January 24, 2008 | Read Time: 4 minutes
Faced with a budget deficit of $200-million, the American Red Cross, the nation’s largest disaster-relief organization, says it will soon start laying off a large percentage of the 3,000 employees at its national headquarters.
The charity said the deficit is largely the result of expanding its staff too quickly in recent years. But former Red Cross officials say the real problem is that the organization has had trouble raising money at a time when no major disasters have attracted attention to the charity.
The Red Cross, which has an annual budget of $3.45-billion, raised a total of $2.2-billion in 2005 and 2006 to provide relief and recovery aid to victims of Hurricane Katrina, but the charity’s officials acknowledged that contributions have fallen off. Red Cross officials did not provide specific figures about the status of donations.
‘Lazy’ Approach
Bernadine P. Healy, a former Red Cross chief executive who is now a news columnist, says that a “lazy” fund-raising approach sets the charity up for cyclic, morale-dampening layoffs and other problems. Forced to resign her Red Cross post after clashes with the Board of Governors over how to spend donations after the September 11, 2001, terrorist attacks, Ms. Healy is one of five Red Cross chief executives who have left the top job since 1999.
“Their historical approach is that they fund raise in big disasters, and what’s left over is what they use to run the organization,” which operates a blood-collection enterprise and a range of other programs, Ms. Healy says. “What they need to do is have a major 21st-century campaign and raise money the way universities and hospitals do, which is to go out and raise money for all of their programs,” she says. Unfortunately, she adds, “broad-based fund raising has really never been something the Red Cross has been comfortable with.”
Chief Fund Raiser Leaves
Fund-raising efforts have also lagged after the 2005 departure of J. Logan Seitz, the charity’s senior vice president of development. Kathleen E. Loehr, the acting interim senior fund raiser since Mr. Seitz’s departure, recently left her job and is at home on paid leave, according to Suzy C. DeFrancis, the charity’s chief public-affairs officer.
Ms. DeFrancis says that the fund raiser was not fired or asked to leave and that the charity is now searching for a replacement for Ms. Loehr, who came to the organization in 2001 to focus on solicting big gifts — an approach that was supposed to ease the group’s reliance on disaster-related appeals. Attempts to reach Ms. Loehr at her home were unsuccessful.
The Red Cross has faced mounting criticism in recent years that it spends the money it raises in the wake of a big disaster on other costs. That criticism came to a head after the September 11 attacks prompted an outpouring of donations, more than $1-billion. But the charity was criticized for announcing that it would set aside $200-million for future disasters, a decision it reversed under the glare of negative publicity.
Since then, the Red Cross has allowed donors to earmark their donations for specific disasters, such as the tsunamis in Southeast Asia in 2004 and Hurricane Katrina in 2005. The charity also created a policy to alert donors when it had received enough money to cover relief efforts. But that approach has caused many disaster operations to suffer because the organization does not have enough money on hand to respond to home fires, local floods, and the other small disasters that form the bulk of the charity’s relief work but fail to generate widespread publicity or big donations.
Only the Beginning
Still, disaster fund raising is only one part of the charity’s current problems, says Frank L. Kurre, a managing partner at Grant Thornton, a consulting company that assists companies and charities with accounting, auditing, and other business issues.
Fund-raising problems, the September 11 flap, and the revolving door for chief executives, he says, are only the beginning of problems hurting the charity’s reputation and making it less appealing to donors. In addition, the Red Cross has been dogged by complaints from victims and relief workers over how it responded to Hurricane Katrina, as well as many other lesser disasters, and Congress last year transferred some of the organization’s disaster-relief responsibilities to government entities, he notes.
“Then you have the most recent scandal with the CEO having to resign,” Mr. Kurre says, referring to Mark Everson, who was fired in November after just six months on the job, when the board discovered his affair with the executive director of a Red Cross chapter. “You look at all these things together and you decide not to give,” Mr. Kurre says.
Although Red Cross officials acknowledge that the charity faces a “very competitive fund-raising environment,” they paint a different picture of the organization, as one that is beginning to recover from its past problems.
Ms. DeFrancis says the pending layoffs are part of a turnaround plan at the Red Cross that began after Congress changed its governing structure last year. “The board directed us in October to reduce our operating deficit, and gave us until 2010 to accomplish that,” she says. No firm decisions have yet been made on how many or which people to lay off, says Ms. DeFrancis.
