For Trustees Who Run Hawaii’s Bishop Estate, the Rewards Are Influence, Big Money, and Controversy

In political circles here this summer, one question has burned brighter than nearly all others: Who will be named the Bishop Estate’s next trustee?

The estate was set up by Princess Bernice Pauahi Bishop more than a century ago to create and support the Kamehameha Schools, which have trained generations of native-Hawaiian students. That an appointment to the board of a charitable trust should attract such intense interest is a testament to the extraordinary influence the estate exerts in Hawaiian affairs.

A uniquely Hawaiian institution, the estate has had to grapple with issues that confront many other charitable trusts, such as how trustees should be compensated for their efforts and how to adapt to changing conditions within the strictures of a founder’s will. But in sheer size alone, the Bishop Estate stands without peer.

The trustee’s job, in fact, is widely considered to be one of the state’s juiciest political plums. Not only does it afford a chance to help direct the course of the nation’s wealthiest and second-largest private school; it also conveys political and economic power commensurate with the estate’s position as Hawaii’s largest private landowner.

Furthermore, the five trustees are richly — many say excessively — compensated for their efforts. Over the past two years, each trustee received more than $1.5-million in commissions, while waiving an additional $1-million to which he was entitled under state law, which limits such fees to about 2 per cent of a charitable trust’s annual revenues. By contrast, knowledgeable sources say that trustees of private foundations organized as trusts whose fees are based on investment earnings generally receive less than $100,000 a year.

The four current board members of the estate — more formally called the Kamehameha Schools/Bernice Pauahi Bishop Estate — have impressive political credentials.

They include a former chief justice of Hawaii’s Supreme Court, a former speaker (and current member) of the state House of Representatives, a long-time Honolulu City Council member who helped found Hawaii’s modern Democratic Party, and a former administrative director for Hawaii’s late governor, John A. Burns.

All four men have been active in Democratic politics, and many observers predict that another prominent Democrat will be picked to replace Richard Lyman, Jr., whose death last December after nearly 30 years of service created the current vacancy on the board. U.S. Rep. Daniel K. Akaka, a Democrat, is among those who have expressed interest in the position, which involves twice-weekly meetings to monitor the estate’s financial and real-estate transactions and to administer the schools’ affairs.

Princess Pauahi’s 1883 will stipulates that trustees be selected by a majority of the state Supreme Court justices, acting in their private capacities. Because the justices are appointed by the Governor, critics contend, this provision has broad repercussions.

“Politics has invaded the Bishop Estate to the detriment of the beneficiaries,” says state Rep. Fred Hemmings, a Republican poised to challenge Gov. John D. Waihee, III, in next year’s gubernatorial election. “Right now, the appointment of trustees by the Supreme Court has the appearance of being based solely on politics.”

Gov. Waihee was unavailable for comment.

Of the court’s recent appointees, Mililani B. Trask, an activist on native-Hawaiian issues, declares that “these people have never been advocates for native-Hawaiian rights, they have no background in education, but appointment to the Bishop Estate is considered to be the cherry of the Democratic Party.” Ms. Trask, a 1969 graduate of the Kamehameha Schools, became a lawyer and now directs the Gibson Foundation, which helps native-Hawaiian families find homes. The head of KaLahui Hawaii, a three-year-old movement to gain political sovereignty for native Hawaiians, she favors the appointment of someone outside what she calls “the Democratic boys’ club.”

Native-Hawaiian advocates have long lobbied for a larger role in the trustee-selection process. Following the justices’ 1971 appointment of Matsuo Takabuki, who is of Japanese ancestry, an Ad Hoc Committee for a Hawaiian Trustee brought an unsuccessful lawsuit against the Supreme Court justices to have the appointment nullified. “All we wanted was appropriate representation of Hawaiian people on the board, and to be in on the appointment,” recalls Curtis Kekoa, an alumnus and Honolulu lawyer who chaired the committee.

Noting that three of the four current trustees are now ethnic Hawaiians, Mr. Kekoa says “we think we made some headway” since filing the suit. But he contends that recent appointees are still members of “the old boys’ network, those who’ve been faithful to the Democratic Party.”

Critics of the selection process also cite the justices’ 1982 appointment of their own Chief Justice, William S. Richardson, as a Bishop Estate trustee shortly after he stepped down. That choice drew such fierce public criticism that Herman T.F. Lum, who succeeded Mr. Richardson as Chief Justice, subsequently said he would not support further appointments of Supreme Court justices as trustees.

Following disclosures last spring of Chief Justice Lum’s business ties with the Bishop Estate, Honolulu’s two daily newspapers suggested in editorials that the system for selecting the estate’s trustees be changed, even though it would mean violating the terms of the will.

“Supreme Court members frequently deal with major Bishop Estate cases,” noted the Honolulu Advertiser. “Therefore, they shouldn’t be picking estate trustees.”

The trustees’ fees, the selection process, and instances of alleged conflicts of interest have recurrently drawn criticism from several quarters during the past decade. The critics include Republican legislators, activists for native-Hawaiian rights, disgruntled leaseholders on estate land, and Kamehameha Schools parents and graduates disturbed about the trustees’ stewardship of the princess’s legacy.

Perhaps the most consistently controversial issue is the trustees’ compensation, which is regulated by state law. Trustees of a charitable trust may divide among themselves about 2 per cent of its annual operating revenues and 2.5 per cent of its capital revenues. Because the Bishop Estate has seen its capital revenues grow enormously in the past several years, the trustees have benefited proportionately.

Real estate still forms the bulk of the Bishop Estate’s assets. Of its 340,000 acres on five islands, the less than 2 per cent zoned for commercial, residential, or industrial use contributes more than 90 per cent of its income. The remaining 98 per cent of the land is split almost equally between agricultural and conservation uses.

For decades the estate has leased its lands to farmers, developers, and homeowners — who owned their houses or buildings but not the land on which they stood. A state law passed in 1967, and upheld by the U.S. Supreme Court in 1984, enabled residential leaseholders to negotiate to buy their land outright. The resulting buyouts flooded the estate with cash and boosted the trustees’ average annual compensation to $926,487 in 1987, compared with $125,014 in 1980.

Bishop Estate trustees, who had opposed the 1967 law, decided to waive the income they would realize from those direct land sales. Last year, therefore, although net capital revenues were $234-million, compared with $152-million the year before, trustees received an average of $648,094, while forgoing more than $4-million among them.

The trustees, who were unavailable for comment for this article, previously have strongly defended their commissions.

“Rising commissions indicate that more resources are flowing into the trust and can be made available for our sole beneficiary, Kamehameha Schools,” noted Henry H. Peters, a trustee who is also a state legislator, in a statement earlier this year accompanying the disclosure of the estate’s federal tax returns revealing the latest compensation figures.

Mr. Peters also observed that, as independent contractors rather than salaried employees, trustees must pay for their own insurance and retirement programs, are assessed a 4-per-cent state excise tax, and receive no incentives or bonuses that typically form a substantial part of a corporate chief executive officer’s compensation. Furthermore, he said, they may be held personally liable for their decisions in administering the trust.

“They’re named in every suit [filed against the estate] as individuals,” notes Gil Tam, who directs the estate’s administration group.

According to the 1987 tax returns, each trustee worked 40 hours a week on estate business. “They operate not only as a board of directors but as an executive management team,” Mr. Tam observes. Thus, he says, their fees should not be compared with the stipends of part-time trustees, who meet only monthly or quarterly.

But critics contend that it was never Princess Pauahi’s intention to make millionaires of her trustees. They say the money would be better spent educating additional students.

“In some ways, the Hawaiian children are being cheated out of their legacy by these fees,” says Representative Hemmings, who last year introduced legislation that would have capped the commissions of trustees of charitable trusts at $250,000 a year. As has happened previously with similar legislation, however, his bill was bottled up in committee; some observers say such a law is unlikely to be enacted as long as Mr. Peters, a former House speaker, remains in the Legislature.

“Our position on capping commissions is that if it is done it should be capped for every charitable trust, and that it is very unfair for this trust to be singled out,” notes Elisa Yadao, the estate’s communications director.

Furthermore, says Mr. Tam, “if you do that, the Legislature or whoever makes the decision would have to cap their liabilities as well, and I don’t know how you’d make that work.”

The estate has legions of defenders, including many Kamehameha alumni who are deeply appreciative of the education they received. Some argue that the trustees’ fees are in line with salaries of top corporate executives, that limitations would discourage top candidates from applying for the jobs, and that in any event, only native Hawaiians — as beneficiaries of the princess’s bequest — have any right to complain about the commissions.

State Sen. Russell Blair, a Democrat, says, “The beneficiaries as a group have been very uninterested in this problem. It seems to be low on the agenda of the native-Hawaiian community.

“My personal feeling,” he says, “is that [the fees] could be reduced without affecting the caliber” of potential candidates, but he adds that only a concerted lobbying effort is likely to result in the Legislature’s lowering the statutory limit.

Some suggestions for restructuring the Bishop Estate have come from the “masters” appointed each year by the state probate court to examine its operations and its annual reports. Their reviews vary in scope and depth.

Lawyer Michael Hong, for example, who conducted the 1985 examination, recommended that the estate appoint a single chief executive officer to manage the education, land, and finance divisions. “The five trustees appear to be mixed in with the management team,” he noted, “which can cause and create confusion among the staff, its divisions and departments.”

But suggestions that the trustees hire a full-time administrative officer to take over the day-to-day management duties and allow them to cut back their involvement to that of part-time policymakers have gone nowhere. Trustees have responded that Princess Pauahi’s will and their own fiduciary responsibilities might not permit them to delegate such authority to a third party.

Many people believe that the ultimate measure of the Bishop Estate’s performance is how good a job it does educating Hawaiian children. Here, too, there is little consensus.

In her will, Princess Pauahi expressed the wish that Kamehameha students receive “instruction in morals and in such useful knowledge as may tend to make good and industrious men and women; and I desire instruction in the higher branches to be subsidiary to the foregoing objects.”

In the early decades, therefore, the schools placed a heavy emphasis on vocational education. More recently, however, Kamehameha has strengthened its college-preparatory curriculum, and now reports that more than 85 per cent of its graduates go on to pursue college degrees. Admission to the secondary school is by competitive examination, but pupils are selected by lottery for kindergarten and must apply again for admission when they reach sixth grade.

Started on a dusty tract outside Honolulu, Kamehameha now sprawls across a 600-acre hill-side campus overlooking downtown Honolulu, Pearl Harbor, Diamond Head, and Waikiki Beach. The 3,000 students have access to a well-equipped television production studio, print shop, graphics-design studio, and computer learning center, as well as to an Olympic-size swimming pool, several playing fields, and a handsome new chapel and Hawaiian cultural center.

By admitting only one of every eight applicants for admission, Kamehameha is bound to disappoint many students and parents. Furthermore, limited space for boarders makes it impractical for many students living off Oahu. In response, the school tries through its extension programs, summer school, adult education, preschool, and other activities to serve a broader constituency.

The outreach services extend to nutrition education for expectant mothers, instruction in infant stimulation, experimental reading programs, and cultural-enrichment programs, since many native Hawaiians speak pidgin at home and have not developed positive images of themselves as Hawaiians.

Such efforts have not won universal approval. “I question the amount being spent on programs off campus — ukulele playing, all that stuff,” says Mr. Kekoa. “I don’t know if that’s helping kids that are having trouble with English.”

Ms. Trask takes a similarly dim view of some of the extension programs. “The mobile unit brings poi pounders, stone implements, and art work to the schools for one day a year,” she says. “That hardly meets my definition of educating Hawaiian children.”

Such education is of vital importance for native Hawaiians, she believes. “We’re becoming the laborers of the state, without any chance for upward mobility, without any hope of owning our own homes or of running a small business,” says Ms. Trask. “Education is the pathway by which people can work to better their conditions.”

Many Kamehameha alumni have high praise for the education they received. But some question whether the trust’s assets might be harnessed to help many more people than those currently served. Several people have suggested that Kamehameha develop campuses on other islands, or increase the number of students at its current campus.

“It’s hard to justify maintaining a billion-dollar campus when Hawaiian children have such pressing educational needs,” says Ms. Trask. “I got a damn good education. But when I was there, there shouldn’t have been only 200 kids, there should have been 2,000 of us graduating.”

Despite the criticism, however, there is no shortage of candidates for the trustee position. As Mr. Peters told the Honolulu Advertiser following his appointment in 1984, “I think it was the dream of most Hawaiian youngsters growing up to be on the Bishop Estate.”