In a Las Vegas ballroom on Oct. 24, the international scuba diving industry elite gathered in black tie to celebrate their heroes–dead, alive and outgoing. Upon Peter Bennett, one of the latter, they bestowed a lifetime-achievement award for his work at Divers Alert Network, the Durham-based non-profit he has led since 1980.
Clasping his silver wetsuit-clad figurine, Bennett spoke proudly of the universal altruism of DAN, the organization he nurtured from a single telephone on his Duke University desk into the internationally respected “Red Cross of Diving.”
“DAN is divers helping divers,” the CEO said emphatically in his clipped British accent, as if someone from the audience had silently challenged the oft-repeated mantra that graced both his acceptance speech and the video clips that introduced him.
In the last two decades, Bennett has led DAN to a glossy public profile as a $14 million global enterprise. Selling memberships and accident insurance and collecting charitable donations, Bennett has carefully cultivated the only organization on the planet that provides a 24-hour hotline for diving accidents. DAN also funds and conducts research on the effects of diving on the human body, and uses that knowledge to develop training programs for divers and the doctors who treat them. More than 260,000 members rely on DAN for worldwide rescue in emergencies, and for general guidance on diving-related health questions, trusting that their $29 annual fee and the optional insurance premiums most of them pay are supporting the nonprofit’s mission of maintaining the medical safety net and improving scuba for everyone.
From the candlelit floor of the industry’s annual gala, the 71-year-old Bennett saluted his members and his staff, smoothly carrying off the part of a benevolent elder at the pinnacle of his career, a tuxedoed icon heading off to retirement in June.
But beneath DAN’s tranquil surface, its depths are roiling. Unbeknownst to all but a handful of the 450 people in the ballroom that night, the nonprofit’s board forced Bennett to surrender the helm long before he was ready. In an 18-month legal battle that ended just weeks before the big banquet, a majority of the directors accused their CEO of mismanaging corporate funds and spending them extravagantly on himself and his supporters, including Durham attorney Wes Covington, DAN’s corporate counsel for most of its 22-year history. The board also alleged that Bennett tried, with Covington’s help, to secretly gain control of DAN’s lucrative Cayman Islands insurance subsidiary, engaged in favoritism and nepotism, and generally ran the nonprofit like a for-profit autocracy. Meanwhile, he collected three salaries–from DAN, its subsidiary, and Duke University, where he holds a professorship–totaling well over $200,000 a year, plus travel and benefits.
And every dollar spent on travel and high salaries was money that didn’t go toward research and support to benefit divers.
“He likes to wear the altruistic button, but he doesn’t like to walk the altruistic walk,” says former board member Glen Egstrom, who headed out the ballroom door in disgust as soon as Bennett took the stage that night. “DAN is Peter’s empire, his personal fiefdom. And that’s not the way it should be.”
Egstrom, a University of California professor with 44 years of diving research on his resume and himself the chairman of a diving-related educational nonprofit, is just one of a growing string of scientists and business leaders who volunteered for the DAN board out of devotion to its research and education efforts, only to wind up questioning Bennett’s judgment and the general direction he was steering the nonprofit.
“DAN is a great organization. It came along at the right time in diving. Dr. Bennett is best described as a diving god,” says former board member Bill Lovin, the first non-staff board member in the early 1980s. “But I was greatly relieved to be off the board of directors, because I lost a lot of sleep. Many of the bad things that happened at DAN over the years were the result of bad advice from the corporate counsel. I was terrified they were illegal.”
Like many directors who would come after him, Lovin melted away quietly under pressure from Bennett, he says, rather than risk harming DAN’s sterling public image. Lovin, an accomplished underwater videographer in Chapel Hill, knew first-hand how invaluable DAN’s work was, since its emergency assistance saved him twice during bouts of decompression sickness, also known as “the bends.” Though Lovin has recovered from both his accidents, he still carries scars from his tenure on the DAN board.
“I can’t in good conscience ever again say to a dive shop or to an individual, ‘You should go out and hold a fund-raiser for the Divers Alert Network,’” Lovin says today, a catch in his throat at criticizing his former “god.” “DAN is now big business. It may be a nonprofit, but it’s big, big business.”
As DAN grew from Bennett’s tiny office at Duke’s Center for Hyperbaric Medicine and Environmental Physiology into an independent multi-million-dollar enterprise with its own building, a succession of board members left disillusioned after facing the same hard conclusion Lovin had: The man they considered a hero was unable, or unwilling, to separate the best interests of DAN from his own best interests. And yet, forcefully severing the two could forever tarnish the organization they all cared so deeply about.
But in early 2001, something happened that had never happened before: A majority of the seven voting board members decided it was time to rein in Bennett’s long reign. Armed with the history of their predecessors, their own serious criticisms of the CEO’s practices and a diverse array of management experience, five board members persisted where others had surrendered, pushing Bennett to retire sooner than his proposed date, DAN’s 25th birthday in 2005.
“I was attacked. Why was I attacked? I was a successful entrepreneur who’d built a very fine nonprofit,” Bennett declares indignantly from behind the “Reaching Out” award he collected in Las Vegas, now stationed prominently at the front of his expansive desk. “I chose to stand and defend.”
Seeing his career besmirched at its sunset and his plans to coast out with a generous golden parachute on DAN’s silver anniversary endangered, the man who calls himself DAN’s founder filed suit to keep his job and oust his five antagonists.
“He thought the board members would resign and go away,” says Michael Lang, the head of the Smithsonian Institution’s diving program and chair of the board that finally stood up to Bennett. “But we had resolve, because we believed in DAN’s mission. We said, wait a second, you can’t have someone who’s not accountable to anyone reaping the full benefits the IRS provides for nonprofits and the full benefits of the diving community.”
Bennett calls the board’s efforts to rush his retirement an orchestrated vendetta by a small group with “personal malice” toward him, but says he has “no idea” why they want him gone. He calls concerns about his management style “that dictatorship nonsense,” and dismisses the allegations of mismanagement, self-dealing and nepotism as irrelevant in light of DAN’s phenomenal success, in both its healthy bottom line and a record of helping 130,000 injured divers since 1980.
The chief defendant shakes his head at Bennett’s characterization.
“This outright dismissal of what is termed ‘disgruntled former board members’ is completely inappropriate,” Lang says, pointing out that DAN’s directors are unpaid volunteers with no financial stake–but plenty of legal and ethical responsibility. “They all had issues, and there were common threads through those issues.”
The 18-month-long court clash, begun May 7, 2001 and settled privately in September, eventually churned up hundreds of pages of letters and other internal records detailing those issues. Those documents, and a four-month investigation by The Independent, reveal a long-submerged tale of the directors’ battle to keep the “Red Cross of Diving” from drifting away from its unique mission under the guidance of a CEO they didn’t trust.
An unfounded claim
Peter Bennett’s public image is full of modifiers. In his writings, his speeches and other venues, his name rarely appears without either “Dr.” in front of it or two sets of initials after it, denoting his advanced degrees from Southampton University in England. Those around him generally address him as “Dr. Bennett,” some noting privately that he’s a Ph.D., not a medical doctor. The one obvious exception to these practices can be seen on the face of the DAN headquarters, where, under the company logo, the subtitle reads “Peter B. Bennett Center” in type large enough to read from U.S. 15-501. While Bennett admits he catches occasional ribbing for having a building named after him before he’s dead, he beams with pride about it anyway, quickly stressing it wasn’t his idea. While some DAN leaders around at the time of construction dispute that, it’s another title the CEO and president claims–“founder” of DAN–that rankles them even more.
The idea of DAN was actually born in the late 1970s, when scuba diving was just coming onto the American recreational scene. A U.S. Air Force colonel named Jefferson Davis concocted the idea of offering an emergency injury hotline for divers, and tracking data on diving accidents for use in preventing future ones. Davis ran a solo operation for some years before deciding to focus on other projects in his retirement. Through the Undersea & Hyperbaric Medical Society, a prestigious think-tank for diving science he headed from 1979 to 1980, Davis began looking for a new home for the hotline and research. He eventually approached Duke University, where Bennett had begun teaching and research in 1972, and decompression chambers had been operating since 1968. The federal government provided initial grants, and Davis’ project moved to its new home in Durham in 1980.
Even Bennett’s most vocal detractors don’t hesitate to say that he has built an astonishingly successful company on the idea of a diving safety network. With nearly 20 percent growth in revenue every year for the last eight, DAN’s financial profile is even more noteworthy in a time when the rest of the diving industry–including gear manufacturers, resorts and dive boat operators–is in a down-spiral, thanks to Sept. 11 and a generally poor travel economy. Aside from keeping DAN well in the black, Bennett has also built and maintained a sterling reputation for the nonprofit, cultivating a wholesome image of the helpful big brother divers turn to in need. Bennett’s success in nurturing the company earned him the Ernst & Young of the Carolinas “Entrepreneur of the Year” award last year, just one addition to a long resume that also includes the 2001 Pavlov Award from the Russian Academy of Arts and Sciences. At the same time, the anesthesiology professor has also kept up with his first love of scientific research, conducting various studies and co-editing The Physiology and Medicine of Diving, one of the industry’s bibles.
But for some of the old-timers in scuba science, Bennett claiming the inspiration for DAN by using the title of “founder” offers an emblematic example of the CEO’s characteristic self-aggrandizement.
“He wants to see himself as the originator of this idea, and that’s just not fair,” says Lee Greenbaum, the former executive director of the Undersea & Hyperbaric Medical Society, who played a key role as a mediator in the recent lawsuit. Still, he doesn’t bother to correct Bennett’s semantics.
“Peter’s strong-minded,” he says. “And he’s always going to adhere to what’s best for Peter.”
A diving explosion
Aside from the debate over the fatherhood of DAN, the organization’s first decade or so was largely a time of uncontroversial growth. After federal grants ran out in 1983, Bennett began charging membership dues of $10 per year for divers to access the hotline and other resources, an idea he attributes to his “entrepreneurial spirit.” In 1987, DAN began offering the first accident insurance tailored specifically for scuba divers. The insurance option proved popular, and DAN’s membership ranks more than doubled the first year it was offered, reaching 32,000 divers in 1988.
Diving itself was also exploding. In 1979, 2.6 million Americans were exploring the underwater world. Thanks to a booming economy and technological advances that simplified equipment, a few hours of classroom lessons and pool training opened a whole new world of coral reefs, fish, shipwrecks and other undersea delights previously accessible only on television shows like Sea Hunt and The Undersea World of Jacques Cousteau. Though diving requires special gear and travel, and is therefore not cheap, it is much less physically strenuous than many other recreational sports, such as skiing, and it offers an infinite variety of venues. By 1996, 7.5 million Americans were learning new lingo, like “nitrogen narcosis,” the euphoric effect of breathing pressurized air, and “vis,” slang for “visibility,” a key measure of the quality of each dive outing that denotes how far you can see when you’re touring the bottom of the ocean hoping to see hawksbill turtles.
As the sport’s popularity grew, so did its mishaps. Conventional insurance companies often balked at covering injuries incurred during a growing variety of “extreme sports,” such as scuba diving and rock climbing, and later, mountain biking and snowboarding. Divers vacationing on remote islands or at sea on live-aboard dive cruises faced five-digit bills for an air ambulance ride to the nearest hospital. Between the evacuation cost and the actual medical treatment expenses, divers used to joke that along with your scuba certification card in your wallet, you needed to carry a “gold card” in case you got “bent”–scuba slang for decompression sickness. One of the most common dive injuries, with roughly 1,000 cases logged by DAN last year, decompression sickness is caused by nitrogen entering the bloodstream or tissues under pressure. It requires hours of treatment in a hyperbaric chamber like the one at Duke, a pressurized room that rebalances the body’s chemistry. Chamber sessions can run as high as $2,500 each, with serious injuries requiring several sessions. Because of the exorbitant expenses, some injured divers defaulted on medical bills, making hospitals and transport companies wary of helping them. So when DAN’s insurance program came along, it quickly filled an important niche, and DAN’s red-and-white trademark sprouted on more and more divers’ gear (the universal symbol for divers, a white stripe on a red background, with a white cross in the corner).
But the business was not without difficulties. From 1987 to 1993, DAN received numerous complaints from members dissatisfied with the customer service and two-year lags in claim settlements by the third-party companies handling DAN’s insurance.
“Each one promised a lot and didn’t deliver,” Bennett says. “But their names weren’t on the tags–ours was. So the word got out that DAN insurance wasn’t any good, which wasn’t true.”
The golden goose
In 1993, Bennett says, his “entrepreneurial spirit” again took over and he was inspired to bring the insurance business in-house. Consulting Atlanta lawyers who specialized in “offshore captives,” Bennett and Covington, the corporate counsel, planned a for-profit subsidiary to handle DAN’s insurance. On advice from Bennett and Covington, the DAN board approved the new corporation and set it up in the Cayman Islands, lessening the tax burden and increasing potential profits.
They called it Accident and General Insurance, named Bennett its president and put Covington on its board. DAN was the sole stockholder of AGI, and the subsidiary was set up to funnel its profits back into the nonprofit’s research and education efforts, via dividends of varying amounts set by the AGI board each quarter.
At the time, DAN’s tiny board of Bennett fans and staffers pretty much rubber-stamped anything Bennett and Covington proposed, Lovin says.
“Now, in the wake of Enron and WorldCom, we’ve sort of awoken to the idea that maybe the board of directors should have a little more oversight,” he says. “But the tenor of that board was, it was very, very hard to say no to Peter Bennett.”
The subsidiary eventually proved to be the greatest source of contention between Bennett and his bosses, as allegations of ethical and financial improprieties surrounding AGI began surfacing soon after its creation. With insurance revenues of $682,452 in 1994, its first year, board members began to suspect that AGI would unleash a plentiful flow of funding for DAN. History has proved them right: Since AGI was created, DAN’s revenues have grown at the spectacular average rate of 19 percent each year, reaching $14.3 million in 2001.
But as the money began to roll in, DAN leaders began to question the financial arrangements and accountability between the nonprofit and the for-profit companies. At the heart of some of the board members’ uneasiness were their suspicions about potential conflicts of interest created by their CEO’s relationship with Covington, whom they eventually discovered was also Bennett’s partner in other profit-making ventures outside of DAN and AGI, including a consulting business and a company that sold traveler’s insurance.
“The fact that he comes into a business I happen go into and that he comes into, too, that’s not wrong in this country,” Bennett says. Covington echoes that defense, pointing out that professional conduct guidelines for attorneys do not prohibit those sort of arrangements as long as the principals involved all know about them.
But beginning with AGI’s creation and continuing up until the recent lawsuit, many current and former board members say they’ve never felt comfortable that there was full disclosure of the various ties between their CEO and his chosen counsel.
Over the years, the board occasionally suggested that the DAN organization as a whole would benefit from a more disinterested, less management-friendly corporate attorney. But Bennett consistently rebuffed their efforts to change lawyers, retaining Covington’s firm and using one of his partners as DAN’s corporate counsel even after the N.C. State Bar suspended Covington’s personal law license in 2000 over inappropriate conduct in a highly publicized drunken driving case. Bennett attributes the board’s criticism of Covington to personal interest, since board member Bill Ziefle, an attorney, once offered to become DAN’s in-house counsel, a proposal he withdrew after joining the board of directors.
In the early days of AGI, Bennett and Covington both sat on its board of directors, and received generous salaries of up to $66,000 for doing so, while, in his official capacity as corporate counsel, the Durham attorney continued to advise the DAN board on policy decisions, including the management of its subsidiary, from which he also collected legal fees.
While many corporations have outside counsel as members of their board of directors, and directly involved with their subsidiaries, those situations must be closely monitored for potential conflicts of interest, says Duke University law professor Tom Metzloff, who specializes in ethics.
“A lawyer who represents the company does not represent the individuals who are the directors or the officers, so when an attorney gets into representing a specific officer, things can get very blurry,” Metzloff says. “The more relationships, friendships, other businesses there are, it makes it harder for the lawyer to keep the company’s best interests in mind.”
The most compelling controversy arising from Bennett and Covington’s coziness surfaced soon after AGI’s creation, when they presented a plan to the DAN board members suggesting that the board sell its controlling interest in the insurance business to a third-party company in Delaware–a company the two of them happened to quietly own.
In February 1994, according to board minutes, Bennett and Covington told DAN board members that proposed changes in federal tax laws might endanger the nonprofit’s tax-exempt status if it continued to receive income from a captive subsidiary that it wholly owned. As a way to protect DAN from potential IRS penalties, Covington suggested DAN’s leaders consider selling AGI to a “Delaware group of investors” that was already interested in acquiring it.
A few months later, in July, Covington and Bennett presented a written proposal that laid out a complicated financial deal in which a company called Insurance Management Resources International (IMRI) would buy 1,000 shares of common–or controlling–stock in AGI. Under the deal, DAN would keep all 1,000 shares of preferred stock, meaning the nonprofit would continue to get returns on its investment via dividends similar to the arrangement with AGI, but IMRI would have total control over the business. In exchange, IMRI would agree to pay $81,000 cash, assume responsibility for a $50,000 bank note AGI owed a Cayman Island bank, and pay dividends of $10,000 plus 25 percent of its net income to DAN. DAN would agree to use IMRI exclusively for all of its members’ insurance business, and Bennett and Covington, as DAN’s agents, would have access to IMRI’s books.
IMRI purported to be an insurance management firm with specific experience in helping companies manage captive offshore subsidiaries. At the time, such arrangements were gaining popularity as tax havens and cost-savers for private, nonprofit hospitals and health systems in the U.S., including Duke University Medical Center, which put one in Barbados.
But Lovin, a 10-year DAN board veteran by then, became suspicious. He says he thought the amount offered was remarkably inadequate, considering that the fledgling subsidiary was projected to prove a lucrative asset to its nonprofit parent. As he later detailed in a letter to Bennett, Lovin began poking independently into IMRI’s background, asking a private investigator friend and the N.C. Department of Insurance for help. The friend obtained corporate papers from Delaware public records that showed IMRI had only existed since December 1993–less than three months before Covington brought its acquisition proposal to the DAN board. The insurance office inquiries turned up no other clients or established reputation for the corporation.
“There was something shady about IMRI, and it was not in the best interest of Divers Alert Network,” Lovin says. Meanwhile, Covington, DAN’s corporate counsel, was pushing the deal hard, calling around to board members and lobbying them to vote quickly to sell the subsidiary, he says.
All along, board members say, neither Bennett nor Covington told them that the Delaware investors so keenly interested in acquiring full control of DAN’s asset were, in fact, Bennett and Covington.
The N.C. State Bar rules of professional conduct state: “A lawyer may not allow related business interests to affect representation; for example, by referring clients to an enterprise in which the lawyer has an undisclosed interest.”
According to IMRI records, Bennett owned 51 percent interest and Covington 49 percent.
Because the State Bar is responsible for disciplinary actions against lawyers, an attorney with the group declined comment on the case. Complaints must be filed within six years of the offense, or within a year of its discovery, the attorney said.
Though he has not reviewed the DAN case specifically, the Duke legal ethics professor, Metzloff, says an attorney’s personal interests easily muddy the waters in corporate counsel work.
“That kind of situation, especially if it’s undisclosed, can be a real problem,” he says.
Bennett says the IMRI deal was part of a long-range plan to lure outside insurance business in addition to the divers coming through DAN, expanding the pool of potential clients and possible returns to the nonprofit.
“I really object to the suggestion of any improprieties here, which were never thought of or intended,” Bennett says today. “The one objective was to make DAN successful, and that meant AGI had to be successful.”
Because the plan was scrapped, he says, there was “no need” to tell the DAN board that he and Covington owned IMRI.
“If we had gone forward, they would’ve had to be there and sign up on the documents,” he says. “We never got to that stage.”
Though the deal was never completed, it opened a wide chasm of distrust between the CEO and the board that still echoes many years, and several boards, later.
“The president has a tendency to disclose to the board only those issues he deems important,” wrote Ziefle, one of the defendants in the suit Bennett filed to oust his five detractors, in an affidavit in which he cited additional examples. “Unfortunately, the board and the president have different definitions of what’s important.”
Asked again to explain why he didn’t disclose his interest in IMRI, Bennett eventually loses his temper.
“Why not? Why? Why not?” he says, his voice rising in both velocity and volume. “You’re picking on 1993 and you’re going to pick one sentence out? Come on, that’s irrational.”
Bennett is also quick to claim credit for halting the IMRI deal, which he says was Covington’s idea.
“I stopped that going forward. I did!” he says, emphasizing the pronoun.
For his part, Covington calls the IMRI allegations “another red herring” raised by antagonists bent on ousting his long-time colleague. He declines to discuss the details, citing attorney-client privilege between him and Bennett. Pressed for a response about whether he and Bennett ever tried to acquire DAN’s subsidiary without telling the board, though, Covington clenches his hands together on the desk in front of him, glares up at the ceiling and shakes his head, saying: “No money went into IMRI. No money went out of it. If it was an attempt to steal anything, it was a poor one.”
On Aug. 31, 1994, Covington announced, according to minutes, that the IMRI deal had been “put on hold,” noting “a number of questions had been raised.”
At that same meeting, Bennett began intimating that there were other reasons DAN should divest its money-making arm, saying he worried DAN’s members and benefactors might be dissuaded from renewing their memberships or donating to the nonprofit’s research efforts by the knowledge that the charity they were supporting owned a for-profit subsidiary. That year, DAN had collected roughly $300,000 in donations, including small checks from well-meaning dive clubs holding fund-raisers like underwater pumpkin-carving contests and long-time supporters bequeathing money to DAN in their wills. Bennett’s statement seemed to lay the groundwork for the next proposal from Covington–that the board consider turning AGI over to a charitable trust in the Caymans, which would manage it and pay dividends with more tax advantages.
The trust proposal also was eventually aborted, but not until Lovin wrote to Bennett calling Covington’s motives into question, and revealing to the CEO some of what he knew about the background of IMRI.
“I continue to be concerned with the vigor with which Wes approaches trying to divest DAN from its insurance company,” Lovin wrote in February 1995, saying it would be “a serious breach of ethics” if it ever turned out that Covington owned part of IMRI. Lovin says today that he knew at the time he wrote the letter that Covington and possibly Bennett were behind the company that tried to acquire DAN’s subsidiary. He says he didn’t act on his knowledge because the deal fell through.
“I was personally willing to let it go at that,” he says. “I did not want to see anything hurt DAN.”
As insurance revenue grew, some began wondering about the moral dilemma of the industry’s predominant medical organization instructing divers about the dangers of their sport while simultaneously offering to sell them protection from those dangers. And though DAN is a nonprofit, its subsidiary is not, and AGI’s need to advocate for its bottom line causes another quandary, says one former employee.
“When you’re out there saying it’s ‘divers helping divers’ and there are claims, and it’s the job of the insurance company not to pay the claim, that’s a conflict of interest over what’s the good of the diver,” says the staffer, who quit when corporate ethics conflicted with personal ones.
A big rip-off?
By 1996, DAN’s membership and donations were raising revenues of $5.7 million, and AGI was bringing in another $2 million in insurance premiums, according to internal financial documents in court records. Also that year, Bennett promoted his son, Chris, to the position of chief financial officer, putting him in charge of the company books and earning him an ex-officio, non-voting board seat.
The following year brought yet another round of controversy over AGI. This time, it came from outside DAN’s offices, which had just relocated from University Tower near South Square Mall to the nonprofit’s new four-story, 27,000-square-foot headquarters, where ocean-colored carpet, breathtaking underwater photography and enormous salt-water tanks filled with bright reef-dwellers grace the halls and offices.
Leaders at the Professional Association of Diving Instructors, tipped off by a source who had done business with DAN, launched a private investigation of the nonprofit’s finances, and of Bennett personally, according to Bennett. Until that time, scuba’s largest training and certification organization had been very supportive of DAN’s mission, donating money directly on a regular basis and encouraging its students to sign up with DAN after they became divers. By 1997, however, PADI had begun selling insurance, according to DAN internal memos, and Bennett considered the investigation a down-and-dirty move by a competitor trying to siphon the income stream that amounted to $2.2 million that year, according to financial statements.
“PADI conspires to destroy DAN, its attorney and its executive director by reckless libel and slander,” Bennett wrote in a 12-page “strictly confidential” memo rebutting the charges. “They have assembled a mass of malicious lies and misinformation about DAN, myself, and Wes Covington. … There is no conspiracy by me to take over companies or make outrageous sums of money.”
PADI alleged: That Bennett and Covington were receiving “large amounts of income” from DAN’s captive insurance company; that the two secretly owned or had tried to own AGI; that they were abusing their positions and connections at DAN to boost profits at a separate for-profit company called Travelers Emergency Network, which they owned with another DAN employee; and that DAN was perpetrating “possibly the biggest rip-off in the history of the diving industry.”
Among the remedies PADI leaders suggested were an investigative media report, which Bennett labeled “outrageous.”
At the time of the PADI investigation, DAN records show that Bennett was earning $125,813 in DAN salary and another $66,804 from AGI, in addition to his separate Duke University professor’s salary. At AGI, Bennett, Covington and Dan Orr, DAN’s chief operating officer and Bennett’s right-hand man, were each paid to sit on the board, whose primary job is to meet four times a year in the Caymans to review finances and set the amount to be paid to the nonprofit parent that quarter. At the time, Covington was earning $40,404 in AGI salary, according to internal memos, as well as collecting fees for legal services he performed for both DAN and its subsidiary, which tax records show totaled $120,250 in the 1997-98 fiscal year. Orr was also earning $33,600 from AGI on top of his regular DAN salary of $91,498, according to memos and tax records.
“There was nothing illegal done, nothing very bad done,” Bennett says of the PADI inquiry. “There was nothing to it.”
Bennett says he told his board he was planning to sue PADI, and the board persuaded him that a public fight would harm both organizations. Leaders eventually settled the issues in a private mediation that neither side will discuss.
Money questions mount
However, the questions raised by PADI cost DAN yet another talented board member. In August 1997, after serving less than two years, Mark Bensen resigned, saying the allegations were the final straw after his long discomfort with all the unanswered questions about AGI, particularly the control of its income.
“The bottom line is, I am not satisfied that there has been adequate and timely disclosure to the DAN Board of Directors of all the information we need to discharge our fiduciary responsibility,” Bensen wrote to Bennett, whom he had considered both a mentor and a friend.
Bensen, who heads the nonprofit Lucy Daniels Foundation in Raleigh, declined comment for this article. But in his letter, he wonders why an independent review of DAN’s insurance program by “a disinterested attorney” wasn’t done as the board had requested five months earlier. He also asserts that despite many requests for clear explanations, he still doesn’t understand the flow of insurance income to and from AGI, or the appropriateness of Covington, Bennett and Orr receiving salaries and other compensation from the for-profit subsidiary. In an affidavit dated last year, Bensen adds that he was particularly concerned that Bennett hid the PADI allegations from both the DAN board and Duke University officials for many weeks after he knew about them, leading him to wonder what other information the CEO might see fit to withhold.
Bensen’s resignation letter encompasses a theme of DAN’s history that recurs throughout the court records. Even when there was compelling evidence that Bennett might have been acting in his own self-interest–for power, for profit, or both–board members hesitated to criticize their CEO too loudly for fear that negative publicity would drive away members and the goodwill of the diving public, damaging DAN’s mission.
Today, one of the key players in the 1997 episode downplays the drama evident in internal memos.
“There were some questions that were raised that were resolved between us to our mutual satisfaction,” says Al Hornsby, PADI’s vice president for legal affairs, one of the two PADI leaders Bennett condemned in rebutting the allegations. “We’re a small industry and I don’t believe that this kind of dredging up of crap is really useful.”
It’s a testimony to Bennett’s remarkable ability to engender public support through his position at DAN that the man who once accused him of fleecing divers had only positive things to say about his former adversary in October, while taking a break from the PADI booth at the annual trade show inside the Las Vegas Convention Center.
“Dr. Bennett is well-respected in this industry. He’s created something good and something lasting,” Hornsby says, calling the current turbulence at DAN “a shame.” “Key people in the development of an organization have a place there, and I don’t think outside people who really don’t have a long-term personal stake should say when they should leave.”
One of the key DAN board members at the time was Michael Emmerman, a Manhattan money manager who’d been recruited for his financial expertise. Emmerman, who is also a government liaison officer for the American Red Cross with 20 years’ experience in diving science and a director of a nonprofit that advises law enforcement and water rescue agencies, declined comment for this article. But his colleagues say the financier led the call for several significant structural changes, following the PADI challenge and some loophole-closings in federal tax laws that affected nonprofits’ income from subsidiaries. On Nov. 24, 1997, Covington, still the general counsel for DAN and a director of AGI, detailed the resulting plan, in which Bennett and Orr would step down from the AGI board, leaving Covington and the Cayman Island-based manager, John Smith, as the only remaining members. Bennett and Orr were also to stop receiving salaries from AGI, but would receive raises in their DAN salaries to compensate for the difference. The DAN board also set up an “oversight committee” for AGI made up of Bennett, Orr, and one of its own members. The following year, in response to the tax law changes, DAN leaders created a second for-profit subsidiary, this one based in the Durham headquarters. Called DAN Services, it helped clarify the separation between the nonprofit and its money-making arm. Combined, those changes quieted the board members’ AGI concerns, at least temporarily, though they continued to compare the task of sorting out their fiduciary duties to “zero-visibility diving,” complaining to Bennett that they needed more timely and more complete information.
The Duke connection
Aside from wrangling over the flow of money in and out of DAN and AGI throughout the mid-to-late 1990’s, board members privately nursed other worries about Bennett’s leadership. They questioned the CEO’s judgment on administrative matters, the spending and controlling of cash and other assets, personnel hiring and promotion, and the choice of outside contractors, most notably Covington as legal counsel.
They asked, for example, why there never was a formal contract between the nonprofit and Duke University’s Center for Hyperbaric Medicine and Environmental Physiology, the academic cradle from which it sprang. About a half-dozen Duke doctors take turns responding to emergency calls that come into the DAN hotline from around the world, and the two bodies collaborate scientifically. DAN funds many projects at the Hyperbaric Center, including $400,000 worth of research last year.
Documents show that Bennett, who has held an academic position at the university since 1972, has relied on his Duke colleagues for his private ventures, as well. N.C. Secretary of State records show that on June 12, 1999, Bennett and his son, Chris, DAN’s chief financial officer, incorporated a private company called Nitraids, hiring Covington’s law firm to draw up the paperwork. In April 2001, the Duke Hyperbaric Center announced that Nitraids would fund a $9,481 study of the effects of breathing compressed air on the immune system.
The Duke researcher involved, Neal Pollock, says Nitraids was seeking “a commercial application” for the results of the study, which he declined to release since it was for a private client. He says the center did not charge certain expenses, such as staff time to run the hyperbaric chamber.
“I don’t believe there was anything unusual in the Nitraids deal at all,” says Pollock, noting that the worldwide network of diving scientists is small, and any other entrepreneur might have approached the university and made the same arrangements. Mark Newman, the chair of the Duke anesthesiology department, which helps oversee the center, says the university carefully monitors potential conflicts of interest in research projects, but he was not aware of the Nitraids study.
As a result of issues raised in Bennett’s lawsuit against the board, Duke and DAN are now beginning to hammer out a formal contract, and Duke gained a dedicated representative on the board.
“We think it’s important for diving that this relationship continues, and Duke wants to make sure anything it’s associated with is of the highest caliber,” Newman says, while asserting it’s not the university’s responsibility to micro-manage its affiliated nonprofits. Duke’s main role, he says, is to ensure that DAN follows university policies with regard to personnel rules and conflicts of interest.
“DAN grew out of a mom-and-pop operation within Duke, and this recent situation has pushed us to more appropriately formalize our relationship,” says Newman. “I will say, not having a person from Duke on the board was not a good plan.”
The relationship with Duke is just one of the issues the 2000-2002 DAN board raised.
They also challenged editorials about diving physiology Bennett authored that they considered inflammatory and misleading. In 2000, Bennett wrote an essay on diving with Nitrox (oxygen-enriched air) that caused so much outrage in the diving community the embarrassed board forced him to host an educational workshop to perform damage control.
Each disagreement, they say, was complicated by what defendant board member Wolcott Henry calls “founder’s syndrome.” Henry, whose experience includes heading up a private foundation in Washington, D.C., serving on the World Wildlife Fund board, and chairing the Coral Reef Foundation, says it’s a common problem in nonprofits, when one powerful individual whose personal interests and ego are so tied up in the organization’s welfare that it’s difficult for the board of directors to govern.
That notion is backed up by members of the diving community, where DAN’s good works and Bennett’s name often are considered synonymous.
“You can buy insurance from anyone. But they take that money and invest it back into improving diving,” says Keith Sahm, the general manager of Sunset House, a dive operation and DAN corporate sponsor in Grand Cayman. “When people look at DAN, they think of Peter Bennett.”
Time for Bennett to go
Two years ago, a majority of the high-powered collection of scientists, business leaders and “DAN Diver of the Year Award” Rolex recipients on the board of the nonprofit began looking for a way to separate the two.
“These are people who act on principle, and they wouldn’t be there if they didn’t care about DAN,” says Henry, who also has a management consulting background and a side career as a underwater photographer whose work illustrates three National Geographic books on marine life. “There was an understanding that this group was going to go the distance.”
Pulling together all the cumulative concerns, they scheduled the first performance evaluation of the CEO in DAN’s history, began discussing an employment contract with Bennett–who’d never had one–and a partnership contract with Duke. They shopped for a new lawyer and auditor to replace the ones they suspected of being biased in favor of Bennett. They also called for a “forensic audit” of all the books, hoping to finally get a clear look at exactly where DAN’s money was being spent, an elusive answer Lang says he’s never come close to finding in six years.
“What were the travel expenses of the CEO last year?” Lang asks during an interview at the annual convention in Las Vegas, on his way to present a workshop on diving with Nitrox, yet another follow-up to the Bennett-bred conflict. “I challenge you to find that out.”
The five board members also began nudging their CEO to think about retiring.
“These are accomplished, smart people. If you just expect them to knuckle under to your own magnificence, you’ve got a real problem,” says Egstrom, himself a “DAN Diver of the Year” who served on the board from 1995 to 1998, becoming one of the many respected dive industry leaders Bennett lumps together in a group he calls “the malice people.” “This was a developing dilemma. There were too many unanswered questions, or answers that didn’t fit the circumstances. And over the years, the questions eventually boiled down to the fairly generic: In this nonprofit corporation, who in fact is responsible?”
On his side, Bennett drafted a 12-chapter plan for himself that called for a generous post-retirement consulting contract, high-profile president-emeritus status and a retirement date in 2005. The CEO also rallied his troops within the mirrored walls of DAN’s headquarters. Labeling his opponents on the board as “outsiders,” the CEO whipped up support from employees who steadfastly defend their leader, particularly those in the top ranks.
“This is a great place to work–there’s a great family atmosphere,” says COO Orr, pointing out a photo collage of an employee’s recent wedding on a hallway bulletin board. Every holiday season, Orr says, the company throws a party for all the employees’ children, complete with presents delivered by a hired Santa Claus and Orr, who dresses up as an elf.
“Dr. Bennett is paternalistic, but in the positive sense of the word,” says former marketing chief Barry Shuster, an eight-year veteran. “If he had a strong hand and exercised a lot of control, it was out of a lot of personal commitment.”
The employees return that commitment with public displays of loyalty. When board members flew in from around the country for a recent meeting, staffers wore buttons, strung balloons and posted signs all over the building, including above the urinals, saying “We Support Dr. Bennett.”
“It’s not difficult to imagine you buy some degree of loyalty when you ensure people are happy, salary-wise,” Lang says.
Over the years, Bennett has staunchly defended company-wide salaries and benefits when some board members have suggested they are too lavish for a nonprofit that makes its living off the diving public. Though the employees’ paychecks officially come from Duke, the nonprofit reimburses the university.
In 1999, an internal salary study showed the top four highest-paid employees under Bennett earning combined compensation (base salary plus bonuses and retirement plan contributions) between $83,205 and $118,114. DAN’s 80 Durham employees receive Duke benefits and additional perks like free scuba certification, a luggage allowance and tuition reimbursement.
In the internal salary study, Bennett presented numbers showing that DAN salaries were generally below those of nonprofits surveyed by the American Society of Association Executives in 1997, the latest report available then. However, the numbers he used included salaries from a wide variety of “individual membership organizations” like the American Medical Association–whose members are doctors, as opposed to recreational scuba divers.
Egstrom, one of the board members questioning salaries at the time, says Bennett takes good care of his people for a reason.
“His system of rewards works. He does good things for his people and he expects loyalty and payback in return,” he says, pointing out that Bennett also takes good care of himself, first.
Bennett earned $213,750 in salary and $34,119 in benefits from DAN last year, according to the company’s tax returns, putting his salary 66 percent higher than the next highest-paid employee, Orr. By comparison to other nonprofits with revenues similar to DAN’s, Bennett earns significantly more than the average CEO of either an individual membership organization or a trade association, which are $198,936, and $203,942, respectively, according to ASAE’s 2001 survey. Bennett’s DAN paycheck, AGI salary and other income, including the Duke professor’s salary he still collects even though he stopped teaching several years ago, seem to have enabled a comfortable life for the CEO, who drives a late-model Jaguar and lives in a $1.1 million home in a tony Chapel Hill neighborhood.
“People are being told they’re giving money to diving research, and in reality, the money’s going for something totally different,” says Dick Long, one of the defendant board members.
In matters of salaries and other personnel decisions, Bennett exercises absolute power, to the point that he once created 11 new vice president positions without consulting the board, according to Lang. And just three months ago, according to several DAN insiders, Bennett gave at least four top employees huge raises, reasoning that the new board might come in and clean house in the wake of the legal settlement. According to the sources, two of those employees received raises of more than $20,000 each.
There is some evidence that employees are coerced onto the pro-Peter train, by his power over their livelihoods and a slanted presentation of the board’s management.
“The employees and Duke University have only heard one side of the story,” says Long, one of the founders of the National Association of Underwater Instructors, a nonprofit that trains and certifies divers. “These people have good jobs, good money, good benefits, and they believe Peter is the only source of all that.”
Several employees contacted for this article declined to speak publicly about Bennett, but concur that he’s a tough boss to cross. One former employee says criticizing Bennett’s decisions quickly leads his subordinates to searching for a new job.
“Those of us who took a more altruistic approach began to find problems, and we had to go,” says the staffer, who felt forced out a few years ago after questioning why the research side of the budget was consistently under-funded while Bennett and his top minions took Alaskan cruises and African safaris in the name of DAN. “If all this money wasn’t spent on trips here and there, how much more money could be spent on research and ‘divers helping divers’?”
One key employee in DAN’s history, Chris Wachholz, is quoted in court documents as saying co-workers put him under duress to sign a petition opposing Bennett’s ouster. Wachholz, who declined comment for this article, was the first person Bennett hired at DAN, and has served in many top jobs. Though several of Bennett’s critics characterize Wachholz as the company’s truest devotee of its philanthropic mission, Bennett has removed Wachholz from the powerful positions he previously held, accusing his former protégé in court papers of feeding misinformation to his enemies.
On the flip side, other employees’ careers have skyrocketed under Bennett’s protection, leading board members to allege nepotism and favoritism throughout court documents.
The most notable example is the career of Bennett’s son, Chris. The younger Bennett joined DAN in 1991, was promoted to purchasing officer in early 1994 and rose to the position of chief financial officer by 1996. Chris Bennett left the company this summer in the midst of the lawsuit.
Questions about his son’s career send the elder Bennett directly into counter-attack. He immediately points out that Long, one of his opponents, has both his wife and his daughter helping run his company, Diving Unlimited International, a private family-owned firm that designs and manufactures dive gear in San Diego.
Bennett’s detractors also cite the shipping-department job Covington’s son held briefly. The former corporate counsel calls that nepotism allegation “the biggest joke in the whole world.”
The hiring and promotion of Betty Orr, the COO’s wife, who now heads the insurance services division, is also cited in court papers as an example. Pointing out her office during a tour, Dan Orr says, unprompted, “I had nothing to do with her job.”
In 2000, when board members began formally evaluating Bennett for the first time in his tenure, they surveyed his executive staff. The anonymous reports came back overwhelmingly positive, giving Bennett ammunition in his battle to keep his job longer.
But board members suspected employees’ job security needs and fears of Bennett’s infamous retribution tactics drove the praise more than true feelings for Bennett, a suspicion backed up by a letter one respondent submitted along with the questionnaire.
“Your staff is so concerned about losing their jobs, or suffering from your outrages, that they only provided glowing remarks on the forms,” Emmerman, the money manager recruited to the board for his financial acumen, wrote in his resignation letter in December 2000, noting that Bennett is “arrogant and judgmental most of the time.” “Your staff respects what you have accomplished, but not necessarily how you have gotten there.”
A golden parachute
Emmerman’s departure two years ago last month was a key turning point in DAN’s recent history. After spearheading the effort to iron out DAN’s finances, Emmerman became the board chairman, its first after the board separated that role from the CEO’s duties in its plan to corral Bennett. The new chair, charged by his colleagues with negotiating Bennett’s proposed retirement plan, resigned after Bennett sent his lengthy plan, replete with a golden parachute, to top DAN staff in Durham and to leaders of DAN’s international chapters, accompanied by an email implying it had at least preliminary support from Emmerman.
“The bottom line is that I cannot work with someone I cannot trust,” Emmerman wrote to Bennett after learning of the end-run.
Two new members, Long and Henry, were appointed in January 2001 to replace Emmerman and Paul Auerbach, who left at the same time. Lang, with five years on the DAN board and experience as the president of the American Academy of Underwater Sciences and other leadership roles, became the new chair.
The next meeting, on May 2, 2001, brought the final showdown. Five of the seven voting members–Lang, Long, Henry, Ziefle and Karen Van Hoesen–made it clear they would push for Bennett’s retirement, and were willing to suspend him if he refused to go along with their plans for the audit and other initiatives. The two remaining voting board members, Peter Bennett and International DAN representative and Bennett ally Alessandro Marroni, walked out of the meeting in protest, accompanied by the two non-voting members, Orr and Chris Bennett.
The five proceeded with the meeting, discharging Covington’s firm, Bryant, Patterson, Covington and Idol, as the general counsel, suspending Bennett for 10 days with pay and ordering a forensic audit of DAN and its subsidiaries.
But Bennett hadn’t played his whole hand. He re-entered the meeting to present dozens of letters from supporters from around the world, dated mostly the previous month, and a petition signed the day before by himself and his executive committee of eight staffers. The petition said the board was “overstepping its authority,” suggested the directors resign, and threatened to sue.
Five days later, in Durham County Superior Court, Peter Bennett, Chris Bennett, Orr and Marroni did just that. The four plaintiffs argued that the five board members were causing irreparable harm to DAN by trying to terminate Bennett, that the five of them were not qualified to run the nonprofit and that they did not have a quorum to make decisions. They backed up their arguments with affidavits from key people at Duke’s Hyperbaric Center, which relies on DAN research funding.
They requested that Judge Orlando Hudson issue a temporary restraining order to put Bennett back in power and preserve the pre-board-meeting status quo on all other matters until the merits of the case were decided.
In granting the order, Hudson agreed that DAN and its services, especially the hotline, would suffer if Bennett were suddenly removed from office.
In counter-claims, the defendants detailed their motives for ousting Bennett, namely that he “mismanaged corporate funds, including the extravagant or unnecessary expenditures of the assets of DAN and/or DAN’s for-profit subsidiaries for his personal benefit and for the benefit of his friends and family,” “engaged in self-dealing by attempting to transfer corporate assets to a company he owned and controlled without revealing his ownership interest,” and committed “acts of favoritism and nepotism to DAN’s detriment.”
Arguments continued into the summer and fall, with the defendants unsuccessfully asking the N.C. Court of Appeals to intervene in July 2001. The defendants, who hail from Washington, D.C., to San Diego, assert that Hudson was biased against them because of their “carpetbagger” status, and believe that he was influenced by DAN’s long association with Covington, a homegrown attorney with clout and political connections, including close ties to District Attorney Jim Hardin.
In January 2002, Bennett’s side offered to settle if he could retire Dec. 31, 2003; receive severance pay of one month’s pay for each year of service, estimated at $417,833, and earn $85,000 a year for five years of post-retirement consulting work while DAN provided him with an office, a secretary and health benefits.
Mediation fell apart, and the case seemed to stall out until a two-member committee appointed by the judge began its work. Bill Hamilton, a researcher and DAN’s 2001 Rolex Diver of the Year, and Lee Greenbaum, the former executive director of the Undersea and Hyperbaric Medical Society, were charged with investigating the best interests of DAN, and reporting back to the judge.
But instead, the two respected industry professionals decided the best thing they could do for DAN, its members, and the scuba community in general was to calm the churning waters at the “Red Cross of diving” as quickly and quietly as possible. Behind closed doors, they brought the two sides to an undisclosed settlement, prompting the Sept. 9 dismissal of the suit. Both sides are tight-lipped about the details, but the visible fallout so far has been the announcement of Bennett’s retirement on June 30, 2003, and the restructuring of the DAN board, which met Nov. 6-7 for the first time since the suit was filed.
The board now includes the new seat dedicated to a Duke representative, held by Newman, and another dedicated to the Undersea & Hyperbaric Medical Society, the late Col. Davis’ organization. Lang, the chief defendant, is going off, his term having expired while the lawsuit ground through the courts. His successors, who also include the other four defendants and the two mediators, will oversee the naming of a new CEO. Hamilton, the new chair, says it’s time to let the turbulence settle and hope for clearer visibility–and less exposure–by the time DAN’s second CEO moves into the fourth-floor office in July.
“The public of Durham and the public of diving don’t have any need to know all of this,” he says. “It’s private, it’s internal, it’s a family matter.”
In the meantime, one deduction from the best interests of DAN’s members, donors and corporate sponsors is clear–at least some of the estimated $475,000 in legal bills will come out of their pockets.
“Here’s what finally wrong: A local dive club in Omaha, Nebraska, goes to a local lake and does a fund-raiser and proudly presents DAN with a check for three hundred dollars and twenty-six cents,” Lang says, throwing up his hands in frustration. “Sure this impacts the mission, because that’s money you could’ve spent on other things.”