Red Cross President Resigns Under Pressure From Board

Bernadine P. Healy, president and chief executive officer of the American Red Cross, announced that she will resign her post after the charity's board voted 27 to 5 that it had no confidence in her ability to manage the organization in the wake of the September 11 disasters.

Dr. Healy, whose resignation will take effect on December 31, 2001, has come under severe criticism over how the charity should spend the more than $529-million raised to benefit victims of the terrorist attacks. In addition, over the past few weeks, a growing chorus of Red Cross chapter officials, employees, and others associated with the charity had privately criticized her management decisions, causing serious internal friction at a time when the organization was facing unprecedented demands on its services.

Dr. Healy did not mention it, but sources said that the charity's Board of Governors earlier this week took a vote on whether members had confidence in her leadership and the vote went against her. The board did not directly call upon her to resign, although it is possible they would have done so at a board meeting already scheduled to take place in Washington Saturday.

Red Cross Board Chairman David T. McLaughlin told a news conference held after Dr. Healy's announcement to employees about her departure that the board had been "solidly behind" her. "She had a choice, and she was the one who elected to step down. The board did not force that," said Mr. McLaughlin,

Aside from concerns about the Red Cross's approach to disaster-relief fund raising, critics also worried about Dr. Healy's leadership style, which they describe as autocratic and arrogant. They said that she was unable to work effectively with local Red Cross chapters and with other nonprofit groups on a response to the terrorist attacks and that she had caused morale at the national organization to drop to an all-time low. Several key employees have left, either voluntarily or by force, since Dr. Healy took over the charity's helm two years ago.

"When you have a 50-person board, you have a lot of differences of opinion," Dr. Healy said at a press conference held after her announcement. "The board has to have the CEO that they have complete agreement with. And that's all." Said Dr. Healy: "When you have a very large board, there are times when people get on different wavelengths, and I think it's time to move on."

She added: "I think the board felt that perhaps I was out ahead of them in some ways in making policy that they thought they should be making, and I guess it really boiled down to that."

Dispute over Israel's Red Cross

Dr. Healy attributed her departure in part to her stand in favor of withholding overhead dues to the International Federation of Red Cross and Red Crescent Societies until the Red Cross movement recognizes the Magen David Adom, Israel's Red Cross society.

The matter is a major diplomatic issue that includes changing the Geneva Conventions, which is beyond the control of the Red Cross movement.

The Red Cross policy to withhold dues "is now up for grabs," said Dr. Healy in her resignation speech. "Reasonable people have differed with me on this and certain other matters, but this is an area of deep principle for me not easily compromised." However, an internal memo sent on Friday by the national headquarters to Red Cross staff members, said that the charity had not changed its policy on withholding the overhead dues, and implied that the matter was not an issue related to Dr. Healy's departure.

Dr. Healy also said that "reasonable people can differ" over whether money raised for the charity's special Liberty Disaster Fund, which she created specifically to help victims of the September 11 attacks and related programs, should be "comingled" with other Red Cross disaster funds.

"There were matters of difference [with the board] as to whether a separate fund should be there, and I respect those differences and the board is the one who decides," Dr. Healy told the news conference. She said that the board "may have felt" that she broke charity policy by creating the fund "without their approval." But, she said, soon after the fund's formation, Mr. McLaughlin and the board did approve her action. Even so, she said, "it's caused a little bit of friction."

Mr. McLaughlin said that the Red Cross board would soon appoint an acting chief executive officer -- while Dr. Healy keeps the title of president through December 31 --  and begin a search for a permanent president and chief executive officer.

In recent weeks, questions have been mounting over whether the Red Cross and Dr. Healy have been candid about how much of the money raised after the attacks will really go to victims, their families, and rescue workers, and whether the charity can spend the dollars in a way that will be consistent with the desires of the public, the charity's Board of Governors, and the 1,000 local Red Cross chapters around the country.

Many people, both inside and outside the Red Cross, have expressed concern that Dr. Healy has focused more on raising extra money to expand the Red Cross's reach through long-term blood and anti-terrorism programs than on accurately evaluating the needs of September 11 disaster victims and communicating them clearly to the public.

"Dr. Healy's attitude seems to be, 'If the money is there, we'll find a program to spend it on,'" said one former Red Cross employee, who, along with many of the more than two dozen other people interviewed for this article, requested anonymity because of fear of retaliation from Dr. Healy or her close advisers.

Questions About Liberty Fund

Dr. Healy has not responded to repeated requests by The Chronicle for an interview. But in an internal memorandum to Red Cross officials in which she announced the creation of the Liberty Disaster Fund, Dr. Healy talked about some of the concerns.

"Some have suggested that we might raise more than we need to respond to this attack on America's spirit, liberty, and national security, and that contributions should be placed in our general disaster fund," Dr. Healy wrote. "I can assure you that we will only raise more money than we need if we do less than we should."

In a national television interview on Wednesday, Dr. Healy for the first time wavered about asking for more money for the Liberty Fund and made a point to leave that choice to her board. "We are at just about $500-million, which is what we need," she said. "We are not now probably going to go beyond that specifically for the Liberty Fund. But of course our Board of Governors will decide what to do."

The charity's Liberty Fund has a complicated history.

Immediately following the terrorist attacks on September 11, the Red Cross told the public that money raised by the charity would be spent to respond to the attacks and for future disaster-relief efforts, reflecting the charity's standard policy, painstakingly formed, of making sure that funds can be used in a flexible way for more than one crisis.

But Dr. Healy soon took the unusual step of creating the Liberty Disaster Fund to earmark all donations received by the Red Cross since September 11 for terrorism-related relief efforts. Some observers say Dr. Healy broke board policy if she formed the special Liberty Fund without consulting with or gaining approval from the Board of Governors itself.

In fact, some maintain that Dr. Healy erred when she created the Liberty Fund separate and distinct from the Disaster Relief Fund, which traditionally is used to help victims of disasters such as hurricanes and floods. According to the Red Cross Web site, the Liberty Fund "will support the immediate and emerging efforts of the American Red Cross to alleviate human suffering brought on by the attacks of September 11. All donations received since September 11, 2001, will be placed in this disaster relief fund."

The Red Cross board wants the organization to keep about $50-million on hand in its regular Disaster Relief Fund, because dealing with a major natural calamity can cost that much within a couple of weeks. One Red Cross official told The Chronicle last month that the fund contained about $50-million before September 11; another charity source said that the fund's balance had recently dropped to about $30-million, low enough to alarm many charity workers.

Some observers remember -- and do not want to repeat -- a controversy in 1998 when the attorney general of Minnesota accused the Red Cross of failing to spend millions of dollars in donations that had been raised and earmarked for flood victims.

The Red Cross denied the charges. Yet the organization carefully made sure thereafter not to ask donors to give to specific relief efforts but to the general Disaster Relief Fund so that money raised could go where it was needed.

"The Red Cross made such an effort to build an understanding of the general fund in the public's mind that to arbitrarily set up a new fund really upset people" in the charity, said one former employee.

Bill Blaul, American Red Cross's senior vice president of communication and marketing, acknowledged in an interview before Dr. Healy's resignation that "it is a concern that the national Disaster Relief Fund is below what we believe to be an optimal level."

But, he said, "the American Red Cross has such a strong combination of public awareness, of brand identity, and community presence that with an appropriate amount of effort we can fund raise the cost of every and any disaster-relief job that we would encounter in the future."

Credibility With the Public

No one affiliated with the organization doubts the intense dedication -- and high quality -- of services provided by the legion of Red Cross employees and volunteers throughout the country.

But some say that the response of the charity's national headquarters and Dr. Healy since September 11 threatens to undermine the institution's credibility with the public.

Critics charge that Red Cross headquarters has been intentionally fuzzy in describing how money donated after the recent terrorism attacks would be spent on victims. Until recently, the Red Cross and Dr. Healy did not make clear that most contributions to the organization's Liberty Fund will not ultimately go directly to victims and their families or to rescue workers.

Instead, huge sums will go to help the charity "expand into new programs of aid never before required," according to the Red Cross's Web site, including plans to handle terrorist attacks involving weapons of mass destruction and a new way to make blood supplies last longer.

Some say that the Dr. Healy's big plans for the future may have much merit. But, said the chairman of a mid-sized Red Cross chapter, who asked not to be named, "donors must be fully informed before reallocation of their funds -- and Web site announcements just don't do the job."

Meanwhile, Dr. Healy herself has given differing descriptions of how the money raised will be spent.

In videotaped appeals that have appeared widely on television, Dr. Healy describes what the Red Cross is doing to help people affected by the terrorist attacks and makes a general plea for donations of blood and money without specifying their use. "Together we can save a life," she says.

Earlier this month, Dr. Healy, in a radio interview, provided a broader description. "Recognizing the scope, the intensity, and the fact that virtually every one of our lines of work is going to be involved," she said, "we immediately created what we call our Liberty Disaster Fund, which is specific to this particular disaster and its aftermath. And all of the funds go in there and are related to our priority activities."

Mr. Blaul said that "there is no confusion whatsoever" in the way the Red Cross has depicted its plans. "Yes, of course, the Liberty Fund is different," he said. "It's different because what happened on September 11 is exceptionally different than a hurricane or a tornado or an earthquake or a flood. The organization had to look in the mirror and say, 'Are we ready for other weapons of mass destruction events or terrorists attacks?' -- and then act."

For the first time, on October 15, the Red Cross on its Web site offered a partial detailed explanation of how it intends to spend a large chunk of the money that goes into its Liberty Fund for "near-term response costs."

The charity said that it would devote $300-million to $320-million "to provide ongoing disaster relief" following the terrorist attacks, including $100-million for a Family Gift Program to help families that have lost a breadwinner as a result of the terrorist attacks, and to cover their near-term financial needs such as food, clothing, utilities, transportation, mortgage or rent, tuition, funeral, and related expenses, "and other time-sensitive expenses."

As of last week, the charity had spent about $40-million on the program, and recently ran advertisements in newspapers encouraging qualified people to call a special charity phone number to request assistance. Dr. Healy has said that she thinks many people who qualify for money have not understood that the help was available and that she expects many more requests to roll in.

While the Red Cross offers no further detailed public explanation of its long-term plans, a memo obtained by The Chronicle, which Dr. Healy recently wrote to chapters and volunteers, says that the Red Cross will need "several hundred million additional dollars" over the next 18 to 24 months "to prepare for future terrorist attacks."

Dr. Healy said that the additional money would be used to "invest in our chapters" to do such work as developing "preparedness standards" that would include "training and development in responding to weapons of mass destruction."

Another program would focus on "assuring blood readiness" through the strategic reserve, while others would focus on creating "a whole new level of volunteer recruitment, screening, training, and development, continued engagement, retention, cultivation, re-training, and deployment," and on being prepared as an organization to respond to "future terrorist attacks and catastrophic events which may be multifaceted and which may occur concurrently in multiple cities and regions."

Some observers worry that Dr. Healy's overall plans were too ambitious and way beyond what many donors are prepared to endorse -- or even understand, based on the Red Cross's descriptions of the plans.

"I question if they will support capital purchases for a blood-training program and/or our staff expansions for a war that is likely not to be, as we would normally label, a 'war,'" Terry J. Sicilia, chief executive officer of the Mile High Chapter of the Red Cross in Denver, told a top Red Cross official in a letter that was obtained by The Chronicle.

Mr. Sicilia said the national organization was in danger of becoming its own "worst enemy" by hurting local chapters that seek to raise money for their own needs.

"At minimum, our chapters' biggest competitor for charitable dollars is our national organization -- how much money can we 'take' before the well dries up?" asked Mr. Sicilia, who made clear he was speaking only for himself.

"Let's remember that over the coming years, these donors will be among the heart and soul of local United Way employee campaigns and our own monthly fund-raising efforts," he said. "How we treat their gifts of time, money, and blood now will directly impact their support of chapters down the road."

He added that "a recovery plan may be needed -- for both chapters and the national sector." Mr. Sicilia wrote his letter just before the national headquarters sent chapters its breakdown of how it plans to spend funds in coming months. He could not be reached to elaborate upon his letter.

Mr. Blaul discounted fears that local chapters and other charities would be hurt financially because so much money had been given to the Red Cross Liberty Disaster Fund.

"The American public regards September 11 as an exceptional, unique occasion in which we all give a little more, do a little more, reach a little deeper," he said. "Will people simply stop giving because they feel they have already provided some financial assistance for that disaster? No, and I don't think there's any evidence or data to support that."

Turmoil and confusion have roiled the Red Cross organization, some observers say, in part because of what they describe as Dr. Healy's imperious management style.

"She has single-handedly brought about the complete decline in the morale of an otherwise wonderful organization," said one current employee, who asked not to be identified. "The American Red Cross is such a great place, and it is being stood on its head by a single person and her group of cronies."

Some members of the charity's board were also worried about Dr. Healy's leadership abilities. One reason for their concern, sources said, was the charity's sudden firing in September of two well-regarded top officials (each with 30 years or more of Red Cross experience) who ran the Red Cross's Disaster Operations Center.

The firings came just days after the September 11 attacks and followed the departure of a number of Red Cross employees during Dr. Healy's tenure, including a top aide to Dr. Healy, several key fund-raising staff members, and officials involved with blood, chapter, and volunteer services.

Dr. Healy allegedly explained the firings of the disaster workers by personally telling the departed employees' co-workers at the operations center, "Welcome to corporate America." Red Cross officials could not be reached for comment on the episode.

Mr. McLaughlin, chairman of the charity's board, has said the firing of the disaster operations officials stemmed from "operational difficulties" and "problems responding to the Pentagon disaster" in the days after the terrorist attacks on September 11, although he said that the charity was still able to provide undiminished services to the public.

Before Dr. Healy's resignation announcement, Mr. Blaul said that, despite the firings, morale at the charity is high, the result of Dr. Healy's management style that matches a clear vision with close consultations with coworkers. "She acts professionally and with speed," he said. "That's what she's brought back to the Red Cross. A lot of passion, yes. And toughness and dedication to the mission."

Chris Thomas, a spokesman for Dr. Healy, said that Dr. Healy is "a visionary leader and a change agent who really has turned this organization around. She has made it relevant in America again and made our services relevant to the public."

Mr. McLaughlin said in September that the board had "total" confidence in Dr. Healy's abilities. "Her management style and that of her predecessor, Elizabeth Dole, are very different," said Mr. McLaughlin, which he said was understandable and fine. "There have been a lot of changes in the management structure, but they were things that were felt to be needed to strengthen the operations, particularly the biomedical-services side. Dr. Healy managed that and managed it brilliantly."

Dr. Healy's leadership style has become an issue in recent weeks because the national organization increasingly will have to coordinate its work with others as it continues to respond to the terrorist attacks.

Dr. Healy refused to provide detailed financial information for a database of aid recipients set up by New York Attorney General Eliot Spitzer, contending that the computerized system would violate victims' privacy and lead to people not seeking services.

The Red Cross later said it would ask its clients if they wanted to sign a waiver and participate in the database. On Wednesday night, after repeated requests from Mr. Spitzer, the Red Cross agreed that it would help create a central database.

In his letter to the Red Cross official, Mr. Sicilia of the Denver chapter urged national headquarters to take care not to erode public credibility in the organization. He referred to criticism that the Red Cross suffered in 1989 for an allegedly slow and inadequate response to a major earthquake near San Francisco.

"We observed first-hand what happened locally and nationally when the public, at best, questions, and at worst, loses confidence, in our ability to properly expend the funds they have entrusted to us," wrote Mr. Sicilia. "I fear we are in real danger of the same today