A popular theory in the business world is that three decades of burgeoning environmental controls and regulations have strangled the economy and undermined our economic competitiveness. Given the buzz, it’s no wonder executives often prefer to do the bare minimum or delay regulatory compliance as long as possible.

But what if adhering to the planet’s highest environmental standards actually created a competitive advantage by allowing agile, mid-size firms to zoom past their monolithic competitors? And what if compliance led to reductions in manufacturing and distribution costs? Being proactive and viewing compliance as an opportunity instead of an obligation could be just what the doctor ordered to heal our ailing economy.

“Adhering to the highest environmental standards can inspire innovation and the development of cutting edge products, because it can force everyone in the organization to coalesce around ways to meet the most stringent requirements,” says Dr. Gregory Theyel, associate professor of Business Management at California State University, East Bay. He teaches undergraduates and graduates about environmental, social and economic sustainability and helps companies with business development and the introduction of sustainability into their daily practices.

Smart Business spoke with Theyel about creating a competitive advantage by treating environmental compliance as an opportunity instead of an obligation.

Why should executives consider adhering to the highest global standards?

First movers often have the upper hand in the marketplace, and developing a product that adheres to the highest environmental standards can allow you to sell it anywhere on the planet without changing the design or manufacturing process to meet disparate regulations. Plus, proactive companies have more time to adapt to new regulations and grab market share by appealing to green-minded customers and touting their environmental stewardship. Meanwhile, the laggards stymie production, efficiency and profits when they wait until the eleventh hour to find new vendors or secure alternate manufacturing materials.

How can companies spot opportunities to benefit from environmental compliance?

First, interact with stakeholders to find out what they care about and anticipate their needs. Second, observe social change and stay connected to the community, because environmental laws usually begin as social movements before giving rise to new policies and regulations. For example, after environmental concerns surfaced following the Fukushima disaster in Japan, Germany decided to shut down its 17 nuclear power stations by 2022. The law has spawned a spate of new ideas for producing environmentally safe power across the European Union. Finally, stay in touch with regulators and engage in the law making process to give you a preview of pending legislation and the chance to influence the regulatory process by sharing information and ideas with political leaders and committee members. Regulators often seek input and solutions from the business community when evaluating new laws.

How can companies use open innovation to solve sustainability issues and reduce operating expenses?

Don’t focus on just R&D or fixing a single problem; invite everyone into the discussion and rethink your entire innovation process and business model. By attacking the problem holistically, you may uncover opportunities to sell ancillary services, reduce production costs, boost margins or enter new markets. For example, when an electronics manufacturer needed to find a substitute coating for its wiring products, it brought in customers and members of the supply chain to brainstorm solutions. In the process, they created an environmentally safe, yet more pliable material that not only opened the door to new markets, but also reduced manufacturing costs by facilitating the consolidation of several production lines. This company didn’t focus on meeting the minimum standards; it was successful because it seized the opportunity to rethink how it does business.

How can executives orchestrate an attitudinal shift?

The idea is to weave compliance and innovation into the culture of the organization and ensure that everyone is looking out for new ideas and the advent of environmental regulations. Start by asking employees to interact with stakeholders and participate in industry associations, and by hiring employees with collaboration skills so everyone is capable of nurturing relationships and developing strategic alliances across the entire supply chain. The idea of excluding outsiders is old school; successful companies remove the barriers to innovation by inviting everyone into the process. They even collaborate with competitors when it benefits the entire industry, such as for infrastructure development or standard setting. Finally, examine every component and step in the manufacturing and distribution process to identify chemicals and activities that are harmful to the environment. Once you’ve created a list, stay ahead of new regulations by investigating alternative systems and solutions. In the process, you may uncover ways to reduce waste, negotiate lower prices for raw products, substitute nontoxic chemicals or consolidate distribution simply by viewing compliance as an opportunity instead of an obligation.

Dr. Gregory Theyel is an associate professor of Business Management at California State University, East Bay. Reach him at gregory.theyel@csueastbay.edu or (510) 885-3078.

Published in Northern California
Thursday, 01 December 2011 12:33

The 401(k) regulatory tsunami

A regulatory tsunami is headed toward companies sponsoring 401(k) plans. It will arrive next year when new federal rules take effect, creating an unprecedented burden of accountability for employers.

More than ever, employers will be required to assure that fees associated with these plans are reasonable for the services being provided. To do so, they should move expeditiously to determine and evaluate all plan fees.

Employers are already required to exercise this due diligence by the Employee Retirement Income Security Act of 1974. Yet the fees charged by large financial institutions providing 401(k) plans vary widely and are extremely difficult for employers and employees to ascertain. Many aren’t aware that their fees may be too high because, until now, the government hasn’t required plan providers to voluntarily disclose all fees.

Nevertheless, by entering into arrangements with plan providers that involve unreasonably high fees, many employers have been failing to protect participating employees as required by ERISA. To remedy this lack of compliance and to help employees make more informed investing choices, the U.S. Department of Labor has issued the new rules, which reinforce and expand employers’ existing responsibilities as plan sponsors.

Effective in 2012, these rules will open up new terrain for potential federal fines — as the DOL is substantially increasing its investigative staff — as well as lawsuits from employees. This liability stems from employers’ role as plan fiduciaries, a regulatory/legal status meaning that they must consistently put plans’ and participants’ financial interests ahead of their own.

The new rules require plan providers to disclose fees to employees in chart format in quarterly statements. Currently, these statements show investment returns net of fees, so employees don’t know how much they’re paying plan providers or investment companies that supply products for their plans.

Though the rules require plan providers to disclose fees in an easily understandable format, there are indications that the revised account statements may turn out to be long, confusing documents — something on the order of a prospectus. Confusion will ensue, and employees will queue up at HR to ask what it all means.

After making sure employees understand the newly required disclosures — which is, itself, a fiduciary responsibility — employers will undoubtedly be lambasted with bitter complaints from employees who were unaware of the amounts of fees being deducted from their accounts and others who simply thought their actual investment returns were lower.

Accordingly, it’s imperative that employers act now to “X-ray” their plans or engage a qualified consultant for that purpose, so they understand precisely what fees are being charged for the services being provided. This will involve reviewing reams of plan documents and confronting plan providers to ascertain fee information.

But that’s only the beginning. The tsunami’s force is amplified by the “reasonableness” requirement: How can employers know whether fees are reasonable?

To do so, they must determine where their plans’ fees fall relative to industry norms, so employers must benchmark fees against the full spectrum of the national market for plans of the same size providing the same services. These data-intensive comparisons can be highly complex, especially for small firms that lack the necessary expertise in-house.

The new rules also put increased pressure on sponsoring employers to assure that anyone advising 401(k) plans or participating employees is a fiduciary. ERISA rules have long prohibited non-fiduciaries, including brokers, from advising employees on the suitability of specific investments — a scenario rife with potential conflicts of interest.

Yet, because of lax enforcement that the government is now trying to repair, brokers typically play a dominant role in servicing 401(k) plans. By contrast, fiduciaries — who must avoid even the appearance of conflicts — must comply with stringent regulatory standards that don’t apply to brokers. Moreover, fiduciary advisors are subject to substantially greater legal liability.

Hence, the new DOL rules require employers to determine whether plan consultants are fiduciaries. If they aren’t, fiduciary responsibility — and liability — for the plan resides with the employer.

Companies that proactively get out in front of the tsunami by lining their corporate doorsteps with due diligence sandbags will minimize the damage. They have no time to waste.

Anthony Kippins is president of Retirement Plan Advisors LLC, a Cincinnati-based financial services company that provides retirement plan fiduciary services and employee benefit solutions to small companies. He is an Accredited Investment Fiduciary Analyst.

Published in Cincinnati

Usually when your natural gas provider decides to replace thousands of miles of pipeline, it spells potential inconvenience for customers. But when you’re working with Columbia Gas of Ohio, the company is one step ahead. That’s because President Jack Partridge keeps the company’s customers front-of-mind — which is pretty innovative in the regulated utility industry.

Because of this, Smart Business, U.S. Bank and Blue Technologies named Partridge to the 2011 class of Columbus Smart Leader honorees. He told us how he maneuvers challenges like these with communication, setting his company apart with innovative service.

Give us an example of a business challenge you and/or your organization faced, as well as how you overcame it.

Several years ago, in the interest of safety and reliability, we knew we needed to significantly accelerate the replacement of major portions of our 20,000-mile natural gas pipeline system in our 61-county service territory (capital spend of more than $2 billion during the next 20 years). We knew we were going to be in customers’ backyards and busting up pavement on the streets of the communities we serve more than ever before. We also realized we needed our regulators to authorize us to recover this investment of major capital in Ohio.

We launched a proactive, comprehensive communication/education plan targeted to all our stakeholders — from one-on-one meetings with community and government leaders to presentations for civic organizations to bill stuffers and door hangers and news releases — all with the same message: ‘Yes, we are going to be visible in your community. We will minimize disruptions. The benefits are: first, safety and reliability, more jobs, property tax benefits to the community, economic development benefits, better sizing pipe to growth areas, less leaks, lower O&M expenses, etc.’

In terms of our regulators, we conveyed we will be investing more capital in Ohio than ever before, and the investment will enable us to keep our costs down.

To date, this program has been extremely effective. We have seen no material increase in complaints. I credit this to effective communication and very effective operations planning and execution.

In what ways are you an innovative leader, and how does your organization employ innovation to be on the leading edge?

We are innovators in the utility industry in terms of how we maximize value in a regulated environment and how we work with our customers.

Utility companies, being regulated, typically file rate cases to recover their costs from customers. This usually involves nine months or more of litigation (beating your customers up, in a legal sense, in a hearing room). We have adopted an innovative approach to this combative, unproductive process. We gather all our stakeholders around a table in a collaborative fashion prior to filing a rate case to find out what their needs are, be candid about our needs and negotiate true win-wins. Our objective is to file a settlement with the PUCO for approval — ideally a multiyear agreement that’s agreed to by all parties. We have been successful — our most recent rate case was in 2008 and resulted in a settlement approved by the PUCO. This has allowed us to establish more positive relationships with our customers and regulators.

How do you make a significant impact on the community and regional economy?

We serve the entire Central Ohio region and realize we have an obligation to not only supply customers with reasonably priced natural gas every day but to be good community partners in terms of providing corporate, philanthropic and employee participation contributions. In terms of direct economic impact, natural gas prices are the lowest they have been in the last eight to 10 years. This has a huge positive impact on residential, commercial and industrial customers.

I personally serve as chairman of the Columbus Chamber of Commerce board, and I am a member of the Columbus2020 board and the Columbus Partnership. These require a great deal of time, but it’s time well spent. The Columbus2020 Economic Development initiative is for real and will provide great value for the investment in our Central Ohio region.

How to reach: Columbia Gas of Ohio, www.columbiagasohio.com

See all of the 2011 Columbus Smart Leaders on the next page.

Together with U.S. Bank and Blue Technologies, Smart Business named the following honorees to the 2011 class of Columbus Smart Leaders:

*Indicates Women Presidents’ Organization Breakthrough Business Leader

Published in Columbus