Friday, September 5, 2008

Their (Red) Cross To Bear

"The Red Cross is struggling with how to pay
for aid to storm victims."

-- Wall Street Journal, 5 September

I'm sure they are.

Having squandered the brand, having lost the confidence of many philanthropically inclined folks, having demonstrated incompetence at the highest levels (board and top management) having run with neither transparency nor accountability - why should they expect the public to pony up?

The Red Cross logo is probably the best known icon in the world; for years all they had to do was flash the cross if they needed money -or even if they didn't and through United Way participation* or direct chapter based solicitation the American public responded - with money and blood, literally.

Many US and international charities see their contribution revenues spike during crises like floods, earthquakes, war, forest fires, etc. only to see their fund raising bottom out in between. So the Red Cross's strategy was to raise as much money as possible at the peak, salt away as much as possible in reserve for later catastrophes, and pay out for the current appeal as moderately as possible. That actually is not a bad plan. The problem is that they failed - consistently - to tell their donors this. They now tell the truth. At least in the small print. Some of the time.

The red Cross's lack of candor brought more scrutiny and surfaced serious management problems at both the national and chapter levels. At the national CEOs turned over rapidly. A made-for-the-tabloids sex scandal knocked off the former head of the IRS who had just been hired; and his predecessor, an accomplished naval executive, couldn't hack it with the board. Questions kept coming up about the security of the blood supply, the Red Cross's ability to turn fast in a crisis, and ongoing misunderstanding about where the money went.

The Red Cross is now in make-over mode and the jury's out. But in my view the best they will do is paper over their problems. The Red Cross began as one of just a few federally chartered organizations, a good idea at the time. But federalism brought with it the right of the president to appoint a number of board members who, like other presidential appointments of either party, did not necessarily rise to a level of much quality. Like many ambassadorships or other federal sinecures an appointment was often a thank you for services rendered elsewhere.

The poor attendance of these so-called public members at board meetings also helped to concentrate power in management - for better or worse - and also magnifies the accountability problem.

The Red Cross business model is antiquated. I can see two possible solutions to their dilemma. First the federal government could take over completely - funding all existing Red Cross functions. Given FEMA this option may fail to excite some readers. But as a federal agency a board of trustees is not required and all the present incumbents can become an "advisory committee."

The second - and highly preferred - option is for the Red Cross to privatize, a very appealing idea for the last eight years, and who knows what portends? I would recommend to either President Obama, or President McCain (it hurts to type that, yes!) this course. It would enable the Red Cross to begin anew by privatizing the board: all presidential appointees kaput; start over. Legislation would be required to change the existing chartering provisions for board appointments.

As I am fond of repeating "fish rots from the head down." In my experience with thousands of nonprofits, 95% of the time, until the board is fixed and fully understands and enforces its responsibility for oversight, management will still not be accountable, actions will still lack transparency, fund raising will still suffer - and most of all public confidence will continue to wane.

(For an earlier Red Cross blog see the January 23rd post).

*Next blog: Is United Way Finally Getting It Right?

No comments: