Nov. 2, 2006
UI Emeritus Law Professor Advises Red Cross On Reorganization
A University of Iowa emeritus professor of law was a member of the committee that made several recommendations -- adopted by the American Red Cross this week -- on how to reorganize the Red Cross.
Paul Neuhauser, who taught law at the UI College of Law from 1963 to 2000, was one of seven of the country's leading corporate governance experts who formed a special advisory committee to the Red Cross board of directors. The committee was charged with conducting a thorough self-examination and comprehensive review of the organization's governance practices. The Red Cross was established by Act of Congress and has a unique role under Federal law with respect both to responding to national disasters and to carrying out the United States' obligations under international treaties.
"We found that the governance set-up at the Red Cross was not conducive to the organization working well," Neuhauser said. "There were a variety of issues that were classic corporate governance issues, but this was a unique situation because the Red Cross is a non-profit organization so there are no shareholders who can address the issues. The only people who can make the necessary changes are the people who are already there, or Congress."
This six-month long governance review involved more than 100 interviews of non-profit sector governance leaders, scholars, government officials, past and present Red Cross board members and officers, management, volunteer chapter leaders, donors and others who have observed and worked with the Red Cross. The organization had come under criticism in recent years for its loose central control, and for its handling of the Sept. 11 and Hurricane Katrina crises.
Neuhauser said he was asked to join the committee in late winter and participated in its first meeting in April. The group met monthly until releasing its final report last week. He said that what the committee found was a board that was too large and too involved in day-to-day management decisions, and an organization with inadequate internal controls and not enough control by the management in the national headquarters. He said many of these problems are inherent in an organization that is made up of more than 800 local chapters and that depends on more than 1 million volunteers to respond to some 70,000 disasters per year. It also collects approximately 50 percent of the nation's blood supply and assists our military personnel.
"How do you manage an organization like that?" he said. "There are inherent difficulties in operating an organization with so many volunteers."
Among the committee's recommendations are: to focus the board of directors' role on governance and strategic oversight, explicitly delegating to management the responsibilities for day-to-day operations; to reduce the size of the board by more than half, to between 12 and 20 members, given its revised function; and to create a single category of directors, eliminating the distinction between how they are selected.
The committee's report was unanimously accepted by the Red Cross board on Monday and has received a mostly positive public response, including from Sen. Charles Grassley, who has been pressuring non-profits to improve their efficiency and accountability.
"One of the challenges our committee had was to come up with solutions acceptable to Congress, to the public, to the volunteers, to the Chapters and to all the other constituencies involved with the Red Cross," he said. "But I think we produced a report that, when fully implemented, should help create a more efficient and responsive Red Cross."
Neuhauser retired from the UI law faculty in 2000 and has been splitting his time between Maine and Florida since gaining emeritus faculty status.
STORY SOURCE: University of Iowa News Service, 300 Plaza Centre One, Suite 371, Iowa City, Iowa 52242-2500.
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