Best Practice for Fraternals

If you read the Executive Ideas column in the August issue of Viking magazine, then you read segments of the interview our CEO, Eivind Heiberg, conducted with Joseph Annotti, the President and CEO of the American Fraternal Alliance. Unfortunately, due to space constraints we were only able to run part of the interview in Viking.

Today, the Sons of Norway blog is pleased to bring you the interview in its entirety.

Q: What are some best practices with regard to good corporate governance?   

A: The most impactful change Alliance member societies are instituting is the shift from a “convention” governance model to a “board” governance model.  This involves not only moving to a governance structure where the membership elects the board, the board hires the CEO, and the CEO is responsible for the overall management of the organization; but also one in which the board is the supreme governing body of the society.  This is a much more contemporary governance model for financial services organizations – and providing financial services products to members is an important component of any fraternal benefit society in that it provides the fiscal fuel that funds membership benefits and community service activities.      

Q: Why is the above a best practice?

A: A board governance model allows organizations to adapt to an increasingly complex regulatory environment in a much more timely and responsive manner.  Societies that have to wait for two to four years for a convention to make meaningful changes to the organization’s direction can find themselves at a competitive disadvantage and become much less relevant to members.  Moreover, board governance enhances the quality of the organization’s overall management because it demands greater accountability on all levels: staff to CEO; CEO to the board; and board to the membership.  It establishes clear lines of authority for the duties of the board and the executives, and makes the election of board members more likely to be focused on credentials rather than popularity.  It also allows the organization to refocus its convention on activities that directly benefit the members and the society – educational programs that enhance member benefits, community service activities, and financial services products.

Q: What would a change like this (move from convention to board model) mean to the average Sons of Norway member?

A: Most members would experience little if any change in the organization’s operations, especially in the short term.  Over the long term, members could see a significant increase in Sons of Norway’s ability to provide then with meaningful financial services products; enhanced membership benefits, including cultural and social programs; and more effective community service activities that enhance the quality of life where members live and work. 

Q: To what extent does being a Fraternal Life Insurance Company have a bearing on this issue?

A: One of the primary purposes – indeed, one of the reasons fraternals were established – was to provide members with financial security they could not obtain from any other source.  As societies and their members have matured and become more successful, the “pass the hat” nature of the financial security that was prevalent in the early 20th Century has morphed to increasingly more sophisticated life insurance and retirement products.  Organizations that offer these products – from global financial giants to single-state mutual companies to fraternal life insurers – are under increasing regulatory scrutiny to make sure they will be able to deliver on the financial promises they make to their customers (or in fraternals’ case, their members).  Societies must have a governance structure, as well as board members and executives that are suited to managing a modern financial services provider.

Q: To what extent can members still have an impact on issues like board leadership and resolutions?

A: Members will be responsible for electing a board to manage the society – an incredibly important duty.  A board governance structure will make these elections much more focused on credentials than popularity.  Board members that do not perform are accountable to members and can be removed from their positions.  Members will also be responsible for improving their society at the local level – from the ground up.  New ideas for benefits, community service activities, and financial services products that appeal to a particular community can be driven through the organization from a lodge, to a state, to a region, to the national level by the membership.  Fraternals are membership organizations, but membership involvement in the day-to-day management of a society can make it inflexible, unresponsive, and irrelevant to a both members and, more importantly, prospective members.

Q: What would the impact of a change like this be on the local or district level?

A: Members at the local and district level would not only be responsible for electing board members, but also for providing their board representative feedback on the all aspects of the society’s activities – financial and fraternal.  Local and district leaders would also be responsible for recruiting new board members and for working with the board to develop education programs that can enhance the society’s impact on the membership and the community.

So, what do you think about Joe's interview? We'd love to hear your comments on Joe's thoughts about corporate governance and board leadership in the comments section below.