SENATOR GRASSLEY GETS WHAT HE WANTS: RED CROSS DISGORGES THOUSANDS OF PAGES OF INFORMATION

The American Red Cross may not have been transparent before Senator Grassley made his recent request for information, but it is now.  The Senator posted the Red Cross’ response to his request on the Senate Finance Committee Web site today, apparently in anticipation of a roundtable between an august body of nonprofit experts and committee staffers scheduled for this Friday (March 3, 2006). 

There is already one lesson for all you confidentiality fanatics out there: 

Our very own Jack Siegel's book,  A Desktop Guide for Non-Profit Directors, Officers and Advisors: Avoiding Trouble While Doing Good is scheduled to hit the streets before the end of March.  The page proofs are now complete and production is about to commence.  Here is what noted lawyer, authority, and author Bruce R. Hopkins had to say about an advance copy of Siegel's book. Jack Siegel – lawyer, accountant, management consultant, and computer whiz – takes the putative director or officer of a nonprofit organization on a useful and often entertaining voyage throughout the realm of the tax-exempt organizations universe, pointing out its quirks, foibles, and legal liabilities along the way.  His handbook will make mandatory – and arresting – reading for those who are already serving as trustees, directors, officers, and key employees of exempt organizations, particularly charitable ones. Mr. Siegel’s goal, in which he succeeds, is to help directors and officers of nonprofit organizations “make better decisions.”  He recognizes that his book is arriving in the midst of government officials’ and other policymakers’ intense examination of corporate principles and practices of exempt organizations.  He correctly notes, nonetheless, that “good governance cannot be mandated; there must be buy-in from those charged with governing.”  Siegel wisely notes the need for emphasis on what he terms the “secondary aspects” of running an organization: control, red tape avoidance, risk management, and administration.  The book is full of large policy analyses and paragraphs on the details, such as board size, board committees, board meeting formats, the contents of minutes, and the duties of officers. Salted with some excellent real-life examples, what also sets this book apart from most in its genre is the tone: the writing style, the brusqueness, the blunt.  He complains that too many directors “check their good judgment at the boardroom door.”  He advises individuals who “desire agreement and demand adulation” to stay off boards; he insists on “commitment” and “institutional tension” with the executive director.  He warns prospective directors that some organizations want, in addition to time and judgment, “either your money or your ability to raise money.”  To my delight, he extols the virtues of “some level of expenditures” for qualified lawyers and accountants. Please join me in adding this most helpful handbook to your nonprofit library. Pre-order your copy of the Guide today by clicking here

If you don’t want it known, don’t put it in writing.  The Red Cross’ response clearly contains more than a few documents that those in the organization likely hoped would never see the light of day.  These include e-mails and memos, including drafts.  Granted, confidential information can still be extracted through oral depositions.   But when put in writing, confidential information is highly vulnerable.

The information is out there now, but will anybody take the time to read the thousands of pages of raw documents?  We bet only gluttens for punishment will take on that task.  You can expect some commentary from us in the coming days, but that will require some level of review and skimming. 

With the Red Cross response, Senator Grassley released his own letter summarizing the insights he has already gained. Once again, we find Senator Grassley’s activities very disturbing. Although Congress does have jurisdiction over the American Red Cross, it is our understanding that the Senate Finance Committee is not the committee with primary jurisdiction.  The bad publicity that the Red Cross received over its Hurricane Katrina efforts has simply served as an opportunity for Senator Grassley to seize the opportunity, using the American Red Cross as a poster child to further his own efforts to federalize nonprofit governance.  The problem:  Just two weeks ago The House Select Committee on Hurricane Katrina released its report entitled Failure of Initiative: Final Report of the Select Bipartisan Committee to Investigate the Preparation for and Response to Hurricane Katrina (February 15, 2005).  (Click here for our post on the Select Bipartisan Committee Report.)  Although the report was highly critical of federal, state, and local governments, it described the Red Cross’ performance during Hurricane Katrina in a largely favorable light.

Having said that, here is what Senator Grassley has learned to date:

Attendance.  Senator Grassley writes:

I am troubled by the number of the board of governors, particularly government-appointed board members, who rarely attend board meetings and often send representatives who do little more than sit in a chair. This nonattendance by government appointees is regardless of administration – an example of bipartisanship the American people could do without. In addition, some of these government officials have a direct conflict with the two hats they wear. For example, the Secretary of Health and Human Services who sits on the Red Cross board also oversees the Food and Drug Administration, which has been engaged in significant oversight of the Red Cross on blood issues.

I believe that presidential appointees can add much value to the work of the Red Cross. However, these appointees must be willing and able to do the heavy lifting that should be expected from the board of a multi-billion dollar organization. Moreover, at a time when we have very real governance problems in the charitable sector, the federal government should be leading by example by naming active and engaged board members.

We must admit, we are puzzled by this complaint.  Those government appointed board members should show up at board meetings, but is their lack of interest the fault of the Red Cross?  If Mr. Grassley is going to raise this line of criticism, he might want to expand his review. Just imagine how many laws and regulations mandate that federal government officials serve on various nonprofit boards.  We suspect that the attendance by those government officials is not much better than apparently was the case of the federally-appointed Red Cross board members.

Assuming Congress is the body requiring federal agency representation, maybe Congress should use a little more common sense in who it demands hold a board position.  We noticed letters in the Red Cross congratulating Secretary of State Powell and Department of Health and Human Services Secretary Tommy Thompson on their appointments to the Red Cross board.  Does anyone really believe that the Secretary of State is going to show up to monthly board meetings?  Possibly appointing the under secretary or deputy secretary responsible for the State Department's response to disasters might make more sense.

Executive Committee Too Powerful.  Senator Grassley was disturbed that the executive committee rather than the full board was involved in negotiating the departure in December 2005 of the Marsha Evans, the then CEO and president of the Red Cross.  We agree with Senator Grassley on this point.  What we would like to see is the charter for the executive committee.  We have briefly reviewed the information provided by the Red Cross, but have not yet found a charter for the executive committee.  In our view, the board is primarily responsible for hiring and retention of the CEO.  Consequently, we do not believe the decision should have been limited to the executive committee.

Board Size.  Senator Grassley objected to the size of the Red Cross’ board.  Here again we agree with him.  The current board size is 50 members.  That is just too large.  A large number (apparently 30) of these directors are appointed by local chapters.  That raises an interesting question.  Should the national office be running the show, providing direction to the local chapters, or should the national office be responsive to the local chapters?  Whoever put the current structure in place  apparently wanted the national organization to be responsive to the local chapters. 

Senator Grassley’s continuing complaint that the American Red Cross is not responsive at the local level shows that simply cutting board size is not sufficient.  Although a large board may not be efficient, it at least allows the local chapters to have input.  Some sort of balance must be struck.

One solution to the size/responsiveness problem would be to divide the country into regions that correspond with geography and propensity for similar disasters.  For example, Florida, Georgia, Mississippi Alabama, Texas, and Louisiana might be the Gulf Hurricane Region.  They would be permitted to appoint one director to the board.  There might be a California, Arizona, New Mexico, and Colorado wild fire region.  Those states would appoint one director. This would significantly reduce the size of the board, but permit the local chapters to have input.  The question is whether California's senators will refrain from demanding separate California representation.  If not, the senators from Texas and Florida will likely demand separate representation for their own states.  Pretty soon, we are back to a 50-member board.

Anecdotal Evidence.  We suspect one recurring problem that the Red Cross faces is anecdotal complaints to Congress and federal officials. No doubt those complaints should be taken seriously and addressed. However, at one point in his letter, Senator Grassley states:

One example of the impact of governance on the work of the Red Cross was provided to me by an individual who was a former CEO of a state Red Cross organization for several years. This person stated that the Red Cross structure limits accountability and control and that limitation directly relates to the Red Cross failing to be successful in performing its mission.

This sort of comment from a member of Congress is disturbing.  It turns an ancedotal comment into a statement of fact without letting us know what private agendas were behind the comment or what the specific complaint was.  We imagine that following most disasters, the members of Congress representing the affected area receive complaints.  To get the attention that these members believe their constitutents want, they, too, must convert ancedotal comments into pervasive failings. 

We would very much like a report from the staff of the Senate Finance Committee that not only outlines the current governance structure at the American Red Cross, but how much influence Congress had over its evolution.  The only way to truly fix some of any governance problems at the Red Cross is to first ascertain how often Congress has stuck its fingers into the pie.  We are willing to bet that appropriations have been tied to governance requirements that have created the current structure, the one that so disturbs Senator Grassley.  Any changes to the Red Cross' structure must take into account government meddling, keeping it in check.

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THE FOREGOING IS NOT AND SHOULD NOT BE TAKEN AS LEGAL ADVICE. IF LEGAL ADVICE IS REQUIRED, THE NON-PROFIT OR OTHER PARTY IN QUESTION SHOULD SEEK THE ADVICE OF QUALIFIED LEGAL COUNSEL. If you liked this post, please visit http://www.charitygovernance.com for a description of our Guide/Tutorial for non-profit directors and officers entitled “Avoiding Trouble While Doing Good: A Guide for the Non-Profit Director and Officer.” Copyright 2006, Auto Didactix LLC. All Rights Reserved. You may not copy any portion of this post to a computer "clipboard" for re-posting anywhere or e-mailing, or otherwise reproduce this post. If you want others to review this post, you may provide them with a link to this web blog. Any use of the material or ideas in this post by reporters or other publishers shall make reference to Jack Siegel, author of "Avoiding Trouble While Doing Good, A Guide for the Non-Profit Director and Officer" and this web blog.  For additional information call 773-325-2124