The Three Biggest Myths About Private Club Governance

A club president recently asked about common practices I observe at clubs that I would correct if I could. I told him about three typical behaviors I call the “myths of good club governance.”

The first: The board needs an “executive session” at the end of every board meeting, with the general manager excluded. Bad practice, a terrible idea and unsustainable in the long run if the club wants professional management.

Either board members believe they have a trusted partner in their general manager or they don’t. You can’t be half-pregnant on this issue. When you hold a portion of each board meeting without the general manager/COO, you signal to everyone in the club a need for a “secret discussion” without the key paid leader present. No good end can come of this.

Most capable general managers/COOs will begin to update their resumes if that happens at their clubs, with good reason. Why would they want to work with board members who do not trust them completely?

The private club is filled with “he said/she said” gossip. This feeds the rumor mill and gives fodder to the “barking dogs” in the club to undermine the general manager/COO. It is a bad practice. Get rid of it.

The second: Have multiple candidates for several open board positions. The days of “popularity contests” should be over in private clubs, and nominating committees should present the same number of recommended candidates as there are open seats on the board.

Most successful private clubs with which we work have adapted the model almost every successful business uses to nominate board members. This practice allows clubs to benefit from the best talent rather than take a chance on electing “barking dogs” because they have campaigned effectively.

The third: Expecting club amenities to produce a profit for the club. I often quote Phil Newman from the RSM accounting firm, who once said, “Private club budgets need to be driven from the top down in the sense that there is a collected group of people with common interests who want to enjoy certain amenities and they decide what they are willing to pay to enjoy those amenities. Contrast that to a typical business where the budget is driven from the bottom up or totally reliant on selling a product or service to produce revenue.”

Private club boards often expect food and beverage or pro shop merchandise or swimming pool fees to “carry” the budget for the year and take pressure off the dues line. Flawed thinking. If those amenities can contribute to the bottom line, that’s a bonus. But don’t plan your business or operational budget based on those departments producing revenue that should come from the dues line.

The club wasn’t created to make money. It exists to provide certain amenities for like-minded people who understand that the financial basis for the club resides in the dues and fees charges, not in how much money the kitchen can make on a hamburger.

If I could only wave the “magic wand” and eliminate those three myths in the private club world, I think some clubs would focus on what is truly important. Board members, general managers/COOs and club members would do better if those three myths went away for good. This much I know for sure.

THE BOARDROOM MAGAZINESeptember/October 2023

“This Much I Know for Sure” is a regular feature in BoardRoom magazine beginning Fall 2022. Dick will share some of his reflections based on his 50-plus years of working in the private club business.