Among Warren Buffett’s lesser known, but significant achievements is that he helped an investigative reporting team whose exposé of a major national charity resulted in a Pulitzer Prize.

In 1971 Buffett heard that all was not well at Boys Town, the beloved Omaha-based children’s charity. At the time Buffett owned the Omaha Sun, a weekly newspaper. He had four reporters look into the charity, which refused to release its financial records. But Buffett knew that Boys Town had to file a Form 990, which had just been invented. A reporter was sent to Philadelphia to copy the form—at a dollar a page, in 1972 dollars. Buffett not only paid for the trip, but, according to his biographer, Alice Schroeder, Buffett interpreted the form and told the reporters how to read a Form 990.

Boys Town, it turned out, had plenty to hide. The organization spent very little on children, but in 1970 had an endowment of $191 million. The charity was so successful at fundraising that, if it were a corporation it would rank #230 in the Fortune 500.

After the Omaha Sun articles appeared, Boys Town suspended fundraising for three years. The Sun exposé won a Pulitzer for local reporting in 1973.[1]

Today, Buffett owns his hometown newspaper, the Omaha World-Herald. I’m sure he’s not a hands-on owner, but I’m sure he was pleased by a fine series of articles exposing abuses in Goodwill Industries’ Omaha branch.

Now Goodwill, overall, seems to me to be a fine organization that does a lot of good. I profiled its founder, Rev. Edgar Helms, in The Foundation Builders, and wrote a lengthy profile of the organization in Philanthropy in 2002.

Goodwill Industries is a highly decentralized organization, with a weak central office and strong branches. This follows Rev. Helms’ design, because he rightly did not want Goodwill to have a headquarters issuing orders and with “national spokesmen.” So the problems with Goodwill Omaha apply just to them and not to Goodwill nationally.

That being said, Omaha World-Herald reporter Henry J. Cordes and columnist Matthew Hansen found these abuses in Goodwill Omaha, in a series that ran in October.

According to its 2014 Form 990, Goodwill Omaha CEO Frank McGree had compensation of $933,444, including a base salary of $250,000, an incentive bonus of $95,000, $52,000 in deferred retirement pay and a whopping “special retention bonus” of $519,000, which Goodwill said was a one-time reward for McGree’s 30 years of service. Thirteen other Goodwill Omaha employees brought home six-figure salaries, a number that rose to 14 in 2015. 

Cordes then compared Goodwill Omaha’s salaries to other large nonprofits in the Omaha area. Goodwill Omaha’s budget, at $29.8 million, was the second largest in the region. But five other nonprofits with budgets over $20 million—United Way of the Midlands, Lutheran Family Services, Heartland Family Service, Food Bank for the Heartland, and the Salvation Army (western division)--had a combined 15 employees making six figures.

The Salvation Army had a $45.8 million budget, but had only two employees with six-figure incomes. Its CEO, Maj. Paul Fleeman, had a salary in 2014 of $89,096.

World-Herald columnist Matthew Hansen then looked at a contract Goodwill Omaha had with Prestige Products, where Goodwill labor took hair rollers made in China out of their boxes and then put the rollers in plastic packages that had a brand name (Nylrem) that also said, “made in America.” Former Goodwill employees told Hansen that when they complained about this contract, they were told that what was happening was similar to “taking Japanese-made parts and installing them into an American-made car.” 

Finally, fifteen former Goodwill employees told Cordes that they saw the corporate culture of Goodwill Industries Omaha as one where the management got richer and the staff got the shaft. They complained how hard it was to get basic supplies for their training programs, such as a working cash register so that young people could learn to use one.

But what really irritated these former employees was when management cancelled the 2013 Christmas party for their staff, claiming the budget was too tight, and then holding a party for the management at “the home of one Goodwill executive” that “came complete with a caterer, an open bar and, later, individual cash gifts for members of the nonprofit’s leadership team—with the lion’s share paid out of Goodwill Omaha accounts, according to two ex-employees with direct knowledge of the party and its expenses.”

Goodwill Omaha refused to cooperate with Cordes and Hansen because they said they wouldn’t respond to anonymous charges. Shortly after the piece ran, Frank McGree posted a lengthy answer. He said the high pay for managers was justified because they all met “key performance indicators” and were “some of the most experienced leadership of any nonprofit in this country.” Moreover, McGree said, he didn’t determine his salary, the Goodwill Omaha board did.

I thought this response was particularly memorable.

Question: “There are a number of employees in leadership positions at Goodwill that are related to others in high positions. To name some, there are Frank and Shannon McGree. Vice president Cheryl Hilgenkamp has a sister working directly under her. Board member Carol Russell’s daughter-in-law is a vice president. Should the public be concerned about that?”

McGree: “No. I think our mission is contagious and our focused pursuit of success is infectious. I’m really proud that we foster brand advocates out of our employees that are constantly making referrals of friends and family that already bleed Goodwill Blue.” He added that all these relatives “were hired based on demonstrated ability, proven experience and passion for our mission, and they prove their value daily.”

McGree’s vigorous defense of the high salaries paid to Goodwill Omaha managers elicited a forceful response from Warren Buffett’s daughter, Susie Buffett, who announced that a six-figure grant that her Shorewood Foundation had given Goodwill Omaha would be cancelled and she thought McGree’s “statement is outrageous. I think the board should be embarrassed. I think (McGree) should have been fired Monday or earlier. I don’t know why he’s still there.”

McGree didn’t last every long. Shortly after Susie Buffett’s statement, he announced early retirement. Three other high-paid Goodwill Omaha executives also left, ensuring that the nonprofit shed a million dollars in payroll. The Prestige Products contract was cancelled and the Goodwill leadership promised to listen to their staff more.

There are three lessons to be learned from the Goodwill Omaha debacle. First, stonewalling the press is a very bad idea. Honesty and transparency are always the best responses whenever journalists call.

Second, the most effective nonprofits are those with lean management. The Salvation Army is a constructive example of an effective charity with very low overhead.

Finally, it’s better to listen to staff complaints than to ignore them. The Goodwill Omaha executives thought no one would care when they had a fancy Christmas party and their staff had nothing. They were wrong.

I hope Goodwill Omaha recovers. But their failures should provide valuable lessons for other nonprofits that wish to avoid their mistakes.

(Hat tip: Nonprofit Quarterly)

[1] I wrote about the Boys Town episode as part of a profile of Warren Buffett I wrote for Foundation Watch in 2011. Additional information can be found in this Washington Post obituary for Omaha Sun publisher Stanford Lipsey, who died in November 2016.

Photo credit: Travelin' Librarian via Visual hunt / CC BY-NC (editorial modifications have been made to the image)