Friday, October 2, 1998

Bishop Estate OKs shake-up at the top

Changes include
a chief executive, stricter
conflict of interest rules
and a study of
trustees' pay

Full text of Colbert Matsumoto's
First Supplement to the Master's Report
By Rick Daysog


Bishop Estate today agreed to implement a new management system headed by a chief executive officer, in a sweeping reorganization of the multibillion-dollar estate's operations.

During a probate court hearing to finalize the master's report of the estate's 1994-1996 fiscal years, the estate's five trustees also agreed to implement stricter conflict-of-interest policies, improve monitoring of the estate's accumulated income, and commissioning a study on "reasonable" trustee compensation.

A proposal by state Attorney General Margery Bronster to temporarily remove all five trustees was also being heard later today.

By Dennis Oda, Star-Bulletin
Kamehameha teacher, David Eyre gives Attorney General
Margery Bronster a lei and hug to show his suport.

Bronster has been investigating allegations of financial mismanagement by Bishop Estate's trustees.

In all, trustees today agreed to 16 of 21 recommendations proposed by court-appointed master Colbert Matsumoto in his review of the estate's operations.

Matsumoto today said the agreed-to recommendations will improve the disclosure requirements of the trust and will bring more accountability of trustees.

The new CEO system would replace the so-called "lead trustee" system, which Matsumoto in the past has criticized as an improper delegation of authority and a potential breach of Princess Pauahi Bishop's will.

Under the new system, the estate's day-to-day affairs would be run by a CEO, as in many other major corporations. The board of trustees would set policy.

In his master's report, Matsumoto had criticized trustees for accumulating $350 million in income that should have been spent on the schools.

Trustees today agreed to reclassify and monitor the accumulated income and how it is spent. The move would require the funds be spent solely on the schools.

Matsumoto has urged the probate court to charge trustees for misspending estate funds on three costly ventures: the 1994 purchase of 30,500 acres in Hamakua, a study by an outside consultant justifying trustees' hefty compensation and lobbying efforts against federal legislation limiting trustees' pay.

Those urgings were part of a supplemental report, issued this week, to Matsumoto's earlier critical review of the estate's finances for the 1994-1996 fiscal years.

The estate, founded in 1884 through the will of Pauahi Bishop, was established to educate children of native Hawaiian ancestry.

By Craig T. Kojima, Star-Bulletin
Bishop Estate spokesman Kekoa Paulsen, center, and
estate critic Randall Roth, co-author of the "Broken Trust"
essay, met outside the courtroom where the estate's trustees
today agreed to monumental changes in administration.

According to Matsumoto's report, trustees have failed to comply with the basic tenets of Bishop's will by withholding some $350 million in income from the estate-run Kamehameha Schools.

He has said the trustees intentionally tried to conceal the magnitude of the estate's accumulated income, which could grow to $1.5 billion by the year 2006.

"The inability of trustees to comprehend the gravity of their failure to properly account for and expend accumulated income betrays a lack of sensitivity to one of their most fundamental duties as trustees," he said. The estate has argued that Matsumoto takes the issue of the estate's accumulated income out of proportion, saying the money has not been misappropriated but was separated to comply with Wall Street and bankers' accounting standards.

Trustees have filed an objection to Bronster's petition for removal, saying she offers no evidence justifying such a move.

By Dennis Oda, Star-Bulletin
Supporters of a petition to remove the Bishop Estate
trustees gathered at Circuit Court wearing t-shirts
asking the court to "do the right thing."

Matsumoto has also argued that trustees should pay stiff penalties for mismanaging estate assets. The surcharges concern:

Bullet The estate's $21 million purchase of sugar lands from the Big Island's Hamakua Sugar Co. Staffers had valued the 30,500-acre parcel at $15 million, $6 million less than the trustees paid.

Bullet A $105,221 report by mainland-based SCA Consulting L.L.C. that justified the trustees' annual compensation of more than $800,000 each. Matsumoto believes the trustees should be charged for the full cost of the SCA report, calling the expense unnecessary.

Bullet Attempts to influence federal legislation to cap the pay of trustees of charities. Matsumoto said the trustees must account for any lobbying expense involving the legislation, which represents a conflict between their duties to the estate and their personal interests.

Bishop Estate Archive

Drive to oust trustees
splits families, friends

By Craig Gima


Today's court hearing to determine the future of the multibillion-dollar Bishop Estate and the possible ouster of its five trustees brought out supporters and detractors alike to Circuit Courts in downtown Honolulu and Lihue.

Rallies were held this morning and yesterday afternoon -- the eve of the proceedings before Probate Judge Colleen Hirai to review a court-appointed master's report critical of the estate, and to consider Attorney General Margery Bronster's motion to put the trust into receivership.

"We feel that a momentous decision is about to be made," said Beadie Kanahele Dawson yesterday, attorney for Na Pua a Ke Ali'i Pauahi, a group of 2,700 students, parents and alumni who support the trustees' removal.

"We want to let the world know, let this court know, that there is an urgent situation of irreparable harm."

More than 200 people dressed in blue and white -- Kamehameha Schools' colors -- attended a Na Pua-sponsored rally yesterday outside downtown Honolulu's court.

A short distance away, about 100 supporters of the trustees held their own rally with red and yellow signs that read "Pauahi's Will, Keep Our Trustees" and "Ku'e Ku'e, Bronster Keep Away."

Entertainer Palani Vaughan, a graduate of the Bishop Estate-run Kamehameha Schools, said he believes the estate should not be turned over to outsiders, and that the current trustees should be given a chance to work out problems with the management of the estate.

"It's reminiscent of the overthrow when Hawaiians were split and polarized over the issue of whether our monarchy could fall," he said. "As a result we lost our kingdom. If we're not careful, we could really lose an estate."

Both groups, for the most part, were respectful of each other. As Na Pua supporters walked past supporters of the trustees, friends and relatives recognized each other, shook hands, hugged and kissed.

Among the organizers of the trustee supporters were Hawaiian sovereignty activist Dennis "Bumpy" Kanahele, the head of the Hawaiian Homestead Council; former Office of Hawaiian Affairs trustee Kamaki Kanahele; and former Hawaiian Homes Commission Chairwoman Hoaliku Drake. Drake is the mother of trustee Henry Peters and was named an honorary member of Maui Mayor Linda Lingle's gubernatorial campaign committee.

"We know that (Gov. Ben) Cayetano has used this (the Bishop Estate investigation) as a political football to get re-elected," Drake said.

She insisted her group represents a "silent majority" of Hawaiians.

Dawson, however, said the community has made it clear that Na Pua's views represent those of a majority of the estate's beneficiaries. She said students at Kamehameha collected 800 signatures to add to a Na Pua petition supporting the ouster of the trustees.

Bronster spoke to the Na Pua gathering yesterday, expressing appreciation for the support. Afterward, she responded to criticism from trustee supporters, who charged she wants to take the trust away from Hawaiians and put it in the hands of mainland outsiders.

In her petition for the temporary removal of the trustees, Bronster suggested that Harold Williams, a past president of the J. Paul Getty Trust and former chairman of the Securities and Exchange Commission, or Bevis Longstreth, a Wall Street attorney and past member of the SEC board, could serve as a receiver of the trust.

Bronster said naming the two men just shows the court there are qualified people who can serve. "All interested parties can come up with their own names and make recommendations," she said.

The issue is also stirring emotions on the neighbor islands.

On Kauai, Kamehameha Schools alumni gathered at the Circuit Court building in Lihue to urge Hirai to remove all five trustees.

"We're not going to just sit back and hope that she does it, but that's why we're here," said Robert Nawahine Mansfield, president of the Kamehameha Schools Alumni Association's board of presidents.

Alumnus Liberta Albao said she's upset there's no Kamehameha Schools campus on Kauai.

"The resources are there, but they're being taken away and used for lawyers instead of for our children," Albao said.

Bishop Estate Archive

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