This story was originally published by Investigate Midwest: Midwest Center for Investigative Reporting. It is a collaboration between Investigate Midwest and Watchdog Writers Group.
In May, senior executives at the Iowa Farm Bureau Federation finalized a little-noticed financial maneuver that could boost their income for years to come. While a nonprofit, the Farm Bureau owned a highly profitable, publicly traded insurance business, FBL Financial Group. For nearly a year, the executives — whose incomes depended on FBL — had wanted to privatize the company.
But the move spurred several lawsuits, with a major investor publicly accusing the Farm Bureau of low-balling the remaining shareholders it was attempting to buy out. To settle, the Farm Bureau paid investors more, and the deal closed this spring.
If history is any indication, the move was a smart one, at least for Farm Bureau leaders. A review of public filings, depositions and internal memos show Farm Bureau leaders have benefitted for years from the nonprofit’s majority ownership of the insurance company. The story of FBL also highlights the complicated nature of the modern Iowa Farm Bureau, and the potential conflicts of interest at the heart of the nonprofit organization that sits atop multiple for-profit companies.
The political activities of farm bureaus at the state and federal level are well-documented. But the scope of the Iowa Farm Bureau’s sprawling financial operations is less understood. Through expanded investments, it has reaped massive profits. Over the past decade, its total revenue has increased about 200%. And, lately, about 80% of it comes from investments, according to tax documents. No other farm bureau even approaches that ratio.
The Iowa Farm Bureau recently reported total revenue of about $100 million, the most of any farm bureau by far and nearly three times that of the influential national umbrella group, the American Farm Bureau Federation. Today its investment portfolio is worth more than a billion dollars. Executive compensation is in the high six figures.
The Farm Bureau has reaped these gains while many farmers have suffered through expensive seed and fertilizer prices but low sale prices for their products. The bureau’s stated mission is to provide a “vibrant future” to farm families, but it has been criticized for piling up cash while Iowa farmers struggle. In recent years, Iowa farmers have suffered through low-to-negative profit margins, according to Iowa State University research reviewing 1999 to 2015. And, in the 2010s, Iowa continued its trend of losing farms as operator income dropped 21%, according to U.S. Department of Agriculture data.
“By every metric, they’ve failed their membership,” said Austin Frerick, a native Iowan who has studied the Farm Bureau and been a vocal critic. In the 2018 Congressional midterms, he ran as a Democratic. “The economic situation is getting worse for farmers in Iowa, and (it) keeps getting bigger, and that’s the crux. They are not what their mission states. They are actually working against it.”
FBL, the insurance company, is the engine behind much of the Farm Bureau’s profits. It also illustrates the inherent tension within the Farm Bureau’s for-profit and nonprofit entities. A previously unreported loan to FBL, extended in 2008, drives to the heart of these tensions.
In 2008, the Iowa Farm Bureau feared that FBL was poised to fail. That fall, the insurer’s stock was cratering in the midst of the global financial crisis. This posed a personal problem for senior Farm Bureau executives — they were compensated by the insurance business. They took action. As the stock price fell, according to court records, the Farm Bureau loaned its struggling subsidiary $25 million.
Transactions between related entities within such an organization are often scrutinized because of their potential for malfeasance. They are not problematic in and of themselves, but it is important that organizations impose strict controls, such as conflict of interest policies and the public reporting of insider transactions. This helps ensure that nonprofit leaders don’t use supposedly independent entities to enrich themselves or execute sweetheart deals like loans with below-market interest rates.
The 2008 loan Farm Bureau extended to FBL could raise red flags among regulators if it wasn’t properly controlled or reported. Several experts said the loan was questionable because the Farm Bureau and FBL share executives and the loan was not reported in financial filings. (Now that FBL is private, it’s not subject to the same reporting requirements imposed on publicly traded businesses.)
When asked about the loan, Iowa Farm Bureau spokesman Andrew Wheeler said the bureau “has never directly participated in a loan to FBL Financial Group, Inc. Any information to the contrary would be incorrect or out of context.” Wheeler did not return multiple requests for clarification over the past three months.
The Farm Bureau also did not respond to a list of detailed questions about the loan or parts of this story, such as criticism about the disparity between its finances and those of many Iowa farmers. In its tax documents, the Farm Bureau said it does not make its conflict of interest policies available publicly. A committee reviews potential conflicts of interest each year and makes judgments, according to its tax forms.
The seeds for the $25 million loan, and the Farm Bureau’s financial growth, were planted when the country began convulsing from the 2008 financial crisis.
While the nonprofit part of the Farm Bureau might have been more insulated from market gyrations, the company’s insurance business was not. At particular risk was FBL, which had been formed in 1944 as the Farm Bureau Life Insurance Company. In 1996, the Farm Bureau took FBL public. Prior to 2008, the Farm Bureau’s return from FBL was rising steadily. In late 2007, FBL’s stock price reached a high of about $33.
Then, the financial crisis hit, putting FBL in deep jeopardy. The company faced the possibility that its policyholders might stop paying their insurance premiums, gutting its revenue. It would need to raise more money, it said, in order to keep operating normally. “Without sufficient capital, we could be forced to curtail certain of our operations, and our business could suffer,” the company reported to the Securities and Exchange Commission.
By the end of October 2008, FBL’s stock had fallen to about $14.
The effort to save FBL involved the top leaders of the Iowa Farm Bureau, who are charged with looking after the nonprofit’s financial health.
In late 2008, the Farm Bureau’s general counsel, Edward Parker, contacted First American Bank, according to documents in a state court case. Parker, who is still with the Farm Bureau, has taken no salary from the bureau since he became its general counsel in October 2007, according to nonprofit tax forms collected by ProPublica’s Nonprofit Explorer.
On Nov. 5, 2008, Parker signed an agreement under which the nonprofit Farm Bureau would loan $25 million to FBL, with the bank facilitating the transaction.
The loan was not recorded on the Farm Bureau’s public disclosure form, called a 990, although transactions such as these are supposed to be, according to the tax forms collected by ProPublica.
When asked about the discrepancy, Wheeler, the Farm Bureau’s spokesman, provided the statement saying the bureau was not “directly” involved in the transaction. But there is evidence that Parker, the general counsel, was directly involved.
In a deposition given during a 2016 deposition for the lawsuit, Jim Gardner, who’s worked on the Farm Bureau’s finances since 1996 and is now the chief financial officer, agreed the Farm Bureau’s plan was to loan FBL money. A lawyer asked if Parker was involved with the plan.
“Yes,” Gardner said.
“And was he involved?” the attorney pressed.
“Yes,” Gardner replied.
But, in 2008, the Farm Bureau had a different story for federal authorities. The day after Parker signed the agreement with the bank, on Nov. 6, 2008, FBL submitted an update to the SEC, saying that “an investment affiliate” of the Farm Bureau had acquired the $25 million loan.
By law, transactions of more than $120,000 between related entities are supposed to be disclosed. If the SEC had discovered the nondisclosure within the 5-year statute of limitations, it could have pursued a case, said Adam Pritchard, a securities law expert at the University of Michigan.
But the SEC has limited resources, and, generally, instances where shareholders lose money get more attention. “It’s a big problem only if the loan goes bad,” Pritchard said. “People only go looking for false disclosures if something bad happens.”
This wasn’t the case with the loan to FBL. The company’s stock rebounded as the economy recovered, and then spiked in the years after. At the same time, the Farm Bureau’s executives cashed in.
These profits highlight another conflict inherent in loans like the one to FBL.
Nonprofit executives are supposed to operate in the best interest of the nonprofit, not themselves. But, by not taking salaries and having their income tied to FBL’s performance, the Farm Bureau’s executives open themselves up to questions.
“Do they have a self-interest in it? It seems to me the answer on the surface is yes,” said Michael Granof, an expert in non-profit accounting at the University of Texas. “They're not getting paid by the not-for-profit. Therefore, their salary, their well-being, depends on the survival of the insurance company.”
In 2008, Parker’s compensation from the Farm Bureau itself was $0, according to that year’s 990. But his pay from related organizations, including FBL, was about $370,000. Similarly, the executive director made $0 from the Farm Bureau but about $750,000 from related organizations including FBL. And Craig Lang, the president at the time, brought in about half a million from FBL and related organizations. (Lang did not return requests to comment to his personal email address.)
In 2019, the latest year available, Parker’s income from the Farm Bureau was again $0, but his total compensation from FBL and other related organizations was about $840,000. The executive director made almost $1 million this way. Hill, the current president, brought in about $650,000, as well.
The Iowa Farm Bureau did not respond when asked about the experts’ comments on the loan or the bureau’s executive pay.
Hill told The Gazette, an Iowa newspaper, in 2017 the bureau learned its lesson from the financial crisis.
"That fear created by the financial crisis gave us a pause to think and rethink about our investments," he told the newspaper. "We're trying to put money into more diversified portfolios so we don't have all our eggs in one basket.”
After the Loan
Over time, profits from the Farm Bureau’s companies have helped its nonprofit arm become one of the most influential political organizations in Iowa.
In the early 2010s, text in a state plan to address fertilizer runoff closely mirrored wording the Farm Bureau had proposed, according to the Des Moines Register. In 2016, the Storm Lake Times reported the Farm Bureau was one of a handful of agricultural groups that bankrolled a legal challenge to an effort to curtail harmful runoff. And, in 2018, the state exempted health insurance plans provided by the Farm Bureau from federal regulations governing the minimum coverage health plans are supposed to offer; the plans have been criticized as “skimpy.”
For Josh Nelson, an Iowa farmer who serves at the county level on the bureau’s soil and water conservation commission, the bureau is very effective at advocating for its members.
“Sometimes it’s a little lopsided because people think of agriculture and they think of Farm Bureau,” he said. “I would probably argue the majority of farmers that I’ve dealt with broadly align with the political stances Farm Bureau takes, but I don’t know if it necessarily services all of agriculture, all the farmers, everybody out there like they say they do.”
As for its insurance business, Nelson said, he sees it as another way to exert power in the state.
“They realize how having private, for-profit companies can give that non-profit an outsized influence and outsized voice,” he said, “because it’s easy to rack up a lot of influence if you’ve got a pretty successful business on the side.”
Steve Garrison of Watchdog Writers Group contributed reporting.
The supervising editor is Christopher Leonard of Watchdog Writers Group.