Advice for Donors to Greg Mortenson and the Central Asia Institute

May 8 2011


As a philanthropic advisor by profession, everyone wants to know what I think about the recent allegations against Greg Mortenson about falsified stories in his best-selling books "Three Cups of Tea" and "Stones Into Schools," and gross mismanagement of charitable funds donated to the Central Asia Institute. What follows is purely my own opinion, but so many people have focused on whether the allegations are true or not, and I thought I would contribute some thoughts on what to DO about it.

If you haven't followed the controversy, I'd rather not get into it here. Feel free to

In short, there are clear management challenges, at the very least.  

So what's a donor to do?

If you believe in the work being done by the Central Asia Institute, I encourage you to be patient and wait for the dust to settle. A lot more ink will be spilled before this is over and it's hard to say what will shake out. But in any case, before donating to the Central Asia Institute again, I would want to see the following steps taken by the organization:

  • A new CEO hired that takes over the “business” of running a $20 million/year charity while Greg pursues the mission. This is for two reasons: one, Greg has admitted that he lacks organizational skills (and even his most ardent supporters agree) and he needs someone supporting him who demonstrates those skills; and two, it shows that the board is taking these allegations seriously and that they are trying to build an organization that is larger than any one man.
  • Additional board members appointed who can provide greater oversight and accountability.Again, this would show that the organization is taking this seriously and is dedicated to good governance. Also, the existing board members seem to lack experience in some key areas of nonprofit management. Their response so far has been defending the mission but they need to do a "mea culpa" on some of these governance and management issues if they are going to retain any credibility.
  • Audited financials every year. A charity this large should absolutely be getting an audit every year for sure.
  • A clear travel expense policy put into place that would govern the use of charitable funds in the field. This seems to have been handled very casually, but needs to be tightened up.
  • A copy of the attorney’s report showing they did not engage in "excess benefit" transactions with Greg. They apparently had their attorneys investigate this issue and the attorneys found no excess benefit. Great, let us see this report. I am especially curious about this one because the charity has made statements that there was no excess benefit because CAI benefits from the speaking/book tours more than Greg does. I believe this is an inaccurate explanation of excess benefit, which does not compare the benefits accrued to the individual versus the benefits accrued to the charity, but rather compares to benefits accrued to an individual versus what is considered "reasonable." See this explanation of excess benefit transactions especially written for non-lawyers like me.
  • If CAI feels that Greg's speaking appearances are a critical part of fulfilling its mission and a fantastic fundraising tool, I can understand that position (I bet a lot of organizations that raise $20 million spend $1.7 million or more in fundraising costs). However, in that case they need to adopt a new policy that all speaking fees and proceeds from events surrounding Greg and CAI are paid directly to the CAI, and Greg’s compensation comes in the form of a salary from CAI. If they need to increase his salary to be more commensurate with his value to the organization, so be it.

In conclusion, I think it's worth pointing out that all of these suggestions merely constitute good governance. They are nothing unusual, and most charities of any significant size would already have policies and practices like this in place. To all donors, I can only reiterate that before giving to a "good cause", you should investigate whether the program or organization in question also represents good practice.  

P.S. I can't help but wonder if some of this book tour accounting nonsense was an attempt to keep his salary artificially low as an unintended consequence of watchdog and donor insistence on low salaries at nonprofits. I can imagine supporters thinking Greg deserved to earn more for all his contributions and deciding it would be "only fair" for him to keep more proceeds from his book tour which wouldn't raise alarms as compensation on the charity's tax return. This organization, after all, received a 4-star rating for its financials from Charity Navigator, which speaks volumes to the limitations of ratios and, if I'm right, the perverted incentives that this rating system sets up.

 
 
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