Out of the red and into good graces?

Battered WQED midway through turnaround

Originally published in Current, May 9, 1994

By Steve Behrens

With luck, WQED will rehabilitate its reputation as a civic treasure of Pittsburgh this year, as it has already begun to recover its financial health and put its producers back to work, making TV and radio programs.

In the next few months, if all goes as interim President Donald Korb hopes, the station will be hailed as a successful turnaround: its board will be cut in half and reinvigorated; an internal investigation will clear station management of alleged fiscal improprieties; Korb will announce a break-even fiscal year (better than fiscal 1993's $4.8 million loss); and the station will install a new president who knows the bottom line.

And with some additional luck, the station will avoid another bruising round of newspaper stories, if the QED Accountability Project doesn't petition the FCC against renewal of its two TV licenses expiring in August.

Signs of progress indicate only that WQED is midway through a turnaround led by Korb in the one year and one month since the retired treasurer of Westinghouse Electric stepped in.

Eight months into this fiscal year, at the end of February, the station had a net deficit of $1.4 million (almost a tenth of revenues to date), a $5.6 million debt to the Mellon Bank and a negative net worth of $958,466 on "a very, very unhealthy balance sheet," according to Korb.

Despite the debt and lagging membership revenues, Korb thinks there's a chance of zero deficit, even in the critical area of "projects," including national productions.

"Projects" like National Geographic Specials had been a big winner for the station, but officials say the station's financial contraction, with the loss of corporate underwriting in the '90s, turned those projects into a loser. The losses helped put WQED in debt, cause layoffs of one-quarter of the station staff, and topple the station's legendary president, Lloyd Kaiser.

The station today is financially about a third smaller than before its fall, and far less dependent on national projects. At its peak in 1991, Korb says, "projects" amounted to about two-thirds of its $38 million revenues. This year, he expects them to bring in about a quarter of the $26 million revenues.

The station isn't pursuing national productions for their own sake, Korb insists. The objective is to earn some money to subsidize local production, which WQED "owes" to its community, and which doesn't draw enough underwriting support to pay its way.

A few years ago, WQED and its Los Angeles production office were turning out not only the famous Geos that drew many of PBS's biggest audiences, but also The Infinite Voyage science series, the WonderWorks family movies and other national shows. Chevron and Digital Equipment Corp. underwrote Geo and Voyage, respectively, each at about $3 million a year.

"The blessing was almost a curse," says Korb. "The curse was that money was practically no problem, and the funding was generous and up-front. Why keep an elaborate set of books, because the money was in the bank?"

Indeed, WQED operated without monthly financial statements. "The books were closed just once a year by outside accountants," Korb says, "so they didn't know how they were doing until four months after the year ended."

And when the annual profit-loss statements came out, they didn't reflect the cost of equipment depreciation.

No depreciation expenses

Though it was legal not to include depreciation as a cost in its statements, Korb says, the practice had made WQED look financially healthier than it was. If the station had included depreciation costs, its books would have shown red ink every year for the past 10 years, instead of just the last two, he contends.

This year [1994], for only the second year in its history, WQED will show depreciation as a cost of business on its income statement. In effect, the station will put aside about $800,000 for replacement of capital equipment. (Many nonprofits, like for-profit companies, show depreciation on both balance sheets and income statements. WQED had included depreciation only on its balance sheets.)

Korb contends that omitting depreciation from the income statements was "completely inappropriate" and "misleading as can be."

Kaiser says before he left WQED he had already agreed with Korb, then an Executive Committee member, to end the depreciation practice. But he argues that the practice was workable, since WQED periodically held special capital fund drives rather than saving up for equipment.

To tighten fiscal controls, the station has adopted new financial controls and automated systems in the last year, Korb says, and henceforth won't start program production without full funding committed.

Further changes were recommended last month by consultants from the firm of Deloitte & Touche, who compared WQED's operations with those of WTTW, Chicago. They recommended new financial and management software to tie together the "islands of good information," according to Korb. And they suggested changes in organizational structure, which will be left to the new president to implement.

New board next month

Already, the board has settled on major reforms of its own structure and bylaws. Membership will shrink from an unwieldy 57 to 20-25. It will meet six times a year instead of four, and members will be kicked off if they don't attend. To take action, the board will need a majority present and voting, up from a quorum of 20 percent.

On May 25 [1994], the nominating committee will give the board a 24-member slate, and on June 22 the old board is scheduled to vote in the new one. A 25th member will be the chairman of a revived Community Advisory Board, Korb says.

An organized watchdog group, the QED Accountability Project, fears the new board will be little different than the old.

"There's very serious, substantial resistance to any change," says Accountability Project member Robert Norman, a University of Pittsburgh urban planning professor, who served on a board-appointed subcommittee. "I didn't hear much talk about change, except to get things back on the rails--presumably the same old rails."

Whether and how the station changes will be determined in large part by the choice of its new president, who could be named as soon as July and start work in the fall. (Korb says he's not a candidate.)

The search firm of Heidrick and Struggles, hired in February, has presented about 20 candidates, and the search committee narrowed that number to about seven, Korb estimates.

WQED is looking for a candidate "with experience in for-profit business somewhere in his or her career, and not 30 or 40 years ago," according to Korb. The right person need not be a current or former station manager.

The pay will be "competitive" but "considerably lower" than the $257,000 to $277,000 that Kaiser earned annually in 1989-92.

Korb explains that the board's compensation specialist came up with the salary by computing the midpoint of the c.e.o. salaries of a number of other producing stations of WQED's size. The president's pay will be well under $200,000, he says.

"They've been talking a lot more about the $150,000-160,000 range," reports Robert Norman. "There's been pressure from the headhunter to go higher."

Compensation "too high"

Salaries became a hot-button issue in the press during a time when high salaries and fiscal hanky-panky at United Way of America were in the news, Norman recalls.

"There was a sense that the nonprofit public-service agencies had gotten a bit wild in terms of what they were paying themselves," he says.

"The compensation level was too high," Korb contends. "It may not have been in the glory years, [but] times changed a lot."

The problem was compounded by accurate but misleading reports that Kaiser was paid about $68,000 more than his actual pay. A 1992 nonprofit tax report Form 990 showed his compensation at $325,995, and forms for three other officers also showed high figures.

The sums were misleadingly high, according to Kaiser, since they included a one-time redemption of an insurance policy, but they found their way into news accounts, including a January 1994 article on the front page of the Wall Street Journal.

Kaiser disputed the figure and other "fictions" in a letter to the Journal, but the damage was done.

He pointed out that the actual, lower salaries were set by his board's personnel committee "as roughly midpoint among public television national production centers." Unlike the more recent formula for setting his successor's salary, that calculation included salaries at the big stations WNET, WGBH and KCET, according to earlier press accounts.

Korb isn't willing to stand behind the previous salary-setting procedure. Its interpretation of the compensation data was "very, very misleading," he says, and meaningful comparisons among the stations' salaries were impossible because of varying treatments of taxes and pensions.

WQED management also reported its compensation in such a way that the whole amount was not readily apparent. For example, $60,000 of Kaiser's 1989-90 compensation was funneled through a for-profit subsidiary of WQED and was not visible on the station's nonprofit tax reports, according to press reports.

Kaiser says he was not trying to hide his compensation, but was just charging the appropriate personnel costs to the for-profit subsidiary to assure it would not pay too much tax.

Korb thinks the full compensation should have been reported in one place--he suggests a Form 990 with a few asterisks and footnotes.

"There was an attempt to cover up things," says Korb, referring to the salary figures. "You just don't do that."

A key component in WQED's rehabilitation will be a commissioned report from the law firm of former U.S. Attorney J. Alan Johnson that will address allegations of improprieties that go beyond salary reports. The board hired Johnson's firm in October, and the job has "taken a lot longer than hoped." Korb wants it ready by the time the new board takes office and hopes it comes up clean.

"From the day I got here, there were a variety of rumors of wrongdoing by management people," says Korb. "Think about a place that had rather suddenly gone from a successful business to near-bankruptcy. The morale was pretty bad. People were resentful of high salaries. ... It was a ripe ground for rumors, and there were many." The rumors hurt fundraising and weren't going away.

When the probe is complete, the law firm will report to a board committee and if anything is amiss, the board will take public action. "There is no possibility that it will hide something," Korb swears.

"We've lost some of the trust, and we have to earn it back," he explains. "You can't earn it back if you try to cover up things." [As of mid-1996, the Johnson report was given to the board of directos but had not been released to the public.]

Front-page news

Pittsburgh's newspapers have watched the WQED situation closely, contributing mightily to public skepticism about the station. The Post-Gazette intensified the scrutiny with a massive page-one series in October 1991, and the Wall Street Journal revived the story with a front-page feature in January 1994 ("Pittsburgh's WQED Failed to See Change In Public TV Industry, Lavish Spending Continued as Sponsorship Faded, Left Station With Deficit").

As in San Francisco, where KQED has suffered a much longer ordeal in the press, a citizen watchdog group was cast by default as principal critic of the station. In Pittsburgh, however, relations with the QED Accountability Project have been much more cordial on both sides than in the decade-long war out west.

In fact, the station accepted two Accountability Project leaders as members of committees on aspects of the transition, though they feel they have been excluded from key decision-making meetings.

"We've been involved by virtue of the fact that we pushed from the outside, and I think we've been treated accordingly," says Robert Norman, who served on a panel that chose the presidential search firm.

Members of the Accountability Project and other outsiders are excluded so routinely that the project may use that as grounds to oppose renewal of licenses for WQED-TV and sister station WQEX, says project leader Gerald Starr, a West Virginia University professor.

WQED's board is "operating a public television station as if it were a private corporation," Starr charges.

Open-meetings requirements just aren't within the FCC's domain, replies WQED's Washington attorney, Lawrence Miller. While CPB has open-meetings rules, Miller advises, the FCC doesn't enforce them.

That isn't likely to reassure Starr or Norman. Though the station claims to have a diverse board, the accountability activists say it's uninterested in labor issues and dominated by very well-to-do people--notably the chairwoman, Elsie Hillman, whose family is listed as billionaires in Forbes magazine.

"When I go to these meetings," says Starr, "I feel like a street person."