Get Recession Ready
Even before COVID-19, economists were warning a recession was approaching
Don’t panic. Plan.
That’s the key advice from association business leaders when it comes to thinking about a recession. In late 2018, many economic observers were confident that the U.S. economy (if not the globe’s) would falter in 2019. That didn’t come to pass. But then along came the coronavirus outbreak in January 2020, ushering in the first bear market in 11 years and providing a bracing reminder that the economy is always as little as one crisis away from a major downturn. (At press time, it was still unclear how well the world economy would weather COVID-19.)
Even so, associations have largely neglected to think ahead. According to a survey of association professionals conducted last summer by Marketing General International, a majority of respondents (56 percent) said there was a better than 50 percent chance of a recession in the next 12 months. However, only 39 percent said they had a contingency plan in place for that circumstance.
“Something about a river in Egypt comes to mind,” says Glenn Tecker, chairman and co-CEO of Tecker International, when asked how well associations and their boards have prepared for the next downturn beyond reserves.
Denial isn’t a viable strategy. Association executives have taken lessons from the last recession to review their finances, rethink dues, and bolster their volunteer leadership. That’s a good idea, in any economy.
How Are Your Finances?
Gary Roebuck, CAE, knows a recession is coming. Not when, exactly. But as the associate executive director for finance and administration at the Association of Research Libraries, he recognizes the threat. “Obviously, we’ve had a long period of economic expansion,” he says. “We’re overdue, historically, for a recession.”
That awareness has prompted ARL to take a close look at its financial policies in the past year. It hired a new investment advisor to shore up its reserves, Roebuck says. (Opinions differ, but experts recommend that an association have between six and 12 months’ worth of operating expenses available as reserves.)
ARL has also begun thinking more about nondues revenue streams. Because many of its members are public institutions, substantive dues increases can be hard to bear. During the Great Recession of 2008-2009, ARL avoided them and implemented a salary freeze. The association survived without layoffs, but the experience prompted Roebuck to think about doing more to generate revenue via training, events, and assessment tools.
“We want a diversity of constituency groups and a diversity of revenue streams,” he says. “This helps further the work of the association.”
Eve Lee, CAE, executive director of the American Orthotic and Prosthetic Association, has been thinking about the role dues play in the association’s well-being. The makeup of an association’s membership changes over time, she notes, as do the financial fortunes of different member constituencies. So she thinks now is a good time to identify cases where a dues increase might be reasonable.
“It’s really important for us to be constantly looking at our dues structure,” she says. “We have a lot of acquisitions going on in our industry, and blurred lines between different member segments. So we have to look at dues to protect that revenue source and meet the needs of our members.”
Bolstering the Board
As much as recession-proofing ought to prompt conversations about reserves, dues, and nondues revenue sources, experts advise answering another question: What will you keep? What is so essential to your mission that it shouldn’t be touched?
“I think what leaders really need to do in terms of planning is take a hard look at what are their mission-critical initiatives,” says Bill Fisher, senior consultant at DiMeo Schneider & Associates, an investment advisory firm that works with associations. “What do their members really value? It’s important to determine and prioritize those and understand which activities and initiatives are critical to retaining membership and preserving their mission.”
Raising those kinds of questions with the board can ensure that an association doesn’t slip into panic mode and slash essentials when a downturn does happen. “I really make sure we all have consensus around what our mission-critical priorities are,” says AOPA’s Lee, “so that when the board and I have to make difficult choices, we have a guiding set of principles that are already in place.”
The tricky part can be assembling a board with that mindset, says Tecker.
“The difficulty we find is with those organizations where there is very little control over who ends up on the board, where it’s a general election or where components of the organization are the primary sources of the selection of board members,” he says. “In which case it’s very difficult to compose a board with individuals who have mindsets, competencies, and experience that can enable the organization to effectively navigate through a downturn if it occurs.”
Raising the issue with the current board can be similarly fraught, Tecker says. Many board members may confuse a conversation about a recession as opening a political debate. Clear—and more regular—communication with the board can help address such issues.
“Part of the challenge is that boards are not meeting every week with the association, so you have a lag in the decision-making process,” says Tony Rossell, senior vice president of Marketing General Incorporated. “The other issue that comes up is where a board member has made up a pet program that you should be cutting but you can’t cut because it’s his pet program.”
Respondents to Marketing General’s survey cited slow-moving and split boards as leading obstacles to an effective response to a recession, and only 5 percent said they would await board input to respond to a downturn. (See “Roadblocks to Recession Readiness” above.)
Getting Ahead of the Problem
Strong reserves and a stable, engaged board can help an association prepare for a possible recession. And as much as an organization’s leaders might ramp up internal conversations during a downturn, Rossell cautions against neglecting member communication. Any recession-proofing should include thinking about ways to promote the value of membership during tough times.
“One of the first things we’ve seen [associations] cut historically in recessions is their marketing budget, and to some extent that’s the exact opposite of what you should do,” he says. “That’s the time that people in the industry need to know the benefits of membership.”
It’s also a good time to recognize that associations aren’t in this alone and to think about potential partnerships with related organizations. During the Great Recession, many associations co-located their meetings to save on expenses and shore up attendance at a time when many members had their professional development and travel budgets cut.
“It would be very smart at this time for execs in particular to develop relationships with organizations that are potential candidates for cooperation, collaboration, or coordination later, so that if in fact you find that you need to either reduce expenses or share expenses, you’ve got some relationships already in place,” Tecker says. “That doesn’t necessarily require an emotional conversation about ‘Will we lose control? Will we lose our culture?’ It’s prepping for what could be.”
This article originally appeared on ASAE's Center for Research. OSAE thanks ASAE for their commitment to strengthening the association community and its members' business acumen. Please select this link to read the article as it originally appeared on ASAE's website.