briefs Can You Put a Price on Good Governance? By Phil Newman
Boardroom dysfunction might best be measured best by a term from the economics field – opportunity cost “the loss of potential gain from other alternatives when one alternative is chosen.” So what is the opportunity cost of a board choosing – and it is a choice – a governance model that promotes micromanaging over leadership; that allows personal agendas to supersede the best interests of the club; that confuses boardroom conflict with balanced debate; and that ignores strategic planning in favor of flavor of the month decision making? To put a price on good governance, or rather bad governance, consider who are the people or groups that are impacted by the situation? Who are the main stakeholders? Arguably, the members and staff. Members have many choices for their disposable income dollar. They need to know that their club is being well run by those charged with governance. They need to know that they are being listened to, not just heard. The club that cannot understand members’ wants, be it improved amenities or different services, because its board cannot make good strategic decisions will undoubtedly lose members and fail to recruit replacements. The price? Goodbye to all those dues dollars! As for staff? What cost can should we attach to club employees being negatively impacted by lack of direction, consistency and understanding in the club boardroom?
Employees will choose to leave, just like members, when they feel that the value is just not there. When employees leave, the costs to any organization are huge. The club loses its investment in staff training; it loses the employees’ institutional knowledge of how to satisfy members; and it loses the public relations war. Employees who leave in the face of boardroom abuse will often talk negatively about their former employer. The price? The U.S. Department of Labor has estimated the cost associated with the loss of a trained employee as upward of 30 percent of the employee’s salary and benefits combined. While the costs of losing a “normal” employee are high enough, another study found that the cost of losing an executive is astronomical — up to 213 percent of the employee’s salary. So…what is the price of bad governance? Board members can avoid paying the price by routinely investing in governance training, orientation sessions, strategic planning and governance audits. If you think the price of doing this is too high…consider the price of not doing it! BRB
Table of Contents BOARD Can You Put a Price on Good Governance - P1 Club President Q&A - P7 Top Mistakes Made by Board of Directors - P7 Why Do We Have Rogue Board Members? - P9 CLUB CULTURE Things Emotionally Intelligent People Do - P5 Welcome to the Experience Economy - P7 CLUB TRENDS Millennials, Who They Are - P9 GOVERNANCE How to Sustain Excellence in Governance - P3 Collaborative Governance - P3 Fiduciary Responsibilities - P9 TECHNOLOGY Computerized Maintenance Management System - P5
briefs
SEPTEMBER/OCTOBER 2017 VOLUME 2 | ISSUE 5
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 Henry DeLozier / golf management consultant / hdelozier@globalgolfadvisors.com Paul D. Fulmer / president, The Hamilton Club of Lancaster / Lancaster, PA Philip Newman / partner, RSM / philip.newman@mcgladrey.com Meghan Thibault / partner, SDM / meghan@studiodelmar.net Frank Vain / president, McMahon Group / fvain@mcmahongroup.com Gordon Welch / president, APCD / gordon@apcd.com Dave White / editor, BoardRoom magazine / whitepks@mac.com
How to Sustain Excellence in Governance By Henry DeLozier
How does a club sustain excellence once the club’s board is governing effectively and demonstrating the attributes of excellence in governance? Sustainability arises from the capability for adapting to change within the structure of effective governance. Sustaining excellence in governance is more difficult than achieving it in the first instance because of changing board members, shifting priorities and needs, and complacency that are no urgent “problems.” Here are five keys that will assure your club of governance excellence that can be preserved long enough that superior club governance becomes cultural: Be deliberate. Excellence in club governance is not happenstance. It must be thoroughly planned and executed. Develop the plan of governing that is consistent with the core values and brand of the club. Establish honest and unbreakable connectivity at the top of the organization. The board president and club manager must be aligned and communicating effectively.
Collaborative Governance Holds the Key to Change
Implement thorough board orientation and training. Many club boards behave and govern like amateurs, although the board members may be highly experienced and successful business leaders. Develop and execute a comprehensive board-training regimen which is complete with the vital documents of the club. Include past presidents to communicate the culture of the club. Execute annual – or more frequent – board training programs to see that all involved keep focused. Execute robust self-evaluation. The board should regularly evaluate its own performance. The board should complete a self-evaluation after each meeting. Five simple questions that confirm the board’s focus and effectiveness. Quarterly and semi-annual strategic performance scorecards should be posted through which the board “posts” its performance scorecard for members to review. The year-end board self-evaluation should be a 360-degree process that demands serious thought and results to ensure that the board holds itself accountable. Communicate regularly and with emphasis. Most club members clamor for more information and fill information voids with self-generated content that typically reflects the anxieties and agendas of the member or member group generating the messages. Sustaining effective governance in these contentious times demands planned communications that are consistent in tone; repetitive in content – since many members don’t “hear” you the first time; and redundant using multiple media modes – email, bulletin boards, social media posts and face-to-face town hall meetings of the members. Tell members what they want, need and ought to know. Select excellent leaders. Club leadership is too often a popularity contest rather than the mission-critical method of governance. Develop a deliberate and broadly understood board qualifications criteria. Avoid members who want to be on the board to promote a personal agenda. Most clubs are multi-million dollar businesses that demand the same business-like governance of a small company. Select club leaders who can govern well.
The best private club solutions come from boards and management working together. Collaborative governance is a process of putting together lasting, effective solutions. Collaborative governance ensures that the club’s realities are considered and discussed, that there’s transparency, inclusion and participation of all concerned, without decisions being made in a vacuum. BRB
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It was Charles Darwin who opined that survival recognizes the ‘fittest” and fitness is a function of sustainable adaptation to change. This adaptability is aided by the capability to choose effective leaders who hold themselves accountable and are well prepared for their duties. BRB
3 Ways a Computerized Maintenance Management System (CMMS) Preserves Facility Knowledge It’s a fact that most prospective club members buy with emotion and use logic to justify the purchase. They join the club that makes them feel the best. The question is, then, whose club do they feel best about – yours or someone else’s? People are one of your most important resources – and it can seriously hurt your operations when they leave or retire. The true cost of turnover is often hidden. It’s not something that you can put as an entry on your budget reports, and it won’t show up in your profit statements. Instead, it’s something that is quantifiable through a number of different sources. Lowered productivity, overworked staff, costs for hiring and training new talent – losing a valued technician can quickly hurt your team, your club and your budget. The most damaging effect, however, is the loss of knowledge. In maintenance, when someone leaves the company, you not only lose their manpower but also their invaluable knowledge of the facilities and your operations. Those gaps in knowledge can be a huge detriment to your maintenance team – which is why having a computerized maintenance management system (CMMS) on your side is so valuable.
PRESERVING YOUR KNOWLEDGE The gaps left within your organization’s knowledge when a vital team member leaves doesn’t have to slow you down. With a CMMS, your club’s technicians can: 1. Look back on historical data to see what maintenance has been previously performed 2. Check previous work orders to see the cost associated with it 3. Manage their inventory with associated parts to assets so you know you have the right equipment to complete a request A powerful CMMS solution, like Dude Solutions’ suite of applications, has everything you need to ensure that the valuable information your team has is preserved. From work order and inventory management to detailed reporting with real-time data, you’ll be able to have all the insights you need to keep your facilities running smoothly. Learn more today at: https://www.dudesolutions.com/industries/clubs-associations.
7 Things Emotionally Intelligent People Do Emotional Intelligence (EQ) is a new trend in the realm of pop culture and the workplace. According to Psychology Today, EQ is defined as an aptitude for identifying and managing emotions, and the emotions of others. It consists of three primary skills: the ability to analyze interior emotions and the feelings of those around them, the capacity to apply emotions to tasks, and the facility to take control of emotions. Statistically, EQ people enjoy more prosperity in life because they’re living from the point of thoughtful, and meaningful decisions. They outperform others, excel at their jobs, are happy in their relationships, and consistently work towards attaining positive results in all aspects of life. So, the question is, how do they do it? 1. They are mindful Those with high EQs extend empathy to everyone. They listen carefully, provide gentle, but authoritative advice, and offer assistance. They don’t permit others’ lives and reactions to rule their own. 2. They find the ways to yes Instead of looking for someone or something to blame, EQ people constructively address the dilemma, and search for ways to lament the situation in private, effective ways such as exercise. 3. They know when to say no — to others and themselves. High EQ people rely on their willpower and exercise their right to say no, freeing them to concentrate on their ambitions and well-being. 4. They keep their lips sealed Emotionally Intelligent people avoid drama and gossip. They understand everyone slips up and that what others might perceive as a mistake is really a learning opportunity. 5. They are self-sufficient High EQ people are self-sufficient. They find hobbies that delight them, strive for achievements that will lead to a sense of self-worth, and search within for love and acceptance. 6. They remain optimistic. In reality, very few of us are immune to thinking pessimistic “I am” statements, such as “I’m unattractive.” “I’m not a good public speaker.” “I’m not qualified.” However, EQ people have the ability page 5
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to curb cynical thoughts. They understand that negative thoughts are just that — thoughts. 7. They focus on now High EQ people honor their pasts — the people they’ve loved, mistakes they’ve made, and opportunities they’ve eschewed, but remain mindful of the importance of living squarely in the here and now. They learn from the past and invest in their future by harnessing self-satisfaction, gratitude and hope. BRB
Club President Questions & Answers Paul D. Fulmer, president of the Hamilton Club of Lancaster in Lancaster, PA
Welcome to the Experience Economy By Gordon Welch
The ability to collaborate as a board is preferable in any organization. Private club governance begins with a good, laser clear set of by-laws that will give direction to the board. What if your club doesn’t operate with clear communication between the board, committees and staff? What if your by-laws are vague and don’t give the direction your board needs? Let me give you a brief guide recommended by APCD. First, you must have by-laws that are up-to-date and concise. This will set the relationship between governance and the membership.
Do you feel that as the president of the board, that it is a member’s responsibility to search out new members? If so, how can it be done? Membership development remains the single biggest challenge for clubs today. We believe that refining our brand and value proposition helps us remain relevant to a new generation of club members, some of whom may not have had experience with clubs in the past. Members bring members to join the club. Indeed, it is the single most important thing members can do today help their club survive and thrive. In the past, members were actively involved in the day to day operations of many clubs. Given family dynamics, and work and social schedules, the most successful clubs are moving toward professional executive management. There is much that management can do to facilitate the membership process, but I firmly believe that the fellow member invitation and introduction is crucial. Sponsoring a friend or colleague and sharing the nuances and special amenities of one’s club is very rewarding. While we are seemingly permanently connected through social media, there is no substitute for face-to-face relationships. This a natural monopoly for private clubs. We continue to work on membership development. We have held membership drives, formed various committees, employed outside consultants, and hired in house membership directors. None of these in and of themselves is a magic bullet, and in fact some did not work at all. Our board priority for next year is to problem solve on this issue and rethink how we showcase our value to potential members. There is no replacement for a member asking a friend or colleague to join. The members that join our club this way are the ones who find the most value and make the best connections. That is what clubs are all about. BRB page 7
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The board members must know their roles. Each member should have a job description and expectations as an individual and as a group. The role of the board should include proper communications to staff and any special treatment they will receive (or not) as a board member. A Code of Ethics should be adopted for directors in and out of the board room. This should also include a confidentiality and conflict of interest agreement. Board members must know their required duties: duty of care, duty of loyalty and duty of compliance. This needs to be clearly spelled out and understood. If a board member goes outside these duties they could be acting outside the club’s insurance agreements and at risk of personal liability. The president and GM/COO must manage the agenda. I have seen it a thousand times; a board with a leader that is prepared will have very direct and planned board meetings that get more accomplished in a shorter amount of time. Board leaders that do not prepare should expect a lack of focus and longer meetings. A board must leave each meeting with one voice. Finally, if there is a rogue director, you must know what to do with them; how to confront them and how to work with them in the future. This is a critical time of the year for many boards. Change is coming! If you are struggling with your board please let me know how we can help! BRB
Top Mistakes Made by Board of Directors 1. Micromanaging management 2. Acting as executive decision makers as opposed to temporary guardians of the club 3. Disregarding the club’s governing documents – specifically by-laws 4. Airing disagreements outside the boardroom 5. Operating the club without a strategic plan 6. Operating with outdated, inconsistent governing documents 7. Recruiting and selection of board of directors without due care 8. Failure to cultivate board diversity 9. Promoting a personal agenda
Fiduciary Responsibilities When you’ve got a growing private club amassing assets, accumulating liabilities all to meet demands of a growing membership, clear concise financial reporting is absolutely necessary so the club’s board of directors and management can make informed financial decisions. Absolutely one of the main responsibilities of a private club’s board of directors is to maintain financial accountability of their organization. Board members are trustees of your club’s assets and must exercise careful due diligence in making decisions that affect the club and its members and always act for the good of the organization. It is your board’s fiduciary responsibility to do so. And of course board members must be objective, unselfish, responsible, honest, trustworthy and efficient. In a little more detail, board members have a Duty of Care and Duty of Loyalty. Duty of Care: Directors have a duty of competence i.e., a requirement to act with a certain level of skill. The duty of care describes the level of attention required of a director. There’s a “duty to be informed” (understand information and ask questions) and to act with competence and diligence. Duty of Loyalty: The duty of loyalty requires that a director act honestly and in good faith in the best interests of the organization. The duty of loyalty is a personal duty and cannot be delegated. It’s vitally important board members be able to recognize warning signs that might indicate a change in the overall health of their club. If a board member does not understand something, they must be willing to find out the answer…that means asking questions. “I am a firm believer in the KISS principal,” says Kevin F. Reilly, JD, CPA, a member of PBMares of Fairfax, VA. “The amount of financial information available today can be overwhelming. The information technology system can be sliced and diced in so many different ways to provide information on departments and even lower levels of service, and this can be exceptionally valuable to the club managers and their teams. “As the information flows from the management team through the finance committee to the board of directors and ultimately the members, the amount and detail of the information supplied should become progressively more general.” In other words, Keeping It Simple throughout the whole process. “The finance committee may need details; the board more general and the members must understand the overall financial health of the clubs,” the PFK member expounds. “Outside of management and potentially the finance committee, no other group needs to analyze every line item in the report.” The financial performance and health of a club should be evident when all the financial statements are provided. The purpose of course, is disclosure so nothing is “hidden.” The bottom line is the board has a fiduciary duty to the members of the club to ensure the financial viability of the club. The ability to analyze financial statements gives both board members and club members a more comfortable feeling that the best interests of the club are being upheld. BRB page 9
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Why Do We Have Rogue Board Members? By Dave White
Disruptive, difficult board members can wreck havoc on a board of directors and a private club with even minor issues creating big trouble. Dr. Terre Davis, president, TB & Associates of Westcliffe, CO, in a recent publication, suggests certain characteristics define a difficult board member including: • Ego-centered • A person with little regard of other’s opinions • Someone with questionable ethics • Someone quite opposite to the majority, causing conflict, anxiety and confusion • Someone who views themselves as the “voice of the people” and • Likely someone who doesn’t understand their role or responsibility. Disruptive board members emerge for a variety of reasons. Why does this happen? Davis offers numerous reasons including personality conflicts, political differences, philosophical differences, lack of teamwork, lack of communication, lack of trust and respect, personal agendas, outside pressures, poor listening skills, desire of notoriety, recruiting votes through private discussions, dislike of certain board members or employees (including clubs executives and the club’s general manager), lack of understanding a board member’s role, building on the suggestion that rumors are “truth”, and the fact disruptive
views heard above all others. Others regularly submit to the views of the Dominator to keep the peace, neglecting their duty to contribute fully to the workings and decisions of the board. 2) The Bludger: This disruptor may be present and even active during board meetings but does little work in between. They don’t read the agenda before meetings, don’t review meeting minutes and don’t carry out tasks assigned to them, and if they do, tasks are often completed late. 3) The Absentee: Doesn’t often attend board meetings. In fact, they don’t take part in many board events at all. Apparent lack of commitment leads colleagues to become resentful and begin to wonder why the Absentee is even acknowledged as a board member. 4) The Non-Contributor: This disruptor is a silent fixture at most meetings. They rarely, if ever contribute to discussions and debates and never, never volunteer for any betweenmeeting tasks. 5) The Empire Builder: These people are less interested in the organization they are governing than how they can use their position to further their own personal or business ends. They often lobby to get their “buddies” and supporters on the board, which can be quite damaging to board dynamics if others continually have their opinions overruled. There are real concerns about potential or real conflicts of interest. 6) The White Anter: Sometimes it seems this disruptor is working against the group’s interests rather than for it. Every debate seemingly turns into a “me versus them” contest and the member will not support the board’s majority decisions they haven’t voted for. The White Anter regularly disrupts meeting with tantrums; walks out and often badmouths the board to outside influencers including the media. 7) The Bore: These people drone on and on during meetings, speaking at length about irrelevant issues and restating points already heard and understood. Despite the tireless monologues, the Bore is often a nice person and colleagues are usually unwilling to offend them by confronting the problem.
members may enjoy confrontation. Call them what you want, this help sheet offered to not-forprofit boards by the City of Boroondara, a local government area in Victoria, Australia, is particularly concise, labeling eight specific disruptors…ones you’ll likely recognize. 1) The Dominator: Dominates debates and discussions, often talking over other board members or shouting to make their page 11
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8) The Dinosaur: This person has served on the board for what seems like forever. While others respect their commitment, historical knowledge and institutional memory they bring to their role, their presence often contributes to “staleness” within the board. It’s not unusual to have more than one Dinosaur on the board of a private club. In fact, that’s often a method by which a group of “old boys” attempts to maintain control of the club’s agenda. BRB