CEBC IN THE NEWS

Retired CEO Chides Corporate Cheats

Published Tuesday, June 8, 2004 in the Star Tribune.

By Neal St. Anthony

Dave Koch has nothing against capitalism or making a buck.

He just doesn't like cheaters.

"The purpose of business is to serve people -- the customers with a good product, the employees with fair wages, the shareholders with profits and the community through taxes and philanthropy," said the retired CEO of Graco Inc. "I've been frustrated in recent years with all these CEOs making millions in a year and scandal after scandal at some of these companies.

"The government, the people give franchises to business to operate in the 'public interest.' And I haven't heard one business person stand up and say, 'I'm sorry for screwing up the system.' "

Koch isn't mollified by a few high-profile executives going to jail, bankrupted businesses or cents-on-the-dollar settlements with regulators and injured shareholders in the wake of corporate scandals that led to new, costly regulations.

"The pendulum is swinging back," he said. "People demand reforms."

"We can't be paying millions a year for some of these CEOs in a global economy where their competition is being run by Ph.D.s in physics in Europe or Asia and putting out just as good a product for a couple-hundred thousands bucks a year," Koch said.

"Talk about inefficiency. That's CEO inefficiency. And people will change it."

More than 25 years ago, Koch founded what has become the Center for Ethical Business Cultures. He also has been instrumental in ensuring that the teaching-and-consulting agency found a permanent home at his alma mater, the University of St. Thomas, where he also serves on the board. Business Dean Chris Puto said last week that St. Thomas, which jointly sponsored the center with the University of Minnesota, plans to endow the organization, integrate its programs with the business school curriculum and expand its growing albeit chronically underfunded consulting and teaching mission.

The timing is good amid all the talk of scandal and executive excess. And Koch has the tickets to talk about a clean shop and delivering for stakeholders.

On his watch, Graco expanded from being a niche manufacturer to a $583 million-sales supplier of sprayers and other equipment to factories on several continents. The Minneapolis-based company, which a couple of years ago expanded its headquarters and production facilities a couple of miles northeast of downtown on the Mississippi River, has provided a compound annual return of more than 15 percent to shareholders during the past quarter-century. Besides being one of the best Minnesota stocks to own in that period, Graco has expanded employment and charitable giving over the years.

Dave Koch wasn't exactly born to the manor, but he acknowledges some breaks.

For one thing, he offered: "I sat next to Barbara Gray in high school."

Barbara Gray, who became his wife, is the daughter of the late Leil Gray, one of two brothers who founded Graco in their search as garage owners to invent a grease gun that would work well in freezing weather. Barbara was adopted by Leil and his wife in the 1940s. Educated as a social worker, she worked as a mother and hands-on volunteer for decades.

Koch was known as a solid, hard-working executive. He also credits a long list of loyal, creative colleagues who helped Graco take market share and make more money.

"I've been pretty lucky," Koch said of his career.

He was a working-class kid who was fortunate enough to get a college degree and land a good job that developed into a great career and wealth for himself and family. The founders of the company died before Graco sold stock to the public, creating wealth for Barbara and David Koch's generation.

Koch, who served as chairman of the Chamber of Commerce, the Minnesota Business Partnership and the United Way over the years, was a founder of the Five Percent Club of companies that share profits with charity. He pushed Graco and other business to get more involved with needy schools and education policy, and he served in various community endeavors.

Koch, the son of a Plymouth plasterer, was a football star in the late 1940s at Wayzata High School and won a scholarship to Notre Dame.

"But they were playing a lot different game there than we played at Wayzata," quipped Koch, still trim and sturdy a half-century later, of the competition at Notre Dame. "I eventually came back, finished school and played baseball at St. Thomas, served in the Air Force, got married and joined Graco."

He took over as the boss in 1962, six years after joining the company in 1956.

Dave and Barbara Koch have had a life of opportunity and good fortune. They were able to cash in. They'll pass on some of their winnings to their four kids and grandchildren through trust funds. But the gist of their story will be one of reinvestment in the community.

"My wife and I have or will allocate to charities and schools all that we have left," Koch said the other day. "I'm still active in some businesses and investing. My wife is kind of a one-woman social agency. Our goal, to a significant degree, has been to share our wealth. We plan to have zero money at the time of death."

Dave Koch, through his career and stewardship, gives capitalism a good name.

© Copyright 2004 Star Tribune. All rights reserved.

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