By Kevin F. Reilly, J.D., CPA, Partner
As Published in The Boardroom
As I travel around the country and visit with boards and managers, an often repeated issue relates to the decision making process in a club. In spite of attempts by management to provide sufficient facts and structure to the decision making process, many clubs make decisions based on anecdotal evidence of what is happening in the club or even worse at the club down the street. Although club managers have made tremendous strides in running a club like a business, making decisions based on fact rather than opinion or emotion is not always the norm. Anyone who has been a member of a club board certainly has an understanding and appreciation of the dynamics in the boardroom. As is so often the case in the larger world, the most persuasive person or argument is not necessarily the right one.
In endeavors that matter most, including those associated with life and death such as flying a commercial airplane, decisions are made in a standardized, fact based manner, not based on opinion. Pilots for United or American don’t get to convince each other in the cockpit which items will be checked pre-flight and in which order. The confident, charismatic pilot does not get to convince the introverted co-pilot to change the pre-flight checklist. From the moment the pilots enter the cockpit, they are locked into a standardized, data driven routine governed by the airline’s chief pilot that is aimed at assuring no mistakes are made. Every pilot and co-pilot goes through the same process whether they agree with it or not, independent of their own view and feelings.
In the larger world, as individuals, we are all free to make decisions in a manner consistent with our own personality. Some of us fly by the seat of our pants while some agonize over decisions and gather input and data from every conceivable source. We are not bound to make decisions in any particular manner when acting in our own self-interest. Yet what manner is required when we step into a role like the pilots – a fiduciary role? A fiduciary is someone acting on the behalf of another based on an expectation of trust. The commercial pilot is a fiduciary of the highest order. The passengers have placed their lives in the trust of the pilots. That is why all pilots follow a standardized pre-flight routine that is objective and independent of their own views, emotions and thoughts.
A club’s board is the central decision making body of the club. Members elect the board and expect the board to represent and act in the best interest of the club as a whole, not a particular segment. Members of boards in clubs are also fiduciaries. Life and death may not be at stake (but you cannot always tell that from the passion brought to some issues). However, there is still an expectation that decisions will be made in an objective manner with the necessary diligence. As a fiduciary in any walk of life, there is an obligation on the part of the fiduciary (board member) and an expectation on the trusting party (membership at large) that decisions will be made in an educated manner based on thought and diligence and that the right decision will be made based on all the facts available.
At the board level in a club, decisions are made by a group of people. Like pilots, the individuals in the group come to the table with a diverse set of personalities and experiences. Some are charismatic, some are introverted. Some are penny wise and pound wise, others are penny foolish and pound foolish. But all are charged with a common duty – which is exactly equal to the duty of a commercial pilot. Each board member is charged with acting with diligence on behalf of the membership of the club. Those meeting the standards of a fiduciary cannot make decisions based solely on their own emotions or opinions. Decisions are expected to be made based on data and fact. Once a decision is made, it must be supported by the board, regardless of the disagreements leading up to it. Basing these controversial decisions on fact makes it easier to support a decision a board member once opposed.
In the November/December edition of The BoardRoom magazine, Bob Salmore talked about benchmarking and its importance. Data is important. For more than 55 years, PKF has been involved in providing benchmarking data through its publication Clubs in Town & Country. Other firms provide data on a more localized level. While valuable, these publications have a limited value in that they are averages and clubs are different. Remember that two clubs, one with $99 in sales and one with $1 in sales average out to $50. Use of precise, “apples to apples” benchmarking data can have a profound effect on your board’s decision making process.
Data is the way to unite the various personalities on your board, to blend the view of the “penny pinchers” and the “pound fools” and to allow the board to discharge its fiduciary duty in an objective, fact based manner. Using all the tools available will give confidence to the board and result in a better operating club.