Red Cross CEO Gail McGovern, who was hired to revitalize the charity, has cut hundreds of chapters and thousands of employees.
by Justin Elliott
When Gail McGovern was picked to head the American Red Cross in 2008,
the organization was reeling. Her predecessor had been fired after
impregnating a subordinate. The charity was running an annual deficit of
hundreds of millions of dollars.
A former AT&T executive who had taught marketing at Harvard Business
School, McGovern pledged to make the tough choices that would
revitalize the Red Cross, which was chartered by Congress to provide aid
after disasters. In a speech five years ago, she imagined a bright
future, a “revolution” in which there would be “a Red Cross location in
every single community.’’
It hasn’t worked out that way.
McGovern and her handpicked team of former AT&T colleagues have
presided over a string of previously unreported management blunders that
have eroded the charity’s ability to fulfill its core mission of aiding
Americans in times of need.
Under McGovern, the Red Cross has slashed its payroll by more than a
third, eliminating thousands of jobs and closing hundreds of local
chapters. Many veteran volunteers, who do the vital work of responding
to local fires and floods have also left, alienated by what many
perceive as an increasingly rigid, centralized management structure.
Far from opening offices in every city and town, the Red Cross is stumbling in response to even smaller scale disasters.
When a wildfire swept through three Northern California counties in
September, the Red Cross showed up but provided shelter to just 25 of
1,000 victims at one site. Because of the charity’s strict rules and
disorganization, many evacuees slept outside for over a week, even when
the weather turned bad. “These families were sleeping in the rain with
their children,” said Wendy Lopez, a local volunteer.
Local officials were so angry they relieved the Red Cross of its duties.
The Red Cross had closed chapters in the area last year. “You’re seeing a
huge loss of experienced staff,” said John Saguto, a 15-year Red Cross
volunteer in Northern California.
Some emergency planners around the country have concluded they can no longer rely on the charity.
“I essentially wrote Red Cross out of my Local Emergency Operations Plan
and advised many other Emergency Managers across the state to do the
same,” wrote Tim Hofbauer, an emergency management director in Nebraska,
in a 2013 email to a Red Cross executive.
This year, the Red Cross quietly made cuts in the formula it uses to
determine cash benefits to victims of home fires and other disasters. A
family of four whose home burned down previously could have received
around $900 in immediate assistance. Now they would get a maximum of
$500.
Over the past two years, ProPublica and NPR have examined the charity’s
flawed responses to major disasters, including the 2010 earthquake in
Haiti and Superstorm Sandy in 2012. A broader look at McGovern’s seven
years as chief executive shows her team has repeatedly fallen short of
its own goals to secure the organization’s financial future and improve
its delivery of disaster services.
McGovern declared in August 2013 — her fifth anniversary on the job —
that she had executed a “turnaround” that made the Red Cross a
“financially stable’’ organization with balanced budgets in three of the
previous four years.
Behind the scenes, however, losses were mounting. The organization ran a
$70 million deficit that same fiscal year and has been in the red ever
since. Internal projections say the charity will not break even before
2017.
As part of her effort to run the Red Cross more like a business,
McGovern recruited more than 10 former AT&T executives to top
positions. The move stirred resentment inside the organization, with
some longtime Red Cross hands referring to the charity as the “AT&T
retirement program.’’
McGovern laid out a vision to increase revenue through “consolidated, powerful, breathtaking marketing.”
“This is a brand to die for,” she often said.
Her team unveiled a five-year blueprint in 2011 that called for
expanding the charity’s revenue from $3 billion to $4 billion. In fact,
Red Cross receipts have dropped since then and fell below their 2011
level last year.
McGovern declined to be interviewed for this story. Our account is drawn
from interviews with present and former Red Cross staffers and
volunteers, local disaster relief officials, and hundreds of pages of
internal documents.
The Red Cross defended McGovern’s track record in a statement, saying
she took over an antiquated organization that allowed each local chapter
to create its own system for personnel, technology, and bookkeeping.
The layoffs and shuttering of local chapters, the statement said, was
painful but essential for an organization that was both inefficient and
financially unsustainable.
The charity also said the cuts haven’t affected its ability to provide
aid. “Our focus has always been to cut the costs of delivering our
services — not the services themselves — and we believe we have achieved
that.” It said there has been a small increase over the last three
years in overall payments to disaster victims, though data does not
exist going back to the start of McGovern’s tenure. Of the cuts in the
formula for cash benefits, it said that preliminary data under the new
system shows that victims are still getting the same level of assistance
as in the past.
McGovern had a major accomplishment this month when a federal judge
ended two decades of special government oversight of the charity’s
blood-banking operation, which collects and sells blood to hospitals.
The Red Cross, McGovern said in an internal announcement, had achieved
“quality and compliance milestones that at one point seemed almost
unimaginable.”
Still, the unit, which is the Red Cross’ largest division, is an
increasing drag on the charity’s bottom line, in part because changes in
medicine have sharply reduced the demand for blood. In its statement,
the Red Cross pointed to those changes as the reason for the charity’s
recent deficits.
But Red Cross insiders said the blood division has also been hurt
because the charity bungled a software project and moved too slowly to
respond to an evolving industry. Internal estimates obtained by
ProPublica show that the blood business lost $100 million in the last
fiscal year, a devastating drain on the charity’s finances.
Another key source of revenue, the sale of CPR classes and other
training, has similarly struggled under McGovern. A plan to vastly
increase the revenues of the division backfired as customers switched to
less expensive providers.
Despite the failure of the plan, the former AT&T executive who
McGovern brought in to run the division and other top managers were
awarded bonuses last year, one former official recalled.
Employee morale has been damaged by the repeated layoffs — or “right
sizing,” as McGovern calls it — as well as by the perception that the
Red Cross is increasingly focused on image over substance.
A marketing department created by McGovern tried to lift spirits by
crafting what it termed the Red Cross’ “internal brand essence.” The
slogan, designed “to remind and guide us as we work,” was “Sleeves up.
Hearts open. All In.” — an homage to the Friday Night Lights television
show’s signature: “Clear Eyes. Full Hearts. Can’t Lose.”
The rallying cry hasn’t worked. An internal survey of Red Cross
employees obtained by ProPublica found just 35 percent responded
favorably to the statement, “I trust the senior leadership of the
American Red Cross.”
