September 10, 1984 12:00 PM

In the past five years the John D. and Catherine T. MacArthur Foundation has become the wellspring for one of the most fascinating talent hunts in America: the MacArthur Fellows Program, which seeks out creative minds and gives them six-figure, no-strings stipends designed to encourage “discoveries or other significant contributions to society.” The winners of these so-called “Genius Awards” have ranged from an 18-year-old expert in Mayan hieroglyphics ($122,000) to an opthalmologist who works to prevent blindness in rural Kenya ($220,000). Says J. Roderick MacArthur, prime mover behind the grant program since its inception in 1979 and a director of the $1.5 billion foundation established by his eccentric billionaire father, “I know the program will produce something and somebody great, a new art form or a wonderful novel.”

Maybe not. This year both the MacArthur Foundation—which also gives away up to $50 million a year to charitable and educational programs—and its central figure are in desperate trouble. In April, J. Roderick, 63, learned he will soon die of pancreatic cancer. Doctors gave him six to 24 months to live. Moreover, in the months that his illness was developing, he became convinced the foundation was being seriously mismanaged by the board—including such luminaries as Dr. Jonas Salk, developer of the Salk vaccine, and Nobel physicist Murray Gell-Mann.

Last February MacArthur brought suit to unseat eight board members, denouncing their “illegal, oppressive” performance. Then, in a dramatic motion three months ago, he filed with the Cook County circuit court for liquidation of the entire MacArthur Foundation. “I know I have only a short time to live,” he explained. “While I’m still able I want to see scandal removed from the MacArthur Foundation, and my father’s fortune used for the good of the public, not to line the pockets of a handful of directors.”

Some board members were outraged at such charges; others were merely amused. Jonas Salk, for example, says he “just laughed” at the notion of “directors lining their pockets. It’s ridiculous.” James M. Furman, executive vice-president of the foundation, states flatly, “There is no substance to these charges,” and has commissioned a legal review of all allegations.

MacArthur argues that foundation money has been wasted through conflicts of interest and excessive compensation to board members. Between 1979 and 1983, for instance, MacArthur claims that attorney William Kirby received over $340,000 in fees for his part-time work as a director, $97,000 for “legal services” and $85,000 in expenses and other benefits. In addition, he says, the law firm in which Kirby was a partner until 1980 was paid $360,000 by the foundation, and another firm to which Kirby was connected received a cool $1,964,512. “It’s become the directors’ primary income, which was not the intention of the foundation,” says MacArthur.

Certainly John D. MacArthur didn’t envision such goings-on when he set up the foundation as a nonprofit institution shortly before his own death from pancreatic cancer in 1978 at age 80. To finance the institution MacArthur transferred all the stock holdings of his Bankers Life and Casualty Company, the billion-dollar insurance, real-estate and banking empire he had built up from a small mail-order insurance business started in 1938. And he expected it to be managed tightly.

Under IRS requirements, a nonprofit foundation must dispose of 80 percent of its business enterprises within five years or forfeit its tax-exempt status. The MacArthur directors, says Rod, missed the 1983 deadline—which may cost the foundation a penalty of $75 million. “Four years went by and nothing was done,” says Rod MacArthur bitterly.

Kirby, one of the original foundation directors and former general counsel to John D. MacArthur’s company, dismisses Rod’s charges as “contradictions, misstatements and omissions.” MacArthur, he says, “views a lawsuit like a little man views a gun. Rod has threatened lawsuits ever since his father died, because he wanted control. If he insists on going to court, we’ll just have to get it resolved that way. It’s a tremendous waste of time and energy.”

MacArthur doesn’t think so. “When people have been so terribly unbusinesslike, they shouldn’t get off scot-free,” he says. Although increasingly frail, MacArthur still has an extraordinary amount of energy, not only for his foundation crusade but for other endeavors. He continues to run his $100 million-a-year Bradford Exchange—the world’s largest trading center for collector’s plates—a business he created in 1973. Owner of New York’s Hammacher Schlemmer department store since 1980, he played host this May to Chicago newsfolk and friends at the opening of a new Chicago branch. In July he vacationed in Italy and France, where he took his first fling at parasailing, the heady sport of soaring in a parachute towed by a speedboat. And he remains an observer of Harper’s magazine, the literate monthly forum that he rescued from an otherwise certain demise in 1980; his son, Rick, 28, a former Chicago Sun-Times reporter, now publishes the magazine.

Insiders believe that if the directors agree to put Rick on the MacArthur board—a move they have so far opposed—and give Rod a firm commitment to new rules for financial management, the quid pro quo could end the lawsuits. For now, however, Mac-Arthur seems resolute about dissolving the foundation. “It would be terrible, but I don’t see any alternative,” he says. “This freedom to experiment is unique to a foundation. And it’s good when applied to grant-making. But when that looseness is applied to the business side of foundations, then it’s tragic, disastrous. It means hundreds of thousands of dollars are unavailable to the public good.”

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