Kock Ring

How the Kock network rivals the GOP

The billionaires and their allies have built a private political machine without precedent. 

By Kenneth P. Vogel

The political machine that Charles Kock launched a dozen years ago in a Chicago hotel conference room with 16 other rich conservatives has exploded in size and influence in the past few elections and now eclipses the official GOP in key areas.

Kock and his brother David Kock have quietly assembled, piece by piece, a privatized political and policy advocacy operation like no other in American history that today includes hundreds of donors and employs 1,200 full-time, year-round staffers in 107 offices nationwide. That’s about 3½ times as many employees as the Republican National Committee and its congressional campaign arms had on their main payrolls last month, according to POLITICO’s analysis of tax and campaign documents and interviews with sources familiar with the network. And the staggering sum the network plans to spend in the 2016 election run-up ― $889 million ― is more than double what the RNC spent in the previous presidential cycle.

While rich donors have held considerable sway over the political process in past eras, the Kocks’ network is different. Its mission is in some ways more ambitious than the Republican Party’s ― to fundamentally reshape American public life around a libertarian-infused brand of conservatism ― but it also is encroaching on the GOP’s traditional turf. The Kock network’s data operation is now regarded by many candidates and campaigns as superior to the party’s, and it has invested in efforts to become the leading force on the right for training activists and registering voters. Its biggest group, Americans for Prosperity, plans to place full-time staff in all but eight states by late 2016 and aspires to copy the National Rifle Association’s broad-based membership plan for longevity, according to a POLITICO investigation. It found that the group has even discussed expanding its influence by writing and pushing model state budgets, a technique similar to the one used by the American Legislative Exchange Council to push various state legislative initiatives.

As the network has grown, though, internal audits at times have raised concerns about its management culture, spending and lack of coordination among core groups that compose the network. Insiders have questioned huge staff bonuses, fancy restaurant meals, purchases of Twitter followers and sporting event-related costs, as well as contracts directed to firms connected to top network operatives.

To address its growing pains, the network has tapped into a powerful resource unavailable to traditional parties, POLITICO’s investigation found ― the talent and management philosophies developed by the brothers’ giant multinational industrial conglomerate, Kock Industries.

In the post-Citizens United era of relaxed campaign finance laws, the Kocks and their megadonor allies, more than any other group of affluent political partisans, have leveraged their financial clout to do things that traditional party and political committees can’t or won’t do, as POLITICO’s investigation has shown. It revealed that the Kock network quietly launched sophisticated initiatives to recruit like-minded candidates, collect intelligence on rivals and win converts among the disadvantaged.

“I don’t know of any precedent for this,” said campaign finance scholar Robert E. Mutch, whose 2014 book “Buying the Vote; a History of Campaign Finance Reform,” traced the influence of ultrarich donors from the Gilded Age through the 2012 general election. “The rich guys who wanted to be politically active used to be politically active in the party. What’s different now is you’ve got them being active outside the party,” he said, adding that, while other megadonors are trying to build their own political operations, the Kocks have pushed this phenomenon to new heights.

Delegates and guests to the 2015 Republican National Committee summer meeting move through the lobby of the Renaissance Hotel on August 5, 2015 in Cleveland.

While the Kocks’ decision to build their own independent political organization was prompted largely by their dissatisfaction with George W. Bush and his Republican congressional majorities, so far, the network’s forays have almost exclusively complemented those of the official GOP. And the network is expected to spend heavily in 2016 on ads and other voter outreach boosting the party’s efforts to retake the White House and protect its congressional majorities. RNC and Kock network officials even meet periodically to discuss their respective efforts, to the limited extent that is legally permissible, POLITICO has learned. But the Kock network hasn’t hesitated to call out Republicans who violate the brothers’ brand of small-government fiscal conservatism. And perhaps more worrisome for the GOP, Kock operatives have signaled they’re looking for more chances to take on Republicans, including in primary campaigns.

“Our mission is to advance a free society that helps people improve their lives, not to prop up or defend the Republican Party,” said Marc Short, president of Freedom Partners Chamber of Commerce, the nonprofit overseeing the Kock network.

Nonetheless, conservative leaders have grumbled that too much of their movement is being centralized under one umbrella ― the Kocks ― while GOP officials have openly fretted about the possibility of the party losing at least some control to “a group of very strong, well-financed individuals who have no accountability to anyone,” as RNC chief of staff Katie Walsh put it this year.

Permanent ground army

Charles and David Kock first dipped into their fortunes to influence American public policy in the 1970s, mostly pumping money into libertarian think tanks like the Cato Institute and George Mason University’s Mercatus Center.

They began getting more politically involved in response to what they saw as a reckless government expansion led by Bush and his GOP congressional majorities, including a costly Medicare expansion, the Iraq war and risky lending policies blamed for causing a housing bubble.

In 2004, not long after Charles Kock convened the Chicago donors’ meeting, the brothers provided seed funding for the group that would become the network’s most muscular political arm, Americans for Prosperity, which joined a pre-existing foundation arm that was spun off from another group the previous year. In 2004, AFP and AFP’s foundation had chapters in three states and a combined $2 million budget, according to tax filings. By last year, the main and foundation arms had morphed into the right’s most powerful nonparty group, with chapters in more than 30 states, a combined $104 million budget and a staff of 948 ― by far the network’s biggest footprint.

Internal network plans call for AFP to expand into several more states by the end of next year, sources tell POLITICO, leaving only Connecticut, Hawaii, Massachusetts, New York, Oregon, Rhode Island, Vermont and Washington without an outpost. While the group’s stated mission is to advocate small-government policies, its evolution has been strategically tailored for maximum political impact. In recent years, the network has channeled more spending into red states where it can influence GOP governing majorities rather than fighting for swing votes. That strategy was shaped by Charles Kock’s longtime right-hand man, Rich Fink, who is considered the network’s “grand strategist” and who had privately advocated “owning” conservative states, according to network sources. Indeed, AFP has taken credit for major policy victories — including enacting tax cuts, fighting Obamacare and restricting union power ― in Republican-controlled states where it has a major presence, such as Arkansas, Indiana, Kansas, North Carolina and Wisconsin. Likewise, it has shuttered chapters in deep blue states such as Connecticut, Oregon and Washington, where conservative reforms seem unlikely.

There’s also been a buildup in key swing states like Colorado, Florida, Nevada, North Carolina, Ohio, Pennsylvania and Virginia ― suggesting that the network has its eye not just on policy but also on political impact.

In Florida, for example, the Kock network’s core groups employ 77 full-time staffers, including AFP’s field staff of 50. Concerned Veterans for America, which courts veterans with fiscally conservative messaging, has 15 Florida staffers, while the LIBRE Initiative, which appeals to Latino voters, has nine. Generation Opportunity, a young voter outreach group, has three. Freedom Partners-backed outfits that aren’t considered core network groups ― the senior-focused 60 Plus Association, Concerned Women for America ― are courting other Florida voting blocs.

The network’s Sunshine State staffing rivals that of the Florida Republican Party and its local and legislative affiliates, according to sources familiar with Florida GOP politics, though the Republican Party presence in Florida and other key states will surge as the RNC ramps up its joint victory program with state party committees. RNC officials said that, by Election Day, they aim to have more than 4,500 paid staff on the ground across the country through the victory program, along with roughly 2,000 volunteer “fellows” trained through a program launched last year called the Republican Leadership Initiative. Those figures don’t include additional staff provided or subsidized by the National Republican Senatorial Committee and the National Republican Congressional Committee. And the party committees, unlike Kock network groups, are able to coordinate with candidates’ campaigns to mobilize volunteers and get out the vote.

“The Kocks’ efforts are helpful to the overall conservative movement, but they can never do the core functions that the party does,” said RNC chief strategist Sean Spicer. He argued that questions about whether the RNC is ceding influence to the Kock network prove “that POLITICO fundamentally lacks a basic understanding of how the political system and parties work.” But the committee’s own post-mortem analysis of the 2012 election openly acknowledged that changes in campaign finance and the rise of outside groups have led to “a troubling diminishment of the role of political parties and even candidates themselves in our democracy.” They “no longer have the loudest voices in campaigns or even the ability to determine the issues debated in campaigns. Outside groups now play an expanded role affecting federal races and, in some ways, overshadow state parties in primary and general elections,” the report says. It concluded that the situation “has caused a splintered Congress with little party cohesion so that gridlock and polarization grow as the political parties lose their ability to rally their elected officeholders around a set of coherent governing policies.”

Not only is the official GOP barred from accepting the unlimited and often undisclosed checks that fuel most of the Kocks’ groups, it’s also more thinly spread. That’s because the party’s mission is to try to win every election, even if that means backing less conservative nominees. Outside players like the Kocks, on the other hand, can focus more selectively on groups, races or states that fit their agenda.

In the 2014 election run-up, AFP quietly launched an initiative to add sympathetic voters to the rolls in 14 key states, according to sources familiar with the project. That’s a function that has mostly been the GOP’s domain. But Kock operatives concluded after the 2012 election that “the left outmaneuvered the right by … expanding the universe of voters,” according to network documents obtained by POLITICO.

The network also stepped up to fill what its operatives see as a void in data analytics on the right ― its Freedom Partners-owned data shop i360 has eclipsed the RNC data operation as the choice for many GOP candidates and committees. Last year, the network also invested heavily in what its officials privately call a “leadership factory” that they see as rivaling training programs of both the Republican Party and competing conservative groups, according to sources familiar with it. The Grassroots Leadership Academy, as it is now known, was absorbed into AFP’s foundation arm in 2014 and sources say it boasted a 2014 budget of more than $2 million, which it used to provide training to all network groups.

A newly created Freedom Partners division ― headed by an operative named Nathan Nascimento — works to coordinate ground initiatives run by the different network groups in the states. This effort, like many in the network, stemmed partly from shortcomings identified in corporate-style efficiency audits, which have raised concerns about duplicative spending and poor coordination, POLITICO has learned.

Audits also flagged insufficient understanding of fiscal conservatism by AFP field staff, an issue deemed “critically important to correct,” according to sources familiar with the findings. Another assessment found an “overwhelming” percentage of the 2 million members claimed by the group were not actually involved and “do not self-identify as being volunteers.” Findings about weak volunteer engagement were taken very seriously, sources tell POLITICO, because they undermined AFP’s positioning as a grass-roots army of millions.

“They’re the most effective”

The network’s corporate-style efficiency measures are central to the donor pitches delivered by Kock operatives, who argue that they use cash more efficiently than rival conservative groups or the Republican Party.

While the super PACs devoted to various 2016 GOP presidential aspirants raised huge sums from ultrarich conservatives this year, AFP president Tim Phillips this month predicted in an interview “a lot of donors are going to give a second thought to the super PAC investments. They’re short-term strictly — no long-term value creation, A, and, B, you cannot hold them accountable as a donor. I mean, with an institution like us or some other (c)(4) that has boards and such, you can hold them accountable for how they spend your money over the long-term to actually do something.”

That framing appears to be paying off, as evidenced by the evolution of the Kocks’ twice-a-year donor gatherings. Sixteen donors joined Charles Kock at the first gathering at Chicago’s Peninsula Hotel in 2003, while the most recent summit drew more than 400 ― and many of the leading GOP presidential candidates ― to a slickly produced August affair at the St. Regis in Dana Point, California. Donors give at least $100,000 each year to join Freedom Partners and attend the “seminars,” as the gatherings are known in the Kock orbit. They have in some ways replaced the party’s convention as the most coveted ticket among some major donors, and now draw a more ideologically diverse crowd than the mostly libertarian-minded donors like variety store mogul Art Pope who attended the first one ― from religious conservatives like mutual fund pioneer Foster Friess to socially moderate neocons like Las Vegas casino magnate Sheldon Adelson.

“It’s about community and it’s also about commitment,” said Nancy Pfoutenhour, an AFP board member, Freedom Partners adviser and Kock confidante. “If you’re bringing in 40- to 50-percent more new people each time, that says there’s an appetite for what we’re doing and a shared level of concern.”

At an April 2013 gathering, POLITICO reported that Louisiana metals titan Ned Diefenthal complained to Sen. Ron Johnson about the incompetence of the RNC and its chairman, Reince Priebus. He “keeps sending me letters asking for money. I’m not giving him any money. He doesn’t know what to do with it,” Diefenthal said of Priebus. While Diefenthal’s family had donated $280,000 to the RNC over the years, he suggested to Johnson that the Kock network is a better investment.

Minnesota media mogul Stan Hubbard, a billionaire megadonor who regularly attends the Kocks’ gatherings, this month told POLITICO, “it isn’t just the Kocks’ money. Remember, most of the money comes from others.” Hubbard, his family and their company have donated nearly $5 million over the years to Republican and conservative candidates and groups that disclose their donors, but he told POLITICO that the Kock groups, which mostly are not required to disclose their donors, have been a leading recipient of his family’s cash.

“They’re one of the very biggest, if not the biggest, because I think they’re the most effective,” said Hubbard. “Being effective means they put resources in, they do research and they learn. They’ve learned every time they do something. If it doesn’t work the way they like, they do it differently. Like any business, they learn from experience. Any political party should learn.”

Some insiders argue that the efficiency, effectiveness and robustness are aspirational but sometimes don’t match the reality on the ground.

“It’s smoke and mirrors, and AstroTurf,” said one former network official, who did not want to be identified revealing internal network conversations. “It’s something that is being sold to donors. The notion that it is a grass-roots army is ludicrous. And the rest of it ― whether it’s the 1,200 operatives or the door-knockers or Twitter followers ― it’s all bought and paid for.”

Levi Russell, a spokesman for AFP, said suggestions that the group is a paper tiger “lack all credibility. One visit to one of the many AFP field offices around the country will show a vibrant, engaged and passionate force of grass-roots volunteers who power our field program.”

While the network boasts of cost controls, its groups’ fundraising success also means that they are among the biggest spenders on the right. They have paid out annual bonuses that can exceed a full year’s salary. Short, the head of Freedom Partners, earned a 2014 base salary of $235,000 but pulled in $525,000 in bonuses, tax filings show, putting him well ahead of Priebus, who made $153,000 last year, but far behind U.S. Chamber of Commerce CEO Tom Donohue, who was paid $4.9 million in 2011. And the network has financed contracts to consultants favored by donors (last year, Freedom Partners paid pollster Frank Luntz $1.5 million) or with connections to its operatives.

Americans for Prosperity’s chief technology officer, Adam Stryker, left in September after some AFP operatives questioned his spending of group funds and contracts signed with his friends’ firms, multiple sources familiar with Stryker’s tenure at the group told POLITICO. They said Stryker, a Las Vegas native, ran up expenses on donor meals at tony restaurants and accompanied vendors to exclusive events like the Kentucky Derby and the Stanley Cup Finals. One operative who worked with AFP told POLITICO that a number of AFP officials spent heavily. “There were checks and balances, but they weren’t effective,” the operative said.

In an email, Stryker ― who like many departed network employees signed a nondisclosure agreement preventing him from discussing his former employer ― said his departure was not related to questions about spending, but otherwise refused to comment. An internal AFP staff email said he was leaving “to pursue new opportunities in the private sector” but would remain as a consultant through March 2016.

AFP declined to comment, saying it does not discuss personnel matters. AFP and network officials both pointed to rigorous accounting practices for evaluating, approving and tracking contracts and other expenses that they say flag problem spending in real time and keep their rates among the lowest in politics.

Many spending and contracting controls were introduced after the 2012 election, during which the Kock network spent more than $400 million but failed to oust President Barack Obama or the Democratic Senate majority. Afterward, attention inside the network turned to an operative named Sean Noble, who oversaw a strategy that outsourced many key functions to consulting firms, including his own. Three firms owned by Noble were paid $24 million by a Kock-backed nonprofit.

Market Based Management

A forensic internal analysis after the election found the network was ill-served by redundancies and infighting among Kock-backed efforts, an inability to measure impact and too much spending by consultants ― including Noble ― who were technically independent from the Kock operation, according to multiple sources familiar with the analysis.

To avoid a repeat, the network centralized and rejiggered its organizational flow chart to bring more functions under the umbrella of Freedom Partners Chamber of Commerce. At one point, Noble was offered a job working for the group that became Freedom Partners but turned it down, sources told POLITICO. Freedom Partners sought to reduce the network’s reliance on Noble and other outside consultants by building its own message testing, polling and advertising operations, partly by acquiring a Kock-backed nonprofit called Public Notice.

Freedom Partners became the vehicle for disseminating cash and coordinating strategy among the network’s allied groups. It has given out $384 million in grants to dozens of groups between its creation in late 2011 through the end of last year, the most recent period covered by publicly available tax returns. And it unceremoniously terminated underperforming initiatives, including the voter registration project, which was judged too costly for what it was delivering. Another was a well-financed initiative called Race Fans 4 Freedom, which in the run-up to the 2012 election endeavored to win converts to the network’s free market causes among people attending auto races in key states including Ohio and Virginia. It was found not to justify the cost of sponsoring the races.

Another move involved consolidating the network’s far-flung Washington-area headquarters offices at considerable cost into a cluster of glass office towers in the Courthouse neighborhood of Arlington County, Virginia, in Washington’s near suburbs. At the center is an office building that houses Freedom Partners, the Charles Kock Institute and the Charles Kock Foundation. A block away sits Americans for Prosperity's sleek new offices, which are near the AFP Foundation and the Kock-backed data firm i360. Although the relocation was intended to facilitate greater collaboration, the network now occupies so many scattered offices in similar-looking buildings that the map can prove difficult to navigate even for insiders.

In fact, sources within the network tell POLITICO there is internal talk about purchasing an entire office building, though some of the sources say that’s unlikely, partly because Charles Kock views buildings as vanity projects.

While David Kock has welcomed attention for his cultural, medical and political philanthropy — even accepting a role as an alternate delegate to the 2012 GOP convention — Charles Kock rarely appears at fundraisers beyond those for the network. In fact, he has complained about the vagaries of politics — from pandering politicians to big consulting contracts to internecine competition — and has worked to rid his political network of what he sees as inefficiencies endemic to politics, partly by infusing it with talent, techniques and resources from Kock Industries.

Kock Industries’ corporate counsel, Mark Holden, who was already on the Freedom Partners board, joined AFP’s board and chairs its powerful executive committee. Rich Fink, who has served in various executive positions at Kock Industries, sat on the boards of the Charles Kock Institute, Freedom Partners and Americans for Prosperity Foundation, though he left AFP’s foundation board last month. And numerous high-ranking officials have cycled through the network, including roles at its administrative division, the Center for Shared Services, which handles human resources and IT services for all network groups. This entity was patterned off Kock Business Solutions, which fills the same function for Kock Industries. The Center, which originally was a stand-alone nonprofit, was rolled into Freedom Partners this past summer and trains network employees in Market-Based Management ― the organizational philosophy Charles Kock has honed over the years at Kock Industries.

Insiders say it’s impossible to overestimate the impact of 80-year-old Charles Kock or to gauge how his death would affect the network’s political efforts, especially fundraising.

“There’s definitely some concern about what happens after Charles dies,” said one operative who works with the network. “Many of the donors are there because they see Charles as the lead investor, and it’s not clear whether people are going to be as enthused about giving if they don’t see him at the helm.”

While Charles Kock is said to be in good health (his brother David is 75 and has battled prostrate cancer), he has increasingly brought his son Chase Kock into the family’s political and corporate efforts. But there’s no indication that donors would rally to the son in the same way.

“What you have in the Kock organization is what you have in nondemocratic societies ― a succession problem,” said Mutch, the campaign finance historian. He views the Kocks as a case study of how much influence can be amassed by super-rich partisans in the new big-money era — and how long they can hold onto their power.

“This may be a short term consequence of Citizens United, and, if it doesn’t work out really well, maybe the billionaires themselves will say ‘OK, we’ll just let the party handle this.’ I just don’t know. I mean, nobody knows.”