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United States News Title: Clinton Foundation - GOVERNANCE REVIEW All boldface, underline, and italics as in original. For precise formatting, see PDF at Wikileaks: Simpson Thacher & Bartlett LLP STB DRAFT 12/3/11 PRIVILEGED, PERSONAL AND CONFIDENTIAL December 3, 2011 TO: The Board of Directors of the William J. Clinton Foundation John Podesta FROM: Victoria B. Bjorklund Jennifer I. Reynoso RE: Governance Review I. Introduction We have been engaged to conduct a decadal governance review of the William J. Clinton Foundation (the "Foundation") and its relationship with its affiliates (collectively, the "Charities"). This memorandum summarizes the results of our governance review, including our interviews with members of the Boards of Directors and staff of the Charities, and our review of certain governing and other documents of the Charities. Specifically, our review started on October 27, 2011. We conducted our first interview on November 1, 2011 and the last on November 17, 2011. We conducted 38 interviews, 25 in-person and 13 by telephone. We met with, among others, the President, Bruce Lindsey, John Podesta, members of the Foundation's Board of Directors (the "Board"), members of the Immediate Office of the President, the Chief Financial Officer and Chief Operating Officer of the Foundation, heads of the Clinton Global Initiative, Inc. ("CGI"), the Clinton Health Access Initiative, Inc. ("CHAI") and the Alliance for a Healthier Generation, Inc. (the "Alliance"), as well as individuals from marketing, scheduling, advance, correspondence, and other areas. 098463-0003-02521-12727757 2 Simpson Thacher & Bartlett LLP We showed interviewees our list of 22 questions. We indicated that their names would not be attached to any specific responses. We asked interviewees to rate the effectiveness and efficiency of the Foundation's operations; the effectiveness of the process determining operational priorities; the effectiveness of the budget and employee review processes; where they saw the Foundation in ten years; who they saw as having substantial influence over the Foundation; whether they had disclosed actual or potential conflicts of interest; and what changes in operations or governance they would recommend. We also requested and reviewed numerous documents received from Scott Curran, Assistant General Counsel, including, among others, the Articles of Incorporation and By-Laws for each of the Charities, as well as the Foundation's Employee Handbook, Global Code of Conduct, Conflict-of-Interest Policy, Board minutes, financial statements, and IRS Forms 990. II. Executive Summary Almost all interviewees: 1. stressed the need for a stronger Board and stronger management; When we asked interviewees to rate the effectiveness and efficiency of the Foundation's operations on a scale of 1 to 10, many elected to give different ratings for effectiveness and efficiency. They rated the effectiveness in the 7-to-8 range based on the number of people receiving life-saving drugs through CHAI, the agreements negotiated by the Alliance with the beverage companies, and/or the commitments made through CGI. However, 098463-0003-02521-12727757 3 Simpson Thacher & Bartlett LLP these same interviewees rated the current efficiency of the Foundation at a low 1-to-4 level. They called for the Charities to develop the infrastructure necessary to support a best-in-class organization. The rapid growth of the Foundation and the Charities, their substantial programs, and their high profile are all reasons governance should be enhanced at this time. Therefore, we recommend the following: 1. Reinvigorate the Boards of the Charities by adding new, experienced directors and create appropriate committees. III. Legal Duties and Responsibilities of the Board of Directors and Officers A. Introduction The Foundation is an Arkansas Nonprofit Corporation. As an Arkansas Nonprofit Corporation, the Foundation is subject to the Arkansas Nonprofit Corporation Act of 1993. The Foundation is authorized to do business in New York, and therefore we would expect that the New York State Attorney General would argue that the Foundation is subject to certain provisions of the New York Not-for-Profit Corporation Law.1 The Foundation is exempt from 1 Section 1318 of the New York Not-For-Profit Corporation Law (the “NPCL”) states that unless otherwise provided, the directors and officers of a foreign corporation conducting activities in New York are subject, to the same extent as directors and officers of a domestic corporation, to the provisions of Section 719 (Liability of directors in certain cases) except subparagraph (a)(4) thereof, and Section 720 (Action against directors and officers for misconduct). This Section will not apply to the Foundation if its principal activities are conducted outside New York; the greater part of its property is located outside of New York; and less than one half of its revenues for the preceding three fiscal years was derived from sources within New York. See Section 1321(a)(3) of the NPCL. 098463-0003-02521-12727757 4 Simpson Thacher & Bartlett LLP federal income taxation under section 501(c)(3) of the Internal Revenue Code of 1986, as amended (the "Code") and classified by the Internal Revenue Service (the "IRS") as a public charity and not as a private foundation. B. Legal Duties In general, the members of the Board of Directors of the Foundation act as fiduciaries on its behalf. Therefore, certain legal standards, known as "duties" govern the conduct of those directors with respect to the Foundation. Arkansas law provides that a director shall discharge his or her duty as a director: (1) in good faith; (2) with the care an ordinarily prudent person in a like position would exercise under similar circumstances; and (3) in a manner the director reasonably believes to be in the best interests of the corporation.2 In general, a director of the Foundation who violates his or her fiduciary duties could be found liable in a legal action brought by the corporation, by someone representing the interests of the corporation (e.g., another director or officer) or by the Arkansas or possibly the New York Attorney General. We are not authorized to practice law in Arkansas, but we believe that Bruce Lindsey can advise on the scope of fiduciary duties and director liability under Arkansas law. C. Responsibilities of the Foundation's Directors In general, the Foundation's directors, rather than its officers or key employees, are responsible for the oversight of, and setting the policies governing, the operations of the Foundation. The Foundation's officers and employees then carry out the daily operations of the Foundation within the parameters and policies established by the Board. Examples of the directors' oversight and decision-making responsibilities include: • amending the Foundation's By-Laws; electing directors and officers on an annual basis, as required by the Foundation's By-Laws; 2 Ark. Code Ann. Section 4-33-830(a). The NPCL uses similar language. See Section 717(a). 098463-0003-02521-12727757 5 Simpson Thacher & Bartlett LLP • accepting the report of the Foundation's external, independent auditors; D. Responsibilities of the Foundation's Officers In general, the Foundation's officers exercise the responsibilities delegated to them either through the Foundation's By-Laws or by the Board through the adoption of resolutions. The responsibilities of the Foundation's officers (i.e., Chair, Chief Executive Officer, Chief Financial Officer, and Secretary) are set forth in Article II, Section 1 and Article III, Sections 4 to 6 of the Foundation's Amended and Restated By-Laws. We propose below engagement of a strong Chief Operating Officer, and we note that the President title is also available. IV. Governance Recommendations Based on our interviews and document review, we propose below our governance recommendations for the Foundation. These recommendations apply equally to each of CGI, CHAI and the Alliance. A. Board of Directors 1. Board Size 098463-0003-02521-12727757 6 Simpson Thacher & Bartlett LLP The current Foundation Board is very small and is comprised solely of "insiders." This is also the case for the CGI Board, although the CHAI Board has added some independent directors. The Alliance Board, which currently consists of three Foundation representatives and three AHA representatives, is supposed to elect three independent directors. This has not yet occurred. Many interviewees expressed the view that the Foundation and the other Charities would benefit from outside perspectives and experience. They indicated that increasing the size of the Boards could also help with fundraising. (Advisory Boards could also bring outside perspectives and expertise.) The Nonprofit Panel Report3 states "A knowledgeable, committed board of directors is the strongest protector of a charitable organization's accountability to the law, its donors, consumers of its products and services, and the public."4 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 Nonprofit Panel Report recommended that Congress take action to require that at least one-third of the members of a public charity's governing board be independent, with certain exclusions. It indicated that independent board members should be defined as individuals: (1) who have not been compensated by the organization within the past 3 The Panel on the Nonprofit Sector was an independent effort by charities and foundations to ensure that the nonprofit community remains a vibrant and healthy part of American society. Formed by Independent Sector in October 2004, at the encouragement of the U.S. Senate Finance Committee, the Panel submitted a series of recommendations for Congress to improve the oversight and governance of charitable organizations and for individual nonprofit organizations to ensure high standards of ethics and accountability. The Panel issued a report to Congress and the nonprofit sector, Strengthening Transparency, Governance, and Accountability of Charitable Organizations, in June 2005 (the “Nonprofit Panel Report”), and followed up with a supplemental report by the same name in April 2006 (the “Nonprofit Panel Supplemental Report”). 4 Nonprofit Panel Report at 75. 098463-0003-02521-12727757 7 Simpson Thacher & Bartlett LLP twelve months, including full-time and part-time compensation as an employee or as an independent contractor, except for reasonable compensation for board service; (2) whose own compensation, except for board service, is not determined by individuals who are compensated by the organization; (3) who do not receive directly or indirectly, material financial benefits (i.e., service contracts, grants, or other payments) from the organization except as a member of the charitable class served by the organization; and (4) who are not related to (as a spouse, sibling, parent, or child) any individual described above. The Nonprofit Panel Report also recommended that every charitable organization review its board size periodically to determine the most appropriate size to ensure effective governance and to meet the organization's goals and objectives. All boards should establish strong and effective mechanisms to ensure that the board carries out its oversight functions and that board members are aware of their legal and ethical responsibilities in ensuring that the organization is governed properly. The Wall Street Journal recently reported that the average size of a public charity board is 16.1 members.5 Recommendation: Small insider boards may have been appropriate when the Foundation and the other Charities were first formed, but are not considered good practice for public charities of their current size and complexity. We recommend reinvigorating the Board by adding new experienced directors and expanding the number to at least 8 directors. We recommend that the Board seek directors with varying skill sets (e.g., financial management, strategic planning, fundraising). If the Board chooses not to expand, we recommend that the Board at least appoint an Advisory Board comprised of members with varying skill sets. 5 Shelly Banjo, “Before You Join That Board,” Wall Street Journal, Nov. 28, 2011. 098463-0003-02521-12727757 8 Simpson Thacher & Bartlett LLP 2. Audit Committee The Board needs some members with strong financial know-how to participate in the annual audit process. The Nonprofit Panel Report recommends that every charitable organization have some Board members with financial expertise. The Report recommends that charitable organizations that prepare audited financial statements establish a separate audit committee to manage the audit process. Members of the audit committee should not receive compensation from the organization. Responsibilities of the audit committee should include: selecting, retaining, evaluating, and terminating the independent auditor; periodically reviewing the terms of the auditor's engagement; overseeing the auditor's performance; reviewing the annual audit report; reviewing the adoption and implementation of internal controls; reviewing any whistleblower complaints involving financial matters; and reviewing any conflict-of-interest transactions. Recommendation: We recommend that the Board appoint an Audit Committee consisting of independent directors with strong financial know-how.6 Recommendation: We recommend that the Audit Committee be responsible for retaining and terminating the independent auditor; periodically reviewing the terms of the auditor's engagement; overseeing the auditor's performance; reviewing the annual audit report; reviewing the adoption and implementation of internal controls; reviewing any whistleblower complaints involving financial matters; and reviewing any conflict-of-interest transactions. We recommend that the Audit Committee report back to the Board two times a year, first after the audit plan is approved and second after the audit report is received. 6 The Board Agenda for the 2009 Board meeting notes that an audit committee was established in December 2008. It is unclear to us who the members of this committee are. 098463-0003-02521-12727757 9 Simpson Thacher & Bartlett LLP 3. Board Chair The Board does not appear to have a Chair. A Board Chair generally is responsible for working with the CEO and COO to plan and set the agenda for each Board meeting. The Board Chair presides over Board meetings and ensures that Board meetings are efficient and effective working sessions. Between Board meetings, the Board Chair is the primary liaison with the CEO and COO. The Board Chair often leads the evaluation of the CEO's and COO's performance. The Chair can also ensure that procedures are in place for the recruitment, training, and evaluation of Board members. Recommendation: We recommend that the Board appoint a Chair. We recommend that the Chair work with the CEO and COO to plan and set the agenda for Board meetings. 4. Board Meetings The Board has only met once a year. While it approves the annual budget, it does so mid-way through the budget year. In addition, the Board is not involved in strategic or budget planning. The main planning meeting appears to occur in December, but it is a staff meeting, not a Board meeting. In 2007, the Board adopted a Governance Policy. It requires that the Board meet two times a year and that each director attend at least two meetings in person. The Governance Policy also requires that the Board approve an annual budget and formally review the CEO's performance every two years. The Foundation's outside auditors noted as a material weakness the lack of Board meetings and that Board minutes are not signed. This weakness was not corrected even after being noted by the auditors. In addition, minutes appear to have been cloned from one year to the next. 098463-0003-02521-12727757 10 Simpson Thacher & Bartlett LLP The Wall Street Journal reports that the average number of board meetings for a public charity is 7.4 meeting per year, each lasting an average of 3.4 hours.7 We believe that one meeting a year is inadequate for public charities of this size and complexity. Recommendation: We recommend that the Board meet at least on a quarterly basis. We recommend that Board decisions taken by resolution be clearly recorded in Board meeting minutes, separate and apart from Board discussions. We also recommend that the Board meeting minutes record any follow-up to items discussed by the Board at prior meetings and whether actions were taken by the Board on previously-discussed items. Recommendation: We recommend that one meeting be designated the "Annual Meeting," and we recommend that the Board annually elect directors and officers at this meeting. Recommendation: One of the most important functions of the Board is to ensure proper oversight of the financial matters of the Foundation. Therefore, we recommend that the Board review and approve an annual budget prior to or at the beginning of each calendar year and that the Board periodically compare actual to budgeted revenues and expenses. We recommend that the Board devote time at each meeting to the presentation of financial reports and information and that the discussion of this information be recorded in more detail in the Board meeting minutes. 5. Strategic Planning We were informed that the Board has not been involved in strategic planning and program evaluation. We were also informed that the Board is not always informed of or given 7 Shelly Banjo, “Before You Join That Board,” Wall Street Journal, Nov. 28, 2011. 098463-0003-02521-12727757 11 Simpson Thacher & Bartlett LLP an opportunity to discuss and pre-approve major new programs and material changes in existing programs. In our interviews, numerous interviewees commented that they believe that the Board needs to take a more active role in overseeing and managing the Foundation and its finances, programs, and activities. We were told that the Board has not engaged in any succession planning and has not discussed the Foundation's sustainability if the President is no longer involved. The current lack of strategic planning leads to confusion about priorities and missed opportunities as well as duplicative or wasteful work and expenses. Before adding new programs or initiatives, the Board and management need to evaluate whether these additions will enhance or negatively impact existing programs and initiatives. A strategic planning process will enable the Board to establish measurable goals and objectives that advance the Foundation's mission. Evaluation will then measure progress towards those goals and objectives. The strategic planning process must also address the long-term viability of the Foundation. Succession planning should be addressed even if no changes are currently planned. Strategic planning should address short, medium, and long-term goals. Recommendations: We recommend that the Board, together with the Foundation's management, engage in a strategic planning process. We recommend that the Board be presented with information regarding and pre-approve all major new program initiatives and any material changes to existing programs of the Foundation. We recommend that the Board periodically evaluate the effectiveness of existing programs and initiatives and consider transferring or phasing out programs that do not advance the current mission. Recommendation: We recommend that the Board engage in succession planning. 098463-0003-02521-12727757 12 Simpson Thacher & Bartlett LLP 6. Oversight of CEO The Board does not appear to supervise, set compensation for, or evaluate the CEO. Although the Governance Policy requires that the CEO's performance be formally evaluated every two years, we believe the last formal evaluation may have occurred in 2007.8 The Board does not appear to set the CEO's salary.9 Charitable organizations are permitted to pay reasonable compensation for services provided by board members, officers, and staff. Reasonable compensation is defined as the amount that would ordinarily be paid for like services by like enterprises (whether tax-exempt or taxable) under like circumstances. The IRS Form 990 asks whether independent persons reviewed the compensation of the CEO and other officers based on comparability data and contemporaneously recorded the deliberation and decision. On the 2010 Form 990, which is a public document, the Foundation, CGI, and CHAI all responded that no such independent review had occurred. In addition, Schedule J of the Form 990 asks whether the Foundation uses any of the following to establish the compensation of the Foundation's CEO: (i) compensation committee; (ii) independent compensation consultant; (iii) Form 990 of other organizations; (iv) written employment contract; (v) compensation survey or study; and/or (vi) approval by board or compensation committee. The Foundation and CHAI responded that they used a compensation survey or study and approval by the Board to establish CEO compensation. CGI responded that none of these methods were used to establish CEO compensation. See Appendix A.10 8 The tab for this in the Foundation Board book was blank, and the minutes do not reflect a performance review. 9 We were also told that at CHAI, Ira Magaziner set his own salary. 10 We did not receive copies of any compensation surveys or studies and therefore question how the process reported on the Forms 990 was conducted by the Boards. 098463-0003-02521-12727757 13 Simpson Thacher & Bartlett LLP A charitable organization can establish a rebuttable presumption that compensation is reasonable by following a three-step procedure: (i) having compensation reviewed and approved by independent members of the board or a committee; (ii) basing compensation on comparables (that is, compensation paid by similar organizations for similar services); and (iii) contemporaneously documenting the board's or committee's decision in minutes. The Nonprofit Panel Report recommends that charitable organizations incorporate into their bylaws, articles, charter, or other appropriate governing documents a requirement that the full board approve, annually and in advance, the compensation of the CEO unless there is a multi-year contract in force or there is no change in the compensation except for an inflation or cost-of-living adjustment.11 Comparability data can be obtained by consulting compensation surveys, such as the annual GuideStar Nonprofit Compensation Report or the Professionals for Nonprofits NY Salary Survey, or the Forms 990 of other similar public charities (which are publicly available at www.GuideStar.org). The individual whose compensation is being approved should not be present during the discussion or vote on his or her compensation. The meeting minutes should document that the board (or committee) reviewed compensation comparability information and that any individuals whose compensation was being approved were not present during the discussion or vote. We can provide model resolutions that can be used by the Board (or a committee of the Board) annually to approve the compensation of the Foundation's CEO, other compensated officers, and key employees. Recommendation: One of the most important functions of the Board is to supervise, set compensation for, and evaluate the CEO. Therefore, we recommend that the Board annually review the performance of the CEO. Because we believe it is a good 11 Nonprofit Panel Report at 67. 098463-0003-02521-12727757 14 Simpson Thacher & Bartlett LLP governance practice and consistent with the "rebuttable presumption of reasonableness" rules of Code section 4958, we recommend that (a) the Board (or a committee) set the compensation annually of the Foundation's CEO, (b) in doing so, the Board (or committee) obtain and review comparability data showing the compensation paid by similarly-situated public charities to individuals holding similar positions, and (c) document the Board's or the committee's decision in the minutes. B. Conflicts of Interest 1. Conflict-of-Interest Policies The Foundation has a Conflict-of-Interest Policy applicable to directors, officers, and key employees (the "Board Conflict Policy"), and a separate policy for employees (the "Employee Conflict Policy").12 It appears that neither policy has been implemented, and the Board Conflict Policy may need revision to address the issues raised by interviewees. That is, it appears that conflicts are not timely disclosed. While conflicts may be disclosed on the annual questionnaire, they have not been disclosed at the time the individual learns of matter in which he has an interest. In addition, when staff becomes aware of conflicts, they are unsure how to raise and clear these conflicts. Finally, Board members do not appear to be following the policy when they become aware of conflicts. The Board Conflict Policy requires the Board or a committee to appoint a disinterested person or committee to investigate alternatives to the proposed interested transaction or arrangement. If a more advantageous transaction or arrangement is not reasonably possible under circumstances not producing a conflict of interest, the Board or committee shall determine by majority vote whether the transaction or arrangement is in the Foundation's best 12 CGI has adopted the Foundation’s Conflict-of-Interest Policy. 098463-0003-02521-12727757 15 Simpson Thacher & Bartlett LLP interest, for its own benefit and whether it is fair and reasonable. The Board Policy also requires the covered individuals to sign and return an annual conflict of interest disclosure questionnaire. The questionnaire asks whether the individual has an ownership or investment interest in, or has a compensation arrangement with, any entity or individual with which the Foundation has negotiated a transaction or arrangement. The individual also agrees (a) to disclose any financial interest at the Foundation's request and (b) if the individual learns of any matters in which he has a financial interest, to disclose immediately to the CEO of the Foundation. In addition, 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 Arkansas Nonprofit Corporation Act of 1993 defines a conflict of interest as a transaction with the corporation in which a director has either a direct or indirect interest.13 A direct interest would involve a potential loss or benefit to the director herself. An indirect interest occurs when another entity in which the director has a material interest or serves as an officer or director is a party to the transaction.14 In addition, the IRS Form 990, which is signed under penalties of perjury and is publicly available, asks (a) whether the Foundation has a written conflict-of-interest policy, (ii) whether directors, officers, and key employees are required to annually disclose interests that could give rise to conflicts of interest, and (iii) whether the Foundation regularly and consistently monitors and enforces compliance with its conflict-of-interest policy. The Foundation indicated on its 2010 Form 990 that it has a written conflict-of-interest policy, requires annual disclosure of potential conflicts of interest, and monitors and enforces compliance with the policy. However, we did not find evidence of that enforcement. 13 Ark. Code. Ann. Section 4-33-831(a). 14 Ark. Code. Ann. Section 4-33-831(b). 098463-0003-02521-12727757 16 Simpson Thacher & Bartlett LLP The Board has a fiduciary duty to act in the best interests of the Foundation, and directors must put their duty to the Foundation before their individual and private interests. To prevent abuse and protect the reputation of the Foundation, it is extremely important that the Board be able to identify and address apparent and actual conflicts of the interest. Recommendation: We recommend that the appropriate officer educate the Board and staff as to proper and timely disclosure of conflicts of interest. Officers and managers need to educate staff as to provisions of the Employee Conflicts Policy and how to raise conflicts with managers as conflicts arise. The Board (or its Audit Committee) and management need to timely address conflicts in accordance with the conflict-of-interest policies. The Board should keep contemporaneous records of actions taken with respect to actual or potential conflicts. In addition, we recommend that the Board Conflict Policy be amended to cover all those who have substantial influence over the Foundation, not just directors, officers, and those receiving compensation of more than $150,000 from the Foundation. Recommendation: We recommend that the Foundation establish a gift acceptance policy and procedures to ensure that all donors are properly vetted and that no inappropriate quid pro quos are offered to donors in return for contributions. 098463-0003-02521-12727757 17 Simpson Thacher & Bartlett LLP 2. CGI Interviewees informed us that CGI offered approximately 1,298 complimentary (unpaid) Memberships, compared with approximately 500 paying Members. Of the complimentary Memberships, 160 were offered to celebrities and approximately 276 were coded "discretionary." At $20,000 per Membership, these "comp Memberships" represent a significant value. Interviewees informed us that there is no transparency into how the comp list is developed. Recommendation: We recommend that all "comp Memberships" be vetted by CGI Management to ensure that all such Membership offers are appropriate in that they advance the interests of CGI rather than the personal or business interests of any individual. 3. Outside Employment A number of Foundation employees reported to us that they have outside employment. Many interviewees were unaware of the Foundation's longstanding policy regarding outside employment when we raised pre-approval with them. Numerous interviewees reported confusion and a lack of transparency between Foundation roles and responsibilities and outside roles and responsibilities of a variety of individuals. Interviewees also mentioned instances in which gifts and other payments received by staff had not been properly disclosed. The Foundation Code of Conduct has provided that employees wishing to obtain additional employment outside of the Foundation must first secure the approval of their immediate supervisor or their department, initiative or office head, which approval may be granted or denied in the manager's sole discretion, after consultation with the Director of Human Resources or his/her designee. The Code of Conduct also provides that no employee shall directly or indirectly engage in any outside business or financial activity that will, in any way, 098463-0003-02521-12727757 18 Simpson Thacher & Bartlett LLP conflict with the interests of the Foundation, or that interferes with an employee's ability to fully perform his/her duties.15 The prior policy also said that conducting conflicting activity "will result in termination of employment."16 In addition, an employee who receives honoraria or other payments from a third party because of his/her relationship with the Foundation must disclose such payments to the Legal Department.17 Conflicts also include acceptance of gifts of more than $100, or participation in any outside employment or business activity that conflicts with the interests of the Foundation or interferes with the employee's duties and responsibilities to the Foundation.18 Recommendation: We recommend that the Board set "tone at the top" by encouraging a culture of compliance. We recommend that the CEO direct the Director of Human Resources to conduct regular training sessions regarding Foundation policies in furtherance of the culture of compliance. We recommend that the Board direct Foundation management to ensure that staff is aware of reporting lines and that managers at all levels are aware of their responsibility to enforce policies. C. Management Interviewees believe that the Foundation must have stronger management. Interviewees reported a "leadership vacuum" at the Foundation because management is not physically present in the New York office on a regular basis. We understand that the CEO and General Counsel spends a substantial amount of time in Little Rock, the COO spends a substantial amount of time in Haiti, the CFO is located in Little Rock, and the Assistant General 15 See Foundation Code of Conduct at 16. 16 See 2007 Foundation Employee Handbook at 9. 17 See Foundation Code of Conduct at 7. 18 See Foundation Code of Conduct at 7. 098463-0003-02521-12727757 19 Simpson Thacher & Bartlett LLP Counsel is located in Chicago. Interviewees also reported that there is no clear "command and control" structure. They also reported that senior and/or full staff meetings have not been held on a regular basis for some time. The lack of strong management also results in lack of communication between departments and initiatives. We were told that meetings among initiatives are not held and initiatives are "siloed" from each other. Interviewees believe that they could learn much from each other and "cross-pollinate" if they were to meet regularly. Recommendation: We recommend that the Foundation hire and empower a strong Chief Operating Officer based in New York on a full-time basis. (We also note that the President title is available, if the Board determines this is appropriate.) We recommend that the Board, the CEO, and the Director of Human Resources work to define the role of the new COO (e.g., should the COO be responsible for operations and administration, for strategy, for all internal functions) and determine the proper relationship between the CEO and the COO. We also recommend that the COO job description make clear that the COO is accountable for ensuring compliance with all Foundation policies and creating a culture of compliance. Recommendation: We recommend that the new COO and the Director of Human Resources work to develop clear reporting lines for all Foundation employees. Recommendation: We recommend that the new COO and the Director of Human Resources develop and conduct regular staff meetings as well as management training for all managers. We recommend that the COO communicate that managers are responsible for compliance with all Foundation policies and that managers' performance will be evaluated on this basis. We recommend that the Board hold the CEO and the COO accountable for improving management. 098463-0003-02521-12727757 20 Simpson Thacher & Bartlett LLP D. Lack of Internal Controls The Foundation's auditors have, in 2009 and 2010, indicated that material weaknesses exist including variously in segregation of accounting duties, review of journal entries, audit adjustments and financial statement preparation, and lack of Board meetings. The auditors also noted that books are kept on a cash, not an accrual basis. These issues do not appear to have been addressed by the Board. Separately, interviewees reported their belief that certain employees abuse expense privileges (e.g., charging the Foundation and President for personal expenses) and do not follow the Foundation's travel expense policy. The Foundation's travel expense policy requires that employees use the lowest commercial class airfare (unless the airtime exceeds 14 hours and the employee is required to report to work the next day) and the lowest available rates when making hotel and lodging reservations.19 These problems were mentioned by numerous interviewees. In addition, on Schedule J of the 2010 Form 990, the Foundation reports that it provides companion travel but that it does not follow a written policy. Public charities are permitted to pay for or reimburse ordinary and necessary expenses incurred in carrying out activities, including the costs of travel. Expenses for transportation, lodging, and meals must be documented to establish that they were incurred in connection with the work of the organization and not the personal activities of the individual. The law requires that these expenses not be "lavish or extravagant under the circumstances," though "lavish" and "extravagant" are not defined in the tax code or in regulations. Travel expenses that are paid for or reimbursed but that are not properly documented, are "lavish or extravagant," or are for non-business companions must be treated as additional taxable compensation to the individual benefiting from them. The law requires public charities intending to treat an expenditure as compensation to provide contemporaneous written substantiation by 19 See Foundation Code of Conduct, Addendum II at 29-30. 098463-0003-02521-12727757 21 Simpson Thacher & Bartlett LLP reporting the amounts on a Form W-2, a Form 1099, or a Form 990, or otherwise documenting such compensation in writing; otherwise, federal tax law requires that such compensation be treated as an "automatic excess benefit." Board members and executives of charitable organizations who receive excessive travel benefits are subject to penalties unless they correct the transaction by returning the excess benefit amount to the charity. See Appendix B. Excess benefit transactions must also be self-reported on the annual information return (Form 990), which is signed under penalties of perjury and filed with the IRS and publicly available on the web. The Nonprofit Panel Report recommends that charitable organizations that pay for or reimburse travel expenses of board members, officers, employees, consultants, volunteers, or others traveling to conduct the business of the organization establish and implement policies that provide clear guidance on their travel rules, including the types of expenses that can be reimbursed and the documentation required to receive reimbursement. Such policies should require that travel on behalf of the charitable organization is to be undertaken in a cost-effective manner. The travel policy should be provided to and adhered to by anyone traveling on behalf of the organization. Charitable organizations should not pay for or reimburse travel expenditures (not including de minimis expenses of those attending an activity such as a meal function of the organization) for spouses, dependents, or others who are accompanying individuals conducting business for the organization unless they, too, are conducting business for the organization. One of the primary duties of the board of directors of a charitable organization is to ensure that all financial matters of the organization are conducted legally, ethically, and in accordance with proper accounting rules. Recommendation: We recommend that the new COO work with the CFO and the Foundation's auditor to review and propose to the Audit Committee improved 098463-0003-02521-12727757 22 Simpson Thacher & Bartlett LLP internal controls. We recommend that the Audit Committee present those recommendations to the full Board for approval. Recommendation: We recommend that the CFO or his designees review all expenses to ensure that they comply with the Foundation's policies. We recommend that the COO work with the Director of Human Resources to educate staff as to the Foundation's expense policies. We encourage training of all employees as to expense reimbursement procedures. Recommendation: We recommend that the Board adopt a policy prohibiting spousal or companion travel, unless there is a business purpose for such person's travel. We note that the provision or reimbursement of travel expenses for spouses or companions of directors, officers, and other key employees, if not treated as compensation, is an automatic excess benefit for the person receiving the benefit, and such person will be subject to penalties. * * * The recommendations above apply equally to each of CGI, CHAI and the Alliance. We would be happy to discuss and answer any questions you may have regarding this memorandum. VBB Appendix A IRS Circular 230 Disclosure: To ensure compliance with requirements imposed by the IRS, we inform you that any tax advice contained in this communication (including any enclosures) was not intended or written to be used, and cannot be used, for the purposes of (i) avoiding tax-related penalties under federal, state or local tax law or (ii) promoting, marketing or recommending to another party any transaction or matter addressed herein. 098463-0003-02521-12727757 Post Comment Private Reply Ignore Thread Top • Page Up • Full Thread • Page Down • Bottom/Latest
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https://wikileaks.org/podesta-emails/emailid/7769 From: jreynoso@stblaw.com Privileged and Confidential Bruce and John, As discussed, we attach our draft governance memorandum. We also attach a draft checklist which includes all of the recommendations in the memorandum. Please call us if you would like to discuss. Regards, Victoria and Jennifer IRS Circular 230 disclosure: To ensure compliance with requirements imposed by the IRS, we inform you that any tax advice contained in this communication (including any attachments) was not intended or written to be used, and cannot be used, for the purpose of (i) avoiding tax-related penalties under federal, state or local tax law or (ii) promoting, marketing or recommending to another party any transaction or matter addressed herein. CONFIDENTIALITY NOTE: ____________________________ Jennifer Reynoso Tel: (212) 455-2287 Governance Memorandum Appendices Governance Recommendations = = = = = = = = = = = = = = = = = = = = https://wikileaks.org/podesta-emails//fileid/7769/2016 WIKILEAKS - Clinton Foundation Governance Memorandum (3 Dec 2011) https://wikileaks.org/podesta-emails//fileid/7769/2017 WIKILEAKS - Clinton Foundation Governance Memorandum, APPENDICES https://wikileaks.org/podesta-emails//fileid/7769/2018 WIKILEAKS - GOVERNANCE RECOMMENDATIONS CHECKLIST
You don't like Chelsea, do you? She makes one million a year and lives in a ten million dollar New York townhome. But you don't correct?
https://wikileaks.org/podesta-emails/emailid/3433 From:cheryl.mills@gmail.com Subject: Special Advisor Jennifer I am following up on our conversation a few minutes ago. As you know, Bruce fell unexpectedly ill (but will recover). President Clinton connected with him in person last night to ensure Bruce knew that the Foundation's collective priority was his health and the opportunity for him to take time to heal. In the interim, he has asked John Podesta to serve as a special advisor, with particular focus on providing leadership and being a resource and decision-maker for the corporate audit. I am copying John on this email so that you two can connect -- I have given him a frame of reference regarding the objectives for the corporate audit and I know Chelsea can share even more but wanted you all to a have a point of additional contact in light of Bruce's unexpected illness. best. cdm
https://wikileaks.org/podesta-emails/emailid/6947 From: jreynoso@stblaw.com Subject: Clinton Foundation Governance Review Privileged and Confidential Dear Bruce, Chelsea, Terry and John, We wanted to let you know that our interviews are proceeding well. We have attached below for your information the following documents: 1. Document Request List, sent to Scott Curran on October 28, 2011. Please do not hesitate to contact us if you wish to discuss. Victoria can be reached at 212-455-2875 or vbjorklund@stblaw.com. Jennifer can be reached at 212-455-2287 or Regards, IRS Circular 230 disclosure: To ensure compliance with requirements imposed by the IRS, we inform you that any tax advice contained in this communication (including any attachments) was not intended or written to be used, and cannot be used, for the purpose of (i) avoiding tax-related penalties under federal, state or local tax law or (ii) promoting, marketing or recommending to another party any transaction or matter addressed herein. CONFIDENTIALITY NOTE: ____________________________ Jennifer Reynoso Tel: (212) 455-2287 ____________________________
https://wikileaks.org/podesta-emails/emailid/9487 From:john.podesta@gmail.com Your call. No problem from my end if you both want to come. On Fri, Nov 4, 2011 at 4:11 PM, Bjorklund, Victoria B Dear John--Jennifer and I are both available to attend the meeting Monday. If you prefer to have only one of us attend, I certainly understand if you prefer to have Jennifer alone attend. I just wanted to let you know that I can also attend if you want both of us or if you want to meet with us both after the staff meeting. Just let us know your preferences. Best regards, Victoria -----Original Message----- Subject: Re: Clinton Foundation Governance Review John, I am fine with all of this. Bruce Sent from Bruce R. Lindsey's iPad On Nov 4, 2011, at 2:23 PM, John Podesta wrote: Jennifer, I'm headed to NYC on Monday for a series of meetings with the senior staff and an all staff call, the purpose of which is to reassure people, calm them down with respect to the audit, and let them know that until Bruce is able to return full time, I will serve as an advisor and senior resource to move forward program decisions and any management reforms that may result from the audit. The senior staff meeting is scheduled for 2:00 at the Water St HQ. Would you or Victoria have any interest in attending that to answer any questions concerning the nature and timing of the audit? You are probably seeing most of these people one on one, so it may not be necessary, but I thought it might be helpful to have them all hear the same thing at once. Bruce, Do you have any concerns proceeding this way. Any messages you want me to make sure I communicate? John On Thu, Nov 3, 2011 at 12:57 PM, Reynoso, Jennifer wrote: Privileged and Confidential Dear Bruce, Chelsea, Terry and John, We wanted to let you know that our interviews are proceeding well. We have attached below for your information the following documents: 1. Document Request List, sent to Scott Curran on October 28, 2011. Please do not hesitate to contact us if you wish to discuss. Victoria can be reached at 212-455-2875 or vbjorklund@stblaw.com. Jennifer can be reached at 212-455-2287 or jreynoso@stblaw.com. Jordan can be reached at 212-455-2188 or jbotjer@stblaw.com. Regards, IRS Circular 230 disclosure: To ensure compliance with requirements imposed by the IRS, we inform you that any tax advice contained in this communication (including any attachments) was not intended or written to be used, and cannot be used, for the purpose of (i) avoiding tax-related penalties under federal, state or local tax law or (ii) promoting, marketing or recommending to another party any transaction or matter addressed herein. CONFIDENTIALITY NOTE: ____________________________ Jennifer Reynoso Tel: (212) 455-2287 ____________________________
To the contrary, Chelsea was taksed with an audit and she obtained the services of a very highly qualified law firm whose experts performed a professional audit of the Clinton Crime Foundation. You should read it.
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