NEW YORK (NYT NEWS SERVICE).- When Robert F. Smith, the billionaire philanthropist, became the new chairman of Carnegie Hall in 2016, he seemed almost too good to be true.
He promised to be a stabilizing presence at Carnegie after the brief, tumultuous reign of his predecessor. Smith was a benefactor with deep pockets and a strong interest in the hall’s education efforts. He was the rare board leader of color in a field where diversity lags. And he was cheered as a national hero last year when, during his commencement address at Morehouse College, he pledged to pay off the student debt of the entire graduating class.
So it came as a shock this fall when Smith, 58, admitted to having played a supporting role in what federal prosecutors called the largest tax evasion case in U.S. history — acknowledging that he had “willfully failed to report” over $200 million in income — and signed a nonprosecution agreement in which he agreed to pay large fines and cooperate with investigators.
Smith’s admission that he had failed to report a substantial amount of income to the Internal Revenue Service made Carnegie Hall the latest in a line of major cultural institutions that have found themselves facing questions about the actions of the benefactors that they rely on for their very survival. Carnegie’s leaders are standing firmly behind Smith, even as some philanthropy experts question whether he should remain in the position.
“I am a huge fan,” said Sanford Weill, a member of Carnegie’s board who served as its chairman for 29 years. “He has done an outstanding job leading Carnegie Hall. He has been very philanthropic and he has helped grow our institution to reach new heights.”
The news could not have landed at a more difficult moment for Carnegie, the nation’s premiere concert hall, with its stage silenced by the pandemic that has put the classical music industry in crisis. A poster near its locked front doors this fall riffed on the ancient joke — “How do you get to Carnegie Hall? Practice, practice, practice!” — with a plea for “Patience, patience, patience.”
By way of explanation, Smith has essentially said he is human and he is sorry.
“I can learn from my mistakes. And I have,” Smith — who declined to be interviewed — told Andrew Ross Sorkin of The New York Times during DealBook’s recent Online Summit. “It’s clear to me that in order for me to focus on the problems of the present, I need to resolve the issues of the past and problems of the past — and the settlement offered me that ability to do so.
“So I’ve agreed to it,” Smith continued. “I’m moving forward, I’ve made right with the government. And — now I’m absolutely committed to continuing my important work, my philanthropy.”
Carnegie Hall’s board members seem to have accepted Smith’s mea culpa and moved on. “He is beloved,” said Darren Walker the president of the Ford Foundation, who is a Carnegie trustee. “I do not think we should ask for his resignation. And I don’t think you will find anybody on the Carnegie Hall board who disagrees.”
Still, it is not always easy for even preeminent institutions to navigate the intersection of power, extreme wealth and high culture.
The Metropolitan Opera took the name of one prominent benefactor, investor Alberto W. Vilar, off its grand tier in 2003 after some promised pledges failed to materialize; he was later convicted of fraud. L. Dennis Kozlowski, the former chief executive of Tyco International, sought a prominent profile in New York’s art world, joining the board of the Whitney Museum of American Art, before being convicted of grand larceny, conspiracy and fraud.
Amid mounting public pressure, the Metropolitan Museum of Art recently felt compelled to swear off money from members of the Sackler family because of their links to OxyContin. And last year Warren B. Kanders was forced to step down as a vice chairman of the Whitney after protests over his company’s sale of tear gas. (He later got out of the tear gas business.)
But many institutions stand by their supporters, even if they bring a trail of bad headlines.
The hedge fund titan Steven A. Cohen, whose SAC Capital Advisors agreed in 2013 to plead guilty to insider trading violations and paid a record $1.8 billion penalty, is on the board of the Museum of Modern Art.
And MoMA has been noticeably silent on whether it is reviewing the status of its chairman, Leon Black, the billionaire private equity executive, who paid at least $50 million to Jeffrey Epstein for financial advice in the years after Epstein’s 2008 conviction for soliciting prostitution from a teenage girl.
Smith has admitted to hiding more than $200 million in income and evading millions of dollars in taxes by using an offshore trust structure and offshore bank accounts. In a letter to his investors, Smith said that he had created the structure 20 years ago “at the insistence of my only investor in my first private equity fund.”
The Justice Department said in a news release that Smith had used millions of dollars of the unreported income to “acquire and make improvements to real estate used for his personal benefit,” including buying and renovating a vacation home in Sonoma, California, and buying “two ski properties and a piece of commercial property in France.”
Smith ultimately donated all the money in the offshore trust structure to his foundation, the Fund II Foundation, which he established in 2014, he wrote this fall to his investors. The foundation has made over $250 million dollars in contributions to a broad range of institutions, including Carnegie Hall, as well as to an array of organizations and initiatives that support vulnerable populations.
As part of his agreement with prosecutors, Smith will pay $139 million in taxes and penalties, abandon a $182 million tax refund he had been seeking for charitable contributions, and cooperate with ongoing investigations. The main target of those investigations is Smith’s associate and early investor, Robert T. Brockman, a Houston tech executive who has been charged with hiding $2 billion in income from the IRS in what prosecutors called “the largest ever tax charge against an individual in the United States.”
“Since first learning about the Department of Justice’s investigation, I have cooperated fully for the last four and one-half years and have provided all relevant information to them,” Smith said in the letter to his investors. “The decision made 20 years ago has regrettably led to this turmoil, which has put undue stress and burden on too many.”
Experts in philanthropy said that they believe the donations he made to Carnegie were not likely at risk of having to be returned.
“He reached a plea agreement and paid penalties, so I don’t think there is any exposure,” said Daniel Kurtz, an attorney specializing in nonprofits. “It’s hard to find somebody who’s that wealthy who doesn’t have some issue in the past — I don’t think we make that the measure of the value of their gifts.”
But some experts in philanthropy and corporate governance questioned whether he should remain chairman, including Patricia Illingworth, a professor at Northeastern University and the editor of “Giving Well: The Ethics of Philanthropy.”
“Although he has practiced some thoughtful philanthropy, especially the Morehouse gift, he has also been complicit in a 15-year scheme to avoid paying his fair share of taxes, placing an unjust burden on those who are not in a position to bear it,” she said.
And John C. Coffee Jr., a professor at Columbia Law School who specializes in corporate governance, said that while he thinks Smith should be able to remain on Carnegie’s board, he should give up the chairmanship. He said that “Carnegie is wearing a self-imposed blindfold (probably in the hopes of future donations) when they ignore this.”
Smith took the helm of the Carnegie board after the short and stormy tenure of his immediate predecessor, billionaire Ronald Perelman, who stepped down after clashing with the hall’s leadership. His departure put an end to talks about a new major Perelman gift; soon after he left, he donated $75 million to build a performing arts center at the World Trade Center site.
After Smith arrived, things seemed to calm down on Carnegie’s board.
Clive Gillinson, Carnegie’s long-serving executive and artistic director, said he had “absolute, complete trust” in Smith. “Everybody makes mistakes in life; what matters is how you deal with them,” he said. “And he’s a man of great integrity, that’s everything that I see.”
The reluctance of Carnegie Hall’s board to dethrone Smith is understandable; he is financially generous, gets high marks as a collegial steward, and — named the richest Black man in America by Forbes in 2015 — is the first African American to hold the Carnegie Hall post at a time when the lack of diversity at many cultural organizations has become a pressing issue.
Moreover, good arts leaders are hard to find and increasingly necessary in a time when institutions are struggling through the COVID crisis.
“When you have a wonderful chair who is a good leader and generous, it can be challenging to ask them to depart,” said Michael Kaiser, chairman of the DeVos Institute of Arts Management at the University of Maryland, who has run several major arts institutions. “Great chairs don’t grow on trees.”
Emily Rafferty, the former president of the Metropolitan Museum of Art, who is also on the board, called Smith “an extremely effective chairman — unbelievably generous, really aligned with the mission and cause of Carnegie Hall.”
Nevertheless, Kaiser added, Smith’s conduct may give prospective donors pause, “or at least, there will always be the question about whether a new donor wants to engage with the organization and is comfortable with Smith as chairman.”
Smith has been a generous donor. Since 2014, he has given about $40 million to Carnegie, much of which was directed toward education and social impact programs. That money includes $20 million of his personal funds, with the other half coming from Smith’s Fund II Foundation, which helped finance the expansion of Carnegie Hall’s national music education programs.
Smith, who loves music (he named his youngest sons, Hendrix and Legend, after Jimi Hendrix and John Legend), has also supported the Hall’s National Youth Orchestra of the USA; Ensemble Connect, a fellowship program for young professional musicians; and its growing digital activities.
In addition, Smith has made substantial gifts to the National Museum of African American History and Culture; helped restore African American monuments in national parks; supported the Louis Armstrong House Museum in New York; and given $50 million to Cornell’s School of Chemical and Biomolecular Engineering, which was renamed for him.
Smith — who is based in Austin, Texas, where the private equity firm he founded, Vista Equity Partners, has its headquarters — grew up in Denver, graduated from Cornell and earned his MBA from Columbia.
During the DealBook Summit, he said he was “excited about the opportunity to clean up the past.”
Similarly, Gillinson said he was focused on the future. “Who hasn’t made a mistake in their life? You deal with it in a really good way and move on,” he said. “All I can say is that I’m incredibly lucky to have had him as my partner.”
“Without exception,” Gillinson added, “everybody is 100% behind him.”
© 2020 The New York Times Company
