Hawaii's largest public charity gains on its educational goals

Paul Puaa of Molokai was the kind of child Princess Pauahi had in mind when she left her estate in trust to create Kamehameha Schools at her death in 1884.

"He was penniless when he landed here," said his daughter Paulette Moore. "He was 14 at the time. He went up to Kamehameha Schools, and the princess took him in. She gave our orphaned father a chance."

Kamehameha Schools in 2005 Number of Hawaiians served: 22,400 Campus enrollment: 6,940 (preschool through grade 12) Education spending: $222 million (including capital projects) Endowment market value: $6.8 billion Source: Kamehameha Schools

Puaa graduated in Kamehameha's class of 1927, followed by his daughter in 1952, and her daughter in 1978. As the century drew to a close, however, the trustees of Kamehameha Schools seemed to have lost sight of their mission of helping needy Hawaiian children.

They were accused of running the estate like a personal investment club while shortchanging students, interfering on campus and halting education outreach for the broader Hawaiian community. Outrage among Hawaiians triggered investigations, and the trustees were forced from office in 1999.

Today, under new leadership, Kamehameha Schools is helping many more Hawaiian families. Total spending on education has jumped to $222 million in 2005, up from $133 million in 2000, including capital costs. Kamehameha programs now reach more than 22,000 people annually, including infants and their "tutu" caregivers, students on and off its campuses, and scholarship recipients from preschoolers to adults.

Children like Puaa have a better chance of benefiting from the legacy of the princess, who specifically mentioned "orphans and others in indigent circumstances" in her will. In 2002 only one out of every seven students enrolled in Kamehameha kindergartens statewide were orphans or living in poverty. Among this year's kindergartners, it is one out of three.

"That, to me, is the most important change," said Moore, who helped launch Na Pua a Ke Alii Pauahi ("the children of Princess Pauahi"), which challenged the previous trustees. "Now they seem to be following the will of the princess. And for those who don't get in, Kamehameha now has all these outreach programs. Kamehameha Schools is reaching out to all Hawaiians."

The publication last month of "Broken Trust: Greed, Mismanagement & Political Manipulation at America's Largest Charitable Trust" refocused attention on Kamehameha Schools, formerly known as Bishop Estate. The Star-Bulletin ran excerpts from the book, which was published by UH Press and written by Samuel P. King, a senior federal judge, and University of Hawaii trust law professor Randall Roth.

While the book delves into the trust's troubled past, Kamehameha Schools has gone through a transformation since then. Under its new governance system, the trustees no longer personally handle investments or call the shots on campus. Their role is to set policy and provide oversight, leaving management to Chief Executive Officer Dee Jay Mailer, who took office in January 2004.

The Education Strategic Plan approved last year follows the direction charted by the Hawaiian community to extend Kamehameha's reach to more families. It zeroes in on the early years, from birth through age 8, because those are crucial for development, and it focuses on entire families as a means of making lasting, positive change.

"We're looking for ways not just to touch lives, but to help families and children transform their lives," Mailer said in an interview. "I think we are reaching more students and families than ever before in two ways -- one, in terms of numbers, but, two, in terms of the intensity of our reach."

On the financial front, the estate has cleaned up its act. Kamehameha Schools emerged last year from five years of oversight by the Internal Revenue Service. It has a clear investment policy with targets and performance measures. Trustees have gone from paying themselves nearly $1 million a year to fees averaging about $100,000 annually.

"They have made monumental progress, in my opinion," said Hugh Jones, supervising deputy attorney general of the Tax Division. He pointed to the hike in educational spending as well as more openness in estate operations, which used to be shrouded in a secrecy likened to that of the CIA.

"The quality of the reporting has improved incredibly, in terms of financial performance, investment performance," he said. "They have reinstituted a strong internal audit function. ... We regularly attend the internal audit meetings where these audit reports are discussed."

"A substantial part of the controversy occurred because there was such secrecy in what was going on over there," Jones said. "This is a public charity. It gets a whopping tax exemption because of that status."

The endowment's market value grew to $6.8 billion last June, up from $5.6 billion in 2000. Meanwhile, spending grew even faster. Kamehameha Schools spent 4 percent of its five-year average market value on education in 2005, which is its stated goal, up from 2.8 percent in 2000.

The trust is taking its resources out into the community because its own campuses serve just 7 percent of native Hawaiian children age 5 through 18. To extend its reach, Kamehameha Schools works with nonprofit partners, such as the Tutu and Me traveling preschool program, as well as public schools with heavy Hawaiian enrollment. Spending on outreach-based programs grew to $50 million in 2005, up from $33 million in 2000.

A Kamehameha education can start from day one, with "birth baskets," delivered to new parents in hospitals, containing books, parenting videos and information on how to get into Kamehameha programs. The trust pays special attention to transitions where children can get off track, such as the move into kindergarten, middle and high school.

"We look at not only the child, but the family surrounding the child," Mailer said. "If we can support the child in their preschool education and support the mother of that child in getting a college education or her GED while we're helping tutu who's taking care of the keiki ... we are supporting generations at that point."

"They're all learning and growing together -- which is the way Hawaiians are," she said. "We do best when we work together and within our families."

Kamehameha Schools has set ambitious goals to serve 40,000 people by 2009 and as many as 55,000 five years later.

"It is wonderful to see that the school is now really conscious of its important role to the community and reaching out to those in most need," said Jan Hanohano Dill, a board member of Na Pua and president of Partners in Development/Tutu and Me. "For its leaders today, the world doesn't end at the end of their nose. There's a larger commitment to the health and welfare of the Hawaiian community."

---

---

King, author of "Broken Trust," agreed that remarkable strides have been made at the estate.

"What they've got so far is as good a system as you're going to have under the circumstances," King said. "But I do believe that the entire structure should be changed so that it becomes a not-for-profit charitable corporation with a large board of directors that don't get paid anything. It's the modern set-up."

Robert Midkiff, former president of American Financial Services of Hawaii, also advocates moving from trustee management to a nonprofit corporation, noting that Punahou, Iolani, Yale and Harvard have made that shift, along with Bishop Museum, previously Bishop Museum Trust.

Midkiff's father, Frank, was a president of Kamehameha Schools and later a trustee of Bishop Estate, but he thinks the trust system is outmoded. A larger board of unpaid directors would support the CEO system, reduce micromanagement, remove questions about selection of trustees and reduce financial liability for its directors, he said.

But Mailer said the trustees are not considering such a change because the current system is working well both educationally and financially.

'We don't spend much time talking about our structure, because it's working for us," she said. "We spend a lot of time talking about what we're going to do to meet our mission."

Committee will look for successor for Lau

For the last century, justices of the Hawaii Supreme Court selected trustees for the estate in a closed-door process that critics said was fraught with political intrigue. After the justices gave up that role in 1997, it was handed to the Probate Court.

Trustee selection is kicking into gear again to replace Constance Lau, who announced last month she would be stepping down to become president of Hawaiian Electric Industries.

To fill the vacancy, Probate Court will appoint a committee of at least seven people, familiar with the mission of Kamehameha Schools and versed in management of "a large private educational institution; large financial institution; or large charitable trusts or foundations."

The committee will set qualification requirements for the new trustee and publish notice of the vacancy. It will then screen and interview applicants to select three finalists for the court to consider. The names of the finalists will be made public, and the Hawaiian community and others will have a chance to comment.

The court will select one of the finalists or inform the committee of its reasons for rejecting them and request more names.

In addition to Lau, the current trustees of Kamehameha Schools are Chairman Robert Kihune, Douglas Ing, Nainoa Thompson and Diane Plotts.

---