Toronto Goodwill Loses Affiliation, Files for Bankruptcy

Goodwill Industries of Toronto, Eastern, Central and Northern Ontario (TECNO) has had a tough 2016 so far. The nonprofit abruptly closed all of its locations Jan. 17, lost its affiliation with Goodwill Industries International (GII) Feb. 5 and filed for bankruptcy Feb. 8.

GII, which funds job placement, training and services for those facing barriers to employment, claimed Goodwill TECNO did not comply with the organization’s membership standards, which resulted in its board voting to disaffiliate the Toronto chapter, according to a press release. Goodwill TECNO must cease use of the Goodwill name, trademarks and logos.

"After a thorough review, it was concluded, with regret, that there was no viable way for compliance to be restored, and that the best possible opportunity to restore a stable Goodwill presence in the future was to work with the broader Canadian membership of Goodwill community-based organizations to determine a path forward," said Brian Itzkowitz, GII board chair, and president and CEO of Goodwill Industries of Arkansas. "All Goodwill members are held to a defined set of membership standards that protect the integrity of the Goodwill mission."

GII determined that Goodwill TECNO board of directors' decision to cease operations Jan. 18 resulted in the former Toronto affiliate to break membership standards.

"In its current state, Goodwill’s operations model was not sustainable," said Michael Eubanks, former board chair of Goodwill TECNO, in a statement. "This was the imperative that led to our decision. We would like to reinforce that this was a difficult decision. We support [CEO Keiko] Nakamura’s continued leadership in finding and implementing long-term solutions needed."

Goodwill TECNO’s closure affected 16 stores, 10 donation centers, two offices and 430 employees, according to the company. Nakamura attributed the immediate shutdown to "a cash-flow crisis." The crisis is the result of high rent and declining sales, according to The Toronto Star, which cited Goodwill TECNO received $28 million in revenue and $4 million in government funding in 2014.

"As a charity that relies on 85 percent of its revenue on retail operations, we are faced with a business model that has low margins," she said in a statement Jan. 18, the day after the closure. "With increasing competition in the retail space, we are not immune to factors impacting our cash flow."

Nakamura went on to explain a strategy to turn around the financial operations upon her arrival as CEO in 2011. It included consolidating real estate and remodeling business operations to reduce overhead costs and therefore increase store revenues. While she claimed she saw progress, the organization continued to experience a negative cash flow and decreased donations between December and March that even reducing employee hours could not fix.

"It is common for many Goodwill operations to experience the ebb and flow of reductions related to seasonality," she said. "We worked hard to make this a viable operation for the current locations impacted."

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This isn’t Nakamura’s first encounter with a scandal. In 2011, according to the Toronto Sun, the Toronto Community Housing fired her as CEO for spending abuses later linked to her executive team. In another article, the Toronto Sun’s Sue-Ann Levy wrote, "To add insult to injury, the entire Goodwill website was wiped clean of all financials, audits, annual reports, agendas, minutes and names of staff and board members—leading one to wonder whether [the days prior to its closure were] spent trying to cover up records of Nakamura’s and the board’s management of the company’s funds."

Employees—who were told the day before payday they would not be paid, but received their checks the next day—were frustrated with the sudden closure and lack of information. Prior to Goodwill TECNO claiming bankruptcy, employees weren’t given 30 to 60 days notice of store closures as required by their union, Canadian Airport Workers Union.

"It has come as a complete shock to the union and its employees," Denis Ellickson, the union’s lawyer, said to The Toronto Star. "We heard news late last evening [Jan. 16] that one of the stores had closed. This morning [Jan. 17] we discovered all of the stores had closed with no notice or no reason given."

"Some of those people who are now terminated are vulnerable individuals with disabilities who have been hired through these government-sponsored programs," he added.

Daniel Lublin, a Toronto lawyer, called the lack of transparency "borderline unethical," according to The Toronto Star. In the case of Target Canada, which shuttered last year, non-union employees received a few weeks' notice.

"Target saw it coming, made provision for advance notice for the staff and had set aside money for severance packages," he said. "The unique part [with Goodwill TECNO] is that these people just showed up … to see the doors locked."

The most recent update from Goodwill TECNO announced its filing under Canada’s Bankruptcy and Insolvency Act to preserve its assets and benefit its principal creditors, aka its former employees. It’s unclear if group will resurface again, but Nakamura plans to make an attempt to rebuild the nonprofit.

"The corporation is contemplating later making a proposal to its creditors, which, if approved, would annul the bankruptcy and allow the corporation to reopen some stores, continuing to serve the surrounding communities and offering a source of gainful employment," Nakamura said in a statement three days after GII revoked its use of the Goodwill name.

If it cannot become affiliated again with the Goodwill name, Nakamura hopes the organization can resurface under a new identity.

"I do think that our services are still very relevant to the communities … whether it’s under the brand of Goodwill or under a future brand name," she told The Toronto Star.

However, David Soberman, a marketing management professor at the University of Toronto, told the paper it's possible, but difficult to do.

"It doesn’t mean that … over the course of several months or years you couldn't develop another brand … but you're competing with people like The Salvation Army, Value Village,” he said. "You're going to be at a disadvantage if people don't know what you are.”