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Tuesday, October 10, 2000

Masters' Report: Kamehameha reforms significant

The court-appointed masters of the
estate say changes will help ensure
the trust remains faithful to
Princess Pauahi's will

By Rick Daysog

AFTER a three-year controversy that brought it to the brink of financial ruin, the Kamehameha Schools has made significant governance and financial reforms that will help ensure that the $6 billion charitable trust remains faithful to the goals of its founder, Princess Bernice Pauahi Bishop, according to a review of the estate's operations for 1993 through 1999.

In a 128-page report filed in state probate court Friday, the estate's court-appointed masters, Colbert Matsumoto and Benjamin Matsubara, said a strategic plan recently completed by the estate's interim board will allow the trust to stabilize its investments and greatly expand its educational programs for native Hawaiians.

"History in all likelihood will reflect that the interim trustees assumed stewardship of the trust estate during its most trying period," the report said.

"The changes which the trust would undergo were to be the most significant steps taken during such an abbreviated time period."

In many ways, the report represents an exhaustive postmortem to the financial and administrative woes that has dogged the tax-exempt charitable trust and its embattled former trustees.

The estate's previous board -- Henry Peters, Richard "Dickie" Wong, Oswald Stender, Gerard Jervis and Lokelani Lindsey -- was harshly criticized by Matsumoto for making hundreds of million of dollars in bad investments, accumulating more than $300 million that should have been spent on the estate's educational programs and for dividing the management of the trust under a confusing "lead trustee" system in which individual board members were given control over certain sectors within the trust.

All five trustees resigned last year and were replaced on an interim basis after the Internal Revenue Service, based on its audit of the trust's operations, threatened to revoke the estate's tax-exempt status, in a move that would have cost the trust more than $1 billion.

The current interim board includes retired Adm. Robert Kihune, American Savings Bank executive Constance Lau, attorney Ronald Libkuman, former Iolani School headmaster David Coon and retired Honolulu Police Chief Francis Keala.

A spokesman for the estate could not be reached for comment. Hugh Jones, deputy attorney general, had no response, saying he had not yet read the report.

The probate court will hold a Nov. 17 hearing on the master's review.

Matsubara and Matsumoto noted that the interim board took a major step in reforming the trust's administration when they appointed Hamilton McCubbin as the estate's first chief executive officer.

While they raised concerns that McCubbin did not pick his own executive team, the masters said the new CEO-based management system represents a sound business structure that promotes accountability.

The masters lauded the interim board for its recently completed strategic plan, which calls for increased outreach programs for native Hawaiians, improved literacy and reading programs and increased vocational programs.

The strategic plan, the trust's blueprint for expansion for the next two decades -- also calls for a greater diversification of the trust's investment portfolio.

"That process will continue to perform a key role in ensuring that the administration of the trust estate remains faithful to the goals and objectives of the will of Bernice Pauahi Bishop, and that the trust estate achieves appropriate levels of educational and financial performance and that the trust estate can operate without being subject to ongoing scrutiny and oversight by the IRS," the report said.

Bishop Estate Archive
Kamehameha Schools

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