Yesterday was the big day. The American Red Cross began the rollout of its new governance structure, with a more formal plan to arrive this Thursday. You know there is a problem when...
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the description of persons who devised a plan is almost as long as the plan itself.
It is an august body who came up with this plan. All the typical governance types are listed and they all have impressive credentials. One has to ask, however, why this body of experts couldn’t have arrived at a simpler, more straightforward plan. Companies in the private sector routinely restructure their operations in far less time. Sometimes it takes just a matter of months. The Red Cross restructuring will not be complete until March 31, 2012. In the intervening six years, how many hurricanes, earthquakes, floods, blizzards, and forest fires will plague the United States and its citizens? We would not have any objections if most of changes were implemented within six months, with some minor changes phased in over the appropriate time frame. However, the most fundamental change—reducing the size of a bloated 50 member to 12 to 20 members—is what will take six years. This is utter nonsense.
Looking at the list of governors, we suspect that many of these people are selected to represent particular Red Cross chapters. None of the governors have a term that extends beyond 2009 so we simply can’t understand why it will take until 2012 to downsize the board. Moreover, the Red Cross can do what some Presidents have done at the start of a second term—ask everyone to submit their resignations and then downsize and reappoint members to a newly constituted board (with a procedure in place to make sure the board can legally be appointed). Corporate America seems to do just fine with 12 to 18 member boards so that should be good enough for the American Red Cross. We would recommend a sixteen-person board comprised of the following people:
Position 1: A corporate lawyer
Position 2: An accountant
Position 3: A banker
Position 4: A pharmaceutical company representative
Position 5. A transportation company executive with logistics and network experience
Position 6. A construction company representative
Position 7. A public health representative
Position 8. A public relations representative
Position 9. A biomedical representative
Position 10. A customer service representative
Position 11. A communications technology representative
Position 12. A computer technology representative
Position 13. A person who represents the local chapters
Position 14. A representative from FEMA or Homeland Security
Position 15. A representative from the Pentagon
Position 16. A representative from the nonprofit sector
People may quibble about our choices, but our point should be clear. The board of governors should be comprised of people who have specific knowledge that is relevant to overseeing a disaster relief and medical supply (blood and plasma) organization. In any event, the American Red Cross should get rid of regional/geographic/chapter representatives. In place of that construct, it should establish a council of representatives from the local Red Cross chapters, who then select a representative to fill Position 13 on the board of governors. We might go so far as to provide that Position 13 irotates among geographic regions every couple of years.
We would also consider spinning off the blood plasma operation into a separate, but affiliated organization. We suspect that maintaining the nation’s blood supply, although clearly related to disasters, poses its own discrete set of issues that require specific oversight. It might surprise many, but for its fiscal year 2005, the Red Cross had over $2.1 billion in revenue from biomedical services and incurred over $2.16 million in related expenses. On the other hand, it only had $411.2 of domestic disaster relief related expenses. The public views the Red Cross as a disaster relief organization. Although it is, by dollar volume of transactions, the Red Cross' biomedical operations are 5 times larger than its domestic disaster relief operations. To the extent that all this reform is movtivated by disaster relief operations, it is somewhat misplaced given that the organization's t primary center of economic activity is biomedical services rather than disaster relief. In fact, one could easily make the case that the board of governors should be spending 70% to 80% of its time focused on delivery of biomedical services and related matters. As we said, that would surprise many, but it reflects the apparent economics of this organization. Of course, we are looking at dollar volumes. It could well be that the number of employees focused on disaster relief far out numbers the number of employees focused on biomedical services. Nevertheless, a good case can be made that by splitting the organization into its natural component parts, those charged with oversight could better focus their attention. Moreover, such a split would provide far greater transparency.
The press release does a terrible job of explaining what exactly the 2012 reconstituted board will do, but we suspect the concept involves a defanged board that sets broad policy. That is not our board model. We don’t think the board should be deciding how to stock depots or how many trucks are needed to respond to a disaster. However, we do believe the board should operate with a number of committees, including compensation, audit, finance, nomination, gift-acceptance, endowment, and subject matter committees. We also believe the board should be focused on organizational risks, which in the case of the American Red Cross means receiving periodic reports regarding major issues facing the American Red Cross and performance reports following specific disasters.
We would give serious consideration to eliminating the executive committee. We always ask one question when we see an executive committee: Why do we need the other members of the board if we have an executive committee? We would expect the full board to meet on a monthly basis.
We certainly aren’t going to complain about an improved whistleblower policy. This policy appears to focus on internal procedures. We would urge the American Red Cross to give serious consideration to retaining a third party provider for this function. With one 800 telephone number (printed on all trucks, leaflets, handbooks, etc), the Red Cross could make the whistle blower mechanism easily accessible to vendors, volunteers, employees, and service recipients. The system would be available 24/7, provide for service in multiple languages, and provide for complaints to be forwarded on an anonymous basis to the appropriate responders within the organization. The service could then forward monthly summaries to the full board.
The Press Release indicates that some of the changes will require legislation by Congress. Senator Grassley has already indicated that he will work to see that the legislation is enacted quickly. This is one time that we would urge Senator Grassley to use his authority as a legislator to speed the reforms. At the same time, we hope members of Congress will have the good sense to avoid loading any legislation with unrelated provisions and earmarks. Maybe for once our elected representatives can get something done rather than turning this important legislation into another opportunity to castigate each other and spend money.
Well those are just a few observations. We await the full report on Thursday. Hopefully there will be more substance and fewer credentials.
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