Archives for the 'Koch v. Cato' Category

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.”


“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

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

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