GRAND RAPIDS — Betsy DeVos’ new role as U.S. Secretary of Education under President Donald Trump will require her to step away from some of her vast business interests to comply with federal ethics laws.
In Grand Rapids, her family’s legacy is inextricably woven into the community, as demonstrated by DeVos’ 108-page U.S. Office of Government Ethics disclosure that listed the various local philanthropic organizations, business investments, entrepreneurial support systems, and real estate holdings in which she’s involved.
Given the extent of her business and philanthropic engagement, the question on the minds of many executives remains: Will her new role affect how the family invests and gives back to the community?
According to a close family adviser, the DeVoses have no plans to pull back.
“We do not believe that there’ll be a substantial impact in the way the family or Windquest engages in West Michigan,” said Greg McNeilly, the chief operating officer of The Windquest Group, the family office that manages the investments for Dick and Betsy DeVos.
That said, Betsy DeVos’ role in many of her investments will change.
To avoid conflicts of interest in her role at the U.S. Department of Education, DeVos resigned her position on the boards of several family-owned West Michigan companies such as The Stow Co. and Neurocore LLC, as well as at nonprofit organizations including ArtPrize and the Dick and Betsy DeVos Family Foundation.
Additionally, she is divesting her holdings in 102 investments, including numerous limited partnerships in venture capital, private equity and other investment funds. She also divested her position valued at $500,000 to $1 million in KinderCare Learning Centers, a Portland, Ore.-based provider of early childhood education.
Included in the list of investments are the funds that helped launch Grand Rapids-based Start Garden, which last year spun off into Wakestream Ventures and holds equity stakes in a number of local companies.
McNeilly said Windquest will continue to pursue investments, provided they do not involve companies in the education sector, which would conflict with her role as education secretary.
Under federal ethics laws, DeVos is prohibited from holding interests in or participating in education-related ventures or organizations that could benefit from federal public policy she helps to shape.
DeVos now “has one job, and that’s being secretary of education,” McNeilly said.
Trump picked for his cabinet several business executives and wealthy individuals, including former ExxonMobil CEO Rex Tillerson (Secretary of State), billionaire investor Wilbur Ross (U.S. Commerce Secretary), Chicago Cubs co-owner Todd Ricketts (Deputy Secretary of Commerce) and former Goldman Sachs banker Steve Mnuchin (Secretary of the Treasury).
Like DeVos, they too must avoid business interests that could pose conflicts with their political posts.
“The Trump cabinet is the best thing to ever happen for estate lawyers because all the appointees are having to reallocate ownership of their assets,” said Remos Lenio, partner at investment banking firm Tillerman & Co. in Grand Rapids.
Since November, DeVos already has removed herself from any involvement in 20 companies and organizations that could potentially pose a conflict.
According to a January federal ethics office filing, DeVos has resigned from positions at The Windquest Group; The Stow Co., a Holland-based producer of closet and home organizing systems; RCB Main Floor LLC, an entity that owns the Reserve wine bar in downtown Grand Rapids; Neurocore LLC, a provider of non-medical therapies; family company RDV Corp.; and RDV Sports Inc., the owner of the NBA’s Orlando Magic.
However, she continues to hold financial interests in each of those companies.
EXTRA STEPS IN DUE DILIGENCE
While DeVos’ federal role will have little visible effect on her business interests, it will add an “extra couple of steps” when The Windquest Group examines any potential new business investments, McNeilly said.
In due diligence, Windquest will need to ensure prospects do not create any conflict with ethics laws by interacting with the education sector.
“The ethics laws or regulations governing the holdings that Secretary DeVos may have with and through her husband are fairly clear. We think we understand them, and it really has to do with prohibiting investments in related industries, namely education,” McNeilly said. “Obviously, it sort of adds a new wrinkle to our filter, but I don’t think it has a substantial impact in the kind of businesses and companies that Windquest and Dick and Betsy are looking to invest in and how they engage the West Michigan community.”
Even so, some companies seeking investment may opt out of doing business with Windquest because of the extra diligence involved or the higher profile that comes with having the Secretary of Education as an investor, according to several investment bankers around the state contacted by MiBiz.
Some prospects may look to channels other than The Windquest Group because of any potential for public scrutiny in a highly charged political atmosphere, sources said.
It’s a challenge McNeilly acknowledges.
“Other partners in the venture have to be OK with having a partner that has got a higher public scrutiny,” he said. “That may dissuade some folks from seeking an investment with us during this time period. We understand that and will be sensitive because obviously if you invest in an organization you want it to be successful.
“All those new softer issues will become part of our dialogue as well.”
AVOIDING CONFLICTS OF INTEREST
While DeVos’ new role may affect prospective deals, it should have little effect on the companies she presently holds a stake in via investments in private equity or venture capital funds — even though she’s divesting from them, according to one Michigan-based VC professional who spoke to MiBiz. Since existing portfolio companies have already received capital, they should go unaffected when a limited partner decides to divest.
When limited partners divest in a fund, they typically receive back the amount they originally invested, or an amount equal to their holding based on the value of the fund, whichever is less.
Even though as a limited partner, DeVos does not have a role in investment decisions by any of the funds, she still must divest to avoid any conflict of interest should any of them ever invest in the education sector, McNeilly said.
“Because there’s a potential of a conflict — not the actuality, but the potential — that’s an area that we need to stay away from,” he said. “It really has to do with our ability to see down to the operating company and understand its product or service and its potential interplay with the department.”
Among the venture capital funds where DeVos has been a limited partner, she reported a position valued at $1 million to $5 million in each of the original Start Garden funds, SG Fund I and SG Fund II. She’s held a position valued at less than $1,000 in one fund by RPM Ventures in Ann Arbor, and a stake in another RPM fund valued at $100,001 to $250,000.
On the fund side, a divestiture by a limited partner will reduce its available capital to put into future deals, according to a source who works in the investment industry.
ATTENTION BRINGS SCRUTINY
The DeVos family’s business holding in Grand Rapids-based Neurocore has drawn national media attention — including stories in the New York Times — in the months after Trump selected Betsy DeVos as education secretary.
Neurocore offers non-medical alternative therapy for people with behavioral health issues such as depression, ADHD, sleep disorders, migraines and anxiety at seven Brain Performance Centers in Michigan.
DeVos’ ethics filings valued her position in Neurocore at $5 million to $25 million.
The Times quoted Richard Painter, who served as a White House ethics adviser under President George W. Bush and indicated that Neurocore “is not an appropriate investment for the secretary of education.”
“How schools respond to attention issues is a vitally important policy question and ties right into achievement,” the Times quoted Painter as writing in an email.
However, McNeilly said Neurocore does not pursue business with schools. He notes that the Government Ethics Office, in a Jan. 19 agreement made under the former Obama administration and prior to President Trump taking office, did not require DeVos to divest her stake in the company.
“Schools are not clients, students are,” McNeilly said. “You have individuals that are making consumer choices to participate, and they may or may not be children.”
For his part, Neurocore CEO Mark Murrison welcomes the additional attention to his company because “it gives us a bright spotlight to share what we do and how we actually improve people’s lives for the better,” he said.
“It allows us to get our story out to more people,” Murrison said.
Murrison confirmed that DeVos stepped down as a director on the company’s board and “is not involved in any of the operations of Neurocore.” DeVos’ resignation as a director and new political position “hasn’t impacted our business in any way,” Murrison said.
“We continue to stay out of the political discussion and do what we do,” he said.
‘NO MAJOR CHANGES’
In addition to stepping down from business boards, DeVos in November resigned from a number of education organizations, including those involved in advocating for school choice. They include Great Lakes Education Foundation, Alliance for School Choice Inc., Foundation for Excellence in Education Inc., and the American Federation for Children Action Fund Inc.
McNeilly notes that the DeVoses, as major backers of school choice, have been advocates in the education sector, not investors.
“They’re check writers, not check cashers, in the education space,” he said.
Dick DeVos helped found and is on the board of West Michigan Aviation Academy, a tuition-free charter high school on the Gerald R. Ford International Airport campus. He’s listed in Betsy DeVos’ ethics filing as the co-borrower on a $1 million loan from PNC Financial Services Group for the school.
On the philanthropic side, the Dick and Betsy DeVos Foundation is a major donor to educational causes. In 2015, the family foundation gave $3 million to education causes and $357,000 to what’s listed in an annual report as “education reform.” The foundation overall gave $11.6 million in 2015, including $2.4 million for arts and culture and nearly $1.8 million for “civic, community & other” causes.
Since 1989, when the foundation was formed, the DeVos Foundation has given $138.7 million, $32.6 million of which went to education and $2.6 million to education reform.
John Truscott, a spokesman for the DeVos family, said Betsy DeVos’ position as education secretary will not affect the foundation’s work.
“No major changes are expected from Dick and Betsy’s foundation,” Truscott said. “While she does not have a role in the foundation while serving as Secretary, the family will continue to help people and make a significant philanthropic impact.”
SIDEBAR: Filings offer peek into DeVos family’s vast holdings
Betsy DeVos’ 108-page federal ethics office filing provides a rare public glimpse into her family’s extensive array of business holdings and investments.
They range from expected positions in Amway parent Alticor Global Holdings Inc. and numerous real estate holdings in Grand Rapids and Holland to investments in far-flung companies such as a Hawaiian lumber supplier and BMW dealerships in China.
The family also holds minority positions in the entities that own the Chicago Cubs, Wrigley Field and surrounding real estate, as well as in West Michigan Baseball Ltd., which owns the West Michigan Whitecaps and Fifth Third Ballpark.
The family’s largest business holding is in Alticor Global Holdings and a related export company, Alticor Export DV Co. The Government Ethics Office filing values their holdings in each company at more than $50 million apiece with reported income last year of more than $5 million from each entity.
The filing also includes family trusts, limited partnerships in the original Start Garden funds, plus investments in private equity and venture capital funds. In the ethics office filing, DeVos promised to divest her positions in the venture capital and private equity funds within 90 days of her Feb. 7 confirmation.
SIDEBAR: Federal ethics rules date to post-Watergate politics
The ethics laws that require Betsy DeVos to step away from certain organizations or divest some of her business holdings date back to the post-Watergate era, said Michael DeWilde, director of the Koeze Business Ethics Initiative and a professor of philosophy at Grand Valley State University.
The laws are designed to assure that holders of public office are setting public policy, offering advice and making decisions that are separate from any personal or business interests they hold, DeWilde said.
“These requirements were put into place to show there might be some sacrifice or cost, especially to wealthy individuals, in public service, but that the public service was worth it,” he said. “The public understood these people were now beyond reproach. They wouldn’t even be tempted.”
The laws, combined with the emoluments clause of the U.S. Constitution, have generated greater attention with the new Trump administration, given the personal wealth of the president and many of his cabinet members, DeWilde said.