Hot Springs Village Culture Shift Part 2 Transcript (The video is located at the bottom of this transcript. Click here to read Culture Shift Hot Springs Village Part 1. )

Lloyd Sherman, June 6, 2021

Hello again. This is Lloyd Sherman and I am back for part two. Again, I warn people that there will be comments made in here that will not make some people happy. But, I guess I don’t have to apologize for that because it is the way it needs to be.

Just a quick review. In part one we talked a little bit about the background of why there needs to be a culture shift. In a nutshell, this group of people has to be working together as a team. It has to be Property Owner focused and not Staff focused. There has been too much emphasis on Staff directing the focus around here and not enough Property Owner input and actually listening to them. Let’s get on with some of my suggestions.

The first thing I would do in an organization was to look at its organizational structure. The one we have here is more of a hierarchical org chart and it needs to be more functional.

My way of doing things is to, again, obviously the Property Owners are at the top of the pyramid here. We have an elected set of Board of officials. You have your GM. From there, though, this person [General Manager] needs to have some assistance in watching over the day-to-day activities and that needs to be done through two levels – at least two levels, let’s put it that way of Assistant GM’s and then breaking up the hierarchical chain into more of the functions.

Under this particular one [refer to the functions under General Manager in the chart above], you would have several departments that would report directly to the General Manager and you would have several that reported to each of the [Assistant] General Managers.

All of these with asterisks, under this structure, would be on a reduced base salary. Upside of making potentially more by performance from results. And I don’t mean results like the softball results we used to ask for. I am talking about increasing revenues, decreasing costs. I am talking about specific measures that at the end of the year, you can determine whether they got there or not.

If that doesn’t occur, there is no motivation for any of this structure to do anything different than this structure because, in this structure, this is your management team. Where under the previous one I just showed, you had a three-person senior management team, and then the rest of this and this [indicating job positions on the above chart] are falling out as functions. Most of these positions on here, if not all of them, are manager-level positions. There has got to be some consolidation. I am aware of several, myself, right now, that could take place.

The other thing I have difficulty dealing [with] and understanding is that we’ve added to this org chart the positions that we’ve eliminated and yet, our compensation line this year is going to be the highest it has ever been, at least on the budget. At 18.6 million, which when you compare that to the net assessments we receive, our compensation line, alone, now that is salaries, benefits, is 130% of the net assessments we receive. That is not a winning recipe and it needs to be dealt with.

This was a good start. [indicating red positions on above chart] You know the old attorney joke. But it didn’t go far enough and the culture basically stopped it. That’s why this culture just needs to change.

Under the one I am talking about, the salaries are now based on financial performance. Again, a much-reduced base with upside potential based on actual measurable financial results. As I mentioned, changing to a functional, instead of a hierarchical, combining functions. There are several that could be. But most of all, let’s utilize the talent that exists within the Village. We’ve got a myriad of experience here that, given the opportunity, they do a great job and their hearts are in the right place. Let’s utilize them.

One of the first ones I would ask the Board to assign would be a Compensation and Job Description Ad hoc Committee to help within 30 days. To get this done within 30 days, you could put a committee together and get through every job description in the organization. Benchmark it and establish the org chart going forward. We just went through six months where the org chart didn’t change for six months. We weren’t really doing anything. There needs to be more interaction with the Property Owners to let them know what is going on in the operations and I would propose doing that through monthly town halls. You might be able to move those to quarterly at some point. At first, anyway, they need to be monthly.

Let’s talk a little bit about the Board of Directors. I am pretty sure everybody knows what my thoughts are on this because I was with the group that intentionally changed it to the way that it should be and then it got changed back to the way that it was because that is the way we’ve always done it.

At any rate, your Board of Directors [indicating Board of Directors on above chart]. Treasurer, and Secretary should be employees of the Board of Directors, not reporting to the General Manager. That is a conflict of interest. It doesn’t look good from an auditing standpoint.

Let’s talk about some ways we might make this happen. Let’s start paying our Board of Directors a stipend. Pick a number – $250 $750. Make it enough that it would stimulate interest from more of the Villagers that still want to work part-time and they could do it by helping their community but not so much that it would be jobs that would be available that would be life-sustaining. So much like a part-time job because that is what this is supposed to be is part-time volunteer work.

Let’s expand the qualifications for being a Board Member beyond simply being a Property Owner in good standing. You’ve got to have a breadth of knowledge, on the Board. Some of that has to be people who have been in positions of running operations, companies, putting their signature on the front of a check. Something more than having been a successful business person.

Set up a separate budget and let the Board spend it on managing. That is what they are there for, anyway. As I said, Secretary and Treasurer, need to be paid positions. Again, they should be part-time, so again, pick a number, but, enough money to entice somebody with the qualifications that can do these jobs, but not so much that this is a full-time job.

Expand the number of people on the Board to nine to spread the workload. Organizations are notorious for, volunteer organizations I mean, notorious for twenty percent of the people doing eighty percent of the work. Our Board is probably no different. It wasn’t when I was on there. At any rate, that will just help with the workload that actually does go to the Board. It is a no-win situation position to take in the first place.

As I said, I was glad that I waited for the Future Funding Task Force meeting because I have some things I guess I’d like to say to them. I would be glad to meet with them if they want to meet with me. I might go into a few more details than I am going to here. I think they can get the idea.

First of all, congratulations. The work that you have done is admirable. It was a different way of putting the information together. It quantified it much better than we have seen in the past, but we learned that we had a big red blob. By that, they described it as the needs that need to get done. Well, we already knew about that. That is nothing new. I don’t know. I was a little disappointed in that because many of us that have been here for a while were well aware that we had a huge backlog that needed to get taken care of.

My other concern that I had, is that it took three months to get here with the data that they presented at this meeting. They have two [months] left in their self-imposed, I guess, or Board-imposed timeline and here we go again, rushing an activity that is not even close – not even close to being done yet. I’ve said it before. I’m going to say it again, not one dime of increased assessments until we know that the operation we have is functioning at optimum performance and at optimum use of the existing dollars. I am going to explain that a little bit more in a couple of minutes.

The other thing I got out of it was, we keep treating the symptoms instead of the problem. Again, the problem here is the culture that has been established and doing the same thing over and over again and expecting a different result. We are doing it with the garbage trucks right now. It seems like that should have been put off, at least for another year, or at least until this committee got their work done. But no, we had to rush it through, too, because we were going to miss the interest [rate] opportunity. I am sorry, I am tired of hearing that.

I guess the message I want to send to the Future Funding Task Force is this – everything you do, if the culture doesn’t change, you are going to pour whatever suggestions you do right back into the same machine that got us here. It’s not going to get us anywhere and it’s going to wind up getting misused again.

While I am on it, I didn’t hear anything in the meeting where I saw any time-and-motion-work-measurement people, operations-type people that have run operations before and actually know how to improve processes to get more value out of them. I am a little concerned about that. I wasn’t asked on the front end. There is that.

Why does all this make any difference? Because revenue and cost have got to work together for an overall value to come out of it. We’re going to use $100,000 as an example here. At the revenue line, if I bill $100,000 and I am making a one percent profit margin (which we don’t), our bottom-line impact is then $1,000 per $100,000. You’re going to pour that into the funnel. That’s coming out the bottom.

Now if you go after costs, the bottom-line impact of finding $100,000, you poured $100,000 into the funnel and you got $100,000 out of the funnel.

The other thing I would like to tell you about this approach and that’s why the job descriptions and managers have to be on these kinds of compensation plans is that for every million dollars in savings, the assessments won’t have to go up. I realize this is being hidden by the picture, by about $9 a month, every month.

Let’s say you had a program where you were going to eliminate ten percent of the POA costs somehow. And I believe it is probably still sitting out there, but wouldn’t know until you got into the day-to-day activities. Three million dollars would be dropping to the bottom line if you did that. How much good would three million dollars do to our overall requirements?

I am running long. I understand that. I tried to keep this at fifteen minutes. It didn’t work.

What qualifies me to be giving anybody any advice? I understand this culture and what is expected of the Board and I know how to drive operations to make that happen. I’ve been there. I’ve done it.

When I was recruited to Mississippi, I walked into a very similar situation where the culture needed to be changed and we built a team that took that place from 1.5 million to 58 million in eight and a half years. We were eventually acquired and we went public. As part of that acquisition, I was requested to go to the Texas region and take over a losing proposition of eight offices there along with three other states. I had 14 offices and 500 plus employees and a budget back then in excess of 38 million dollars. I doubled the revenues in two and a half years and took it from a losing proposition to 2.2 million bottom line. I’ve had the experience of taking complex operations and making them tuned and operating properly.

Then for the next 12 years, I was in my own consulting business and my specialty was turn arounds – pulling people that were on the verge of bankruptcy out of bankruptcy and where they continued to operate. I wouldn’t want to be doing that in today’s environment. But I enjoyed doing it back then.

Mostly, I am a part of this community and I want what is best for the whole community. I want everybody here to enjoy our active lifestyle, gated community that has a vast reservoir of talented retirees that want to help. We just have to give them the opportunity.

With that I am going to end up by saying, keep my org chart in mind. I’m still available. I have others who wish to join me in this endeavor and I hate to say it but it’s true, if there is consideration being given to one of the existing employees, as your next General Manager, they are part of the culture, and that culture has to change. And it won’t change if you don’t change the culture.

Future Funding, if you have any influence, I would ask that you listen to me. Thank you for your time and I am always available if people have questions. Thank you and have a good day.

Culture Shift Video – Part 2

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