Wednesday, January 09, 2013

Freedom Forum paid new CEO Duff $1.6M in 2011, documents show, amid signs of more fiscal distress

The financially troubled non-profit foundation paid CEO James Duff $1.6 million during his first four months on the job in 2011, a year when the Newseum's operator ran a $47 million deficit, newly released public documents show.

Duff
The disclosure comes with fresh warnings of financial trouble. Today, Freedom Forum laid off 20% of approximately 150 employees at the Washington museum and other programs financed by the foundation. These are just the latest cuts since the museum opened in new quarters in 2008 that cost nearly double the original $250 million construction estimate.

Foundation officials have not responded to my questions about the layoffs, which I confirmed through sources.

Even by the standards of his well-compensated predecessor, Duff's pay is a jaw dropper. Since 2000, when spending went into overdrive, the foundation never paid retired CEO Charles Overby that much in a single year.

Most of Duff's pay, $1.4 million, came as a contribution to his employee benefit plan. Just $182,000 was direct compensation, according to the foundation's 2011 IRS tax return, which I received from the organization under federal open records laws. It is the most recent return on file.

The return reveals a sixth consecutive year of staggering deficit spending, as Freedom Forum continued pumping money into the museum about news history that moved to its new home on Pennsylvania Avenue more than four years ago. The foundation is housed there as well.

Endowment plunges again
Combined, the foundation's annual deficits have now reached $361 million for 2006-2011 alone, tax returns show. To cover that, administrators have dipped into an endowment of stocks, bonds and other savings that should be Freedom Forum’s chief income source. As a result, the endowment's value plunged to $368 million by the end of 2011 vs. $706 million in 2006, according to the returns. (Read the foundation's full 52-page tax return for 2011.)

Neuharth
Freedom Forum is the original Gannett Foundation, renamed and given a new mission in 1991 under the leadership of retired Gannett Chairman and CEO Al Neuharth. Gannett launched a new foundation hewing to the original mission: supporting communities where the company does business. But its spending has never approached what it once was.

Duff, who is 58 years old, took over in the fall of 2011 when Overby retired as Freedom Forum's first chief executive. In his final year as CEO, the foundation paid Overby $638,000. That included $383,000 in salary, $131,000 for his benefit plan, and $125,000 in expenses.

It's unclear why Duff received such a large payment for only four months' work. Freedom Forum declined to answer any questions I posed about the tax return, including about Duff's compensation. Indeed, for five years now, foundation officials have turned aside all my questions other than to acknowledge receiving them.

In addition to leading Freedom Forum, Duff is CEO of the Newseum and the foundation’s Diversity Institute.

Overby
Pay beats Gates Foundation
The most Overby was ever paid in a single year was in 2005, when he got $1.3 million. That included a one-time $785,000 distribution from a supplemental retirement plan that had been discontinued, according to that year’s IRS tax return.

Duff’s $1.6 million dwarfed that of the CEO at one of the world’s biggest philanthropies: the Bill & Melinda Gates Foundation, with about $35 billion in total assets. Named for Microsoft’s co-founder, the Seattle-based foundation focused on health care paid chief executive Jeffrey Raikes $975,000 plus $80,000 in expenses in 2011, according to its IRS tax return.

To be sure, Duff and Overby weren't the only administrators paid richly by the foundation, which has a long-standing reputation as a haven for retired Gannett executives.

Neuharth, who is 88 years old, got $525,000 as the foundation's founder, roughly the same as the year before. That included a $225,000 salary and $290,000 for expenses. As in the past, the tax return said he worked an average 40 hours a week. It did not spell out his duties.

Ken Paulson, who was briefly in line to succeed Overby until a management shake-up two years ago, was paid $368,000 in salary and $118,000 in benefits and expenses as CEO of the First Amendment Center in Nashville. That was 10% less than in 2010. Paulson was USA Today's top editor before joining the foundation in 2008.

John Seigenthaler, founder of the First Amendment Center, got $200,000, plus another $93,000 for expenses and benefits. He is USAT's first editorial director and a former editor of The Tennessean in Nashville.

And John Quinn got $150,000, plus $121,000 for expenses, as advisor to the foundation. He leads a scholarship program for minority students financed by the foundation. Quinn was editor of USAT and retired as head of Gannett's News Department.

A financial black hole
Neuharth retained control of the original Gannett Foundation even after retiring from the media giant. He pressured Gannett to buy back some $650 million in company stock that was the entirety of the foundation's endowment, then gave it a new name and mission to transform it into a global journalism philanthropy.

Exterior of Newseum
But in 2000, he and Overby shifted gears, focusing the entire foundation's philanthropy on one project: the Newseum. As much as a promoter of the First Amendment, the museum is meant to be a lasting physical legacy of Neuharth's life and career.

Opened years late and at a cost of $450 million, the museum now accounts for virtually all the foundation's annual gifts to non-profits.

In 2011, the foundation gave $30 million to the museum out of a total $32 million in contributions. It spent another $23 million on expenses that included among the largest categories: salaries, wages and benefits ($7.2 million), professional fees ($5.5 million) and depreciation ($4.4 million).

Overall, spending dropped 17% from $66 million in 2010. And that lowered the annual deficit to $46.8 million from $55 million the year before.

But the endowment once more heaved. By 2011's end, the value of the foundation's stocks, bonds and other non-real estate assets fell 13% to $368 million. That was in a year when the overall stock market was unchanged, based on the widely followed S&P 500 index.

The endowment's present value isn't public; the 2012 tax return won't be filed until well into next year. (This spreadsheet shows selected financial data for Freedom Forum for 2000, plus 2006-2011.)

The Newseum has struggled to find its place in a city bursting with tourist attractions. Many of Washington's museums, such as the better-known Smithsonian, offer free admission. In contrast, the Newseum's regular adult tickets are $21.95. Admissions generated just $7.1 million in 2011 vs. $6.5 million the year before. Meanwhile, expenses totaled $71 million in 2011.

Still, it's not unusual for cultural institutions to get only a fraction of their revenue from admissions, relying instead on donations and fees as special event venues. For example, the Newseum has sold out its $100 admission packages for the Jan. 21 presidential inauguration parade, which will be staged outside along Pennsylvania Avenue.

A shift in fundraising
In a sign Duff is concerned about finances, the foundation in July hired a new senior vice president of development: Courtney Surls. She had been a development vice president at the University of Southern California, where she worked on the school's $6 billion fundraising campaign.

Today, my tipster tells me Surls has been given an aggressive fundraising target that, even if successful, won’t erase the deficit spending without further cutbacks in overhead. That includes today’s reported 20% workforce reduction.

When it opened, the museum alone had 300 workers. After a second layoff, in 2009, the figure had fallen to about 180. It is a legally separate entity from Freedom Forum, but there is considerable overlap between the museum's trustees and those overseeing the foundation. One of the most high-profile joint trustees is PBS correspondent Judy Woodruff.

Jan Neuharth
Since Duff's arrival, the foundation has shown little signs of governance reform. A year ago, the board of trustees elected Neuharth's daughter, Jan Neuharth, as chairman to replace Overby -- continuing her family's control over what's supposed to be a guardian of money for the broader public good. The insular 12-person board still includes Overby, plus Duff and several other long-time retainers of the elder Neuharth.

Jan Neuharth was paid $51,000 in 2011. She wasn't elected chairman until December of that year, so it's unclear whether any of her compensation reflected her expanded responsibilities.

Duff, a former attorney, came to Freedom Forum with little experience in philanthropy or museum administration. He had previously directed administrative operations for the U.S. federal courts from July 2006 until September 2011, when he took over as the Freedom Forum's CEO.

At the time, the foundation said in a news release that it conducted a nationwide search before choosing him. His qualifications appear to have been his role as legal counsel and secretary to Freedom Forum and the Newseum, when he was a partner at the Washington firm of Baker, Donelson, Bearman, Caldwell & Berkowitz.

The foundation's 2011 tax return doesn't identify its law firm. However, former U.S. Sen. Howard Baker, who is senior counsel at Baker Donelson, is Freedom Forum's secretary, according to the return.

It's noteworthy that, while Freedom Forum's overall spending fell in 2011, legal costs soared to $871,000 from $284,000 in 2010. No explanation was provided, however, and the foundation declined my request for more details.

47 comments:

  1. Financial black hole is an apt description of this self-serving operation. I don't know why anyone in his or her right mind would give money to a "charity" that seems to exist primarily to funnel donations to the drones that run it. Don't they notice the smell?

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    1. Great reporting, Jim. I love the parts in which they decline comment. I guess they copy the G A N N E T T corporate PR people who don't like to comment, either.

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  2. Great post, Jim. I wonder if the MSM will pick up on the executive compensation angle when they write about the 30+ staff members (including a number of long-suffering middle managers, but no senior executives) laid off today. Keep up the good work.

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  3. So, that's is the number of jobs cut: more than 30?

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    1. So far.... Rumor is they're holding off on another round until after the inauguration party because they need the staff to run their event that day.

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  4. Good job, Jim.

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  5. It now sounds like the layoffs are across both Newseum and other Freedom Forum entities -- including, especially, the First Amendment Center in Nashville and the Diversity Institute.

    Even Neuharth's Cocoa Beach, Fla., compound apparently hasn't been spared -- although it looks like Al himself will remain an employee.

    But I don't hear about any layoffs among Freedom Forum's most senior brass.

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  6. Post-inauguration?

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    1. Dunno. I suppose there may be more to come.

      I've just now updated this post after confirming that the layoffs totaled 32 out of a little over 150 staff across Freedom Forum's various entities, including the museum.

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  7. Also worth noting: In 2011, Freedom Forum resumed making small grants to non-profits, many of which aren't related to the foundation's core mission of supporting free speech and free press. They included $2,000 to the non-profit Home At Last Adoption Agency founded in Cocoa Beach, Fla., by Al Neuharth's third wife.

    That contribution follows more than $70,000 in earlier grants to the adoption firm that I first wrote about four years ago.

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  8. One thing in that tax document it looks like they are clearing out debt. On page 31 it shows big gains on bond cancellation and termination right?

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    1. I asked Freedom Forum officials about changes in their debt between 2010-2011, but they would not answer any of my questions.

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  9. Jim, I'd be curious to look at their 990s ... do you know where they are on the web?

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    1. GuidStar offers limited free online access to their substantial database of 990s; I paid for a one-year membership to download more than the free ones.

      Also, please note that I have now provided links to both the 2011 990s for Freedom Forum and Newseum.

      As a legally separate entity, Newseum files its own tax returns.

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  10. This whole report is galling. But one thing leaped out at me as I read it. Why is Neuharth's expense account MORE than his salary? WTF does he even need an expense account for?!

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  11. The spike in 2011 legal fees is interesting, since $871k is as high as its been. (According to the abbreviated chart in which years 01-05 are not listed).

    It's higher than when the group was in the midst of dealing with new debt issuances and delayed construction of the over-budget Newseum, and 50% more than the 2010 and 2009 legal fees combined.

    Best guess is the Freedom Forum was involved in refinancing, or a more complicated restructuring, of its debt.

    It seems possible that this would have been triggered by actual or feared technical defaults on that debt. A technical default occurs, for instance, when a borrower doesn't generate the revenue it promised a lender that it would maintain through the life of a loan. Such a promise gives confidence to a lender that debt will be repaid. (A technical default doesn't imply that a borrower didn't pay its debts on time, but it will still give a borrower control certain rights, often including control of the assets that secure the debt. In this case, that would be the Newseum.)

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    1. I looked at their legal fees for every year from 2000-2011, and 2011's were the highest of all.

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  12. The rumors are growing here at the Newseum that there will be another round of layoffs immediately after the Inauguration festivities. You even have Directors and VPs suggesting to some of their workers who survived this weeks layoffs to brush up on their resumes and start job searching.

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    1. Hell yes they should

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    2. My guess is that they are going to slash a lot of their full time staff and start running the place on part-time people that they don't have to pay benefits to. Sign of the times.

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  13. It's entirely likely that Duff has concluded Freedom Forum must do what many foundations do: spend no more per year than an amount equal to 5% of assets. That is the minimum amount, more or less, mandated by federal law. It's also a prudent amount because it allows some earnings to be retained to cover future budget increases.

    The problem with that: 5% of Freedom Forum's 2011 endowment of $370 million would be only $19 million. The foundation's total spending that year was $55 million, including the $30 million payment to the Newseum.

    So, even if Freedom Forum ceased all activities other than providing direct support to Newseum, its museum support would still have come up $11 million short.

    Meanwhile, the Newseum generated only about $31 million in revenue on its own, mostly from catering and rent charged to outside groups. It can't survive without every penny it gets from the foundation, unless it cuts spending deeply.

    It's conceivable that the endowment's professional managers could gin up above-average returns in the stock and bond markets, but that's no guaranteed -- and could backfire.

    Asset sales? The adjoining residential tower originally was conceived as condos that could be sold. I don't know why it was shifted to a rental model.

    This leaves the fundraising campaign, whose goal and constituency I don't know. But who will give to the museum? Major donors when it opened included newspaper foundations such as the New York Times Co.'s that have curtailed activities and families such as the Pulliams of Phoenix.

    Other funders are now more focused on the future of news delivery -- social media and the like -- rather than its history. How much of the Newseum's exhibits are even focused on digital? One of its best-known exhibits is the display of newspapers front pages in print.

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    1. I have been in the fundraising business myself for more than 10 years, and I don't think there is a grantmaking organization in the world that could justify funding a foundation (and I use that word loosely in this case) whose executives and board members are this highly compensated. It's almost laughable to think of them going out and asking for charitable donations.

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    2. The current founding partners and future potential donors should be looking into these finances as well. Yeesh.

      Keep pulling this thread - it's getting greasier by the minute.

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    3. The org requesting funds must provide their latest 990 and audited financials, so that will take care of the funder getting a good picture of what's going on here. And the founding partners were and continue to be the uh...culprits, shall I say?

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    4. No one's going to donate money so Neuharth can continue drawing $500K yearly.

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  14. So sad for those employees. Reminds me of the continuing saga of the Washington Times, at least for those folks trying to be journalists and draw a paycheck.

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  15. How do they get away with the complete fiction that Al Neuharth works 40 hours a week? Shouldn't there be some legal consequences for funneling tax exempt donations to individuals as compensation for nothing? Would the IRS investigate this? Or is their word that old Al puts in a full week really good enough? Great reporting, Jim.

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  16. It's a shame that MSM are reporting their disingenuous statement that it was only 16 laid off. They're parsing big-time. Technically only 16 were on the Newseum books, but there is no distinction made at the office. The others are on FF payroll, but that's just a way to hide the Newseum's real operating costs. But the best part was that they said these were budget cuts, but that when they finished the reorg, they would have more employees than they do now. Huh? Bet that makes the folks who were laid off feel real good. Horrible PR work on top of astoundingly bad management.

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  17. Their's a Newseum staff meeting today. That ought to be interesting. At least Charles Overby had the class to give staff advanced warning during the layoffs under his watch. Not this new guy.

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  18. There is no difference between the pathetic leadership of the Newseum/Freedom Forum than the pathetic leadership of AIG and other companies that led us into the "great recession" . CEO greed, weak oversight, a board that must be made up of deaf, dumb, and blind sheep - I would not give the place a dime, either in the form of a contribution or by even visiting it. And the victims? Not Mr. Duff or his merry band of greedy followers- no, it's the employees who have given so much, been asked to do so much in the face of the staff being gutted over and over again. The whole organization is a joke. Oh, if only greed and stupidity were criminal....

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  19. I agree with "Anonymous" about the disingenuous statement from the Newseum. Except for the folks in Nashville and South Dakota, all of the laid-off folks were part of the Newseum operation, whether they were on the Newseum books or not. The folks in "Freedom Forum" finance, human resources and other non-Newseum departments served the Newseum as well as the foundation. I also don't buy their record attendance every year line. I heard they were down significantly this year. This cuteness with their statements will catch up with them, especially with folks like Jim keeping the spotlight on their funny numbers.

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  20. Did you say duff is an ex-gannettoid? I can't find a gci connection to him.

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  21. It's my understanding that Duff never had any experience or connection to Gannett. He comes from a totally legal background, which explains quite when you think about it.

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  22. Its sad that even with all the higher up positions bumped up their pay and titles, the ones who suffer are the ones who have to stand on there feet all day being treated like crap while putting in the real work, wonder what else they have in store. How are they gonna support this Legally! I wish there was as way to expose all the unfair/underhand things that go on cause maybe that would help! Jim Duff should have never taken over! Charles shouldve stayed at least he was opened and honest.

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    1. I've always said both Gannett and Freedom Forum/Newseum is a 60 minutes story waiting to happen. I've actually sent an email to 60 Minutes with a link to this blog as a possible story idea but maybe they realize, like most U.S. companies/corporations nowadays, its just business as usual.

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  23. Today they told their part time vistor service staff they will no longer need them as of February 17. They gave them a five minute speech on how a staff of 80 will be reduced to 16.

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    1. How, exactly, do 16 people do the work of 80?

      Would that be 16 full-timers, or are they just going to reduce services that much?

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  24. 16 full time vs reps with benefits.

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    1. VS Reps = Visitor Service Representatives.

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    2. It's truly shameful. To "remove" 80 Visitor Service Representatives as if it's a software virus or so. People with true lives...who are extremely gifted and have tremendous promise in this back stabbing world. Jim Duff should have met with many of the Visitor Services Representatives to deliver such a heart wrenching message. What a wonderful team of professionals,retirees, grandmothers,college studendts and even learners in society! They'll be missed!!

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  25. What in the hell is going on with the Newseum? Are we headed for a total shut down?

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    1. So, they let go 32 Freedom Forum/Newseum full-time employees at the beginning of the month, then told another 80 part-time Newseum employees that they would be let go after the Inauguration. That's a total of 112 full- and part-time employees who will be replaced by 16 full-time visitor service representations. No matter how much the Newseum tries to paint it - "when the restructuring is completed, we'll have the same number of full-time employees" - this is NOT the sign of a healthy organization.

      Massive layoffs, declining attendance, weak fundraising...I would expect the next step to be closing, perhaps Mondays and Tuesdays.

      Either way, it's likely to get worse before it gets better. Pride goeth....

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    2. Yes to all of the above! As a "source close to those 80 part timers" told me: The current daily staffing at the Newseum is around 25 part timers everyday. Thats for an 8:15am to 5:15pm shift. 15 full-time positions means.....hey its anyones guess!!!! More unpaid volunteers. Maybe shorter operating hours. Supervisors spending more time on the floor than doing administrative work like scheduling. Probably more "self service" changes for the visitors. Like automating All their video showings. Putting all videos on a loop with minimal human inter action. Also Newseum might re visit their FREE addmission to local school groups. Thats a great feel good program for the community. But it ain't putting cash in the coffers.

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  26. One thing in that tax document it looks like they are clearing out debt. On page 31 it shows big gains on bond cancellation and termination right?

    Presswire

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  27. Senior VP of Finance hosts fashion show while CEO travels. Good use of company time.

    CAbi Show Hosted by Nicole Mandeville

    When:
    Friday, March 08, 2013 11:30 AM

    Where:
    THE NEWSEUM---555 Pennsylvania Ave, Washington, District of Columbia, 20001

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