Walter McGrail: Special Report on Accounting

Walter McGrail, Senior Manager, Cendrowski Corporate Advisors

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

Blogospheric pressure: Watch your step with CEO blogs

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

Special Report Legal: Karen Lefton

Karen Lefton, Partner, Brouse McDowell LPA

Two points that CEO bloggers should keep foremost in mind are, first, never underestimate how many different groups of people may read what you write, and second, despite the blog form’s outwardly ephemeral nature, everything you post is almost certain to be permanently accessible online, whether you want it to be or not.

Below are three tips for executive bloggers compiled by Karen Lefton, a partner with Brouse McDowell LPA.

Write for your customers, but know that competitors are reading.

Be particularly careful not to disclose confidential information, trade secrets, business plans — sensitive information not known to the public. There is a tendency to blog from the comfort of your home after a long day at work. Don’t. This is not the time for a fireside chat. A blog must be written with the same thought and care as a speech to your Chamber of Commerce. More people may see it.

Write for your supporters, but know that detractors are reading.

Be careful with your facts. For every fact that can be checked, there is a former (disgruntled?) employee who will check it. When things are not black or white, he will take issue with your shade of gray. Avoid references to age, race, gender, ethnicity. What difference does it make that your new marketing manager is “young”? His creativity and enthusiasm matter. His youth does not (except, of course, to the over-40 manager that he replaced.)

Write for today, but know that your words will live forever.

A blog can be like a bad penny. It will keep on turning up. Be prepared for anything you’ve ever written or taped — a blog, annual report, speech, interview, legal brief — to be accessible on the Internet. As search engines continue to improve, it will be easier to connect your name and title with postings by you or about you. Maximize the benefit by controlling your message. Minimize the detriment by treating all your communication as though it will last forever. It will. And if you’re ever involved in litigation, it will be printed out in large type on a big screen for the world to see — again.

Karen C. Lefton is a partner with Brouse McDowell’s labor and employment practice group, mainly representing businesses. She has a special interest in media law, particularly defamation, invasion of privacy and Internet issues.

Special Report Legal: Lori Clary

Lori Clary, Attorney, McDonald Hopkins LLC

The legal hazards that executive bloggers must steer through are many. Here are four of them, compiled by Lori Clary, an attorney with McDonald Hopkins LLC.

  • Blurring the line between personal and professional: As an executive, you’re the face of your company. When you post something online, it’s inevitable that what you say will be associated with and — in many cases  — attributed to your company. As a result, it’s important that your blogging persona be just as deliberate and professional as you are on a day-to-day work basis. Anything less could result in a stray posting becoming Exhibit A in litigation against the company. If your blog is intended to express your personal opinions and viewpoints, make sure your readers know that and take care to ensure that your personal blog doesn’t negatively reflect on your ability to serve as an executive with your company.
  • Inadvertently disclosing  confidential or trade-secret information: You know your company better than anyone  — and that’s a good thing. Just be sure to post only nonconfidential, nonproprietary public information on your blog. Jumping the gun even a little bit could result in your company’s competitive edge being diminished or worse (think blown deals, SEC investigations, diminished business value, employment termination and lawsuits, to name just a few unsavory complications). If you have any doubt about whether a piece of information is for public consumption, that information isn’t appropriate blogging fodder.
  • Running afoul of the FTC’s product endorsement rules: As an executive blogger, you always want to present your company’s products and services in the best possible light. The Federal Trade Commission, however, has very definite requirements for product and service endorsements that appear in blogs and other social media outlets. At a minimum, you need to be sure your readers understand your relationship to the company so they can gauge for themselves how much weight to give your opinion.
  • Failing to seek legal guidance: Executive blogging can be a powerful way to raise your company’s profile, build excitement for products and services, and interact with your customer base. To reap the benefits, though, you must manage the risks. Trusted legal advisers can help, so be sure to involve them before problems occur.

Lori A. Clary is an attorney with McDonald Hopkins LLC. Her focus is labor and employment counseling and litigation.

Are you legally vulnerable?

Jim Boutrous, McDonald Hopkins LLC

A recent amendment to the Americans with Disabilities Act has lowered the threshold of who qualifies as disabled ― former distinctions are gone between a person with a disability who was recovering well and one who was not.

“The amendment has classified both as disabled under the statute,” says Jim Boutrous, attorney with McDonald Hopkins LLC in Detroit.

“Companies need to look at accommodation requests to see that if you are making an employment decision, you are doing it for legitimate bases, independent from the protected classification,” he says.

Other concerns for companies: making back-to-work polices more flexible and using care with criminal background and credit checks in the hiring process.

Jim Giszczak, McDonald Hopkins LLC

“Courts and the Equal Employment Opportunity Commission are taking hard looks at policies that call for termination of an employee on disability who has not returned to work after a prescribed period of time,” Boutrous says.

“Make it more flexible ― understand that an accommodation can include more additional time of leave if that period will allow the individual to successfully return to work,” he says.

Criminal background and credit checks may have a disproportionate impact on minorities, and the EEOC has been cracking down on some business policies regarding the checks.

“It is imperative that employers who rely on those background checks distinguish candidates on the basis of qualifications of the job so they are not relying too heavily on those findings,” Boutrous says.

In another area, companies need to recognize the risk and exposure they have as a result of the information they possess.

“Every employee should sign at least a confidentiality agreement,” says Jim Giszczak, attorney with McDonald Hopkins. “Companies need policies and procedures on how to handle and protect data, who actually owns the customer relationship, and they need nonsolicited, noncompete agreements with the appropriate personnel so that if they leave, they are not in a position to take the company’s business or employees and unfairly compete against them.

“And then, companies obviously need to have appropriate checklists in place to respond immediately if an employee leaves and steals information, clients or if there is a data breach.”

Jim Boutrous is co-chair of McDonald Hopkins’ Labor and Employment Practice Group. He focuses on noncompete and trade secret matters, which includes counseling, auditing and drafting agreements. He is also a skilled employment litigator.

Jim Giszczak advises clients regarding data security measures and responding to security breaches involving sensitive personal information and protected health information. He also works with clients to assess and implement appropriate data security safeguards.

Spending for tech is a double-edged sword

David Krauss, The Stolar Partnership LLP

Call it technophobia or a hesitancy to spend in an area where there is no finish line, but a number of businesses are having what David Krauss, partner in The Stolar Partnership LLP, sees as a major difficulty in handling the new electronic age.

The issues of security breaches, sharing information and safeguarding personal information are on companies’ minds now more than ever.

Krauss says the expenses to have current technology and to keep it safe are adding to the stress.

“The concern keeps coming back from businesses that say, ‘No. I don’t have the money in the budget for it. I’d say things are probably OK, and I’m willing to roll the dice to just kind of see what happens.’”

The result, however, may bring unwanted consequences.

“As the technology requirements get more sophisticated here, it’s possible that some of our businesses are just going to have a harder time competing in this kind of more global intellectual society.”

If your company is sitting on the fence about spending for technology, prepare yourself for a routine of constant business decisions.

“It’s kind of a double-edged sword,” Krauss says. “You may know what you want and what you need, but then if your bottom line is not quite as good as you had hoped it would be, then you are always making business decisions as to what to do: ‘Should we do this? How much is this going to cost? What kind of tech knowledge do we need? What happens when we buy something today in order to protect our system but probably 30 days from now there’s going to be something better out there?’”

David Krauss, partner in The Stolar Partnership of St. Louis, specializes in a variety of tax matters at all levels ― federal, state and local. His expertise includes both tax planning and involvement in tax controversies, including business law, nonprofit organizations, taxation, employee benefits and executive compensation. One of his favorite topics to discuss is how to attract new business to the area and stop playing checkers to move businesses from one retail shopping center into another.

Managing generation gaps

Ken Cookson, Kegler, Brown, Hill & Hitter LPA

The hiring and retention of employees is becoming increasingly difficult ― and while a few years ago employers were calling attorneys asking how to get rid of misbehaving employees, now they are calling to ask how to keep them.

“I’m asked, ‘How do I motivate these people?’” says Ken Cookson, director at Kegler, Brown, Hill & Hitter LPA. “They are a good group, but there are several generations in the work force right now ― and all of them have different kind of approaches.”

If you are trying to manage a millennial (1977-1994), who came into the work force in the last few years, you want to do it entirely different than you would a leading-edge baby boomer (1946-1954).

“You would give the Leading Edge Baby Boomer an acrylic memento to put on the desk and he or she would be forever happy,” Cookson says. “You give that to a millennial and he or she would laugh at you.”

The baby boomers still think of themselves as 35 years of age, being vibrant and alive. They are leaders. They run the football model of management ― “This is my team; I am the quarterback. Those people run the play I tell them to run when I tell them to run it. I never consult with them; I’m the quarterback.”

“The millennials tend to run the true partnership model,” he says. “Everybody has strengths and values that they bring to the partnership. If yours are needed, you are the leader, and if they’re not for this project, it’s like playing right field. You can sort of sleep through it.”

Ken Cookson, director at Kegler, Brown, Hill & Ritter LPA, focuses on business, banking and real estate matters to issues involving bankruptcy, state/local taxation and others. He regularly offers guidance to clients regarding some of the most important decisions facing their businesses, including formation and structuring strategies and state and local tax disputes. He also advises buyers and sellers in business and real estate transactions, as well as lenders and borrowers in lending transactions.

Check your multistate tax liabilities

Chuck Zellmer, McDonald Hopkins LLC

Governments are looking to find new sources of revenue to hold their heads above water during troubling economic times or just to generate more income, and they are becoming more active in tracking down multistate and even multilocal tax liabilities.

“The states are becoming more and more active in making certain that the taxes they can charge are indeed charging,” says Chuck Zellmer, attorney for McDonald Hopkins LLC.

“They are becoming very active assessing and collecting taxes, contacting clients on a regular basis. I think what you’ll see is even going down to the municipalities because some of them have different tax rates, they’re collecting the tax or not, and businesses just don’t think that way right now. Businesses are cognizant that they’ve got to collect sales taxes but not necessarily on a multistate level.

“Then you have the whole issue of are my people in the state regularly enough that I not only have to pay taxes for the sales in the state, but do I have to pay income taxes, do I have a franchise tax, and all the other taxes that go with having an employee in the state,” Zellmer says.

In the past, businesses have conducted themselves by having independent contractors in other states instead of employees. However, the government is looking at that very hard. Zellmer recommends conferring with your attorney since even some of the more sophisticated clients ― because they think they have sophisticated independent contractor agreements ― aren’t necessarily going to meet the standards the government is pushing these days.

“The independent contractor question is one that is going to be on the front burner for a while until the government settles some questions ― the trend seems to be pushing toward making it the exception when there is an independent contractor relationship,” he says.

Chuck Zellmer is manager of the Business Law Department for McDonald Hopkins LLC. Based in Cleveland, he focuses his practice on business counseling, real estate and succession planning for business clients in a variety of industries on personnel, contract and other issues encountered in daily operations, transactions and strategic planning.

Don’t let technology changes put you at risk

Eric Macey, Novack & Macey LLP

As technology becomes an ever-increasing part of most businesses, so does the need to become more sophisticated on issues regarding intellectual property ― patents, trademarks and copyrights.

“An electronic process now can be easily patented,” says Eric Macey, partner in Novack and Macey LLP. “Because technology is claiming more of business, you have to become more familiar with it, because you are consistently signing license agreements to do business, and you are consistently getting rights to use technology in a certain way from people who hold patents.”

You have to make sure you know that what you’re doing is consistent with the law, particularly when you are outsourcing, a practice which is growing because of the cost benefits and flexibility that it can offer.

“When you outsource, you enter into contractual relationships that involve technology, which may involve patent rights, trademark rights and other rights,” Macey says. “You have to understand that you can’t just look at a form agreement and sign it. It’s not a simple purchase order. It’s not like that anymore.”

For instance, a company may outsource its website to a Web developer, and the site will offer items for sale from your inventory and provide for e-commerce sales. You may want your employees to have access to the site which may add to potential problems.

“You sign some agreement that has all kinds of information on it, on copyrights and patents that this company has that you can’t use and you can’t disclose and things like that,” Macey says. “I think in the old days you just signed them and didn’t read the fine print, but I think it has greater implications now because there is greater liability than you had before.”

Eric Macey, partner in Novack and Macey LLP, is a co-founder of the firm. He focuses on areas such as arbitration, business torts, class-action defense, commercial litigation, employment law, financial services and others. He has a clientele consisting of a wide range of business corporations and institutions, investment ventures, partnerships, and individuals. Macey has extensive trial experience in state and federal courts throughout the country and has acted as both an arbitrator and mediator in alternative dispute resolution settings.

Law firms need to review payment practices to maximize profits

Gavin Geraci, PNC Business Banking

Should your legal firm be considering ways to improve its payment practices ― and ultimately its cash flow ― alternative fee arrangements and online payable tools are good bets.

But a word of advice from Gavin Geraci, senior vice president, specialty segment executive, PNC Business Banking: couple that examination with an evaluation of the firm’s financial policies.

“Any time you’re going to adopt a new billing arrangement or structure, use that as an opportunity to evaluate billing and collection policies,” Geraci says. “It’s likely going to result in a change in revenue, a change in how clients see their charges and it’s going to have an impact.”

Review how it will potentially impact the budget with which you started off the year. The payables cycle particularly deserves review if the firm does work on a contingency basis.

“Take advantage of the data that is available to the firm to really do some analysis and test the impact of any changes you might make on the firm’s cash flow, because  if you do it to any magnitude, it will likely have some impact,” Geraci says.

Moving to a flat fee instead of a traditional hourly billing and using credit cards to pay legal fees are two growing trends being used to improve payment practices.

“Using a credit card as a payment vehicle tends to be a pretty effective means for some firms to accelerate those receivables,” Geraci says. “It’s something more businesses are amenable to, and it’s a little outside the traditional invoicing that you will normally see.”

Other methods to accelerate payments include online tools, such as online bill pay, offered by financial institutions.  These tools can also offer access to escrow accounts, master and subaccounts so that legal firms can effectively manage those.

Technology aside, some good, old-fashioned business smarts can help improve the picture.

“You have to actively manage your past due accounts,” Geraci says. “A lot of times those conversations are going to lead to greater collection than if no efforts were made. That follow up could be the difference between full payment and a writeoff.”

Gavin Geraci is the senior vice president of business banking and specialty segment executive at PNC Business Banking. He has more than 19 years of experience in the financial services industry.

How to reach: PNC Bank, www.pnc.com/attorneys or (877) 535-6316.