Matt Pearce, LAT:
…Charles and David Koch are taking to the courts to solve an ownership dispute involving the Cato Institute.
The president of the institute, a longtime pillar of free-market thinking in Washington — calls the move an attempt “to transform Cato from an independent, nonpartisan research organization into a political entity” with a “partisan agenda.”…
…the Kochs’ lawsuit …plunges into an internal battle over who owns 25% of the institute’s shares. The Kochs hold 50% of the shares and possibly stand to hold more if they win the suit.
The current Cato Institute was founded in, ironically enough, San Francisco in 1977, and the original began three years earlier as a Kansas nonprofit named the Charles Koch Foundation Inc.
It was recently chaired by William Niskanen, who retired in 2008 and died in October; his 25% ownership share transferred to his wife, which the Koch brothers believe under shareholders’ agreements must be sold back to the institute.
According to its latest tax filing for 2010, the Cato Institute’s four shareholders each had 25% stakes in the $52 million, 200-employee nonprofit organization.
Shares? Huh? Matt Yglesias says:
Something that was confusing me about the lawsuit between the Koch Brothers and the Cato Institute that Dave Weigel’s excellent backgrounder didn’t really explain was how is it that a 501(c)3 nonprofit like the Cato Institute has “shares” for people to be arguing over in the first place? After all, one of the rules of the game is that nobody owns nonprofits. The answer seems to be that Cato is formally organized as a membership institution that just happens to have a very small number of members. A more standard form of 501(c) organization seen in most DC think tanks is that you have no members and the board is a self-perpetuating governance body. But if you think of the “shares” at issue in the Koch/Cato lawsuit as memberships, then you can see why the legal issue arises about whether the late William Niskanen’s shares can be inhereted by his wife.
Dave Weigel, WaPo:
Eight years later [in 1985], as it relocated to Washington, a new agreement was drawn up that split the ownership of the think tank four ways: Crane, Koch, George Pearson, and William Niskanen. Each had 16 shares of the Cato Institute, $1 per share. But in 1991, as his brother David joined Cato and grabbed his own 16 shares, Charles Koch walked away.
Crane kept building Cato. Contact was severed; in a 2010 interview, Crane told me that he never quite understood why Koch bolted.
In the past, Charles Koch and his allies have criticized Cato for lacking real, provable results. Since then, David has found tremendous success with Americans for Prosperity, which in the Tea Party era evolved into one of the most powerful conservative organizations in electoral politics. (It has spent seven figures so far this year on TV ads against Barack Obama.) Draw your conclusions.
Jane Mayer, The New Yorker:
As I wrote in my New Yorker piece about the Kochs, “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, which he distilled into a book called “The Science of Success,’ and trademarked under the name Market-Based Management, or M.B.M.… 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.’ ”
Forbes has obtained the court documents here.