Cultural insensitivity and a lack of language translators for the Hispanic and Asian immigrants living along the Gulf Coast—as well as for the French-speaking members of the United Houma Nation tribe of Louisiana—led to misunderstandings. People in need, meanwhile, overwhelmed Red Cross phone banks, which were ill-equipped to handle the rush of calls coming in, and many Gulf Coast neighborhoods were, in reality, simply out of reach.

Once more, victims had to wait hours, if not days, for help. Was it New York all over again? Meanwhile, the philanthropic giant among charities seemed unable to assure donors that the nearly $2 billion raised for Katrina victims was being targeted appropriately and used well. Once again, hints of poor accountability, impropriety, and even criminal conduct emerged.

The Red Cross had neither controls on costs nor reliable records of inventory, and nobody routinely checked volunteers backgrounds before they signed on. Rental cars disappeared as well as generators, air mattresses, and computers. And supplies sometimes had little relationship to need: Food would end up at places where it couldn't be cooked. Mops, paper towels, and bleach would be handed out in neighborhoods that had been demolished. In Mississippi, victims wanted water to drink, but Red Cross volunteers only had bleach. "The basic needs of the beneficiaries are not being met," Mike Goodhand, a British Red Cross logistics executive who assisted U.S. counterparts in New Orleans, wrote in a September 2005 report.

In response to it all, past interim CEO McGuire told Contribute in a 2006 interview: "I know we worked hard to be prepared beyond 9/11 for major disasters and learned some lessons from 9/11," he said. "...In Katrina, our task was 1.41 million families. In 2004, we deployed about 35,000 volunteers. In Katrina, we had to deploy 235,000 volunteers. The scope of the disaster was beyond our capacity at the time to respond. Some of our systems did pretty well; some of our systems broke completely. It was a scope and scale issue that exposed anything about us that had any weaknesses."

Yet the organization's leadership and cultural problems—despite renewed efforts at reforms—continue to dog the nonprofit, and there remains frequent turnover at the highest ranks of the organization: The ARC has gone through seven CEOs and acting CEOs since 2002: The latest CEO to leave ARC before Gail McGovern's appointment, former IRS Chief Mark Everson, was barely on the job for a half-year before the board asked for and received his resignation, on November 27, "for his engagement in a personal relationship with a subordinate employee" who was a married president of a Mississippi chapter, according to ARC Press Officer Carrie Martin.

Then, on January 8, the Associated Press broke a story that a former executive at the Minneapolis chapter of the American Red Cross was suing the chapter and ARC national organization, alleging sex and age discrimination by colleagues. The case is pending. And most recently, on February 6, the Food and Drug Administration again fined the ARC for blood safety violations.

Laments Healy, who still keeps an image of Red Cross founder Clara Barton in her Washington apartment (Barton is shown embracing a soldier while, hand held high, she keeps the Grim Reaper at bay): "It's a magnificent institution with a magnificent mission that it has failed to live up to for a long time."

The irony isn't lost on Red Cross executives, current and former. Barton, the Civil War-era heroine and a virtual one-woman relief agency, launched the Red Cross 127 years ago. Yet even Barton, a one-time Patent Office clerk, encountered resistance and needed grit to get things done. Her first famous act was improvised: She ripped sheets into towels and cooked for an exhausted Civil War regiment. Already on her way to celebrity and yet overcome by battlefield needs and running short of supplies near Bull Run in August 1862, Barton, like her 21st-century descendants, had trouble delivering. "All night, we made compresses and slings, and bound up and wet wounds when we could get water (and we) fed what we could," she says in The Life of Clara Barton, a 1922 biography by William Barton. "Oh, how I needed stores in that field!" Eventually, even Clara Barton was forced out, over a rival's charges of misused funds and mismanagement.

What has changed since its inception is the mammoth size of the organization and its role as the nation's prime disaster humanitarian. Barton could never have imagined todays bureaucratic behemoth of 746 local Red Cross chapters, 35,000 employees, and a budget surpassing $3 billion.

Though the Red Cross counts on catastrophes to drum up most of its press and its donor contributions, today's volunteers are more likely to be engaged in local blood drives or responding to local fires. Most of the organization's 72,883 calamities last year involved fires; only 39 were larger-scale disasters. The group's annual convention and gala, meanwhile, are glamorous affairs on the social calendar in Washington and other big U.S. cities, events at which First Ladies speak and pop stars perform.

Controversy may not be new to the Red Cross, but it has never been so noticed, nor so pronounced. "I discovered in my 9/11 research that there has been criticism of the Red Cross about its response to all major disasters at least since the 1906 San Fran- cisco earthquake and fires," observes Tom Seessel, a social policy consultant with Thomas Edison State College in New Jersey, who studied September 11 relief efforts for the Ford Foundation. In 1989, for instance, the Red Cross ran into trouble when mayors in the San Francisco Bay Area discovered much of the money collected after a major earthquake would go elsewhere. But it was largely a local story.

Most critics agree that what the Red Cross faces now are problems of its own making, and that in today's era of increased calls for more accountability and efficiency, it's time for the organization to reinvent itself. Indeed, close students of Red Cross activities say it may simply have too many layers, too many people or too much bureaucracy. It also may be experiencing the organizational ill-effects of a long-standing virtual monopoly, conferred by Congress, as the national voluntary disaster relief agency. In his research, Seessel concluded the Red Cross was "careless" about specifying the purposes for which it was going to use donors' money, forcing it to invent new programs and services to exhaust excess funds in response to extensive criticism.

Even remedies urged by former Senate Majority Leader George Mitchell as part of an institutional rehab after September 11, laments Seessel, didn't seem to have pro- duced any systemic change (but instead) only bought a little more time until the fault lines were exposed again in Katrina.

For an organization viewed as resistant to change and outside advice, the Red Cross is now being forced to turn itself around in today's new climate of public opinion. Its leaders, after 9/11, began taking the first necessary steps: A thorough examination of mission, charter, structure, accountability, governance, staffing, and the relationships between national and local branches as well as government agencies. It has increased the level of outreach to other local and national disaster groups. And in a culmination of the latest in-house examination of its methods and strategies, President Bush signed into law last May reform legislation aimed at downsizing the board and beefing up external governance.

Former Nature Conservancy President and CEO Steven J. McCormick says he feels as if he's reliving his own institutional experience: the scrutiny, the bad press, the large board, the difficulties with local chapters, the questions about whether the organization had strayed from its mission, the hiringof outside governance experts. What's happening to the Red Cross is so very similar, notes McCormick, recalling that the Red Cross looked to the Conservancy as a model for relief and repair. "They've taken a page from our experience in getting outsiders to make recommendations."

Disclosures in 2003 could not have been more disruptive to the Conservancy, also a star in the nonprofit firmament. Long dedicated to preserving animal species by protecting land and waters they need to survive, the organization had sold undeveloped land to trustees at reduced prices and allowed drilling for oil, or at least a local chapter did, without the knowledge of the national board. The nonprofits chairman at the time, Henry M. Paulson Jr., chief executive of Goldman Sachs Group Inc. and now treasury secretary in the Bush Administration, summoned his crisis-management team from Wall Street and assembled an independent governance team for a review.

Since then, the Conservancy has made numerous changes. One was to more than halve the size of its board, which had 40 members. "There were simply too many of them to operate as a modern, hands-on board," says Millstein, the New York corporate lawyer and chairman of the Red Cross governance advisory board, writing in an April 2005 progress report. "In all candor," acknowledges McCormick, "the tradition (at the Conservancy) was that the board was largely for fundraising and for positioning" the prominence that comes from having a high-profile board. Millstein, a leading expert on corporate governance who has advised boards of companies such as Disney and General Motors, spent this past summer advising the Red Cross on whether to redefine the organization's mission along with several other outside experts who also guided the Conservancy.

One big step for the Conservancy was to emulate developments in the business world. Like a growing number of nonprofits, the Conservancy has adopted some of the core principles of the Sarbanes-Oxley Act of 2002. Aimed at curbing corporate misdeeds, that law was never intended for nonprofits. Still, the Conservancy and its corporate-lawyer advisors took the legislation's notions of accountability and governance to heart. Finances are audited, just as are the books of corporations, and its staff is empowered to investigate how it uses money. There also is a policy that encourages and protects whistleblowers, something the Senate's chief charity critic, Senator Charles Grassley, has urged the Red Cross to do.

The Conservancy also refuses to make loans to directors, officers, or employees, has stringent conflict-of-interest prohibitions, and aims for compliance that exceeds exist- ing tax laws. And the Conservancy's changes go deeper, still. For instance, the board now routinely assesses the threat to reputation of every decision. A risk evaluation committee of people from throughout the organization—local field managers, scientists, marketing executives, and others—examines land deals and other decisions before the board. Where once such decisions were left to local chapters, risks are now assessed by the full board. Thus, the oil drilling arranged by the local Texas chapter would never occur today.

Meanwhile, a complex land and timber exchange involving a major paper company as a partner cleared all hurdles not long ago. "We're not trying to avoid all risks but to maximize the conservation we can attain," explains McCormick. "It's got to be a calculated risk." In addition, local chapters need to have a safe forum to bring up difficult subjects. "There's so much more candor between managers and the board now," he says. "Before, managers felt they had to impress the board."

Not that the Conservancy has solved all large nonprofit woes. With more than 50 chapters, and over 1,500 volunteer trustees each of whom is meant to be an ad- visor and most of whom want to feel involved in governing difficulties remain. A chief executive might feel he or she best understands what an organization needs, but the many operating units can still prevail—a chief source of friction within the Red Cross. Acknowledges McCormick: "That is a code we haven't cracked yet. We try to be inclusive and transparent, but then more people realize they can participate. You can get in a loop where you can't get to closure, because every time you make a deci- sion, a segment doesn't like it, so you adjust it again and again."

Even so, having too many cooks can be critical to an organization's success. Daniel Curran, director of the Humanitarian Leadership Program at the Harvard Business School, is among academics now exploring the challenges of managing such multi-governed organizationsgroups that must weigh imperatives of inclusion with good, centralized decision-making. Says the Conservancy's McCormick: "That's the fundamental struggle for the Red Cross. How do you align your operating interests around the fundamental aim of the enterprise? We sure haven't figured it out."

The Red Cross is not exactly oblivious to the impact of its turmoil on other organizations. "When you get stabbed, we bleed," nonprofit leaders have told Red Cross Board Chairman McElveen-Hunter, she told Contribute in a 2006 interview.

In sharp contrast to previous decades, bad publicity has become a way of life for some charities. Diana Aviv, chief executive of the Washington, D.C.-based Indepen- dent Sector, an advocacy group for nonprofits, tallied, in one recent 18-month period, 500 stories of nonprofit misdeeds. "Reporters are asking more questions, and so are members of Congress." Senator Grassley has, for months and months, engaged in scrutiny of nonprofits and has repeatedly hreatened new legislation to police them. That has included investigations of the Red Cross. Add to the mix of prying eyes the Internal Revenue Service, which is busy scrutinizing how nonprofits govern themselves and compensate executives. "All of the groups I know of are taking this trend really seriously," says McCormick.

With each new revelation, fresh investigation or criticism from Washington, some donors grow more reluctant to give. They demand more accountability when they do, and hope their own philanthropy won't expose them to scrutiny. "Trust is the glue that holds the whole nonprofit sector together," observes Kathleen McCarthy, director of the Center for the Study of Philanthropy at the City University of New York. "There's a deep vein of cynicism in society now. With scandals like the Red Cross and what the United Way has gone through, there's a lot of concern about maintaining trust in the nonprofit sector. If people don't trust, they don't give."

Aviv, too, has been challenging nonprofits to be more open and accountable. The Red Cross story matters to every charity, says Aviv, whose organization has been championing such self-regulation as a way of warding off government rules and enforcement. When scandal happens, there's a concern among donors that the problems are just the tip of the iceberg. Her advice: take a hard look at current practices, encourage scrutiny, and, if trouble strikes, don't hunker down or draw around the wagons. She also urges nonprofits to question each other. "We are each others' keepers," she explains. "When something appears in the paper, we need to call up and ask, Is this true? This is making us all look bad. Group pressure is an enormously powerful influence on behavior."

"That's the fundamental struggle for the Red Cross: How do you align your operating interests around the fundamental aim of the enterprise? We sure haven't figured it out."

—Steven J. McCormick, Former President and CEO, Nature Conservancy

As for the Red Cross, itself, the jury is still out. Will its latest remedies be far-reaching enough? Does the new legislation force the changes most needed to create lasting reforms? Harvard's Peter Dobkin Hall doubts much can happen at the organization without serious consideration of more fundamental issues involving organizational purpose, structure, and culture. Others say the Red Cross simply has too much on its plate. Olson, the lawyer hired by the Red Cross to lead the governance audit, acknowledges the limitations. "Outsiders reviewing how nonprofits are run are only dealing with part of the picture."

This can be significant—as when considerable work by Olson led to changes at the Public Broadcasting System some years ago. PBS had to examine other critical issues such as its relationship with Congress, subscribers, and funding.

To be sure, changes in governance and culture take a long time to accomplish anywhere. MacGuire, a past Red Cross Interim CEO, acknowledges that transforming such American Red Cross won't be easy or quick. "That's going to take years," he says. "It's a journey over a very long time."

Cautions former CEO Healy: "This is not the time to win a PR game. This is the time to radically change the organization. If that happens, there may be hope."

 

 

KEITH C. EPSTEIN is a Washington, D.C.- based journalist who is a regular contributor for CONTRIBUTE. Epstein's work has appeared in a variety of publications, including The Washington Post and BusinessWeek magazine. Please send comments to editors@contributemedia.com.