Smile Train & Operation Smile Comments on The New York Times article of February 24, 2011

Smile Train and Operation Smile were very surprised at the tone of, and certain inaccuracies in, the article.

The merger of the two organizations, who share the same mission, will create a stronger combined organization which can help more children with cleft lip and cleft palates in more countries around the world.

The following are the facts:

Published in the NYT: “In the nonprofit equivalent of a putsch”

To characterize this merger as a putsch is not only inflammatory, but also suggests that
every merger that takes place without the unanimous agreement of every board member
is a putsch. Unfortunately the reporter chose to rely on biased, inaccurate and
inflammatory material provided by opponents of the merger, rather than focus on the
programmatic benefits that will arise as a result of this combination.

The intent of this merger is to build a bigger, stronger combined organization that,
drawing upon the complementary skills, experiences, partnerships and methodologies
developed by both organizations over decades, will be able to help even more children
around the world who suffer from cleft lip and cleft palate. To lose sight of these
objectives, and the shared charitable mission and goals of both Smile Train and
Operation Smile, is unfortunate and can only hurt those children that the combined
organization hopes to help.

“Mr. Wang and four Smile Train board members who are also employees of his businesses
engineered the merger and presented it as a fait accompli at a regularly scheduled board
meeting on Feb. 8, board members who opposed it said.”

The process leading up to the Smile Train’s Board’s consideration of the merger reflected
the unfortunate history of animosity between the two organizations. Given the historic
mistrust, the initial overtures between the organizations were carried out cautiously and
privately between the Operation Smile leadership, Mr. Wang and a few other Smile Train
Board members. Both sides were concerned about confidentiality—they wanted to build
trust and establish the framework for a potential strategic alliance before sharing the
proposal with their respective Boards, particularly since the Smile Train Board included
at least one Board member who had a well-known history of animus against Operation
Smile. And unfortunately, their confidentiality concerns were borne out—soon after the
proposal was presented to the full Smile Train Board, it was leaked to the press and other
third parties. This breach of fiduciary duties also included the distribution of confidential
internal Board communications and a copy of the confidential draft merger agreement,
which had not yet been finalized.

Additionally, the merger was not presented to the Board as a fait accompli: Smile Train
Board members were presented with the proposal on February 8th, and all Board
members had the opportunity to consider the proposal, ask questions and seek additional
information over a 6-day period before the vote on the merger took place on February
14th. The timing of the review period was driven by well-founded concerns regarding
leaks and confidentiality breaches, and the potential damage they could have on delicate
merger talks and on both organizations.

Inaccurate Statements regarding the Smile Train Legacy Fund:

“The controversial deal gives Mr. Wang oversight of the bulk of Smile Train’s roughly $160
million in assets, and it guarantees lifetime tenure at the new organization to the Magees.
Additionally, it commits the merged organization to put half of all the money it raises over the
next three years into a fund under Mr. Wang’s control.”

“The new entity will not, however, have the combined assets of the two organizations. Only
roughly one-third of Smile Train’s assets will go into the new charity, according to the merger

The rest, estimated by Smile Train board members to most likely exceed $100 million when the
deal is complete, will go into a separate “legacy fund.” Mr. Wang, who will be chairman
emeritus, will have the right to appoint — and remove — four of the fund’s five board
members; they will decide how to disburse and invest the money.”

“In an e-mail to the Smile Train board last week, Robert K. Smits, a lawyer and board member
opposed to the merger, wrote that giving Mr. Wang “absolute authority” over the fund was
“not appropriate for a public charity.””

““We should be concerned about it because a lot of charitable assets that are dedicated to
charitable purposes are going to be administered essentially as a fiefdom,” said William
Josephson, who led the charities bureau in the New York State attorney general’s office from
1999 to 2004.”

The Smile Train Legacy Fund is in no way controversial or “highly unusual.” It is in fact
a standard feature of non-profit mergers to create a temporarily restricted fund within
the new organization that segregates certain assets to ensure the preservation and
transition of historic programs post-merger. That is what the Smile Train Legacy Fund is
designed to do—it sets aside funds within Operation Smile Train (which will in fact own
all of the assets, despite being reported otherwise in the article) that can only be spent on
Smile Train charitable programs and historic obligations for a period of three years. The
Fund will ensure that Smile Train’s excellent work with doctors and partner hospitals
around the world can be preserved and all relationships guaranteed as the two
organizations integrate. And it only makes sense that four of the five members of the
combined corporation’s Board who were previously associated with Smile Train would
oversee the Legacy Fund—they are the directors who are most familiar with Smile
Train’s programs and the importance of preserving its legacy.

Finally, Mr. Wang does not have oversight or control over the Legacy Fund. Mr. Wang
will not serve as an officer or director of Operation Smile Train, nor will he have any
voting rights on the Board of the merged entity or on the Smile Train Legacy Fund
Committee. Rather, as Chairman Emeritus of Operation Smile Train, he will have the
right to appoint four directors to the Operation Smile Train Board, who will also be four
of the five individuals on the Board Committee overseeing the Legacy Fund. This
mechanism was designed to help ensure that Smile Train interests are represented on the
Operation Smile Train Board. But each director appointed by Mr. Wang must exercise
his or her own independent judgment and discharge his or her fiduciary duty. Indeed,
one of the four initial Smile Train directors proposed for the Operation Smile Train
Board and the Legacy Fund Committee in the leaked draft merger agreement was Mark
Atkinson, who voted against the merger. In fact, when the merger proposal was initially
presented to the Board, Mr. Atkinson stated for the record that he believed that his long
history and association with Smile Train and Operation Smile made him an ideal
candidate for one of the four Legacy Director seats and asked that he be considered for

Finally, the Magee’s lifetime tenure on the Board of Operation Smile Train stems from a
longstanding governance structure of Operation Smile–it was in no way a product of the
merger, and is a common feature for founders of organizations.

It is unfortunate that the reporter’s sources, who obviously have an axe to grind
regarding the merger and Mr. Wang, have tried to spin the Smile Train Legacy Fund,
which is an effort to preserve and promote Smile Train’s historic programs post-merger,
as controversial or nefarious in any way.

“Smile Train is a spinoff of Operation Smile, where Mr. Mullaney and Mr. Wang sat on the
board for a brief time. They resigned in 1998, expressing concerns about the organization’s
medical practices.”

It is categorically untrue to say that Mr. Wang and Mr. Mullaney left Operation Smile
because of concerns about medical practices. The truth is that Mr. Mullaney proposed a
new programmatic approach to the Operation Smile Board and leadership – one which
was ultimately instituted at Smile Train with great success – but it was rejected by the
Operation Smile Board and leadership at the time. Mr. Mullaney chose to break off from
Operation Smile to follow this new direction and convinced Mr. Wang to contribute his
donation to the new organization. Mr. Wang did not leave Operation Smile for any other

“The New York Times in 1999 wrote two articles that highlighted those medical issues,
including charges that children had died. The articles prompted an internal review that was
never made public, though Operation Smile announced changes in its operations to improve its
medical work.”

Claims questioning Operation Smile’s safety procedures are unjustified and untrue.
Operation Smile is proud to have achieved safety levels comparable to the care given in
the most advanced healthcare delivery environments. Their Global Standards of Care
ensure the same sophisticated equipment, procedures, and highly-trained medical
volunteers for every Operation Smile patient. As the first cleft organization to support the
World Health Organization’s Safe Surgery Saves Lives initiative (which Smile Train also
supports), Operation Smile has a comprehensive medical program designed to prevent,
monitor, and respond to adverse medical events. The organization is committed to
delivering extraordinary care, including adhering to a WHO checklist to improve the
safety of surgical care and rigorous credentialing processes for volunteers with
certification, mentoring, ongoing training, and evaluation. The organization’s
International Medical Oversight Board includes highly-skilled medical professionals who
are leaders in their fields. Additionally, Operation Smile has long partnered with qualified
in-country medical care providers while also providing state-of-the-art equipment,
biomedical training, and investments in educational and scholarly opportunities for
volunteers, fostering sustainability and maintaining a high quality of care.

“The two organizations have different models. Smile Train spends its money training and
equipping local doctors in China, India and elsewhere to do the operations as they are needed.
Operation Smile pays to fly doctors and equipment around the world, providing services

Smile Train has supported more than 600,000 surgical procedures since its founding, to
Operation Smile’s more than 160,000 since it began, according to their Web sites.

Smile Train raised $91 million in 2009, the last year for which its tax forms are available, and
had $103 million in net assets. (Recent, unaudited financial reports show that assets were
expected to rise to about $160 million by the end of last year, and board members confirmed
that figure.)

By comparison, Operation Smile raised $40.6 million in the fiscal year that ended June 30,
2010, and had $20.4 million in net assets, according to its financial statements.”

The work of these two organizations is about much more than the number of surgeries
noted on an annual report or dollars raised—it is about the different and complementary
ways that the two charities go about addressing the problems of cleft lip and cleft palate
for children around the world.

Smile Train has built up a tremendous fundraising program that has allowed it to give
grants to hospitals and provide services in 78 countries. Operation Smile has over 5,000
volunteers around the world and has sent missions to parts of the world that Smile
Train’s local-hospital programs are unable to reach—inland and inhospitable regions
which have little or no hospital infrastructure. It is not uncommon for doctors who receive
grants from Smile Train to also participate in Operation Smile missions. The two
organizations are extremely well-positioned to build on each others’ strengths.

“Its top five executives were dismissed the day the merger was approved.”

This is incorrect. Two senior executives were let go. However, Smile Train’s senior
marketing, operations, and program executives remain actively serving the organization,
as do its senior Country Regional Managers. Surgeries are continuing just as before, with
an average of 300 new smiles being created every day.

“Smile Train has been loosely linked to Mr. Wang’s empire, which includes the Islanders and
an Internet-based television services company, NeuLion, where his wife, Nancy Li, is chief

His $3.8 billion plan to refurbish Nassau Coliseum, where the Islanders play, has stalled, and
the team’s franchise value has dropped.

NeuLion lost money in the last two years. Smile Train’s most recent tax form includes a
$108,000 payment to NeuLion for services, and earlier, it was paid to build the charity’s digital
patient charts.

These comments are gratuitous and reflect a bias against Mr. Wang. Mr. Wang has been
one of Smile Train’s largest donors – giving nearly $29 million since its inception – and is
Chairman of the Board of Smile Train. Smile Train is not connected or “loosely linked” to
Mr. Wang’s financial empire and to suggest that Smile Train exists for the private
personal benefit of Mr. Wang and his business interests is absurd. Mr. Wang’s business
endeavors or the value of the Islanders are wholly irrelevant to whether this merger
ultimately serves the best interests of children suffering from clefts worldwide.

NeuLion has provided web-hosting and development services for Smile Train and the fees
paid reflect market rates. This relationship was fully disclosed to the Board and on Smile
Train’s publicly available Form 990 and was approved by Mr. Mullaney and the other
members of Smile Train’s Board.

“Mr. Wang also donated the money to pay Mr. Mullaney’s compensation — totaling $678,058
in 2009 — at Smile Train, according to its tax forms.”

As mentioned, Mr. Wang has been one of Smile Train’s single largest donors over its
history. When Smile Train was established, Mr. Wang agreed to allow his contributions to
cover Smile Train’s administrative expenses, including salaries of all Smile Train
employees, so that the organization could focus on the mission of helping children with
cleft lip and cleft palates and so that donors could see that their money was going directly
to fund surgeries and related programs.

“Nonetheless, relations between the two men were strained, reaching a boiling point at a board
meeting on Feb. 9, 2010, when Mr. Mullaney made a presentation arguing that because of the
organization’s success, the backlog of cleft surgeries was declining. He proposed that Smile
Train expand its mission to include operations to repair problems like club feet and burn scars,
saying he was concerned that donors would become disenchanted if their money went unspent
for a good cause.”

Over the past year, Mr. Mullaney desired to move Smile Train beyond the problem of
cleft and to expand into other types of health issues, which had nothing to do with the
mission or programmatic goals of Smile Train. Mr. Mullaney commissioned a study to
support his assertion that the problem of clefts was disappearing – thereby eliminating
the need for Smile Train. He presented his ideas to the Board in order to move the
organization beyond clefts. The Board – including all of the Board members (other than
Mr. Mullaney) who did not vote in favor of the merger – unanimously rejected his
proposal and concluded that Smile Train should hold true to its founding mission of
addressing clefts. Indeed, research supports that Mr. Mullaney’s presentation and
assertions that clefts were declining are factually incorrect, and the Board was right in
rejecting a change of direction and mission for Smile Train.

“According to a draft of minutes of that meeting, Mr. Wang objected to that proposal, insisting
that the money should “just be allowed to pile up” as an endowment. He said the other
missions could be pursued, but not within Smile Train.”

The Smile Train Board determined that diverting Smile Train’s funds and focus away
from what its donors had intended—providing cleft lip and cleft palate surgeries to needy
children—and shifting towards Mr. Mullaney’s new proposed focus, would not be in the
best interests of the organization. The BBB Wise Giving Alliance recommends that an
organization have no more than three years worth of expenses in reserve. Mr. Wang’s
proposal was to continue to build Smile Train’s reserves in accordance with its historic
practices and the BBB principles, ensuring that its good work on clefts would continue,
even in lean fundraising years.

“In an effort to repair relations in June, Mr. Mullaney supported Mr. Wang’s suggestion that
Mr. Reichbach and Mr. McCarthy join the board. “He thought it would be a way of burying the
hatchet with Charles,” Mr. Atkinson said.

Instead, Mr. Wang used the new board members to remove Mr. Mullaney as president of the
organization in October, though he remained on the board.”

Mr. Mullaney, as well as all of the other directors who did not support the merger, voted
to elect Mr. Reichbach and Mr. McCarthy to the Board and to subsequently re-elect all of
the other directors who ultimately supported the merger. To suggest that this was done
to “appease” Mr. Wang or that once elected, these directors would not exercise their
fiduciary obligations to act in the best interests of Smile Train, is inaccurate and would
suggest that those who voted in favor of their election, including Mr. Atkinson, were not
exercising their own fiduciary obligations in doing so. If Mr. Atkinson and the other
opponents of the merger felt that electing directors “loyal” to Mr. Wang was problematic
in any sense, they should not have repeatedly supported their election, as they in fact did.

“Mr. Smits, Mr. Atkinson and Mr. Mullaney voted against the merger in a meeting on Feb. 14.
Donald B. Murphy, a partner at Brown Brothers Harriman, abstained because his firm
manages Smile Train’s assets. The opponents were outnumbered by Mr. Wang and his four
employees on the board.”

The fact that different “camps” emerge on non-profit and corporate boards and that
major transactions are not always unanimously approved is a common fact of
organizational life, particularly in the not-for-profit sector. New York law does not
require unanimous Board approval for a merger—just majority approval – and that is
what Smile Train’s Board had. But the most important thing to focus on in a non-profit
merger is not how many people voted for or against it but whether the mission and
charitable purpose of the organizations coming together– to help more children—will be

We strongly believe that more children around the world will be better served by this
merger. Smile Train and Operation Smile have been inundated with good wishes from
supporters that represent donors, major corporations, celebrities, leading experts in the
medical field, peers and organizations in the nonprofit community, associations,
volunteers, the patients both organizations have helped, and the general public at large,
who view the combination of the organizations as a net good, bringing together the two
leading charities working to help children suffering from cleft lip and cleft palate, to do
even more. Many of these well wishes can be found on:

The creation of this new organization, Operation Smile Train, is a powerful force for good and
can serve as a leading example for how charities that share a common mission can join together
to yield results beyond their individual capabilities.

One thought on “Smile Train & Operation Smile Comments on The New York Times article of February 24, 2011

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