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Acknowledge, Assess, Address

It’s virtually impossible to pick up a life insurance trade publication or attend a financial services conference without seeing something about “enterprise risk management” (ERM) in the table of contents or on the program. (Not surprisingly, ERM is addressed in one of the nine featured Workshops at the Alliance’s 2012 Annual Meeting coming up in New Orleans this September.)

I’ve been trying to come to an understanding in my own mind about exactly what ERM means and the best I can do is this: Acknowledge, Assess, Address. The leaders of any organization have to devote the time, energy and resources to “Acknowledge” the risks the corporation faces; then “Assess” the credibility of those risks; and develop realistic plans to “Address” them so that the entity can be profitable, durable, and able to fulfill its mission.

The “AAA” process, at least in my view, is a critically important component in the development of a meaningful strategic plan. The Alliance Board of Directors will devote the bulk of its September 6 Board meeting to the strategic planning process, which will include an “AAA” report prepared by the staff. The Alliance’s nine-member staff will meet today to take a hard look at the pitfalls that may lie ahead for the organization and – more importantly – to discuss ways that we can turn roadblocks into opportunities to better serve our member societies.

Asking the tough questions…

Here are a few of the questions we’ll be acknowledging, assessing, and addressing:

  • What happens if one of the Alliance’s large member societies – an organization that represents 15% or more of the Alliance’s total dues revenue – decides not to renew its membership?
  • What happens if the chronic solvency problems of one or more member societies results in these organizations assessing their members, creating widespread negative media coverage and the threat of a severe regulatory backlash?
  • In an environment where current members are not experiencing significant organic growth and where no new fraternals are being created, how can the Alliance generate the revenues it needs to effectively advocate for the preservation and expansion of the fraternal business model at the state and federal levels AND provide value-added benefits to member societies?
  • What happens if one or more public policymakers at the state or federal level publicly questions the value and validity of the fraternal business model’s tax-exempt status and calls for a Congressional study of the industry or introduces legislation to repeal the exemption?
  • What happens if the majority of Alliance members continue to “fade away” through declines in membership, assets, surplus, and relevance?

I expect the conversation to be lively; maybe even a little scary. But we’ll come out of it with lots of ideas on how the organization can deal with these risks and better respond to the needs of its members.

Now, some of you may read this and say, “Hey, Joe, take a Zoloft and stop worrying so much. We’ve been around 125 years, and we’ll be around for at least that many more.” But I don’t think you’re paying me to be a cockeyed optimist or a cheerleader.

I absolutely believe in the fraternal business model. The results of the Alliance’s recent consumer research prove without a doubt that it appeals to a huge segment of the population that fits what should be the next generation fraternal “demographic” – middle income, 30-55 years old, participants in church-based or social service organizations. The business model can be inspiring, relevant, and a source of enormous good – both in terms of providing financial security for millions of Americans and for generating billions of dollars worth of direct contributions and “boots on the ground” volunteers for community service activities that enhance our society.

We have met the enemy – and it is us…

But unless it is modernized to adapt to the business and social environment of 2012, the fraternal business model can be stagnant, antiquated, and its own worst enemy. The hard, cold facts tell the story:  more than half of Alliance member societies have declining memberships; more than one-third are chronically unprofitable; and virtually every society reports struggles with reduced participation in local social and volunteer events.

So what are you doing to Acknowledge, Assess, and Address this situation? Are you just hanging on – putting an even tighter grip on the organizational structure and business practices that you’ve had in place since 1903? Or are you breaking the mold, looking at things from a different perspective, and willing to consider options that are in the best interests of your members over the long-term?

Try it yourself and see what happens…

Here are the questions I think every society’s Board and management team should be asking in the “AAA” process:

  • What is our mission? Why do we exist? Do our members view us as a financial institution or a social club? Do our bylaws allow us to carry out the mission effectively?
  • Does our governance structure – the decision-making process in our organization – give us the best opportunity to make the right decisions in a timely manner? If not, what changes need to be made and how can we make them? Are there clear lines of demarcation between the authority of the CEO, the Board, and the membership? Do we have the right people leading the organization? Are Board members qualified or just popular? Does the Board have the ability to hire the best possible CEO? Does the CEO have the ability to run the organization without being micromanaged by the Board or the membership?
  • Do we have the financial services products that the next generation of members want? Do they provide the right coverage at the right price? If not, how are we going to develop a meaningful product suite?
  • Do we have a professional sales force to effectively market those products? How are we going to find these people, train them, support them and make them successful?
  • Do we have the financial strength – assets, surplus, A.M. Best’s rating, investment portfolio performance, etc. – that make us attractive to prospective agents and instill the trust of prospective members? Are we confident that we can fulfill the promises we make?
  • Do we have the resources – human and financial – to address these issues? If not, what are the best ways to acquire them – including partnerships, alliances, and mergers with other like-minded societies?
  • How do we market to the public at large? Do our print ads and website focus on fraternalism and the philanthropic community efforts it provides, or do they focus on business? When Jane Q. Public looks at an ad or the website, does she see a life insurance company that does a little bit of community service or is it a community-service based organization that happens to provide life insurance? Where is the focus and emphasis?

An easy way to get this introspective process started is by utilizing the Alliance/Board Source Self Assessment.  The customized survey offers your board a non-threatening tool to get answers to these difficult questions.  The resulting report is the perfect first step in addressing your society’s most significant challenges.  Click here to learn more about this valuable product.

I know where this is going…

Yes, I can already hear a few grumbles… “Here he goes with the merger talk again.” But folks, for many societies, consolidation is not only the best option, it’s the only option. Our objective should be to protect the financial security of our current members and create strong, healthy fraternals that can attract new members. Slowly fading away and hoping that things will get better is not going to accomplish that. So let’s stop ignoring the elephant in the room and use the “AAA” method to get these issues on the table of your next Board meeting.

While I am getting my flak jacket re-fitted before the Annual Meeting, I’d like to know what you think about this. Send an email to jannotti@fraternalalliance.org or better yet, post a comment right here…

3 Responses

  1. I had a couple of thoughts after reading today’s blog

    First is my frusration with politics and most politicians avoid asking the tough questions and not dealing with issues until the issue grows into a crisis.

    Second, I thought of Jim Collins and his book Good To Great. One charateristic of successful organizations is the ability to face the brutal facts. If you have not read the book, I would suggest reading it. successful organizations is the abilii

    • My most valuable lession from Good to Great was the Stockdale Paradox. Admiral Stockdale was the ranking officer in the Hanoi Hilton during the Vietnam War. He was there for 7 years and was tortured and never knew if he would get out of the prison. He never wavered in absolute faith that he would and turn it into a defining moment that would make him a better and stronger person.

      The paradox is you must never lose faith that you can prevail despite those constraints but on the other hand you need to confront the brutal facts.

      The organizations that have gone from good to great, all have been willing to face the brutal facts.

  2. Growth, relevance, solvency, increasing regulations…these issues facing fraternal benefit societies today are not unique to the fraternal system. However, that does not make these issues insignificant and easily swept aside. It simply proves that fraternal benefit societies are still a viable part of the American and Canadian financial and not-for-profit landscape. Being “living” enterprises we are not immune to the vagaries of the changing marketplace.

    For this reason, having a trade association willing to tackle the tough questions of our times is why the annual meeting of the American Fraternal Alliance is so important. It provides the opportunity for the leaders of our diverse and active organizations to meet face-to-face…to share, to learn, to grow…to acknowledge, to assess, to address.

    New Orleans rebounded from the brutal force of Katrina which is why we will be in that renaissance city come September to renew our commitment to the future success of the entire fraternal benefit system.

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