CHAPTER 4

Personal and Business Integrity

"My father once advised a group of business students to 'always do business with honorable people.' He told them 'all the contracts and lawyers in Christendom cannot make a dishonorable man hew to the line.' When we’re considering a business relationship – whether with an employee, partner, supplier or customer – our first question is always do they have integrity?"

—Charles Koch

Avoiding Conflicts of Interest

A conflict of interest occurs when personal, social, financial or political activities interfere with our responsibilities to the company. Actual conflicts must be avoided. Even the appearance of a conflict can be damaging and should be avoided. You have a primary business responsibility to the company and are expected to avoid any activity that may interfere, or have the appearance of interfering, with the performance of this responsibility.

The following sections are examples of areas where conflicts of interest may arise.

Taking Advantage of Company Business Opportunities

You may not take personal advantage of business opportunities, or potential business opportunities, that you learn about or develop in the course of your employment with the company. This is true whether it directly benefits you or any other person or business.

Working for Other Companies

While there is no general prohibition against working for other companies, doing so must never interfere with your responsibilities to the company, including taking time away from company duties or misusing company resources. If the second job is with an organization that is a competitor, customer or supplier of goods or services to the company, it raises an actual or apparent conflict. The same considerations apply to working, consulting with or advising for an organization that is seeking to become a customer, supplier or competitor of the company. Before taking a second job with any other company, you should talk with your supervisor to make sure it does not pose a conflict for you.

Conducting Business with the Company

Except when specifically permitted or approved, you and your close relatives may not engage in any transaction with the company. Examples include the rental, purchase, sale, transfer or use of property or provision of service.

A conflict may arise when a relative or friend works for a competitor, customer or supplier and directly interacts with you or your business group as a part of their role with that company. If you are unsure whether you could be in a situation that might create a potential conflict of interest, consult with your supervisor.

Ownership or Investment in Other Companies

You and your close relatives should not have a substantial interest in any customers, competitors or suppliers. You are required to inform your supervisor about any outside business interests of this nature you have or are considering. In addition to a potential violation of insider trading law, ownership or investments of this kind may impair your ability to make objective business decisions on behalf of the company and divert you from your primary responsibilities to the company.

Employment of Immediate Family

The hiring of relatives must be pre-approved by the executive human resource leader of the Koch company you are employed by.

Personal Activities

We are all expected to commit our full attention to business activities during business hours. Do not let personal activities, including those related to a personal business, take attention away from or interfere with your responsibilities to the company.

FAQs

One of the electrical contractors who works for the company has offered me a part-time job on the weekends. Would this create a problem?

Probably so. Our policy on avoiding conflicts of interest obligates all of us to avoid even the appearance of a conflict of interest.

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My sister manages a local office supply store and she says that she can save us money if I can help her do business with the company. Can I use her firm or recommend her firm to others in the company?

This might be perceived as a conflict of interest or favoritism. You should disclose the relationship and receive advance approval from your local management before pursuing this business arrangement or recommending it to others in the company.

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I have an investment in a company that is not a customer, competitor or supplier. My investment causes me to receive and answer email and phone calls occasionally while I’m at work. Does this cause a conflict of interest?

It depends. There are many factors that could cause a conflict to exist. You should contact your supervisor to discuss the facts related to your investment and together determine a course of action.

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Can our family-owned business sell its products or services to the company?

Behaving with integrity requires that your family business should not try to do business with the company unless and until you have received permission from your local management or your compliance and ethics resource.

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Is it okay to use my computer on my lunchtime to access the Internet to research topics of personal interest?

Yes, under certain conditions. If you use the Internet for brief, infrequent periods of time, and you are not accessing inappropriate sites, it is generally acceptable. If you have any doubt, consult with your supervisor. You also should refer to the acceptable electronic usage section in this Code.

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My son is at home alone after school until I get home. Is it acceptable to have him telephone me when he gets home from school to let me know that he has arrived safely?

Yes. It’s generally acceptable for us to make and receive personal calls as long as they are infrequent, brief and do not interfere with the normal flow of business activities.

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I interact with a lot of people at my workplace and I think it would be a great opportunity to be able to introduce a new line of cosmetic products I sell and also to ask them if they would like to participate in a fundraiser for my child’s school. Would either of these activities create a conflict of interest or other policy violation?

You are not allowed to solicit from your coworkers during company working time, in work areas, or by using company resources, such as email. You should also refrain from soliciting anyone you supervise. Contact your supervisor or human resources leader to ensure you understand the non-solicitation policy applicable to your location.

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Are we allowed to participate in betting pools?

Office betting pools, often used to wager on the outcomes of sporting events can be illegal. As such, company assets and resources cannot be used to sponsor or participate in this type of activity. While certain pooling activities may be legal under state law, any such activity that is conducted during working time or involves the use of company assets, such as email or copy machines, is considered inappropriate.

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Does the Code prohibit me from having a romantic relationship with a coworker?

The Code is not designed to cover private matters between employees. However, romantic relationships with others in the workplace can create situations that may be prohibited by the Code. For instance, employees who supervise one another, coworkers who work closely together or who could influence each other’s pay, performance rating, job benefits or other terms and conditions of employment, must avoid even the appearance of a conflict of interest. If you find yourself in a situation that may lead to a potential or actual conflict of interest due to a romantic relationship with a coworker, you are encouraged to bring the matter to your supervisor’s attention or to the attention of human resources.

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I am a software programmer for the company. I want to start a business that will develop and maintain personal computer software for small companies. Will this be a conflict of interest?

It depends on many factors, such as whether your product is similar to programs that you develop while employed by the company, and whether company time, material, equipment or proprietary information could be used in developing, marketing or maintaining your product. Before starting your business, you should consult with your supervisor to get a conflict of interest determination, as well as determine whether any company proprietary information or trade secrets are involved.

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I have been asked to serve on the board of a nonprofit organization. Is that a problem?

You must consult with your supervisor. Your board activities should not conflict with your working time and you should not use corporate resources to communicate with others in your capacity as an outside nonprofit board member. Positions on for-profit company boards present additional risks and will require additional review and preapprovals.

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Gifts, Gratuities, and Entertainment

We pride ourselves on building strong relationships with customers, suppliers, government officials and other business associates. At times, and where allowed by law, it may be appropriate to exchange modest gifts or entertainment. Good judgment and common sense are also critical in determining the appropriateness of a gift or entertainment. Avoid any relationship that could give the appearance of impropriety or otherwise affect or influence your ability to make good business decisions. Offering, giving, soliciting or receiving any form of bribe or kickback is strictly prohibited.

Gifts are defined very broadly and can include anything of value, such as cash or cash equivalents, travel, transportation, lodging, meals, drinks, entertainment, use of company materials, facilities or equipment not available or offered to the general public, employment offers, a promise of future business opportunities, scholarships and charitable contributions.

As a general rule, do not provide or receive anything of value or give special treatment of any kind, to or from any individual, organization or government official that seeks to conduct or conducts business with the company, or that competes with or regulates the company unless:

It is lawful, ethical, of limited value and supports a valid business purpose.
It creates no real or perceived business obligation.
Public disclosure of the transaction would not embarrass the company.
Proper approval is received.

The following also applies when giving or receiving anything of value:

No gifts of cash should ever be given or accepted.
No gift cards, certificates or other cash equivalents should ever be given or accepted including those only redeemable for in-store merchandise. Exchange options exist which could result in the recipient exchanging the gift for an alternate preference or even convert the gift to cash. Exceptions may be appropriate in limited circumstances and are permitted only when the pre-approval requirements of your Koch company have been met. This exception does not apply to government officials in the U.S. or to foreign government officials outside the U.S.
Do not solicit anything of value from any customers, suppliers, government officials or business associates.
Any improper request for anything of value from any customers, suppliers, government officials or business associates must be reported.
Giving or receiving anything of value must be approved by an employee’s supervisor if the value, given or received, exceeds U.S. $100.
When providing anything of value, it must be limited to those directly responsible for the business at issue unless the participation of others is reasonably necessary for the legitimate business purpose of the expense.
Giving or receiving gifts, entertainment or other gratuities is likely to require documentation on your part. Giving or accepting gifts may also result in taxable income to you and/or the recipient. You should ensure that you understand such requirements and take appropriate action.

Ethical dealings with the government or a state-owned enterprise, requires following guidelines, especially when providing anything of value to a government official. Additional government interaction information, including the definition of “government” is located in the section of this Code on Government Interaction. Do not authorize, offer, provide, or deliver anything of value, either directly or indirectly, for the purpose of rewarding or improperly influencing any political official or government official, or their contractor or agent.

The following additional requirements apply:

Government officials and state-owned enterprises in some jurisdictions may be subject to specific gift limitations well below the U.S. $100 limit. Pre-approval, documentation and tracking requirements of your Koch company must be followed when providing anything of value to a government official.
Non-U.S. government officials or employees of state-owned enterprises outside of the U.S. are subject to the independent review requirements of your Koch company, when providing anything of value.

The requirements associated with providing anything of value, especially to a government official or employee of a state-owned enterprise, can be complex and may require the involvement of your compliance and ethics resource, Government & Public Affairs office or Legal. You should ensure that you understand these requirements and take appropriate action.

Additional information pertaining to corruption and commercial bribery is located in the section of this Code on Anti-corruption and Commercial Bribery.

FAQs

Is the U.S. $100 approval limit on gifts an annual limit?

No. The limit relates to the value of gifts given at any one time. However, frequent gifts to or from one individual would likely violate the policy.

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One of the vendors we used to work with is having a charitable event. May I attend if I pay for the event with my own money? What if I win a prize; may I accept it?

Generally, yes, but you should advise your supervisor to ensure that there is not even an appearance of impropriety. Generally, you could accept the prize. However, the issue should be raised with management to avoid any potential conflict of interest issues.

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May I accept an offer to vacation with my family at a customer’s mountain condominium even though the customer will not be present?

Since you are not going to be with the customer to discuss business or otherwise further your relationship, there probably will not be a sufficient business purpose to justify the offer. You may pay the customer fair market value for the condominium after seeking approval from your supervisor or your compliance and ethics resource.

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What if my customer is offended that I cannot accept a gift that is over the U.S. $100 limit?

Usually a polite explanation that company policy prohibits you from keeping the gift will be sufficient.

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May I accept a business meal from a customer or supplier?

You may let a customer or supplier pay for a meal arranged for the purpose of discussing business. However, it probably is not appropriate to let customers or suppliers repeatedly pay for your meals.

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I’m responsible for securing temporary help through outside employment agencies. One of the agencies sent me a gift during the holiday season. May I keep it?

You may accept the gift if it meets each of the following tests: it is unsolicited; it is less than U.S. $100; it is not cash or a cash equivalent; and it will not influence or be perceived as influencing your business judgment. If you are unsure, discuss the situation with your supervisor or compliance and ethics resource.

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One of my customers has invited me to attend a three-day conference sponsored by his company at a major resort. The conference agenda includes some business activities but also provides for leisure activities. May I accept the invitation to attend at the customer’s expense? Suppose the same invitation came from a supplier; could I accept?

In either case, you should only attend if there is a reasonable expectation that your attendance will create value for your business, that the event is typical of your industry and your supervisor approves in advance. Participation at such conferences can help build good customer or supplier relations. Participating in events that do not present significant business opportunities is inappropriate.

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My spouse and I have been invited by a supplier and his spouse to join them for a weekend golf outing. Is it acceptable for my spouse to attend?

There must be a reasonable expectation that some business benefit to the company will result. You and your spouse’s travel and entertainment should be treated as a gift and if the value of the trip exceeds U.S. $100, approval must be received prior to your acceptance.

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Are the Gifts, Gratuities and Entertainment requirements different when entertaining an employee of a government agency or state-owned enterprise?

It depends. Providing anything of value, such as “entertaining,” must be consistent with applicable laws in the relevant countries, meet the requirements of the Gifts, Gratuities and Entertainment section of this Code and any additional requirements imposed by your Koch company. If you have any questions, seek the advice of Legal before taking action.

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Resolving Conflicts of Interest

If you think that you may have a conflict, real or perceived, report all relevant details to your supervisor, compliance and ethics resource or Legal. Most conflicts of interest can be resolved in a mutually acceptable way, but they must be addressed.

Insider and Personal Trading

In the course of your everyday work, you may gain confidential information regarding the business of the company or third-parties, such as customers, suppliers, acquisition targets or venture participants.

The company and its employees are prohibited from buying, selling or otherwise transferring securities of an issuer while in possession of material, non-public information relating to that issuer, or its securities. In addition, you must not “tip” other people; that is, you must not disclose such information to others. If others act on the information you provide, you could both be violating the law and subject to severe penalties.

Your awareness of material, non-public information at the time you purchase or sell a security of an issuer may be enough to violate insider trading laws. It may not matter whether you actually use the information in making the purchase or sale.

Some examples of “securities” are:

Shares of corporate common or preferred stock, a limited partnership interest or other forms of ownership.
A bond, such as a corporate bond.
A derivative, such as a future, option, warrant or swap relating to a corporate common stock.

“Material” information is generally regarded as information that a reasonable investor would consider important in deciding to buy, sell or hold a security. Either positive or negative information may be material.

Some examples of possible material information include:

Projections of future earnings or losses.
Information regarding a potential or proposed merger, divestiture, acquisition or venture.
Changes in key management.
Significant new products or discoveries.
Impending bankruptcy or financial liquidity problems.
Major litigation.
Gain or loss of a substantial customer or supplier.
Significant changes in credit rating or credit status.

Information is considered “non-public” until it has been effectively disclosed to the investing public and enough time has passed for the investing public to be able to evaluate the information.

If you violate the laws regarding insider trading, you and others that you disclose information to may be subject to severe criminal and civil penalties, including substantial fines and imprisonment. In addition, you may expose the company to considerable fines.

Personal Trading Restrictions

In addition to observing the insider trading laws, you must observe the following restrictions in your personal trading activity:

Do not buy, sell or otherwise transfer securities of a particular issuer, such as corporate stocks or bonds, if you have been informed that transactions in the securities of that issuer are prohibited.
Do not buy, sell or otherwise transfer any physical commodity, future or derivative of a physical commodity that has been prohibited by your Koch company.
Personal trading must not create a conflict of interest, such as trading securities of a key customer, competitor or supplier of your Koch company.

These restrictions also apply to your family members and others who live in your household. You are expected to ensure that they comply. These restrictions also apply to any account over which you have control or discretionary trading authority, even if that account is not in your name. If you are designated as an Employee with Access to Sensitive Information, you must follow the pre-trade clearance requirements of your Koch company.

FAQs

I’ve become aware of a proposed venture between the company and a publicly traded company. It hasn’t been publicly announced. May I trade in the other company’s securities or pass along the information to someone else?

No. Since you are aware of material, non-public information about the publicly traded company, you must not trade in any security of that company or pass along such information to anyone else.

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I’ve become aware of financial information about one of our customers that indicates the customer is in better financial condition than most people realize. I want to purchase stock in the customer’s company. May I do so?

No. You may not purchase this stock until the financial information is known to the investing public. The information may have been entrusted to us in confidence by the customer to help us determine how to best meet the customer’s needs. Using this information for personal gain or disclosing it to others would violate insider trading laws as well as our policies regarding the use of confidential and proprietary information.

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I work for a subsidiary of the company and have learned that the company will announce an acquisition of a publicly traded company next week. May I purchase stock of the public company before the acquisition is disclosed to the investing public?

No. Your awareness of the expected acquisition would be material, non-public information, and you may not trade in any security of that company or pass along such information to anyone else.

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I would like to purchase a security of a major customer of my business group. May I purchase the security of the customer for my personal account?

If you are aware of material, non-public information relating to the customer, in addition to violating company policies, you could be violating the insider trading laws if you purchase the security of the customer. If, however, you are not aware of material, non-public information relating to the customer, you might be allowed to purchase the security of the customer if it does not create an actual or perceived conflict of interest. Questions regarding conflicts of interest should be directed to your compliance and ethics resource or Legal.

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