Red Cross Makes a Shift to Stabilize Revenue and Give Local Leaders a Bigger Voice

After a tornado hit Joplin, Mo., last May, killing 160 people and injuring nearly 1,000 others, representatives from the American Red Cross’s national office in Washington rushed to the town and did something unusual: They let the local leaders direct the recovery efforts and quietly offered any help they needed.

“I really felt like an equal in planning the disaster relief,” says Debi Meeds, regional chief executive of the Red Cross, in Springfield, Mo., and a 21-year veteran of the relief charity.

Ms. Meeds remained the organization’s “face” to the community during the ordeal, a sign that a new approach is taking hold as the national group seeks to give more authority to local chapters.

“We wanted the people in Joplin to know that Debi was running the show,” says Jerry DeFrancisco, president of humanitarian services at the national Red Cross. “The old model of ordering people to do things in the field doesn’t work anymore.”

The changes in the organization’s structure were motivated by both money woes and other problems.

At the end of 2008, as Mr. DeFrancisco arrived from AT&T after the charity’s new chief executive, Gail McGovern, had taken over, the financial picture wasn’t pretty.

“We had mountains of debt—$209-million across the whole organization,” Mr. DeFrancisco says.

‘A Cultural Shift’

One big problem was the group’s inability to raise significant money during times when no major disasters attracted attention to the charity.

But the Red Cross was also facing difficulty with its affiliates because in the previous six years, it had been run by four leaders with different agendas.

Soon after Ms. McGovern took over, the Red Cross laid off workers and took other steps to get out of debt. But at the same time, it started working with its affiliates on a long-term plan to stabilize finances.

The Red Cross overhauled how the local groups were organized and classified them in nine geographic divisions.

Chapter leaders now report directly to regional division vice presidents rather than to local boards.

“That was a cultural shift,” Mr. DeFrancisco says. “We have long been one 501(c)(3), but we were operating like multiple ones,” he says.

“We had 700 chapters operating really as semiautonomous entities, each with a board of directors and a chief development officer. We had a lot of duplication.”

Getting the right structure for the long term meant staff cuts in 2011, following the ones made three years earlier.

The national headquarters reduced the staff size of the affiliates by 10 percent—1,000 people—and consolidated chapters, from 800 five years ago to 610 today.

The national organization reduced its own staff by 10 percent (170 people.)

Today, the Red Cross has “inverted the pyramid,” Mr. DeFrancisco says. “We have repositioned headquarters now as a support for the chapters.”

The idea comes from the business world, whose slogan is “customers are first,” he says, referring to the donors and the clients the affiliates serve. “The local affiliates work closest with those customers, so it makes sense to focus on them,” he adds.

To allow the affiliates more time to work on local causes, the Red Cross consolidated 200 payroll and accounting systems, Mr. DeFrancisco says.

The national office also took control over local fundraising. In 2010 and 2011, the national office placed a fundraising leader in each of the nine regional offices to set strategy and coach local affiliates to improve their solicitations.

Dissenters Respond

That led to some challenges from local chapter leaders who said they knew how to raise money in their own communities, he adds.

Every chapter used to be responsible for bringing in enough money to cover its own budget. When a disaster struck, the affiliates shifted gears and raised money for the disaster.

But, according to Mr. DeFrancisco, they missed opportunities to solicit local supporters on behalf of the entire organization.

“Large donors and corporations are naturally interested in the spread and the scope of the Red Cross,” Mr. DeFrancisco says, suggesting that some local chapters were not making that wider pitch.

Now he tells local chapter officials, “Instead of raising the money to pay the bills locally, let’s raise it for one Red Cross.”

In exchange, the national headquarters assures chapters that they will get the money they need for their operations.

He estimates that 80 to 85 percent of the chapters are already raising more money for the organization, though it’s still too early to attach any hard numbers to those successes, he says.

Even if local groups succeed in improving donations, that might not quell the anger in every case.

Six Red Cross board members of the Scottsbluff, Neb., affiliate resigned in August over losing control of their chapter, fundraising, and the decision-making process.

A local United Way also rescinded a $20,000 pledge to the Red Cross, saying that money raised locally should stay local, and the Scottsbluff newspaper published an editorial saying too many decisions had been made from afar.

Mr. DeFrancisco says such criticism happens any time changes are proposed. Still, to temper concerns, the national office brings in officials from its affiliates to weigh in on major decisions.

It isn’t just some affiliates that have been frustrated in the wake of the restructuring, Mr. DeFrancisco says.

For example, some staff members in the national office had hoped they would have more power, but that has not been the case.

Turning a pyramid upside down isn’t easy.

“It isn’t for everybody,” Mr. DeFrancisco says.