Paul Harvey

Adding a retirement benefits plan for employees is an exciting milestone in a company’s growth cycle. The advantages of offering a plan include employee retention, satisfaction, substantial tax savings, and meeting financial goals for the owners, staff and the company.

However, before your organization implements a new retirement plan, all stakeholders should be aware of the costs, liabilities and workload associated with managing it. Retirement plans today are subject to numerous compliance concerns, so employers must take even more precautions to keep up with the latest industry regulations.

“Increased government scrutiny of benefit plan accounts has emerged over the last several years, but it’s yet to be determined what effect it will have on the popularity of retirement plans,” says Mike Spickard, CEO and Chief Actuary of Tegrit Group.

Smart Business spoke with Spickard about when to consider adding a retirement benefits plan for your business and how to choose the best plan.

What are the advantages of implementing a retirement plan for employees?

Providing a retirement plan can help you attract and retain valued employees, assist in the deferral of taxes, and help employees better prepare for retirement. Despite the market volatility, retirement plans are a very popular employee benefit because everyone wants to avoid paying taxes. Employees like to see their retirement accounts grow.

When should companies consider adding a plan?

Your company is ready when either you or your employees are concerned about reducing taxes or saving for retirement, and you have cash available to fund a plan. When your company is new and it’s all about survival and growing into viability, a retirement plan won’t likely be high on your priority list.

When you reach the point where the company, owners and employees are starting to take home more taxable income, you may not need to pour money back into the business to survive. At this point, it is a good time to start thinking about an efficient vehicle to reduce your tax burden.

Once you have decided to add a plan, what are the first steps in the process?

The first step is to develop a budget and determine how much you can afford to spend on administrative costs and employer contributions. If you set up a plan and you are unable to fund it, or you are not able to cover the costs to administer and maintain an attractive benefits plan, then it does not make sense to sponsor a plan yet. We’ve seen cases where companies adopted a retirement plan too early.

The next step is to engage a small cross section of employees to see what type of plan is most useful for them within the budgeted constraints. The last ‘first step’ is to talk to a trusted adviser, including a CPA, financial adviser or attorney who can help you find a qualified TPA (third party administrator).

What plans are popular in today’s business climate?

The most popular plan type today by far is a 401(k) plan with a matching contribution. More than 500,000 businesses in the United States sponsor this type of plan, which involves tax-deferred contributions by employees and usually some form of employer contribution — either a contribution that matches some or all of the employee’s contribution, and/or a discretionary ‘profit sharing’ contribution.

The fastest-growing plan type is a cash balance plan, which allows for much annual larger tax-deductible contributions. It is a more complex plan type, but the larger tax benefits have made it quite popular in a lot of small business circles right now.

Does every employee need to be included in the plan?

Retirement plans offer a lot of flexibility when determining who is eligible to participate. For example, you can set a minimum threshold of hours worked so that employees would have to work at least 1,000 hours in their first year in order to participate. You can go even further and exclude or include certain classes of employees. For instance, a law firm could exclude associates, or a grocery store could exclude baggers.

A retirement plan is less ideal for very low-margin businesses and those that hire transient workers because the tax benefits won’t be as great and the administrative costs will be higher when processing small payments for these types of workers.

What are some tips to maximize a new retirement plan?

Properly design a plan that reaches your present goals and communicate it well and often to your employees. The engagement of qualified, experienced retirement plan professionals is almost always required to get the most bang for your buck in terms of plan design and communication.

Because of their significant tax benefits, retirement plans are heavily regulated. Staying in compliance can be a difficult task, and that is where the engagement of retirement plan professionals and consultants can be very useful.

If you select a less complex plan, it will be easier to administer, and thus, you may not need to engage a retirement plan expert or pension plan actuary. But if you want simplicity, you’re going to have to live with a lower value benefit.

The more complex your plan is, the more capability you will have to take full advantage of the laws, regulations and tax deduction benefits.

Mike Spickard is the CEO and Chief Actuary for Tegrit Group (formerly Summit Retirement Plan Services, Inc.). Reach him at (330) 644-2044 or

Insights Retirement Plan Services is brought to you by Tegrit Group

There are two words to apply to commercial real estate purchase contracts: Buyer beware. With sophisticated sellers and sellers’ agents working to leverage the best deal for the property, buyers must approach commercial real estate purchases with eyes wide open.

Due diligence is a period of time starting after a proper purchase agreement is executed and continues until the escrow opening. It is the prospective buyers’ window of opportunity to uncover what they actually are buying, to climb out of that window to renegotiate or walk away from the deal.

“Purchasing commercial property is not always, ‘What you see is what you get,’” says Terry Coyne, executive vice president, Grubb & Ellis. “The whole point of due diligence is time to uncover the unknown.”

Smart Business spoke with Coyne about maximizing due diligence to help ensure costly problems don’t arise after finalizing a commercial real estate purchase.

What elements of a commercial building purchase are part of due diligence?

There are three separate columns of due diligence, including physical, financial and title. Physical due diligence is the obvious inspection of all physical components of the building, including any components that are in the earth or built on the site. This includes the roof, the structure and anything that relates to environmental issues, such as Phase 1 environmental reports.

The big items here are environmental concerns and the roof. If you don’t do an inspection on the roof, it might cost you $4 a foot, which on a large building could be an enormous amount of money.

Financial due diligence involves getting a loan and primarily includes the appraisal and the credit quality of the buyer. The credit quality of the buyer is extremely important, so make sure the appraiser you select is informed and has the required knowledge about the specific asset class so the appraised understands what the values are. You don’t want a residential appraiser doing a commercial appraisal, or an industrial appraiser assessing an office building.

Due diligence on the title includes a survey that will show the physical location of the property and any encroachments and easements, and a title report which would show you all the issues on the title relating to the quality of the deed.

How has due diligence for property buyers changed in the last decade?

The appraisal process and aspects of environmental due diligence are stricter today because of the Dodd-Frank Act. The changes mean you can’t talk to your appraiser and the bank can’t talk to your appraiser – the appraiser has to be independent. You run the risk that your appraiser may not be fully informed as he or she could be, because of a lack of interaction with the bank or the buyer. In the past, buyers could communicate openly with their appraiser to share information, ensuring they were fully informed.

Environmental aspects of due diligence are constantly in flux. Asbestos and PCBs were a critical topic years ago, but now they are more understood and expenses to deal with them are much more controllable.

The big question today is black mold. The presence of black mold is not the end of the world, but it’s something to be aware of, since there is a cost for remediation if it’s discovered in your building.

What are the most important aspects of due diligence?

Former Secretary of Defense Donald Rumsfeld coined a term applicable when you are told buyer beware: ‘the unknown unknowns.’ The unknown unknowns of due diligence are things you can’t see, including title concerns and environmental issues. It’s the things you can’t see below ground or on a sheet of paper.

As far as the title is concerned, easements are the biggest worry because they have an impact on the property value. If you don’t perform a survey, you may later discover an easement that runs right across your parking lot or alongside your building. All of a sudden you find out you can’t use these areas the way you had planned because your next-door neighbor has an easement to drive over your property or use your land for oil and gas drilling.

On the environmental side, you don’t want to discover after the sale the presence of an underground oil storage tank, or that you’re downstream from a paper mill that used to dump chemicals in the water, and now they are leaching onto your property.

What happens if due diligence reveals problems?

You have three choices. The first is to get an extension of time to understand it better. Second, you can get a reduction in price. The third choice is to walk away.

It all depends where you are in the process. If it’s bad, you walk away, but it’s not often that deals die.

If it’s manageable, you get more time. If you’re interested and it’s just a question of money, then you ask for a price reduction.

How can buyers best protect themselves when acquiring commercial property?

Talk to your broker or your attorney before starting the process so you can make a fully informed decision. You can obtain a lot of free information from people in the business to help you understand the risks. Commercial contracts are sold as-is – buyer beware.

There are sophisticated parties on both sides of these transactions — you want to make sure you have protection. It’s hard to go back and sue someone on a commercial transaction when things were fully disclosed.

Terry Coyne is executive vice president, Grubb & Ellis. Reach him at (216) 453-3001 or

Insights Real Estate is brought to you by Grubb & Ellis

Sunday, 25 November 2007 19:00

Manage risk, manage insurance

There are a lot of dynamic people out there selling insurance policies. But placing insurance is not just about selling a piece of paper.

“You need to know every single little in and out of a company,” says Grant Connor Mehlich, producer, Hilb Rogal & Hobbs of Tampa. “You have to get into details, assess the risks, understand the operations — past, present and future.”

Smart Business spoke with Mehlich about the distinct differences between selling insurance and selling risk management, and how the best insurance brokers assess, underwrite, market and service their customers to best manage their risk.

What are the keys to properly assessing a company’s insurance requirements?

Anybody can sell an insurance policy, but what you really need is a risk management approach that encompasses knowing everything about what the company is doing now, what the company has done in the past and what the company wants to do going forward.

The first meeting with a client should be all about reviewing what’s going on with the company. This is especially critical when it comes to general liability coverage. If a manufacturer was making parts for an aircraft years ago but no longer makes the parts, it’s the broker’s job to make sure the company is still covered for prior operations.

How are these requirements shopped for the best programs and value?

To get the best price for the best coverage, you’ve got to see what the market will bear. Obviously, some carriers like certain classes, while some carriers don’t like them — but you go ahead and put it out to market to gather positive feedback as to what’s going to be the most beneficial for the client. A good agent is actually making two sales — one to the client and the other to the carrier.

How does underwriting experience work in concert with sales?

Underwriters have their own language. By nature, underwriters are pessimistic and agents are optimistic. In a past life, I was an underwriter with American International Group, the world’s largest insurance company. I was able to learn how the carriers think. In my mind, the underwriter is the true insurance person. The broker is really the sales function.

This is why companies need an agent that understands the carrier side and the underwriting aspect. Being able to appreciate the underwriting process makes it much easier to send a company’s insurance needs out to the market. Remember, there are two dynamics here — two clients you’re trying to sell. One sale is between the broker and the client, and the other is between the broker and the carrier. If you can’t sell the account to the carrier, you’re not going to get the best deal for the client.

How does that integrate with today’s insurance market?

The hot topic continues to be Florida property insurance. Interestingly, for the past six months the rates have been dropping dramatically, upwards of 40 percent. The interesting dynamic with property comes back to knowing the details. Possessing a thorough understanding of insurance policies, exclusions and specific endorsement forms allows you to get the client a better deal. For example, one endorsement of property allows you to drive down the rate on a piece of machinery. If it is fixed to the wall or fixed to the ground, it now becomes a part of the building. This drives down the rate because normally rates are higher for stand-alone machinery. It’s up to the broker to get into the plant, survey, ask questions and look around to see if certain endorsements could apply.

What levels of service should companies now expect from agents?

In light of what’s going on down here with property, brokers have to get creative. Examples of getting creative are utilizing endorsements or layering a program. Layering means you’re going to bring in three or four different property carriers to underwrite one account. Let’s say AIG wants the account, and while the building is worth $50 million, it only wants $25 million of the account. Meanwhile, Travelers also wants a piece of the account, but it doesn’t necessarily want the other $25 million. In this case, you can layer them to where both carriers are happy — one carrier takes a piece of this and another takes a piece of that — which drives down the rate.

On a final note, a good agent takes a pure risk management approach. This has always been my philosophy. When you take this approach, your client ultimately will be the beneficiary of a strong, competitive and, most importantly, protective insurance program.

GRANT CONNOR MEHLICH is a producer at Hilb Rogal & Hobbs, Tampa. Reach him at (813) 261-7982 or

Friday, 26 October 2007 20:00

Retirement lifestyle planning

Retirement hovers out there like an oasis. You can almost feel the excitement of travel, the relaxing hours on the golf course and ample quality time with the grandchildren. But retirement’s not cheap — you’ve got to pay to play.

“You could spend about 5 percent of your retirement capital every year,” says David Shiell, president, Financial Horizons LLC. “When you do the math, that’s a pretty big number to accumulate.”

Smart Business talked to Shiell about how routinely assessing your retirement needs and monitoring investment costs and risks can help ease you into the retirement lifestyle you deserve.

What is the biggest flaw or omission you see in retirement planning strategies?

The most common flaw is that people underestimate what their financial needs will be when they retire. A good estimate: for $100,000 of yearly spending in retirement, you probably need about $2 million of retirement capital. If you do the math, we’re assuming that you could spend about 5 percent of your retirement nest egg every year. That’s quite a sum to accumulate in retirement, particularly out here on the West Coast. We figure retirees are going to need $3 or $4 million to have a comfortable retirement. Many times we live month-to-month and we don’t really have a handle on how much we’re actually spending.

What should be considered when determining retirement cash flow needs?

Most people in retirement are probably spending a little more than they planned upon, at least early on. Typically, there’s a great interest in travel, and travel is a fairly expensive proposition. As they grow older, the spending ramps down.

Retirement cash flow planning really becomes an exercise in math to a certain extent. We work with future retirees to analyze, for example, how much they have accumulated in their savings plan so far, their investing style, how they are investing these assets, and then determine the expected rate of return that might apply to them. Once we know all of these factors, there are calculations done that help guide retirement cash flow planning. Investors can also tap a number of Web sites that help with retirement cash flow planning.

What nuts-and-bolts investing practices can help build retirement assets?

We try to get our clients focused on good, basic investing strategies. One of the most important aspects is to keep investing costs down. Your return on investment is net of whatever you are incurring in terms of management fees, transaction costs and even tax costs. Investors should make sure they’re using funds, low-cost funds or perhaps exchange-traded funds. It’s important to focus on the after-tax returns that mutual funds are passing out at the end of the year and make sure, to the extent possible, that gains and losses are matched to try to minimize capital gains. In this area, index funds can be used to minimize taxable events in accounts.

Investors should also be diligent about diversifying and rebalancing their portfolios from year to year. For example, a popular investment for the last five years has been real estate investment trusts. They had a great run with tremendous gains. But because we don’t expect those returns to be the same going forward, it’s likely that this part of the portfolio needs to be rebalanced to bring it in line.

How do wills and estate documents come into play?

It’s surprising how many clients come in and have done nothing in the areas of wills or trusts and documents like power of attorney for health care. People don’t like to think about these things — it’s planning for a potentially bad event, and we tend to shuffle these things off to the side. People need to consult a recommended estate attorney to implement a will that handles concerns with children and financial matters and get those power of attorney documents completed. The attorney can also help decide if a trust is appropriate for your situation; certainly for larger estates, a living trust would make a lot of sense and can lead to potential estate tax savings.

How can insurance protect retirement assets?

It’s important to protect the income earner. The individual who is the primary income earner in the family needs to have a good life insurance policy and a disability policy to maintain the income flows to the family. That process involves evaluating how much insurance is necessary: Is the mortgage covered? Do we have several years of income covered? Do we have college expenses for children covered? People should put estate planning and insurance on their to-do list and accomplish them at the same time.

How can busy executives monitor their retirement asset track?

It goes back to creating a retirement cash flow planning document. It can be put together in just a couple hours time with the help of a financial planner or through one of the brokerage Web sites. That retirement cash flow plan provides a model that helps monitor your progress year-to-year so you can say, ‘At age 53, I expected my retirement assets to be there, and they’re not. I may need to adjust my plan to meet those goals.’ It’s a great tool to help determine where you are in terms of your plan.

DAVID SHIELL, CPA, PFS, is president of Financial Horizons LLC in San Ramon, a subsidiary of Armanino McKenna. Dave can be reached at (925) 790-2894 or

Sunday, 26 August 2007 20:00

Mind your Ks and Qs

Ameasure of help arrived July 26, 2007, for publicly traded companies in the form of new guidance from the SEC and the Public Company Accounting Oversight Board (PCAOB). The new rules provide substantive language aimed at mitigating the excessive costs and complexities of reporting and compliance.

“The biggest consideration with these new standards is that public companies don’t just look to their auditors to see what can be done,” says audit partner Matthew Perreault of Armanino McKenna’s Technology and SEC practice. “They really should use the new standards to their advantage in terms of reducing their cost to audit.”

Smart Business spoke with Perreault about how the new rulings, when coupled with a top-down, companywide approach to compliance, may decrease audit costs up to 20 percent.

What prompted the SEC’s new ruling?

In the past, auditors were able to look at and focus their attention on areas of higher risk and spend less time on low-risk areas. The Auditing Standard No. 2 was written in a way that it took away the ability of auditors to apply their judgment, and it very much restricted their ability to rely on the work that was done by either management or internal auditors. Another element was it required companies to reperform the audit every year without the benefit of the knowledge gained in prior years. So each area, even if it was tested last year and you knew it worked and it hadn’t changed, still had to be retested. The new standard, I believe, effectively addresses all of these points.

How should companies build or rebuild their compliance and reporting strategies?

I think it starts at the top. The effort is not merely a finance response — it’s a companywide response — so if the CEO isn’t the sponsor of the 404 compliance effort, he or she needs at least to be a champion right behind the CFO. One of the best practices I’ve seen is to form a disclosure committee consisting of both the CEO and the CFO, along with the COO and the vice president of operations, plus a representative from HR and participants from sales and marketing. All of those disciplines can have a significant impact on the accounting, and if you limit that disclosure committee to people in finance, they might not know what’s going on with the rest of the company.

Must companies reinvent the wheel or is help available?

We are finding that smaller companies, especially when new pronouncements are introduced, are struggling to write the 10Q and 10K reports themselves. Often they are poorly written and are missing certain elements. We usually point them right to the SEC Web site where dozens of similar companies have already posted nearly identical disclosures. This is a case where companies should embrace plagiarism by copying, pasting and editing the material from the disclosures of others. I think companies need to seek out and look at what their peers are doing, create benchmarks and use what’s already out there. Not only does it save time, it produces a better quality product.

What kind of reporting timeline should be established and how can companies stay on track?

Companies often set a press release date, sometimes an artificial date that is much earlier than it needs to be, and then turn around to their finance organization and say, ‘Do whatever needs to be done to meet this date.’ I think this unnecessarily compromises the quality of the records and documents. Alternatively, project leaders should start with a proposed press release date and the ultimate 10Q and 10K filing dates, and then work backward to determine a reasonable time frame to deliver a draft of the press release and when they ultimately need to close the books.

Should companies use inside or outside resources?

For smaller organizations, I think a consultant is the best answer. The consultant will have exposure to the best practices of many different companies and, unless you have a super overachiever in your ranks, it’s difficult to replace that experience with any degree of knowledge. If you can afford to and opt to hire a salaried employee, the best candidates likely will come from the public accounting ranks or will have worked for a number of similar companies in the industry in a comparable capacity.

What quality controls should be built into a compliance strategy?

It starts with creating a large enough time frame, using existing literature that’s available in the form of checklists and going through those with careful consideration until fully understanding the nature of each question. We suggest that companies embrace those checklists and have somebody mindful of preparing them. Often-times, you benefit from a econd-level reviewer who may not be as accounting knowledgeable but is detail-oriented. They’re the person that’s going to say, ‘I don’t understand this question in the checklist, so please explain how you interpreted it and explain why you believe the disclosure was appropriate.’ That’s the best quality control process you can have.

MATTHEW PERREAULT is the audit partner of the Technology and SEC practice at Armanino McKenna LLP in San Ramon. Contact Matthew at or (925) 790-2755.

Thursday, 26 July 2007 20:00

SFO account 0807

System stretching

How many phone calls does it take your customers to access their account information? Sounds like the introduction to a bad joke, but in reality, if your answer is anything but “zero,” your organization may already be falling behind the competition.

“The biggest change in today’s business systems is the extension of them across not only the enterprise, but out to customers, vendors and employees,” says Tom Mescall, Partner-in-Charge of the IT Solutions Department, Armanino Mc-Kenna LLP. “Now you can take information that has traditionally been kept behind the four walls of your company and put it out to others in a secure environment.”

Smart Business recently spoke with Mescall about the evolution of the Internet and how today’s systems can be stretched into collaborative and efficient portals for employees, customers and vendors.

Have we reached a point where all businesses must consider extending their systems beyond traditional processes?

Absolutely. The companies I talk to aren’t doing this because the technology is available or they think it’s cool; they’re doing it because their business partners are asking for it. Customers are asking for electronic invoicing and ordering systems, shipping statuses and purchase histories because it’s more cost effective. It’s always coming from a business perspective. Large and strategic customers are pushing companies for these solutions, but companies can then turn around and make this technology a selling point to the next customer or vendor with whom they are trying to partner.

What are portals, and how are they creating new levels of collaboration within companies and between customers and vendors?

Internally, portals are a virtual place for knowledge workers to complete their work, or at least organize their work and their collaboration around that work, through their company’s Internet-based platforms. Traditionally, employees who needed a report would call and ask another employee to look up and send them this information. Portals allow employees, in a self-service mode, to find and consume this information. In our global economy, portal technologies also allow employees to better collaborate with other employees that are not close geographically.

Externally, companies are creating portals for customers and vendors so these partners can come in to look at and consume information, check order and shipping statuses, review purchase histories and other vital functions.

How do you implement these systems without compromising security?

This is an extremely important point that needs to be considered upfront. It’s largely based on your current network set-up, firewall and overall network architecture. If the goal is to extend your systems out to customers so they can review orders and invoices, then you need to make sure they can’t also access your entire price list, HR data or sensitive personal information. Anytime you face information out toward the Internet, you risk security penetration. We recommend that our customers do quarterly penetration testing to assess if somebody is hitting their systems from the Net and determine how far they can go in without being detected or blocked. As technology changes, hackers get more ingenious and viruses and worms get more sophisticated — new methods come along that can make you more susceptible to attack.

How does extending key systems change the way a company operates?

The big message is that it’s bringing companies closer together because many of the tasks that previously were performed internally now can be shared with customers or suppliers. It really provides a level of service that’s higher than an individual company can provide. Extending your systems to employees allows them to become more efficient, and a natural outgrowth of this efficiency is the ability to grow a company without adding as many heads.

How can companies best integrate system extensions and portals?

There has to be good vision from the top, and embracing of the latest technologies. From there, a dedicated person from each area of the business should bring the catalyst to the forefront. For example, somebody from customer service should be driving how to share information with customers so they can get ordering information, order status reports and be able to execute returns online. Meanwhile, the finance manager is driving how to better share financial information to all the key managers around the company, no matter where they are. What we usually see is business driving the change, and then the key IT staff understanding what needs to be accomplished and figuring out how it will get done. In the end, people can do their work more easily, without relying on IT to generate as much information.

An outside resource can bring in best practices and describe how other companies have done it and what tools and technologies were used. The first project may feel like foreign territory, but the success and knowledge gained is brought along for the second, third and fourth project, and reliance on the outside consultant typically is reduced.

TOM MESCALL is Partner-in-Charge of the IT Solutions Department. Armanino McKenna LLP is based in San Ramon and is a Microsoft Presidential-level partner. Contact Tom at (925) 790-2600 or

Thursday, 25 September 2008 20:00

Borderline issues

Local distributors are an excellent resource to help companies penetrate global markets. But the distribution of products in non-U.S. jurisdictions presents legal challenges that business owners need to consider when structuring distributor relationships.

“Local laws will differ in each jurisdiction, although the European Union has adopted various directives intended to create a consistent body of distribution laws and regulations for the member countries,” said Mary Wasik, partner, Corporate Practice Group, Levenfeld Pearlstein, LLC in Chicago. “Obtaining competent and responsive local counsel is recommended to provide the necessary guidance.”

Smart Business asked Wasik why non-competition restrictions may not be permissible overseas, how to best protect intellectual property and what to consider when terminating a foreign distributing relationship.

How should a foreign distribution network be structured?

Your decision to distribute products through third-party distributors or through sales agents will depend upon the nature of your product and the market in which it is distributed. The laws and regulations of the applicable jurisdiction may provide your distributor with certain rights and benefits and impose obligations on you, which vary with the legal structure of your relationship.

Can you restrict a distributor from selling competing products?

In the U.S., you may restrict a distributor from selling competing products during the period of your relationship and for some time after the relationship ends. The European Union has, however, adopted strict regulations regarding restrictions on competition. Non-competition restrictions are not permissible when they reduce the availability of competitive goods in the relevant markets where the goods are sold or purchased. If restrictions are permitted, you can prohibit a distributor from distributing competitive goods during the term of your relationship, and then only up to five years. Restrictions after termination are only permitted for up to one year, if necessary to protect your substantial and indispensable techniques and know-how. It is not an infringement of EU regulations if you require that nonpublic proprietary information be kept confidential. The decision to impose a restrictive covenant and the likelihood of enforceability should be addressed with local counsel, particularly if there is a risk that information, techniques and knowhow given to a distributor might be shared with a competitor.

What should be considered before a distribution relationship is terminated?

The laws of foreign jurisdictions will sometimes impose legal requirements on the manner in which your distribution relationship can be terminated. The distributor may also be entitled to monetary entitlements. For example, under the EU agency regulations, the activities of the agent may be considered to have contributed to your good will and, therefore, unless appropriately addressed in your distributor agreement, the agent could arguably be entitled to compensation for the loss of future commissions. Further, under certain circumstances, EU agency regulations might require a minimum of three months notice of termination. If you and your distributor continue to perform under an expired agreement, a question could arise as to whether you or the distributor intended the agreement to continue for an indefinite term. In Middle Eastern jurisdictions, local recordation requirements could cause the distributor to obtain affirmative distribution rights, which could interfere with your ability to subsequently appoint other distributors.

What steps should be taken to protect intellectual property?

Filings for local trademark and patent protections are obvious first steps in preserving your intellectual property in foreign jurisdictions. Provisions in contracts that affirm your interest in IP are also necessary, but sometimes a distributor will also want to use the name of the product or manufacturing company in its business name. If this is acceptable, address this issue by the grant of a license to the distributor to use the name and require that such use ceases if your relationship ends. Police the use of your trademarks in all potentially applicable classes. If trademark registrations have not been made, sometimes the distributor will make filings in its own name. Further, such filings could be in different trademark classes that could be of value at some point in the future.

What law should govern the agreement between a product owner and distributor?

Any well-established body of law can be selected to govern your distributor relationship, but of primary importance is the question of whether a judgment issued by a court in the governing jurisdiction will be recognized and enforced by a court in the jurisdiction where the distributor is located. Some jurisdictions, particularly in the Middle East and Asia, will more readily enforce an arbitration ruling by an international arbitration body, so disputes may be best resolved through arbitration.

MARY WASIK is a partner in the Corporate Practice Group at Levenfeld Pearlstein, LLC. Reach her at (312) 476-7568 or

Tuesday, 26 August 2008 20:00

Driving results through culture

Corporate culture — an organization’s personality — is the sum total of the company’s values, attitudes, beliefs, behaviors and practices of its members. But many managers may have just a vague view of their organization’s culture and little background around how it came to be.

So how is corporate culture established in most organizations?

“By default,” says Chris Edmonds, senior consulting partner with The Ken Blanchard Companies.® “And if organizational cultures are created by default rather than intention, you’ll likely have people who aren’t consistently behaving in ways that deliver high-quality solutions.”

Smart Business recently spoke with Edmonds about how to assess your company’s culture and how you can transform culture if you’re willing to move away from seeing it as a soft and fuzzy, irrelevant concept.

Why is culture so important?

Our research and research by Jim Collins, the Gallup Organization and others provides abundant evidence that work forces with engaged and accountable people deliver strong customer loyalty, increased productivity and higher profitability and return for shareholders. One of our culture change clients, Banta Catalog, generated a 20 percent increase in employee passion, turnover was cut by 50 percent and profitability improved 36 percent in the first year of the values alignment process. The creation of a purposeful culture — one that holds employees accountable for exceeding performance expectations while modeling the organization’s declared values — is critical for business leaders in today’s marketplace.

What are the ideal foundations and the realities of culture?

We talk about four foundations of culture, including vision, purpose, values and strategies. Vision is what you are striving to become and purpose is about what you are in the business of doing. Values are what you stand for and use as a guide for actions and decisions, while strategies are your plan for making your vision a reality while living your purpose and your values.

Unfortunately, most organizational cultures happen by default rather than by intention, and the existing culture of an organization can hold staff back from consistent high performance and strong engagement. Existing practices can actually ensure delivery of mediocre performance and poor customer service, which cost companies money every day.

Where will leaders find soft spots in their corporate culture?

Many organizations publish a mission statement and desired values, but values are not measured or monitored with the same discipline and diligence as goal accomplishment and performance. And culture often is viewed by senior leaders as soft, not relevant to performance and hard to put one’s hands on. If you can’t measure culture, it is seen as peripheral to core business operations. The trick is, if you’re not getting what you want, then it’s time to change those expectations.

How can culture be transformed?

First, you have to assess the issues with a purposeful culture assessment. The assessment differentiates between current reality and best practices, provides a snapshot of current organizational systems and practices, and it can be used as a gap reduction or action planning tool.

After the assessment, you have to take proactive steps and intentionally create a culture that allows the organization to differentiate itself from competitors, to really live its values, and to really deliver on the promises it makes for products and services. Most senior leaders have never experienced successful culture change. Far fewer have led successful culture change. Senior executives and senior leadership teams must learn to follow proven practices that fit their unique environment and effectively manage obstacles and gain traction on the desired high-performance, values-aligned culture. The focus is not to simply identify culture issues but to map out strategies to address those gaps, execute that strategy, and see demonstrable improvement in performance.

What are the best culture transformation practices and their outcomes?

First, senior management must embrace and actively lead the change effort, and a steering committee should be in place to guide the change. You must ensure there is involvement at all levels. It’s critical that all staff members are held accountable for demonstrating the new behaviors and rules, and finally, continued communication about the change and stories that reinforce the effort must be in place.

The outcomes to these best practices are numerous. Following the best practices creates involvement and buy-in for change throughout the organization and creates accountability for creating and sustaining the culture. Next, it provides a vision that people can relate to and increases organizational alignment and focus. It also aligns performance expectations, values and rewards systems, and creates a sense of community and pride. Finally, following best practices demonstrates measurable gains in performance and passion and creates an environment in which even small changes can have dramatic impact.

CHRIS EDMONDS is a senior consulting partner with The Ken Blanchard Companies in Escondido. Reach him at The Ken Blanchard Companies Web site at

Wednesday, 26 December 2007 19:00

Corporate coaching goes mainstream

Ten years ago if an employer asked you to work with a business coach, you might have taken it as a hint to update your resume. Now, coaching is perceived both as a valuable perk offered to high-potential individuals, and a strategy for companies to avoid the enormous costs related to executive failure in the first year.

But what actually occurs between a coach and executive to propel an already successful individual even further toward his or her goals and objectives?

“It’s like a brain massage that produces permanent shifts in attitudes, belief systems and how people operate,” says Madeleine Homan, founder of Coaching Services at The Ken Blanchard Companies in Escondido. “It translates into observable differences in what executives do and say — and that’s what organizations are looking for.”

Smart Business recently spoke to Homan about how a clear mission will produce the most successful coaching results.

Why are leaders and organizations working with coaches?

It’s rare that an individual wakes up one day and says, ‘Wow, I really could use a coach.’ The main reason for bringing in a coach is that an organization is seeking extra support for its leaders. With the trend toward the abolishment of middle management, your new managers may only have time to do the bare minimum. They may not know anything about leadership and haven’t had time to develop good management practices for themselves. That’s where coaching comes in.

Coaches have all of the content background about best leadership and management practices, phenomenal communication models, skills around how to deal with power and influence models, and they’ve read all the books that you don’t have time to read. A coach can share the one concept in a book that’s going to be useful to you right this minute. Organizations also are utilizing onboarding coaching for people starting new jobs or making the transition from individual contributor to manager or from manager to senior leader.

What mindset can help maximize coaching?

Coaches understand organizations and understand people’s temperaments, personalities and types, and they don’t judge. Many executives go into coaching thinking their organization is giving them coaching because something is wrong. That’s not coaching. Occasionally, there is coaching to close a gap in a skill set, but mostly, it’s for development, because leaders today need to go from A to B so much faster than they have in the past.

People are realizing that coaching is a perk for those who are adding value to the organization. That is changing the mindset of people going into coaching. Participants should be oriented to coaching thoroughly so they truly understand what it is, what they can expect to get out of it, and what’s expected of them. It’s like anything else — you’re going to get out of it what you put in.

Sometimes people come in and try to ‘yes’ the coach. They try to fake it and make their coach feel like they’re actually working. Good coaches know how to recognize that and call it out. Coaches also challenge people when they’re willing participants, but are not stepping up or taking the risks.

What are turning points in a coaching program?

There is a positive turning point when the organization’s sponsors first see that the coaching is paying off. But the first individual turning point is not always a good one. When people start the coaching, they establish some useful areas to focus on with their coach, and they get into action. They get the low-hanging fruit and make some easy changes. But sometime around the third or fourth session, they’ll get up against it with actually challenging themselves to do something that’s hard. They become a disillusioned learner and hit the wall. The coaches know this happens, and they’re very adept at helping them work through to the next level of having a win.

How is a coaching relationship concluded?

It’s a mark of a novice or unethical coach to try to keep himself in the game. Both you and your coach have to aim for a good ending point. If you complete the program and say, ‘Wow! I want to keep working with my coach to accomplish a whole new set of objectives,’ that’s fine. But when executives hang out with their coach without clear objectives, action items and milestones, organizations start to feel like they’re wasting money — and they are. Unless the mission is clear, nobody will know what has been accomplished.

Can coaching become a permanent activity?

The amazing part of coaching is that when you’re facing big transitions — a job change, a move to a different company, a huge promotion, or you’ve left the work-force to become a full-time mom — it’s great to be able to go back to your coach. You can cut right to the chase because there’s all that history, and the coach understands your values and who you are.

MADELEINE HOMAN is founder, Coaching Services, at The Ken Blanchard Companies, a global leader in workplace learning, productivity, performance and leadership effectiveness. She can be reached through The Ken Blanchard Companies Web site at

Sunday, 25 November 2007 19:00

The right way to sell

Detroit once hosted a groundbreaking and dynamic sales conference. Its mission was to promote the dignity of sales-manship and thousands of representatives showed up, including top executives from Ford, NCR and Cadillac.

Another leader in attendance was the 28th president of the United States, Woodrow Wilson. The year was 1916.

“We’ve been talking about improving the image of the sales profession for over a 100 years,” says Dr. Terry Loe, associate professor, Kennesaw State University. “Finally, thanks to the movement in business and higher education to get people trained in the area of sales, I think we’re going to make a difference.”

Smart Business spoke with Loe about how the best companies are training their sales forces and how the latest iteration of college marketing graduates may help vanquish the negative stigmas attache to the sales profession.

What foundations of selling will always be relevant?

It’s not a shock that when we’re talking about selling, we’re talking about communication and persistence. Notably, a recent study — a meta-analysis of earlier studies — came up with 114 different variables that had an impact on sales, and not one of them accounted for more than 10 percent. Adaptability was high on the list as a key trait that deals with critical thinking skills and problem-solving skills to provide solutions.

What spawned the negative stigmas attached to selling?

The first peddlers, at least in the U.S., went from town to town with their cart, bringing news, information and products. People loved to see them. But when the industrial revolution spawned the mass production of goods, companies realized that just because you had product, it didn’t mean it was going to fly off the shelves. So, quotas were developed and salespeople were asked to push their products. In the 1960s and 1970s, it no longer worked to con or manipulate somebody, so companies had to start looking more at what the customers wanted and needed.

Meanwhile, nobody really trained the sales-people. Companies gave them a lot of product knowledge and sent them off to get people to buy their goods. That’s pretty much the genesis of why we have a lot of the stereotypes we have now.

What trend is demanding even more from sales-people?

Companies, rather than having dozens and dozens of suppliers and vendors, are now cutting that number by 50 to 75 percent. So instead of spreading it out, they’re cutting down to fewer relationships with companies they can trust.

How are the best companies increasing the skills and ethics of their sales teams?

Normally, companies bring in salespeople and then give them weeks of product knowledge training, without ever helping them to understand basic sales skills. The best companies are actually teaching their sales force the selling process and how to improve it, including how to prospect, how to communicate to better understand the customer and how to break down barriers to communication to better help the customer. In any relationship, including marriage, you’re going to have a good relationship if you understand the other person because then you can help to meet his or her needs.

Why should CEOs take a closer look at sales?

Companies tend to view their sales force the same as they do other employees. But salespeople are in a uniqu situation — they’re the boundary spanners, the people who have the most contact with customers, and they’re the ones in the public eye. They represent the company, they represent the product, and they represent the industry. The CEOs and leaders who understand this do a good job of making sure their salespeople are representing them in a manner that is beneficial not only to the business-client relationship, but to their public image as well. That tone starts at the top and must be communicated not only to sales, but also to marketing, accounting and every other aspect in the firm.

How are colleges and universities changing the face of sales?

Our corporate partners are telling us that they are looking for businesspeople who can read their customers’ business statements and understand their balance sheets so they can help them do their business. That’s where the companies are going now, and that’s what we’re teaching. Prior to 1994 there were hardly any universities who taught sales. It was mentioned in marketing classes but was never considered a viable pursuit for learning. The facts are that about 75 percent of all marketing majors coming out of universities go into sales. With that kind of pressure from the market to provide sales candidates, we’ve gone from one or two universities with sales centers and sales programs to 12 with sales centers, and many more with a sales curriculum. Now, students are learning the sales process, and learning it in a way that will enhance the integrity, professionalism and character of the sales profession.

TERRY W. LOE, Ph.D., is associate professor, director, Center for Professional Selling, and director, National Collegiate Sales Competition, Kennesaw State University. Reach him at (678) 797-2017 or

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