Rizal Technological University

A Brief History of the

STUDY REPORT
A case study in examining the relevance of the ARC.

Submitted by: Dominguez, Josil B.

Bachelor of Science in Business Administration Major in Operations

Management

March 2019
PURPOSE
The purpose of this case study analysis is to understand the effect of the mismanagement
inside the organization of ARC and provide resolution.

AMERICAN RED CROSS HISTORY

ARC was established in Washington, D.C. on May 21, 1881, by Clara Barton. She became its
first president. Barton organized a meeting on May 12 of that year at the home of Senator Omar
D. Conger (R, MI). Fifteen people were present at this first meeting, including Barton, Conger
and Representative William Lawrence (R, OH) (who became the first vice president). The first
local chapter was established in 1881 at the English Evangelical Lutheran Church of Dansville,
New York.

The American Red Cross (ARC), also known as The American National Red Cross,is a
humanitarian organization that provides emergency assistance, disaster relief, and disaster
preparedness education in the United States. It is the designated US affiliate of the International
Federation of Red Cross and Red Crescent Societies and the United States movement to
the International Red Cross and Red Crescent Movement.

Organization

ARC is a nationwide network of 264 chapters and 36 blood service regions. Approximately
166,000 Red Cross volunteers, including FemaCorps and AmeriCorps members, and 30,000
employees annually mobilize relief to people affected by more than 67,000 disasters, train almost
4 million people in necessary medical skills and exchange more than a million emergency
messages for U.S. military service personnel and their family members. ARC is the largest
supplier of blood and blood products in the US, supplying 2,600 hospitals (approximately 39% of
the US blood supply). The charity also assists victims of international disasters and conflicts
worldwide, connecting separated family members. In 2006, the organization had over $6 billion in
total revenues, though revenues have fallen since Katrina. At that time, revenue from blood and
blood products alone was over $2 billion - biological services generally represents about 63% of
total operating expenses, though the unit often operates at a deficit.

The American Red Cross is divided into five divisions: Disaster Services, Blood Services, Training
Services, International Services, and Service to the Armed Forces.
Disaster Services:
Each year, ARC responds to more than 70,000 disasters, including house or apartment fires (making
up the majority), hurricanes, floods, earthquakes, tornadoes, hazardous materials spills,
transportation accidents, explosions and other natural and man-made disasters.
Disaster relief focuses on emergency disaster-caused needs. When a disaster threatens or strikes,
ARC provides shelter, food and health and mental health services (Psychological First Aid) to address
basic human needs. The core of Red Cross disaster relief is assistance to individuals and families to
enable them to resume their normal daily activities. The organization provides translation and
interpretation when necessary, and maintains a database of multilingual volunteers

The Disaster Services Workforce (DSW) system enrolls volunteers from ARC chapters into a national
database of responders, classified by their ability to serve in one or more activities within groups.
Services include feeding and sheltering ("mass care") to warehousing, damage assessment,
accounting, communications, public affairs and counseling. Responders complete training
requirements specific to the services they want to offer, backgrounds, and first aid training.

Blood Services
ARC supplies roughly 40% of the donated blood in the United States, which it sells to hospitals and
regional suppliers. Community-based blood centers supply 50% and 6% is collected directly by
hospitals. In December 2004, ARC completed its largest blood processing facility in the United States
in Pomona, California, on the campus grounds of the California State Polytechnic University, Pomona.

Training Services
Training Services is one of the five divisions of the American Red Cross, responsible for providing
health and safety training to the general public as well as the workforce. In fiscal year 2017 the
American Red Cross trained 2.28 million people how to save lives through their First Aid, CPR or AED
courses, water safety and caregiving programs. There are a wide variety of course offerings available:
 Administering Emergency Oxygen  Hands-Only CPR
 Anaphylaxis and Epinephrine Auto-  Learn to Swim
Injector  Lifeguard Management
 Asthma Inhaler Training  Lifeguarding
 Babysitter’s Training  Longfellow’s WHALE Tales
 Basic Life Support for Healthcare  Nurse Assistant Training
Providers  Responding to Emergencies
 Bloodborne Pathogens Training  Safety Training for Swim Coaches
 California Child Care  Tittle 22 (California First Aid for Public
 CPR/AED for Professional Rescuers Safety Personnel)
 Emergency Medical Response  Water Safety
 First Aid/CPR/AED (English and  Wilderness and Remote First Aid
Spanish)
In addition to basic level certifications in the above courses the American Red Cross also offers
Instructor level courses and Instructor Trainer (IT) level courses. Instructor level courses are designed
to teach participants how to become instructors for American Red Cross courses, whereas Instructor
Trainer courses (also known as Instructor Trainer Academies) are designed to certify current
instructors to become Instructor Trainers, or people who can teach Instructor level courses.
Training Services has an online store where you can purchase supplies including First Aid Kits, CPR
keychains, flashlights, and emergency radios.

International Services
ARC, as part of the International Red Cross and Red Crescent Movement and its nearly 100 million
volunteers, educates and mobilizes communities to overcome life-threatening vulnerabilities. ARC
International Services Department focuses on global health, disaster preparedness and
response, Restoring Family Links and international humanitarian law dissemination. ARC is involved
with international projects such as the measles Initiative, malaria programs in Africa, disaster
response and relief efforts in response to the 2004 South Asia tsunami

Haiti
On January 12, 2010, a magnitude 7.0 Mw earthquake struck the Haitian coast 10 miles from the
capital of Port-au-Prince, causing massive damage, more than 200,000 deaths and displacing nearly
2 million people.
Global health
ARC International Services global health initiatives focus on preventing and combating infectious
diseases such as HIV/AIDS and measles on a large scale. Through cost-effective, community-based
health interventions, ARC targets people in need and focuses on accessibility and equity of care,
community participation, and integration with other community development initiatives, such as water
and sanitation projects and food and nutrition programs.
 ARC International Services health programming is the Measles Initiative, launched in 2001, as
a partnership committed to reducing measles deaths globally. The initiative provides technical
and financial support to governments and communities on vaccination campaigns and disease
surveillance worldwide.
 In December 2006, ARC became a founding partner of the Malaria No More campaign. The
campaign was formed by leading non-governmental organizations to inspire individuals,
institutions, and organizations in the private sector to support a comprehensive approach to end
malaria, a devastating but preventable disease.
International tracing requests
ARC handles international tracing requests and searches for families who have been separated. This
service attempts to re-establish contact between separated family members. Restoring Family
Links services provide the exchange of hand-written Red Cross Messages between individuals and
their relatives who may be refugees or prisoners of war. At any given time, ARC Restoring Family
Links program is handling the aftermath of 20–30 wars and conflicts. The worldwide structure of Red
Cross and Red Crescent National Societies and the International Committee of the Red Cross make
this service possible. When new information from former Soviet Union archives became available in
the 1990s, a special unit was created to handle World War II and Holocaust tracing services.
International humanitarian law
ARC International Services educates the American public about the guiding principles of international
humanitarian law (IHL) for conduct in warfare as set forth by the Geneva Conventions of 1949. In
doing so, ARC International Services provides support to ARC chapters in their IHL dissemination
efforts, offering courses and providing instructor training.

Service to the Armed Forces.

ARC provides emergency and non-emergency services to the United States military. The most notable
service is emergency family communications, where families can contact the Red Cross to send
important family messages (such as a death in the family, or new birth). ARC can also act as a verifying
agency. The agency operates call centers to provide these services. ARC works closely with other
military societies, such as the Department of Veterans Affairs, to provide other services to service
members and their families. ARC is not involved with prisoners of war; these are monitored by
the International Committee of the Red Cross, an international body.

Body of the Case Study

A. Problem
B. Summary Of The Problem
C. Recommendation
D. Summary

A. PROBLEMS

The first decade of the twenty-first century saw a high rate of turnover in the boardroom at the
Red cross. Since Elizabeth Dole’s resignation as chair in 1999, ARC has had seven different
permanent or acting heads.

Executives Turnover

 President Bernadine Healy (1999-2001) was forced to resign following mismanagement

of the response to September 11 attacks,
 President and chief executive officer Marsha J. Evans (2002-2005) was ousted after the
ARC’s botched handling of Hurricane Katrina, though the official reason for her departure
was communication problems with the board.
 Mark W. Everson was president and CEO for the brief period between May 29 and
November 27, 2007. He was forced to resign after an inappropriate sexual relationship
with a subordinate came to light.
Leadership troubles have extended into the local chapters as well, indicating systematic
problem:

 In a story on the ARC, CBS News cited a laundry list of misconduct: “the fund raiser in
Louisiana caught padding her own bank account with donations;
 the manager in Pennsylvania who embezzled to support her crack cocaine habit; and;
 the executive in Maryland who forged signatures on purchase orders meant for disaster
victims.”
  One of the biggest charity frauds in history occurred at the ARC’s Hudson County chapter
in New Jersey. Chief executive Joseph Lecowitch and bookkeeper Catalina Escoto
stole well over $1million in Red Cross funds, squandering it on gambling and gifts to
themselves.
Johnson & Johnson suit over Red Cross image

 On August 7, 2007, Johnson & Johnson (J&J) filed suit against ARC over its sublicensing
of the Red Cross image for the production of first aid kits and similar products, which it
alleged competed with the company's products. The suit also asked for the destruction of
all non-Johnson & Johnson Red Cross Emblem bearing products and demanded that ARC
pay punitive damages and J&J's legal fees.
Hurricane Katrina controversy

 In March 2006, investigations of allegations of fraud and theft by volunteers and

contractors within ARC Katrina operations were launched by the Louisiana Attorney-
General and the Federal Bureau of Investigation (FBI).
Blood donation controversy

 ARC faced criticism from lesbian, gay, bisexual, and transgender (LGBT) advocacy
organizations for prohibiting men who have sex with men (MSM) from donating blood
Storms controversy (Hurricane Sandy, Isaac, other major storms)

 In October 2014, independent public interest news

broadcasters NPR and ProPublica published investigative reports on the Red Cross's
handling of US East Coast Hurricanes Sandy and Isaac, citing internal Red Cross
documents and interviews with former Red Cross and government officials. It criticized the
organization's response in failing to meet the immediate needs of victims. It also described
"an organization so consumed with public relations that it hindered the charity's ability to
provide disaster services."
 The systematic problems at the American Red Cross have continued, with the nonprofit
running about a $200 million deficit and eliminating 1,000 jobs in 2008 alone. Management
turmoil and a slow economy combined to dampen fundraising, and the new CEO, Gail
McGovern, split the organization’s number two executive position into three separate
president level positions.
 Some of the Red Cross' financial donors have been angered to find out that some of the
money they donated was diverted to fund future relief efforts, instead of the disaster that
prompted their donation. For example, about $200 million of the $1.1 billion collected in
the aftermath of the 9/11 attacks was put aside to fund future relief efforts. Donor
complaints resulted in the money being shifted back to 9/11 relief, the resignation of Red
Cross president Bernadine Healy, and a promise of greater transparency in the agency's
financial dealings in the future. Despite those efforts, complaints surfaced again in 2005,
when funds donated for relief from Hurricane Katrina were not earmarked for long-term
rebuilding (something for which Red Cross funds are not traditionally used).
B. SUMMARY OF THE PROBLEM
The problem in ARC started from simple issue that lead the to major problem from the executives
down to the local level.
Here’s the factors that lead the ARC to a major problem:
1. Professionalism
2. Transparency
3. Communication
4. Responsibility
5. Failure to provide immediate and sufficient relief to victims of disasters.
6. Poor coordination to local government unit and agencies Services
7. Underinvestment with telecommunication, technology and infrastructure.
8. Failure to provide immediate and sufficient relief to victims of disasters.

C. RECOMMENDATION
Create a team to evaluate and revise current emergency response system with further provisions
on control and security. Reestablish rules and regulations on admission and training procedures of
volunteers, Centralized information system and reorganize organizational structure
 community services that help the needy;
 communications services and comfort for military members
 the collection, processing and distribution of blood
 educational programs on preparedness, health, and safety;
 international relief and development programs.
 Select team members
 Gather Facts
 Review current system
 Identify agency requirements
 Enumerate problems encountered
 Make an analysis
 Recommend to the board
 Inform approved system to stakeholders
 Proceed to other alternative courses.

D. QUESTIONS
The American Red Cross Faces Organizational Integrity Challenges

1. Explain the possible problems in the ethical culture of the Red Cross that created the
issues discussed in this case?

Answer:
On the surface, the American Red Cross is a remarkable organization that makes a huge
difference in the lives of those in need after a disaster such as September 11, 2001 and natural
disasters. The organization itself is huge and with this it brings some natural challenges as with
any large organization. Some of these issues stem from the corporate level while some of these
are on the front line.

On the corporate level, there is the possible ethical issue of overcompensation of employees.
With a huge board and high turnover rate of top executives, it is no wonder why there are
allegations of overcompensation. For top executives, there is a generous severance pay involved
even when some executives have not been with the company for a full year.

On the front lines, there are issues with management and supervision. With most of the company
made up of volunteers, it is too easy for these volunteers to partake in unscrupulous activity
without the managers ever knowing. From theft to embezzlement, the Red Cross has seen it all,
especially in times of a major crisis. For example, during Hurricane Katrina, the Red Cross did
not follow their procedures for screening volunteers and in turn had felons volunteering. Granted,
not all of the felons were there to take advantage of the situation, but it goes to show how these
actions could potentially lead to the demise of the organization in the long run.

2. Name some of the problems the ARC has encountered with handling donation money.

Answer:
With donations pouring in at an astonishing rate, it is hard to keep track of every dollar that comes
into the organization. That is where technology becomes a huge factor, and of course as we all
know, technology can sometimes cause more problems than we plan for. For example, the lack
of technology at the ARC causes issues left and right. The ARC is in dire need of updating their
equipment and software in order to effectively handle their priorities and operations. One of the
public uproars stemmed from the fact that the ARC was going to use some of the money from the
9/11 donations in order to update operations. Of course, this is highly unethical as these funds
that were donated were to be directed towards those affected by the disaster.

Another factor is the lack of control of their money supply. Although there are internal control
methods at the top, on the local levels there is a severe lack of control. This is evident in the
amount of funds that has been embezzled from the organization. If two people are capable of
embezzling over one million dollars, just imagine what else is going on behind the scenes with
donor money. In addition, the lack of control of technology allows this embezzlement to be done
on the front lines. If a computer that is used to transfer need related funds gets into the wrong
hands, it is simple for one volunteer to take money and run.

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?

Answer:
The one factor that this case boils down to is money. The majority of the organization’s problems
is based off of the fact that money rules the world and power the desires of mankind. With that
said, there are still many issues within the organization on their handling of donor money.
Everything from receiving to distribution of these funds need to be more closely monitored. This
stems from the lack of formal leadership in the head of the organization.

There is too much turnover within the organization, and it is leaving the ARC in shambles. With
the constant changes in leadership styles from CEO to CEO, the employees are left with very little
to have faith in. There is too much inconsistency and until this is corrected, there will continue to
be problems within the organization.
As for correcting these issues, one of the main things that the organization must establish is a
transparent relationship with their stakeholders. They need to be clear on what funds are coming
in, how the money is going to be divided even before the organization sees the funds, and finally,
where the funds are going during disaster relief. In order to implement these changes, the
organization needs consistency at the top level of management. Without this, the ARC will
continue to be untrustworthy and full of greed.

4. What effects do organizational structure and compensation have on ethical behavior

among chief executives at ARC?

Answer:
As noted earlier, within the organization there is an extremely high rate of turnover at the top level
of management. With this turnover, there essentially is a breeding ground for unethical leadership.
With all managers at the top receiving a handsome severance package, it is no wonder why many
take the position only to leave in less than a year. This instability at the top trickles down
throughout the organization. This trickle-down effect is what allows the unethical conduct on the
frontlines. A company restructuring and a strong foundation is needed to stop this unethical
behavior from happening.

REFERENCES: