Red Cross Lights a Fire under Congress for Reforms

The unwieldy Red Cross governance system, unchanged since the Truman administration, has devoured two ARC presidents in a bit over five years.

Many of the mainstream news sources covered the recommendations by the American Red Cross (EIN 53-0196605 Form 990) for changes in its board structure.  We'll see tomorrow how much attention is given to the report by the panel of (mostly) lawyers and professors who were charged last April to review the organization's governance. 

Here's the coverage by the Wall Street Journal (Sally Beatty), New York Times (Stephanie Strom), Washington Post (Jacqueline L. Salmon), Chronicle of Philanthropy (Elizabeth Schwinn) and an unnamed AP reporter (USA Today & many other places).  The only one of the usual suspect newspapers missing a by-line story is the LA Times. 

But I think all the press get it wrong by trying to tie this action to criticisms of the response to Hurricane Katrina.  There's no mention of that in the press release from the Red Cross itself.  Fact is, the Red Cross issued their Katrina self-evaluation report ("From Challenge to Action") back in June, noting criticisms and adopting action plans in all of the operational areas, including fund raising, corporate culture, information technology, logistics, staffing, training, volunteer relations, cooperations with local providers, financial systems, and internal controls.  And implementation of a new strategic plan has already resulted in a major reorganization at the chapter level, which we discussed back in June ("Red Cross in Transition Presses Forward on Major Reorganization").  ARC did all this under interim management without a change in the board structure.

So the governance reforms are on their own track.  They result from the resignation of the second Red Cross president in a bit over five years (Dr. Bernadine Healy in 2001 and Marsha J. Evans in 2005).  The board has little to do with the details of disaster response operations, but it does have an impact on retention of the chief executive.  And the repeated turnover at the top has to be disruptive and expensive.  And paradoxically, many of the major reforms that have taken place over the last five years at the ARC have happened under the interim leadership of Harold Decker (after Dr. Healy) and now John F. (Jack) McGuire.  There has to be a way for the organization to move forward with stable leadership. 

The reforms take the current huge board and cut it to a more manageable twelve to twenty members over the next six years.  Gone will be the special classes of board members and the ex officio positions for cabinet secretaries, whose failure to appear at board meetings has been a scandal in itself.  See "Cabinet No-Shows Cripple American Red Cross Governance" April 2 ). 

But the Red Cross is not free to make these changes.  Under its Congressional charter, only the US Congress can do that.  We'll see how long it takes for them to act.  And they still need a new leader.  The Washington Post story claims that the Bush administration persuaded homeland security adviser Frances Fragos Townsend not to take the job, leaving no obvious candidate at this point. 

The composition of the panel recommending the reforms is noteworthy.  No nonprofit governance experts appear, and only one charity (the head of a small college in DC).  The players come from the world of corporate governance, lawyers and professors: 

• The chair is Karen Hastie Williams, retired partner at the Crowell & Moring law firm, with a long career in public contract law (and seats on corporate and nonprofit boards).
• Peter Clapman, CEO of Governance for Owners USA, Inc., the former Senior Vice President and Chief Counsel for Corporate Governance at TIAA-CREF, which is prominent in its shareholder advocacy for better corporate governance.
• Charles Elson, University of Delaware, director of the John L. Weinberg Center for Corporate Governance at the University of Delaware.
• Margaret M. Foran, Senior Vice President-Corporate Governance for Pfizer Inc.
• Jay W. Lorsch, Harvard Business School, Faculty Chairman of the Harvard Business School’s Global Corporate Governance Initiative.
• Patricia McGuire, President of Trinity University in Washington, D.C. (EIN 53-0196640 Form 990) (the only charity represented on the panel).
• Paul Neuhauser, Professor Emeritus at The University of Iowa College of Law, where he teaches in the area of corporate law.

Comments

[Maureen Patrick]

You characterize Trinity University in Washington DC as a small non-profit," but it is the alma mater of Nancy Pelosi and Kansas Governor Kathleen Sebelius, among others. If those are the kinds of results produced by small non-profits, give me more!