While the U.S. manufacturing sector has been resurgent for three years and counting, the recovery cooled a bit in the third quarter — and there’s no clear consensus among experts as to the reasons why. The reasons for this leveling off are varied and complicated.

Many experts have lists of theories to explain the slowdown, but there’s a lot less consensus among these authorities’ theories than you might expect. There is one commonality, however, among the experts’ opinions. They remain guardedly optimistic that the rebound will continue but at a slower pace.

“We’re definitely seeing a little bit of a blip in our multiyear recovery over the last couple of months,” says Chad Moutray, chief economist for the National Association of Manufacturers.

“What’s causing that blip is uncertainty — uncertainty caused partly by the ‘fiscal cliff’ everyone has been talking about, partly by the [economic] problems in Europe and a few other factors. We haven’t solved these problems yet, and it doesn’t look like we’re going to be solving them anytime soon, so that’s a headwind that we expect is going to be persistent over the next few months and probably longer.”

What happens domestically over the next few months will be hugely important for U.S. manufacturers over the next year or two. That includes next month’s election, how steep the so-called “fiscal cliff” drop-off turns out to be at the beginning of 2013, and then the subsequent direction of the U.S. economy thereafter.

“The biggest unknown out there right now for the U.S. economy is the ‘fiscal cliff,’ and the fact that on Jan. 1, assuming that Congress doesn’t act between now and then, we’re going to see tax increases and spending cuts of around $500 billion to $600 billion,” Moutray says. “That obviously could have some dire consequences for the economy. We’ve had the Congressional Budget Office and a lot of others saying we could have a recession early next year if that’s the case.

“We’re seeing a lot of people in Washington angling to see if they can try to avert that. But there’s an enormous amount of pessimism that that’s going to happen. So that’s a key thing manufacturers are worried about: the uncertainty over what their tax rates are going to be and what the regulatory environment will be like next year.

“People are very engaged in what’s happening in the U.S. election because it obviously will impact manufacturers deeply.”

Nonetheless, Moutray says that on the whole, U.S. manufacturers’ outlook for 2013 is positive but guardedly so.

“Of course, that could all change very quickly,” he says. “We’re seeing some pessimistic numbers coming out right now, which I think should be a wake-up call to folks in Washington that, ‘Hey, maybe this is something we’d better act on. We need to reduce the level of uncertainty in the economy that’s out there.’ ”

Scott Paul, executive director of the Alliance for American Manufacturing, agrees that a large number of concurrent factors have conspired to flatten the U.S. manufacturing curve. One crucial factor he points to is import-export problems with both Europe and China.

“One thing that was helping to drive the boomlet in manufacturing over the last few years was increased demand for our exports to Europe and to Asia,” Paul says. “A key reason for that has been that our exchange rate has been, while not perfect, much more suited to exports than it used to be.”

But the days of gangbuster exports to Europe and China are fading.

“We’ve seen that tailing off dramatically over the last couple of months,” Paul says. “The Chinese are reverting to their traditional strategy of continuing to produce and export as much as they can regardless of what the demand is. That creates problems for other countries such as the United States. At the same time, we’re seeing the value of the Chinese currency take a nosedive. That, to me, is troubling.”

Exacerbating this set of complications coming from Asia is a different kind of economic headwind pushing across the Atlantic from Europe.

“Some of Europe is headed back into a recession again, related to the debt crisis financial situation,” Paul says. “That has an impact on demand, on unemployment, on a lot of things. And that, in turn, impacts U.S. manufacturers, because Europe is an important market for us.”

Swinging inventory

Cliff Waldman, senior economist for the Manufacturers Alliance for Productivity and Innovation, is another insider who attributes the U.S. manufacturing slowdown to a convergence of several factors. Waldman postulates that the key factor was the sharp inventory fluctuations that took place during the recession and in the years since.

“Over the last three to four years, the U.S. economy had probably the sharpest inventory swing in modern history,” Waldman says. “During the panicky days of 2008 and 2009, inventories were liquidated very rapidly. Some companies were liquidating inventories just to raise cash.

“So then, even though we had just a modest turn in the economy after the recession, there had to be a rapid restocking of the shelves just to handle that moderate traffic. That got our factories humming again. If you think about it, manufacturing essentially produces inventories for the economy. So that helped a lot.”

Now, though, the manufacturing sector has caught up with the shelf shortages, so the inventory catch-up surge that got the factories buzzing is dying away.

“The inventory swing is finite,” Waldman says. “Eventually the stocks on the shelves reach short-term equilibrium with the pace of sales. It’s a one-shot deal, in effect. It comes back to equilibrium.”

Another factor in the slowdown has been economic volatility in countries that Waldman labels emerging markets.

“After the recession, we had a stronger and a faster rebound in emerging markets, particularly some of the larger emerging markets, than people had thought,” he says. “China, India, Brazil, Mexico — these markets all felt the downdraft of the crisis in the industrialized world, and they certainly slowed.

“But they implemented policies rather quickly and came back rather quickly. As we all know, over the last decade, U.S. manufacturing has been making a lot of investments in those markets, and the health of those markets has been increasingly important for U.S. manufacturing profitability. This helped propel manufacturing into a more normal recovery than almost any other sector of the economy. That’s why manufacturing was able to lead the recovery.”

However, that’s another development that can be added to the list of trends that drove the manufacturing rebound but have now begun to slow down.

“Now, the storyline is changing,” Waldman says. “The global situation is troublesome, particularly for manufacturing. The activity in the emerging markets is slowing dramatically. That’s why we’re seeing that manufacturing is not really the leader anymore. It’s starting to get mixed up with the troubles of the U.S. and the global economies.”

Durable drivers

But not all of the recovery-driving trends are disappearing. Some look like they’ll have staying power, and that endurance should, barring other unforeseen problems, continue to keep the U.S. manufacturing rebound at least somewhat on track.

Exhibit 1 — leanness and efficiency: “Manufacturers have been able to take advantage of being much more lean and efficient, which has improved their overall competitiveness,” Moutray says. “When I look at the sectors that have done well the last couple of years, I think they’ve taken advantage of exports, which speaks to that level of increased competitiveness.

“Exports are going to be an evermore important part for the manufacturing sector. I think we’re going to continue to find ways that we can better compete.”

Another manufacturing-positive trend expected to have staying power is U.S. manufacturers’ increased competitiveness, which is being fed by several factors: advances in technology, consequent gains in productivity and decreases in costs, particularly energy costs.

“We definitely have seen a little bit of a sea change in terms of the overall competitiveness of U.S. manufacturing,” Moutray says. “Nearly every manufacturing sector is becoming more efficient by using technology. That’s why we’ve seen such huge gains in overall labor productivity the last few years.

“U.S. labor productivity grew more than 5 percent in the first quarter of this year. In the durable goods sector, it was almost 10 percent. Those are unheard of levels of labor productivity growth, and as a result, we’ve seen the overall cost of labor per unit fall dramatically. That has helped keep U.S. manufacturing more competitive.”

Declining energy costs have also been a boon to U.S. manufacturers’ attractiveness relative to foreign competition.

“Another key reason why we’ve seen this boomlet in manufacturing is that energy costs have come down with so much natural gas coming online,” Paul says. “That, in itself, has spawned an industry: supply pipe that goes into the natural gas. But more broadly for manufacturing in general, especially energy-intensive manufacturing sectors, it has helped to bring down their energy costs. And I see that continuing to be a very strong factor.”

Reshoring is another trend expected to have some durability, and thus continue to help U.S. manufacturing sustain its recovery to some degree, Waldman says.

“What appears to be happening — and underline appear, because it’s still in its early stages — is that for global manufacturing supply chains, which are spanning many countries these days, the U.S. is playing a somewhat better, stronger role in terms of production in those global manufacturing supply chains,” Waldman says. “It’s being driven by multinational decision-makers. When they look at the map of their world, U.S. manufacturers are looking more attractive.

“That’s because there are a lot of hidden costs to doing business and to having a production presence in a low-wage economy, and those costs are now becoming less and less hidden. And while the benefits of market potential in emerging economies are tremendous and always will be, these multinational decision-makers are beginning to realize that the costs are a little higher than they thought, so that puts the U.S. and North America in a better position.

“This is clearly a positive for the strength of U.S. manufacturing, and it’s something I think the United States needs to see as a glimmer of light and to capitalize on.”

Policymakers are expected to play a crucial role in the coming years in terms of whether the manufacturing sector continues to recover and perform well.

“We’re in a time that’s somewhat similar to just after World War II, in the sense that policy matters a great deal these days,” Waldman says. “And not just U.S. policy; central bank policies and fiscal policies around the world are absolutely crucial now.

“We’re also in a time where you have to watch policymakers. Manufacturers in the U.S. might have thought some time ago that monetary policy in India or in Europe or even in the Federal Reserve was a bit removed from their business, a bit arcane. Not these days. They need to follow it. It’s crucial. And the same holds true for fiscal policies.

“Over the long term, getting past the sluggishness and the challenge of this year and the next couple of years, we need to make policies that engender long-term investments in our workforce, in innovation, in technologies. So policy around the world matters more to manufacturers now than it has in a generation.”

In the big picture, the resurgence of U.S. manufacturing during the last three years has changed the way the public and political leaders view manufacturers and their role in the economy and in society, and that bodes well for the future of the domestic manufacturing sector.

“I think it’s healthy that we’re hearing more talk about the importance of manufacturing than we have in the past by everyone,” Paul says. “There’s this realization that it has to be part of our future, and everyone — particularly those in leadership positions — seems to be embracing that. I think that’s a very good thing.” <<

How to reach: National Association of Manufacturers, www.nam.org; Alliance for American Manufacturing, www.americanmanufacturing.org; Manufacturers Alliance for Productivity and Innovation, www.mapi.net

Published in National

U.S. manufacturers should continue to fare well in 2013, although next month’s election is a wild card that could change that outlook to some degree.

“U.S. manufacturing should do well next year, but a lot depends on the election and policies that the newly elected president and Congress may or may not undertake,” says Stuart Hoffman, chief economist, PNC Financial Services Group. “We’re assuming that some of what’s being called the ‘fiscal cliff’ will probably go into effect but not enough to be fatal to the economy.”

Hoffman expects that most manufacturing sectors will continue to do well, including household goods, energy-related manufacturing, farming equipment and nondefense aerospace manufacturing. Construction-related manufacturing is expected to be a particular bright spot, and automobile production should continue to fare well, though less robustly than the last couple of years.

“We think auto production will still be rising, so auto manufacturers and the related supply chain should do well,” Hoffman says. “It won’t be a big increase over this year. The rate of increase for next year will probably be around 5 percent, whereas this year it’s double-digits.

“But auto production will still be operating at an overall higher level — a higher production level, a higher employment level, a higher productivity level and, ultimately, a higher sales level.”

A few manufacturing sectors are expected to cool down, including heavy truck production, tool and die, defense aircraft (though that too depends on the direction of post-election government policy) and raw materials such as steel, copper and aluminum.

“Production of raw materials is more of a global issue, and while we don’t expect the global economy to fall into recession, we have seen global problems with steel slowing down and a tremendous amount of supply,” Hoffman says. “Some steel companies might not be all that profitable because of the increase in supply, and global supply could easily meet if not exceed the rise in demand.” <<

To learn more, listen to Stuart Hoffman on PNC’s 2012 National Economic Outlook webinar on Nov. 8. To register, go to www.csvep.com/pnc/110812flyer.html.

Published in National
Sunday, 30 September 2012 20:00

Manufacturing-related books for CEOs

? The 12 Principles of Manufacturing Excellence: A Leader’s Guide to Achieving and Sustaining Excellence

Larry E. Fast

Productivity Press, 266 pages

“The 12 Principles of Manufacturing Excellence” provides a practical approach for implementing and sustaining business strategies that promote manufacturing excellence. The author explains how to inspire top-notch performance while creating an atmosphere that encourages leadership and mentoring.

He provides examples that illustrate how companies have achieved vertical and horizontal alignment, he explains how to instill a culture that sustains high-quality and world-class performance via 12 principles of manufacturing excellence, and he provides methods to track progress by plant and by function, emphasizing lean manufacturing and Six Sigma tools to improve manufacturing operations.

? The Toyota Way to Lean Leadership: Achieving and Sustaining Excellence through Leadership Development

Jeffrey Liker, Gary Convis

McGraw-Hill, 272 pages

Many companies across the globe have adopted lean manufacturing practices but few have attained or maintained the levels of excellence that Toyota has. “The Toyota Way to Lean Leadership” sheds light on some of the reasons for this.

Liker and Convis (the former is the author of the popular “Toyota Way” series, the latter a former executive VP and managing officer of Toyota) offer practical ways for executives to spur their employees to focus their efforts on collaborating with co-workers to drive continuous improvement throughout the organization. Case studies demonstrate the methods Toyota uses to produce powerful, capable lean leadership.

? Supply Chain Transformation: Building and Executing an Integrated Supply Chain Strategy

J. Paul Dittmann

McGraw-Hill, 256 pages

As manufacturers expand their offerings and look for new ways to lower their cost structures, the complexity of their supply chain naturally increases. “Supply Chain Transformation” tackles this issue head-on, introducing a strategic framework aimed at helping manufacturers develop a first-class supply chain strategy.

Dittmann presents nine clear, concise steps for manufacturing executives to follow as they retool to improve their company’s management of supply chain dynamics. The book contains numerous real-world examples that illustrate the difficulties inherent in gaining organizational support for the major investments involved in reworking a company’s supply chain strategy. <<

Published in National

An accountant can serve many types of roles for CEOs, from hands-off keeper of the books to proactive, fully engaged adviser. It’s up to executives to decide how heavily they want to rely on their accountants. But in general, the more interaction they have, the fewer financial surprises they’ll run into.

“I’ve been on both sides of the aisle,” says Marty Doerr, member-in-charge of the Tax Services Group of Brown Smith Wallace LLC, who earlier worked for a decade and a half as head of the tax department at May Department Stores. “I would just say, from a CEO perspective, it’s really helpful if he includes his CPA, whether it’s in-house or his adviser, as part of the team. Sometimes the CEO thinks of the taxperson as the guy who’s supposed to give him the answer after he’s given him the facts. But they need to be involved in helping create the facts.”

Sales of real estate and major asset purchases are two of the critical transaction types for which business executives should seek expert financial advice beforehand rather than afterward.

“You can’t have that input unless you’re at the table when they’re doing the transaction,” Doerr says. “That’s what I mean by being on the team. It can save a lot of hassles and probably taxes and maybe penalties, if you can weigh in before those transactions have already happened. It’s a matter of having somebody there who has their tax antenna up all the time.”

The unpredictability involving the upcoming election and how it will affect next year’s tax rates makes CEO-accountant interaction even more crucial this year.

“It’s so uncertain right now what’s going to happen with [tax] rates,” Doerr says. “Of course it’s an axiom that you don’t let the tax issue wag the dog, but most people think rates are going to go up next year. And any time we’re into that kind of a situation, particularly in an election year, it makes tax planning that much more difficult. So I would encourage management to keep the dialogue open.”

Marty Doerr, member-in-charge of the Tax Services Group of Brown Smith Wallace LLC, is responsible for overall client service and technical oversight of the tax practice, as well as training staff on best practices and new tax developments.

HOW TO REACH: Brown Smith Wallace LLC, www.bswllc.com or (314) 983-1200

Published in St. Louis

An accountant can serve many types of roles for CEOs, from hands-off keeper of the books to proactive, fully engaged adviser. It’s up to executives to decide how heavily they want to rely on their accountants. But in general, the more interaction they have, the fewer financial surprises they’ll run into.

“If you want to derive the most benefit, you have to work with your accountants year-round,” says Steve Christian, managing director at Kreischer Miller. “If you just want a scorekeeper who prepares a financial statement and a tax return and don’t want to include him in your team of advisers, you certainly don’t need to. But most progressively minded companies try to surround themselves with good advisers. And the way you become a good adviser is to intimately know the company you’re advising and spend as much time with them as you can, 365 days a year.”

Often, accountants can steer a company clear of pitfalls that might have adverse tax or financial consequences.

“Sometimes you enter into a transaction — you buy a company, you buy some equipment, you do something related to a transaction — and it will have some negative impact as to the financial statement or the tax returns,” Christian says. “Our value takes place by guiding you through the impact of transactions, as opposed to the value of preparing a return or preparing a financial statement. That’s why we really think you need to call us before you act rather than after you act.”

Advice on best practices in a client company’s market sector is another area in which accountants can provide value.

“CEOs know their companies intimately, but unless you belong to a peer group or something like that, you may not have many opportunities to see what best practices other companies are utilizing,” Christian says. “Meanwhile, your accounting firm may support 1,000 different clients out there. So while we may not have the answers to everything, we can tell our clients what we’re seeing is happening with other companies, and they can use that information take advantage of best practices.”

Steve Christian, managing director with Kreischer Miller, has a range of experience providing business advisory, audit, accounting and tax services to a variety of businesses, including privately held companies, partnerships, and SEC registrants.

HOW TO REACH: Kreischer Miller, www.kmco.com or (215) 441-4600

Published in Philadelphia

An accountant can serve many types of roles for CEOs, from hands-off keeper of the books to proactive, fully engaged adviser. It’s up to executives to decide how heavily they want to rely on their accountants. But in general, the more interaction they have, the fewer financial surprises they’ll run into.

“If you think about just the tax piece of it, the tax law changes so fast and it’s so politically charged that it’s a bit of a lightning rod for an awful lot of what’s going on,” says Mark LaPlace, director of tax services with GBQ Partners LLC. “The speed with which some of these law changes take place significantly impacts the way executives operate their businesses. So that makes having regular dialogue with your financial team paramount.”

With the upcoming election and with several federal tax provisions set to end this year, tax rates are going to change dramatically next year.

“The query then becomes what decisions that CEOs are contemplating making might have a very different tax result if the decision is made in 2012 versus 2013,” LaPlace says. “You want to try to avoid some of the rate changes that are already on the books that are going to take place next year. You could do this by accelerating income, accelerating stock options or — even though this is a bit of a counterintuitive position — you might want to defer certain tax deductions because next year’s going to be a higher-rate year.”

LaPlace says his firm has begun factoring regularly scheduled meetings into its proposal process when taking on new clients.

“We’re proposing that we meet at least quarterly and, ofttimes, more often than that, depending on the size of the company,” he says. “We’ve gotten very systematic in our shop in saying that’s part of our process of accepting a new client. We lay it out there up front. And we’ve been amazed at how this creates great dialogue, which then avoids some of the negative circumstances you can run into. We’re finding this to be a very effective technique.”

Mark LaPlace, director of tax services with GBQ Partners LLC, specializes in tax planning and consulting for middle market and entrepreneurial companies, and tax and financial planning for professional athletes and other high-net-worth individuals.

HOW TO REACH: GBQ Partners LLC, www.gbq.com or (614) 221-1120

Published in Columbus

An accountant can serve many types of roles for CEOs, from hands-off keeper of books to proactive, fully engaged adviser. It’s up to executives to decide how heavily they want to rely on their accountants. But in general, the more interaction they have, the fewer financial surprises they’ll run into.

“Usually, by the time the end of the year rolls around, there’s very little ability to interact proactively before things occur,” says Walter McGrail, senior manager of Cendrowski Corporate Advisors. “Year-end planning is basically summarizing what you did. There may be some limited opportunities to postpone or accelerate some things. Whereas meeting throughout the year is clearly a more well-intentioned way to get to the bottom line of maximizing tax savings.”

It’s almost always best to give your accountant an opportunity to weigh in ahead of time on most nonroutine types of transactions.

“After a major transaction has occurred, the only thing you can do is post-mortem type tax planning,” McGrail says. “When it’s already cast in stone, all you can do is take a look at the documentation and advise what the tax ramifications will be. But if you had been put in touch with somebody earlier, perhaps through some proper tax planning you could have changed the character of income recognition or postponed the taxability for a year.”

CEOs who consult with their accountants regularly and ahead of time on major transactions are much more likely to get good value for the services their accountant provides.

“These are the types of things that help make me an investment rather than an expense,” McGrail says. “The two things that your tax adviser should be able to help you with are making sure you take into account the most advantageous tax rates and, whenever possible, delaying paying taxes to the following year. Delaying a tax payment by a year saves the present value of that money. Character and timing are always the biggest issues in the tax planning arena.”

Walter McGrail, senior manager of Cendrowski Corporate Advisors, provides tax and business consultation to public, private, and family-owned businesses, as well as accounting malpractice defense and forensic accounting services.

HOW TO REACH: Cendrowski Corporate Advisors, www.cca-advisors.com, (866) 717-1607

Published in Chicago

An accountant can serve many types of roles for CEOs, from hands-off keeper of books to proactive, fully engaged adviser. It’s up to executives to decide how heavily they want to rely on their accountants. But in general, the more interaction they have, the fewer financial surprises they’ll run into.

“The more contact we have, the better,” says Leif Erickson, associate director in the tax department of SS&G. “It’s really crucial, especially right now, with everything that’s going on. There’s so much uncertainty out there with regard to the tax law and the new things that are coming on the horizon.”

A key area that Erickson says he’s been helping clients with is business combinations, in which a companies seek to buy a portion of another company and they need to decide whether to structure the transaction as a stock acquisition or an asset acquisition.

“Getting us involved on the front end can help to at least lay out the tax consequences of structuring the transaction this way or that way,” Erickson says. “And a lot of times, the tax ramifications are not necessarily at the forefront; the tax side isn’t really going to be the driving force behind the decision. But it’s at least something that the CEO and CFO can think about — these are the things that are out there, these are the benefits, these are the things that maybe we want to negotiate as part of the deal.”

Another important area is inventory management, especially when inventory quantities rise quickly over a short period.

“A client recently came to us, and they’d had a tremendous spike in their inventory and were experiencing tremendous price increases,” Erickson says. “So we looked at it, and we said, ‘Have you looked into LIFO [last-in, first-out inventory accounting]? They hadn’t given it much thought. By switching them over to LIFO, it produced huge savings. The first year, I think we got a $700,000 reserve for that client, so that was an added deduction of $700,000. We were able to turn it into a big positive with regard to the tax side of things.”

Leif Erickson, associate director in the tax department of SS&G, specializes in corporate and individual tax planning, FAS 109 calculation, LIFO studies and cost segregation studies.

HOW TO REACH: SS&G, www.ssandg.com, (330) 668-9696

Published in Akron/Canton
Monday, 30 April 2012 20:01

Reliable counsel

How often do CEOs need to talk to their accountants in order to effectively manage their company’s finances? Obviously, this question can’t be answered with a simple blanket statement: “X times a year for a total of Y hours should do the trick.” There are too many different types of businesses, each with different amounts of expertise and unique needs of their own.

But if you talk to even a small number experts in the accounting field, a couple of themes emerge. One is that when CEOs are contemplating unusual transactions, it’s always better to err on the side of having too much contact with their accountant than not enough. Another refrain is that any time a CEO has any doubts or unease about an upcoming transaction, it’s definitely time to call your accountant to let him or her know you have something you need to talk about.

“Typically, in a larger company, the CFO would take on that role,” says Mark Koziel, vice president of firm services and global alliances for the American Institute of Certified Public Accountants. “But what about the CEO who doesn’t have the C-suite and the finance function inside their organization? That’s where, in particular, we talk a lot about being the trusted business adviser for that CEO. Especially in family-owned businesses, you see this a lot. You need that financial adviser, but you may not need them full time, so you can lean on your CPA on a regular basis throughout the year.

“They should be there for part of the strategic planning sessions. If the CPA knows what’s going on throughout the year and is present for discussions about important things like expansion, employment and succession, then they can be better informed for when they do the year-end planning and consulting.”

The benefits of touching base periodically with clients throughout the year, not just at year end, is a common theme among those with experience in the accounting field.

“When you meet with clients during the year, you can go over their financial statements, among many other things,” says Sharon Cook, president of the National Society of Accountants. “You can make sure they are doing everything properly. And you can make suggestions about some of the other things they need to do, for taxes and for other financial purposes.”

Think, talk, transact

Talking to your financial team throughout the year enables your experts to make suggestions in advance of key transactions that can greatly alter the tax and financial impact of those decisions.

“When you get to year end, depending on what the CPA is doing for you — if it’s a compiled financial statement, an audited financial statement, a tax return — there are definite tax implications that could be affected,” Koziel says. “And maybe some decisions would have been made another way if the CEO had considered the tax implications of what they were about to do.”

Making assumptions on your own rather than asking professionals for guidance can lead to unpleasant surprises. Accountants come across these types of situations frequently in their daily interactions with clients.

“A situation that I find clients often have problems with is, for example, in a year in which they’re expecting a large profit, they want to be able to reduce that,” Cook says. “So one of the first things they think about buying is a car, because they think they’re going to be able to write that car off in full in the first year. Then, by the time you get the books and you’re ready to do the tax return, you have to tell them, ‘Guess what — you’re not going to be able to do that. You’re going to have some limits in terms of what you can deduct this year.’”

For many types of nonroutine transactions, getting advice beforehand from your accountant or finance team is almost always the wisest course for business executives to follow.

“Some of the types of transactions that should be discussed ahead of time would be, for instance, any type of big-dollar purchases that they’re looking at,” Koziel says. “Buying versus leasing is one that needs to be looked at carefully, such as whether you want to buy or lease a building. Another important one is business expansion: If they’re looking to buy a business or even sell their business, the whole M&A transaction and how that will take place is a very important thing to consider.

“Major investment decisions along the way could have significant impact. And succession of the business — that’s another huge issue. You should be having big-time conversations about that early on.”

Other nonroutine transactions that should be reviewed carefully ahead of time include borrowing money, major equipment purchases and like-kind exchanges.

“Before you do a like-kind exchange, you should definitely talk to your accountant to make sure it’s done properly so it won’t be disallowed somewhere down the line,” says Cook. “There are many types of like-kind exchanges. It could involve property that they own. A lot of times, especially in smaller businesses, it may involve cars or equipment that they have around, where they can exchange it and therefore not pay the tax that they would have had to pay if they had sold it directly to someone else.

“Any time a CEO wants to make a big expenditure on any kind of equipment, they need to talk to their accountant to make sure they’re getting the benefit of everything they have, especially if they want to borrow money to pay for it. Because if they want to borrow money, they’ve got to figure out, ‘What is that going to do to my bottom line? Is this something I really need to do, and is it right for me?’”

Multifaceted advice

An accountant’s value to a CEO or a client company isn’t limited to figuring out the tax effects of transactions before they’re entered into. There are many other types of general business issues for which an accountant can provide valuable advice.

“Strategic planning is a big one,” Koziel says. “One of the best services a CPA can provide to a CEO is to just get them in a room for a day and sit down and talk about the business. Do a strategic planning session. Make it formal, kind of like a board of directors meeting.

“Having frequent conversations throughout the year is useful in many ways. The beauty of the CPA environment is you gain a lot of knowledge about particular industries. Take construction, for example. Typically, the CPA has more than one construction contractor client, so they see good habits and bad habits that are out there, based on other businesses in that market. And they also can sometimes translate things to other types of businesses. Maybe it’s a customer service strategy in a certain retail business that could be replicated in, let’s say, a not-for-profit that you might have as a client.

“The ability to observe how a variety of different businesses operate and being able to assess the good habits from the bad habits and recommending the good habits to other types of businesses that are in their client base — these are valuable services that CPAs are in a position to offer.”

Another important service that accountants can provide is keeping tabs on key financial line items to watch for significant changes, then investigating those changes to determine the factors that are causing them, and, if needed, recommending ways to counteract the changes.

“If you keep in close contact with your clients, especially if they’re doing their own accounting in-house, one of the things you can do is review their gross profit percentages,” Cook says. “Are they staying consistent? Are they changing dramatically from one period to another? What’s the cause of that? And you can sit down and go over that with them and see if there’s a problem. It may be in their inventory control, if they have inventory. Or is the cost of their regular purchases going up? And if so, what do they need to do to offset that? Does that mean that they need to find a way to increase sales? Or do they need to have better controls on what’s in inventory and how it’s coming out of inventory?”

The definition of trust

One of the accountant’s main goals is to achieve trusted business adviser status with his or her clients. It’s a prestigious standing, and it must be earned over time.

“It’s about giving your clients the absolute best service you can provide,” Cook says. “To be able to review and make sure they’re handling their affairs properly, to produce good financial statements, to have the best possible relationship between the accountant and the CEO, and ultimately, to make sure that their business prospers. That’s the key. That’s what you aim for.”

Koziel concluded by telling a story — “the ultimate story of a CPA as a trusted adviser,” as he calls it.

“I was at lunch with a CPA friend of mine about a month ago, and he says to me — because he’s heard me say time and again: ‘Trusted adviser, trusted adviser’ — he says, ‘You know, I never really understood the meaning of “trusted adviser” until just this past weekend. I got a call from the wife of a client of mine. The client is a construction contractor; he owns a construction business.’

“This guy was a huge car buff and had a warehouse full of antique cars. He was in the warehouse tinkering one day, and he fell to his death off of a ladder — changing a light bulb, of all things. So he says to me, ‘I’m sitting there last weekend, and this client’s wife calls me. … A little while later, I’m in her living room. It’s the wife, the two daughters, the two son-in-laws and me.’ He says, ‘That is the trusted adviser relationship. That’s exactly what you’ve been talking about. The only one that they felt comfortable enough with — the only one they felt confident enough with as the outside consultant to the family — was me. It’s almost like I was part of the family.’

“That’s the type of relationship that you start to see in these businesses with their CPAs,” Koziel says. “And as a CEO, if you don’t have that trusted adviser relationship now — well, we’re talking about your life’s savings. Whether it’s invested all in the business or whether it’s held in other types of assets — these are your life’s savings. Who are you going to trust with those types of decisions? And you’d better have that person with you year-round, to help you make better decisions all along the way.”

HOW TO REACH: American Institute of Certified Public Accountants, www.aicpa.org; National Society of Accountants, www.nsacct.org

Published in Akron/Canton

A growing number of business executives are taking to blogging, and with good reason. The benefits of well-executed CEO blogs are significant and vast. But blogging from the C-suite has plenty of pitfalls, too, particularly legal ones. So it’s essential to plan strategically to make sure your digital journal exploits the power of the form while avoiding the legal traps associated with executive-penned blogs.

“There are obviously terrific benefits to be gained from executive blogging,” says Tim Van Dyck, a partner in the Boston-based law firm Edwards Wildman Palmer LLP. “More and more CEOs are part of the Google generation and, therefore, feel more comfortable about blogging than, certainly, people in my generation do.

“The executive blog is a wonderful egalitarian method of communication,” adds Van Dyck, who chairs Edwards Wildman’s labor and employment group. “It can be a very powerful marketing tool. It can be a very effective means to recruit employees and to communicate and organize knowledge. It’s a great way to share information with clients and vendors. And it’s also a wonderful opportunity to put a human face on a company and to offer an exclusive look at the inner workings and culture of a company that traditional media can’t parallel.”

Nancy Flynn, executive director of the ePolicy Institute and author of several books on corporate blogging and social media, concurs, noting that blogs “can be a great way for C-level executives to communicate with customers, prospects, potential employees, decision-makers, the general public and the media.”

Watch for potholes

Those are a few of the benefits CEOs can realize for their companies by blogging. But those potential benefits are surrounded by serious hazards, says Flynn, whose books include “Blog Rules” and “The Social Media Handbook.”

“CEO blogging opens the organization up to a broad range of potentially costly risks, including workplace lawsuits, regulatory fines, lost productivity, public relations nightmares, security breaches and mismanaged business records,” she says. “Any time any employee or executive, right up through the CEO ranks, blogs on behalf of the organization, you really have to take a strategic approach to that blog, and you have to adhere to your organization’s blog policy, your content rules, your ‘netiquette’ guidelines and all of your other employment policies, including harassment and discrimination, code of conduct, and on and on.

“Long story short, you have to be mindful of the fact that content creates risk, so the easiest way to control electronic risk is to control your content,” Flynn says.

So what’s the best way to control that content? According to Van Dyck, having a corporate blogging policy is a must — and not merely having such a policy in place but steadfastly enforcing it.

“The company’s blogging policy needs to be clear and unambiguous in terms of explaining what kinds of blogging are appropriate and what kinds of blogging are inappropriate,” Van Dyck says. “And that policy needs to be enforced uniformly so that all employees, including executives, are subject to it. Particularly with respect to executives, who come into daily contact with proprietary insider information. The company should identify a gatekeeper, such as an in-house counsel, who reviews any executive blogging material before it’s posted. In other words, there needs to be a filter before it goes out.

“Obviously, both the executive and the company need to make clear that the blog is being monitored by the company,” Van Dyck says. “The executive, I think, needs to make sure that whatever is being blogged about is not subject to misinterpretation. Even something as innocuous as an executive saying, ‘Something big’s going to happen with the company,’ is a potential minefield. That could be construed as the company going public or the company being bought or entering into a new product line. And all of those things really need to be kept confidential.”

The corporate blogging policy should extend beyond the executive who is writing the blog. Comments appended to blogs by readers have to be monitored, as well, Flynn says.

“If CEO bloggers are going to allow third parties to comment on their blog, then you want to post a policy on your blog — your community blogging guidelines — to let those third parties know that, ‘Yes, you’re welcome to post your comments on our blog in response to our CEO’s posts, but here are the rules — here’s what’s allowed, here’s what’s not allowed.’ And you want to, either through technology or through a human set of eyes, monitor those comments,” Flynn says. “You definitely want to review those comments before they go online. Because you don’t want something posted that is unlawful or uncivil or a poor reflection on your company.”

Vet, vet, vet

Another must for executive bloggers, in order to avoid falling into one of the many legal traps associated with the form, is to have all blog posts reviewed by a legal expert before they’re launched into cyberspace.

“I know that the blogosphere doesn’t like to hear this, but I think having blog posts vetted before they’re published is a great idea,” Flynn says. “It’s something that I recommend to all of my clients. Here’s why: You wouldn’t publish your organization’s annual report without having it reviewed by your marketing department and your legal department. You need to think in terms of your blog posts as reflections on your company. And that content in those blog posts is as fraught with potential risks as any other kind of literature your company puts out.

“Just because blogging is electronic doesn’t mean that you can play fast and loose with the language,” Flynn says. “It is a more casual way of communicating, but in spite of its casual nature, it’s still fraught with real potential problems. So I do think it’s a good idea to have legal take a look at blog posts, particularly if it’s the CEO, because the CEO is the last person who you want to be making a gaffe and creating potential problems for your company.”

Van Dyck agrees about the importance of having executives’ blog entries vetted before they’re posted.

“I think that’s a very good idea,” he says. “At least with respect to posts that are authored by high-ranking executives. It gives the executives more protection, and it gives the company greater protection. There’s no downside to having those posts vetted by, if not in-house legal counsel, at least somebody who is aware of and knows what to look for in terms of the risks.”

The trend toward mobile blogging makes preliminary legal review of blog posts even more crucial.

“Technorati recently reported that 25 percent of bloggers are now engaged in mobile blogging,” Flynn says. “So if your CEO uses a smartphone or a tablet to post to your corporate blog, chances are, in that kind of circumstance, the writer might be inclined to take some shortcuts. You might be working a little faster and abbreviating language and maybe not taking as much time to reflect on whether this is really what you want to say or how you want to say it or whether this is something that’s really appropriate to put in the blog or whether this could get us into any trouble. So that’s another reason why I think it’s a good idea to have legal vet those blog posts.”

Keep secrets secret

What’s the most horrible thing an executive blogger can do when he or she writes a blog? What are the worst kinds of messes to avoid stepping in? According to Van Dyck, one of the most egregious errors a CEO can make is to slip up and reveal a trade secret or a similar type of proprietary company information.

“I think the greatest risk is the inadvertent disclosure of confidential and trade secret information,” Van Dyck says. “As we all know, high-ranking executives come into daily contact with company trade secrets and proprietary information. And the advent of executive blogging has dramatically affected who can communicate with whom, when, how, why, and where. Blogging’s availability means that executives can now transform their previously informal personal communications into a published, public document. And that’s a capability that is very much at odds with trade secret laws’ reliance on limited communication.

“In my view, executive blogging has significantly enhanced the likelihood of catastrophic disclosures of trade secrets and other proprietary information, so I think that’s probably the most significant risk associated with executive blogging.”

Van Dyck notes that he’s had firsthand experience with this type of circumstance.

“I had a situation where we represented a company who wound up using information that had been posted on a competitor’s blog,” he says. “The other side came back and explained that it was confidential. And we had a wonderful defense to that, because the information had been disseminated to the public by way of a blog.”

Flynn agrees that it’s critical for executives not bring up anything remotely related to proprietary company information in a blog.

“You have to keep your company secrets close to your vest,” Flynn says. “You want to be real careful that you don’t disclose confidential company information. You don’t want to reveal your secret recipe or expose your trade secrets or talk about your business partners’ trade secrets. Because once the secret’s out there, it’s no longer a secret.”

Flynn points out that it’s also crucial to make sure CEOs’ blog posts don’t violate any regulatory rules.

“Let’s say you do business in the financial services world,” she says. “Let’s say you’re publicly traded. You definitely don’t want to jump the gun and publish any posts related to sales or revenue in advance of the SEC’s specific guidelines on when that information should be released and how it should be released.

“Similarly, if you’re in the health care arena, if you were to post any content that violated HIPAA — if you revealed confidential protected health information related to a patient — you could be in trouble,” Flynn says. “At the end of the day, you really have to look at your blog the same way you should be looking at your e-mail, and make sure you’re adhering to the law and to regulatory rules and to your own organizational guidelines.”

Ultimately, when executives write blogs, they become the online face of their companies, so they had better keep their game face on.

“What C-level and executives and all executives need to bear in mind is that a business blog is different from a personal blog in that it is a reflection of your individual professionalism, it is a reflection of your organization’s corporate credibility, and it does present the organization with a lot of potential risk,” Flynn says.

If the CEO blogger commits a serious misstep, Flynn says, “It’s not the CEO who’s going to be sued, it’s the whole organization.”

HOW TO REACH: Edwards Wildman Palmer LLP, www.edwardswildman.com; ePolicy Institute, www.epolicyinstitute.com

Published in National