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Investment by BC Partners in Teneo Holdings may create serious problems for the Clinton brand

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Escalating concerns over the integrity of operations at the State Department and over financial reports of the Clinton Foundation could seem a sideshow compared to a transaction announced at the start of this year, wherein associates of Bill and Hillary Clinton may have attempted to monetize their participation in Clinton family philanthropic activities.

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The transaction in focus involves an organization called Teneo Holdings, formed in 2011 by Doug Band and Declan Kelly–according to press reports, financial powerhouse BC Partners may have purchased a minority stake in Teneo Holdings late in 2014 or early in 2015.

Teneo is a relative newcomer in a crowded and fiercely competitive field rendering advice to the largest multinational companies in the world. The firm seems dependent upon a few key personnel with unusually light professional credentials whose primary competitive advantage appears to be  a privileged relationship with a charity.

Successful investment firms such as BC Partners tend to concentrate upon a limited number of portfolio investments, favoring well-established platforms they believe they can strengthen. These top-tier investors focus upon businesses in which they, and like-minded veterans, share control over key decisions, especially how and when they will realize a profit on their investment by selling their stake.

Why would a large, highly successful investment firm commit capital to an advisory boutique whose reach to clients seems so dependent upon straddling potential conflicts of interest among the Clinton Foundation and donors seeking political and other favors?

Moreover, why would BC Partners make a minority investment in a young business when it typically takes control of much larger and better established industrial and service franchises?

BC Partners operates with a comparatively thin staff given the size of funds under management, but works closely with outside experts to perform due diligence and vet its investments.

One wonders how carefully the investment team at BC Partners did its homework on the Teneo investment. To prosper and to fend off determined competition, Teneo must somehow manage to carry forward its special relationship with the Clinton Foundation at a time when activities at this celebrity charity are justifiably drawing closer scrutiny.

Long-standing concerns about Teneo and the Clinton Foundation

Upon close reading, financial reports published by the Clinton Foundation and available online raise many questions that now are being asked by a growing number of mainstream investigative journalists.

In August 2013, an article by Nicholas Confessore and Amy Chozick in The New York Times titled “Unease at Clinton Foundation over Finances and Ambitions” flagged concerns that some Clinton insiders had about the activities of Doug Band and Declan Kelly:

None have drawn more scrutiny in Clinton circles than Teneo, a firm co-founded in 2009 [this date conflicts with the Teneo Holdings website] by Mr. Band, described by some as a kind of surrogate son to Mr. Clinton. Aspiring to merge corporate consulting, public relations and merchant banking to a single business, Mr. Band poached executives from Wall Street, recruited other Clinton aides to join as employees or advisers and set up shop in a Midtown office formerly belonging to one of the country’s top hedge funds […]

Teneo worked on retainer, charging monthly fees as high as $250,000, according to current and former clients. The firm recruited clients who were Clinton Foundation donors, while Mr. Band and Mr. Kelly encouraged others to become new foundation donors. Its marketing materials highlighted Mr. Band’s relationship with Mr. Clinton and the Clinton Global Initiative, where Mr. Band sat of the board of directors through 2011 and remains an adviser. Some Clinton aides and foundation employees began to wonder where the foundation ended and Teneo began.

Concerns about Teneo gained special significance as part of an internal review of the Clinton Foundation led by the law firm Simpson Thacher & Bartlett LLP, that started October 27, 2011 and may have culminated in a meeting with President Clinton and key participants on November 22, 2011.

Based on its review, Simpson recommended that the Clinton Foundation strengthen its Board, particularly in oversight of financial controls and of audited financial statements. Apparently, the Board of the Foundation did not have an empowered Audit Committee, so Simpson Thacher suggested:

Consider establishing an audit committee to select, retain, evaluate, and terminate the independent auditor; periodically review the terms of the auditor’s engagement; oversee the auditor’s engagement; review the annual audit report; review the adoption and implementation of internal controls; review any whistleblower complaints involving financial matters; and review any potential conflict-of-interest transactions.

As of 2011, and indeed through much of 2013 when the Foundation’s I.R.S. filings concerning calendar year 2012 were submitted, a regional accounting firm called B.K.D., L.L.P. seems to have held primary responsibility for auditing a sprawling charitable organization headquartered in New York City with extensive international activities.

Unless there are extenuating circumstances not yet revealed, it would seem that B.K.D. might have had great difficulty testing and independently verifying representations made by management of the Clinton Foundation for accuracy and materiality.

The second area of concern in Simpson’s view was management–as of late 2011, the Foundation did not seem to have a full-time President based in the New York headquarters:

Consider hiring a Foundation President who would report to the CEO and would be based in New York on a full-time basis. The Foundation President should be responsible for coordinating strategy across the Foundation and its affiliates.

The third recommendation revolved around potential conflicts of interests. In addition to concentrating upon review processes, the Simpson report highlighted several areas of deficient oversight:

e. Educate the Board and staff as to proper and timely disclosure of conflicts of interest. Instruct officers and managers to educate staff as to provisions of the employee conflicts policy and how to raise conflicts with managers as conflicts arise.

Adopt a clear gift acceptance policy and procedures to ensure that all donors are properly vetted. 

  1. Have all CGI “comp Memberships” vetted by CGI Management to ensure that all such Membership offers advance the interests of CGI.

 These specific recommendations, perhaps, are areas fraught with greatest potential difficulty for the Clinton Foundation, for principals of Teneo, and for some of contributors.

Under U.S. law, donors who wish to avail themselves of tax deductions for their contributions are required to examine and report any tangible benefits they and affiliates may derive as a result of making their donations–only the net difference between their donations and potential benefits should be claimed as a tax deduction.

Finally, as of late 2011, the Simpson report suggested that the Clinton Foundation did not seem to have internal financial controls:

a. Have the Foundation President work with the CFO and the Foundation’s auditor to review and discuss with the Audit Committee internal controls. Have any recommended changes presented to the full Board for approval.

  1.  Continue to educate staff as to Foundation expense policies and expense reimbursement procedures.
  2. Have CFO or designee review expense reports to ensure that they comply with Foundation policies.

In late 2011, after Teneo Holdings had been formed, the Clinton Foundation seemed to have numerous concerning deficiencies in the integrity of its operations and controls–these deficiencies are ones that numerous parties might have been able to exploit.

Though Teneo Holdings is not required to make public disclosures, principals at the firm likely made formal disclosures concerning their record and prospects as they solicited the investment they reported received from BC Partners. One wonders how they handled one characterization of their activity, reported last year.

In 2014, HarperCollins published a work by Daniel Halper entitled Clinton, Inc: the Audacious Rebuilding of a Political Machine–concerning Teneo, an excerpt from page 227 raises troubling questions:

The idea for Teneo was to have Fortune 400 companies pay large monthly stipends in exchange for access to Band, Clinton, and their massive international network. This group would ‘consult’ with the companies, offer strategic advice, and help them overcome issues in various countries across the globe. That was how it was billed.

I asked a former Teneo employee what these companies actually received. ‘Nothing,’ says the employee. ‘There was this sort of implicit promise of access to Clinton or Clinton knowledge or people who are close to him or whatever. And that they did sell. But there is something really seedy about it.’

 Perhaps Halper’s source got it wrong–with concern growing over the intersection of politics and money when it comes to Team Clinton, the public would would seem to have a solid right to know more about any competitive advantages over other advisory boutiques that it may derive from the Clinton family and its Foundation.

 Absent a continuing and tight relationship with the Bill, Hillary, and Chelsea Clinton Foundation, Teneo will likely have difficulty retaining advisory contracts from  large multinational clients on attractive terms. Teneo might also find it less easy to structure potential investments around the world should their standing with clients and prospect find itself diminished by continuing revelations.

Playing Bill Clinton for a sucker

Numerous published accounts suggest that Bill Clinton’s primary motivation is not making money–still, no one enjoys being played for a sucker especially before a global audience, in the twilight of a storied career.

So far, the wider public in countries where the Clinton Foundation and Teneo Holdings operate does not know the terms of the BC Partners investment, so it is not possible to assess the magnitude of the unrealized gain the Founders of Teneo may have created for themselves.

The complete corporate structure of Teneo, the identities of shareholders, the cost of their investments and the percentage ownership of each Teneo shareholder is not yet a matter of public record–so if BC Partners ends up winning with its investment in Teneo, we do not know precisely how much Band and Kelly would profit.

However, from what Halper reports on page 228 of his book, Bill Clinton seems to have gotten a poor deal:

Clinton was of course the key to Teneo’s success. ‘The two [Band and Kelly] needed the president,’ a source says. ‘It was he who they were selling to their corporate clients. Or, more precisely, it was their proximity to power–President Clinton and his wife, who was then secretary of state–and their own Rolodexes, which were a natural extension of the work that they had done over the years for the Clintons.’

Because of his wife’s position, Bill wasn’t going to receive an actual piece of the company. That raised too many perception questions even for him. Instead, he got a contract.

The contract was worth $3.5 million, a handsome fee even for the ex-president.

Assuming Teneo harvests the potential it sold to win the BC Partners investment, Doug Band and Declan Kelly likely will earn far more than $3.5 million.

As matters stand now, Teneo and BC Partners better be working on contingency plans, judging the course of widening inquiry.


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