DATELINE: December 28, 2007, Chicago
Today, the Washington Post's James V. Grimaldi and Jacqueline Trescott give the Smithsonian an after-Christmas lump of coal in an article entitled Indian Museum Director Spent Lavishly on Travel. The two focus on the travel expenses incurred by Richard West, Jr., the founding director of the Smithsonian's National Museum of the American Indian. According to the article, West spent more than...
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$250,000 in Smithsonian funds on first-class travel and what Grimaldi and Trescott characterize as "plush lodgings in hotels around the world, including a dozen trips to Paris." We certainly don't envy West, who was away from Washington for 576 days over a four-year period. We love to travel, but that is an awful lot of travel.
As with compensation levels, we largely refuse to be critical of West or the Smithsonian simply because West traveled to exotic places. Many of the trips appear to have been directly related to his job. Let's face it, being the executive director of a major museum is not your typical job and brings with it some interesting experiences that we all would like to have if we could. More important, based on the reporting, West does not appear to have hidden his travel. Moreover, his expenditures appear to have been authorized and documented, as evidenced by the receipts included in a pdf download accompanying the article.
The article goes into great detail, and often there is what strikes us as a reasonable explanation for what at first appear to be extravagant or unnecessary expenditures. For example, in one instance, West procured a $500 per night hotel room in Venice. That seems like a lot of money, but anyone who has been to Venice knows it is hard to find a hotel room for much under $250 or $300 a night. West pointed out that he used the larger-than-normal room to host a reception, eliminating the need to rent separate space. We are willing to give West the benefit of the doubt on that one.
We are much more skeptical when it comes to the first-class airfare. Someone traveling as much as West surely had "Gold" or even "Platinum" status in several airline frequent traveler programs. This would have given him preferential access to bulkhead or emergency-row seating in coach, meaning that he had plenty of leg room. Yes, the meals are better in business and first class, but not thousands of dollars better. We also believe the $30,585 expenditure on a video biography for his retirement party to be inappropriate. Had we been West, we would have preferred to have received just half that amount as a retirement bonus.
Undoubtedly the Smithsonian will hear from its government funders, particularly Senator Feinstein--not to mention Senator Grassley. No matter how reasonable the explanation for the travel and expenditures, the disclosure is simply too tempting for populist politicians interested in headlines. The Post has strung the Smithsonian up like a piñata.
Don't get us wrong. The story is well-written and deserves the prominent placement it receives on the Web site. The Smithsonian is a quasi-public institution that has been subject to investigation and review over the last year or so. It is certainly fair game. As we noted, there are some problematic expenditures. We are also troubled by West's outside activities on other boards. He defends those activities, arguing the boards were nonprofit ones. The ousted Lawrence Small devoted some of his time to service on corporate boards. We don't draw a distinction. Doing good doesn't justify not doing your job. Unfortunately, the article didn't contain enough information to permit a judgment on how much of this outside service might have directly related to West's position with the Smithsonian or how much of this service took place at night or on weekends. We are not the least bit troubled by West's outside activities as the chairman of board of the American Association of Museums or as the vice-president of the International Council of Museums.
What makes the Post article important is not the specific revelations about alleged excesses. With 2008 fast approaching, the article holds much larger lessons for tax-exempt organizations. Beginning next Tuesday, first-class airfare and other executive perks will be out in the open, for all to see. The just-released Form 990 requires extensive disclosures of these sorts of expenditures. Of course, the 2008 tax returns won't be filed for some time to come, but like clockwork, the facts will come out. Reporters like Grimaldi and Trescott won't have to spend days digging through files or waiting for tips from disgruntled employees. Nope, our friends in the media will need only turn to Schedule J of the new Form 990. The IRS has turned the media's work into child's play.
Right on top, in Question 1, the IRS asks whether officers, directors, key employees and highest paid employees have flown by charter or first-class, taken companions on trips, control discretionary spending accounts, receive housing allowances or residences for personal use, are reimbursed for health or social club dues, or take advantage of personal services provided by a maid, chauffeur, or chef. Those are the extras. The media need only turn the page, looking to Part II for a complete breakdown of compensation—base compensation, bonus and incentive compensation, other compensation, deferred compensation, and nontaxable benefits. Flip the page once again, and information is provided about severance or change of control payments, non-taxable expense reimbursements, supplemental nonqualified retirement plans, and equity-based compensation. Who could ask for more?
If organizations are smart, they will provide the media with even more information. The schedule allows organizations to provide supplemental information. There will undoubtedly be legitimate reasons for the provision of housing (university president's campus home) and why individuals are given discretionary spending accounts. To avoid bad press, charities will want to explain in detail why these practices are warranted. In fact, we suspect some charities will use the space to explain how what at first may seem to be excessive compensation was arrived at and why it is justifiable. In the past, organizations routinely showed "40" as the number of hours worked by listed individuals. We suspect that organizations will begin to capture the actual time devoted to the job in order to reflect the amount of time actually worked—presumably much higher. We would not be surprised to see memos from the compensation committee attached to the Form 990, offering a complete rationale for the executive director's and other key officials' compensation.
Some will wince at that suggestion, arguing it is nobody's business. Technically, they are right, but so much information is required to be disclosed that unless organizations take a pre-emptive posture, they will be skewered in the press. In the end, reporters like Grimaldi and Trescott are going to find investigative journalism to be far less challenging. The IRS has done much of their work for them. The good news: Grimaldi and Trescott, no longer burdened with digging through files or talking with reluctant sources, will now have time to follow in West's footsteps, by visiting Bali or Paris, or even both.
NOTE TO MRS. IRS. As we said in an earlier post, you had better define "first-class" in the instructions. If you don't, business class travel will go unreported. Let's face it, there ain't that much difference between business and first-class, except the cost.
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