Red Cross Retools Its Fund Raising to Overcome a Troubled Financial Picture

The last decade has been a financial roller coaster for the American National Red Cross. It raised $1-billion in a matter of weeks after the 2001 terrorist attacks and more than $2-billion in short order following Hurricane Katrina, but it has been plagued by deep deficits and forced to borrow money to finance its relief services.

The charity’s rank on the Philanthropy 400 reflects its shifting fortunes. Reaching No. 1 or 2 in the years of the terrorist attacks and Katrina donations, the Red Cross is now No. 16, three spots higher than it was last year.

The charity’s ability to raise money has been hampered by a slew of management problems, including criticism about its relief efforts, tension between the national headquarters and local chapters, and a revolving door in the president’s office. But now, even as the country has endured the worst recession in decades, national and local Red Cross leaders believe the charity is moving beyond those deep-seated problems and is poised to become a more stable fund-raising organization, one that can avoid such steep ups and downs.

As a sign of an improving fund-raising situation, it has met its goal to reduce its deficit by $130-million by June 2009, and now has just a $50-million gap to close.

What’s more, the group is now planning an ambitious organization-wide campaign, and taking steps to break with its long-held tradition of passively waiting for donations to pour in after high-profile disasters — focusing instead on building the kind of long-term ties to donors that produce large donations.

Chapter leaders across the country credit Gail McGovern, who took over as president of the organization 16 months ago, with the change in attitude.

In an interview at the charity’s headquarters here, Ms. McGovern said the Red Cross will probably seek $500-million in a capital campaign. However, she said the charity has not decided when to start the campaign and no large gifts to kick off the drive have been secured.

Nevertheless, chapter leaders said that Ms. McGovern’s efforts to involve them in setting a new course for the 128-year-old organization have already helped dissolve fund-raising competition between national and local branches of the charity and led to better communications with and about donors.

Michelle Houlihan, executive director of the Alaska Red Cross, said that in the past, if she approached a business such as BP, the oil company, officials there would say they already had given to the national headquarters — but she had no way to know that, leading to an embarrassing situation.

“Now when a corporation in our area gives to national, we hear about it, and everybody does the touchdown dance,” she said. “It is the message from the top saying that we are all one.”

With advice from local Red Cross leaders, Ms. McGovern has adopted a new reporting system to clarify the responsibilities of chapter leaders. Instead of each one operating independently, chapters report to division leaders who try to align the chapters to tackle common goals while also giving them additional fund-raising and other resources they can turn to, Red Cross officials say.

In addition, the Red Cross is setting up new practices to guide how chapters raise money and account for the donations obtained in their region. In the past they had fund-raising goals for local disaster-relief work, but those often competed with other goals for national disasters that received more publicity and drew donations from donors in their jurisdiction. Formerly chapters could not count gifts to national disasters in their local totals, but now they can do so.

“Basically chapters are getting credit for all of the money raised in their community,” said Randy Hutson, chief executive of the Red Cross in Seattle. “The tsunami raised a lot in our community, but we didn’t see any of it. When we came behind that to raise money, the community felt it already gave. Giving chapters credit for whatever money is raised in the community removes the competition.”

Chapters still have separate fund-raising goals for local and national relief efforts, Mr. Hutson said, but if a chapter meets the national goal and fails to make its local goal as a result, it can appeal to headquarters to make up the shortfall.

“Gail is making all the right moves in repositioning the Red Cross, and she’s effectively balancing national and local interests,” said Brian Gallagher, president of United Way Worldwide, an organization that helps the Red Cross raise money.

Reducing Board Size

Another big change the Red Cross hopes will add to fund raising, especially at the national level, is the charity’s restructured board, a shift that began before Ms. McGovern arrived.

For decades, the 50-member board was dominated by local chapter executives whom previous Red Cross presidents have accused of micromanaging the national organization. Now the board has just 18 trustees, most of whom are executives from companies like Goldman Sachs, Starbucks, and Caterpillar, not chapter leaders.

As Ms. McGovern has urged local Red Cross leaders to recruit more individuals to give, the national headquarters offered a two-day training program last year and encouraged chapters to apply.

The Alaska Red Cross won a spot, and the chapter’s development officer and four trustees attended, said Ms. Houlihan. The board members are now being given a “portfolio” of 10 potential donors who they will approach for a gift of $1,000 or more.

“We have rested on our name and not really reached out to people,” Ms. Houlihan said. “Individual giving was there in the context of direct mail, but not in the context of relationship building. Gail is trying to change that.”

To do so, Ms. McGovern is publicly setting some ambitious fund-raising targets: She wants to raise $100-million annually by 2018 from a giving club for women who donate $10,000 per year. Last year, such gifts amounted to just $7-million.

Ms. McGovern said she also wants to create a new disaster-giving program for individuals and corporations that would operate like an annual fund. Instead of relying on donors to give only after disasters occur, she said, the charity would seek regular annual gifts from people and companies who want to help protect their communities by ensuring that aid is available before tragedy strikes.

So far, chapter leaders are enthusiastic about the course Ms. McGovern is setting.

“The organization is in really good hands, and we are going to do some great things,” said Harold Brooks, chief executive of the San Francisco chapter, who has worked for the Red Cross since 1975. “We got it right this time.”