A Charity Faces Turmoil

A bitter court battle over the control of Feed the Children, one of the nation’s biggest antipoverty charities, reveals an organization in turmoil and a power struggle that pits the group’s founder, Larry Jones, against his daughter, a top official who was fired in December, according to documents filed in the case.

The role of the Joneses’ son in the charity’s operations has also been at issue.

Feed the Children, a charity in Oklahoma City, provides food, clothing, medicine, books and other supplies and services to needy children and families in the United States and overseas. It ranks No. 7 on the most recent Philanthropy 400, The Chronicle‘s list of the charities that raise the most each year from private sources. Feed the Children reported raising more than $932-million in cash, products, and other donations in 2007.

‘Free-Wheeling Dominance’

Controversy at the 30-year-old Christian relief organization became public when five members of the Board of Directors who were fired in December went to court to claim that they had been improperly replaced. The five, who have been at least temporarily reinstated by a court, said they had been removed just before a board meeting at which several members planned to discuss placing Mr. Jones on sabbatical.

“Seeing that his days of free-wheeling dominance over FTC were numbered and seeing that certain actions he had taken to the detriment of FTC were about to be exposed, Larry Jones made a desperate power move” and began to take steps to bring new members to the board, the lawsuit says.

Mr. Jones, however, has said he was concerned that the previous board had done nothing to rectify problems pointed out by the charity’s outside auditors, according to minutes of a board meeting that included most of the new members.

A countersuit filed on behalf of the five new members, all of whom are Christian ministers, said that “documents gleaned from corporate computers reveal” that the fired board members “were, in fact, recruited into an attempted and unjustified clandestine mutiny by one or more salaried employees who hoped to oust Mr. Jones from the organization that he founded.”

An Oklahoma County District Court judge reinstated the five fired members.

Court papers show that in December, the revised board fired Mr. Jones’s daughter, Larri Sue Jones, vice president and general counsel. Also removed were the chief financial officer, Christy Tharp; chief operating officer, Travis Arnold; and an internal auditor, George Stevens, who also was a nonvoting board member.

The reasons for the dismissals, according to court papers filed in the countersuit, included alleged “failure by these employees to dutifully implement, as had been repeatedly directed, substantially any of the suggestions of the auditors that related to subjects other than placing restraints upon the powers and authority of Larry Jones.”

Mr. Jones said in a statement to The Chronicle, “This is truly an unfortunate distraction, and everyone with this ministry remains steadfast in carrying out our mission to feed hungry children around the world.”

Larri Sue Jones could not be reached for comment.

In an affidavit filed in court, she said she had served as general counsel since 1994 and on December 5 “was purportedly terminated by Larry Jones.”

‘Much Sorrow’

Minutes of a meeting of the revised board make clear that Mr. Jones had felt hamstrung by committees that board members had formed earlier in 2008 to handle the organization’s business.

The board had created an executive finance committee and an executive hiring committee and had plans for an executive human-resources committee and a temporary committee to review the charity’s organizational structure.

“Dr. Jones with much sorrow explained he did not understand why over the last six months the ministry had not been focused on feeding children,” said the minutes, which were taken by Mr. Jones’s wife, Frances Jones, the charity’s executive vice president and secretary.

“All Dr. Jones and Frances could do was beg for help and attend committee meetings as their hands had been tied from doing anything or moving forward to provide assistance to needy children,” the minutes said.

Some board members “had so bootstrapped the founders with committees after committees after committees that the ministry could not even run effectively,” the minutes said.

“The bottom line is that a takeover plan led by Larri Sue Jones, aided and abetted by executive staff members and some of the directors, intended to remove Larry Jones as president of FTC and then do fund raising by means of the PBS-style programs that had been produced and aired without board approval over the past several months,” the minutes said.

“Given the nearly nonexistent revenue from those programs, it amounted to a corporate emergency to make sure the president, who is responsible for and gifted at all the fund raising for FTC, continues in his role as he has in the past,” the minutes said. “Otherwise the organization would be completely broke very quickly using the experimental programs.”

Mr. Jones is the longtime host of an infomercial-style television show to raise money for Feed the Children.

Tug of War

Court documents reveal the tug of war that was waged among Mr. Jones and key members of Feed the Children’s board and staff in the past year.

The lawsuit by the five ousted members alleges that the board discovered that Mr. Jones “had been taking action without the Board of Directors’ knowledge, approval, and/or against its direction. In an effort to prevent this and to implement procedures on board governance, certain actions were taken by the board, including setting forth processes, procedures, and controls for the positions held by the members of the Jones family.”

The board also “discussed and implemented certain resolutions and directives which were made applicable to Larry Jones, amongst others” during the year, the suit says.

Last June the board passed a resolution specifying that “no executive officer of Feed the Children shall have the sole authority to enter into agreements involving the expenditure of material sums of money with third-party vendors, suppliers of materials, and service providers.” Such agreements would require the review and approval of a new executive finance committee, the resolution said.

Another resolution called for a committee review of all written and oral contracts that the charity had entered into.

In November, the lawsuit says, the chair of the charity’s board’s audit committee, Linda Schluchter, asked Mr. Stevens, the internal auditor, to create a document that would outline the instances in which Mr. Jones had failed to follow the wishes of the board.

The suit says Mr. Stevens distributed the memo to certain board members and employees.

Among the items on his list was that Mr. Jones had failed to recuse himself, as the board had directed in May, from an internal investigation into problems at a warehouse owned by the charity in Elkhart, Ind.

The board last spring expressed its concern about the activities of Mr. Jones’s son, Allen, at the Indiana facility.

“Allen Jones is not an employee, though [he] has a company credit card and holds himself out as being involved with Feed the Children by using offices, storage space and operates company equipment and vehicles,” said a resolution passed by the board, according to minutes submitted by Larri Sue Jones. “The board feels that it is time to set forth strict parameters regarding Allen’s future relationship to Feed the Children, as well as to set forth processes, procedures, and controls for the positions held by members of the Jones family. The board feels it is time to define the parameters of the positions, not the fact that a family member holds a particular position.”

An internal investigator briefed board members about the warehouse at meetings in May and June, according to the minutes.

According to minutes of the June board meeting, submitted by Larri Sue Jones and the chairman, Dwight Powers, Mr. Stevens led a discussion about the warehouse.

Building components and excess equipment had been stripped and removed by employees of a management company that had maintained the building and were “sold for cash in the nearby towns,” the minutes said. The minutes said that while Larry Jones had been the charity’s contact with the management company under the maintenance agreement, “Allen Jones was in fact overseeing the building on behalf of the president during the period” that the building materials were stripped.

Allen Jones could not be reached for comment.

Mr. Stevens’s memo said Larry Jones “continued to inquire as to the status of the Elkhart investigation” and allegedly threatened the investigator’s job “for not briefing him on the results of the investigation prior to a board meeting report” that the employee was to give.

The memo also said “single-person commitments” had led to the decision to install a call center for receiving contributions at the Elkhart site but then a decision to end its operation, “at a litigation cost of $1.6-million.”

On another matter, the memo said Larry Jones had failed to provide the board with “any explanation” of the charity’s agreement with Affiliated Media Group, a company that purchased television time for Feed the Children’s programs.

At their June meeting, according to the minutes, board members heard from Mr. Stevens about how, without the board’s formal approval, Feed the Children had entered into an “apparently oral” contract with the media company, the charity’s largest vendor. “This purchasing function has never been let out for bids,” the minutes said.

When Larry Jones learned of Mr. Stevens’s memo “and of the investigations that produced it,” he took steps to change the membership of the board, says the lawsuit by the ousted board members.

In December, Mr. Jones explained to members of the revised board — paraphrased in the meeting’s minutes taken by Frances Jones — that he had learned that Mr. Stevens had written a “damaging” memorandum, “with half-truths, rumor, and innuendo, concerning the Jones[es], which, by sending out, may have breached his duty of confidentiality as an employee and former director, as well as perhaps accounting ethics rules.”

Suit and Countersuit

The countersuit filed on behalf of the five new members said that the fired trustees “have not shown or even attempted to show how leaving the directorship of Feed the Children in its present hands could in any way create a harm to the organization. The only harm claimed in any way is that the complainants no longer have the opportunity to control Feed the Children and thereby carry out their now-revealed plan to oust its founder.”

The countersuit said that in 2008, Feed the Children adopted “certain accounting procedures and controls recommended by its outside auditor, which reduced the powers of unilateral action that [Larry] Jones had theretofore exercised without material harm or risk to the organization. None of those controls have been suspended or canceled since the change in board membership,” the suit said.

“Jones has, instead of acting with impunity, accepted auditor-recommended accountability measures which remain in effect,” the suit said. “In contrast, recommendations other than those limiting his discretion were largely ignored by the board when it was largely under the influence of mutiny-minded employees.”

Feed the Children’s policies on compensation have also led to internal discussion, according to the board minutes.

In June the board discussed the need to have an executive-compensation study performed. (According to Feed the Children’s informational tax return for 2007, Larry Jones received $224,883 in compensation. Frances Jones was paid $173,049, and Larri Sue Jones $155,327.)

“Within this context, the question arose as to the future employment status of Frances Jones within the organization,” said the board minutes. “It has been established in the past that, due to health problems, she is working less than the required hours to qualify for her own health insurance, and therefore consistency requires that the IRS Form 990 must reflect the true hours worked. These hours worked are placed next to the salary on the Form 990 so the IRS can compare the two figures.”

The minutes continued: “It was discussed that the relatively low number of hours worked in relation to the compensation paid might draw unwanted attention from the IRS, and a proposal was put forth to possibly transfer her to contract status at the same compensation rate, with a designation commensurate with her status and contributions to the organization.”