Restoring Order at Happy Knoll

INSTILLING ORDER AT HAPPY KNOLL
A PRIMER TOWARDS RESPONSIBLE GOVERNANCE

By: Fred L. Somers, Jr.
somersf@abanet.org



"The thought of all the other festooned dining rooms that stretched in belts across the continent, tended by other waiters in other mess jackets. At that very moment, thousands of other groups were in those other dining rooms eating their creamed chicken and green peas. Rotary Clubs were in that bond of fellowship, and Lions and Elks, and Brotherhoods of Redmen, and American Legion Posts and Daughters of the Revolution, and Daughters of Rebecca. They were all eating their creamed chicken at that moment, and there was not much time, because speakers everywhere were among them, waiting to say a few words." John P. Marquand So Little Time p. 37 (1940)


Corporate board accountability has received its wake up call, e.g., Worldcom, Enron, Quattrone, Arthur Anderson.

The initial legislated result was Sarbanes-Oxley.1 However, in the main, it does not apply to the governance practices of non-profits. Information is only currently being developed regarding the probable influence of Sarbanes-Oxley on non-profit organizations.

That is, notwithstanding the general inapplicability of Sarbanes-Oxley to nonprofit organizations, many lawyers believe that a number of its principles will devolve into "best practices" for nonprofits. Indeed, state nonprofit corporation codes which generally govern non-profit corporations are predicted to eventually assimilate Sarbanes-Oxley principles into nonprofit organization governance requirements.


Our prospective is necessarily from representing numerous nonprofit, private clubs and authoring or reviewing and commenting on dozens of private club bylaws and other governing documents. It is not a stretch of the imagination to assume member owned private clubs may begin to experience complaints and questioning of their club=s governance practices and perceived abuses. Rather, our clients are already experiencing the awakening of the "barbarians at the gate." 2

In view of the Sarbanes-Oxley exemplar, we predict nonprofit
corporate boards will find it compelling, if only to retain their directors and officers liability policies and avoid governmental sanctions not to mention member lawsuits, to pay particular attention to their oversight responsibilities. We were asked by a club member only recently, "Well, whose decision was it (referring to the termination of a long time, popular management employee)?"

A policy should be established assigning legal oversight to a specific board committee, e.g., audit or finance committee, to meet periodically with the club's general counsel to be briefed on legal compliance and claims.3 As we have cautioned in the past, certain environmental law violations carry with them individual personal governor liability.

Recent assaults upon private clubs by various single issue, egalitarian organizations, e.g., National Center for Lesbian Rights, Women's Sports Foundation, Martha Burk and the National Council of Women's Organizations, Lambda Legal Defense and Education Fund, may be perceived by some as a wake up call to tidy up private club governance documents, we offer some recommendations that may have relevance for private clubs.

-member attempts special meeting to censure board for firing tenured employee

- expelled member sues club claiming lack of due process

- director challenges election of President claiming ballot incorrectly counted

- revolt at annual meeting

- petition to recall of entire board

- conflict of interest director representing employee versus club


- female challenge of full member tournament preemption

- 1.9$ judgment now $3.9 w/ court supervision of management

- Martha Burke


A. Governance Plan - What are we learning? The need for a governance plan B a directors kit or Leadership Manual [for directors and committees] and orientation respecting governance.

1. articulate substantive legal (behavioral) rules - Michael Fine, Esquire 4

2. craft structure and processes to implement rules

3. develop good working definition of compliance good
compliance = attention to details, e.g., monitor website, the System, Controls and the Process

- don't disparage the director with an anal complex

B. System - getting the law right has no practical effect w/o a good System for implementation

C. Process - reliable procedures for training, monitoring and enforcement B e.g., Red Cross life saving renewal training - X Club took 25 minutes for Emergency Squad to appear from 1 mile away

- New director orientation by general manager, chair and legal counsel

D. Structure - design a good organizational structure B review and periodically amend

Articles of Incorporation [often overlooked and found to be at odds with Bylaws, e.g., specified # of directors vs. disparate # in bylaws]


Bylaws - continuous review and annual revision as necessary B periodic overhaul with comparisons to state corporations code, Roberts Rules [Newly revised 10th edition]

Policies - annual compilation and binder5 [include in Leadership Manual] - includes matters not yet permanent enough or of broad enough application to members to be imbedded in Bylaws or Rules and Regulations 6

Rules and Regulations B review at least annually with input from professional staff

Leadership Manual - includes basic documents; separate into two manuals. 7

Rules and Regulations - annual and ad hoc revision; publish [website, bulletin boards, tables, e.g., no cell phones] and disseminate to staff, affected members - [use of statement mailers gets attention]

Employee manual - annual update w/ outside labor counsel review B importance of counsel review and avoidance of "cook book" forms- validated, updated, accurate job descriptions (to establish compatibility/ essential functions of job requirements vs. ADA.

Posters - periodically check DOL and state labor websites

Supervisors manual - e.g., how to handle, process harassment complaints

Specialty manuals - e.g., HAZCOM, material data sheets

E. General Philosophy - adopt a general philosophy of compliance and accountability based on Non Profit Corporate Code or Business Code, as applicable and Sarbanes-Oxley principles - check annually by outside counsel to ensure club is using current statutory law as interpreted by courts, regulators and administrators

- understand the applicable law
- establish governance policies and procedures 8


F. Specific Governance Policies for Clubs

.01 Conflict of Interest - e.g., recommending and voting on hiring an independent contractor in whom the director has an economic interest vs. recusal; e.g., director learning of a potential golf outing for club and diverting it to his own course;9

.02 Outside board service - if time devoted to other boards interferes with preparation for and attendance at club board meetings and duties

.03 Confidentiality - when is it board discussion and debate should be kept within the board, e.g., controversy over officer election? 10 Some club boards require their members to take an oath of confidentiality respecting pending board business. Under these circumstances, board members agree to forbear releasing information under debate but remaining undecided by the board. The board should have a written policy regarding confidentiality and the sanctions for breach.

Additionally, the policy should address confidentiality requirements for certain employees.

[Being a board member does not give you portfolio to be a spokesman for the board or the Club; usually only the President is the authorized spokesman.]

.04 executive compensation - e.g., does President or other officer review or approve general manager expense reimbursements? Only over a stated amount? Separate compensation committee? Annual reviews?

As corporate executive compensation has become the bette noire of the business world media, and for profit corporation boards are becoming more engaged in executive compensation, it behooves private club boards to get a better handle on private club management compensation and benefits.


Boards are historically overmatched when addressing executive compensation. 11 There has been a noticeable push back in the use of surveys which have a ratchet effect and abandoning 75% percentile pay philosophies. 12

Historically, we find private club boards often are coaxed into relying on local surveys of what other private clubs of perceived comparable prestige and size are paying their management executives. The author of these surveys is typically a current general manager of an area private club who is assigned or volunteers for this task by the local CMAA chapter. Often the starting salary for a new club executive is recommended by an executive search firm who is beholden to the club management community for referrals of new business. It appears the Resnick "overmatched" remarks may be apropos in the private club management compensation arena.

Accordingly, we believe it is appropriate for the board to adopt a compensation policy to include the formal appointment of a compensation committee (which may be a function of an existing committee) to independently evaluate and recommend salary and benefits for the principal management employees of the club, or at least the general manager. The charter should include an annual independent survey of comparable salaries and benefits not only of area clubs, but also regional and limited to clubs of comparable member and facility size, annual revenue and prestige.

While bonus awards are perennial problem for tracking purposes, annual automatic increases tied to the CPI or other marker may be part of the written policy. Conditions for contract renewal should be included in the policy. Recently, we discovered a club committee awarded a management employee a new contract a full year and one half prior to expiration of the current contract, effecting a four and one half year renewal when custom dictated the maximum contract tenure policy was thee years. However, no written policy existed limiting contract renewals to three years.


Express limitations on what fringe benefits may be awarded to management employees is in order. We know of more than one club general manager who allows selected management employees the limited use of the club=s social and recreational facilities. We admire managers who look for creative ways to reward valuable employees with fringe benefits that encourage loyalty and promote élan. However, the awarding of recreational and social privileges for the use of facilities which are the exclusive property of dues paying members and their families creates serious private status encroachment and income tax reporting issues which must be addressed by the board and the COO.

We advocate the use of separate letter agreements allowing for certain key management employee use of club facilities, terminable at will by the club board and upon termination of employment. However, no club employee should be free to use club facilities without a letter agreement approved by the Board.

As corporate executive compensation has become the bette noire of the business world media, and for profit corporation boards are becoming more engaged in executive compensation, it behooves private club boards to get a better handle on private club management compensation and benefits.

.05 investment management - Adopt a written statement of how the club invests its reserve funds; review, ratify or modify annually.

.06 audit

.061 Charter or duties statement

.062 Checklist of tasks -Specific Duties 13

.063 Composition - e.g. The committee will comprise three or more directors, as determined by the board.

.064 Responsibility - primary function is to assist the board in fulfilling its oversight responsibilities with respect to (1) the audit of the organization=s books and records and (2) the system of internal controls that the organization has established.


.065 Accountability - clear understanding with the outside auditors that they must maintain an open and transparent relationship with the committee, and that the ultimate accountability of the outside auditors is to the board and committee.

.066 Reporting - regular progress reports to the board.

.067 Authority - Subject to the prior approval of the board, the committee is granted the authority to investigate any matter or activity involving financial accounting and financial reporting, as well as the organization's internal controls. In that regard, the committee will have access to the organization's external professionals to render advice and counsel in such matters.

.068 Meetings - The committee is to meet at least four times annually and as many additional times as the committee deems necessary. The committee chair should clear the content of the agenda for each meeting. The committee is to meet in separate executive sessions with the outside auditors at least once annually and at other times when considered appropriate.

.07 consultants - under what circumstances does the board consult an expert to take advantage of "safe harbors," does the club have a formal process to identify experts upon whom they may reasonably rely?

.08 director evaluation or self evaluation - a touchy subject but one which should be undertaken yearly; does the board have a rating standard? What does it expect from its directors other than regular attendance and active participation?

.09 crisis management - A" spring shower" or "perfect storm"? The vicious attack on Augusta National by Martha Burk in 2003 should be a warning to all private clubs that no private club which is perceived, rightly or wrongly as discriminatory or otherwise in violation of some alleged inappropriate practices, is safe from adverse publicity initiated by single issue advocates, other publicity seekers or malcontents. For this and a number of other reasons, the club should adopt and maintain a crisis management plan to put into action when and if the need arises.


Elements of a crisis management plan include (i) identifying the spokesman for the club when media seeks information; (ii) ensuring the spokesman is well grounded in board policy, articulate, experienced in dealing with the media and granted sufficient authority to make public announcements before the crisis occurs; (iii) engaging through club counsel, (to preserve confidentiality), public relations counsel familiar with private club issues on a retainer basis prior to the occurrence of any crisis; (iv) ensuring the club=s spokesman communicates regularly with the public relations counsel to maintain currency in understanding techniques for handling media inquiries. 14

Other crisis management issues demanding attention in advance of the crisis include natural disasters, civil unrest, arson and terrorist activities. Management should be charged with producing and adopting with the board's approval, programs for back-up systems and records, employee safety and business operation procedures during emergencies. 15 These programs necessarily include off premises storage of current, critical financial data and corporate records.

.10 risk management

-D & O Insurance management B avoid imputing knowledge of fraud by management person signing application to directors; policy that if manager takes 5th Amendment it is grounds for termination (to avoid D&O bad conduct exclusion); consider severability of entity vs. directors B annual risk manager and legal review of coverage - consider review of annual renewal application by outside counsel

- casualty, property and other insurance [Caveat: 35% of them in crisis today; don=t shop based merely on price]

- fidelity bond policy

.11 third party contracts B e.g., requiring 3 bids when expected amount exceeds $ ______ or a club member or affiliate of a member is a prospective contractor


.12 financial privacy16 - In view of the plethora of claimed invasions of privacy by individuals and the laws relating thereto, the board should adopt and oversee a formal privacy policy, sometimes initiated by management perhaps with the assistance of counsel but not reviewed or officially sanctioned by the board.

- employee and member files; email policy and computer pass codes; eliminate expectation of privacy by policy (i) expressly reserve club management's right to destroy, copy, remove, review all material on club owned computer system; (ii) forbid encryption unless otherwise specifically authorized; (iii) employees must report all pass codes employed; (iv) no software to be installed w/o club permission; and (v) system monitor deployed.

.13 privacy and tax exempt protection

.14 privileged information

.15 security

.16 delegation - executive committee? other committees, e.g., tournaments; minor disciplinary matters? Code and Bylaws impediments

.17 record keeping - observe code and regulatory requirements; permanent record of expulsions; rejections.

The sad saga of Arthur Anderson & Co. has taught us the bitter lesson of not having a cogent and assiduously followed records retention policy in keeping with legal and regulatory requirements.

.18 Philanthropic Activities. If the club is a 501(c)(7) tax exempt organization, its activities must be limited to those consonant with its tax exempt purpose, i.e., to serve the social and recreation needs of its members. This purpose does not include charitable giving to persons who are not members.


Nonetheless, it is often useful for the club to demonstrate its membership is public spirited. Accordingly, the club may be accustomed to holding fund raising events for charitable purposes. Provided, the event involves social and recreational activity for its members and their families, no concern relative to violating the club's purpose should arise. However, a written policy stating the conditions under which charitable events may be held at the club should be adopted. To protect the club=s private status, the policy should exclude event participation by persons who are not club members or invited guests of club members when participating.

.19 Employee Loans. A written policy should be enacted forbidding employee loans without the approval of the board and under conditions and circumstances established in advance if to be approved. Debate continues in legal circles whether certain transactions qualify as loans, e.g., split dollar life insurance. 17

.20 Political Activity. A written policy should preclude the clubs involvement in political campaigns or promotions.

.21 Religious Activity.


G. Organizational considerations

.01 Governor tenure.18 We have long thought a 3 year tenure limitation for continuous service as a governor is too short and should be expanded to 4 years. Alternatively, numerous clubs allow for two successive 3 year terms. Continuity of institutional memory is a most useful tool. What business would you invest in that completely turned over its entire board of directors every three years? Presently, at many clubs, the only continuity of institutional memory beyond 3 years is offered by the General Manager, general counsel, the independent auditors and for one or two additional years, the immediate past president. However, the average tenure of general managers is less than five years.


It takes a typical volunteer governor approximately a year of service attending monthly meetings to become comfortable with the governance structure, what is expected of a governor by the other governors and the peculiarities of a private club operation. The second year, a governor begins to become effective and by the third year the governor either is beginning to be bored and wants to move on or becomes absorbed with the challenge and would welcome the chance for continued service.

The third year governor who is absorbed with the challenge, who is deemed a valuable contributor by his peers and has not been an irritation to management, should be given the opportunity to continue to serve another three years. The nominating committee should inquire of the club president and other governors, who among them would be a preferred candidate for a new term as governor.

The 13th director (selected from among the expiring directors), a concept offered by the Charlotte, N.C. club, featured in a recent issue of NCA=s Club Director, is a step in the right direction. We have used this device or variations of it. Apparently, Carmel Country Club abandoned it for the 4 year tenure rule.

.02 Size. The size of the Board we believe should be studied. Many of the clubs we work with do quite well with 7 or 9 directors rather than 12 or more. If the nominating committee does a thorough job of ferreting out and actually recruiting members who will be real contributors, then 7-9 may be considerably more manageable and efficient than 12 or the industry average of 13. 19

.03 Nominating Committee. The nominating committee should be composed primarily, if not exclusively, of past club governors or at least past or present directors of other nonprofit or for profit organizations and active club committee members. Nominating committee members should have some minimum tenure as a club member to ensure an understanding of the club=s unique culture and operations requirements. Members with the described background and experience are most likely to be the only club members who really understand the job of being a governor. They are cognizable of the time and the dedication required to be an effective governor.


The board needs to avoid the appearance of controlling the nominating committee process. It is efficient and conducive to consistency and stability in governance and an orderly transition between successive boards to have former governors serve on the nominating committee and to be re-nominated for successive or future terms as governors. However, an innate suspicion of club members may surface on occasion that a certain Aclique@ controls the club. Accordingly, the board should be careful to avoid this appearance.

The charge to the nominating committee should be commemorated in writing and constitute its mission. The mission might be described to identify the best candidates not only by soliciting the interest of all eligible members in serving as governors but to actually recruit valuable persons perceived as likely leaders who may be reluctant to come forward as volunteers but who may be willing and eager to serve, if asked.

The criteria for prospective governors should be incorporated in the nominating committee's mission. Specifically, e.g., it has been recommended nominees should be persons evincing strength of character, an inquiring and independent mind, practical wisdom and mature judgment.20 Prospects with an "agenda" should be avoided. Technical skills, career specialization and specific background experience required or perceived as useful or necessary should be evaluated each year as the board's composition changes. Importantly, the committee should assure itself the prospect will have sufficient time to diligently perform the required duties. An otherwise talented and qualified executive may have scheduling conflicts that unduly interfere with the board's regular meetings and fulfilling the individual committee responsibilities. 21

A profile of skills or experiences that the board is perceived as lacking in the forthcoming year should be drawn. Focusing on the strengths and weaknesses of the current board's profile may prove helpful. 22


.04 Recognition. Enhanced recognition of governors should be considered. Knowing they will receive some form of permanent recognition for their otherwise uncompensated service may be an inducement to some otherwise busy executives to serve their club. Some clubs indicate the individual=s board service next to their name in the published rosters, on lockers and maintain group portraits in an appropriate area of the club. Many clubs have photographs or portraits of past presidents on permanent display. We initiated a Presidents Award some years ago at one club for the governor who was deemed to have made the most valuable contribution during the year. The location of the plaque commemorating this award should be a prominent one.

.05 Retreat. Governors typically spend a great deal of uncompensated time devoted to their duties. Most clubs are blessed with a dedicated board. However, other than a free breakfast and occasional dinner, there is no usually no tangible compensation for their service. Some private clubs hold annual board retreats away from the club, preferably, at an out-of-town resort and the club picks up the room and board. Retreats, if held at the beginning of the fiscal year give the board an opportunity to coalesce and set a unified consensus agenda and mission for the ensuing year.

An annual past governors golf and dinner or luncheon outing is a good way to recognize past service and bring past leadership up to speed with the Club=s status.

Blazer patches for governors and past governors to wear at official events, e.g., annual meetings, should be considered. The state golf associations require committeemen and directors in attendance at their annual meetings to wear a blazer with the appropriate patch. PGA of America directors, GCSAA, CMAA and other club industry officials wear identification.


Copyright 2003
Fred L. Somers, Jr., P.C.
Atlanta, Georgia

"...Happy Knoll Country Club is not in itself an institution of profound importance, but only a superficial manifestation of bourgeois culture." John P. Marquand, Life at Happy Knoll, 152 (Little Brown & Co. 1955).



1 Sarbanes-Oxley Act of 2002.

2 The reference is intentional. Alaric, the Visigoth sacked Rome in 410 A.D. Comparatively speaking, the Romans were most comfortable in their ways and not looking for change. In today=s environment, many private clubs are controlled by senior, mostly retired or nearly so members who are not desirous of change, whether in the club=s governance structure or otherwise. Likewise, professional club management has lobbied hard to establish manager autonomy in the club operations without the interference of boards. However, whether change is influenced by single issue advocates and societal forces extrinsic to the club or cultural and social preferences and concerns for individual liability exposure from within, it will occur. Change, then being inevitable, the question is whether club leadership will direct and control the pace of change or will it confront and be overrun by distempered forces or those with their own agenda.

3See Corporate Director=s Guidebook p. 45 (4th Edition, Committee on Corporate Laws, and Corporate Governance, ABA Section of Business Law 2003). Hereafter ACD Guidebook.@ Remarks at ABA Business Law Section Annual Meeting San Francisco 08/03.

4 Remarks at ABA Business Law Section Annual Meeting 08/11/03, Fairmont Hotel, San Francisco.



5 It is the practice for numerous organizations to maintain a binder tabbed by subject matter and containing prior policies enacted by the board. We advocate this practice for private clubs. A different governor each year might be designated to work with management to ensure that new policies are placed in the manual, obsolete policies are recommended for rescission by the board and they are removed from the manual. Management should be responsible for the maintenance of the binder. Subject matter, not presently adopted as policy should be addressed and promulgated as policy and is the responsibility of all governors.

6 A primary function of the club governing board is to establish and monitor policies for the club. Some policies that are adopted and are perceived to be of a permanent nature matriculate into club rules. However, some policies are for the guidance of management and are either placed in the employee manual if they apply to all employees; or, if applicable only to managers and the governors themselves, should be maintained in a separate policy compendium often referred to a policy manual.

The important principles for setting policy are as follows: (i) the policy should be articulated in a concise and straightforward manner leaving as little room for interpretation as possible: (ii) if the policy is one dealing with a legal compliance issue, e.g., whether to allow minors in the adult bar, club counsel should be involved in the articulation and verification of the policy for legal compliance; (iii) it should be adopted by formal board resolution, preferably furnished to governors in advance of the meeting at which the resolution is to be proposed (as should all resolutions excepting possibly only emergency ones) and a rationale developed for the record for the policy incorporated into the resolution; (iv) management should craft a structure and processes for the policy once adopted, e.g., appropriate signage for "no cell phones allowed in the clubhouse;" (v) management should endeavor to craft a good working definition of compliance with the policy, e.g., delegating a specific management employee to monitor the web to insure the club's name, logo, physical facilities and property are not be used to promote commercial activity or business interests of others; (vi) reliable procedures are adopted by management to ensure the appropriate training, monitoring and enforcement are in place.

Newly adopted policies should be promptly published in the club=s newsletter and on the club's web site so as to be available to all club members and club staff for their guidance and information. Policies regarding health and safety issues may need special notice or publication by way of signs or posters and incorporation in the employee manual. Management should be charged with the responsibility of ensuring adequate notice of health and safety policies are distributed and maintained in the appropriate locations and places.

Some policies eventually become imbedded in the bylaws or published rules. However, generally, bylaws need not be cluttered up with policies until the policy has been in place for a significant period and the board is certain there will be no need to change the policy in the near term. An example of a policy that needs some experimentation before being revised and becoming final is the policy regarding use of cell phones in the clubhouse. Usually, policies once they become settled and thought to be permanent will be integrated into the club rules. We suggest both a board member and the general manger should be charged annually with recommending policies adopted over preceding years for incorporation into the published rules. Presumably, the recommendation would be forthcoming once it is determined by experience that the policy is working and requires no further modification or reconsideration.

7 First Manual (to be taken to Board and Committee Meetings) includes (i) calendar of dates and events; (ii); current bylaws; (iii) mission statement; (iv) organization chart; (v) directors and officers list with contact information; (vi) committee lists with contact information; and (vii) staff list with job title and contact information. Second Manual (remains in director=s personal office or home) includes (i) articles of incorporation; (ii) board and committee minutes for one year; (iii) compendium of board policies from prior years and remaining in force; (iv) financial statement for preceding fiscal year and budgets for current year; (v) director and staff biographical data; (vi) summary of D&O insurance and statutory limitations on liability; (vii) annual reports for preceding two or three years; (viii) 990 filing for preceding tax year; and (ix) other orientation materials furnished to new directors upon taking office. See Guidebook for Directors of Nonprofit Corporations, p. 229 (Section of Business Law American Bar Association 2002) (hereafter AABA NP Guidebook@)

8Mary Probst, Leonard, Street and Dienard, "Practical Steps for Non Profit Governance Review"

9 See Brauer and Kaiser, Tax exempt Health Care Organizations Community Board on Conflicts of Interest, Appendix A ABA NP Guidebook, for a sample conflict of interest policy adaptable for use by other tax exempt organizations including private clubs. The sample includes a purpose clause, definitions of "interested person" and "financial interest," procedures, records of proceedings, annual statements, periodic review and use of outside experts.

10 In the normal course of business, a director should treat as confidential all matters involving the [board activities] club until there has been general public [member] disclosure or unless the information is a matter of public [e.g., club newsletter] record or common knowledge. The individual director is not a spokesperson for the [club] and thus disclosure to the [members or] public of corporate [board] activities should be made only through the [club's] designated spokesperson, usually the chief executive or the board chair . . . . ABA NP Guidebook p. 34.

11 Remarks of Michael Resnick, Esq., ABA Business Law Section Executive Compensation presentation 08/11/03, Fairmont Hotel, San Francisco, California.

12Id.

13 These duties have been described by Hugh K. Webster, Nonprofit Audit Committees: A Toolkit (American Society of Association Executives 2002), as follows:

- Discuss with the outside auditors their judgments about the quality--not just the acceptability-of the organization=s accounting principles used in financial reporting.

- Review the scope and general extent of the outside auditors= annual audit. The committee's review should include an explanation from the outside auditors of the factors considered by the accountants in determining the audit scope, including the major risk factors.

-Outside auditors should confirm to the committee that no limitations have been placed on the scope or nature of their audit procedures.

- The committee will review annually with the general manager/COO the fee arrangement with the outside auditors.

- Inquire as to the independence of the outside auditors and obtain from the outside auditors, at least annually, a formal written statement delineating all relationships between the outside auditors and the organization, including other consulting work being performed by the outside auditors for the organization.

- At the completion of the annual audit, review with the general manager/COO and the outside auditors the following:

- Results of the audit of the financial statements and the related report therein and, if applicable, a report on changes during the year in accounting principles and their application.

- Significant changes to the audit plan, if any, and serious disputes or difficulties the general manager/COO encountered during the audit. Inquire about the cooperation received by the outside auditors during their audit, including access to all requested records, data, and information. Ask the outside auditors about any disagreements with the general manager/COO that, if left unresolved, could have caused them to issue a nonstandard report on the organization's financial statements.

- Other communications as required to be conveyed by the outside auditors by Statement of Auditing Standards 61, as amended by SAS 90, relating to the conduct of the audit.

- Further, receive a written communication provided by the outside auditors concerning their judgment about the quality of the organization's accounting principles as outlined in SAS 61 and amended by SAS 90, and confirm that they concur with the general manager/COO's representation regarding audit adjustments.

- Discuss with the general manager/COO the quality of the organization=s financial and accounting personnel. Also, elicit the comments of the general manager/COO regarding the outside auditors' responsiveness.

- Meet with the general manager/COO and the outside auditors to discuss any "material" or "serious" recommendations that the outside auditors may have. Typically, such recommendations will be presented by the outside auditors in the form of a Aletter of comments and recommendations@ to the committee. The committee should review the general manager/COO=s response to the follow-up reports on action taken.

- Recommend to the board the selection, retention, or termination of the outside auditors.

- Generally, as part of the review of the annual financial statements, receive an oral report (at least annually) from the organization=s general counsel regarding legal and regulatory matters that may have a material impact on financial statements.


14See excellent article by Robert Karstens, "How to Handle the Media in a Crisis" p. 10 18 The Bottom Line; The Journal of Hospitality Financial and Technology Professionals No. 6 (2003). A good media tips newsletter is available from www.rothsteinmedia.com. See also "Tips on Dealing with the Media" National Club Association Special Report 2002.

15 CD Guidebook, p. 50.

16 see, e.g., http://www.vortex.com/privacy.html

17 Id.


18The terms "director" and "governor" are used herein interchangeably as private clubs vary in which of the two terms are used.


19See summary of responses to National Club Association December 2001 club industry governance survey, (hereafter cited as "NCA Survey."

20CD Guidebook.

21CD Guidebook.

22CD Guidebook.

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