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    The Summer of Governance Modernization

    Peace Love and Good Governance

    OK, so it doesn’t have quite the same ring as 1967’s “Summer of Love,” but the corporate governance enhancements made by many Alliance societies over the past few months have been as progressive as any developments in the fraternal sector in the past 50 years. I’ve participated in three conventions in the last six weeks– the National Slovak Society (NSS), the National Catholic Society of Foresters (NCSF), and the Slovene National Benefit Society (SNPJ) – where governance overhauls were enacted with nearly unanimous support from the convention delegates. These improvements established higher qualifications for board members elected by the societies’ convention delegates or the full membership, reduced some of the “political campaigning” that characterized many board member elections, and most importantly, called for the CEO of the society to be hired by the board rather than elected by the membership.

    Each of the conventions I attended featured healthy debate on the merits of making such significant changes to the societies’ bylaws – rules that in some cases had been in effect for more than a century – but at the end of the day delegates were convinced that a more modern governance structure gave their society the best chance for future success. Congratulations to the presidents of each of these societies – Dave Blazek at NSS, Peggy Schmitt at NCSF, and Joe Evanish at SNPJ – for their courage to tackle this critically important and potentially devisive issue head on. Without that leadership, this type of meaningful progress just can’t get done.

    I’ll be honest, it was exceptionally gratifying to watch these debates play out and see the delegates embrace the need for modernization. The Alliance has invested heavily in helping its member society leaders communicate the value of improved governance to an often skeptical membership through training programs like the Board Institute, surveys on governance “best practices,” and personal presentations to member society boards meetings, regional meetings, and conventions across the country. Now the fruits of that labor are being harvested – and member societies are reaping the rewards by creating a brighter future for both their current and future members.

    The Alliance has also worked closely with state regulators on helping fraternals enhance their corporate governance, especially in states – like Pennsylvania and Ohio – where a large number of societies are domiciled. Pennsylvania’s Deputy Insurance Director Steve Johnson gave a compelling presentation to the NSS convention that helped convince delegates to support a governance modernization proposal. And Illinois’s Deputy Insurance Director Cynthia Bordelon delivered similar remarks at the NCSF convention.  I found Cynthia’s overview insightful – particularly the direct connection between the quality of management and the financial condition of an organization, as well as the “red flags” of weak corporate governance that trigger regulators’ concerns.  The key points of Cynthia’s presentation follow.  I hope you get as much out of them as I did, and that you pass them on to your management team and board members. I also invite you to post your comments on this issue here, or send them to me in an email at jannotti@fraternalalliance.org.

    Illinois Deputy Insurance Director Cynthia Bordelon’s Talking Points on Governance

    At the Illinois Department of Insurance, in addition to financial condition, we review an insurance company’s corporate governance. We are required pursuant to NAIC guidelines to review corporate governance at insurance companies. What this means very simply is that we expect to see well-run insurance companies.

    Four Pillars of Corporate Governance:

    • Active board and senior management oversight
    • Know the risks to your company
    • Measure and monitor the risks to your company
    • Control the risks to your company

    Responsibilities of the Board of Directors:

    • Approve overall business strategies for the company
    • Review and approve appropriate policies to limit risks to the company
    • Review and approve the company’s risk exposure limits on a periodic basis
    • Ensure that senior management is fully capable of managing day-to-day activities of the company

    Responsibilities of Senior Management:

    • Implement the strategies that limit risks to the company and ensure compliance with laws and regulations on a long-term and day-to-day basis
    • Manage and staff lines of business with personnel that have knowledge, experience, and expertise consistent with the nature and scope of the company’s activities
    • Supervise day-to-day activities of officers and employees at the company
    • Respond to risks that may arise from changes in the competitive environment or innovations in markets
    • Identify and review all risks for new activities or new products and ensure that the company and its internal controls are in place to manage these risks

    Why is this Important?

    • There is a direct relationship between the overall financial condition of an organization and the quality of management

    Red Flags for Weak Corporate Governance:

    • High turnover in board members and key management
    • Lack of insurance expertise on board of directors and senior management
    • Failure to demonstrate the requisite competence, fitness or reputation to serve
    • Inaccurate and late regulatory and financial reporting or departmental filings that are late or have to refiled
    • Inadequate vendor oversight, especially on actuaries and other consultants
    • Management is not able to articulate the risk appetite of the company
    • Management is not able to provide information on the company’s risk exposures
    • Lack of a strategic or business plan
    • Management cannot provide reports they use to assess their business and its risk profile or reports that are prepared sporadically
    • Lack of internal audit and lack of reliance on controls by external auditors
    • Material weaknesses and significant deficiencies have been issued by external auditors

    Be prepared for the Department to ask your management:

    • What keeps you up at night concerning the company?
    • What level of stress would cause the company to fail? What risks could drive this stress? If your management cannot answer these questions robustly, then the company most likely needs to improve.
    • Management needs to verify that it understands key financial and non-financial risks.
    • Do not expect the Department will not get in the middle of any issues your board and/or senior management have with one another. It is not our job to mediate disputes between board members and senior managers at insurance companies we regulate. However, what we will do is fully document less than satisfactory corporate governance at insurance companies we regulate and if we see weak corporate governance year after year we will take steps to protect your policyholders at all costs.

    Updated academic study verifies value of fraternal contributions to U.S. economy

    One of the Alliance’s most important missions – perhaps its most important – is to promote, protect, and preserve the tax exempt status of fraternals in the U.S.  The fraternal tax exemption has been on the books for more than 100 years, but the Alliance never lets its guard down when it comes to advocating on behalf of member societies on the issue.  Tax reform is one item that never strays too far from the top of the policymakers’ agendas, at the state or federal levels.  That’s why we don’t just vigilantly monitor the debate over tax reform on Capitol Hill and state capitals, we are actively engaged in communicating with lawmakers so they fully understand who we are and what we do BEFORE amendments to, or repeal of, the fraternal exemption get mentioned in the conversation.  And the Alliance just received an important new tool to help us better deliver this message. Habitat512 (Medium) In 2010, Dr. Phil Swagel of Georgetown University’s McDonough School of Business, authored a study that measured the benefits to society from the charitable and voluntary activities of fraternal benefit societies using a rigorous economic framework.  Dr. Swagel’s original study included statistical data from Thrivent Financial and the Knights of Columbus, the two societies that commissioned the independent research project.  The Alliance and its member societies have been effectively utilizing the results of the study to demonstrate both the direct and indirect economic impact of fraternals for the past four years.

    Dr. Swagel, now a professor at the University of Maryland School of Public Policy, has recently updated this study with data from two other Alliance members – Modern Woodmen of America and Woodmen of the World/Omaha – and the findings are even more impressive.  Here are just a couple of highlights from the report that demonstrate the importance of fraternals to both individuals and communities:

    “From 2007 to 2011, even during a severe recession, fraternals produced more than $3.8 billion in benefits on average to the U.S. economy each year, for a total of nearly $19 billion over the five-year period.  In direct contributions alone, fraternals together produced $2.4 billion in charitable and community assistance from 2007 to 2011, an average of $478.3 million per year.  Members of fraternal chapters also volunteers [sic] nearly 400 million hours of their time during the five-year period, with a direct average value of $1.6 billion each year.”

    But fraternals’ impact goes far beyond direct financial support and volunteerism.  Dr. Swagel also studied the “social capital” – the bonds between individuals that deepen reciprocity and trustworthiness within a community – that results from fraternal activities.  Here’s what he found:

    “During the five-year study, fraternal benefit societies generated social capital values at an average of $1.7 billion annually, or $6.8 billion total.  These enormous contributions vastly outweigh the estimated forgone $50 million annual cost of the federal tax exemption that makes the fraternal model possible, producing a 76-1 return on the public investment.”

    And one last thing: These benefits don’t even take into account the positive impact that fraternal insurance protection has on the individuals and families that purchase it! Separate studies have shown that financial security – not the accumulation of great wealth but a sense of confidence that your family’s financial future is protected – fosters generosity.  People – primarily the middle income individuals that make up the bulk of fraternal members – are simply more generous with both their time and money when they feel the sense of security that fraternal insurance and retirement products can provide.  It’s a powerful combination that needs to be communicated to public policymakers at every level. Texas meeting And that’s just what the Alliance plans to do.  We’ll distribute the updated Swagel Study far and wide – to member societies, to public policymakers, to the news media – in early September.  Over the course of the fourth quarter, the Alliance, working in tandem with the members of our Advocacy Engagement Task Force, will be making sure that every member of the U.S. House Ways and Means Committee and the Senate Finance Committee – the two primary congressional tax writing committees – receives a copy of this study, either through a personal visit with a fraternal executive from his or her district or through a personal letter from a constituent.

    All other member societies are encouraged to participate in this congressional outreach effort through our “Adopt-A-Member-Of-Congress” program.  Just let me know that you’d like to contact your Representative and/or Senators by emailing me at jannotti@fraternalalliance.org  and we’ll provide you with all the support you need to get this done.

    We’ll cap this latest grassroots initiative from April 19-21, 2015, with a “Fraternal Day on Capitol Hill” event that will be held in conjunction with the Alliance’s Presidents and Fraternal Operations Sections Mid-Year Meeting in Washington, DC.  This is another important event in which every Alliance member society can and should participate.  Mark your calendar today and look for more details on the Mid-Year Meeting coming in early 2015.

    Do you have suggestions on ways we can maximize the impact of the Swagel Study or better communicate our message to state and federal lawmakers?  Shoot me an email or post your comments here…

    Weigh-In on State Fraternal Alliance Survey…

    SFAsState Fraternal Alliances (SFAs) have long been a part of the American Fraternal Alliance, so much so that there is a specific reference to these state-based organizations in the Alliance’s Constitution.  SFAs have traditionally held annual meetings which feature social networking opportunities and educational programs for attendees and fundraising efforts for local charities.  More recently, a few SFAs have been engaged in political advocacy activities, including “Day on the Hill” events in state capitols and participation in Alliance-sponsored grassroots campaigns.

    There are two basic types of SFAs: those made up of executives and employees of fraternal societies (these are typically located in states where there are a significant number of domiciled fraternals); and those made up of individual members of fraternals, generally local chapter leaders (these are typically located in states where there are no domiciled societies).

    Both types of SFAs face many of the same challenges confronting societies’ local chapter networks – declining participation due to aging membership; lack of relevance to younger members; confusion about the objectives of the organization; inability to attract new leadership – although these problems seem more acute among SFAs in states with few domestic societies.   This is made clear by the overall decline in the number of SFAs.  In 2008, there were 35 SFAs.  Today, there are 27.  All of the societies that have terminated their charters were located in states with no domiciled fraternals.

    While SFAs have always been independent organizations, the Alliance has attempted to help them better serve their members and carry out the Alliance’s advocacy, education, information, and networking mission.  Since 2001, the Alliance has collected dues for SFAs from our member societies in an effort to reduce the administrative duties of volunteer leaders.  We’ve also assisted SFAs with improving their meetings by providing Alliance Board and staff as speakers, and suggesting topics and speakers that may work for them.

    However, we continue to hear concerns about the viability of some SFAs  from member society leaders and SFA board members.  As a result, the Alliance Board of Directors is examining the role that the Alliance plays in supporting State Fraternal Alliances, and the ability of SFAs to help the Alliance fulfill its mission.  In order to make the best informed decision on this issue, the Alliance Board this week will be sending a detailed questionnaire on SFA issues to its primary contact at each member society and to over 100 SFA officers and board members.

    The key issues we are exploring include:

    • SFA Activities and Participation
      • Do SFA events tie-in with the Alliance’s advocacy, education, and information mission?
      • How many member societies are actively engaged in SFAs?
      • What value do member societies and individual participants in SFA events derive from such activities?
    • Governance
      • Should the Alliance exert more or less control over independently incorporated SFAs?
    • Financial
      • Does the current dues collection process foster healthy SFAs or undermine accountability to those societies paying dues?
      • Do SFAs deliver value to the individual societies funding these organizations?
    • Relevance and Challenges
      • Are SFAs important to the fraternal system?
      • What are the key challenges to SFA sustainability?
    • Role for Alliance
      • What can the Alliance do to enhance the performance of SFAs?
      • What is the cost of such an investment to member societies?

    The preliminary results of the survey will be compiled and reviewed by the Board at its September 4 meeting.  We will share the results of the survey with members following the Board meeting.  Based on the results of the initial survey, the Board may request additional information from staff, SFA leaders, and member society key contacts prior to its December 4 meeting.  The Board expects to make a decision on the Alliance’s support for SFAs at the December meeting.  Any changes to the Constitution affecting SFAs would have to be approved by the membership at the 2015 Annual Meeting.

    If you are the CEO or key contact from a member society or a member of an SFA board, please take a few minutes to complete the questionnaire and return it to us by August 15.  If any of you would like to have your voice heard by the Alliance Board of Directors on this issue, please send me an email at jannotti@fraternalalliance.org.

    Two Fraternal CEOs Top National Underwriter’s “Industry Heroes” List

     

    heroThe CEOs of two fraternal benefit societies – Cynthia Tidwell of Royal Neighbors of America, and Carl Anderson of the Knights of Columbus – topped National Underwriter’s list of “13 insurance industry heroes you need to know.”  We can’t think of a better way to acknowledge the incredible contributions fraternals make to the lives of their members or the quality of life in the communities in which those members live.  We also can’t think of two more deserving – or divergent – individuals for NU to include on its list.  Cynthia and Carl lead societies that showcase the broad spectrum of fraternal “common bonds” and demonstrate the fraternal business model’s ability to appeal to a wide range of individuals who share core values and a commitment to making the world just a bit better.

    The NU editors noted that “Like medicine or social work or education, insurance is an industry that performs everyday miracles.  There are many heroes in this line of work, most of them unsung.  These are the true success stories, the ones that leave behind a legacy.”  Here are just a few highlights from the NU story (click here for the full story):

    Anderson

    Carl Anderson

    • “I was attracted to the mission of the organization, the idea of combining charitable outreach and Church and community service, with the idea of protecting the financial stability and future of Catholic families.”
    • “My work entails focusing both on the enormous charitable outreach we do and on the top-rate insurance program that we provide to our members.  We have seen solid growth in our charitable giving and our insurance business over the past decade and a half.”
    • “We work hard at what you might call mission integrity.  The Knights of Columbus was founded to protect the financial future of Catholic families and to provide charity to those on the margins of society.  Today, those same principles are at work in every aspect of our business.  It is this continued commitment to our foundational principles that is the key to our ethical, sustainable, and successful business model.”

    Tidwell

    Cynthia Tidwell

    • “Royal Neighbors is one of the largest women-led life insurers in the U.S.  I am charged with continuing our vision of protecting women financially and empowering them to improve their lives, families, and communities.”
    • “Our philanthropic efforts are geared toward empowering women to get to a better financial place in three specific ways: our financial protection products, financial education, and philanthropic programs that help women ‘learn to fish.”
    • “Being able to lead a great business while also giving back and being socially responsible is a wonderful combination.  It feeds my passion of educating women about financial matters and making a difference where it counts – in neighborhoods across the country.”

    Congratulations to Cynthia and Carl for being named to this prestigious list of “industry heroes.”  Their inclusion on the list helps call attention to the remarkable – and often overlooked – work that fraternals do across the country every day of the year.  You can pass on your comments and congratulations to Cynthia and Carl by posting a comment HERE.

    Caring = Caritas

    The Alliance works hard to continually reinvent itself. We are always looking for new ways to more effectively deliver the highest quality advocacy, education, information, and networking opportunities to our member societies; to provide the greatest possible value for the investment members make in the Alliance; and to promote the incredible financial and social impact that fraternals have had and can have on individuals and communities across the U.S. and Canada.

    For several years, we have conducted a community service activity in conjunction with the Annual Meeting – painting a local family shelter, refurbishing a YMCA, etc. But members told us that these are the types of activities they do in their societies on a daily basis, and that they would prefer the Annual Meeting focus, in part, on teaching them to be more effective volunteer organizers. We stumbled upon a happy compromise that allows Alliance members to have a positive impact on the community in which the Annual Meeting is held, without taking time away from the educational and networking sessions members tell us is their highest priority. We now adopt a local charitable organization that reflects the shared values of our member societies and raise funds to help them carry out their mission. It’s become one of my favorite “new traditions” about the meeting. Caritas This year the Alliance has selected Caritas of Austin as our “charity of choice.” Now in its 50th year of service, Caritas serves the homeless, families in crisis, veterans, and refugees. Caritas provides a safety net for those experiencing poverty and links them to resources to achieve self-sufficiency. You can learn more about them by clicking on THIS LINK. Caritas was recommended to us by several Texas-domiciled Alliance members, led by Buddy Preuss, CEO of the Sons of Hermann. By the way, Buddy and other fraternal executives in the Lone Star State have gone out of their way to make sure this year’s meeting has lots of “local flavor,” and here’s a shout out in advance for all the effort they’ve put into making the 2014 Annual Meeting a spectacular one.

    Once again, Steve Ollenburg and his staff at Modern Woodmen Bank are providing gift cards for purchase by folks attending the Annual Meeting.  The gift cards, in denominations of $25, can be purchased by individuals or societies throughout the meeting at the Alliance’s registration desk.  And MWB Bank will match the first $1,000 in gift cards purchased!  We’ll turn over all the gift cards to Caritas at the conclusion of the meeting, and Caritas will provide them to individuals they serve so they can purchase the goods and services they need as they transition from hopelessness to independence.

    You can make miracles happen at the 2014 Annual Meeting.  Bring an open mind to absorb the wealth of new ideas and information that will be coming your way through the keynote addresses and workshops; and bring an open checkbook to give back just a little to an organization serving the community that will be hosting the meeting – Caritas of Austin.

    “I was so much older then, I’m younger than that now…”

    As many of you know, I’m a big Bob Dylan fan and the title of this posting is a lyric from “My Back Pages,” one of my favorite Dylan songs.  It’s a perfect fit for the overarching theme of the Alliance’s 2014 Annual Meeting program – finding ways for fraternals to grow younger.  We developed a program that is focused on helping you accept Jim Collins’ challenge for fraternals to have as many members under 35 years old as they do over 35.

    Dylan

    And in the spirit of “growing younger,” I am adding a twist to the Collins’ challenge by encouraging every member society to bring their most promising young person to the 2014 Annual Meeting.  It could be someone like…

    • That young manager in charge of your society’s marketing or community service programs who you just know is going to succeed and you hope that success will come with your society – not their next employer…
    • That 35-year old first-term Board member who’s open to new ideas about the direction of your society…
    • That local chapter leader who has reinvented the notion of volunteerism and redefined the relevance of your society to members of the local community…

    Add yourself to this list if you haven’t been to the Alliance Annual Meeting in the last year or two.  Our 2014 Annual Meeting program is going to break new ground, and you should be there with your colleagues to experience it.  We’re well on our way to attracting another record crowd to the meeting in Austin in September.  The deadline for early bird registration as well as for our special Young Professional Rate is this Friday, July 18.  It will cost you more to attend the meeting after that date, so why wait (especially when you can take advantage of our easy on-line registration system)?

    There are hundreds of reasons for you, your management team, your board members, and your most promising local chapter leaders to be there.  Here are just a few…

    • Dan Heath on “Being Decisive”  – Dan is the closest thing to a “traditional” keynote speaker you’ll find at this year’s meeting, and he’s anything but run-of-the-mill.  A best-selling author and Duke University professor, Dan’s going to provide you insights on the one thing that every leader at any level has to do well – make decisions.  You’ll leave this session knowing why you’ve made missteps in the past and with the tools to make the next decision you make your best ever.
    • Philippe Garneau on “Fraternal Branding” – Philippe knocked the socks off the attendees at the Alliance’s Canadian Section Annual General Meeting a few weeks ago, and we knew we had to have him deliver the same message on branding your society for the next generation at the Annual Meeting.  His is the only Workshop that will be repeated simply because we want as many of you to hear this presentation as possible.
    • The “CEO Newlywed Game” – While we’re still trying to get Bob Eubanks to serve as emcee of this session, we have lined up five new fraternal CEOs (some of whom have been on the job less than a month) to discuss the pros, cons, challenges and opportunities that their societies are facing.  Every topic is fair game during this panel presentation, from the relevance of the local chapter system to the future of insurance product distribution, to the discoveries these executives are making as they peel back the layers on the onions of their own societies.
    • The Saturday Program – We’ve turned over the reins for the Saturday sessions to some of the best and brightest young professionals the fraternal system has to offer, and they’ve lined up a series of fast-paced programs that will help you understand younger consumers, communicate with them in a way that makes sense to them, and attract them to your society as employees and members.  This is your chance to not only see the future of the fraternal system but to make sure your society’s a part of it.
    • The Saturday Night Round Up – No speeches, no head tables, no reserved seating…  We’re in Austin, folks, and that means food stations serving Tex-Mex cuisine, bull riding, calf roping, and a great country-rock band.  Jeans, boots, Stetsons, and big belt buckles are not only acceptable attire but strongly encouraged.  But please leave the pearl-handled revolvers in your room…

    See you in Texas…jja

    Some Thoughts on Fraternal Affinities

    I often wonder if fraternals really take advantage of the affinity – the common bond – that exists among their members to effectively provide them with products and services, beyond life insurance and annuities, that those members are likely to want and need.

    I am a member of a number of fraternals, but the organization that seems to know me best is a “non-fraternal” fraternal – Amazon.  As an avowed despiser of shopping, I welcomed the opportunity to buy books without ever having to leave my home years ago.  While I never thought I’d give up the hard copies of the books themselves, once I began experimenting with electronic books with my Kindle (a gift from the Alliance staff that I appreciate every day) I quickly became a “true believer” in the power of technology – at least as it relates to accessing literature.

    amazon2

    As a result, Amazon and I have developed an affinity that will be almost impossible to break.  Moreover, that relationship has expanded beyond purchasing e-books to Amazon becoming the primary source for all my online purchasing.  If I haven’t purchased Christmas gifts by Thanksgiving weekend, I receive a friendly reminder letting me know it’s time to place my order, reminding me of my previous purchases, and letting me know about items I might be interested in purchasing this year.  For an individual who travels frequently, has a limited amount of free time, and/or for whom the thought of going to a mall and browsing triggers fever and nausea, this type of “affinity marketing” is a godsend.

    I think fraternals can borrow such a business model.  To me, the most logical extension of our core life insurance and annuity products are:

    • Financial education and information – Learning how to be smarter with money is a universal need.  This is especially true for younger and middle income consumers who not only want help on making ends meet, but want to know how, by doing so, they can live “more generously” and improve the lives of others in their community.
    • Health and wellness programs – It’s good business for fraternal life insurers to keep their members healthy and happy.  And it’s good for the communities in which those members live and work to be filled with happy, healthy and generous citizens.
    • Faith-based programs – Many fraternals have strong faith-based common bonds.  Makes sense to me for these societies to offer opportunities for members to grow their faith and put it to work in their communities.
    • Community service opportunities – Providing a wide range of choices to members on how they can to give back locally (in groups of two or three rather than the traditional lodge-based approach) can help engage more members and younger members.

    This is a combination of “big data” (knowing who your members are, what they do, and what they might like to do) and thoughtful communication (speaking to them in their language and in their favored media, i.e. Twitter, Facebook, texting, email).  If we don’t do it, someone will.  And I don’t think that someone is going to be MetLife or Prudential; it’s going to be Google, Amazon, or a new entrant to affinity-based marketing that we’ve never heard of.

    I’d like to hear how you are utilizing your societies’ affinities to forge closer bonds between your members and the organization, increase the number of products and services you provide members, and boost your bottom line in the process.  Share your comments here or send them to me at jannotti@fraternalalliance.org.

    Want to learn more about marketing to younger consumers?  Register for the Alliance’s Annual Meeting and take advantage of an educational program designed to help societies grow younger.  Don’t forget to bring your societies’ up and coming “millennials” to this event too!  Learn more about the meeting and register online here.

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