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Using past lessons to prepare for future economic recessions

Associations have been hit hard by previous market downturns, but groups can stave off the worst effects with good planning

Bear and bull markets

Jan. 18, 2019
By Walt Williams

A recession is just around the corner—or maybe not.

Recession fears have dominated news headlines in recent weeks, driven in part by growing trade tensions with China and worries about the economic impacts of the government shutdown. But at the same time, multiple voices have pushed back against the growing narrative by pointing to economic indicators showing the economy is still going strong, such as the country’s low unemployment rate.

Either way, past recessions have taken a heavy toll on associations, which is why experts contacted by CEO Update say it is always best to prepare for the worst, just in case.

“I say the same thing to all clients: It is not a matter of if a recession happens. It’s just a matter of when,” said Jon Fellows, partner and senior investment consultant for DiMeo Schneider & Associates.

The Great Recession of the last decade was unusual in size and scope, but it didn’t affect all associations equally, according to McKinley Advisors, which has surveyed associations about their finances every year since 2008. Associations representing the accounting, finance and insurance industries were hit hardest and have yet to reach their pre-recession membership levels. By contrast, groups representing health care industries were fairly insulated from the downturn, likely because they were buoyed by revenues coming from certification programs and continuing medical education credits.

Jay Younger, CEO of McKinley Advisors, had two pieces of advice for groups planning for the future. First, they should have a good handle on their program portfolio “more from an expense side than a revenue side.”

Associations need a clear picture of where they are spending their money, their time and their staff efforts, and with that data they can engage in scenario planning with their boards and committees.

“If (a recession) does drive some revenue decline, I think associations need to be smart about how they adjust and recalibrate their program portfolios without dramatic loss of value,” he said.

Second, McKinley’s research showed that associations that made concessions to members that struggled during the last recession, such as through reducing dues, managed to retain those members and build loyalty.

“Groups that are well-capitalized with healthy balance sheets and strong reserves, in the next recession, should think about what we can do to help their members weather this downturn,” Younger said.

When it comes to their investments, associations need to think long term, which means diverse portfolios and, most importantly, not panicking when the markets take a downturn, according to Fellows.

“Now you look back over a 10-year-plus window since 2008 … it almost doesn’t look like there was a financial crisis, and that’s the result of being a good fiduciary and doing the right things from an investment standpoint,” he said.

Beyond financial strains, recessions can present a human resources headache for associations, whose staff may spend much of their time worrying if they will soon be out of a job. Todd Mann, CEO of Todd Mann Management Group and head of two small education-sector associations, said his strategy for dealing with such concerns is to keep the lines of communication open with staff about the group’s situation.

“I think it’s fair to sit down with key staff members and say, ‘Look, let’s assume there is a rainy day coming up,’’’ Mann said. “Give everybody on the staff ownership about where we can hold back.

“What it does is it takes the burden off you as the one who has to do all the thinking about this,” he added. “Also, you are preparing the staff. It lets your staff know I’m thinking about this because I care about the organization, and if we do planning now and hold back on our expenses, hopefully we avoid drastic things later.”