The June-September
swoon in the stock market sharpened the focus on investments at
the November BoD series. Will the October-November market rise
continue through the end of the year? You will probably know the
answer by the time you read this, but it will not minimize the
concentration on the IEEE portfolio in the months to come. In
retrospect, one of the smartest financial reporting changes implanted
2 years ago was the separation of operations from investments.
Operations have been under intense scrutiny, and will continue
to be. The results are positive and noticeable. Now it’s
time for investment policy to have its turn in the spotlight.
But there are more, larger issues. Our accounting consultants
reported their thoughts on IEEE’s Corporate Infrastructure
(CI) at the November BoD Series, which is of strategic importance
to the Institute. It’s at the end of this article. First,
an update of recent financial issues.
Infrastructure Expenses
Direct infrastructure expenses have been identified and a distribution
algorithm was passed in February. Now that we know what they are,
we can work on cutting them. It is beginning to happen. In November,
TAB passed the motion from TAB FinCom to distribute 2002 indirect
costs in TAB according to the default methodology, excluding co
sponsored publications, for 2003 and going forward. This methodology
prescribes a distribution in proportion to ASPP and Book Broker
revenue shares, and an additional component proportional to Society
year-end reserves.
The important issue here is NOT the algorithm, since others give
pretty much the same share, but the amount of the distribution.
In 2002, the combined direct/indirect infrastructure amounted
to 21.5M. These are scheduled to be reduced to 18.7M in 2003,
through work on cost-cutting and business rule simplification.
In case you have not skipped to the CI section yet, the consultants
want to transfer as many indirect functions as possible to direct
charges. Easier to identify and validate as either necessary or
unnecessary.
Business Rule Simplification
In November 2001, the BoD charged RAB and TAB with identifying
business rule changes to realize a possible $3M annual savings
in infrastructure charges associated with membership services.
RAB and TAB Business Rule Simplification teams have been working
the details since February 02. TAB committee discussions have
focused on simplifying the options available for Society membership,
and the subscription process for members regarding optional Society
publications.
In June, TAB endorsed the concept that, in general, member fees
and prices should at least cover the relevant variable costs.
In November, the Cost-of-Membership task force reported back on
three metrics to measure membership costs; these metrics will
be made available to each Society for their use in running their
membership “business”, starting with the 2003 budget
cycle. Further details can be found in TAB Caucus Treasurer’s
Report (link below). This same group has also been looking at
business rule simplifications, and at their suggestion, also in
November, TAB passed a motion which will consolidate student,
retired, minimum income, and unemployed member categories for
the purpose of providing a single discount to Society membership
dues and Society optional publications. Details of this and other
business rules simplification efforts in the membership area are
in TAB agenda item V.C. Both actions are located in http://www/ieee/org/organizations/tab/tco_tabagendas.html.
Three items remain on the membership business rules table. The
first is how to simplify the offerings of Society optional publications.
The second is simplifying the Technical Interest Profile selection
procedure. The holy grail of membership business rules simplification
is web renewal, because this would take away the need for the
print membership brochures and costly reminder mailings. Web renewal
is just about at the 50% mark, and Regions 7-10 are leading the
adoption of this service. When fully adopted, electronic renewal
can save over $1M annually. This committee and IEEE staff will
continue to work on these issues. You can do your part by renewing
electronically.
In case you have not skipped to the CI section yet, the consultants
are fully behind this and other simplification efforts. Cut the
complications, save money.
2002 Forecast (Update): Focus on Investments
As the year winds down, operations for the S/Cs are very close
to break-even. The infrastructure cuts made early in the year
have relaxed pressures on the Societies to deliver revenues in
a down economy.
Unfortunately, 2002 so far has not been favorable to our investment
portfolio, and while October and November were strong months,
equity indices are down for the year, and it does not look likely
that they will recover to parity with January 02 by year-end.
It is clear that efforts by staff and volunteers to normalize
operations over the past 2 years have paid off. Now the elements
of our investment portfolio strategy have come under scrutiny
as the market continues to droop. Specific questions have been
asked, all of which have a strategic nature. What is our investment
policy and how do we benchmark it? How do we define and measure
risk tolerance? How do we convert risk tolerance to asset allocation?
What strategic elements of our policies offer guidance for transitioning
to different asset mixes or risk tolerances? Accordingly, a TAB
Adhoc Investment Advisory Committee will be formed to provide
a direct path of communication between the IEEE Investment Committee
and TAB.
The consultants agree that balanced budgets are great, and support
a complete and clear investment strategy and policy.
2003 Society Budget Highlights
While the bottom line for the Societies was marginally positive
at the 2003 November view, 9 Societies have negative nets for
2003, and 6 of those 9 have had negative budgets for the past
two years. These 9 Societies appeared at the TAB FinCom meeting
in Chicago to present their plans for recovery. Four of the 9
participants will return in February for an update.
Corporate Infrastructure Study
Finally, the CI section! Since the June BoD Series, an independent
accounting consultant has been studying the corporate infrastructure
of the Institute. Their findings, presented at the November BoD
series, are in 4 main categories: Governance, Simplification,
Strategy, and Trust. Here’s my take on their report.
Governance: IEEE is a membership-led organization. Membership-led
organizations move more slowly than management-led organizations,
and are effective only to the extent that the Members have a view
for the entire organization. With 1-2 year S/C leadership terms,
and 2 year BoD terms, our governance knowledge gets cycled off
far too quickly. Result? Learning cycles that consume much of
the term of service. During the learning cycle, without a view
for the organization, votes are cast with/for the constituency,
the only point-of-view available to new leadership. As a further
consequence, the member-governors learn by managing, or micro-managing.
Staff does our bidding, and the daily work gets done, albeit very
inefficiently. Unfortunately, there is little time for working
strategic issues (see below). Recipe for improvement—set
longer terms for our leadership (S/C Presidents, Board Members).
Reduce the size of governing boards, whose members are selected
at-large on the basis of skills, not quotas. Let the leadership
lead (i.e., set strategy), and allow the staff manage to the scorecard
set by the strategy.
Simplification: IEEE’s corporate infrastructure (CI)
is far too complex, a result of the rules we set to serve our
constituents. The CI should be diminished and its role should
be defined. Our cost allocation model is complex and complicated.
To the extent we do not understand it, we waste money and time.
Our budget process needs an overhaul. Thirteen months is too long.
Simplification of Business Rules will save millions.
Strategy: Get one. Define and benchmark big picture issues
in publishing, membership, governance, and fiscal policy.
Trust: This topic is an overarching one, and is probably
the most important to changing our situation. We need to empower
a small team and let it be the agent for changes noted above.
The problem with associations is that they are democratic.
Bottom line: We need a more nimble governance structure
and a long term strategy. Simplification should be on every scorecard,
and change will only happen with trust.
That, in a nutshell, is the word from our infrastructure consultants…
strong medicine. Does this have a familiar ring to it? Resuming
an effort begun in 1992 (!), a Presidential Blue Ribbon Committee,
reestablished in 2000, presented governance proposals in July
and November 2001(http://ewh.ieee.org/reg/6/Docs/pbrc_nov01_final.htm)
with striking similarities to the Consultants’ suggestions.
At that time, the medicine was too strong. Principles were approved,
but change agents were not empowered to implement the tough issues,
such as dissolution of committees, and creating a smaller BoD
with longer term limits. Now we have essentially the same message
from outsiders.
Discussion
By the time you read this (written in December 2002) my term as
your Division Director will be history. It has been a pleasure,
I assure you, to meet so many energized volunteers. I’m not
going away just yet, but will stick around as TAB Treasurer, and
look forward to further discussions on finance as well as the
other issues on the CI agenda. Hal Flescher (h.flescher@ieee.org)
is your new man. Ask him what his views are on the consultants’
report. Let’s get going!
Peter Staecker can be reached at 167 Cedar Street, Lexington,
MA 02421; Phone : +1 781 861-7643; Fax: +1 626 608-2967; E-mail:
p.staecker@ieee.org
