AG investigating Kauffman Foundation

KANSAS CITY, Mo. -- Attorney General Jay Nixon said Tuesday that his office would review the Ewing Marion Kauffman Foundation, including the board's management of it, possible conflicts of interest, and whether the foundation's spending remains true to its mission.

"We want to make sure they're living up to their purposes," said Nixon, whose authority for the inquiry arises from being a "steward of nonprofit assets" for the state.

The foundation with assets of about $1.7 billion was established by the late Ewing Kauffman, founder of a pharmaceutical company and the Kansas City Royals who built a reputation as a leading local philanthropist.

The foundation has been one of the area's most influential organizations, with its tens of millions of dollars in annual grants often setting or spurring the civic agenda on issues ranging from urban school reform to downtown redevelopment.

But several civic and nonprofit leaders in Kansas City have raised concerns that the foundation is shrinking its presence in Kansas City, particularly in the urban core. Critics argue that a "new guard" now in control of the foundation wants its money to have a more measurable effect on people's lives, so they are narrowing its youth and entrepreneurship focus and expanding its reach outside Kansas City.

"There's a legitimate concern with the public that this jewel of the nonprofit community is looking to expand its gift-giving purview outside the Kansas City area," Nixon said.

In a brief statement released late Tuesday, Kauffman board chairman Tony Mayer said only that after contacting Nixon's office, the foundation "learned that he will be asking for information from us."

The statement did not address any of the issues Nixon raised as areas of concern.

Nixon did not set a timetable for the investigation, but said "it will not take months."

"It's not our job to micromanage foundation dollars," Nixon said. But, he added, "We're in the process of looking at them more closely. Certainly we're concerned."

Options for the attorney general's office could range from civil lawsuits to consent judgments to remove board members. The process of determining whether any such step is appropriate will begin, Nixon said, by reviewing Kauffman documents, such as its mission statement and expenditures, and by interviewing board members.

Carl Schramm, who became president of the foundation 16 months ago, has cut the staff in half through a buyout program and is taking programs in new directions.

Schramm has not commented about the recent controversy over his leadership, but in earlier interviews he talked about expanding the foundation's reach, noting that Kauffman wanted a national foundation.

Five members have left the board this year, including the three who resigned last week. The Kansas City Star reported that the three opposed retaining Schramm in a 4-3 straw vote. One who supported Schramm was Brian O'Connell, whose term on the board ended last week. The Star reported that O'Connell had agreed to serve as a consultant to Schramm and Mayer, the new board chairman, after leaving the board.

O'Connell has said his vote had nothing to do with the consulting arrangement.

Michie Slaughter, one of the three directors who resigned, said Tuesday that "If there's truth to the allegations of a pre-existing agreement on a consulting arrangement, it gives the appearance of a conflict of interest and should be investigated. It's very troubling."

Schramm has said that during his tenure the foundation has directed a high proportion of its grants to the Kansas City area. During its first full fiscal year under Schramm, grants to the Kansas City area totaled $32.9 million, compared to $24.9 million in fiscal 2002 under the leadership of former president Lou Smith.

Smith was one of three former board members who wrote a letter to the board last month, outlining several complaints about Schramm.

Many large grants approved in both reporting years had multiyear commitments. If only money spent in each particular year is evaluated, the 2003 spending for Kansas City is only somewhat higher than in 2002.