Triage: Can a bleeding Red Cross heal itself?

By Keith C. Epstein

updated 6:03 a.m. ET Feb. 7, 2008

The Armory on Manhattan's East Side at 26th Street and Lexington Avenue near Gramercy Park, is a grim, mostly windowless fortress of brick. A little over six years ago, after the terrorist attacks of September 11, the vast, 100-year-old former weapons warehouse became a sort of Ground Zero of the human heart. Sheltered from TV cameras, thousands of New Yorkers lined up inside in pain, hope, and desperation to find loved ones as bodies were still being pulled from the rubble. The distressed and distracted filled out long forms, provided dental records, recited wedding band inscriptions, tried to describe scars and tattoos — all of it more clues for the coroners. Some needed counseling; others simply needed an ear. All had to wait for hours.

Heat inside the building soared to above 100 degrees. Not a compassion center, thought Bernadine Healy, at the time the chief executive of the American Red Cross. Ellis Island circa early 1900s. Rows of bureaucrats, long waits, dingy, dour conditions — in short, a mass of people in need being treated callously.

In the chaos, Healy spotted Red Cross volunteers standing along the walls, doing nothing. Healy was sure they cared but after demanding an explanation, the volunteers just shrugged, saying they didn't know exactly what to do. To Healy, it seemed obvious that volunteers should mix with people in need of counseling, compassion and comfort. They shouldn't need permission to care. Victims were like patients, she reasoned, and she lost no time telling then-Mayor Rudy Giuliani that the armory was an abomination and that he had to do something.

It worked. Authorities moved the compassion center downtown, to Pier 94. Queues moved. Air conditioners started humming. Healy's example worked, too. Volunteers mixed.

Though no longer a practicing cardiologist, Healy had always tended to be a doctor in demeanor, no matter her situation. But her no-nonsense approach never seemed more pressing than on 9/11, during those hours of national emergency when she realized just how far from its sterling, well-earned reputation the nation's oldest emergency relief organization had strayed.

Controversies drain donor dollars
Dealing with the Armory was one thing. But dealing with the Red Cross, itself, would not be so easy. Within a month, Healy was ousted by her 50-member board.

Four years later, the Red Cross board also would force out Healy's successor, Marsha Marty Evans, a former Navy rear admiral, amid a similar echo chamber of bad press alleging poor preparation, failure to meet victims' needs, and unmet promises of reform. That time, the criticism came in the maelstrom of Hurricane Katrina.

Then it happened again. Last November, the board forced out newly appointed CEO Mark W. Everson, again amid controversy. Everson was hired away from his post as director of the IRS in May 2007, then sacked some six months later amid scandal surrounding an extramarital affair with a local chapter leader.

It's not usually the buzz of personal scandal that surrounds a departing CEO. Most often, it's been talk of bitter struggles between Red Cross management and its board of directors. And now, the Red Cross is at the center of another storm—a precipitous decline in donor dollars that it says will force the lay off of 1,000 people in March from the ranks of the ARC's national headquarters. Troubles continue to plague the nonprofit's blood bank organization, fined $4.6 million by the Food and Drug Administration on Thursday, bringing the total number of fines imposed by regulators to more than $20 million. The FDA is alleging that the Red Cross has failed to properly screen blood donations for pubic safety.

But troubles with blood banks and donor dollars tell only part of the story. In truth, the organization's problems are widespread — and strike at the core of its culture, as well as its mission and its plans for the future on a new philanthropic landscape where calls for doing more with less are the norm. Can the Red Cross heal itself?

Its leaders say yes. A year ago, in a massive public relations campaign aimed at reassuring potentially skittish donors that the Red Cross is now truly bent on reform, the nonprofit's leaders vowed once more to be ready and more responsive — not only to hurricanes but to the storms swirling around their own organization. They quickly curbed some shortcomings, launched an outside review of governance, and hinted at the possibility of eventual changes imposed by Congress.

‘We're eager ... to get this right’
"We are absolutely committed to making the Red Cross the best it can be," Bonnie McElveen-Hunter, the board's chairman, said at the time. McElveen-Hunter, a publishing company entrepreneur and former ambassador to Finland, has overseen the board shrink from 50 members to the current 28. That board, and its size, has itself encountered serious scrutiny and it may end up getting downsized even further in an organizational reengineering. "We're very eager as a board to get this right," she has said.

Chris Carlson / AP Mindy Pinkus and Jim Blair of the Red Cross survey the damages caused by a wildfire that engulfed the Live Oak Mobile Home Park in Fallbrook, Calif., on Oct. 27, 2007.

Some people, though, are not so sure. Peter Dobkin Hall, lecturer on nonprofits at Harvard University's John F. Kennedy School of Government, says: "I don't think they have a clue about the real nature of their problems or how to solve them. They're still somewhat deep in denial."

More clear is what the challenges being faced by the Red Cross suggest about the peril to all nonprofits of failing to fix key problems, stick to their core missions and make the long-term management and strategy changes required in today's era of heightened public and political scrutiny. What other nonprofits learn from the Red Cross and its struggles toward reforms, say nonprofit experts, could provide valuable lessons in survival and globalization for all.

A history of woes
To be sure, the American Red Cross has been dogged by controversy, even before 9/11. Healy, for example, had ample evidence that the nonprofit was seriously ailing long before the terrorist attack on the World Trade Center: A million dollars had been stolen in a New Jersey chapter, and still the chapter wanted to keep the person employed. An audit in Boston noted that money the ARC had been given there was not easily traceable. Local chapters from Boise to Buffalo, when they needed cash, had been dipping into a national disaster fund thousands of times a year, collectively, though most disasters were house fires, not catastrophic tragedies. Healy also had struggled, without success, to free the organization from a cloud of repeated violations of blood safety rules — some so serious that the Food and Drug Administration sought to levy millions of dollars in fines.

Meanwhile, the Washington, D.C.-based Red Cross could be strangely absent when needed the most. The September 11 terrorist attacks were a shocker for everyone, but even so, on that morning, after the planes hit, no volunteers had gone to the Pentagon — no specialized teams, no equipped emergency response vehicles, not even cots for the firefighters. Aghast, Healy urged her teams to the scene at the Pentagon. Then, to get needed supplies to New York City, Healy improvised. When Amtrak offered a few seats on a train, she asked for the entire train. She got five mail cars.

After 9/11, the situation only worsened. The organization had collected too much blood while valuable red cell supplies went unused. The Red Cross also seemed to have more money than necessary. Americans making donations after 9/11 thought, naturally enough, that their money would go to victims of the attacks. Instead, it turned out, the Red Cross routinely set aside money from big disasters in case of future little ones — money for use by local chapters to finance their many smaller needs.

The Red Cross also wasn't working well with others. A 2002 study by the General Accounting Office, the watchdog arm of Congress, concluded that collaboration could enhance charitable organizations' contributions in disasters — a not-so-veiled hit on the Red Cross for failing to cooperate with other humanitarian organizations.

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