Matt McClellan

Friday, 25 September 2009 20:00

Show your commitment

With banks’ commercial loan portfolios under increased regulatory scrutiny, the personal guarantee is becoming a more important structure point for many financial institutions.

Of course, this is a delicate subject for many business owners, as the personal guarantee can place additional risk on the owner as a source of repayment.

“Ultimately, banks want to partner with clients in a way that positions them on the same side of the desk as the business owners they work with,” says Jim Geuther, manager of commercial banking at FirstMerit Bank. “The personal guarantee effectively strengthens the bank-borrower partnership by providing mutually satisfying financing solutions.”

Smart Business spoke with Geuther about how personal guarantees work and what business owners need to know before making one.

What is the purpose of a personal guarantee?

The purpose of the personal guarantee is twofold: It is a risk mitigant for the bank in terms of the overall structure of the loan package, and it serves to properly align the interest of the bank and the guarantor with regard to the commitment to repay the debt obligation.

At its most basic level, a bank provides capital to a commercial venture when there is a valid economic purpose combined with a highly certain ability to return that capital. In completing its due diligence, the bank will place strong emphasis on its sources of repayment. The primary and most important source is always cash flow, while the secondary repayment source is the value of the collateral. If these two sources of repayment show a bit of weakness, the personal guarantee can be enough of a risk mitigant to allow the bank to provide the loan.

What are the different types of personal guarantees, and how do they differ from one another?

There are variations of personal guarantees: the limited guarantee or the unconditional and continuing guarantee, either of which may be secured or unsecured. As the name suggests, a limited guarantee specifies a dollar amount or percentage of the amount guaranteed.

An unconditional and continuing guarantee applies to all of the debt that the commercial borrower has (or will have in the future) with the bank. A secured guarantee takes this a step further, whereby the bank will ask the guarantor to pledge personal collateral.

Who chooses which type of personal guarantee will be needed?

The type is negotiated between the lender and the borrower. The bank may ask for the guarantee in return for providing additional flexibility on some other points of the structure. For example, clients may prefer longer terms on their deals. They may want a two-year line of credit instead of a one-year line of credit. Or they want financial covenants that give them a little more room. The bank may say, ‘We’ll do those things, but we would like to have a personal guarantee.’ It’s part of the overall negotiation process. Unless you’re in a distressed situation — then the bank may require a guarantee in order to continue providing credit. This is typically caused by a shift in perceived risk. In these situations, banks simply want to return the risk profile to the same point it was at loan inception. Often, this can be accomplished by adding a personal guarantee.

How do banks handle distressed situations?

Of course, there are varying degrees of distress. Regardless of severity level, maintaining a cooperative relationship between the bank and the borrower usually leads to the best possible outcomes. Ultimately, banks want to protect their capital and have their loans repaid. When repayment appears to be in jeopardy, there are businesses that result in a wind-down or workout scenario, which is usually one of the last resorts — this is when the personal guarantee becomes an issue for the provider. Typically, the bank and the business owner will work collectively to exhaust the cash flow and collateral repayment sources before looking to the guarantor to cover any shortfall.

Are personal guarantees necessary for every business?

Absolutely not; again, the strength and predictability of the first two repayment sources (cash flow and collateral value) is the largest determinant here. In general, if there is significant cushion over and above the loan amount in those two areas, the owner will not be asked to provide a guarantee.

However, the willingness of an owner to do so can have a material effect on the flexibility of the bank and type of deal structure that can get done. And most significantly, the personal guarantee demonstrates the highest level of commitment in the bank’s view with regard to a successful two-way relationship.

What type of loan flexibility is available?

Business owners who provide their personal guarantees in effect demonstrate their confidence and commitment to the company, as well as their banking partnership. In exchange for the guarantee, banks may offer longer terms on a loan, more favorable pricing or more flexible financial covenants. It’s part of negotiating the entire loan package.

Not surprisingly, most business owners have the majority of their personal wealth and cash flow tied to their businesses. As a result, many find that providing their personal guarantees is a non-event. There are certainly others who are more reluctant for a variety of reasons. Regardless, it is recommended to speak with your banker to fully understand the benefits and potential risks of providing personal recourse.

Friday, 25 September 2009 20:00

No interruptions

Basic insurance covers direct damage to your property and its contents in the event of fires, hurricanes, freezing pipes and many other perils, but what about the money your business would have been making during that time?

Business interruption insurance can help your company keep making money — even when it’s physically impossible to do business.

Rick Theders, CEO of Clark-Theders Insurance Agency, Inc., says this coverage should be part of a comprehensive property insurance program that encompasses loss of income as well as the extra expenses that result from a business interruption.

“The intent of business income insurance is to keep you in the same place you would have been in if your business had not been interrupted by a responding insurance peril,” Theders says.

Smart Business spoke with Theders about how this coverage can help you stay in business.

How does business interruption coverage work?

If your building is struck by lightning and catches on fire, your insurance is naturally going to pay to repair or replace the building and the contents that were damaged. The extension of coverage to loss of business income is going to continue the income that you would have had if the business operations had not been interrupted by damage caused by the lightning strike.

If you are a manufacturer that produces items for your customers, the lightning strike may have caused you to call your customers and say you were going to deliver items to them tomorrow, but now the business is temporarily shut down. The customer might wait for you to get back in business, but more than likely, it will cancel its order with you and take its business elsewhere.

In that regard, your business would be impacted because of your customer’s decision to take its business elsewhere. Business income insurance would pay for that loss of income.

The intent of the insurance is to cover the cost of your profit and overhead that you count on to sustain your business. It wouldn’t cover the cost of raw materials that you didn’t use to not make that product or the energy costs. But it would cover payroll of key employees and lease or mortgage costs you’ve committed to pay. That’s important because your bank might say, ‘I am sorry you had that fire, but you still owe us your monthly payment.’

Also, it would cover your estimated profit. If you would have made a 20 percent profit generating those products to customers, it would pay for that loss of profit.

How can you cover the extra expenses that can result from business interruption?

Business owners can get a combination of loss of business income coverage with extra expense insurance. In the same situation with the lightning strike and fire, the manufacturer’s extra expenses to generate the product and deliver it to the customer are covered, including relocating to a new space, moving equipment that was not damaged to that location and changing the utility services to the new location.

The customer still receives the product it ordered from you, but it’s much more expensive to generate because you couldn’t do it at your primary business location.

You can even subcontract that part. Ask a friendly competitor to make the item, or ask if you can use its facility after it closes for the day. You’ve incurred extra expenses to maintain your business elsewhere.

The extra expenses are money that insurance makes available to continue operations and not be forced to pay the loss of business income because you are still going to make income off your business practice.

This same insurance applies for all types of businesses, not a particular industry. You still need to see customers. Your customers might be able to go to a temporary location and the insurance would pay to advertise to them, to send out special mailings and to pay overtime for staff.

This combined coverage is the broader, better form of insurance. It says to the insurance company, ‘Just help me stay in business as best as I can during this misfortune.’

How can you develop a plan for business interruption?

You should develop a risk management process. Your insurance agent should ask you, ‘What keeps you up at night? What would the consequences of an event to your business be that would just devastate you? What makes you most vulnerable?’

If that is an earthquake, then here’s earthquake insurance. If it’s losing electrical power, here is some insurance that is going to respond to that concern. Part of that is asking, ‘What other plan can we work with you to put in effect so you have continuation of power?’ You can invest in a generator in the back of your business, so if power is interrupted, you start up your personal power generators to continue your business.

Another peril of insurance that you can choose to buy coverage for is utility service interruption. That takes care of the same loss of business income and extra expense losses but also includes damage done to the utility service of electric power. You can also purchase coverage for overhead transmission lines.

Try to plan ahead. Find that critical thing that would cause financial distress or concern. Then find out what you can do to buy insurance to reimburse you for that concern or, better yet, help you continue your operations.

Rick Theders is the CEO of Clark-Theders Insurance Agency, Inc. Reach him at (513) 779-2800 or

Wednesday, 26 August 2009 20:00

Following the vision

Today’s executives are relying more and more heavily on data, to the point that leadership abilities are diminishing, and true leaders are becoming harder to find, says Don DeLash, an adjunct professor at Delaware Valley College’s MBA program.

“There can be a big difference between managers and leaders,” DeLash says. “Neither extreme is good, but as a business executive, you should try to find the happy zone, where you recognize and blend the skills of a manager and a leader. Emphasize your strengths and build upon your weaknesses. What people are doing on the data side facilitates great management, but there is a void on the leadership side.”

Smart Business spoke with DeLash about how to improve on your weaknesses and how to balance the scales between leadership and management.

How does an overreliance on data impact a business?

Don’t get me wrong. Data is a great thing and there is deep analysis of and great belief in information. But as a byproduct, you don’t see the same emphasis on leadership or conviction about management-level trends, industry knowledge and gut feel.

People have a greater fear of taking a leadership approach because when managers make a decision, it can be quickly scrutinized using facts, charts and data analysis. People are more likely today to dismiss a decision or a leadership attempt because the data doesn’t immediately back it up. That makes them more cautious to go off the data and make a visionary decision.

But your competitors have data, too. The key differentiator can be whether they have the leadership.

How can managers become better leaders?

Even leadership has a process. To be a better leader, you first have to make your vision clear to your team. Then you have to align your organization around that vision and get the right people in the right positions. After that, it’s all about execution of the vision and making sure that you continually communicate through the process. Those are the elements of great leadership.

Managers should spend a proportionate amount of time on those things, in addition to the operational data and the results data.

There’s a saying that you can’t improve what you can’t measure. That’s true to a point, but I’ve never agreed with it wholeheartedly.

I’m trying to be a better father, a better husband, a better Little League coach, a better teacher and improve in ways that you can’t necessarily measure. Instead, I’ve tried to measure leadership by creating followership: How willing are people to follow me and trust in me? How often do they seek my guidance? It’s not very scientific, but I don’t think leadership is scientific.

How can a leader teach leadership skills to others?

There’s the question, ‘Can leaders be developed, or are they just born?’ I think leaders can be developed to a great extent. First, leadership is very risky by definition because if you make mistakes, they are very visible. Teaching managers about risk-taking is important — when it’s a good idea, how it should be approached, how to create a fallback plan. Analyzing the risk of your decisions is an important element of teaching confident leadership.

Second is developing communication skills. Communication doesn’t mean always being a chatterbox. The best leaders I’ve known were more about quality than quantity in terms of their communication. When they did speak, you knew it was something to take note of. Quality of communication over quantity is part of great leadership and is something that should be taught.

Today, instead of quality of communication, quantity of data has become the fallback. With electronic data, written data, vocal data, presented data, there is a tendency for businesspeople to fall back on data too much. Henry Ford wouldn’t have gotten away today with, ‘You can have any color you want as long as it’s black.’ He would have everyone in the company giving him all kinds of data and research.

Great leaders have the ability to communicate well and inspire their teams to believe in them.

How can you balance data-based management with more intangible leadership skills?

I don’t think we do a good job as a business community of educating people on decision-making and recognizing where they are in that manager-leader continuum.

We need to rely on data and continue to develop leadership. One trend — not just in business but in society — is that people are much less personal. We e-mail, we text, we have Web seminars. Just 10 years ago, that was not the case. There was a lot more personal interaction.

No one calls a customer or business associate for directions anymore. If you can’t find the address on the Web and punch it into your GPS, you’re Fred Flintstone. This has certainly created a strain on leadership development.

It takes a conscious effort to pick up the phone and talk to somebody, as opposed to dropping them a quick e-mail. Our society is trending away from relationships and personal connections. That needs to be brought back into businesses and schools and emphasized.

Don DeLash is an adjunct professor at Delaware Valley College and a financial adviser at Legacy Planning Partners in Doylestown, Pa. Reach him at (267) 614-6790 or

Wednesday, 26 August 2009 20:00

Tighten your belt

Today’s economic challenges have taken a toll on many nonprofit organizations. “These are very difficult times,” says Gregory E. Halko, CPA, CFE, senior manager with Skoda Minotti. “Organizations are facing a decrease in their public funding. On top of that, endowments are down anywhere between 25 to 30 percent.”

According to a study conducted by the Nonprofit Finance Fund, 16 percent of 986 nonprofit organizations surveyed said they’ve been directly affected by the downturn, and 52 percent expect the recession to have a long-term negative financial effect on their organization.

Smart Business spoke with Halko about how nonprofits are handling the financial stress and what any company can learn from them.

How have today’s challenges affected the nonprofit industry?

From what we’ve seen, today’s challenges have taken a toll on the majority of nonprofit organizations. It seems all areas of revenue have been affected: contributions, government funding, earned income, investment income, etc. Some specific nonprofits have been hit particularly hard — like the arts.

The ironic thing is that while there seems to be an increase in demand for health and human services, state and local governments — from whom these nonprofit organizations receive the majority of their funds — are squeezing their budgets. The nonprofits are trying to find ways to provide these services that are desperately needed with shrinking revenue sources.

What must nonprofit organizations do to adapt and succeed today?

First, they need to take a very close look at how they are operating internally and how they are administering their programs. Do their programs truly align with the mission, finances, and goals of the organization? If not, they may want to consider a redesign of their programs to get the same results in a less costly manner.

Organizations need to perform an analysis and determine what these programs are truly costing them, then determine if it makes sense to continue those programs. Look at where you can save costs. Examine every little nook and cranny of the organization to see where dollars are being spent. Is a program contributing to the mission of the organization and providing a meaningful service? Some organizations are starting to work even more closely with their funders to address these obstacles. Ensure that you are allocating the resources within the organization correctly.

What can be done to adapt to the downturn?

Ensure that you are billing for all services rendered. Money is tight, but you need to make sure you’re billing for all the services for which you are entitled to receive payment. Take a look at the investment and spending policies of the organization. Maybe it is time to revisit and tweak those policies based on the current economy.

Get out in front of the public and let them know how important your mission is. Let them know that you have a strong mission and, most importantly, how it is benefiting society.

The state of the current economy has been compared to a crisis. Take advantage of the situation, and cut inefficient programs and expenses. As a few have said, a good crisis is a terrible thing to waste. Use the crisis to build a stronger organization for the future.

How can organizations find alternative ways to generate funds?

It’s tough. You have to really change your way of thinking and look outside of the box and then determine what way best suites the needs of the organization. There is a strong correlation with making your mission known to the public.

Take a look and see what other organizations are doing to generate funds. Special events are still pretty popular. Although people are cutting back on charitable donations, this is still a lucrative way to raise funds.

Other funding sources may be available that you are not aware of, such as grants or government programs. Be proactive and start investigating those channels.

Nonprofit organizations can also utilize social media to help generate funds. Many of these sites are free and they’re becoming very popular. One example is Facebook, which currently has approximately 250 million users, 25 million of whom support at least one nonprofit cause; another example is Twitter which has about 14 million. Nonprofits can use these sites to educate people about their mission and programs, which can help turn them into donors.

What are the biggest obstacles to keeping nonprofit organizations healthy?

Taking the time to sit down and really examine all the aspects of the organization with the board or the respective committee is difficult. For instance, you need to know exactly where the revenue streams are coming from, and what the true program costs are to the organization.

Analyze the organization as a whole to see where improvements could be made and where the potential is for saving costs, but still be able to provide these services to individuals who need them. That’s the trick — you don’t want to forgo the important programs that society needs but you need to survive also, so find a way to do it more efficiently with the same results.

What lessons can other industries learn from the challenges of the nonprofit industry?

Don’t be reactive; be proactive in all aspects of the business. Challenge the ideas that are brought forth by your employees in the business and take a look at how operations are being performed. Ask, ‘Is there a better way to do this, or to save costs?’ It’s being proactive versus being reactive. Again, use this time to build for a stronger future.

Wednesday, 26 August 2009 20:00

Deal or no deal

Purchase and sale transactions may have slowed in the economic downturn, but opportunities are plentiful for those with realistic expectations.

“The bottom line is that deals are still getting done in this environment,” says Michael St. Peter, an attorney with Levenfeld Pearlstein, LLC. “There is a lot of cash on the sidelines that investors are looking to put to use in privately held businesses.”

Both buyers and sellers can still find the right deal, he says. They just have to work a little harder to do so.

Smart Business spoke with St. Peter about how to find good deals in difficult times and how to safeguard against bad deals.

How can a business owner find the funds now to get deals done?

Traditional bank lending is tight in the current environment, but it is still open to quality borrowers with strong cash flow and low leverage. Generally, traditional bank lending is more available now than it was six months ago at the height of the panic.

Also, private equity firms are more open to partnering with entrepreneurs and strategic investors now than they were a couple of years ago because there is less traditional financing available for those private equity firms to finance the entire transaction.

Finally, alternative funding sources are becoming more readily available: high-net-worth individuals, family offices or hedge funds that may be looking to make a minority investment in a private business; loans from accounts receivable factors or asset-based lenders; small business association loans; and seller notes, which is the seller of a business extending the financing necessary to purchase the business.

How can potential buyers access these funds?

Potential buyers need to be willing to shop their deal to different banks and financing sources, including alternative financing sources. Compared to a couple of years ago, financing sources are less likely to come knocking on the buyer’s door.

Traditional banks are hungry for deposits to increase their deposit base. If a potential buyer has cash, parking that cash at a potential lending bank creates an advantage in being approved for a loan.

Entrepreneurs can talk to their banker about obtaining a Small Business Administration loan for a potential acquisition but need to be prepared to provide personal assets as collateral.

Where can potential buyers find opportunities to purchase assets at attractive prices?

Valuations of many private companies are at historically low levels, just like publicly traded equities. Smaller competitors and larger businesses that may be looking to shed noncore assets or businesses are a good place for a potential buyer to start.

There are also distressed businesses that may not survive this downturn or that have already filed for bankruptcy protection. Several forums are available for a potential buyer looking to purchase distressed assets, including Section 363 sales, UCC sales, assignments for the benefit of creditors and state receivership auctions. The financial adviser, investment banker or lawyer of potential buyers may be able to introduce them to these types of opportunities.

What are some common pitfalls to avoid in purchase and sale transactions?

For buyers, the most common pitfall is taking shortcuts in the due diligence process. Also, buyers make the mistake of not closely analyzing the working capital needs of the target business. It could be a quality business with significant growth potential, but without enough working capital to fuel that growth, the business is likely to fail.

Another pitfall is the failure to protect the target company’s intellectual property and human capital — its employees — with appropriate noncompetition, employment and intellectual property agreements.

Finally, taking on too much leverage in an acquisition really hamstrings the business from day one.

For sellers, a common pitfall is not ensuring that the business is ready to be taken to market. The business needs to have its corporate and tax records, customer contracts and employee-restrictive covenants all in order.

Another common pitfall for sellers is not having realistic expectations about the valuation of their business. This can be a difficult thing for sellers because they spent a lifetime building a business, and by selling now, they are likely to get a lower price than they would have received for that business at the height of the last economic cycle.

How can buyers and sellers guard against these pitfalls?

For both sides, conducting candid negotiations on the purchase price and working capital requirements early in the process helps to avoid misunderstandings or surprises later.

For buyers, obtain monthly financial statements from the target through the closing of the transaction and watch for negative trends. Make sure that fulsome representations and warranties are made by the seller in the purchase and sale agreement, and pay attention to agreements with employees to ensure that those employees are properly incentivized after the closing.

For sellers, seek appropriate caps on the indemnification obligations to limit exposure after closing, and if declining sales trends or other surprises do occur during the negotiation process, examine the possibility of an earn-out or a hold-back of the purchase price rather than an outright reduction of the purchase price.

Michael St. Peter is an attorney with the Corporate Practice Group at Levenfeld Pearlstein, LLC. Reach him at (312) 476-7508 or

Wednesday, 26 August 2009 20:00

Safe and secure

The recent global economic meltdown dramatically impacted the worldwide banking system and many U.S.-based banks have struggled during these difficult times.

“We’ve seen an unprecedented number of banks need to raise capital, while many other banks have sought merger partners to survive and others were taken over by their regulators and sold to healthy banks,” says Nicholas Browning, president and CEO of FirstMerit Bank’s Akron region.

Browning also points out that there are many banks across our country that are very healthy and not part of the widely publicized ‘banking crisis.’

Smart Business spoke with Browning about the roles of the various U.S. regulatory agencies, while also gaining some insight into proposed changes to the regulatory system.

What regulatory agencies are responsible for regulating banks?

Among its many duties, the Federal Reserve supervises state-chartered, Federal Reserve-member banks. If your bank has the word ‘state’ in it, that’s a state-chartered bank, and, if it were a member of the Fed, the Federal Reserve would regulate it. There are about 900 Fed-regulated banks in the country out of approximately 6,700 state-chartered banks. The remaining 5,800 are regulated by the Federal Deposit Insurance Corporation (FDIC). I’ll get to the FDIC in a moment.

The Fed also regulates bank holding companies which own the stock of subsidiaries, including banks. Bank holding companies are of all sizes; they can hold or own just one bank, hold multiple banks in more than one state and can own insurance companies and have foreign subsidiaries. There are approximately 5,000 bank holding companies in the U.S.

The Federal Reserve also supervises the foreign activities of member banks as well as the U.S. activities of foreign banks.

In addition, the Federal Reserve also ensures compliance with consumer protection laws such as Truth in Lending, Equal Credit Opportunity and Home Mortgage Disclosure.

What about national banks, thrifts and credit unions? Are there regulatory agencies for these types of institutions?

The Office of the Comptroller of the Currency (OCC) supervises the nationally chartered banks. Any bank with the word ‘National’ or the initials N.A. (National Association) in its name is a national bank and is therefore regulated by the OCC.

We’ve heard much about the FDIC over the past year. The FDIC insures deposits at FDIC-insured banks. The FDIC also regulates the non-Federal Reserve-member, state-charted banks that the Fed does not regulate.

The Office of Thrift Supervision regulates federal savings banks and federal savings and loans and their respective holding companies.

Finally, the National Association of Credit Unions regulates federal credit unions and provides deposit insurance through the NCU Insurance Fund for most state and federally chartered credit unions.

What do these agencies focus on when examining a financial institution?

In the very broadest sense, they are looking for the practices, policies and procedures that promote the safety and soundness of the organization. Each bank, consequently, is a component of the safety and soundness of the entire banking system.

In the case of business lending, regulators look to the soundness of and adherence to the bank’s policies and procedures. The policies and procedures are designed to ensure that each bank makes good underwriting decisions including thorough risk assessments, has appropriate loan structures, relies upon verifiable and reliable sources of repayment and is supported with collateral and guarantees, as warranted.

What are Treasury Secretary Timothy Geithner’s proposed reforms?

The severe national economic challenges have forced the government to take extraordinary measures to revive our financial system and economy. In response, The Department of the Treasury has proposed changes to the regulation and supervision of the financial markets, nonbank financial institutions and the banking system to ensure more stability in the future.

The five broad areas of emphasis are designed to:

  • Promote robust supervision and regulation of financial firms. This would include, among other things, an Oversight Council and new authority for the Fed.
  • Establish comprehensive supervision of financial markets. The focus would include the securitization markets as well as over-the-counter derivatives, among other changes.
  • Protect consumers and investors from financial abuse. The proposed changes would include a new Consumer Financial Protection Agency
  • Provide the government with the tools it needs to manage financial crises. Proposed changes include a new regime to resolve nonbank financial institutions whose failure could have serious systemic effects.
  • Raise international regulatory standards and improve international cooperation. Proposed measures include coordinating cross-border supervision of internationally active firms and enhancing international financial crisis management tools.

With all the different regulatory agencies discussed earlier, there is also some thought about the consolidation of agencies to provide more universally consistent oversight. Over time the financial markets have become very sophisticated and have created new products that bring new risks into the system. Regulatory agencies are all about regulating risk. Other proposed changes include the broadening of powers to regulate other, non-bank subsidiaries and authority to impose stiffer penalties on violations.

Sunday, 26 July 2009 20:00

Engaging employees

Worksite wellness programs are increasing in popularity as many employers have come to realize the advantages of prevention.

Preventing health problems is more cost-efficient than having to treat them later. Plus, there are other benefits of having a healthier staff besides simply reducing costs.

“Wellness programs appeal to employers because they have been shown to have the potential to decrease absenteeism and increase presenteeism, reduce medical claim costs, and improve employee productivity, recruitment and retention,” says Rose K. Gantner, Ed.D., NCC, the senior director of sales and product development for UPMC Health Plan. “Not only that, quality wellness programs can raise a company’s public perception.”

Smart Business spoke with Gantner about creating effective wellness programs and how to encourage employee participation.

What are the usual components of a wellness program?

In general, all wellness programs should include assessments. Some examples of these assessments are health risk questionnaires, biometric screenings, wellness education and fitness programs.

Assessments are critical because they provide the best opportunities to raise awareness and educate the employees about their health, while uncovering potential health risks before they become medical concerns. For an employer, an assessment can provide aggregate data, as well as the added bonus of stratifying their population into low-, moderate- and high-risk factors. Assessments can also determine your employee population’s percentage of readiness to change.

What are some factors that can impact the potential success of a wellness program?

In order for a wellness program to be effective with your employees, certain elements must be present. First and foremost, the company’s senior leadership must make a commitment that aligns both the program’s vision and mission with its goals and objectives. You also need an increasing awareness of wellness issues, employees who are supportive of making a commitment to personal change and organizational support of healthy work culture.

Also, employees must be able to have information available to them through online, on-site, telephonic and print modalities. They must be able to get support through incentives for personal lifestyle changes. The work environment itself must promote healthy lifestyles by providing support through initiatives such as healthy cafeteria and vending machine choices.

If, as studies suggest, Americans are spending more and more of their waking hours at work, it can mean that it is also possible that they are not getting enough physical exercise to maintain healthy lifestyles. But it is also logical that people who spend an increasing amount of time at work would be more open to wellness programs that would be offered at the worksite.

How can employee participation in a wellness program be encouraged?

Participation by employees can be encouraged when employers make it easy for them to be active. For example, if there are on-site facilities that can be used by employees at no charge and the opportunity for incentives stimulates participation, then more employees will be excited to take part in the program. Also, when a company’s health insurer is able to supply comprehensive wellness programs, as well as promotional and informational materials and overall support for the effort, that will also increase activity.

How important are incentives in terms of driving participation?

Studies have shown that when incentives are used to encourage participation, there are larger gains in terms of reduction of absenteeism and increased productivity. But incentives should only be given for participation and for following the rules. Employees should not receive incentives for meeting a specific weight goal, but instead, they should be rewarded for team competition.

What can small employers do to encourage wellness?

The size of the company is not really a factor in terms of implementing things that encourage wellness. For example, you can offer healthy foods in your cafeteria or in your vending machines. You can offer flextime to employees who want to exercise during their lunchtimes. You could provide information (online programs, newsletters and downloaded PDF files) to your employees about wellness that you could get from your health insurer. You could offer to partially reimburse your employees for membership in health clubs. Simply put, being more proactive in your employees’ health makes good business sense.

What are some important elements to a successful wellness program?

An employer has to be consistent. A health screening without follow-up does not do much to show employees you are serious about the program. If an employer encourages healthy eating but does not offer healthy choices in the vending machine or at the cafeteria, then that employer is sending mixed messages. Also, if employees are encouraged to get fit and participate in wellness programs but are not permitted any time to do so, that will not be an effective message either. Management needs to commit to and support the programs through both leadership goals and an operational budget for worksite wellness programs to be truly effective and for the organization to reap the benefits.

Rose K. Gantner, Ed.D., NCC, is the senior director of sales and product development for UPMC Health Plan. Reach her at (412) 454-8571 or

Sunday, 26 July 2009 20:00

Freedom of choice

As the needs of its students change, the role of the educational institution must change as well. At many institutions, students have the option to learn in the way that best fits their lifestyle or learning style: online, on-campus (in classroom) or a blended approach.

Myra Snipes, a faculty member at University of Phoenix’s Cleveland Campus, says that making these choices available is a key to giving students the education that works for them.

“Historically, education was provided only in the classroom,” says Snipes. “With some online universities, it’s online only. But the more progressive institutions allow the student to choose one of three environments: online, campus or a combination of each. Sometimes they will make that choice based on lifestyle, sometimes they will make that choice based on learning skills. Some students are unfamiliar with an online component. But once they become more comfortable, they may switch to strictly an online environment.”

Smart Business spoke with Snipes about how students can utilize a blended approach to improve their skills.

Why do most universities today blend online and campus education?

Students today have a variety of demands on their time, and they each bring a different set of skills to their educational careers. At some point, they may find the flexibility of online learning fits better with their work or personal lives; at other times, they may opt for the traditional classroom environment. Regardless of their situation, the ability to choose the best environment for the topic or their schedule fits the type of student you see today. They appreciate the ability to move back and forth between both modes of learning throughout their careers.

How does the online portion of the course affect the learning environment?

It puts a lot of responsibility on the students to be engaged with their fellow classmates via the computer. For instance, the instructor may post a critical thinking question and encourage all the students to respond. The ongoing discussion is referred to as a thread. A student is required to respond in at least 150 words. One sentence is not acceptable; he or she has to post a thoughtful reply. So, he or she has to do the research on that particular topic and is graded accordingly. The student is also expected to post a question and the other students must respond to it as well. It allows for dialogue via computer, instead of through the classroom.

How does dialogue and discussion via computer fit into the ‘learning team’ concept?

At the start of a session, the instructor allows the students to form virtual learning teams. They are expected to come up with a team charter, and you also have to have a team leader. On the first night, students may wonder how they are going to interact, and who is going to be on their team for group exercises. So after the first workshop assignment, the learning teams are established. In a large sense, this actually mirrors what takes place in the workplace. People are not always assigned their teammates at work, but they must learn how to work with different, diverse people. There are few jobs today where people don’t interact on a team, often with people remotely in different locations.

Each team is responsible for its own work, and the group has a lot of flexibility in deciding how they’ll operate. A team may decide to meet in a chat room at a certain time to work on its project. The team leader of each learning team is expected to complete a team log, to measure the success of each team member. Then, the instructor can see how well the teams are completing their assigned tasks.

It’s very interesting to watch and observe the different styles of the teams and their various strengths and weaknesses. Students are constantly encouraged to use their conflict resolution skills, which of course is another valuable skill that can be applied to most workplaces.

How does the blended approach of learning apply to the workplace?

Employers expect employees to have good written communication skills, technology skills and oral communication skills. Within this culture, the students are going to see an improvement during the five-week class — even if any of those skills start off as a weakness. By the time they graduate, the students are very comfortable working in a team environment and are prepared for the real world.

How does the blended approach benefit the students?

It’s such a demanding and competitive work environment today that every employee must bring their very best skills to the job in order to be truly valuable to their employer. The traditional classroom goes a long way in helping translate the student’s classroom experience to the job. Other than the course material, of course, the classroom provides the ability to develop and improve public speaking skills via the oral presentations required for every class. In addition, students are able to network with distinguished local faculty, relying on them for in-person advice and counsel on workplace challenges they may be experiencing. Peer-to-peer interactions on campus with other students are very helpful as well.

Myra Snipes is a faculty member at University of Phoenix’s Cleveland Campus, as well as the City of Akron’s training/EEO officer, responsible for the development and implementation of the city’s training, organizational development and diversity initiatives. University of Phoenix, the largest private university in North America, serves a diverse student population, offering associate’s, bachelor’s, master’s, and doctoral degree programs from campuses and learning centers across the U.S. as well as online throughout the world. University of Phoenix’s Cleveland Campus serves students online and at locations in Independence, Beachwood and Westlake/Crocker Park. To learn more, contact University of Phoenix at (216) 447-8807 or (800) MY SUCCESS or

Sunday, 26 July 2009 20:00

Safe and secure

The Payment Card Industry Data Security Standard (PCI DSS) is a set of requirements designed to ensure that all companies that process, store or transmit credit card information maintain a secure environment.

“PCI compliance symbolizes the unity of all card brands setting a standard to protect cardholder data,” says Robert Core, a merchant banker with FirstMerit Bank. “Before the PCI council was established, each card brand had its own standards for security. With PCI, all brands now utilize a single standard with the expectation of having secure card data.”

Merchants who do not adhere to these standards run the risk of having significant fines levied against them.

Smart Business spoke with Core about how companies can use PCI standards to improve transaction security.

What is the importance of PCI compliance?

PCI compliance helps protect both merchants and consumers; it obviously helps reduce fraud. Merchants who have realized breaches and compromises historically have not been PCI compliant. While current PCI compliance requirements are not the all-encompassing answer to fraud, it is a process merchants can follow to secure credit card data for their customers.

What do merchants have to do to ensure that they are compliant?

All merchants are expected to be compliant. The newest requirement is the validation of their compliance. At minimum, everyone needs to complete an annual questionnaire. The content of the questionnaire is determined by a merchant’s processing practices and how they obtain the cardholders’ information: through e-mail, phone or fax, or from the actual card. An additional issue is if credit card information is stored on their computer systems and how it is stored.

For example, if you’re an Internet merchant that receives credit card information via e-mail, your questionnaire is going to be more complex than someone who receives the information over the phone. Merchants who actually process orders through their Web sites are required to have their sites scanned on a quarterly basis to ensure they are not vulnerable to a breach.

What are the penalties of noncompliance?

If a merchant is breached and is found to be noncompliant, the first and most important casualty is the loss of public trust, which can have a major impact on all merchants. If a breach occurs, the merchant is required to have a forensic investigation performed, for which the cost can be quite substantial. In addition, there are the fees and fines levied by each of the card brands and those fees could add up to hundreds of thousands of dollars. For small business merchants, this would be enough to put them out of business.

What would you recommend a merchant do to avoid that situation?

Follow the PCI standards as they’re written to the letter. Many merchants want to take shortcuts and circumvent the process. Merchants need to properly manage their risk and protect payment card data.

Many merchants are challenged by the cost involved to upgrade their systems to properly process and store data. Costs can greatly vary, from a few hundred dollars to thousands of dollars, depending on their system. However, the cost of not doing it could be far greater.

The media will report on breaches that have occurred at large retailers or large card processors. However, they don’t report on the small or average sized merchants and businesses that are compromised. You’d be surprised by the number.

Small businesses say, ‘PCI seems pretty serious, but it doesn’t really apply to me because I’m not a large national retail chain. I’m just a small mom-and-pop store in Ohio, so it’s not a big concern for me.’ Actually it truly is. It’s just as important for the small businesses as it is for the larger ones, and considering the costs of noncompliance listed above, it’s probably more important.

How do merchant services tie in with PCI compliance?

Merchant services, such as e-check, help curb fraud and improve transaction security. E-check is the ability to convert a check into an electronic transaction in order to speed up the availability of your funds. Typically, you can also opt to have the e-check transaction guaranteed. Depending on your average ticket, eliminating one to three returned checks a month may pay for this service and will reduce your overall exposure. As an added benefit, you may be able to reduce the number of times you have to pay employees to run to the bank to make deposits.

But, be careful with merchant services. As with everything in life, you get what you pay for. Make sure the deal is as good as you think. Do your homework on the actual provider and its stability, not just its sponsor bank. If you pick a bank that directly offers merchant services, you get the added advantage that the bank can track all of your activity from point of sale to what is deposited in your account. When there is a problem with settlement of your card or e-check services, this can save headaches and time trying to work through issues with two different entities.

Robert Core is a merchant banker with FirstMerit Bank. Reach him at (330) 252-8231 or

Thursday, 25 June 2009 20:00

Do the right thing

In an economy in which profits are hard to come by, survival is not a given and there is extreme social unrest, business ethics is an issue of global importance. And there’s no reason to risk losing your company’s profits, your own personal assets or, potentially, your freedom by not being informed or by making faulty decisions.

Bette Walters, adjunct professor at Delaware Valley College, says that businesses are in a period of massive upheaval, and business owners need to take a fresh look at their ethics as they struggle to survive.

“There are a host of roles and responsibilities attributed to business now that historically haven’t been there,” Walters says. “How are you supposed to reconcile these new expectations and requirements with your basic obligation to make a profit?”

Smart Business spoke with Walters about how ethical missteps can doom you and how education can help you avoid making critical mistakes.

What are the big global business ethics issues that are affecting businesses today?

The No. 1 issue is loss of trust. To paraphrase Ben Franklin, ‘Glass, china and reputation are easily cracked and never well mended.’

Fraud, malfeasance and a lack of professionalism have broken trust in business, governments and institutions on a global scale. People around the world are pulling back from spending and investing. They’re angry and confused and want someone to blame. Governments are struggling to address basic human needs, stabilize the financial system, punish wrongdoing and establish new standards. Businesses are struggling with the right course of action — for example, do you outsource, or bring some jobs back to the U.S.A.? What if you have a headquarters in Michigan but make most of your profits in Europe? There are no simple answers.

The underlying causes of the current global economic crisis are complex, and they won’t be remedied by hasty legislation and throwing money at solutions — there will not be a quick fix.

How are those issues changing the way businesses are run?

Corporate compliance, governance and risk are high on the agenda. Some key concerns include determining what constitutes compliance, when and how do you conduct investigations, how do you train your employees, how do you police activities, who should govern and how, what are the risks of a business — not just traditional economic and political risks but social risks — and what is the social responsibility of the enterprise?

The federal government and shareholders are getting deeply involved in the pay structure of many corporate executives. The U.S. government has issued sweeping proposed regulatory reforms imposing new rules on how corporations are run.

Roles and responsibilities are in a state of flux. Businesses must not be paralyzed by fear or pretend they are not undergoing a time of great social unrest. Change is going to happen. The question is whether business will be ahead of the curve — and influencing the outcome.

How can educators get students to consider the implications of global business ethics?

Educators should include ethical considerations in everything they teach. They can explore the costs of both impropriety and the appearance of impropriety — and how those costs can act as a deterrent. Tracing history and relating it to the issue curve (societal pressure builds — you get action at the apex of the curve and compliance thereafter) helps students understand that business must be alert to the world around it and operate within ethical bounds.

On the positive side, focus on how you can use ethics to enhance your brand for both customers and employees. Why waste your efforts generating profits by ignoring society’s needs and expectations and inviting ruin? Use the issues to foster innovation and create a sustainable business.

What are some mistakes that businesses make?

Examining cases involving short-term thinking in the interest of immediate gains, not taking the time to understand how the underlying subprime mortgage investments were structured, not studying the numbers, ignoring questionable practices, not considering intended and unintended consequences of legislation and regulations, and disregarding laws. Businesses need to be aware that actions have real consequences and frame discussions regarding what we need to do to establish a better framework for decision-making. Whether it is how you treat employees or how you set up your reserves, there are many choices to be made; the question is, how to do make the best choices?

What can be done to rectify the situation?

The business needs to apply its skills, consider why and how bad behavior has occurred, and what needs to be done to restore prosperity and faith in free enterprise. As we work toward a new standard of best practices, a business needs to actively participate if it wants a result that accurately reflects a profit motive and legitimate business needs.

How can executive education help?

Executive education helps educators understand the needs of business and helps executives identify the trends, risks and opportunities arising out of the current global business environment. Working on oral presentation skills, developing sensitivity to issues and the environment of business, considering what is happening among the regulatory community, and learning how to work with stakeholders to maximize your opportunities for success and to minimize your risks all go toward creating a sustainable business model. An ethical framework and strong corporate culture are essential to survival. Education can help you learn how to deliver the hard no.

Bette Walters is an adjunct professor at Delaware Valley College. Reach her at