Sue Ostrowski

Did you know that tobacco use in the United States costs an estimated $197 billion a year in lost productivity and health care costs? Add to that second-hand smoke, which costs an additional $10 billion in losses. Tobacco use contributes to one of every five deaths, and smokers die an average of 13 years earlier than nonsmokers.

“While it’s not easy to quit, it is possible to do so. And employers can help,” says Julie Sich, health promotions coordinator for SummaCare Inc.

“Both the employer and employee can benefit when the employer helps the employee who wants to quit,” says Sich. “Employees who quit can significantly improve their health and quality of life. Employers benefit by spending less on tobacco-related illnesses and gaining productivity in the work place.”

Smart Business spoke with Sich about how to provide the tools to help your employees quit smoking.

Why should employers be concerned about employees who smoke?

Worldwide, an estimated five million people will die this year as a result of smoking. In the U.S., tobacco use is responsible for an estimated one in five deaths, or about 443,000 deaths per year. This creates a huge impact on businesses and the health care system.

In addition, for every death that results from smoking, an additional 20 people suffer from at least one serious illness related to smoking, including smoking bronchitis, heart disease, stroke, cancer and lung disease. People who suffer from those diseases are not as productive and can cause substantial increases in health insurance premiums.

With an estimated 46.6 million smokers in the U.S. — 20.6 percent of the adult population — this can have a significant impact on the productivity of the country’s employers.

How do employees who smoke cost their employers money?

The first way smokers cost employers more money is obviously an increased use of health care, which can drive up premiums, but there are other ways that may not be as obvious. For example, if employees are taking four 10-minute smoking breaks each day, they are working one full month less each year than employees who aren’t taking comparable breaks. Each employee who smokes costs an employer an average of $1,897 per year in lost productivity as a result of smoking breaks and by being absent an average of two days more per year than their nonsmoking counterparts. In addition, workers’ compensation costs for nonsmokers average $176, while costs for smokers are more than 12 times that, at $2,189.

How can employers encourage employees to quit?

Many employees already want to quit smoking but don’t know where to turn. Studies show that approximately 70 percent of smokers want to quit, and, in 2008, about 45 percent of smokers attempted to do so. With that in mind, it may be easier than employers think to help people quit, as the majority of smokers already have the desire to stop.

Begin by surveying employees to identify the amount of interest in quitting, and find out what resources are available to help you decide on the approach you wish to take. Some employers choose to minimize their involvement and simply steer employees to information or community programs that could help. Others may choose to make some smoking cessation resources available themselves.

Finally, companies may choose to offer smoking cessation benefits such as therapy and individual and group counseling. When it comes to smoking cessation, one size does not fit all. People respond differently to different methods, and a program that offers both a counseling and coaching component can help a smoker develop a cessation strategy that works best for that individual.

Pairing counseling with nicotine replacement therapies and medications is even more effective, and employers who provide low- or no-cost access to medication can greatly increase their employees’ rate of success.

By providing support to help smokers quit, employers send the message that they care about their employees and want them to be healthy. Employees should also be reassured that the employer has their best interests at heart and is not trying to stigmatize them by encouraging them to quit.

How can employers provide incentives for employees to quit?

Small incentives can be effective in helping employees to quit. For example, those who succeed — or even those who complete a program but fail to quit — can be rewarded with lower health insurance and/or life insurance premiums or cash in a flexible spending account to pay for medication to aid in quitting. Also, employers can pair quitting smoking with other health and wellness programs, making it just one part of a healthy lifestyle.

Employers should encourage a supportive workplace. If smokers are stigmatized, they are less likely to succeed. Encourage your nonsmoking employees to offer support to those who are trying to quit.

Can banning smoking on company property be an effective step to helping employees quit?

Making it more difficult for employees to smoke during the workday may provide an incentive for some, although not all, employees to quit. However, banning smoking on your property can have additional benefits, including improved morale among nonsmokers, reduced liability from lawsuits for exposure to second-hand smoke, better air quality around the building, a better image for visitors and lower building maintenance fees.

Breaking an addiction to nicotine is not easy, but employers are in a great position to encourage and help their employees quit. Research shows that paying to help an employee quit smoking provides a great return on investment in lower health care costs, lower workers’ comp costs, increased productivity and fewer days of missed work.

Julie Sich is health promotions coordinator for SummaCare Inc. Reach her at (330) 996-8779 or

You may think that because you have a will, all of your assets will go where you intended. But if those assets aren’t properly titled, it doesn’t matter what your will says, because the title on the assets supersedes a will and other legal documents, says Tom Kotick, CPA, CFP®, associate director in tax at SS&G.

“Say, for example, an account is joint tenancy with rights of survivorship,” says Kotick. “Then, by law, after your death, the asset will go to the other joint owner, even if you’ve indicated in your will that you want that money to go to your child. The law looks at how that asset is titled, and that governs where it goes.”

Smart Business spoke with Kotick about how to make sure that your assets end up where you intended.

Where do people err with titling assets?

People often get tripped up with life-changing events, for example, when they get married or divorced, if there is a death, or the birth of a child. The biggest areas of risk are assets that pass via beneficiary designation, typically IRAs, 401(k)s, life insurance and annuity products. Those are considered contractual agreements with those companies, and when you set them up, you designate a beneficiary.

A single individual may name his or her parents as the beneficiary, but not update the beneficiary after getting married. As a result, the provider will pass that money on to the designated beneficiary, even if your will or trust says otherwise. Any time you experience a life-changing event, you should do an overall review of your estate planning, and a key component of that is asset titling.

In addition, you should pay close attention to asset titling as you set up new accounts or acquire additional assets, or if there is a sizable shift in your net worth. What may have made sense when you had half-a-million dollars may not make sense if you now have $2 million.

What would you say to those who say they trust their family to make sure assets go to their intended recipients?

That sounds good in theory, but the only way to guarantee those assets transfer to the intended beneficiary is to make sure they are correctly titled. A parent may feel that all the children get along just fine, but there could be rifts.

Also, money and finances can be a very uncomfortable discussion for families, so if you can properly title your assets and your family doesn’t need to have those tough discussions, everyone is better off.

In addition, if you, as a parent, make one person the beneficiary of assets with the idea that the child will distribute them according to your will, you create another problem. If that child inherits an asset and gives it to someone else, he or she has now made a gift for gift tax purposes. Generally speaking, every person can give every other person up to $13,000 annually. This year and in 2012, there is a $5 million gift tax exclusion individuals can use to gift assets. But to the extent your child does so, he or she is eating into the $5 million gift exclusion and would have less exemption to pass assets to that child’s own heirs tax free.

Is there any way to get around it after the fact if assets haven’t been properly titled?

One way is with a qualified disclaimer. For example, if you have an account titled ‘transfer on death’ to your brother and you pass away, the account legally goes to him. But if he doesn’t want it, or doesn’t need it, and he wants it to go to your heirs, he can execute a qualified disclaimer, essentially saying ‘thanks, but no thanks,’ and that asset will pass as if he predeceased you. The asset becomes part of the estate and transfers based on your will. The risk of planning with disclaimers is that one, the individual has to agree to not accept the property; two, there is a timeline for executing the disclaimer; and three, the individual disclaiming the property must not have received any benefit from that property, for example, withdrawing funds from the account.

How can having assets properly titled speed up the process and keep matters private?

Having assets properly titled speeds up the process as it will minimize the need for any post-death planning by your advisers and can help avoid the probate process. Any assets passing by way of your will are subject to probate, which is a very public process and can take time. If assets pass through the county probate court, the details become public record anyone can access.

On the other hand, with asset titling tools including ‘payable on death’ and ‘transfer on death,’ assets transfer directly and avoid the probate process, keeping the transfer private and avoiding the expense inherent to the probate process.

How can outside experts help ensure that you get it right?

Working with an outside expert can help you determine if your plan is still appropriate given any tax law changes. Also, having that periodic review forces you to consider your family situation. Have family dynamics changed? Is the plan in place still a good plan? Without reviewing the plan every so often, it’s easy to overlook those things.

Finally, as you are titling your assets, if you are also creating a will or a trust, work with an attorney to make sure everything is titled correctly and that assets really will transfer the way that you want them to.

Tom Kotick, CPA, CFP®, is an associate director in tax at SS&G. Reach him at (330) 668-9696 or

If all your insurance broker has done is market your health care plan to a half-dozen carriers, you may not be getting your money’s worth, says Steve Freeman, president of USI in San Francisco.

“If you have 100 employees and multiply that by $10,000, the average annual premium is $1 million,” says Freeman. “If you are paying a 5 percent commission, your broker is making $50,000 a year on your account just for negotiating premiums. And there’s not a lot of incentive to work for lower premiums, because, as premiums increase, so does his or her commission.”

Smart Business spoke with Freeman about how to create transparency in broker fees and how to get the most for your money.

Why are broker fees becoming more transparent?

The Accountable Care Act requires a minimum loss ratio of 85 percent, so insurance companies have to spend at least 85 percent of premiums on claims for employers with at least 50 employees. And that cannot include broker compensation. As a result, brokers will have to be more transparent with their services and fees.

What questions should business owners ask their broker to make sure they’re getting the best value?

First, ask, ‘How are you impacting the cost of my medical claims, rather than just shopping it to insurance companies?’ Claims costs drive premium. The broker should also be focused on changing employee behavior to make them become better health care consumers. Suggestions should include ideas around aggressive wellness programs, evaluating different funding alternatives and analyzing the overall health status of the group. The broker should un-bundle your claims to help determine what is driving your price, because, if you can lower your claims, you can lower your premiums. Businesses should understand their claims utilization. For example, they could assess whether their emergency room visits are higher than other groups benchmarked in their region or industry. If so, the broker can target employees using the ER and educate them about how using urgent care instead of the emergency room will cost them and the employer much less.

Your broker should also conduct a large claims analysis. If there are very large claims, are employees utilizing the most cost-effective facilities that have better outcomes? You can also design programs to migrate more employees to facilities with better outcomes and lower costs than, for example, a teaching hospital, whose charges may be double but that have the same outcomes.

Can a small brokerage firm meet these needs?

The one-man or 10-man brokerage is dead. If a broker says, ‘call me for everything,’ or ‘I can take care of all your needs,’ that should be a red flag. Those shops can’t survive because they don’t have the intellectual capital for all of the necessary areas of expertise. Nor do they do the volume of business with insurance companies to get the deals that someone with a large volume of premium with these companies can get.

A larger broker will have ERISA attorneys on staff to advise on compliance issues, a medical director to do clinical reviews, teams that conduct analytic and underwriting work, and individuals doing HR and IT work. Brokers should be the quarterback, with a team behind them that understands compliance, legal, clinical, underwriting and communications. The broker’s job is to understand how to orchestrate that team, not to pretend to have all the answers.

What would you say to business owners who are comfortable with their broker simply shopping their plan?

I would ask what that relationship is worth to them. There are businesses that have a few hundred employees with fully insured plans that budget an increase of 12 percent a year.

If that broker is making a 5 percent commission and you are paying him $100,000 a year, what does he bring to you in value? How much business do you have bring in to make $100,000 in profit? Is your broker worth that revenue? What is he doing to bring your costs down?

Employers think they are just paying the insurance premium, and the broker is part of it, and that it is difficult to influence cost. But brokers actually can influence cost. Insurance companies come out with a 12 percent rate increase knowing that they can be negotiated down to 8 percent. The business owner thinks the broker did a good job getting to 8 percent. But a broker with underwriting and claims experience, before you even get the renewal notice, will tell the insurance company that your renewal should be 5 percent based on the underwriting formula of what you’ve done in the past. The broker should say, ‘Our expectation is that you will come back with a 5 percent rate increase, not 8 percent or 12 percent. But based on facts and claims use, it should be 5 percent.’ There is lot of room for negotiation.

How is the commission system changing with more transparency?

Instead of staying with percentage-based commissions, employer groups are paying a flat fee per year, and the broker compensation is based on the level of service he or she is providing. It is not a function of premium, it is a function of the services that broker is delivering to the firm. The employer group negotiates a flat fee per employee per month, or a flat dollar amount per month for the services it is getting, more like fees that are paid to an accountant or attorney.

The value of the insurance benefits should be evaluated based on results and managing total cost. The more transparent compensation becomes, the more aware clients will become of the services that their brokers are providing, or should be providing.

Steve Freeman is president of USI San Francisco. Reach him at (925) 472-6772 or

If your business is looking to hedge against increasing electricity rates and do something good for the environment at the same time, you might want to consider solar.

Businesses can invest in their own systems to generate power, or agree to buy power from a third party.

A bank with an experienced team in solar energy finance can help, says Dan Pistone, senior vice president and manager of Bridge Bank’s Technology Banking Group.

“Several options exist to take advantage of the benefits of installing solar energy systems, and each option has its merit, depending on what your short- and long-terms goals are, and what type of business you own or manage,” says Pistone. “The right financial partner can help you make informed decisions about ownership versus leasing, and can provide insight into the implications of both options.”

Smart Business spoke with Pistone about how a solar energy system can help you lock in utility rates for years to come and how a bank can assist you in your efforts.

What does a business need to think about when considering solar?

Solar power is a growing industry and as new technology and improved manufacturing efficiencies continue to advance, solar energy systems are becoming increasingly accessible to business owners. If your company wants to install a solar energy system, you have two choices. You can buy the system and have the benefits of ownership, or you can secure a lease of a system, in which a third party owns the system as an asset and you agree to purchase all of the electricity it produces.

Over the last two years, the growth in renewable energy financing has come as a result of  tax equity financing, corporate taxpayers who are looking to leverage the available state and federal tax benefits and large banks that are doing large-scale utility-grade projects. However, those banks tend to focus solely on big projects, in the 20 to 50 megawatt range. But, for smaller businesses looking at installing smaller rooftop or ground mounted systems ranging in cost from $500,000 to $15 million, very few financing options exist, quite simply because few banks have the expertise to effectively manage these complex financing structures.

So it becomes challenging for businesses to find a bank that has the infrastructure in place and the knowledge base to manage the complex nature of this type of financing.

If a business wants to use solar energy, how does it get started?

The first step for a business is to determine whether it wants to purchase and own the solar energy system, or if it wants to lease the system and make utility payments to the owner of the asset.

That decision starts with knowing your tax status. Entities such as nonprofits, schools and churches don’t pay taxes, so they wouldn’t receive the benefits of the subsidies that are available. So if you are a school district, for example, and you want to install a solar system in your schools, you wouldn’t get the benefit of the tax credit, or the benefit of depreciating the system as an asset, in which case it would make more sense to instead find a developer that can bring that tax investor in.

Then there are negotiations between the developer and the off-taker of the energy to determine what the utility rate is going to be over the term of the agreement and the escalation rate on an annual basis. Power purchase agreements are generally 15 to 20 years in length, which is favorable to business owners because it allows them to control the cost of electricity over the term of the agreement. Plus, banks and equity investors prefer the longer term because it provides a long-term asset in the agreement.

What will the bank look at when determining financing?

The bank will take a holistic view of the entire project, including an examination of the creditworthiness of the off-taker, and look at the developer, its history, and its ability to construct projects and its track record, as well as other agreements such as operations and maintenance. It will also look at the actual components of the solar energy systems themselves, such as the panel inverters, to get an overall comfort level for the project.

Then it will size that project by looking at the long-term cash flows that will be generated from the electricity sales, and the short-term cash flows, such as local and state incentives. It will look at all those different sources of cash flow that come into a project and decide which of those it feels comfortable lending against.

What should a developer look for when choosing a financing partner?

Energy finance for small-scale projects is a new and fairly complicated practice and, for many business owners or developers, there’s definitely a learning curve at the beginning of a project or system purchase. Look for a bank that is able to provide not only a flexible suite of loan products, but also one that is willing to advise you on how to appropriately capitalize the project and how to properly structure an agreement between parties in a lease. The bank should provide an advisory service, not just debt financing.

Many of the banks that are engaged in energy finance are really only focused on large-scale projects, so it’s often difficult to find the right partner. But if you can find that partner, they should have the ability to advise you on how to aggregate projects to achieve economies of scale. If your goal is to finance these projects, your bank should be a resource to educate and advise you on how to proceed every step of the way.

Dan Pistone is senior vice president, manager, Bridge Technology Group. Reach him at (650) 462-8502 or

Many of us have investments scattered among multiple money managers. If they are not working together, a lack of coordination among those managers could be costing you a lot of money, says Norman M. Boone, founder and president of Mosaic Financial Partners Inc.

“If all of your accounts — trusts, 401(k)s, IRAs, individual accounts, joint accounts, etc. — are under one broker, that person will have a clear picture of everything that is going on across those accounts,” says Boone. “Most investors have no idea how much it may be costing them to have different parts of their portfolio under different managers. This is especially true for the taxable part of your portfolio.”

Smart Business spoke with Boone about why one hand needs to know what the other is doing and how to find  an investment adviser who can maximize the tax advantages across your accounts.

How can having accounts across different managers cost investors money?

Let’s say you have $500,000 to invest, and your broker puts your account with three different account managers who are buying individual securities. Typically, they do not communicate with one another about their trades and holdings. This can create a couple of problems. The first issue is that they may be investing in many of the same securities; instead of decreasing risk through diversification, you instead get more risk due to the overlap.

Another pitfall would be if your three managers all avoided a particular industry, for example, the oil industry. The empty places in your portfolio further defeat your desire to diversify. Most managers manage what they are familiar with, and if they are not familiar with oil, or international markets, or emerging markets, for example, that could leave holes in your portfolio.

Both of these problems are caused by the failure to have someone seeing the whole portfolio, to make sure all the bases are covered and that there is no overlap. The lead adviser would make sure there is exposure to large and small cap U.S. stocks, large and small cap international stocks, emerging markets, bonds, real estate, etc.

How could a lack of coordination among managers negatively impact an investor’s tax situation?

According to the ‘wash sale’ rule, if you sell a security at a loss, you can only make use of that loss for tax purposes if you do not buy that same security during the 30-day period before or after the sale. In other words, you lose the tax advantage available when you have a loss. For example, if you sell a stock at a loss and, within 30 days before or after that sale, you also buy that same security, the tax code forbids you from making use of any loss you may have incurred on the sale of that stock.

The rule becomes important in a portfolio that’s being managed by multiple managers. For example, say you have Manager A and Manager B, both of whom oversee a part of the portfolio. Manager A likes IBM and owns the stock in the portfolio. Manager B doesn’t own it yet, but he likes it. Manager A then sees a better opportunity, sells the stock, and assumes the loss on the sale. He thinks he’s helping the client and saving him some tax dollars on the loss. But Manager B, operating independently, buys IBM 20 days later, eliminating the tax saving opportunity created when the stock was sold at a loss.

If there’s no coordination between those managers, the result could be very costly.

How can an investor avoid this issue?

Find an organization that will manage your money in a more coordinated fashion. That firm should be managing all of your accounts, so it knows what is being bought and sold across the portfolio and can make sure someone isn’t buying something that was just sold previously by someone else. This coordination is important if you want to be able to take full advantage of tax laws, and if you want your portfolio to be properly diversified.

Losses can be carried forward forever, until they are used by the taxpayer. As the market returns to strength, having losses ‘banked’ can result in significant tax savings for your portfolio.

What questions should an investor ask when looking for a broker?

Beyond the basic questions addressing how money is managed, questions you might ask include: Do you do tax loss harvesting for my individual portfolio? With separately managed accounts, the manager doesn’t typically know who the clients are and just manages the money without considering the tax consequences for the individual client — and sometimes without even knowing who the client is.

Other questions to ask: How do you coordinate with other managers? How do you manage the wash sale rules to ensure maximum benefit? When managing money, do you take into account individual tax needs? How many clients do you have?

If brokers have 1,500 clients, they may invest in the best small cap stocks, but it’s impossible for them to individually manage the tax needs of each of their clients. You need to find an adviser who manages with that objective in mind, who is sensitive to the costs and considers the tax consequences that reflect your situation, not someone who is just managing money the way he or she wants to manage it.

Norman M. Boone is founder and president of Mosaic Financial Partners Inc. Reach him at (415) 788-1952 or

If your company has been hit with a lawsuit, you may want your attorney to tell you up front if he or she is going to settle the case or fight to the death through a trial.

But that’s not always something that can be determined in advance, says Alex Craigie, a trial lawyer with Dykema Gossett, PLLC. Instead, there are several key points during the process at which the attorney and the client should assess the value of going forward with the case versus settling.

“Settling is not always the best option,” says Craigie. “But if it is a case in which the defendant wants or needs to settle, there are certain key times during a case that it can leverage that option.”

Smart Business spoke with Craigie about critical times during a lawsuit to evaluate whether settling, or moving forward with the case, is the best option.

What is the first key point at which to consider settlement options?

The parties can discuss settlement at any time, but I’ve found there are a few pressure points during the life of a case where it can be strategically intelligent to consider engaging in settlement negotiations.

The first is at the very onset, before the company has been served with the suit or filed its response. At this point, the parties’ costs are still at a minimum, and this fact alone sometimes creates an incentive for a reasonable settlement.

But not always. At this point, the attorneys have only heard one side of the story— their client’s version. The plaintiff’s lawyers may be overly optimistic about the quality or value of the case. A company defendant and its lawyers might be too bullish or unrealistically undervalue the case. Either of these circumstances can complicate negotiations. While the concept of an early settlement sounds appealing, finding a common ground this early in the litigation can be challenging.

When is the next juncture that provides a settlement opportunity?

I find a second key time to negotiate may be as soon as the deposition of the plaintiff or the plaintiff’s key witness has been completed. Sometimes the sheer intrusiveness of the deposition makes the plaintiff uncomfortable enough that they no longer want to pursue the case the way they did at the outset. I find this particularly true in sexual harassment, discrimination and certain personal injury cases.

The deposition might also have revealed facts that weaken the case for one party. If the plaintiff’s case was weakened by the testimony, they may begin to value the case more realistically, closer to the defendant’s estimate.

By the same token, a company defendant’s desire to resolve a case might increase if harmful information was learned for the first time during the deposition.

How can filing a motion to dismiss lead to settlement?

A dispositive motion, whether for summary judgment or dismissal, should always lead an opponent’s lawyer to re-think their settlement stance.  Regardless whether it is a ‘slam dunk’ winner, a dispositive motion creates a risk that the plaintiff will walk away with nothing. This is a key pressure point and an opportunity to discuss settlement.

I can’t blame a company defendant, who has filed a strong motion, from becoming further entrenched in its bullish position. After all, it could be just a hearing away from complete victory. On the other hand, this is perhaps the best opportunity to find out if settlement is possible. The risk created by the motion can reduce a plaintiff’s expectations to the point where ‘peace’ can be purchased relatively cheaply. This is all the more true if, by settling, the company avoids the extraordinary defense costs and risks associated with a full-blown trial.

Is there still room to settle before a trial begins?

Absolutely. Trial is war. Preparing for any trial is a risky and expensive endeavor. It is also disruptive to the company, especially if it is a smaller company. It can take every hour of every day for several key employees to prepare. The company must devote an enormous amount of resources, both money and time, to preparing. If the case is going to be settled and should be settled — and let me emphasize that not every case should settle — an optimal time to do it is before you get to the final trial preparation phase.

In the final four to six months before the trial, the parties and their lawyers should be asking, ‘When are we going to start incurring trial preparation costs? When are we going to start pulling people away from their normal jobs to prepare for trial testimony? When are we going to start hiring experts, which becomes very expensive? When are we going to start filing pretrial motions and jury instructions?’

So, for example, if the trial is set for October, your attorney should be able to tell you that you’ll need to kick it up starting in late June. If you want to attempt to settle before trial preparation costs really start to mount, you need to be thinking June or earlier.

Do you suggest the parties use a mediator to help them negotiate?

Yes. But I don’t advocate working with a neutral prematurely. I’ve found that, in most cases, a neutral does not bring a lot of value to the parties’ settlement discussions until there has been at least some basic fact discovery completed. Otherwise, the neutral just regurgitates both parties’ unsubstantiated claims. In my view, the parties should complete one or more key witness depositions and exchange documents before engaging in a mediation. At that point, the neutral has something to work with.

Alex Craigie is a Member in Dykema’s Los Angeles office. His practice currently focuses on employment litigation. Reach him at (213) 457-1750 or

When Edward Leamer arrived to teach in UCLA’s Executive MBA program, he had previously taught Ph.D. students in economics, but was unsure how to approach teaching at a business school.

While researching what approach to take, he hit upon the idea of using macroeconomics — which was not his field of study — and set out to learn as much as he could in order to apply it to the classroom.

“In macroeconomics, there are no clear answers and there is no science to exploit to determine what will and will not work,” says Leamer, professor of management, economics and statistics at UCLA and director of the UCLA Anderson Forecast. “Instead, you need to look at the data in order to form an opinion.”

Leamer is a also a fellow of the American Academy of Arts and Sciences, and of the Econometric Society; a research associate of the National Bureau of Economic Research; and a visiting scholar at the International Monetary Fund and the Board of Governors of the Federal Reserve System.

Smart Business spoke with Leamer about how Anderson’s Executive MBA program can change the way you see the world and help you invent solutions you never thought possible.

How does the Executive MBA program differ from an MBA program?

In the EMBA program, there is a small group of 60 to 70 students. These students are typically 35 to 45 years old, and they are really going back to school to learn. They bring with them a lot of information and a lot of knowledge. The EMBA really creates a different kind of class environment.

In a regular MBA program, the students are younger and mostly coming directly from years in the classroom. They are still finding it difficult to speak out because they are afraid to fail. The EMBA students have more confidence about their own experiences, and they are much more willing to speak out and take that risk of failing.

I try to teach students how to learn, how to create knowledge on their own, and that requires them to go outside of their comfort zones. It’s all about looking at data and telling stories. I don’t tell them the answers; instead, we look at the data together and work out answers. For example, can we determine if another economic dip is coming? How do we form that opinion? And how do we persuade ourselves and other people that those conclusions are correct?

Anyone can participate in that conversation. The students come to the program with a lot of background and spheres of substantial expertise, and the goal is to put them in a setting in which they are out of their comfort zone.

How does the program try to change the way students view the world?

Students need to recapture their inner child. Children who are 4 or 5 years old are the best analytical thinkers in the world. They are constantly exploring the world around them. There is an enormous amount of learning going on, and they are not worried about failing. They are not looking around to see if the other kids are smarter than they are. They are just enjoying their surroundings and learning.

Students in the EMBA program need to do the same. They’ve already taken the first big step by going back to school, because that opens the possibility that they are going to fail. That step needs to be leveraged, and the professors need to take advantage of that to make sure they are pushing the students into areas that are uncomfortable for them.

I try to rekindle their inquisitive spirits, because I think the job market of the future needs individuals who can solve new problems, not those who know a lot about the solutions of the past. The market wants people who can figure out problems that haven’t been solved yet; the best education teaches people to solve problems.

What is the interaction between professors and students?

The best students are really here to learn. They don’t simply accept everything that the professor has to say. They ask questions and are a pleasure to work with. That really is the way of the classroom. The professor should be learning right along with the students, with the professor and students learning from each other. I tell them, ‘Don’t expect to learn just from me, but from the whole community.’ It is very important to be having those conversations.

There is so much untapped potential in each one of us, bottled up, and we just never give ourselves a chance to release it. There are physical, emotional and intellectual things that we are afraid to do. But it’s in all of us. A student on paper may not look so good, but it is the job of the faculty in the EMBA program to unlock that potential in each student.

How do relationships formed in the classroom benefit students outside of it?

I don’t think you can get an education without participating, both inside and outside of the classroom. So we create work groups of seven or eight students to work on problems together outside the classroom, and when they return to class, they are very participatory. After graduation, they continue to have lifetime relationships with one another that they’ve built up in their study groups, where they really bond, and they follow each other throughout their lives, supporting one another both in business and personal matters.

Edward Leamer is professor of management, economics and statistics at UCLA and director of the UCLA Anderson Forecast. Reach him at (310) 206 -1452

With a rising number of federal regulations, it is becoming increasingly difficult for business owners to remain compliant and easier for them to inadvertently run afoul of the laws, says J. Richard Hicks, CEO of HR1 Services Inc.

“You can find yourself with a lot of governmental fines and legal problems if you don’t dot your I’s and cross your T’s,” he says.

Smart Business spoke with Hicks about issues that could land you in trouble and how to take steps to avoid them.

How can wage issues cause problems for employers?

Just because you pay people an annual salary doesn’t mean they aren’t viewed as hourly by the Department of Labor. So if you designate your receptionist as salaried, that does not mean that is an exempt position. And, if that person works 43 hours in a week, and is found to later be employed in a non-exempt position, he or she is due overtime.

Not paying that might work while that person is still an employee, but it’s often when employees leave that employers get in trouble. If the employee goes to the DOL and the employer is found to be noncompliant, it can be liable for back pay, penalties and interest.

How can a 401(k) plan get an employer in trouble?

If you delay depositing funds within a certain window, you are opening yourself up to problems when the audit team from the DOL knocks on your door. For example, if there was a big upswing in the markets on the days you were late and your employees’ accounts could have increased, you have to make up that entire amount, plus penalties. In addition, the fiduciary responsibilities of 401(k)s lie with the employer. To be in compliance, you have to review the funds at least once a year to ensure that you offer a stable and diversified fund portfolio. Hiring a third-party fiduciary also poses a danger, as that doesn’t remove the responsibility of the employer. If you hire someone else to be the fiduciary, and that firm doesn’t perform, you, as the employer, are still on the hook.

How can a drug policy land an employer in hot water?

Employers who want a drug-free workplace may do random testing, but you have to take a regimented approach. You need a third party who is at arm’s length from the business to administer it. Where employers slip up is that they randomly select a person for testing one quarter, then the same person is randomly selected the next quarter. So they throw that person back in the hat to test someone else. But it has to be truly random.

Those issues can buy you problems with the government and with litigators.

What do employers need to be aware of regarding benefits?

You need to be consistent with your benefits. For example, say your labor force has a high turnover rate and you want to classify some employees as labor and some as management, in order to offer a more benefit-rich program to management. You can do that, as long as you are consistent on how you define those classifications. But if you have a cousin who is classified as labor and you grant him benefits, this can raise discrimination issues, which can be very expensive.

What other laws does an employer need to be aware of?

Employers have to understand the Americans with Disabilities Act, because it’s an area they can really trip over. Be aware of protected classes and how they can impact your company.

The Family Medical Leave Act can also present problems, as disgruntled employees can find ways to exploit it. For example, district court rulings have determined that the employer is responsible for monitoring employee absentee rates and notifying them in writing if they are FMLA-eligible. The employer has a fiduciary responsibility to make sure that employees are aware of their rights.

If someone is missing two days of work every two weeks, they may be dealing with an illness, and you have to make them aware of FMLA. If you fail to do so and then let them go because they are missing so much work, they can say, ‘I was sick all that time and had no idea I was eligible for FMLA, so here’s my lawsuit.’

What steps can employers take to protect themselves?

Employee handbooks are truly the first defense mechanism. You need to craft an employee handbook and live by those published rules. And you can’t ignore someone doing something wrong just because they’ve been there for 15 years. You need to address it, because that’s where you get into trouble.

Be very consistent in the way you handle disciplinary actions. Lay out the rules in the handbook, then follow them to the letter.

Some companies may be able to use generic forms for big ticket items, for example, ‘We don’t discriminate, we follow wage and hour laws,’ etc. But most need to craft a custom handbook that meets the specific needs of their business. The other mistake companies often make is that they publish the handbook and then think they’re OK and never review it. But if there are changes, perhaps because of a new law, for example, a handbook must be updated in order for the employers to remain in compliance. A company may try to write an employee handbook itself, but I highly recommend getting an outside expert to help you get it right. If you set up your first line of defenses incorrectly, when you face litigation, your entire defense starts to unravel before your eyes.

J. Richard Hicks is CEO of HR1 Services Inc. Reach him at (800) 677-5085 or

If your business has been sued, no matter how strong your defense, there is always a chance that a jury will rule against you. And you have to be prepared for that possibility.

If you plan to appeal a judgment against you, the time to begin to position yourself for appeal is before the trial even begins, says Chris Kratovil, member, Dykema Gossett PLLC.

“The reality is, once you’ve lost a jury verdict, if it’s not too late to start the process, then it is certainly very late in the game and not the optimal position to be in,” says Kratovil. “Securing a bond to postpone execution of the judgment is something to be addressed at the outset, rather than at the back end of the trial.”

Smart Business spoke with Kratovil, an experienced appellate attorney, about how to prepare up front to put yourself in the best position for an appeal.

Shouldn’t a company that’s been sued be thinking about winning, not losing?

When a company goes into high-stakes litigation, when trial is at hand, there is a reasonable possibility that it is going to lose. Everyone hopes for victory in the trial court, but if you get through the motion to dismiss stage, the summary judgment stage and all the way to trial, by definition, it is a close case. If you had an ironclad defense, the case would not make it all the way to trial. And if you get the wrong jury on the wrong day, you may lose.

What happens when a judgment is entered against a company?

When you lose and a judgment is entered against you, you are suddenly facing a very substantial liability, often up to seven or eight figures. And that judgment generally becomes executable and enforceable just 30 days after it is signed.

So after just 30 days, there is the possibility that constables will show up at your business with a writ of execution to seize property, or the plaintiff may obtain a writ of garnishment and come after your back account.  And there is nothing more disruptive to a business than enduring these sort of judgment enforcement procedures. For example, if a company gets hit with a writ of garnishment on its primary operating bank account, it can’t conduct normal business transactions.

The key point is that once a judgment is entered by a trial court against your company, it becomes enforceable very quickly. A prudent company should start thinking about how to prevent that enforcement before the judgment even exists, and the best was to do so is with a supersedeas bond.

How does a supersedeas bond work?

Many people think that the mere fact that you filed an appeal suspends enforcement of the judgment, but that is not the case in either federal or state court. Merely filing an appeal doesn’t mean you get to delay paying the judgment until after the appeal is over. You need to post a bond to prevent the judgment from being enforced while the appeal is pending. The bond supersedes, or suspends, the judgment against your company during the appeal.

Instead of a bond, a cash deposit can also suspend the judgment during the appeal. But, in my experience, most companies lack the liquid assets to simply write a check for the full amount of the judgment against them.

A company facing a substantial judgment can always resort to bankruptcy, but that is the nuclear option and carries with it a broad array of negative consequences. If you want to avoid bankruptcy while pressing forward with your appeal, the best option is a supersedeas bond.

When should that bond be posted?

It has to be done at the outset of the appeal. But in the current economy, it is a difficult and slow process to get a bond. You have to reveal an awful lot of financial information, because you are coming from a position of weakness, and you are at the mercy of the surety company. If the surety is going to write a bond for you, you have to provide whatever information they want and you have to provide it promptly.

The surety is looking for the ability to repay that bond because, should you lose the appeal, the plaintiff will go after the bond, and the surety wants to make sure you can repay that.

How can a company make that process a little easier?

If you are on the cusp of a trial in a significant case, do not assume you are going to win. Game out the worst-case scenario and be prepared for it. It is truly an existential crisis for many businesses when they get hit with a big judgment because, more often than not, they haven’t done a good job planning for it. They haven’t put the wheels in motion to get a bond, so it’s a mad scramble to get it posted within that short 30-day ‘grace period’ before the constables show up and execute.

What is the role of the attorney in securing a bond?

The attorney can flag the issue for you and make you aware of it well before trial. He or she can put you in touch with sureties and can help explain the case to the bond writers. But, ultimately, the due diligence is between your company and the surety; trial counsel and appellate counsel play, at best, a supporting role.

Don’t whistle past the graveyard and pretend that there is no chance you are going to lose at trial. If you lose at trial and you want to appeal, you are going to need a bond. Always be thinking two, three, four moves in advance. The trial process is a grueling ordeal, but you need to keep your eye on what comes after it. Getting a handle on this supersedeas bond process prior to trial is a classic example of hoping for the best and preparing for the worst.

Chris Kratovil is a member at Dykema Gossett PLLC. Reach him at (214) 462-6458 or

Estate planning generally has three purposes: to reduce estate taxes, to avoid probate and to protect beneficiaries.

Failing to plan can result in unnecessary expenses and leave your executor with the task of sorting through your estate. But creating a plan isn’t enough; you have to revisit it to ensure it remains relevant, says Steven C. Hartstein, CPA, JD, a partner in the Tax Planning & Preparation Department at Skoda Minotti.

“When it comes to estate planning to protect your business, your family and your assets, you need a good estate plan that is flexible, allowing you to take advantage of what the rules are now and what they will be in the future,” says Hartstein.

Smart Business spoke with Hartstein about how to plan your estate to minimize taxes and ensure a smooth transition to the next generation.

What are the current estate tax rules?

In 2010, if you passed away, there was no estate tax. Late in 2010, President Barack Obama signed the Tax Relief Act which said that, in 2011 and 2012, you can exclude up to $5 million from your estate while anything above $5 million is taxed at 35 percent. The rules in place now say that in 2013, the exclusion will be $1 million adjusted for inflation, and the highest tax rate could go to 55 percent.

Sitting here in 2011, no one thinks that’s actually going to happen, but in 2001, no one thought there would be an unlimited amount of untaxed estate in 2010. Although it is a guessing game, there are steps you can take to protect your estate.

How can you use the current rules to help limit your liability?

For 2011 and 2012, there is portability. That means that, since both the husband and wife get to pass along $5 million without tax, when the second spouse dies, that person can use the remaining amount of the first deceased spouse’s $5 million exclusion, providing that an election is made on the first deceased spouse’s tax return.

Technically, if the husband had zero assets in his name and died first, and the wife had $10 million, she could use all $10 million of the combined exclusion between them.

However, the executor has to have made an election on the husband’s estate tax return. You have nine months after the date of death to file that document, and if you don’t, you lose that portability.

How can you make gifts as part of your estate plan?

That $5 million exclusion applies during your lifetime or when you are deceased. So you can give away $5 million today, or $5 million when you die.

One of the best things you can do is give away appreciating assets now. If you have an asset worth $1 million today, but in 10 years, it will be worth $5 million, you are better off giving it away today at that $1 million value than if you die in 10 years and give it away at that $5 million value.

You may not want to give up stock in your business, because you lose that control, but you may have other assets you can give away.

How can a grantor trust benefit an estate?

With a grantor retained annuity trust, you put your assets into the trust, and you, as the donor, get back a stream of annuity revenue for a number of years. When you pass away, the assets then go to the beneficiary at little or no gift tax cost. This is because the present value of the annuity is close to the fair market value of the property, thus, the remainder gift is small.

How can having an estate plan help avoid probate?

No one wants to go through probate. Probate is public, so anyone can know what you have, and there are time and monetary costs involved. In addition, it usually takes a long time to go through probate. But it is very easy to avoid.

The purpose of probate is for the court to determine what should happen to your assets when you die. But if you have a trust document that dictates what happens to those assets, there is no need for probate.

How can having an estate plan benefit your family after you pass away?

Being the executor of an estate is very time consuming and messy. The children may not know where the parents had the insurance policy, or what their brokerage accounts are. The great thing about an estate plan is that it marshals assets and gathers them in one place. If everything is in a trust, it makes it much easier.

An estate plan also protects your beneficiaries. If you have minor children, you may not want them to have $1 million in their bank account. If you have older children, you may want to protect them from creditors. By placing those assets in a trust, if they are sued by creditors, or go through a divorce, those assets will be protected.

How often should the plan be reviewed?

In today’s uncertain tax world, it should be reviewed at least every couple of years. Things change, relationships change and tax laws change, and the plan should be addressed frequently. I’ve seen wills and trusts that have not been updated since the 1970s, from before someone had children and grandchildren. That does you no good whatsoever. Rules that were in place even 10 years ago don’t exist any more, so you need to have something drafted that takes advantage of rules that are in place now and be flexible enough to take advantage of the future.

Steven C. Hartstein, CPA, JD, is a partner in the Tax Planning & Preparation Department at Skoda Minotti. Reach him at (440) 449-6800 or