DRI & Embarc (Club Intrawest) Research

How can a for-profit firm control a nonprofit organization?

One of my current research projects asks: How can a for-profit firm control a nonprofit organization? I look at this question through the case of Club Intrawest,  now known as Embarc Resorts, a nonprofit non-stock association that was created by Intrawest ULC, a for-profit firm (and now controlled by Diamond Resorts, another for-profit firm).  Here I post the analysis (work in progress) from the empirical research. With a colleague, I am in the process of writing the academic paper on the research. 

Comments or questions on the report? Email me at gwyneth.edwards@hec.ca

Click here to download the analysis

** The material below is also in the report. So download and go! **

Author’s note. Please do not cite this work, as it is currently work in progress for publication in an academic journal. If you wish to discuss the analysis, please contact me at my institutional email address, gwyneth.edwards@hec.ca. I am available to present this work to Canadian news agencies, law firms, Federal and Provincial government agencies, and any other organization investigating issues in the Canadian timeshare industry. I would like to thank the hundreds of Embarc members who graciously shared their ideas with me over the past four years. Your passion to get to the root of the issues inspired me to undertake this research.

Disclaimer. All views expressed in the analysis are my own and do not represent the opinions of any entity whatsoever with which I have been, am now, or will be affiliated.

Synopsis of the work. The analysis investigates the legal structure of Embarc Resorts, a nonprofit organization established to manage a set of properties held in trust, and its relationship with Diamond Resorts (DRI), who is the controlling developer, the manager and the controlling board participant of Embarc Resorts. The analysis demonstrates the discrepancies between what the original developer, Intrawest, sold to consumers and what they reported to shareholders, specifically as it relates to the ownership of the timeshare property itself. The analysis also explains how the nonprofit member association, presented as a stand-alone organization that acts as an agent for the members (the timeshare consumer), is actually controlled by the developer (DRI). This report significantly expands upon two key findings of the Canadian tax case.[1] First, the Club is not an agent of the members; rather, it is a stand-alone entity that provides a service to consumers who are required to renew their membership on an annual basis in order to use the Club’s services. Should a member not pay their annual service fee, they forfeit their points, so the ability to book room nights is not a right that is received when purchasing points (as the documents claim); rather it is a right that must be renewed annually with the payment of a service fee that is established by the Club itself, without member input. Second, the members do not have beneficial ownership of the properties in trust. It is not clear if the Club itself has beneficial ownership or even beneficial interest, aside from the fact that the trust indentures provide allowance for the Club to use the properties. Regardless, if the Club does have beneficial ownership, the ownership does not transfer to the members; it stops at the Club (as ruled in the tax case).

Using longitudinal case research methods, this current work demonstrates how a for-profit public firm controls a nonprofit organization, through the case of Diamond Resorts and its timeshare program, Embarc. The research demonstrates how the governance structure allows the for-profit firm to control the assets and revenue streams of the nonprofit organization, while passing on the costs and risk to the timeshare consumers. The research is one of the first to expose this non-standard governance structure, that is arguably illegal and most certainly unethical. The objective, from a research perspective, is to publish the findings of this analysis in an academic journal (process currently in progress).

[1] Club Intrawest and Her Majesty the Queen, Case 2012-3401(GST)G, Tax Court of Appeal Proceedings, pp. 162.