Before bonds can be issued, a company must demonstrate creditworthiness. This is where lenders come into play.
“The role that the bank plays is actually simple. We provide the credit enhancement. We also handhold the customers through the entire process,” says Rick Arcaro, vice president of middle market lending at Comerica Bank.
In order for Industrial Development Bonds to be viable, a lender must be in the mix to provide a letter of credit that guarantees the funds. The investors who purchase the bonds are not as interested in who’s using the proceeds as in the credit of the bank that is providing the underlying support. In addition, IDBs must also meet state and federal requirements to qualify for tax-exempt status.
Smart Business spoke with Arcaro about how Industrial Development Bonds can be utilized, how lenders help with creditworthiness, and how a company should proceed if they are interested in pursuing this type of financing option.
What types of businesses can use Industrial Development Bonds?
At its core, it is a low-interest financing option that is specifically for manufacturing and processing companies. In order for a company to really benefit from an Industrial Development Bond, the financing needs to be more than $3 million. It’s underwritten just like a loan would be; as such the company has to be profitable and a good credit risk.
How can the funds be used?
The Industrial Development Bonds generate proceeds that can be used for acquisition of owner occupied real estate, company expansion, or for the purchase of equipment or machinery. Typically, the funds are used for buying a building and purchasing new equipment for the building.
What are some of the benefits of Industrial Development Bonds over other types of financing options?
From a cash-flow perspective, you may see a savings of 15 percent to 40 percent over conventional financing with Industrial Development Bonds. From 1982 through 2003 bonds were issued at an overall average interest rate of 2.6 percent lower than the average prime rate for the same period. This form of financing will benefit a company with lower interest cost and ultimately lower monthly payments.
What role does the lender play in helping companies obtain Industrial Development Bonds?
Before a bond can be issued, the company must be creditworthy. The bank-provided letter of credit ensures that the bondholders will get their money. We’ve provided credit enhancements for many different companies within the manufacturing and processing industries. What we’ve found in the marketplace is that there are very few banks supporting Industrial Development Bonds because they are time consuming. There is a six-month average time frame from application submission to closing of the bond issue for land and building projects. Make no mistake, there is a fair amount of work that goes into these transactions. However, the savings will benefit most businesses for many years to come.
In addition to the lender, who else is involved with the process?
Most companies use a third-party advisor to quarterback the proceedings. The advisor assists in the handling of the application with the state and federal governments, while at the same time manages actual bond issuance processes. There’s also bond counsel, the bank’s attorney and the customer’s attorney. There are a lot of moving parts involved.
How should a company proceed if they are interested in applying for an Industrial Development Bond?
Typically at a minimum, banks request three fiscal year-end statements, and personal financial statements of the business owners. Also, a “sources and uses summary” to show what the financing will be used for. The summary would include cost of the building with a break out of land versus construction, new equipment purchases and other expenses that would impact the customer’s project. In addition the bank would require projections to show the future cash flow of the completed project. An evaluation is completed prior to starting the process with Industrial Development Bonds financing to make sure that it makes sense financially.
RICK ARCARO is vice president of middle market lending at Comerica Bank. Reach him at (213) 486-6239 or email@example.com.
“Coils have dramatically altered the landscape for treating aneurysms,” says Dr. Gary Duckwiler, professor of interventional neuroradiology at UCLA Medical Center. “In the United States, we now have about 50 percent of the aneurysms being treated by coiling, whereas this treatment didn’t even exist before 1990.”
Smart Business spoke with Duckwiler about the risk factors associated with brain aneurysms, how they are treated, and what some of the advantages of using GDC coils are.
What are some of the risk factors associated with brain aneurysms?
There are some hereditary associations with aneurysms, but for the vast majority there is no significant family history. If you do have a history in your family of two close relatives having an aneurysm, then we recommend screening for aneurysms, because you definitely have an increased risk. There is a possibility that the creation and rupture of an aneurysm may be associated with smoking and high blood pressure. If you can stop smoking and control blood pressure, it may reduce your risk.
When a brain aneurysm ruptures, what are some of the physical signs?
People typically describe the abrupt onset of a very severe headache. Typically, on a scale of 0 to 10, they describe it as a 15. It is often described as a thunderclap headache: fine one second and the next second it is blinding. Even if the headache is not as severe as that in other words, a minor hemorrhage people typically describe it as something that they’ve never felt before. Sometimes with a severe hemorrhage there may be an associated loss of consciousness.
What is the primary focus of treatment when an aneurysm occurs?
First, we need to stabilize the patient, so it’s a 911 call. Once the patient is stabilized from a medical standpoint, we address the treatment of the aneurysm. There is a very high likelihood that the aneurysm will rupture again shortly after the original rupture, so we consider it an emergency and treat the aneurysm as soon as possible using either surgery or the coil technique.
How have advances in coil technology changed the way that aneurysms are treated?
The first detachable coils for use in brain aneurysms were developed here at UCLA in the late ‘80s and early ‘90s by Dr. Guido Guglielmi. They are small, very thin, platinum coils, so they’re very soft and very dense on the X-rays. In many European countries, aneurysm coiling has replaced surgery with about 70 percent of the aneurysms being treated by coiling and only 30 percent by surgery.
What are some of the advantages of using GDC coils versus surgery?
The coil procedure itself is minimally invasive. We use a needle and do our treatment within the blood vessel system, so all that is left at the end of the procedure is a Band-Aid over the area of the entry, not too dissimilar from an intravenous line. The minimally-invasive nature of this procedure really shortens recovery time.
In addition, some aneurysms lie very deep within the brain and are very difficult to approach surgically. Because we’re navigating within the blood vessel system, we can access nearly any vessel that harbors an aneurysm. That being said, for many aneurysms, surgery is still the preferred method of treatment.
Here at UCLA, we’re lucky enough to have superb services both in neurosurgery and interventional, with the most appropriate option being offered to the patient.
In the future, what other innovations do you expect to see in the treatment of aneurysms?
Since the first detachable coils, many innovations have occurred, such as changes to the shape of the coil. When it’s placed into the catheter, it’s straight. As it comes out of the catheter, it takes its predefined shape. The different diameters and shapes of the coil are utilized to fill the aneurysm to the best degree.
Also, shunts and liquid agents can help in some of the larger, giant aneurysms that we now have difficulty treating.
Finally, we’re involved with research, looking at blood flow in the artery and aneurysm. An aneurysm develops because there is an underlying weakness in the wall and also because the blood flowing against that weak area causes the aneurysm to expand. We are doing research into altering that flow so that the impact on the wall of the aneurysm is diminished, and thus the risk of growth and rupture is reduced.
GARY DUCKWILER is a professor of interventional neuroradiology at UCLA Medical Center. For more information, reach the UCLA Medical Center at (310) 264-7113.
Randy Donsky, a financial and business planner with Sander A. Kessler & Associates Inc., believes that businesses can benefit greatly from having these safeguards in place.
“Key-person insurance is to indemnify and minimize interruptions to a company’s cash flow if a key person dies,” he says. “The buy-sell agreement is very important, because it establishes continuity and sets the value of a company with minimal distractions.”
Smart Business spoke with Donsky about the importance of having key-person insurance, who should be covered, and how buy-sell agreements should be valued and funded.
What is key-person insurance and how does it work?
It’s an insurance policy that is going to protect the business from the death of a key employee. The proceeds from a life insurance policy go into the company’s till, and they use that money to indemnify themselves against the loss of the sales or the revenue generated by that key person. The monies can also be used to provide the capital to fund a search for the replacement. This includes using a headhunting firm or putting an ad in the paper. It’s really a two-pronged purpose.
Why is it so important for a business to have key-person insurance in place?
If you have a key person who is the rainmaker for the revenues of the company, the loss of that person could have a severely detrimental affect on the cash flow. Let’s say that you have a person who is really good at bringing in business and another person who is good at operations. Without one, the other is not as strong. If you lose the rainmaker, the person inside won’t have a way to bring in new sales and vice versa.
How should a business determine who should be covered?
They should review how important a person’s function is. Without that person, how would it affect the company and how quickly could they replace that person? Would that person not being there have an adverse affect on the company’s ongoing success? If the answer is yes, then a policy would be warranted. Typically, these policies cover senior management, but it could be a senior sales person or technology person. The policy should cover up to ten times the salary of the key person.
What is the purpose of a buy-sell agreement?
A buy-sell agreement is a document between business owners or partners that obligates a buyer and seller and sets the price of the transaction that is going to occur. In other words, if you and I are in business together and something happens to me, it obligates you to buy my shares from my estate and it obligates my family to sell to you. It’s a very, very important document. It puts everything in writing, and it minimizes areas of disputes and distractions that come along with the loss of a partner.
How is value established with a buy-sell agreement?
A business can have an appraisal done by a third party, or through that third party it can identify a formula like a percent of sales or revenues or income. That formula is made part of the buy-sell agreement so it is an ongoing, moving target. Sometimes parties will agree on a price that is good for 12 months. Then they revisit the issue and establish a new price, which is good for another 12 months, so the process is ongoing.
How are buy-sell agreements funded?
Having just a buy-sell agreement without a funding source is not a good thing. You must have a funding vehicle, and that is typically done through a life insurance contract. An entity purchase is where the corporation would be the buyer of the policy and it would buy the shares from the deceased family’s estate and retire those shares. A cross-purchase is where both partners take policies on each other’s lives.
RANDY DONSKY is a financial and business planner with Sander A. Kessler & Associates Inc., a property and casualty insurance and employee benefits firm. Reach him at (310) 309-2233 or firstname.lastname@example.org.
The Export-Import Bank’s Working Capital Guarantee Program provides a number of financing options designed to meet the needs of U.S. exporters. The program guarantees 90 percent of the principal and interest on loans extended by commercial lenders, and the loan amount may be used for a variety of purposes related to exporting goods.
Pete Knudson, senior vice president at Comerica Bank one of the lenders that offers this program says that obtaining financing for exports can be a dicey proposition.
“Most banks and financial institutions do not typically accept foreign accounts receivable as collateral, nor do they accept export orders as evidence of orders for goods to be purchased and/or manufactured or services to be provided,” he explains. “This really makes the Working Capital Program beneficial, particularly for small to mid-sized companies.”
Smart Business spoke with Knudson about how a new Fast Track program can be beneficial for companies in need of rapid funding, eligibility requirements for the program, and why the U.S. government is aiming to level the playing field in the competitive world of exports.
What is the Fast Track program, and how can a business secure this type of funding?
The Fast Track program was introduced at the end of last year. We are one of only eight lenders in the United States six are commercial banks and the other two are finance companies that offer this service. It provides a quick and easy process for credit facilities in excess of $10 million and up to $25 million. The company must have a domestic credit facility with the financing institution of at least $5 million and a positive tangible net worth. If there is a personal ownership level of at least 20 percent, then that personal ownership must be supported by a personal guarantee.
Who is eligible for the program?
Eligibility is specifically for companies that are located in the U.S. It can be a foreign company, but the location must be in the U.S. It must have a one-year operating history, and must have a positive net worth. Financial statements are required. The U.S. government provides us with a 90 percent guarantee, so we need to examine the creditworthiness of the companies.
It depends on the size of the transaction and the size of the company as to whether the statements are prepared by the company or a CPA.
What are some common reasons for claim denials?
The most common reason for claim denials would be missing a claim filing deadline. Other reasons include changing material terms with the exporter without the Export-Import Bank’s approval, non-notification of any events of default, and no collateral security filings. Another critical one would be nonpayment of the Ex-Im fees.
Once the financing has been approved, what can the funds be used for?
The funds are used to purchase finished product for export. They can be used for payment of raw materials, equipment, supplies, labor and overhead used to produce goods and/or provide services for the export. They can cover standby letters of credit that serve as bid bonds, performance bonds or any type of payment guarantee. Also, they can be used to finance foreign receivables.
What are some advantages of the Export-Import Bank’s guarantee program over other types of credit programs?
Typically, it is done with a fee structure that gives it an advantage over private commercial insurance programs. Also, it is a guarantee which is quite a bit different than insurance. Insurance tends to provide support against named perils, whereas a guarantee from the U.S. government covers all events and not just named perils.
How important is this program for American exporters to be able to compete globally?
Much of the eligible collateral would not be acceptable to a lending institution. Therefore, having the U.S. government provide a 90 percent guarantee can either make or break the financing requirement for the individual exporting company.
Many foreign competitors are also provided support by their individual governments, whether they are in the U.K., France, Germany or Japan. These countries all have institutions that provide governmental support to their exporters.
This program is an attempt by the U.S. government to level the playing field and allow our companies to compete with companies that are located in other countries.
PETE KNUDSON is senior vice president at Comerica Bank. Reach him at (310) 297-2849 or email@example.com.
“People around the globe are more connected to each other than ever before,” explains Andre van Niekerk, dean of the School of Business at Woodbury University. “Information and money flow more quickly than ever. Goods and services produced in one part of the world are increasingly available in all parts of the world. International travel is more frequent. International communication is commonplace. This phenomenon is known as globalization.”
Smart Business spoke with van Niekerk about what to look for when getting schooling in globalization, what types of courses are most applicable and who should take advantage.
What must a business consider when choosing an institution that offers continuing education classes about globalization?
First, a school of business must have global partners. This not only provides credibility, but it indicates that there is a basic understanding of what globalization means. Often, businesses do not realize that going global means relentlessly working on the business and personal relationships. It takes months and years to develop and cement such partnerships. It is therefore important to be able to bring this experience and understanding to the continuing education arena.
Second, the faculty/instructors must have extensive global experience. It too, is a matter of credibility and being able to translate the finer nuances of culture to the educational program. At Woodbury University, for instance, we emphasize the theoretical side as well as the practical side of our faculty. Those who teach about international or global business perspectives have hands-on experience.
How much additional education might a business executive need if a company is going global?
It depends on the background that a specific executive brings to the table. If they have served on foreign assignments, or have worked on cross-cultural business issues singularly, or as a member of a team, they would have a cross-cultural maturity that would allow them to receive just enough information about the new assignment and location to be able to hit the ground running. If they are novices, they will need much more intensive training and cultural exposure.
However, as your question implies, if the company is going global, then it is necessary to include everyone in at least a very detailed fact-sharing session with all employees. The better everyone understands the mission of the company, in a global sense, the better everyone will be able to communicate and coordinate their activities towards a global perspective.
What types of courses are most applicable?
At a minimum, courses in the host country’s customs, foods and language. The do’s and don’t’s specific to that culture. An overview of the business climate and core industries of that country. The financial systems prevalent in the country. It is also good to know how to remain connected with your own culture while serving overseas. This provides stability and eases the re-entry into your own culture when you return. In summary, any courses that provide you the ability to transfer knowledge from your own familiar context to that of another country, or from them to you.
How far down the chain of command do executives need to be educated?
I would make the case that all employees need to know what the company’s global strategy is all about. However, everyone who will interact with the global project or general global outreach of the organization will not travel there; neither will all of them travel to you. It is very likely that only certain individuals will physically visit the other countries. However, there may be intense interaction with global counterparts without ever visiting them or them visiting you. Therefore, there needs to be a well-thought-out and well-orchestrated plan of communication and synchronization of systems and technology to make it all work together efficiently.
How important is it for top managers to understand the nuances of globalization?
It is absolutely crucial that the main players those who direct the strategy and who make the bigger decisions be intimately familiar with the nuances of globalization. Because the tone and the direction of the company is identified by top management, they should understand the mission of their globalization. Also, they must be able to communicate it very effectively to the rank and file.
ANDRE VAN NIEKERK is dean of the School of Business at Woodbury University. Reach him at (818) 252-5284 or firstname.lastname@example.org.
In the future, Dr. Neil Martin, professor and chief of neurosurgery at UCLA Medical Center, believes the robots can be utilized to help man emergency rooms where time is of the essence.
“Immediate care is critical,” he says. “Telemedicine and virtual presence allow physicians, who are not physically on site, to avoid the time waste that’s involved in traveling to the site of care.”
Smart Business spoke with Martin about how the mobile robot system operates, the benefits that it provides for patients and the importance of medical innovations.
How does the mobile robot system work?
There is a robot in the intensive care unit which is about 5 1/2 feet tall. It has, as its head, a flat panel computer screen and just above the computer screen is a camera. The doctor who uses the robot is usually sitting in a remote location, and they use the robot to make rounds at the intensive care unit.
On the physician side, you have a computer screen with a camera above it, just like the robot does, and you can see what the robot sees so you can drive it with a joystick. The remote physician can drive the robot from bed to bed and have a real-time, face-to-face discussion with the nurse at the bedside.
The developers of the robot call this virtual presence, because you can turn the head of the robot to look at the patient, the family or the nurse and have a two-way discussion as if you were standing there.
What are the advantages and disadvantages of being monitored by a robot?
The old system, from a patient’s perspective, was that when the nurses saw a problem, they would call the physician and they would talk over the phone about what was going on. The physician was totally dependent on the nurse’s description of her observations.
Now the physician can actually observe the patient and interact with the patient. It’s that much better than a phone call you get direct information, you can examine the patient, ask them how they’re feeling and they can ask you questions. The robot, of course, doesn’t replace the physician’s normal daily personal rounds. It does extend their ability to make rounds of a similar sort 24/7 from their home or office.
What feedback have you received from patients?
By and large, they feel a little bit self-conscious when they first start talking to you through the robot. Then very quickly, they engage with you eye-to-eye and they start talking to you as if you were standing right there.
People in the past have said they would rather interact with their own doctor through the robot than some doctor that they don’t know in person. Kids love it. All the kids, whether they’re your patients or not, want you to do rounds on them.
What changes in training does this new technology require?
All that it requires is that somebody sit down at the control station and learn how to operate the software and operate the joystick to drive the robot. Otherwise, the interaction is exactly as if you were standing there. The technical training might take an hour.
How important are innovations such as the mobile robot system?
It’s known that if an intensivist is managing the patients in an ICU, the morbidity and mortality rates go down, the cost of care is less and the length of stay is (shorter). Overall, the care is safer, better and more effective.
There have been various telemedicine systems used to allow remote intensivists to participate in the care of patients in an ICU. There is a growing amount of evidence that telemedicine can be an effective way for physicians to manage patients remotely and I think that we will see more and more circumstances where telemedicine is used.
Will this practice help pave the way for shorter hospital stays, and ultimately, decreased healthcare costs?
There are studies that have been published that demonstrate that intensivist participation in the ICU via telemedicine reduces cost. If you can render better care it’s going to be more cost-effective. And the cost of the technology is not extreme by any means. It is very realistic.
Dr. Neil Martin is a professor and chief of neurosurgery at UCLA Medical Center. For more information, reach UCLA Medical Center at (310) 264-7113.
Dan Shea, managing director of W.Y. Campbell & Co., a subsidiary of Comerica Inc., says that banks have also played a role in the active market, given their willingness to fund deals.
Smart Business spoke with Shea about the current climate for selling businesses, the types of buyers who are driving the market and how valuations should be handled.
What’s the current environment like for selling a business?
It’s one of the best markets since the late ‘90s. Buyers are aggressive because they have cash and feel good about the economy, while banks are helping by providing acquisition debt. At the same time, sellers see what a good time it is to sell, given the activity levels of buyers and historically high prices. It’s a liquid market, which isn’t always the case.
Toward the end of 2005 and on into 2006, it appears that the growth in the number of deals has started to level off. We don’t believe that transaction volumes are going to go down, we just see them leveling.
What types of buyers are driving the market?
The strategic buyer has been more active in recent periods and is looking to benefit from the synergies that can accompany a purchase, such as with a target’s customers, products, channels and geographic locations. Both public and private acquirers are aggressively seeking growth through acquisition to complement internal growth initiatives.
There are also private equity firms that go out and raise capital for the purpose of buying and holding companies. They look to grow sales and profits before selling anywhere from one to seven years down the road for a nice return. According to Private Equity Intelligence, through September of 2005, private equity capital fundraising surpassed the level achieved in all of 2004, so there is a tremendous amount of capital waiting to be invested.
When contemplating selling or acquiring a business, what should a CEO or business owner consider?
If they’re a seller, they need to be mindful of making a market for their business. Most middle-market companies are privately held so the process is not as easy as selling stock on the open market. With private companies, there is no established market for the business; you have to make the market.
Hire someone who can prepare and provide the appropriate information in a compelling manner under confidentiality agreements to qualified prospective buyers and then assist in establishing a price, a structure, and terms and conditions acceptable to both parties. A seller wants multiple buyers bidding for their business to ensure they can drive a good deal too many lose value (and time) by engaging in what we call one-off transactions.
Buyers, both strategic and financial, need to make sure the perceived benefits of the acquisition are for real. Strategic buyers in particular need to have a realistic integration plan and a realistic forecast of expectations for the combined entity, because studies show that the majority of transactions fail to meet objectives. The way to fix this problem is to set realistic objectives and then don’t overpay you can pay at most for the value the acquisition creates and, ideally, less would be better.
How should the valuation be handled?
The market will decide the eventual price but it behooves sellers to have a good idea of the likely outcome before initiating the sale process. Realistic expectations are critical or else a lot of time and money will be wasted.
Sellers should have their investment banker develop an estimate prior to engagement. This estimate should triangulate the results of a variety of valuation techniques including guideline public company and recent transaction analyses.
We rely on discounted cash flow analysis as well because this technique provides for more granularity. It is where you take a look at the expected future cash flows of the business and value the business based on what those cash flows are worth today.
People talk about multiples of various accounting measures such as sales or earnings to arrive at initial value estimates or as rules of thumb, but discounted cash flow analysis is the predominant technique employed for estimating value at a more thoughtful level.
Daniel S. Shea is a managing director of W. Y. Campbell & Co., a subsidiary of Comerica Inc., and head of the firm’s Los Angeles Office. His responsibilities include relationship management and client representation in sell-side, buy-side and private placement transactions. Reach Shea at email@example.com or (310) 297.2894.
The difference between generally accepted accounting principles and the Hollywood version, says Marcia Harris, a partner in Alschuler Grossman Stein & Kahan LLP’s Entertainment & Media Department, is significant. “In studio accounting, it’s whatever the contract says,” she explains. “They are not in any way limited or hampered by generally accepted accounting principles.”
Smart Business spoke with Harris about how movie studios benefit from this practice, some of the legal issues that are raised and how disputes are settled through arbitration.
What does Hollywood accounting consist of?
It consists of whatever the contract says. Most of the studios have definitions of their profit participations, whether you call them adjusted gross, contingent proceeds or however you define it.
There are 20- to 30-page definitions that describe how the studios will account to participants. It has nothing to do with generally accepted accounting principles, it has to do with what the parties negotiate. Unless you are a very heavy player you don’t get too much chance to negotiate many protections in those definitions.
How can a movie studio benefit from this practice?
They can assess expenses to a film or television show that more properly would be part of the studio’s general overhead in operating as a studio. If they can charge it off to a film or television show, that takes it off of their financial statement.
They can create fictions, where instead of reporting all of the revenues from the distribution of home video or DVDs, they pay a royalty from one of their entities to another entity. Thus the participant only participates in the royalty, not the full pot of revenues.
In the studios that have multiple distribution channels and production channels, they can deal with each other and manipulate the license fees among their affiliated entities so that the participant receives less revenue than might otherwise be the fair market value.
How can players in the business secure agreeable contracts from studios?
If they can get a deal that is pure gross or a gross at the source deal, that is the way. The more attenuated you get with distribution fees, distribution expenses and production costs, that just leaves more areas of potential abuse.
The first thing they can do is try to be very successful so that they don’t have to worry about some of the usual manipulations. Also, they should have good representatives that know what they’re doing when they’re negotiating these agreements, because the more protections that they can negotiate in, the fewer problems there will be down the line.
What are some legal issues that are raised by this accounting method?
Breach of contract is one of the usual claims. In the last few years, whether or not a distributor owes a fiduciary duty to participants has been litigated.
In a case that went up to the Court of Appeals, Gary Wolf vs. Disney, having to do with Who Framed Roger Rabbit, the court found that there was no fiduciary duty between a participant and a distributor in arms-length transactions. However, they said if the relationship between the studio and the participant was akin to a joint venture, then they may find a fiduciary duty.
Another claim that is litigated frequently is the implied covenant of good faith and fair dealing, which basically alleges that the studio denied the plaintiff the benefit of his bargain.
If a case goes to an arbitrator, what does the arbitration process consist of?
It’s as varied as there are arbitrators. I had one arbitration that was supposed to last three days. Instead we had 21 days of testimony and it lasted for (more than) two years. Other times it’s much speedier.
The studios have, in the last few years, tried to get their participants to agree that if there is a dispute concerning participation accounting, it goes to arbitration to avoid a jury and avoid all of the discovery that you would be entitled to in court. Most arbitrations for studio accounting have to do with whether the studios are self-dealing among their affiliated entities.
How has the advent of DVD sales and rentals affected Hollywood accounting and the studios’ revenue models?
It has certainly added to their revenue streams. DVDs, have in many instances, generated more revenues than a film’s theatrical distribution. They’ve also distributed DVDs of television shows like the entire Sex and the City series. These revenue streams continue to be extremely important to the studios, and to a lesser degree, the participants.
Marcia Harris is a partner in Alschuler Grossman Stein & Kahan LLP’s Entertainment & Media Department. Reach her at
But a stealth spyware program can be the most dangerous. Quietly embedded, a user might not even be aware that a hidden program is recording passwords and other confidential and private information.
Like viruses, spyware programs mutate at a swift pace. Fortunately, protection for computers has evolved as well. “Spyware is now recognized as a threat and protection is available through enterprise level software,” says Hormazd Dalal, president of Castellan Inc.
Smart Business spoke with Dalal about the malicious nature of spyware programs, the importance of businesses protecting themselves from spyware and the transformational nature of viruses.
What is spyware and how does it differ from viruses?
Spyware is a malicious code designed to monitor activity on a computer. Examples of this include basic monitoring, and the more malicious key loggers, which means that the perpetrators write a program that sits on the computer and then logs your keystrokes. This means they could log passwords that you are typing in, or your credit card/social security numbers, etc...
Basic Monitoring spyware is more annoying than malicious. They record what you do, how long you spend at each site, and then they force pop-up ads on you. Generally, its used by marketers, but it can plague a computer because it spies on the way you’re working.
Viruses, on the other hand, are in a different category and they are written to do damage on your computer. Spyware is different from viruses but equally malicious.
How have malicious threats like spyware and viruses changed over the years?
Spyware is relatively new. Computers have started to get infected by it over the last 18 months to two years. Just like viruses, new ones are written every single day by somebody out there with different objectives, from making sure that you go to a certain homepage to tracking where you’ve been, to sending pop-up ads to you.
How can a business protect its network from spyware?
Just like with viruses, when they first came out, there were standalone tools to help with protection. Now most businesses are well-protected from viruses because they have enterprise-level monitoring and management services.
These services check viruses before they come into a network and monitor the virus definitions on the work stations centrally, so you can look at one computer and do a sweep of the entire network.
Likewise, there are some manufacturers making very good enterprise-level spyware protection. This software sits on the server and deploys the latest definitions through every workstation in the network and implements levels of spyware protection from making sure that your homepage isn’t hijacked to making sure that something isn’t added to your startup programs.
How important is it for a business to protect itself against spyware?
As important as protecting yourself against viruses. In fact, possibly more. Because without it you risk having identity theft and your computers can slow down and freeze. And of course, pop-up ads can become an annoyance and reduce productivity.
How does a business know if its computers are infected with spyware?
Invariably you will go to your homepage and you will find that it has been hijacked and you’ll be getting pop-up ads. But in some cases, you don’t know because it’s just logging everywhere you’re going on the Internet and it’s not taking up (many) resources.
With a slow PC you can tell. Fast PCs just manage to let that process run. With a serious infection the user will know about it but might not notice a minor infection.
What steps should a business take if it is infected by spyware?
There are several removal tools available. Typically, you need a professional or an IT person to come in who knows how to run these tools. Sometimes systems need to be brought down into safe mode before they can be cleaned up.
In some very, very extreme cases, the computer needs to be rebuilt with the software being reinstalled. This is a last resort, which is both expensive and time consuming, which is why the protection is so important.
Hormazd Dalal is president of Castellan Inc. Reach him at (818) 789-0088, ext. 202, or firstname.lastname@example.org.
“The key,” says Don St. Clair, vice president for marketing and adjunct faculty member of organizational leadership at Woodbury University, “is you really have to know your organization. Organizations are living, breathing entities and they all have different personalities and propensities to absorb change.”
St. Clair spoke with Smart Business about how change should be communicated to employees, the importance of acting swiftly yet compassionately and how organizational change can lead to innovation.
What are the basic principles of organizational change?
I think of three things: the change should be intentional and purposeful, it needs to be well-planned and it needs to be well-communicated. Members of an organization should be afforded the opportunity to understand what’s happening, why it’s happened and how it’s going to happen. That really creates the best opportunity for the acceptance of change, and hopefully buy-in. We want people to accept the change as a minimum and what we’re really hoping for is for people to embrace the change.
How should a business owner communicate to his/her employees that there will be an organizational change?
Very directly, first of all. We hear that information is power, but information is also medicine. The more organization members know, the more they are able to process, reconcile and embrace what’s happening.
They need to understand the necessity of change and the benefits of change, or the consequences of not changing. And we can’t just say it once. Think of it as a good advertising campaign: you have to hear a marketing message, depending on whom you ask, seven to 12 times before you really get it. It’s the same thing with communications in a change situation. People have to hear repeatedly what’s happening, why it’s happening and how it’s going to affect them.
The other thing is that the minute change begins, rumor begins. The only way to mitigate rumor is to continue telling the truth so that people are able to hear what’s really happening and recognize rumor for what it is.
How important is it for employees to feel like they have a defined purpose and role to play in the change?
It’s vital. The first human reaction whether it’s from the oldest, most senior staff member or the newest, most junior staff member is, ‘How does this affect me?’ Buy-in or acceptance is more likely to occur if organization members understand their role.
Change is stressful, so understanding how one fits into change reduces that stress. In some cases change has an adverse effect on an organization member. That organization member’s role may change in a way that they’re not comfortable with or their role may be eliminated.
When change is going to have an adverse impact on members of the organization then that has to implemented very swiftly and very compassionately.
It has to be done in a forthright and honest manner because other people in the organization are going to be watching how you treat the people who are coming out on the short end of this change stick. They’re going to know in their hearts that if they’re ever on the short end that’s how they’re going to be treated. That’s going to impact their morale, loyalty and productivity to the organization.
Once a change is in place, how can a business owner measure its effectiveness?
Metrics need to be established up front, before the change is implemented. You need to identify why you’re making the change, identify the outcomes you want and how those outcomes can be measured.
Those outcomes may take many different forms. It can be productivity improvement, customer-service improvement, cost-structure improvement the list of potential benefits from a given change is endless. More qualitative outcomes like improvements to morale or teamwork are much harder to measure. Outcomes of qualitative nature really require the executive to be in touch with his or her organization in a very personal way.
The key is to identify your desired outcomes in advance, determine how they’ll be measured, set a time frame for when you’re going to measure and then just do it. There will be different metrics and different measurements depending on the organization and the situation.
How can organizational change lead to increased innovation?
Increased innovation must be the purpose for the change. If that’s the case, you’re going to want to engineer change designed to open creativity and encourage experimentation in your organization. Innovation tends to come from consistent effort, constant questioning and the willingness to make mistakes. Careless mistakes can’t be tolerated, but the only way to never fail is to never try. So a company with a never-fail culture will find it very difficult to innovate.
Collaboration is very important to a healthy organization. Bringing divergent views of a problem or market opportunity is a good way to seed innovation. However, when collaboration requires consensus building, innovation may suffer. At some point innovation requires decisive action.
Don St. Clair is vice president for enrollment management and marketing at Woodbury University. He is responsible for the recruitment of students and overall university marketing. He also teaches teaches regularly in Woodbury’s innovative Masters in Organizational Leadership program. Reach St. Clair at email@example.com.