Raj Shah’s $1.7 million salary is a bit much.
Trustees of the Rockefeller Foundation are generous with other people’s money.
Over the years, the legendary investor Warren Buffett has lamented the failure of boards of directors to do their job.
“When seeking directors, CEOs don’t look for pit bulls,” Buffett once wrote. “It’s the cocker spaniel that gets taken home.”
Buffett was talking about corporate boards. The same is true of the boards of private foundations, perhaps even more so.
Have the trustees of a foundation ever fired a president or CEO because the grantmaker’s programs performed poorly? I doubt it.
Problems festered at the Silicon Valley Community Foundation, the Marguerite Casey Foundation and Zero Divide, all of which I covered, because of cozy relationships between trustees and foundation presidents. Oversight was lacking.
Which brings us to the Rockefeller Foundation and its president, Dr. Rajiv J. Shah. The Chronicle of Philanthropy has just published a pair of my stories, one about the foundation and its approach to grantmaking, the other about Shah and the board.
No one has alleged wrongdoing there. But the Rockefeller Foundation is an outlier in a revealing and significant way: It spends about 23% of its annual budget on administration and operating expenses, about twice as much as its peers, which spend about 10% on admin and operations. This is largely because Rockefeller takes a strategic, top-down approach to philanthropy, spending heavily on staff and consultants. In this regard, it differs from liberal foundations that have embraced, to varying degrees, the idea that smart philanthropy means giving up power as well as money by making long-term, no-strings-attached grants to nonprofits, who can then spend the money as they wish. The debate about which approach works better is best left for another day, but it’s worth noting that Open Philanthropy, Arnold Ventures and the Gates Foundation, have all effectively pursued the strategic, top-down approach pioneered and still exemplified by Rockefeller.
But while Rockefeller’s strategy may or may not be effective — that’s hard to know — my reporting found that its governance and culture are less than optimal. The problems start at the top, with Shah and the trustees.
Shah is being paid about $1.7 million this year, not including a bonus, which this year was set at 2.5% of his salary, another $40,000 or so. The figures are inexact because the foundation won’t disclose his pay. Eileen O’Connor, the foundation’s senior vice president for strategic communications and policy, told me, “As a policy, we do not get ahead of our 990s,” referring to the foundation’s tax return. Its IRS filing for 2023 won’t be released until November 2024. Tax-exempt foundations ought to be more transparent.
It’s likely that the foundation doesn’t want to talk about Shah’s pay because he’s making a lot more than his peers. In 2021, the most recent year for which data is available, Shah was paid $1,614,128, compared to Mark Suzman of the Gates Foundation ($1,361,392), Darren Walker of the Ford Foundation ($1,114,504), and Elizabeth Alexander of the Mellon Foundation ($1,059,864), the only other foundation chief executives whose compensation topped $1 million. Those foundations and at least dozen others are all bigger than Rockefeller, yet Shah’s pay tops the charts.
There’s no good reason why. Shah’s track record at Rockefeller includes a mix of successes and flops, rocky relationships with some staff and dismal reviews from the nonprofits who get grants from Rockefeller and responded, anonymously, to a survey administered by the Center for Effective Philanthropy. He’s generally viewed as a leader who’s better at coming up with ideas than at carrying them out.
When asked about Shah’s compensation, James Stavridis, a retired Navy admiral who chairs the Rockefeller board, provided The Chronicle with a statement lauding him without reference to any particular accomplishment. The foundation says it benchmarked Shah’s compensation against peers before awarding him a raise and bonus this year but against what peers? Fortune 500 CEOs?
It’s too easy for trustees of foundations, like the directors of publicly-traded companies, to be generous. They’re spending other people’s money.
Frugality is not a hallmark of Rockefeller. In June, the foundation flew trustees and their spouses to the Bellagio Center, the elegant resort that it owns on Lake Como in Italy, for a board retreat. The foundation says the Bellagio retreats, which are held every three years, provide “special opportunities for reflection and discussion about our work and broader issues related to the present state of the world” and meet all IRS rules.
No other big foundation pays for spousal travel. Could that money be better spent on the needy? The questions answers itself.
Real estate is another cost sink. The foundation spent about $80 million renovating its New York headquarters, opened a Washington office at Shah’s request when he was hired as president and in the midst of the pandemic signed a long-term lease for office space with the Aspen Institute in DC that it no longer needs. Not smart.
Then there’s the never-ending stream of self-promotional content generated by the foundation. The foundation’s marketing and communications team strives to insure that, at Rockefeller, no good deed goes unrecognized. They felt the need to tell us that the foundation opposes the racist pseudo-science of eugenics and supports Pride Month. They are currently going all out to promote Shah’s new book, Big Bets. The proceeds flow back to the foundation so selling the book arguably can be deemed legitimate Rockefeller business. But Shah’s book is surely the first by a foundation executive to be promoted on a billboard in Times Square.***
My reporting turned up one more example of money that surely could have been better spent: a $1.8 million payment to the New York law firm of Paul Weiss for what was euphemistically described as “human capital consulting service” on the foundation’s 2021 tax return. At first, O’Connor said little when asked about this but she eventually told me the truth after a source filled me in: The money paid for an investigation, led by formed US attorney general Loretta Lynch, into a complaint that Rockefeller’s then-board chair, Richard Parsons, had an improper relationship with a young woman who worked at the foundation. She claimed he had promised her a promotion, sources told me.
Parsons, the former chair of Time Warner and Citigroup, has longstanding ties to the Rockefeller family. His grandfather was a groundskeeper at the Rockefeller family estate in Westchester, he owned a home nearby and he briefly worked for former New York governor Nelson Rockefeller. When employees complained to the foundation trustees about Shah back in 2018, alleging that Shah spent lavishly and hired friends, Parsons as the board chair stood up for him, saying there was no basis to the claims.
To his credit, Shah did the right thing when the 2021 complaint was lodged against Parsons, hiring Paul Weiss to investigate. The investigation cleared the foundation of any wrongdoing, but Shah then kept quiet about the matter, protecting Parsons’ reputation. There’s no evidence that Parsons acted improperly, and he couldn’t be reached for comment. All we can say is that the unpleasantness cost Rockefeller $1.7 million that could have been better spent elsewhere, and no one has been held accountable.
Among the Rockefeller trustees, by the way, are such bold-faced names as former Unilever CEO Paul Polman; Sharon Percy Rockefeller, head of Washington’s WETA; Juan Manuel Santos, the former president of Colombia; NBA commissioner Adam Silver and Patty Stonesifer, the former CEO of the Gates Foundation and interim CEO of the Washington Post. They are uniformly well-to-do, and disinclined to rock the boat.
Shah, too, lives comfortably among the one percent. He and his wife own a spacious home valued at nearly $3 million in northwest Washington, DC, and a second home valued at $2.8 million on Gibson Island, a private island in the Chesapeake Bay. Nice.
What, if anything, can be done to improve the performance of endowed foundations like Rockefeller? Unlike companies, they’re not subject to market discipline. Unlike operating nonprofits, they don’t answer to donors. Industry associations that could serve as watchdogs are funded by foundations and act accordingly. Government regulation seems unlikely to work: The IRS can’t even enforce its minimal payout rules governing private foundations, which skirt them by transferring money to donor-advised funds.
All we can do is hope that trustees take their jobs more seriously – and urge critics inside and outside foundations to speak up when they don’t.
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***O’Connor said by e-mail: “NASDAQ did a billboard in Times Square on the book today, I think, but they paid for that.
Regarding the one that is RF branding: I was given a severely discounted rate for several months and did pay for this to promote our climate strategy from my budget. Part of our strategy is to garner more public support for an equitable climate transition.
I did not consult with Raj, as this is within my discretion as head of comms.”
