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United Way of America 2011

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Case Study: United Way of America, 1992
Prepared by Dr. Martha Dede
Spring, 2008

A MATTER OF GOVERNANCE: UNITED WAY OF AMERICA, 1992

Organization Thumbnail

United Way of America (UWA) was incorporated in 1932 with the mission “[t]o improve lives by mobilizing the caring power of communities”. Since, UWA has been a significant constituent in the flywheel of American philanthropy. Headquartered in Alexandria, Virginia, UWA is comprised of 1,400 dues-paying and another 700 non dues-paying affiliates which, in aggregate, raise about $3.1 billion annually, and fund approximately 50,000 service-providing health and human service agencies nationwide. (1) In 1992, UWA President William Aramony brought the organization to its knees for, variously, being a “sloppy President”, a serial womanizer, of exercising “poor judgment” (2) and of “haphazard” management practices. (3)

Brief Chronology

In late 1991 and extending into February 1992, the UWA Board of Governors ordered an independent internal investigation of long-time UWA President William Aramony for allegations of misuse of funds, fraud, tax evasion and illegal operation of satellite businesses. The investigation emerged in response to information provided (anonymously) by UWA staffers to LaSalle D. Leffall Jr., Chair of UWA’s Executive Committee, to inquiries from a Washington Post investigative reporter, and to demands from several UWA affiliate officials that Aramony be removed. At that time, several United Way local chapters also withheld their dues to the UWA pending the outcome of the investigation. On February 16, 1992, the Washington Post story broke.

In a February 23, 1992, telephone conference, representatives from the “Big Ten” (10 of the largest 14 United Way chapters) called for Aramony to step down. He refused. Three days later, the UWA Executive Committee of the Board met in a telephone conference call to determine what ought to be done. Later that same day, Aramony wrote a letter to Mr. Leffall, signaling his decision to retire immediately: “I do this because media attention is overshadowing the importance of the work of United Way….” (4).

In a video teleconference beamed to United Way chapter officials nationwide on February 27, 1992, Aramony announced his retirement, citing a “’lack of sensitivity to perceptions’ about his spending and management practices.” Specifically, said Aramony, “I did not pay enough attention to detail or to the way some of my actions could have been perceived and my personal style could have been perceived by certain people” (5).

On September 13, 1994, Aramony, former UWA staffer Stephen J. Paulachak, and Thomas J. Merlo, UWA chief financial officer, were indicted on 71 federal counts of “conspiracy to defraud United Way, mail fraud, wire fraud, interstate transportation of fraudulently acquired property and money laundering”. In addition, the three were charged with filing false personal and corporate tax returns; Merlo, with perjury. All pleaded innocent. (6)

At the center of the case was Lori Villasor, Aramony’s young mistress of four years. (The affair began when Villasor was 17; Aramony, 59.) It is estimated that Aramony, who was paid $463,000 (including benefits) annually, appropriated nearly $1.2 million to support a “lavish lifestyle” with Villasor and others. That included a New York apartment, an expensive condominium in Florida, use of a limousine, a lifetime pass on American Airlines, and trips on the Concorde. (7)

The federal trial of the three took place in early 1995 and, on April 3rd of that year, Aramony was convicted of 25 counts of fraud, conspiracy, and money laundering. Merlo and Pauachak were convicted on 17 and eight counts, respectively. On June 22, 1995, the three were sentenced. Aramony received seven years in a Federal prison, and three years probation. Paulachak received a sentence of two and one half years; and Merlo, four years and seven months. In addition, Aramony and Merlo each were ordered to pay $552,000 to UWA in restitution (8).

In January, 2000, in response to a suit brought by Aramony against UWA, a New York federal judge ruled that UWA was required to pay Aramony’s $4.4 million pension, as called for in the latter’s contract. The judge, noting that UWA had been “careless” when it approved Aramony’s pension plan, based the decision on the fact that Aramony’s pension “did not include a stipulation covering criminal behavior”. (9)

On June 25, 1992, the UWA Board of Governors instituted a code of ethics. (10)

United Way of America Board of Directors Roster (not exhaustive), 1992

John F. Akers, Chair, IBM; Chair, UWA

LaSalle D. Leffall, Jr., Professor of Medicine, Howard University; Chair, UWA Executive Committee

William Howell, Chair, J.C. Penney and Company; succeeded Akers as Board Chair later in 1992

Robert E. Allen , CEO, AT&T
Edward Brennan, Chairman, Sears Roebuck & Company
Bill Gates, CEO, Microsoft
Earle Harbison Jr., CEO Monsanto
Ralph Larsen, CEO, Johnson & Johnson
Eleanor Holmes Norton,
Charles Peebler, CEO, Bozell Inc.
Vincent Sombrotto, National Association of Letter Carriers
Paul Tagliabue, Commissioner of the National Football League
Leslie Wexner, CEO, The Limited

References

1. United Way of American website (http://national.unitedway.org).

2. Shenk, David. May, 1992. “Board Stiffs – The United Way of America’s Board of Governors”. Washington Monthly. (Retrieved March 20, 2007). (http:///www.findarticles.com/p/articles/mi_m1316/is_n5_v24/ai_12247613)

3. Gibelman, Margaret, and Gelman, Sheldon. 2000. “Very Public Scandals: An Analysis of How and Why Nongovernmental Organizations Get in Trouble”. Working paper, presented at the International Society for Third-Sector Research Fourth International Conference. Dublin, Ireland, July 7, 2000.

4. Shepard, Charles E. (1992, February 28). “United Way Head Resigns Over Spending Habits”. The Washington Post. p. 3.

5. Ibid.

6. “Former United Way Chief to Stand Trial for Fraud”. (1994, September 27). (Retreived January 27, 2007). (http://scholar.lib.vt.edu/VA-news/VA-Pilot/issues/1994/vp940927/09)

7. Moss, Desda. 1995, June 23. “Charity Embezzler Gets 7-Year Term”. (Retrieved March 20, 2007). (http://utwatch.org/oldnews/usatoday_unitedway_6_23_95. html)

8. Ibid.

9. Foundation Center. 2000, January 18. “United Way is Required to Pay Ex-President’s Pension”. (Retrieved April 5, 2007). (http://foundationcenter.org/pnd/archives/200000118/003119.html)

10. Shepard, Charles E. (1992, June 26). “United Way Adopts New Ethics Rules, Safeguards”. The Washington Post, p.

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