WE Charity is shuttering its Canadian operations and the group’s founders, Craig and Marc Kielburger, will leave the organization entirely, in a dramatic reversal of fortune for the two brothers.
The surprise announcement came Wednesday. In a statement, the charity said it would sell its assets to establish an endowment fund for existing international humanitarian programs and to digitize its education resources in Canada.
The statement attributed the decision to the disruptions caused by the COVID-19 pandemic and the continued fallout from its cancelled contract with the federal government to administer a student volunteer program. The agreement to administer the Canada Student Service Grant was first announced in June but was cancelled in July amid growing questions about the group’s connections to Prime Minister Justin Trudeau’s family and his former finance minister.
The controversy has “placed the charity in the middle of political battles and misinformation that a charity is ill-equipped to fight,” the statement said. “As a result, the financial math for the charity’s future is clear.”
Rather than preventing further damage, the decision to scuttle the government contract marked only the beginning. In the past two months, the charity’s founders, senior staff and former board chair have all testified before parliamentary committees. The affair has led to ethics investigations into Mr. Trudeau and his ex-colleague Bill Morneau, who resigned in August. It also brought to light questions about the organization’s governance, work environment and unregistered lobbying of the federal government.
Since winning government in 2015, Mr. Trudeau has regularly attended WE events. On Wednesday, the Prime Minister’s Office said it had no comment on WE’s plans to close its Canadian operations.
In July, the charity announced that it would indefinitely postpone its WE Day events for students, restructure its programs, clarify the roles of its charitable and for-profit arms and conduct an internal review. Less than two months later, it’s taking much more drastic steps.
The double whammy of the pandemic and political firestorm has led to significant financial pressures and a loss of sponsors, the statement said. It also places blame for a lack of future revenue on the continued controversy in Ottawa, which has an indeterminate length. It adds that continuing to operate would consume savings that are “essential to establishing the endowment fund.”
“Through decisive action to preserve our savings, sell our assets and establish an endowment, we hope to sustain global projects for the long-term, like our hospital, college and agricultural learning centre that meet critical needs of children and families,” Craig Kielburger said as part of the statement.
He and his brother, Marc, started the charity 25 years ago in their parent’s basement. It launched under the name Free the Children, and in the intervening years, turned into a sprawling empire of charities and for-profit entities based in Canada, the United States and Britain. Now operating under the umbrella name WE, its charity owns several properties in downtown Toronto, and its for-profit ME to WE enterprise operates a lucrative travel service and sells a line of products that includes bracelets and chocolates.
The charity became one of Canada’s best-known organizations globally in the not-for-profit sector. In its statement, WE said it was active in 7,000 Canadian schools, and that around the world it built schools and schoolrooms so that 200,000 kids could receive an education.
The charity’s statement did not make clear the future of its operations in the U.S. or Britain and didn’t address the future of ME to WE. It did not respond to a request for clarification from The Globe and Mail.
Last month, WE closed its London office but said it planned to keep a registered charity in Britain.
The British charity had £5.2-million ($8.9-million) in revenue last year, and operated a number of programs with partners ranging from Virgin Atlantic to The Queen’s Commonwealth Trust.
The U.S. arm of the charity had US$31-million in revenue in 2019 and had a string of high-profile donors including Oscar-winning actor Natalie Portman and basketball great Magic Johnson.
In August, WE announced it was assessing which real estate assets could be sold. At the time, the charity said it planned to keep its 43,000-square-foot Toronto headquarters, which opened in 2017. However, its Wednesday statement said that will also go on the market.
WE Charity lists $42-million of Toronto land and property on its balance sheet, which includes about 10 buildings, but the market value may be higher than those numbers, which only reflect the prices WE Charity paid for them.
The organization said that with the staff cuts it made to respond to COVID-19, it expected to still break even. However, in the 20 months leading up to August, 2019, it reported a loss of $2.7-million and burned through $7.45-million in cash, according to its financial statements. WE Charity told The Globe that the losses were “on paper only” because it deferred millions of dollars of donation revenue – which is also a large reason it technically breached the terms of its loans. Lender Royal Bank of Canada waived the requirements, WE Charity said.
In 2018-19, the Canadian charity brought in $65.9-million.
The endowment fund will be created from the net proceeds of the sale of the WE properties, the charity said. It will support projects in Latin America, Asia and Africa that are already under way and also fund its large-scale programs such as the Baraka Hospital and WE College in Narok County, Kenya, the statement said.
“Going forward, there will be no new schools, water or agricultural projects, and no expansion to new communities in the nine countries where WE Charity is active.”
The endowment fund will be managed by an independent board of directors that will be appointed in the coming months. At the request of WE Charity’s board of directors, the statement said, the Canadian charity’s staff and founders will “transition from the organization” once it has been wound down.
“We are saddened by these developments,” Marc Kielburger said as part of the statement. “We planned to launch an endowment this year, but not in this way.”
He added that the new plan leaves him confident that “we’ve found a way forward that protects and continues to support the most vulnerable in the communities where we work, especially the children.”
Marc recently cut ties with another company. In August, restaurant chain Freshii Inc. announced that Marc had resigned from its board of directors. “The company thanks Marc for his contributions and perspectives shared during his time on the company’s board of directors, and wishes him well in his future endeavours.” Toronto-based Freshii operates 430 restaurants in 14 countries.
Testifying at the House of Commons finance committee in July, Craig told members of Parliament that the brothers would never have become involved with the government program if they had known the controversy it would spark. Only after the $543.5-million contract to run the government’s student grant program was cancelled did the full scale of the connections between the WE organization and the families of Mr. Trudeau and Mr. Morneau become evident.
Mr. Trudeau’s wife, mother and brother have all been paid for work with the charity. Mr. Morneau and his family travelled with the charity and one of his daughters worked for WE. Mr. Morneau said that, unbeknownst to him, those 2017 trips were partly paid for by WE. He reimbursed the charity for those expenses in July.
On Wednesday, the government confirmed that WE has repaid the $30-million it received from Ottawa to administer the program. The charity said when the contract was cancelled it had already incurred about $5-million in costs and waived its right to repayment.
The opposition parties said the latest decision by the charity won’t put an end to their efforts to get more information about the decision to award WE the contract to administer the government program.
Conservative Leader Erin O’Toole called on the charity to “immediately release” numerous documents that the Kielburger brothers and the charity’s staff promised to provide the Commons finance committee in their appearances during the summer, but which have not yet been disclosed.
NDP MP and ethics critic Charlie Angus said in a statement: “WE shutting down doesn’t make the Liberals’ scandal go away.”
PAUL WALDIE, EUROPE CORRESPONDENT
DAVID MILSTEAD, INSTITUTIONAL INVESTMENT REPORTER
The Globe and Mail, September 9, 2020