Financial Advisor’s Report
General Assembly 2014 Event 338
This report is part of a longer event. Go to General Session IV for the complete video and order of business.
Transcript
JIM KEY: Now welcome back our financial adviser. There he is down there. Come on up.
The lawyer's is going to come back and give the financial advisers report. And unless I miss a bet, there'll be a history lesson embedded in it somewhere. You've got to move faster. I'm just saying.
LARRY LADD: As a committed White Ally, it's an honor to follow the Journey Toward Wholeness Committee's report.
I have a clicker here, which is generally not consistent with the way General Assemblies are run, so I'm waiting for the slide to move. There we go. The topics this afternoon—and I believe I am the last substantive item before you can go off and eat and enjoy workshops and so forth—is the role of the financial advisor, for those of you who may not know. Describe a few activities. Describe some financial results. For those of you who wondered, why isn't he wearing a bow tie this year, some of the financial results are not good, so I picked a conservative rep tie instead. I'm going to talk about growth, and finally, about generosity.
So the role of the financial advisor, for those of you who do not know—and I know many of you are here at a General Assembly for the first time—the role is to provide the president, the board of trustees, and the General Assembly with an independent and expert evaluation of financial issues and fiscal health, and to make recommendations for how to make the financial condition better. It's one of the three officers of the association, and it is elected by the General Assembly. And I served on the board of trustees.
And you saw there—let's see if we can make it go back. You saw there a picture of the four white males who have served in that role at least since the mid 1980s. And yes, I have noticed, it's four white males. That's some diversity we are working to fix.
This is probably the best narrative summary of what the role has been conceived of historically. And this is from a long-time minister of the University Unitarian Church in Seattle. He wrote this to me in the process of deciding whether I was worthy to be the financial advisor back in 1996. This was his advice to me.
"Those of us who serve volunteer organizations, even if we have fiscal awareness, cannot reach to the heart of finances. The treasurer usually represents management. What we need is a person who strives mightily, not always successfully, to give us an independent and critical view, the best assurance available that we are being responsible. The financial advisor must take that role as central."
Now, Peter taught many of the ministers in his room. He also taught me.
Your board of trustees, in addition to working with the president to cast a vision for the association, also has a legal responsibility. And one of my roles is to help them do the best job they can in that regard, and particularly with the legal responsibility that's called the duty of care, which is, we did the best we could. We took all responsible steps. It doesn't necessarily mean the outcome is always perfect, but we did what we believed we needed to do.
So the financial advisor serves on a few committees. This is less than when I served in the '90s as financial advisor, but it's a lot of committees. You can read my written report (PDF, 10 pages) if you want to know more about those committees.
And there are a lot of assets that are within the UUA orbit. And again, I'm not going to go through these. You can read about them in the report, but I want to just give a sense that there's more than just the budget, and actually more than just the endowment. There are a variety of assets that we oversee.
So this is a set of standards for financial performance that are also in the written report, so I will not describe them to you, but they do become particularly relevant because of the not-so-good news that I will include among the results.
So this is my ninth report to the General Assembly as the financial advisor, but there were nine years between the eighth and the ninth. I'm an unexpected financial advisor. And I think it's important to remind myself, and perhaps you, of the parting advice that I gave to the General Assembly in 2005 that is timeless. It's just as relevant now as it was then.
The first two bullets you see up there is to not get too caught up in ourselves, to not focus so much on governance, on wording, on budgets, that we forget the core mission of what the institution is all about. To the extent that we look inward rather than outward, we are not serving our faith well.
The third, which again will relate to the bad news I bring you, is respect roles and responsibilities. The fourth, be worthy of our youth. You are looking at someone who was in the first youth caucus in 1969.
The board of trustees consists of 14 individuals, 11 at large and three officers. Two of those individuals were in that first youth caucus. Me and Reverend Robert Eller-Isaacs down here. So, youth caucus, when you look at me, I hope you do not say, oh my god, this is what we will become. I hope that you will become better than that but stayed connected to the faith.
So lastly—I sometimes give talks on this topic. Everything I know about money I learned in the UUA in the late 1960s. Everything important that I learned, I learned then. Because all the issues around the alignment of assets and our values together played out during that time.
So there are some activities I've engaged in that I'll actually now skip that in the interest of time. I know the moderator is keeping track. So those, again, are in my written report.
So the financial results. We're going to start with the overwhelming good news. We'll get to the bad news. But the overwhelming good news that hopefully will dwarf but not ignore the bad news.
First, our endowment performance remains strong. That means that the endowment performance not only supports the UUA and its activities, but half of the common endowment fund, our endowment assets our congregations have entrusted to the UUA to provide professional management. So it's particularly important that the endowment performance be good.
Second, we received a clean opinion on our audit. That's never an applause line. All right. Let's hear it for the audit.
And for the first time in at least my knowledge, the budget for the new fiscal year actually—there is a written narrative that describes how that budget helps us achieve the ends and strategies of the association. That is an accomplishment.
And lastly, there is in the works a capital campaign. I am an advocate of perpetual capital campaigns, in which you just relabel them, and go on and on. Not because the UUA doesn't have enough assets—although it could use more—but because we all should be giving more to our faith. That's why we should be giving. And I'm going to actually talk more about that later on.
So this is a little more detail on the endowment performance. The most important way to measure endowment performance is not indices of how the DOW has done or the Standard & Poor's 500 or any of those, but how other endowments have done that have had to deal with all the complexities of issues that we have to deal with when we're managing our endowment.
And so if you look at the other endowments of the same approximate size as ours, we are in the top quartile of performance, and have been consistently that way for 5, 7, and 10 years. So that is very good. And if your congregation has an endowment or your other UUA organization has an endowment that is not entrusted to the UUA for management, you still control how it is spent, you should seriously consider the kind of professional management embedded with UU values that the common endowment fund represents.
So the budget results. Now, we're going to get to the reason why I'm wearing the conservative rep tie. The budget of the UUA last year and this year relied on the receipt of a small number of very large gifts in order to support operations, in order to produce a balance. And those gifts did not materialize. They may at some point materialize, but they did not materialize when they were needed to balance the budget.
So there were three principles that I hold dear as a financial person that were not followed as a result of that. First, the board and the administration, particularly the administration, was not staying on top of the revenue situation. I advise boards when they're approving budgets, the expenses are usually well under control, because they're mostly people. You can decide to hire or not hire. You're usually in a budget don't have a problem on the expense side with results.
What you do, though, have is a problem on the revenue side if the annual fund doesn't come through or something else. In both of those years, all the other revenue sources came through except for a few large gifts. So you were doing your part. The congregations were doing their part. And I trust and hope you will continue to do your part. But a few gifts that were expected to come did not come.
And lastly, the president was not on top of fundraising. I was quoted in the UU World web version on that. The president is the chief fundraiser of the association, and he knows. He should not have been surprised. The exact words he used with the board when reporting this was, I was surprised and I should not have been.
So when we get back to roles and accountabilities, remember, I talked about that as one of those important lessons. The board and the president know their roles and accountabilities. He has accepted responsibility. The board itself accepted its particular part of the responsibility. And there are processes in place to—I can't say, make sure it never happens again, because this is a human organization—but to reduce the likelihood that something like that will happen again.
So mistakes and surprises happen. If you want to be part of a perfect organization, keep looking. Keep looking. They will happen. I have over 40 years of experience as a senior executive of large not for profits, a trustee of large not for profits. I have seen lots of problems.
This isn't a big one in relationship to all those others. It's important. We can't ignore it. We can't steal it as trivial. We have to take a very, very seriously. But do not read more into it than it is.
And the board and administration are committed to establishing good practice. And I picked the word practice intentionally, because often people think, oh, now we have to create 20 new policies to make sure something will not happen again. This was not a problem of policy. This was a problem of practice, of people making decisions that in retrospect were not as wise as they needed to have been.
So revenue needs to be predicted conservatively. We need an operating budget that does not rely on large gifts to support it. And we need to address the systemic issues of the actual reporting processes for why this was a surprise. The board and the administration are committed to doing that.
So while you need to be aware of it, alert to it, you do not need to fix it. And I say this because I know you. I love you. I said the same thing to the board. In protecting their own role, they have to be careful that they don't get inside management and try to fix it. Because management can fix it, and that's the right place for it to be fixed.
So now I'm going to talk about growth. If you look at the numbers of adult members—and I know these numbers, the adult membership and religious education enrollment numbers are not great numbers. And I mean that in the sense of the quality of those numbers. They're just the best we have. We just have to be aware of the flaws in those numbers, and particularly aware that sometimes a congregation's numbers go up and sometimes a congregation's numbers go down. But in general, over time, these are an indicator.
So I don't look at one year's blip. I look at trends. And when you see trends, you start to say, we have to pay attention to this and see if there are some issue here. So if you look at our adult membership, it has declined slightly each year, not by large amounts, but it has declined slightly for five years.
More significantly, I think, RE enrollments have been declining a bit more than slightly for seven years. But the total numbers are deceptive, because they hide large swaths of growth within our association. You have to look beneath the numbers, behind the curtain, to see the full story. And I'm going to talk briefly about that.
This is a historical artifact that I love. Ladies and gentlemen, this is the first effort the UUA made in 1997 at performance metrics, at measuring how we're doing. This graph shows our adult membership and RE enrollments since the consolidation in 1961.
Now, like the quality of all data, you only look at some of the trends and make interpretations out of it. You'll see high numbers in the '60s. The numbers were higher in the '60s than they are now, but the '60s were before fair share, and the minister just filled out a number and sent it in to 25 Beacon Street.
So it was higher. There's no doubt about that. But how much higher, we really don't know. There was no fair share, so there was no consequence to what the number was. But they were higher. And then in 1969 and '70, they started to decline. That's probably a real decline you see there. From too high a perch—that perch that is too high—probably it would be significantly below that, but high.
And then miraculously, and for reasons no one understands, although everyone can pick their favorite issue and say that's why, in 1982 the decline stopped. And until five years ago, basically we were growing a half a percent or a percent a year, slow, gradual growing at the same time that liberal Protestant denominations continued to plummet in their membership.
So we were doing well—nowhere near as well as we should be doing, could be doing—but we've been doing pretty well in light of how those others are doing. It's not good news, because we should be doing so much better. This graph, which you can read in my report, shows that three regions of the country are growing and the others are not. So this is an example—there are other examples in the report—of how there is growth and there is not growth spread around the country.
And this is a demonstration that about half—if you look at that little red arrow, that's pointing to about half of the congregations that are growing. I think we all want to be in that quadrant.
So with respect to growth, we need both urgency and hope. We are seeing growth in close to half of our congregations in three of the five regions. When we talk about growth, we need to use the word congregation as often as we can. Fundamentally, our growth will come from the transformation and sustaining of our congregations.
We need to address the decline in RE enrollments. That decline actually began—there have been some bumps, but it began over 10 years ago. That's got to be a bad sign. And we need to be blunt about the facts of decline and nuanced about the facts of growth.
So lastly, I want to talk about generosity. Let's hear it for generosity.
I didn't invent this phrase, but to me, all religion is summed up—the purpose of all religion or the message of all religion is summed up in that phrase, you are not alone. And too many of us, too many of our congregations, like to behave as if we are. We are indeed interconnected. And part of that interconnected is a spiritual practice of generosity to one another.
So I hope, actually, that we will give—congregations give to the UUA, congregations give to local community groups, individuals give to the UUA and to their congregations—as I said earlier, not because of what those groups are doing—not fundamentally that way. You don't want to give to bad causes. But not because of what those groups are doing, but because of what that does to you and me.
I give as a spiritual practice and judge only slightly how that money is used. I do that for me. I don't give because I'm giving until it hurts. I'm giving it until I just burst with joy. Then I've given enough.
So I want to close with a very famous quote from this lady here. I promised Jim at least a little bit of history. During our history, people of color and women struggled hard and mightily to provide religious leadership to our congregations. It was not easy.
If you read the story of this lady, she did not have an easy time. But she made possible the ministries so many of the—she and people like her. She did obviously not do it all herself. But of those who struggled—the Ethelred Browns, the Joseph Jordans, the Olympia Browns, all of those people—they made possible the diverse ministry we are beginning to see now. They made possible the ministry of my wife, my daughter-in-law, my daughter, all that possible because of the struggles that she and people like her went through.
So I just love this quote with which I will end. This is in 1926 at the end of a very difficult career. "Dear Friends, stand by this faith. Work for it and sacrifice for it. There is nothing in all the world so important to you as to be loyal to this faith which has placed before you the loftiest ideals, which has comforted you in sorrow, strengthened you in the noble duty, and made the world beautiful for you."
Thank you very much for the opportunity to serve.
Larry never disappoints on the history. Thank you, Larry.