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SPOTLIGHT REPORT | CHARITY BEGINS AT HOME

Philanthropist's millions enrich family retainers

Fifth in a series of occasional articles.

Before the fortunes and forests she gave away, before the solar house and the studio where she glazed the clay art of sick children, Amelia Peabody was a young woman from a rich family, pondering a life of altruism.

Hers was a world of Back Bay tea parties and horse shows in rural Dover. But in 1912, at age 21, Peabody wrote in her diary, "If I ever do take up charity, I intend to do it, and not half do it," according to a biography of her life. "Either I work hard or not at all."

Never married and with no children, she devoted her life to charity. And she gave birth to twin foundations, the Amelia Peabody Foundation in Wellesley and the Amelia Peabody Charitable Fund Trust in Boston. With combined assets of about $300 million, the two funds currently rank among the largest and most generous in Massachusetts.

But in the 19 years since Peabody's death, millions of dollars -- much of which could have gone to charity -- have instead been paid to the foundation trustees charged with continuing her legacy, a Globe Spotlight investigation has found. Large fees and retirement benefits were even paid for dead or inactive trustees of the Wellesley-based foundation.

Between 1996 and 1998, the Wellesley foundation paid $319,977 in fees and awarded another $515,684 in retirement benefits to renowned attorney and longtime trustee James D. St. Clair. St. Clair, who retired from the board in 1999, had been suffering from dementia since 1991, according to his March 2001 death certificate. The trustees, in written responses to questions from the Globe, said that only about half the retirement benefit went to St. Clair. The board declined to say who received the balance of the money.

A year earlier, in 1997, the Wellesley trustees paid a $283,917 benefit to the widow of a founding trustee and confidante of Peabody, Lloyd B. Waring, shortly after Waring's death. The money, which the foundation called a "survivorship" payment, was paid eight years after Waring had concluded his foundation work, in 1989. On the front page of its 1997 tax return, the foundation lumped the payment under "other professional fees."

Meanwhile, at the Peabody Charitable Fund Trust in downtown Boston, part-time trustees earning six-figure salaries have long used a pay structure that appears to violate IRS rules that require trustees pay themselves reasonable fees -- fees that reflect the time, effort, and expertise involved in trustee work, and that are consistent with fees at other foundations of similar size.

But the Peabody fees are based not on time or effort. Instead, they are based on a fixed percentage of the foundation's assets and investment income. Foundation specialists have warned against such fee systems, saying they can lead to excessive pay. Foundation trustee and attorney William A. Lowell and his law firm, Choate, Hall & Stewart, would not disclose how many hours he or the four other Boston trustees work, even though IRS rules require foundations to report that information on tax returns.

The trustees of both foundations have also worked to keep the lucrative trusteeships largely in the family, passing their board positions along to their offspring. Three sets of siblings dominate the two foundations.

The Peabody boards defended the compensation, and said they have been faithful to Peabody's mission. Indeed, for hundreds of charities that have benefited from the foundations' largesse, including $13.4 million in grants last year, the public face of the two foundations has been one of committed philanthropy very much in Peabody's own image.

But, in the absence of scrutiny from state or federal authorities, the trustees have awarded themselves extraordinary compensation:

Among the Globe's findings:

* Over a period of seven years, from 1996 through 2002, the two foundations paid a total of $11 million to 11 current and former trustees. This pay was, in many cases, for routine duties that members of many other foundation boards perform for much less, or for free.

* Between 1996 and 2002, six current and former Wellesley trustees collected $5.7 million in compensation. In 2002 alone, the five trustees still serving split more than $1 million in fees and deferred pay. For that money, the trustees made 87 grants worth $7 million, nearly half of them to charities they had given to before.

* Between 2000 and 2002, the Wellesley foundation's assets dropped by 19 percent, or $35 million. But trustee compensation in that time went up by 38 percent, from $776,500 to $1,068,491.

* The Peabody Trust in Boston paid more than $5 million to five trustees between 1996 and 2002, an average of $1 million each over seven years for part-time work. One trustee, Jo Anne Borek, last year collected a part-time trustee fee while also receiving $124,660 in pay and benefits as full-time executive director.

Both foundations have engaged in a brand of nepotism that has kept control of them in the hands of three families. In Boston, two of the five trustees are daughters of the late Harry F. Rice, Peabody's longtime attorney and a founding trustee. In Wellesley, the foundation has remained under the control of two families, the Warings and the St. Clairs, even though Peabody set no provision for succession by bloodline.

Thomas A. McLaughlin, a senior manager in the Boston office of the accounting firm Grant Thornton and an expert in nonprofit finances, said that if Peabody had wanted the children of her appointed trustees to retain control of the foundations, she would have said so before she died. "I can't imagine this is what she had in mind," he said, "nepotism and a closed management system."

Referring to the Wellesley foundation, McLaughlin questioned the need for a full-time board to award 87 grants a year. "How difficult is it to support that kind of giving pattern?" McLaughlin asked. "Does it require four full-time people? I don't see how it does."

Substantial sums In the nearly two decades since Peabody's death, the Peabody Foundation in Wellesley has built a reputation for philanthropy. And with its recent decision to focus its grants on "materially disadvantaged young people," it has breathed life into some urban programs often overlooked by other large foundations. For instance, the foundation has funded the Codman Square Health Center in Dorchester, where trustees are known to make site visits. It has also given money to the Ella J. Baker House, whose programs tackle gang violence.

But the foundation's five trustees have also earmarked substantial sums for themselves, starting with the first two managing trustees. They were Waring, a messenger who rose to an executive post at Peabody's father's brokerage firm, Kidder Peabody, and St. Clair, who represented President Nixon during the Watergate scandal.

Both Waring and St. Clair worked part-time at the foundation, yet they received substantial pay and benefits. In 1996, the earliest year for which foundation tax returns are available, St. Clair received $186,229 for his part-time foundation duties. In 1997, he was paid another $128,748. Then in 1998, the board voted him the one-time, half-million dollar retirement benefit.

The foundation did not dispute that at the time those payments were made, St. Clair had dementia, a condition marked by deterioration of brain functions. But, through its outside spokesman, Peter J. Mancusi, the foundation described St. Clair as "an active, involved" trustee until he left the board in 1999 at age 78.

In a written response to questions from the Globe, the foundation said St. Clair received about $289,000 of the pension benefits for prior years of service. The foundation left unanswered a question about what happened to the rest of the money, saying only that it was a pension contribution, but not paid to St. Clair.

Bruce R. Hopkins, a Kansas City expert on foundation tax law, said that, in theory, the kind of deferred compensation paid to St. Clair is permissible at foundations. But even if the money was compensation for St. Clair's past work, Hopkins said, "half a million dollars for services as a trustee is not reasonable."

Waring stepped down from his trustee post in 1989. But shortly before he left, the foundation said through Mancusi, Waring hammered out a deal with the board that would result in a "survivorship payment" of more than a quarter-million dollars to his wife after his death.

In an interview, Margaret N. St. Clair, James St. Clair's daughter and a co-managing trustee, initially said the $283,917 payment was made to Waring while he was still alive, to pay for an unfunded pension benefit. Later, through Mancusi, the board said the money was in fact paid to Waring's widow, and based on Waring's "length of service to the foundation."

Waring was a trustee for five years after Peabody's death, not long enough, Hopkins said, to warrant such a large payment. Unless foundation documents named Waring's widow as a beneficiary, Hopkins said, the payment arrangement would be unreasonable.

The foundation would not offer details of the agreement.

Of their own salaries, the Wellesley foundation trustees said their pay is reviewed annually by a compensation consultant. Yet a survey by the Council on Foundations, a leading trade organization, shows that the salaries of the two managing trustees, Margaret St. Clair and Bayard D. Waring, are substantially higher than the median pay of chief executives at foundations of a similar size.

For a reported 35-hour work week, St. Clair and Waring each earned $213,500 last year; they also took $172,736 and $154,588, respectively, in deferred compensation and benefits. Their pay is expected to rise to $216,000 each in 2003, Mancusi said. The most recent survey by the Council on Foundations found that in 2001, among comparable private foundations with assets between $100 million and $250 million, the median total compensation for full-time CEOs was $185,000. In that year, St. Clair and Waring split total compensation of about $554,680 as dual CEOs.

With a St. Clair and a Waring still at the helm, the expanded trustee board has remained a family affair, though not a Peabody family affair. None of the trustees is a Peabody relation. Today, the board includes two of James St. Clair's children, Margaret and Thomas, and three of Waring's children, Bayard Waring, Philip Waring, and their sister, Deborah W. Carlson. Along with their salaries have come other benefits. For instance, at age 74, Bayard Waring, of Rockport, doesn't have to make the trip to Wellesley for foundation business. Instead, Waring has his own office in Gloucester, paid for by the foundation at a cost of $9,456 last year.

Thomas St. Clair is the most recent full-time addition to the board. Elected in 1999, he was a small business owner before he took his father's post. St. Clair is expected to make $101,000 in 2003; he had no foundation experience when he became a trustee.

Asked if they had considered naming a trustee outside the two controlling families, the foundation board said, "The deliberations of the trustees are a private matter."

No accounting for hours worked Peabody established the Wellesley foundation to focus on charity inside Massachusetts. Later, when she decided to expand her charity across New England, she created the second foundation rather than retool the first.

But if the mandate of the downtown foundation is broader, its workload appears undemanding. All of its trustees are part-time, except for Jo Anne Borek, who draws both full-time and part-time salaries. The trustees' tasks primarily consist of reviewing proposals and awarding grants.

Without accounting for their hours, the trustees have paid themselves millions over the years. In 2002, the trustees received a total of $619,790 for their work, or $123,958 each, not including Borek's full-time salary. Annual fees peaked in 1999, when the biggest earner, Richard A. Leahy, who is 78, took $194,000 for trustee work.

Lowell, the foundation's trustee attorney, joined the Peabody Trust board in 1998 after handling the estate of the late Harry Rice, Peabody's longtime attorney.

In an interview, Lowell said he could not estimate how many hours he spends on foundation business. Yet IRS rules require trustees to report the average number of hours they work per week. And the rules specifically prohibit the generic term "part-time," which the Peabody trustees have used on tax returns since at least 1996.

Asked about the reporting requirement, Lowell -- who is in charge of all trust and estate clients at the firm -- said he was not aware of them. Later the law firm, through its outside spokesman, Ray Howell, refused to answer any further questions about the trustees' average work hours. The firm also would not explain why it was necessary for Borek to be paid two salaries, as both executive director and part-time trustee. She collected two six-figure salaries every year from 1996 to 2002, totaling close to $1.8 million.

When Peabody set up the foundation in 1974, she stipulated only that trustee compensation be "reasonable." Though Lowell said that basing trustee fees on a percentage of foundation assets and income is common in Massachusetts, the method is frowned upon in much of the foundation world.

Since 1989, the Council on Foundations has warned against such methods. Such fee structures, the council says, "provide much greater potential for excessive compensation and should be avoided."

Jamie Katz, chief of the charities division in the Massachusetts attorney general's office, said a foundation that pays trustees based on such a formula would almost certainly draw scrutiny from his office -- especially if the formula was being used to determine pay for an entire board.

"That would certainly be, in our mind, worthy of our review," said Katz, who was speaking generally about foundations.

Lowell said he was unaware of any documents in which Peabody authorized the percentage fee formula. The fee formula would allow the trustees' fees to rise dramatically if the foundation's assets also rise with a stronger investment market. Asked if the trustees would accept such increases, Lowell said, "That's a hypothetical we haven't had to consider yet."

Matthew Carroll of the Globe Staff contributed to this report.

Charity begins at home
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Spotlight Report The Boston Globe Spotlight Team would like to hear from readers who have information about this issue. The Spotlight telephone number is 617-929- 3208.

Confidential messages can also be left at 617-929- 7483.

The e-mail address for the Spotlight Team is spotlight@globe.com

Foundation tax returns are available for public viewing at www.guidestar.org
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