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HOME | INTRODUCTION | FOREWORD | CHAPTERS 5 & 8 | TIMELINE

Oz Stender vs. 'Five Fingers, One Hand'

IRONICALLY, the deadlock among the (Supreme Court) justices over Larry Mehau ultimately led to the only non-political appointment of the era -- Oswald Kofoad "Oz" Stender, a non-candidate who emerged as the compromise choice. ...

Stender (who was then CEO at another private trust, Campbell Estate) had not applied to be a Bishop Estate trustee. One day he got word that Chief Justice Herman Lum wanted him to come to the Supreme Court building right away. ... If Stender wanted the job he had to say so immediately, on the spot.

"You know, it's appalling," Stender said later of the way he had been chosen. "It's such a responsible job. No interview. Nothing. It was totally irresponsible."

From the moment Stender joined the Bishop Estate board in January 1990, the way trustees did business made little sense to him. At Campbell Estate there were clear policies, internal controls, annual reviews, regular appraisals. Campbell Estate staff knew what was expected of them and the extent of their authority. Fiduciary responsibility and responsiveness to the needs and concerns of beneficiaries were constantly emphasized. ... At Bishop Estate, Stender could not see any map at all. After spending three months sizing up the situation, he wrote a memo to the other trustees that gave a broad overview of the entire operation. He noted the need for strategic planning and organizational accountability at Bishop Estate. ...

A special meeting was called. Chairman (Matsuo) Takabuki thanked Stender for his memo, explained to the group that Stender had not yet been around long enough to understand how things were done at Bishop Estate, and adjourned the meeting. It had lasted 30 seconds.

The other trustees said nothing. They recognized that Stender had experience managing a large land-based trust, but they did not appreciate being told that their way of doing things was not up to his standards. Nor did they appreciate an interview Stender had given shortly after his appointment to the board. A reporter had asked whether Stender thought the trustee selection process was "rigged." Trying to be diplomatic, Stender said that seemed to be the perception of some people. The reporter persisted, asking if Stender agreed with that perception. Stender, taught at Kamehameha always to be truthful, said yes, he thought it was "rigged." ...

TRUSTEES AT prominent private schools in Hawaii, such as Punahou, Iolani and Mid-Pacific Institute on Oahu; Seabury Hall on Maui; and Hawaii Preparatory Academy on the Big Island, took no compensation. Neither did members of the governing boards at well-endowed universities, such as Harvard, Yale and Stanford. It had always been that way. Why would Bishop Estate be different?

The pat answer provided by Bishop Estate trustees was that, unlike the governing boards at other charitable institutions, the trustees at Bishop Estate functioned as lead trustees, which made them the equivalent of full-time CEOs, rather than part-time directors. Dickie Wong frequently expressed pride in the lead trustee system, describing it as "five fingers acting as one hand." He said it enabled the trustees to do the work of a chief executive officer, chief operating officer, chief financial officer, chief legal officer, and chief communications officer, as well as a board of directors. When asked under oath who held the five trustees accountable for good results, Wong first said, "Nobody," then changed his answer to, "Us."

The trustees had effectively hired themselves to run the organization, a highly unusual move. There were no job descriptions, performance standards or annual reviews, and no one except they themselves had the power to conduct such reviews. The trustees of Bishop Estate had power without accountability, a recipe for disaster. ...

THERE ARE people who are responsible for oversight of charitable trusts. The state attorney general, as parens patriae, has the responsibility and ongoing power to investigate indications of trust abuse, and to ask the courts to take action when trustee misconduct is found. Even if the attorney general falls short in providing such oversight, the state court with jurisdiction over trusts -- in Hawaii, the probate court -- has the power to take action sua sponte (on its own) when it sees trust abuse. Hawaii also provides for a master to review the trustees' accounts each year.

Supreme Court justices who selected trustees arguably had an ongoing responsibility to take appropriate action in the face of serious trust abuse by anyone they selected. Also, probate court rules since 1995 have required lawyers to report misconduct by their trustee clients directly to the probate court.

Despite glaring problems at Bishop Estate for many years, all these lawyers, specifically attorneys general, probate judges, masters, justices of the Supreme Court and trust counsel, acted as though everything was as it should be.

Year after year, decade after decade, attorneys general never investigated, and masters appointed by the probate court never scratched below the surface. In fact, many of the masters submitted fawning reports. The high-water mark was reached by master Alvin Shim in his 1988 report (on estate operations). Bishop Estate trustees, he gushed, were doing an "awesome" job. That particular adjective appeared 17 times in his 25-page, double-spaced report. ...

In 1988, when the trustees wanted to keep secret the $599,000 annual raise they had just given themselves, Shim not only approved the increase, but actually joined the trustees in arguing to the court that the numbers should remain a secret. Shim's explanation for not telling the public was that Hawaiian cultural modesty weighed in favor of nondisclosure.

This was an era of enormous power for the people who ran Hawaii's government. What was noteworthy was not the power itself, but its concentration. There seemed to be less and less separation between individual branches of government, which were supposed to act independently -- and also between Hawaii's government and Bishop Estate.

WANT TO COMMENT? The Star-Bulletin welcomes reader responses to this week's excerpts from the new book "Broken Trust: Greed, Mismanagement and Political Manipulation," by federal Judge Samuel P. King and trust law professor Randall W. Roth. A selection of the responses we receive by this Thursday will be published in the Insight section next Sunday, March 5. We prefer letters of no more than 200 words, but longer responses also will be considered for publication. Letters must include the writer's name, address and daytime telephone number. Send letters to: » E-mail: letters@starbulletin.com » Fax: 808-529-4750 » Mail: Letters to the Editor, Honolulu Star-Bulletin, 7 Waterfront Plaza, 500 Ala Moana, Suite 210, Honolulu, HI 96813