News and analysis
March 26, 2015

Clash at Koret Foundation Shows Perils of Cloudy Succession Plans

Mike Koozmin/San Francisco Examiner/AP Images

Susan Koret, whose late husband named her chairwoman for life in his will, is in a bitter dispute with the grant maker's other trustees, who say she is a "disruptive and unproductive force." Her lawyer, left, accuses them of demeaning her, and her spokesman, Sam Singer, right, says the foundation has shortchanged poverty groups.

Board members at the Koret Foundation have spent a good deal of the past six months prepping their lawyers and sniping at one another when they could have been devoting their energy to grants designed to help the poor and celebrate Jewish art and pursuing other priorities of the San Francisco philanthropy.

Years of acrimony boiled over in public last October when the foundation’s directors filed a pair of lawsuits that revealed a boardroom drama rumbling under the surface at the San Francisco grant maker, which reported $612 million in assets in 2013.

Susan Koret, chairwoman of the board, launched the first salvo by filing a lawsuit in San Francisco Superior Court. Ms. Koret, the widow of Joseph Koret, a businessman who made his fortune in apparel before he died in 1982, alleged that Mr. Koret’s handpicked successor, Thaddeus Taube, the foundation’s longtime president and a business associate of Mr. Koret’s, had used the philanthropy’s assets as a "personal piggy bank." He and the other directors, she alleged, funneled millions of dollars to pet projects that benefited themselves rather than supporting programs that help the poor, one of the foundation’s priorities as originally laid out by Mr. Koret.

More than half of Koret’s grants fall outside the original mission of the foundation, according to Ms. Koret’s complaint.

The day after Ms. Koret went to court, the other seven Koret trustees filed a countersuit that paints a different picture of life at the foundation.

In seeking to remove Ms. Koret from her perch as chairwoman, the other board members called her a "disruptive and unproductive force."

"She is an incompetent director who lacks an even basic understanding of the governance of the foundation," they wrote.

Mr. Taube declined to comment, through a spokeswoman. The Koret Foundation and lawyers representing the seven directors also declined to comment, as did Ms. Koret, who directed interview requests to her lawyer.

On Friday, a San Francisco Superior Court judge is scheduled to decide whether a separate trial is necessary to determine whether the trustees must provide foundation documents Ms. Koret says have been withheld from her.

Until then, it is difficult to say which side is on steadier legal ground, says Douglas Eakeley, a nonprofit-law expert who represented Prince­ton University in a high-profile donor-intent case involving the Robertson Foundation. But if the Koret Foundation’s internal correspondence shows the directors veered from Joseph Koret’s original plans and froze Ms. Koret out of the picture, he says, the case could turn into a "hornet’s nest."

As a new generation of family members takes control at foundations, legal squabbles like the Koret case are likely to become more common, he predicts. And even though foundation boards have not been subject to federal changes in corporate-board regulation made over the past decade, Mr. Eakeley says nonprofits are starting to invite the same kind of scrutiny.

"The legal landscape for foundations and other nonprofits is rapidly changing," he says. "We may witness increased fiduciary litigation in the future."

New Wife Takes Over

In his will, Joseph Koret granted the millions of dollars he made, largely through the sale of his company to jeans icon Levi Strauss, to his foundation. He directed that the foundation’s bylaws specify that Susan, his wife of less than two years at the time, be named chairman of the board for life. He and Susan grew close when she was the caregiver for his gravely ill first wife, who died in 1978.

Over time, the foundation became a philanthropic mainstay in the Bay Area as it provided about $500 million for education, the arts, the fight against poverty, and the promotion of Israel and domestic Jewish culture.

In the organization’s more halcyon days, prominent figures like Holocaust survivor and writer Elie Wiesel and former U.S. Secretary of State George Shultz paid glowing tributes in Koret Foundation literature that stand in contrast to the anguished court filings in the pending case.

"The Koret Foundation is symbolic of my belief that individual acts can change the world," Mr. Wiesel said in 2007.

Mr. Shultz added: "One marvels in anticipation of what the organization will be able to accomplish over the next three decades as it builds on its legacy of service."

The foundation’s directors give none of the credit for the organization’s successes to Susan Koret, whom they dismiss in court filings as a "housekeeper" and a "dissident" director controlled by her lawyers. At board meetings, they allege, she reads from a prepared script and acts paralyzed if confronted with an unfamiliar issue.

And they cite an unsigned memo they say Joseph Koret wrote stating that his wife should be chairman in name only: "There is full realization on my part that Susan, at the present time, has neither the experience, the educational background, worldliness, or ability to act in the capacity as chairman of the board."

Voting Partners

Despite their differences, Ms. Koret voted alongside the other board members 95 percent of the time, according to an open letter from the seven other board members posted on the foundation’s website.

"We are dismayed that she is now suing in disagreement with these very same decisions," the letter states. "She now makes vicious and unfounded personal attacks on her colleagues. We believe Ms. Koret is taking these actions in an aggressive attempt to take over the assets of the foundation. Alarmingly, her behavior has become increasingly confused and erratic and it is clear that Ms. Koret is unable to fulfill her duties as a director."

Originally the directors chalked up difficulties they had communicating with Ms. Koret to a language barrier (she was born in Korea), but over time, they became convinced that she had "little to no actual understanding of the nature or import of her decisions," according to the lawsuit against her.

Ms. Koret listed a series of grievances in her complaint. Half the trustees, she said, were also board members of Taube Philanthropies, which Mr. Taube founded to promote free enterprise and a limited government and to support projects in Israel and his native Poland. They used their position at Koret, she claims, to support Taube programs and allow Mr. Taube to place his name prominently on building projects where Koret, not the Taube Philanthropies, had shouldered the financial burden.

Board member Richard Greene, Mr. Taube’s longtime personal lawyer and counsel to the foundation, and two other directors who are fellows at Stanford University’s Hoover Institution, are beholden to Mr. Taube, Ms. Koret’s lawsuit states. Mr. Taube serves on the executive committee of the Hoover Institution’s Board of Overseers.

From 2010 through 2013, Hoover received more than $5 million in support from Koret, but as a conservative think tank it espouses a "radically contrary philosophy" to Mr. Koret’s worldview, reads the complaint.

Ms. Koret’s court filing quotes Mr. Taube as saying giving money to help the poor is a "bottomless pit."

It continues: "Joseph Koret is turning in his grave."

Perhaps the final straw came when Mr. Greene, who billed the foundation $128,000 for legal work in 2013, sent Ms. Koret a Robert’s Rules for Dummies book on board-meeting procedure, according to the court filing.

"It’s unfortunate that a group of mostly white men would think it’s appropriate to demean a revered figure in San Francisco," says Ms. Koret’s lawyer, Robert Bunzel. "They’ve resorted to character assassination of a juvenile and tawdry nature."

Replacing Board Members

In her complaint, Ms. Koret contends that Mr. Greene is not an independent counsel and that he, Mr. Taube, and other board members have not replaced departing board members so that they could stack the board in favor of Mr. Taube.

William Josephson, the former head of the New York Charities Bureau, says board members often use their position simply to increase their cachet professionally. While he declined to comment about the specific facts presented in the Koret filings, Mr. Josephson said the situation seems common.

"Lawyers and accountants always seem to find a way to take over private foundations as people die or become disabled, to the exclusion of family members and regardless of the mission of the foundation," he says.

Impact on Grantees

A jury is scheduled to consider the lawsuits in April 2016. In the meantime, both parties have hired a phalanx of lawyers and public-relations experts to control the damage. After a few appearances in the news media soon after the lawsuits were filed, Nathan Ballard, who handles "crisis communications" for the seven Koret trustees, stopped speaking to the press.

Sam Singer, spokesman hired by Ms. Koret, listed a number of San Francisco poverty-relief organizations he says have been shortchanged by the foundation. For instance the board turned down a request to double the budget of the St. Anthony Foundation, a human-services nonprofit. And the directors demanded proof of the financial viability of the Institute on Aging, in San Francisco, before giving it a grant but were not nearly as scrupulous when deciding whether to support other grantees.

The grantees themselves don’t necessarily see it that way.

Barry Stenger, executive director at St. Anthony’s said he was surprised at the rift on the board; all of the board members attended a 2013 groundbreaking for a new kitchen and dining hall. Koret had put $1.5 million toward construction of the project and naming rights for the kitchen.

"I’m not concerned about whether we should have gotten more," he says. "We’re grateful for what we got."

Similarly, J. Thomas Briody, president of the Institute on Aging, says the Koret Foundation has been generous in its support. "I don’t know that we’re being treated any differently than anybody else," he says. "We take no position on the lawsuit."

Send an e-mail to Alex Daniels.