Response to 2008 President's Report
I wanted to respond to some of the points made in Gene Hensley’s “President’s Report” at the 2008 Annual Meeting. I suppose you could consider this the rebuttal to the State of the Union address. The text in bolded blue is direct quotes from Gene's address.
PART ONE - HISTORY
"The beautiful thing about an opinion is everybody gets to have one”. This was not actually in the President’s Report, but in Gene’s opening comments. He says it every year. The problem with this is that yes, everyone gets to have an opinion, but not everyone gets to share their opinions. Many owners are not allowed access to all of the information in order to form their own opinions. I tried very hard this summer to get an opportunity to share MY message with owners, just as the Developer/Manager is able to do. I asked for the opportunity to publish a letter in Destinations, to include something in materials already being mailed to owners, and to send an email. All were refused. Incidentally, Dave Herrick has made use of each of these forms of communication. So … yes, everyone gets to have an opinion. But our current Board is doing everything it possibly can to ensure that those opinions are based solely upon information the Board/Developer wants us to see.
“I recently had lunch with Bill Peare. Bill Peare is our founder … and I told him (fingers crossed) that I open every meeting by telling his duck joke. And -- don’t tell him. Those of you that know the joke, tell the people that don’t, and we’ll just keep it our secret. Ok?” Yes, I do recognize that this was just a bit of humor to set the tone. But what does it really say? If people have been questioning the honesty and integrity of our leadership, is it really a good idea to open by saying that you’ve lied to the man who started our Club, and asking us to participate in that lie? I’m thinking this was NOT the best way for Gene to “set the tone” for his speech.
“Up until 1998 [when the company went public], we were an entrepreneurial company, and all we had to do was sit down and ask each other if it was a good idea and then go forward.” What Gene doesn’t address is, a good idea for whom? For Trendwest (now Wyndham?) For the owners? Back in the early days that Gene talks about, it probably was true that what is good for one was good for the other. Trendwest and WorldMark were created together, to operate together and depend on each other. The problem is that that since the Cendant/Wyndham purchase, there have been many instances in which what is a good idea for Wyndham’s bottom line is most assuredly NOT a good idea for WorldMark owners. In these cases, who is standing up for the owners against the wishes of Wyndham? Is anyone?
“One of the greatest things that has happened to me in the last year is that the resort staff doesn’t recognize me any more.For many years, I would go into a resort and everybody knew who I was because I was part of all the collateral material and there was usually an article in Destinations or what have you.But now I can actually go to a resort and I can visit as an owner, and I can have an owner experience instead of a Gene Hensley experience.” Yet the management employees on our Board insist that they are owners just like any other owner. Yes, they are owners. No, they are NOT “just like any other owner”. The fact that Gene’s experience at resorts in the last year is different than it was in the past proves that. Do the Senior Vice President, the VP of Owner Services, and the retired COO really know what it is like to go to check in at 4 pm and be told that your unit is not ready, then be stuck waiting in the lobby for an hour and a half? That happened to my sister at Wolf Creek this summer. Do they really know what it is like to go online at 5:55 am 13 months out to grab that once-in-a-lifetime reservation, then discover that their “book-it” button is missing because the system thinks they owe $12.73 in TOT from a reservation 18 months earlier? Do they know what it is like to try to use the “Owner” computer at a resort to check on a fantasy football league, only to discover that Net Nanny thinks that is an inappropriate website and won’t let them on? That was my husband’s experience at the Camlin last weekend. Have they been told that they have to stand in a second line at a resort to get a required parking pass, only to be harassed by an over-zealous sales staff trying to book “owner updates”? Have they attended one of those Owner Updates, only to be told that their existing credits are soon going to be worthless if they don’t pony up $10,000+ to upgrade to TravelShare? Yeah, tell me again how the members of our Board are “owners just like me.”
“The Developer Agreement with WorldMark defines the terms and the conditions of our relationship [between the Developer and the Club] which, by the way, can be changed by a vote.Managing WorldMark is not a right, it’s a privilege and the owners, you control that privilege.” HOW do we control that privilege? Through our voting power? This summer, an owner that I know presented some proposals to the Board and asked the Board to put them before the membership for a vote. Among them were a limitation on Developer/Manager presence on our Board of Directors and an alternative to the Board Expansion proposal that ended up on our ballot. (You can read more about his proposals here.) The Board refused to let the members consider these proposals, even after being presented with owner signatures representing millions of credits in support. (For the record, the Board cites as its reason for refusal a clause of our Governing Documents that requires 5% owner approval to call a special meeting. There is no such requirement for adding proposals to the agenda of an existing meeting.) To my surprise, when talking with other owners at the Annual Meeting, I was told by two owners in addition to the owner I knew about that they had made similar requests for proposals to be put before the ownership, and were refused. If we are not allowed to consider such proposals, how can they continue to claim that we owners control our Club?
“[When Cendant purchased Trendwest in 2002] one of the things that the executive group at Cendant promised is that they wouldn’t touch the Club’s management, nor would they change any of the standing operating procedures as they consolidated Trendwest.They kept their promise.” Really? They did? As I recall, Dues Processing, Loan Servicing, Transfers, and Collections were all moved to Las Vegas. Resort Development was moved to Orlando. Our Call Center in Redmond now serves both WorldMark and WVO (formerly Fairfield). This weekend I visited with a lady who had been an employee in the Inventory Control section of the Owner Services department – she said she was “one of the redundant employees laid off a year and a half ago”. I have a feeling that she and the other employees whose jobs were moved out of state would not feel that Cendant (now Wyndham) had kept its word. What about “standing operating procedures”? We all know IRIS. Don’t we all just love IRIS? I heard from an extremely reliable and high-ranking source what IRIS was all about. IRIS was the new system that was supposed to integrate seamlessly with all other Cendant systems in order to “take advantage of the relationship between all the different branches of Cendant Corp” (I am paraphrasing from memory, but I am close). This source specifically stated that the purpose behind IRIS was for Cendant to have easy access to coordinate the customer databases in all of its businesses. In other words, we were “blessed” with years of “Iris the Virus” so that Cendant could exploit our information for marketing purposes. Is THAT maintaining “standing operating procedures”? Back to Gene’s remarks … “They kept their promise. And part of that is the people that you are going to see tonight that are going to give you these various reports have been with us some of them since Day One. Peggy Fry who is now going on 18 years, Dave Herrick who has been here for 8 years, Dave Akins … you’ve got one of the most senior groups in the industry.” Ah, I get it. They kept their promise – the top executives kept their jobs.
“WorldMark, we’re a homeowners’ association. Now the association doesn’t develop, market, or sell resorts. That is the role of the Developer. Your board oversees the management company that runs the day-to-day operations of the Club. Our HOA, for all intent and purposes, is a sold out Association until the Developer transfers property into the Club. Then they have the exclusive right to sell and market the corresponding credits that are generated by that property when it is transferred into WorldMark.” He goes on to explain that we are a Non-Profit Mutual Beneficiary Corporation registered in the state of California, and to relate it to a New York co-op. So … if we are a Homeowners’ Association, and a California Mutual Beneficiary Corporation, that means that we are covered by the California Davis-Stirling Act that establishes specific protections for HOA’s against their developer and manager, right? Wrong. The Vacation Ownership and Timeshare Act of 2004 specifically excludes timeshares and vacation clubs from Davis-Stirling. The ARDA (American Resort Developers Association, a developer lobbyist group) website proudly proclaims the passage of this act as one of their “impressive and impacting legislative accomplishments” ( ARDA First Word, January 2006; second paragraph, second sentence.) Yep, that’s the same ARDA that Gene mentioned later in his speech, when he congratulated WorldMark’s owners for having given them $25,000 last year.
PART TWO -RESORT DEVELOPMENT AND ANALYSIS
“They [the Developer] build the resorts according the standards and the consistencies of WorldMark.” I bought into a Club where a “two-bedroom, sleeps six” unit had enough room for six people to sit at the table to eat dinner. I bought into a Club where the living rooms were large enough to use the Murphy bed without having to move the coffee table and chair into the entry way or kitchen. I bought into a Club where I could lie in bed and NOT hear every word of the conversation of the occupants in the next unit. I bought into a Club where I could shut the front door to my unit and expect the airflow from outside to stop. I bought into a Club that provided barbeque grills on each balcony. I bought into a Club where each unit HAD a balcony. After staying at Indio and Estes Park, and hearing other owners’ reports of San Diego – Downtown, San Diego – Mission Valley, and Las Vegas – Tropicana, I can only wonder which “standards and consistencies of WorldMark” the Developer is claiming to maintain.
“It’s to the Developer’s advantage to address the Owners’ needs and their desires because you control nearly half of their income. Over 40% of the revenues that are recognized by Wyndham – they come from you, either through your purchase of credits or your referrals to family and friends.” WorldMark is not seen as an association of homeowners, to be represented and protected – we are seen as a captive income source for Wyndham.
“Based on demand, based on seasons, the size of the unit, and more important today, based on the cost of that property they assign the credit values.” I am not going to take the time to go into the issue of Relative Use Value once again, but you can read about it here. For now I will just say that the governing documents state that credit values are to be based upon the new resort’s value to owners relative to existing resorts within the system. There is simply no provision for cost to be any part of the process of credit allocation.
“Once those credit values are assigned to a resort, they can never be changed. Every resort that’s out there, that’s in the system that you own, those credits are static. Nobody can ever change them, nobody can adjust them, touch them under any conditions whatsoever.” This is not accurate. In the February 27, 1996 Board meeting, the Board approved reducing the credit values of units at Lake Chelan Shores, The Beachcomber, and Discovery Bay “to make them consistent with Club units at other resorts. Owners have also requested these reductions.” (2/27/96 Meeting Minutes, page nine.) In the June 5, 1996 meeting, they again approved reducing the credit value of an additional unit at Discovery Bay. (6/5/96 Meeting Minutes, page 6.) Gene attended both of these meetings as Executive Director of the Club. Credit values cannot be INCREASED once established, but they can be DECREASED!
“When they transfer the resorts into WorldMark, they transfer ownership without debt or encumbrances.” It has been clearly documented that when the Indio resort was being proposed, our Developer offered to the city of Indio the idea of a Transient Occupancy Tax, or TOT. TOT’s are commonly paid by hotel guests. The land being proposed for the Indio resort had originally been proposed for a hotel, which would have generated TOT income for the city. Our Developer volunteered that our resort be subject to the tax, so that Indio would still get that extra income. Not only that, but they also negotiated a kick-back deal. For the first ten years of the resort’s existence, 40% of all TOT collected by the city is returned to the Developer to off-set permit and development fees. In essence, we owners are being saddled forever with a tax to subsidize the development costs and grease the political wheels to get our resort approved.
“Every attempt is made, and there are people who don’t accept this, but every attempt is made to keep those credit values in line. They want to keep them as competitive and as consistent with the model as they possibly can.” The claim is that they have to raise the credit allocations at the properties because they cannot sell the credits themselves for any higher price than they already are. In the real world, if you can’t sell a product for more than it costs to make it (plus a nice margin), you stop making the product. In our world, the Developer leverages their new credit sales against the equity of the existing owners. Again, this goes back to the Relative Use Value Discussion. “In all candor, Anaheim is not a property that Trendwest could ever have built. Our pockets were simply not that deep.” That is because Trendwest recognized that the depth of their pockets was their limit. They did not reach into the pockets of existing owners, as Cendant/Wyndham has done.
“Along with the right to use, you have the right to vote, you have the right to transfer ownership by selling, or you can transfer by gift or inheritance, and you have unlimited transfers. You all know that, right? Unlimited transfers. So if you’re not using it one year and you want to transfer it to a family member, give it to them to use, they can transfer it back to you, you can pass it along through the family, it’s strictly at your own discretion.” He makes it sound like it’s a simple as handing your brother the keys to your car and saying “here, you drive it for a while.” Clearly he has never tried to deal with his own Transfers department. Transferring a WorldMark ownership from one person to another costs $150 and can take six to eight weeks and sometimes much longer.
“The measure of a new resort is in the occupancy. So if you look at these higher-end resorts that were added, starting with Las Vegas back in 2002 which was the very first one where we broke from the 10,000 credits, it was 11,000, you will see that they have reached peak capacity in most situations in the very first season. Now, if these resorts were being added and they weren’t being utilized, we’d have ourselves a problem.” Interesting that he chose Las Vegas, which is a 10% increase, rather than downtown San Diego at an 87.5% increase, or even Anaheim at a 65% increase or Tropicana at a 50% increase. Now, about occupancy. Yes, to hear that these resorts were fully occupied BY OWNERS USING OWNER CREDITS would be a great thing indeed. But our Board refuses to give us reports with sufficient detail to make that determination. In the Q&A session, someone (Dave Herrick or Dave Akins? I can’t remember right now) said that the occupancy report is “heads in beds”. It does not give any indication of HOW those beds were filled. In addition to owners reserving with their own credits, it could be owners using Bonus Time or Inventory Special (which still benefits the Club, but shows that the resort is not using up the credits it generates), or by TravelShare owners using Fun Time, which goes to the Developer, or non-owners being put up at the resorts by our Developer for sales purposes, Developer/Manager employees who are given the use of our resorts as a bonus or incentive, or even the general public renting our resorts like a hotel! I have asked our Board for reports showing me this level of data, and was first told that “it would only confuse the owners” (yes, really!) and then was told that no such reports exist. If sales tours and public rentals are part of the “peak capacity” that Wyndham is claiming, I cannot use their occupancy numbers as “the measure of a new resort”.
“WorldMark, we’re a non-profit mutual beneficiary cooperative whose total assets are collectively owned by all WorldMark owners.” WorldMark’s assets include the resorts and all of their furnishings and equipment. Where can we owners see a detail of these assets? The annual auditor’s report does not list any of this among WorldMark’s assets, because there was ostensibly no cost to WorldMark to acquire them. This is correct under general accounting practices. Yet clearly they do have a substantial value – why don’t we owners get to see what that value is? The Schedule of Units Owned shows only the acquisition costs of the resorts. Surely the value of the Valley Isle and Kapa’a Shore resorts has increased since they were “acquired” by Trendwest 18 and 17 years ago, respectively? But owners do not get any report showing the value of what they continually tell us that we “own”.
PART THREE - WHAT THE BOARD CAN AND CAN'T DO
"When you buy WM, regardless of if you bought it from Wyndham, or you bought it from RedSeason, or secondary market, your uncle’s done using it, whoever, what you purchase is based on what exists. Future resorts are never guaranteed, and the future, like I said, it’s given not sold." In my “WorldMark, the Club Retail Installment Contract Vacation Owner Agreement”, Section B, paragraph 4, it states “Owner shall have access to all existing and future Resorts and Units owned or operated by or associated with Club, wherever located, which have been registered with the applicable agencies where the properties are located.” True, there is no guarantee that new resorts will be added. But wherever new resorts are added, we are guaranteed access to them!
"This leads me to the Club’s growth. Under any conditions, the growth of the Club has been stellar over the last several years." I am not an astrophysicist, but as I understand it, a star grows by burning hydrogen. Eventually, a star will use up all of its hydrogen and be left with just helium. Helium can’t support the pressure, so the star begins to collapse. Eventually, “stellar growth” (growth of a star) leads to a supernova which then collapses into a black hole. It is the Board’s responsibility to ensure that the growth of our Club is measured and reasonable.
"This takes us to the role of the WorldMark Board, which is first and foremost the fiduciary responsibility to the owners to protect the rights of ownership as dictated by the Club’s Guidelines, Bylaws, and the Declarants [Declaration]. Folks, those are just written in stone. It takes 25% of you to agree in order to change a Bylaw, and it takes over 50% of you to change a Declarant [Declaration]." If the Governing Documents are written in stone, perhaps someone needs to provide our Board with a Rosetta Stone to help read them. How else can one explain our Board’s refusal to acknowledge the ongoing abuses of the Relative Use Value clause and the limitation on the Developer’s use of our Resorts as spelled out in the Declaration, as well as their repeated refusal to give owners access to other owners for Club purposes as guaranteed in our Bylaws?
"The Board has the ability to adjust guidelines. We have done it with reservation windows. … The Board makes sure that the guidelines have no unintended consequences. There’s things that we can’t do. There are owners that have found ways to kind of manipulate things, and you know, they’re not breaking any rules, but there are owners out there that have used WorldMark for a commercial enterprise, it’s not unusual to see upwards of 700 weeks for rent on eBay and I wish there was a way that we could stop it because I’d like to see those weeks being used by owners instead of it becoming a business for somebody. WorldMark was not designed to be a commercial enterprise. It was designed to be a household membership, to give you the availability to enjoy a lifestyle. So we’re constantly looking at that and seeing how can we make first priority the owners and eliminate some of this. You have the right to rent, I mean that’s the bottom line, so nobody’s breaking any rules here, it’s just a little inconvenient if you’re trying to book something, it’s not available, and all of a sudden it pops up on the internet for rent." I have two comments on this section. First, the claim that “The Board makes sure that the guidelines have no unintended consequences.” In their first attempt to curtail this commercial misuse of the Club facilities, the Board proposed and passed a solution that would have limited each owner to renting a maximum of three times their annual credit allotment. So an owner with a 6000 credit account would not be allowed to rent more than 18,000 credits. An owner with 100,000 credits would be able to rent in an additional 300,000 credits. Which owner is the one renting out hundreds of weeks on eBay? Certainly not the 6000 credit owner. Limiting an owner with a huge account to renting in 3 times his annual allotment of credits would not do anything to curtail the rental abuse; it would simply make it more difficult for the smaller owner to rent in credits for that once-in-a-lifetime vacation in an Anaheim Presidential unit (at 30, 35, or 40 thousand credits per week, depending on size.) The second “fix” that the Board proposed and approved for the rental problem was limiting the length of a “grouped” reservation. The power renters were making grouped reservations of several weeks in order to get early access to prime reservations (ie book the entire month of December in order to get Christmas week at Whistler before it would otherwise be available). The solution that the Board proposed and approved was to limit grouped reservations to no more than seven nights. That would have significantly hurt the average owner. It is very popular for owners to take one week of vacation time from work and attach it to two weekends for a ten- or eleven-day trip. Often these trips include two or three days in each of several locations. The Board’s solution would have made that impossible. These are EXACTLY the kinds of “unintended consequences” that Gene claims that the Board avoids! Fortunately for the Club, a very involved and savvy owner stepped up and showed the Board the problems that their solutions would create, and offered alternatives. We are now NOT limited in the number of credits we can rent from other owners, and grouped reservations are locked at fourteen days, rather than seven.
The second issue that this section brings out is that of commercial rental of our resorts. Yes, we all agree that it feels unfair for “power renters” to be able to book up large blocks of prime reservations and rent them to the public, but as Gene points out, the right to rent is guaranteed by our Governing Documents. The thing that Gene failed to point out is that the number one renter of WorldMark accommodations is Wyndham! FunTime is Wyndham using its credits to book units at resorts then rent them to owners for cash. “Party Weekends” are Wyndham using its credits to book units at resorts and rent them to owners and their non-owner guests for cash. Wyndham also offers our units for rent to the general public on websites such as Expedia, ResortTime, and ExtraHolidays, as well as in local newspapers. The Board’s answer to this is that “the Developer is an owner like any other, and has the right to use its credits like any owner”. Yet our Governing Documents specifically say that the Declarant (Developer) is NOT to be considered a Member based on their unsold or re-acquired vacation credits! Is the Developer’s use of our resorts all being kept within the restrictions placed on it by our Governing Documents? We don’t know, because our Board refuses to produce reports showing under what programs and what time frames the Developer is booking our units.
"The Board works in tandem with the Developer. Both Dave Herrick, Peggy Fry, and myself until just recently were part of the acquisitions team. And you know I get asked a lot ‘can you block the transfer of a resort?’ Well if it posed a hardship on the Club, absolutely. But what kind of due diligence process would be in place if that were discovered after the resort had been developed? Wouldn’t be a very good one. So we work with the developer very very closely through the acquisition team to make sure that the location is appropriate for the network, that it meets the owners’ response, and that we’re going to get the utilization." It is unclear in this statement if the “until just recently” qualifier applies only to Gene, or if Dave and Peggy are also no longer part of the acquisition team. But either way, the fact that they have been part of the acquisition team underlines the conflict of interest that they keep claiming does not exist. Their job with the Developer is to create resorts that maximize profit to the Developer, regardless of the effect it has on the existing owners or the health of the Club. Once a project is turned over to WorldMark, it really doesn’t make any difference to the Developer whether the resort is used or not. It’s one more dot on their sales map. If Gene, Dave, and Peggy were actively serving as part of the acquisition team, then not only did they not fight the recent resorts brought on with higher costs, smaller units, and reduced amenities – they actively promoted them!
"Developer Benefits: You will be seeing a great variety of developer benefits coming in over the next year or two. Any activity where you have the ability to use your credits as a currency outside the WorldMark system of resorts is a developer benefit. It’s the developer who carries the liability to turn those credits for airfares, cruises, and other activities back into cash, and they want to expand that program. … Developer Benefits allow us to use our credits on selected travel instead of cash, and allows the credits to perform to a much higher standard is all." The Developer “carries the liability” of turning credits into cash? When you use credits for one of these developer options, the cash equivalent given to your credits is roughly 3.5 – 4 cents. Basically, the Developer is “renting” your credits from you for 3.5 cents, then turning around and “renting” them out to other owners – through FAX, Fun Time, Elite Rentals, etc. – for up to fifteen cents per credit! This “liability” looks to me like a pretty good profit center. The FAX program was originally a Club program, with those profits going to the Club. The Board minutes from June of 2004 indicate that “[Dave Herrick] explained that the FAX credit program with its attendant business risks is being transferred to Trendwest.” Its attendant business risks … AND BENEFITS.
"I want to speak briefly to the amendment that’s on the ballot this evening, then I’m going to introduce your candidates. We need 25% of the owners in order to vote this through, and we have 28% voting power, so it’s going to happen. Last year the Board we held back our proxies because what we wanted to do was see how you voted on it. Well only 12% of you voted on it, but of the 12% that voted, 75% were in favor of expanding the Board to 7 from 5, and 25% of you were opposed. So this year the Board we voted our proxies according to last year’s owner vote. 75% were allocated in favor of expanding the Board, 25% against it, so we heard your vote. The idea of expanding the board by the way was an owner suggestion, not the Board’s. But the Board agrees that we need to grow and diversify, diversify your Board. It’s also appropriate in response to the Club’s current size and the owner base. So vote and let’s expand and diversify our Board. It’s a good idea." This is an outright misrepresentation of the results of last year’s vote on this proposal. According to the letter sent to last year’s candidates following the election, 10.38% of owners voted on the proposal. That’s not too far from the claimed 12%. But according to that letter, of the 10.38% that voted, 15% voted against, 44% voted for, and 41% abstained! How they combine those numbers to claim 75% support of the proposal is beyond me.
"Briefly,
ARDA, American Resort Developer’s
Association. I talk about it every single
year because ARDA-ROC is the owners coalition group. The get out there
and they lobby for you. They are a non-profit group, but they hit it
so hard. One of the things that they are
taking on is TOT. We all feel that it’s a
completely unfair tax and they’ve been working really hard. It’s
true.
You know what? You donated over
$25,000 last year to the ARDA, so congratulations, you’re doing a
phenomenal
job by supporting them." As I pointed
out in the Part One of my response, ARDA is not exactly the best friend of
timeshare OWNERS. Developers, sure. Prospective owners, probably. Existing owners?
