Canadian Members Take Note
Judy Gombita of IABC/Toronto recently brought up an interesting point. It may be advantageous for Canadian members to pay their membership in US dollars.
Here’s the issue. IABC, at the request of Canadian chapters, sets an exchange rate for the Canadian dollar once each year. It is established based on an average of the currency value for the previous twelve months plus a small cushion to cover administration and banking fees. Depending on where the Canadian dollar falls on any given day, Canadian members may save by paying in US dollars.
What has IABC done about it? Finance Director Lori Joseph, ABC, reports:
First, we will continue to analyze and adjust the dues tiering and exchange rate on a yearly basis. We have had feedback from several Canadian chapters that doing so more often than once a year puts a burden on them in terms of having to reprint recruiting materials and membership applications forms (and can cause unhappiness when we have to communicate to a new Canadian member that they have an old form/brochure and that the dues amount has actually changed).
Second, in order to make the option for paying in U.S. dollars clearer, we will immediately revise the dues invoice to read (and this copy will have an increased font size and will be bolded - the same size/bolding as the actual Canadian dues amount): “Payment is also welcome in U.S. dollars and may be advantageous due to exchange rate fluctuations. Please visit
www.iabc.com/members/joining/pdf/dueschart.pdf for the rate in your location.” We will also be creating a cover letter for all invoices including similar information.Beginning in 2006, we will begin again including both dues amounts on the invoice (a rounding error this year, which had the potential to create confusion with members, is what caused us to remove it - it will begin being inserted again when we recalibrate numbers for the 2006 dues year).
Lastly, as Finance Director, I am very comfortable that the exchange rate is calculated fairly. While we can’t anticipate some of the fluctuation changes (like we have seen this year), we do look at a historical data trail before making the decision. To ensure further transparency, we will begin asking for IABC Finance Committee involvement and approval for future dues exchange rate recommendations.
Thanks, Judy.
April 9th, 2005 at 6:28 pm
By putting a stake in the ground and “fixing” an exchange rate between two currencies, IABC is de facto entering into the world of currency speculation.
IABC is speculating on what the going forward exchange rate will be, based on the historical performance of two currencies. Never a smart idea. It is especially unwise (I can’t think of a solvent organization that does this) in the case of Canadian/US dollar exchanges. The $CDN and $USD exchange rate is historically very volatile. Fluctuations of 10 to 20 per cent per year are not historically uncommon. In the past two years they have been the norm.
To try and reduce its risk, IABC has introduced the most unsophisticated hedging strategy. It is hoping to transfer its risk to its members by including a large “cushion” (as it describes it) just in case IABC guesses wrong about what the rates will be.
Fortunately for IABC, the US dollar has consistently underperformed its expectations, resulting in a windfall profit on foreign exchange. Unfortunately for IABC members, this windfall has fallen out of their pockets.
Here’s a what if: What if IABC had erred on the other side? What if IABC set its annual rate 20% too low, instead of 20% too high? How would it have covered the forex loss?
An association that is as financially insolvent as IABC has no business betting on currency speculation — especially when it has no expertise in this area.
The sound manager would give up this fool’s game of speculating on currency valuation and simply float the rates in $USD.
If selling to Canadians in $CDN is such a strategically important issue, then the strategically bright manager might set up IABC Canada as a $CDN profit centre and run its operations in $CDN, matching $CDN revenues with $CDN expenses, thus mitigating most of the risk. Internal transfers of capital would then be managed at the corporate level and IABC could introduce a more sophisticated Forex risk mitigation strategy. Frankly, though, that’s a level of sophistication that IABC, even with its heart in the right place, is not likely ready for.
Canadian IABC members should be incensed at the unnecessary and somewhat underhanded overcharging they have been subject to the past few years.
All IABC members hould be incensed that their association, in a period of financial difficulty, has allowed its managers to expose the association to unnecessary financial risks.
Unfortunately, it is difficult to tell exactly what the impact of this risk management policy has been, since IABC has chosen not to disclose in its published financial statements how much money it has gained or lost due to foreign exchange.
April 10th, 2005 at 9:36 am
Lori, thank you for demonstrating in physical deeds, not just words, that you would indeed work to get the message out to the Canadian membership that paying their dues in US funds is and always has been an option. And, for the record, in her board role as finance director Lori has been very good about thoroughly examining the concerns I raised, and reporting back to me on the decisions and outcomes.
Mark, I also had problems with the established currency exchange rate. But, quite frankly, neither could I understand the reason why making it available for Canadians to pay their membership dues in Canadian dollars was ever necessary (the only non-American country given that option). In corresponding with several of the people involved in that earlier decision (in particular the task force that looked at currency dues parity for non-US countries) , I do now believe that it was instituted with the best of intentions towards the Canadian membership. Whether it is an idea past its time is another thing.
One other thing that was communicated to me was that continuing to allow and promote the annual set Canadian dues fees is supported by a goodly number of elected leaders in Canadian chapters. So Mark, perhaps it’s towards them you should direct these questions.
April 10th, 2005 at 12:08 pm
I knew when I clicked to publish this post that it would generate discussion. Mission accomplished. As Mark points out, currency issues are never simple and this one has a long history, as Judy mentions. There has been much debate over the years as to how best to accommodate the request of Canadian members for the option of paying their membership in CDN dollars. Obviously, the mechanics are still debatable.
To me there are two overarching issues. First, Canadian members need to know they have the option of paying in CDN or US dollars. Second, they need complete information so they are able to make the best possible decision for their particular circumstances. With the changes being implemented immediately, going forward, they will have both.
I’m also sure the debate on the mechanics of the program will continue. As it should.
April 10th, 2005 at 11:58 pm
It seems to me that the realities of modern economics and currency exchange rates are such that there will always be issues with getting the value right when providing a facility to pay in multiple currencies.
Surely IABC is not in the currency hedging business? Or even an exchange rate operator? To my mind, why not keep things simple (= less costly to run) by quoting membershp dues just in USD?
I could be accused of “Well he’s bound to say that” as I live in a Eurozone country and paying anything in USD right now is extremely advantageous from a currency exchange point of view EUR/USD.
Yet I can’t think of any other US-based organization I belong to or buy services from that quotes its fees in anything other than USD.
April 11th, 2005 at 9:40 am
Mark -
You know me personally, so hopefully this explanation will be credible to you.
None of the scenarios you cite factored into the deliberation and implementation of IABC’s foreign exchange policy. The entire process began during terms on which I served on the Exec Bd, specifically at the request of members in Canada.
IABC has neither intentionally engaged in foreign exchange speculation nor hedging.
Quite simply, the exchange process was put into place at the request of Canadians back when the US dollar was rising, because Canadians were concerned that membership rates increased with each fluctuation. At the time, the policy addressed the need of Canadian chapters to have one annualized dues amount that was not subject to increases. Some also wished to distribute printed marketing materials that did not go out of date.
Additionally, members in smaller organizations had expressed a desire to pay in Canadian cheques (versus credit cards). The policy accomplished all these things, and was hailed as a success.
Now, years later, the pendulum has swung the other way. The Canadian dollar has been gaining on the US dollar. Thus, what was done to correct problems years ago, and to benefit members in Canada, has simply become outdated.
Your speculation about IABC’s motive is off base. Once the situation changed, Judy brought the problem to IABC’s attention, and IABC moved to fix it once more. I applaud all those leaders and staff involved in the correction.
It concerns me greatly that I see a lot of intelligent professionals engaging in speculation and downright cynicism. Give your association the benefit of the doubt. Volunteer leaders and staff work diligently to lead the association for the benefit of members.
If you see a problem, bring it to someone’s attention constructively. Criticism is not required. You’ll find that IABC is solution-oriented. After all, it’s in their best interest to keep members happy.
Best, cp
former Chair, 2000-01
April 11th, 2005 at 12:28 pm
Dear Mark,
I chaired the committee that adjusted dues around the world, and the committee that changed Canadian dues. I also had the task of suggesting dues worldwide in 2003 and 2004; these suggestions were adopted by IABC’s board.
Our intent was simple: a member living in _________ should find it as affordable to join IABC as a member in the USA. I know for a fact that you, Mark, pay less now than you did when our committee looked into the matter.
I keep careful notes when I am “on the job”. In the company of Charles Pizzo and others, at the June 2001 International Conference in New York, you and I discussed the idea of a Canadian-specific fee based on a yearly evaluation. At that time, you were all in favor of it.
Allan
April 12th, 2005 at 6:18 am
Mark -
How much has the exchange rate fluctuation cost you personally, in terms of your IABC membership renewals?
/cp
April 14th, 2005 at 11:52 am
Hi Charles: Good to hear from you!
I confess I am, always have been and, likely, always will be a cynic. It’s an enjoyable and largely economical hobby.
I cannot say, though, that I am speculating. In fact, I think I was quite careful to avoid speculation. I was not trying to assign motives to anyone, only state observable, verifiable facts and express my opinion. I confess in retrospect that I fell short of this goal with at least a pair of assumptions:
Fact: IABC is engaged in currency speculation and currency hedging. By establishing a fixed rate of exchange between two currencies, IABC is BY DEFINITION both speculating and hedging. There is nothing wrong with hedging — it’s what all businesses that cross borders should do. It’s only a bad idea when it’s done badly. As in this case it could be if the exchange rate moved sharply in the other direction.
Charles, I believe utterly in your integrity and truthfulness. If you say this was unintentional, I believe you. However, it concerns me even more to know that our well-paid staff may have allowed the association to “blunder” into a strategy that carries significant risk exposure and disadvantages a large segment of the membership.
The Assumption in two parts: I said “To try and reduce its risk, IABC has introduced the most unsophisticated hedging strategy. It is hoping to transfer its risk to its members by including a large ‘cushion’…”
To be honest, I don’t know if IABC was trying to reduce its risk. What you say, Charles leads me to believe it was not. Frankly, I was giving IABC the benefit of the doubt since it has adopted a hedging strategy that has resulted in FOREX gains. I hope this was intentional and not just an “accidental policy typo” or something.
I also assumed IABC was hoping to transfer its risk to another party. That may be erroneous. Again, I assumed IABC acted with due diligence — since that is exactly what a good business would do and it is clearly established in fact that IABC has transferred the risk. As you pointed out Charles, perhaps IABC did all this without knowing what it was doing. Frankly, I didn’t want to assume anything so scary.
You ask that I give the association the benefit of doubt. I think have given it benefit of buckets of doubt.
You also ask that “If you see a problem, bring it to someone’s attention constructively. Criticism is not required. You’ll find that IABC is solution-oriented. After all, it’s in their best interest to keep members happy.”
Would that it were so, Charles. I have raised this issue consistently over the past 24 months with elected and paid staff, including Ms. Freeman. Frankly, no one has thus far appeared to even understand the question. Certainly, no one was motivated to provide an informed answer. The best I got was “we fixed the rate to avoid speculating” — which, is a painful thing to hear since “fixing the rate” is the definition of “speculation!”
As to how much has the exchange rate fluctuation cost me personally with regard to IABC? Nothing. I’ve dropped my membership because I couldn’t get anyone to fix it. That’s not the only reason, of course, but it was the straw that finally broke the camel’s back.
Allan: Great to reconnect with you!
Strangely, I don’t recall you ever taking notes while we spoke — although we had some very good conversation over drinks and salty snacks in the lounge bar.
I have never been, nor ever said I was, in favour of a fixed exchange rate. Period. End of sentence. Your mental notes, this time, are in error.
Warren: Great blog. Well done. I am glad to see someone provoking stimulating discussion of issues that matter to the association. Hopefully association governance will be another topic you’ll tackle.
Best of luck with your term as chair, I hope you are able to execute some of the ideas you’re prompting and sharing with all.
Keep up the good work!
April 15th, 2005 at 10:27 am
Mark -
Interesting post. IABC is a membership association, not a financial institution. It does a certain amount of due diligence, yet can’t foresee every variable that might change and impact policy.
If only it had a crystal ball!
Typically, policies are based on leader recommendations, in response to requests from members. The Exec Bd acts on the best available information at the time.
When Judy Gombita surfaced the Canadian foreign exchange issue - that foreign exchange circumstances had changed - the implementation was reviewed and changed. That’s good governance.
Does it happen as quickly as we might like? IABC’s staff is required to bring items for review by the Exec Bd, who meet at scheduled intervals.
All of us can only know what we are doing up to a certain point. We analyze, we debate pro’s and con’s, we weigh the benefits versus the risks. Yet, as Judy said, “Whether it is an idea past its time is another thing.”
The risk with cynicism, IMHO, is that sometimes one assumes motives, blunders, incompetencies, or the inability to predict the future as some type of conspiracy theory. I’m not saying you did that, just making a broad statement. (Disclosure: I am an optimist.)
With Warren taking the helm, a Canadian, I have no fear about the future of this issue. It looks as if Lori and others are already moving to update policy.
Postscript to Neville’s point: when I was chair, 2000-2001, there was a widespread desire to pay in local currencies versus US dollars. Hence, the action taken by the Exec Bd.
Five years have passed, and the global economy has shifted. As in any organization, there’s an element of institutional memory (nobody can remember why we started doing things a certain way). A correction unwittingly becomes a problem. C’est la vie.
If there’s one truism is IABC, it’s that members and leaders continuously bring issues forward. And once they reach the tipping point, change ensues.
Mark, once this issue is resolved to your satisfaction, I hope you’ll return to the fold.
August 4th, 2005 at 7:34 pm
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