Impacts of Public Expectations on Non-Profit Organizations: A case Study of The United States’ Red Cross

Abstract

American Red Cross earned a bad name and reputation after it spent part of donations that were collected for victims of September 11^th attack in other organizational activities such as in preparation for future disasters. In addition, since the attack the American Red Cross has received criticism on how it utilizes the resources generated for specific crisis. As such, this paper investigates the effects of such criticism on the Red Cross’s operations.

Introduction

Several philanthropy experts, aid groups, the media and general public criticize the United States Red Cross for spending money donated for specific catastrophes in unrelated purposes. For example, in 1995 Oklahoma City bombing, the Red Cross raised over $13 million in donations but only dispersed $2.6 million to the victims; in 1997 Red river flooding the organization was ordered by Attorney General to distribute more $4 million to the victims and during September 11^th despite Red Cross raising more money than it needed, a larger proportion of the funds were used to support other causes (Carson, 2002). However, it clearly indicated in its website that the money was specifically meant to provide necessary services to the victims of the attack.

Research Question

As such, MCLauughlin or Decker would have conducted a research to investigate factors that affect the transparency of American Red Cross financial expenditures and impacts of lack of transparency on the organization’s operations

Research Question Hierarchy

Since the Red Cross relies heavily on the generosity of the citizens for the funds that it needs to run its operations efficiently, transparency is critical to the success of the organization (Schindler, 2004). Therefore, the research should first focus on factors that might affect the donors’ relations with the organization. Secondly, the research should discuss the main financial management techniques that Red Cross should adopt in order to address such concerns.

Analysis

Given that the United States’ Red Cross image is largely determined by the major players in non-profit sectors, this research uses a variety of data collected by philanthropy groups and researchers. The paper also analyzes several interviews on the effects of non-profit organizations such as Red Cross’s reputation on such organizations relationship with the general public. Specifically interviews collected after major crisis such as September 11^th attack and the 2005 Katrina hurricanes. However, owing to the fact that some reporters publish untrue information, the paper does not rely on data from independent journalists (Schindler, 2004). This is also because such journalists are motivated by either personal interests or political factors to ruin Red Cross’s image.

Results

There are two main misunderstanding between the donors and the Red Cross. First, some donors do not understand that Red Cross cannot raise funds without incurring overhead. This means that donors perceive that part of funds incurred in meeting such expenses are embezzled by the organization. Fremont-Smith, Boris and Steuerle (2005) assert that most donors’ believe that most of the donations that are saved for future events are lost through corruption and fraud. Secondly, others expect all the money to be distributed to the victims immediately to the victims which might not be possible because some victims’ needs cannot be met within a short period of time. For example, the need to rebuild infrastructures destroyed during the Katrina Hurricane could not be achieved immediately after the crisis but after some time (Fremont-Smith, Boris and Steuerle, 2005). Consequently, several donors feel that their hard earned is not put into appropriate use.

Such scandals have negative impacts on the amount of money raised through the donations. Studies indicate that potential donors were discouraged from making more donations to the organization. Wang, Chan, Pfeiffer, and Nicholson (2013) found that number of citizens that volunteered during major crisis declined by 26.5%. In Sweden the number of volunteers decreased from 188,295 in 2010 to 160, 698 in 2011. The high rate of volunteer decline is attributed to the transparency scandals surrounding charity organizations. Similarly, Swedish Red Cross during fund raising observed that volunteers were reluctant to give money to the organization due to transparence scandals. Additionally, with increasing number of non profit organizations, competition for volunteers has intensified. Wang, Chan, Pfeiffer, and Nicholson (2013) further found that positive image is not only an impacting factor behind the choice of organization that volunteers donates to but also has substantial influence on organizations that donors wants to be associated with. Taking a similar stance, Jones (2013) asserts that volunteers can never be satisfied with an organization unless they share the same interest with the organization. That is, in most cases volunteers are interested in enhancing their self esteem by identifying with attractive and successful organizations. While a bad image or reputation is perceived as undesirable specifically for attracting and retaining donors. In other words such image crisis embarrasses those who are associated with the underperforming organizations. Therefore, Red Cross must work on improving its relationship with the general public.

At the same time, failure to put the generated funds for the specific needs often mislead the victims. For example, the victims are often made to believe that they are eligible to receive the donations, only to learn that they would not receive or get lesser amount than they expected. Carson (2002) cites that Americans made donations during 9/11 attack believing that their money would go to victims of the attack but instead the Red Cross set aside a large proportion of the donations for future little disasters. This is the main reason why the organization resolved to notify the donors that all the amounts collected would be used to provide the necessary services to the victims of particular catastrophes (Fremont-Smith, Boris and Steuerle, 2005). Red Cross also promised to seek for donor’s approval before spending such donations and to discontinue soliciting funds immediately the needs for a particular disaster have been met.

However, the organization has not kept its promise. For example, it could not convince the donors that approximately $2 billion that was raised for the 2005 Katrina flooding was used for the rightful purpose. Fremont-Smith, Boris and Steuerle (2005) cite that Goodhand’s audit indicated that the Red Cross did not routinely check the background of the volunteers; could not account for several cars, generators, air mattresses and computers, transported food stuff to places where they could not be cooked and could not meet the basic needs of the beneficiaries, for example it could not supply the victims at Mississippi with water for drinking.

Similarly, the recent blood scandal where Red Cross’s blood bank organization was fined $4.6 million for failure to screen blood donations; also indicates that despite the organization having enough resources to run its operations efficiently, it still fails to fix its key problems. Jones (2013) cites that the company’s struggles with blood safety rules began in the early 1990s and since then the company has been fined severally for violating the blood rules. This implies that a significant proportion of donations are used for meeting unnecessary costs that could be avoided.

Limitations

Although most of accusations are true, some negative publicity arises due to misperceptions. Several researches have indicated that the public expectations are unrealistic because most of the societies affected do not understand the nature of Red Cross’s operations. Schindler (2004) observed that editors and reporters obtained information from less informed and junior staff, which in turn affected the credibility of the information that they passed to the public. Similarly Fremont-Smith, Boris and Steuerle (2005) found that heightened public expectations means that the United States citizens would never be satisfied with the Red Cross’s services. Therefore, Red Cross should clearly state officers who are allowed to communicate with the press and other government agencies.

Recommendations

Owing to such misunderstandings Red Cross’s image and reputation have been tarnished, therefore to regain donor’s trust the organization must carry out more reforms. Jones (2013) argues that although the organization has implemented impressive reforms, it still needs to educate the public on its mission. That is, the organization should create awareness on the role of the public in ensuring the success of the organization. However, such awareness would only achieve its objectives, when the organization accounts for every cent that it receives from the public. Therefore, in addition to raising awareness on the sources of conflicts between Red Cross, the press and the general public; the organization should employ competent staff. Moreover, to prevent variations that might arise between the exact costs spend during a disaster and the budgeted costs, Red Cross should train its staff on proper utilization of resources.

Contents of Red Cross Financial Plans (RFP)

Red Cross admitted that it does not set aside funds, to assist in managing future calamities but raises funds only after a disaster has occurred. This implies that the organization would not meet the needs of the victims in case it raises less amount of money than required. Therefore, the organization should raise money in advance and only raise extra amount when the initial amount would not adequately carter for the emergency expenses. At the same time, in order to maintain huge pool of money for future disasters, Red Cross should run regular advertisements to solicit for donations and organize for periodic fund raising. This would improve the Red Cross’ image. For example, the adequate funds would allow the organization not only to respond first to such disasters but also provide high quality services to the victims thereby restoring the public trust in the organization.

Sampling Decision

In this case Red Cross’ sampling decision would mainly be influenced by population (the number of respondents), and levels of accuracy. Population helps in categorizing the responds into various subgroups. Such subgroups include target population, respondent population and strata. Target population refers to respondents that Red Cross intends to interview; respondent population refers to the actual persons that were interviewed while strata refer to specific segment of population that were investigated. For example, strata might include journalists, non governmental organizations or other aid groups and general public. At the same time, in order to obtain accurate information Red Cross must ensure that it interviewed all its stakeholders. That is, since the information obtained would be used in formulating new financial policies, it would be more effective when all the parties that would be affected by the policies are consulted.

Survey

If the research was conducted through survey nominal, ratio and ordinal scale would be used.

Nominal Scale

Nominal scale refers to placing data into categories without any order or structure. Since the respondents have different opinions on the factors that affect Red Cross’ transparency, the organization can first collected the data and group the opinions according to their similarity.

Ordinal Scale

Ordinal scale ranks data collected in terms of power measurements. For example, Red Cross can ask the respondents to rank its management and financial practices from the most effective to the least effective.

Interval Scale

This is rating the findings based on a predetermined or standard scale. For example, Red Cross can request the respondents to rate their level of satisfaction with its financial management practices on a 10 point scale.

In conclusion, the U.S. citizens’ commitment towards Red Cross would significantly improve if the organization restores its positive image. It is evident that most people want to identify with successful organizations, suggesting that the bad name that the Red Cross earned as a result of negative publicity is a major impediment to the organization’s strategic goals and objectives. Therefore, by implementing more transparent financial management policies and techniques, Red Cross can turn this challenge into an opportunity to regain its lost glory.

References

Carson, E. D. (2002). Public expectations and nonprofit sector realities: A growing divide with disastrous consequences. Nonprofit and Voluntary Sector Quarterly, 31(3), 429-436.

Chindler, P. (2004). Can research rescue the Red Cross? Retrieved 5, October, 2013 from http://highered.mcgrawhill.com/sites/dl/free/0073521507/855241/CanResearchRescuetheRedCross.pdf

Fremont-Smith, M., Boris, E., Steuerle, E. (2005). After Katrina: Charities’ responses to disasters expectations and realities. Washington, D.C.: The Urban Institute.

Jones, M. M. (2013). The American Red Cross from Clara Barton to the New Deal. Baltimore: Johns Hopkins University Press.

Wang, D., Chan, V., Pfeiffer, A., & Nicholson, H. (2013). Volunteers’ identification and commitment in a publicly disgraced organization. Lund: Lund University Press.