Giving and Spending the United Way

 

The United Way, which evolved from the local community chests of the 1920s, is a national organization that funnels funding to charities through a payroll deduction system.

Ninety percent of all charitable payroll deductions in 1991 were for the United Way. This system, however, has been criticized as coercive. Bonuses, for example, were offered for achieving 100 percent employee participation. Betty Beene, president of United Way of Tristate (New York, New Jersey, and Connecticut), commented, âIf participation is 100 percent, it means someone has been coerced.â24 Tristate discontinued the bonuses and arm-twisting.

United Wayâs system of spending also came under fire through the actions of William Aramony, president of the United Way from 1970 to 1992. During his tenure, United Way receipts grew from $787 million in 1970 to $3 billion in 1990. But some of Aramonyâs effects on the organization were less positive.

In early 1992, the Washington Post reported that Aramony

⢠was paid $463,000 per year.

⢠flew first class on commercial airlines.

⢠spent $20,000 in one year for limousines.

⢠used the Concorde for trans-Atlantic flights.

 

The article also revealed that one of the taxable spin-off companies Aramony had created to provide travel and bulk purchasing for United Way chapters had bought a

$430,000 condominium in Manhattan and a $125,000 apartment in Coral Gables, Florida, for his use. Another spin-off had hired Aramonyâs son, Robert Aramony, as its president.

When Aramonyâs expenses and salary became public, Stanley C. Gault, chairman of Goodyear Tire & Rubber Company, asked, âWhere was the board? The outside auditors?â26 Aramony resigned after fifteen chapters of the United Way threatened to withhold their annual dues to the national office.

Said Robert O. Bothwell, executive director of the National Committee for Responsive Philanthropy, âI think it is obscene that he is making that kind of salary and asking people who are making $10,000 a year to give 5 percent of their income.â

In August 1992, the United Way board of directors hired Elaine Chao, the Peace Corps director, to replace William Aramony at a salary of $195,000, with no perks.28 She reduced staff from 275 to 185 and borrowed $1.5 million to compensate for a decline in donations. By 1995, United Way donations had still not returned to their 1991 level of $3.2 billion. Ms. Chao has since left the United Way and served as secretary of labor for the Bush administration from 2001â2009. Ms. Chao is married to Republican U.S. Senator Mitch McConnell of Kentucky.

In September 1994, William Aramony and two other United Way officers, including the chief financial officer, were indicted by a federal grand jury for conspiracy, mail fraud, and tax fraud. The indictment alleged the three officers diverted more than $2.74 million of United Way funds to purchase an apartment in New York City for $383,000, interior decorating for $72,000, a condominium, vacations, and a lifetime pass on American Airlines. In addition, $80,000 of United Way funds were paid to Aramonyâs girlfriend, a 1986 high school graduate, for consulting, even though she did no work.

On April 3, 1995, Aramony was found guilty of twenty-five counts of fraud, conspiracy, and money laundering. Two other United Way executives were also convicted. Mr. Aramony was sentenced to eighty-four months in prison (and fined $300,000) and was released in 2004. He lives in Alexandria, Virginia, and United Way executives continue to refer to his tenure and all the problems associated with it as âthe great unpleasantness.â

By April 1998, donation levels were still not completely reinstated, but did increase (up 4.7 percent) for the first time since the 1992 Aramony crisis. Relationships between local chapters and the national organization were often strained, and the recent Boy Scouts of America boycott has created additional tension. United Wayâs donations fell 11 percent since 1991 while overall charitable giving was up 9 percent.

percent since 1991 while overall charitable giving was up 9 percent.

In January 2000, a federal district court judge awarded Mr. Aramony the full value of his deferred compensation plan, or $4.2 million. Judge Shira Scheindlin ruled in favor of Mr. Aramony because she said there was no clause for forfeiting the money if Mr. Aramony committed a felony. Such a so-called bad boy clause had been discussed by the board when it was in the process of approving the deferred compensation plan for Mr. Aramony and other United Way executives. However, the bad-boy clause never made it into the final agreement

Judge Scheindlin also ruled that United Way could withhold $2.02 million of the amount due under the deferred compensation plan to cover salary, investigation costs, and interest on those amounts. She did not award Mr. Aramony attorneysâ fees for having to bring the suit against United Way to collect his deferred compensation..

Many in the nonprofit field say that the shadow of William Aramony looms over the nonprofit world. However, when he was released from prison in 2002, the warden, guards, and inmates, who all called him âMr. Aramonyâ spoke of him with fondness because of his work in prison in trying to provide educational opportunities for his fellow inmates. They described him as being tireless in his efforts to teach everything from reading to math to, ironically, business operations.

 

Discussion Questions

4. If Aramony were a CEO of a for-profit firm, would your answers change?

5. What obstacles did Chao face as she assumed the United Way helm?

6. Do you think Aramony should have asked for his deferred compensation funds? Why would the board pay him those funds? What could boards do to limit compensation paid to CEOs who resign following misconduct at the company?

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