The Marvin M. Schwan Charitable Foundation and the LCMS Board of Directors

By David Domsch

For the last decade the LCMS has received significant contributions from the Marvin M. Schwan Charitable Foundation. Though this donor’s identity has been known for some time, the size and use of its gifts have remained largely hidden. This brief inquiry into the foundation and its relationship to the LCMS Board of Directors attempts to add light.

The foundation is the legacy of Marvin Schwan, founder of the frozen food company that bears his name. Created in November 1992, the foundation received company stock worth approximately $900 million in 1993. To give a feeling for scale, this is $100 million more than total contributions to and through LCMS congregations in North America that year.

This committed member of the Wisconsin Evangelical Lutheran Synod and the Lutheran Laymen’s League directed his Foundation Trustees to support 7 conservative Lutheran organizations:

–The Evangelical Lutheran Synod (ELS)

–Lutheran Church, Missouri Synod (LCMS)

–Wisconsin Evangelical Lutheran Synod (WELS)

–Lutheran Laymen’s League (LLL)

–Bethany Lutheran College (operated by ELS)

–Wisconsin Lutheran College (operated by WELS)

–Wisconsin Evangelical Synod Kingdom Workers, Inc. (a WELS auxiliarymission organization.)

According to reports provided to Synod’s Board of Directors, the Schwan Foundation has contributed nearly $84 million to Synod’s budgeted spending between July of 1996 and June of 2003. Without those contributions the “financial concerns” recently reported by Synod’s Board of Directors would have been evident to the church much sooner.

While large gifts can be a real blessing, they have a downside. Depending on large gifts is very risky – loss of a single large gift can cripple an organization. This risk is especially acute when a big donor has a goal of exerting major influence on the organization, not simply supporting it.

While it can certainly be argued that the Schwan Foundation contributions have been a blessing to the LCMS, it cannot be argued that the money comes without an agenda. The document that established the foundation specifically states, “ It is intended that the Trustees of the Foundation manage the Foundation in such a way as to exert a substantial and independent influence upon the policies and practices of the beneficiary organizations in furtherance of a conservative and traditional position.” And further: “…Trustees shall maintain a significant involvement in the operations of at least one of (the supported organizations) to the extent that one or more of them shall be dependent upon the Foundation.”

The LCMS has been and remains a conservative and traditional Lutheran denomination. The LCMS does not, however, exist at the pleasure of the foundation. We should and must continue our own vision of mission and ministry – not allowing ourselves to become dependent on any donor – even one with great resources.

In addition to funding entities in the LCMS budget, foundation Trustees also wanted to fund organizations that are not in the LCMS budget. This presented a problem as the foundation was created to fund 7 specific organizations. The solution – pass the money though the LCMS to the other organizations.

Beyond the “to budget” contributions, some $20 million has passed from the foundation, through the LCMS to other organizations over the last decade. Two organizations, the Lutheran Heritage Foundation (LHF) and Concordia Mission Society (CMS), have together received $16.3 million of that “pass through” funding.

The LHF website indicates it was founded in November 1992, the same month the Schwan Foundation was created. Rev. Robert Preus was its founding Chairman of the Board. Its stated mission: “to perpetuate the Lutheran faith worldwide by translating, publishing, and distributing confessional Lutheran theological books and materials.” The LHF has indeed translated, published and distributed Confessions, Catechisms, and similar documents – primarily texts to be used in training local pastors. As to the quality of those translations, however, people with good credentials in the community of translators question an ideological bias and lack of skill they see in the work. It would seem important – at all times but especially when producing training texts for new pastors – that there should be no question about the accuracy and lack of bias in translations.

The Concordia Mission Society was incorporated in February 1993, 3 months after the LHF. Bylaws list J.A.O. Preus II and Rev. Lawrence Burgdorf (now Executive Director of the foundation) as Directors. Rev. Daniel Preus and Rev. Alvin Barry also are named as founders in other places. The CMS Development Director, Dr. Tom Baker, has the same mailing address as Balance, Inc. (Robert Preus was Balance, Inc’s first President) and the publication Affirm.

It appears there is a very close relationship between Schwan Foundation Trustees and certain LCMS Officers and Board Members.

While some say Schwan Foundation gifts have no political motivation, its funding pattern strongly suggests otherwise.

Though the foundation has given a lot of money to the LCMS, it has not done so consistently. In the last 5 years of Rev. Barry’s Presidency, “to-budget” contributions averaged $14.2 million. In the 2 years of Rev. Kieschnick’s Presidency, that average dropped 55% — to $6.5 million. An $8 million drop in income (+/- 10% of the budget) can create “financial concerns”.

During the last 5 years of Rev. Barry’s Presidency, the office of the President received an average of $783,000 each year. These dollars funded Presidential travel, the What About publications and other discretionary spending. In the 2 years of Rev. Kieschnick’s Presidency that support was $212,000 and $15,000 – almost all, I understand, to complete projects funded during the Barry Presidency. It is impossible to see this as anything but financial pressure on the current Synod President.

In this context, the recent attention to “financial concerns” by the Board of Directors has a false ring. Synod’s fundamental financial problems certainly were evident to leaders throughout the Barry years – but they remained out of sight for the wider church, hidden under a pile of Schwan dollars.

It is almost impossible to believe the drop in foundation support is coincidental. Dollars were available to hide the worsening financial position as long as the foundation could freely advance its agenda. When that agenda could not be advanced as easily, the equation changed. Keeping financial problems out of sight no longer served the cause.

Far more plausible is that Rev. Kieschnick’s election created a double opportunity.

He could be blamed for the financial problems, and

Exposing the financial problems gives the board a reason to expand its control.

Donors have the right to select recipients. No one disputes that. The real issue is not that donors have agendas – many do. The issue is the failure of the LCMS Board of Directors to fulfill its fiduciary and governance duties to Synod with respect to this major donor. Those duties have been breached in a number of ways.

The board has a fiduciary duty to understand the organization’s strategic risks and do what it can to limit them. Having nearly 20% of Synod’s income depend on a single source – a source whose published goal is to, “…exert a substantial and independent influence upon the policies and practices…” of the LCMS – “… to the extent that one or more of them (recipient organizations) shall be dependent upon the Foundation” – is certainly a major strategic risk.

This risk is not hypothetical. The Lutheran Laymen’s League is one of the 7 organizations the foundation was created to support. Foundation filings with the IRS show contributions of $7 million to $8 million a year to the LLL from 1996 to 2001. Since the departure of Rev. Wallace Schulz, however, the foundation’s Executive Director admits that all funding of LLL has stopped. The LLL is faced with immediately replacing the missing dollars or dismantling ministries that depend on those dollars. The LLL also serves as a not-too-subtle warning. The LCMS can expect similar treatment if it does not do what the foundation wants.

This risk has not been addressed – rather it appears to have been embraced by a majority of the board. Given the obvious financial problems and serious impact on synod of a cut in foundation funding, this is, at best, a major board failure.

In agreeing to keep the foundation’s donations secret, the board has failed to operate transparently. While not illegal, it is certainly not acceptable practice in a not-for-profit organization – especially a church. While the US Constitution keeps the government from making churches file public financial reports, the IRS requires much more financial transparency from other not-for-profits. Experience has proven that opaque financial dealings are far too open to abuse. The LCMS should be at least as transparent financially as the IRS requires the Red Cross to be.

In agreeing to be a conduit for funds to organizations the foundation could not fund openly, the board also failed in a core governance responsibility – oversight of where and how this money was spent – and controlling the impact of this outside spending on LCMS units like the Mission Board. Since their founding, the LHF and CMS have heavily influenced where the LCMS’ mission work is done.

In allowing the foundation to fund Synod’s boards, commissions and other units on a project by project basis, the Board of Directors abdicated its responsibility to not allow an outside organization to set Synod’s priorities. The foundation set priorities by its funding decisions.

In agreeing to pass through funds to organizations closely tied to sitting Officers and Board Members, the board created and accepted conflicts of interest. When it is easy to question whether positions and actions are taken in the interest of the LCMS or an outside organization, Synod has a serious problem.

Under the guise of addressing “financial and legal concerns” the board recently issued a report suggesting Missouri Law grants it authority (except narrowly defined “ecclesiastical” authority) over all aspects of the church. August 2003 board minutes suggest this includes:

· Assets of schools in the Concordia University System

· District assets, including extension funds and bank balances

· Stripping the Commission on Constitutional Matters (and others) of the authority granted in Synod’s Constitution and Bylaws – making them, “advisory to the board.”

· Authority to terminate all officers of Synod, including the President, with or without cause.

To buttress its position, the board has acquired an outside legal opinion. A legal opinion is just that – an opinion. Law firms routinely write opinions that claim legal justification for their client’s position. Paying $45,000 for this opinion has only one logical objective – convincing law-abiding LCMS members that state law mandates more authority for the BOD than given by the LCMS constitution and bylaws.

The existence of an opinion in no way creates legal reality – that requires a ruling by a court of competent jurisdiction. No court in the land is likely to accept jurisdiction over a church’s internal organization. The state has no interest in how the LCMS allocates responsibility among its various entities. The state does have an interest in knowing how to find the board in case someone has legal business with the church. That is far cry from the state demanding a re-write of the church’s constitution and bylaws.

In hiring its own attorney and saying the LCMS attorneys have a conflict of interest in advising the board (9/18/03 minutes), the board admits it is Synod’s adversary in this matter. The only way Synod’s counsel can have a conflict of interest in advising the board is if Synod’s interests are not the same as the board’s interests. Becoming an adversary is a clear breach of a Board Member’s most basic duty – to act always in the interest of the organization. It is cause to remove Board Members from office.

This brief inquiry has raised a number of serious questions arising from the close relationships between the Schwan Foundation and Synodical Officers and Board Members. Those questions deserve full and open answers – and Board Members need to be accountable for their actions relative to this significant donor.

At an absolute minimum, Schwan Foundation contributions to and through synod must no longer be kept secret and known only to the board. Full disclosure of what is funded and what is not – both on and off budget – is a minimum expectation.

As the LCMS moves forward it needs transparent processes to allow accepting significant contributions without becoming dependent or allowing large contributors undue influence. That is a core job of the Board of Directors. We must insist that job is done.