BRILLIANT ENLIGHTENMENT FOR THE DEPLORABLE USTA BOARD. By Javier Palenque
Javier Palenque
GLOBAL BUSINESS CONSULTANT | FAMILY BUSINESS EXPERT | GLOBAL BUSINESS TRADE EXPERT
Let’s face it: The tennis entertainment business landscape and economy have changed dramatically in the last decades, and I can assure you it will never return to its heydays of the 70s and 80s. It is important to understand the age of the internet and its birthdate (around January 1983) and the proliferation of social media in the same subsequent two decades. Boards need to reinvent their work while the tennis and entertainment market faces unprecedented challenges, and any decision the board makes can have a make-or-break outcome for a generation or two. Choosing the next CEO was such a decision and the USTA has already again made a poor choice. Choosing a person with no tennis knowledge that needs to rely on the failed knowledge of the existing executives, who are responsible for the present poor state of tennis. All that they have collectively achieved are the attrition of the sport, the aging of it, and the indifference of younger generations. This course of action made by the board and decision-making is of course mindless.
This article is a pragmatic attempt to enlighten the USTA’s board, which I consider below par (given its results). If this board was responsible to any shareholders, they would all be long gone for their lack of results.
Next, I distill ten governance principles for easy implementation at the USTA. These ten points are based on personal boardroom and client and career experiences over the years as well as a long list of reference material from consulting work all over the world. The failure to implement these principles is the leading cause of “Why the USTA board is a failure today and has been for a long time”, this is not an opinion it is an assessment based on the facts of the state of tennis today which is a direct result of the decisions of the board of the USTA in the past. What is the worst part is that the incoming chairman (Dr. Hainline) has been on the board for one decade, the same period of time in which the decline in tennis has been the steepest, the debt levels the largest $725M, the losses the greatest $200M+, the attrition of the sport at its highest point, the highest cost of sponsorship, the lowest TV ratings, and the loss of real estate to pickleball in numbers never heard before. Our coaches are losing their working space and the board and status quo do absolutely nothing about this.
These are the ten reasons for the failure of the board of the USTA. Dr. Hainline, please consider this my gift to the USTA Board, ten points of enlightenment for the sport for free. I would normally charge $1,000.00 per hour to think and the Board of the best-funded sports not-for-profit with the least amount of kids and oldest adults (the USTA) refuses knowledge from the competent and cognoscenti people like me. This is a monumental failure of judgment.
1.- BOARD MIX
A Board of Directors is only as good as the individual Board Members who sit on the Board. Understanding the importance of the role while possessing the required skills, relevant qualifications and experience is fundamental to success. The board at the USTA is treated as a club since no individual shareholders are represented as there are no shareholders, so the dynamic is flawed, to begin with. Some people on the board get invited, while others highly competent are rejected. This is again another proof of the failure of USTA’s governance, this needs to be changed for the benefit of the game.
Dr. Hainline, this is enlightenment number one from me, or your guidebook if you want to call it that.
2.- BOARD MEMBERS “NOT UP TO DATE”
Board Members need access to the right information, at the right time, at the right level of detail to make the right decisions. The Board agenda and its associated Board papers form a substantial part of the information Board Members receive to make those decisions. I would like to know how participation numbers are presented to the board if this information was presented to them, I highly doubt that they would continue to support the funding of money-losing projects year after year. The decline in tennis participation started in the year 2000. What has been done since to reverse this trend? Nothing of value. This is the responsibility of the board.
Dr. Hainline, this is enlightenment numero dos.
3.- NOT KNOWING THE RULES
Every corporation is unique. Understanding the corporation’s constitution, both the “formal” and “informal” rules, and the Board and organizational policies, procedures, and protocols takes time. USTA Board members owe the organization fiduciary duties of care, loyalty, and fidelity to purpose. Have these been met by the board is a fair inquiry? You be the judge.
The Standard. The duty of care focuses on the level of diligence exercised by the Board member in carrying out his or her responsibilities. The fair question to ask is if the mission is to grow the game has it been cared for? We know you grew the US Open, but that is entertainment, not tennis and it is not even in your mission statement. The government does not give you a tax exemption for the US Open, let’s be clear.
The Standard. The duty of loyalty is the Board member’s obligation to act in the organization's best interests and not to use his or her authority to advance personal interests or the interests of related third parties. The duty of loyalty must be not to the USTA or the US Open, but first to the game then to the US Open, and then to the organization in that order. Has the board been loyal to the mission? The financials and debt levels answer this question easily. No, it has not is the right answer, the next question is why not?
The Standard. The Board of a nonprofit association must follow the organization’s purposes and goals as set out in the organization's articles, bylaws, purpose, and mission statements. A Board member’s duty of fidelity to purpose, which is often called the duty of obedience, is particularly important in the context of nonprofit associations because it involves the Board member’s fidelity to the purposes of the organization. Again the same question asks itself, what is the purpose of the USTA? To have a 2-week yearly event? Or to produce a champion? Or to claim it is to grow the game, but not really? Loyalty is first to the mission (to grow the game), but the resource allocation by the board says the exact opposite. So, has the board fulfilled its fiduciary duties concerning this point? The answer is NO. If it had we would have transparency in participation numbers, the financials would reflect the proper allocation of funds and the US Open would be so well run that it would make a profit for the mission, it does not. It has not for a while.
Dr. Hainline, this is enlightenment numero tres.
4.- POOR DECISIONS
Board Members are responsible for making decisions in the best interest of the organization while safeguarding corporate assets and organizational funds. Regular poor decision-making is symptomatic of a dysfunctional Board. (ex. Not buying pandemic insurance, keeping bloated salaries, ignoring losses, funding player development, keeping executives who contribute nothing to the mission, not overseeing sections, focusing too much only on US Open, not stopping the freebies for the majority, outrageous travel expenses, pathetic foundation budget, etc.)
The following list is to identify Board characteristics, and recommended actions, including the following: In all the cases highlighted below, remedying Board dysfunction is the Chairman’s responsibility since the Chairman has ultimate responsibility for managing all aspects of Board meetings. (Source: Corporate Governance Board Leadership “Dysfunctional Boards” | The International Finance Corporation, World Bank Group). Remember as part of the failed governance model, a past chairman is still sitting for two more years as a past president, this is illogical especially if the results of the previous Chairman are horrible.
Dr. Hainline, this is enlightenment numero cuatro.
5.- RISK MANAGEMENT
Unfortunately, just like ignorance of the rule of law excuses none from compliance, ignorance of corporate risks excuses no Board. Boards are the ultimate owners of the risks their organizations take to generate a return on investment for their shareholders. If the shareholder is a mission and has no voice? How does the board expect to be challenged? Do you now understand how easy it is to drift into stupidity and non-compliance? There is value in harsh critics on every board in every industry. The board should encourage them, not ban them like the head of the organization does when the topics and accountability feel uncomfortable to him. This action is absurd.
“Risks come from not knowing what you are doing” Warren Buffet
If I sat in the board meeting, I would ask for a risk inventory matched with probability, I can assure you that the USTA board has no idea what that is, because if it did, we would not be where we are. Read my articles, all the problems are defined, and the solutions implied. Yet the board forbids people from reading them when the opposite would benefit them. This is also not responsible.
Dr. Hainline consider this enlightenment numero cinco.
6.- MISUSE OF ASSETS
Cash reserves are an asset, cash is an asset, profits become assets, and future revenues and broadcasting rights are assets, but when you risk the entire organization’s future, by borrowing against future attendance revenue amounts beyond the broadcasting rights renewal date and at the same time you fail to listen to critics. This is not a mistake; this is a misuse of assets as is continuing to keep player development and the Laver cup and other initiatives that only lose money. Losing money has a cost, who pays for the wrong decisions?
Dr. Hainline, consider this as enlightenment numero seis.
7.- COMPLIANCE
Companies need to comply with pertinent rules, laws, and regulations which should be recognized not only for the responsibilities and duties they impose but also for the legal safety and entitlements obtained. The Board and its members are accountable for the corporation’s adoption of and compliance with appropriate laws and any additional non-binding rules, codes, and standards to which the corporation has chosen to adhere to. The reputational impact of non-compliance with rules, laws, and regulations is high and, as such, one of the core responsibilities of the Board is to ensure the corporation’s compliance. Ex. As a not-for-profit overhead % vs program %? What is the ratio of normal nonprofits? The ratio is 30% overhead / 70% programs. What is the breakdown of each section of this ratio? What is the ratio for the main office? Player development is classified as a charity. With a $10M payroll per year for a $23M annual money loser. This is no charity, yet you claim to the city of Orlando that Player Development is one, we both know it is not. This is an ethical mistake that needs to be corrected.
Dr. Hainline, consider this enlightenment numero siete.
8.- FINANCIAL FAILURE
It is the responsibility of the board to make sure that the finances of the organization are solid and what we have seen before covid is that unless the stock market produces gains, the operations of the US Open lose $10M every year. With Covid and without insurance these losses as of 2020 are $181M. This is called a lack of oversight of the operations and continuing to support a bloated organization that only loses money at the expense of the game for the benefit of a few. How is that responsible for the game? Now the next decade the losses will be even higher as there is too much debt ($725M), the broadcasting rights contract is up and ESPN is losing customers by the tens of millions every year. This is irresponsible in any organization. How is the fiduciary duty of the board here upheld for the benefit of the game? it is not, and that is seriously wrong.
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Dr. Hainline, in the decade you have been on the board, the losses and debt were never higher, consider this enlightenment numero ocho.
9.- POOR DIRECTION / STRATEGY
For the past 20 years, a poor governance model has only failed the game and the organization. While these are words none of you want to read, it is the truth. The board has failed to understand the country, the game, and its changes and has managed to give direction to “yes” executives who dare not question the orders. The reverse is true. What the organization needs are a vision to agree to and fund or not. To do this you need an outsider to come and tell you what is wrong and swallow your pride and your nonsense and agree, improve, or get out of the way. There is no other option. You tried others, but they all failed. The USTA board in my opinion is very weak because it lacks a vision, and it implements strategies for a failed vision. This is a waste of time and resources for all. Please simply look at the participation data, the attrition rates, and the average age of the coaches, and league players.
Dr. Hainline consider this enlightenment numero nueve.
10.- LACK OF TEAMWORK
In my professional experience, “an effective Board should not necessarily be a comfortable place. Challenge, as well as teamwork, is an essential feature”. I believe when the door closes at the board meeting it is fair game to be as incisive as is required without being disrespectful for the benefit of the game and mission. Once the door opens at the end of the meeting, I would be the first person to offer you a drink, after I just challenged all your beliefs and ideas in front of your peers. Why might you ask? Because the voiceless need champions who are not in the room and never will be. That is part of what is called servant leadership, which the organization desperately needs. Witnessing a capable Board, via conversation and disagreement, reaching a final consensus, is the fruit of a strong team.
Blocking emails of employees to complain to me about management and blocking me from the employees, a decision made by the Chairman is childish, in poor judgment, and more in tune with some southern tradition of a Banana Republic petty tyrant in the southern hemisphere, where there are plenty of poor people just like in the poorest state of the union, Louisiana. We are as a sport and nation, better than that for sure!
Dr. Hainline, consider this enlightenment numero diez.
CONCLUSIONS
As Boards come to terms with the changing sports entertainment market, the demographics and psychographics of the country, and the economic conditions and the realization of their “new” responsibilities, many are now exploring how to adapt and evolve. The challenge is not just to change but the speed of change, and the faster the pace of change, the harder the consequences of willfully sticking to old ways which is exactly what is engrained in the culture of the USTA. Those that seize the opportunity to strengthen and adapt their Boards earlier than later will find that they will position themselves to take advantage of those that don’t. USTA board members, which side of history are you choosing to be in, the Avant-garde, or the left behind?
I say that only opening your mind and letting new people in can allow for change to happen, the old way has been tried and it has failed more than once. Your experience should tell you that doing the same thing over and over only produces the same result, failure. It is time to transform the USTA. Why not do that together? and why not do it NOW? VAMOS!
Dr. Hainline, your decade on the board is a failure for the sport, the fact that no one has told you and confused the US Open show and the sport, is another topic. Why not use the free enlightenment and get rid of the failed status quo? That would be honorable, just, and appropriate for the times. We will see if you chose to follow enlightenment or simply ignore brilliance and continue the failed status quo of the last decade. Ten years should teach you that the status quo has not served the sport, therefore making the boards you have served on a failure. Let us hope you do not repeat the past and fail once again. The sport cannot handle such incompetence anymore.
There is only one option for the sport, it is to get rid of the status quo, which you are part of. It will take intelligence, and honesty to do the right thing. Is this too much to ask or are you up for the challenge the position merits?
Just to make all the points with numbers from the financials, consider this set of data points that you have approved in the last decade.
The Tennis Programs budget for the last decade was $0.00
The Coaches' programs budget for the last decade was $0.00
CEO Salary last decade $14,000,000.00
In House Counsel Salary last decade $11,000,000.00
Marketing Director salary last decade $7,000,000.00
Player development head salary last decade $9,000,000.00
Payroll USTA last decade $800,000,000.00
Professional Services last decade $300,000,000.00
Player Development budget last decade $245,000,000.00
How can tennis grow Dr. Hainline, if you allocate money everywhere except where it can grow? Ten years and the madness continues?
I say NO to ineptitude and YES to growing the game.
I can be reached at jpalenque@yahoo.com
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references:
[i] 1. Institute of Directors, New Zealand | “A Board that truly adds value”...
2. Corporate Governance Board Leadership | The IFC World Bank Group | “Dysfunctional Boards”
3. www.bbc.com | 29th September 2015 | Interview with Volkswagen Board Member Mr. Olaf Lies
4. www.ft.com | 24th November 2014 | Mobily “CEO suspended at Saudi telecoms group hit by accounting scandal”
5. www.the national.ae | 20th June 2016 | Saudi contractor Mohammed Al Mojil Group
6. The Economist Intelligence Unit 2013 | Report entitled “Why Good Strategies Fail: Lessons for the C-Suite”