They gave at the office

Morning sun filters through drawn shades and mingles with the fluorescent glow from a dropped ceiling. Carlos Evans walks dark-suited through a loose pack of cameramen and reporters in a second-floor conference room at United Way of Central Carolinas in downtown Charlotte. As he steps behind a podium to speak, he nearly disappears from the view of some in the audience — little more than balding pate and bushy eyebrows evident above a cluster of microphones. He has a high-profile job ahead of him. More than 90 charities depend each year on the local United Way for money, and with a recession raging, they need it now more than ever. But donations last year reached only about $30 million, $15 million less than people pledged in 2007. Some blamed the crappy economy, but what really stank was the performance of the nonprofit’s board of directors, manned by a star-studded lineup from the Queen City’s corporate elite. It crippled the campaign before it began.

When word got out last summer that United Way had paid President Gloria Pace King $1.2 million in salary, expenses, perks and pension contributions the previous year, board members defended their action, claiming she was worth every penny. But when the uproar couldn’t be quelled, they booted her and reneged on a $2.1 million pension package. Then the board hired a temporary replacement at $20,000 a month — King’s contract obligated it to continue her salary of roughly $24,000 a month through 2010 — thereby paying two top executives in response to criticism over how much one was paid. The Charlotte Observer reported that King’s annual salary and bonus of $365,000 in 2007 made her the nation’s fourth-highest-paid United Way regional executive. She made more than the head of the Atlanta organization, which brought in twice the money.

“Our reaction was one of shock, just like everyone else,” says Mike Rash, chairman of the American Red Cross Greater Carolinas Chapter. “Our executive director certainly is nowhere close to the compensation of Gloria Pace King. As soon as it hit, we knew it was going to be bad for anyone that was a recipient of United Way.” United Way’s national organization also watched and worried. Its chief operating officer would later urge affiliates to read a 240-page report on the fiasco to avoid United Way of Central Carolina’s mistakes. Charlotte, the wannabe world-class city, clamors for national recognition. But not this kind.

Evans has stepped into a tempest. He became chairman in September, little more than a month after Wachovia Corp. named him head of wholesale banking and a week after the board told King to resign or be fired. Now facing the media, he has survived Wachovia’s death spiral and purchase by San Francisco-based Wells Fargo & Co. and is on his way to becoming its head of Eastern commercial banking. With the disastrous United Way campaign over, he’s determined to leave as much of the scandal behind as he can. Conceding that there’s room for improvement in the board’s practices, he vows to tighten its oversight. But his tone is more defensive than contrite.

To cover some of the shortfall, he says, the organization is pulling up to $5 million from its reserve. We’ve admitted our mistakes, he adds. Now give us credit for managing things well enough to have this rainy-day fund. And, by the way, we don’t want to talk about the past anymore. Hundreds of stories have been written. Our staff has spent huge amounts of time responding to requests for information. We formed a review panel, read its report and are following its recommendations. People have expressed their opinions; we have heard them. We have a plan. We’re moving forward. “Quite frankly, I can’t see any added value to the community from continuing to spend time dwelling in the past.”

Governing boards have a job to do, whether they’re made up of volunteers, as this one is, or handsomely paid corporate directors. When they don’t do it, consequences can be severe. How different might things be if Wachovia’s board had nixed the Golden West deal or Bank of America’s had spurned the Merrill Lynch merger? From all indications, Gloria Pace King was as strong-willed a chief executive as Ken Thompson or Ken Lewis, and she surely had her way with her board. In the end, she lost her job, much like Dick Grasso, who was forced to resign by the New York Stock Exchange board over the $187.5 million pay package it had given him.

Evans wants to put the controversy to rest and move on. The board’s personnel committee was supposed to recommend new guidelines for setting executive pay by the end of March, and the agency hopes to hire a new president before June. But his attitude seems to contradict a conclusion reached by the panel the board formed to study what went wrong. “The pain, damage and embarrassment of recent events should linger long in the minds of future Compensation Committees and Boards. They should be prepared to defend without apology the decisions that they make — those that will be made public and those intended to remain confidential.”

The directors who hired King in 1994 had high hopes for her. Born into a middle-class family in Cleveland, she graduated from nursing school there and earned an MBA from Baldwin-Wallace College. She later became CEO of the Visiting Nurse Association of Cleveland and was senior vice president of community building for the city’s United Way. She had impressed the directors in Charlotte with her “commanding presence,” according to the study panel, led by Bob Sink, a lawyer with Charlotte-based Robinson, Bradshaw & Hinson PA. By other accounts, she wasn’t one to brook criticism by underlings or agencies dependent on the charity’s funding.

United Way of Central Carolinas needed a strong leader. The agency traces its roots to Emergency Relief, formed in 1931 to help victims of the Great Depression. It went through a series of name changes: United Welfare Federation, Community War Chest, Community Chest. In 1956, United Community Services’ annual fundraising campaign passed the $1 million mark. In 1982, it became United Way of Mecklenburg and Union Counties Inc. Two years later, it raised $10 million. Merging wth Cabarrus County’s agency, it became United Way of Central Carolinas Inc. in 1987 and raised $14 million. But the two years before King came, it had failed to reach its goal. Her first campaign brought in $18.6 million.

Her starting pay was $120,000 a year, plus standard benefits such as retirement, relocation assistance and insurance as well as private-club memberships. Her salary increased $8,000 a year her first three years. She built a reputation as an effective leader with a national presence. Board composition has a lot to do with a United Way’s success in fundraising, and she considered it part of her job to recruit and train directors. Her board was so big, exceeding 70 directors in 2006, that its executive committee, comprising about 15 members, made most decisions. But it was brimming with executives who could lean on lots of employees for contributions. “The power, influence and diversity of the Board helped the UWCC become one of the most successful in the nation,” she says in the complaint she filed in December against the agency with the federal Equal Employment Opportunity Commission.

But picking her board also presented a problem. “Preferably, it should be the board who recruits board members,” says Jack Siegel, a Chicago-based consultant who specializes in nonprofits. “Otherwise, the executive is going to stack the board with friends, with people who are inclined to give them big pay increases.” In 1998, eager to keep King during a time of fierce competition for executive talent, the board started ratcheting up her raises and giving her bonuses. By the time she was fired, her annual salary had reached $290,000. The chapter’s performance provided some justification. Contributions had more than doubled since she arrived.

King, who didn’t respond to requests for an interview, has let her written statements and EEOC complaint do most of the talking. She came to Charlotte when she was 49 and, after a few years, began to think about the inexorable approach of her 65th birthday — Feb. 27, 2010. She became concerned about her retirement package in 1999, when Internal Revenue Service caps prevented her annual contributions from keeping pace with her rising annual pay. The shrinking proportion of her compensation that went toward retirement “meant that, as my annual compensation increased, the percentage of compensation I would receive in retirement benefits steadily decreased, meaning that retirement would severely reduce my ability to support myself,” she wrote in her complaint.

In 2000, she suggested to the executive committee that a supplement to her retirement plan would allay her concerns, but none was adopted. Two years later, in response to newspaper articles criticizing her pay, she helped then-Chairman Anthony Fox, a lawyer with Parker Poe Adams & Bernstein LLP, create a compensation committee and procedure for approving pay changes — which might have given the board a defensible way to set executive pay. The executive committee approved guidelines in March 2004, and King says they were put into effect. The Sink report says they weren’t — not fully. The executive committee directed a compensation committee to “‘work through the year to develop a clear and concise process for the annual compensation of the President.’ If such a process was ever developed, its implementation has been, at best, uneven.”

The ill-defined process and turnover on the board’s executive and compensation committees made setting King’s pay “more challenging.” At the time, the comp committee included Thompson, Wachovia’s CEO; Barbara Desoer, then head of global technology, service and fulfillment for Bank of America and now responsible for fixing its mortgage operations; Ned Curran, CEO of The Bissell Cos., a major Queen City developer; Gracie Coleman, former senior vice president of human resources at Springs Industries Inc., a Fort Mill, S.C.-based textile manufacturer; and Mauricio West, a Catholic monsignor.

In early 2004, King began pushing harder for a supplemental pension plan. Here, the Sink report suggests, is where her commanding presence became a big problem for the board. A staff member put together a review team of other staff members, an outside employee-benefits lawyer and Coleman. Worried about IRS rules on excessive compensation, the team discussed King giving up or adjusting one of her benefits to make way for a new pension plan. The benefits lawyer, Charlotte Offerdahl, warned in late 2005 that King’s pay already was at the high end for nonprofit organizations comparable to United Way. But King decided to push ahead anyway, the report says, a decision Offerdahl thought risky. After that, King excluded Offerdahl from discussions of the pension plan and the IRS rules. Neither King nor Coleman, who also received Offerdahl’s warning, mentioned it to the rest of the board.

King contends that Offerdahl didn’t participate in later meetings because her role was limited to offering an opinion about the IRS rules and how the board could satisfy them. Besides, she followed Offerdahl’s advice: She got the approval of a disinterested body — the compensation committee — that had compared pay packages at similar organizations and documented the basis for its approval. Consultant Lane West of Stanley, Hunt, Dupree & Rhine Inc. prepared an actuarial study. The agency’s total cost under that pension plan would have been $729,000. On Sept. 12, 2006, two days before West was to present it to the compensation and executive committees, King asked him for a different calculation that would give her annual income equal to 68% of her final average compensation — a percentage she said her counterparts were getting.

Accounts of what happened in the meetings vary. West told the Sink panel he changed the percentage to 60 as a compromise during a committee meeting. He says he explained the differences in the two models and told the committees that the 60% package would be reasonable and that it would cost United Way about $2.1 million. Committee members approved it, but they told the Sink panel they received no written reports containing pay-comparability data. None of the surveys summarized by West showed whether similar benefits were prevalent among United Way organizations. And committee members say they weren’t warned that the new pension plan could violate IRS rules.

Members of the executive committee, which gave final approval to the plan, couldn’t be expected to know all the ins and outs of tax law or setting executive compensation, but they weren’t rubes, either. The list of those who approved the package includes: Curran; Coleman; Desoer; Johnny Belk, chief operating officer of Belk Inc.; Graham Denton, since retired as president of Bank of America for North Carolina; Paul Franz, executive vice president of physician services for Carolinas HealthCare System; Michael Baker, a partner in the Grant Thornton accounting firm; and Bob McGee, then chief operating officer of Wachovia’s general bank and now a Wells Fargo executive. Ken Lewis and Ken Thompson were members of the executive committee, but they missed the meeting. For expert advice on how to set pay, the compensation committee relied not on its paid consultant but on Coleman. She, like most board members Business North Carolina tried to reach, did not return phone calls. Others declined to comment.

Meeting minutes included in the Sink report show the committees wanted to beef up what they regarded as inadequate retirement benefits and keep King as president. Members of the executive committee worried how the public would perceive the new plan, and some complained that previous boards should have taken care of the issue — that way, contributions would have started earlier, making annual payments smaller. They agreed that, before public disclosure, the full board would be told and a plan developed to explain the issue. It didn’t happen quite like that. After some revisions, King and Curran signed the final documents, but most board members didn’t learn of the plan until June 2008, right after United Way filed its federal tax return for fiscal 2006-07. The form showed King’s annual compensation of $365,000, including bonus, and a contribution to an employee benefit plan of $822,506. When a television reporter added those numbers, plus her $35,862 expense account, for a total package of $1.2 million, a firestorm erupted.

The board’s response didn’t help. Denton, who had become chairman, fell back on talking points prepared by King’s staff and insisted that she had earned her pay. But as the summer dragged on and public outrage grew, he and other board members changed their minds. At the end of July, Denton and Curran met with King and suggested that her continued leadership of United Way of Central Carolinas would require a dramatic gesture, such as giving up the pension benefits approved in 2006. According to King’s complaint, they advised her to consult with a lawyer and a financial adviser and be prepared to discuss the issue at the next board meeting. They later called, she says, and demanded that she give them an answer before the meeting.

King quickly let the leadership know whom it was dealing with. She hired Bill Diehl, the flamboyant, pit-bull lawyer Queen City business giants often turned to in a legal jam. Diehl had beat back a lawsuit accusing George Shinn, owner of Charlotte’s first pro basketball team, of sexual assault and handled the divorce of racetrack and car-dealership magnate Bruton Smith. Taking King’s case would do his rough-and-ready reputation no harm.

On Aug. 26, board leaders held a press conference and called on King to resign by Sept. 30 or be fired. It did a lousy job of explaining why. “The ongoing controversy impaired the ability of current leadership to perform effectively,” Denton said. “As a result, the United Way of Central Carolinas decided to end Ms. King’s employment and bring in new leadership.” It replaced her with Mac Everett, a former Wachovia executive and veteran civic leader. It agreed to pay him $20,000 a month through the fall fundraising drive, then extended his tenure through March. (United Way was still on the hook for $676,657 owed King in base salary through the end of her contract in 2010.) Everett proceeded to pour kerosene on the fire. In an interview with The Charlotte Observer, he said people might have reason to be angry but “what’s done is done.” To a question about potential donors wanting answers, he replied, “I’m not looking for answers. Here’s what I believe. I believe this is about sin. People say you’ve got to resist sin. Well, if you resist sin, it’s always in your mind. What you’ve got to do is replace it with something good. And that’s what I’m doing.”

Comments that followed on online message boards were scathing. “The complete arrogance and disdain in his answers to the questions are astonishing and disgusting,” stated one. “‘Get over it’? ‘Sin’?? This guy truly does not get it.” But Denton did. He resigned Sept. 3. “Many of you have lost trust and confidence in me as your Board Chair,” Denton wrote in a letter to board members. “Some have even expressed a sense of betrayal by your Board leadership.”

When King didn’t quit, the board fired her on schedule. By then, the organization was well into its annual campaign, and it was clear United Way was in for a bad year. In December, the Sink panel issued its report, which blasted the board and its committees for allowing King to exercise “significant control over the compensation process and the information provided to the decision makers.” The compensation and executive committees approved the plan “without sufficient information, independence or sensitivity, abetted by a flawed process in which authority and responsibility were ill-defined and broadly delegated.”

A few days later, King filed her EEOC complaint and laid her cards on the table, playing not just the race one. United Way had replaced her with a white man “apparently because it was too difficult to defend to the community the decision to pay a black woman so much money.” She also said it discriminated against her on the basis of age by waiting so long to create the pension plan and then terminating her less than two years before it vested.

With the benefit of hindsight, Curran says, he would have handled things differently. The comp committee would have hired independent counsel and gone through a more formal process with a more comprehensive market survey of executive pay. And the executive committee would have brought the matter before the full board. “I don’t think you would see a plan that would provide for a funding level up to $2.1 million.”

Beyond lax oversight and poor judgment, United Way of Central Carolinas suffered from many of the same problems that afflict other nonprofits. In addition to the board’s unwieldy size, it’s made up of volunteers, many of whom have demanding full-time jobs and other commitments. Turnover on nonprofit boards usually is higher than on corporate boards, so institutional memory is shorter. All of that can lead to excessive reliance on the top executive — even when it comes to setting executive pay.

The Sink report paints King as a manipulator, hell-bent on getting what she wanted and willing to withhold relevant information if necessary. King claims she’s a victim, first of the board’s procrastination in beefing up her benefits, then of its willingness to throw her under the bus rather than stand by the decision made by its executive committee. “They have humiliated a proven leader, a black woman, a tireless public servant, two years from retirement,” she says in a statement issued in January. “Most importantly, they have cost the beneficiaries of the United Way, in one year, $20 million [the campaign’s shortfall at the time], while paying a white country-clubber, wealthy ex-Wachovia banker $20,000 a month to serve as an inexperienced interim face for an agency that may never recover, as a result of its own stupidity and failing to properly handle a perceived crisis that didn’t have to be.”

As the crowd slips away, Evans lingers for a few minutes to answer questions. In reply to one, he says the board approved all the recommendations from the Sink report and is moving quickly to enact them. “I don’t think trust will be regained overnight. We’ll work on it.” The panel’s recommendations fall into three broad categories: focus, information and transparency. It urges the board to create organizational structures that promote focused decisions, insist on the information necessary to make good decisions and “provide access to information and actions that will inspire confidence and increase the likelihood of enlightened consensus.”

The board of directors is trying to slim down to about 30 members, though the Web site still listed 50 in early March. And it’s encouraging that the personnel committee is discussing processes and guidelines for setting executive compensation, but that’s pretty much where things stood in 2004. Only when the board practices what has been preached to it will it be able to claim real progress. And its interpretation of “transparency” may not adhere strictly to the dictionary definition. It apparently applies only to events that happen after 2008. The board has started posting minutes of its meetings on the Web. But when asked later for a chance to look at minutes from board and committee meetings from the past few years, Evans refuses. “The book is now closed. I’m not looking back any more.”