Private Clubs Doing Business with its Members
Club Management Best Practices When Considering Conducting Business With Members
There are many examples of General Managers and Board Members of Private Clubs coming under pressure from certain members (including Board Members) to do business with companies they have ownership interests in or are employed in senior positions.
It is a best practice for Club Board’s to have a conflict of interest policy. A conflict of interest policy is intended to help make sure that when there are actual or potential conflicts (such as business dealings) between a Club and one of its Board Members, the Club’s Board has an existing process in place where the Board member involved discloses to the Board the specifics surrounding the actual or potential conflicts and recuses him/herself from the discussion. We do recommend that when a member not on the Board asks the Club to do business with a company they have ownership in or are employed in a senior position, the same disclosure be made to the Board.
The decision of whether to do business with such a company should rest with the Board, with the arrangement and it specifics approved by a majority of disinterested Board members. The Board should have a policy in place that specifically prohibits GM’s or other club employees from approving any business arrangements with members (including those on the Board) and to make it clear to all members that such decisions are made by the Board. The policy can protect the GM as well as taking other employees and the GM “out of the middle”.
This is not to say that members should be precluded from doing business with a Private Club. However, for the procurement of any major item (operating or capital), the Board should have a policy that requires (whether there is a potential conflict or not) competitive bids that addresses:
- Ability to deliver
- Examples of experience in the delivery of similar, good, services, projects, etc.
- Financial ability to deliver
- Evidence of appropriate insurance
While there are goods, services, projects, etc. that don’t require club-specific experience, there are many that selecting a vendor with such experience is desirable or even preferable. These include (but are not limited to):
- All types of insurance
- Anything related to the golf course
- Architectural, design and construction services
- Strategic and facilities master planning
- Professional services (audit, tax and legal)
Where a competitive bid includes a member, disinterested Board members should review each proposal and vote based on the best overall proposal. The basis for making the decision should be documented in the Board meeting minutes.
Where companies affiliated with members are selected to do business with a club, the Board should consider disclosing the arrangement to the membership. In addition, your auditors will note material business relationships with members in the footnotes to your financial statements.
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