By Jim Butler, CEO - Club BenchmarkingOriginally published by the National Club Association in Club Director Magazine, Fall 2019
“Those who cannot remember the past are doomed to repeat it.” Those words from philosopher and poet George Santayana have been on our minds lately as we work with boards across the country, helping them prepare their clubs to withstand future economic uncertainties. While the U.S. is currently on a record-breaking streak of economic expansion, history tells us that the next recession is inevitable.
Recently, we came across a 2014 article in the McKinsey Quarterly that captured our attention with its relevance. “Building a Forward-Looking Board” was written in the wake of the 2008-2012 economic downturn. Reflecting on the demise of companies that succumbed during that period, authors Christian Casal and Christian Caspar cited “negligent, overoptimistic, or ill-informed boards” as a major contributing factor. They observed that governance suffers most when “boards spend too much time looking in the rear-view mirror and not enough scanning the road ahead.” That condition, in our experience, is endemic in the club industry.
Changing Club Dynamics
The club industry has undergone fundamental changes as a result of both the economic downturn and the market’s transition from Baby Boomers to less golf-centric Generation Xers. Member counts dropped due to decreased discretionary spending and a shift in the interests of prospective members. Clubs once focused solely on golf were forced to reevaluate their culture, traditions, programming and infrastructure in order to remain competitive.
Club leaders who recognized the impact of those societal changes were compelled to break their focus on “the rear-view mirror” in order to develop more forward-looking strategies. Some have been successful, but for many clubs the evolution has been difficult and slow. The upshot of the article by Casal and Caspar is this: Building a forward-looking board requires a clear roadmap if current and future leaders are to function as a truly strategic governing body. In the club industry, boards ready to lay a solid foundation for the future should consider the following steps:
- Evaluate and Re-Center the Board Agenda: If agendas focus on operations and the income statement’s budget vs. actual (rear-view mirror) rather than strategic (scanning the road ahead) it’s time to make a change. Make time in every meeting to review the strategic plan, evaluate risks and opportunities in the local market and assess the effectiveness of your governance model.
- Connect Strategic Plans to Operating Business Plans: A strategic plan not directly tied to the club’s operating business plan will wind up gathering dust on a shelf. The most effective plans identify where you want to go AND how you’re going to get there.
- Ingrain Balance Sheet Focus in the Boardroom: Board turnover necessitates repetition. Every board and committee orientation should include an introduction to the club’s balance sheet and those metrics should be revisited on a regular basis throughout the year.
- Develop a Forward-Looking Capital Plan: Sustainable financial success is rooted in the capital ledger and manifests on the balance sheet as property, plant & equipment. Clubs must have a comprehensive (including an up-to-date Capital Reserve Study) and accurate capital plan that assures future capital resources meet future capital needs. Seventy-five percent (75%) of clubs in the industry are not generating the capital necessary to properly maintain and re-invest. The shortfall of capital must be addressed prior to the next recession.
- Monitor the Competitive Landscape: Scanning the road ahead requires a clear understanding of your local market and the external factors impacting your members’ connection to the club. Introduce reliable business intelligence into the planning process to promote informed decision-making and stimulate strategic discussions.
- Partner with Industry Allies: The business of running a club has grown increasingly complex and boards are often faced with issues outside the skillset of volunteer leaders. Invest in partnerships with service providers and associations like NCA that offer the club-specific resources, expertise and experience to support you on your path to strategic leadership.
Jim Butler is a recognized leader in data science and academic research. Serving more than three decades as a professional club manager, he has a wealth of operational experience and a proven track record in real estate sales and capital improvement and renovation in gated communities. Jim welcomes your questions or comments and he can be reached at firstname.lastname@example.org