A tiny tax-exempt school gives president a lavish life
Critic calls board a ‘puppet group’
FALMOUTH - It is a tiny school, with an enrollment the size of a modest elementary school. There is no campus, just a small office building. Its 400 part-time students are invisible here, attending classes at off-site facilities across the country.
Yet the National Graduate School of Quality Management awarded its president, Robert J. Gee, $732,891 in compensation two years ago. By comparison, the president of Tufts University, with 10,800 employees and 5,500 students, had nearly identical compensation the same year, $738,596.
Gee has champagne tastes. In 2009, he persuaded the Massachusetts Development Finance Agency to authorize $2.64 million in low-interest bonds. That made possible his school’s purchase of a $3.25 million waterfront compound on Oyster Pond with spectacular views of Martha’s Vineyard, especially from the six-bedroom house earmarked to be Gee’s presidential residence.
Five months later, the school, which focuses on a particular field of business management, purchased new automobiles to fit the estate setting: a silver Mercedes-Benz S550 sedan for Gee and a silver Mercedes-Benz station wagon for his wife, Aileen Waters Gee. The cost: $130,638, or about 2 percent of the school’s revenues that year.
There was no sales tax, because the school is tax-exempt.
For years, the school’s revenues have financed a lavish lifestyle for Gee and for his wife, who has been paid at least $100,000 a year since 2003. And they have vacationed together at school expense: The school owns a deluxe winter getaway in the US Virgin Islands for their use, part of a 17-year employment contract that expires in 2023, when Gee will be 79.
Gee, after ignoring the Globe’s calls and e-mails for more than a month, issued a statement Wednesday asserting that his compensation and perks are warranted. He said that they are comparable with those given to leaders of similar institutions, but did not identify any.
Attorney General Martha Coakley, who oversees public charities, said Gee’s “compensation, employment contract, and other benefits . . . seem excessive.’’ After reviewing the reports at the Globe’s request, Coakley’s office sent a letter to the school Wednesday demanding information from board members.
The public documents, she said, “raise questions about the appropriate use of charitable funds, as well as the organizational governance process that led to their approval.’’
Elizabeth K. Keating, a nonprofit finance expert who reviewed the school’s documents, went further: “If I sat down to write a fictional case study that was designed to wave red flags about an organization that is misusing its tax exemption for personal gain, this would be it.’’
Gee’s extraordinary compensation was discovered as part of a Globe analysis, conducted by Northeastern University investigative reporting students, of data culled from publicly available tax returns filed by more than 22,000 nonprofits in Massachusetts.
While compensation agreements at nonprofits are supposed to be scrutinized by boards of directors, it is not clear how diligently the National Graduate School’s board carried out its duties. Several board members, including its chairman, Thomas Kneaval of Delaware, refused to discuss their role.
One former member, Scott Adams, said the board was mostly a “puppet group’’ of Gee’s friends. Sometimes, he said, the board was not consulted about important decisions. Often, he said, the board was informed after the fact. It was, he said, “a one-way conversation.’’
Adams, a board member from 2004 to 2007 and subsequently a full-time official at the school, said Kneaval’s attitude seemed to be that it was Gee’s school and the board was to do what Gee wanted. Adams said he does not remember that Gee’s 17-year contract even came to the board for approval in October 2006.
“If that contract came to the board, it would have been rubber-stamped,’’ Adams said.
Gee agreed during a brief telephone interview on April 11 to answer questions, which were sent to him the next day. On April 16, Gee promised to provide answers by Monday of this week, but did not, asking for another delay. Late Wednesday, Gee e-mailed some answers to the Globe, saying they should be attributed to Kneaval, the chairman.
The statement said Gee’s compensation is justified because he is the school’s founder and because he maintains a full teaching load.
The statement said the Oyster Pond compound was never intended to be his residence, even though the school’s own documents, some with Gee’s signature, consistently said it would be. It said his wife’s hiring had nothing to do with her being his spouse. The statement was silent about her Mercedes-Benz.
Gee, who is 67, founded the school in 1994. Its focus is graduate-level coursework in total quality management, the practice of training workers and managers, and even customers and suppliers, to more efficiently manage production and processes. These practices, which helped make Japan an economic superpower, are now widely used by American manufacturers and have become a staple in business school course catalogues.
Keating, who teaches at Boston College and at Boston University and has written extensively about executive compensation, said that Gee’s salary and perquisites are so excessive that the Internal Revenue Service might levy substantial excise tax assessments against the school and Gee. If the IRS finds the violations extreme, she added, the school could be stripped of its tax-exempt status.
Even without scrutiny from Coakley and the IRS, the school that Gee built faces other financial issues, according to its tax return and auditor’s report for the fiscal year that ended June 30, 2011, which the Globe obtained Tuesday.
There is a long lag time between the time nonprofits file their returns and when they are publicly available.
In the prior year, when Gee’s compensation was $732,891, the school’s revenues were $7.1 million. In the most recent year, revenues fell to $5.7 million, and Gee’s total compensation tumbled to $539,610. That is close to what Bentley University pays its president, Gloria Cordes Larson. In 2010, Bentley had $227 million in revenue and 4,200 students.
(Ironically, Larson’s husband, Allen R. Larson, sits on the board of Gee’s school.)
The 20 percent drop in revenue may have triggered problems with Bank of America, which holds the $2.64 million mortgage on the Island Pond property that was approved by MassDevelopment. The school’s auditor, G.T. Reilly & Co. of Milton, noted that the school failed to maintain the required ratio between its debt and net worth, but had negotiated new requirements with the bank.
The auditor, however, expressed concern that the school could still default on the debt. Wednesday, Gee did not respond to written questions asking whether the school is current on its debt payments.
What’s more, the Falmouth assessor refused to waive property taxes for the Oyster Pond compound and an adjacent waterfront property the school bought for $1.25 million in 2010, citing its intended use for lodging for Gee and others. The school, which now faces annual property taxes of $25,000, has appealed the decision to the state Appellate Tax Board.
Gee and his wife are in the process of getting a divorce, according to court records. She began a two-year stint as board chairman in July 2001, 11 months before she and Gee were married. In July 2003, she left the board and joined the staff at $100,000 a year. The same year, the school bought the couple their first two Mercedes-Benzes, which were replaced with new models in 2009.
But it is the two high-season timeshare units in St. John that remain perhaps the most curious expenditure for the school.
According to several annual reports by the school’s audit firm, the school loaned Gee $41,990 in 2006 to help him buy two wintertime weeks at the posh timeshare. Later the same year, the school took over the mortgage and assumed ownership of the timeshares. It later refunded Gee $20,462 for the timeshares, though the audit does not say why.
Since 2006, the school has been paying $36,648 a year on the timeshare mortgage, at an interest rate of 16.9 percent.
But that is not the school’s only contribution to Gee’s St. John vacations. In Gee’s 2006 compensation agreement, the school agreed to pay the round-trip travel for Gee and his wife and “related expenses.’’
And if Gee is unable to take the time, the school reimburses him $1,000 a week.
In the written response Wednesday, the school said the timeshares were part of a “strategic expansion’’ that was later “modified.’’
The agreement awarded Gee a base salary of $400,000 a year, an annual cost-of-living adjustment, annual incentive compensation of “not less than’’ 15 percent of his base pay, and a deferred compensation package that has yet to be determined.
Other provisions in Gee’s compensation include:
■ Four weeks’ vacation and 30 sick days a year, as well as pay for days he does not take.
■ An expense account that allows “expenses well above the norm,’’ according to the wording in the contract.
■ Pay for the cost of clothing and luggage “damaged or depleted’’ during his extensive travel
■ Reimbursement “on a per-event basis for renovations and refurbishment to his residence preparatory to host employer events.’’
The agreement provides for Gee to have one automobile, not two.
Eric Nelson, a former high-ranking school official, recalled in an interview that Gee bought the second set of Mercedes just after telling his staff in 2009 that the school had no money for salary increases.
After reviewing the school’s financial reports and the employment agreement, Keating, the nonprofit finance expert, expressed disbelief that the Massachusetts Development Finance Agency would fund the project in light of the spending practices that are evident in the school’s financial reports.
Aside from the compensation and perks, Keating pointed to a more obvious red flag, that the school now earmarks barely half of its expenses for delivering program services.
A recent analysis of 102 colleges and universities in Massachusetts, she said, showed that, on average, they devoted 80.5 percent of expenses to program services.
“The lending criteria and the lack of due diligence by MassDevelopment is pretty shocking,’’ Keating said.
MassDevelopment, a quasi-state agency that helps not-for-profits find affordable financing for capital projects, made all of its records about the loan available to the Globe.
Laura Canter, the agency’s executive vice president for finance programs, said the agency’s review is intended “to ensure that the borrower and the project are eligible for tax-exempt financing.’’
As for the school, Canter said, both faculty housing and housing for presidents are eligible for financing under the tax code.
“We do not make arbitrary judgments about who is or is not worthy,’’ Canter said. “If projects are eligible, they are eligible.’’
In addition to Jordan and Finn, this article was reported by Betty Wang, Sara Feijo, Samantha Laine, Matt Kauffman, and Melissa Tabeek for a seminar in investigative reporting at Northeastern University. Their work was overseen by journalism professor Walter V. Robinson, a former editor of the Globe Spotlight Team. He can be reached at email@example.com. Confidential messages can be left at 617-929-3334.