The Kochs, Cato, and Miscalculation—Part II

by on April 5, 2012 · 5 comments

Last week, I posted about the conflict between the Koch brothers and the Cato Institute, threatening to make that post first in a series. Never let it be said that I don’t follow through on my threats, sometimes.

Recapping: I believe the Koch brothers want what’s best for liberty, but the actions of the “Koch side”—an array of actors with differing motivations and strategies—may not be serving that goal. This seems due to miscalculation: the Koch side seems not to recognize how much of the Cato Institute’s value is in its reputational capital, capital which would be despoiled by a Koch takeover. I basically fleshed out an early point of Jonathan Adler’s on the Volokh Conspiracy.

But why is it the Koch side that gets the attention and not the Cato side? That deserves some explanation.

I’m a Cato partisan, but I don’t think it’s just my partisanship that puts the Koch side’s goals and strategies in play. So let me explain why I think the Koch side should get most of the examination—and why that‘s a product of Koch-side miscalculation.

I believe the Koch side is fairly regarded as the moving party in the dispute. I’m still not 100% certain, but when the Kochs filed suit—and remember that link: to a Politico story that went up the next morning—I believe they stood to lose nothing from waiting. A Cato board meeting had been called at which Bill Niskanen’s shares might be transferred to his widow, leaving Koch ownership at 50% contrary to their desires. But the Kochs could have objected and given up no legal rights to contest at a later time what they would argue to be an invalid transfer.

If there’s a corporate lawyer who can clear it up for me in the comments, please do, but I believe the Kochs’ rights under the articles of incorporation or shareholders agreement would not have lapsed upon a transfer of shares to which they objected. If the Kochs had to install new board members, ejecting the old, in order to preserve their rights, tell me what operative document or law required it.

If I’m not wrong, the Kochs are the moving party. The Kochs went to court to require a change from the status quo in terms of ownership (Niskanen’s shares not having been transferred). The Kochs changed the status quo in terms of membership on the Cato board. (Cato had independence from the Kochs as a long-term goal, but preferred the short-term status quo.)

Was the timing of the meeting precipitous? Bob Levy has stated that Cato’s bylaws require a meeting on the first day of December, and that the 2011 meeting had already been postponed 90 days.

Maybe some on the Koch side feel they were goaded into action. One could craft a narrative that the Cato side was ingeniously laying trip-wires for the Kochs and scheduled that meeting as a final provocation. But the truth is probably somewhere closer to “sick of this $&*#—schedule the meeting.”

Life isn’t fair, and having been goaded does not diminish the fact of having acted. Read your Sun-Tzu. Suing made the Kochs the moving party.

As the moving party, the Kochs put their own motivations and actions in issue. But the Koch side had taken no steps ahead of time (none I can discern, anyway) to make Cato’s management or leadership the issue in public debate. Doing so would at least have softened the argument that a Koch takeover would be bad for Cato.

But remember that link I pointed out above? I’ve seen it suggested on the Cato side that the Koch side dished an exclusive to Politico. I don’t know the truth of it, but the story was posted before 10:00 a.m. the day after the Kochs went to court. That’s awfully quick Politico sleuthing, to get the court documents out of Kansas and the story up before the morning coffee break. I don’t know when or how Cato people were served the legal papers, but I doubt they got clean PDFs. I could easily be wrong, but the evidence and inferences I’ve accessed point to someone on the Koch side pushing the lawsuit story.

In terms of communications and public relations, this is kind of jaw-dropping stuff. It looks as though the Koch side laid little or no groundwork for public discussion of their move to take control of Cato. They didn’t register a public complaint about the direction of Cato’s research. They didn’t enlist a single ally or proxy into raising questions about Cato’s management. It’s as if they were unaware they might meet with resistance, though they have apparently met with downright obstinance from Ed Crane, Cato’s president, for some number of years. Then, when they sued, they may even have pushed that story.

Only recently, and very late, have a statement from David Koch and a write-up on attempted to tar Ed Crane for his management style and his evil-geniosity in the present dispute. We’ll see how that works.

Ed may have miscalculated some and played into the Koch side of the story by talking to Dave Weigel at Slate about some things he has done wrong. He pretty much admitted to rudeness, and he said he gave on off-the-record quote to Jane Mayer, the terms of which she did not respect in her hit-piece on the Kochs. I get what he seems to have been saying—“Nobody will tell the Kochs that ‘market-based management’ isn’t the best thing since sliced bread”—but it’s a whole hell of a mess whether Ed had a good point or not. A sharp quote he got in—“Who the hell is going to take a think tank seriously if it’s controlled by billionaire oil guys?”—barely saves it and makes it a wash in my opinion. (Update: A new Breitbart piece exploits the Weigel interview.)

Except for fringies who will back the Kochs because they are reviled on the left and Cato is not, the story remains fairly well set: The Koch brothers are trying to take over the well-respected Cato Institute and convert it to their own purposes. Unfair? Well, the Koch side impetuously put itself at the center of the story by filing the lawsuit without preparing for public discussion of it. The outcome was fairly well dictated by that framing. This seems like miscalculation of a high order and communications malpractice.

We in Washington, D.C. pay attention to how issues are framed and communicated. It looks like someone on the Koch side didn’t think this thing through and didn’t have a communications plan, so the opening salvo in the Koch/Cato dispute was a Koch-side backfire.

  • Nicolas Martin

    Once again. Why were none of the Cato partisans concerned when Murray Rothbard, a Cato founder, was stripped of his shares? When Cato’s founding libertarian values were ejected with Rothbard, who protested?

  • Chuck Rudd

    Nobody cares about ol’ Murray.  Nobody.  

  • Jim Harper

    How do you know we weren’t concerned? I tried to organize others in my 8th grade class to join me in protesting the gross injustice.

    In seriousness, I don’t know how this is germane to my post. Perhaps the Kochs and Crane deserve some kind of karmic justice, because evidently a legal challenge either wasn’t brought or failed.

    I don’t know how this creates an argument one way or another in the current dispute, much less does it have to do with the conduct of the two parties, which is what this post is about.

  • Dividist

    I am in general agreement with your thoughts and tend to come down on the Cato side in this dispute. This is not a judgement on the legal question, of which I am unqualified to even hazard a guess, but more on the question of the “conduct of the two parties”.  I just don’t see how anyone can conclude other than that this ends badly with a complete loss of credibility for the Cato Institute if the Koch brothers have effective control.

    As far as an argument in support of “the CATO side”, I think there is an angle that has been overlooked. Since the conflict was escalated as a consequence of Bill Niskanen’s death, putting his shares in legal limbo, it strikes me that a fair question to ask is “What would Bill do?

    I am an advocate for a divided government voting heuristic. My thinking and my blog was shaped by Bill Niskanen’s work on this question. He was a consistent supporter of divided government as a way of protecting liberty, or at least as an empirically documented electoral means to slow the growth of leviathan and the consequent erosion of liberty.

    The Koch brother seem to be motivated primarily by an unexamined premise that may be incorrect. The premise is that preventing the reelection of Barack Obama is the most important/only important step in advancing libertarian principles.

    Of course, there is no telling for certain how Nikskanen would have felt about the upcoming election. But it is interesting to note that with the GOP a virtual lock to keep majority control of the House, and a very good chance of taking control of the Senate, the divided government vote in 2012 is a vote to re-elect Barack Obama.

    Which scenario do you think Bill Niskanen would have seen as preferable in 2013? One Party Republican Rule under Mitt Romney? Or a divided government with Obama as president and the GOP in control of Congress?  I suspect that Bill would ask – “Which scenario has more empirical historical evidence to support a more libertarian friendly  2013?”  Based on his work, the answer is divided government and the reelection of Obama.

  • Pingback: The Kochs, Cato, and Miscalculation—Part III()

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