to ProPublica. (ProPublica asked Koch to provide data for 2018 and 2019, but the company declined.)

After Hannan’s emergency meeting in the spring of 2014, Georgia-Pacific suffered a spate of worker deaths. In April of that year, at Georgia-Pacific’s plant in Corrigan, Texas, a fire broke out in a silo that captured wood dust. After employees rushed to put the fire out, the silo exploded, engulfing the employees in flames and killing 56-year-old Charles Kovar and 58-year-old Kenny Morris. On July 24, a 63-year-old employee named Lydia Faircloth was leaving her shift at the company’s mill in Cedar Springs, Georgia, around midnight. She crossed the floor in a crosswalk marked for pedestrians but was hit by a truck, driven by her co-worker, and died from severe internal injuries. In August, a 41-year-old employee named Robert Wesson was killed when a machine crushed his skull after he got too close to it.

Many of the nonfatal accidents were serious, too. In 2014, nine employees lost limbs or body parts (suffering injuries marked as “amputations” in the TRAX database).

Things kept getting worse. Between 2015 and the start of 2018, the DART rate jumped 25%. One hundred and fifty-four employees suffered heat burns in 2014, up from 134 the year before, and 126 the year before that. The number of electrical shocks jumped to 19 in 2014 from one the year before.

The accidents have continued in more recent years. In October of 2018, an employee at a plant near Mount Jewett, Pennsylvania, was killed after he fell 90 feet from the roof while performing maintenance there. In May of this year, a fire at a Georgia-Pacific mill in Oklahoma broke out and five employees were treated for injuries.

Workplace safety is a hellishly complex issue at a place like Georgia-Pacific. The company operates gigantic mills and distribution centers where thousands of employees work their shifts around huge machines that can kill a person in an instant due to even slight miscalculations. But it is unclear what exactly is making the company more dangerous.

It’s not that Koch Industries doesn’t emphasize safety. Employees are drilled to follow the company’s “10,000% compliance” policy, which requires them to follow 100% of the safety rules 100% of the time (100 multiplied by 100 being 10,000). David Hoffmann, who worked as a compliance attorney at Koch from 2005 to 2010, said Koch Industries’ adherence to safety rules was almost religious. Hoffmann and his boss would travel to Koch chemical plants and threaten to shut down operations if they weren’t satisfied that conditions were safe. At Georgia-Pacific, Koch has written hundreds of pages of new safety rules and threatens to fire workers who disobey them. But that approach may sometimes be counterproductive. The company imposes a dizzying set of guidelines, codified in a series of papers accessible through the company’s internal computer network, on the daily life of workers. One “work standard” paper, as employees call them, dictated how employees should conduct themselves when taking on “non-routine” work outside their typical operating procedure. It was more than 20 pages long. Another work standard, dictating how employees should shut down machines to repair them, was about 25 pages long. One employee estimated that the total number of work standards reports were 1,000 pages combined. Having such complicated standards can be counterproductive, according to current and former employees.

When Travis McKinney joined the Georgia-Pacific warehouse more than a decade ago, about 135 people worked there. Now there are about 60 employees, he said. And Koch has notified workers that the company plans to eliminate 20 more jobs this year as it tries to automate more of the warehouse. Overall, the company cut the number of unionized workers in half, and it reduced the total workforce by 36% to roughly 35,000. The workers who are still there are doing more work, during longer hours, with fewer days off than ever before, McKinney said.

“They really preach the gospel that we want everyone to be safe, but in the end, it’s all about productivity,” McKinney said.

Rather than slow down the factories or increase the workforce, internal company memos show that executives focused on changing employees’ “hearts and minds” and getting them to more tightly embrace the teachings of MBM.

At a Georgia-Pacific warehouse complex in Portland, Oregon, Koch boosted productivity by using a software program called the Labor Management System, which precisely directed the movements of forklift drivers during their shifts. When drivers like McKinney reported to work, they logged onto the system and were told which bay to drive to and which pallet to pick up. The LMS directed their movement for the rest of this shift. It also recorded how quickly they delivered each load, comparing their performance against internal benchmarks.

Koch used the data to push employees to work harder. For years, Koch ranked each driver into three tiers: “green” for the top performers, “yellow” for the middle and “red” for the laggards. The results were publicly posted. If a driver ranked in the red zone for too long, he or she could be fired. Drivers sped up to keep their rankings high, according to multiple employees interviewed over several years. They were also expected to adhere to Koch’s detailed safety policy.

The LMS system and Koch’s 10,000% compliance doctrine were contradictory forces that guided McKinney’s work. He hurried to keep pace with the LMS, and he tried to remember every workplace safety rule along the way.

“People aren’t wanting to slow down. They want to stay productive,” McKinney said. “When you work someone like that, they’re going to be tired and make mistakes.”

Koch’s investments to boost productivity are evident at Georgia-Pacific’s sprawling mill outside Savannah, Georgia, one of the largest tissue and paper towel mills in the United States. On a visit in 2016, the mill was highly mechanized, and its cavernous interior was clean and pleasant to walk through. The space resembled an industrial Santa’s workshop, a complicated maze of automatic machines that rolled, spun and packed countless rolls of toilet paper. Automated forklifts drove between the machines, guided by laser beams aimed at the floor in front of them. Employees monitored the machines and fixed them when there was a problem.

One side effect of automation is that Georgia-Pacific workers are less specialized. Until Koch bought the company, employees like Dana Blocker often had narrow job descriptions that might lead them to operate only one specific piece of equipment. A person was a “winder operator,” for example, or a “wrap operator.” Labor unions at Georgia-Pacific stubbornly protected these rigid job designations. Though sometimes the unions were inflexible, such traditions helped keep them safer, multiple current and former employees said. Being confined to a certain job helped workers reinforce their expertise with a specific machine. Knowing the quirks and dangers of such machines was vital.

When Koch took over Georgia-Pacific, those job distinctions were largely dissolved. The remaining employees have seen their job descriptions transformed. Under Koch, Blocker oversaw a wide variety of machines and processes.

“Now you’re a technician, expected to go out and run all the equipment on the line. So, no one is tied to one piece of equipment. You have to run the entire process,” Blocker said. Generalists have to learn the quirks of multiple pieces of machinery.

Jeffrey Pfeffer, a professor of organizational behavior at Stanford’s graduate business school, said workplace injuries and illnesses often rise when owners push employees to do more work with less support. Workers suffer more health problems and injuries when they work longer shifts, lose control of their activities on the job and have more stress trying to balance their job obligations with family life.

“People don’t do their best when they’re exhausted,” Pfeffer said.

Debra Roberts, who has worked at the warehouse since 2012, knows exhaustion only too well. She was forced to work 14 days in a row in late 2017, she said. If she declined to show up, she would have faced discipline or firing. During that stretch of back-to-back shifts, she was driving down an aisle when a coworker pulled out of a bay crashing into her forklift. As it turned out, he had also been working a 14-day string of shifts, she said.

“You’re just not on your game after working all those days in a row,” Roberts said. “You’ve got no downtime. And your body gets wore out … your reflexes aren’t as sharp as they should be.”

Luckily, no one was injured in that accident. But last summer, Roberts said the situation got worse. She was forced to work 30 days in a row. She said she asked her bosses for a day off but was denied. When she was informed at the end of her 30th day that she could stay home the following day, she broke down in tears.

“I was so exhausted. It was just like … relief,” she recalled. “On my day off, all I did was sleep.”

In the past, the federal government has cracked down on Koch for transgressions in its various divisions and the violations have been widely publicized, prompting the company to change its behavior. In 2000, for example, Koch Industries paid a then-record federal fine of $30 million to settle an EPA case over more than 300 oil spills from Koch’s pipeline networks. Also that year, Koch’s refinery in Minnesota was fined $6 million for a criminal violation after managers dumped polluted water into nearby wetlands. Both cases generated national headlines. The civil fines and negative publicity prompted Charles Koch to develop the 10,000% compliance doctrine, according to the compliance specialist Hoffmann and multiple other Koch executives.

But the crisis of workplace injuries at Georgia-Pacific has followed a different path. Federal regulators ruled that Koch Industries had violated dozens of federal worker safety regulations at its Georgia-Pacific facilities, but the fines for doing so were relatively paltry. Neither the worker deaths and injuries, nor the fines garner much media attention.

Georgia-Pacific was fined $5,000 for violations related to the death of Robert Wesson, according to Occupational Safety and Health Administration records. The company was fined $14,000 for violations related to the burning deaths of Charles Kovar and Kenny Morris. It was fined $35,050 for a series of violations dubbed “serious” by OSHA related to the death of Lydia Faircloth.

Critics have assailed the limits on OSHA’s power to crack down on dangerous workplaces for years. The size of OSHA fines is determined by Congress through its budgetary authorization of OSHA. Congress capped OSHA penalties as part of the Budget Reconciliation Act in 2015, according to an agency spokeswoman. The maximum penalty for a “serious” citation is $13,260, and the maximum penalty for a “willful or repeat” citation is 10 times that.

Koch Industries responded to the Georgia-Pacific safety crisis by re-emphasizing the need of employees to follow the guidelines of Market-Based Management.

Charles Koch has written that MBM and safety can go hand in hand. “At Koch, we reject the notion that serious injury or the loss of life is an inevitable reality for employees of a large manufacturing company,” Koch wrote in his 2015 book about MBM, called “Good Profit.”

“This is why we have since improved our application of MBM to ensure that we always strive to go beyond standard industry practice on safety when appropriate, and only employ leaders and other employees who do so,” he wrote.

An undated internal Koch Industries presentation, which includes data up through June of 2017, referred to the crisis in terms that military commanders might use to describe a large-scale insurgency.

The “Headline Discussion” of the presentation said that Koch needed to “Engage Hearts & Minds” of employees to reverse the increasingly dangerous conditions. “Are we putting too much emphasis on ‘we are improving’ versus we are not satisfied with where we are and our rate of improvement?” the presentation asked. The presentation noticed that serious injuries were “flat to increasing” between 2016 and 2017, in spite of the company’s efforts.

The presentation that noted that Georgia-Pacific was more unsafe than the company’s major competitors was a direct challenge to Koch’s senior leadership. None of the companies that ranked ahead of Koch subscribed to MBM, yet they all did better than Koch.

Koch’s response was to renew its commitment to Charles Koch’s philosophy and to reduce risk by “applying 5 MBM® dimensions throughout organization,” according to the internal safety presentation.

The leadership team set out an ambitious goal. It sought to achieve “zero significant incidents” at Georgia-Pacific in the future. One chart showed a “Georgia-Pacific Safety Risk Glide Path” that would gradually reduce accidents to a level near zero by 2035. A different chart noted that every 10% decrease in serious incidents would yield between $5 million and $25 million for the company. Koch declined to elaborate on how it arrived at that calculation.

A chart, titled “Georgia-Pacific 20 Year Bet,” was written in the classic style of MBM materials. It featured colored boxes connected by dark lines in a wheel-and-spoke formation. The box in the center read “Critical Risk Focus Areas,” and the connected boxes listed various Georgia-Pacific operations and risk hazards like “Combustible Dust” and “Electrical Safe Work Practices” (electrical shocks had skyrocketed at Georgia-Pacific, rising from one in 2010, to 23 in 2015 and 31 in 2017). It said the company workers must change their mindset and “Go from Have To — To Want To” in terms of staying safe.

In spite of this approach, workplace accident rates continued to accelerate that year.

Posted with permission