American Red Cross Names Interim Chief and Vows Additional Changes

The American Red Cross is moving to reassure donors amid intense criticism by members of

Congress and others that it is wisely spending the $564-million in disaster-relief funds raised after the September 11 terrorist attacks.

The charity’s actions follow the resignation of the organization’s chief executive, Bernadine P. Healy, and include the appointment of an interim chief and the decision to no longer solicit dollars for the Red Cross’s controversial Liberty Disaster Fund.

Dr. Healy announced her departure after the Red Cross’s Board of Governors voted 27 to 5 that it had no confidence in her ability to manage the organization in the wake of the terrorist attacks. She will continue to serve as president until December 31.

Dr. Healy had been criticized for being slow to disclose how the Red Cross would spend the money it raised, for not making clear that many of the funds would be used not for direct aid for attack victims or their families but to prepare for future terrorist attacks, and for taking the unusual step of establishing a separate account called the Liberty Disaster Fund to accept donations received since September 11. The charity’s usual policy is to ask donors to give to its general Disaster Relief Fund so that money raised can go wherever it is needed.

In addition, a growing number of Red Cross chapter officials, employees, and others associated with the charity had privately criticized Dr. Healy’s management decisions and leadership style, which caused internal friction at a time when the organization was facing unprecedented demands for its services.

For weeks, Dr. Healy has declined repeated requests by The Chronicle for comment. But in public appearances — or through statements made by other Red Cross officials — Dr. Healy has adamantly denied that she or the charity deceived the public or that she had an inappropriate management style.

“When the Red Cross went out to solicit contributions, we did it very specifically for these [terrorist] events and their aftermath,” Dr. Healy told a Congressional hearing last week. “We specifically, repeatedly communicated that this was also about preparing for terrorism” in the future, she said. “If people aren’t hearing that, we have to continue to get that message out.”

Interim Leader

The Red Cross appointed Harold Decker, the organization’s general counsel, as its interim chief executive officer while the group searches for a replacement for Dr. Healy.

One of Mr. Decker’s first actions was to announce that the Board of Governors and senior managers had decided that, as of October 31, the American Red Cross would stop seeking donations for the Liberty Disaster Fund. “We believe at this time that there is sufficient money in that fund to support the efforts that we’re making,” said Mr. Decker, who is not a candidate for Dr. Healy’s position.

Of the approximately $564-million in gifts and pledges that had poured into the fund by last week, the Red Cross has committed more than $300-million for a range of programs it says are related to the attacks, and spent more than $153-million to date — including $47.9-million to cover the immediate cash needs of more than 2,800 families that lost at least one wage earner in the attacks.

The Red Cross said that it would hold in reserve the remaining money in the Liberty Fund — more than $260-million — to deal with future terrorist threats and other “emerging” needs.

Unless donors now earmark donations for the Liberty Fund, the Red Cross will place their money into its general disaster fund.

The charity said it would replace its public-service announcements that request donations for the Liberty Fund with ones that provide information on how the Red Cross is spending contributions to the Liberty Fund, featuring families who have been helped. Red Cross officials said that it would take some time to pull the TV spots; indeed, the original television appeals for the Liberty Fund were still airing days after the charity decided to stop soliciting money for the fund.

Mr. Decker said that public support for the Red Cross was strong despite the change in leadership and questions surrounding the Liberty Fund.

“The American people understand the Red Cross is doing its very best under very difficult circumstances,” said Mr. Decker, who joined the Red Cross early this year after 21 years at the Pharmacia Corporation, a pharmaceutical company in New Jersey. “We’re learning from this experience.”

Dr. Healy, at a news conference held after she announced her impending resignation, said that her departure stemmed from “differences of opinion” with the charity’s board. “The board has to have the CEO that they have complete agreement with. And that’s all,” she said. “When you have a very large board, there are times when people get on different wavelengths, and I think it’s time to move on.”

She added: “I think the board felt that perhaps I was out ahead of them in some ways in making policy that they thought they should be making, and I guess it really boiled down to that.”

Israel Dispute

A key issue of contention seems to be Dr. Healy’s decision to create the Liberty Disaster Fund instead of using the general disaster fund to raise money. Dr. Healy said at the news conference that board members “may have felt” that she broke charity policy by creating the fund “without their approval.” She added that a number of days after the fund’s formation, the board did approve her action. Even so, she said, “it’s caused a little bit of friction.”

Dr. Healy also attributed her departure to her stand in favor of withholding overhead dues to the International Federation of Red Cross and Red Crescent Societies until the Red Cross movement recognizes the Magen David Adom, Israel’s Red Cross equivalent.

“Reasonable people have differed with me on this and certain other matters, but this is an area of deep principle for me not easily compromised,” she said in her resignation speech. However, an internal memo sent on the day of her resignation by the national headquarters to Red Cross staff members said that the charity had not changed its policy on withholding the dues, and implied that the matter was not an issue related to Dr. Healy’s departure. The day after Dr. Healy announced her resignation, the Red Cross board voted to continue the charity’s policy of withholding the dues.

Concerns About Perceptions

In an interview with The Chronicle, the chairman of the Red Cross board, David T. McLaughlin, said that he worried about the public’s perception of his charity in the wake of its response to the September 11 terrorist attacks — and pledged that the Red Cross would work in coming weeks to make sure that Americans understand its accomplishments in helping victims of the disasters. He also said the Red Cross had hired an independent auditor to make sure contributions received in the aftermath of the September 11 attacks were properly handled.

“There’s been a lot of media coverage directed at whether the funds of the Liberty Fund are being properly appropriated and spent,” said Mr. McLaughlin. “You read that enough, and other people read it, and you have to be concerned that people are asking, ‘Gee, is the Red Cross still a credible organization, as credible as it always was?’”

Said Mr. McLaughlin: “From my standpoint, it clearly is. But I do worry about the perception. I don’t think people understand the complexity of the disaster.”

“We’re going to do everything we can to show the public that we are a responsible agency and are spending the money responsibly,” he said.

Looking back on the Red Cross’s handling of the aftermath of the terrorist attacks, Mr. McLaughlin said he thinks that Dr. Healy was right to create the Liberty Fund separate and distinct from the charity’s general fund.

But Mr. McLaughlin said that the Red Cross probably should have had simpler procedures to disburse money to victims. “The money is getting to where it needs to go, but there are some people who feel that there is more red tape involved” than necessary, he said. “We will sit back and say, What are the lessons learned from this experience? And my guess is that we might try and streamline the disbursement system.”

Choosing a Successor

Before the Red Cross chooses a successor to Dr. Healy, the charity is putting together a special committee “to look at the governance of the American Red Cross” and report back by the end of the year or soon after the New Year, said Mr. McLaughlin.

“It’s such a complex organization,” he said, “with 1,043 chapters and a large board and a lot of committees and blood regions and 1.3 million volunteers. We have a system that is difficult to work with, regardless of the CEO. It’s a governance system that is not necessarily conducive to very close relationships between the CEO and the board and the chapters and the whole system.”

He added: “We really need to step back and say, Can we structure this in a way that makes it easier for the CEO to be more effective?”

Mr. McLaughlin declined to discuss the way that Dr. Healy’s compensation, which is $450,000 a year, is being handled as she departs. “That is strictly a matter between Dr. Healy and the Red Cross,” he said.

The Red Cross plans to talk with its own management and chapter officials “about what kind of person do they think the next head of the Red Cross should be and what should the attributes of that individual be,” Mr. McLaughlin said.

He said that the charity has not set a deadline for hiring a new leader. Noting that it took the charity about a year to replace Dr. Healy’s predecessor, Elizabeth Hanford Dole, a former Cabinet secretary, Mr. McLaughlin said, “I would certainly hope it wouldn’t take that long, but I haven’t set a date until we get the early stages of the process under way.”