My first exposure to private club governance was as a board and committee member at my own club. I served for 10 years, the last three as president. That experience was the catalyst for launching Club Benchmarking, and it continues to inspire my work as an advisor to the boards of more than 450 clubs. Since 2009, I have been immersed in analysis of the annual financial outcomes of more than 1,000 clubs. That research, combined with first-hand experience, has led me to five conclusions about governance in the club industry.
1. There is a significant difference between “great governance” and “poor governance” and the vast majority of clubs are closer to “poor” than they are to “great.”
2. Governance is a process that can be dissected, understood and constantly improved, but few clubs do so.
3. A club’s approach to governance has a profound impact on its outcomes. Poor governance over an extended period of time can and will ruin a club and consistently great governance over time will foster a vibrant, healthy club.
4. Club members must identify as owners, not customers of the club. The collective mindset must be “we” rather than “us” or “them.”
5. Not every member will make a great governor.
Great Governance vs. Poor Governance
The characteristics that separate great governance from poor governance are easier to spot than they are to change.
The driving force in well-governed clubs is a laser focus on making the club better and more relevant in a constantly changing marketplace. That means adding services and amenities, keeping physical assets in top condition and constantly striving to meet member expectations.
Great governance is centered on a continuous cycle of setting and meeting a forward-looking vision, in increments of five years or so at a time. The consistent march to the next vision is the glue that binds one board, one president to the next in a constant stream of growth, change and strategic stewardship.
Great governors do not micromanage the operations, second guess the staff or drive a narrow agenda. Great governors ask questions more than they make statements (or demands) and they prefer to learn versus preaching. They don’t make assumptions and they understand the impact of societal trends requires the club to change to remain relevant. They understand where a governor’s role begins and ends. Great boards are strategic, forward-looking stewards who understand that the need for change and respect for tradition are not mutually exclusive.
Poor governance is operational, focused on “managing” the manager. It is tactical and short term. The topics of discussion are narrow (specific department issues, small financial matters most often food and beverage profit/loss)—a tedious dissection of what happened last month or last weekend. Clubs with poor governance are resistant to change. Members think of themselves as customers not owners and the chant “don’t raise the dues” is often heard.
The driving force in poorly governed clubs is typically an outspoken group of naysayers who resist change, second guess the staff constantly and who don’t see the link between societal trends and their impact on the club. Poorly governed clubs have groups of members without a common vision, actively fighting over “what needs to be done.” The long-term trend is not stewardship but rather underinvestment in the asset base due to avoidance of a dues increase or a lack of understanding of the importance of investment. There is also a lack of continuity from one board and president to the next. Such clubs tend to be reactive and invest in one “pet project” at a time with very little context or strategy tying them together.
Governance as a Process
For decades, consultants and academics have studied governance in companies and organizations such as hospitals, universities and other nonprofits.
The common thread in all that academic and expert reasoning is this: Governance can be learned and improved in a way that adds value to the organization. A few simple questions will bring clarity to how your club is treating governance:
- Does the board seek outside facilitation and education?
- Is the board as intent on evaluating their own performance against specified criteria as they are in evaluating the GM’s performance?
- How does the board ensure that people with the proper demeanor and perspective become governors (as opposed to the most popular member or the club champion)?
- What materials are used to educate governors on the process of governance? Are they discussed consistently? What measures does the board use to assure it is constantly improving governance at the club?
The book “Governance as Leadership” (Taylor, Chait, Ryan) asks a key question: “How does the board add value to the organization?” Most club boards actually subtract value by making the club weaker. Two important statistics support that conclusion: 50% of clubs have net worth (member’s equity) less in real dollars in 2019 than it was in 2006, and 65% of clubs are growing net worth at less than the rate necessary to keep the physical asset base whole over time. The root cause of those statistics is poor governance.
- Ask yourself this question: Does our board add value to the club? An affirmative answer manifests in three very specific ways:
- Increasing initiation fees that reflect demand from prospective members
- Broad and diverse services and amenities to attract the proper number of members
- Physical assets that are fresh and up to date
In poorly governed clubs the answer manifests just as clearly: stagnant/decreasing initiation fees; depreciating and depleted facilities; and narrow services and amenities unappealing to prospective members interested and able to join a club. Your club’s initiation fee represents the intersection of supply and demand for entry into your club and its historical trajectory reflects how well your club’s governance engine has prepared your club for the future.
How Governance Impacts Outcomes
One of the greatest misconceptions in the club industry is the food & beverage (F&B) trap, which is characterized by hyper focus on financial results in the F&B department. Oddly, that the same thinking is virtually never applied to golf, despite the fact that golf loses the most money of any department in the club. Industry data collected and analyzed by Club Benchmarking clearly shows the healthiest clubs financially in the industry are those that subsidize F&B the most, and the weakest clubs financially are the 20% that are driven to make a small profit in F&B.
The adage “be careful what you wish for” comes to mind here. For the most part (there are exceptions to every rule), clubs that make a profit in F&B govern the club to the myopic and short-sighted objective—don’t lose money in F&B. They achieve the objective, but meanwhile can’t generate the necessary capital due to inadequate initiation fees and a declining membership. Myopic focus on F&B (the F&B trap) compromises the board’s ability to concentrate on developing a proper, forward-looking vision for the club.
The board sets the agenda and the agenda will drive the outcome. Fortunately, when the agenda changes, the outcome will follow. It is simply an issue of opening the collective mind, seeing the entire playing field (including our constantly changing society), and thinking clearly about meeting the future with a relevant value proposition. An agenda driven by the naysayers threatening to leave if dues are raised will not produce the outcome necessary in 2020 and beyond. Set the agenda so the board is strategically focused on meeting the future.
Pick the Right People
Member-owned clubs are very democratic organizations. The true organizational power flows from the membership through the board. Aspiring board members must understand that successful governance requires process, education and a servant-leader mentality.
Know-it-alls, autocrats, and folks who make demands rather than seek knowledge can easily take a board, and thus a club, off course. There is no such thing as a purely objective human, but the purely subjective human does exist. A person who is cynical, always arguing, and always confident in their own view is doesn’t belong in the club boardroom.
People who are strategic in nature, strive to be open minded and objective, who understand governance (and ideally have been involved in governance), who are team-oriented and understand servant-leadership— these people make great governors. People who can step into the club boardroom, regardless of how much they are worth or how successful they have been in business, and who understand the club industry and its unique key success factors, make great governors. People who are by nature inquisitive and data-driven make great governors. People who can listen, as much or more than they speak, make great governors.
Owner Mindset Required
Every club has its own unique approach to governance which is rooted in the culture and history of the club and in the personalities and backgrounds of the members. A club’s current situation is ultimately the result of its sum-total approach to governance over its history, and as such, it is a defining issue. Great legacy clubs that appeal to today’s prospective members have a common characteristic embedded in their culture: Members who think as owners (not customers) and who are thus willing to invest to maintain and expand the club.
In clubs, as in any business, owners must be concerned with the growth of equity (aka net worth). Data shows that a club’s net worth grows over time through the contribution of capital (not operating dues) by the owner/members. The capital contribution from the member/ owners comes in the form of initiation fees, capital dues and assessments.
The clubs with strong governance foundations have a culture of member-owners intent on passing the club to the next generation in better condition than it was found. They take pride in improving the club, even if it costs them money in the form of capital contributions. They take pride in preparing the club to meet the future and in maintaining the club as they would their own home.
The clubs with weak governance foundations lack that culture of stewardship. Requests for capital contributions are typically deflected with allegations of mismanagement or inefficiency.
One of the critical fiduciary duties of governance in a private, member-owned club is the governors must convince and constantly remind their fellow members that “we own the club” and that if the club requires capital to maintain itself to prepare for the future that “we as owners are responsible for providing that money.”
Embrace the Process
Once governance is recognized and embraced as a process, it can be evolved, improved and established as a foundation on which to prepare for the future. Great governance requires boards to understand the industry in which they serve and the key success factors that separate successful clubs from failing clubs. Education is the key to maintaining consistent governance over time. Work thoughtfully and diligently to instill the owner mindset across the entire membership and select new board members carefully with the goal of building an objective team focused on strategic governance and committed to preparing your club for the future.
Ray Cronin is the Founder of Club Benchmarking. He can be reached at [email protected].