Red Cross Ethical Culture

Bivek ojha
Business Ethics

1. Explain the possible problems in the ethical culture of the Red Cross that created the issues discussed in this case. The American Red Cross is technically a “charter non­profit organization”, which means that they receive most of their funds from the Federal Government to finance their operations, but they remain an independent entity. This is an advantage for them in terms of their financial stability, but also means that they have the Government as their main stakeholder while they are not officially part of the government. Additionally, the Red Cross receives millions of dollars in donations coming from individuals and corporations, so this adds another layer of stakeholders that is very sensitive
because it involves the general public and corporate America. Obviously, giving the historical importance of the American Red Cross, and how relevant is its mission, this is an organization that receives a lot of attention, so its ethical problems become big news on the media, especially when they refer to the use or misuse of private donations. This situation of having what I could call “bipolar personality” created a culture where multiple stakeholders are involved, thus the accountability is not completely clear. Who do they report to? The Congress? The President? The Donors? In reality apparently nobody knows this
100% and this is very likely to create ethical issues. Another problem was that the Board of
Directors of the Red Cross used to be too large, and the President of the United States appoints their members. On the other hand, the funding came from Congress, so probably there was a biased position regarding the reporting to the US Congress and other regulation institutions. This also represents that the Red Cross was in the middle of a conflict between the Executive and
Legislative branches. This was changed last year with a new law. Also, traditionally the Red Cross has not made Ethics a pillar of their corporate culture like other companies and organizations do.
They were focusing more on its mission to help during catastrophes rather than in the ethic behavior of its employees and volunteers. Most people would think that organizations dedicated to make good, to help others, to altruist endeavors, are naturally inclined to be free of ethic problems, but in many cases what an organization does has little to do with the behavior of its associates. In conclusion, an organization like the American Red Cross cannot assume that working in a good cause will automatically keep it apart from ethic and accountability problems.

2.
Name some of the problems the ARC has encountered with handling donation money. As mentioned before the ARC has fail in attending two mayor disaster of the American history.
They have also failed to manage the monetary donations made to assist those in need. First of all, they did not clearly inform the citizens the purpose of the monetary donations. Second, they also fail to control the funds effectively and in an efficient way. They were not transparent and the dishonesty of the employees led to many frauds. After September 11 monetary donations poured in at an unprecedented rate. The ARC set up a separate fund, called the “Liberty Fund” and by the end of
October the received $543 million in pledges. The ARC wanted to use more than half of the donated money; for the relief efforts for September 11, to increase the organization’s ability to prepare for and respond to future catastrophes. Healy attempted to defend the use of the money, saying it was clear to donors that not all gifts would go directly to immediately relief efforts. Subsequently the
ARC announced that all the Liberty Funds monies would go to September 11 victims and their families. Another mismanagement and misuse of the funds was reflected after hurricane Katrina.
Volunteers complained of unauthorized use of computer equipment by staff and other volunteers
to

add donated money to debit cards for their own good; which was supposed to be use to for immediate use by hurricane victims. An ARC call center employee was also fund writing money order in the name of various relief victims and then, illegally cashing them herself. As a result, the
ARC was involved in all of these frauds, because of their mismanagement and lack of an ethical code of conduct. They did not have an effective code of conduct presented to the volunteers; they should also set an ethics training program, in order to improve volunteer’s understanding of working for a non­ profit organization. Since there is a lot of money involved in the organization, employees should learn how to handle situations were money is poured in at an extraordinary rate.
They should also have better control over computer usage and money orders and debit cards handling. Therefore they should definitely seek for help in order to gain back their reputation and provide a better service to the community. 3. What are some of the reasons for the ARC’s ethical dilemmas, and how can the organization guarantee that these problems will not recur in the future?
Some of the reasons for the ARC’s ethical dilemmas were caused by the frequent executive turnover in the first decade of the twentieth century that weakened the organization’s ability to carry out its federal mandate. This was caused in part for the oversized board of directors that the organization had, that focused on hiring and firing, with constant changes in leadership, debilitating the organization instead of focusing on building a strong and stable Red Cross and in real problems the organization faced related its mission as underinvestment in telecommunications, technology and other infrastructure. This occurred because the organization focused more on governance and management, investing much time in the search and training of top executives instead than focusing in its principal function of saving lives.
The organization faced ethical issues as charges of overcompensation and possible corruption among its board of directors and upper management. The agency has been awarding large severance packages to executives, affecting the organization’s reputation. For example, upon her departure in 2001, Bernadine Healey received $1.9 million in salary and severance pay when she left in 2001.
Another ethical issue faced by The American Red Cross is that they used large part of funds donated for the relief efforts of the September 11 disaster for other purposes, as to increasing the organization preparedness for future catastrophes, and other Red Cross needs, creating strong debates in the community. The ARC also made improper, questionable and fraudulent management of donated funds in Hurricane Katrina and Hurricane Rita at all levels including at its federal, state and local counterparts, failing to follow established procedures and Red Cross rules. The organization faced numerous cases of misconduct into the local chapter of the organization, using the organization’s money for personal profits as in Louisiana, Pennsylvania, and New Jersey, where executives and managers stole donations and in Maryland where a the executive also forged signatures on purchase orders meant for disaster victims.
After the scandals of the September 11 and the Hurricane Katrina, in 2006, the Congress tried to improve the problems at local chapters and the overall ARC’s effectiveness, forcing the organization to become more transparent, requiring the cutting of board members by 2012, restructuring the role of the U.S president in making board appointments and also creating an independent ombudsman position to report to Congress annually.
The ARC in the future should also try to keep the organization apolitical and independent of large businesses, monitoring private donations of corporations that could want to take advantage of their help, trying to use disasters to promote corporate products and could affect the image of transparency of the Red Cross. It will be more effective for the organization to seek cooperation and partnership with private business before the disasters to guarantee expedite relief efforts.
The organization has to plan how to deal effectively with future crisis, including how to deal with the magnitude of donations and how to expand the capacity of donation through Internet and how to install an effective collaboration system with Internet technology firms.
The ARC also need to have good management leaders and should have a more clear and efficient communication with federal and local governments agencies, stating its goals and mistakes to achieve community trust and developing strategic plans for improving its response to disasters.

4. What effect does the organizational structure and compensation have on ethical behavior among chief executives at ARC?
Both organizational behavior and compensation encourage executives at ARC to make business decisions that benefit themselves rather than the organization. Both organizational structure size and the prospect of reward create opportunities for unethical behavior. In chapter 5, opportunity describes the conditions in an organization that limit or permit ethical or unethical behavior.
Opportunity results from conditions that either provide rewards, whether internal or external, or fail to erect barriers against unethical behavior.
Organizational structure determines the manner and extent to which roles, power, and responsibilities are delegated, controlled, and coordinated, and how information flows between levels of management. The American Red Cross consists of roughly half a million volunteers and
35,000 employees. The president of the United States is the honorary chair of the Red Cross and appoints eight governors, including the chair of the board.
Chief executives are appointed by and reports to the Board of Governors. They have overall accountability, responsibility and authority for the management of the organization. The ARC has a decentralized organizational structure. As mentioned in chapter 7, such organizations have relatively few formal rules, and coordination and control are usually informal and personal. Employees have extensive decisions making autonomy because management empowers their employees. For an organization of its size, this structure makes it difficult to effectively monitor the decisions made by chief executives on behalf of the company. The ARC has encountered many ethical issues from miscommunication, monetary donation mismanagement to employee misconduct.
The ARC has a history of awarding large severance packages for ousted executives, no matter how short the term served. For instance, Bernadine Healy (1999­2001) received $1.9 million in salary and severance upon her departure and Marsha Evans (2002­2005) received a total of $780,000.
Compensation is an incentive tool, but in the case of the ARC, these compensations were not
given in the context of an ethical culture. Bernadine Healy and Marsha Evans were as forced to resign following mismanagement of the response to September 11 attacks and Bernadine Healy was ousted after the ARC’s botched handling of Hurricane Katrina. Since 2005, the ARC has had seven different permanent of acting heads. This frequent executive turnover has significantly weakened the organization’s ability to carry out its federal mandate: provide efficient and effective responses to victims of disasters.