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 News from Around the Americas | January 2008 
Short on Fund-Raising, Red Cross Will Cut Jobs
 Stephanie Strom - NYTimes
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| | HUMMER's relationship with the American Red Cross began in 2004, with a commitment to provide the organization with 72 vehicles that includes a combination of H1, H2 and H3 models, as well as $100,000 each year from the GM Foundation. | | |
Facing a $200 million operating deficit, the American Red Cross is preparing to cut as much as one-third of its headquarters staff, up to 1,000 employees, and pare regional management.
The cutbacks will not diminish the relief operations and other services provided by the organization, said Suzy C. DeFrancis, the Red Cross’s chief public affairs officer.
“We’ve just come to the conclusion that we’ve gotten too top heavy,” Ms. DeFrancis said, “that we are spending more than we are bringing in, and that the fund-raising environment is competitive.”
But she added, “We believe this exercise will make us strong” in delivering service.
She said the 126-year-old organization had not tapped its $800 million endowment to cover the deficit but relied instead on loans that it uses as part of its normal cash-management process. Its budget in 2007 was $3.45 billion, which includes its blood operations as well as its disaster services.
Ms. DeFrancis said she needed more time to determine whether the deficit was the largest in Red Cross history.
The organization has struggled with its fund-raising since the terrorist attacks on Sept. 11, 2001. Then, it was criticized for plans to set aside some $200 million of the donations it was receiving as a reserve fund for future terrorist attacks and to improve its own readiness for such attacks.
Under pressure from the news media and regulators, the organization quickly adopted a policy under which any money earmarked by a donor for a specific disaster could be used only for that disaster, instead of flowing into the Red Cross’s general disaster-relief fund, a pool of unrestricted money used to underwrite disaster services. That fund has been nearly or entirely depleted since then.
Moreover, the lack of a major disaster since Hurricane Katrina in 2005, when the organization raised more than $2 billion, has crimped fund-raising, former and current executives said. Last year was a case in point: The organization responded to myriad small and midsized disasters, like the wildfires in California, that did little to attract the attention of donors.
Ms. DeFrancis declined to discuss fund-raising problems specifically, other than to say that the organization had not raised enough to cover costs. “There are probably a lot of explanations for this deficit,” she said.
On the spending side, the Red Cross headquarters, housed in a palatial office building in northwest Washington, has long been perceived by many in the nonprofit industry as overstaffed.
The organization has also long relied on out-of-date technology that has increased its cost of doing business. Red Cross chapters, for instance, use a variety of accounting systems, requiring a staff at headquarters that can translate them into a common “language.” The audit process is not automated and requires a large staff to handle it.
The Red Cross has also made investments to improve its operations, like upgrading and expanding its communications equipment.
“Look, this restructuring is needed,” said one former executive, speaking on condition of anonymity because he has received no official word about the restructuring efforts. “It can be a good thing if they cut the right things, like some of the internal support functions, and focus what’s left on providing services.”
Another factor in the Red Cross’s financial travails is the revolving door at its top.
The organization has had five leaders since 2002, which shakes the confidence of big corporate donors. It took the Red Cross 18 months to find its last president and chief executive, Mark W. Everson. He was dismissed in November because of his affair with the married head of a Red Cross chapter in Mississippi.
During his six-month tenure, Mr. Everson, a former commissioner of the Internal Revenue Service, often complained about weak fund-raising, and said he had planned to pare the headquarters staff by 20 percent. This month, though, senior staff members were told that the job cuts would be deeper, two executives said, speaking on the condition of anonymity because the board had not made any final decision.
Department heads have begun notifying staff members whose jobs will be cut, former and current executives said. For example, about 60 members of the organization’s national fund-raising staff have been told they should start looking for new jobs, and members of the organization’s communications and finance staff have left recently.
Staff members have been told that the cuts will be in the range of 25 percent to 30 percent, or 750 to 1,000 positions, three employees from different departments said, but Ms. DeFrancis said no final decisions had been made.
“All those numbers are under review,” she said. “We are doing a comprehensive review meeting with the board this weekend where we will present our concepts about what needs to be done.”
The board will meet in late February for a final vote on the overhaul.
Like other nonprofits, the Red Cross is likely to be heading into a tough fund-raising environment. While a survey by the Center on Philanthropy at Indiana University suggested that the fund-raising climate at the end of 2007 was somewhat better than it was in 2006, steep drops in the stock market and consumer confidence, rising inflation, falling retail sales and pessimism about the economy do not bode well for fund-raising this year. |
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