Former WE Charity board chair says she had little insight into finances

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The former board chair of WE Charity in Canada says she had no oversight and little in-depth knowledge of the far-flung international group of non-profits and for-profit corporations controlled by Marc and Craig Kielburger, the charity’s founders.

In addition, former chair Michelle Douglas said the board was not supportive of the January, 2018, formation of a new entity, the WE Charity Foundation. The entity had no employees or assets when it became the signatory to the contribution agreement with the Government of Canada to run the Canada Student Service Grant. The charity stood to receive up to $43.5-million from the contract, the bulk of which would be spent on program expenses, it says.

MPs asked. WE answered. Too many questions remain

Read former WE Charity board chair Michelle Douglas’s opening remarks to the federal finance committee

WE Charity ex-chair says she resigned over lack of financial disclosure during mass layoffs

Ms. Douglas’s comments to the House of Commons finance committee on Tuesday were part of testimony in which she revealed she resigned from her position after WE Charity’s executives refused to provide the board with financial documents to justify laying off hundreds of people when the COVID-19 pandemic hit in March.

She said Craig Kielburger called her March 25 and asked her to resign from the board. “It was clear there was a breakdown in trust between the founders and me, as the board chair ... as I was not going to be able to discharge my oversight duties, I opted to resign immediately.” The remainder of the Canadian board, save one member, resigned in April in “an accelerated process,” she said.

Ms. Douglas said Tuesday “the board was never satisfied that the operation of [WE Charity Foundation] was in the best interest of the charity or its various stakeholders. To the best of my knowledge, it was not in operation as of my departure from the board.”

“The board had a number of concerns,” she testified in response to a question. “We simply didn’t have enough information ... Frankly thinking about all the youth who had done fundraising and [we] wanted to understand in a manner that was crystal clear why such a foundation would exist and what its purpose would be, and ultimately there was no resolution brought before the board to consider whether that should be established.”

Internal shakeup saw most of the WE Charity board replaced earlier this year

According to an application filed with Canada Revenue Agency to establish the foundation, its purpose was “to promote the efficiency and effectiveness of other registered charities by providing and maintaining facilities to house the operations of other registered charities, including WE Charity.” The filings indicated that the foundation “will hold real estate for the use and benefit of WE Charity and other registered charities.”

The documents list several WE Charity properties that would be transferred to the foundation and that it expected to hold $37.5-million in assets. However, no assets were ever transferred and the WE Charity Foundation remained dormant until this spring. It had no employees, and filings show the directors of the WE Charity Foundation were three officials who worked for ME to WE Social Enterprise Inc., the Kielburgers’ for-profit company that donates a portion of its earnings to WE Charity.

During his testimony, Craig Kielburger said the WE Charity Foundation had been established to shield the organization from legal liability. “The WE Charity Foundation was originally established as an idea to hold the legal liability for WE Charity.” He added that “we chose not to proceed as a general statement for WE Charity to use this vehicle. That’s why it was put on a shelf. It was unused as per the board’s request.”

However, he added that once the organization became involved in the Student Grant program, the issue of liability surfaced. “When the Government of Canada asked us to assume liability during a global health pandemic for 40,000 youth and all of the non-profits involved, that entity was repurposed … to serve this need.” Marc Kielburger added that the organization also took out insurance as further legal protection for administering the Student Grant program.

Ms. Douglas said in her role as chair of the Canadian board, she did not have direct oversight over other Kielburger entities, but the board required an annual reconciliation report on transfers between ME to WE and WE Charity. “We were interested in getting as much information as we could on those transfers,” she said. She added that there were no explicit concerns raised by the board, “rather, requests for enhanced information.”

When asked whether she knew how many entities the WE organization had created, Ms. Douglas replied: “Put that way, I don’t know the actual number, no.”

WE Charity buys goods and services from ME To WE; ME To WE states that it donates 50 per cent of its overall profits to WE Charity and reinvests the remainder.

ME To WE, as a private company, does not release financial information. However, WE Charity’s financial statements for the year ended Aug. 31, 2019, record $4.33-million paid by WE Charity to ME to WE for promotional goods, travel and leadership trading services, rent, and $759,200 in books purchased “at or below wholesale prices.” ME to WE made a $4.94-million donation to WE Charity.

Amid the charity’s layoffs in March, Ms. Douglas said the board convened an ad hoc committee to get briefings and updates from WE Charity’s executive as the organization was terminating staff. She told the committee the board requested information that she said was “necessary for the board to discharge its oversight duties,” but the information wasn’t provided.

She added that the board was “denied access” to the organization’s chief financial officer, Victor Li. Ms. Douglas said two meetings were scheduled with Mr. Li but were then cancelled. Despite the executives saying WE Charity was running daily financial reports, Ms. Douglas said as of March 23 those reports and other evidence and raw data had not been provided to the board.

In their testimony Tuesday, the Kielburgers said they disagreed with Ms. Douglas’s characterizations of the events around her departure.

Craig Kielburger said WE Charity had 14 oral briefings to various board members in March, a full board meeting, staffing records provided nine business days after the board’s request, and financial models 11 days after a board request. He also said a “board renewal process” started in the fall of 2019.

The Kielburgers co-founded Free the Children as teenagers in 1996 and their initial focus was on tackling child labour in developing countries. The organization has grown and today it includes nine registered charities in Canada, the U.S. and Britain. They also created ME to WE, the private business. Nearly a dozen other not-for-profit businesses have also been established in Canada, the U.S. and Britain.

Craig Kielburger acknowledged the organization’s structure has become overly complex and WE is taking steps to simplify the organization. However, he said the brothers were “entrepreneurs” and that Canadian charity laws were too restrictive.

“We launched ME to WE Social Enterprise because traditional models of charity are too limited in Canada,” he told the committee. While social enterprises are common in Europe, “in Canada, the Canadian Revenue Agency limits a charity’s ability to operate a business model as a solution to solving social problems.”

He insisted that “100 per cent of profits from ME to WE Social Enterprise have been donated to WE Charity or reinvested to grow the social mission.”

Social enterprises have been increasing in Canada but still remain a small part of the charitable sector. A 2016 study by researchers at Mount Royal University and Simon Fraser University estimated that there are just over 1,300 social enterprises in Canada and their average annual revenue is $1.1-million.

Toronto lawyer Mark Blumberg said the Canada Revenue Agency rules were not restrictive. “There are a number of characterizations that I heard [Tuesday] that I would not agree with,” he said referring to the testimony. “Canadian charities can in fact undertake a large amount of business activities and they do. It might be a shock to some but the raison d'être for charities is not to undertake business.”

With reports from Marieke Walsh and Kristy Kirkup.

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