Case Study: American Red Cross, 2001
Prepared by Dr Martha Dede
Spring, 2008
BLOOD AND MONEY: The AMERICAN RED CROSS
AND THE TERRORIST ATTACKS OF SEPTMBER 11, 2001
Organizational Thumbnail
The American Red Cross (ARC), founded in 1881 by Civil War nurse
Clara Barton, is unprecedented in the annals of American nonprofit organizations. In 1905 it was chartered by the United States Congress to “carry out a system of national and international relief in time of peace, and apply that system in mitigating the suffering caused by pestilence, famine, fire, floods and other great national calamities, and to devise and carry out measures preventing those calamities.” (1) Today, the ARC is a powerhouse nonprofit organization, raising easily $3 billion annually. In 2004, it collected 6.5 million units of blood from 3.8 million donors. For the last 55-plus years, the ARC also has been the largest collector and seller of blood nationwide, about half the nation’s blood supply. (2)
Brief Chronology
September 11, 2001: Attacks against the World Trade Center and The Pentagon,
United Flight 93 down in Shanksville, Pennsylvania
Immediately Post-9/11: A special “Liberty Fund” was established to “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” (3) This fund represented an unusual action for ARC as it was “separate and distinct from
[ARC ’s] domestic disaster relief fund, which traditionally is used to help victims of disasters such as hurricanes and floods”. (4)
ARC President Dr. Bernadine Healy, in widely-seen television appeals, solicited donations of both blood and money “without specifying their use”. (5)
Early October, 2001: M embers of the ARC’s Board of Governors and officials of some of its 914 affiliate chapters began to express public concern about Dr.
Healy’s leadership style and decisions made as regards the use of both blood and money donations. (6) Specifically, in an early-October memo written by
Healy to the affiliates, she noted that the ARC would require “several hundred million addition dollars” over the following 18-24 months “to prepare for future terrorist attacks” and to undertake such activities as ‘developing preparedness standards’ that would include ‘training and development in responding to weapons of mass destruction”. (7)
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Late October, 2001: The ARC Board voted, 27 to 5 that it had “no confidence in
[Dr. Hea ly’s] ability to manage the organization in the wake of the September 11 disasters”. (8)
October 26, 2001: Dr. Healy resigns as American Red Cross President
October 30, 2001: Harold Decker, General Counsel for the American Red Cross, appointed Interim President to succeed Healy
October 31, 2001: ARC suspended the $564 million Liberty Fund, saying that
“Red Cross board members and management believe the Liberty Fund as it now stands will be sufficient to address immediate, near-term and long-range needs relating to the September 11 tragedies as well as necessary public education and terrorism preparedness actions”. (9)
November 5, 2001: In hearings held by members of a subcommittee of the
House Commerce Committee, Representative Bart Stupak of Michigan took ARC to task for its plans to spend Liberty Fund dollars for other than direct aid to families of those hurt or killed in the attacks. (10)
November 13, 2001: David McLaughlin, Chairman of the ARC Board announced that “100 percent” of all Liberty Fund monies would go directly to victims and families of the September 11 th attacks. McLaughlin said that donors “had made it
‘abundantly clear’ that they wanted their money devoted to victims of the terrorist attacks ,” and that his announcement “amounted to a ‘course correction’”. (11)
December 26, 2001: ARC appoints former U.S. Senator George Mitchell to oversee Liberty Fund expenditures. (12)
Over the course of the period discussed above, controversy also surrounded the
ARC’s collection of hundreds of thousands units of blood donations. In fact, during the first 24 to 48 hours after the attacks, those collections doubled and then tripled the nation’s blood supply. In the end, it had collected 400,000 extra units of blood. (13) However, as nearly all victims of the September attacks perished, that made the surplus unnecessary.
Further, blood has a 42-day shelf-life and normally, the ARC would have frozen and thawed the blood for use later; however, it did not have either the equipment, the plan, or the manpower to freeze the surplus. Hence, thousands of units of donated blood were destroyed.
“Even after conferring with the Bush administration, the U.S. Food and Drug Administration and others in the field, the
Red Cross did not inform Americans that they should donate blood at a later date.” (14)
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References
1. United States Congress, American Red Cross Charter, 1905.
2. Give.org. (Retrieved April 3, 2007) http://charityreports.give.org.Public?Report.aspx?CharityID=679
3. Williams, Grant. (2001, October 17).
“Red Cross Faces Sharp Criticism
Over Spending and Management”. The Chronicle of Philanthropy .
(Retrieved April 5, 2007) http://philanthropy.com/free/update/2001/10/2001101702.html
4. Williams, Grant. (2001, October 26). “Red Cross President Resigns Under
Pressure from Board.”
The Chronicle of Philanthropy . (Retrieved March
14, 2007) http://www.philanthropy.com/free/update/2001/102001102601.html
5.
Williams, Grant. (2001, October 17). “Red Cross Faces Sharp Criticism
Over Spending and Management”. The Chronicle of Philanthropy .
(Retrieved April 5, 2007) http://philanthropy.com/free/update/2001/10/2001101702.html
6. Ibid.
7. Ibid.
8. Williams, Grant. (2001, October 26). “Red Cross President Resigns Under
Pressure from Board.” The Chronicle of Philanthropy . (Retrieved March
14, 2007) http://www.philanthropy.com/free/update/2001/102001102601.html
9. Red Cross Press Release
10. Wilhelm, Ian. (2001,
November 6). “Red Cross’s Spending Attacked at
House Hearing”. The Chronicle of Philanthropy . (Retrieved March 20,
2007) http://philanthropy.com?free/update/d001/11/2001110601.html
.
11.
“Red Cross: Victims Will Get All Liberty Fund Monies” (2001, November
14). CNN.com (Retrieved March 29, 2007) http://cnn.allpolitics.printthis.clickabiltiy.com/pt?cpt?action=cpt&title
12. “Former Senate Leader to oversee Red Cross Fund” (2001, December
27). CNN.com (Retrieved March 29, 2007). http://cnn.allpolitics.printhis.clickability.com/pt/cpt?action=ept&title
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13.
“Red Cross Caught Red-handed: Get a Refund!” (2001, November 13).
Editorial. Washington Times . (Retrieved January 27, 2007) http://www.apfn.org/apfn/WTC_red-cross.html
.
14. Ibid.
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Case Study: United Way of America, 1992
Prepared by Dr. Martha Dede
Spring, 2008
A MATTER OF GOVERNANCE: UNITED WAY OF AMERICA, 1992
Organization Thumbnail
United Way of America (UWA) was incorporated in 1932 with the mission
“[t]o improve lives by mobilizing the caring power of communities”. Since, UWA has been a significant constituent in the flywheel of American philanthropy.
Headquartered in Alexandria, Virginia, UWA is comprised of 1,400 dues-paying and another 700 non dues-paying affiliates which, in aggregate, raise about $3.1 billion annually, and fund approximately 50,000 service-providing health and human service agencies nationwide. (1) In 1992, UWA President William
Aramony brought the organization to its knees for, variously, being a “sloppy
President”, a serial womanizer, of exercising “poor judgment” (2) and of
“haphazard” management practices. (3)
Brief Chronology
In late 1991 and extending into February 1992, the UWA Board of
Governors ordered an independent internal investigation of long-time UWA
President William Aramony for allegations of misuse of funds, fraud, tax evasion and illegal operation of satellite businesses. The investigation emerged in response to information provided (anonymously) by UWA staffers to LaSalle D.
Leffall Jr., Chair of UWA’s Executive Committee, to inquiries from a Washington
Post investigative reporter, and to demands from several UWA affiliate officials that Aramony be removed. At that time, several United Way local chapters also withheld their dues to the UWA pending the outcome of the investigation. On
February 16, 1992, the Washington Post story broke.
In a February 23, 1992, telephone conference, representatives from the
“Big Ten” (10 of the largest 14 United Way chapters) called for Aramony to step down. He refused. Three days later, the UWA Executive Committee of the Board met in a telephone conference call to determine what ought to be done. Later that same day, Aramony wrote a letter to Mr. Leffall, signaling his decision to retire immediately: “I do this because media attention is overshadowing the importance of the work of United Way….” (4).
In a video teleconference beamed to United Way chapter officials nationwide on February 27, 1992, Aramony announced his retirement, citing a
“’lack of sensitivity to perceptions’ about his spending and management practices.” Specifically, said Aramony, “I did not pay enough attention to detail or
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to the way some of my actions could have been perceived and my personal style could have been perceived by certain people” (5).
On September 13, 1994, Aramony, former UWA staffer Stephen J.
Paulachak, and Thomas J. Merlo, UWA chief financial officer, were indicted on
71 federal counts of “conspiracy to defraud United Way, mail fraud, wire fraud, interstate transportation of fraudulen tly acquired property and money laundering”.
In addition, the three were charged with filing false personal and corporate tax returns; Merlo, with perjury. All pleaded innocent. (6)
At the center of the case was Lori Villasor, Aramony’s young mistress of four years. (The affair began when Villasor was 17; Aramony, 59.) It is estimated that Aramony, who was paid $463,000 (including benefits) annually, appropriated nearly $1.2 million to support a “lavish lifestyle” with Villasor and others. That included a New York apartment, an expensive condominium in Florida, use of a limousine, a lifetime pass on American Airlines, and trips on the Concorde. (7)
The federal trial of the three took place in early 1995 and, on April 3rd of that year, Aramony was convicted of 25 counts of fraud, conspiracy, and money laundering. Merlo and Pauachak were convicted on 17 and eight counts, respectively. On June 22, 1995, the three were sentenced. Aramony received seven years in a Federal prison, and three years probation. Paulachak received a sentence of two and one half years; and Merlo, four years and seven months.
In addition, Aramony and Merlo each were ordered to pay $552,000 to UWA in restitution (8).
In January, 2000, in response to a suit brought by Aramony against UWA, a New York federal judge ruled that UWA was required to pay Aramony’s $4.4 million pension, as called for in the latter’s contract. The judge, noting that UWA had been “careless” when it approved Aramony’s pension plan, based the decision on the fac t that Aramony’s pension “did not include a stipulation covering criminal behavior”. (9)
On June 25, 1992, the UWA Board of Governors instituted a code of ethics. (10)
United Way of America Board of Directors Roster (not exhaustive), 1992
John F. Akers, Chair, IBM; Chair, UWA
LaSalle D. Leffall, Jr., Professor of Medicine, Howard University; Chair, UWA
Executive Committee
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William Howell, Chair, J.C. Penney and Company; succeeded Akers as Board
Chair later in 1992
Robert E. Allen , CEO, AT&T
Edward Brennan, Chairman, Sears Roebuck & Company
Bill Gates, CEO, Microsoft
Earle Harbison Jr., CEO Monsanto
Ralph Larsen, CEO, Johnson & Johnson
Eleanor Holmes Norton,
Charles Peebler, CEO, Bozell Inc.
Vincent Sombrotto, National Association of Letter Carriers
Paul Tagliabue, Commissioner of the National Football League
Leslie Wexner, CEO, The Limited
References
1. United Way of American website ( http://national.unitedway.org
).
2. Shenk, David. May, 19 92. “Board Stiffs – The United Way of America’s Board of Governors”. Washington Monthly . (Retrieved March 20, 2007).
( http:///www.findarticles.com/p/articles/mi_m1316/is_n5_v24/ai_12247613 )
3. Gibelman, Margaret, and Gelman, Sheldon. 2000. “Very Public Scandals: An
Analysis of How and Why Nongovernmental Organizations Get in Trouble”.
Working paper, presented at the International Society for Third-Sector Research
Fourth International Conference. Dublin, Ireland, July 7, 2000.
4. Shepard, Charles E. (1992, February 28). “United Way Head Resigns Over
Spending Habits”. The Washington Post.
p. 3.
5. Ibid.
6. “Former United Way Chief to Stand Trial for Fraud”. (1994, September 27).
(Retreived January 27, 2007). (http://scholar.lib.vt.edu/VA-news/VA-
Pilot/issues/1994/vp940927/09)
7. Moss, Desda. 1995, June 23. “Charity Embezzler Gets 7-Year Term”.
(Retrieved March 20, 2007).
( http://utwatch.org/oldnews/usatoday_unitedway_6_23_95. html)
8. Ibid.
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9. Foundation Center. 2000, January 18. “United Way is Required to Pay Ex-
President’s Pension”. (Retrieved April 5, 2007).
(http://foundationcenter.org/pnd/archives/200000118/003119.html)
10. Shepard, Charles E. (1992, June 26). “United Way Adopts New Ethics Rules,
Safeguards”. The Washington Post, p.
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