Spitzer Announces Resolution Involving $3.2 Billion Legacy Left By Founders Of Reader's Digest
Attorney General Spitzer today announced an historic agreement involving the $3.2 billion charitable legacy left by the founders of Reader's Digest magazine, DeWitt and Lila Wallace.
The agreement involves two private foundations- the $1.5 billion Wallace-Reader's Digest Funds, and the $1.7 billion Wallace Supporting Organizations that support 13 specific charities, including the Metropolitan Museum of Art, Sloan-Kettering, Lincoln Center, Scenic Hudson, the Wildlife Conservation Society and Colonial Williamsburg.
Upon the recommendation of the Wallace-Reader's Digest Funds, the Supporting Organizations will be dissolved and all of their assets, which include both Reader's Digest stock and other, diversified holdings, will be transferred to the 13 charities so that they will now be able to directly manage their own assets in a manner consistent with the wishes of the Wallaces and the historical practices of the Wallace Supporting Organizations.
The boards of the Wallace Funds, which hold a 50% share of Reader's Digest voting stock, have taken steps to modernize their governing structure, resolving concerns expressed by Spitzer's office. The new corporate structure, implemented by the foundations two months ago, is designed to ensure fully independent decision making, particularly when it comes to investment decisions.
As Attorney General, Spitzer oversees all charitable organizations in the state and is responsible for seeing that they are well run.
The Attorney General's office began looking into the situation in 1998 following reports that a decrease in the value of Reader's Digest stock was having a financial impact on the charitable groups that it supported.
"Taken together these steps will help ensure the long-term health and viability of the Wallaces' bequest and benefit the arts, cultural, medical, environmental and historic preservation communities for generations to come," said Spitzer.
Over the past two decades, the Wallace Supporting Organizations have operated as endowments, making grants to the 13 charities totaling $900 million. Because the Wallace Supporting Organizations have always existed for the benefit of the 13 charities, the assets the charities will be receiving do not represent new money, but rather simply a transfer to their control.
These assets will now be held at each charity in newly-created endowment funds named for the Wallaces. The groups will continue to receive annual grants from their endowments.
According to information provided by the Wallace Funds as of March 31st, the endowments, which will now be transferred directly to the charities, are valued at approximately:
|Metropolitan Museum of Art||$424 million|
|Macalester College||$303 million|
|The Wildlife Conservation Society||$191 million|
|The Colonial Williamsburg Foundation||$155 million|
|Scenic Hudson||$115 million|
|Open Space Institute||$115 million|
|Memorial Sloan-Kettering Cancer Center||$100 million|
|The Metropolitan Opera Association||$ 92 million|
|The New York City Ballet||$ 65 million|
|Lincoln Center Theater||$ 59 million|
|The New York City Opera||$ 59 million|
|The Philharmonic Symphony Society of New York||$ 26 million|
|The Chamber Music Society of New York||$ 13 million|
As a result of this restructuring, the 13 charities will become significant shareholders of Reader's Digest, owning roughly 19% of the outstanding non-voting stock. As part of this transaction, the 13 charities have agreed to coordinate their future sales of company stock, to ensure that they, and other shareholders, receive maximum value for their holdings.
"This divestiture by the Supporting Organizations moves the Wallaces' bequest into the 21st century with a sound investment strategy," said Spitzer. "These 13 extraordinary charitable and cultural institutions, with 11 of them based here in New York, will now be able to use their own expertise to best determine their needs, chart their futures, and control their investment strategies."
In response to the divestiture, David E. McKinney, the President of the Metropolitan Museum of Art said, "Although this agreement provides no new funding to the Metropolitan, it does give it the ability to directly oversee this investment. In this way, the institution will continue to carry Lila Acheson Wallace's legacy into the future."
The Executive Director of Scenic Hudson, the 37 year old environmental organization and land trust, Ned Sullivan said, "This is great news for Scenic Hudson. It puts us on a firm foundation for the new century and helps ensure the stability of our land-preservation work. The fact that we have been entrusted to manage these resources should give us increased credibility with our funders, whose help we need more than ever."
Today the Wallace Funds are the 6th largest New York-based charitable foundation. Under the new corporate structure adopted by the Funds and approved by Spitzer's office, the five member board has been expanded to nine. The four new appointees are:
|Gordon Ambach:||Former Executive Director, Council of Chief State School Officers|
|W. Don Cornwell:||Chief Executive Officer, Granite Broadcasting Corporation|
|Peter Marzio:||Director, Museum of Fine Arts, Houston|
|Joseph Shenker:||Provost, C.W. Post Campus of Long Island University|
In addition, the Wallace Funds have adopted staggered term and age limits for directors, with the terms of four of the five pre-expansion directors to expire by 2008.
"Independent decision making is essential to ensure that private foundations are effective stewards of charitable assets," said Spitzer.
The Wallace-Reader's Digest Funds, which make grants nationally to enrich community life, fund work in three major areas: developing effective educational leadership to improve student learning, increasing high quality informal learning opportunities for children and families and promoting learning as a core community value, and creating new standards for community participation in cultural institutions.
DeWitt Wallace founded Reader's Digest in the 1922. He and his wife set up the first of their foundations in the 1960's. Mr. Wallace died in 1981, Mrs. Wallace in 1984.
This matter was handled by Assistant Attorneys General Marla Simpson, James Siegal and Charles Smith, and Principal Accountant Lori Balaklaw of the Charities Bureau under the direction of Deputy Attorney General Dietrich Snell and Assistant Deputy Attorney General Terryl Brown of the Public Advocacy Division.