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Jay Doherty, his clients, and the City Club speakers

On April 8, 2009, a capacity crowd crammed into the downtown Maggiano’s for a City Club of Chicago luncheon featuring Lisa Madigan, the attorney general of Illinois. About 40 times a year, the restaurant’s banquet hall serves as a gathering place for City Club—a privileged cocoon for heavy-hitting politicos and prominent business leaders, who have been meeting under the organization’s aegis since 1903.

On this particular afternoon, Madigan told the rapt audience that she wanted to talk about two things: public corruption and the foreclosure crisis. But before that, she thanked the stocky man with the ruddy face sitting at the table closest to the podium: Jay Doherty, the longtime City Club president, a political insider and a powerful lobbyist—and someone Madigan’s office was, and still is, investigating.

Two months earlier, a whistleblower had approached Madigan’s office with allegations that Doherty had for years been running his lobbying business out of the Michigan Avenue office of the City Club. Later the whistleblower would also allege that Doherty used the club’s office for political projects—including a behind-the-scenes effort to help his close friend Christopher Kennedy run for the U.S. Senate.

If Madigan felt uneasy about appearing at a City Club event while her office’s investigation of Doherty was underway, she didn’t show it. Before and after her speech, she cracked jokes, smiled for pictures, and bantered with Doherty and Paul Green, a member of the club’s board (and a Roosevelt University professor) who often emcees the luncheons. Watching all this was Kathy Posner, a retired PR doyenne and a member of the City Club’s board since the mid-1990s. She was the person who had blown the whistle on Doherty.

Taking on a man like him is not for the faint of heart. Doherty is rich, powerful, and widely regarded as a hero who rescued the City Club from near death. Since becoming president in 1994, he has boosted the club’s membership to more than 1,200—its highest level in nearly 60 years—and transformed the luncheon forums into “a required stop for most anyone who wants to win office around here,” as The New York Times observed in 2010.

Internal documents from the City Club provided to Chicago by Posner, together with interviews with three of the club’s former executive directors, suggest that Doherty’s roles overlapped to the point where his outside lobbying activities were often indistinguishable from the club’s operations. The documents—which Posner also delivered to the attorney general and which include City Club e-mails, minutes of board meetings, and correspondence and memos between Doherty and his outside clients—show that Doherty regularly used the nonprofit club’s office, small staff, and database to benefit himself and his business.

“My concern was for the club,” says Posner. “I didn’t care where Jay was making his money; I just thought it shouldn’t be made through the use of City Club.”

Furthermore, Chicago’s analysis of the organization’s luncheon forums from 2007 through 2011 shows that at least 41 percent of the speakers were targets of Doherty’s lobbying efforts. “Jay would get people to speak who could be beneficial to his clients,” says Dave Cameron, the club’s executive director from 2006 to 2008. “Then his clients would come to City Club. After lunch they’d all be sitting at the head table with Jay, and they’d be presumably networking, making deals and stuff.”

Such access benefited Doherty’s lobbying firm, Jay D. Doherty & Associates, which consists of Doherty and one or two part-time assistants and, according to his filings with the Chicago Board of Ethics, is headquartered in his Gold Coast condo. In 2010 (the last year for which complete figures are available), the company was the third-highest-paid lobbying firm in the city, collecting $771,750 in fees from clients including Commonwealth Edison, Potbelly Sandwich Company, and several engineering firms. Documents show that Doherty also made money lobbying state officials and from his work as a consultant and fundraiser, income he is not required to disclose.

Doherty, 58, did not respond to repeated requests for comment. Michael Hayes Sr., a lawyer at K&L Gates who is representing the City Club, says that the club’s board looked into the allegations raised with the attorney general’s office and concluded that they largely lacked merit. In a statement, Paul Green, now the club’s chairman, said, in part, “We are proud of our programming, our president, and our entire board.” A spokeswoman for Madigan’s office told Chicago that its investigation remains active, though she would give no details.

Doherty’s alleged activities present some tricky questions. Exploring murky legal and ethical areas, investigators must decide whether Doherty personally profited from his position at the City Club. They must also determine whether Doherty’s actions were harmful to the organization: Did he use the club to enhance his lobbying business, and if so, did it actually cost the club anything? In fact, the club’s board would essentially claim the question was moot: Any benefit Doherty enjoyed from his ties to the organization, it said, was far outweighed by the many ways he had enhanced its prestige and its bottom line.

But this isn’t just the story of a powerful man being investigated for claims made by a whistleblower. It’s the tale of an august Chicago nonprofit institution—one founded specifically to examine and fix public policy problems—that has drifted from its original mission. Beneath the City Club’s veneer of lofty purpose, critics say, it is now little more than a setting for political cronies, lobbyists, and business insiders seeking lucrative public contracts. That’s a charge that should trouble all Chicagoans. Yes, Doherty saved the City Club—but at what cost?

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Photograph: Michael Jarecki

The whistleblower: Kathy Posner, a former City Club board member

“For Civic Betterment,” read the headline on a November 1903 editorial in The Chicago Daily Tribune announcing the arrival of the City Club of Chicago. Founded by more than 125 local businessmen, the club “has great possibilities,” the Tribune declared. “And there is not a city in the country where such a club is more needed.”

The City Club delivered big on that promise, commissioning independent research—and spurring meaningful change—in areas such as city planning and public health. Its investigations into police mismanagement and municipal finance, led by Charles Merriam, a University of Chicago professor and reformist alderman, prompted improvements to the city’s tax system. The club was also a fierce advocate for Daniel Burnham’s bold 1909 Plan of Chicago, which gave the city its broad boulevards and lakeshore parks.

Over the years, the club grew to 2,400 members, but it suffered a financial setback during the Depression and lost its headquarters on Plymouth Court. By 1977, when the Republican activist and commentator Thomas Roeser became president, the club’s roster had dwindled to about 60 members; six years later, thanks to his energetic leadership, that number had grown to 600. But slowly the organization acquired a reputation as a stodgy GOP hangout. With plans to step down, Roeser went looking for a replacement with strong Democratic credentials—and that’s when the stories of the City Club and Jay Doherty began to intersect.

The son of the mayor of McHenry, Illinois, Doherty was steeped in Democratic politics from an early age. He attended Marquette University, where he displayed an ability for making advantageous connections. Doherty got started in politics working on Sargent Shriver’s 1976 presidential campaign, which led to his appointment as communications director for the Kennedy family’s Merchandise Mart. He went on to forge partnerships with Harold Washington and other liberal stalwarts.

Charming and pushy, Doherty also displayed a selfless streak. He met his wife, Colleen, a nurse, when he was donating a kidney to a friend; the couple married in 2003 and have four children. And Doherty has been a longtime supporter of the Special Olympics and Misericordia, the nonprofit care center for the disabled, where his talent for getting people to part with their cash was put to good use.

In 1987, Doherty teamed up with Thomas Coffey, a top aide to Harold Washington, to form the Haymarket Group, a Democratic public affairs firm whose blue-chip clients have included Senator Carol Moseley Braun and Alderman Ed Burke. Around 2004 he started his own public affairs company, using his networking skills to build up his Rolodex. Another way he made connections was by joining the City Club in 1985.

The club had changed considerably from its early days, moving away from the careful studies and earnest reforms. Under Roeser, the emphasis slowly turned toward political debates—as when Governor James Thompson faced off against Adlai Stevenson III, his Democratic challenger in the 1982 election—and public forums. The latter were genteel affairs, with speakers rarely interacting with or being challenged by the audience.

In 1994, Roeser retired as president and, with the board’s endorsement, handed the reins to Doherty. The new president refused to take a salary and even used some of his own money to keep the club afloat.

Under Doherty, the shift that had already started—more talk and less action—went further. Increasingly, the people who took to the podium at Maggiano’s were city and state officials, such as the head of Chicago’s department of transportation and other procurement officials, who controlled access to lucrative contracts.

Doherty’s rationale: Such speakers drew more attendees, beefing up the club’s coffers (each forum costs $35 for members, $45 for nonmembers) and burnishing the club’s image. They “attract large audiences,” noted the club’s centenary history in 2003. “Those speakers who merely discuss policy draw fewer.”

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Photograph: Katrina Wittkamp

SOURCES: Chicago Board of Ethics, City Club of Chicago, Illinois Secretary of State

In the summer of 2008, according to Posner, Dave Cameron, the club’s executive director at the time, came to her with questions about Doherty. Cameron had checked the club’s frequent-diner account with Lettuce Entertain You Enterprises, which owns Maggiano’s, and learned that someone had been cashing in tens of thousands of dollars’ worth of gift certificates accrued by the club. Because the account was in Doherty’s name and the gift certificates were redeemed at establishments near his condo—such as the Elizabeth Arden Red Door Spa—Cameron wondered whether the club president was responsible.

Such use posed a potential legal problem. In Illinois, all charities that fall under Section 501(c)(3) of the tax code, including most nonprofits, are required to disclose to the attorney general’s office (and to the IRS) how much their officers, board members, and employees earn. Since Doherty and club board members were unpaid, Cameron feared that the certificates might be deemed an “excess benefit.” In cases where the IRS determines an excess benefit has been derived, it can revoke an organization’s nonprofit status and/or assess a tax penalty.

According to e-mails submitted to the attorney general, when Doherty learned from his assistant that Cameron had been snooping into the Lettuce certificates, he became enraged. Cameron backed off, and in October 2008 he resigned.

By then, Posner had learned other details about Doherty from a young part-time staffer who split her time working for the City Club and for Doherty’s lobbying firm. For example, she told Posner that Doherty had been using club employees and resources for his work as a consultant to the Alliance to Protect the Illinois Constitution, which opposed a ballot initiative calling for a constitutional convention. Internal club e-mails later suggested that Doherty was using the club’s staff, office, and membership database—with its valuable information about thousands of the city’s political and business elite—to assist his client.

Over the next few months, Posner sent e-mails to the club’s private Google Group, raising questions about budgets, operations, and tax disclosures. She voiced concerns about Doherty’s alleged use of the Lettuce gift certificates, warning of possible IRS audits and penalties.

But the board, it turned out, couldn’t have been more satisfied with Doherty. While the top officers at most of the city’s civic-oriented nonprofits earned six-figure salaries, Doherty worked for the City Club for no pay. The luncheons were regularly selling out, membership was on the rise, and from 2004 to 2009 the club (according to its tax filings) saw its annual income nearly double, to $757,800. “The board was happy to defer to Jay,” recalls one former executive director, who requested anonymity. “Jay worked tirelessly, and when there was a success, they all looked better for doing absolutely nothing.”

That may have been part of the problem. “The board was completely marginalized,” explains the executive director. “The internal controls we had in that place were awful.”

The board grew increasingly irritated with Posner’s e-mails. Responding to one she sent on February 18, 2009, Frank Paul, a board member close to Doherty, posted to the club’s Google Group: “[W]e could never provide you [Doherty] with enough compensation whether it be in the form of dollars, [Lettuce] certificates, or City Club coffee mugs. The leadership and sweat equity you have provided to this venerable institution is invaluable.”

Doherty had had enough. According to Posner, he called her and delivered a furious tirade that “scared me half to death. That’s when I went to the AG’s office.”

* * *

On February 22, 2009, Posner sent a letter and documents she had obtained to Katherine Kelly, an assistant Illinois attorney general. Kelly encouraged Posner to keep gathering information, which her surrogate, the young part-time staffer in the City Club office, did. (The staffer declined multiple interview requests.)

Two months later, Therese Harris, the chief of the attorney general’s Charitable Trust Bureau, asked Doherty to meet with investigators. On May 12, he and lawyer Michael Hayes did so and pledged their cooperation. Afterward, the young staffer reported to Posner that Doherty had ranted about her as if he knew she had ratted him out. Posner immediately e-mailed Kelly. “I am very scared now,” she wrote.

“Please try not to be scared,” Kelly replied. “We NEVER reveal the identity of our complainants, NOR do we allow anyone to see the complaint or our investigation materials.”

Later in May, the staffer told Posner that Doherty had assigned her a new project: to build a database using City Club files for Christopher Kennedy, the president of the Merchandise Mart, who was gearing up for a primary run for the U.S. Senate (he later decided not to run). And she mentioned a new face around the office: John Lanctot, the son of Thomas Lanctot, an executive at William Blair & Company and a prominent Democratic supporter. According to the staffer, John Lanctot was put to work on the Kennedy database, gathering personal data from City Club’s files as well as from other political organizations.

Posner’s concerns mounted. Chicago’s interviews and e-mails from Doherty’s City Club account and computer files indicate that Doherty frequently used the luncheons to supplement his lobbying efforts, regularly comping his clients’ visits. He personally selected nearly all of the speakers and oversaw where people sat. “The tables were handpicked by Jay,” says the former executive director. “Often [Doherty] would position his clients in a good light, often across from the speaker, so there was plenty of interaction.”

In one e-mail, sent on May 21, 2009, the young staffer informs the club’s executive director that Doherty wanted his client Lionel Rabb, the president of Omicron Technologies, to sit next to Michael Scott, then president of the Chicago Board of Education. Rabb’s company, a Chicago Public Schools vendor, was paying Doherty $6,500 a month and seeking tech contracts from the school board, among other things.

Before that, a March 2009 memo from Doherty’s files submitted to the attorney general shows that another client, Tyco Electronics, wanted to “uncover [contract] opportunities within the City of Chicago.” That included meetings at a club lunch between a Tyco sales manager and city officials, among them Alderman Ed Burke, the chairman of the City Council’s finance committee. In earlier e-mails discovered by Chicago, the sales manager also asks Doherty if he can arrange a meeting with Montel Gayles, the city’s chief procurement officer. Club records show that the sales manager attended a March lunch featuring Burke—and sat at the same table as Gayles.

Meanwhile, City Club board members loyal to Doherty began damage control. E-mails show that in June 2009, the board member Chris Robling circulated a letter in support of Doherty that he asked other members to sign. “We will release only if KP [Posner] attacks in the press,” Robling explained.

At a meeting with the attorney general’s office on June 18, 2009, the AG’s investigators spelled out the allegations to the full board. The board met again the next day and formed a three-member committee—which would be assisted by Hayes, an outside auditor, and a private investigator—to look into the allegations.

On June 25, despite Kelly’s assurances to Posner, the attorney general’s office turned over to Hayes portions of the records that Posner had provided, though it had redacted details that would identify her or the young staffer. (The attorney general’s office says that it released the documents to Hayes to assist with the club’s internal reforms.)

On July 6, the staffer’s City Club e-mail was shut off, and two days later she received a layoff letter from Doherty. The board, he explained, had decided to close the club for the summer. “While we cannot predict the length of your layoff or guarantee your return to work,” the letter went on, “it is anticipated that the office may re-open sometime after August 15, 2009.” The staffer later discovered that she had been laid off permanently, while the rest of the small staff had been rehired.

Because of the attorney general’s investigation, the City Club’s board, according to meeting minutes, met about every other week during the summer. The minutes reflect the members’ recognition that they had been too hands-off. But they also show that the board spent much of its time sniping about the whistleblower’s betrayal. “Someone basically blew up the City Club,” Paul Green, the club chairman, fumed at an August meeting. “If we can find out who did it, that person or persons should be culpable.”

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NOTE: Money earned from lobbying city officials only
SOURCE: Chicago Board of Ethics

In October 2009, the board’s investigative committee submitted a report to the attorney general’s office that concluded there was “no intent either by or for [Doherty] to misuse or personally benefit from the City Club resources.” While it was common practice for Doherty to do both of his jobs from the City Club’s office, the committee found little overlap.

What about Doherty’s use of the club’s office for political work for Kennedy? The committee submitted a signed affidavit from Lanctot stating that he worked out of the City Club for only a few hours and did nothing with the club’s database. And the redemption of $60,000 worth of Lettuce gift certificates from 2005 to 2009? The club’s outside auditor concluded that their use was “not material” to the City Club’s overall financial picture.

The board passed a separate resolution declaring that the certificates had been used “for the benefit of the City Club” and that the club would not be “seeking further accounting or reimbursement.”

But Chicago’s investigation raises additional questions. For example, numerous internal e-mails show that Doherty often directed City Club employees to input or transfer data into various databases related to his outside work. Screen shots from Doherty’s computer indicate that Doherty kept hundreds of electronic files at the club’s office tied to his lobbying, consulting, and fundraising. Those files include e-mails that Doherty sent from his City Club account to Richard Durbin and Michael Madigan pushing for Kennedy to be appointed to the Senate seat vacated by Barack Obama.

Then there are the committee’s interviews of former staffers. Another executive director who was questioned by the committee (and who also requested anonymity) says she wasn’t made aware that she was being interviewed for a formal investigation. Dave Cameron acknowledges speaking to Hayes but derides the interview as a sham. “It felt like one long, not-so-subtle attempt to twist everything I was saying and make it sound like I was agreeing with Jay,” he says.

“He didn’t substantiate at all the allegations that were made,” responds Hayes, who says that Cameron declined an invitation for a second interview.

By now, the board had moved to reduce its own size from 17 to 15 members. Hayes says that the club felt the smaller number would make for a more engaged group. But Posner says that everyone knew one board member, the former state lawmaker Judy Erwin, intended to depart. That left 16 members. On December 16, 2009, the board voted to retain all of them—except Posner.

* * *

It has been more than three years since the attorney general’s investigation of Doherty began. What’s taking so long? Does Lisa Madigan’s friendship with Doherty and other members of the City Club—where Madigan spoke five times between 2003 and 2009—have something to do with what Posner perceives as a lack of action? Madigan’s spokeswoman, Natalie Bauer, adamantly denies it. She points out that Madigan has declined 22 separate invitations to speak at the club over the last three years. As for Madigan’s speech at that club luncheon in April 2009, two months after the Doherty investigation began, she explains, “This was a prior commitment, and she fulfilled it.”

Bauer adds that these sorts of investigations take time and it can be difficult to prove wrongdoing. For example, investigators must determine whether Doherty’s lobbying activities harmed the club. Remember, City Club board members said that having a prominent and successful president helped the organization, even if Doherty also benefited.

There are other gray areas here. Some might ask, What’s wrong with using a leadership position in a club to help your business? In Chicago, that’s not unethical—it’s smart! What’s more, it’s not like the Doherty-era City Club hasn’t done anything for Chicago. Come election time, it cosponsors TV debates featuring the candidates for top office, thereby helping voters make informed decisions. And the information-sharing and networking opportunities it provides arguably help keep the city’s wheels turning smoothly.

Though the investigation drags on, the club’s board, under the AG’s prodding, made some changes. It instituted tougher employee and board guidelines and now tracks the use of gift certificates and comped lunches. The president is required to reimburse the club for use of office equipment. There’s even a new whistleblower policy that requires club employees to report any “questionable” behavior and protects them from retaliation—though the ultimate arbiter on these matters remains the club’s president and his allies. (The new policy is of little consolation to Posner, who hasn’t attended a club lunch in more than two years. “City Club was a huge, huge part of my life,” she says. “It put me in a position of some civic prominence, and I lost all that.”)

Those changes are positive, to be sure. But the club does not appear to have made what some say would be the most positive change of all: rededicating itself to the reformist mission laid out by its founders. “I was hopeful that the organization would start doing some good things again, but there was limited enthusiasm,” says a former executive director. “I got the sense that real change was going to have to come from Jay if it was going to come at all.”