Scandal Ensnares Red Cross CEO

November 27, 2007       Mark Hrywna      

The president and CEO of The American Red Cross (ARC) is out after less than six months – involved in an inappropriate relationship with a female subordinate. The ARC Board of Governors has appointed Mary S. Elcano, general counsel, as interim president and CEO.

The board of governors, convened in an emergency conference call, asked for and today received the resignation of Mark W. Everson. It was effective immediately. He was not in the building late today, according to Suzy DeFrancis, ARC’s chief public affairs officer.

A senior executive at the ARC brought the relationship to the attention of the board 10 days ago, said DeFrancis. “We believe the board acted very promptly,” she said.

The female subordinate will remain with the organization, said DeFrancis. The board has asked three members of Everson’s team whom he brought from the Internal Revenue Service (IRS) to stay with the organization and they have agreed, she said.

She said there was an executive board call and then a full board conference call during which Everson resigned.

“The Red Cross is more than one person,” said DeFrancis. “It’s 750 chapters and thousands of volunteers,” she said.

“Although this is difficult and disappointing news for the Red Cross community, the organization remains strong and the life-saving mission and work of the American Red Cross will go forward,” said Chairman Bonnie McElveen-Hunter, in a statement.

Everson, the former IRS commissioner, was the ARC’s eighth CEO or interim CEO in 12 years.

“I am resigning my position for personal and family reasons, and deeply regret it is impossible for me to continue in a job so recently undertaken,” said Everson, in a statement. “I leave with extraordinary admiration for the Red Cross.” He could not immediately be reached for additional comment.

The resignation comes just as the ARC’s image was being restored with legislators in Washington, D.C. “He was the IRS commissioner and we wasted a lot of time and political capital on him,” said another insider.

Everson had been seen as a stabilizing force for the organization. A respected figure who has run a multi-billion dollar organization at the IRS, he was viewed as a long-term solution for the revolving door at the ARC.

“Everyone here is shocked,” said one ARC official who declined to be identified. “Everyone had so much invested in this guy and he does this,” the official said. “This is so damaging.”

Attempts to reach McElveen-Hunter for additional comment were not successful Tuesday afternoon. A woman answering the telephone at Greensboro, N.C.-based Pace Communications, where McElveen-Hunter is CEO, said she was out of the country and not in the office.

The rumors of his replacement are already humming. One name is that of Frances Fragos Townsend, who recently stepped down as an advisor at the federal Department of Homeland Security and who was talked about as a possible CEO before Everson.

There is speculation that the Red Cross is interested in the 45-year-old, who began her career as an assistant district attorney in Brooklyn, to succeed Everson. Townsend had been homeland security advisor since May 2004 and deputy national security advisor before that.

Everson was appointed president and CEO in the spring, officially taking the position May 29, 2007 after several years as IRS commissioner. He was the eighth person to hold the CEO position in the past 12 years at the Red Cross, earning an annual base salary of $500,000. The length of his contract with the Red Cross was not made public at the time of his appointment.

Established in 1881, the Red Cross is among the nation’s largest and oldest nonprofits, though it is a quasi-governmental entity because of its Congressional charter. In the fiscal year ending in 2006, the humanitarian relief agency had more than $6 billion in total revenue.

Everson took over as the Red Cross had begun to undertake major governance reforms following criticism of its response to the Gulf Coast hurricanes in 2005 and the Sept. 11, 2001 terrorist attacks.

Two weeks before Everson took the helm of the Red Cross, President George W. Bush signed into law major governance reforms for the disaster relief agency. An October 2006 report of the ARC’s Board of Governors set forth recommendations for sweeping changes in governance that Congress approved in May 2007.

The ARC’s board includes Secretary of State Condoleezza Rice, Department of Homeland Security Secretary Michael Chertoff and Education Commissioner Margaret Spellings.

The most significant reforms included reducing the board from 50 members to between 12 and 25 members by 2009 and 12 to 20 members by 2012 while also creating a Red Cross Cabinet Advisory Council. The board called for the establishment of an Office of the Ombudsman to provide annual reports to Congress. Everson appointed his former chief of staff at the IRS, Beverly Ortega Babers, to serve as ombudsman.

The report’s recommendations also sought to clarify the role of the board “to focus solely on governance and strategic oversight,” as well as clarify the three categories of board members into a single category of membership, to be elected by the full board.

In September 2006, the Red Cross was fined $4.2 million by the U.S. Food and Drug Administration (FDA) for failure to comply with regulations as to the collection of blood products. Since a 2003 consent decree, the agency that provides 45 percent of the nation’s blood supply has been assessed nearly $6 million in penalties.

Elcano joins a club that is getting less exclusive every day, The Interim CEO Club of the American Red Cross. Comprised of the first African-American to lead the ARC, one of Georgia’s 100 most powerful people, and an attorney and a leader in the biomedical field, the ARC’s past four interim presidents are an impressive assembly.

Preceding the most recent interim president, Jack McGuire, who held the seat prior to Everson, are Gene Dyson, who substituted for president Elizabeth Dole during her 13-month hiatus from October, 1995 to early 1997; Steve Bullock, interim for seven months when Dole stepped down in January,1999; and Harold Decker, who took the reins following the controversial October, 2001 resignation of Dr. Bernadine P. Healy. McGuire was appointed following the Dec. 13, 2005 resignation of Marsha J. Evans.

“All CEOs have a delicate relationship with the board of their organization,” said Decker, during an interview with The NonProfit Times last year. “At the Red Cross, the CEO needs to remember that you have 50 bosses, in the form of the 50 members of the board of governors, one of whom is the ‘principal officer of the corporation,’ i.e. the chairman, according to the charter and by-laws.”

The ARC has been plagued by the frequent turnover of its chief executive officers for the past decade, leading many professionals — and Congress — to speculate that the issues at the ARC may run deeper than the organization has acknowledged. An ARC spokesperson had said that Evans’ resignation was due to coordination and communication issues with the board of governors. Friction with the board was cited as a reason for Healy’s departure.

Some of the most effective fine-tuning at the ARC during the past decade has been accomplished by interim leaders. Dyson overhauled an organization in disarray, and with a senior staff that a management report described as “dysfunctional.” Bullock went in and, within a restrictive seven-month period, tackled multiple initiatives that, according to Bullock, are to this day regarded highly by staff at the ARC. Decker revamped the image of an organization that was tarnished in the eyes of the media, the public and Congress.

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