BoardRoom Briefs November/December 2016

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briefs overtime pay update By Dave White

The federal Department of Labor’s overtime rule has hit a bump in the road. The overtime rule, announced by the Department of Labor in May, would raise the threshold for employees who are exempt from overtime pay to $47,476 – more than double the current salary threshold of $23,660. This increase in the salary threshold was schedule for December 1, 2016. The U.S. House has passed a bill (H.R. 6094) that might delay implementation of the USDOL’s overtime rule until the middle of next year. The bill, with a mostly party-line vote, passed 246-177. The Senate, after passing a stopgap spending bill to avert a government shutdown, adjourned. This means there will be no Senate vote on the overtime bill until after the November elections, at the earliest.

$47,476 or a related personnel action: change the employee’s classification from Exempt to Non-Exempt and then track hours worked and overtime.”

David Lacey, managing director, HR consulting services, Hirshorn Booth in referring to the original Dec. 1, 2016 deadline, said “the immediate effect on a country club should be to audit how many current Exempt positions are paid less than the new benchmark.

Lacey suggested private clubs take “fast action because USDOL has targeted the hospitality industry as one of three market sectors where employment-related abuses have occurred now and in the past; and USDOL intends to correct them.

“Then, the club is expected to take action; either to increase the base pay to the salary benchmark whenever there is a gap between the actual base and the new salary benchmark of

“At a country club the most likely departments where a pay gap may occur will be: membership, IT department, human resources, and the finance department,” Lacey suggested. BRB

briefs

table of contents board 2017 Headstart for Club Boards - p7

NOVEMBER/DEC EMBER 2016 VOLUME 1 | ISSUE 6

club culture Ethics in Action - p3

boardroom briefs is complimentary to boardroom magazine subscribers. This newsletter offers content that goes beyond the buzz, by surfacing and summarizing important industry information. Each issue will offer practical insights from industry experts with a focus on fit for boards, board presidents and paid management.

club trends Imperatives for Club Leaders - p7

John g. fornaro / Publisher dee Kaplan / Advertising

food & beverage Subsidizing F & B Costs - p3 F & B Continues to Grow - p3

If you have a story idea, please contact heather@boardroommag.com or call (949) 365-6966. For more information please visit www.BoardRoomMagazine.com. Interested in advertising, please email dee.kaplan@gmail.com or call (310) 821-0746.

governance The New ABCs of Private Club Success - p5 Planning Ahead - p9

contributing Writers and industry resources

greens Expected Life Cycle of Golf Course Items - p9 Human resources Overtime Pay Update - p1 Managing an Employee Who Doesn’t Fit - p5 membersHip What to Do with Millennials - p11 Gordon Wouldn’t Be the Rage Today - p13

Heather arias de cordoba / Editor dave White / Consulting

Heather Arias de Cordoba / editor, BoardRoom Briefs / heather@boardroommag.com Michael Crandal / private club consulting / mjcatexmor@aol.com Henry DeLozier / golf management consultant / hdelozier@globalgolfadvisors.com Teri Finan / director of communications, Club Benchmarking / tfinan@clubbenchmarking.com Bonnie J. Knutson Ph.D. / professor, The School of Hospitality Business, MSU / drbonnie@msu.edu David Lacey / managing director, human resources services, Hirshorn Boothby / dlacey@hirshorn.com Philip Newman / partner, RSM / philip.newman@mcgladrey.com Dave White / editor, BoardRoom magazine / whitepks@mac.com ASGCA / www.asgca.org



ethics in action… do you Know fraud When you see it? By Phil Newman

Consider the scene. It’s a glorious summer day in Iowa and the audit of a premiere country club is going beautifully...until! The club controller takes a call from a vendor asking when they should expect payment on some late invoices. The controller has no knowledge of these invoices and pays a visit to the department head who ordered the product. Sheepishly the department head produces the invoices, which by this point are sixty days past due. The controller is furious and embarrassed – he knows the invoices need to be accrued in the fiscal year under audit. He also realizes this will mean the club will blow its operating budget for the year and that the bonus available to every member of the senior management team will be negatively impacted. In no uncertain terms the controller lets the department head know the consequences of her actions. Fast forward to the next day when the controller is explaining what happened to the lead partner from the club’s audit firm. The department head interrupts the discussion to explain that all is saved! She proceeds to weave a tale of how the vendor had printed the wrong dates on the invoices and that they actually didn’t pertain to the year under audit. The partner listens as the department head produces identical invoices from the vendor, with the same amounts, description and invoice numbers, but dates that fell after the club’s fiscal year end. Nodding with understanding, the partner closes the conversation with one question, “So are you telling me that this product had not been received by the club at the fiscal year end?” “That is correct,” the department head eagerly agrees and walks away. The audit partner has heard this story before and points to the delivery ticket numbers on the original and the new invoices – they have not changed. He asks the club controller to contact the vendor and request those delivery tickets. Can you guess the rest of the story? Indeed, the delivery tickets clearly proved that the product had been received long before the

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club’s fiscal year end. The partner explained what the controller already knew, the department head had committed financial statement fraud – possibly with the help of a vendor, possibly at the urging of others whose bonus was being negatively affected. After speaking with the GM, the club president and treasurer, the club controller met with all three and the department head, who admitted that she had forged the new invoices to cover up her budgeting error. While there were a number of avenues open to the club, they considered the fact that they now knew that someone in charge of a significant area of the club was willing to compromise her personal ethics, as well as the club’s written code of business ethics, and lie for a relatively small amount of money. What would she do if much greater amounts were on the line? They felt they had no choice but to terminate the department head. Clubs employees are often faced with such ethical dilemmas. Club management and leaders need to routinely reinforce the fraud conscience of the club and clearly communicate that unethical behavior will not be tolerated. If club employees struggle with what to do in certain situations, such as those in our story, have them reflect on the CMAA test of ethical compliance: • Could I announce my decision to the membership at the club’s annual meeting? • Could I announce my decision to my fellow professionals from other clubs at our annual conference? • Would my decision meet with the approval of business professionals? Simple but effective – if an employee can’t categorically answer yes to any of these questions, they probably are making the wrong decision. What would your employees do? BRB



managing an employee Who does not fit With your team or at your club By David W. Lacey

When you are faced with an employee who does NOT fit, it is a significant management challenge. The difficulty of a not fit conversation may lead to a manager avoiding it. And rely on the unspoken principle of the professional will figure out how to get on an effective performance path and do it! Not fit professionals do not figure out what to do…not ever! There are three different reasons for a not fit situation which are: technical know-how; motivation or desire to do your best work; and interest in the work itself. We will address all three reasons. First, technical know-how. Examples of know-how is a server in the club restaurant who does not: 1) remember the names of frequent users; 2) set the table properly; or 3) offer a welcoming smile to customers. All three examples connect to know-how. This kind of not fit can be addressed quickly because the right way is easily learned with coaching from the direct manager. Not fit for motivational or interest reasons is a far more complex and difficult personnel matter. Managers establish the workplace conditions so their employees can do their best work. But you cannot control their motivation to do the work or their interest in being effective at work. Motivation or desire and interest are baked into your DNA. You either have them or you do not. I am not optimistic about altering an employee’s DNA.

Based on interviews with effective managers, there are six proven and time-saving practices which may help you address a not fit employee. Taken together, these practices have been named ACCENT and include: 1) Actively and frequently review employee performance, especially during the 90-day introductory period. 2) Carefully observe work behavior so you can offer clear and specific examples to remedy a shortfall. 3) Coach to get performance “on track” and reward effectiveness. 4) Engage your employee in the performance process by asking questions – Why, How, What? 5) Notify a “Not Fit” employee about performance shortfalls and be specific and clear about what he/she must do to improve. 6) Track changes in performance and reward the employee. If no improvement, then Terminate the employee. The ACCENT model provides a country club manager with a proven and legally tested process for managing not fit. Also, it signals a club culture where only best fit employees make a difference and contribute to the club’s success. BRB

the new abcs of private club success By Michael Crandal assessments are a no-no board members are always kept in the know capital reserve plans are firmly in place depreciation fully funded - means assets don’t go to waste equity memberships? They gotta go food minimums? Also golf is for all genders and the entire family Hospitality indeed extends to each and every tee initiation income is on the rise Junior Programs, WOW do they thrive! Kids are kept happy while young parents give high-fives legacy memberships are proving a pipeline to survive members and management are in constant harmony nominating committee is renowned for selecting quality operations are such that all feel pride people are in the right places, deep and wide Quality is never left to chance restaurants serve nothing but excellence page 5

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sacred cows are not allowed to graze traditions are respected, but the bar of excellence is still continually raised unbelievable stories abound of great staff anticipation visitors covet members extending invitations Wait staff service is nothing but the best X-tra attention is given to all members and guests younger generations, yes they see… Zee club, Zee club, Zee club is the place to be! BRB



Club Trends IMPERATIVES FOR CLUB LEADERS Collaborative governance is a tried and true solution for the effective and efficient operation of a private club. It is the only way today to effectively and efficiently run a private club. This paradigm requires significant collaboration between a private club’s volunteers (members) and paid management to achieve the goals and objectives of a club’s board of directors and its members. The goals and objectives must enhance the value of the club’s member experience, and the club’s assets. So how do you set your board up for success? By providing both the volunteer leaders and the paid managers with role clarity. There must be policies and procedures allowing everybody in the organization to focus on what they need, and to know where and what checks and balances are in place. ONBOARDING ORIENTATION • Include the GM/COO and new board or committee members as well as outgoing board members. • Hold orientation prior to the new board member taking over position. Purpose: Inform new board and committee members on their roles and responsibilities, attendance expectations, procedures and guidelines for policy change. BOARD/STAFF ORIENTATION • Include GM/COO, leadership, department heads, management, new and governing board members. • Allow department heads and management to share SWOT overview for their departments along with current in-progress goals with governing board. • President gives overview of current goals, strategic plan and committee goals. Reiterate board member roles and responsibilities. • Overall discussion of financial state of the cub, longrange goals and strategic priorities. Purpose: Integrate new board members. Outline the roles and responsibilities while keeping the club’s strategic plan at the core of discussions. Hold additional retreats and orientations throughout the year to keep the board onboard and on target! In short, collaborative governance is the only way to run a private club. Today, it’s a necessity. BRB

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Get a Head Start on 2017 4 Steps for Club Boards By Teri Finan

Gear up for the new year by taking a fact-based approach to club leadership. 1. Benchmark the budget In most clubs, the annual budget process is an inward-looking exercise where the prior year budget serves as the benchmark for future spending. In strategic budgeting, industry norms and benchmarks correlated to financial health are used to guide and support decisions. As a bonus, the approval process is often faster and less contentious when budgets are corroborated with relevant data. 2. Get a grip on F&B expectations Industry research shows that F&B is subsidized by about 75 percent of all clubs. It’s not a significant financial driver because the margins are so low, but it is an important amenity – just like golf, tennis or the pool. Work with management to identify a comfortable balance between club culture, member expectations and financial results. Getting there means answering a few key questions: What percentage of the club’s gross profit comes from F&B and how does that compare to other clubs with similar operating revenue? Can the club afford to subsidize F&B and if so to what level? Is it possible to keep members satisfied and produce break even or better results? 3. Do a reality check on dues revenue Dues revenue is on the opposite end of the spectrum from F&B revenue in terms of margin. It’s the key financial driver for a club. Before you vote to kick the next dues adjustment down the road, figure out what proportion of the club’s total operating revenue comes from dues (the dues ratio) and understand that benchmark relative to appropriate comparison sets and to the industry overall. The industry median is 50 percent. 4. Analyze the club’s capital position Is your club “capital rich” and able to reinvest on a regular basis or is it slowly starving to death? Calculating your net available capital ratio can shed light on how prepared you are to meet ongoing capital needs and create the value necessary to attract and retain members. The net available capital ratio is net available capital (total capital income + net operating result – lease payments) divided by the club’s operating revenue. The industry median is 12 percent. Visit http://www.clubbenchmarking.com/value-creation for more information. BRB



planning ahead By Henry DeLozier

Private clubs have made a comeback since 2008, what are the important ‘to do’ items for a club’s success today? There are at least five characteristics that separate top-performing clubs from those that are not: excellence in governance – Top clubs do not have disciplinary problems. Moreover, top clubs govern with an openness and resolution on which members may rely. Matters that come before the board are addressed timely, thoroughly and within the context of a well-known and widely understood Board Policy Manual (“BPM”). These clubs’ boards deliberate as many and govern as one. Differences of opinion and priorities are kept in the board room. trusted leadership – Top clubs enjoy great leaders. Servant leaders who put the needs and priorities of others – their fellow members – ahead of their own. Sometimes the great club leaders are titans of industry and sometimes small business owners; they are always servant leaders. They are trusted because they are reasonable, respectful, patient and visionary. They can see beyond the horizon. visionary strategy - Boards at top clubs understand that they are responsible for three critically important matters: strategy, finance and culture. These boards rise above the day-to-day issues of the club and keep focused on the future of the club… what its values will be…how it will fund its unending capital needs…and, what steps will ensure long-term economic sustainability for the club. Clubs of this type have strategy that is big, bold and evolutionary.

market differentiation – Most clubs are situated in oversupplied and highly competitive markets adrift in a sea of “sameness” where one club offers much the same value proposition as the next. Top clubs are easy to spot because they are different…and everyone knows it. What distinguishes your club from its competitors? The objective of market differentiation is to make your club more attractive, appealing and successful than others within its competitive set. Typically this begins with focused brand planning and execution. Top clubs have “it” and everyone can point to what “it” is! revenue-focused (versus expense-focused) – Top clubs understand the metrics of their business…fees and dues. Top clubs recognize several sources of fees: (1) joining fees are typically used to fund capital reserves and long-range capital needs; (2) fees for non-member services such as weddings, outings and special events; and (3) usage fees for such needs as club storage, lockers and access privileges of one type or another. It is often said that “clubs are in the dues business”. In fact, fees and dues represent the most high-yield / high-margin sources of funds for private clubs. Leaders in top clubs understand that their club must consistently increase revenues from the various high-yield sources to achieve economic sustainability, which is paying all of the club’s costs and funding its future capital needs. BRB

expected life cycle of golf course items How long should parts of the golf course last? No two golf courses are alike except for one thing: deferring replacement of key items can lead to greater expense in the future, as well as a drop in conditioning and player enjoyment. The following information represents a realistic timeline for each item's longevity. Component life spans can vary depending upon location of the golf course, quality of materials, original installation and past maintenance practices. The American Society of Golf Course Architects (ASGCA) encourages golf course leaders to work with an ASGCA member, superintendents and others to assess their course's components. BRB ASGCA thanks those at the USGA Green Section, Golf Course Builders Association of America, Golf Course Superintendents Association of America and various suppliers for their assistance in compiling this information. All information courtesy of ASGCA

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What to do with millennials By Heather Arias de Cordoba

According to DMR online, there are currently around 83 million Millennials living in the U.S. that’s 25 percent of the U.S. workforce. That’s quite the force to reckon with. Twenty-five percent of Millennials are parents, and by 2026 that percentage is estimated to jump to 80. So how does a club, or an industry stay on top of this demographic? Millennials are quite different than any other member private clubs have seen before. • 44 percent of Millennials have turned down a job offer because the company’s values didn’t match their own. • 87 percent of Millennials think a company’s success should not be measured purely on financial performance, but should include a larger purpose (philanthropic or otherwise). • 91 percent of 25-34 year olds will switch to a brand associated with a good cause such as not-for-profit foundations, or other methods of giving back. • 70 percent of Millennial mothers consider themselves the primary decision maker in the family. This type of thinking directly impacts the private club industry. According to NGF (National Golf Foundation), 44 percent of Millennial golfers view the sport as elitist and exclusionary, 41 percent feel the environment is stuffy and 27 percent expressed they feel golf is an old man’s sport. On the flipside, however, this same demographic also expressed positive brand perceptions (see graphs below). So how does a industry that has the perception of being elitist, exclusionary, stuff and old, attract the largest growing demographic in the country?

relax – Clubs have already started to tone down the dress codes, electronic usage and dining options. Millennials embrace the new: they enjoy pop up events, unique social and activities and family friendly environments. let them drive – Millennials are social by nature, they share a lot and often. Turn your current Millennial members into your brand advocates. Form a committee or focus group targeted to finding out what this demographic wants from their club. more, more, more – Millennials love diversity, but they are also loyal to a brand when they feel there is value. Offer more assorted events, unique tournaments, embrace technology on the golf course and in the clubhouse, and offer appealing activities to keep families involved by providing clubs within the club. Know your competition – There are thousands of ways Millennials spend their money, and clubs are competing for a good portion of that disposable income. Do your research and know what’s working in your area. If these fit within your business model perhaps they can be integrated into club operations. member experience – Millennials are about the experience, sharing the experience with friends, and then sharing thoughts about the experience socially. This is true for travel, meals and nights out with friends – even sitting at home having game night with friends. Make your club a place Millennials feel welcome and engaged so that this is their home away from home for them and their social circle. BRB

POSITIVE BRAND PERCEPTIONS

NEGATIVE BRAND PERCEPTIONS

AMONG MILLENNIALS

AMONG MILLENNIALS

Golf is a good way to enjoy the outdoors

Golf is elitist/exclusionary

82% Golf is fun

44% The environment is stuffy

80% Golf is great for socializing/hanging out with friends

41% Golf is an old man’s sport

79% Golf is time well spent

Golf is dull/boring

74% Golf and business go well together

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18% Golf courses are bad for the environment

67% page 11

27%

18%


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gordon Wouldn’t be the rage today By Bonnie J. Knutson, PhD

“Greed is Good.” While greed may have been all the rage when Gordon Gekko, uttered his infamous line in the 1987 film, Wall Street, it is surely out of vogue today. Now, the “G” word for status is not greed, but giving. There are a myriad of societal causes for this seismic shift, but the bottom line for your club is that people want the companies with whom they do business to be good corporate citizens. And this feeling is increasingly being directed towards their clubs by members. This means that, no matter what type of club you are – country club, yacht club, city club — not only do you have to give, but you have to make it possible for your members to be generous too – and to feel good about doing it. This movement is unlocking innovative ways for your members to feel good about their club as well as themselves. To be part of the greater good, to contribute, to help, to give back – and, in a subtle way, to gain status. Members can donate gently used golf equipment to underprivileged youth, or holding a fashion event supporting the Dress for Success program that provides gently used professional attire for disadvantaged women who want to enter the workforce, are but two examples. Then there are the traditional Toys for Tots,

Holiday Food Baskets, and Evans Scholars. One club has even worked with a local pottery guild to provide bowls for an “empty” bowl fundraiser for the local food bank. For a $25 donation, members receive a handmade bowl made by guild members, plus a light meal of soup, bread and water. Undoubtedly, there is a myriad of other possibilities in your area for your club. Programs such as these illustrate the growing stature of generosity as a consumer trend. It also offers your club the opportunity to develop even more innovative initiatives that deliver a special way for members to feel extra special good about their club. So put your thinking cap on to figure out how your club can tell Gordon Gekko he wouldn’t make it in your club today. Your bottom line will thank you.

BRB

FUN MILLENNIALS FACTS

85 $ 10,600 $

the average amount a U.S. Millennial spends each day.

160M

Millennials drank 160 million cases of wine in 2015.

Millennials earn an average of $10,600 less in their twenties than the previous generation.

74% don’t think Social Security will be available to them at retirement. 73% prefer to receive communication from a business via email. 89% trust recommendations from friends and family more than claims by a brand. 84% of Pinterest users use it to discover things related to health and fitness. 91% use Facebook. 64% that use Facebook, post about what they are doing, where they are and who they are with. 86% own a Smartphone. 83% choose to text over talk with their Smartphone. page 13

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