Broken Trust: Greed, Mismanagement and Political Manipulation at America's Largest Charitable Trust
by Samuel P. King and Randall W. Roth
Hawai'i Press, 2006
324 pp., $26
“It is so pleasant, so distinguishing, to possess one’s own antipodes,” wrote the German philosopher Friedrich Nietzsche, speaking of Christianity. However, his words have relevance in the philanthropic world as well; retired U.S. District Judge Samuel King and University of Hawaii law professor Randall Roth find antipodes in the management of the Bishop Estate, one of the largest charities in the United States, and the subject of their scathing book.
It is hard to imagine a better poster child for charitable malfeasance. The will of Princess Pauahi (her chosen English name was Bernice Bishop), who inherited close to 400,000 acres of the ancestral land of the Hawaiian King Kamehameha, settled the Bishop Estate in 1884. Thanks to the incredible real estate boom in Hawaii during the 20th century, the Bishop Estate was worth around $10 billion at its financial height.
Gradually, however, the five trustees of the Estate came to treat the endowment as a “private investment club,” if not a checkbook. Trustees invested in deals orchestrated by friends, many of which went belly up. At one point the Estate owned about one in every nine acres in Hawaii, and yet the trustees kept buying more land. In contravention of federal and state laws, they bundled donations to local politicians using Estate money.
For decades, the trustees had no strategic plan, no internal controls, and no organizational accountability. The use of benchmarks was foreign. Even investments that paid off, such as Goldman Sachs’ IPO, came about without a formal process with prudential controls. For many years, the trustees met without agendas, coming and going during meetings. Cronies on the payroll were legion, and the Estate even paid for visits to strip clubs and casinos. At the height of their power, the trustees paid themselves over $1 million each in annual compensation. When questioned, the board dismissed inquiries into their affairs and hired consultants and lawyers by the busload. Eventually they installed a high-security system in their boardroom, which would lock it down steel-to-steel.
Welcome to the antipodes, where people stand on their heads! It seems a simple lesson for other philanthropists: Whatever the Bishop Estate trustees did, do the opposite.
King and Roth were among those who first brought the Bishop Estate trustees’ bad behavior to light in a series of 1997 and 1998 Hawaiian newspaper stories. Their book retains a journalistic feel that allows easy reading, even as it focuses closely on sordid details like the trustees’ shenanigans in the 70s, 80s and 90s. After these exposés, the state attorney general became involved, and the IRS threatened to strip the Estate’s public charity status. The end was near when the trustees began to sue each other. In 1999 the existing board was removed by the Probate Court, which oversaw the establishment of a new board, with new safeguards in place. Today these trustees are paid about $100,000 each year for their part-time work.
It’s easy, in retrospect, to demonize individuals in the mismanagement of the Bishop Estate. Certainly the old trustees present a cast of characters ranging from the hapless, to the Machiavellian, to the downright maniacal. King and Roth illustrate how the largely one-party political culture in Hawaii manipulated appointments to the Bishop Estate board as a reward for insiders. While Bishop’s will designated the state’s Supreme Court as the body to choose new trustees, the Supreme Court justices are nominated by the governor and confirmed by the legislature. Thus, not surprisingly, many Supreme Court justices, legislators, and gubernatorial aides and fundraisers were deemed “the best choice” for the highly paid job.
The antipodes are a bizarre place. But every arrival in far-off lands begins somewhere else, usually somewhere familiar. For those of us still in the comfort of home, observing the journey is almost as helpful (and much safer) than making it.
In this case, the beginning lies in Bernice Bishop’s will. The will designated that her Estate’s income should be used to operate two schools, one for boys and one for girls, offering chiefly “a good education in the common English branches, and also instruction in morals and such useful knowledge as may tend to make good and industrious men and women.”
The Princess could not have envisioned the massive increase in the value of her Estate. Even so, material values appear to have meant little to her, at least in her will. She seems to have been quite clear about the practical ends—moral, religious and vocational—that she wished her schools to pursue. And yet the history of her Estate is one of disregard or reinterpretation of her stated wishes.
The two schools disappeared in the 1960s in the face of co-education and became one, slyly misnomered “Kamehameha Schools.” Bernice Bishop appears to have benefited greatly from an education that separated the sexes, but certainly what benefited a princess in the 1840s could not benefit young women (and men) 120 years later.
“Useful knowledge” also became increasingly hard to define. The schools began with vocational and even military training. Then, in the 1920s, much of the vocational focus was jettisoned in favor of a more academically rigorous curriculum—what the Princess referred to as the “higher branches” in her will. In the 40s and 50s a backlash occurred, leading to a reduction in standards and the creation of extension schools. This ambivalence has continued to the present, with the system oscillating between delivering excellence for a few and mediocrity for many. But “industrial, mechanical, and agricultural” training never made a comeback.
Bernice Bishop, in her day, managed to navigate successfully Hawaii’s major stumbling block: race. Though a native Hawaiian, she refused to marry a native prince and instead chose a white customs collector, Charles Reed Bishop, as her husband. The marriage caused a brief break with her royal relations, but the breach was soon mended and the marriage, though childless, proved very happy. Bernice moved easily between the native and white worlds. She was troubled by the steep decline in the native population, which she ascribed to poor adaptation to the new conditions. Her husband, one of the Estate’s first trustees, advised that she set up the schools in part to counter this alarming decline.
The schools, however, have not shown similar flexibility and resilience in dealing with Hawaii’s racial dilemmas. Although Bishop’s will does not limit admissions to native Hawaiians, Charles Bishop (her white husband) believed that the schools should show “preference” for native scholars. In practice, and through much of its history, the Estate has admitted only native Hawaiians. And yet, as Bernice Bishop could have told us, defining native Hawaiians is not an easy task. Today many students in the schools have as little as 1/64 native ancestry. Furthermore, it seems likely that many parents lie about native “blood” in order to win their children admission. In 2005, the Ninth Circuit decided that the Kamehameha Schools, as a public charity, must stop admitting only ethnic Hawaiians. The Estate has appealed.
The trustees of the Bishop Estate dismantled crucial elements of Bernice Bishop’s vision: separate schools for boys and girls, vocational education, and a nuanced approach to race. Just as important, her religious commitment has also disappeared. Bernice was born 12 years after native Hawaiians rejected their traditional gods and destroyed their temples and idols. She was raised largely by Amos and Juliette Cooke, New England Protestant missionaries. “All I am and hope to be,” said Bernice, “I owe to Mrs. Cooke.” In her will, Bernice stipulated that the Kamehameha Schools’ teachers “shall forever be persons of the Protestant religion” and that trustees should also be Protestant. Besides her husband, the other four original trustees were Protestant missionaries.
Religion has disappeared so completely from this institution that King and Roth cannot describe its loss with any of their usual precision. At some point the Supreme Court stopped asking trustee candidates about their religion. At some point religion faded from the classrooms. For a while, courts upheld the schools’ right to exclude non-Protestants from the faculty. The end came in the mid-90s, when the Ninth Circuit ruled that the schools are “a large and overwhelmingly secular business” and hence cannot discriminate. This was not a fiat but a fact.
Many have defended philanthropy on the grounds that it allows private individuals to invigorate public life through the injection of their personal values and viewpoints. If there was ever an opportunity for such invigoration, it would seem to be the case of Princess Pauahi, Bernice Bishop, who brought together the dying Hawaiian royal tradition, Western education and religion, and a vital interest in fostering both the native and the new. And yet, seeing how her trustees have ejected what could have been the most distinctive and invigorating elements of her legacy, it is hard not to judge this a lost opportunity. In this light, their financial and fiduciary skullduggery looks to be only the consequence, not the cause, of a deeper rot. Perhaps that’s the fear that adds frisson to the antipodes’ charm: will we all end up there someday?