If you were going to donate money to a charity, who is the one person in the annals of IT history you'd least want to have control over that money? For me, that person is Charles Wang, the co-founder and former CEO of CA Technologies, the company formerly known as Computer Associates. So let's just say I'm troubled by a recent development on the charitable organization scene.
In a December post, "As Charles Wang's World Crumbles, Justice is Served," I wrote about the ongoing collapse of Wang's empire, notably the financial problems he's confronting with his New York Islanders hockey team and with NeuLion, his Internet TV company. Now it appears that the collateral damage from that collapse will include Smile Train, a charitable organization headed by Wang that does surgeries on cleft lips and palates of children in developing countries.
The New York Times reported last week that boardroom shenanigans on Feb. 14 had resulted in plans to merge Smile Train with Operation Smile, a rival charity with a similar mission. While the goal of the merger ostensibly was to create a more efficient organization that would be better positioned to help the kids, the financial structure underlying the merger proposal suggests that the real beneficiary is Wang himself.
According to the NYT article, the deal was arranged so that Wang would have control of a huge percentage of Smile Train's assets, which are estimated to be in the range of $160 million:
The new entity will not, however, have the combined assets of the two organizations. Only roughly one-third of Smile Train's assets will go into the new charity, according to the merger agreement.
The rest, estimated by Smile Train board members to most likely exceed $100 million when the deal is complete, will go into a separate "legacy fund." Mr. Wang, who will be chairman emeritus, will have the right to appoint - and remove - four of the fund's five board members; they will decide how to disburse and invest the money.
In addition, the agreement stipulates that half of all the money the merged organization raises over the next three years will go into the fund that's under Wang's control. Wang was able to pull all of this off because four of Smile Train's nine board members work for him, and with their help, he had a majority. Those board members are:
Of the four remaining board members, three voted against the deal, and the fourth abstained because his company manages Smile Train's assets.
While both the Islanders and NeuLion are losing money hand over fist, it's the NeuLion connection that I find especially troubling. The NYT article linked to my aforementioned post to provide background about NeuLion's financial woes, and added something I didn't know:
Smile Train's most recent tax form includes a $108,000 payment to NeuLion for services, and earlier, it was paid to build the charity's digital patient charts.
Smile Train donors can be forgiven for being concerned about how much more of the money they've donated-$100 million of which is under Wang's control-will go to the ailing NeuLion. It's worth noting that Reichbach sits on NeuLion's board of directors, a board that, as I indicated in my previous post, has some members with interesting histories:
NeuLion's board of directors includes Shirley Strum Kenny, president of the State University of New York at Stony Brook, who served on the CA board that in 1998 approved the infamous $1.1 billion bonus that was split between Wang, Kumar, and CA co-founder Russell Artzt. Wang's share of that fortune was $670 million. In the late 90s, Kenny was embroiled in a conflict-of-interest controversy at SUNY Stony Brook stemming from her service on the CA board.
The board's vice chairman is G. Scott Paterson, who in December 2001 was fired from his job as chairman and CEO of Canadian brokerage Yorkton Securities due to what the Vancouver Sun called "complaints about fast-and-loose dealings." That same month, Paterson reached a settlement with the Ontario Securities Commission in connection with what Forbes.com described as "conduct that was, in the view of the commission, contrary to the public interest in connection with certain corporate finance and trading activities engaged in by Mr. Paterson and the investment dealer with which he was associated." Under the settlement, Paterson paid CAN$1 million to the commission and was barred from trading for six months.
While all of this is extremely discouraging for many of Smile Train's donors, they're not letting Wang get away without a fight. They're pinning their hopes on the fact that the deal has to be approved by the New York State Attorney General, and they've drafted a petition to call on him to block the deal. Here's an excerpt from the petition overview:
Over the past few months, without the knowledge or approval of the Smile Train Board, Co-Founder and Chairman of the Board, Charles Wang, secretly negotiated a deal that will ensure Smile Train, as we know it, will cease to exist.
Wang shocked the Smile Train Board and staff members two weeks ago announcing his intent to merge with Operation Smile. Requests by independent board members for more information were ignored or dismissed; repeated requests for more time were met with a rushed board vote on Valentine's Day.
Not one independent director voted for the merger.
Let's hope the petition doesn't fall on deaf ears. If this deal goes through, all of the injustices Wang oversaw at CA will pale in comparison. This one's about money that was donated to help kids who really need it, not to pay for the ramifications of a seedy boardroom coup.