A Charity Stops the Presses

Trustees, donors, staff members faulted for group’s demise

By all appearances, Children’s Express had the sort of good fortune that many small charities crave. Founded in 1975 by a charismatic Wall Street lawyer to train children ages 8 to 18 as journalists, Children’s Express gained the national spotlight a year later when one of its young reporters revealed Jimmy Carter’s choice of a running mate. In 1988 the charity, which has its headquarters here, won Emmy and Peabody awards for coverage of that year’s presidential race. In 1998, the W.K. Kellogg Foundation gave the charity a four-year, $3.9-million grant, instantly sextupling the charity’s income.

This year Children’s Express opened its first foreign bureau, in Tokyo, with dreams of operating in 12 countries by 2010.

But it turns out that in the case of Children’s Express, looks were deceiving.

This summer, the charity, $2.4-million in debt, abruptly ended its operations, closing its offices in New York, Washington, Marquette, Mich., and Tokyo, laying off all but two people, and thwarting the journalistic aspirations of hundreds of children on two continents.

The charity’s demise took many people in the nonprofit world, including officials of Kellogg, by surprise. Even members of the Children’s Express board said that up to the very end, they had little inkling that the organization was in such bad shape.

But a careful analysis of the charity’s operations, governance practices, and board records shows that Children’s Express was headed for a fall long before trustees voted to shut it down. Like many small and midsize charities that fold, the cause, philanthropy experts say, was a failure by the board to pay attention to fundamentals: ensuring that enough money came in to cover expenses, avoiding overreliance on a sole source of income, and making sure the charity stayed on course after the death of its founder.

In hindsight, board officials concede that they failed at their most important task: to exercise sound governance over the charity’s managers, especially its former chief executive, Eric Graham.

“We did not ask the right questions soon enough,” concedes Ed Jones Jr., vice chair of the Children’s Express board and its former treasurer. “There is no question the board invested the management of Children’s Express with too much authority, and to that degree the board has to accept responsibility for the way the organization was managed,” adds Mr. Jones, who is general manager of a cable-television station at the University of the District of Columbia.

Founder’s Death

The roots of the demise of Children’s Express extend back to August 1996, when Robert H. Clampitt, the charity’s founder, died unexpectedly at age 69 of a heart attack. Mr. Clampitt was chief executive of Children’s Express, its chief fund raiser, and the charity’s “heart and soul,” says Page Ashley, a longtime trustee who became board chair last year.

After Mr. Clampitt’s death, the board, which then included his wife and sister, made plans to find a new chief executive and rebuild relationships with skittish donors. Mr. Graham, a former management consultant and founder of a public-radio station in Lincoln, Neb., was hired in March 1997. At first, at least, communication was smooth between him and the board, says Lee Wood, who served as the charity’s interim leader until Mr. Graham took over. “We survived that period and the tough year that followed,’’ Ms. Wood says.

That the board worked hard to weather the founder’s death is not surprising, observers say. “Often in emergencies, nonprofit boards are most effective,” says Judith O’Connor, president of the National Center for Nonprofit Boards, in Washington. But, she says, after a crisis passes, boards must move quickly to adopt financial policies, add accounting and reporting systems, and, if necessary, expand the number of trustees to include people who can help prevent future problems.

The Children’s Express board, with 10 members, met only three times a year, and never created either a finance or fund-raising committee. In addition, after Mr. Clampitt’s death, trustees were not involved in fund raising, and board members did not have enough personal wealth — or ties to those who did — to be of much financial help to the charity. This past spring, Ms. Ashley, a former book editor, offered to give Children’s Express $50,000 if other board members could match the gift or find someone who would. None of the trustees could do so, Ms. Ashley says. Likewise, earlier this year an anonymous donor offered to give Children’s Express $700,000 if the board could raise enough to match the donation, but trustees couldn’t meet the challenge, Mr. Graham says.

Reviewing the Books

While Mr. Clampitt’s death appears to have thrown Children’s Express off course, the ultimate reasons that the charity failed remain to be unraveled.

Mr. Jones says that while he has seen no evidence that money was misappropriated, several audits of the charity’s books are under way. The board, under Mr. Jones’s direction, is reviewing the books, as is the Kellogg Foundation. In addition, employees have asked the attorney general in New York State, where the charity is registered, to investigate whether grant money was misspent or other misdeeds occurred.

Whether or not improprieties occurred, it is clear that in its final months, Children’s Express began a financial slide that became more and more difficult to reverse. That slide accelerated last November, when Children’s Express moved its headquarters and Washington news operation to new, more-expensive quarters, locking in lease payments totaling $1.8-million through 2008, Mr. Jones says.

By December, employees were noticing signs of trouble. Anne Glenzer, who, as director of the Washington bureau, worked in the headquarters office, thought things were amiss when her boss asked her a few weeks before Christmas to create a fiscal-year budget — after going six months without one. “Many of us had a feeling we were broke,” Ms. Glenzer says.

Last spring, deliveries of bottled water stopped at the Washington headquarters, and phone and e-mail problems there went unrepaired, she says. Mr. Jones says he learned recently that at that point, Children’s Express had failed to pay many of its suppliers for several months.

Despite what might have been alarm bells, however, Mr. Jones says that he and other board members did not learn from Mr. Graham until March that the charity was short of cash. It wasn’t until May, he says, that the board discovered that the charity might be nearly broke. It was then that the board learned that Mr. Graham had used a $400,000 line of credit to pay salaries and basic expenses — a dangerous tactic, experts say, especially for charities that lack a sure source of new grants. By the time the board rescinded management’s authority to borrow from the credit line, Mr. Jones says, more than $383,000 had been spent.

In mid-June, while Mr. Graham was on vacation, trustees finally reviewed the books and discovered that Children’s Express was buried under $2.4-million in debt, including lease obligations. The debt totaled nearly twice the charity’s income for the 2000 fiscal year.

Looking back, Mr. Jones says the board did not receive sufficient financial information from Mr. Graham to exercise proper oversight of the charity. Until last fall, he says, Children’s Express did not have a chief financial officer on its executive staff. It relied instead on outside accountants for its financial information and did not get monthly reports from them. “The board was flying blind,” Mr. Jones says.

Mr. Graham defends himself and other Children’s Express managers. “No one was asleep at the wheel,” he says. “The entire staff was hustling to get to the next phase. But we saw the donor environment go off a cliff.” Mr. Graham says that Mr. Jones is overstating the charity’s debts, which he says total less than $1-million. In addition, he says he kept the board well-informed of the charity’s financial situation, telling trustees last fall that the outlook was growing worse.

“The board was told about expenses, and they had full access to our financials — I can’t say if they read them,” he says. “Unfortunately, the board wasn’t more engaged in thinking through funding strategies, and they were ineffective at raising money.”

Mr. Jones concedes that it wasn’t just Mr. Graham and other executives who caused the charity’s demise. Says Mr. Jones, “We all made mistakes.”

Foundation Grants

Among the charity’s biggest mistakes, observers say, was its overreliance on Kellogg money and its overconfidence in what Children’s Express could accomplish to meet Kellogg’s expectations.

Mr. Jones says that Mr. Graham told the board in March that Children’s Express had $13-million in grant requests outstanding. Even so, Mr. Graham and the board seem to have let relationships with some past foundation supporters lapse just when the charity needed money the most. Jonathan Goldberg, grants administrator of the Surdna Foundation, says no record exists of a formal grant request from Children’s Express since February 8, 2000, when Surdna gave $15,000 to develop a fund-raising and income-projection plan. Before then, Surdna had given Children’s Express a total of $120,000.

With no big grants coming in, the Kellogg Foundation took on huge significance as a source of money for Children’s Express. When the first check from Kellogg arrived in 1998, income tripled to $600,000 from the year before. When Children’s Express closed in June, Kellogg money accounted for 95 percent of the charity’s income — a fact that foundation officials did not know until informed by reporters.

“All reports looked good, so no red flags were raised,’’ says Karen Lake, a Kellogg spokeswoman. The grant maker had sought — and received — annual reports and regular updates on how its money was spent, she says. Kellogg received the last report in June, just weeks before the charity closed, she says.

While the Kellogg money came with few strings attached, its primary purpose, charity and foundation officials say, was to allow children to produce news stories and broadcasts on racial, ethnic, religious, and other forms of diversity in U.S. society.

To fulfill Kellogg’s expectations, Children’s Express hired additional staff members, beginning in 1998. Before the grant, Children’s Express had only five employees in Washington, plus several others in offices elsewhere in the United States. By 2000, the employment count peaked at 26.

Likewise, salary costs mushroomed. In 1998, executives were paid an aggregate sum of nearly $142,000, and other salaries totaled about $218,000. By June 2000, those amounts had grown to nearly $334,000 for executives — including Mr. Graham’s salary of $130,154 — and to more than $624,000 for other staff members.

As the influence of the Kellogg grant grew, the focus of Children’s Express’s work increasingly reflected the diversity theme, Mr. Jones and Ms. Ashley say. In the process, they add, the charity began to stray from the broader mission that Mr. Clampitt envisioned when he founded the organization: to train young people to ask questions and to get their stories and opinions — no matter what the subject — published by news organizations.

“Children’s Express became diversity,” Mr. Jones says. “Our mission was Kellogg’s mission.”

Expanding Overseas

With the Kellogg grant due to run out this year, and Children’s Express too big to rely any longer on small grants, the charity began to look for ways to raise money overseas. To do that, Children’s Express formed a partnership with the United Nations Children’s Fund, or Unicef, which convinced the charity that it could help children in developing countries to be heard, though Unicef did not offer to pay for such work. Mr. Graham and his colleagues drafted a plan to open several bureaus a year, until it added a dozen foreign offices, from the Czech Republic to Vietnam, by 2010.

“It was heady stuff,’’ Ms. Ashley says of the international plans. But in hindsight, she says, neither the executives nor the board of Children’s Express were sure what it would cost to open the foreign offices.

What’s more, says Mr. Jones, the effort to raise international grants put Children’s Express in a “league we weren’t prepared to compete in.’’

In the wake of the closing of Children’s Express, employees who were laid off from bureaus in New York, Marquette, Mich., and Tokyo are trying to find new offices and local patrons interested in seeing that the work of the charity continues.

Linda Remsburg, who was director of the Marquette bureau, hopes to keep the charity’s mission alive. She wants to copy the success of two independent offshoots of Children’s Express that were formed before the charity’s demise. One, Children’s Express UK, in London, raises money on its own, from British donors. The other, Y-Press, operates independently from offices at the Children’s Museum of Indianapolis.

“Everybody is upset, they’ve lost their jobs, and we have 80 kids who rely on us,” Ms. Remsburg says. Still, she says, despite the failure of Children’s Express, the young journalists of Marquette, Mich., are practicing one of their craft’s greatest requirements: persistence.

Says Ms. Remsburg, “We’re hanging on.”