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Betsy Combier

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The E-Accountability Foundation announces the

'A for Accountability' Award

to those who are willing to whistleblow unjust, misleading, or false actions and claims of the politico-educational complex in order to bring about educational reform in favor of children of all races, intellectual ability and economic status. They ask questions that need to be asked, such as "where is the money?" and "Why does it have to be this way?" and they never give up. These people have withstood adversity and have held those who seem not to believe in honesty, integrity and compassion accountable for their actions. The winners of our "A" work to expose wrong-doing not for themselves, but for others - total strangers - for the "Greater Good"of the community and, by their actions, exemplify courage and self-less passion. They are parent advocates. We salute you.

Winners of the "A":

Johnnie Mae Allen
David Possner
Dee Alpert
Aaron Carr
Harris Lirtzman
Hipolito Colon
Jim Calantjis
Larry Fisher
The Giraffe Project and Giraffe Heroes' Program
Jimmy Kilpatrick and George Scott
Zach Kopplin
Matthew LaClair
Wangari Maathai
Erich Martel
Steve Orel, in memoriam, Interversity, and The World of Opportunity
Marla Ruzicka, in Memoriam
Nancy Swan
Bob Witanek
Peyton Wolcott
[ More Details » ]
Questions Are Raised About Thomas J. Donohue and His Accountability For Corporate Practices at Four Private Companies
Mr. Donohue, president and CEO of the US Chamber of Commerce, spent $53 million lobbying for bills such as the Class Action Fairness Act while working as a director at several companies. He serves on the boards of Qwest Communications, the telecommunications concern, as well as Sunrise Senior Living, Union Pacific and XM Satellite Radio Holdings.
February 20, 2005
Taking Care of Business, His Way


When President Bush signed the Class Action Fairness Act into law last Friday at a White House ceremony, Thomas J. Donohue, the president and chief executive of the United States Chamber of Commerce, had a front-row seat. Though Mr. Donohue did not take a bow, he could have. After all, he and his troops had been fighting for years for such a change. The new legislation will push class-action cases out of state courts, which are often more accommodating to such lawsuits, and into federal courts.

"We worked it from one end of this country to the other - morning, noon and night - in every way we could think of," Mr. Donohue said in an interview a few days before the ceremony. "That's our strength. We have an ability over longer periods of time to create perceptions, to educate people, persuade them and get stuff done."

That Mr. Donohue and the chamber have been getting stuff done is beyond dispute. Besides helping to effect change in the legal system, the chamber has also succeeded in stalling a proposal by the Securities and Exchange Commission that would have allowed shareholders more say in how their directors are selected. And the chamber has begun to challenge provisions in the Sarbanes-Oxley law, the corporate reform legislation that followed the collapses of Enron and WorldCom.

But now some people in Washington are beginning to wonder if the Chamber of Commerce is overreaching. Late last year, the organization's legal arm sued the S.E.C. over a rule requiring a majority of a mutual fund company's directors, as well as its chairman, to be independent. And last month the chamber filed a brief in support of Siebel Systems, a software company that has been twice sued by the S.E.C., accused of running afoul of the rule that requires companies to disclose material information to all investors at the same time.

Critics, meanwhile, are raising questions about Mr. Donohue's work as a director at several companies. He serves on the boards of Qwest Communications, the telecommunications concern, as well as Sunrise Senior Living, Union Pacific and XM Satellite Radio Holdings.

Like any other director, Mr. Donohue has a fiduciary duty to represent shareholders. But one independent investment advisory firm has raised concerns about whether he has fullfilled that duty at two companies. And some institutional shareholders and a government watchdog group have questioned decisions he has made as a member of these boards.

"I think the chamber has shown contempt for shareholders, and I attribute that to Donohue personally," said Nell Minow, editor at the Corporate Library, an independent research firm specializing in corporate governance. "I would not be surprised to see him targeted this year by shareholders as the director they love to hate."

AS the man who brought the United States Chamber of Commerce back from the dead, Mr. Donohue and the organization are now practically synonymous. The typical trade group represents a single industry or a narrow band of the business world; the chamber, however, is the nation's largest federation of companies and associations. It has more than three million members, from businesses of every size, sector and region; its 2,800 affiliated state and local chambers give it a presence in nearly every state and Congressional district.

Through Mr. Donohue's efforts, the chamber has become the most visible and effective business lobby in the country. If money is a measure of muscle, the chamber is Herculean. It spent more than $53 million on lobbying in 2004, more than any organization has ever spent in a year, according to PoliticalMoneyLine, which tracks federal lobbying.

The chamber also wades deeply into politics. By its own count, during the most recent election, it deployed 215 people in 31 states, sent 3.7 million pieces of mail, made 5.6 million phone calls and sent more than 30 million e-mail messages on behalf of its candidates. Although it is difficult to attribute the outcome of any election to any one group, more than 90 percent of the Congressional candidates endorsed by the chamber won.

The chamber has several affiliates that push its issues. For example, the Institute for Legal Reform presses for business-friendly changes to the civil justice system, from the legislation governing class-action litigation that passed last week to bills dealing with medical malpractice suits.

One of the chamber's most powerful weapons is its legal unit, the National Chamber Litigation Center. Known internally as "the law firm," the center works through the courts to challenge government regulations and help companies win cases. It was active in 79 cases last year; one was the suit against the S.E.C.

Presiding over this powerhouse is Mr. Donohue, 66, whose capacity for blunt talk is as striking as his white hair and blue eyes. "My job here is to lead the place, to set the tone, to set the character of the institution, to be out publicly on issues of high significance to the business community," he said.

Whether flying in a private plane to talk with chief executives and raise money - he had more than 200 C.E.O. meetings last year - or traveling to Capitol Hill in a chauffeured car to confer with Congressional leaders, he has left his mark on the organization since he took its helm on Labor Day in 1997.

One measure of his efforts at the chamber is its bankroll. During his tenure, revenue has almost tripled, reaching $135 million last year. Scores of companies donate six- and seven-figure amounts to the chamber, secure in the knowledge that the chamber does not have to disclose its donors or how much they give. As the chamber's chief executive, Mr. Donohue makes $1.65 million in annual salary.

Sitting in his large, wood-paneled office with a view of the White House across the street, he mimed an accordion player, spreading his arms broadly, as he explained the chamber's interest in a host of issues. To varying degrees, the group is pushing for changes to laws and regulations that govern bankruptcy, taxation, trade, immigration and just about any other matter that affects United States companies.

He brings his hands together to show how the chamber narrowly focuses people and money on priorities. "We have to always remember our accordion," he said. "We have to reach wide to understand and to serve our members and to help them, and we have to squeeze narrow to get ultimate focus and pressure."

For a man who fights battles for the business world, Mr. Donohue has had scant experience actually working in it. He graduated from Adelphi University on Long Island with a master's degree in business administration and later became a vice president at Fairfield University in Connecticut. He went on to become regional assistant postmaster general in San Francisco and in New York City, before eventually being named deputy assistant postmaster general in Washington.

In 1984, he joined the American Trucking Association, a lobbying organization in Washington, as president and chief executive. Thirteen years later, he joined the Chamber of Commerce, then moribund.

"What we basically were faced with was an extraordinary brand name that had fallen into some disrepair," he said. "That disrepair was on the financial side, where the revenues had dried up." He also said that membership needed to increase and that the chamber's focus needed to be sharper.

He defends all of the chamber's actions in the public policy arena, saying the organization operates "with high integrity" and "good manners."

"There's no question that when you get as big as we are and spend as much money as we do, there are going to be some people, probably rightly so in some instances, that are going to be critical of what we do or of the individuals that do it," he said.

When it comes to regulations dealing with corporate governance or accounting, Mr. Donohue has called for moderation. In that spirit, he has repeatedly criticized Eliot Spitzer, the New York attorney general, who has brought prosecutions against brokerage firms, insurance companies and mutual funds.

Last week, Mr. Spitzer returned fire: "Tom Donohue has never once found a crime that he couldn't justify, as long as it was committed by one of his dues-paying members," he said in an interview with Fox News.

A large part of the chamber's job appears to be taking unpopular stances that its members, by themselves, are unwilling or unable to pursue. "If individual companies went out and sued the S.E.C. or said some of the things that I have said about the need to come back to some balance in corporate governance and accounting, they would open themselves up to extraordinary risk and criticism," he said.

"We are an advocacy organization," he added. "I believe that advocates should be enthusiastic and should be energetic, and I do believe they should be aggressive."

Perhaps the best example of the chamber's influence is its long-running campaign to pass pro-business changes to the legal system, an issue known in Washington shorthand as "tort reform." To that end, the chamber has led a highly effective charge against a major Washington lobby willing to spend heavily opposing the efforts: the trial lawyers. Over the years, much of the work was done by the Institute for Legal Reform, which Mr. Donohue created in 1999 to gather money and resources to focus on the fight.

Since then, the institute has spent more than $72 million on lobbyists, research, advertising and other weapons to revamp the legal system around the country. The institute "was designed to be the pointy end of the stick," said Stanton D. Anderson, the chamber's executive vice president and chief legal officer. "It was designed to rattle around in the trial lawyers' faces and get a reaction."

THE institute's tactics have been anything but typical. It has helped push legislation in individual states, gaining victories in Texas and Mississippi. It also sought to protect these changes by supporting state candidates for attorney general and the Supreme Court. It was involved in 16 state races in the 2004 elections, Mr. Anderson said.

In the national election last year, the chamber gave $3 million to seed the November Fund, a group that criticized Senator John Edwards, the Democratic vice presidential candidate, who was a trial lawyer before he was elected to the Senate.

The institute even helped to start a newspaper, The Record, in Madison County, Ill., a place that attracts droves of class-action lawsuits because the courts there are considered favorable. The chamber provided start-up financing for the paper, which is charged with reporting and publicizing the action in the county's courtrooms.

"Are they anti-trial lawyer? You bet," Mr. Anderson said. "That's their focus, but their principle focus is to cover what's happening."

Alongside the institute is the National Chamber Litigation Center, which says it works to shape public policy on important legal questions of national concern to American business. But the organization has also filed briefs on behalf of companies, including some on whose boards Mr. Donohue serves or whose executives are on the chamber's board.

Last September, it filed a brief in support of Union Pacific, urging the United States Supreme Court to review a 1998 Arkansas Supreme Court decision that upheld a $25 million punitive damage award against the railroad related to a fatal accident. The request is pending.

In 2003, the litigation center urged the United States Supreme Court to review an Illinois Court of Appeals decision dismissing the claims of the Overnite Corporation - the trucking unit of Union Pacific that was spun off that year - to recover money for damage caused by the Teamsters during violent picketing. The Supreme Court declined to hear the case.

Also in 2003, the chamber urged the Supreme Court to review a Montana Supreme Court decision requiring a broker "to explain the consequences" of an arbitration clause before it was enforced. Such clauses require brokerage firm customers to bring any suits they may have against the firm in arbitration rather than in the courts.

The brief was filed on behalf of Edward D. Jones & Company, a firm run by John W. Bachmann, the chairman of the chamber's board. In it, the chamber argued that the Montana court's decision imposed a needlessly stringent requirement. The Supreme Court declined to hear the case.

But it is Mr. Donohue's activity as a director at four public companies that is beginning to attract the spotlight. Last year, Glass Lewis & Company, an institutional advisory firm in San Francisco, recommended that shareholders at Qwest and Union Pacific withhold their votes for Mr. Donohue. The firm said that he was a member of the compensation committees at both companies that had doled out excessive executive pay. And at Qwest, Glass Lewis's analysts said, he could not be considered independent from management, since the company made a $100,000 donation to the chamber in 2003.

Mr. Donohue is quick to defend his service on corporate boards, offering both broad explanations and detailed rebuttals to his critics. "I have nothing in that category of my life that I'm not very pleased about," he said. "I'm not unhappy about the board service. I believe it has served me and the chamber very well."

The $106,000 in cash retainers and the thousands of stock options he received for his director work for 2003 are not a motivation, he said. With few exceptions, he said, he does not take his payments in cash. "I won't touch any of that money until the whole deal is over," he said. "By the way, in Qwest, depending how it all comes out, there may not be anything there after all that time and energy." Qwest is the weakest of the big telecommunications companies, and is seeking a partner that could make it a more formidable competitor.

Mr. Donohue says the board positions offer him firsthand insight into how corporations operate and the challenges they face. "It's like getting a Ph.D. in dealing with the government of the United States, with the markets, with international finance, with the press, with the regulators and with the unbelievable changes going on in the business community," he said.

The insight helps him run the chamber, he said, adding that his board work also "allows me a series of relationships and contacts that I otherwise might not have."

BUT who benefits from these contacts? And is Mr. Donohue looking out for the shareholders in his role as corporate director? Some of the relationships seem to have benefited him and his family personally.

In November 2003, his son, Thomas J. Donohue Jr., an investment banker at Adelphi L.L.C. in Washington, was named to the board of the Overnite Corporation, the company spun off by Union Pacific. He serves on the board's compensation committee and its nominating and corporate governance committee; he received a $45,000 retainer last year, half in cash and half in stock, as well as 2,000 options.

Mr. Donohue said, "I had zero to do with getting him on that board." The younger Mr. Donohue, 40, did not return phone calls seeking comment.

Before Sunrise Senior Living went public and the senior Mr. Donohue became a director, he struck a private deal with the company that turned out to be quite lucrative for him.

Back in 1993, Mr. Donohue and his wife, Elizabeth, invested $500,000 in a property it partly owned.

He joined the Sunrise board in 1995. During the next year, just before it offered shares to the public for the first time, Sunrise bought the ownership stake back from Mr. and Mrs. Donohue for stock worth $1,050,000 at that time. Add the $95,000 that the investment generated in income during the three years he owned it, and Mr. Donohue more than doubled his money on the deal. At the time of the I.P.O., he also received options then worth $200,000.

He said that the deal was years ago and that it took place before the company went public. "I was an absolute independent director because I sold that property at the time the company went public," he said. "It doesn't compromise my views at all."

MR. DONOHUE'S work as chairman of the compensation committee at Union Pacific has also raised questions among critics. As is often the case at public companies, executive pay is linked to its performance. How that performance is measured can mean the difference between moderate and more munificent pay.

In 2001, Union Pacific's board approved an incentive pay program that would grant cash and stock at the end of a three-year period. The awards would be granted, the program stated, if the company's stock traded above $70 for 20 days in a row or if company earnings for the period totaled at least $13.50 a share.

In late 2003, it became clear that the company might miss both targets. The compensation committee chose to include the proceeds from the Overnite sale in the earnings computation. That put the executives over the top for the cash and stock awards, even though proceeds from a sale are not typically included in earnings.

For 2003, Richard K. Davidson, Union Pacific's chief executive, received $9.5 million in salary, long-term incentive pay and other compensation as well as $4.5 million in restricted stock and 325,000 options.

At the time of the deal, the company maintained that adding the proceeds to earnings was appropriate. But investors frowned on the deal. Glass Lewis said the members of the compensation committee had failed in their duty to Union Pacific stockholders as a result of the questionable earnings computation. Mr. Donohue declined to comment.

His involvement with Qwest and Union Pacific has also caught the eye of Public Citizen's Congress Watch, a watchdog group that opposed the class-action bill and wrote a report focusing on Mr. Donohue, to be released tomorrow.

Citing Qwest's long list of run-ins with telecom and securities regulators and Union Pacific's troubling safety record, which includes a high rate of train accidents, the report is severely critical of Mr. Donohue and the chamber's efforts on tort reform. "Donohue is a steward of two companies that serve as vivid examples for why we need a strong civil justice system and vigorous regulatory oversight," according to a draft of the report.

Of course, individual board members cannot be held solely responsible for all the actions of the multibillion-dollar businesses they help guide. And little is known about the positions, arguments and recommendations that Mr. Donohue tendered as a director at either company, because public companies rarely disclose directors' deliberations.

And, to some degree, Mr. Donohue's tendency to grant high executive pay that is not justified by the company's stock performance may be a throwback to the pre-Enron days when boardrooms were collegial places and directors were handpicked by the chief executive more for their loyalty than their toughness.

But as investor scrutiny of directors continues to rise, Mr. Donohue seems certain to remain in a harsh spotlight.

"Unlike his predecessors at the chamber, he has not run a business and his actions at the chamber seem aimed at diluting the power of shareholders," said Greg Taxin, chief executive of Glass Lewis. "In the eyes of many of our clients, Donohue is an odd choice for a director."

Class Action Fairness Act: Bill Summary and Statutes

Related Links:

Bio of Mr. Donohue

Daily KOS Protests Class Action Fairness Act

Consumer Union protests Class Action Fairness Act

Class Action Fairness Act (108th Congress, October 2003)

© 2003 The E-Accountability Foundation