I recently wrote about the purportedly "blind" trust created for President Jimmy Carter's peanut business. President Lyndon B. Johnson also had a "blind" trust created for his television station.
In 1943, Lady Bird Johnson purchased a small radio station in Austin, Texas for $17,500. Robert A. Caro, The Passage of Power: The Years of Lyndon Johnson, Vol. IV at 286 (2013). At the time, her husband, Lyndon B. Johnson, served in the House of Representatives. The future President would often boast that he had no interest in the business. Caro at 286. However, under Texas's community marital property law, the husband had a half-interest in his wife's business. Caro at 286. Mrs. Johnson's business would later also include a television station under the call sign KTBC. As Mr. Johnson rose through the ranks in the House, and later the Senate, Robert Caro observed, there was a "twenty-year-long string of strikingly favorable rulings by the Federal Communications Commission" for KTBC. Caro at 286. Coincidentally, Austin was "one of the few metropolitan areas with only a single commercial television station." Caro at 286. And Robert Dallek wrote that Johnson's "involvement in a business that largely depended on the actions of a Federal agency for its success created a clear conflict between his private interests and public position." Robert Dallek, Lyndon B. Johnson: Portrait of a President 52 (2004). Over the decades, KTBC would generate millions of dollars of profit for the Johnsons.
When Johnson became Vice President in 1963, his staff "urged him to sell the station" to avoid potential conflicts of interest. Len Costa, A Wink And A Nod, Legal Affairs (January 2006), https://perma.cc/5CVT-JS5P. But the Johnsons refused to divest the business. Instead, tax lawyer Sheldon Cohen set up a trust. Cohen was a partner at Arnold, Fortas, & Porter, the firm co-founded by Johnson's close associate, Abe Fortas. (Johnson kept his friends close; he would later appoint Fortas to the Supreme Court and appoint Cohen as Commissioner of the Internal Revenue Service.) Under the terms of the trust, Mrs. Johnson would still own the business, but she "temporarily transferred control of her shares of KTCB to two Texas lawyers who were old family friends." Costa. They were Donald S. Thomas, an Austin attorney, and Jesse Kellam, who was the executive director of KTBC. Dallek at 365. The trustees had full discretion over how to manage the shares, and had the right to sell them. Cohen insisted that there was no "unstated agreement by the lawyers not to sell the shares." Costa.
Still, it is questionable whether this arrangement could be characterized as a blind trust. One of the trustees, Jesse Kellam, was also the executive director of KTCB. Robert Dallek, Flawed Giant: Lyndon Johnson and His Times, 1961-1973, at 611 (1998). The other trustee, Donald S. Thomas, had known Johnson for two decades. Thomas started "handling the affairs of radio station KTBC" in 1944 after he graduated from law school. Oral History at 2. While Vice President, Johnson hired Thomas to acquire land for him in Austin. There were longstanding and ongoing connections between Johnson and the trustees. Dallek wrote that "[i]t is difficult to believe, despite the blind trust, that Johnson did not keep tabs on his financial holdings while President." Dallek, Portrait at 365. And Professor Megan J. Ballard observed, "[g]iven that one of his trustees was the executive director of the Johnsons' broadcasting stations, Johnson must have had some degree of comfort that the trustees would not sell his interests." See Megan J. Ballard, The Shortsightedness of Blind Trusts, 56 U. Kan. L. Rev. 43, 55 (2007). To be a qualified blind trust, "A qualified trustee must be an independent, disinterested and non-familial financial institution or other fiduciary." It is not clear that either trustee was entirely independent and disinterested. Still, Dallek wrote, the trustees asserted that Johnson was "very careful not to violate any conflicts-of-interest laws as President." I am not certain what specific conflicts-of-interest law Dallek was addressing.
After Johnson left office in 1969, his wife continued to own KTCB. The callsign was later changed to KLBJ, the initials of both the President and First Lady. Dallek at 611.
The stories from the Carter and Johnson presidencies teach several lessons. First, it is very difficult for a successful business person, who is elected to the presidency, to disentangle himself entirely from a business associated with him and his family. Lady Bird Johnson and her husband, Lyndon B. Johnson, owned the only television station in Austin, and had managed it for decades. And the peanut farms had been in the Carter family for generations. Even if the ownership of these businesses was placed in a fully blind trust, the public would still know who was deriving the profits from the trust. Because of the high-profile nature of the presidency, public scrutiny of the president's business will make a "blind" trust virtually impossible.
Second, presidents are hesitant to entrust their business with a completely independent and disinterested trustee--a requirement for a blind trust. Rather, presidents want someone familiar with the enterprise to manage the entity. The Johnsons appointed as trustees two close associates, one of whom was still a personal attorney for the President. Carter selected his close friend, who advised him in the White House.
Third, the Presidents were not willing to divest their interests--especially in a compressed time frame. President Carter did not sell his agricultural concerns. The Johnsons did not sell their media business.
There are no perfect solutions when a successful business person becomes President, and has only two months between election day and inauguration day to settle his affairs. And to demand that a president sell off his business holdings is to in effect create a new qualification outside the text of the Constitution.
