On Monday, April 17, 2023, Lisa Marsilio (our CEO) announced that Kendal-Crosslands Communities (KCC, which owns Kendal at Longwood, Crosslands, Cartmel, and Coniston) would be withdrawing from the Kendal Corporation, for financial reasons.

Kendal Corporation (KCorp) serves a group of federated retirement communities that make up the “Kendal network.” Each is financially autonomous but receives services of various kinds from KCorp in exchange for a fee. Some affiliates, especially the smaller ones, use more of these services than others; KCC (we are told) uses relatively few. KCC came to the decision that it could do better financially by obtaining equivalent services from other sources (or perhaps do more ourselves).

In two public meetings (at Kendal and at Crosslands), Lisa explained that KCC had been negotiating for over four years for a better deal on the affiliation fee. (You can watch videos of the two events here and here.) The affiliation fee is based on a percentage of the affiliate’s total budget, which may not be proportional to the services the affiliate gets. KCC is by far the largest of the affiliates, and therefore it has the biggest budget and pays the highest fees. KCC wanted to switch to a fee-for-service arrangement, under which it could choose which services it wanted and pay only for those, but that apparently was not possible.

What is gained by leaving the Kendal Corporation? Lisa, and our CFO Ed Plasha, made it clear that the key benefit of leaving KCorp would be not having to pay the affiliation fee, which amounts to about $1.5 million/year. Ed believes we will be able to obtain, from other sources, services equivalent to those we now get from KCorp for about $500,000, for a net annual savings of about $1 million. That is the primary benefit.

Although $1 million is a lot of money, it does not represent a big part of KCC’s budget. By my rough calculation, for example, if this $1million were applied to resident fees, it would mean that our fees each year would be about 2.5% less than if we had continued with KCorp.  (Of course, no one has said the $1 million would be used to offset fee increases. It could be used in many other ways.)

One other benefit was mentioned: if we leave KCorp, we don’t have to reach agreements with the other affiliates on KCorp services. For example, for several years, KCC has been in discussion with other affiliates about the possibility of an electronic medical records (EMR) system that could be obtained through KCorp and that would be used by all the affiliates. But there has been no consensus on that topic. Now, KCC can go ahead with its own plans for an EMR system.

What is lost by leaving? The first thing that would be lost is, of course, the services that KCorp provides to KCC. In the Kendal event, Lisa said that she has been asking KCorp for a complete list its services, but hasn’t been provided with one. But here are some that were mentioned:

  • Software licenses. It is clear that a major area is information technology. Much of the software we use to run our operations is obtained through KCorp, and KCorp also provides support for some of the software. If you haven’t been involved in the details of running a large organization like KCC, it may be startling to know that our operations depend on more than three dozen major software packages, of which about half are obtained through KCorp. These include software we use for financial reporting, training, medical records, marketing, staff office software, employee timecards, managing our phone system, keeping our internal network secure, and more. (You can find a fairly complete list of our IT software in a previous blog post). In the Q&A following the presentation at Crosslands, Ed mentioned that an additional staff person for IT may be required as a result of leaving KCorp.
  • Loss of expertise and connections. In addition to IT, Ed noted that KCC will have to replace services that KCorp provides in sourcing insurance and helping with HR. KCorp also provides experts in each of the major departmental areas such as IT, Facilities, Finances, Culinary, HR, and Marketing, and these people hold regular meetings, often monthly, with the department heads from all the affiliates. The meetings are used to discuss issues and share solutions to problems. According to Ed, “They’re very good people and they do a nice job.” But we can get the equivalent services elsewhere and save money. [If you visit the KCorp website, www.kendal.org, you will see that the majority of KCorp employees are those providing affiliate services in three areas: IT, marketing, and HR. These are all services KCC uses to some extent.]
  • Marketing issues. Although Lisa was emphatic in stating that there would not be issues in marketing Kendal as a result of leaving KCorp, it seems likely that there will be some. How will prospective residents know that Kendal at Ithaca or Kendal at Hanover (to take two examples) are affiliates of Kendal Corporation, while Kendal at Longwood is not? This will be an ongoing point of confusion for those just learning about “Kendal.” If you Google “Kendal,” the first link to appear is KCorp’s page (www.kendal.org), where links to all the affiliates can be found. Once Kendal at Longwood and Crosslands are dropped from the KCorp website, it will be significantly harder for people to find us that way.
  • Financial problems for KCorp and the affiliates. The loss of $1.5 million in annual fees will make a serious dent in the KCorp budget. It will most likely require KCorp to make some combination of cuts in the services it offers, increases in the fees it charges affiliates, or reductions in administrative staffing. That is likely to increase financial pressures on the other affiliates. Some residents here may say “that’s not our problem,” and if withdrawing is viewed as purely a business decision, they may be right. But this decision affects more than just finances.

The broader implications. The Kendal network has been built over 50 years and has developed a unique reputation in the retirement industry. The KCorp structure has allowed the affiliates to make their own decisions in almost every area except one: affiliates have to agree to the principles laid out in our “Values and Practices” document. This is our mutual connection back to the Quaker values that the founders brought to Kendal.

In response to a question at the Crosslands presentation, Lisa and Ed introduced the idea that KCC residents could come up with their own Values and Practices document. This may or may not be a good idea, but it certainly reflects that this moment represents a break with Kendal’s history. We’re headed down a different path. Kendal at Longwood was the original Kendal campus, and (together with Crosslands) it was run as Kendal Corporation for a time, before KCC and KCorp were separated.

To what extent should our withdrawal from KCorp concern us? As one Crosslands questioner put it, it sounds like our only consideration is “what’s in it for me?” That does seem to be the primary factor involved. We get a savings on our expenses, and we don’t really worry about the implications for other Kendals and their residents. From that point of view, it’s just business.

It’s sad. David Grove, a Crosslands resident, summed up the situation in his comments near the end of the Crosslands event. Not only did David work for years as a colleague of Alan Hunt, the key person in putting together the plans for Kendal back in the 1970s, David has also served on the KCC board for the last three years and knows the details of how this decision was reached.

David said, in part: “At various points, I’ve wondered, if Alan were alive today, how would he think about this. But that’s an impossible question because he won’t have known the circumstances that have arisen.… [He] would be pleased that the Kendal mission got spread and that there are 13 affiliates. I don’t know where along the way he would have changed his mind (if ever), whether he would have continued to labor to find a way, through reflection, to see if he could hold the original Kendal within the system. I just know that I’ve been on the Board now three years, and I feel confident that if we had bargained to the end of time (in a Quakerly fashion) we would not have changed the fee model, because the life of Kendal Corporation is dependent upon how it is. And if they charged us or affiliates on a per-transaction basis, they just could not exist if they did that…. And so I feel very sad, because I know Alan Hunt would be sad today. But I am resigned that we have made the proper decision.”

Like David, I am sad. Something important has been lost. I would have said it was impossible to put a value on our Kendal legacy, but now we have actually done so: we have let a large chunk of it go for the equivalent of 2.5% per year in resident fees.  

Update 4-25-23:

The following clarifications resulted from discussions of this blog post with Ed Plasha, our CFO.

First, Ed pointed out that $1 million is equivalent to about 2.5% of resident fees, not 1.5% as I had reported. I have changed that figure in the blog post.

Ed provided me with the following statement, endorsed by him and by Lisa, our CEO:

“The Board of Directors and Administration tried to work on a long-term solution to the payment structure with The Kendal Corporation and the other affiliates. We focused on the amount of services we receive/need relative to the fees that are charged to residents for the affiliation fee. And we tried to determine how system growth and new fees would benefit existing communities. We were not confident that a long-term solution to reduce affiliation fees was going to happen. We were not able to reach consensus on this issue, as well as several other issues. And in trying to be good stewards of our resources, we decided to make the decision to disaffiliate.”

Ed emphasized that KCorp had multiple opportunities, over several years, to offer a fee plan that would be more responsive to the needs of KCC, but declined to do so. Although they were willing to tinker with the percentages paid by the larger affiliates, based on a progressive sliding scale, they would not consider a plan based on the services received by the affiliate, which is what KCC wanted. Ed feels that an organization (such as KCorp) that is intended to serve its membership must be more flexible in responding to what the members actually want.  He said that KCC could live with the current fee arrangement for the short term, but it was not satisfactory for the longer term.

Ed told me that this decision was not simply a business matter of balancing what we were getting for the fees we pay. Rather, a variety of values were taken into consideration. He mentioned that some affiliates think of KCorp as a “parent” organization, which KCC does not.

It’s likely that we won’t ever know the full story behind KCC’s decision to leave KCorp. Certainly, both parties will try to stay on good terms with each other at this point, given the negotiations that will presumably be happening behind closed doors over the next few months. There will be updates in this blog as matters evolve.

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