Vote “NO” and help make TAC better

A vote of “No” on the member assessment does not mean that nothing has to be done to put TAC back on a healthy financial footing.  It does mean that members do not believe at this time that enough has been done to tackle:

• The Club’s excessively high operating costs
• The costs of financing and outfitting the Azabudai site
• Aggressive marketing of the club to prospective new members

Although the Club’s financial situation is grave, the crisis is not yet imminent.  The best proof of that is the timing of the proposed assessment. It would not go into affect in March of 2011, a full 9 months from now.  This timing confirms that we still have time to do this right and make sure that we create a better & healthier TAC.

Whereas we appreciate the many hours of work put in by the TWG, the Board, and Management, we, the undersigned, believe that not enough has been done to seize all opportunities to reduce costs & interest payments and to increase revenues. An assessment of higher fees to members, if truly necessary, should be a last resort, NOT a first band-aid to fix the problem.

Below are just a few examples of why we feel strongly that this is true.  (Italicized text is taken from the letter entitled, “Why Yes to the Assessment,” sent to all members on June 1, 2010.)

Operating Costs

“Reduced bonuses for management for a savings of 16 million yen”

In a situation where our Club is losing money, why would we pay any bonus to management? That is not sound business practice–particularly in a depressed economy where many business executives—some of them among our own membership–have had to forego bonuses.

“Reduced total expenses, including labor costs, by 179 million yen (6.2%) for the 12 month period ending this past March”

As our treasurer’s most recent report indicates, year-to-date April 2010, F&B labor costs are down a mere 1.8% (363 vs. 370 million Yen) vs. prior year. Allowing for that modest improvement, F&B labor expenses are still at an astonishingly high 83% of revenues. (363 vs. 435 million).

If you talk to people in the industry – and our membership list includes quite a number who are in senior positions – you will hear that the standard for labor cost is around 40% of revenues. That means that we are effectively paying twice as much for the service we are getting at TAC as we would at any good hotel or restaurant.

“… labor costs alone have been reduced by over 700million Yen (26%) relative to our original budgeting for the new Club.”

As per the data shown at the town hall meetings, the original annual revenue assumptions were 5.93 billion Yen, which now have shrunk to a mere 3.99 billion. We can probably all agree that the original budget for the new Club is no longer a meaningful yardstick. However, even allowing for that, when revenue drops by 2 billion Yen, cutting cost by 700 million Yen can hardly be considered an adequate countermeasure.  We firmly believe that–prior to a member assessment–both greater cost cutting and broader revenue generating actions should be considered.  In proposing these, there should be greater transparency and consistency in the presentation of numbers, and more member voices should be heard.

Interest Burden (DSCR)

In the town hall presentations we learned that our projected debt service (interest payments) will be 550 million Yen for full year 2012. This is based on a 4.5% interest rate. More than one member questioned the – for a Yen-based loan – unusually high interest rate. We have club members who have successfully negotiated much lower interest rates. A reduction of 1-2% is not unrealistic.

Lowering the interest rate by 2% would lighten our annual debt burden by 220 million Yen. This step alone would cover 80% of the 273 million expected from the increased assessment to members. We have members willing to assist in making this a reality.

PROPOSED IMMEDIATE ACTION STEPS

A “Yes” vote will only put a band-aid on the problem without forcing underlying changes. Your “No” vote would give the membership at large the opportunity to push for greater accountability, transparency, and better governance on the part of Management.

The following actions can help us achieve that:

• We propose the implementation of a member-driven “Action Committee” authorized to help Management and the Board identify and enact changes that would bring the Club back to financial health.  The club’s membership includes some of the most successful and most respected members of the Tokyo business community.  Using that talent and experience, we propose to bring together members’ expertise in:  F&B operations, hotel management, bank negotiations, and business restructuring.
• We propose far greater transparency about all aspects of costs and revenues of Club operations.  We suggest immediately benchmarking the Club’s operations against relevant local and international standards.  We also suggest an easily understandable monthly status update available to the full membership, identifying:
• We propose that the “Action Committee” suggested above review options for refinancing the Club’s loan, as well as reviewing outstanding purchases for the Azabudai site to determine where effective cost cutting might be made.
• We propose that the Club not increase entry fees and monthly dues.  We believe this measure to be extremely counter-productive in this economy, since higher fees would most certainly deter new members from joining, and companies from sponsoring them.
• We propose that the timing of the management restructuring program that was referred to in the “Why Yes to the Assessment” letter be moved forward.  The current proposal is that the review and implementation of the restructuring program take place once we complete the move to the new Club.  However, having independent, outside experts benchmark our Club management now—reviewing compensation and staffing levels against relevant industry standards–may conceivably save the Club considerable money by avoiding the establishment of a high cost management structure in the new Azabudai facility.
• We propose that far more attention be given to marketing the club.  Instead of the current haphazard approach, a professional approach to growing membership is necessary, with clearly assigned responsibilities and new strategies developed with input from the membership at large.

• • Current financial forecasts
  • Performance against clear targets
  • New measures enacted and the financial impact of each
  • Assumptions used for the forecast model

Again, the undersigned Club members acknowledge and appreciate the many hours of work put in by the TWG, the Board, and Management in creating the proposals that have been presented to the membership for a vote.  However, we feel that there is much more work to be done to bring the Club back to a sustainable healthy financial footing. To do that, we must say “No” to an assessment that’s a mere band-aid fix and support an “Action Committee” of members with relevant professional expertise, to work with the Board and Management to tackle the issues that threaten the financial viability of our Club.

Sincerely,

Your concerned fellow TAC members:

For a better TAC, please share this letter with your fellow club members and encourage them to attend the meeting on June 7th.

https://abetteramericanclub.com/

Visit the above site, and share your comments, concerns and ideas