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KSG’S REPORT NOV. 10, 2008 DRAFT

CONFIDENTIAL DRAFT ATTORNEY-CLIENT PRIVILEGE

10, 2008 DRAFT CONFIDENTIAL DRAFT ATTORNEY-CLIENT PRIVILEGE MEMORANDUM TO BRUCE LINDSEY FROM: KUMIKI GIBSON DATE:

MEMORANDUM TO BRUCE LINDSEY

FROM:

KUMIKI GIBSON

DATE:

NOVEMBER 10, 2008

RE:

LEGAL AND HUMAN RESOURCES REVIEW & ASSESSMENT:

REPORT OF INITIAL FINDINGS AND RECOMMENDATIONS

This report sets forth the findings of my review of the Legal and Human Resources Departments of the William J. Clinton Foundation (“Foundation”) and those pertaining to other areas of the Foundation revealed during this review, and my recommendations to the Foundation based on this review.

I.

SUMMARY

While the Foundation has grown impressively over the past several years, it has a number of fundamental organizational challenges and deficiencies that undermine its effectiveness, expose it to significant risk, and, ultimately, threaten its long-term survival. The Foundation (as opposed to its initiatives, which I have not reviewed) operates more like a political operation focused on immediate situations, tasks, and events, as opposed to a professional, strategic, and sustainable corporation committed to advancing its overall mission. While that may not be a problem while the President is personally involved in the Foundation -- and can garner support based on that involvement -- it will be a problem when he is no longer involved, and the Foundation has to rise and/or fall on its own name and work only.

If the leadership (that is, the Board and the CEO) intends and wants the organization to survive beyond the President’s personal involvement, then it must take measures to move the organization onto a path of sustainability, starting with revamping both the Legal and Human Resources (“HR”) Departments; reviewing its corporate structure and governance documents; and, perhaps most importantly, having a frank discussion with the President about the current state of the organization, the future of the organization, and

KSG’S REPORT NOV. 10, 2008 DRAFT

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his appetite and willingness to allow the Board and CEO to make the changes necessary for it to become sustainable, even great.

The time for making these changes, if they are desired, could not be better: The presidential campaign, which distracted some key employees and caused uncertainty among others about the future of the organization, is now over; virtually all of the employees interviewed are anxious for more structure, professionalism, and mission-focus; and funders are expecting the same.

II.

BACKGROUND

As you know, the Foundation operates in a highly-regulated environment, which impacts its operations in significant ways. Specifically, as a not-for-profit organization, which enjoys tax exempt status under Section 501(c)(3) of the Internal Revenue Code and which solicits funds from third parties, the Foundation is subject to a number of Federal and State laws governing such organizations. As an employer, the Foundation is subject to the various laws governing workplaces and workforces of the Federal government and of the countries and states in which the Foundation has offices and/or employees. And, as a corporate entity with a board of directors, the Foundation is governed by certain laws applicable to boards of directors and by standards and practices that have developed in the area of not-for-profit governance.

The larger philanthropic landscape makes these legal, compliance, and governance issues even more important. Despite the record levels of philanthropic activity in recent years, donors have become more and more focused on the strategic use of their donations, on realizing a real return on their investments (that is, demonstrable impact), and on the actual operations of the organizations to which they donate. Specifically, they are demanding that not- for-profits function with the same level of discipline, professionalism, and transparency as for-profit companies. These expectations are likely to become even more important to funders in light of the current financial crisis.

In light of these important issues, we agreed that I would

1. Review the Legal and HR Departments to determine whether they function as effectively and efficiently as possible and as necessary to service this rapidly-growing organization;

2. Identify any other areas in need of improvement, as revealed or unearthed during the review of the Legal and/or HR Departments; and

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3. Make recommendations for improvements in all areas reviewed and/or identified.

The specific work I have conducted to date is outlined in Tab A.

III. FINDINGS AND ASSESSMENTS

In order to ensure that the review, the assessments, and subsequent actions address all aspects associated with organizing and operating an effective organization, I structured this review around the McKinsey & Co. 7-S Framework. As you may know, this Framework is recognized as capturing the fundamental elements of an effective and holistic organization: (1) shared values, (2) strategy, (3) structure, (4) systems, (5) staff, (6) style, and (7) skills.

This report looks at each factor separately, discussing the findings and the implications of those findings. (A detailed list of all of the major findings is set forth at Tab B.)

1. Shared Values: This factor focuses on the central and shared beliefs and attitudes underlying and driving an organization.

There seem to be two principal beliefs that permeate the Foundation:

(1) that its entrepreneurial culture, which sets it apart from most not-for- profits, makes it more effective than like organizations, and (2) that structure, rules, and processes result in a bureaucracy that slows down an organization. The former is true to some extent, but not entirely: While the Foundation appears to be nimble and quick in response to opportunities and to problems, it is not very good at planning. This causes the Foundation to be less strategic and less efficient than it could be and increases the risks of mistakes or worse, which could affect it in significant ways legally and/or reputationally.

The belief that controls (through structure, rules, and processes) slow down an organization is also a bit misguided. Structure, rules, and processes ensure that the Foundation operates lawfully, consistently, and efficiently, which ultimately enhance its effectiveness and reputation. It is unclear whether certain managers shun such controls because they have never worked in an environment that was both entrepreneurial and disciplined; because they do not know how to create and/or manage an office/initiative that is entrepreneurial, but disciplined and structured; because they prefer working, as they do, with little oversight or accountability; and/or all, or some combination of all, of the above. No

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matter what the cause, this disdain has resulted in a culture that under- values structure, controls, and compliance.

Because the lack of planning and controls can adversely affect the Foundation’s effectiveness, efficiencies, and reputation, and because a being entrepreneurial and being strategic and compliance-oriented are not mutually exclusive, the Foundation should work to turn around what appears to be current values in a way that leaves intact the entrepreneurial culture of the Foundation and its employees.

2. Strategy: As you know, mission focuses on the “why,” and strategy focuses on the “how.” Strategy provides a game plan for an organization to achieve its mission, by setting priorities, directing staff and resources toward those priorities, and enhancing the decision-making process and actual decisions, by focusing both on priorities, in the face of what are oftentimes conflicting requests, demands, and pressures, made daily. Finally, a strategy ensures accountability, both by the organization as a whole and by individual employees.

The lack of a strategy tied to an articulated vision is one of the major deficiencies of this organization. Employees, even at the senior level, could not articulate the organization’s game plan for achieving its mission, confessed that there are no goals or measures tied to any strategy, and complained that the work across the organization is not linked to each other or, even worse, does not always advance the Foundation’s mission or best interests.

The lack of strategy has resulted in, among other things, a lot of confusion across the organization about organizational priorities (which many claim appear to shift constantly); missed opportunities (as a result of shifting priorities and lack of a game plan); very little, if any, accountability (as no one’s work is measured against established goals and measures); a bottom-up budget tied to the priorities and desires of individual department heads, not to the organization’s mission; and wasted time and resources.

Absent greater strategic clarity, the Foundation may be able to achieve some immediate tactical goals, but is unlikely to ever fulfill its mission, to maximize the President’s impact, or to endure beyond the President’s personal commitment or lifetime. Moreover, without such clarity, improvements in other fundamental areas (e.g., skills) will be limited or misguided.

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3. Structure: This factor relates to the way an organization is structured -- that is, how work is divided, how work is integrated, and who reports to whom. While there is not one type of structure that fits all organizations, the structure of any organization should be developed around the organization’s needs (including, specifically, ensuring proper controls, maximizing resources, and reducing waste), and must be clear to those who operate within it.

The current structure of the Foundation accomplishes neither. Specifically, the organization appears to have been built around individuals, not the needs and interests of the Foundation, and it has not been reviewed or mapped against needs or interests (much less a real strategy) since the days of its inception. Moreover and significantly, the work of the Foundation and the President are intertwined in a way that creates confusion at, and undermines the work of, the Foundation at virtually every level. As a result, there is no “central command,” functionalities are divided across offices, Foundation offices and initiatives are dangerously independent, resources are not maximized, and a couple of key managers appear to have interests that do not always align with those of the Foundation.

This organization, loosely linked around the President, comprised of many “free agents,and serving, to some degree, the interests of the President may have been appropriate when the Foundation was in its start-up phase, with few offices, few employees, and few major decisions. It is not, however, appropriate for an organization that operates across the globe with over 500 employees and a budget of $90 million, that is regulated at every level of government, and that depends on outside funders for sustenance.

Absent a clearer structure and greater clarity about that structure, the Foundation will continue to be faced with reputational and legal challenges, and with confusion, inefficiencies, and waste.

4. Systems: As noted above, having the proper systems, procedures, and processes in place ensures appropriate controls and consistency, and reduces risks and waste. In short, it enables an organization to operate lawfully, efficiently, fairly, and effectively, and ensures that it does.

The Foundation has very few procedures, processes, and systems in place, and even fewer that are consistent across the organization. For example, it is missing several policies/procedures that are required by law (e.g., record retention policy). Moreover, although it has an employee manual,

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KSG’S REPORT NOV. 10, 2008 DRAFT

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that manual is not comprehensive and is not distributed or followed consistently across the organization. Finally, the Foundation has no system in place to ensure equity or consistency in compensation or to allow for professional development or training, issues that a number of employees noted and/or complained about.

What makes this (systems) deficiency particularly problematic is that (1) the organization is legally liable for the acts of its offices and initiatives and those who run them; (2) managers in key positions have no to little experience in not-for-profit management and thus do not even possess the right instincts when faced with a problem for which there is no policy or procedure; and (3) there is no established mechanism for catching problems and mistakes.

In short, the systems deficiency subjects the Foundation to significant legal and reputational risks, results in inconsistencies and inefficiencies, and undermines its work and viability.

5. Staff: As you know, having the right people in the right positions is critical to the success of any organization. Employees effectuate the work necessary to achieve mission, serve as the ambassadors of the organization to the outside world, and, when talented and properly utilized, enhance the organization and its impact. Thus, organizations must be committed fully to finding, recruiting, retaining, and developing the best and the brightest.

The Foundation is not appropriately organized or sufficiently staffed to meet these objectives. Specifically, there is no central personnel office, there are few position descriptions or requirements and standards for recruiting and hiring staff, and the heads of offices and initiatives have great discretion in creating and filling positions. This can lead to and has led to inconsistent and sometimes negative results.

As an initial matter, there are individuals serving in managerial positions that have no to little managerial experience or skills. This not only impacts the effectiveness of such managers, vis-à-vis their own work, but it impacts the effectiveness, working conditions, and morale of those working with them. For example, at least two senior managers tend to micro-manage, which not only takes away from their own responsibilities, but undermines their subordinates. Ultimately, the entire department suffers, which affects the entire organization.

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In addition, several key managers appear to prefer qualities in candidates that are unrelated or indirectly related to the position at hand or that will add little value to the organization as a whole. For example, the head of the Harlem office has admitted that she likes hiring and/or promoting interns, despite the fact that many of these individuals have no to little experience outside the Foundation and the fact that this office is located in a city with vast talent pool. Such an approach does not allow the Foundation to identify or ferret out the best talent, it promotes inconsistencies in hiring, and it could have a discriminatory impact on certain groups in hiring and promotion.

Moreover, because very little attention is paid to these staff issues, employees are often confused about their roles and the expectations of them in their roles, which confusion is exacerbated by the fact that they are not evaluated on a regular basis.

Finally, morale is low among the current staff. Moreover, according to several members of the staff, the Foundation has lost some employees because of some of the issues identified in this report, including, specifically, the lack of clear priorities and of good managers.

This lack of attention to staffing standing alone could lead to the Foundation’s demise: Without the right talent, the Foundation will be unable to accomplish its important work and will be unable to attract new talent to do that work. It will also lose good people, which will affect its work and its reputation.

6. Style: This factor refers to the way key managers behave to achieve organizational goals, with respect to, among other things, their priorities and their use of time.

As noted above, a couple of key positions are filled with individuals who do not have a lot of managerial experience or strong managerial skills and who operate without a strategy or much oversight. As a result, these individuals do not have a clear sense of priorities or how to prioritize, or of their roles or the roles of those who report to them. Moreover, because there are so few systems, policies, and procedures, they tend to make decisions on an ad hoc basis, which are not always appropriate, in terms of the law or organizational interests. And, because the lines of authority are murky, managers tend to under-consult or over-consult with others in the organization. Finally, the anti-compliance attitude of a couple of key managers has affected not only the culture or certain decisions, but has affected the view of lower level employees who either witness less than

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fully compliant behavior or, even worse, are asked to participate in or condone it. (Indeed, several staff members virtually begged fro a stronger whistleblower policy and process.)

If the Foundation becomes more strategic, professional, and compliance- focused, its managers will likely change their style to conform.

7. Skills: Skills refer to the capabilities within and of the organization.

As noted above, there are some extremely committed employees who are able to react swiftly and competently to opportunities and problems. Unfortunately, that reactive approach dominates the entire organization. As one employee stated, managers and staff seem more interested in “getting it done than getting it right.” Most troublesome, perhaps, is the fact that neither the individuals nor the organization seem committed to planning or “getting it right” from a strategic or efficiency point of view. Without this commitment, the organization and its employees will never realize their full potential.

IV.

RECOMMENDATIONS

The assessment of the organization through the 7-S Framework makes clear that the organization is not operating as effectively or efficiently as it should or could. Indeed, it has major deficiencies in each of the fundamental areas. Each of these deficiencies, standing alone, threatens the effectiveness of the Foundation in the short and long term. When combined, as currently the case, they threaten its very existence (absent the President’s involvement).

Because it is unclear whether the President wants the Foundation to exist beyond his personal involvement, the Foundation’s leadership (that is, the Board and CEO) should address this question head-on with the President. That will require a frank discussion with the President about his desire, willingness, and appetite to move the Foundation to the next level of development. If the President concludes that he does, in fact, want the Foundation to survive and thrive beyond his involvement, then he should authorize and empower the CEO and Board to make the changes necessary for this survival.

While you and/or the leadership puzzle through this question, the Foundation should begin improving immediately the Legal and HR Departments, which have responsibility for a number of the 7-S elements (i.e., systems, staff, skills, and, to some extent style).

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KSG’S REPORT NOV. 10, 2008 DRAFT

A. LEGAL AND HR DEPARTMENTS

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No matter what the leadership decides about the larger, over-arching question,

it must act immediately to bring the Foundation into compliance with the law

and standards that govern not-for-profits, and must create strong legal and HR

offices so to prevent any lapses in the future. To this end, I recommend the following:

Hire professional legal and HR managers dedicated solely to overseeing each of these departments;

Empower each of these department heads to oversee and manage that area of operation for the entire organization, including structuring his/her department and hiring staff as s/he deems necessary and appropriate;

Have staff currently functioning in each of these areas report directly to the new department head, as the department head deems necessary and appropriate;

Have the new department head establish policies and procedures in his/her area of responsibility (by a date certain), oversee the implementation of these policies and procedures, and monitor compliance for that department; 1

Establish at least two new positions in HR, one for employee benefits and development and one to handle complaints, in accordance with the Sexual Harassment Policy I have proposed;

Authorize and empower the Legal Department to oversee compliance for the entire organization, create an internal controls position within that department to oversee that area of responsibility, and hire an attorney to serve in that capacity;

Engage a consultant to conduct a compensation review of all positions in the entire organization;

Review and adopt the proposed Sexual Harassment Policy, for immediate implementation; and

Review the Records Retention Policy after it is drafted. 2

1 As I have recommended, I urge the Foundation to adopt and implement

a handful of policies and procedures immediately (even before the

appointment of these recommended department heads), and I will continue to forward these to you as I draft them. Currently pending before you is a proposed Sexual Harassment Policy, and I will soon be submitting to you a draft Records Retention Policy.

2 When the proposed policy is drafted, I will not ask you to approve it for adoption; rather, I will want your permission to circulate it to department heads for their review and comment. Because it will change the way the Foundation (continued

.)

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I urge you to adopt the recommendations set forth above and authorize me to execute against/implement it, which work will include, among other things, developing an organizational chart for the two departments, drafting position descriptions for the General Counsel and HR Director positions and for the internal controls position, and retaining a consulting firm (such as prm Consulting) to conduct a compensation review across the entire organization.

B. BOARD-RELATED WORK

My review also disclosed that the Foundation’s Board may not be functioning as effectively as it could or should and that the Foundation’s governance documents may be dated and/or inappropriate given the current state of the law and of the organization. To that end, I recommend that you expand my assignment to include reviewing specifically the Board’s structure and governing documents so to ensure that they meet current standards, and that I do so in time to enable you/us to present any changes to the Board at its December meeting.

C. BROADER IMPROVEMENTS

As noted above, the Foundation has challenges and/or deficiencies in all of the 7-S areas, which have significant implications as to the viability and sustainability of the organization. You/the Board should discuss with the President these findings and their implications. 3

If the Foundation is meant to survive only for the time that the President is personally involved, then it may want to only focus on bringing itself into compliance and on maintaining that compliance, through the revamping suggested above for Legal and HR. If, however, the Foundation is committed to surviving and being effective beyond the President’s personal involvement -- that is, until the problems it is attacking are resolved, which likely means into perpetuity -- then it should consider undertaking an in-depth review of its

(continued

)

does business (specifically, retains records), I want to make sure that the proposed approach is workable.

3 This report expresses no view on whether the Foundation should survive beyond the President or should be structured to survive beyond the President. These considerations are being proffered in the event that President and the Board want to address this bigger issue or conclude that it should.

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structure and operations, which should include, among others, the following considerations:

Consider separating the Foundation completely from the President’s operations, functionally, staff-wise, and physically, re-assigning staff as necessary to meet the needs of the Foundation;

Consider creating a position, below the CEO, to oversee and coordinate all of the offices and initiatives, with each of the heads of these offices and initiatives reporting to that position;

Consider developing a strategy to guide the Foundation’s work and to serve as the benchmarks for the performance of the organization and its employees; and

Consider creating a central administrative office that services all offices and initiatives, either directly or through off-shots that report back to it, in the areas of budget and finance, legal, human resources and personnel, and IT.

If the President is interested in such a review, he must communicate this directly to the management team, so to make clear his personal commitment to improvement and the fact that he will not entertain individual pleas for exemption from review or complaints about the review. This expression of his interest in and commitment to taking the Foundation to the next level -- which, again, will likely involve, among other things, changes in value, structure, and systems --- will be critical to a successful and smooth review and to the implementation of necessary changes.

V.

CONCLUSION

The challenges and deficiencies plaguing the Foundation cannot be over- stated: They are real and undermine the organization’s effectiveness, immediately and more long term. To address the issues that present immediate threats, the Foundation should revamp its Legal and HR operations, should review its governance structure and documents; and should have an open and honest discussion with the President about the future of the Foundation.

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TAB A: OUTLINE OF WORK TO DATE

I commenced this work in mid-September, and, to date, my review and assessment have included the following:

Interviews with all department heads, with the exception of Terry Krinvic and Matt McKenna, who have not yet responded to my requests;

Interviews with select members of the non-managerial staff;

Interviews with the personnel/HR/recruiting staff in Boston;

Review of policies and procedures, with the exception of unidentified documents maintained by Laura Graham (including salary information), which I have not yet received;

Review of all corporate documents and interview with the firm retained to assist with state filings;

Research into current legal requirements governing not-for-profits and the best practices employed by similar not-for-profits; and

Research (very preliminary) into the structures and compensations of similar not-for-profits.

Note: This report does not include any back-up documents, and I will retain those documents in my files unless requested otherwise by you to submit them or release them. Please be advised, however, that the notes of my interviews have not been transcribed or typed and that a number of staff members requested that the contents of their interview be treated as confidential and not shared with anyone other than you, for fear of retribution. I promised these staff members that I would not share them with anyone but you, but could not commit you to confidentiality.

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TAB B: SIGNIFICANT FINDINGS

Set forth below are the significant findings to date, which serve as the basis for the assessments and recommendations in the report.

RELATIONSHIP BETWEEN THE FOUNDATION AND THE PRESIDENT

There are members of the staff who are paid by the President/his office and the Foundation, which may cause apparent or real conflicts of interest.

o

For example, a senior staff member being paid by the President, the government, and the Foundation allowed the Foundation to host what may have been (or may have been viewed as) a political event, apparently, without official pre-approval from the Foundation’s legal department and without regard, before the fact, to the impact of that decision on the Foundation’s tax exempt status.

o

It has been reported to me that a senior staff member has attempted to have (and perhaps succeeded in having) her travel paid for by the Foundation when traveling with the President on mixed trips, even though her presence may not have been needed for the Foundation.

o

It is not apparent how staff members paid through various sources (which means, presumably, having more than one full-time job) are able to fulfill their responsibilities and duties to the Foundation given the amount of work associated with those responsibilities and duties.

Many staff members believe that staff members with closer ties to the former President receive better benefits or more favorable treatment from the Foundation as a result of those ties.

o

Many staff members believe that certain people are “untouchable” because of their relationship to the President.

o

A few commented on Laura’s extended absence and her late arrival time, believing that both violate Foundation policy and/or standards.

Many staff members are confused as to the decision-making process at the Foundation, not knowing where the ultimate authority lies for most major decisions.

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Virtually everyone I interviewed expressed some level of concern about the Foundation’s sustainability and/or viability when the former President is no longer involved, and their interest in it becoming a sustainable organization that survives the former President.

It is not clear that the Board is sufficiently independent from the President and/or is structured appropriately given the current size of the organization and the breadth of its work.

Virtually all Harlem staff interviewed expressed relief that the campaign is over, advising me that many staff members turned their focus on that during the campaign and others advised that they were concerned about the President’s commitment to the Foundation during the primary and after the election if the Senator had prevailed.

STRUCTURE OF THE FOUNDATION

The initiatives and offices operate independently and do not share resources.

The Foundation’s largest initiative operates extremely independently, oftentimes to the detriment of the Foundation.

o

I believe that the current lawsuit that the Foundation is facing involving CHAI could have been avoided altogether if the Boston office had contacted the CEO as soon as it learned of the problem, instead of trying to resolve the problem itself.

o

This office also seems to make employment-related decisions based on factors other than the Foundation’s policies, procedures, or interests.

The functions typically associated with human resources are divided between at least two offices, with no one person providing oversight and/or uniformity; the legal office is now located in the office with the least number of staff members, and its role is not clear to staff; and the CFO does not appear to have sufficient management authority over the finance operations in the satellite offices.

No one is charged with overseeing compliance for the Foundation.

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LACK OF STRATEGY

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The Foundation has no articulated strategy tied to its mission or a vision, with benchmarks, goals, and/or measurements.

There appears to be very little planning at the departmental level, with the exception of the finance operation, which appears to have a real budget process (which, in my view, may be a bit inefficient in the Harlem office).

Staff complained about confusion around priorities and/or the constant shifting of priorities.

Staff complained about the proactive and last-minute culture of the organization, many believing that it operates more like a campaign than a professional corporation.

NO OR INADEQUATE POLICIES AND PROCEDURES

The Foundation lacks important policies and procedures and a real process to ensure compliance, resulting in increased risks, confusion, conflicting (and perhaps arbitrary) decisions, and inefficiencies.

o

The Foundation does not have a record retention policy, and the procedures currently utilized in Harlem may violate the law.

o

The Foundation does not have a discernable risk management policy or a business continuity plan, although I understand that Donovan submitted to Laura a draft policy for IT protection.

o

The Foundation’s current Sexual Harassment and Whistleblower Policies should be stronger, and it may want to strengthen its Conflict of Interest Policy.

o

The Finance Department in Little Rock has minimal, if any, control over the policies and procedures used by the various initiatives and offices regarding financial and budget matters. For example, virtually all expenditures made by staff in Harlem have to be approved by Laura Graham, despite the fact that they had been pre-approved as part of the budget process and are approved, on an expenditure-by-expenditure basis, by each of the department heads before submission for payment. This triple-approval process is

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not only inefficient, but it also is unnecessary in terms of financial controls and undermines the annual budget process and the authority of your department heads.

o Employment decisions are ad hoc and are not always guided by what is in the best interest of the Foundation -- especially in the Boston office.

There is no policy or procedure regarding compliance, and the Foundation is out of compliance in several important respects. Several staff complained about the ant-compliance sentiment that permeates the Harlem and Boston offices.

Important responsibilities regarding corporate filings are delegated to the CFO, who appears to delegate them to an outside organization, with very little oversight by the legal department. As a result, the Foundation is not in compliance with the filings rules, including in New York, which requires the Foundation to be certified to do business in the State.

No established policy or procedure for contract reviews, and some department heads do not submit contracts or MoUs for review. Associate General Counsel suggests that each “unit” have a contract administrator that reports to Legal.

HR has paid very little attention to the organization’s employees, failing to institute job/position descriptions, a real evaluation process, any professional development, or any process for complaints.

It is unclear whether lower level employees actually meet the definition of exempt under the Fair Labor Standards Act.

The Foundation needs to review its policies and procedures regarding interns and volunteers, including how individuals are classified and are trained with respect to overseas travel and work.

Processes and employment decisions are made on an ad hoc basis.

There is no real evaluation process, and employees are not held accountable for their performance (or lack thereof).

o A perfect example is Harlem office’s recent decision about evaluations. During my interviews, a lot of staff members complained about the evaluation process -- specifically, not being

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evaluated in two years and having Laura Graham involved in the majority of evaluations. I asked Laura about the process generally during a conversation she and I had regarding a particular staff member who is being a bit difficult. In response, Laura decided that the organization must do evaluations as soon as possible, and announced that decision to the Harlem staff -- without any discussion about the process (which I think needs to change), without much notice to staff (some of whom are in the midst of budget preparation), and without consideration of training managers first on how to conduct and write-up a proper evaluation (which I think is absolutely necessary). Improper, inadequate, and inaccurate evaluations do little to educate employees about their performance and create an inaccurate paper trail, which is harmful to the Foundation on a number of levels.

Staff complained about the lack of comprehensive and/or written policies and procedures.

Staff complained about the lack of a real complaint and/or whistleblower policy.

LACK OF MANAGEMENT EXPERIENCE/SKILLS ACROSS THE ORGANIZATION

Many key Foundation staff came from the President’s political world or through the internship program, and, thus, lack real management and/or not-for-profit experience. A number of staff members complained about the lack of real managerial experience among the people filling key roles (virtually all citing Laura Graham as an example, and a few citing Julie Becker).

Many key managers micro-manage their operations, which is inefficient and undermines the authority and/or roles of mid- and lower-managers.

There is no clear decision-making hierarchy, and staff “forum shop” or bypass the hierarchy to secure a favorable decision.

Virtually everyone I interviewed in the Harlem office expressed some level of dissatisfaction with the operations of that office and/or Laura Graham’s management style. Indeed, a couple complained about her attempts to “manage by fear,” which they claim includes yelling.

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The Foundation has paid very little attention to its workers or their professional development and has not insisted on or paid for management training for its staff. SALARIES IN THE NEW YORK CITY OFFICE APPEAR TO BE BELOW MARKET

Although only a handful of staff commented on their own level of pay, a few expressed concerns about how salaries are set generally and others expressed concern about the Foundation’s ability to compete for talent in New York City because of its compensation levels.

My own preliminary review shows that the compensation for the Foundation’s CEO position is lower than other not-for-profits, of similar size (that is, total annual expenses), in New York City, and suggests that it may be lower for other management positions as well. For example, LISC ($102M in expenses) pays its CEO approximately $410,000; the Open Society Institute (expenses exceed $100M) pays its CEO over $312,000, pays its Director of U.S. Programs over $197,000, and pays its General Counsel over $187,000, plus it contributes into each of these employees’ benefits plan (with contributions ranging from $30,000 to $53,000); the Robin Hood Foundation ($94M in expenses) pays its CEO over $435,000; and the Children’s Aid Society ($89M in expenses) pays its CEO over $339,000. Even smaller organizations in New York seem to pay better than the Foundation: The ACLU (total expenses only $40M) pays its CEO over $309,000, pays its legal affairs director over $206,000, and pays its communications director $185,000; and the National Urban League ($36M in expenses) pays its CEO $425,000.

STAFF MORALE IS LOW AND STAFF IS HUNGRY FOR MORE STRUCTURE

Virtually everyone I interviewed stated that morale was low in the entire organization or in certain departments and that upper management either did not know this or care about it.

Virtually everyone I interviewed expressed their desire for a more professional and structured environment.

Many staff expressed concern about the Foundation’s ability to attract and retain talented employees, particularly in New York, where there are a number of impressive not-for-profits, and a few cited employees who the Foundation may have lost due to the Foundation’s structure and/or culture.

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KSG’S REPORT NOV. 10, 2008 DRAFT

CONFIDENTIAL DRAFT ATTORNEY-CLIENT PRIVILEGE

A couple of staff members identified as a good source of the staff’s discontent the interviews and comments provided during the GSDM/Ogilvey review. I am not sure if you were ever able to track this down, but it may be worth pursuing.

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