Unease at Clinton Foundation Over Finances and Ambitions

Jason Henry for The New York Times
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.

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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 ofHillary 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.

Growing Ventures

As the foundation grew, so did the outside business ventures pursued by Mr. Clinton and several of his aides.

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