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| Private clubs are just that…private businesses with members of like minds and values, who have an investment in an on-going business. |
| Every year, as with other businesses, private clubs must pull together their financial statements, which tell the club, or at least, its board of directors and general manager whether it's losing money, breaking even, or making a profit. The club's financial position may also be governed by IRS code, as a profit or non-profit entity. |
| But here's the sticky wicket. Members often see themselves as owners (the paradox is that they are also customers) and some feel they have a right to full disclosure of financial data. What and how much information should be available to members? Questions, oftimes raised by general managers, who for one reason or another are being pressured by members for greater financial revelation. What do GMs feel should be revealed to members? |
| "I believe that financial information available to rank and file members should be limited to annual statements, as in other corporate settings," opines Steven Boggs, general manager, Sahalee Country Club, in Sammamish, Wash. "The board and finance committee should have unfettered access except in the case of personnel information, which I believe should be limited to the board. |
| "Salaries of employees should definitely be limited to the board or maybe even the executive committee. This information is proprietary and confidential and the employees have a right to privacy," Boggs believes. |
| Greg DeRosa, chief operating officer of the Boulder Country Club, Boulder, CO comes "from the school of full disclosure, but," he maintains, "everything in life has its caveats. |
| "Every publicly traded institution divulges their annual financial statements…typically highly modified P&Ls and balance sheets designed to provide the investors with critical information regarding the performance of the company. I feel private clubs fall into the same category. In a perfect world they would provide clarity without burying investors (members) in confusing and elaborate detail. |
| "The key," DeRosa claims "is knowing how much to present, and in what format so members have enough information to understand the club's financial "big picture" without feeling lost and confused in minutia. We all have committees and boards whose responsibility is to know the detailed financial picture of the club. They are charged with ensuring the management team meets the financial objectives of the organization and their level of knowledge and detail must be expanded to allow them to chart the best financial course for the club." |
| What should be revealed may also be governed by the specific kind of club. Robert Salmore suggests if a club is part of an association within a gated community, the club affairs may be subject to state "Sunshine" laws. |
| Salmore, a CPA and director with the West Palm Beach, Fla.-based, McGladery & Pullen, LLP says if a club is member-owned, and governed by the state's not-for-profit statues, members may be entitled to financial and other information, as long as "proper notice is given to the club by members." However, the member may be required to pay for copying costs. |
| "As a practical matter, I believe that at least a quarterly statement of revenues and expenses, compared to budget, should be part of the newsletter or posted on the website. A balance sheet statement of financial position might also be published. Annual operating and capital budgets should be published for the membership as well as how dues are determined," Salmore commented. |
| Gregg Patterson, general manager of The Beach Club of Santa Monica, CA believes in an open, transparent policy, not just for the fact that it reveals information and creates understanding, but that it's valuable for the club community. |
| "Financial literacy builds community," Patterson explained. "Numbers make a club's philosophy tangible. 'You are what you spend your dollars on.' Letting members and staff know about 'the numbers' creates 'buy-in' to the club's vision of 'the good.' |
| "Conversely, numbers can also be great 'disrupters' of the smug complacency that can affect any corporate environment. Once the numbers are known, your secrets are exposed and the 'whys' begin to be asked. Those who want to keep members in the dark about decisions and their implications would argue against providing an education in club economics," Patterson opined. |
| "That said, clubs committed to economic literacy provide summary financials, monthly variance reports, background white papers to the board, all committees and senior management. Articles are written on financial issues in the monthly newsletters. Letters are sent pre-emptively to the membership, when issues of consequence emerge that will have a significant future impact on the club. Members are encouraged to ask for any of the financial reports from the manager," Patterson suggested. |
| "They are encouraged to speak directly with the controller and the manager about economics. However, the comprehensive financial reports - such as the finance committee and board of directors receive - are only given once the distilled versions are delivered, thereby providing 'commentary' that would help guide their understanding." |
| One thing is clear from these GMs and others involved in the private club industry…giving information about employees' compensation, salaries and benefits to members is taboo. "Common sense dictates that certain information should never be disseminated to the membership," says Salmore. |
| "Executive compensation and benefits should be limited to certain parties. At some clubs, an executive committee of the board typically deals with the general manager and department head compensation and benefits, to the exclusion of other board members. Other employees' salaries and wages should also be held in confidence at an appropriate management level, " he added. "In addition, important contracts and arrangements with vendors may also require confidentiality. Board members should be cautioned when being elected to handle such information with care and not to share it with other members, " Salmore recommended. |
| "Payroll-related issues…specific to a certain employee, should never be revealed. However, total payroll for a given department, when there's more than one person in the department, is a number that should be readily available," Patterson believes. |
| DeRosa feels "strongly that compensation issues should be reviewed and approved only by a very small group of tenured directors (executive committee), charged with the responsibility for understanding market and industry trends and standards. Personal compensation issues are just that, personal." |
| "The fallout from members knowing and using this type of information for or against co-workers would create a difficult work environment at best," DeRosa stated matter-of-factly. |
| And there's a general concensus that board and management have a responsibility to disclose financial information to members as 'equity owners.' |
| "The community of owners should know where their dollars are going, they should be educated as to why those dollars are going where they're going," Patterson related. "'Who you are' is seen in 'what you buy' and great club communities want to know." |
| Boggs feels "equity holders in private clubs should have the same access as stockholders in General Motors or Microsoft, which consists of the annual report published at the end of each fiscal year or quarterly published financial reports." |
| Salmore suggests the "increased transparency on the part of clubs and similar organizations is necessary in light of current trends in business." |
| And ulterior motives and hidden agendas with the release of certain financial information can be a major issue for clubs. So do certain members use financial data for "wrong purposes" or to promote a " hidden agenda?" |
| "Yes, for sure," suggests Tarun Kapoor, managing partner and CEO of Kapoor and Kapoor Hospitality Consultants of Pomona, CA. "In competitive markets (like Florida), where sales are impacted, this is an even bigger problem. Maybe members could see the detailed information, have management, the auditor or treasurer answer questions, but not give the details." |
| It's a real stickler for Boggs. "There are members with agenda who will take raw data and spin the info to make their point, which is generally one of doom and gloom," Boggs exclaimed. "That is why rank and file members should be limited to the information that is provided. I believe it's appropriate for general reports regarding the financial health of the club be reported by the general manager or board to help dispel rumors and provide general information to the membership," he added. |
| "Unfortunately most data can be manipulated out of context to shed a less than sterling light on any situation," Boulder's DeRosa commented. "I believe the majority of members in quality clubs have no intention to misuse financial data. That's not to say someone might have intentions other than the club's best interest in mind, to mislead members for whatever self-serving interests. |
| "The best way to prevent misuse of information is to ensure the membership has at its disposal the proper information, packaged so it is easily interpreted to present a true picture of the club's financial situation. Beyond that, leave the details to the elected representatives of the club and the professional management team charged with managing the clubs resources and hold them accountable for that responsibility," DeRosa added. |
| "Good information misinterpreted is not only counterproductive, but can be detrimental to the long-term financial health of the organization. Additionally, club members at-large might not fully understand the financial philosophies, objectives, and underlying tenets of the club, which are, in many cases, radically different than the for-profit enterprises owned and operated by the members in their professional lives," DeRosa offered. |
| Boggs also suggests that if there is "proof that proprietary and confidential information is being circulated, an effort to find 'the leak' should be undertaken and dealt with accordingly." |
| Numbers or facts of any type can be 'spun' in any direction the speaker wishes to spin them, Patterson suggested. "This is inevitable…however, in an open society that fosters debate and discussion, the downside of 'knowing' is offset by the upside of providing understanding. |
| "When the 'wrong spin' gets spun, the board and management team need to refute the issues, publish the facts, engage in conversation, do the 'walk and the talk' throughout the club. Doing so will allow for 'the truth' to emerge," Patterson believes. |
| "An open society is messy but the messiness will make for a stronger, more cohesive club than will secrecy. Keep in mind that progress is often made through 'creative destruction.' Published numbers provide ammunition that can be used to fuel a revolt - but revolt is often needed to break through parochial thinking and 'smug complacency.' Not fun, but often necessary and in the long term 'good' of the club. |
| "If 'misuse' is discovered, the board and management team should work to get out the facts and the 'right explanation' for those facts," Patterson explained. "Letters to the members, articles in the newsletter, flash comments on the Internet network, conversations in the grill and dining room and thorough discussion at the committee level are 'guns' the club can use to address the rebellion." |
| There are suggestions disciplinary action should be taken against any member who misuses financial information. And "the club's discipline procedures must not only address the situation but also empower the board to take action," Kapoor said. "This, in particular, warrants legal counsel." |
| "A private club is no different than any other corporation," Boggs maintains, "and there are duly elected representatives, (i.e. the board) who have been tasked with the oversight of the management of the club. Hopefully there is also competent management staff to carry on the day-to-day business of the club with transparent access to the appropriate board members." |
| "Remember," DeRosa added, "that many components of any business taken out of context or misinterpreted by those not fully educated in the global affairs of the club could be detrimental to the efficient operation of that entity. I feel a little self-accountability goes a long way. At the end of the day, our ability as CFO's will be judged by the budgets we develop, processes implemented, and results produced. |
| "And members wanting detailed financial information…should get involved and volunteer to sit on the committees charged with developing the club's long range financial goals and philosophies," DeRosa suggested. |
| Publisher's final thoughts |
| Club leadership today is challenged on many fronts. Today's members are diverse in experience and needs, and they are less reluctant to voice those differences. And, while an interest in club affairs can be positive for the club it can present problems when members request access to confidential information. |
| It's incumbent upon the board and senior management to ensure members are given adequate information, the facts as they are, presented with clarity allowing understanding of the club's performance and financial position. |
| Where do you draw the line? Compensation issues must be confidential between individuals and employers…it's personal business. I believe all manager's salary and compensation discussion and disclosure should fall to the board or the executive committee and not to be shared with the membership. Member's access to materials involving employee hiring, discharge or evaluations should also be limited. |
| Clubs must operate in a business like manner when handling member request for confidential information. Written policies and procedures concerning disclosure should be evaluated, reviewed and updated, but transparency is a must! |
| At least that's the way I see it. |
| What's your opinion? If you have any questions or comments, John Fornaro can be reached by email at johnf@apcd.com. |
| John G. Fornaro Publisher |