By Star-Bulletin Staff

Saturday, November 15, 1997

Bishop Estate case
‘tends to cast a shadow’
over other charities

By Pete Pichaske

WASHINGTON -- To the mainland philanthropic community, Hawaii's Bishop Estate calls to mind vast wealth, an ill-advised campaign against tighter federal controls and, most of all, enormous salaries.

It's not an image likely to create warm feelings in the world of charities. And even in that protective world, where members shy away from conflict and from criticizing fellow members, it has sparked rumblings of anger and resentment.

"What's happening (with the estate) tends to cast a shadow over the charitable sector and very many people who work very hard," said Greg Barnard of the Council on Foundations, a Washington-based association of charitable foundations.

"There's a certain distress that this might call down federal regulations that are not really needed," he added. "And there's a distress that the good work of the King Kamehameha Schools will be hurt."

"It's raised eyebrows and caused a certain uneasiness," said lawyer Daniel J. Kurtz, author of a book on how nonprofit organizations are run and the former top regulator of New York City charities. "People are reserving judgment, but there's a certain level of skepticism. They see this as both a political and a philanthropic embarrassment."

With its billions of dollars in assets and unusual approach to investing, the Bishop Estate has always been an anomaly in the charity business -- a fact supporters say is often overlooked by critics.

"This is not a charity in the conventional sense of the word," said Bishop Estate spokeswoman Elisa Yadao. "It does charitable works, but beyond that, it is an organization that is self-sustaining. . . . In that, we're very different from other organizations."

But as word of the trust's troubles spreads -- the weekly Chronicle of Philanthropy, for example, last month published a lengthy piece on Bishop Estate under the headline "Misplaced Trust?" -- its peculiarities are arousing more and more skepticism.

"It hasn't reached the level of, say, Bill Aramony and the United Way, but it's clearly got the potential to get to that level," said Robert Bothwell, president of the National Committee for Responsive Philanthropy, referring to a scandal involving excessive benefits that forced the head of the national United Way campaign to resign a few years ago.

The Bishop Estate's troubles are "still low-visibility," he added, "but they're on the screen now."

About those salaries

The pay collected by Bishop's five trustees, which has averaged about $900,000 a year for the past few years, is easily the leading cause of concern in the philanthropic world.

"The salaries seem preposterous to me, outrageous," said Bothwell, echoing the sentiments of many in the industry. "The charitable world is not the corporate world, and while $900,000 salaries might be accepted in the corporate world, they are not in the charitable world."

"They're considerably beyond what anyone would think are rational," said Bob Smucker, senior vice president of Independent Sector, a coalition of nonprofit organizations.

Bishop Estate officials defend the stipends by pointing out they are permitted by state law, which allows trustees to earn up to 2 percent of a trust's annual earnings, and are based on how much money the trust earns.

"The trustees' pay is tied directly to their performance," said Yadao.

But others argue that near-million-dollar paychecks -- by whatever name or however earned -- are out of step with both charitable organizations, which is what Bishop Estate is classified as, and even the more heavily endowed private foundations.

In its most recent survey, the Council of Foundations found that even the wealthiest private foundations paid their board members or CEOs at most $550,000. The median salary for CEOs was $330,000.

Bishop Estate also lost points with fellow charitable organizations when it spent hundreds of thousands of dollars last year to hire a Washington lobbying firm to oppose a bill creating "intermediate sanctions" for charity managers who collect excessive compensation.

Intermediate sanctions were pushed by Independent Sector in response to criticism that some charities were not as open and accountable as they should be.

"We saw it as a way of fulfilling the public trust," said Smucker.

Lobbying hurt image

When Bishop Estate, virtually alone in the industry, mounted a costly lobbying campaign against the proposal, the effort left a sour taste in many mouths. "It sent a signal that they were concerned about the openness that this will bring," said Smucker.

"Their opposition suggests they have something to fear if the legislation is enacted," said William J. Lehrfeld, a Washington tax attorney who specializes in tax-exempt organizations and used to work for the Internal Revenue Service.

Estate spokeswoman Yadao said the legislation had the potential to affect the trust in a number of ways: disclosure requirements, executive compensation, exempt status. And since Congress held no public hearing on the legislation, lobbying was the only way to register its opinion.

"Because there were no hearings, we didn't have any input," said Yadao. "And so, we lobbied."

Several observers suggested that despite growing industry concern and the current IRS investigation, any changes at Bishop Estate would begin in Hawaii rather than Washington.

"It's an organization that's managed to fall outside of the area of concern of most watchdog groups, and probably it's the people of Hawaii who will be the ultimate watchdog," said Barnard, of the Council on Foundations.

"The Bishop Estate would be a tough one for the IRS," said Paul Strekfus, former editor of the Exempt Organization Tax Review, a monthly that covers the charity industry. "They are so well-connected politically here and have always enjoyed such strong congressional support.

"I think people in Washington see it as a Hawaii problem. If the people in Hawaii get mad, something can happen.

"But it probably won't happen from here."

Yadao echoed that sentiment, in a sense, when asked about the mainland philanthropic community's growing uneasiness with Bishop Estate.

"It's something that we would be concerned about," she said. "But with all that's going on here, it's not something that is a big topic of concern for us."

Motorcyclist dies
in Pali crash

A motorcyclist died Saturday when he crashed into a guardrail on the Pali Highway near the H-1 Freeway on-ramp.

The motorcyclist, who had not been identified, was headed south on the Pali Highway at 4:34 a.m. when he ran into the guardrail, police said.

The man was taken to Queen's Medical Center in critical condition. He was pronounced dead shortly after that.

Police weren't reporting whether speed and alcohol were factors in the accident.

No injuries from bomb blast at Maui condo

WAILUKU -- Maui police are investigating a homemade bomb that exploded Saturday morning on the ground floor fire escape of a Harbor Lights condominium in Kahului.

No one was hurt and no damage done in the explosion that took place in Building A near 2:55 a.m., fire officials said. But the sound woke up residents.

"It was pretty loud," said Wailuku Fire Capt. David Souza.

Souza said according to the resident manager, the smoke was similar to smoke after an explosion in the third floor of the same fire escape five to six months ago.

Japanese film draws long lease for state

A major Japanese producer of software and interactive entertainment will lease part of the Hawaii Film Studio for three years to produce a computer-animated feature similar to the hit movie "Toy Story."

The lease by Square USA Inc. will earn the state about $216,000 and will be the longest continuous occupancy of the sound stage since it opened in 1994.

Square USA, which has been using the 16,000 square-foot sound stage at Diamond Head since October, is paying the state $6,000 a month, a third less than the usual $9,000 monthly fee. The lower fee was agreed upon because of the length of the lease, state officials said. The lease has been approved but the paperwork still needs to be signed, they said.

The company is using just one of two sound stages at the facility. Stage 1, the older sound stage where "Hawaii Five-0" and "Magnum, P.I." was filmed, is not being used.

Murdered man's roommate found dead

A man found dead Friday in his rented Makaha home is considered a possible suspect in the murder of his roommate, Dee Wayne Wells, whose body was found eight days ago.

The man was found strangled yesterday morning by a belt tied to a bathroom doorknob, police said. The man apparently committed suicide.

The man and Wells moved into a house at 84-960 Lahaina St. about three weeks ago, police said.

Wells' body was found eight days ago near the entrance to Mauna Lahilahi Botanical Garden, a short distance from Lahaina Street. The body was wrapped in a blanket and had numerous puncture wounds.

A neighbor Friday called 911 to report a strong odor coming from Wells' former residence.

See expanded coverage in Saturday's Honolulu Star-Bulletin.
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