Big Journalism, Vast Conspiracy

About that breathless “Big Journalism” piece that went up today, THE CRANE CHRONICLES, PART I: HOW AND WHY ED CRANE PUSHED THE KOCH BROTHERS CONSPIRACY THEORY, arguing that Cato’s CEO “fueled” a Jane Mayer hit piece on the Kochs in an August 2011 New Yorker, Justin Logan writes:

Is this best they can do?

“Crane has not shied away in recent days from using the mainstream media… to argue his side of the dispute.”

Horrors!

“Having trashed the Kochs and the Tea Party, Crane then used that ostensibly independent, negative portrayal [i.e., Mayer’s article] as  ammunition in an effort to consolidate his power within Cato.”

Crane trashed the Tea Party? Somebody better tell  the Tea Party Patriots’ Jenny Beth Martin.

There isn’t a shred of evidence in the Big Journalism article to substantiate the claim that “the ludicrous Koch brothers conspiracy theory–a favorite refrain of the Obama campaign and the extreme left–was apparently fueled by Cato president Ed Crane in his bid to maintain control of the institution.”

Just how was making fun of Market-Based Management in the New Yorker supposed to help Cato with a lawsuit the Kochs filed a year and a half later?  Talk about your “ludicrous conspiracy theories.”

There’s no actual reporting in the Big Journalism piece—nothing that contradicts Crane’s account of his conversation with Mayer (given to Dave Weigel last week, in an interview that the unnamed author neglects to link):

“I said, look, I’ll tell you things about the Kochs. Ninety percent of this was positive. I admire them as businessmen, I agree with their philanthropy. The most critical thing I said — she asked, I heard they had a fallout over ‘market-based management.’ I said, Well, we had some disagreements on that. I think it’s a case of ‘the emperor has no clothes.’ Everybody tells him how brilliant this book The Science of Success is, and in my mind it’s one of the worst books ever written.”

If you want to do journalism, try picking up the phone and uncovering some new facts. Also, man up and use your byline.

Posted on Mar 27, 2012 in Koch v. Cato, Uncategorized | 78 Comments

For an Independent Board

The issue of board independence figures heavily in David Koch’s Statement last week. It’s not his strongest argument.

Mr. Koch argues that leaving Cato’s current board in place and converting the Institute to a normal nonprofit structure with a self-perpetuating board of directors would result in a board “largely subservient to Ed [Crane].”  Instead, David and Charles want what they believe Cato does not currently have: “a board independent of management.”

So let’s look at Cato’s board.  As of March 1, the non-Koch-affiliated members were:

  • K. Tucker Andersen, Director, Above All Advisors
  • Edward H. Crane, President, Cato Institute
  • Richard J. Dennis, President, Dennis Trading Group
  • Ethelmae C. Humphreys, Chairman, Tamko Roofing Products, Inc.
  • Robert A. Levy, Chairman, Cato Institute
  • Howard S. Rich, Chairman, Americans for Limited Government
  • Kathryn Washburn, Nonprofit Advisor
  • Jeffrey S. Yass, Managing Director, Susquehanna International Group, LLP
  • Fred Young, Former Owner, Young Radiator Company
  • Frank Bond, Director Emeritus, Chairman, The Foundation Group LLC

The four members bumped by the Kochs on March 1 and restored last Thursday are:

  • William A. Dunn, President, Dunn Capital Management
  • John C. Malone, Chairman, Liberty Media Corporation
  • Lewis E. Randall, Board Member, E*Trade Financial
  • Donald G. Smith, President, Donald Smith & Co., Inc.

To take just two examples from the roster above, Ethelmae Humphreys has always struck me as a pretty independent spirit (there weren’t a whole lot of women running companies and fighting unions in the 1950s, when she ran operations at TAMKO Roofing Products). 

Mad Max

And Liberty Media Corp.’s John Malone—once depicted as “Mad Max” on a Wired magazine cover—is no shrinking violet himself.

But, for the sake of argument, let’s assume all of these highly successful entrepreneurs and investors are “subservient to Ed,” given to wilting before the sheer force of his personality.

They are still independent in one sense at least: they don’t depend on Ed Crane for their livelihoods.

In his March 8 public statement, Charles Koch insisted that he and his brother seek to elect “officers and board members [who] would act independently from me or any other individual.”

Does Kevin Gentry, a Vice President at the Charles Koch Foundation, “act independently” of Charles Koch? Does Nancy Pfotenhauer, authorized spokesperson for the Kochs and Koch Industries, just call ‘em like she sees ‘em, without consulting Charles and David Koch?

Nominees to our board that the Kochs were unable to elect on March 1 include: the executive vice president of Koch Industries; a staff lawyer for Koch Industries; a staff lawyer for the Charles Koch Foundation; the president of a Koch-created nonprofit and former vice president of the Charles Koch Foundation; and a former Director of Federal Affairs for Koch Industries.

I suppose it’s possible that Cato board members who work for the Kochs might, on occasion, overcome the limitations of human nature and forget who it is that butters their bread.  But if the Kochs were really looking for board members who would “act independently from [Charles] or any other individual,” shouldn’t they have broadened the search?

Posted on Mar 27, 2012 in Koch v. Cato, Uncategorized | 27 Comments

“INSULT[ing] Our Friends”

I’ve been hearing a lot lately about how “Cato partisans” are impugning the integrity of people who work for Koch-sponsored organizations.

Auburn University’s Robert Lawson, co-author of the Economic Freedom of the World annual report has charged that whenever Catoites talk about a threat to Cato’s independence, they “INSULT friends at GMU, Mercatus, IHS, and hundreds of scholars elsewhere (like me) who have benefited from Koch Foundation assistance.” When a friend of mine who works at the Koch Foundation posted David Koch’s March 22 statement on her Facebook page, a commenter charged that Catoites “are saying that Mercatus and Institute for Humane Studies are right wing Republican outfits ruled by the iron fist of the Kochs.” It’s “extremely hurtful,” per Corey “Smurf” Carpenter.

I don’t know where this narrative comes from, but I’m getting pretty sick of it.  It seems clear that it hasn’t been driven by anything Cato staffers have actually said.

I’ve looked through the many blogposts and articles my colleagues and I have written in opposition to the Koch takeover. We rarely mention Mercatus and IHS, but when we have, we’ve emphasized the distinction between Koch-funded and Koch-controlled. We’ve never come within a country mile of impugning their work or suggesting that they’re puppets of Koch Industries.

Responding to Robert Lawson’s charge that Catoites who oppose a Koch takeover of Cato are questioning the independence and integrity of every scholar and organization that the Kochs support, Cato’s Ian Vasquez said:

I have known and worked with Bob since the mid-1990s, I consider him a friend, and I do not doubt—nor have I ever—his integrity and independence as a scholar. I feel the same way about my numerous friends and colleagues at the organizations Bob mentions as I know my Cato colleagues do too.

I’ve explained that I owe my career to a Koch Summer Fellowship 20 years ago, during which I interned at IHS.  In fact, just this Friday, I got an email from IHS asking if I’d be willing to tape some remarks for “a short film with a number of IHS alums who may have benefitted from IHS programs and who promote liberty as part of their life’s work.” I said yes, because, whatever Cato’s current difficulties with the Kochs, they’ve done great work by supporting IHS, and I want others to benefit from that work, as I have.

But there’s a world of difference between institutions like Mercatus and IHS, that benefit from the Kochs’ generosity and an institution that is wholly owned by the Koch brothers, which is what Cato would be if Charles and David Koch succeed.

Cato chairman Bob Levy has pointed out that:

[Mercatus is] a university-based academic research center, led by a faculty director appointed by the provost of George Mason University, staffed primarily by GMU scholars, focused on domestic economic and regulatory issues, and, accordingly, much better insulated from outside control than Cato would be under the arrangement that the Kochs seek to implement…. [N]either IHS nor Mercatus has shareholders who elect the organization’s board of directors.

I’ve made the same point:

The Left often dismisses Koch-sponsored organizations like Mercatus, the Reason Foundation, and IHS as “front groups” for Koch interests. But those groups have ordinary nonprofit corporate structures with independent boards of directors. None of them are shareholder organizations–let alone shareholder organizations controlled by a single family. Though the Kochs are generous contributors to each, they lack the power to summarily wipe out each organization’s board of directors, replacing them with Koch loyalists.

This is a pretty simple distinction to grasp, and those of us at Cato have taken care to spell it out plainly for anyone who’s confused on the subject.  So it’s beyond frustrating to hear that we’re saying things we’ve never said.  It’s like a bad “relationship talk”: “But… I never said anything like that.” “Well, that’s how you made me feel!

Almost all of us at Cato have friends at IHS and Mercatus and among the broader network of students and scholars who’ve benefited from the Kochs’ generous support. None of us have impugned their integrity.

If you’re being told something different, you’re being told a convenient lie.

Posted on Mar 25, 2012 in Uncategorized | 16 Comments

Cato Plans “Takeover” of Cato

On top of yesterday afternoon’s statement from David Koch (about which more later) comes this morning’s press release from the Kochs. “In an attempt to execute their own takeover plan…. board members supportive of Ed Crane voted as a block to change the bylaws and reinstate four past board members.”

Those four longtime board members were ousted by Charles and David Koch at the March 1 shareholders’ meeting.  That same day, Charles insisted to the press that:  “We seek no ‘takeover.’”

Now, since the Kochs reactivated the shareholders’ agreement, they’ve packed our board with people financially entangled with and/or answerable to the Kochs, including Koch Industries’ largest shareholders, a VP at the Koch Foundation, and an authorized spokesperson for Koch Industries. Nominees to the board that they were unable to elect include:  the executive vice president of Koch Industries; a staff lawyer for Koch Industries; a staff lawyer for the Charles Koch Foundation; and a former Director of Federal Affairs for Koch Industries.  (Not to worry, though, in his March 8 statement, Charles Koch said he sought to elect “officers and board members [who] would act independently from me or any other individual.”)

So, you see, it’s not a ‘takeover’ to pack the board with Koch functionaries; it’s a ‘takeover’ when you restore the independent board members the Kochs kicked off

Posted on Mar 23, 2012 in Koch v. Cato | 6 Comments

Legal Advice from L. Brent Bozell III

Over at CNSNews.com, L. Brent Bozell, head of the liberal-bias watchdog group the Media Research Center, weighs in with impressive confidence on the legal merits of Koch v. Cato:

Anyone who reviews the complaint filed on behalf of the Kochs, which also includes copies of the shareholder agreement, can plainly see that the Kochs are unequivocally in the right. This is not a debate about who has the best vision for the libertarian movement. If libertarians and conservatives have any regard for the law and for shareholder agreements, there is just no way you take up sides against the Kochs.

I decided to leave a comment:

Dear Mr. Bozell:

I’m curious at how you arrived at your conclusion that anyone “can plainly see that the Kochs are unequivocally in the right.” Which particular phrases in the Shareholders’ Agreement do you read as barring testamentary dispositions of the shares? Are those terms sufficiently specific to overcome the presumption against such restrictions? (“Courts generally will not apply restrictions on the transfer of shares to testamentary dispositions [transfers through a will] in the absence of express terms that refer to such transfers.” Fletcher Cyclopedia on the Law of Corporations, Chapter 58, Section XX.)

Oddly enough, people with a great deal more experience in Kansas corporate law than either us have seem to lack your certitude on the issue. See this informative Reuters piece on the case:

Edwin Hecker, a professor of business associations at The University of Kansas School of Law. Case law in Kansas, he said, holds that restrictions on the transferability of corporate shares are strictly construed. If transfers such as those made upon death are not explicitly addressed in a shareholder agreement, Hecker said, “You have to have a pretty strong case that it was intended to be covered.” What’s more, he said the language of the agreement, which says shareholders may “otherwise dispose of” shares could be read to refer to situations involving shares being exchanged for money or other collateral, rather than passing to heirs.

I don’t know this guy Hecker, though. Could be he’s afflicted with liberal bias. You should have him checked out.

Cordially,

Gene Healy
Vice President
Cato Institute

Speaking of bias, Bozell begins the piece by noting his “great admiration for many of the fine scholars and academics that work at Cato, along with the work they produce.” Which is odd, because just a few years ago, he thought we were in league with some sort of “sleazoid”/”Hollywood”/”media giant” pervo-industrial complex. I guess he’s had a change of heart.

Posted on Mar 21, 2012 in Uncategorized | 17 Comments

Yglesias on “Legal Funnybusiness”

I’m not sure if Matt Yglesias is serious or just having a little schaden-fest here with his proposal that Cato engage in Coasean bargaining with the Kochs. Either way, however appealing I might find the idea of Cato buying its way out of the crackbrained shareholders’ agreement that’s led to the current unpleasantness, that decision’s above my pay grade in more than one sense of the phrase.

But I’m a little bit puzzled about the way Yglesias closes his post. If the Cato brand is more valuable in the hands of independent leadership, then, he says: “the sensible solution is to buy it from the Kochs rather than trying to engage in legal funnybusiness to steal it from them.”

“Engag[ing] in legal funnybusiness”? Last time I checked, we were just sitting here getting sued.

“Steal it from them”? Now, see, this is why I’m a lousy blogger. It says “punditry by the pound” up there, but it’s really more like “punditry by the pellet.”

Because, sometimes, haunted by the fear that I don’t know what I’m talking about, I hesitate to parachute into the fray, wowing all and sundry with categorical pronouncements about various controversies I’ve barely had time to review.

But, having read and absorbed the shareholders’ agreement and the Institute’s bylaws (Art. VII, Sec. 3, of which envisions ownership transfer via “proper evidence of succession”), Yglesias has concluded that the alleged prohibition in Section 3 of the SA is clear enough to overcome the general presumption against restrictions on testamentary transfers. (Per Trevor Burrus: “Courts generally will not apply restrictions on the transfer of shares to testamentary dispositions [transfers through a will] in the absence of express terms that refer to such transfers.” Fletcher Cyclopedia on the Law of Corporations, Chapter 58, Section XX.) And Yglesias has decided that upon her husband’s death, Kathryn Washburn had an immediate duty to offer up the shares to the corporation. (And hey look, the Media Research Center’s L. Brent Bozell just became an expert too!)

Now, I’m just a recovering lawyer with two soul-crushingly dull years in private practice, none of it before Kansas courts. And I’m biased, of course, but it’s not all that clear to me—or to people who know a lot more about Kansas corporate law than I do—that Yglesias and the Kochs are right about the letter of the agreement—or its spirit. If the point of the original agreement was to preserve the original shareholders’ intent, given the power the agreement gave them over the board of directors, they had little to worry about testamentary transfers frustrating their aims—which may explain why they didn’t adopt language specifically prohibiting such transfers.

I can understand why some folks grasp at a narrative that says “look at the libertarians trying to dodge their contractual obligations!” It makes for good lefty snark, it’s fun for the sort of conservative who finds libertarians annoying, and it’s surely useful for the Kochs, who’ve insisted that this dispute boils down to “respecting the rule of law.”  Interesting, if true! But not true.

Posted on Mar 20, 2012 in Uncategorized | Comment

John Samples on the ‘CAP-iz-ation’ of Cato

My colleague John Samples, director of Cato’s Center for Representative Government, argues that, if Cato is lost, conservatives stand to lose something too. A takeover transforming Cato into a politically responsive “Do Tank” would undermine Cato’s ability “to further conservative ends of principled limits to government power”:

The politically engaged have offered much commentary on the conflict over the future of the Cato Institute. Some prominent people on the left have spoken of their respect for the current Cato. In today’s polarized political world, an endorsement from the left often serves as a negative signal to conservatives. That reaction would be a mistake. Conservatives have something at stake in the continuation of Cato.

What is the issue here? Each reader will reach his or her own conclusions based on the evidence we have about the Kochs’ intentions in this takeover attempt. I would suggest that we look at the big picture about the recent development of think tanks. A few years ago a number of wealthy liberals including George Soros decided to contribute considerable sums to a new think tank. They deemed the old liberal think tanks (e.g. Brookings) ineffective and too removed from politics. They sought instead a think tank engaged with daily partisanship, grassroots mobilization, and electoral politics. From those aspirations arose the Center for American Progress, an institution that official Washington judges a success. Perhaps the Kochs have decided to emulate CAP and integrate Cato into their larger political enterprise.

The conservative will immediately recognize that the Kochs are proposing a “new model” think tank to replace the “old school” Cato. Of course, the conservative will not oppose all innovations though he will always insist on repair rather than reconstruction. But the conservative will ask, “What exactly needs repair here? What reasons counsel innovation at Cato?” Under Ed Crane, the Cato Institute has built a strong reputation for principled engagement in public policy. It has attracted support from donors whose success in the private sector is matched only by their commitment to liberty and limited government. Since Cato has no endowment, those donors could have withdrawn their support at any time, and yet, they remain. Should conservatives endorse innovation by questioning the judgment of men and women whose judgment would be trusted on any other investment they might make?

But a more partisan Cato wouldn’t necessarily further conservative ends of principled limits to government power. I am particularly concerned about an issue area I have worked in for over a decade: campaign finance regulation. It is true that the Republican party has supported the First Amendment by and large in these matters. However, partisanship sometimes requires divergence from principle. After all, the GOP is a party that seeks to win elections, a goal that might be served by restrictions on campaign finance. Indeed, the Republicans have supported a ban on political action committees and more recently, congressional Republicans tried to prohibit 527 committees when it served their electoral purposes. I recall also the poor treatment of Bradley Smith when he chose principle over party at the Federal Election Commission. I suspect a “new model” Cato might be less critical of the GOP during those times that principle and partisanship diverge in First Amendment matters. One of those times might be 2013 after Republican candidates get worked over by a few liberal Super PACs in 2012.

Conservatives place great weight on the virtue of prudence. Politics is not a reckless pursuit of abstract ideals but rather a modest effort to preserve what is valuable in our tradition. A conservative considers circumstances as well as rights, the larger context as well as the next moment. Even if we assume the Kochs are correct in their legal claims, they are hardly being prudent in pursing their takeover of Cato. Progressives are palpably enjoying the Koch-Cato fight for a reason: it serves their ends, which is to say, the cause of Obama. Prudence sometimes counsels restraint, even when you believe your cause is just. Or so conservatives believe.

Finally, it is important to recognize that for over 30 years Cato has stood for “individual liberty, limited government, free markets, and peace.” I cannot count how many times I have heard Ed Crane say that Cato’s cause is the cause of the American Revolution. Cato scholars are second to none in their devotion to the original public meaning of the Constitution. Not all conservatives agree with the implications Cato draws from the American political tradition. But Cato scholars have always been clear that individual liberty and limited government were incompatible with the Progressive mantra of collective welfare through unlimited government. A “new model” Cato might offer a less distinctive defense of the cardinal values of the American political tradition.

The Koch brothers have done much to advance the cause of individual liberty and limited government. The “new model” they propose for Cato, however, is an innovation whose utility conservatives should doubt. The “old school” Cato has done much to raise doubt about Progressivism among Americans with an independent outlook. It has also contributed (and will contribute) to the valiant effort to preserve the core values of the American tradition. The conservative will wonder why such an institution should be cast aside in the pursuit of the latest political fad, an innovation fostered by none other than George Soros. On this matter at least, the conservative will judge the Kochs to be all too progressive.

Posted on Mar 20, 2012 in Koch v. Cato, Uncategorized | 27 Comments

It’s Pretty Simple

…Koch vs. Cato, that is.  It comes down to one simple question:

Would a think tank that could accurately be described as a wholly owned subsidiary of Koch Industries ever be taken seriously in public-policy debates?

Granted, the dispute looks anything but simple.

Cato charges that the Kochs have launched a hostile, partisan takeover of the Institute, invoking a long-dormant shareholder agreement in an attempt to pack Cato’s board with non-libertarians who are financially entangled with Koch Industries.

Charles G. Koch insists, “we are not acting in a partisan manner, we seek no ‘takeover’ and this is not a hostile action.” The Kochs are, he says, merely asserting their clear contractual rights in an effort to ensure Cato remains consistent with the principles upon which it was founded.

It’s easy to get lost in the weeds: Does the shareholders’ agreement prohibit a testamentary transfer of shares? Why didn’t the parties embrace a “standstill agreement”? Why do the Kochs seem to think that the March 1 shareholders’ meeting was a key event requiring them to file suit when they did?

But, for the sake of argument, let’s just resolve every disputed point in the Kochs’ favor. Let’s suppose that the Kochs are, as Charles Koch maintains, genuinely committed to ensuring that Cato remains a “non-partisan organization” working on “the full spectrum of libertarian issues for which it has become known.” Let’s assume that this fight isas some have charged, simply about Ed Crane clinging to power, and that the Catoites who’ve spoken out against the Koch takeover are so loyal to—or so afraid of—Crane that they’ll put their jobs at risk to spare him early retirement (at 68). Let’s suppose that Cato has been utterly, perversely unreasonable during the entire course of the negotiations; that the Kochs’ legal case is airtight; and that Cato throughout has shown no more respect for the rule of law and the sanctity of contract than a bunch of college kids trying to bilk their landlord out of a couple months’ rent.

Let’s just assume all of that is true.

We’re still left with this: in their lawsuit, Charles and David Koch demand a 67 percent ownership stake in the Cato Institute. Though Cato has, for most of the life of the Institute, functioned as an ordinary nonprofit (the shareholders had not met, in person or by telephone, for a period of 27 years), the Kochs recently reactivated the shareholders’ agreement in an attempt to assert control over the Institute’s operations, and they’re now suing to assert even more control.

Should the Kochs win their lawsuit, and win that 67 percent share, it would quickly become 100 percent ownership of Cato as soon as they invoked Section 4 of the shareholders’ agreement (which allows a majority of shareholders “at any time” to forcibly divest any other shareholder of his stake) against the remaining non-Koch shareholder, Ed Crane, who’s clearly the target of Charles’s caustic attack on “Cato’s leadership” last week.

The Left often dismisses Koch-sponsored organizations like Mercatus, the Reason Foundation, and IHS as “front groups” for Koch interests. But those groups have ordinary nonprofit corporate structures with independent boards of directors. None of them are shareholder organizations–let alone shareholder organizations controlled by a single family. Though the Kochs are generous contributors to each, they lack the power to summarily wipe out each organization’s board of directors, replacing them with Koch loyalists.

But that’s precisely the power the Kochs have decided to seek, in a very public manner, in the suit they filed against Cato on March 1st.

Should they succeed, Cato will become an organization that, legally speaking, is controlled by two billionaires, who also happen to be the two largest shareholders of Koch Industries, who also happen to be brothers.

And so all this ugliness comes down to a simple question:

If the Kochs prevail, would the Cato Institute’s reputation as a credible source on vital public policy questions survive the (unfortunately accurate) perception that it is, as Cato chairman Bob Levy puts it, literally “owned by the Kochs”?

If the answer to that question is “no”–as it must be for any intelligent person–then you have all the explanation you need for why Cato staffers have risen up to oppose this threat to their reputation as independent analysts, and why people like George Mason University’s Don Boudreaux think that “the Kochs are, with this action, most imprudently and unwisely threatening the long-term health of the liberty movement”

And that leaves us with a more fundamental question: What in the hell did the Kochs hope to accomplish here? Like many others, I really wish I knew.

Posted on Mar 18, 2012 in Koch v. Cato, Uncategorized | 26 Comments

A Note about Technical Difficulties

Somewhere in one of the many articles written about Koch v. Cato in the last two weeks (can’t find it right now), the reporter says something to the effect that Cato had launched “a coordinated PR campaign” in response to the Kochs’ lawsuit. I got a chuckle out of that one.

The fact is, though many of us knew this dispute lurked in the background, we were all surprised as hell when they sued us on February 28. And our response was, I can assure you, utterly ad hoc and improvised.

Case in point: two weeks ago, when I fired up my long-dead blog for a few posts about the case, I discovered that when I put the links up on Facebook, the preview panel contained spam text for generic Viagra and Cialis:

24h online support, Absolute anonymity & Fast delivery by courier or airmail. Best price for generic cialis. Free samples viagra cialis …

I can only imagine what people thought when they reposted the link: “Cato: even in their hour of greatest danger, they stand for liberty and against erectile disfunction!”

Any conspiracy theorists reading this should chill out, though: the hacking wasn’t corporate espionage, or anything of the sort. I noticed the problem a couple of years ago, but didn’t do anything about it because I wasn’t using the blog. If I knew we were going to launch a coordinated PR campaign (ha!) I would’ve had it fixed well before last week.

My long-suffering web sherpa, PJ Doland, solved the problem—but old posts will still retain the spam if anyone forwards them.

All of this is prelude to an explanation of why I’m about to repost last week’s “It’s Pretty Simple.” Should you choose to circulate this one, it won’t mix messages anymore.

Posted on Mar 18, 2012 in Uncategorized | Comment

Cato’s Ian Vasquez on What the Kochs Have Wrought

My colleague Ian Vasquez, prompted by comments from Prof. Robert Lawson, explains how the Kochs’ attempt to turn Cato into a Koch-owned operation threatens to unfairly undermine the reputations of institutions and scholars who merely receive some sponsorship from the Kochs:

I’m surprised and disappointed by a note that my friend and colleague, Bob Lawson, wrote about the Cato-Koch dispute. Bob proclaimed to be indifferent as to the outcome of the dispute and views Cato’s defense as insulting to our colleagues at GMU, Mercatus and IHS on the grounds that we call into question their intellectual independence.

First, let me say that I have known and worked with Bob since the mid-1990s, I consider him a friend, and I do not doubt—nor have I ever—his integrity and independence as a scholar. I feel the same way about my numerous friends and colleagues at the organizations Bob mentions as I know my Cato colleagues do too.

Our concerns relate to Cato’s autonomy and are well laid out here by Bob Levy. Among other problems, the Koch’s interpretation of the shareholder agreement would, if imposed, turn Cato into a think tank accurately perceived as being owned by the Kochs. Even if you ignore every indication by the Kochs about their intent to fold Cato into their politically partisan operations, I don’t see how you can ignore the damage that their ownership and control would do to Cato’s credibility. As my colleague Gene Healy has explained, the kind of governance structure that has given rise to this dispute does not exist at the Koch-funded policy-oriented organizations Bob cites; their structure and rules pose no threat to their integrity. It is unfortunate that the press now questions the independence of Koch-supported institutions. But that is the fault of the Koch’s own suit and heavy-handed take-over attempt, rather than Cato’s efforts to rely a on governance practice common among non-profits.

So let’s be clear. We are not fighting to defend our boss or our jobs as Bob Lawson implies. As Bob Levy pointed out, Ed Crane has offered to retire in an expedited fashion in exchange for abandoning the shareholder agreement that threatens Cato’s integrity, but the Kochs appear to be more interested in taking control. And Cato staffers who have been outspoken on this issue are the least likely to keep their jobs in the event of a Koch-controlled institute. The fact that many of my colleagues, both senior and junior, have announced their resignation if the Kochs prevail, should dispell any doubts about what they feel is really at stake. For the record, I include myself among those who would resign if the Kochs take over.

Posted on Mar 17, 2012 in Uncategorized | 1 Comment

Cato Adjunct Scholar Richard Gordon on Keeping Cato Independent

Charles Murray weighed in yesterday at NRO with a statement of support for the Cato Institute: “I want to ask [the Kochs], more in bewilderment more than in anger, how they can justify this lawsuit — not legally, but in terms of principles they cherish?”

Meanwhile, one Cato adjunct scholar and two more Cato policy staffers added their voices to the growing opposition. Here’s Marie Gryphon with “The Koch Brothers vs. Scholarship.Trevor Burrus offers “Analyzing the Kochs’ PR Statements,” and Michael Cannon, writing at Forbes.com today, has “Why Conservatives Should Help Save the Cato Institute.”

And I’ve just received this testimonial by Cato adjunct scholar Richard L. Gordon:

Keep Cato Unbounded
The current dispute between the officers of the Cato Institute and the Koch brothers is disturbing to believers in limited government. Whatever the Koch intentions, they have displayed precisely the flaw in libertarian advocacy that Cato has so well minimized. As is true with all standard political terms, the interpretation of ‘libertarian’ differs radically. Too many libertarians devote inordinate amounts of energy attacking other libertarian outlooks different from theirs. While the turnover at Cato indicates that internal disputes arise, Cato carefully avoids airing these discontents.

Instead, it maintains the strongest, most comprehensive presentation available of the case for limited government. Those familiar with Cato are aware of the wide range of material from books to blogs that the Institute generates on the philosophy of free markets and how it applies to a wide range of public policies. In other words, Cato’s work ranges from enduring analyses of policy issues to instant comments on the issues of the day. Others may share Cato’s outlook, but none can match the breadth and depth of its output. Whatever the actual intent of the Koch brothers, they and much of the ensuing anti-Cato commentary create fears that this uniquely valuable medium will be compromised.

About 16 years ago, I contacted Cato to see whether involvement would be possible as I moved to emeritus status at Penn State. I was appointed an adjunct scholar and have remained so ever since. [Following other adjuncts who have posted, I will note that this is an unpaid position, Cato does pay all participants for some but not all outside contributions, and I have received such payments.] The involvement has proved very satisfactory to me. My desire for contact was based on recognition of the solid basis of the Cato program and its superiority to other similar efforts. Cato maintained that superiority.

Cato’s credibility is grounded in its consistency of outlook. It is for freedom, not for any politicians. Even so, the critics exaggerate the “balance” in Cato’s views. Big-government Republicans are attacked, but the Democratic agenda gets even harder attacks.

Breaking the dominance of statist policies has defied decades of effort by Cato and many others. Those advocating change at Cato should display more caution. Their models produced no greater results and lack Cato’s credibility. The case against Obama was well served by Cato’s work on health care, education, and energy. There may be a need for an instant-response libertarian research group. However, it would be better placed elsewhere and leave Cato’s model intact.

Richard L. Gordon
Professor Emeritus of Mineral Economics
The Pennsylvania State University

Posted on Mar 15, 2012 in Uncategorized | 26 Comments

It’s Pretty Simple

…Koch vs. Cato, that is.  It comes down to one simple question:

Would a think tank that could accurately be described as a wholly owned subsidiary of Koch Industries ever be taken seriously in public-policy debates?

Granted, the dispute looks anything but simple.

Cato charges that the Kochs have launched a hostile, partisan takeover of the Institute, invoking a long-dormant shareholder agreement in an attempt to pack Cato’s board with non-libertarians who are financially entangled with Koch Industries.

Charles G. Koch insists, “we are not acting in a partisan manner, we seek no ‘takeover’ and this is not a hostile action.” The Kochs are, he says, merely asserting their clear contractual rights in an effort to ensure Cato remains consistent with the principles upon which it was founded.

It’s easy to get lost in the weeds: Does the shareholders’ agreement prohibit a testamentary transfer of shares? Why didn’t the parties embrace a “standstill agreement”? Why do the Kochs seem to think that the March 1 shareholders’ meeting was a key event requiring them to file suit when they did?

But, for the sake of argument, let’s just resolve every disputed point in the Kochs’ favor. Let’s suppose that the Kochs are, as Charles Koch maintains, genuinely committed to ensuring that Cato remains a “non-partisan organization” working on “the full spectrum of libertarian issues for which it has become known.” Let’s assume that this fight isas some have charged, simply about Ed Crane clinging to power, and that the Catoites who’ve spoken out against the Koch takeover are so loyal to—or so afraid of—Crane that they’ll put their jobs at risk to spare him early retirement (at 68). Let’s suppose that Cato has been utterly, perversely unreasonable during the entire course of the negotiations; that the Kochs’ legal case is airtight; and that Cato throughout has shown no more respect for the rule of law and the sanctity of contract than a bunch of college kids trying to bilk their landlord out of a couple months’ rent.

Let’s just assume all of that is true.

We’re still left with this: in their lawsuit, Charles and David Koch demand a 67 percent ownership stake in the Cato Institute. Though Cato has, for most of the life of the Institute, functioned as an ordinary nonprofit (the shareholders had not met, in person or by telephone, for a period of 27 years), the Kochs recently reactivated the shareholders’ agreement in an attempt to assert control over the Institute’s operations, and they’re now suing to assert even more control.

Should the Kochs win their lawsuit, and win that 67 percent share, it would quickly become 100 percent ownership of Cato as soon as they invoked Section 4 of the shareholders’ agreement (which allows a majority of shareholders “at any time” to forcibly divest any other shareholder of his stake) against the remaining non-Koch shareholder, Ed Crane, who’s clearly the target of Charles’s caustic attack on “Cato’s leadership” last week.

The Left often dismisses Koch-sponsored organizations like Mercatus, the Reason Foundation, and IHS as “front groups” for Koch interests. But those groups have ordinary nonprofit corporate structures with independent boards of directors. None of them are shareholder organizations–let alone shareholder organizations controlled by a single family. Though the Kochs are generous contributors to each, they lack the power to summarily wipe out each organization’s board of directors, replacing them with Koch loyalists.

But that’s precisely the power the Kochs have decided to seek, in a very public manner, in the suit they filed against Cato on March 1st.

Should they succeed, Cato will become an organization that, legally speaking, is controlled by two billionaires, who also happen to be the two largest shareholders of Koch Industries, who also happen to be brothers.

And so all this ugliness comes down to a simple question:

If the Kochs prevail, would the Cato Institute’s reputation as a credible source on vital public policy questions survive the (unfortunately accurate) perception that it is, as Cato chairman Bob Levy puts it, literally “owned by the Kochs”?

If the answer to that question is “no”–as it must be for any intelligent person–then you have all the explanation you need for why Cato staffers have risen up to oppose this threat to their reputation as independent analysts, and why people like George Mason University’s Don Boudreaux think that “the Kochs are, with this action, most imprudently and unwisely threatening the long-term health of the liberty movement”

And that leaves us with a more fundamental question: What in the hell did the Kochs hope to accomplish here? Like many others, I really wish I knew.

Posted on Mar 14, 2012 in Uncategorized | 27 Comments

The Koch Institute’s Statement to Koch Alumni

As you may have heard, and as Allen MacDuffie reports here, on Tuesday, “in response to an apparent flood of questions, the Charles Koch Institute sent an e-mail to hundreds of alumni of the organization’s job training and placement programs to address the Koch brothers’ lawsuit to gain control of the Cato Institute.”  The full text of the (unsigned) email is here.

“Thank you for bringing your inquiries forward,” the email’s disembodied author or authors say.  If those inquiries are anything like the questions Koch alumni have asked those of us at Cato, I can’t imagine many of them will find this response at all responsive.

Nor do I imagine that many Koch alums will think the message addresses their genuine concern that—if Charles and David Koch’s attempt to seize control of the Cato Institute is successful—it will do enormous damage, not just to Cato, but to the liberty movement as a whole.

“Respecting the Rule of Law”
This dispute boils down to “respecting the rule of law,” the author(s) insist. “If Cato’s leaders are willing to abandon a key libertarian principle – adhering to voluntary agreements,” well, then, the author(s) note, more in sorrow than in anger, “the organization has lost its way as an advocate of these principles.”

Can their argument really be that respect for the sanctity of contract requires one to unquestioningly comply with the Koch family’s interpretation of contracts?

It appears so. Not only that, refusing to accede to their legal theory—which would allow them to pack Cato’s Board with Republican activists —is a “departure from principle” akin to George W. Bush’s “abandon[ing] free-market principles to save the free-market system.” Go figure.

“Donor Intent”
I’ll leave it to our legal team to address the substance of the complaint the Kochs filed last week.  But much of Tuesday’s email to Koch alumni is really an argument about fairness and equity. “As active donors contributing tens of millions to Cato,” the author(s) explain, Charles and David “feel the shareholder structure is important to preserve donor intent.”

True, the Kochs have been very generous donors to Cato, and, in the Institute’s early years, Charles Koch’s generosity was indispensable to the creation of the Institute.

But let’s be more specific: from the figures I’ve seen, all told, contributions from Koch sources make up less than 10 percent of the contributions over the 35-year life of the Institute; over the last decade, around 4 percent; and for over a year, zero percent.

That’s not a complaint—far from it: we’re enormously grateful for everything they’ve done for us over the years.

But when the Kochs invoke “donor intent” to suggest that providing 10 percent of our donations entitles them to a controlling (2/3s) stake in the Institute, it’s worth asking–how much do the Kochs respect the intent of the other donors who’ve provided more than 90 percent of our funding?

“What Do the Kochs Hope to Accomplish?”
The final section of the Koch alumni email bears the header “What do the Kochs hope to accomplish?” But it never comes close to answering that question.

It should have been obvious to Charles and David Koch that filing this suit would necessarily result in a very public battle that would—even if they won–lay waste to the Cato Institute’s credibility, wounding allied scholars and organizations in the process.

As George Mason University’s Don Boudreaux has put it, “the Kochs are, with this action, most imprudently and unwisely threatening the long-term health of the liberty movement.” Responding to the Koch alumni email Tuesday, Jon Adler notes: “these have been the dominant concerns expressed about the Kochs’ actions, and yet to such concerns the letter offers no meaningful response.”

Scholars like these, it’s fair to say, have more to lose (in a material sense) from criticizing the Kochs’ lawsuit than they could possibly gain from siding with Cato.

Another who falls into that category is Steve Horwitz, who wrote on Facebook that:

Whatever you think about the Cato/Kochs dispute, the fact that the lawsuit has now meant that Gary Leff, the CFO of IHS and Mercatus, has had to say, in the NY Times, that the Kochs exercised no influence over research at Mercatus and IHS is…. horrifying. How could the Kochs not see the PR nightmare that this would bring on, no matter how justified the lawsuit might be?

The situation is even worse than Horwitz describes. The Kochs’ decision has set friend against friend, demoralized the Kochs’ own staffers and beneficiaries, and torn a rift throughout the movement for individual liberty.  And for what?

Charles and David Koch want the Cato Institute—they cannot have it. That’s not just defiance; it’s an inescapable fact. Cato is not simply a copyrighted logo and a gleaming glass building on Massachusetts Avenue.  It’s the reputation we’ve built up through decades of independent, nonpartisan public policy work, rooted in libertarian principle. Even if the Kochs win, they’ll destroy what they covet.

From the Koch alumni email, and some of the commentary floating around, you could almost get the impression that Cato caused this horrible situation.  That’s rich.

The Kochs launched this “PR nightmare”—complete with a “Politico Exclusive” about the lawsuit, no less.  Did they think we wouldn’t respond?

Maybe so.  If “respecting the rule of law” means “complying with Koch lawyers’ legal theories,” maybe there’s another “libertarian principle” requiring one to keep mum while the Koch family threatens a proud, independent voice for liberty.

That’s not how we see it. As David Boaz wrote yesterday: “We intend to fight it. And we intend to win and to preserve our independence.”

The author(s) of Tuesday’s email conclude by telling Koch alumni: “We will be in touch with future updates as we have new information.  In the meantime, please feel free to reach out to us with any questions you may have.”

Please do: email@charleskochinstitute.org

Posted on Mar 8, 2012 in Uncategorized | 3 Comments

An Open Letter to Koch Program Alumni

By now, you’ve probably heard the unwelcome news: last Thursday, Charles and David Koch filed suit in Kansas court against the Cato Institute, Cato President Ed Crane, and Kathryn Washburn, the widow of longtime Cato chairman Bill Niskanen, in an attempt to assert majority control over Cato.

Current Cato chairman Bob Levy has told the Washington Post that “the Koch brothers, who have the power to appoint half of the board, ‘have been choosing Koch operatives’ for members, with an eye to push Cato toward support of the Republican Party.”

You’re probably confused. I’m confused too, because, like most of you, I admire the Cato Institute greatly, and I’m also tremendously grateful to the Koch brothers for their longstanding, generous support of the pro-liberty movement.

In fact, I don’t just admire the Cato Institute—I’ve made my career there. And I’m not just grateful to Charles G. Koch—I owe that career to him.

KSFP Toast I was a member of the inaugural Koch Summer Fellow Program class in 1992. And last Fall, two decades after one of the best summers of my life, the Institute for Humane Studies asked me to give a toast to Charles Koch at an event marking KSFP’s 20th Anniversary.

I thanked him for creating a program that was “probably the most valuable thing I’ve ever done.” I told him that what I experienced that summer made me decide to stay here in this miserable company town and devote myself to the intellectual battle for individual liberty, free markets, and peace.

So I can understand why so many people in the small-government movement feel conflicted and disappointed about this dispute. But while I’m disappointed, I’m not conflicted.

When it comes to this lawsuit, like Jonathan Adler, “I cannot understand how [the Kochs’] actions can, in any way, advance the cause of individual liberty to which they’ve devoted substantial sums and personal efforts over the years.”

On Thursday, Charles G. Koch told the press, “We are not acting in a partisan manner, we seek no ‘takeover’ and this is not a hostile action.”

With all due respect, Mr. Koch, that is not true.

If there’s no “takeover” in the works, then why have the Kochs sought to pack Cato’s independent board of directors with people who are in the employ of, or otherwise beholden to, Koch interests?

By invoking Cato’s long-moribund Shareholders’ Agreement, the Kochs have nominated or elected 15 people to Cato’s Board of Directors, in the process removing four of our largest and longest-standing contributors from the Board.

Among the directors the Kochs nominated but were unable to elect were: the executive vice president of Koch Industries; a staff lawyer for Koch Industries; a staff lawyer for the Charles Koch Foundation; and a former Director of Federal Affairs for Koch Industries.

Koch appointees now on the Board are:

Charles and David Koch, the two largest owners of Koch Industries;
Preston Marshall, third-largest shareholder of Koch Industries;
Kevin Gentry, VP at the Charles Koch Foundation;
Nancy Pfotenhauer, authorized spokesperson for the Kochs and Koch Industries;
Ted Olson, distinguished Republican lawyer who represents and publicly speaks for Koch Industries; and
Judge Andrew Napolitano.

If this isn’t an attempted “takeover,” it’ll do until the real thing comes along.

And if there’s no “partisan” agenda afoot, then why did Charles and David Koch nominate and install a host of Republican party operatives on Cato’s board?

As my colleague Jerry Taylor details here, new Cato board member Kevin Gentry “is a social conservative activist who’s also vice-chair of the Virginia GOP.”  Nancy Pfotenhauer is “a former spokesperson for the McCain campaign who has argued on television in favor of the Iraq war and the ‘don’t ask, don’t tell’ policy pertaining to gays in the military.” Ted Olson, solicitor general for one of the least civil-liberties friendly administrations in modern memory, “is a Republican super-lawyer who’s never identified himself as a libertarian.”

True enough, the Kochs have also placed Judge Andrew Napolitano on the board. Alone among the new members, Napolitano has a record of advocacy of libertarian causes. But given the other nominees and appointees, that’s slim consolation indeed. Consider:

One of the candidates that the Kochs nominated, but were unable to elect, was Tony Woodlief, who has blogged about “the rotten heart of libertarianism,” criticized gay marriage, and complained about libertarians “toking up” at political meetings. In fact, Woodlief’s blog features an entire category of posts devoted to “Taunting Libertarians.”

Which is fine, we can take it–but it would be a little unusual to get “taunted” by our own board.

Another Koch nominee for Cato’s Board of Directors was right-wing blogger and attorney John Hinderaker, who calls himself a “neocon,” and has described George W. Bush as “a man of extraordinary vision and brilliance approaching to genius.”

In his statement Thursday, Charles Koch insisted that he and David merely “want to ensure that Cato stays true to its fundamental principles of individual liberty, free markets and peace.”

We’ve done a pretty good job staying true to those principles over the years. Were people like Woodlief and Hinderaker supposed to improve our performance?

From what I understand, late last week, Koch officials began contacting key members of the limited government movement about this dispute. I’ve heard enough about what was said to get the general drift by now, I think: this case is about the rule of law and respect for property and contract. It’s an age-old dispute between Ed Crane and Charles Koch, with zero ideological content.

Well, take a look at the relevant legal documents appended to the Kochs’ complaint and decide for yourself whether they straightforwardly grant the Kochs what they believe they’re entitled to. As this Reuters analysis suggests, their legal argument for divesting Bill Niskanen’s widow of her shares is anything but clear. And consider what the Kochs will win even if they prevail: a hollow Institute whose every pronouncement can be dismissed as propaganda from a “Koch-controlled” enterprise.

And if you’re inclined to think that it’s merely personal loyalty to Ed Crane that’s driving Cato’s opposition, then ask yourself why so many Cato employees, junior and senior staff alike, have publicly and vehemently opposed this takeover attempt—at no small risk to their careers, in a town where so many free-market organizations are funded by the Kochs. As (unpaid) Cato adjunct scholar Tim Lee points out,”The fact that so many senior Cato employees are sticking their necks out … underscores how serious the situation is—if this were just a personal fight between the Kochs and Ed Crane, longtime Catoites wouldn’t risk denouncing their possible future boss.”

As a friend put it to me last night, the Kochs’ hostile takeover attempt represents “a big leap down a pernicious path that most of Washington started down long ago. It strangles one of the last places in town that doesn’t put politics first.” That’s what’s at stake, and that’s why we fight.

When I got the chance to toast Charles G. Koch last October, I said that I owed him “an enormous debt of gratitude. And—whether he gets credit for it or not—the country owes him its thanks as well, because when we finally restore limited, constitutional government in this country,” the people in the Koch alumni network will have played a key role.

I believed that then; I believe it now. And that’s why I can’t begin to understand why Charles and David Koch have chosen a course of action that, if successful, would carelessly, pointlessly, and grievously injure the cause I thought they were fighting for.

Posted on Mar 5, 2012 in Uncategorized | 17 Comments

Our Inescapable President

I’m late to the pile-on because I’m a bad American, and I don’t watch enough football, but not quite two weeks ago, President Obama managed to politicize what for many is a hallowed Monday night ritual.

In the New York Post, the paper of record for those of us who grew up in one of the only red counties on the Jersey Shore, Kyle Smith notes that Obama’s ostensible purpose for inserting himself into Monday Night Football was to proclaim Hispanic Heritage Month, but the president [insisted]:

Our nation faces extraordinary challenges right now, and our ability to tackle them will depend on our willingness to recognize that we’re all in this together, that we each have an obligation to give back to our communities, and we all have a stake in the future of this country.

Generic enough, perhaps, unless you’re oblivious to the political backdrop of the president and his party pushing desperately to pass national health care.

Smith is rightfully exasperated by the perpetual campaign mode and Obama’s omnipresence in every broadcast medium. But–not that it’s a competition–I’d had more than my fill of this sort of thing eight months ago, a month into Obama’s presidency:

When there’s no escape from our national talk-show host-when he appears constantly above every gym treadmill-is it any wonder that we typically want his show cancelled just a few seasons in? Is it any wonder we get sick of him?

You can make too much of the notion of presidential “dignity.” It’s good when the federal chief executive officer fights against the royal aura that inevitably surrounds the office by, for example, walking his inaugural parade route (Jefferson) or buttering his own english muffins (Jerry Ford).

But it seems to me that doing a commercial for George Lopez’s lousy sit-com takes it a bit too far:

(When I saw this on TV recently, I was sure it was some kind of Forrest Gump cinemagic. Not so.)

More to the point, can the president give us an occasional break from his relentless omnipresence? Apparently not.

Six months into his presidency, the Politico reported, Obama had already “uttered more than half a million words in public.” In one whirlwind week last month, the president made his third appearance on “60 Minutes,” gave a major speech on the financial crisis the next day, and made a record five talk-show appearances the following Sunday. And on the eighth day, He did Letterman.

My suspicion is that as his popularity continues to drop, Obama is going to discover not only that there are diminishing returns to presidential media appearances, but that he might do better by letting the country forget about him for a while.

Posted on Oct 21, 2009 in Cult of the Presidency | 7 Comments