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Kochs, Cato Reach Settlement (Updated)



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Charles and David Koch and the Cato Institute have reached an agreement over their ongoing dispute about control of the organization. Cato’s CEO, Ed Crane, will be retiring, to be replaced by a jointly chosen replacement, John Allison, and the shareholder agreement will be replaced by a twelve-member self-perpetuating board: David Koch, three Koch designees, and John Allison will be on the board, while Charles Koch, Ed Crane, and Bill Niskanen’s widow, Kathryn Washburn (who had claimed control of his shares after his death) will not be.

Cato loyalists, including Ed Crane and Bob Levy, had made it essentially clear that they did not wish to resolve the dispute over future control and Niskanen’s shares, since the Kochs’ suit maintained that they now had majority shareholder control of the institute. The Kochs had resisted the possibility of a self-perpetuating board, worrying that it would be dominated by Crane and Levy; Bob Levy asserted that one of the Kochs’ suggestions for a new membership structure was a board with half Koch appointees, but Cato partisans considered that unacceptable — it seems that the Kochs may have traded some concessions in the new board structure for the personnel decisions they may have wanted.

Their full joint announcement is as follows:

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. . . .

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.”

Wes Edwards, a deputy general counsel for Koch Companies Public Sector, offered the Kochs’ take: “We look forward to finalizing a resolution of the underlying dispute among Cato shareholders, and putting differences behind us. As this resolution shows, we never sought a hostile takeover of Cato — only a resolution to help further Cato’s mission. We have every confidence that John Allison will lead Cato in a principled manner, making Cato more effective in advancing the free society.”

UPDATE: In today’s Cato podcast, Bob Levy discusses the settlement, including some of his perspective on the history of the institution and the legal issues involved. He explains that he expects that the “agreement in principle will be converted into formal legal documents, and we’ll have a settlement.”

He also asserts, by way of explaining how the new leadership has been chosen: “Indeed, Ed Crane offered, perhaps a year ago, to step down as Cato’s CEO, if Cato’s independence could be preserved by abandoning the shareholder structure and switching to a member structure where the board elected its own successors, and that is what will occur: We will have a change in leadership at the top.” He had kind words for the appointed CEO, John Allison, calling him “a superstar businessman, a superstar libertarian. He comes with impeccable credentials. And I think, very importantly, he is admired and respected, even revered, by parties on both sides.”



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