View Point

By Robert R. Midkiff

Friday, August 22, 1997

Bishop Estate has outgrown
its status as a trust

Nonprofit corporation should bring
estate management into the 21st century

MY family has had a long and close relationship with Princess Pauahi and the Kamehameha Schools.

My great-great grandparents, Amos Starr and Juliette Montague Cooke, were asked by King Kamehameha III to teach 16 of the chiefs' children, and form the Chiefs' Childrens School.

They lived with and taught the future kings Kamehameha IV and V, Lunalilo, Kalakaua and Liliuokalani for 14 years. Bernice Pauahi, one of their star pupils, was married in their home when her parents, Paki and Konia, opposed her marriage to Charles Reed Bishop.

My grandfather, Dr. Theodore Richards, came to Hawaii at the urging of Samuel Chapman Armstrong, to teach at the Kamehameha Schools. He brought formal choral singing to Hawaii and started the glee club. One of his most famous pupils was Charles E. King.

My father, Frank E. Midkiff, served 50 years at the schools, as teacher, president and a trustee. With this long family tradition, I write this in the hope of bringing some beneficial solution to the present turbulence.

Running the Kamehameha Schools has become too complex to be carried on as a trust. In the early days, Mr. Bishop served as financial adviser to his wife. The assets of her trust were made up of vast tracts of tenantless and non-income-producing land.

The Bishop Estate Trust borrowed from the liquid assets of the Charles R. Bishop Trust to build the first school buildings. Managing a real estate trust took very little time for the part-time, original trustees. (In those days, trustees were expected to pay necessary rent collection agents and bookkeepers out of their statutory income and principal trustee commissions.)

The trust form of management, spelled out in Bernice Pauahi's will, was appropriate for those times and the type and value of her assets then.

Too much concentrated power

Today, under Board of Trustees Chairman Richard "Dickie" Wong's leadership, individual trustees have been delegated responsibility and control for separate sectors of the activities of the Kamehameha Schools/Bishop Estate.

This was his management style as president of the state Senate, where committee chairmen were delegated with full discretion over matters within their committee.

In my opinion, every co-trustee of a trust should have collegial responsibility for all phases of the trust. The trustees of the estate of James Campbell, for example, like board members of a business corporation, set policy and are responsible for hiring the best professional help available for each phase of their activities.

As an "educator," Lokelani Lindsey was delegated total and undivided control over all the educational responsibilities of the trustees. She developed a personal distaste for Bob Springer, who was the executive director of the Kamehameha Early Education Program, a nationally recognized outreach program that has served more than 10,000 Hawaiian and part-Hawaiian youngsters.

Their basic disagreement was over Springer's policy of reaching the most children for the least dollars by partnering with the state Department of Education and other funding sources to bring Kamehameha education to predominantly part-Hawaiian residential areas.

The KEEP program served even more and younger children with the "traveling preschool" program, which taught young mothers how to be better parents and provided appropriate educational stimulation for the development of infants and toddlers.

Springer stood up for his vision of collaboration and was terminated. Before Lindsey was through, she had released 230 KEEP staff in favor of building four great edifices in coming years to house 1,000 preschoolers on four islands. This tragic decision will hold back a whole generation of part-Hawaiian children.

The primary responsibility of the Kamehameha Schools/Bishop Estate should be to provide an appropriate education for every young part-Hawaiian boy and girl in Hawaii. This responsibility is much too big for any single trustee.

Funding practices starve schools

Managing the endowment is the second responsibility of the trustees. They have delegated responsibility for reinvesting billions of dollars received from residential leasehold conversions to a single trustee.

This trustee has selected mostly raw land and non-income-producing investments, without a strategic reinvestment plan in place, and has missed the greatest surge in the market value of traded equity securities in American history.

By keeping their financial records on the traditional trust income and principal basis, and distributing only income, rather than looking at "total return" including capital appreciation, as is normal for nonprofit corporations, they have starved the educational programs of the Kamehameha Schools.

Using trust income only, they have not been able to reach out to benefit the great numbers of part-Hawaiian youngsters who are receiving a culturally inappropriate education in Hawaii's public schools.

The compensation of the trustees is totally unreasonable. There is no other group of nonprofit executives in this world who receive such huge annual payments.

Sever tie with Supreme Court

In my opinion, the appointment of individual trustees by the Hawaii Supreme Court is no longer appropriate. The court tried to do a better job by asking a blue ribbon committee to screen and recommend five candidates for the last trustee vacancy, but decided to disregard all of the committee's recommendations.

The Bishop Museum Board of Directors provides us with a good precedent. In the past, the trustees of the Bishop Museum Trust were also the trustees of the Bishop Estate.

My father played a quiet role in persuading his fellow trustees of the Bishop Estate to resign as trustees of the Bishop Museum Trust. The museum trust was reformed as a nonprofit corporation.

The Bishop Museum nonprofit corporation has since been able to attract an outstanding group of volunteer directors. They have done an excellent job of building the collections, increasing the endowment, seeking and obtaining program grants from governments, foundations, corporations and individuals, and communicating with the public.

Schools deserve best minds

Because of leasehold conversion to fee-simple residents, the fair market value of the endowment of the KS/BE is now equal in market value to that of Harvard University and is larger than the endowments of Yale or Princeton. The Kamehameha Schools deserve the best minds from the United States and Asia as directors of a new, reorganized nonprofit corporation.

The current popular campaign against Lokelani Lindsey is missing the target. The present system of five appointed trustees no longer can provide the world-class leadership necessary to meet today's needs for our Hawaiian children.

The state attorney general should review the will of Princess Pauahi in light of the huge increase in the assets and responsibilities of the trust. His office should ask the Hawaii courts to reform the will and form a nonprofit corporation to provide 21st-century governance for the Kamehameha Schools.

I truly believe the princess would applaud this necessary step toward outreach and excellence.

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Robert R. Midkiff, retired banker and financial services
executive, was the co-founder and president of American Trust
and American Financial Services. He is the son of
Frank Midkiff, a former Bishop Estate trustee.

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