Foundations reward directors

Thirteen California foundations paid $2.8 million in one year to people who wouldn't be on anyone's list of the needy -- their own trustees and directors.

The foundations paid amounts ranging from $5,000 to $66,500 to 132 trustees and directors who included chief executives, venture capitalists, financiers, insurers, publishing executives, law firm partners, college presidents, physicians, ex-politicians and heirs to fortunes.

The foundations include six in the Bay Area: the James Irvine, Koret and David B. Gold foundations in San Francisco; the Henry J. Kaiser Family Foundation in Menlo Park; the Valley Foundation in Los Gatos; and the Wayne and Gladys Valley Foundation in Oakland.

The directors say the pay is warranted by their expertise, the time they put in and their prestige. Foundation executives caution that their organizations' missions and needs vary widely.

But a Mercury News survey of 28 California foundations found that a majority, including the largest, the David and Lucile Packard Foundation, do not pay board members. An examination of the 25 largest public charities in the San Jose area, such as United Way, found that none pays directors.

The president of the William and Flora Hewlett Foundation, Paul Brest, said the foundation offered board members $10,000 a few years ago but they weren't interested, preferring that the foundation provide matching grants to their own contributions to organizations.

``We have trustees, or directors, who are charitably inclined, and we want to both support and encourage those inclinations,'' Brest said.

Congress is considering legislation that would encourage private foundations to spend less on administration, by barring them from including overhead costs in the total giving they report each year to qualify for tax-free status. The change would require many foundations to give more.

The bill gained impetus after the Mercury News reported that the Irvine Foundation had spent millions on its former president, Dennis Collins, as grants were being cut and staff laid off.

The non-profit organizations that depend on foundation money, many of which are struggling financially, are especially concerned about paying board members.

``It's obscene that board members of private foundations could profit from their community involvement,'' said Kathleen Krenek, executive director of Next Door Solutions for Domestic Violence in San Jose, which gets some of its money from foundations. ``I don't know why they should get any compensation other than expenses.''

The executive director of the National Committee for Responsive Philanthropy, Rick Cohen, said in general organizations that need to raise money from the public are careful not to pay board members; foundations have their own endowments.

``We expect our board members to give us money, we don't give them money,'' said Jerry Doyle, president and chief executive of EMQ Children & Family Services of Campbell, which helps emotionally disturbed children and their families.

A review of 2001 tax data showed the California Endowment in Woodland Hills, the largest in the group, paid the most, on average, to 15 board members, $38,200 each.

The W.M. Keck Foundation of Los Angeles spent the most on directors' pay, paying its 28 directors a total of $728,500.

The others, in descending order of average directors' pay, were the Weingart Foundation, Los Angeles; Wayne and Gladys Valley; the Joseph Drown Foundation, Los Angeles; Koret; the California Wellness Foundation, Woodland Hills; Kaiser; David B. Gold; the Carrie Estelle Doheny Foundation, Los Angeles; Irvine; the McConnell Foundation, Redding; and Valley.

As the stock market fell in 2001, 10 of the 13 cut their giving by a total of $37 million, records show, but none reduced pay for board members.

This year, the board of the Irvine Foundation reduced its pay to $10,000 a year from $15,000 because of falling assets, its president, James Canales, said.

Several directors said the pay was appropriate.

``I think it is appropriate for someone to be paid for their time,'' said Philip S. Magaram, a trust specialist and principal at a Los Angeles law firm who is paid $29,000 to serve on the board of the Joseph Drown Foundation. ``I am a lawyer; I get paid for my time.''

Robert C. Brown, a retired investment adviser who is paid $30,000 to serve on the board of the Wayne and Gladys Valley Foundation, said, ``The meetings are one thing, but the work we have to do to prepare for a meeting, the reading and the travel and all of that stuff, is very, very time consuming.''

In contrast, Gary Pruitt, the chairman of the McClatchy Newspaper chain and vice chairman of the Irvine board, said he decided this year to stop accepting the foundation's payment because ``I don't need the money.''

Payments for board members are legal as long as they are in line with what similar organizations pay. The California Wellness Foundation follows Council on Foundations guidelines for setting compensation and does surveys that indicate its pay is around the national average, said a spokeswoman, Magdalena Beltran-del Olmo.

Like many, the foundation pays a stipend plus per-meeting fees. It also caps total compensation at $30,000, she said.

In an unusual move several years ago, the state attorney general sued the Koret Foundation for overpaying directors. Without admitting wrongdoing, four board members and the foundation's insurers repaid $430,000 in 1989 and 1990. In 2001, Koret paid its nine board members a total of $193,000.

``There is no reason why people who work in the world of philanthropy are obligated to donate their time,'' said the president of Koret's board, Tad Taube, the owner of a real estate company and one of the board members who repaid the foundation. He does not accept pay now.

Some foundations pay their directors' expenses, and in many cases board members have the privilege of directing sizable grants to favorite organizations. Many are to worthy causes, but a few go to things like beautification projects in wealthy neighborhoods.

Magaram said the Drown Foundation's board members select more than two-thirds of grant recipients. After his wife died in an accident, Magaram and the foundation directed a $400,000 grant, and later more money, to California State University-Northridge to create the Marilyn Magaram Center for Food Science.

Another Drown director, Milton F. Filius Jr., directed regular grants to his alma mater, Hamilton College.

Magaram received an honorary degree from Northridge, and Filius, who died last year, received one from Hamilton.

Board members have genuine obligations because they are legally responsible for their foundation's operations. One burden they do not have, however, is raising money.

Because of that, said Alexa Cortes Culwell, chief executive of the Charles and Helen Schwab Foundation in San Mateo, she could never look a counterpart from a non-profit or a charity ``in the eye and say my stress level is greater than theirs.'' Schwab doesn't pay its board members.

The president of the Kaiser Foundation, Drew Altman, cautioned against sweeping judgments, because foundations can be very different from each other.

In 2001 Kaiser paid its 15 board members -- prominent figures including former U.S. Senator Nancy Kassebaum Baker and former FDA commissioner David Kessler -- amounts ranging from $7,000 to $39,000.

Kaiser doesn't make many grants to non-profit organizations, Altman said. Instead, it operates one of the world's most sophisticated organizations for gathering and disseminating information on health policy.

For that reason, he said, a decade ago the foundation switched from a family-run board to a board of professionals who are employed elsewhere. Board members are paid because they play a key role and the pay helps ``recruit to our board people with substantial expertise in the worlds and fields in which we work,'' he said.

At some organizations, the original donor specifically asked that board members be paid. Others have small staffs and as a result ask more of some board members, the case with both Valley foundations, Koret and Drown.

Still, many critics question how much money a wealthy board member needs.

``There's this feeling that to get the right-stuff people you've got to pay them,'' said Pablo Eisenberg, a senior fellow at the Georgetown University Public Policy Institute who has studied the issue. ``That's absolutely ridiculous. I can get you thousands of really good board members who will do it for nothing.''