After an Embezzlement, an Advocacy Group Seeks to Regain Trust

In the grand scheme of foundation and nonprofit scandals over the past decade, the embezzlement of almost $1-million at the Association of Community Organizations for Reform Now, better known as Acorn, seems like small potatoes.

What makes this malfeasance particularly glaring is the organization’s success over 38 years in organizing hundreds of thousands of poor and working-class people. It has achieved major victories in influencing policies at all levels of government to better serve the needy and conducted successful voter-registration campaigns. In the process, it has aroused the anger of conservatives and government officials opposed to both the organization’s effort to promote social change and its oftentimes confrontational tactics.

The organization’s finances, and its ability to carry out its mission, have been threatened in recent months as news spread that the charity had concealed a theft by a key staff member for eight years.

Grant makers who heard the news suspended their payments or threatened to do so unless the organization proved it had taken steps to shore up its accountability. And a few months after senior officials learned about the embezzlement, the theft got public attention in three articles that appeared in The New York Times.

As is often the case at nonprofit groups, one act of a wrongdoing can be a symptom of other problems at an organization.

Acorn has been grappling with questions about the role of Wade Rathke, an exceptionally able and charismatic organizer who founded the charity in 1970 and recruited a talented cadre of young and loyal organizers, many of whom, along with Mr. Rathke, have worked for the organization throughout its entire history. That loyalty is impressive — but it also caused big problems when the organization faced serious challenges.

In addition, Acorn has been growing quickly, and its ability to handle expansion has drawn concern among people in and out of the organization.

The group’s governance system is undergoing a review, partly in response to its inadequate response to the embezzlement. The organization will also probably continue to face tensions over how much autonomy and authority its local affiliates should have.

My interviews with more than a dozen insiders, most of whom wanted to speak on the condition that they not be quoted by name, demonstrated to me that many of Acorn’s senior officials understand the organization’s challenges and are willing to take tough action to repair the organization. That view is shared by many people outside the organization whom I also interviewed, including some of the organization’s key financial supporters.

The crisis that became public this year was the result of actions taken in 1999, when Mr. Rathke learned from one of his employees that his brother, Dale, who ran an entity affiliated with Acorn, had stolen more than $948,000 from Acorn’s coffers.

The Rathke family agreed to repay $30,000 a year to restore the money that had been lost. The family has so far repaid $210,000.

After the repayment agreement was made, Wade Rathke informed the organization’s management council, a group of 10 senior organizers that was created to advise Mr. Rathke, about both the theft and the restitution deal.

Several members of the management council who were present at the discussion say that Mr. Rathke expressed concern that the news about the embezzlement could imperil Acorn’s existence.

He asked the group to keep quiet about the theft, and they agreed, according to several council members, because Wade Rathke told them that he would consult an outside lawyer for advice on how to handle the matter and would get approval of the executive committee of Acorn’s board to keep the financial wrongdoing a secret. Members of the council say they later learned he had not taken those actions, although Mr. Rathke says he did seek the advice of an outside lawyer.

Members of the management group also agreed that Dale Rathke should not be turned over to government authorities but should be removed from his job at Citizens Consulting Inc., an organization affiliated with Acorn to provide bookkeeping and other financial-management services to Acorn and related entities. He left that position in 2001 but was permitted to work at Acorn headquarters as an assistant to Wade Rathke until May 2008, a job for which he was paid $38,000 a year.

Only the senior organizers on the Management Council knew about Dale Rathke’s misdeeds until early this year, according to people with knowledge of the situation. The council members say Acorn’s board was kept in the dark. When the news came out at a meeting of some 150 Acorn organizers in May, staff members erupted, according to several senior organizers who were present.

Under pressure from board and staff members, Dale Rathke was fired from Acorn and Wade Rathke was forced to resign from the top job in June. He has continued to hold his title as chief organizer of Acorn International.

One of the puzzling questions in this saga is why senior organizers who served on the management council — people who spend their professional lives pushing for change and asking hard questions about how powerful institutions operate — did not challenge the decisions and actions of Wade Rathke. As one of those senior organizers said recently in an interview, “There is no excuse for what happened. Why we kept silent is a good question.”

This type of silence is not uncommon in the nonprofit world, During much of the time that he ran Acorn, Wade Rathke was an inspiring leader, and his colleagues say they trusted his leadership. It was that trust, many organizers say, that led the management council to accept his decisions about the organization without many misgivings.

But every nonprofit group, especially as it grows, needs checks and balances. Trust alone is not good enough, and the management council at Acorn, which was not set up to be a decision-making body, had too little influence in overseeing the chief executive.

Some of its members say they kept pushing for more authority, and for the ability to meet with the organization’s board members, but they say Wade Rathke made sure that he was the only staff member with access to Acorn’s board.

Questions about who should set the organization’s agenda were not limited just to the role of organizers and the board. Wade Rathke sought to put the national organization in control of operations of the group’s affiliates. For example, the organization’s bylaws gave him the power to appoint the head organizers of both local and state affiliates.

While local boards technically had the authority to overrule his appointments, they rarely did, according to senior staff members. They say Mr. Rathke refused to accept the decision of the board of Acorn’s Los Angeles affiliate to appoint Amy Schur, widely considered by Acorn insiders as one of the organization’s most capable organizers, as its head organizer. As a result, Ms. Schur left the network. Her departure prompted another highly respected organizer, Madeline Talbott, director of Illinois Acorn, to pull her organization out of the network.

Mr. Rathke says he did not try to block the appointment of Ms. Schur, but she and her colleagues say that he played a key role in denying her the job.

The decision to keep so much control over the affiliates seems at odds with Acorn’s mission — its goal is to empower local people to fight their own battles — but some organizers agree with Mr. Rathke that it is important to centralize operations. They say only a unified network led by headquarters has the power and speed needed to wage successful national advocacy efforts.

Other major organizing networks disagree with this view and set up their affiliates to operate as independent charities, unlike Acorn whose affiliates do not have charity status under the Internal Revenue Code. They believe that this structure provides much greater local accountability, an approach Acorn may have to consider as it seeks to regain the trust of donors and other supporters who have been dismayed by the cover-up of the embezzlement.

Even without the financial scandal, some organizers believe that mounting staff dissatisfaction and anger with Wade Rathke would have eventually imploded and forced him out. They say that in his ambitions to expand the organization, as well as get involved in other activities, he was stretched too thin, especially since he wanted to be involved in so many key decisions about how Acorn ran the state and local affiliates.

Both internal and external critics point to the expansion of Acorn to 103 affiliates in 38 states over the last two decades as one of the reasons for the network’s growing problems.

Mr. Rathke failed to strengthen many local and state groups that were in need of help, hired too many young and inexperienced organizers, didn’t provide the necessary training to local boards and staff, and cut too many corners, according to people at Acorn and other observers.

In the past few years, Mr. Rathke also became more involved in the activities of the Service Employees International Union, in developing Acorn affiliates overseas by serving as chief organizer of Acorn International, and in helping organize coalitions like the effort to organize against Wal-Mart’s employment policies and its mushrooming operations, which have caused many small businesses to suffer.

His protean activities moved one senior organizer to comment, “As he fought against Wal-Mart, he actually became Wal-Mart.”

For all the criticism his Acorn colleagues have raised about the organization’s growth and management, Wade Rathke remains a legendary figure in the network, respected by his colleagues for the job he did to build an extraordinary, powerful organization. They say he showed great vision, will, and courage, and had little interest in personal financial gain.

In an interview, Mr. Rathke told me that he made some mistakes along the way, but he remains proud of his accomplishments and the management of Acorn.

He says his brother played an important role in Acorn’s success story. And he also says that he established strong financial controls after his brother’s embezzlement was discovered. He also reiterated that he believed Acorn would have gone out of business had not the theft and the restitution agreement been kept quiet.

When I asked Wade Rathke for his response to the criticism of his style of management by former colleagues, he seemed somewhat puzzled.

“Why didn’t they say that to me a year ago, or six years ago?” he asked. “But I don’t want to dwell on such comments. I shall look forward to the future, and I hope that Acorn will continue to be a strong, outstanding organization.”

Immediately after Mr. Rathke’s dismissal as Acorn’s leader, the organization’s board appointed an interim director, Bertha Lewis, director of New York Acorn. It also appointed an interim management committee of senior staff members at the national organization.

Ms. Lewis brings to the leadership job a reputation as a strong leader and a commitment to revitalize the organization. She was one of the senior organizers who continually pressured Wade Rathke to make changes in how the organization was run. When asked how she would run the organization if she was appointed to take the chief executive job permanently, she answered bluntly: “I will not be Wade Rathke in drag.”

That the organization chose someone as bold and as willing to speak out for change as Ms. Lewis is a good omen for Acorn’s future.

In the past few months Acorn appears to have moved decisively to introduce important changes. The board has met four times by phone and once in person. Ms. Lewis has held at least three regional meetings and many consultations with local and state boards, staff members, foundation executives, and representatives of other networks and allied organizations.

A thorough vetting of past problems and accountability shortcomings has been a major part of those discussions.

Acorn has hired a law firm to analyze the embezzlement and why it happened and to report to the board at its October meeting. Another law firm will recommend measures to strengthen board policies and review all of Acorn’s corporate structures. And an accounting firm will propose ways to assure strong financial controls. The organization also plans to hire a new auditor.

Apparently, Acorn’s response and its actions over the past two months have satisfied many donors. In September the Needmor Fund’s executive committee voted to allow the grant maker to continue supporting Acorn.

It is likely that many other donors will follow suit, but Acorn is not yet out of the financial woods. It is carrying significant debts and has had to close several offices and lay off staff members. Its cash-flow did get a big help when Drummond Pike, one of Wade Rathke’s oldest friends, came to the rescue of Acorn’s finances by providing the $738,000 that the Rathke family still owes as part of the restitution agreement.

If it is to regain the trust it has lost, Acorn must clean up its own house aggressively and thoroughly.

It must build a culture of openness, collegiality, and courage among its staff. It will need to pay greater attention to the accountability that its local and state affiliates exercise over their projects, especially its voter-registration campaigns. And it will need to adopt strict anti-nepotism and whistle-blower policies.

Yet, when all is said and done, Acorn remains one of this country’s most important advocacy organizations. It has been a powerful voice for low-income workers and members of minority groups. And its senior organizers, as well as many of its newly hired employees, are an impressive group of smart, dedicated, and hard-working change agents.

Acorn’s new leadership is both seasoned and willing to take unpopular actions. As one senior organizer said, “This unfortunate experience is just what we needed to regain our bearings.”

Let’s hope grant makers agree and continue to support an organization that is essential to the well being of so many needy Americans.

Pablo Eisenberg, a regular contributor to these pages, is senior fellow at the Georgetown University Public Policy Institute. His e-mail address is pseisenberg@verizon.net.