Chapter 10
Evolution of a Global Organization: Half the Sky Foundation
In this final chapter we look at how one organization evolved into a global nonprofit within just 13 years. I chose Half the Sky Foundation (HTS) for this final chapter, not only because it is an inspiring success sorry, but also because its evolution into a global nonprofit highlights a number of the major themes of this book.
In China, where HTS provides direct services, it has had to navigate an uncertain and ever-changing legal environment. As HTS developed a multinational fundraising network, it had to balance the benefits of expansion with the inevitable legal and operational complexity. HTS's founder/CEO and its board of directors did their homework. They looked at large organizational models. Ultimately, they charted their own path by creating a multinational structure that meets the organization's needs. That structure, and the relationships among the legal entities in multiple countries, will continue to evolve as the organization grows and individual country laws change.
10.1 Seeing a Need and Addressing It with Passion
HTS founder Jenny Bowen first visited a Chinese orphanage in 1997, when she and her husband adopted their first daughter. Watching her own Chinese daughter blossom within a loving family, Jenny became convinced that the infants and young children in Chinese orphanages would thrive if only they had more caregivers who were trained extensively in a more nurturing approach to care. She was determined to make that a reality.
In 1998, Jenny created HTS (www.halfthesky.org) as a California nonprofit corporation that describes its mission as follows:
Half the Sky was created to enrich the lives and enhance the prospects for orphaned children in China. We establish and operate infant nurture and preschool programs, provide personalized learning for older children and offer loving permanent family care, medical care and guidance for children with disabilities. It is our goal to ensure that every orphaned child has a caring adult in her life and a chance at a bright future.
The organization quickly applied for and received 501(c)(3) status. Meanwhile, Jenny immersed herself in learning about early childhood development and education. She consulted with experts, and worked to develop programs that would blend the best of Western early childhood learning with Chinese educational methods. Once the infant nurture and preschool programs were established, HTS developed additional programs for older children and children with significant special needs.
Within 13 years after its founding in 1998, HTS was operating five programs for orphans in more than 50 cities across China: infant nurturing, preschool, individualized learning for older children, family living environments for children with significant physical and mental challenges, and life-saving surgeries for medically fragile orphans. By 2011, these programs were annually reaching 6,000 children in 21 of the 31 provinces of China, and had transformed 60,000 young lives.
Also by 2011, HTS had developed close working relationships with Chinese government officials at the national, provincial, and local levels, and it had entered into a partnership with the Chinese government to train every child welfare worker in the country. In addition, HTS had become one of approximately 16 non-Chinese nonprofit organizations to obtain official national registration in China. It had established legal entities or funds for attracting tax-deductible contributions in five countries, including the United States, and had applications pending in two more. This is a highly complex structure for an organization with an annual budget of approximately $10 million.
How did HTS achieve all of this in 13 years? The short answer is that it took a highly passionate and visionary founder, the determination and patience to cultivate trusted relationships with a multitude of government officials, and a cause that lent itself to building a global community of supporters. The remainder of this chapter is devoted to a longer explanation of how HTS became a global organization in such a brief period of time.
10.2 Half the Sky's Experience in China
Forming a California nonprofit corporation and obtaining 501(c)(3) status were the easy parts of creating HTS. The next step was to obtain permission to work in government-operated Chinese orphanages. In addition, as a non-Chinese organization, HTS would have to figure out how to obtain legal status in China.
Early Days: Developing Relationships
In 1998, there were very few legally recognized foreign (non-Chinese) NGOs in China. Those few, including the Ford Foundation, had long-term government relationships in China and were effectively grandfathered. At the same time, many foreign NGOs were working in China without legal recognition. While there was no way for those organizations to become legally sanctioned, government officials generally tolerated them when they were providing useful human services, so long as they were not perceived as making trouble.
HTS could not fly under the radar, as did so many foreign NGOs, because it needed permission to work in government-run welfare institutions. Meanwhile, by 1998, the Chinese central government had severely restricted foreigners' visits to orphanages. Thus, the likelihood of obtaining permission to conduct programs in orphanages, and to obtain legal status, appeared remote.
Knowing that orphanage directors (who are government employees) and other government officials would not welcome HTS with open arms, founder Jenny Bowen needed to find an existing NGO to partner with, and it had to be one that was government-sanctioned, a so-called GONGO (government operated nongovernment organization). Partnering with a GONGO that had a similar mission to HTS's would provide HTS with the necessary introductions to government officials, and would facilitate the development of trusting relationships. Through some contacts in the United States, Jenny was introduced to China Population Welfare Foundation (CPWF), a GONGO that was providing assistance to rural women through a project called the Happiness Project.
CPWF embraced HTS's mission, and it introduced Jenny to officials in China's Ministry of Civil Affairs, the central government authority which, at that time, was responsible for overseeing all orphanages.
Having found a Chinese partner and made some key government contacts, in late 1999 HTS received permission to make its first official orphanage visit. In early 2000, HTS received permission to introduce pilot programs in two orphanages.
Jenny Bowen quickly raised $29,000, and HTS officially launched its pilot programs with two groups of volunteers. The volunteers flew from the United States to China and spent a month hiring and training nannies, renovating rooms, and creating nurturing environments for young children in two orphanages. Within a short time, there were noticeable changes in the children's alertness and activity levels. The pilot programs demonstrated that institutionalized children, like all children, are resilient, and those who receive intensive, hands-on attention from well-trained, loving caregivers will thrive in ways not usually seen among institutionalized children.
From the very beginning, Jenny devoted large portions of her time and effort to developing relationships with government officials at all levels, from orphanage directors to the officials at the local, provincial, and national levels. Maintaining those relationships at multiple levels was, and continues to be, enormously complex, due in part to constant flux in the government, and in part to the political dynamics among governmental bodies.
In the early days, working with the Ministry of Civil Affairs was challenging, in part because the Ministry was responsible for domestic matters and was not accustomed to working with foreigners. After HTS had been operating for about a year, the Ministry of Civil Affairs created a new GONGO, China Social Workers Association, in part to work with HTS, which then had to juggle two partnerships. A few years later, national-level responsibility for orphanage oversight shifted to another GONGO, China Center for Adoption Affairs (CCAA). HTS was again challenged to develop a new set of relationships.
Those efforts to develop and maintain relationships were rewarded when, in 2005, HTS was invited to collaborate with the CCAA on the development of national guidelines for the education and nurture of orphans. In 2007, HTS was invited to become a direct partner with the central government's Ministry of Civil Affairs in order to make HTS's programs available to children in 300 orphanages throughout the country. Interestingly, as of that time, HTS still had no formal legal status in China.
In 2008, HTS signed a formal cooperative agreement with the Ministry of Civil Affairs' new Blue Sky Program, in which HTS would establish model children's centers with training facilities in each of China's 31 provinces and municipalities. The training centers would train and mentor at least 300 state-run institutions throughout the country to establish their own HTS programs.
By late 2010, HTS had been so successful in establishing new standards of care and education for institutionalized children that, together with the Ministry of Civil Affairs, it announced a plan to turn over the operation of its programs to the orphanages themselves. The plan would also allow HTS to realize its goal of transitioning from a direct service provider into a training and mentoring organization.
In 2011, China's Ministry of Civil Affairs, HTS, and CCWA (formerly CCA, now China Center for Child Welfare and Adoption) entered into a new national agreement, an integrated national training plan called the Rainbow Program, through which they would co-train every child welfare worker in the nation.
This unprecedented cooperative program was launched at China's Great Hall of the People on China's Children Day, June 1, 2011.
The foundation form, under Chinese law, bears certain similarities to the foundation form in many other countries in Europe and elsewhere (see section 5.3), in that it must be formed for public benefit purposes and it does not have members. However, unlike the foundation form in other countries, the Chinese foundation is the only form of Chinese nonprofit entity permitted to engage in public fundraising, and it is often used as a vehicle for directing state funds toward public benefit purposes.10.3 Legal Status of HTS in China
For the first 10 years of its existence, from 1998 until 2008, HTS operated in China with the approval of government agencies, but without any formal legal status. Without legal status, HTS was unable to hire employees, but it could engage local consultants to help run the programs. The first consultant (still with HTS as of 2011) was a former government employee who had also worked for and retired from CPWF.
HTS also funded the compensation of caregivers and preschool teachers in many orphanages, but the orphanages were always the legal employers. These arrangements were informal. Because it lacked legal status in China, the only way HTS could bring funds into China was through bank accounts owned by individual consultants. Due to exchange controls, only small amounts could be wired at a time, and the process of wiring funds was quite cumbersome.
Representative Office
In 2004, a new law went into effect, allowing foreign NGOs to create representative offices in China. A few of the largest U.S. foundations, including the Bill and Melinda Gates Foundation, the William J. Clinton Foundation, and World Wildlife Fund, immediately took advantage of the new law.
In 2008, HTS applied for and received permission to form a registered office. This meant that HTS could hold a bank account in its own name and could directly employ managers. Caregivers and preschool teachers working in the orphanages continued to be employed directly by the orphanages, with compensation funded by HTS.
Upon registration of the representative office, HTS's presence in China became legally sanctioned. However, there were no clear rules regarding the tax status of a foreign NGO's representative office. So, when HTS opened its own bank account, even as exchange controls loosened, it was careful to avoid accumulating funds. As result, the U.S. office had to wire funds to China on a regular basis, a cumbersome and costly process.
In addition, the representative office is permitted to receive funds only from the U.S. head office (its owner), and only from a U.S. bank account. This prevents the various HTS fundraising entities in other countries (described further on) from remitting funds directly to China. Rather, they have to send funds to HTS U.S., which in turn remits them to China, adding further cost and complexity.
By 2011, exchange controls had loosened, allowing foreign organizations to accumulate more Chinese renminbi (RMB) than was previously the case. At the same time, there was talk in the banking sector of the likelihood of significant appreciation in the Chinese currency. HTS responded with a decision to accumulate RMB in a Hong Kong bank account, owned by its Hong Kong affiliate (discussed later). However, before those funds are remitted to China, they must be transferred back into a U.S. dollar bank account, again adding complexity and cost.
An additional restriction on the representative office is that it is prohibited from receiving any contributions from within China.
Fundraising in China
During 2011 and 2012, as HTS prepared for the transition from operating programs to conducting a nationwide training program, the organization saw opportunities to raise funds within China. Many Chinese nationals had become aware of HTS's efforts in China, and in particular its collaboration with the Chinese government to train every caregiver in the Chinese child welfare system using HTS's approach to caring for vulnerable children. Increasingly, Chinese individuals and companies wanted to help, but HTS, while legally registered in China, did not have the legal status needed to attract their contributions. This would require forming a Chinese foundation.
Forming a Foundation
Legislation enacted in 2004 opened the door for non-Chinese nationals to form foundations in China, although as of 2011 no such foundations had been reported. Undaunted by yet another seemingly impossible feat, in 2012 HTS submitted an application to form the Chun Hui Bo Ai Child Welfare Foundation (Chun Hui) in Beijing to allow Chinese individuals and corporations to support child welfare initiatives as inspired by the mission of HTS.
The Chun Hui foundation was approved in October 2012, and is reportedly the first Chinese foundation to be formed by non-Chinese nationals. The foundation is required to be governed entirely by Chinese nationals, and it may not operate HTS's programs. Jenny Bowen, HTS's founder, is permitted to sit on the board, but only as a nonvoting member.
HTS attributes its success in forming the foundation to the fact that HTS has demonstrated to the government that its programs make a valuable contribution to the public welfare. In addition, at a time when donor trust has been undermined by repeated scandals in China, and government regulators strive to introduce accountability into the nonprofit sector, Chun Hui aims to gain the confidence of donors by introducing levels of transparency and accountability that have traditionally been lacking in the Chinese nonprofit sector.
10.4 What Has HTS Learned about Working in China?
HTS has undergone a remarkable evolution in China. It began by bringing volunteer groups into two orphanages to provide intensive care for orphans. In 13 short years, HTS succeeded in persuading China's central government about the benefits of applying international best practices for the care of orphans and other marginalized children.
Here is what HTS learned about operating a program in China:
Cultivate government relationships. Relationships with governmental officials are critical to success in China. This means identifying the layers of government you will need to work with, and working hard to develop and maintain those relationships. There will likely be dynamics among government officials that you will not understand. You need to navigate the maze and strive to stay on good terms with everyone. You will likely find yourself attending many banquets, toasting continuously, and eating unfamiliar food. Remain as flexible as possible. China is continually changing, and the rules will change as soon as you put something in place. This is true in many developing countries and particularly in China. Try to avoid creating a structure that is hard to change. Choose board members who can live with uncertainty. All nonprofit organizations need board members who pay attention and ask the hard questions. When you are operating in China, you will often lack certainty. There is an absence of clear laws governing the nonprofit sector. HTS is doing things that have never been done before in China. Caution and good judgment are always needed. Boards must be able to evaluate a situation, and ultimately live with a degree of uncertainty in order to move forward.10.5 Developing a Global Fundraising Network
If you have already read Chapter 7, you may be wondering whether the fundraising potential justifies the expense and effort required to establish and maintain fundraising entities in multiple countries. For HTS, the answer was yes, because HTS views the development of a global support community as serving multiple purposes.
Why Go Global?
For HTS, one purpose of creating fundraising entities in multiple countries is, of course, raising funds to support programs. However, the funds raised would not alone justify the maintenance of separate fundraising entities, at least not in some countries. The second purpose is to ensure that the world does not forget about the children languishing in orphanages, even as the Chinese government assumes responsibility for HTS's programs. The third is to provide a platform for the many (approximately 90,000) individuals around the world who were adopted from China, mostly after 1992. As these children become teenagers and young adults, HTS believes it can play a unique role by helping them to connect with each other and with the children living in Chinese orphanages.
HTS's global structure also allows it to employ the best people, even if they do not reside in the United States or China. For example, HTS's finance director, an invaluable part of the team, had to relocate from the United States to Hong Kong for personal reasons. She was able to continue working as finance director for the organization from Hong Kong because HTS had established a legal presence there.
Balancing Central Control versus Local Autonomy
Since its inception, HTS has attracted supporters from many countries, largely from within the community of adoptive families. During HTS's early years, groups of supporters in various countries initiated fundraising projects to help support HTS programs. Though well intentioned, these projects were often informally organized. HTS's board of directors became concerned that informal groups of supporters were using HTS's name and logo to raise funds, implying that HTS was responsible for the efforts. At the same time, HTS had no control over compliance with local laws, nor did it have control over the consistency or accuracy of communications.
The board recognized the potential for developing communities of supporters in a number of countries, but it also saw the need for central oversight to ensure legal compliance and consistency of communications. The board decided that HTS should indeed work to develop a global network of supporters, but that it needed to have some control over fundraising efforts in each country. Focusing on those countries where HTS had the strongest base of support, the board decided to create fundraising entities in Hong Kong, the UK, Canada, and Australia. As a result, supporters in those countries would be able to obtain tax benefits for their contributions. In the Netherlands, HTS was able to register in a way that affords Dutch contributors with tax benefits for making contributions directly to the U.S. entity.
Founder Jenny Bowen and the board recognized that a degree of central control over the fundraising entities helps ensure that they devote their funding in a way that's consistent with HTS's strategy, even as that strategy evolves. Without such control, groups of supporters might become attached to, and continue funding, a particular project they previously sponsored, even as the organization's needs have migrated elsewhere. In addition, central control helps protect the brand by maintaining consistent messaging.
HTS has chosen to forgo some of the safeguards typically used in larger organizations in favor of maintaining a more nimble, informal culture. In contrast to World Vision International (see section 5.7), there is no formal partnership or federation agreement, and no formal agreement that sets forth values, ethics, or strategy. Rather, at this stage in the organization's evolution, some overlapping directors, along with strong communication among the leaders and boards of the separate entities provide an acceptable level of assurance to HTS U.S.
Specific Country Experiences
Hong Kong and the UK
In Hong Kong (where the legal system is still largely based on the British system) and the UK, HTS formed a company limited by guarantee, with HTS U.S. as the sole member of each entity. See section 5.3. As the sole member, HTS U.S. has the right to elect the board of directors. This gives HTS U.S. effective control over the operations of the Hong Kong and UK entities. While the directors are responsible for governance of the organization, HTS U.S. has the power to replace directors if they deviate from the mission and policies of HTS U.S.
HTS's Hong Kong entity, Half the Sky Foundation (Asia) Limited, was HTS's first fundraising affiliate. Formed in 2006, it is exempt from Hong Kong tax (income, or profit, and certain other taxes), and is able to attract tax-deductible contributions from Hong Kong taxpayers
Similarly, Half the Sky (UK) Limited is registered with the UK Charity Commission, which regulates charities in England and Wales. It has qualified for charity status in the UK, which affords exemption from tax (income and other certain other taxes), and allows it to attract tax-favored contributions.
Hong Kong and the UK have fairly liberal regimes with regard to charities funding foreign programs. After paying their own expenses, HTS's Hong Kong and UK entities remit the balance of funds raised to Half the Sky U.S. for use in HTS's China programs.
Canada
Half the Sky (Canada), Inc. became a registered charity in Canada in late 2009. A nonprofit membership corporation, it is not controlled by Half the Sky U.S. Jenny Bowen, founder and CEO of HTS U.S., serves as board chair of HTS Canada while the remainder of the board is comprised of Canadian nationals. There is, however, nothing in the bylaws or other organizing documents of HTS Canada that requires any representation from HTS U.S.
Cross-border giving is far more difficult in Canada than in the United States, Hong Kong, or the UK. See Chapter 6. A Canadian charity is permitted to fund only its own programs outside Canada. One way to satisfy this requirement is for a Canadian charity to enter into a joint venture or partnership agreement with the entity that directly operates foreign programs. Taking this approach, HTS Canada has entered into an operating agreement with HTS U.S. The agreement sets forth the rights of each party, and provides HTS Canada with, among other rights, the right to participate in governing the particular projects it chooses to fund.
Whenever a new project is to be funded by HTS Canada, a new schedule must be created, setting forth in detail the scope of the project, the budget, the objectives, evaluation methods, and requirements for reporting to HTS Canada. HTS Canada always retains the right to provide instructions regarding the use of its funds.
This is a very cumbersome process for any organization. For HTS, however, the value is not only in the financial support it receives but also in building a global community.
Australia
Half the Sky Foundation Australia Limited was registered in 2009 as a public company limited by guarantee. As of the time of this book's publication, it had obtained tax-exempt status, and was awaiting registration as an Overseas Aid Gift Deduction Scheme (OAGS). Once approved as an OAGS, the Australian entity will need to apply to the Australian Tax Office for endorsement as a Deductible Gift Recipient (DGR), allowing it to attract tax-deductible contributions from Australian taxpayers. As a condition to this registration, an Australian entity must have a strong presence in Australia, with the membership and board of directors reflecting the community. As a practical matter, this means that the membership and board of HTS Australia are entirely comprised of Australian nationals. HTS U.S. retains the right to appoint up to one-third of the board. The CEO of HTS U.S. does not sit on the board of HTS Australia.
Of the countries in which HTS conducts fundraising, Australia presents the greatest complexity for an organization that wants to raise funds for foreign projects. Under Australian law, as in Canada, an organization that seeks tax-deductible contributions may not merely make cross-border grants. Rather, it must actively participate in foreign projects. Like HTS Canada, HTS Australia has to cooperate with HTS U.S. to identify projects, and must participate in the governance of those projects. Detailed agreements are required, setting forth the responsibilities of the parties, budget, and timelines. In addition, HTS Australia must be given detailed reports and project evaluations, and the project must be branded and promoted in China in such a way that identifies HTS Australia. For example, the first project funded by HTS Australia involved the refurbishment of facilities and staff hiring and training at an orphanage in the city of Changsha, China. Upon completion of the refurbishment, hiring, and training, a plaque was placed conspicuously at the facility identifying HTS Australia as the project sponsor.
While HTS Australia would appear to be quite autonomous, given the local composition of its membership and board, in reality it is constrained by the need to enter into detailed project agreements with HTS U.S. In fact, Australian law prevents HTS Australia from making unilateral decisions about funding of projects in China.
The Netherlands
Unlike the other countries in which HTS raises funds, the Netherlands does not require a separate legal entity with an independent governance structure in order to attract tax-deductible contributions. Rather, HTS U.S. was able to register as a foreign charity, obtaining so-called ANBI (Legmen Nut Betokened Instelling, or Institution for General Benefit) status. The funds raised in the Netherlands are owned by HTS U.S. and can be used in HTS's China programs. Dutch tax law affords the greatest tax benefits to Dutch taxpayers who make commitments to donate to the organization over a period of at least five years.
Balancing Complexity with Informality
As of 2011, HTS had approximately 30,000 supporters globally, and was engaged in fundraising in five countries, with an application pending in a sixth. HTS also plans to develop a community of supporters within China, using the new foundation, “Chun Hui.” Beyond that, HTS will continue to work on developing a global community that cares and spreads the word about HTS programs. It does not, however, have plans to expand into new countries.
Maintaining a network of separate legal entities in multiple countries is highly complex. As we have seen in this chapter and in other case studies throughout this book, maintaining the optimal balance between central control and local autonomy requires constant attention, as organizational needs shift and local country laws change. The relationship between HTS U.S. and each of its fundraising entities is somewhat different, largely due to differences in local country requirements. At the same time, HTS has opted for relatively informal methods of control in order to avoid having to manage complex intercompany agreements.
The success of this approach may be due, at least in part, to the fact that there is a strong, charismatic founder to keep everyone marching in the same direction. Time will tell whether a more formal structure will eventually be needed. For now, the organization will continue to straddle complexity and informality. Jenny Bowen, HTS's founder and CEO, summed it up saying, HTS is remarkably complex for an organization its size in which the CEO still gets to hug babies.
10.6 Closing Thoughts
The inspiring story of HTS demonstrates that it is possible to create an international nonprofit organization. HTS's experience also shows that, in order to succeed, it's necessary to have more than a great idea and a lot of determination. It's critical to do your homework before launching into a foreign country. Develop local relationships with NGOs and others. Find a good lawyer in the foreign country. Work with legal advisors, within and outside the United States, to determine the optimal legal structure for your activities. Put the right policies and procedures in place. If you are prepared to devote the necessary time and resources to do things right, you will greatly enhance the likelihood of success.
At the same time, we have seen throughout this book that there are multiple ways to further a charitable purpose outside the United States. In many cases, working with an existing organization, rather than creating a new one, is the most efficient way to make use of scarce resources.
Above all, if you are informed and thoughtful about how to pursue your mission, you will be more likely to succeed in turning your passion into reality.
Unless someone like you cares a whole awful lot, nothing is going to get better. It's not.
From The Lorax by Dr. Seuss