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In Charity, Where Does a C.E.O. End and a Company Start?

By STEPHANIE STROM

The NY Times, September 22, 2002

Bill Cunningham/The New York Times

Jean-Marie Messier, left, became active in American charities when he led Vivendi Universal of France.

TYCO INTERNATIONAL'S lawsuit against its former chief executive, L. Dennis Kozlowski, is shining a harsh light on yet another area ripe for abuse by imperial chief executives: the murky line between corporate philanthropy and their personal philanthropy.

In the suit, Mr. Kozlowski — who has been indicted separately on charges of racketeering, fraud, tax evasion, grand larceny and misuse of company funds — stands accused of personally taking credit for more than $43 million of Tyco International's largess and allocating an additional $63 million. The company contends that a $2.5 million fund at Middlebury College in Vermont was endowed with its money but named for Mr. Kozlowski; it also made available several letters from Mr. Kozlowski to various nonprofit institutions in which he lays claim to contributions made with company money.

How could investors know?

Drawing a distinct line between any company's philanthropy and the gifts of its chief executive is nigh impossible. It requires access to tax filings and corporate records that are not available for public scrutiny and, equally inaccessible, the chitchat that takes place almost every evening around elegant dinner tables at charity benefits and balls. Making the task more complex, corporations give through their foundations, separate corporate giving programs and marketing departments while wealthy individuals donate from savings accounts, trust funds and family foundations.

"We're pretty sure that less than 40 percent of corporate philanthropy is being disclosed to the public," said Rick Cohen, the president of the National Committee for Responsive Philanthropy, a watchdog organization in Washington. "So there's a lot going on in the name of charity and supported by tax dollars that we don't know about."

Last year, when the organization tried to untangle the philanthropy of the Enron Corporation from that of Kenneth L. Lay, its former chief executive and chairman, it finally gave up. "We just couldn't do it," Mr. Cohen said.

Amid the myriad scandals sweeping corporate America, the fact that at least one chief executive took credit for a company's beneficence — and that others blur the line — may seem minor. But why shouldn't investors know where their money goes? And shouldn't the company, not the executive, get the glory, the good will and the power that a contribution brings?

Not only is corporate philanthropy coming out of the pockets of shareholders, it is also coming from taxpayers. The AAFRC Trust for Philanthropy in Indianapolis, which promotes ethics in fund-raising, estimates that corporations spent $9.05 billion, or 1.3 percent of pretax profits, on philanthropy last year. It notes that many forms of corporate charity, like volunteer time and sponsorships, cannot be tracked.

In a 1999 report on corporate disclosure of philanthropy, the Securities and Exchange Commission cataloged several shareholder proposals to allow investors to set the agenda for giving and to open company records on donations. The commission also noted that some individual shareholders had complained about the lack of disclosure.

 
Federal securities laws do not require companies to disclose charitable contributions unless they are material to an investor's understanding of compensation policies or financial statements, or unless a contribution is significant and there is potential for conflict of interest. The S.E.C. conceded in its report, however, that it does not monitor charitable contributions and thus "is not in a position to be aware of any particular abuse by public companies or their directors or officers regarding corporate contributions to nonprofit organizations."

Representative Paul E. Gillmor, Republican of Ohio, has repeatedly submitted bills to require corporations to disclose their giving in filings with the S.E.C. But each time, powerful lobbies — both corporations and, somewhat surprisingly, organizations that represent nonprofit groups — have thwarted his efforts.

Earlier this year, in the wake of scandals at Enron, WorldCom and other companies, Congress considered a provision requiring disclosure of corporate giving. But the measure, which would help distinguish a company's philanthropy from that of its executives, was dropped from the corporate-accountability legislation that was eventually enacted. Opponents argued that the disclosure requirements would invade the privacy of directors and officers, deter corporate giving, and, in the words of the Independent Sector, an organization representing charities, be "tedious and burdensome."

Even trustees and their closest confidants have a hard time getting to the bottom of corporate philanthropy. A well-connected director at one of New York City's most prestigious arts institutions recalled efforts a few years ago to determine the terms of a contribution by Sanford I. Weill, the chief executive of Citigroup, for $100 million — an astounding amount even by the philanthropic standards of Fifth and Park Avenues — to Cornell University for its medical school. The director, who declined to be identified for fear of disrupting friendships, called four friends on the Cornell board, only to be told they didn't know.

Two prominent fund-raisers in New York City said they were confident that the gift of Mr. Weill and his wife, Joan, was, in fact, the couple's money. The Weills have since made a second $100 million gift to the medical school, as well as other gifts to the university. Worth an estimated $1.1 billion, Mr. Weill does not need to tap the corporate coffers to create an aura of beneficence for himself.

Citigroup — one of the few companies that does disclose its philanthropic contributions in detail — has been remarkably generous, however, to some of the Weills's favorite nonprofit institutions. In 1998, the company's foundation, of which Mr. Weill is chairman, pledged $6 million to be given over four years for new technology at the Weill Cornell Medical School. Last year, when Mrs. Weill pledged $15 million to the Alvin Ailey American Dance Theater, Citigroup pledged $2.5 million over five years to the group. In contrast, Citigroup gave the troupe $15,000 in 1999.

And in 1992, the Citigroup Foundation pledged $3 million over 10 years to Carnegie Hall's endowment.

The biggest contributions made by Citigroup over the last four years were to the three institutions most identified with the Weills. Just last year, when Citigroup spent $67.6 million on philanthropy, a little more than 4 percent went to them: Cornell, Carnegie Hall and Alvin Ailey.

A spokeswoman for Citigroup said that this year, the company has given several large grants to organizations not linked to the Weills, like $5 million over five years to the National Council of La Raza, $5 million over five years to the Asia Society and $1.6 million to Habitat for Humanity. She said Citigroup encourages its executives to be involved in the charities it supports.

 
Despite a decline last year, corporate philanthropy has soared over the last decade; many companies now generously finance not only the causes of their current chiefs, but also those of their former leaders. Many retirement packages include philanthropy as a perk. In its golden parachute for Jacques A. Nasser, the former chief executive of Ford Motor, the company committed to endowing a scholarship at the educational institution of his choice. A company spokesman said that a similar provision had been part of retirement benefits for previous Ford executives and that the practice offered a tax-effective way to provide a benefit. Mr. Nasser gets the glory for nothing, and Ford gets the tax deduction.

As part of his retirement at the end of this year, Terrence Murray, the chairman and former chief executive of FleetBoston Financial, has the opportunity to contribute a total of $3.5 million to up to three educational institutions of his choice. A spokesman for FleetBoston said the company's foundation would send the money to the schools in its name, not in Mr. Murray's.

Shareholder advocates frown upon corporate giving solely at an executive's whim. "Corporate charitable contributions should be seen as part of the company's marketing strategy," said Nell Minow, editor of the Corporate Library, a corporate governance research group in Washington. "If they promote the company's products or brand identity, then it's fine. If the money goes to the ballet so the C.E.O.'s wife can be on the ballet board, or to the local university whose president happens to be the chair of the company board's compensation committee, not fine."

Richard M. Scrushy, the chairman of the HealthSouth Corporation, serves on the boards of several educational institutions, and his name adorns many buildings and facilities in and around Birmingham, Ala., where the company is based. There's Scrushy-Striplin Field, a baseball complex at Birmingham-Southern College, that was renovated in 1995 with "the financial support of Richard M. Scrushy and HealthSouth," according to the school's Web site.

But Bill Wagnon, the spokesman for the college, said the Web site mistakenly characterized the $1.5 million of support. "I talked with our development director, and he said it came from Mr. Scrushy personally," Mr. Wagnon said. "What's on the Web site is a mistake put on by someone who didn't know any better." The Web site no longer carries the reference to HealthSouth.

In 1998, when Mr. Scrushy was appointed to the board of the American Red Cross, his family foundation gave $230,000 to the organization; the HealthSouth Foundation, the company's charitable foundation, which he heads, gave $23,309.

The HealthSouth Foundation contributed $36,000 to the American Sports Medicine Institute, where the library is named for Mr. Scrushy.

A library in the Birmingham suburb of Vestavia Hills is named for Mr. Scrushy but is leased to the community for $10 a year by HealthSouth, which owns the building, said Sonny Jones, the city treasurer.

The company did not respond to questions about the donations.

Companies often argue that their contributions make business sense, even if they also clearly play to a chief executive's interests. Citigroup can argue that supporting Carnegie Hall makes it a good corporate citizen, while giving money to Cornell helps develop potential new employees and attract customers.

Corporate giving often changes when a new executive rises to the top. For instance, Richard D. Parsons, the new chief executive of AOL Time Warner, was chairman of the spring benefit of the Henry Street Settlement, a New York City community service agency, in April, and the company bought a $25,000 table. In the past, the company said its donations to the agency were $1,000 to $2,000. Mr. Parsons's impressive Rolodex was also pressed into service to Henry Street's benefit.

Asked if AOL Time Warner felt obligated to give to a charity if one of its executives served on its board or was otherwise involved with it, Tricia Primrose, a spokeswoman, said, "If the combination of our company's support and an executive's participation helps bolster recognition of and giving to these important institutions, we think that's great."

Then, too, there are times when a chief executive is buttonholed at a party or benefit and casually makes a pledge that the company must honor. That is exactly what happened at Monsanto in 1998, according to one witness. Robert B. Shapiro, then the chief executive, was attending a party in Chicago when he was hit up by someone who asked the company to become the lead sponsor for "Underground Adventure," a permanent exhibit at the Field Museum of Chicago. He said yes.

"I wasn't here, so I can't tell you how that came about," said Deborah J. Patterson, the president of the Monsanto Fund. "What I can say to you is that I believe it is O.K. for an executive to bring a project forward. That particular project met our criteria for giving. At that time, we had thousands of employees in Chicago, and we had a focus on the environment and science education, which was what that project was about." Mr. Shapiro did not respond to an e-mail message seeking comment.

Ms. Patterson said the key to corporate philanthropy is establishing clear parameters for giving. "We would be foolish to say that the company executive has no influence," she said. "But if an executive proposes something that doesn't fall into the categories we've established for giving, then we would say no, even to the chief executive."

And it is no secret why executives are recruited by nonprofit groups.

"At the senior corporate level, when a charity or big cultural institution invites someone on their board, it's very clear that person comes with the resources of the company behind him," said one consultant who works with foundations and other philanthropic institutions. "The Metropolitan Museum is not inviting you on the board because they want you to tell them what kind of shows they should put on."

Traditionally, though, a company's philanthropic office often takes the lead in selecting the charities to which the chief executive will lend his name. Or, a directors' committee makes the choices, though they often endorse the leader's preferences.

Thus, George Weissman, the former chief executive of Philip Morris, was often honored by arts organizations because the company is one of the country's biggest arts patrons.

Similarly, Douglas A. Warner III, who ran J. P. Morgan before it merged with Chase Manhattan in 2000, and Edgar M. Bronfman, the co-chairman of Seagram (which was sold in December 2000 to form Vivendi Universal), were honored for their companies' beneficence.

"These people did not ever put themselves forward as personally generous, even though many of them were," said Randall Bourscheidt, the president of the Alliance for the Arts in New York City. "Take Dick Jenrette when he was running the Equitable. He was absolutely scrupulous in making sure that his personal giving was in no way confused with Equitable's."

But the cult of the C.E.O. has blurred the distinction between the personal and the corporate — so much so that it is hard to separate, say, John T. Chambers from Cisco Systems, Steven P. Jobs from Apple Computer or John F. Welch Jr. from General Electric.

Charitable institutions are somewhat to blame for this phenomenon. Nominating committees at the most exclusive charities make no bones about what is expected in terms of fund-raising but are agnostic about where the money comes from, a policy called "give or get."

If you join the board of the Whitney Museum of American Art, for example — as Mr. Kozlowski did despite little knowledge of art — you personally must make a $100,000 annual contribution and either give personally or raise $5 million in all. At the Lincoln Center, the minimum personal contribution is $250,000.

"What you're talking about is the contemporary twist on an age-old practice of nonprofit boards, which is to identify people wherever they find them who can help bring their institution financial stability wherever it comes from, so long as it's not illegal or improper," Mr. Bourscheidt said. "The nonprofit board frankly cannot afford to worry about the distinctions between corporate and individual contributions."

Or, as one of the most prominent fund-raisers in New York says, "Face it: money is fungible."

But across the country in the last year, spigots have been running dry as companies have suffered from the sluggish economy and many executives have watched their wealth vanish in the plunging stock market. Some executives, like Mr. Lay at Enron, who were sought-after in recent years, have been toppled by scandal or for poor performance.

Mr. Kozlowski has resigned at the Whitney, yet some fallen executives remain on nonprofit boards, creating new problems.

Consider Jean-Marie Messier, who moved to Manhattan from Paris with a storm of publicity and was lauded as a philanthropist extraordinaire just six months ago. Ousted this summer as the head of Vivendi Universal, he still serves on the board of the Whitney Museum, and his wife, Antoinette, is still on the board of the New York Philharmonic.

Will Vivendi still support them in those roles? "Those board positions are Mr. and Mrs. Messiers's personal commitments," said Patsy Glazer, an executive at the Vivendi Universal Foundation. "Their being on the boards has no impact on Vivendi."

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