BoardRoom Briefs January/February 2016

briefs iT infrastructure Vulnerabilities “Our consultant discovered that the data on a vendor’s server did not have the proper protection and was exposed for a limited period of time. From May 15, 2014 through June 1, 2015 some of your personal information including name, member number, date of birth, Social Security number and/or driver’s license number was exposed.”

What club would ever want to have to alert its members to a situation like this? Too few clubs truly understand the vulnerabilities of their IT systems. Most rely on third party providers to protect them – but rarely test the level of protection they are receiving. An iT VulneraBiliTy sTudy is designed to identify internal and external network vulnerabilities and verify that appropriate infrastructure patches are being applied and are up-to-date.

Failing to properly secure the internal network is the primary cause for recent high-profile data breaches. For clubs, concerns about protecting membership lists and addresses, corporate bank accounts, possibly member credit card numbers, employee information and other types of sensitive data have to be regarded as an enterprise-level risk. A data breach only requires one mistake, or unpatched vulnerability, to potentially wreak havoc on your network. Breaking into an organization usually requires effort, but once they are in, attackers can quickly gain full control of critical assets and often operate undetected for months or even years. Club boards and management should consider performing an information technology vulnerability study on a recurring basis to ensure the integrity of club data. brb

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Table of contents Technology IT Infrastructure Vulnerabilities - p1 Board Top Mistakes Made by Boards - p3 Micromanagement - p2 Board Orientation Vital for Success - p9 Defining Habits for Board Meetings - p6 MeMBership MarkeTing Membership Challengers/Solutions - p2 Can a 501(c)(7) Club Advertise? - p3 cluB Out of Sight; Out of Mind - p8 Effective, Sustainable Change - p4 Improve Member Experience - p6 Club Wellness Facilities - p8 Bylaws - Boring or Terrifying? - p9 green Improve Water Efficiency - p4

iT VulneraBiliTy sTudy

JANUARY /F EBRUARY 2016 VOLU ME 1 | ISSUE 1

Boardroom Briefs is complimentary to Boardroom magazine subscribers.

This newsletter offers content that goes beyond the buzz, by surfacing and summarizing important industry information. Each issue will offer practical insights from industry experts with a focus on fit for boards, board presidents and paid management.

John g. Fornaro / Publisher dee kaplan / Advertising

heather arias de cordoba / Editor dave White / Consulting

If you have a story idea, please contact heather@boardroommag.com or call (949) 365-6966.

For more information please visit www.BoardRoomMagazine.com. Interested in advertising, please email dee.kaplan@gmail.com or call (310) 821-0746.

conTriBuTing WriTers and indusTry resources Lisa Carroll / search executive & consultant, Kopplin & Kuebler / lisa@kopplinandkuebler.com Rick Coyne / CEO PCMA / rcoyne@clubmark.com Bonnie J. Knutson Ph.D. / professor, The School of Hospitality Business, MSU / drbonnie@msu.edu Dr. Ellen Lebow / (305) 933-6930 Philip Newman / partner, RSM / philip.newman@mcgladrey.com Ted Robinson / partner, Private Club Associates / tcr@privateclubassociates.com Robyn Nordin Stowell / attorney, Sherman & Howard / RStowell@shermanhoward.com Mitchell L. Stump / CPA, author of Club Tax Book / www.clubtax.com John R. “Jack” Sullivan / associate, Kopplin & Kuebler / jack@kopplinandkuebler.com Mark & Harvey Weiner / partners, Search America / www.searchamericanow.com GCSAA / Golf course Management Magazine, January 2015 USGA / USGA.org

Membership challenges/solutions Micromanagement Many volunteers join boards because the mission is important to them. Many believe in working with others to achieve that mission, and they want to use their skills and leadership abilities to achieve the club’s vision.

But if either the board, a single board member or management see its role as being entirely responsible for getting the job done – frustrations will be inevitable.

Many general Managers ask “hoW do We sTop The Board FroM MicroManaging?”

When insTead, The quesTion should Be “hoW can The paid ManageMenT and The Board cooperaTe in leading The cluB?”

The solution lies in the more complex path of acknowledging that neither can do it alone and that collaborative governance is the only solution. Ask questions that will engage the board and the paid management to work as partners in developing solutions.

The GMs and COOs who regard their boards as impediments to management or, as some have said “more trouble than they are worth,” are playing a part in creating boards that are just that.

Just when we think things are moving in the right direction financially, oil prices plunge. Just when you get the membership close to full, a major employer announces they are relocating.

While many market occurrences are unpredictable, focusing on what we do know will not only place your club more consistently in the path of your market, it will also create a foundational platform for growth that will leave your club less vulnerable to unforeseen market occurrences. Here are some of the conditions that clubs and membership directors, in particular, should be prepared to address in 2016.

1. naTional groWTh in golF is sTill sluggish. Building golfers from your nongolfing membership may provide a pipeline. This involves getting the pro staff onboard and promoting non-golfer events to learn the game.

2. Very FeW MeMBers leaVe When Their golF handicap is sTeady or loWering.

More time at less cost to members to keep their games in shape may provide a near immediate reduction in attrition.

3. WoMen conTinue To Make The VasT MaJoriTy oF discreTionary decisions.

This means she exercises great influence on whether a family joins and whether they remain members. Women will continue to increase their buying influence requiring that clubs pay greater attention to what is important to her. Here’s a hint. Lifestyle, family and offspring.

4. releVancy MaTTers. No matter the type of club, golf, tennis, city, or yacht, providing greater relevancy to your members will ensure guest invitations, reduced attrition, increased usage and satisfaction. Sustainability will not be

predicated on price so much as the relevant value provided to the member’s lifestyle needs.

5. cluBs serVe TWo coMMuniTies; your exisTing MeMBers and Those ThaT you Wish To aTTracT. Everything you do internally creates the external perception. Your brand is the by-product of everything the club is providing. If you cater strictly to golf, the perception and brand will be “golf club”. The more you “specialize” in one specific element of your 360 degrees of activities, the less market you will attract. Creating relevance across age, gender, and family conversely increase market share.

6. eVeryone’s a sTakeholder. Cross education and participation in the membership process among all club stakeholders will be foundational to developing a sustainable membership strategy and process that builds brand, increases relevance to the two communities, and enhances market share.

The greatest challenge that I see is getting everyone onboard with a common vision of their role in the membership process. Impressions of the club are made with every touch. Each department plays a role and must be supported by the general manager and board.

Remember, if the club is not offering what is relevant to its market, price will simply not matter. Know your market well. Both of them! brb

On the other hand, GMs and COOs who view their boards as sincerely supportive and partners with great potential to help, will create boards that are part of the solution rather than part of the problem. brb MeMBership soluTions page 2

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can a 501(c)(7) club advertise from a Tax standpoint?

The IRS provided an information letter calling attention to a well-established interpretation and principle of tax law.

“1. Readers asked: Can a 501(c)(7) tax-exempt membership organization advertise to the general public that memberships in the club may be available to qualified applicants? … There is not a per se rule on advertising for participation, availability or membership. The form and nature of the adVerTising For MeMBers May Well Be perMissiBle given the nature of the social club and its activities and operations.

2. Readers asked: Can a 501(c)(7) tax-exempt membership organization advertise to the general public for public patronage or participation in club activities by nonmembers, as long as the nonmember income does not exceed the 15/35 percent limitations? … Here, as well, we believe the form and nature of the advertising and the nature of the social club and its activities and operations must all be considered. We would caution, however, that the 15/35 percent rule is a reaffirmation of the principle that nonmember use should be insubstantial and that the club would be obligated to keep exact records of use of its facilities and make appropriate allocations.”

adVerTising To The puBlic

determining whether the organization qualifies for exempt status.

gross receipTs FroM nonMeMBership sources

gross receipTs

A section 501(c)(7) organization can receive up to 35 percent of its gross receipts, including investment income, from sources outside of its membership without losing its tax-exempt status. Income from nontraditional business activity with members is not exempt function income, and thus is included as income from sources outside of the membership. Of the 35 percent gross receipts listed above, up to 15 percent of the gross receipts can be derived from the use of the club’s facilities or services by the general public. If an organization has outside income that is more than these limits, all the facts and circumstances will be taken into account in

Gross receipts, for this purpose, are receipts from the normal and usual (traditionally conducted) activities of the club. These receipts include charges, admissions, membership fees, dues, assessments, investment income, and normal recurring capital gains on investments. Receipts do not include initiation fees and capital contributions. Unusual amounts of income, such as from the sale of a clubhouse or similar facility, are not included in gross receipts or in figuring the percentage limits. brb

Top 10 Mistakes Made by club Boards "To err is human," and as we all humbly know, private club board members and presidents are typically human.

Here are some of the biggest mistakes made by those volunteers.

1. Micromanaging management 2. Acting as executive decision makers as opposed to temporary guardians of the club 3. Disregarding the governing documents – specifically by-laws 4. Airing disagreements outside the boardroom 5. Deliberating as a board member with fiduciary

responsibility as opposed to a member of the club 6. Operating the club without a strategic plan 7. Operating with outdated, inconsistent governing documents 8. Recruiting/selection of board of directors without due care 9. Failure to cultivate board diversity 10. Promoting a personal agenda - brb boardROOM briefs

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understanding effective, sustainable change Change is difficult, challenging, frightening and threatening. When we seek to transform an established organization, we must recognize that we’re disturbing a legacy system of highly intricate, non-linear, self-organizing silos of power.

Well-intentioned club leaders may try to alter established systems with oversimplified, linear thinking, but the result is often unfounded overconfidence that triggers a disruptive, bungled intervention. Private clubs are comprised of numerous intricately balanced loops of historic influence. Picture a series of bungee cords all connected at one end to a common ring, but each calibrated with different resistance. With sufficient effort, you can extend every cord, but the more you stretch it, the more it disrupts the others and the more opposition you encounter. Once released, each cord either returns to its original state or, if you’ve successfully overpowered the resistance, the result may be deformed. Ultimately, the cords (the club’s culture) tend to return to their comfort zone or become relatively useless.

However, today’s exceptional challenges have forced previously secure private clubs to confront change-resistant cultures – a threatening obstacle that must be overcome.

Don’t blame the people within the system. The comfortable, adaptive structures within the system are at fault. Those best positioned to affect real change are the ones at the top of each silo. Silo leaders are not always those acknowledged by senior management or the board as the titled leaders. In fact, they are often unofficial influencers with cadres of dedicated, trusting followers. They emerge when a club is in a weakened state or they may

just be naturally adept at recognizing a threat and inspiring others. Affecting transformative, sustainable change is difficult. Some club employees and members develop deep-seated beliefs, roles and behaviors. They resist acknowledging the problem, and usually have an abundance of codependents supporting them. There are club leaders whose teams blindly support their decisions, even when they don’t meet the standards of best practices. These leaders frequently ignore their most obvious challenges while claiming to seek improvement. What they really want is to submerge the real problems and hope they don’t float up during their watch. brb

10 Ways to improve Water efficiency/irrigation Clearly, one of the most important issues facing the golf industry this year is the shrinking water resources, and the competition for what remains.

Here are 10 techniques golf clubs can use to improve golf course water and irrigation efficiency.

1. Plant grass varieties that grow naturally in your climate, ones that require less water or varieties that can be irrigated with lower-quality water.

2. Use alternative water sources such as: rainwater catchment, and rainwater and gray water holding tanks.

3. Improve course design with catch basins to capture water.

Employ mulch wherever possible, replace plants that require lots of water with indigenous plants, or those that require low water, or replace landscaped areas with xenoscapes.

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4. Replace older irrigation systems with improved water-use systems that incorporate better technology.

5. Understand the precipitation rate (by performing a catch can test), or how much water is being applied to a given area. Understanding this is especially important when scheduling irrigation based on replenishing water loss through evapotranspiration (ET).

6. Consider irrigation head arc rotation when determining run times for full circle vs. part circle heads.

7. Verify water pressure with pressure gauges attached to quick couplers - one near the pump station and another further away. Irrigation run times of heads closer to the pump station can be adjusted downwards, depending on the pressure differences recorded.

8. Maintain the most efficient distribution uniformity as possible.

9. Invest in a good moisture probe that measures volumetric water content.

Portable moisture probes take the guesswork out of the irrigation equation by accurately reporting soil moisture at the root level.

10. Develop a water system maintenance program and keep records of irrigation and reduction to evaluate how effective the systems and strategies are over time.

Make every drop of water count at your facility. Water efficiency practices lower the long-term costs and help ensure sufficient supplies are available for future use. brb

improve Member experience by improving your employee experience “Your employees come first. And if you treat your employees right, guess what, your customers come back, and that makes your shareholders happy. Start with employees and the rest follows from that.”

That’s a quote from Herb Kelleher, co-founder of Southwest Airlines. We can improve member satisfaction by improving our employee experience. So the question is: Are you focused on employee satisfaction? So how can you continue to improve and measure your employee satisfaction? Here are some key ideas on improving your employee experience. knoW your eMployees: You should know all of your employees by name. Show a genuine interest and you will receive loyalty and support in return. iMproVe coMMunicaTion: Employees feel a greater power of inclusion and teamwork when they are informed about what is going on at the club. Addison Reserve Country Club in Delray Beach, FL has a monthly educational newsletter that focuses on financial topics called “Finance in 15.” Not only is this a powerful learning tool and improves operations, it also provides inclusiveness for team members. creaTe TeaMWork across serVice lines: While each department should have excellent communications and be high performing within the department, how can you expand that team spirit across service lines? Some clubs such as Atlanta Athletic Club have an Employee Wellness Expo where vendors are invited to talk about health and wellness, banks to talk about purchasing a first home and the importance of savings, etc. The club educates their employees on important matters outside of work as well work-related education to improve quality of life.

Measure eMployee saTisFacTion: Successful clubs normally use a group of standard metrics to measure the progress and success of their desired goals and objectives. The top two metrics, which often drive the rest, are high membership and staff satisfaction. Another measure of employee satisfaction is conducting ongoing

iMproVing eMployee experience

employee satisfaction surveys. We offer a comprehensive employee satisfaction survey with ClubInsights or you can set up your own employee satisfaction survey through the many online survey services. Focus on your employee satisfaction and measure it and your member satisfaction will improve as a result! brb

defining habits for Today’s Board Meeting When members of a private club join a club committee or join the board, they do so for a variety of reasons.

Some people are looking to enact change, some are problem solvers and enjoy the challenge, and others simply do so because they enjoy giving their time towards something they love. Whatever the reason, these individuals have stepped forward to help guide the club on the predetermined strategic path. Over time, as we speak with general managers, board members, committee members and board presidents, when referencing their board or committee meetings, we hear phrases like “lack of communication,” “misunderstood,” and “not listening,” even when their meetings or club conversations were not about complex ideas.

So how can the board, committee members

and the paid management communicate more effectively with one another? Over the course of 2016, we will focus on defining habits that can enhance communication in the boardroom so meetings remain productive and focused.

JusT The FacTs Ma’aM People have opinions, it’s part of being human, but opinions when not supported by fact, are just that – a personal perception. Oftentimes, the way an individual sees a situation has a lot to do with their unique work style or outside influencing factors. During your next board meeting, when you hear a comment that sounds more like personal perception than fact, respond with a few questions: “Did they tell you that personally? Are you drawing a conclusion based on observations?

Do you have additional information from another source you can share with us?” eFFecTiVe coMMunicaTors educaTe TheMselVes and sTay rooTed in FacTs. No matter what, keep the meeting on track, it’s best to refrain from color commentary so the group can focus on getting to the core of the issue. brb This is part one of a six part series on creating good habits in the board room.

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club Wellness Facilities Generally medical and wellness facilities and services at 501(c)(7) tax-exempt clubs generate “non-traditional income” and have potential to generate “non-member income.” Some clubs are on “high alert” but they are all interested in knowing if this possibly can work at their club.

What drives this interest? Today’s medical industry doesn’t necessarily deliver the desired services at the prices and locations and in the time frame some members want and, frankly, some club employees need. This is an opportunity for clubs to offer something their members and employees see as a major value addition. Many club members are focused on wellness and the quality of life. Clubs are rightly looking at additional ways – beyond recreation and exercise – that they can provide some of what these members and future members will demand. Can your club do it and how do you do it properly?

There are a number of possible relationships that the club can structure with an outside provider, which can limit club exposure to liability and reduce nontraditional income. There are many issues to consider when adding medical and wellness services, and it may be worth the effort. brb

don’T ForgeT your eMployees. If properly situated and managed, having easy, inexpensive (maybe subsidized) onsite access to basic health needs may save immeasurably on the club’s costs from employee sick day expenses. Can your club add wellness opportunities? First, it does not require an entire spa remodel to house a medical or wellness operation. A club with limited space can offer a rotation of services that take turns using the few rooms available.

Clubs, particularly in retirement regions, can include added serVices such as healThy Food, exercise prograMs, MediTaTion, Massage, clienT educaTion, and Much More. So, what are the high level legal and tax issues to consider if your club wants to add these facilities? The club must identify a licensed physician partner to provide and supervise medical services and/or true wellness medicine.

cluB Wellness FaciliTies

out of sight; out of Mind We’ve all heard it a million times: Out of sight; out of mind. This notion dates back to at least the 13th century but it is more relevant today than it may have been eight centuries ago.

This catchphrase should be made into a plaque and hung in every club’s administrative office. Today, the fundamental way a club stays in sight and in mind is through continual and relevant communication with members.

Communication can’t be thought of as a function or even as a service anymore because communication is the lifeblood of a club. It is no secret that younger members have grown up with the Internet, and it should be no secret that our older members have jumped on the information highway too.

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The BoTToM line For cluBs is This: Your members are connected and they want product offerings, services and messages to them customized. They are increasingly communicating in online community groups, and mobility is paramount because they are constantly clicking their laptops, tablets and Smartphone – 24/7. In other words, they all are members of what I call Generation C. So if you aren’t continually communicating with them via these media channels, you will be out of sight and out of mind. As Estee Lauder, famed founder of the legendary cosmetic company rightly said: “When you stop talking, you’ve lost your customer. When you turn your back, you’ve lost her.”

Your bottom line will thank you. brb

Bylaws - Boring or Terrifying?

It is easier for a man to be loyal to his club than to his planet; the bylaws are shorter and he is acquainted with the other members ~ E. B. White A club’s bylaws may be shorter than those of the “planet” but to many, no matter what the length they are intimidating and something “up with which we must put.” The problem is, if not managed correctly and reviewed with appropriate frequency, bylaws issues can turn boredom into terror. Corporate bylaws are a legal document that defines a corporation's purpose, how it will run its affairs, and the duties and responsibilities of people who own and manage it. It is well worth the time to review these and learn what others may be required: • Reduce size of the board • Increase president’s term to two years • Streamline the governing process • Provide flexibility for the board to act in a changing economic environment?

• What is the required majority to make a change?

• How are the bylaws amended?

• How to define and accommodate new membership classes, categories or types Do your bylaws allow you to adapt to the outside changing world?

• Has your constituency changed? If so, did you change the bylaws?

• Do the bylaws reflect how you are operating today?

• New classes of membership – What rights do they have?

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What issues do you have with legacy categories? How about “extended family” rights and privileges?

• How do we make the club governance more agile?

• How can we avoid special deals?

• Are we keeping our obligation to keep governance up to date?

• Where are the millennials?

Enforcing the bylaws is part of the board’s fiduciary duty. If the board fails to follow the bylaws, the club’s D&O insurance may be in jeopardy. Are your “shalls” and “mays" as you wish – Are they being enforced? Ugh! And this is only a start at making sure your club’s key governing document is a boring tool for the positive and not something that terrorizes the general manager. brb

Board orientation is Vital for success Board members are part time volunteers, who while they may mean well, often have little understanding about the operation of a club, and the parameters of responsibility, behavior and limits of power.

Often there’s a lack of clarity of roles for both the board and its individual members.

This is a major reason why a board orientation each and every year, with an outside facilitator, is so vital…so that the club’s general manager and staff can provide vital information about the club’s daily operations, strengths, weaknesses, challenges and opportunities. It’ll help the board make diligent, insightful policy decisions during a term of office. Boards must fully understand the club’s culture, its core values, the club’s mission and vision, and long-range strategic plan, and what that long-range plan means – a continuing commitment from the club’s board. Board members must be leaders, not interventionists, or second guessers. Club boards should act like responsible corporate boards: set policy and monitor performance and financial operations.

governors. The board enhances the operation of a private club, establishes policies, gives management the ways and means to enact the policies, encourages transparency in its dealings and finds ways for people to connect with each other. And that truly is the essence of a private club. brb

successFul Boards are The resulT oF a True TeaM eFForT oF skilled ManageMenT and dedicaTed MeMBers Working ToWard coMMon goals WiTh The Board creating a positive atmosphere encouraging management at all levels to be productive and focused. Continuity is also vitally important. General managers cite two ingredients of smooth relationships between boards and staff. First is continuity of leadership, both volunteer and paid. Frequent turnover in either group hinders progress and disrupts the flow of operation. Secondly, a stable work environment for professionals and a staggered rotation for board members helps assure continuity while minimizing disruptions in policy and performance. So while many issues rise and rise again, much of the problem solving traces its roots to a club’s board of boardROOM briefs

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