An Open Letter to the ICC Chapter Leadership
Recently, many chapters of the International Code Council (ICC) have become concerned over the financial stability of the International Code Council. The Washington Association of Building Officials (WABO) has been asking many tough questions of the ICC and included a letter to the ICC in the previous weeks and there were many layoffs of ICC staff.
Many of us our supports and users of the ICC and have wondered if our economy has even struck a code organization. Has the organization taken the necessary steps to ensure its longevity in the code process? The following is a copy of a letter that was transmitted to ICC chapter presidents this week.
Dear Chapter Leadership:
Over the past few months, the ICC leadership has reported to you several times about the steps that we have taken to deal with the economic challenges that the Code Council – like businesses of every variety and in every sector of the economy – have been facing. Our goal in these communications has been, and remains, to keep our members informed in a straightforward and transparent manner.
There is a direct connection between the economic recession and the actions taken to ensure that the Code Council remains a viable organization. The precipitous decline in the Code Council’s revenues in the fourth quarter of last year was very much in line with recent government reports indicating that the U.S. Gross Domestic Product (GDP) decreased by an unexpected 6.2 percent in the last quarter, the worst decline in 26 years.
The Board and the Code Council staff, from executive management to every employee in our offices and in the field, have worked tirelessly and collaboratively to ensure that we fulfill our stated mission, remain viable during this difficult time and emerge from this recession stronger and better positioned to take full advantage of a recovering economy.
The Board’s Role. We want to emphasize at the outset that each Director on our Board takes their fiduciary responsibilities very seriously. To that end, we review and vote on every budget. This includes a thorough review of proposed expenditures and expected revenues. Further, this budget is revisited midway each year, and monitored monthly to check for variations on the expense and revenue side.
Annual Financial Audits and the CFO. In addition to the Board’s oversight, we employ an independent auditor to annually review our books in accordance with generally accepted auditing standards. We are not hesitant to follow up on issues raised by our auditors. Our by-laws actually refer to the Board’s Secretary/Treasurer as the Chief Financial Officer, while at the same time authorizing the Chief Executive Officer to oversee day-to-day activities that support the Chief Financial Officer function. There is nothing unusual regarding this practice. While ICC conducts a search for a new CFO, we have maintained an internal Comptroller on staff, and retained an outside firm, which has extensive experience supporting non-profit organizations, to provide financial services. Each step in our budget development includes Board participation, starting with the Board’s Budget Committee meetings each fall, and concluding with formal Board approval of a budget in December.
Compliance as a 501(c)(6). As a not-for-profit organization exempt from federal taxation under section 501(c)(6) of the Internal Revenue Code, we are subject to additional legal requirements regarding our finances and accounting. The IRS closely regulates nonprofits with respect to financial transactions that take place within the organization, prohibiting, among other things, excessive personal benefit and self-dealing. The IRS regulates disclosures regarding a nonprofit’s board, management, accountability, and governance policies.
Board and CEO Responsibilities. Our Board also acts in an advisory and policy-making capacity, along with exercising fiduciary duties. As you are aware, our bylaws and other rules dictate the role of the Board in making appointments, adopting Council Policy statements, and proposing by-laws changes. Our day-to-day operations are within the purview of the Chief Executive Officer. The CEO reports to the Board, and is responsible for overall management of the Code Council’s products and services along with staffing our various departments. As such, the CEO is the sole employee of the Board.
CEO Performance and Cash Reserves. Our current CEO, Rick Weiland, has managed the Code Council through several years of significant growth. During these years we were able to establish a substantial cash reserve for the first time in the Code Council’s history. The existence of this reserve, along with our cost-cutting measures, has enabled us to meet our current economic challenges without incurring debt. We have not had to borrow money to meet our expenses because of management foresight and good fiscal stewardship.
CEO Performance and Early Cost Cutting in 2008. In the spring of 2008, our budget reviews as presented by our CEO indicated that our growth was slowing down. At that early date, cost-cutting measures were implemented, including freezes on travel and new hires, postponement of IT and other major building upgrades, and downscaling portions of our annual conference. Our quarterly reviews through the end of the third quarter indicated our cost-cutting was working to reduce shortfalls caused by declining revenues. Throughout the first three quarters, we supported and encouraged the efforts of staff to reduce expenses so as to avoid deeper cuts such as layoffs and reduction of staff benefits. We look at such performance to determine the compensation and bonuses awarded to our CEO and use compensation data from comparable organizations to assist us in this process. During our annual review of the CEO at the Minneapolis conference we awarded a performance bonus for the previous 12 months. This bonus reflected his successful efforts to manage and grow the organization, to establish numerous new initiatives to raise the profile of our members and the Code Council, and the foresight he demonstrated in addressing the economic downturn through early cost-cutting measures. Further, a new contract was awarded based upon his value to the organization and a desire to create stability at the executive staff level.
Late 2008 Cost Cuts. Every sector of the U.S. economy started realizing losses in the last quarter of 2008. The construction industry and state and local governments – elements of our economy on which we are heavily reliant – were hit especially hard. Once the effects of this situation on our revenues became clear in early November, we acted quickly to approve budget reductions that unfortunately had to involve position eliminations and continued spending freezes. The first round of position eliminations occurred in mid-November of 2008.
As we headed into the fourth quarter, it became clear that our previous cost-cutting measures would not be able to withstand the impacts of the recession. Our revenue decreases were similar to those of other membership organizations, and recent economic data confirms that in fact, nearly every entity in every sector has been impacted by decreased consumer spending. Thus the ICC was not immune.
The most important fact remains that the cash reserves that we had built up over the past few years, coupled with prompt and decisive action to reduce our expenses early on in 2008, enabled us to cover our 2008 losses in the last quarter without incurring any debt.
2009 Budget Approach. As we prepared to adopt the 2009 budget, it was clear from all economic indicators that membership associations would be taking a big hit from the recession for the foreseeable future. Further, organizations and employers throughout the United States were reporting massive layoff plans and significant cutbacks in services. We approved a budget in December that was designed to protect our core functions of code development but we needed to take the additional step of making cuts in all program areas, as well as implementing another round of position eliminations and benefit reductions.
2009 Budget Development. As stated previously, each step in our budget development included Board participation, starting with the Board’s Budget Committee review and recommendations through the full Board’s final approval in December. Our familiarity with our budget, and our support of the CEO’s efforts to cut costs in all areas starting in early 2008, gave us a clear understanding of necessary next steps.
The good news so far in 2009 is that our revenues have been running well ahead of our budget projections for the first two months of the year. While the state of the economy obviously creates uncertainty about what lies ahead, this gives us additional confidence that we have a sound budget for 2009.
Staff Impacts. The two rounds of staff position eliminations resulted in a reduction of about 25 percent of our workforce, which translates to 91 positions. Except for critical vacancies, all other staff hires were frozen. Based on our financial status in December, no bonuses or salary increases were awarded. Our entire staff, including the CEO, has made substantial sacrifices to contribute to our financial stability. All staff, including the CEO, took a 10 percent pay cut. Senior staff, including the CEO, volunteered to have an additional 10 percent of their salaries deferred until the company demonstrates a sound financial performance. In addition, company-wide reductions were implemented impacting the employer match for 401(k) contributions and employee health insurance costs.
Training Impacts. Suspending the free classroom training and course material was a difficult but necessary decision. Changing the format of this chapter benefit has preserved a free training option through webinars, with the added benefit of providing the same high quality instruction to a larger audience including those who are unable to travel to group training. For chapters able to conduct group viewings of the webinars, this will maintain a revenue source. We know that chapters are also feeling the impacts of this recession on their budgets.
Ongoing Outreach. We welcome your questions and will continue to do our best to answer them in a timely and accurate manner. We are now in our third year of “fireside chats” bringing calls to the Board President and executive staff from around the world. We are hosting a Town Meeting in New Orleans at our Codes Forum on Sunday, March 22nd, which will be videotaped and posted on our website. We have appointed committees to seek input from members ranging from our Task Force on Hearings to the President’s Advisory Committee on Voting to the Membership Ad Hoc Committee on Services. We will continue to visit chapter meetings, host forums and seek to answer your calls, letters and emails. Please keep communicating with us, and we will do our best to respond and demonstrate our commitment to our mission.
Adolf Zubia, Board President
Ron Lynn, Board Vice President
James L. Brothers, Board Secretary/Treasurer
Steven I. Shapiro, Board Past President