By John G. Fornaro
Yes, to err is human, but repetitious mistakes are a plague. The failures and mistakes of non-profit boards have been well documented over the years…failure of fiduciary duties, little or no effective oversight of the club’s operation etc.
But are these issues really ‘sacred cows’ because boards of directors are unwilling to tackle mistakes that are repeated so often? What are the top mistakes private club board of directors make? Can we pin down the causes, and if so, what can a private club (and board) do to bring about change?
Often these issues arise because private club boards of directors really don’t understand their roles in the club’s governance. In reality, good governance starts by building a board, a board with members who can work together for the betterment of the private club and its members and working toward the elimination of mistakes.
So what are these ‘mistakes?’
“In my opinion, the biggest mistake private club boards make is not clearly defining their board’s members’ roles, along with the roles of committees and the general manager/chief executive,” intoned Dick Kopplin, principle with Kopplin Kuebler & Wallace, a private club industry search and consulting firm.
“When we see the ‘coloring outside the lines’, it is typically a result of not understanding who is responsible for operational issues versus governance issues in the club. This usually leads to ‘micromanagement’ of the general manager, which is a lose/lose proposition for all parties.
“The most crucial error that boards, and particularly the club president can make is to assume everyone know what their accountability lies regarding the ‘process’ that needs to happen in every club,” Kopplin added.
“The micromanagement curse typically happens because of a lack of education, especially for board members and new committee members.”
Michelle Tanzer, a Florida attorney specializing in residential, resort and club section at GrayRobinson, suggests boards “attempt to make governance and operational changes and are not appreciating the risks or understanding the requirements under the club’s bylaws or applicable law.
“Many boards have lawyers but not lawyers experienced in the area of club law,” she explained. Tanzer also raises another crucial area for boards…“the attempt to make changes to refund or redemption liability issues.
“Many clubs are facing a terrible dilemma. They are charging $X for a membership now but are obligated to repay the former member (under their bylaws or membership agreements) $X+Y. Thus, every time the clubs sells a membership there’s have a net loss,” she explained.
“Many clubs are attempting to circumvent this with a variety of impromptu solutions, which are resulting to disputes, some of which are ending up in court. Alternatively, some clubs are addressing the refund and redemption issue proactively, by getting guidance from legal and financial advisors on how to develop a plan (I personally call it the “HERO Program”) that enables the club to reorganize the repayment obligations in a way that is both consistent with the legal requirements and also reduces the gap between what amounts are coming in and what amounts are going out.
“It is imperative that the gap be closed because no club (or any business) can be viable for any extended period of time if they are in a negative cash position for every sale. These funds are necessary not only for current operations but for capital improvements as well.
“Short-term focus is an issue,” outlined industry consultant Gordon Welch in referring to a club’s governance.
“Some boards allow the daily operation of the club to be their focus instead of the long-term strategy. Boards need to focus on long-term strategy or the strategic plan. Strategy is like the front wheels of a bicycle and the club’s culture and daily operations are like the chain, cogs and back wheel,” he added, by drawing an analogy. “The board will win the race only when they allow the two halves to work together.
However, the board needs to steer the “bike” and keep an eye where they (the board and club) are going.
“Board leadership is an honor and an obligation once you climb the ladder to the executive committee. While it is not as widespread as in the past, many club presidents have the desire to leave their ‘mark’ on the club, whether it is a new bunker, white sand in the bunkers, a renovation of some kind, many presidents and their spouses desire some kind of memorial,” he expressed.
Welch also see ‘inertia,’ as a major drawback for boards.
“Boards have a tendency to wait…to “wait” and see what happens with an issue rather than take action on it. Many times board members do not want to make the decision or make friends angry because of their decision. Being on the board is not always a fun thing to do. Many tough decisions are made and in many cases the sooner the better.
“When it comes to their fiduciary duty, boards must act fast and make necessary changes,” Welch added.
“Being on the board of a non-profit corporation means that each director has a fiduciary duty to the club and those are generally the duties of good faith, loyalty and obedience,” stated Robyn Stowell, a partner in the law firm, Sherman & Howard in Scottsdale, AZ.
“Directors should insist that the club follow its bylaws or amend them, but refuse to allow the club to continue to operate in a manner that violates its documents.
Furthermore, any director who puts his friends’ desires above what is best for the club (or sees his fellow director doing so) should stop and consider the consequences of breaching that duty.”
Stowell also raises a ‘touchy’ subject – booze- that’s been raised at a number or clubs around the country.
“Board meetings should be conducted and completed before alcohol is served,” Stowell explained, in stating that many clubs are not using best practices for board meetings. Alcohol served at board meetings can raise liability issues, it shows a lack of consideration for those who do not imbibe, and it certainly establishes a tone of decision making for the board.
“There is no reason board meetings should consistently exceed two hours. Excessive length means they are: (1) not availing themselves of tools (such as the consent agenda) or (2) not managing their committees (such as live reports that should have been reduced to writing and included in the consent agenda) l, or (3) allowing bad behavior (such as the director who opens the board packet for the first time AT the meeting!) or (4) failing to follow other best practices that allow efficient board operations,” Stowell stressed.
Clubs are operating as businesses and undoubtedly there’s been a growth in the professionalism and training of professional staff. It’s difficult to say the same for boards. 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. The board sees itself, and unconsciously acts, as the management of the club. Not good!
No question, many of these difficulties, our contributors agree comes from education…or a lack of it, for board executive, members and committee members.
“Education, education, education. Board members must be educated properly,” Welch stressed.
“In addition, the general manager should be on the selection committee to weed-out potential board members with a grudge or a specific agenda. The board needs to collaborate on many issues and while disagreement is good, harmony in the boardroom is better.
“Boards must have a thorough knowledge of the club and some historical particulars, and board members have a role to accomplish and need specific training for their roles.”
“The good news is that there is a simple protocol called ‘the new board member orientation process’ that every general manager/CE should engage in when on-boarding newly elected board members,” stressed Kopplin. “That should be the ‘starting point’ for the education of new board and committee members.
“An additional tactic is to develop a ‘responsibility matrix’, which outlines every governance/management issue in the club and who is accountable for each. Putting this in writing provides a very clear road map for where the responsibility lies within every operational area of the club.
“One president told me, ‘there is no school for club presidents.’ His point is that board members and club officers learn their duties either through osmosis, watching what other directors have done, or by bringing their executive level experience to this volunteer position and being included in a board orientation process.
“He was a strong advocate of board members attending workshops and seminars on club management so that they would clearly understand their role and how it relates to the general manager,” Kopplin added.
“Board orientation, conducted properly, helps get the new board (and returning board members) up to speed, on the same page, and fully aware of what is and what is NOT their responsibility,” Stowell stated.
“Without an excellent orientation, the board can stumble forward dealing with whatever pops up in their line of vision rather than executing a clear planned path to their clear planned goals.”
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.
Board members should arrive at meetings agendas read well, and ready to throw in their thoughts and opinions on often complex issues, rather than turning board meetings into a waste of time.
Knowledge is vital for decision making because a lack of knowledge of the issues can imperil not only the board’s decision making process, but also the long term future of not only the club, but also the club’s top management and board.
Equally so, it’s vital that the general manager, the club’s daily operational leader, fully prepare the board with background reports, research documents and current information required for diligent, incisive decision making.
What’s the impetus for change for the betterment of a private club and its members? Sometimes it begins with people, sometimes with process, but let’s start with people and communication, communication, communication.
Communication often and with many. Don’t limit your actions to formal meetings, but use your personal networks. If as GM you need help, call your board members. Pick their brains, especially those who have particular knowledge of certain areas such as human resources, or strategic planning.
These people, as advisors, are valuable resources, so use them.
“Change can begin today. You need to plant seeds,” injected Gordon Welch.
“Make recommendations that need to begin in the next few years. Rational consensus building. Implementation of your strategy is the first place to begin. Do not let your strategic plan sit in a file never to be seen again. Use the strategic plan in your committee meetings to give direction and keep direction. Plant seeds with committee members so when they move up to the board level they can see your vision and the vision of the club.”
Publisher’s final thoughts
So how do boards avoid mistakes and engender solutions? Board members must separate personal agendas from that of their club…their strategic plan and the club’s daily operations. They must think like board members, for the public good.
Directors, as explained by Robyn Stowell, need to understand their fiduciary duties…that they act with the duties of good faith, due care and loyalty. Directors accept the potential liability for failing to fulfill those duties. It is not acceptable for boards to rubber stamp committee or staff recommendations or as Gordon Welch says, ‘wait and see what happens before making a decision.’ Sometimes boards have tough decision to make and make them they must.
Micromanaging is a scourge, and a board that demands and indeed insists making direct demands of staff members who work in daily operations and who report to a club’s general manager have crossed the line. It’s unacceptable in today’s private club governance. And while a private club isn’t Las Vegas…what happens in the boardroom, stays in the boardroom. There’s no latitude for-after meeting grumble sessions with malcontents in the men’s grille.
Club boards should act like responsible corporate boards: set policy and monitor performance and financial operations. 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. 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. A stable work environment for professionals and a staggered rotation for board members helps assure continuity while minimizing disruptions in policy and performance.
Select your board members with care…directors who are going to attend meetings, who govern using their independent judgment, and who offer real oversight of the club’s operations and are willing to accept their fiduciary responsibilities.
Also I’ve noticed that many boards are not addressing foreseeable scenarios. And addressing and understanding these scenarios is one way for boards to avoid mistakes and find solutions.
During the board orientation (which every club should have annually), the GM/COO and department heads should update the board on major issues that might affect the club. This includes future water and utility issues, equipment, new staffing laws, such as minimum wage, environmental issues and membership issues, to mention a few.
For example, take the minimum wage and potential increases. This could add 25 percent to 50 percent increase in wages since everyone is going to expect raise, which ultimately has major effect on the club’s budgets and financial programs. For a board to be effective, avoid mistakes, I believe the board must be presented with facts and projected issues. Only then can a club’s board look for solutions leading to a stronger, better member experience.
At least that’s the way I see it!
John G. Fornaro, publisher
If you have comments on this article or suggestions for other topics, please contact John Fornaro at (949) 376-8889 or via email: email@example.com