Friday, March 02, 2012

OMG! LOL! Charles Koch tries to regain control of the "think" tank he left behind


Updated with an "Afterthought" about the 1992
rupture between Chas K and Cato (see below)

Let's just nuke up some popcorn, sit back and relax, and enjoy the thugs and loons duking it out.

"Mr. Koch's actions in Kansas court yesterday represent an effort by him to transform Cato from an independent, nonpartisan research organization into a political entity that might better support his partisan agenda."
-- Cato Institute President Ed Crane, re. the Koch lawsuit
aimed at seizing control over the libertarian "think" tank
"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."
-- Charles Koch, of the Billionaire Koch Brothers

by Ken

To be fair, Jane Mayer never says in her blogpost, "The Kochs vs. Cato," that she's "mystified" or "stumped" by the question, just: "What’s interesting, though, is why now, all these years later, after saying that Cato’s independence from him had been for the best, Charles Koch appears to be making a very serious play to reassert his control." Even with just the bits of information we have, I don't find it all that mysterious, and in a moment I'll venture my theory.

To back up, in case you aren't caught up on the story, Charles Koch -- of the Billionaire Koch Brothers (BKBs) -- has filed suit in Kansas, which is home ground for him, and happens also to be where the "libertarian think tank," as it's always known, the Cato Institute was originally created, as the Charles Koch Foundation. The suit seeks to prevent the 25-percent holding of the late William Niskanen, onetime Cato chairman, from being transferred to his widow on the ground that the institute's rules prohibit transfer of any shares without their first being offered for sale back to the other owners. Whether the courts will uphold this bar to what seems to me the normal passing on of property from deceased-to-surviving spouse remains to be seen. What's clear is that Chas K wants Cato back.

The power struggle appears to be between Chas and Cato's president, Ed Crane, who was once Chas's most trusted political confidant -- that is, until a falling out occurred that no one seems even today to be able to explain. We'll come back to that, but first let's finish up with what's going on now.

Ed Crane was, with Chas, co-founder of the institute, and is, like Chas and the late William Niskanen, a 25-percent shareholder. The remaining 25 percent is owned by the other BKB, David Koch, who you'll note remained on the Cato board after Chas bolted (without, you'll also note, as we know now, unburdening himself of his stake in the joint). Apparently Niskanen pooled his holdings with Crane, meaning they controlled 50 percent and the Kochs controlled 50 percent. If the Niskanen share is suddenly put in play, well, there could be big changes. You don't have to be a mathematical genius to see that if Chas could get control of even the tiniest sliver of another percent, he would run the show.

I remembered that Mayer had written a fair amount about the state of affairs between Chas and Ed Crane in her landmark New Yorker piece on the BKBs, "Covert Operations," which, with all due respect and credit to other writers who've written on the subject, seems to me to be the piece that blew the veil of secrecy off the BKB power operation. As I was making my way back to that piece, I discovered that she has blogged about the new development.

As Mayer notes in her blogpost:
[T]he friction between Charles Koch and the Cato Institute isn't new -- there's a long backstory here. In fact, Charles Koch, whom many regard as the brains behind the Kochs' powerful political and industrial empires, first broke with Cato some two decades ago, while still retaining a stake in the think tank, for reasons that have never been made public.

Cato was co-founded by Edward Crane and Charles Koch, in the nineteen-seventies, with Koch's money; the lawsuit notes that the original corporate name was the Charles Koch Foundation, Inc. Crane once recounted to me, "Charles said what would it take to keep me in the libertarian movement. He was very impressed. I said, My bank account is empty. He said, How much do you need? I'd been impressed with Brookings and A.E.I., and told him it would be good to have a libertarian think tank. Charles said, I'll give it to you." Koch steered millions to the think tank. But it was not a match for the ages. On January 13, 1992, the Washington Times reported,
Word is dribbling out of the CATO Institute that Charles Koch, the oil billionaire whose bucks have helped keep CATO's thinkers in the tank, has dropped off the board of directors. The situation was announced to staffers last Tuesday by Ed Crane. He told the troops that funding would not be curtailed. Through various pipelines, Mr. Koch is said to control about 60 percent of CATO's budget. Mr. Crane did apparently conclude his briefing on a less than upbeat note, explaining that he really didn't know what Mr. Koch's resignation meant and that it could indicate some hard times ahead.

Now it's easy to confuse Cato as being an ongoing Koch enterprise. In fact, when Chas stormed out, he had another "think" tank ("non-think" would be a better term, wouldn't it? don't they just puke up their already-churned ideological guts?), the Mercatus Center, established in about as brazen a power play as I know of, at a public university, Virginia's George Mason.

Jane Mayer wrote in her original Koch piece:
In the mid-eighties, the Kochs provided millions of dollars to George Mason University, in Arlington, Virginia, to set up another think tank. Now known as the Mercatus Center, it promotes itself as "the world's premier university source for market-oriented ideas -- bridging the gap between academic ideas and real-world problems." Financial records show that the Koch family foundations have contributed more than thirty million dollars to George Mason, much of which has gone to the Mercatus Center, a nonprofit organization. "It's ground zero for deregulation policy in Washington," Rob Stein, the Democratic strategist, said. It is an unusual arrangement. "George Mason is a public university, and receives public funds," Stein noted. "Virginia is hosting an institution that the Kochs practically control."

The founder of the Mercatus Center is Richard Fink, formerly an economist. Fink heads Koch Industries' lobbying operation in Washington. In addition, he is the president of the Charles G. Koch Charitable Foundation, the president of the Claude R. Lambe Charitable Foundation, a director of the Fred C. and Mary R. Koch Foundation, and a director and co-founder, with David Koch, of the Americans for Prosperity Foundation.

Fink, with his many titles, has become the central nervous system of the Kochtopus. He appears to have supplanted Ed Crane, the head of the Cato Institute, as the brothers' main political lieutenant. Though David remains on the board at Cato, Charles Koch has fallen out with Crane. Associates suggested to me that Crane had been insufficiently respectful of Charles's management philosophy . . .

[UPDATE: For the continuation of this quote, see the "Afterthought" below. -- Ed.]
(This is what I had in mind when I wrote a post called "It's important that everyone associated with George Mason U. suffer the stigma of the Koch Bros.' Mercatus Center.")

In her blogpost, Mayer, as suggested, is given to understand that Chas was perfectly happy to be free of those nasty Cato people. She quotes Brian Doherty, author of Radicals for Capitalism, a 2007 history of the libertarian movement, for which he interviewed Chas:
For his part, Charles Koch decided at a certain point that "my involvement [with Cato] was counterproductive. I have strong ideas, I want to see things go in certain direction [sic], and Crane has strong ideas. I concluded, why argue with Ed? Rather than try to modify his strategy, just go do my own thing and wish him well. I had to get out to let them reach their potential, and I think it worked out to their benefit."

Now, as to the answer to that mysterious question, why now? Does it have to be any more mysterious than that control of Cato is suddenly in play, or could be with the right legal ruling, and Chas is seeking control for the most basic of reasons?

Because he can.

I imagine that a man like Chas, when he thinks about his wealth, focuses not so much on the money he has as on the money he doesn't have, for no good reason he can think of. Same deal with propaganda outlets. Doesn't he have enough? Perhaps not, for a man who likes to be in control, and doesn't seem to have the word "enough" in his vocabulary.


"A top Cato Institute official told me that Charles 'thinks he's a genius. He's the emperor, and he's convinced he's wearing clothes.' "
-- Jane Mayer, in her original New Yorker piece, "Covert Operations"

Trying not to overdo the quoting of Jane Mayer's original piece on what she refers to so piquantly as "the Kochtopus" (really, long as the piece is, there's a temptation to quote the whole damned thing; if you haven't read it, you really should, for an understanding of the way real power is exercised in the U.S. today), I cut off a quote at a point I wasn't sure about at the time and have come to feel increasingly less sure about. It's the quote where she's speculating about the reason for the early-'90s rupture between Chas and Ed, and cites the proffered theory of a lack of respect the Cato Institute president showed toward his patron's "management philosophy." Here's how the passage continues:
Associates suggested to me that Crane had been insufficiently respectful of Charles's management philosophy, which he distilled into a book called The Science of Success, and trademarked under the name Market-Based Management, or M.B.M. In the book, Charles recommends instilling a company's corporate culture with the competitiveness of the marketplace. Koch describes M.B.M. as a "holistic system" containing "five dimensions: vision, virtue and talents, knowledge processes, decision rights and incentives." A top Cato Institute official told me that Charles "thinks he's a genius. He's the emperor, and he's convinced he's wearing clothes." Fink, by contrast, has been far more embracing of Charles's ideas. (Fink, like the Kochs, declined to be interviewed.)

Is this seemingly petty pique really enough to explain Chas's storming out of Cato? (While, let us remember, leaving brother David behind on the Cato board and also retaining his own 25-percent share.) Well, it does seem that for people who acquire as much power as Chas has acquired, an important part of the payoff is being able to squoosh the objects of your petty piques like bugs.

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At 1:23 PM, Blogger Suzan said...

Notice how these guys never seem plagued with those mysterious heart attacks?

If only.

Thanks for the fine reporting!

At 10:41 AM, Blogger Nothstine said...

"The founder of the Mercatus Center is Richard Fink, formerly an economist."

Hah! Jane Mayer knows her way around an adverb; a marvelously understated insult like that couldn't have happened by accident.

[p.s. Would have found my way here eventually, but in fact followed the Alicublog link.]

At 12:40 AM, Blogger EliRabett said...

Eli thinks you are slightly backwards on this. The agreements, at least what Eli has seen of them, are pretty clear that when one of the stockholders dies the Cato Institute has right of first refusal on the stock, and then, if the Institute refuses, which it has, e.g. if Ed Crane and the board which he dominates, refuses, slightly less clearly the other bond holders can make an offer the estate cannot refuse.

What makes this interesting is that the Cato Institute has built up a nest egg of about 52M$ (not the endowment, but the carry over from year to year which is growing at about $10M per year, see the 990s). Other hints at Volokh show that the donor base is growing so fast that they can't spend the money as fast as it comes in and, in the same vein, it shows that the Kochs are trying to change the board to one more of their liking using their stock. With the Niskanen stock in limbo, they control that.

Were the agreements kept to, Crane and the Widow Niskanen would lose control of the golden egg laying goose (Crane pulls out over 500K$/year with benefits). They have a real motive for trying to keep control.

At 8:57 AM, Anonymous n' said...

Is it possible someone would spend 20+ years and millions of dollars just to destroy one man's dream?

um, rhetorical question, that.


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