The June-September swoon in the stock market sharpened the focus
on investments at the November 2002 IEEE Board of Directors (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 implemented two 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 IEEE BoD Series, which is of strategic importance
to the Institute. It's at the end of this article. First, let's
review updated recent financial issues.
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:
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 indirect infrastructure amounted to $21.7M. These
are scheduled to be reduced to $18.5M 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. This
makes it easier to identify and validate as either necessary or
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
focussed on simplifying the options available for Society membership,
and the subscription process for members regarding optional Society
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 the TAB Caucus Treasurer's
Report. (See 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 rule 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
your IEEE membership 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, the 2002 economy has taken a slice out of the 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 two 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 has been formed to provide
a direct path of communication between the IEEE Investment Committee
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 2002 November view, nine Societies have negative nets for
2003, and six of those nine have had negative budgets for the
past two years. These nine Societies appeared at the TAB FinCom
meeting in Chicago to present their plans for recovery. Four of
the nine 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 four 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 two-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).
The recipe for improvement involves setting longer terms for
our leadership (S/C Presidents, Board Members), reducing the
size of governing boards, (whose members are selected at-large
on the basis of skills, not quotas), letting the leadership
lead (i.e., set strategy), and allowing the staff to 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. 13 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
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 the 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
By the time you read this, my term as your Division IV 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 Division IV Director. Ask him what his views are on
the consultant's report. Let's get going!