LINCOLN — Even as Goodwill Omaha drifted from its mission, the number of needy clients served fell and employee morale plummeted, the inattentive trustees of the nonprofit continued to heap bonuses and other excessive pay on CEO Frank McGree.
Those were among the findings of a 19-month investigation by the Nebraska attorney general into Omaha’s Goodwill affiliate, a probe prompted by a World-Herald investigative series in 2016.
Attorney General Doug Peterson’s investigation didn’t result in any criminal charges or legal efforts to claw back any of McGree’s pay. Peterson said state law limited what was possible on that.
But he did secure changes to Goodwill’s board, got the charity to agree to other new business practices as part of a court decree and expressed confidence that Goodwill’s new leadership team has the charity refocused on its mission.
“Our priorities have been to ensure that the bad actors at Goodwill are removed, that the board members and executive staff are truly mission-focused, that the jobs Goodwill Omaha creates are preserved, and that the people it is designed to help are truly served,” Peterson’s report said. “Those interests are not served by dragging Goodwill Omaha through further legal battles.”
The attorney general’s investigation did conclude that the pay to McGree and other Goodwill executives was excessive. But he said Nebraska’s laws governing nonprofit corporations mostly relate to conduct of boards of trustees, not executives like McGree, who Peterson said was primarily to blame for the problems at Goodwill. The Goodwill board was lax in its oversight and unaware that virtually none of the millions in profits from the charity’s signature thrift stores was going toward charitable purposes, Peterson said.
“Our investigation revealed the main problem at Goodwill Omaha was poor management by former President and CEO Frank McGree,” the report said. “Unfortunately, we concluded that there were inadequate legal remedies to pursue any claim of restitution against McGree and inadequate evidence of wrongdoing to pursue any claim” against the unpaid volunteer trustees.
Peterson said he thought that it would be appropriate for the Legislature to examine whether state law needs to be changed to put more legal responsibility on executives for how charities are run. He said what happened at Goodwill should also be a lesson for other charities on the importance of staying focused on their mission.
One result of Peterson’s investigation appears to have been wholesale changes to Goodwill Omaha’s board of trustees. Three-fourths of the 20 trustees have now turned over, in part because Peterson convinced the charity to agree to a smaller 13-member board.
Michael McGinnis, who since October has served as Goodwill’s new CEO, on Tuesday expressed relief to have the legal review concluded. He said the charity is still dealing with the fallout from the 2016 disclosures, with donations still lagging.
“We appreciate the attorney general mentioning the things we’ve done to get Goodwill back on a good path,” he said.
He said Goodwill Omaha also has resolved another legal issue that has hung over it, a federal lawsuit filed by McGree seeking a $550,000 severance payment he said he’s owed by Goodwill. McGinnis said the court settlement forbids him from disclosing the details, though he said the terms will ultimately be revealed when Goodwill files its tax return next year.
In the end, Peterson’s investigation echoed the main conclusions of the newspaper’s series.
The World-Herald in October 2016 published an investigation detailing corporate-style executive pay and a profits-driven culture at the widely known charity that sells publicly donated used goods to employ needy job seekers.
McGree received base pay, retirement pay, bonuses and other compensation exceeding $400,000 annually — more than double the average for CEOs at other Omaha social service nonprofits. A $519,000 lump sum retirement payment in 2014 boosted his pay that year to close to $1 million. In all, 14 executives were paid $100,000 or more, the most for its size of any Goodwill affiliate in the country.
Goodwill spent so much on executive pay that scant dollars from its stores were left to support the community jobs programs that are central to the charity’s mission. Despite claims that donating to Goodwill would help needy job seekers, Goodwill’s jobs programs were almost completely funded by government contracts and grants, not store profits.
Under Nebraska law, the attorney general is charged with regulating charities and protecting their assets for public good. Using subpoena power, investigators with the attorney general’s charitable division obtained 140,000 pages of Goodwill documents and interviewed dozens of witnesses, including longtime CEO McGree.
The investigation traced the beginnings of Goodwill’s problems to 2000, when it began to ramp up its stores in the Omaha area from eight to 15. At that point, Peterson said, it appeared that the charity’s mission became maximizing store revenues instead of serving people. Executive pay spiked, but the number of clients served by the charity actually fell between 2012 and 2016, from 3,300 to 1,900, mostly because of a loss of federal contracts.
Investigators concluded that not a single dollar of store revenues between 2011 and 2015 supported job programs. They also found no evidence that money generated by a program in which customers were encouraged to round up their bill to the next dollar went toward the mission. In addition, executive expense reimbursements for food, drink and entertainment shot up from $235,872 in 2013 to $345,567 in 2016.
“As Goodwill Omaha grew, it operated more and more like a for-profit business,” the report said.
Peterson said that there came to be “no correlation at all” between how the charity was performing its true mission and what executives were paid and that excessive pay further deprived Goodwill of dollars for its mission.
Peterson said the board missed many red flags. Much of its important business was on a “consent agenda” that was not discussed at meetings. Most board members placed too much trust in McGree, whom they had become convinced was one of the best Goodwill CEOs in the nation. As a result, they were taken by surprise when The World-Herald came out with its findings.
“It was evident in our interviews of the former board members that they were shocked by much of the reporting in The World-Herald’s series exposing abuses,” the report said. “(I)t seems self-evident ... those directors were not sufficiently engaged.”
Peterson said that while he was critical of the past trustees, he lauded both past and current trustees for changes made to right the charity, including replacing all its high-paid executives, cutting CEO pay in half, reducing employees paid $100,000 or more from 14 to 3, and bringing in an outside consultant to address the internal culture.
During the investigation, Peterson said, he developed “a healthy confidence” in McGinnis. He said he thinks people in Omaha can be confident in Goodwill now, too.
“I do want to state to the Omaha community that the Goodwill portrayed in The World-Herald stories in 2016 is now a completely changed and properly directed organization in 2018,” he said. “I think it’s a different place.”