Pulling Back the Reins

The Red Cross’s new limitations on governance get mixed reviews

Members of Congress praised the American Red Cross for its plan to revamp its governance structure — the first major change in almost 60 years — following criticism of the charity’s response

to recent disasters. But some philanthropy experts questioned whether changes the organization announced last week would be enough to repair the charity’s image. Other critics objected to the extended timetable the Red Cross proposed for putting many of the changes into effect.

The plan, which was approved by the Red Cross board, would slash the size of the Red Cross national board from its current 50 members to 20 or fewer by 2012. It would also limit the board’s role in day-to-day management decisions, and change the way that board members are selected. The plan must now be approved by Congress, which created the Red Cross charter that names the organization the nation’s lead charity for disaster relief.

Sen. Charles E. Grassley, chairman of the Senate Finance Committee and one of the agency’s chief critics after Hurricanes Katrina and Rita, said the proposed changes signal a significant step in the right direction.

“It’s good news that the Red Cross’s board recognized that a Band-Aid won’t do, and that the American people expect the best from an organization that so many have supported with time and money,” the Iowa Republican said in a statement. He said he anticipates quick action on the measure by Congress.

Much Work Still to Do

Some philanthropy observers, however, said the multibillion-dollar charity still has much work to do to regain public trust. The Red Cross’s reputation has been sullied in recent years by a series of missteps, beginning with its decision (later reversed) to divert funds raised for victims of the September 11, 2001, terrorist attacks to other needs. It also drew criticism for its response to Hurricanes Katrina and Rita, especially in poor and black neighborhoods. And in September the Red Cross was fined $4.2-million by the U.S. Food and Drug Administration for failing to follow adequate safeguards while collecting blood.

The proposed governance plan is “really just the first step in a 12-step program,” said Paul C. Light, a professor of public service at New York University. “They’ve acknowledged they have a problem, but it takes a lot of work to sort it out.”

A chief criticism of the plan — which was crafted over the past six months by a committee of academic, business, and charity leaders — is that it would be phased in rather than taking effect all at once.

Under the plan, the board would shrink to 25 members by 2009, and to between 12 and 20 members by 2012.

“The changes they propose are long overdue, and my only concern is the timeliness of their implementation,” said Trent Stamp, executive director of Charity Navigator, a watchdog organization in Mahwah, N.J. “If they’re the right thing to do — and they are — it seems to me that they have an obligation not only to their donors, but to the victims of the next disaster, to implement them now, not over the next six years.”

Ross Ogden, first vice chairman of the Red Cross board, defended the timetable, saying it would allow the charity to make a smooth transition between the current and new systems, trimming the board partly by attrition.

The Red Cross plans to cut some board positions by eliminating seven posts that are now reserved for White House cabinet-level officials appointed by the president — a system that has been criticized because those officials rarely attend board meetings. The appointees would be moved to an advisory council of the Red Cross.

CEO Search Continues

The proposed changes come as the Red Cross continues its search for a candidate to replace Marsha J. Evans, who resigned as chief executive officer last December.

Bonnie McElveen-Hunter, the Red Cross’s board chairman, said the charity does not have a precise timetable for making a decision, adding that the group is “in capable hands.” She confirmed that John F. (Jack) McGuire, the group’s interim chief executive, is a candidate for the top job.

Ms. McElveen-Hunter declined to comment on news-media reports that Frances Fragos Townsend, White House homeland-security adviser, had been considered for the post but then withdrew her name. She said only that the selection committee had not yet submitted a name to the full board.

Mr. McGuire, the interim chief executive, said the proposed governance changes would strengthen the Red Cross. “We had a board that was designed and set up under guiding principles from a time that is no longer relevant,” he said, referring to 1947, when governance policies were last revised. “We needed to take that board and bring it up to today’s expectations.”

One change that some charity observers say could help the Red Cross in its hiring for the top job is the proposed removal of the designation “principal officer” from the board chairman’s role. Some observers believe tensions between the chief executive officer and board chairman in years past have led to frequent CEO turnover. Ms. Evans was the third Red Cross chief executive to step down since 1999. The proposed change would signal that the chief executive is in charge of the charity’s daily operations.

“You can’t have two leaders running the organization,” said Diana Aviv, president of Independent Sector, a Washington coalition of charities and foundations.

Finding the right person to hire will be crucial to ensuring that the proposed governance changes are effective, said Jay W. Lorsch, professor of human relations at the Harvard Business School and a member of the governance committee that advised the Red Cross. “The first challenge is to get a CEO who can really lead the organization,” he said. The board must then “provide the oversight to the CEO so she or he can get the job done.”

Nomination Process

The national Red Cross also plans to change the process for nominating its board members. Currently, Red Cross chapters get to nominate and elect 30 of the board’s members — a structure that critics have said gave chapters too much control over the board makeup.

The new system would set up a board committee that would conduct a national search for candidates from the business, academic, and nonprofit realms. Chapter delegates would still elect board members at their annual meeting and would be able to petition for nominations.

Several local Red Cross executives said they were happy with the changes and were not worried that the new nomination system would dilute their power. “We will still have a lot of input into the process,” said Sam Tidwell, chief executive officer of the American Red Cross of Greater Miami & the Keys. “Chapters are going to have as much opportunity as ever to get names in.”

Leslie Schaffer, executive director of the American Red Cross Central Iowa Chapter, in Des Moines, said the change would make it easier to select board candidates who possess particular skills — financial or legal, for example — that the charity needs.

She also praised the plan to create a new body, the National Leadership Council, through which Red Cross volunteers and local employees could advise senior managers on some management issues. “We’re going to be able to drive some issues, to bring issues up through this new process,” she said.

Charity observers say that how the proposed changes play out in practice will be the real test.

“What matters for trust is results,” said Mr. Light, the New York University professor. “People will be looking at how well they do in the next blizzard or the next hurricane.”