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Peace

Cato and the Kochs have come to an agreement which we are hopeful preserves the integrity and independence of the Institute.  Here is Cato’s official press release describing the settlement:

The Cato Institute and its shareholders have reached an agreement in principle that would resolve pending lawsuits filed by Charles Koch and David Koch against Cato, its CEO, and several of its directors.

Under terms of the agreement, Cato will no longer be a stockholder corporation and John Allison (the former CEO of BB&T) will be replacing Ed Crane, who will be retiring as Cato’s CEO. That represents a compromise by which both sides will achieve key objectives. For a majority of Cato’s directors, the agreement confirms Cato’s independence and ensures that Cato is not viewed as controlled by the Kochs. For Charles Koch and David Koch, the agreement helps ensure that Cato will be a principled organization that is effective in advancing a free society.

Earlier this year, Charles Koch and David Koch filed two separate lawsuits seeking interpretation and enforcement of Cato’s shareholders’ agreement. Prior to October 2011, Cato was owned by four shareholders — Crane, Charles Koch, David Koch, and William Niskanen. After Niskanen’s death in October 2011, the Kochs maintained that the shareholders’ agreement left Cato with three remaining shareholders (the Kochs and Crane). Crane and Niskanen’s widow, Kathryn Washburn, challenged the shareholders’ agreement and maintained that Ms. Washburn was the rightful owner of Niskanen’s shares.

The parties will seek a stay of the court proceedings related to that dispute after formal settlement documents have been prepared and signed. Terms of the settlement include:

  • The Cato Institute will be governed by members rather than shareholders. The members will be the directors of the Institute and will elect their own successors. Initially, the Board will include 12 long-term Cato directors, including David Koch. They will be joined by three other Koch designees and Allison, who has the option to nominate one or two additional directors. Charles Koch, Crane, and Washburn will not be on the Board.
  • Crane, who co-founded the Institute with Charles Koch and served as its CEO for 35 years, will retire within six months. He will be succeeded by Allison, an expert on political philosophy and public policy and a revered libertarian, admired and respected by the Kochs and the Cato Board.
  • Crane will work with Allison during the transition period and then serve as a consultant on fundraising and other matters.

On announcing the agreement in principle, Cato chairman Bob Levy said: “This is the end of an era at Cato. From the Institute’s inception, Ed Crane has played an indispensable role — co-founding, managing and shaping it into one of the nation’s leading research organizations.”

Crane extended his gratitude to Cato’s employees, directors, and donors for their ongoing support. He welcomed Allison, whom he described as “a great champion of liberty and an outstanding choice to build on Cato’s success as the foremost non-partisan, non-aligned, independent source of libertarian perspectives on public policy.”

Allison said he was “happy to assist in resolving the pending litigation and related issues,” and affirmed that his goal is “to sustain Cato’s efforts at moving the country toward a freer and more prosperous society.”

Charles Koch applauded the agreement. “I have every confidence that John’s leadership will enable Cato to reach new levels of effectiveness. The alarming increase in the size and scope of government is undermining freedom, opportunity and prosperity for all. Effective action is required to limit government to its proper role.”

In this video, Cato chairman Bob Levy offers additional details about the deal and what it means for the future of Cato.

An Open Letter From Latin American Think Tanks in Support of Cato

Cato has worked closely with advocates of limited government throughout Latin America during the past several decades, a period that has seen the burgeoning of think tanks committed to promoting free societies. Some 30 think tank leaders in the region have signed an open letter to Cato President Ed Crane and board members in support of an independent Cato. A translation of their letter is below:

Edward Crane and Members of the Board of Directors
Cato Institute
Washington, D.C.

We, the heads of think tanks throughout Latin America, wish to express our respect, admiration and appreciation for the work that the Cato Institute does in our region in defense of the principles of free markets, limited government and peace.

The support we receive from the Cato Institute through its experts, its publications, the seminars for students that it hosts in our countries, its Spanish-language website (elcato.org), the Economic Freedom of the World report of the Fraser Institute that Cato co-publishes in Spanish every year, the distribution of op-eds in the region’s most prominent newspapers, and the immediate response to any of our requests for assistance are evidence of the Cato Institute’s tireless work to create free and prosperous societies in Latin America.

At this time when the Cato Institute is experiencing a threat to its independence, we hope that everything is resolved in the best way possible, and to the benefit of those of us who closely follow the institute and its important work around the world.

We would be pleased to share with you how the contributions of the Cato Institute have benefited our work in pursuing free markets in Latin America.

Warm and libertarian regards,

Agustín Etcheberre / Aldo Abram
Fundación Libertad y Progreso
Argentina

Ángel Soto
Instituto Democracia y Mercado
Chile

Armando Regil
Instituto de Pensamiento Estratégico Ágora
Mexico

Arturo Fontaine
Centro de Estudios Públicos
Chile

Bertha Pantojha
Caminos de la Libertad
Mexico

Carlos Newland
Instituto Universitario ESEADE
Argentina

Daniel Córdova
Invertir
Peru

Denise Couyumdjian
Libertad y Desarrollo
Chile

Dora de Ampuero
Instituto Ecuatoriano de Economía Política
Ecuador

Enrique Ghersi
Centro de Investigación y Estudios Legales
Peru

Ernesto Selman
Centro Regional de Estrategias Económicas Sostenibles
Dominican Republic

Fernando Álvarez
Fundación Global
Argentina

Gerardo Bongiovanni
Fundación Libertad
Argentina

Héctor Ñauparí
Instituto de Estudios de la Acción Humana
Peru

Hugo Vera
Fundación Libertad
Paraguay

Irene Jiménez
Instituto de Estudios para una Sociedad Abierta
Panama

Jorge Lavarreda
Centro de Investigaciones Económicas Nacionales
Guatemala

Juan José Garrido
Instituto Acción
Peru

Marcela Prieto
Instituto de Ciencia Política
Colombia

Margaret Tse
Instituto Liberdade
Brazil

Martín Simonetta
Fundación Atlas 1853
Argentina

Óscar Álvarez
Asociación Nacional de Fomento Económico
Costa Rica

Óscar Ortiz
Fundación Nueva Democracia
Bolivia

Pablo Izquierdo
Fundación Iberoamérica Europa
Spain

Pedro Dajer
Fundación para el Desarrollo Integral de la Sociedad
Dominican Republic

Ricardo López Murphy
Fundación Global
Argentina

Roberto Salinas
Mexico Business Forum
Mexico

Rocío Guijarro
CEDICE Libertad
Venezuela

Surse Pierpoint
Fundación Libertad
Panama

Yesenia Álvarez
Instituto Político para la Libertad
Peru

Wilboor Brun
Populi para la Libertad
Bolivia

Ten Questions for the Kochs

Over the past several weeks, Cato staffers and friends of the Institute have explained with conviction and clarity the importance of maintaining Cato’s independence.  In contrast, the Kochs’ shifting rationales for their takeover attempt have tended to confuse rather than clarify.  Over on the Save Cato page, the Cato Institute has just posted the following “Ten Questions for the Kochs,” which, if answered, could help clear up confusion about what it is they hope to achieve here:

Statement, March 2011, from David Koch: Cato is “viewed as one of the nation’s foremost upholders of advancing the idea of liberty. I am proud of and believe Cato’s success has been due to its outstanding leadership, including various groups of accomplished board members who have brought a diverse set of views and experiences to advance Cato’s vision.”
Statement, March 2012, from David Koch: Cato “is not nearly as effective as it could be. This is, in large part, due to the behavior and management practices of its CEO …. [T]he current Cato board has allowed this behavior …. Having a board in thrall of the CEO has been the downfall of many nonprofits. … [Ed Crane] should be replaced as soon as possible – preferably within six to eight weeks.”

  1. What acts or events triggered your move to take control of the Cato Institute, which you praise as “one of the nation’s foremost upholders of advancing the idea of liberty”?
  2. Why applaud Cato’s “outstanding leadership” while insisting its CEO be replaced in “six to eight weeks”? Why commend Cato’s “accomplished board members” for bringing “a diverse set of views and experiences to advance Cato’s vision,” and then remove four directors?
  3. Cato’s board, before you altered its composition, comprised civic and business leaders who donated more than $30 million to the Institute. Those same persons determined the CEO’s compensation and his tenure in that position. Is that a board “in thrall of the CEO” or vice versa?
  4. Cato’s criteria for board members include: (a) no dependence on the Institute, management, or shareholders; (b) commitment to libertarian principles; and (c) willingness and ability to generate significant financial support. You were not happy with the Institute’s choice of directors. Which of the selection criteria would you change or delete?
  5. Virtually all your appointees and nominees for Cato’s board are not libertarians, had not previously expressed interest in the Institute, are political activists, and serve you in order to promote the Koch corporate and political agenda. Is that the type of independent director that furthers our mission?
  6. You have written, “Our hope is that the commitment to advancing a free society will become Cato’s overriding agenda.” What do you believe is currently Cato’s overriding agenda? If it does not advance a free society, why then are you “proud of … Cato’s success”?
  7. On March 1, after filing a lawsuit seeking control of Cato, you said your purpose was “to ensure that Cato stays true to its fundamental principles.” What are those principles? How has Cato not been true to them?
  8. You profess concern about the damaging impact of media reports. Why did you instigate the public relations campaign by orchestrating an exclusive story about your lawsuit in Politico?
  9. Why are you engaged in a takeover attempt that will grievously injure the movement for individual liberty that you endorse? What specifically has Cato not done that you want it to do? What has it done that you would like it not to do?
  10. How could an Institute “owned” by the Kochs, whose board is appointed by the Kochs, be viewed as a credible source of non-partisan, non-aligned, independent commentary on vital public policy questions?

Another Salvo Launched in Cato’s Merciless “Scorched-Earth Campaign”

Michael Cannon, director of health policy studies at Cato, went on NPR yesterday to answer the question “Could the Billionaire Koch Brothers Ruin Cato?”

CANNON: ….And this is a very difficult issue and it’s a very difficult thing for folks at Cato, because we wouldn’t have our jobs without Charles and David Koch. They are billionaires who have funded the libertarian movement. Not just the Cato Institute, but other groups that have – where I’ve worked and others at Cato have worked. We owe a lot to them, and I’m not sure…

MARTIN: So you’ve been biting the hand that’s fed you?

CANNON: I don’t think so. I think we’re trying to protect an asset that they and we have tried to – have worked very hard to try to establish.

And I can’t – I don’t understand why it is that they’re doing this and so the open letter is part of an effort to try to begin that dialog and try to get some more understanding on both sides.

MARTIN: What’s the next step?

CANNON: I don’t really know. You mentioned the Kochs have filed two lawsuits against the Cato Institute. Those are going to work their way through the courts and, hopefully, there can be enough dialog from these two sides of the family that we can work toward some sort of compromise that preserves Cato’s credibility, preserves that asset that everyone involved has been working to build for 35 years.

Earth, scorched.

In other Koch v. Cato news, Freedomworks Chairman Dick Armey, co-chairman C. Boyden Gray, and president Matt Kibbe issued a strong statement last week opposing the Kochs’ takeover attempt.

As for who’s to blame for this very public dispute, Kibbe comments:

the Kochs have sparked a civil war at an inopportune time, and they have created the problem, not Cato. He argues that “the story was created on the day that they filed the lawsuit. You can’t put that genie back in the bottle. If Cato is to be saved, I think that independence needs to be reestablished.” Thus, he suggests, “the Cato board had to do whatever it could to defend itself. The caricature of the Kochs, that they’re this controlling, shadowy corporation is only fed by this shadowy lawsuit.”

A Tale of Two Kochs

The most recent rationale the Kochs offer for their campaign to takeover Cato is that the institute is nowhere near as effective as it could be.  Why is that?  David Koch offered an answer in his public statement on March 22.  Cato’s ineffectiveness;

[I]s, in large part, due to the behavior and management practices of its CEO – behavior that would have resulted in his termination from most corporations, let alone one that is supposed to exemplify the values of a free society, including integrity, value creation, creative destruction, humility, intellectual honesty, and treating others with dignity and respect.  The fact that the current Cato board has allowed this behavior convinces us that a change is needed if Cato is to be more effective.”

Now, put aside for the moment Koch’s dubious contention that there is a correlation between the congeniality of the CEO and the success of his company (how, oh how, did Apple manage to survive with that horrible Steve Jobs running the place?).  It’s worth noting that David Koch has been on the Cato board for 25 years and never once expressed any such concerns about Cato’s president or board of directors.

In fact, last year (on March 31, 2011 to be exact), David Koch wrote a memo to the board of directors and had this to say about Cato’s management:

It [Cato] has become to be viewed as one of the nation’s foremost upholders of advancing the idea of liberty.  I am proud of and believe Cato’s success has been due to its outstanding leadership, including various groups of accomplished board members who have brought a diverse set of views and experiences to advance Cato’s vision.

Today, of course, the Kochs propose to machine-gun those very board members.

What, exactly, occurred over the course of the past year to change David Koch’s mind about Ed Crane and the Cato board?  David Koch only offers one grievance from the date of that memo to the date in which his initial lawsuit was filed; the supposedly rude treatment that his two employees (Nancy Pfotenhauer and Kevin Gentry) received from Crane during board events in 2011.

Hence, if we take these Koch statements at face value, we can’t help but conclude that the Kochs have launched this takeover campaign because Ed Crane wasn’t nice to the Koch functionaries that were put on our board against our will.  And since the board won’t fire Crane over it, the Kochs will fire the board.

Now, to be fair, Koch’s 2011 statement lauding Cato’s “outstanding leadership” follows by attributing it to a shareholder arrangement which, he says “has kept Cato ‘on mission’ – advancing liberty – for more than three decades.  This has all been done without compromising Cato’s independence or non-partisanship.”

Really?  What exactly have the shareholders done over the course of Cato’s long history to produce this success?  Koch doesn’t say.

Let the record show that the shareholders have only met twice over the 35 year history of the Cato Institute.  The first meeting was in 1981 when the shareholders bought-out Murray Rothbard’s shares and removed him from the board of directors.  The second meeting was in 2010 when the Kochs rammed Nancy Pfotenhauer and Kevin Gentry onto the board of directors.

Hence, calling the shareholders “passive” – at least in regards to their duties as shareholders – would be generous.  The shareholders qua shareholders have had next to nothing to do with Cato over the entire history of the institute.

Koch hints, however, that it’s not so much what the shareholders have done but what the shareholders have prevented from being done.  Earlier in that memo, he argues:

We all know of countless examples of organizations steering way off course from their founders’ intentions and vision (e.g., Ford Foundation, Pew Charitable Trusts, MacArthur Foundation, etc.) primarily because no mechanism existed to prevent a self-perpetuating board of directors from taking actions that were wholly inconsistent with the founder’s intention.

Well, what exactly were the “intentions and visions” of the Institute’s founders?  The Kochs never say.  But two of the three living founders of the Cato Institute – Crane and Pearson – believe that it’s Charles Koch who’s “steered way off course” from what they understood to be Cato’s founding vision.  He’s the one who wants non-libertarians on Cato’s board.  He’s the one who wants Cato integrated with right wing, grassroots activists who are frequently hostile to our non-economic agenda.  And he’s the one who’s investing heavily in hotly partisan political campaigns.

David Koch was right to congratulate Cato’s management in 2011.  But he was wrong to take credit for it as a shareholder.

Sued Again!

In further non-hostile, not-partisan, non-takeover-related program activities, Charles and David Koch just filed a second lawsuit against Cato and four members of Cato’s Board: William A. Dunn, John C. Malone, Lewis E. Randall and Donald G. Smith.

The Washington Post’s Allen MacDuffee has the story here.  As MacDuffee notes, the Kochs’ filing  complains of an “‘improper election’ held recently by Cato’s board–an action the Kochs refer to as a ‘Board-packing scheme.'”

To recap, at the March 1 shareholders’ meeting, the day after the Kochs filed their initial lawsuit, they pushed out Dunn, Malone, Randall, and Smith–four longstanding Cato board members actively involved in the Institute’s governance. Three weeks later, by majority vote, Cato’s board reinstated them.  That’s your “board-packing scheme.”

As I’ve pointed out before (“Cato Plans ‘Takeover’ of Cato”), this is interesting logic: “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.”

The Kochs never make clear what substantive objection they have to these four longtime Cato board members and dedicated libertarians (Bill Dunn , for example, was until recently, chairman of Reason’s board, and the Donald and Paula Smith Family Foundation gives generously to libertarian projects like the Students for Liberty and Reason.tv).  They merely call them part of the “Crane/Levy faction.”

It’s true that neither Dunn, Malone, Randall, or Smith were selected by the “Koch/Koch faction,” and, unlike the Koch nominees, none of them are financially dependent on or entangled with Koch Industries. But it’s insulting to suggest that these independent entrepreneurs and investors are “in thrall” to Cato management because they tend to agree with Crane and Levy about the shareholder structure and the direction of the Cato Institute. And it’s just bizarre to claim, as the Kochs’ new complaint does, that by reinstating these longstanding and valuable directors, “the Board members who voted in favor of seating four new members did so without any compelling justification or legitimate corporate purpose.”

In the first chapter of his book The Science of Success, Charles Koch notes that his father “advise[d] me ‘never sue; the lawyers get a third, the government gets a third and you get your business destroyed.’  I’ve tried to follow his advice and have filed very few lawsuits.”

We’re still not sure why he’s made an exception in Cato’s case, but one thing is clear: if anything is destroyed by the perverse and fruitless lawsuits the Kochs have filed over the last five weeks, it won’t be Koch Industries.

KochvCato Bibliography

We’ve compiled a list of op-eds, blog posts, radio and television interviews, editorials, and the like, for those interested in reading more about the ongoing struggle for an independent Cato.  While the editors of this site do not support all opinions and arguments expressed by the authors included in this list, we feel it’s important for our readers to explore all sides of this debate and decide for themselves who has the stronger case.

Welcome to KochvCato.com

As we explain in the “About Us” section, soon after Charles and David Koch filed suit in Kansas, seeking control of the Cato Institute, those of us who opposed their hostile takeover took to any forum we could find to make our case for an independent Institute. Catoites’ responses—look here, here, here, here, and here for early examples— were unplanned, spontaneous, widespread, and, as far as I’m concerned, inspiring. (Not everyone agrees, however.)

Before long, we concluded that we could use a blog of our own, to provide rapid responses to new developments and serve as a central source for the case for an independent Institute.

In the coming months, we’ll use this space to provide our take on those developments, and to give Catoites and Cato supporters a forum to explain why we oppose this takeover attempt.

We can’t pretend to be neutral, but we’ll strive to give fair treatment to opposing arguments. And, to borrow a line from David Koch, we are “confident that when all the facts are known, those who are objective and open-minded will understand the reasons for our action[s].”