Red Cross Ethical Culture

Bivek ojha
Business Ethics

1. Explain the possible problems in the ethical culture of the Red Cross that created the issues discussed in this case. The American Red Cross is technically a “charter non­profit organization”, which means that they receive most of their funds from the Federal Government to finance their operations, but they remain an independent entity. This is an advantage for them in terms of their financial stability, but also means that they have the Government as their main stakeholder while they are not officially part of the government. Additionally, the Red Cross receives millions of dollars in donations coming from individuals and corporations, so this adds another layer of stakeholders that is very sensitive
They have also failed to manage the monetary donations made to assist those in need. First of all, they did not clearly inform the citizens the purpose of the monetary donations. Second, they also fail to control the funds effectively and in an efficient way. They were not transparent and the dishonesty of the employees led to many frauds. After September 11 monetary donations poured in at an unprecedented rate. The ARC set up a separate fund, called the “Liberty Fund” and by the end of
October the received $543 million in pledges. The ARC wanted to use more than half of the donated money; for the relief efforts for September 11, to increase the organization’s ability to prepare for and respond to future catastrophes. Healy attempted to defend the use of the money, saying it was clear to donors that not all gifts would go directly to immediately relief efforts. Subsequently the
ARC announced that all the Liberty Funds monies would go to September 11 victims and their families. Another mismanagement and misuse of the funds was reflected after hurricane Katrina.
Volunteers complained of unauthorized use of computer equipment by staff and other volunteers
Chief executives are appointed by and reports to the Board of Governors. They have overall accountability, responsibility and authority for the management of the organization. The ARC has a decentralized organizational structure. As mentioned in chapter 7, such organizations have relatively few formal rules, and coordination and control are usually informal and personal. Employees have extensive decisions making autonomy because management empowers their employees. For an organization of its size, this structure makes it difficult to effectively monitor the decisions made by chief executives on behalf of the company. The ARC has encountered many ethical issues from miscommunication, monetary donation mismanagement to employee misconduct.
The ARC has a history of awarding large severance packages for ousted executives, no matter how short the term served. For instance, Bernadine Healy (1999­2001) received $1.9 million in salary and severance upon her departure and Marsha Evans (2002­2005) received a total of $780,000.
Compensation is an incentive tool, but in the case of the ARC, these compensations were not