The biggest human interest story so far of the Wikileaks hack is the story of Chelsea Clinton’s discovery in 2011 that her parents’ nonprofit was full of conflicts of interest. They had set up a charity that allowed donors to get their way. At first, she tried reform, only to lose out to the entenched cronies. What emerges, in the context of Chelsea’s actions in the next few years, shows us how she reconciled herself to the realities of the Clinton Organization.
A tranche of the Wikileaks revelations released Tuesday revealed, as Richard Pollock of the Daily Caller put it:
Chelsea Clinton’s bold decision in 2011 to launch an “internal investigation” into the finances of the Clinton Foundation and Clinton Global Initiative…. (snip)
Two emails — one dated Nov. 12, 2011 and another dated Jan. 4, 2012 — show Chelsea was aggressively looking into the foundation’s money flows and talking to others about it.
It sounds as though the then-31-year-old Chelsea, accustomed to dismissing everything negative about her parents coming from the Clinton-haters, started seeing actual internal data and was able to put two and two together. Keep in mind that at this time in her life, she had just been awarded a masters degree in public health and was beginning work on her doctoral dissertation at University College, Oxford. Thedissertation was not completed until 2014, when she was awarded her doctorate. The abstract of the 712-page thesis reveals that donors exerting control over a nonprofit organization was her major discovery. The specific organization she studied, The Global Fund to Fight AIDS, Tuberculosis and Malaria, does not appear to be an offshoot of the Clinton organizations. Here are the conclusions, from the abstract, couched in terms of the relevant academic theories:
Equal donor and recipient Board representation was insufficient to ensure recipients had influence equal to donors. The Secretariat never developed an in-country presence but donors embedded themselves in-country, through grant oversight mechanisms and providing technical assistance to implementers. Principal-agent theory generally assumes agents have more information than principals, a key source of their authority. In the Fund, that asymmetry was in the principals’ favour. The scant delegation of authority to the Secretariat left donors in a position to exert control at all levels. The Fund was an experiment in global governance but has not yet proven to be a success in establishing a new model for cooperation.
Gee, “donors in a position to exert control at all levels” might apply somewhere else, might it not?
Now imagine yourself as a 30-something young woman, raised by nannies and thrust into the world as a celebrity with no say in the matter. She’s gotten into the best universities in the world and just embarked on the ultimate academic status symbol.
And she discovers that her family’s slush fund is rife with conflicts of interest.
Here, Chelsea did the smart thing: she commissioned a report by Simpson, Thatcher, and Bartlett, a law firm as establishment as one can get. (Full disclosure: Many years ago, I did some work for that firm.) Their work does not come cheap. The audit they produced was revealed in the Thursday tranche from Wikileaks, and it revealed trouble, again as summarized by Richard Pollock:
Leading the review was Victoria Bjorklund, one of the nation’s top-ranked legal experts on good-governance practices for foundations and charities. She came out of retirement to lead the review.
She created and previously headed Simpson’s tax-exempt group which advises public charities, private foundations, boards, and donors. Bjorklund was named “2014 Nonprofit Lawyer of the Year” by Best Lawyers Magazine.
Simpson Thacher found numerous weaknesses in the Clinton Foundation’s management structure, including a board consisting entirely of insiders loyal solely to Bill and Hillary Clinton, the board’s failure to oversee finances properly, inherent conflict of interests and the use of audits based on cash accounting rather than the federally mandated accrual basis.
But most serious disclosure in the review was that donors expected a “quid pro quo” in return for their contributions. “Some interviewees reported conflicts of those raising funds or donors, some of whom may have an expectation of quid pro quo benefits in return for gifts.”
The disclosure that the board of Clinton Foundation was on notice probably raises a lot of sticky issues that would preoccupy an honest AG in New York State, where the enterprise is chartered. I am not holding my breath.
Simpson Thacher found the board played no meaningful role in deciding either the Clinton Foundation’s strategic policies or in evaluating the effectiveness of the organization’s global programs for the poor.
“Failures by boards of directors in fulfilling their fiduciary responsibilities may arise when a board leaves governing responsibility to a small number of people, some of whom may have conflicts of interest that can mar their judgment,” the review said.
While foundations of comparable size meet on a quarterly basis, the review found that the Clinton Foundation board meetings were convened only once a year and appeared to be held mainly to satisfy state and federal charity laws.
Translation: Nobody is running the place (and keeping it honest).
Chelsea, apparently, decided to work from the inside, to reform:
She was there when the foundation fired KDB, its tiny, Midwestern accounting firm. She also personally recruited McKinsey & Company friend and colleague Eric Braverman to become the new CEO. And Chelsea widened the board from a handful of Clinton insiders to a dozen while serving as its vice-chairman.
Only months after Braverman arrived after signing a lucrative $395,000 employment contract, he abruptly quit. Bruce Lindsey, a long-time Clinton hand who Braverman had replaced, is now back running the foundation.
It’s unclear if Braverman resigned or if he was pushed out by old Clinton loyalists.
Band and other long time Bill Clinton pals had a lot to lose with a Chelsea-led investigation.
Historically, the foundation was run by a small group of old Clinton loyalists, including long-time aide Bruce Lindsey, Terence McAuliffe, now the Democratic governor of Virginia, and Cheryl Mills, who was Hillary’s chief of staff at the State Department.
It looks to me as if Chelsea gave it a try and lost out to the capos in the organization. She took the academic way out, studying another, far more benign group (in all likelihood), and discovered that even there, the donors end up calling the shots. Maybe that is how she rationalized her decision to go with the flow. Maybe it was her way of telling the world that it is pretty corrupt out there. All packaged in the most respectable way possible, a D. Phil dissertation at Oxford.