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Correction to This Article
A May 17 Page One story incorrectly said that Smithsonian executive Gary M. Beer is 46. He is 56.
Controversial CEO to Leave Smithsonian Business Ventures

By James V. Grimaldi and Jacqueline Trescott
Washington Post Staff Writers
Thursday, May 17, 2007

Gary M. Beer, the founding chief executive of the Smithsonian's business unit and architect of a controversial deal with Showtime Networks Inc., has announced plans to leave amid internal and congressional inquiries into his management, expense account and promotions of a female subordinate.

Beer told staff in an e-mail that he will not attempt to renew his contract in September as chief executive of the seven-year-old Smithsonian Business Ventures. The unit, known internally as SBV, runs museum gift shops, restaurants, theaters and other profitmaking ventures.

The departure of Beer, who earned more than a half-million dollars in 2005, along with the resignation in March of Smithsonian Secretary Lawrence M. Small, signals a move away from the high-flying, private-sector culture installed to make the institution run in a more profitable, market-based fashion. The era of Small and Beer was marked by corporate-style compensation, executive-rich expense accounts and deals with private partners that clashed with the scholarly, public-sector ethos of the 160-year-old institution.

"As the Institution reassesses the balance in public and private sectors going forward, I believe this is an opportune time for a change," Beer said in the e-mail late Monday. "The misinformation about SBV that has circulated in the last year is most unfortunate, as the record of accomplishment is one of which we should all be proud."

The acting Smithsonian secretary, Cristián Samper, thanked Beer yesterday in a statement but questioned "whether the current mandate for SBV is the right one."

Beer, 46, a former executive at Robert Redford's Sundance Institute, has come under increasing scrutiny in recent weeks as the Smithsonian has been roiled by controversy over its leadership and finances. Small was forced to resign following revelations of lavish expense account spending, including $2 million in housing and office expenses over seven years.

The Smithsonian inspector general, who earlier this year issued a report criticizing the business unit's performance, is also investigating Beer's expenses and is expected to issue a report this month. As that report neared completion, Beer told some of his nearly 500 employees at senior staff meetings that his expenses over five years included at least $10,000 in unitemized expenditures and $30,000 in limousine charges. Three Smithsonian magazine employees who attended one of the meetings said Beer, explaining the chauffeured car service, told the group, "I don't do Yellow cabs."

Beer said the comment was taken out of context.

"I often take taxis, but when I travel in New York I typically use a scheduled car service because it is more efficient and reliable," Beer said in a statement to The Washington Post. "I have found finding cabs -- particularly at rush hour or in rain or snow when I am headed for the airport -- to be unreliable."

Sen. Charles E. Grassley (R-Iowa) Monday sent a seven-page letter to the Smithsonian Board of Regents asking about the management of the business unit.

In addition to queries about Beer's performance, the letter includes a series of detailed questions about promotions and bonuses for one of Beer's lieutenants, Jeanny Kim, who was identified by her title, vice president and general manager of media services. The letter also asks for all e-mails between Beer and that individual, as well as for that vice president's personnel file.

Senate investigators have told The Post the questions were prompted by statements from former employees that it was widely believed in the office that Beer had an intimate relationship with a direct subordinate.

A spokeswoman for the Smithsonian, Linda St. Thomas, said the institution discourages but does not prohibit supervisors from having relationships with their direct subordinates. The policy does prohibit preferential treatment. St. Thomas said the Smithsonian's human resources department had received no formal complaints about Beer and Kim, who met at Sundance when Kim was a seasonal employee at the film festival.

Beer hired Kim as an executive assistant and gave her five promotions and four raises over the next six years. Kim, 39, now serves as a vice president and is one of the highest-paid employees in the business unit, earning more than $140,000 in 2006.

Kim did not return messages seeking comment. Beer declined to be interviewed, but provided The Post last week with a four-page letter in response to questions. He declined to address questions about his relationship with Kim. "Ms. Kim is an accomplished professional who has received promotions and raises based on merit," Beer said. "Ms. Kim was selected for that position at the request of Showtime as they were impressed by her performance."

Grassley and some members of the institution's board of regents had been quietly pressing for Beer to step down, according to sources familiar with the matter. Smithsonian executives had wanted to avoid forcing Beer out and being required to pay a full one-year severance package outlined in his contract, the sources said.

"A number of whistle-blowers have described problems from out-of-control spending to sweetheart promotions," Grassley said. "We need to have leadership at SBV that puts the Smithsonian first and high executive pay and perks in the rearview mirror. I don't know how you justify keeping someone with this record on the payroll until September."

Beer submitted his notice in a letter, dated Monday, to Samper.

In a statement to The Post yesterday, Beer defended his tenure.

"The fact is that SBV doubled revenue per museum visitor during my tenure," he wrote. "It is unfortunate that the focus is not on this financial success. The January 2007 IG report's mischaracterization of SBV's performance may lead to changes in the business model that will damage the Institution and the pocketbook of the American taxpayer. That is the real story."

Beer was hired seven years ago amid predictions that profits could be doubled through new initiatives and improved business practices. The new business unit was deemed vital to the Smithsonian's future as expenses, particularly a backlog of maintenance and repairs for the institution's vast 18-museum complex, continued to rise faster than federal funding, which accounts for three-quarters of the budget.

Instead, revenues have been flat and profits have dropped, prompting Samper this month to launch a top-to-bottom review of the business unit.

At the Smithsonian, Beer's biggest accomplishment was the deal he struck with Showtime, which granted the network virtually exclusive access to the institution's collections in exchange for a 30-year agreement expected to provide the Smithsonian with at least $99 million. The deal caused what Small called "a tremendous hullabaloo." Critics included librarians, historians and filmmakers, ranging from public television's Ken Burns to retired Lt. Col. Oliver North.

Beer negotiated the deal while he was an investor in a joint venture involving Showtime. He alerted Smithsonian ethics officials of his investment in March 2005. After a three-day review, the Smithsonian's general counsel determined there was no conflict of interest because Beer "did not have a general partnership interest" and was not involved in the venture's decision-making. The Government Accountability Office reviewed the issue and concurred. Beer currently has no ownership interest in the joint venture involving Showtime, he said in his statement.

Marcus Owens, a Washington attorney who previously ran the tax-exempt section of the Internal Revenue Service, told The Post that he would have advised against Beer's participation in the Showtime deal in order to avoid the appearance of a conflict.

In his statement to The Post, Beer defended the Showtime deal as a good one for the institution and said his expenses were justified. He said his expenses averaged $35,000 per year between 2000 and 2005, the period under review by the inspector general.

"All of these expenses were legitimate business expenses incurred in furtherance of the mission and operations of Smithsonian Business Ventures," he said. "During the course of the review, we learned that documentation for some expenses had been lost or misplaced."

A former Washington lobbyist, Beer in the 1980s joined Sundance, which Redford, the Oscar-winning director, founded to support independent films. Beer quickly became a controversial figure within Sundance for spending lavishly on his expense account, according to Peter Biskind, who wrote about Sundance in Premiere magazine and later in a book.

Eventually, Beer moved to the for-profit Sundance Group. He helped found the Sundance Catalog Co. and the Sundance Channel. He left in 1998 to develop his own private investments.

Beer began with the Smithsonian in August 1999, and the business unit was formally launched in August 2000. Beer was hired because he had been able to start a business unit at Sundance.

The Smithsonian's businesses -- two magazines, gift stores, restaurants, Imax theaters, mail-order catalogues, licensing deals and a travel service -- contribute less than 4 percent to its $1 billion budget. But Smithsonian leaders say the business cash is crucial because it is unrestricted -- not earmarked for specific uses.

However, the Smithsonian's inspector general found that profits fell from $27.9 million 1999 to $23.9 million in 2006.

Beer blamed the Sept. 11, 2001, attacks, a soft magazine-ad market and sinking catalogue sales. He said the inspector general's report omitted "market conditions and management's actions to address them."

Museum directors complained after profit-sharing from gift shops fell from $7.9 million in 2005 to $5.6 million last year. "Needless to say, we are shocked, disappointed and discouraged," Samper, then director of the Museum of Natural History, wrote in an e-mail to Beer.

Beer replied to Samper that the numbers were partly the result of changes in a new accounting system.

In a report released in January, Inspector General A. Sprightley Ryan found numerous accounting errors and questioned the accuracy of the business unit's financial statements. Ryan also urged that the business unit jettison "market-based pay" for base salaries and "pay for performance" for bonuses.

Ryan found that pay had increased while revenues remained flat and profits declined. In 2001, the business unit's payroll equaled its profits of $26.2 million. Last year, paychecks exceeded profits by $2 million. Beer earned $570,317 in 2005. The top 10 executives in the unit made a total of $2.7 million in 2006.

Smithsonian Deputy Secretary Sheila Burke, who sits on an internal institution board that oversees the unit, rejected Ryan's suggestion.

Documents obtained by The Post show that Beer approved in 2006 a bonus package of about $136,000 on top of the $325,000 salary for Steve Shaiken, the president of museum retail. That was in addition to Shaiken's $100,000 relocation package from Florida to Washington, which included $77,000 for the closing costs for a Ritz-Carlton condo and $22,000 to move household goods.

Shaiken left his job after one year and one day, and was allowed to keep all of his relocation expenses. Shaiken did not respond to messages seeking comment for this story.

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