An Anatomy of Two Committees

Strengthening the Nominating Committee; Questioning the Executive Committee

Of all the club committees, none is more important that the nominating committee and none is less important than the executive committee. You may think it a radical thought, but before you dismiss it, consider the following rationale. One of the five principles of good governance is electing board members on their merits and not on their popularity, personal agendas, seniority or some other basis. Honoring that principle is best achieved via an uncontested election, where the number of candidates equals the board slots to be filled. An uncontested election requires two essential ingredients:

*An independent, objective nominating committee.

*A board-established profile that lists the requirements and desired characteristics of board members.

Member trust in the uncontested election process is directly linked to their perception of the nominating committee’s integrity. To ensure that trust is nurtured, establish your nominating committee using the following guidelines:

Smaller is Better

The size of most club nominating committees is between five and seven members. Because of the high premium placed on the confidential proceedings of the committee, we prefer the smaller size.

Selecting the Chair

The key decision in forming the committee is the selection of its chair. Club bylaws often specify that the chair is selected by the president. Others may identify the immediate past president as the chair. Of the two approaches, we favor having the president select the chair, primarily to avoid the appearance of a self-perpetuating board. However, the importance of this decision calls for a board-approved set of criteria for the chair. For example, the board may require the president to select a chair based upon their reputation of integrity, independence and objectivity; their understanding of club governance; and their ability to lead a highly confidential vetting process.

Allow the Chair to Select Committee Members

Once the chair is designated, there is the selection of committee members. Some bylaws have the president selecting the committee members. For those clubs whose bylaws are not specific as to how committee members are chosen, we recommend leaving that decision to the newly appointed committee chair. If they have been selected using criteria like those listed above, they will recruit like-minded members to carry out this important role.

Define the Ideal Candidates

As important as selecting the right chair and committee members is the process used by the committee to prepare a slate of candidates. The board should approve a profile that includes both required and desired characteristics of board members. Further, we recommend the committee be held accountable to use the board profile to vet potential candidates. A properly formed nominating committee using a board approved process and referencing a board profile is best equipped to select a slate of highly qualified candidates for the board.

The Executive Committee

While the nominating committee has the most important role among club committees, we believe the executive committee has the least. Our concern with a board’s executive committee is that it can become a mini-board, i.e., it can make decisions that are best left to the entire board. One of the principles of good club governance is the board speaking with one voice. Having the executive committee stand in for the full board dilutes this principle and can result in board members not on the executive committee feeling like second class citizens.

Despite the threats to the one-voice principle, executive committees have a long history in clubs primarily for two reasons:

  • There are board decisions that must be made between board meetings.
  • There are matters calling for a group smaller than the board to handle.

Regarding the need for decisions between board meetings, the last two years have demonstrated how easy it is to call an online meeting of the board. If an issue requires a decision by the board, the president can email an invitation to board members and assemble an online meeting within days. Some bylaws require a notice period of a week or two before a special meeting of the board but many clubs have amended their bylaws to allow only a few days’ notice, given the ease with which board members can be contacted and made available for the meeting.

The second rationale for having an executive committee is the occasional need for a small group to handle a particularly sensitive issue or provide the general manager with counsel on a policy or a decision. While a smaller group is more efficient and may be more secure with sensitive information, we do not see an executive committee as the one-size-fits-all group. For example, if the behavior of a staff member may result in adverse publicity for the club, it may be best to assemble a group of board or club members based on their expertise and not their office. Similarly, if the general manager needs counsel on handling an issue or transaction, they can call on board members or club members best suited to offer the advice.

A final point: Although the common board size is nine members, many clubs have 12 or more members. These larger boards are more likely to lean on an executive committee for efficient decision making. However, the more these larger boards rely on their executive committees, the more likely the non-committee members will feel left out. If a board is unwieldy, reduce its size rather than creating a two-tiered board by depending on an executive committee to make intermediate decisions.

This piece was authored by GGA Director, Frederic Laughlin for the National Club Association‘s Summer 2022 Issue of Club Governance. 

Corporate Policies and Best Practices for Proper Club Committee Alignment

More and more, private clubs are looking to corporations for policies and best practices in governance. For example, private clubs have realized the benefits of modeling the relationship between their boards of directors and general managers after the relationship between corporate boards and their CEOs. Although there are other lessons from the private sector clubs are learning, there is one area clubs seem slow to embrace: the appropriate alignment of committees.

Corporate boards maintain committees such as strategic planning, finance, audit and nomination committees to support governance functions. But they leave the formation of advisory committees on matters such as accounting, customer relations, sales, marketing, communications and the like to the CEO. In contrast, most private clubs have all their committees reporting to their boards. We believe there is a more effective approach to aligning club committees with the functions they support.

Assume you are just starting a private club and you have been assigned to develop a governance model. You decide on the size of the board, the terms of office, the election process and other features of the model. Next comes the task of identifying club committees, including their purpose, configuration and leadership. What’s the first step in this task?

The Purpose

Begin with the primary purpose of a committee, which is to serve as an advisor on policies relating to the issues subsumed by its scope of services—for example, finance, membership, golf, house, strategic planning, etc.

The next question is to whom does the committee report? The answer lies in the functions being supported by the committee. The board is a governing body with a strategic perspective. It needs committees to support strategic functions like finance, strategic planning, membership and governance/legal. In a good governance model, the board delegates the authority and the responsibility to the general manager to manage club operations, which includes delivering the services and activities efficiently and effectively. The committees supporting these functions, therefore, are best positioned reporting to the general manager.

We recommend two types of committees for a private club:

  • Board committees that support board functions and report to the board.
  • Operations committees that support operational functions and report to the general manager.

Unfortunately, the inertia militating against this alignment is rooted in history, where virtually all committees have reported to the board. Most club bylaws state specifically or clearly imply that all club committees report to the board, meaning that even boards that seek to realign their committees must first go through the process of amending the bylaws. Even if their bylaws allow for a restructuring, many boards are reluctant to effect the change.

Their rationale tends toward one of the following:

  • Having operational committees report to the general manager would diminish their role and prestige in the club, making it harder to recruit members to serve on these committees.
  • Moving operational committees away from the board reduces the board’s ability to stay informed on operations.

Value and Attraction

It is difficult to refute outright that service on operations committees will be less valued and therefore add to the difficulty in attracting quality members. Yet our experience suggests that club members are more persuaded by the influence of a committee and the quality of its management than by the person or persons to which it reports. In that vein, the closer the committee is to the decision-maker, the greater its influence and sense of value. Accordingly, we believe that whatever loss of status presumed by having operations committees report to the general manager is more than offset by the linkage the committee enjoys with the person who is responsible for making the decisions it recommends.

Likewise, we can understand the perception that not having operations committees report to the board will cause board members to lose touch with these important functions. However, there is no reason the board cannot require reports from the general manager that contain metrics the board believes are necessary for it to monitor performance.

Additionally, having operations committees report to it may encourage the board to meddle rather than monitor. Too often, board meetings are burdened by committee reports that address matters that belong to the general manager—not the board. If the general manager’s handling of an operational area is in question, the board can always ask for input from the committee. But to bake committee reports into the board agenda not only consumes meeting time, it also invites the board to be inappropriately involved with operational matters. Moreover, it blurs the clarity of responsibility for operational performance. If boards are holding general managers responsible for operational performance, the general managers must be given the authority to carry out the duties and the authority to form committees that support the functions related to operations.

Clearing Hurdles

As mentioned, many clubs refer to governance models of successful businesses, such as adopting the COO model, which clearly separates the governance function of the board from the operational leadership of the general manager/COO. But too many of these clubs are unwilling to realign their committees to more accurately reflect the corporate model and more effectively connect their committees to the appropriate level. We don’t discount the years of tradition that resist such a change, but we recommend that clubs clear the hurdle of the status quo and place their committees where they will most efficiently serve.

This piece was authored by GGA Director, Frederic Laughlin for the National Club Association‘s Summer 2022 Issue of Club Governance. 

From Forming to Performing: Principles and Practices for Effective Club Committees

Regardless of how a club chooses to align committees within its governance model, there remains the challenge of how best to establish them (forming) and realize their full potential (performing). Here, we describe the principles and best practices that apply to the constructive formation and effective performance of club committees.

Forming: Number, Size, Leadership, Membership and Terms

Number

There is no perfect number of club committees or ideal description of their scopes. The bylaws may specify what committees are required, but they usually authorize the board to create additional committees as it deems necessary and appropriate. Have a balance. Establish enough committees to address the breadth of areas prioritized by the club, but don’t overdo it. Having too many committees can lead to compartmentalization; having too few can burden them with too wide a scope. Most clubs have between six and 10 committees, which seems to provide a good balance.

Size

Committee size varies with the function and the desire for multiple perspectives. For example, the finance committee may contain four or five members who have relevant skill sets, while the golf committee may have seven or eight members and benefit from perspectives based on age, gender, handicap levels and the like. Avoid overpopulation, however, as too many members can reduce a committee’s efficiency and effectiveness.

Leadership

The next task is deciding on committee chairs. Here again, the bylaws may dictate the process. For example, the bylaws may state that the president selects committee chairs. They may also require that commit-tees be chaired by a board member. While we support the president selecting the committee chairs, we recommend a board policy with guidelines the president must use in the selection process. For example, the board’s policy may include a requirement for the president to refer to a board-approved profile of the ideal committee chair in terms of skill sets, leadership, good judgment, civil discourse and other desirable traits.

We do not favor the requirement that committee chairs be drawn from sitting board members. Select chairs on their merits, not their offices. If a board member fits the profile of a chair, fine, but unless the bylaws require it, don’t allocate committee chairs among board members simply based on their positions.

Membership

Now comes the time to populate your committees. We recommend allowing the committee chair to select his/her committee members. Again, however, we recommend that the board develop a policy to guide the chair in selecting committee membership. It is common for clubs to rely on volunteers to serve on committees. Yet, while a person’s desire to be on a committee is a useful criterion, it shouldn’t be the sole basis. Often, club members volunteer to serve on a committee to advance a particular agenda or program, which may make their membership on the committee more of a problem than a benefit.

Some club bylaws require the board to approve both the committee chairs and committee members. Although we don’t believe it is a necessary provision, it can be a way for the board to confirm that its policies were honored in the selection of a committee chair and committee members.

Many clubs require a year or two of service on a committee to quality for nomination to the board. This is a useful requirement as committees provide an excellent source for identifying board candidates. A member’s contribution to a committee is a good indicator of their likely contribution as a board member.

Terms

Clubs should have one-year terms for both committee chairs and committee members, with an allowance for additional terms so long as the chairs and members are selected on their performance and not by default. If you have a good pool of candidates who are willing to serve on committees, you may want to set a limit on the number of additional terms.

Performing: Management and Evaluation

Management

Once a club has established a committee and its chair, the board must develop a charter to clarify the committee’s role, its organization, the expectations of its members and the metrics used to gauge its effective-ness. The length of committee charters will vary with the amount of detail describing the committee’s scope. Although some charters include two or three pages of specifics, we favor general descriptions of scope that avoid exhaustive detail. If problems arise, such as a committee drifting out of its lane, the board can always add detail to bring it back in line.

Evaluation

It’s perhaps a bromide, but it’s true: What gets measured gets done. Precious few clubs formally measure the performance of their committees. Those that do rarely complain to us about the effective-ness of their committees. The below visual is an example of an instrument to measure a committee’s effectiveness. It can be used as a self-evaluation by committee members or as an annual survey for board members to complete. If committee chairs and committee members are aware of the rubric used in their evaluation, they are far more likely to be effective.

Gaining the full benefit of club committees does not involve sophisticated techniques or innovative approaches. It simply requires carefully choosing their scopes, organization, leadership and member-ship. Then, by managing and measuring their performance, a club will realize the potential of committees and add significantly to the effectiveness of its governance model.

This piece was authored by GGA Director, Liz McDowell CPA, CA, CCM, for the National Club Association‘s Summer 2022 Issue of Club Governance. 

The Intricacies of Benchmarking Data

For years, we have proudly conducted industry research in collaboration with private club association across the globe, including the Club Management Association of Canada (CMAC), National Club Association (NCA) and the Club Management Association of America (CMAA). Regardless of the survey, one notion has consistently remained: analyzing research data to derive insight is complex.

The primary purpose of our most recent survey initiative in collaboration with CMAA, 2022 A Club Leader’s Perspective: Emerging Trends & Challenges (CLP) is “To explore the perspectives club leaders have about the industry and their club’s performance.”

The CLP research is not intended to provide comprehensive benchmarking for use in evaluating individual club performance, but rather to provide an overview of trends in the industry from the perspective of club leaders. And these perspectives are derived from a diverse cross-section of clubs, including a variety of club types, in different markets and with different business models. For instance, almost 20% of the 2022 CLP survey respondents represented for-profit clubs, which at times structure their business models differently than non-profit, member-owned clubs.

Why is this important?

Our firm routinely conducts comprehensive benchmarking and operational reviews for clients, and while we recognize the value of self-reported data, we do not rely on survey responses from any of our trends surveys or other industry surveys. For benchmarking to be effective, it requires in-depth financial analysis at the trial balance level, understanding of the key physical characteristics of a club’s facilities, understanding of the club’s operating hours and service offerings, and understanding of staffing, including head counts, full-time equivalents, salaries, wages, and benefits, with comparisons only drawn to truly comparable clubs. There is rigorous analysis required in conducting benchmarking.

Comparisons of aggregated data without detailed analysis and without context provided to club leaders by experienced professionals with respect to what the results mean to their club given their vision for the club, their members’ expectations and their unique market circumstances are not benchmarks and should not be relied upon to make strategic decisions.

Our work with club industry associations is incredibly illuminating and we are committed to continuing conversations with club leaders now and in the future. We fully support the use of perspective research to ignite discussions and to help highlight important topics of focus. After receiving a few inquiries related to 2021 Food & Beverage (F&B) performance as reported by the CLP Report survey respondents, we felt that additional context and clarity on this topic would be valuable.

Before delving into the F&B survey data in the CLP Report, we want to reaffirm that our research team conducted extensive analysis of the survey results, and the results reported in the report reflect the responses received. Nonetheless, readers will note from the scatter plot of responses provided in the report, that there are assumed outliers that we classify as highly likely to be inaccurately reported data by some survey respondents. While certain results reported by club leaders did not appear to be appropriate, we did not adjust the responses and reported the results as provided. The use of a median in the analysis is important given the likelihood of potentially inaccurately reported data in surveys of this nature. That said, given feedback we have received, we conducted further analysis into the survey data and developed additional context for our readers.

Digging Deeper into the Survey Data

The raw survey responses, as reported, produced a median total annual profit on F&B of approximately $70k, equating to an implied median profit margin of 7% in 2021, with 64% of respondents indicating that their club generated a profit.

Further consideration and applying both our best discretion and professional judgement to the data, we estimate that approximately 10% of the respondent data was likely not entered appropriately, either due to a possible misunderstanding of the question or a transcription error.

If we were to exclude these data points from the analysis, the median total annual profit on F&B is closer to break-even, with just over 50% reporting a profit. It is important to note that this does not consider potential improperly reported extraordinary loss data points, which is more difficult to ascertain and appears to occur less frequently in the data.

Food and Beverage Profitability Trends

The CMAA Finance and Operations Study provides a good frame of reference for food and beverage profitability: 

 

  • CMAA Finance and Operations Survey Trend – Food and beverage net profit/loss held a consistent (flat) trend from 2017-2019, with the average performance being a net loss ranging between 10-13% of revenue. This sample of respondents is more heavily represented by non-profit club structures as compared to the CLP survey respondent profile of clubs. In 2020, the pandemic driven challenges drove the median net loss on revenue to 37%. 2021 results will be included in the release of the 2022 Finance and Operations report.

When compared to our internal GGA Partners database of historical trial balance level client financial results and 2022 budgets, which includes both for-profit and non-profit clubs:

 

  • GGA Database Trend – Net profit/loss held a consistent (flat) trend from 2017-2019, with the median performance being a net loss ranging from 3-6% of total revenue. In 2020, the pandemic driven challenges drove the median net loss on revenue to 25%. In 2021, the median net loss remained consistent at 25% of total revenue. We expect performance to continue to improve in 2022 and generate a median net loss in the range of 8-15% of revenue, based on our review of 2022 budgeted income statements among our client base thus far.

Purpose at the Core of Strategic Decisions

“Is it possible to make money on F&B? Or are we better off subsidizing the operation to improve the experience for members?” For years, our clients have asked these questions. Food and beverage operations at private clubs create a challenging business model by nature and should not be compared to the restaurant operation down the street (even though members often make this comparison). However, to say definitively that your operation should not make a profit is also ill-advised. Many of GGA’s clients generate a profit within their F&B operations, however, this is a strategic decision (dependent on several market factors) and more prominent within for-profit structures.

Your budgetary philosophy on F&B is a strategic decision for your club and should be based on what members want, and what the market allows from a price elasticity and competitive positioning perspective. Our member survey work frequently demonstrates how important and impactful F&B operations at private clubs are. Often, there is a strong statistical correlation between members’ satisfaction with F&B and overall satisfaction with the club. As a result, when a non-profit club’s annual dues and overall business model can support an expanded food and beverage offering, elevated service levels and discounted menu pricing, many clubs make the strategic decision to manage their food and beverage operation to a loss, in favor of an elevated member experience and overall satisfaction with being a member.

While there is considerable skill required to execute a food and beverage business plan, the formulation of that business plan is largely a mathematical exercise that can be viewed as a sum of the parts. In a non-profit, member-owned club, the ‘parts’ are what the members, through the board of directors and as part of a well-formulated strategy, determine and communicate to management. These ‘parts’ include:

    1. The number of food and beverage outlets to operate.
    2. The hours of operation for those outlets.
    3. The level of service required and thus the staff requirements during operating hours.
    4. The quality of the products procured and offered for sale.
    5. The pricing strategy for how the club prices its food and beverage products it sells.
    6. The number of events the club plans to host.
    7. The source of events, whether member, member-sponsored or external third-party events, and pricing strategy deployed.

For those that may have read the F&B related CLP survey results with concern, we strongly recommend you ensure there is a comprehensive strategic plan in place at your club. This requires a clear understanding of the food and beverage experience that club members desire, and the operational and capital costs required to deliver on those expectations. The decision must then be made to determine how (or if) the club can deliver on the F&B experience in a manner that is financially sustainable. The feedback we received on the F&B results in the CLP research report underscore the necessity for strategic planning that incorporates financial forecasts and key financial targets, through which the board of directors guides management to operate, along with the importance of succession planning for board members, ensuring a knowledgeable and informed leadership group.

For any questions or for assistance in benchmarking your operation and setting the most impactful strategy for your club, please contract us at info@ggapartners.com.

Access the 2022 A Club Leader’s Perspective: Emerging Trends & Challenges report.

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