A Divided Vision

Critics dispute changes at the Kauffman Foundation

Four years ago, when leaders of the Ivanhoe Neighborhood Council here needed money to carry out a master

plan to renovate blighted housing, reduce street trash and unemployment, and provide recreational activities to idle youngsters, they found a predictable source of support: the Ewing Marion Kauffman Foundation.

One of the 25 largest philanthropies in the United States, Kauffman has long made grants to nonprofit groups that worked to improve downtrodden neighborhoods and the lives of children in the foundation’s hometown, even as it has promoted small-business development and education programs across the country.

The $460,000 in grants that Kauffman made during the past three years to the Ivanhoe Neighborhood Council — which accounted for about two-thirds of the group’s master-plan budget each year — “gave us the tools to take back the neighborhood,” says Margaret J. May, the organization’s executive director.

But a recent cutback in the number of Kauffman grants to local groups has led many organizations like Ms. May’s to scale back services or close their doors. Even though the foundation will dole out more money in grants to programs based here this year than it has in years past, many natives of Kansas City, where fountains and ornate plazas on the city’s west provide contrast to the hundreds of blocks of crushing poverty on the east side, question whether one of Kansas City’s most venerable institutions has begun to abandon the neediest of the 500,000 people who live here.

Focus on Executive

The brunt of the criticism has been aimed at the foundation’s chief executive, Carl J. Schramm, 57, who 17 months ago left a health-consulting firm in Maryland to take the top job at Kauffman. An entrepreneur and scholar who has started or run a handful of successful health-care companies, Mr. Schramm has moved aggressively to reshape Kauffman’s programs and reduce the size of its staff from 187 to 111.

In August, two former Kauffman presidents and a longtime former board member made their complaints about his leadership public. Three board members resigned in September after voting against a measure to retain Mr. Schramm as president. (The measure was approved, 4 votes to 3.)

The controversy caught the attention of state officials. Jay Nixon, Missouri’s attorney general, announced plans in September to review the foundation’s recent grants.

At the heart of the dispute over the foundation’s direction — and the state inquiry — is what Mr. Kauffman wanted to accomplish with his fund, whose assets are worth $1.6-billion. Many of Kansas City’s residents, including the two former presidents of the Kauffman Foundation, say he wanted the money to benefit the impoverished people in the city where he made his fortune building a pharmaceutical company. Others, including Mr. Schramm, believe that Mr. Kauffman wanted his fund to incubate successful programs in entrepreneurship and youth development in Kansas City, in hopes that they would develop into model programs that could have a nationwide influence.

Both sides in the dispute have plenty of ammunition to back up their arguments. Mr. Kauffman left numerous tapes and documents to guide those in charge of his philanthropy. But making concrete interpretations isn’t always easy. “It’s kind of like the Supreme Court deciding what the Constitution is,” says Rob Chernow, a former president of health-care and information-systems companies who was named the foundation’s senior vice president for entrepreneurship in April.

Foundation Costs an Issue

Adding to the tensions over Kauffman’s direction are the tough economy, which has put increased attention on any shift in direction at a large foundation, and the growing scrutiny that Congress is placing on how much grant makers nationwide spend on overhead. The administrative expenses at Kauffman, which runs many of its own programs as well as making grants, were two-and-a-half times as much as the average costs of the two dozen other largest foundations in the country in 2001, according to a study The Chronicle conducted after several members of the U.S. House of Representatives proposed a measure aimed at reducing foundations’ overhead spending.

The controversies over the direction of Kauffman largely center on its relationship with Kansas City. Among the concerns expressed by its critics:

• A growing divide between Kansas City and the foundation. Last year, in a move to cut its administrative costs, Kauffman offered to pay any of its employees an average of 13 months’ salary if they would resign. More than 40 percent of the staff accepted the offers. The result, some organizations say, has been a drain of many program officers and others who communicated regularly with grantees.

  What’s more, Kauffman no longer brings disparate Kansas City groups together to discuss the area’s needs, as it had done since its inception, some organization leaders complain.

  “Historically, in an economic climate like this one, Kauffman would get the community together,” says Gayle A. Hobbs, president of the Local Investment Commission, a Kauffman grantee whose mission is to provide a link between the state government and neighborhood organizations. “The old Kauffman would have worked toward finding solutions to economic problems. The new Kauffman does nothing. There’s been a total disconnect.”

  The buyout deals cost the foundation $9-million up front, but should provide the foundation with $5-million in annual savings beginning next year, all of which will go to programs in Kansas City, says Mr. Schramm. He adds that the “disconnect” Ms. Hobbs refers to “is a genuine worry. We need to link people up better. I’d have to be nuts to say, ‘We’ve handled all of that perfectly,’” says Mr. Schramm.

• Mr. Schramm’s slowness in moving to Kansas City. Although the board told him he had to move here when he was hired last year, board members engendered more local criticism when they backed down from that request in September. Mr. Schramm lives with his wife and two children in a house north of Baltimore, although he spends most of the workweek in Kansas City.

  “People here believe that Mr. Schramm sees Kansas City as a good place to make a living, but not a good place to live,” says Emanuel Cleaver II, the mayor of Kansas City from 1991 to 1999. “The board spat in the faces of the people here when they told him he didn’t have to move here.”

  Mr. Schramm, who says he may buy property in the area, had informed the board last year that he didn’t want to disrupt his son’s senior year of high school by moving his family west. He was initially hired to serve only one five-year term at a starting annual salary (including a yearly bonus) of about $425,000, says Brian O’Connell, who left Kauffman’s board in September after serving the allowed maximum of three terms. “I think Carl may not want to move here until all this mess is cleaned up,” Mr. O’Connell adds.

• A lack of Kansas City residents on the Kauffman board. One year ago, 4 of the board’s 11 members had ties to the foundation’s hometown. Because of term limits and resignations, there are now only 5 board members, 4 of whom live on the East Coast. John A. Mayer Jr., who was installed as the foundation’s chairman in early September, says he is looking to appoint several Kansas City natives and expand the board from its current 5 members back to as many as 11. Kauffman trustees typically earn annual fees that range from $20,000 to $64,000 per year.

In addition, some former Kauffman officials and board members have questioned Mr. Schramm’s support for a $26-million grant from the Kauffman Fund, a donor-advised trust managed by the Greater Kansas City Community Foundation, to a downtown performing-arts center.

“Most of us in Kansas City strongly support the center, but there’s no way that the arts were included in Mr. K.’s intent,” says Bob Rogers, president of Kauffman from 1990 to 1998.

Mr. Schramm says that the money from the community-foundation fund doesn’t have to conform to the same conditions as grants from the Kauffman Foundation. The trust was created with money from the Kauffman family’s sale of the Kansas City Royals baseball team.

Kauffman officials say the negative attention that the foundation and Mr. Schramm have received is unwarranted. Mr. Schramm is being criticized for doing what he was hired to do: change the costly way the foundation had been run, and ensure that it makes more of an impact in its two core areas, youth development and entrepreneurship.

But the board that had made it clear to Mr. Schramm during the interview process that change was needed may have backed off after it hired him, says Mr. O’Connell. “It’s not uncommon to see board members clamoring for big changes, but when they’re implemented, the board gets upset,” adds Mr. O’Connell, who has served on numerous boards and was the founding president of Independent Sector, in Washington, a national umbrella group of organizations, foundations, businesses, and individuals. “The pace and degree of change threw the board off balance.”

Even though the foundation has cut its number of local grantees by about 20 percent in the past two years, it now gives out more than two-thirds of its total grant money, about $33-million this year, to programs in Kansas City — an unprecedented amount in the foundation’s 37-year history.

Cutting small grants to some local groups that provided after-school programs and other services for youths was necessary, Mr. Mayer says, “because we were spread too thinly across many types of programs to have any real impact.” The cuts make economic sense as well, says Mr. Schramm. For every grant of around $25,000 or less, the foundation spends $5,000 on administration costs. Larger grants carry a smaller percentage of overhead, he adds.

The foundation runs more like a business now, Mr. Schramm says. In addition to making its operations more cost effective, Mr. Schramm says he has brought staff members from the foundation’s entrepreneurship programs and youth-development efforts together so that they freely collaborate on projects. “These people wouldn’t even eat in the cafeteria together before,” he says.

Under his leadership, the foundation has placed higher emphasis on programs that promote the development of people who start businesses than ever before, he says. The foundation will make up to $35-million in grants to universities that demonstrate ways to teach entrepreneurship throughout their curricula, and not merely through their business schools. “We’re trying to effect a transformation of American culture,” he says.

Some say Mr. Schramm’s heightened emphasis on entrepreneurship could turn the Kauffman Foundation from an underachieving philanthropy into a groundbreaking one. “The great challenge and opportunity for the Kauffman Foundation is to find ways to spread the blessings of entrepreneurship to low-income neighborhoods that are still missing out on the American Dream,” says Adam Meyerson, president of the Philanthropy Roundtable, in Washington, a group of individual donors, foundations, and corporations that promotes efforts to support private enterprise. “If Kauffman succeeds in this venture, it will be one of the giants in American philanthropy.”

Rebuilding Relationships

Although Mr. Schramm’s aggressive approach and purported business acumen may help him reshape the foundation into a leaner operation, his critics say his style may hamper him in his efforts to rekindle relations with people in Kansas City, a goal he has recently emphasized.

Many nonprofit leaders say he is brusque or indifferent. During a March breakfast meeting held at the Midwest Center for Nonprofit Leadership, an education and research program at the University of Missouri at Kansas City, Mr. Schramm talked with leaders of numerous Kansas City nonprofit organizations. He joked about the poor handwriting on some of the questions submitted to him by organization leaders and said that some of the questions lacked depth, says David O. Renz, director of the center. “He may have been joking, but he came across as dismissive of nonprofit leaders’ work,” he says. “He’s perceived as being arrogant. The worry that nonprofit leaders have that he’ll move Kauffman out of town comes from his attitudes toward them.”

In addition, Mr. Renz says, “There’s been a lot of confusion because the foundation has failed to make clear how exactly it will handle grants. The leadership has been fairly aloof, so people have a lot of room to make interpretations about what is going on at Kauffman.” Mr. Renz adds that clear messages are more essential now than ever, because Kansas City organizations are suffering due to cutbacks from other money sources. “People are pretty touchy right now,” he says.

Observers say that Mr. Schramm can win back the city if he takes the right steps. Mr. Renz says that Kauffman must re-emphasize its past penchant for collaborating with neighborhood and service organizations. In many instances, Kauffman would provide research, staff help, or meeting places for such groups, says Mr. Renz. The groups whose grants were slashed included around 50 so-called Kauffman partners in Kansas City who often developed programs in tandem with the foundation, he adds. Mr. Cleaver says that Mr. Schramm should “find the right audience for a mea culpa.” He adds: “He needs to tell people he came in not understanding the community, but that that’s changed. Then, he needs to back it up with action.”

Paul L. Carttar, hired by Mr. Schramm this spring to be the foundation’s chief operating officer, says that re-establishing key relationships in Kansas City is paramount.

“I’m not talking about performing damage control or spinning,” says Mr. Carttar, previously a principal of the Bridgespan Group, a nonprofit consulting firm in Boston and San Francisco. “We need to show people that there’s no reason for this local/national flap. We use Kansas City as a pilot for most of the programs we do nationally.”

In the meantime, many groups, such as Ms. May’s neighborhood-improvement group, whose grant will be phased out entirely by the end of this year, have been left in the lurch.

Ivanhoe has put into effect only 25 percent of its master plan. Even worse, says Ms. May, is the prospect that the group, resurrected in 1997 after many moribund years, could once again close its doors if it isn’t able to replace the Kauffman money. “And we’re really scuffling for money now,” she says.

Although Mr. Schramm concedes that Kauffman should have done more in the past to prepare small groups for the fund-raising challenges they will face while attempting to replace dwindling Kauffman dollars, Ms. May isn’t entirely hopeful that the foundation will once again see value in the Ivanhoe Neighborhood Council’s master plan.

“I’m an optimistic person. I’m hoping that the Kauffman Foundation sees that we’re trying to get people thinking entrepreneurially in Ivanhoe, and that they will see that training people to deal with neighborhood issues has an educational component. I’m hoping they’ll see that the master plan has been a success so far and is worth their investment,” she says. “But I have no reason to think that will happen.”

THE EWING MARION KAUFFMAN FOUNDATION

Purpose and areas of support: The foundation makes grants to encourage entrepreneurship and improve education, both in Kansas City, where it is located, and across the United States.

History: Created in 1966 by Ewing Marion Kauffman, founder and chairman of Marion Laboratories. Known locally as “Mr. K.,” Mr. Kauffman started the pharmaceutical company in the basement of his Kansas City home in 1950, eventually building it into a national company with sales of $1-billion annually. Mr. Kauffman’s wealth provided the assets that got the foundation started. When he died in 1993, a large portion of his estate endowed the foundation.

Assets: $1.6-billion.

Grants and operating programs: The foundation distributes about $49-million in grants annually and runs many of its own programs that support entrepreneurship. Among its largest programs are Kauffman Scholars, a $70-million program that provides tutors, mentors, and other help to needy Kansas City schoolchildren, as well as money for college; and Kauffman Campuses, a program that will distribute up to $35-million in grants beginning in December to colleges and universities that have devised plans to teach entrepreneurship throughout the college curriculum.

Key officials: Carl J. Schramm, chief executive officer; John A. Mayer Jr., chairman; and Paul L. Carttar, chief operating officer.

Application procedures: Grant requests or brief letters of inquiry describing the organization, the problem it is focusing upon and how it hopes to combat it, and how much money the program requires can be mailed to the attention of the grants administrator. The foundation has no formal application or deadlines.

Address: 4801 Rockhill Road, Kansas City, Mo. 64110-2046.

Web site: http://www.kauffman.org