The Red Cross is No Enron

March 6, 2002

The Better Business Bureau recently put the American Red Cross on informal probation, pulling a favorable report card of the charity from its website. The report won’t go back up unless the Red Cross answers detailed questions about how it handled the money and blood it received after Sept. 11.

The Red Cross made plenty of mistakes in the wake of Sept. 11. It promised more than it could deliver to victims of the New York City tragedies, and relied on legalese to defend an early decision to spend a portion of the $850 million in Sept. 11 contributions on administrative infrastructure.

But the Red Cross is no Enron.

The Red Cross never hid its decisions from the public, its executives never invoked the Fifth Amendment when called before Congress, and it eventually honored the implied contract in its early fundraising appeals by promising that every last penny of the $850 million would go directly to victims.

Its most serious mistake may have been in being too responsive to public pressure. By caving in to calls to spend all the Sept. 11 money on the victims, the Red Cross missed an opportunity to help the nation understand what it takes to run a charitable organization today.

It has also opened itself to ridicule as it seeks enough victims to absorb the funds, reportedly including Tribeca apartment owners and at least one New Yorker who asked the Red Cross for the money to cover the extra therapy required because she had to walk all the way from 72nd and Madison in brand-new Manolo Blahniks.

As much as Americans want their charitable dollars to go directly into program activities such as feeding the poor, treating the ill, or housing the homeless, someone has to pay for the heat, light, and telephones.

Some organizations cover administrative costs by taking a small amount from each donated dollar. Others try to raise funds for big capital projects like new buildings or new computer systems. Still others hide those costs. Charitable organizations often have to spend money on the routine in order to spend money on the noble.

It is not yet clear just how much damage the Red Cross controversy will do to the charitable sector as a whole. However, Americans are watching.

According to a Brookings Institution survey conducted in December 2001, 60 percent of Americans said they were following the Red Cross story very or fairly closely, placing it ahead of the death of former Beatle George Harrison and the Enron bankruptcy.

What is also clear is that public confidence in charitable organizations remained unchanged between July and December 2001, even as confidence in virtually every other civic institution soared. Twenty-five percent of Americans had a lot of confidence in charitable organizations before Sept. 11, and 25 percent felt the same afterward.

Finally, it’s clear that President Bush has yet to mention the sector by name in a major address to the nation or Congress, and has only touched the sector indirectly by calling on Americans to “stand up to evil with acts of goodness and kindness” by giving 4,000 hours to voluntary service to charities and faith-based groups. When America’s leaders talk about winning the war on terrorism or homeland defense, they talk almost exclusively about the armed services, firefighters, and police officers.

The Red Cross will survive this controversy, as will the United Way of America, which has also faced tough questions about its Sept. 11 fund. The charitable sector as a whole may not be so fortunate. Americans need to understand that charitable organizations need institutional capacity to operate.

Perhaps the Better Business Bureau would do well to ask the Red Cross what it, and the nation, lost by not engaging the debate about who must pay for the heat, light, and telephones.