Koch v. Cato — A View from Cato

My friend Jerry Taylor, a senior fellow at the Cato Institute, offered me his perspective on the Koch-Cato dispute.  Jerry’s obviously sympathetic to Cato President Ed Crane, but he also offers a fair amount of detail about recent events, including recent changes to the Cato Institute’s Board of Directors — changes that occurred last Thursday and I have yet to see reported in the press.

I understand that the Kochs have a different perspective on some of the relevant events but have not (as yet) gotten anything on-the-record beyond that which has appeared in various news accounts.  If I do, I will post that as well.

My prior posts on the Koch-v-Cato kerfuffle are here and here.  Ilya added his thoughts here.

Jonathan, that was an excellent post yesterday regarding the Koch-Cato dispute.  I agree with you entirely.  There is more, however, that might be said about the Kochs’ dishonest narrative concerning what is going on here.

We seek no ‘takeover,’ and this is not a hostile action

This is at odds with both the words and deeds of the Koch brothers of late.  Last year, they used their shares to place two of their operatives – Kevin Gentry and Nancy Pfotenhauer – on our board against the wishes of every single board member save for David Koch.  Last Thursday, they used their shares to force another four new board members on us (the most that their shares would allow at any given meeting); Charles Koch, Ted Olson (hired council for Koch Industries), Preston Marshall (the largest shareholder of Koch Industries save for Charles and David), and Andrew Napolitano (a frequent speaker at Koch-sponsored events).  Those four – who had not previously been involved with Cato either financially or organizationally – were likewise opposed by every member of our board save for Gentry, Pfotenhauer, and David Koch.  To make room for these Koch operatives, we were forced to remove four long-time, active board members, two of whom were our biggest donors.  At this moment, the Kochs now control seven of our 16 board seats, two short of outright control.

Why are they forcing out Cato board members, all strong, principled libertarians who have been heavily involved with Cato – financially and organizationally – for years?  The answer was given in early November of last year when David Koch, Richard Fink (he of many Koch hats), and Kevin Gentry met with Cato board chairman Bob Levy.  They told Bob that they intended to use their board majority to remove Ed Crane from Cato and transform our Institute into an intellectual ammo-shop for American for Prosperity and other allied (presumably, Koch-controlled) organizations.  That statement of intent is certainly consistent with what we’ve been hearing from both Kevin Gentry and Nancy Pfotenauer.  They’ve frequently complained during their short time on our board that Cato wasn’t doing enough to defeat President Obama in November and that we weren’t working closely enough with grass roots activists like those at AFP.

We want to ensure that Cato stays true to its fundamental principles of individual liberty, free markets, and peace into the future, and that it not be subject to the personal preferences of individual officers or directors.

Let’s take a look at a few of these new board members of ours.  Kevin Gentry is a social conservative activist who’s also vice-chair of the Virginia GOP.  Nancy Pfotenauer is a former spokesperson for the McCain campaign who has argued on television in favor of theIraqwar and the “don’t ask, don’t tell” policy pertaining to gays in the military.  Ted Olson is a Republican super-lawyer who’s never identified himself as a libertarian.

Just before the last shareholders meeting, the Koch brothers also nominated –but were unable to elect – eight additional individuals for our board.  Those nominees included the executive vice president of Koch Industries, a staff lawyer for Koch Industries, a staff lawyer for the Charles Koch Foundation, a former Director of Federal Affairs for Koch Industries, a former Executive Director of the National Republican Senatorial Committee (and who was, incidentally, a McCain bundler), and a lifelong Wichita friend of Charles Koch.  Aside from those functionaries, they also nominated a couple of people with public profiles that make the jaw drop:

  • John Hinderaker of the Powerline blog, whose firm counts Koch Industries as a client. Hinderaker has written, “It must be very strange to be President Bush.  A man of extraordinary vision and brilliance approaching to genius, he can’t get anyone to notice.  He is like a great painter or musician who is ahead of his time, and who unveils one masterpiece after another to a reception that, when not bored, is hostile.”  Hinderaker supports the Patriot Act and the Iraq War and calls himself a neocon.
  • Tony Woodlief, who has been president of two Koch-created nonprofits and vice president of the Charles Koch Foundation. Woodlief has blogged about “the rotten heart of libertarianism,” calling it “a flawed and failed religion posing as a philosophy of governance” while complaining about libertarians “toking up” at political meetings.

Now, who’s more likely to “ensure that Cato stays true to its fundamental principles of individual liberty, free markets, and peace into the future” – these Republican operatives and bloggers or the ousted board members who are among the most independent, principled, and energetic libertarians you’ll ever find?

Moreover, is there any reason for the Kochs to worry about Cato “staying true to its fundamental principles?”  What, exactly, signals to them that we are straying, or likely will stray, from those principles?

As far as Charles’ declaration that Cato “not be subject to the personal preferences of individual officers or directors,” it’s hard to square that with the obvious implications of his suit.  If Ed were to have his way and the shareholder agreement was dissolved, Ed would answer to 16 autonomous board members.  If Charles were to have his way and the shareholder agreement was to govern Cato, then the board – and the president – would ultimately answer to Charles.

The shareholder agreement ensures that donor intent will be honored.

Cato has no endowment.  We have to raise our operating budget from scratch every single year.  If a donor’s intent is violated, said donor will leave, such as when William Simon – former Secretary of the Treasury and then-president of the John M. Olin Foundation – pulled the Olin Foundation’s dollars out of Cato when we opposed the 1990 Persian Gulf War.

The threat of a run-away Cato Institute is silly.  We are not Pew, MacArthur, or other organizations endowed with millions by conservatives or libertarian founders which then turned Left.

And as far as the Kochs are concerned, I should note that the Kochs and their entities have given Cato about 8 percent of the dollars we’ve raised since the founding of the Institute and only about 4 percent over the past decade (and not one penny last year).  They have no special claim over Cato as donors.

Sometimes I hear that this is less about donor intent than it is about founder intent.  Well, if we define “founders” as those initially given shares in Cato, only three of the five original shareholders remain alive and thus can have an informed opinion about these goings-on; Charles, Ed, and George Pearson.  Two of those three are appalled by what is going on and want the shareholder agreement dissolved.  So by all means, let’s appeal to founders’ intent – and keep the Kochs out of our business!

This is simply about the rule of law.

Well, as noted above, it’s about a lot more than that.  Maybe the Kochs will prevail in the courts.  Maybe not.  I’m not a lawyer, but our legal people think we’ve got a stronger case than they do.  Regardless, as you well note, this bid by the Kochs to take over Cato – if successful – can only lead to the destruction of the most prominent and influential libertarian think tank in the world.  Anyone who considers Cato an asset to the public policy debate cannot be happy with what they are doing here.

The shareholder agreement has worked well thus far and so it should continue to be respected.

Shareholder control has been dormant for decades.  The shareholders have not met – in person or on the telephone – from 1981 through 2008.  No shareholder had asked for a meeting over that time despite a requirement of annual meetings.  In every sense, the Board of Directors has run the Cato Institute, not the shareholders.  Whatever success Cato has had, it is success that was produced by the Cato’s board of directors, management, staff, and donors – not the shareholders who, save for Ed and Bill Niskanen, have been uninvolved in Cato for decades.

I’m not arguing that AFP is all bad or that nothing good is being done by the Kochs or their organizations in the political world.  But Cato’s board and Cato’s staff has no desire to be beholden to any one person or to any single corporation, political party, or grass-roots movement.  We are – and wish to remain – libertarian and functionally independent.

I hope this answers some of what you’ve been hearing.  And for the record, you are welcome to use this email in any way you like without restriction or qualification.