fraternalpresidentsblog

In the last couple of months, the Alliance has been approached by several groups interested in creating a new fraternal benefit society – something that hasn’t been done (at least in the U.S.) in nearly 50 years. A few of these groups are simply tire-kicking – they don’t have the commitment, common bond, or capital to even consider forming a new society. But at least a couple of them combine those “three Cs” characteristics into what could be the spark that ignites a new golden age of fraternals.

In discussions with the leaders of these groups and legal experts on the fraternal business model we’ve realized two key factors:

1) Creating a new society out of whole cloth won’t be easy. Even groups with the three C’s may have a difficult time convincing the IRS (which has exactly zero employees who worked there when the last U.S. society was created) to charter a new society.

2) There are a handful of current fraternals that are facing extinction unless they come up with a bold way to re-invent their societies.

So why not marry these two groups? The result could be that instead of waiting years for the IRS to act on request that it may ultimately deny, a “new” society could be “re-born” from the embers of a fading one. What a wonderful way to rejuvenate the fraternal system and demonstrate that a business model some may have given up for dead is still alive and well.

Anyone interested?

Comments? Here is the place to share them. Or send me a personal email at jannotti@fraternalalliance.org.

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I won’t lie; more than a few folks – college professors, bosses, relatives – have uttered those words to me over the years. But I’ve found that it’s sometimes important to come to grips with the realities that stare you in the face – realities for which neither hope nor denial is an effective strategy.

Over the last few weeks a few of those “obvious” factors about the fraternal sector of the life insurance industry, trade association management, and business in general have made themselves clear to me. And I’d like to share those with you.

1) It’s all about people.  I’ve heard presentations from some terrifically talented fraternal executives at Alliance Mid-Year meetings over the past few weeks, who drove home the message – through both their knowledge and their enthusiasm – that, unless you have the right players on your team, all the coaching in the world won’t make much difference. Listening to both the seasoned professionals and the relative newcomers to the system will absolutely restore your faith that the future for some societies is very bright. The one nugget I pulled from a professional speaker at another industry conference was this: be quick to fire and slow to hire. If you’ve got an employee who consistently can’t pull his or her weight, cut your losses as quickly as possible, even though making such a change may be temporarily disruptive. All the turmoil will be smoothed over if a thorough and methodical search and hiring process yields the right individual for your organization. But in order to attract the best possible talent, you’ve got to have a couple of other things going for you.

2) Governance.  If your organization – and the executives and managers who are paid to make it successful – are constantly hamstrung by a decision-making structure that hasn’t been updated since the early 1900s, the chances of you attracting or retaining top talent is pretty slim. Governance is at the heart of any organization’s success. If you don’t know why the society exists and if your structure precludes you from making consistently excellent decisions – about products, pricing, distribution, member benefits, and community service activities – to support your clearly defined mission, then it’s time to put this issue front and center at your next board meeting.

3) Capital.  You, your board, and your management team can know the decisions you need to make and have the authority to make them, but if you don’t have the financial capacity to invest in the organization (and as fraternals, we have very limited ways to access capital), all the good intentions in the world won’t improve your bottom line. It is NOT the thought that counts – it’s the action. And actions that stimulate growth – in sales, in membership engagement, in profitability, in member benefits, and in good works getting done – require significant financial resources. For some societies the correct action may be to look for new ways to access capital, including strategic alliances or outright mergers with other similar organizations. And the time to do consider those bold, game changing options is now.

That final point was driven home earlier this week in a presentation by Jim Doherty, Senior Director of the Life Insurance Group for OSFI, the Canadian federal insurance regulator. Click on this link to view the copy of Jim’s PowerPoint, but the Reader’s Digest version of his remarks to Canadian fraternals is this:

• While there are no Canadian fraternals in immediate danger of insolvency, the trends discovered by OSFI in their analysis of the fraternal market segment (rising expenses, flat premium and policy count growth, declining membership) indicate that, in one to five years, several smaller fraternals could be facing serious financial hardships resulting in potential damage to their members in terms of assessments or worse.
• OSFI will not let this happen.
• Canadian fraternals should begin work immediately on possible “alternative solutions” to address these issues.

The issues are the same on either side of the border. So let’s get a firm grasp of the obvious – sort of like the first step in a Fraternal 12 Step Program – and start working together on solutions that are in the best interest of our current members and the future of the fraternal movement in North America.

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Take what you need and pass the rest on to others who may enjoy them…

•  Governance Graduate School – I believe the following to be true: 1) education is a life-long process; 2) good governance is essential to excellent decision-making and a common characteristic of every successful organization.  If you agree, then I would strongly encourage you to register for the Alliance’s Board Institute Master Class.  It’s the follow-up program to our Board Institute program, in which hundreds of fraternal executives and board members have participated over the past three years.  Essentially, it’s a graduate course in good governance for fraternal leaders who are serious about improving their societies’ decision-making process and charting a course to a successful future. We’ve expanded our faculty to offer an unbelievably qualified team of experts – including three top-notch fraternal leaders from Catholic Financial Life – on strategic planning, enterprise risk management, financial oversight and other issues critical to fraternal boards of directors and have scheduled a one-day program in the Chicago area on June 5, 2013.  This is not a program of “platitudes and clichés.”  The planning sessions for this workshop indicate that this is going to be an extremely valuable way to help you fast-track changes in your governance practices. For those located in the Illinois and the surrounding states, this session is about as cost-effective as it gets. You’ll walk away with ideas and information that can be put to work at your next board meeting – and will serve your society well for years to come. Want more information? Glad you asked. Just click here to view the full program, faculty, and register on-line.
• FaithLife Financial Cartoon No Joking Matter – Check out this marketing video from the folks at FaithLife Financial. I can’t think of enough adjectives to express my joy when I watch this piece. It communicates the fraternal concept to younger consumers in a way that’s relevant to them, useful to their field force, and YouTube ready. And that slogan – “Built for people, not for profit” – is priceless. Hats off to the creative team at FaithLife!
• Fraternal and Communications Section Meeting Delivers Inspiration – I have a soft spot in my heart for this Mid-Year Meeting because it was the first one I ever went to after joining the Alliance in 2008. And for the sixth consecutive year, I walked away from the meeting inspired with a renewed faith about the durability of the fraternal business model. The Fraternal and Communications Section is by far the “youngest” of the Alliance’s Mid-Year Meetings; it seems that the entry point for many in our business is through the fraternal and communications door. And the older I get, the more jazzed I become by the energy of the young people that are taking over leadership roles for these duties in Alliance member societies. My biggest take-away from this year’s meeting? The pushback from some of the younger fraternal and communications executives to the discussions about “obstacles to success” and “pain points” preventing societies from moving forward. It’s not that these folks don’t recognize what they’re up against – it’s that they want to focus on the positive results they are achieving in their own societies and build on those successes. We see obstacles, they see opportunities. It’s…inspirational.

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The tragedy that struck the community of West, Texas, (population 2,819) has been somewhat lost in the media flurry and public fury surrounding the Boston Marathon bombings. The entire nation has embraced the “Boston Strong” theme – and rightly so. While the senseless terrorist attack occurred in Boston, every American city and citizen was the target. To paraphrase the words of Red Sox slugger David “Big Papi” Ortiz, “This is our nation and no one is going to take away the freedoms and values we hold dear.” Having spent a considerable amount of time in Boston, I have no doubt the folks there will quickly rally to heal their collective physical and psychological wounds.

I’ve only driven through West, Texas, once – on a very long drive moving our younger son from Chicago to San Antonio. We were both struck by the billboard advertising Czech bakeries, delicatessens, and “Westfest” – a Labor Day celebration of Czech culture. Like most small towns in Texas and across the country, its most distinguishing feature is the relationships between the families that live there – the “social capital” that binds communities together. And at the core of those values is unspoken but well understood fraternal concept of “mutual aid.”

My guess is that the majority of the folks that live in and around West are members of one or more societies. SPJST alone has two lodges and more than 1,500 members living in the area. Other Czech-based fraternals – Catholic Union of Texas (The KJT), Catholic Family Fraternal of Texas, KJZT, and Western Fraternal Life Association – are also likely to have members in the community. And no doubt, Knights of Columbus (whose local hall is being used to store relief supplies) and San Antonio-based Catholic Life Insurance also have a presence there.

The families of the 14 individuals who died in the industrial explosion – most of them first responders – will no doubt appreciate the financial support that will come from the life insurance coverage their loved ones owned. Those funds may help keep families in their homes, keep food on the table, and send children to college. The financial security that fraternals provide their members through insurance products is critically important – and one of the most overlooked benefits of membership. We don’t need to downplay the fact that being a financial services provider is one of the primary functions of being a fraternal.

But the real impact – the one that extends beyond financial support for the surviving family members – is the helping hands that fraternal members will provide one another (and everyone else in the community who needs them) to rebuild their town and their lives. It’s this “social capital” that is never mentioned in the media and virtually impossible to value that sets fraternals apart from their commercial insurance company competitors. Because being a fraternal means more than collecting premiums and paying claims. It means members share a responsibility to help one another cope with unimaginable losses that dollars simply can’t replace.

Please note that SPJST has established the West Benevolence Fund to help those community members in need. 100 percent of funds collected will be applied toward relief efforts. Organizations and individuals who wish to contribute may do so by visiting www.spjst.org.

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Last week, in conjunction with the Presidents Section Mid-Year Meeting in Washington, D.C., more than 50 CEOs and senior executives from all sizes and types of Alliance member societies took to Capitol Hill to deliver a message on the value and viability of the fraternal business model. We took this message directly to the members of Congress who will decide whether the century-old fraternal tax exemption will remain on the books. Armed with talking points, one-page flyers detailing the impact fraternals have on lawmakers’ home states, and a copy of the 2012 Congressional Resolution, these executives hit the halls of Congress with evangelistic fervor – and the smiles they brought with them to that evening’s reception on Capitol Hill delivered a very clear message: Mission Accomplished.

During the preparation session for the Hill visits – the one-hour tutorial session where the Alliance’s staff and lobbyists reviewed the objectives, potential pitfalls, schedule, and support materials – I felt like the coach of an All-Star team. All I really had to do was roll the ball out there and let these stars shine.

And they did not disappoint. In a dazzling display of grassroots lobbying, Alliance member society executives came back after their meetings with valuable feedback from the lawmakers and legislative staff with whom they met:

“Passing major tax reform this year will be difficult; but in a dysfunctional Congress anything can happen. You are doing the right thing by getting up here and telling your story BEFORE you have to ask to be exempted from a legislative proposal.”

“I’m more convinced than ever that fraternals play a vital role in our communities that should be protected and promoted, not undermined.”

“As long as I am serving in Congress, you’ll have my support.”

Rep. Ron Kind (D-WI); Joe Hoffman, Order of United Commercial Travelers; Kevin Marti, Gleaner Life Insurance Society

I played the role of “interested observer” that day, watching members go from meeting to meeting and collecting their feedback that evening. Here are a few anecdotes from the day:

• Lino Amaral – The new CEO of Luso-American Life (and our only executive from California) confessed to be nervous about meeting with legislators. You would have never known it, though. Not only did his Portuguese heritage allow him to connect well to several California lawmakers of Portuguese decent (the staff in one office invited him to a private meeting with the Rep. the following day!), he had the ability to strike up conversations and deliver the fraternal message to perfect strangers. I’m not kidding when I say that I seriously think you might see Lino recruited to run for Congress in the not too distant future.

Kevin Marti, Gleaner Life Insurance Society; Ways & Means Committee Staffer; Larry King, Woodmen of the World/Omaha; Cynthia Tidwell, Royal Neighbors of America; Kenny Massey, Modern Woodmen of America

• Cynthia Tidwell – The Alliance’s Capitol Hill reception can get a little hectic, with lawmakers and staff members coming and going between votes and on their way to other events. After a long afternoon of meeting with legislators, you couldn’t blame folks for wanting to chat with their friends, rather than public policymakers. Not Cynthia. When a Congressional staffer walked into the room (they are not hard to pick out since they are all under 30 years old), she walked right up to them, introduced herself, delivered the Alliance and Royal Neighbors stories, and made them feel like she’d known them forever. That’s a gift and we’re lucky to have Cynthia on our side.

• Larry King – The soft-spoken CEO of Woodmen of the World scored one of the night’s major coups as he struck up a conversation with Rep Walter B. Jones (R-NC). Turns out that NC is one of WOW’s largest states and Larry explained in his beautiful Kentucky drawl all the terrific community service events WOW conducts in Rep. Jones’ district. After just a few minutes of conversation, Larry had not only made a new friend, he had also secured an important supporter for the fraternal system. Brilliant.

Jaki Gardner, Catholic Holy Family Society; Harald Borrmann, Catholic United Financial; Rick Kleven, Thrivent Financial for Lutherans; Rep. Erik Paulsen (R-MN)

I could go on forever. There were over 50 Alliance executives participating in the event and every one of them – every single one – had a success story. It was easily the most effective day of political advocacy I’ve been involved with, and I’ve been in this business a long time.

All I can really say to the executives that participated is “Thank You.” We’ve got a great story to tell and we told it flawlessly last week. The fraternal system has a bright future with leaders like you in place.

At the end of the night, one CEO came up to me and summed up our Day on the Hill in these words: “I think we made a difference today.”

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I’ll be attending the Alliance’s Fraternal Operations and Presidents Mid-Year Meetings in Washington, D.C., through April 9 (where I’m looking forward to seeing many Alliance member society executives), and will then be traveling to Georgia to participate in the National Alliance of Life Companies Spring Meeting (the Alliance has joined forces with the NALC to mount legal and political challenges to the unclaimed property issue), so this is the only post you’ll see this week. Don’t look so happy. I’m sure I’ll gather enough information at these two meetings for at least a dozen posts and will be back at the blog the week of April 15. Thanks to all those folks who commented on my April 1 post – and to the dozen or so individuals who begged us not to post their comments because they realized it was April Fool’s Day AFTER they submitted it. (We, of course, honored those requests.) And thanks, as well, to the several Canadian-domiciled societies who offered us space in their buildings!

Talk to you next week…jja

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I wanted to update you on the status of tax legislation in the state of Washington that the Alliance has been following for several weeks. Lawmakers in the Evergreen State have been struggling to reduce the state’s budget deficit and, not surprisingly, closing “loopholes” is viewed as a lucrative source of new revenues. While the fraternal exemption had not been mentioned in budget negotiations through last week, that all changed with the publication of this editorial in the Saturday, March 20, issue of The Seattle Times.

Even though the reference to the Grange Insurance Company as a fraternal insurer is incorrect, this may be an error without distinction. While the Grange is organized and regulated as a for-profit mutual insurer that provides property and casualty insurance products, the reference to fraternals clearly means 501(c)(8) organizations, like members of the Alliance. Moreover, we doubt seriously that the editors of the newspaper came up with this idea on their own and believe that they were briefed on the laundry list of exemptions by a state legislator who supports a proposal to increase the state’s tax revenue.

The Alliance responded quickly and submitted the following letter to the editor to the newspaper:

Dear Editor:

Your March 30 editorial (“Target tax exemptions for needed state revenue”) correctly points out the need for state lawmakers to carefully review tax preferences in an effort to raise revenue. However, we are concerned that your support for the repeal of the tax exemption for fraternal benefit societies will do more harm than good to Washington taxpayers and the individuals and organizations that rely on the financial and volunteer support provided by fraternals.

Fraternals are not-for-profit organizations owned by and accountable to their members. They help secure their members’ financial futures by providing individual life insurance and annuity products and utilize the revenues from their business operations to positively impact the communities where their members live and work.

Fraternals play a vital role as community service providers at a time when government programs are strained to the breaking point. Fraternals fill the gaps in the social safety net more effectively than government funded programs. In 2011 alone, fraternals and their members provided communities in Washington with over 1.6 million hours of volunteer service and $7.1 million in direct financial support – far exceeding the value of any revenue to be gained by the elimination of the fraternal exemption.

The more than 120,000 fraternal members in Washington don’t seek headlines, but they make an important difference for people and communities every day. Policymakers and your newspaper should support and encourage their work, not threaten their ability to provide needed community services in a cost efficient – and uniquely American – manner.

Joseph J. Annotti
President and CEO
American Fraternal Alliance

More importantly, the Alliance retained a local legislative counsel in the state earlier this year to represent us on this issue. In addition, our member societies with the largest presence in the state, Thrivent and Knights of Columbus, are gearing up efforts to mobilize their members just in case we need to deliver a strong message to elected leaders from grassroots constituents in their home districts.

There are a number of factors in our favor in this debate. First, the Governor’s budget proposal does not contain any references to repeal of the fraternal exemption. Second, the Senate’s budget package, which came out yesterday, does not contain any “revenue generation” (i.e. exemption repeal) provisions. However, the House budget package is due out soon and it is likely to contain a variety of revenue generators, including a possible repeal of the fraternal exemption.

If that occurs and the bill gets scheduled for a hearing, you can rest assured that the Alliance will be there to testify against the measure, and that Alliance member societies will unleash their grassroots networks to reach out to state lawmakers to express their opposition to the measure.

The story will unfold over the next two weeks. While I am optimistic that we will win the day, this type of situation demonstrates the value of your membership in the Alliance. Our ability to track legislation, retain on-the-ground resources to represent your interests in state capitals, respond quickly to misguided news and editorial coverage of the fraternal exemption, provide lawmakers a reliable source of accurate information about the benefits of the fraternal business model, and work with members to generate grassroots contacts with public policymakers are among the Alliance’s core competencies.

No other state or national life insurance industry trade group is going to fight these battles – and we have to fight and win every one because one loss at the state level would undermine the viability of preserving our tax exempt status in every state legislature and in Congress.

I will keep you posted on the developments as they occur. In the meantime, if you have members in the state of Washington that you would like to know more about this negative legislation, please give me a call or send me an email. We’re happy to work with you on outreach to these individuals and to add them to our grassroots network.

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