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A realistic assessment on confronting reality…

August 13, 2018
Trade associations produce four kinds of content: created, contributed, curated, and custom. Created content is unique to the organization and created by association staff or freelancers who are subject matter experts. Contributed content comes from the minds of members. Curated content comes from third-party sources filtered by an association’s content experts. And custom content is provided by an association’s industry partners, typically for a fee. Detailed responses to my blog post would typically be considered “contributed content.”  But the response from Marc Schoenfeld, a former CFO of one of the Alliance’s larger member societies, combines the features of created, contributed, and curated content and I thought the information and the sentiments within it were just too valuable not to share with you. I hope you enjoy it as much as I did. And feel free to leave your contributed content comments right here, or send them to me privately at jannotti@fraternalalliance.org.  Better yet, you can share them directly with Marc at the Alliance Annual Meeting next month in Minneapolis, or contact Marc directly at ANewMarc@gmailcom.   Planning for Success – It’s about Reality and Hard Choices In a recent post, Alliance President and CEO Joseph Annotti madeMarc Schoenfeld the case that partnerships were the potential “secret sauce” that could help fraternals generate enough revenue to fund their societies growth and social value. He left open the question – how do we make sure we have the financial plan to take us there and how do we do that? So, let’s start there. I think we can all agree that we live in unprecedented times. The old days are over, and the speed of change is multiplying. You must be able to navigate new regulations, volatile economics and a changing competitive landscape with new and different players. To ensure you are protecting and growing the value to your members, you need to reassess where you are and plot a course for the future making the tough decisions required today. The start is to pull together all the information you need to take an honest look at where you are today. The things you want to look at include the current value of the balance sheet (not just regulatory accounting), where you stand in the marketplace and what is your organization’s realistic potential to grow. A realistic plan involves a tough look at ourselves more like we were acquirers than stewards of today’s businesses. There must be a firm financial plan that is built with realistic, conservative assumptions as a firm base case. This is a deep one-time look at our business and future plans. It requires ensuring you have the right, capable resources to help guide the process. To ensure success, you also must have honest engagement of Boards and members of management and it requires an openness to be willing to discuss the hard questions of sustainability, allocation of capital and your society’s sophistication to compete in the new “wild west.” You need to understand your existing trajectory and financial strength. Some of the more debatable questions will come from our core. What are reasonable fraternal expenses for your organization and why? Are your products profitable and sustainable? Can you grow sufficiently or are you winding down your capital? How is our expense base allocated between money for products and growth and operating expenses? What role will our ratings play and how will you grow distribution and revenue in the coming years? Do you have the capabilities or financial resources to grow? Are there businesses to be discontinued? Inevitably, the discussion will lead to changes required in your existing business as usual plans. It is necessary to create long and short-range plans using today’s market realities. Assumptions will be required for regulatory P&L and also for capital and balance sheet implications, ratings requirements, RBC, Products and product profitability, expected actuarial changes and operating expenses.  Future expected impacts of pension and other change related costs must be included. From this base case, you will also need to scenario plan (stress test) for different economic and business expected conditions. It will create a range of possible outcomes to manage instead of a single number because plans are usually outdated before the period starts. To set a new course for the future you will have to evaluate existing gaps and look for opportunities to enhance your revenue and cost models (perhaps through strategic partnership as Joe suggests). In some cases, the answers will not be pretty. They may require substantive operating changes or something more dramatic like mergers or scale back of activities. It may even require a winddown plan. Chances are you will need help along the way and getting a seasoned, outside perspective could provide a much-needed viewpoint that is hard to see when you live it daily. It will significantly improve your chances for success. It is no longer okay to sit and wait – get going now.