Clubs Fail Because of Bad Governance
There have been numerous studies done over the years as to why clubs fail. There are three (3) primary reasons governance, pricing strategy, and low productivity and high food and beverage costs (see next tab for Bad Club Policies). By far the most important reason is the mismanagement and bad decisions made by inexperienced Board Directors (Governance).
Governance - Role of the BOG. As Board members, our elected representatives have a fiduciary responsibility to protect the interests of the members. It is the responsibility of the Board to set the strategic direction of the club. They are charged with setting the mission, goals and strategies for the club, establishing policies and procedures, as well as evaluating how well the manager (support contractor) and staff have implemented the strategies. The board evaluates emerging market issues and identifies club priorities. The board’s mandate is to establish policies and procedures for the club while leaving the day-to-day operation to the general manager. Boards should not be involved in the day-to-day operations of the various amenities and services around the club. That is the job of the contractor “Bobby Jones Golf”. The private club's Board of Governor's involvement (micromanagement) in the daily operations is a well-documented issue plaguing inefficient and failing clubs.
Unfortunately, clubs typically elect board members who are amateurs in the country club business and many with inadequate management experience in the business world. Often Board members simply lack the experience to recognize the problems facing the club and it is difficult for them to know what questions to ask, what information to seek or where to find the information.
Clubs who tried self management failed at an alarming rate. Numerous studies of “Why Golf Clubs Fail” have indicated that one of the biggest problems is the lack of experience of elected Board members who then treat the functional areas assigned (Food & Beverage, Social, physical facilities & infrastructure, Fitness, golf operations, etc.) as their personal fiefdom without ever having any life experience in that area. The industry best practice was to bring in a professional management company to manage the day to day operations. But even with professional management companies, inexperienced boards still make bad decisions. These sorts of governance problems with nonprofit boards have been well documented in the literature. For example, Chait and Taylor (1989, 44) write: “boards do not govern. They get bogged down in operating details, matters that are best left to staff, while ignoring the very issues that determine the enterprise’s success or failure.”
This is precisely the criticism that is often levied at boards of country clubs. For example, the publisher of the country club trade journal BoardRoom writes, “How often have you encountered the private club that’s really the personal fiefdom of board members”. Sometimes, club leaders lose their way or become caught up in internecine rivalries that prove to be a disservice to their fellow club members. Wycliffe Country Club's General Manager Martin says bad board behavior can ruin a club's reputation overnight, whereas it takes years to build up a strong reputation in the marketplace. If there's a lack of collaborative governance, a board's attitude and behavior can contribute to a particular club's failings.
In business, inexperienced and/or incompetent managers are quickly replaced before the business is harmed. In the worst cases, unless changes are made, the business goes into bankruptcy. That’s how the market deals with inefficiencies. Not so in not-for-profit country/golf clubs.
The inexperienced Board tends to be reactive by acting after an economic crisis has developed rather than being proactive and designing optimal organizational design mechanisms beforehand. The result is mismanagement, poor decisions by the Board resulting in bad policies, wasted financial resources, and member dissatisfaction. Ineffective Boards then try to throw money at the problems and begin raising fees and cutting services. Short sighted policies are generated that treats member categories different, for example, increasing fees on RSM vs Golf Members for use of same classes at Fitness center, different guest polices for Resident verses non-residents, etc. This perpetuates the cycle of failure resulting in existing members participating and spending less at the club, members stepping down their membership category to lower dues paying levels, or members resigning from the club. This downward cycle places even greater financial pressure on the diminishing number of members who remain at their club (this is a well-documented trend identified in a Pastasnik study of why clubs fail in 2004). Sound familiar?
Not able to replace the lost members:
We all recently experienced the ECC Board’s attempt to fund many proposed projects, at once, by raising golf dues by 20% (after a 10% increase last year) and putting 4 separate assessments in front of the members, most voted down. The result was losing 77 golf members, many who downgraded their full golf to resident social. Typically, over the last 10 years, Eastpointe has sold between 65-85 homes a year and approximately 30% of new owners become full golf members. Since last November we have had over 70 home sales in Eastpointe. As you recalled, last November our Board raised initiation fees for new golf membership to over $50,000 for residents and $65,000 for nonresidents. What has been the result? From 11/01/22 to 10/31/23 only 10 new golf members have signed up from the new home sales and 3 of them upgraded from RSM and bought in before last 1 Nov (that is less than 9.8% new golf members from home sales). In other words, the real market impact of the increase in fees was to reduce the new golf membership from home sales from 30% to less than 9.8%. The new outside membership this year is allegedly around 14. in summary we lost 77 full golf and added 24 new golf members. We are not able to replace the lost members under current market conditions with our current policies and fee structures.
The market is signaling that the club has not adapted well to changes in the external economic environment. For all but the most elite clubs, membership offerings must be presented at market rate levels. Just because there’s a small group of members who originally paid $50,000 to enter the club, doesn’t mean that $20,000 -$30,000 isn’t the competitive fees number today.
