Is a Conflict a Conflict, Disclosed or Not? Goodwill of Omaha’s Tangled Ball of Relationships

November 27, 2016; Omaha World-Herald

NPQ has for some weeks been following the Omaha World-Herald’s investigation of Goodwill Omaha as it exposed various problems in that organization, starting with large executive salaries that ate up a disproportionate piece of the budget, low and sometimes sub-minimum wages for workers with disabilities, and allegedly unsavory business practices. Since the start of the series, the CEO has resigned and the board has publicly declared that it is engaged in a top-to-bottom review of organizational practices.

But, some familiar with such situations might ask why the board has not been reconstituted. That question is even now more front-and-center as a follow-up story asserts that the organization is shot through with conflicts of interest and has spent more than $5 million in no-bid contracts with two companies whose executives sit on the nonprofit’s board. In all, the charity has done business with eight of its recent board members’ companies.

Readers may remember that the original articles identified some nepotism on executive staff, but this new article reveals that smaller no-bid contracts were awarded to family members and friends of Goodwill Omaha leaders, including to a company employing the ex-CEO’s daughter. Four ex-employees told the World-Herald that contracts for many types of goods and services went to family members and friends of the nonprofit’s leadership team.

But “the fish rots from the head,” as the saying goes (and Woods Bowman once put it in an article on conflicts and fraud in nonprofits). Joe Lempka is the current chair of the board and is an executive at Peter Kiewit Sons’ Inc., which has not had to go through a competitive bidding process with Goodwill Omaha since 1995 despite being awarded $4.1 million to build both the new headquarters of the organization as well as a few of its stores over the last ten years. Lempka is also apparently a personal friend of ex-Goodwill Omaha CEO Frank McGree, having recently gone on a European vacation with him.

Joe Lang, another board member, is the principal architect with RDG Planning & Design, which has received $903,000 in no-bid contracts to design the Goodwill headquarters and several retail stores. Meg McGree Krause, daughter of Frank McGree, is on staff at RDG and helped design the Goodwill headquarters. Still, says the board, these tangled personal/professional relationships did not affect their judgment as board members in setting Frank McGree’s salary. Many people who understand human nature might beg to disagree.

But Goodwill was not hiding the facts. In fact, it has disclosed a plethora of business relationships on its 990 form, including with Kiewit, RDG, the insurance company Arthur J. Gallagher & Co., First National Bank, and the Omaha law firm Baird Holm, also confirming those with Investors Realty, the Omaha law firm Fraser Stryker, and American National Bank. In all, according to this article, seven of the 21 board members at Goodwill are employed at one of these firms with an eighth having just resigned.

At the very least, this sets up the perception of a self-dealing system of insiders without the proper arms’ length judgment the public might hope for with any charity. In 2007, Rick Cohen wrote about other organizations that disclosed conflicts:

“Commit a crime, and the earth is made of glass.” Or perhaps Emerson might have said, “Engage in conflict of interest, and sooner or later, you’ll be found out.” Connecting the dots between family members and their businesses or their personal lives doesn’t take much digging. In nearly every instance profiled here, the conflicts of interest were discovered by intrepid newspaper reporters and then followed up on by government agencies. The pathetic defense of some alleged miscreants that they had publicly disclosed their conflicts of interest—and then blithely pursued the self-aggrandizing booty nonetheless—fails to provide the immunity of “hide in plain sight.”

And so it has gone with Goodwill of Omaha. A persistent reporter managed to invade the “family” atmosphere and challenge practices inappropriate to a nonprofit with a brand that shouts, “We selflessly care about others!”

“My first reaction is just sadness,” said Dave Renz, a nationally renowned expert on nonprofit governance. “What you are describing here is a process that seems to undermine the trust that is essential for a nonprofit’s donors, its constituents, its community. It’s not all that unusual. But it is unacceptable.”

Omaha-based Angela Eikenberry, another national governance expert, says that beyond the legal requirements, “There’s an ethical duty here—a duty to avoid the appearance of anything strange or anything that seems like a conflict. So, yeah, this kind of raises the eyebrows, doesn’t it?”

Many nonprofit executives and board members are unaware that IRS regulations impose requirements on how 501(c)(3) charities engage in transactions with insiders. The “intermediate sanctions” rules have been in force for more than 15 years, but the word is only slowly getting out.

Renz said the Goodwill Omaha scenario reminds him of certain “old-style practices” that have become blessedly more retro in an age of greater transparency He cautions against even “the perception of quid pro quos.”

“It’s a board’s job to ensure that the brand of the organization isn’t sullied by the practices of that organization,” said Renz. “Quite frankly, the cleanest way for an organization that’s taking great care is to just not engage in these kind of relationships. […] Boards (around the country) are recognizing that there needs to be more care taken…to keep these processes clean.”—Ruth McCambridge