Hillary Rodham Clinton speaking at an American Bar Association meeting in San Francisco on Monday.
By NICHOLAS CONFESSORE and AMY CHOZICK
Published: August 13, 2013
Soon after the 10th anniversary of the foundation bearing his name, Bill Clinton met with a small group of aides and two lawyers from Simpson Thacher & Bartlett. Two weeks of interviews with Clinton Foundation executives and former employees had led the lawyers to some unsettling conclusions.
The review echoed criticism of Mr. Clinton’s early years in the White House: For all of its successes, the Clinton Foundation had become a sprawling concern, supervised by a rotating board of old Clinton hands, vulnerable to distraction and threatened by conflicts of interest. It ran multimillion-dollar deficits for several years, despite vast amounts of money flowing in.
And concern was rising inside and outside the organization about Douglas J. Band, a onetime personal assistant to Mr. Clinton who had started a lucrative corporate consulting firm — which Mr. Clinton joined as a paid adviser — while overseeing the Clinton Global Initiative, the foundation’s glitzy annual gathering of chief executives, heads of state, and celebrities.
The review set off more than a year of internal debate, and spurred an evolution in the organization that included Mr. Clinton’s daughter, Chelsea, taking on a dominant new role as the family grappled with the question of whether the foundation — and its globe-spanning efforts to combat AIDS, obesity and poverty — would survive its founder.
Now those efforts are taking on new urgency. In the coming weeks, the foundation, long Mr. Clinton’s domain since its formation in 2001, will become the nerve center of Hillary Rodham Clinton’s increasingly busy public life.
This fall, Mrs. Clinton and her staff will move into offices at the foundation’s new headquarters in Midtown Manhattan, occupying two floors of the Time-Life Building. Amid speculation about her 2016 plans, Mrs. Clinton is adding major new initiatives on women, children and jobs to what has been renamed the Bill, Hillary & Chelsea Clinton Foundation.
Worried that the foundation’s operating revenues depend too heavily on Mr. Clinton’s nonstop fund-raising, the three Clintons are embarking on a drive to raise an endowment of as much as $250 million, with events already scheduled in the Hamptons and London. And after years of relying on Bruce R. Lindsey, the former White House counsel whose friendship with Mr. Clinton stretches back decades, to run the organization while living part-time in Arkansas, the family has hired a New York-based chief executive with a background in management consulting.
“We’re trying to institutionalize the foundation so that it will be here long after the lives of any of us,” Mr. Lindsey said. “That’s our challenge and that is what we are trying to address.”
But the changing of the guard has aggravated long-simmering tensions within the former first family’s inner circle as the foundation tries to juggle the political and philanthropic ambitions of a former president, a potential future president, and their increasingly visible daughter.
And efforts to insulate the foundation from potential conflicts have highlighted just how difficult it can be to disentangle the Clintons’ charity work from Mr. Clinton’s moneymaking ventures and Mrs. Clinton’s political future, according to interviews with more than two dozen former and current foundation employees, donors and advisers to the family. Nearly all of them declined to speak for attribution, citing their unwillingness to alienate the Clinton family.
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Last Thursday, Mr. Clinton arrived two hours late to an exuberant welcome at a health clinic about 60 miles north of Johannesburg. Children in zebra-striped loincloths sang as Mr. Clinton and Ms. Clinton made their entrance, and the former president enthusiastically explained how his foundation had helped the South African government negotiate large reductions in the price of drugs that halt the progress of HIV. Aaron Motsoaledi, South Africa’s minister of health, heaped praise on the effort. “Because of your help we are able to treat three and a half times more people than we used to,” he told the crowd.
The project is typical of the model pioneered by the Clinton Foundation, built around dozens of partnerships with private companies, governments, or other nonprofit groups. Instead of handing out grants, the foundation recruits donors and advises them on how best to deploy their money or resources, from helping Procter & Gamble donate advanced water-purification packets to developing countries to working with credit card companies to expand the volume of low-cost loans offered to poor inner city residents.
The foundation, which has 350 employees in 180 countries, remains largely powered by Mr. Clinton’s global celebrity and his ability to connect corporate executives, A-listers and government officials. On this month’s Africa trip, Mr. Clinton was accompanied by the actors Dakota Fanning and Jesse Eisenberg and the son of the New York City mayoral candidate John A. Catsimatidis, a longtime donor.
For most of the foundation’s existence, its leadership has been dominated by loyal veterans of the Clintons’ political lives. Ira C. Magaziner, who was a Rhodes scholar with Mr. Clinton and ran Mrs. Clinton’s failed attempt at a health care overhaul in the 1990s, is widely credited as the driving force behind the foundation’s largest project, the Clinton Health Access Initiative, which, among other efforts, negotiates bulk purchasing agreements and price discounts on lifesaving medicines.
Mr. Band, who arrived at the White House in 1995 and worked his way up to become Mr. Clinton’s closest personal aide, standing behind the president on golf courses and the global stage, helped build the foundation’s fund-raising structure. He conceived of and for many years helped run the Clinton Global Initiative, the annual conference that draws hundreds of business leaders and heads of state to New York City where attendees are pushed to make specific philanthropic commitments.
Today, big-name companies vie to buy sponsorships at prices of $250,000 and up, money that has helped subsidize the foundation’s annual operating costs. Last year, the foundation and two subsidiaries had revenues of more than $214 million.
Yet the foundation’s expansion has also been accompanied by financial problems. In 2007 and 2008, the foundation also found itself competing against Mrs. Clinton’s presidential campaign for donors amid a recession. Millions of dollars in contributions intended to seed an endowment were diverted to other programs, creating tension between Mr. Magaziner and Mr. Band. The foundation piled up a $40 million deficit during those two years, according to tax returns. Last year, it ran more than $8 million in the red.
Amid those shortfalls, the foundation has sometimes catered to donors and celebrities who gave money in ways that raised eyebrows in the low-key nonprofit world. In 2009, during a Clinton Global Initiative gathering at the University of Texas at Austin, the foundation purchased a first-class ticket for the actress Natalie Portman, a special guest, who brought her beloved Yorkie, according to two former foundation employees.
In interviews, foundation officials partly blamed the 2008 recession and difficulties in getting donors to provide operating support rather than restricted grants for specific programs for the deficits.
But others criticized Mr. Magaziner, who is widely seen within the foundation as impulsive and lacking organizational skills. On one occasion, Mr. Magaziner dispatched a team of employees to fly around the world for months gathering ideas for a climate change proposal that never got off the ground. Another time, he ignored a report — which was commissioned at significant expense from the consulting firm McKinsey & Company — on how the foundation could get involved in forestry initiatives.
Mr. Magaziner’s management style and difficulty keeping projects within budget were also raised in discussions that surrounded the 2011 Simpson Thacher review. (One person who attended a meeting with Mr. Magaziner recalled his lying on a conference room table in the middle of the meeting because of terrible back spasms, snapping at a staff member.)
Mr. Band repeatedly urged Mr. Clinton to fire Mr. Magaziner, according to people briefed on the matter. Mr. Clinton refused, confiding in aides that despite Mr. Magaziner’s managerial weaknesses, he was a visionary with good intentions. The former president, according to one person who knows them both, “thinks Ira is brilliant — and brilliant people get away with a lot in Clinton world.”
Indeed, by then, Mr. Magaziner had persuaded Mr. Clinton and the foundation to spin the health initiative off into a separate organization, with Mr. Magaziner as its chief executive and the Clinton Foundation appointing a majority of its board members. The financial problems continued. In 2010 and 2011, the first two years when the health initiative operated as a stand-alone organization, it ran annual shortfalls of more than $4 million. A new chief financial officer, hired in 2010, left eight months later.
A foundation official said the health initiative had only three chief financial officers in 10 years and that its financial problem was a common one in the nonprofit world: For all the grant money coming in — more than $160 million in 2011 — Mr. Magaziner had also had difficulty raising money for operating costs. But by the end of 2011, the health initiative had expanded its board, adding two seats. Chelsea Clinton took one.
As the foundation grew, so did the outside business ventures pursued by Mr. Clinton and several of his aides.
None have drawn more scrutiny in Clinton circles than Teneo, a firm co-founded in 2009 by Mr. Band, described by some as a kind of surrogate son to Mr. Clinton. Aspiring to merge corporate consulting, public relations and merchant banking in a single business, Mr. Band poached executives from Wall Street, recruited other Clinton aides to join as employees or advisers and set up shop in a Midtown office formerly belonging to one of the country’s top hedge funds.
By 2011, the firm had added a third partner, Declan Kelly, a former State Department envoy for Mrs. Clinton. And Mr. Clinton had signed up as a paid adviser to the firm.
Teneo worked on retainer, charging monthly fees as high as $250,000, according to current and former clients. The firm recruited clients who were also Clinton Foundation donors, while Mr. Band and Mr. Kelly encouraged others to become new foundation donors. Its marketing materials highlighted Mr. Band’s relationship with Mr. Clinton and the Clinton Global Initiative, where Mr. Band sat on the board of directors through 2011 and remains an adviser. Some Clinton aides and foundation employees began to wonder where the foundation ended and Teneo began.
Those worries intensified after the collapse of MF Global, the international brokerage firm led by Jon S. Corzine, a former governor of New Jersey, in the fall of 2011. The firm had been among Teneo’s earliest clients, and its collapse over bad European investments — while paying $125,000 a month for the firm’s public relations and financial advice — drew Teneo and the Clintons unwanted publicity.
Mr. Clinton ended his advisory role with Teneo in March 2012, after an article appeared in The New York Post suggesting that Mrs. Clinton was angry over the MF Global controversy. A spokesman for Mr. Clinton denied the report. But in a statement released afterward, Mr. Clinton announced that he would no longer be paid by Teneo.
He also praised Mr. Band effusively, crediting him with keeping the foundation afloat and expressing hopes that Mr. Band would continue to advise the Global Initiative.
“I couldn’t have accomplished half of what I have in my post-presidency without Doug Band,” Mr. Clinton said in the statement.
Even that news release was a source of controversy within the foundation, according to two people with knowledge of the discussions. Mr. Band helped edit the statement, which other people around the Clintons felt gave him too much credit for the foundation’s accomplishments. (The quotation now appears as part of Mr. Band’s biography on the Teneo Web site.)
Mr. Band left his paid position with the foundation in late 2010, but has remained involved with C.G.I., as have a number of Teneo clients, like Coca-Cola, Dow Chemical and UBS Americas. Standard Chartered, a British financial services company that paid a $340 million fine to New York regulators last year to settle charges that it had laundered money from Iran, is a Teneo client and a sponsor of the 2012 global initiative.
Last year, Coca-Cola’s chief executive, Muhtar Kent, won a coveted spot on the dais with Mr. Clinton, discussing the company’s partnership with another nonprofit to use its distributors to deliver medical goods to patients in Africa. (A Coca-Cola spokesman said that the company’s sponsorship of foundation initiatives long predated Teneo and that the firm plays no role in Coca-Cola’s foundation work.)
In March 2012, David Crane, the chief executive of NRG, an energy company, led a widely publicized trip with Mr. Clinton to Haiti, where they toured green energy and solar power projects that NRG finances through a $1 million commitment to the Clinton Global Initiative.
Officials said the foundation has established clear guidelines for the Clinton Global Initiative to help prevent any favoritism or special treatment of particular donors or sponsors.
Teneo was not the only worry: other events thrust the foundation into internal turmoil. In 2011, a wave of midlevel program staff members departed, reflecting the frustration of much of the foundation’s policy personnel with the old political hands running the organization. Around the time of the Simpson Thacher review, Mr. Lindsey suffered a stroke, underscoring concerns about the foundation’s line of succession. John D. Podesta, a chief of staff in Mr. Clinton’s White House, stepped in for several months as temporary chief executive.
While much attention has focused on Mrs. Clinton’s emerging role within the foundation, advisers to the family say her daughter’s growing involvement could prove more critical in the years ahead. After years of pursuing other career paths, including working at McKinsey & Company and a hedge fund, Ms. Clinton, 33, has begun to assert herself as a force within the foundation. Her perspective is shaped far more than her parents’ by her time in the world of business, and she is poised to play a significant role in shaping the foundation’s future, particularly if Mrs. Clinton chooses to run for president.
She formally joined the foundation’s board in 2011, marking her growing role there — and the start of intensifying tensions between her and Mr. Band. Several people close to the Clintons said that she became increasingly concerned with the negative impact Mr. Band’s outside business might have on her father’s work and that she cited concerns raised during the internal review about potential conflicts of interest involving Teneo.
It was Ms. Clinton who suggested that the newly installed chief executive, Eric Braverman, be considered for the job during a nearly two-year search. A friend and a former colleague from McKinsey, Mr. Braverman, 38, had helped the Clintons with philanthropic projects in Haiti after the earthquake there. And his hiring coincided with Ms. Clinton’s appointment as the vice chairwoman of the foundation board, where she will bear significant responsibility for steering her family’s philanthropy, both in the causes it tackles and in the potential political and financial conflicts it must avoid.
Ms. Clinton has also grown worried that the foundation she stood to inherit would collapse without her father, who turns 67 next week. Mr. Clinton, who had quadruple-bypass surgery in 2004 and no longer eats meat or dairy products, talks frequently about his own mortality.
Mr. Catsimatidis said Ms. Clinton “has to learn how to deal with the whole world because she wants to follow in the footsteps of her father and her mother.”
Shifting the Emphasis
Over the years, the foundation has dived into virtually any cause that sparked Mr. Clinton’s interest: childhood obesity in the United States, sustainable farming in South America, mentoring entrepreneurs, saving elephants from poaching, and more. That list will shift soon as Mrs. Clinton and Chelsea build their staffs to focus on issues including economically empowering women and combating infant mortality.
In the coming months, as Mrs. Clinton mulls a 2016 presidential bid, the foundation could also serve as a base for her to home in on issues and to build up a stable of trusted staff members who could form the core of a political campaign.
Mrs. Clinton’s staff at the foundation’s headquarters includes Maura Pally, a veteran aide who advised her 2008 presidential campaign and worked at the State Department, and Madhuri Kommareddi, a former policy aide to President Obama.
Dennis Cheng, Mrs. Clinton’s deputy chief of protocol at the State Department and a finance director of her presidential campaign, will oversee the endowment drive, which some of the Clintons’ donors already describe as a dry run for 2016.
And Mrs. Clinton’s personal staff of roughly seven people — including Huma Abedin, wife of the New York mayoral candidate Anthony D. Weiner — will soon relocate from a cramped Washington office to the foundation’s headquarters. They will work on organizing Mrs. Clinton’s packed schedule of paid speeches to trade groups and awards ceremonies and assist in the research and writing of Mrs. Clinton’s memoir about her time at the State Department, to be published by Simon & Schuster next summer.
Lydia Polgreen contributed reporting, and Kitty Bennett contributed research.