Stern Warnings for the Red Cross

A key senator chides the relief charity over its governance and its emphasis on attracting good publicity

For the American Red Cross, “business-as-usual cannot continue.”

So says a key U.S. lawmaker as part of his wide-ranging investigation into the multibillion-dollar charity, an investigation that has accused one of the nation’s most prestigious nonprofit groups of allowing a weak board to rule the organization, overstepping its Congressional mandate, and fostering a culture that cares more about good publicity than good deeds.

In a letter sent last week to the Red Cross, Sen. Charles E. Grassley, an Iowa Republican who is the chairman of the Senate Finance Committee, detailed his growing concerns.

While Mr. Grassley outlined numerous grievances, his major criticism focused on the group’s Board of Governors. In particular, he said the American Red Cross board failed to properly oversee the departure of the charity’s former chief executive, Marsha (Marty) J. Evans, saying he was troubled that only a “handful of board members” participated in a December 5 meeting that led to her resignation. Those members also hired a lawyer from outside the charity to negotiate Ms. Evans’s severance package before the full 50-person board was notified of her resignation.

What’s more, the Red Cross failed to provide any memos, e-mail messages, or other documents from board members or Ms. Evans that shed light on the decision-making process that led to the December 5 meeting and its outcome.

“The fact that, according to the briefing received by [Senate] staff, Ms. Evans’s departure was done without any formal action or decision by the entire board is extraordinarily troubling,” Mr. Grassley said. “In addition, I am at a loss to understand how this all took place with basically nothing written on paper.”

He asked the Red Cross to confirm that no such record exists and that a “narrative” be provided of the events that led to the former chief executive’s resignation.

Lack of Engagement

Mr. Grassley said the lax oversight of Ms. Evans’s departure is indicative of a wider problem with the board, which is plagued by poor attendance at meetings, an unwieldy size, and conflicts of interest.

In a response to Mr. Grassley’s letter, the charity said in a statement that its officials were “fully cooperating” with the Senate Finance Committee.

“The American Red Cross is committed to learning from our prior challenges and making the necessary changes to improve the delivery of services to the American people,” it said.

E. Francine Stokes, a Red Cross board member and assistant to the president of Morgan State University, in Baltimore, defended the board’s oversight.

While she said she was not at the December 5 meeting, she felt the board was fully involved in decisions regarding Ms. Evans. However, she said she cannot remember exactly when she learned about the Red Cross leader’s departure, saying it was most likely in mid-December and that a fellow trustee told her.

A half-dozen or so other board members contacted by The Chronicle declined to comment. A Red Cross spokeswoman said Bonnie McElveen-Hunter, the organization’s chairwoman, and other officials would not comment on the senator’s investigation.

Experts in nonprofit governance said that large organizations such as the Red Cross often delegate certain duties to a small number of board members, but that for employment decisions involving the chief executive, the entire board should be included.

“It’s not good practice for a very small minority of the board to be operating in such a way that the remainder of the board is unaware of an event as important as whether to hire or fire a chief executive officer,” said Deborah S. Hechinger, president of BoardSource, a Washington nonprofit group that helps organizations build effective boards.

The six-page letter from Mr. Grassley summarizes the senator’s “early impression” after he and his staff members interviewed Red Cross volunteers and current and former employees, and reviewed hundreds of pages of documents the Red Cross provided in response to a December request.

Executive Turnover

Mr. Grassley’s investigation was triggered by the resignation of Ms. Evans, the third Red Cross chief executive to resign since 1999, and the organization’s flawed response to Hurricanes Katrina and Rita.

According to the Red Cross, Ms. Evans’s resignation was unrelated to criticism of its work on the Gulf Coast. The charity instead said that a poor relationship between Ms. Evans and the Red Cross Board of Governors during her three-year tenure led to her decision to step down.

Attempts to interview Ms. Evans were unsuccessful.

In a letter to the senator in response to his December inquiry, which started his investigation, Ms. McElveen-Hunter pledged to improve the group’s operations. “I am writing to assure you and the committee that the board shares many of your concerns and is open to changing whatever governance practices are necessary to improve our performance.”

This month, the relief group will hold a meeting in Washington with the National Association of Corporate Directors and other experts in nonprofit and business boards to discuss how the Red Cross should overhaul its governance structure. In addition, it will commission an independent audit to assess how it runs. The Red Cross Board of Governors will review the recommendations and decide what steps need to be made, said Ms. McElveen-Hunter.

She emphasized the need for changes to be made in the next 90 days or so. “Critical policy issues must be addressed well before the 2006 hurricane season begins” in June, she told the senator.

But in the letter Senator Grassley sent last week, he suggested that the Red Cross’s problems run deeper than the board, saying that the “culture” of the organization is troubling. He said volunteers who raise questions about its operations — in particular about possible misuse of donations — are often ignored or “made to feel like the skunk at the picnic.”

In addition, Mr. Grassley said he is concerned the Red Cross has overstepped its Congressional charter in response to emergencies, an issue that other members of Congress have raised. He said that many times “the Red Cross’s work is far afield or only tangentially related to the core areas that Congress defined as its purpose.”

In particular, he said the Red Cross needs to focus on disaster relief and prevention and how it coordinates its efforts with other charities.

After Katrina came ashore, leaders of other nonprofit groups complained that the Red Cross dismissed them. The Red Cross says it is changing how it operates with other emergency groups, especially small, local ones.

In its response to Mr. Grassley’s December inquiry, the Red Cross denied that it had a “poor working relationship” with other charities, but it did admit “that one of the lessons learned from the Gulf hurricanes is that there are many locally based nonprofit organizations (including some created on the spot) that are not traditionally identified with or involved in disaster assistance (and thus are not part of the Red Cross’s existing collaborative network) but that are willing and able to be active partners.”

During the next crisis, the Red Cross promised that it will provide small relief efforts with logistical support and, in some cases, money — a move the organization has resisted in the past.

Focus on Diversity

The charity also told the senator it would form more alliances with “national and regional agencies serving diverse populations.” After Katrina, civil-rights groups complained that the Red Cross did not adequately help black and Hispanic survivors of the storm, in part because it lacks minority volunteers.

The Red Cross has struggled to diversify its volunteers for some time. According to a March 2005 memo from Ms. Evans, the former Red Cross chief executive, to the Board of Governors, local chapters, and other personnel, 5 percent of its volunteers are black, 2 percent are Hispanic, and 2 percent are Asian.

“These low numbers of minority volunteers underscores the challenges facing the organization as we seek to reach out to diverse communities,” she wrote.

The memo outlines several ways the Red Cross was reaching out to minority groups; it is unclear what these efforts had accomplished by the time Katrina struck.

Among the other pieces of information the Red Cross provided the senator:

• The Red Cross national headquarters spends about $6.4-million on salary and benefits for its 64-person communications and marketing staff each year. In addition, since 2003 the organization has hired several public-relations companies to recruit Hollywood celebrities for fund-raising campaigns, help with emergency marketing efforts during a disaster, and other communications work. During its 2005 fiscal year, which ended June 30 last year, the organization paid such companies more than $230,000.

• Roughly 6 percent of the $2.12-billion the charity has raised for the Gulf Coast hurricanes has been used to pay for fund-raising costs and other administrative expenses.

• The Red Cross national headquarters accrued a $50-million operating deficit during its fiscal 2005.

In addition to the senator’s letter, the White House also suggested the Red Cross needs to make changes.

In a report released last month, the Bush administration generally praised the work of the Red Cross and other charities, saying they did a better job helping hurricane survivors than the federal government.

The administration recommended that the Red Cross remain in charge of mass care during an emergency — a role that some members of Congress have questioned — but added that it needs to do a better job working with other federal agencies.

What’s more, the report placed long-term housing and social-service responsibilities for disaster victims in the hands of the government, suggesting the White House wants the Red Cross to focus on relief work as opposed to recovery and rebuilding.

The White House also recommended that the U.S. Department of Homeland Security establish an office with the responsibility of coordinating nonprofit activities during a crisis.

Senator Grassley’s letter to the Red Cross is available on the Senate Finance Committee’s Web site at http://finance.senate.gov.

The Bush administration’s report is available on the White House’s Web site at http://www.whitehouse.gov/reports/katrina-lessons-learned.

Harvy Lipman contributed to this article.