Koch, Cato, and Nonprofit Takeovers
posted by Frank Pasquale
The Volokh Conspiracy has been providing a forum for discussion of the Koch/Cato lawsuit. According to Cato Senior Fellow Jerry Taylor, the Koch Brothers may want to “use their board majority to . . . transform our Institute into an intellectual ammo-shop for American for Prosperity and other allied (presumably, Koch-controlled) organizations.” All sides may be interested in this article by Dana Brakman Reiser (“Nonprofit Takeovers: Regulating the Market for Mission Control”). Here is part of the abstract:
For-profit takeovers create a robust market for corporate control, and the legal regimes that regulate them are well known. Far less appreciated, however, are efforts to seize control of nonprofit organizations in order to alter their missions or activities. This article explores the largely uncharted territory of nonprofit takeovers, the regulation of defenses to them, and repercussions of both for the nonprofit sector and society at large. . . . [C]ase studies demonstrate both a range of nonprofit takeover tactics and the harsh responses to them by incumbent fiduciaries and reviewing courts. . . . Within the context of these cases, the article critiques courts’ deference to nonprofits’ incumbents and intolerance of takeovers. In its place, the article advocates a nonprofit-specific approach, which will work to distinguish perilous from constructive takeover activity, and balance the opposing virtues of mission preservation and evolution. This framework will provide guidance to those who may become involved in these transactions. Moreover, it will focus nonprofit law on the crucial importance of mission and the challenges of policing that mission in organizations with multiple stakeholders.