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 | Comments

32 Responses to “It’s Pretty Simple”

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  2. Posted by: Joe Curren - 03/19/2012

    I saw this mess coming and have posted about it here on the Cato Facebook page repeatedly. The good news is that this is frankly coming out now which means there is hope for Cato. However, I’m sure the Koch’s and their legal team are very saavy about corporate takeovers – but Cato is a non-profit.. If Cato is to be relevant, the Kochs should be ousted from the organization if at all possible. Otherwise, its hard to see how the taint of this mess will ever be cleared up and if it’s not, Cato will cease to the credible voice of libertarian reason it has been throughout most of its history. If the real agenda here is to hijack what value Cato has and to usurp it for the empowerment of the Republican party, then perhaps this is a violation of Cato’s charter and could be a cause for the ouster of these board members who are antagonistic to Cato’s true stated mission.

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