Nonprofit Chronicles

Journalism about foundations, nonprofits and their impact

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Eighteen months ago, the people who manage the endowment at the John D. and Catherine T. MacArthur Foundation got some bad news: Investments they had made in funds managed by EnerVest, a Houston-based private equity firm that operates more than 33,000 oil and gas wells across the US, had plummeted in value to almost nothing.

The losses were small, relatively speaking — roughly $15 million, a fraction of the foundation’s $7 billion endowment — but they were unwelcome, if only because they called attention to the fact that MacArthur, whose mission is, famously, to build a “more just, verdant and peaceful world,” had taken a financial hit by investing in fossil fuels.

Lesson learned? No.

Despite its stature as a major funder of climate-change solutions, MacArthur continues to finance the fossil-fuel industry, a review of its most recent federal tax return shows. It does so deliberately–that is, by seeking out opportunities to invest in oil and gas, unlike investors who are inadvertently exposed to fossil-fuel companies because they own broad-based index funds that capture the entire stock market.

The MacArthur endowment holds investments valued at well over $200m in at least a dozen private equity firms,* including Enervest, that finance the exploration, production and distribution of fossil fuels, according to MacArthur’s 2017 Form 990-PF. (The full scope of its fossil fuel holdings can’t be determined because many private equity and hedge funds do not disclose what they own.) Some of MacArthur’s funds are invested in western Canada’s oil sands, which have been called the largest–and most destructive–industrial project in human history. The Chicago-based foundation also invests in mining companies, including those that mine coal in the western US and in South Africa; in Dynegy, a coal-burning utility; and in an energy-related hedge fund, the Cayman Islands-based ZP Offshore Energy Fund.

“Sacred cows”

The fossil fuel investments persist even as grant-makers at MacArthur sound alarms about climate change. Just last month, Jorgen Thomsen, director of climate solutions at MacArthur, wrote:

Humanity is in dark, uncharted territory…it is time to invest in bringing together leaders of the fossil fuel, energy, insurance, finance, credit ratings, and transportation industries with climate scientists, geoengineering specialists, and environmental advocates for no-holds-barred discussions about what strides and sacrifices must be made by 2030 to avert planetary catastrophe. All parties—including ourselves—must set aside “sacred cows” to come to terms with what is possible…

His blogpost was headlined It’s Time to Break with Convention.

This month, The Chronicle of Philanthropy published a package of cover stories, which I wrote, about foundations and impact investing. The cover story reports that very few of the US’s very biggest foundations have been willing to align their endowments with their grant-making.

In that regard, MacArthur is typical: The Hewlett, Packard, Bloomberg and Moore foundations, all of them major funders of environmental groups that work to curb climate change, also invest in the fossil fuel industry. Like most foundations, they remain unmoved by the GoFossil Free campaign launched by activist Bill McKibben, 350.org, the Sierra Club and Greenpeace in 2012 or by Divest-Invest: Philanthropy, a coalition of foundations that calls on other grant-makers to replace their investments in fossil fuels with investments in climate solutions.

Ellen Dorsey, a leader of Divest-Invest and the executive director of the Wallace Global Fund, is dismayed that major funders have declined to divest fossil fuels and reinvest in clean energy. By email, she told me:

Foundations should not be investing their endowments in industries driving the crises that they are asking their grantees to solve. Foundations are not just ‘any’ investor. They are driven by their mission. They receive charitable tax status to serve the public good. If their investments are harming the public good, they have mission level responsibility to act. If those same investments are financially poor, they are failing in their fiduciary duty, as well. If you are invested in fossil fuels, you own climate change.

She added:

Investing in fossil fuels is not only morally bankrupt, it’s financially bankrupt. The traditional energy sector has been one of the worst performers of the S&P500 for five years running, and in 2018 it was dead last. The shift is structural and one-way. Investors are on notice that the days when fossil fuels delivered strong, stable returns is over.

Dorsey is right that energy stocks have been terrible investments lately, badly lagging the broader markets. Whether that trend will continue is, of course, unknowable. So long us all of us continue to use fossil fuels, energy companies will profit by selling them.

MacArthur’s response

When I asked Andrew Solomon, managing director for communications at MacArthur, for comment, he replied:

We maintain a small allocation in our investment portfolio to a variety of private energy managers using different strategies, including those that invest in oil, gas, and wind. We believe this allocation is a prudent part of an overall diversified investment portfolio. Diversification helps to ensure that our portfolio returns can adequately support our grantmaking across different potential economic and market environments. Specifically, our allocation to private energy can help protect our overall portfolio against the risk of higher inflation.

We always invest with care and consider carefully a manager’s approach to environmental safety, as well as other factors.

Our investment allocation to private energy is independent of our significant commitment – more than $236 million since 2015– to address climate change through our Climate Solutions strategy and through clean energy impact investments.

In a 2015 statement explaining the foundations’s investment approach, Julia Stasch, MacArthur’s president, writes:

Divestment is never to be entertained to assert policy preferences, censure, or political leverage. The circumstances under which the Board might determine that it should divest from certain investments are where a company or government, in which an investment is made, is engaged in (or provides systematic support to regimes that engage in) morally abhorrent activity such as genocide, apartheid, slavery, or systematic cruelty to humans in helpless situations (many activities that may cause social harm do not descend to the level of being morally abhorrent).

In resisting divestment, MacArthur is typical of US foundations. Most manage their endowments the old-fashioned way — that is, to make money any way they can, without much regard for the consequences. MacArthur is is one of the few to have carved out a slice of its endowment — albeit just $19 million — for impact investments that align with its missions.

But, of course, all investments have impact — for better or worse.

By investing in fossil fuels, MacArthur supports the industry that has done more than any other to oppose the climate solutions put forth by the environmental groups that it funds. Its grantees include the Sierra Club, the Environmental Defense Fund, the Nature Conservancy, the Natural Resources Defense Council and the Carbon Disclosure Project.

MacArthur also made the first major grant to The World Resources Institute, a respected, non-partisan, business-friendly, science-based think tank in Washington, D.C. MacArthur has given more than $52m to WRI over the years. And what does WRI say about what it calls sustainable investing?

This:

Institutional investors, banks, and other private sector financial institutions oversee trillions of dollars of investable capital. How they choose to deploy these resources will have a large impact on which companies, technologies, and projects succeed and flourish. In a world where the dynamic challenges of climate change, population growth, resource scarcity, and inequality are testing the earth’s limits and our standards for human well-being, it is crucial that these financial actors allocate their capital in a way that accounts for environmental and social risks and supports sustainable solutions.

WRI has spent five years very prudently working to align its own $40m endowment with its vision for a sustainable future. To inspire others to follow, and provide practical guidance, WRI published an excellent report called Learning by Doing: Lessons from from WRI’s Sustainable Investing Journey. One can only hope that WRI sent copies to all its funders, including MacArthur.

To be sure, managing the $7bn MacArthur endowment is more complex than managing the $40m WRI endowment. In a 2017 blogpost, WRI notes that “there are still not enough high-quality investment products to meet demand to fulfill a fully diversified, global, multi asset-class portfolio—the type most institutional asset owners demand.”

But, whatever obstacles remain, it seems past time for the big climate funders like MacArthur to at least begin the process of aligning their endowment with their missions and values, and to explain why they are doing so. They need not go all the way to divestment, but must they invest in some of the dirtiest fossil fuel projects on the planet? The question answers itself.

As for the argument that sustainable investing will damage returns, the evidence increasingly points the other way. In a 2016 blogpost, WRI says: “When evaluated across multiple funds and time periods, sustainable investing exhibits a largely neutral – and oftentimes positive – impact on financial performance.” Some of the world’s most successful investors, including Warren Buffett and David Swensen, say that institutions, including foundations, are making a mistake when they try to beat the markets with actively-managed investments. (See my 2017 blogpost, Warren Buffett has some excellent advice for foundations that they probably won’t take.)

Pay for performance?

MacArthur’s financial performance, it turns out, is decidedly average. Foundation Financial Research, a startup company that compiled the first comprehensive database of foundation endowment returns, estimates that the MacArthur endowment generated annualized returns of 8.4 percent for the five-year period ending in December 2017. That places the foundation in the 40th-60th percentile of all foundations. MacArthur did slightly better than the average for all foundations during that period and slightly better than a peer group of larger foundations that pursued a similar investment approach, according to Foundation Financial Research. Different time periods would, of course, produce different results.

Lately, MacArthur has performed well. “Our 2017 returns, posted to our website, were 16.7 percent, which puts us in the 94th percentile for that year compared to a broad universe of foundations maintained by Cambridge Associates,” McArthur’s Andrew Solomon wrote.**

True enough, but the Wallace Global Fund did better. Ellen Dorsey tells me: “Our foundation had returns of 21.6% in 2017, 100% divested, over 16% in climate solutions, and with an additional carve out for mission investments where we accept lower than market returns. We did so well that we put our year end earnings right back in to grants for 2018–doubling our grant budget for action on climate and democracy.”

One final point: MacArthur’s investment costs are not trivial. Private equity and hedge fund managers charge steep fees. Its investment managers are well paid, too.

On its IRS returns, MacArthur reports that total compensation for Susan Manske, the foundation’s chief investment officer, including performance bonuses, was set at $1.9m in 2017, $1.9m in 2016 and $1.6m in 2015–more than MacArthur’s president, Julia Stasch. Four managing directors in the investment office were paid between $900k and $1m, including performance bonuses. The compensation figures includes unvested incentive compensation, which may not be paid because it is subject to a substantial risk of forfeiture based on future returns, according to MacArthur.

To sum up: MacArthur pays its asset managers generously for generating average returns while investing in ways that make a planetary catastrophe more likely.

Note to self, MacArthur: It’s time to break with convention.

*Here is my incomplete list of private equity funds owned by MacArthur, with descriptions drawn from their websites:

ARC Energy Fund (Canadian oil and gas), Blue Water Energy Fund (oil and gas), Camcor Energy Fund (western Canada oil and gas) Encap Energy Capital funds (equity capital for US oil and gas), ENR Partners (upstream, oilfield service, energy, power, oil and gas sectors), Kerogen Energy Fund (international oil and gas), Natural Gas Partners, NGP Natural Resources (oil and gas), Quantum Energy Partners (North American oil and gas upstream, midstream, oil field service, and power generation sectors), Resource Capital Fund (mining, including coal), The Energy and Minerals Group Fund (oil and gas, possibly coal)

While much remains hidden — hedge funds based in the Cayman Islands make limited disclosure, to say the least — MacArthur is more transparent than most foundations about its portfolio. Try to figure out what Bloomberg owns–you can’t.

**The Cambridge benchmark is neither broad-based nor transparent. Foundation trustees who rely on benchmarks provided by the executives who are being benchmarked aren’t doing their job.

Reading is one of my life’s great pleasures. Here are the books that I read this year.

Consider the Lobster by David Foster Wallace. A mind-bending collection of journalism and essays about conservative talk radio, September 11, John McCain’s 2000 presidential campaign, Tracy Austin’s tennis career and the ethics of boiling large numbers of lobsters alive.

Evicted: Poverty and Profit in the American City by Matthew Desmond. A sociologist lives among the poorest of the poor in Milwaukee, compiles 5,000 single-spaced pages of notes and turns them into this powerful and depressing book. His sobering conclusion: “This degree of inequality, this withdrawal of opportunity, this cold denial of basic needs, this endorsement of pointless suffering–by no American value is this situation justified. No moral code or ethical principle, no piece of scripture or holy teaching, can be summoned to defend what we have allowed our country to become.” Solutions, though, are hard to come by.

The Gene: An Intimate History by Siddhartha Mukherjee. Very hard to follow, let alone understand and recall, perhaps because my grounding in biology and chemistry is poor. What stuck with me: More of us that we imagine, it seems, is scripted by our genes.

The Arm: Inside the Billion-Dollar Mystery of the Most Valuable Commodity in Sports, by Jeff Passan. Every winter, I read a baseball book. This was a good one. Somehow, Passan made me care about forgettable major leaders like Daniel Hudson and Todd Coffey.

The Wizard and the Prophet: Two Remarkable Scientists and Their Dueling Visions to Shape Tomorrow’s World, by Charles C. Mann. The lives of Norman Borlaug and William Vogt, who defined the terms of the debate about whether a finite planet creates limits to growth. My takeaway: Ingenuity and well-regulated markets can overcome so-called planetary limits, if we get the politics right. Right now, we’re failing.

The Flamethrowers by Rachel Kushner. A young woman known only as Reno—she’s from Nevada—sets a land-speed record at the Bonneville Salt Flats, explores the downtown art scene in New York in the 1970s and follows her lover to Italy where she falls in with revolutionaries who resemble the Red Brigade. Kushner’s prose and powers of observation carried me along.

Enlightenment Now: The Case for Reason, Science, Humanism and Progress by Steven Pinker. The world is getting better in so many ways, except where it isn’t. The threat of climate change casts a cloud over this otherwise sunny account of how how science and rationality have improved the lives of billions.

A Thousand Hills to Heaven: Love, Hope and a Restaurant in Rwanda by Josh Ruxin. See my blogpost, A little bit of heaven in Rwanda.

A Thousand Hills: Rwanda’s Rebirth and the Man Who Dreamed It by Steven Kinzer. Solid but unspectacular, this is the story of how today’s Rwanda emerged from the genocide of 1994. A bit dated.

Small Great Things by Jodi Picoult. A timely, fast-moving, well-plotted novel about race in America. It’s told through the eyes of an African-American nurse, the lawyer who defends her when she is accused of a crime and the white supremacist whose hatred sets the story in motion.

Killers of the Flower Moon: The Osage Murders and the Birth of the FBI by David Grann During the 1920s, Osage Indians living in Oklahoma become fabulously rich when oil was discovered on their land. Then they began dying mysterious deaths. A shocking and appalling saga, coming soon to the big screen.

How to Change Your Mind: What the New Science of Psychedelics Teaches Us About Consciousness, Dying, Addiction, Depression and Transcendence by Michael Pollan. The writer of The Omnivore’s Dilemma drops acids, chews mushrooms and even ingests the venom of a desert toad while researching the history, science, politics and potential of mind-altering drugs. Fascinating throughout, this is the best book I read in 2018.

Bad Blood: Secrets and Lies in Silicon Valley Startup by John Carreyrou. The Wall Street Journal reporter who exposed the fraud that was Theranos explains how the charismatic Elizabeth Holmes fooled a lot of supposedly smart people for a very long time, until she didn’t. A page-turner about gullibility, among other things.

Strength in What Remains: A Journey of Remembrance and Forgetting by Tracy Kidder. The harrowing journey of a young medical student named Deo from war-torn Burundi to the streets of New York and, eventually, back to Africa, all of it beautifully told.

The Beatles by Hunter Davies. The only authorized biography of the Beatles, published in 1968, with a new introduction. A entertaining trip down memory lane.

Shoe Dog by Phil Knight. A candid look at the early days of Nike. Better than you’d expect.

Less by Andrew Sean Greer. When a middle-aged gay writer learns that his lover is marrying someone else, he sets off on a round-the-world trip to avoid the wedding. Hilarity ensues during his journey of self-discovery. Winner of the Pulitzer Prize.

Fun Home: A Family Tragicomic by Alison Bechdel. The first and only graphic novel that I’ve read. Loved it.

Robin by Dave Itzkoff. A thoroughly-reported biography by a New York Times reporter brings back to life the manic brilliance of Robin Williams, as well as his struggles with addiction and depression. Engaging and intimate.

Winners Take All: The Elite Charade of Changing the World by Anand Giridharadas. This delectable skewering of philanthropic and corporate elites is never boring, and it makes an important but hardly surprising point–that rich and powerful people mostly want to preserve the status quo. Giridharadas argues that governments, not markets, will solve tough social problems, but his analysis doesn’t go deep.

Ten Restaurants That Changed America by Paul Freedman. How did today’s restaurant scene come to be? Freedman, a Yale prof and medieval historian–huh?–writes that much of our dining-out culture can be traced to a small group of influential establishments, from Schrafft’s and McDonald’s to the Four Seasons and Chez Panisse. (What, no McDonald’s?) Debate his choices if you like, but enjoy this cook’s tour of iconic American eateries.

Let Me Be Frank With You by Richard Ford. It’s Christmas season, and in the aftermath of Hurricane Sandy, hard times have befallen Frank Bascombe, the writer turned real estate agent who first appeared in a wonderful 1986 novel, The Sportswriter. Three books and decades later, Frank is older and wiser but not as endearing or amusing as he used to be, as he ruefully ponders the meaning of it all.

Just Giving: Why Philanthropy is Failing Democracy and How It Can Do Better by Rob Reich. A Stanford professor puts forth a political theory of philanthropy, and suggests ways in which it could become more democratic. He argues, rightly, that philanthropy is an exercise of power and thus needs more critical scrutiny.

On my list for 2019 are Asymetry by Lisa Halliday, the new biography of Frederick Douglas by David Blight and The Overstory by Richard Powers. Other recommendations are most welcome.

Happy new year, friends!

My wife Karen Schneider and I gave about eight percent of our pretax income to charity in 2018. The Life You Can Save, a nonprofit inspired by the moral philosopher Peter Singer, has a calculator that recommends the percentage of your income that you should give.

I’m writing about our giving because (1) I’m a believer in transparency, (2) I’d like to influence readers to be more thoughtful and intentional about their giving, and (3) I’d like to encourage others to talk about their charitable giving, both to promote more giving and so that we can learn from one another. I have friends who will talk for hours about politics or religion or family, but when I ask them about their charitable giving, they clam up. I’m not sure why. You don’t have to disclose dollar values. Just talk about why and where you give.

This year, our biggest single donation went to the Astraea Lesbian Foundation for Justice, which supports grassroots advocates for LGBTQI human rights around the world. Karen was the driver behind this gift, but we both know and like Astraea very much. We get an insider’s view because our daughter Sarah Gunther works as director of philanthropic partnerships at Astraea. It’s hard to measure advocacy, but easy to know that it matters: The US campaign to secure marriage equality for gay people has been cited as one of the great philanthropic victories of recent times, according to scholar Ben Soskis.

Our next biggest gift went to GiveDirectly, which makes unconditional cash grants to extremely poor people in Kenya, Uganda and Rwanda. Give Directly has become my favorite charity; last spring, during a trip to Rwanda, I had the opportunity to see how the organization operates in the field and talk to recipients. I could say a lot about GiveDirectly, but my biggest takeaway from the Rwanda trip was this: The money that middle-class or upper-class people in the US spend on a few restaurant meals, or for a single night in a nice hotel, is enough to make a meaningful difference to the life of a poor person in Africa. (Details, here.) I love the idea of simply giving money to people, and letting them decide what they need. GiveDirectly is more efficient than most charities (91 cents of every donated dollar ends up in the hands of the poor) and, importantly, cash transfers have the potential to influence global aid by providing a benchmark against which other programs can be measured. [See my story for The New York Times’ Fixes column, headlined Is Cash Better for Poor People Than Conventional Foreign Aid?] I’ve met Paul Niehaus and Michael Faye, two of the co-founders of GiveDirectly, and I have confidence that they will spend donor dollars wisely.

Next on my giving list is GiveWell. GiveWell, as you may know, is a donation platform that identifies and analyzes effective charities in great depth. It is a much-needed reminder that good intentions are not enough reason to support a charity. [See my blogpost about More Than Me for a horrifying story of what happens when good intentions go awry.] If you want to do the most good you can for each dollar that you spend on charity, GiveWell is essential. Shaped by the effective altruism movement, it drives many millions of dollars to its top charities.

Another significant donation of mine (though not Karen’s) went to Animal Charity Evaluators. Animals raised for food suffer terribly; Animal Charity Evaluators examines nonprofits that advocate on their behalf. Animal Charity Evaluators will deliver most of my donation to its top charities, which include Animal Equality, the Albert Schweitzer Foundation, the Good Food Institute and the Humane League. All do excellent work.

Another major donation went to Adat Shalom Reconstructionist Congregation. In this, we are like most Americans; religion was the biggest category of individual giving last year, reports Giving USA. My religious beliefs and synagogue community fuel much of my work and guide much of my life.

Karen chose the other groups to which we made significant donations. They include the Unitarian Universalist Service Committee, where she was a board member for six years and which supports grassroots human rights groups around the world, and the National Network of Abortion Funds, which provides access to abortions for low-income women.

In the aftermath of the Pittsburgh synagogue shootings, we made a donation to HIAS, a nonprofit that was founded in the 19th century to help Jews fleeing pogroms in Russia and Eastern Europe. HIAS now supports refugees and immigrants.

We made smaller donations to nonprofits where friends work or volunteer. They include the Torture Abolition and Survivors Support Coalition, Yachad, The Life You Can Save, the Center for Climate Change Communication, the International Rescue Committee and the Agahozo-Shalom Youth Village in Rwanda. I’m also a fan of Village Enterprise, Water for People and The Bail Project.

You may not share our desire to give most of our money globally or to support the animal welfare movement. (Most people don’t.) If, instead, you would like to support charities that work on health, poverty, education or disaster relief in the US, the Center for High Impact Philanthropy publishes an excellent guide. The Life You Can Save also has wide range of top charities that they have vetted, but most work outside the US. If you

Whatever you do, please give what you can and do so thoughtfully. You’ll feel good knowing that you are helping others in need.

*Our giving in 2018 was similar to our giving in 2017, so some of the language is this blogpost is adapted from last year’s post.

kittens-cat-cat-puppy-rush-45170What’s going on at Alley Cat Allies? And why aren’t the so-called charity watchdogs paying attention?

Alley Cat Allies is a $10-million charity that calls itself the “global engine of change for cats.” It’s got issues–poor governance practices, a board that failed to meet for nearly a year and a disgruntled workforce with high turnover, according to reviews on Glassdoor and my own conversations with a half dozen current and former staffers who raise troubling question about the charity’s practices.

Typical is Katie Cook, a former fundraiser for Alley Cat Allies. “I was miserable,” she says. “I never worked in a more horrible place, and I worked for Roger Stone for three years.” Which might be funny, except it isn’t. On GlassDoor, only 18 percent of the workers who posted reviews say they approve of Becky Robinson, the president and founder of Alley Cat Allies.

There’s more. Alley Cat Allies has donated at least $20,000, and possibly much more, to a pig sanctuary, despite the fact that its mission and its messaging to donors focuses exclusively on cats. It acquired two homes in suburban Virginia, including one next door to the home of Becky Robinson; the charity says they were investment properties but in neither case did Robinson inform the full board about the deals or seek its approval. Alley Cat Allies promises on its IRS tax return to make its conflict-of-interest policy and financial statements available on request, but it has declined my requests to see them.

Yet Alley Cat Allies continues to enjoy top scores from Charity Navigator and GuideStar.

This is a problem. Indeed, it’s the main reason why I’ve paid attention to Alley Cat Allies. Millions of donors turn to Charity Navigator to become smarter about giving. Its website says: “Use our objective ratings to find charities you can trust and support.” GuideStar isn’t strictly speaking, a ratings agency, but its website says that “millions of people use GuideStar information to make decisions about nonprofits and the work they do.”

Charity Navigator gives Alley Cat Allies a four-star rating, which is said to describe an organization that “exceeds industry standards and outperforms most charities in its cause.” GuideStar says its platinum designation demonstrates that “you are an organization that is focused on measuring your progress and results.”

Those descriptions don’t fit Alley Cat Allies, but the scores are featured on the front page of Alley Cat Allies website:

Screen Shot 2018-12-18 at 11.16.25 AM

I first reported on Alley Cat Allies in a Nov. 6 story for The Chronicle of Philanthropy headlined The Limits of Nonprofit Oversight and then in a blog post headlined Alley Cat Allies, and the charity “watchdogs” that aren’t. The stories spotlighted governance problems at the charity, which is based in Bethesda, MD, and has been run by Becky Robinson for 28 years. Among the irregularities was the fact that the nonprofit’s board was chaired for many years by Donna Wilcox, a paid vice president of the charity who reported to Robinson until Wilcox left her job last month.

Some questions for Alley Cat Allies

I subsequently learned about other problems. By email and by registered letter on Dec. 13, I asked Alley Cat Allies a new set of questions. With all due respect to Charity Navigator and Guidestar, these are questions they might want to ask, too. Here they are:

*   *   *

Past criticisms of governance: In 2004 and again in 2012, the BBB Wise Giving Alliance, another charity monitoring organization, pointed to problems with ACA’s governance. (See this 2004 story from the Chronicle of Philanthropy and this this archived page from 2012 .) What, if anything, did ACA do in response?

Transparency (1): BBB Wise Giving Alliance now says that ACA is not an accredited charity because ACA has not responded to its requests for information. Is this correct? Why has ACA not responded?

Transparency (2): The ACA board is no longer listed on the website. Who are the board members and the board chair? Has Donna Wilcox stepped down from the board? I’m told that Rachel Gorlin, Irini Dline and Karyen Chu, all of whom served on the board, have left the board. Is that true?

Transparency (3): ACA told me that the homes owned in Virginia were rental-producing properties, purchased as part of an investment strategy. But Part VII, Line 6, of your most recent IRS tax return, for the year ended July 31, 2017, lists no rental income. Can you explain?

Transparency (4): On the IRS tax return, you say: “The organization makes Form 1023, conflict of interest policy and its financial statements available available upon request.” Will you provide me the conflict of interest policy and the last three years of financial statements?

Mission creep? On your most recent IRS tax return, you list a $20,000 grant to PIGS Animal Sanctuary in Shepherdstown, WV. I’m told that Alley Cat Allies has continued to make grants to PIGS during 2018. I understand that PIGS provides direct care for some cats, but I’m told by your employees and former employees that the payments to PIGS have far exceeded the cost of caring for cats. Can you say how much you have paid to PIGS, and explain why?

Fundraising costs: In an anonymous letter to Charity Navigator provided to me by a former executive with Alley Cat Allies, this executive writes:

Our self-reported fundraising expenses of $525,104 are wildly inaccurate. At minimum fundraising expenses exceed $3.5 million. $2.6 million in hard costs annually for direct mail and web fundraising (postage, printing, services and list rental), another $360,000 (by contract) for fundraising consulting services and $4,000-5,000 in monthly copywriting, graphics and production fees. Back-end donor management: acknowledgements, file maintenance and data processing costs $400,000.

This executive made similar allegations to GuideStar. Can you respond?

  *   *   *

I asked Alley Cat Allies to get back to me in a week. I heard nothing.

There’s a good deal to unpack here.

First, several weeks after the Chronicle published my story, Charity Navigator did issue an advisory saying it had a “low concern” about Alley Cat Allies–but it also kept the charity’s four-star rating! In a comment on Charity Navigator, Alley Cat Allies said that my Chronicle story was “based on false, disparaging claims and baseless rumors.” Seems a bit unfair that Charity Navigator would permit Alley Cat Allies to attack The Chronicle of Philanthropy and my reporting, without asking the charity to document its charges.

Meantime, critics of Alley Cat Allies approached me. That’s how I learned that BBB Wise Giving Alliance had, not once, but twice said that Alley Cat Allies failed to meet its standards for governance and transparency. Nicely done, BBB Wise Giving! You would think this would, at the very least, be a reason forCharity Navigator and Guidestar to take a closer look at Alley Cat Allies. BBB Wise Giving Alliance today won’t accredit Alley Cat Allies because of its failure to provide information. This tells me that the three organizations–Charity Navigator, GuideStar and BBB Wise Giving Alliance–need to get better at sharing information.

New questions also arose about the home purchases, which Alley Cat Allies said had been approved by an “investment committee” consisting of CEO Robinson, vice president Wilcox and former board member Karyen Chu. But my sources say that the investment committee was not formed until late in 2015–after the first house was purchased.

Then there’s the pig sanctuary. Current and former staff members say that Alley Cat Allies has made numerous payments to the pig sanctuary; one current employee estimated that PIGS has been given well over $100,000. That seems like a lot of money to care for cats. Becky Robinson’s assistant, I’m told, did administrative and payroll work for PIGS.

On the issue of how to account for fundraising costs, Alley Cat Allies is surely not the only nonprofit organization to categorize its direct mail as programming or advocacy, in an effort to keep its overhead ratio low. The lines between the two are blurry. But when a senior fundraising executive inside the organization reports issues to Charity Navigator and GuideStar, even in an anonymous letter, that should be cause for concern.

What’s needed? Board oversight

“I know how much donors rely on entities like Charity Navigator and GuideStar,” says Laura Ramos, a former Alley Cat Alley employee. “They need to know that those places don’t scrutinize things like staff turnover, office culture, board health, or really anything beyond the very basic information pulled from the 990.” Ramos worked in programming and communications for six years at Alley Cat Allies.

Other former staffers were troubled by the way the place was run. Robinson and her deputy, Charlene Pedrolie can be unpredictable and harshly critical, they told me. These staff members had concerns about the lack of HR policies, but they didn’t feel as if they could bring their concerns to the board. Turnover was high.

Alison Grasheim, who worked in the communications department of Alley Cat Allies between 2008 and 2013, told me: “It could be a healthier organization if it followed the best business practices.”

Patricia Jones, a former media consultant, told me: “I was a consultant for Alley Cat Allies and finally had to fire them as a client in 2014 as the toxic and dysfunctional environment grew increasingly worse.”

Some former employees were reluctant to speak, in part because Alley Cat Allies has pursued long and expensive litigation against Elizabeth Putsche and her husband, Jason. Elizabeth Putsche formerly worked in communications for the organization, and Jason supplied it with hundreds of photographs. It has used the litigation to subpoena documents from former employees, including their contacts with me.

Alley Cat Allies desperately needs an engaged, independent board. I’m told that three new board members have been or will be appointed–a DC-based lawyer named Anne Lynch, an ethics and compliance officer named Justin Oravetz, and a finance and audit executive named Kevin Lee. I contacted all three, simply to ask whether, in fact, they had joined the board. None responded. Not an encouraging sign.

It’s important to say here that information providers like Charity Navigator and GuideStar can’t look deeply into every nonprofit in America. They have small staffs, cover thousands of charities and rely on self-reporting by the charities, most of whom, it’s safe to assume, are honest and open.. They can’t worry about workplace morale or try to figure out whether the nonprofits actually do any good–which, in a better world, would be the point of evaluating charities.

But the Alley Cat Allies story illustrates just how little investigating they do. Here you have a charity that has been denied accreditation three times by BBB Wise Giving Alliance, that has a board structure that falls well short of best practices and that was the subject of anonymous but detailed complaints from an insider. What, I wonder, does a nonprofit have to do to fall out of favor with Charity Navigator and GuideStar?

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Fun? Yes. An energy solution? No.

Who could object to efforts to bring clean, renewable energy to people without electricity? Donors and investors love social enterprises (D.Light, Greenlight Planet, BrightLife) and nonprofits (SolarAid, GivePower) that bring solar panels, lights or phone chargers to poor households in Africa and south Asia. Why, even President Obama, on a visit to Tanzania, played with a Soccket, a soccer ball that generates just enough energy to power a light bulb or charge a phone.

Trouble arises, though, when these well-intentioned, small-scale initiatives draw attention away from utility-scale energy projects that can power businesses and drive economic growth–the kinds of big projects that lifted the US, Europe, Japan, China and much of the rest of the world out of poverty. Or, worse, when an absolutist devotion to renewable energy stands in the way of big, centralized projects–specifically, the natural gas, coal and nuclear power projects that, even today, provide more than 80 percent of the electricity used in the US.

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Photo credit: Shawn Miller

This is Todd Moss’s concern. Moss, 48, is a senior fellow at the Center for Global Development, a former state department official and a PhD economist who recently launched the Energy for Growth Hub. The Energy for Growth Hub is a network of scholars and advocates who want to bring some common sense to the conversation about how get energy to everyone in Africa and Asia. They are focused not just on the 1.3bn people whose homes are without a light switch but the 3bn or so who live in places where a lack of reliable, abundant electricity remains a barrier to progress.

Moss sat down with me recently in Bethesda, MD, where we both live, to talk about how he and his colleagues want to convince policymakers to help poor countries achieve the high-energy future they need to become prosperous. 

Household solar panels won’t get the job done. Big wind  and solar farms, natural gas plants, hydroelectric dams, geothermal plants and, perhaps, nuclear power will be required.

Even if that means — dare we say it? — taking a small step backwards in the battle against climate change.

“Climate change is real, it’s caused by human activity and it’s likely an existential challenge to humanity,” Moss tells me. “I don’t think it can or should be solved on the back of poor Africans.”

After all, the world’s poorest people didn’t cause the climate crisis. It’s not fair to ask them to sacrifice, particularly as those of us in the west enjoy the benefits of abundant, cheap energy.

Consider this graphic, via Moss, that went viral a few years ago:

energy pov 2 fridgeOr this one, timely because it shows that decorative holiday lights in the US use more energy in a year than entire countries:

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There are opportunities here for philanthropy, if only because the impacts of energy poverty are so far-reaching. Millions of people die every year because they cook over open fires. Health care clinics operate without reliable power. Schools lack electricity, Students can’t study at night. Most of all, robust economic growth–the only thing that can lift large numbers of people out of poverty–requires high rates of energy consumption. Anyone who cares about global poverty should care about energy.

“A low energy future is a jobless future,” says Moss.

What’s more, without industrial-scale energy, people in energy-poor places will be ill-equipped to deal with the impacts of climate change. They are the most likely to suffer from extreme heat, drought, crop failures, rising sea levels and floods. Of the 2.8 bn people living in the hottest parts of the world, only 8 percent currently have air conditioning, compared to 90 percent ownership in the US.

As Moss told me: “They’ll need more energy, not less. They need to live in resilient houses. Their roads and airports can’t be washed away by storms. They will need steel and concrete, which require lots of energy. They need to be richer.”

None of this should be controversial. It is. Some environmental groups, as well as global development agencies, are reluctant to support fossil-fuel projects or big dams, even in countries that desperately need energy and are blessed with energy resources.

Opposition to large-scale hydroelectric dams, for example, has dramatically curbed support for such dams from development institutions such as the World Bank. “Major dam projects have been cancelled or suspended in Myanmar, Thailand, Chile, and Brazil,” Jacques Leslie reported at YaleE360.

In an effort to halt development funding for fossil fuels, Friends of the Earth, Greenpeace and the city of Boulder, Colorado, filed a lawsuit years ago alleging that the Export-Import Bank of the United States and the Overseas Private Investment Corporation (OPIC) provided financing and insurance to fossil fuel projects without assessing whether the projects contributed to global warming or impacted the U.S. environment, as they were legally required to do.

And, as recently as last month, the International Energy Agency warned that the world has so many existing fossil fuel projects that it cannot afford to build any more and still achieve international climate goals. Fatih Birol, the executive director of the Paris-based group, told the Guardian: “We have no room to build anything that emits CO2 emissions.”

Really? Tell that to the millions of people who burn wood inside their homes to cook their dinner.

It should go without saying that wind and solar farms should be the technology of choice to power the developing world. But it seems unlikely that they can do it alone. Battery storage remains expensive, and a sophisticated electricity grid is needed to manage intermittent sources of power. Despite rapidly falling costs, wind and solar produced just 7 percent of the world’s electricity in 2015, according to Bloomberg New Energy Finance. They produce even less of the energy needed for industry, transport, heating and cooling. Those percentages will grow rapidly–thank goodness–but major energy transitions take decades.

“The scale of the energy poverty problem is so great that we shouldn’t ex ante take any options off the table,” Moss says.

Consider Nigeria, Africa’s most populous country, which is awash in natural gas. It just built a 461mw natural-gas plant, with help from OPIC, but it needs many more. With more than half the population of the United States, Nigeria can generate less than one percent as much electricity, Moss has written. That’s stunning. “The specter of a Nigeria that cannot come close to meeting its growing population’s demands for jobs and modern lifestyles—all underpinned by high volumes of energy—should be alarming,” he says. To its credit, the MacArthur Foundation has a grant-making program to support anti-corruption efforts in Nigeria, including in the energy sector.

The Energy for Growth Hub’s network of academics intends to bring its knowledge to  development institutions, as well as governments in poor countries. “We’re trying to influence decision-makers in a few capitals,” Moss says. The organization has fellows in Nigeria, Ghana, Kenya, India and a Thailand-based expert who focuses on Bangladesh. Its principal funders are the Rockefeller Foundation, the Pritzker Innovation Fund, and the Spitzer Charitable Trust.

Moss, by the way, has made things happen before from his perch at the Center for Global Development. Just this week, Devex reported on a rare bipartisan reform success in DC that took root at the think tank, in a story headlined  How policy wonks, politicos and a conservative Republican remade US AID.

He also has an interesting side gig as an author of political thrillers. His fourth and latest book, called The Shadow List, sends a state department crisis manager and his CIA agent wife into the heart of a corruption scandal in Nigeria. He enjoys writing novels, he told me, because “works a different part of your brain,” although writing fiction about Washington has become harder than ever. “Reality is too crazy,” he says. That’s for sure.

This special report was made possible by a grant from the Pulitzer Center on Crisis Journalism.

* * *

p1040385Eric Reynolds was despondent. He had poured his heart and soul, his best ideas and a chunk of his life savings into Nau, the radically sustainable, greener-than-green apparel company that he founded in 2003. The global apparel industry had caused all manner of environmental and social problems, he thought. Nau was designed to fix them.

Instead, after Reynolds recruited managers from Patagonia and Nike to help launch Nau, a clique of senior executives, along with an investor, forced him out.

“I was wounded, quite profoundly,” he says.

What now, he wondered.

Some middle-aged CEOs would have sought consulting gigs or board seats, or tried painting or golf. Not Reynolds. A world-class alpinist, he had dropped out of college to co-found Marmot, the outdoor gear company, with Dave Huntley, a climbing buddy. “Dave was the genius,” he says. “I barely knew what an invoice was.” Later, Reynolds ran a startup called Sweetwater that made water purification devices. Business was interesting to him only insofar as it helped to solve problems, the bigger the better.

So it happened that, after some soul-searching, Reynolds put his Boulder, Colorado, home on the market, sold his $80,000 wine collection and moved to a small city in Rwanda, a small east African nation he’d visited a couple of times as a volunteer helping a village of genocide survivors. He started a company to distribute cookstoves and renewable fuel that, if all goes well, will serve the world’s poorest people, curb deforestation in the global south and, most importantly, save many millions of lives–and, not incidentally, do so while earning investors a profit. Only then will his company, known as Inyenyeri, be able to grow to a meaningful scale.

Scale, Reynolds says, means reaching 100 million households before he dies.

Today, Inyenyeri serves between 5,000 and 6,000 homes.

Which tells you that operating a cookstove company in rural Rwanda has, so far, been a tough slog, tougher than Reynolds had imagined. “This is the hardest thing I’ve done in my life so far,” he says. It’s harder than it might otherwise be because Reynolds runs his company with a commitment to excellence and customer service that is unusual for the sector, which for the most part has fallen short of its promise.

The good news is that Inyenyeri has been made headway lately. Its supporters include Sustainable Energy for All, a UN-backed initiative; the IKEA, Mulago and Osprey Foundations; a few impact investors and, importantly, the government of Rwanda, with which it recently signed an agreement calling for the company and the government to support a rollout of stoves across the nation.

“It’s a breakthrough,” Reynolds says.

Lanky and balding, with wispy gray hair and a ready smile that belies his intensity, Reynolds recently turned 66. He has a Rwandan wife and two children and, like most entrepreneurs, an unshakeable belief that he can overcome whatever obstacles lie ahead.

“I came here and burned the boats on the beach,” he told me, when we met last spring in Rwanda. “This is going to work.”

SMOKE: THE KILLER IN THE KITCHEN

Copy+of+3+Stone+Fire+PictureIt’s hard to get your head around the fact that about three billion poor people, most in Africa, south Asia and Latin America, still burn wood, charcoal or dung in smoky, open fires to cook their food and heat their homes. Three billion! Millions die annually from lung and heart ailments caused by the pollutants produced by cookingaccording to World Health Organization (WHO). Dubbed “the killer in the kitchen,” household air pollution is thought to be the world’s leading environmental cause of death and disability.

So-called clean cookstoves have been touted as a solution, notably by the Global Alliance for Clean Cookstoves, a coalition launched by Hillary Clinton in 2010. Clinton declared that cookstoves “could be as transformative as bed nets or even vaccines,” which have saved millions of lives. Clean cookstoves can “save lives, improve livelihoods, empower women and protect the environment, the global alliance says.

But mostly they have not. There are many reasons why. Low-cost cookstoves deteriorate or break. They are commonly used alongside an open fire, instead of replacing it, all but negating their health benefits. It’s almost impossible to design a stove that can adapt to all kinds of wood–wet or dry, twigs, branches, or logs–as well as other fuels, like dung, crop residues and charcoal, that are burned by the poor, and burn all of them cleanly. Continue reading

The giving season is almost upon us, and so millions of Americans soon will turn to Charity Navigator or GuideStar for help in vetting nonprofits. Unfortunately, neither is entirely up to the job. 


That once again became clear to me when I began looking into a charity called Alley Cat Allies that, by coincidence, is headquartered just a few miles from my home in Bethesda, MD. Alley Cat Allies is, to be blunt, a mess. Even so, it has been given the best possible scores by both Charity Navigator and GuideStar.


This is a big problem for the nonprofit sector, and one that deserves more attention from foundations (Hewlett, Gates, Raikes) that are trying to improve the practice of philanthropy and the performance of nonprofit groups. 


The Chronicle of Philanthropy just published my story about Alley Cat Allies, a group that has been around for decades and advocates for feral cats. Alley Cat Allies is not a mom-and-pop charity; it brought in nearly $10m last year. 


The story is behind a paywall, so you’ll have to trust me when I tell you that Alley Cat Allies has engaged in a variety of questionable dealings in recent years. It used charitable donations to acquire two residential property in Arlington, VA, including the home next door to the home of its executive director, Becky Robinson. (I’m told this helped resolve a dispute with the neighbor over Robinson’s backyard full of cats, but could not confirm this.) Amazingly, in neither case did Robinson inform the full board that Alley Cat Allies was buying the properties. (One board member learned about the real estate dealing from me!) The board chair, a woman named Donna Wilcox, for years has been a full-time, paid employee of Alley Cat Allies, which is crazy. How can a paid staff member evaluate or provide oversight of her boss? (Wilcox left her job days ago, she wrote on Facebook.) The board, which includes some well-credentialed folk, including a PhD economist with the FDIC, has not met this year.  Top executives get generous pay. The organization pursued a costly copyright lawsuit against a former freelance photographer and his wife, for what appears to me to be no good reason. Employees say it’s an awful place to work. Etc.


And yet….those stellar rankings.


I write this not to critique Michael Thatcher, CEO of Charity Navigator, or Jacob Harold, CEO of GuideStar, who are doing the best they can with limited resources. I like and admire both of them. But they don’t have anywhere near enough money or staff to independently examine hundreds or thousands of nonprofits. They might have uncovered the governance problems at Alley Cat Allies by closely reading its Form 990, but they could not have known that the charity was buying the house next door to its executive director. To their credit, neither claim to be watchdogs, although they are often portrayed or perceived that way.


What can the charitable sector do to better evaluate nonprofits? That’s hard to say. Maybe community foundations could come up with lists of best local nonprofits. Maybe other funders could focus on niches that they care about, by evaluating the education nonprofits that try to help poor kids get through college, or the climate-change advocacy groups, and then recommend the best of them, explaining why. (Animal Charity Evaluators does this for animal welfare groups, but, of course, that didn’t stop donors from sending money to Alley Cat Allies.) Independent evaluations collected by others could then be distributed on broad-based platforms such as Charity Navigator and GuideStar. Maybe there’s an opportunity here for Feedback Labs or the broader feedback movement, to reward well-run nonprofits that listen to those they are trying to serve.


Meantime, what’s a donor to do? By all means, consult Charity Navigator and GuideStar. They will spotlight problems with a nonprofit after those problems become public, and they will help you, as a donor, avoid fake charities that spend most of their budgets on fundraising. But do a little of your own digging, too. Research a charity with as much seriousness as you’d research a car, a vacation or, for some, a restaurant. Or give to a nonprofit that you know well and trust. Or turn to organizations like GiveWell or the Center for High Impact Philanthropy, which identify a small number of effective charities.


Do keep giving if you can. Thankfully, charities like Alley Cat Allies are the exception and not the rule.