Friday, July 9, 1999

Interim trustees make big changes

They have transformed the
Bishop Estate, say state officials,
school leaders and employees

Judge denies Lindsey request.

By Rick Daysog


Two months into their terms as interim trustees of the Bishop Estate, the new board has turned the multibillion-dollar trust upside down -- and they're getting praise from the estate's most vocal critics.

The new trustees -- retired Adm. Robert Kihune, former Honolulu Police Chief Francis Keala, retired Iolani School headmaster David Coon, attorney Ronald Libkuman and Hawaiian Electric Industries Inc. Treasurer Constance Lau -- quietly and efficiently have implemented major reforms of the trust's governance system, people inside and outside the trust say.

The new board has also made progress in the negotiations with the Internal Revenue Service, which is auditing the 114-year-old charitable organization's accounts and has threatened to revoke the estate's tax-exempt status.


Sources said the new trustees are close to a settlement with the IRS, but they stressed that any deal would require permanent removal of the former trustees.

"They are doing an exemplary job under very difficult circumstances," said Deputy Attorney General Hugh Jones. The attorney general's office, following a two-year investigation, also is seeking the permanent removal of several former trustees.

"I think they have been handed a bunch of lemons and they are methodically making lemonade out of them."

Some of the recent moves by the new board include:

Bullet Reinstating Kamehameha Schools President Michael Chun's authority. During the past two years, critics have charged that the former board usurped Chun's duties and mismanaged the school.

Bullet Expanding outreach programs for disadvantaged native Hawaiians. Last month, the new board agreed to install a parent-infant education program, establish new partnerships with the state Department of Education and add preschool programs for 3-year-old children to the current programs for 4-year-olds.

To cut costs, the previous board eliminated many of the Kamehameha Schools' outreach programs in an unpopular move that led to substantial layoffs and reduced services to native Hawaiians.

Bullet Appointing general counsel Nathan Aipa as the estate's acting chief operating officer. The move is part of a larger shift toward a single-voice management system headed by a chief executive officer. The CEO-based management system would replace the much-maligned lead trustee system, in which individual board members were given responsibility over a particular subject area.

Bullet Termination of controversial contracts with local politicians and friends of trustees. They include $4,000-a-month legal retainer with former House Judiciary Chairman Terrance Tom and consulting jobs for local attorney Al Jeremiah, a longtime associate of trustee Henry Peters.

The estate also has restructured its government affairs division, laying off former state Sen. Milton Holt in the process. Holt, a Kamehameha Schools graduate, has been indicted by a federal grand jury for campaign spending violations and has been investigated internally for using estate credit cards at local hostess clubs and Las Vegas casinos.

Bullet Efforts to permanently remove the former board of trustees. Under Judge Kevin Chang's May 7 temporary removal order, the new board or the attorney general's office has 90 days to seek the permanent ouster of the former trustees. The estate recently hired local litigator James Kawashima to head removal efforts, but sources say that the new board may seek to delay the hearing date by as much as two weeks.

As part of its negotiations to settle the Bishop Estate audit, the IRS has threatened to revoke the estate's tax-exempt status unless Peters, Richard "Dickie" Wong and Gerard Jervis are permanently removed as trustees. Trustee Oswald Stender has voluntarily resigned and Lokelani Lindsey was permanently removed in May by Circuit Judge Bambi Weil.

The past board members, who are seeking reinstatement, have questioned whether the new board has the background to take over the complex, daily operations, which involve work and investments in diverse areas such as banking, retail and real estate development.

An attorney for one ousted board member also criticized the new board's decision to restore the outreach programs, saying that independent consultants have found the programs to be costly and ineffective in reaching their target native Hawaiian audience.

The former board members also have expressed fears that the new trustees will knuckle under to the demands of the IRS.

Employees at the estate's Kawaiahao Plaza headquarters have welcomed the new board members, several staffers said. The employees said the new trustees have taken on a policy-making role and have transferred many of the trust's day-to-day decisions to staffers.

"There's definitely more open discussion," said trust spokesman Kekoa Paulsen. "The managers feel that they have more of a stake in the decisions that are being made."

Campus officials and members of the Kamehameha Schools community have a similar reaction. In comments to alumni members in May, Chun said he made more important decisions and took more significant actions in the first two weeks of the new board's tenure than he did during the past two years.

He added that teachers and students feel that they have more input on the school's direction.

More than anything, many within the Kamehameha ohana believe the new board has been willing to meet with them and listen to their concerns, said Roy Benham, president of the 1,500-member Oahu region of the Kamehameha Schools Alumni Association.

Two years ago, the previous board ignored parents' and alumni's pleas to discuss their complaints about the management of the Kamehameha Schools, prompting hundreds to march in protest.

"I think the new board members have been a breath of fresh air," said Toni Lee, president of the 3,300-member Na Pua a Ke Ali'i Pauahi, which has criticized the alleged misdeeds of the former trustees.

"People feel that this is a new beginning for all of us."

Lindsey’s request for
new trial denied

Her lawyer vows to appeal to the
Supreme Court her ouster as
an estate trustee

By Rick Daysog


A state judge today denied former Bishop Estate trustee Lokelani Lindsey's request for a new trial.

Circuit Judge Bambi Weil also refused to grant Lindsey a stay on her May 6 ruling permanently ousting Lindsey from her $1 million-a-year post.

Weil rejected arguments from Lindsey's lawyers that the former trustee's right of due process was violated when Lindsey was not allowed to rebut the testimony of several key witnesses.

David Gierlach, Lindsey's attorney, said he will now go to the state Supreme Court to appeal Weil's removal order. He said they also will ask the high court for a stay of Weil's ruling.

In her stinging, 190-page findings of fact and conclusions of law, Weil on June 10 ruled that Lindsey misappropriated trust assets, micromanaged the estate-run Kamehameha Schools and created a climate of fear and intimidation at the school.

Weil's findings came after former Bishop Estate trustees Oswald Stender and Gerard Jervis sued for Lindsey's removal, saying she breached her fiduciary duties and was unfit to serve.

Gierlach argued that five witnesses -- Stender, Kamehameha Schools president Michael Chun, former estate spokeswoman Elisa Yadao and school administrators Kathy Tibbetts and Kathy Kukea -- testified after Lindsey took the stand in the middle of the five-month trial.

Those five witnesses played a key role in Weil's findings but many of the points they raised were untrue, Gierlach said. Not allowing Lindsey to rebut the testimony violated Lindsey's right to due process, he said.

Crystal Rose, Stender's attorney, countered that Lindsey's rights to due process were not violated since her lawyers had ample opportunity to depose witnesses during the discovery phase of the trial. Rose also argued that Lindsey made no "strong showing" that her appeal to a higher court would succeed, which is a requirement for a stay ruling.

"The interests of the beneficiaries and the public are heavily against the granting of a stay."

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