GE sent funds to five directors' foundations

For directors of General Electric Co., retirement brings a parting perk -- $1 million that the company donates to charities of the board member's choosing.

It is a practice that many public companies have phased out, in the name of curbing excess director compensation, and one that is frowned upon by corporate governance specialists. Yet GE turned the corporate donations into an even greater perk for five retired GE directors, including former chief executive Jack Welch: The company sent the funds to those directors' private foundations, allowing them to distribute the money to charity as if it were their own.

Welch's assistant in his Boston office told The Boston Globe that the $1 million donation in 2001 to the John F. Welch Jr. Foundation was a mistake on GE's part -- and that the funds were transferred within a day to the University of Massachusetts, Welch's alma mater. But Welch, in a subsequent telephone interview, brushed aside that explanation, saying he had asked for the money to be sent to his $13 million foundation when he stepped down from the Fairfield, Conn., conglomerate.

"It was one of the alternatives," Welch said, noting that other directors before him had made the same choice. "It was a very common thing."

GE defends its "charitable award" program, which started in 1990, as part of a strategy to help recruit experienced directors, and notes that board members reap no financial benefit from the donations. But philanthropic gifts often bring other kinds of rewards, namely prestige and public honors. In a recent series, the Globe Spotlight Team uncovered numerous instances of foundations around the country using their grants to burnish the image of trustees.

GE typically sends the donations directly to charities, with a letter naming the director who recommended the grants, GE spokesman Gary Sheffer said.

But in the case of Welch and the four others who channeled the money to their foundations, grant recipients would never know the funds had come from GE.

"It's cleaner, if you're going to do that, to do it in the company's name," said Jay Lorsch, a professor at Harvard Business School and a specialist on corporate governance. He said he objects in general to the idea of shareholder money being spent to reward departing directors. And $1 million, he said, is excessive.

"If I were a shareholder of GE, that's a lot of money," Lorsch said. Directors at public companies should, he said, be compensated "appropriately for the work they do, for their stewardship. But we shouldn't be giving them a lot of extra stuff -- and confusing the shareholders."

Charitable donations on behalf of board members have been discouraged since 1995 by the National Association of Corporate Directors, a Washington group that advises companies on governance matters. Roger Raber, the group's president, said in an interview, "Anything that smacks of a perk, whether it's consulting, retirement benefits, or a donation to a favorite charity, it's a concern. Even though it may not be prohibited, it's not part of good governance."

Most companies have eliminated charitable donations over the past five years, using cash and stock only to compensate directors for their time attending board meetings and serving on committees, according to Charles King, a managing director and head of global board services at the New York recruiting firm Korn/Ferry International. Whether corporate donations are being made on behalf of a director or through that director's foundation, he said, there is a personal benefit.

"If $1 million goes to Yale University," King said, "you'll probably get treated reasonably well when you pay the campus a visit."

Federal securities regulators require companies to disclose charitable donation programs. GE does so in its annual proxy statement, which is sent to shareholders and filed with the Securites and Exchange Commission. But companies do not have to reveal where those charitable funds go -- even when they go to a director's personal foundation. The $1 million that went to Welch's foundation is disclosed only in the 2001 tax return of the Welch Foundation, which was examined by the Globe.

Welch's foundation gives away about $1 million a year. It supports dozens of human services organizations, and has written large checks to support inner-city programs in Bridgeport, Conn., and education for the children of New York City firefighters and police who died on Sept. 11, 2001. In early 2002, Welch's foundation gave $1 million to UMass to fund scholarships for graduates of Salem High School, which he attended.

The Feb. 1, 2002, edition of the UMass-Amherst newspaper, The Campus Chronicle, made note of the gift, which Welch named for his parents, the John and Grace Welch Endowed Scholarships. The donation drew praise from then-president William M. Bulger, who said in the story, "The university greatly appreciates this act of kindness and the faith that Jack Welch is showing in our ability to educate young people."

The GE money, Welch said, could have gone to UMass or any number of other large gifts. "I spent the money somehow, I don't know which dollar went where," he said.

Beth Healy can be reached at bhealy@globe.com; Walter V. Robinson at wrobinson@globe.com.