Back in February, you may remember, the Koch brothers nominated 12 new members to the Cato board of directors in advance of a shareholders meeting that was, in point of fact, required by the stipulations of the shareholder agreement. They only had the votes, however, to put four of those nominees on the board. So at the March 1 meeting, they rammed through Charles Koch, Preston Marshall, Andrew Napolitano, and Ted Olson, and in the course of doing so, displaced four long-standing members of the Cato board; John Malone, Don Smith, Bill Dunn, and Lew Randall. Hence, a fair description of what happened is that the Kochs had four incumbent board members removed, two of whom happened to be the largest donors to the Cato Institute.
But wait – the Kochs now say nothing of the kind happened!
Melissa Cohlmia, director of corporate communication at Koch Companies Public Sector, responded that the Washington Post was incorrect in saying that Charles Koch and David Koch had four members “removed.” She said the Kochs requested that the vote on the board members be delayed. When that didn’t happen, the Kochs voted to retain two of the four board members
They did? Well, yes and no … but mostly, no. The Kochs’ support for two of the four ousted board members is a convenient fiction.
First, a little background: from the inception of the Cato Institute through 2010, board members were chosen by board members. Cato was, functionally, governed by a self-perpetuating board like almost all other non-profits. But Cato’s shareholder agreement gave the shareholders the power to elect board members if they chose. Prior to 2010, the shareholders had only met once (in 1981 to buy-out Murray Rothbard) and had never exercised their power to elect board members. In 2010, however, the Koch brothers insisted on exercising their long-dormant shareholder power and imposed two new members onto the Cato Board (Koch employees Kevin Gentry and Nancy Pfotenhauer). In 2012, they did so again, but this time, they went all-in and put four new members onto the Cato board.
The Cato shareholder arrangement allows for cumulative voting. Crane and Washburn hold 50 percent of the shares, so they got to fill half of the board seats up for the vote. Charles and David Koch hold the other 50 percent of the shares, so they got to elect the other half. When the shareholder meeting convened on March 1, there were eight seats up for grabs. Each of the four shareholders owned 16 shares, so each shareholder was afforded 128 votes (16 [shares] x 8 [board vacancies] = 128 votes) and those votes could be allocated any way the shareholder wished. The total number of votes cast on March 1 was thus 512; 256 by Crane-Washburn and 256 by Koch-Koch.
To be assured of election on March 1, a candidate for the board needed 57 votes (8 seats x 57 votes = 456 total votes, so the 9th highest candidate would have 512 – 456 = 56 votes; not enough to get into the top eight). Thus, to elect their four candidates, Koch-Koch gave each of them (Charles Koch, Marshall, Napolitano, and Olson) 57 votes, or 228 of their 256 total votes. Crane-Washburn did the same, electing Washburn, Jeff Yass, Howie Rich, and Fred Young with 228 of their 256 total votes.
The point here is that it did not matter who received the “extra” 28 votes from each side. Even if Crane-Washburn and Koch-Koch voted for the same 9th candidate, he would only have received 56 votes; not enough to be elected.
The Kochs apparently chose to use their meaningless 28 votes on Malone and Smith so that they could say “Hey, don’t blame us for displacing Cato’s two largest donors; we voted for them!” Their lack of enthusiasm for Malone and Smith, however, was made abundantly clear when the newly-constituted Cato board met on March 22 and voted to expand its membership from 16 to 20 so as to put Malone and Smith (along with Dunn and Randall) back on the board. The Kochs responded with yet another lawsuit on April 9, claiming that there was “no compelling justification” for expanding the board so as to include Malone and Smith. That tells you all you need to know about how genuine their support for Malone and Smith was at that March 1 shareholders meeting.
Merriam-Webster’s Online Dictionary defines “dissemble” as “to put on a false appearance: conceal facts, intentions, or feelings under some pretense.” There’s been a heck of a lot of that going on (most recently here, here, here, and here) from the Kochs of late.