Arthur G. Sharp

Monday, 26 March 2007 20:00

Diversity best practices

Corporations worldwide are demanding the advancement of diversity within their own firms and the companies with which they do business, especially with the law firms they depend on for outside counsel. Their philosophy is simple: promoting diversity internally and externally creates significant new opportunities for minorities and women, plus it is good for the bottom lines of the companies and law firms alike.

However, that approach also creates a dilemma for the law firms: how do they quickly focus on attracting, hiring and then retaining minorities and particularly women, who are leaving law firms at an unprecedented rate? That is a major problem for law firms, and the solutions are not readily apparent.

Smart Business spoke to Patricia Diulus-Myers of Jackson Lewis LLP to learn more about what law firms are doing to attract and retain minority and female attorneys, and how accomplishing that task benefits the firms, the attorneys and corporate America.

From a diversity perspective, what does corporate America expect from law firms?

Corporations demand a similar level of work force diversity from law firms that they employ internally. Exemplifying this requirement is the call to action initiated by the general counsel of Sara Lee, which has evolved over the past couple years from initial inquiries into outside firms’ diversity initiatives by general counsel at large corporations. The inquiries have grown to a mandate by general counsel that their outside firms assist them in reaching their diversity goals.

Now, corporate America wants to see results demonstrating that outside law firms hire, retain and promote minority attorneys and women throughout their ranks. Additionally, many companies require that female and minority attorneys actually be a part of the team that does their legal work.

What assurances are there that female and minority attorneys will stay at a firm?

Obviously, diversity is now a business necessity for law firms. The focus is on recruiting qualified minority and female candidates and demonstrating acceptable numbers among their attorney ranks. However, these numbers tell only half the story because law firms must institute initiatives directed toward retaining those very qualified individuals. Emphasis must be placed on inclusiveness such that minority and female lawyers become and remain valuable assets and are accepted within the firm.

How quickly can law firms build successful diversity programs?

The process will not happen overnight. It requires building a pipeline of potential lawyer candidates and making an investment in the future of their ongoing diverse culture. That can be done through efforts like partnering with recruiters who specialize in minority recruiting for lateral hires and working with minority law student associations for hiring at the clerkship and first-year ranks.

What recruiting and retention tactics are proven to be effective in increasing the inclusion of women and minorities?

Retention efforts start with a diversity committee that comprises all segments of the firm — associates and partners alike — with the charge and authority to recommend, implement and oversee diversity initiatives. Within the committee, affinity groups should be established, like Hispanic, African-American, Asian-Pacific-American, gay and lesbian, and women’s business development affinity groups. These groups are wonderful avenues for diverse attorneys to work through common issues, be mentored on professional goals, and contribute to an accepting and inclusive environment.

Mentoring is a major retention tool. Mentoring programs vary with each firm but generally aim at nurturing lawyers from the time of hire, educating them to the firm and the legal practice, developing successful techniques with business acquisition and marketing and preparing them for partnership.

Some firms are appointing chief diversity officers or coordinators who are responsible for promoting, achieving and maintaining diverse workplaces.

Work-lifestyle balance initiatives designed to promote family-friendly environments are also essential for retaining good lawyers, particularly females. Years ago, women accepted that they had to sacrifice their family and social lives to be successful in the major law firm. Flex work schedules, tele-commuting and part-time career paths are becoming the typical demands of younger lawyers who want something more than work in their lives. Hopefully, such efforts will foster diversity at law firms and assist in retention of females and minorities, and benefit their clients as well.

How will such programs benefit clients?

Most major public companies maintain a strong policy today of promoting diversity. They are strongly focused on developing a diverse and inclusive environment that reflects the communities that they serve. In documenting their diversity efforts, they are looking to their outside counsel to assist them in accomplishing this goal. Corporations want their vendors to be a reflection of their own commitment to inclusiveness. Simply put, diversity is morally right, and it is just good for business.

PATRICIA DIULUS-MYERS is a partner and co-chair of the Diversity Committee at Jackson Lewis LLP. Reach her at (412) 232-0404 or diulusmp@jacksonlewis.com.

Wednesday, 28 February 2007 19:00

Key points in executive recruiting

Over the past year, we have run a series of articles that focus on the role of the executive search firm in the executive hiring process. It is helpful at this time to reiterate the key points of those articles. This recap concentrates on the risks clients incur and the benefits they derive from the use of executive search firms, how the benefits impact their operations, what criteria clients should apply when choosing the firm that best matches their unique needs, the ethics involved in search and the importance of confidentiality in the process.

Smart Business asked John Semyan, a partner with TNS Partners Inc., to highlight the significant points of those articles, provide fresh insights into the role of executive search firms in the executive hiring process and explain why clients should utilize their services.

Why do clients hire executive search firms?

One salient reason is confidentiality. It is problematic for clients to contact executives confidentially in other organizations who they think might fill their top-level positions. Executive search firms can protect the client’s confidentiality.

Another reason is time. Clients’ top executives often don’t have the time or personnel who are trained to identify, contact and hire the best-qualified candidates for specific positions.

A third is the nature of the job. For example, a client is expanding into a new industry but its personnel are not completely familiar with the requirements of an executive position the client wants to fill. It makes sense, then, to retain an executive search firm with knowledge of that particular industry and a track record of success in identifying, screening and presenting uniquely qualified individuals.

Clients who try to do those things themselves may be putting their companies at significant risk. For them, retaining executive search firms is simply streamlining a critical process by utilizing a service that they don’t always need, but one that is vital to their success and protects their confidentiality.

What is the most valuable service executive search firms provide to their clients?

Search firms are a strategic resource that clients can use to satisfy critical needs. For example, executive search firms can tap into a broad body of knowledge derived from conducting past searches successfully, which is a significant benefit for clients.

Remember, the top 1 percent to 2 percent of the executives in a company make a difference. Executive search firms provide a reservoir of knowledge that guides a client through an imprecise process that results in the selection of a candidate who fits into its organization, becomes successful in its unique environment and makes that difference.

Are there specific criteria that executive search firms employ in their searches?

Ideally, no. An executive search is not a ‘one-size-fits-all’ process. Every search is a new one. Consultants don’t know when they begin an engagement which issues or parts of the knowledge and experience and things that they do are most critical in a particular search. The executive a client is looking for is doing very well in another organization. So a critical part of a search is being able to articulate confidentially to a potential candidate that he or she should consider the client’s opportunity.

Or it could be counseling with the client. For example, the CFO’s role has changed dramatically post-Sarbanes-Oxley. The nature of a CFO search has changed as well. The client can tap into the executive search firm’s expertise in finance searches to frame or reframe the CFO’s role and rethink its strategy and criteria in hiring the successful candidate. Factors like this make every search unique and render cookie-cutter approaches ineffective.

What criteria should clients apply when partnering with an executive search firm?

One is the urgency with which a search firm can respond. Hiring an executive is very much a real-time process. The client has to identify a search firm that can combine speed and attention to detail in the hiring process, which is generally associated with the aforementioned track record of success, and which focuses on the client, not the position.

Clients should also look at factors such as search firms’ adherence to ethics, memberships in trade associations, refusal to recruit from their clients, and freshness of their candidate databases. With all the information available to executive search firm consultants nowadays through sources like the Internet and trade journals, there is no need for them to resurrect the same candidates for every job. Clients are much better served by search firms that treat each new assignment as a new challenge — which is exactly what it is for each client.

JOHN SEMYAN is a partner with TNS Partners Inc. Reach him at (214) 369-3565 or johnsemyan@tnspartners.com.

Wednesday, 28 February 2007 19:00

Tax Code complexity

There are few things that are more confusing for taxpayers than the U.S. Tax Code. Changes to it have adversely affected more and more taxpayers, some of whom never expected to be impacted. Consider the Alternate Minimum Tax (AMT), for example, which Congress enacted in 1969 to make sure taxpayers could not use tax benefits to avoid entirely paying any substantial amount of income tax. They did not account for inflation, however.

The AMT affected only 19,000 taxpayers in 1970. Experts now estimate that it will impact 31 million taxpayers by 2010 if it is not changed. This will affect a lot of taxpayers who would not have been affected by AMT just a few years ago. It also creates expanded needs for awareness of significant tax changes among taxpayers and a greater demand for financial consulting services to help them stay abreast of the changes that might affect them.

Smart Business spoke with Steven H. Gross, CPA, a principal of Skoda, Minotti & Co. about tax law changes that can affect taxpayers’ 2006 returns and what to look for in 2007.

What tax law changes will affect taxpayers’ 2006 returns?

There are two significant changes to be aware of: those related to the ‘kiddie tax’ and Alternative Minimum Tax (AMT). Let’s start with the kiddie tax, which is levied on the unearned income of children.

Prior to 2006, children under 14 years of age were subject to this tax. Now, children under 18 are subject to it. A child is subject to the kiddie tax when his or her unearned income — that is, interest and dividends — exceeds $1,700 per year. Children would be taxed at the same rate as their parents. Thus, the kids are not able to take advantage of the lower tax brackets. That change can affect a lot of returns, so it’s something of which taxpayers should be aware when preparing their 2006 tax returns.

Who should be concerned about AMT?

Generally, taxpayers whose gross income is more than $75,000 and either have write-offs for personal exemptions, taxes and home equity loan interest, and/or own their own businesses or rental properties … the list goes on. The complexities associated with AMT make it imperative for taxpayers to consider how changes to it will impact their returns — and to work with their tax advisers if they have any related concerns.

What AMT changes have to be considered?

The government has instituted a refundable credit, which can help some taxpayers. It used to be called nonrefundable, which meant taxpayers could only get the credit to the extent they weren’t in AMT. Now, even if taxpayers are in AMT, they may qualify for the credit. This rule will be very important to anyone who exercised an incentive stock option (ISO) more than three years ago.

Can taxpayers do anything at this point to affect their 2006 tax returns?

One thing is to make IRA contributions. Taxpayers have until April 17 to do so. The maximum for 2006 is $4,000. Taxpayers 50 years of age or older can add a $1,000 ‘catch-up’ contribution.

People who are self-employed also have until April 17 to make their retirement plan contribution. However, if they apply for an extension on their personal return, they have until Sept. 15 to make their pension plan contribution and until Oct. 15 to make their profit-sharing plan contribution.

How about charitable contributions as a way to affect 2006 tax returns?

It is too late to make them now. Only those made up to Dec. 31, 2006 can be claimed on the 2006 return.

What tax-related matters should taxpayers keep in mind for 2007?

Taxpayers should be aware of the Pension Protection Act of 2006, which includes several tax-related implications. One key point to keep in mind is that the act allows taxpayers over 70-1/2 years of age to make tax-free distributions up to $100,000 from an IRA to a charity.

There are a couple benefits to this process. First, it helps taxpayers who don’t itemize their deductions, because they might not have enough interest or taxes on their return to exceed the standard deduction threshold. Second, the process may satisfy the required minimum distribution qualification for someone.

STEVEN H. GROSS, CPA is a principal with Skoda, Minotti & Co., a CPA, business and financial advisory firm based in Mayfield Village. Reach him at Sgross@skodaminotti.com or (440) 449-6800.

Wednesday, 31 January 2007 19:00

Protecting confidential information

Maintaining the integrity of confidential proprietary information is critical to the success of any business. But the issue raises many questions in business owners’ minds. They wonder, for example, what constitutes “confidential proprietary information” and from whom they should protect it. The answers to the questions vary, but the reasons for it do not. The most significant answers are clear: protecting what are regarded as corporate secrets strengthens a company’s competitive advantage, protects its assets, and enhances its financial position.

Smart Business spoke with Dale Mellencamp, a partner at Godwin Pappas Langley Ronquillo LLP, to get some insights into protecting certain corporate information.

Why should clients be concerned with protecting confidential information?

Due to technical advances, vast amounts of confidential proprietary information can be replicated and stored on CDs, diskettes or flash drives. Such information can also be instantaneously transmitted as attachments to e-mail. In short, information has become more susceptible to intentional or accidental transmittal or removal from company offices or equipment. These developments increase the likelihood that a company’s carefully developed designs, plans, models and research will be obtained and used by the competition.

It is imperative that businesses regularly evaluate and improve their methods of protecting such information. Misappropriation often occurs as a result of disclosure by employees planning to leave the company or former employees who still possess or have access to the information.

Do former or current employees have responsibilities regarding the protection of proprietary information?

Yes. Employees are not entitled to give proprietary information to their new employers, even for their own purposes. Employers should do everything they can to make sure that when an employee is hired he is aware of such obligations. These obligations should be addressed in employment agreements and employment manuals and policy handbooks. Bulletin board reminders might be considered, and departing employees should be reminded of their obligations not to disclose or misappropriate proprietary information. Employers should address this in exit interviews and should require the return of all access codes, cards, laptops, CDs and other forms of confidential information before the employee leaves. Employers should try to obtain a signed statement that the employee has returned all proprietary information.

What constitutes confidential proprietary information?

Absent an agreement, protected information is often limited to that which constitutes a trade secret. A key to being considered a trade secret is the owner’s efforts to maintain the secrecy of such information.

An employer can protect the secrecy of proprietary information that may not be considered a trade secret if it requires the new employee to sign an enforceable agreement and takes the appropriate steps to maintain the confidentiality of such information. The information does not have to be patented or protected by copyright to be protected from misuse.

Of what significant elements of confidential proprietary information should companies be aware?

Proprietary information that can be protected generally includes information or data that is not generally known or accessible, and which gives the owner a competitive advantage. Such information is often developed over years with an investment of significant time and resources and is often accessible to a number of employees.

But the company must use reasonable care to maintain the secrecy of such information. If the company has not made reasonable efforts to maintain confidentiality, courts will be far less likely to enforce agreements or apply statutes that might otherwise prohibit disclosure or use of such information.

What benefits do clients derive from working with attorneys to protect their ‘secrets’?

While businesses are generally aware of their most vital secrets, they may not appreciate the extent and value of various procedures, policies, databases or practices until such information is misappropriated and used by a competitor. Attorneys can help businesses identify and protect such information.

Clients should involve counsel in the process before information has been placed at jeopardy. All employment agreements should be prepared by counsel who are aware of the requirements for enforceable agreements. Counsel can help develop procedures for exit interviews and retrieval of any information when employment is terminated. They can also provide advice regarding proper methods of monitoring or inspecting e-mails and hard drives to identify improper electronic duplication and transmittals. Counsel can also help determine the types of information that are likely to be considered worthy of protection by the courts.

DALE MELLENCAMP is a partner with Godwin Pappas Langley Ronquillo LLP in the Houston office. Reach him at (713) 425-7406.

Wednesday, 31 January 2007 19:00

Capital market services

Mention derivatives, hedging, LIBOR (London Interbank Bank Offered Rate), and similar finance and investment terms to business owners looking for capital market services and the reaction is understandable: What are they and how can they help me manage my business? That is because business owners are more familiar with conventional loan and investment management products and services offered by banks.

Now, banks are offering business owners seeking comprehensive capital market services a wider variety of alternative products that offer significant benefits. Granted, there is a learning curve associated with them, but that education is a part of the process.

Smart Business spoke with Todd Rifkin of MB Financial Capital Markets to learn more about the innovative financial and investment products being offered to business owners and how they can benefit from them.

Why would companies become involved in hedging strategies?

These are financial products that help companies when they are seeking fixed-rate loans to finance their typical operations, such as purchasing inventory or building a new plant. Often, commercial loans are subject to floating rates, but borrowers frequently prefer fixed-rate loans to avoid being impacted by swings in interest rates. In such cases, banks might create opportunities for synthetic fixed rates through derivatives or hedges.

What about investment alternatives?

When a company has excess liquidity, even for a relatively short period, it should maximize the return on those funds. This is especially true for corporations that have a large tax burden. Tax-exempt investments may help a client outperform comparable interest-bearing vehicles.

Are these products complex?

They are not. They are fairly typical offerings among bank-based broker-dealers of varying sizes nowadays. There are strategic partners with whom the banks work to make these kinds of transactions competitive and effortless.

When would business owners want to use these alternative products?

The main factor to consider is a client’s goal regarding capital requirements. Individual companies have varying uses for specific products, so different strategies regarding liquidity and risk tolerance apply to each of them. Those strategies can be defined by individual business owners with their capital market representatives.

How do business owners learn about derivatives, hedging strategies and similar products?

Generally, they learn about them when they discuss their capital requirements with their bankers. It is prudent for business owners and their bankers to discuss their ongoing financial needs for normal long-term and working-capital operations on a routine basis. These innovative products are generally customizable and are likely to come up as solutions during these discussions.

The products might be introduced when the subject of loan rates comes up. For example, the bank typically ties the rate on the loan to the prime rate or LIBOR, and the business owners want to mitigate their exposure to rising rates. Another situation would be when a corporation has excess funds that it can invest for a predetermined period of time. To make the appropriate recommendation, the bank ascertains liquidity needs, risk tolerance and tax status of its clients.

How do such products benefit business owners?

One benefit can be to help clients minimize exposure to interest-rate fluctuations. By synthetically fixing the rate at which they borrow, clients can focus on the operational aspect of their business. On the investment side of the equation, banks can offer a universe of alternatives that typically enable their clients to earn a superior return over bank products, without sacrificing credit quality.

Both of these concepts give clients exposure to products and services that typically have not been offered in the past by some smaller financial institutions. Technology has allowed smaller banks to efficiently offer these products, which can lead to improved financial performance for their clients.

What criteria would a business owner apply when choosing a bank that offers products such as derivatives and hedging strategies?

Look for investment specialists who have considerable expertise in this area; are willing to educate clients about their advantages and disadvantages; who have a flexible approach to their products and services; and who are able to build and maintain relationships with clients. The bank’s capital markets representatives must have a familiarity with the products and the market, an understanding of the clients’ businesses, and the ability to discuss the products knowledgeably with business owners and their financial associates.

TODD RIFKIN is vice president of MB Financial Capital Markets. Reach him at (847) 653-0311 or trifkin@investwithvision.com.

Sunday, 31 December 2006 19:00

Health care, banking go hand-in-hand

Banks today are tailoring their approaches and products to meet the unique needs of their health care provider clients who, regardless of their specialties, have several commonalities; such as their need for enhanced revenue streams, secure information transfer systems that conform to government privacy rules, and customized and flexible credit services.

Until recently, the clients relied to a great extent on their own resources to finance their operations and transmit patient data, which inhibited their growth and income. Today, a growing number of banks are providing an expanding variety of innovative financial service packages and secure patient data transmission systems to health care businesses that will increase their cash, decrease their receivables and streamline operations.

Smart Business spoke with Maureen Carson, a first vice president in Healthcare Finance, and Juwana Zanayed, a vice president in the Healthcare Division at MB Financial Bank, to learn how owners of health care service provider businesses can take advantage of these state-of-the-art programs.

What innovative approaches are banks using to serve health care service providers?

Banks are providing an integrated, one-stop approach to helping health care providers with their financial needs. They focus on three major themes: relationship management, technology and credit services.

Generally, the bank designates a relationship manager (RM), who is the coordinator on a specific account. We’ll use a hospital administrator or physician as an example. The RM serves as ‘go-to’ person who knows the client’s business and needs and serves as the point person for the various business and personal banking needs of the physician or hospital. As a result, the client does not have to search throughout the bank for the right person.

What are the benefits of a relationship management approach?

First, the RM has an in-depth understanding of the health care provider industry and can suggest best practices in cash management and financing vehicles. The RM’s in-depth knowledge of the industry allows the bank to look at the customer relationship as a whole. Thus, it can price and structure various services efficiently. Credit facilities include lines of credit, letters of credit, working capital, personal banking and investment needs, wealth management products and cash management. Services like those are a major change from what health care providers could expect from their banks just a few years ago.

How do banks adapt their technology competencies for health care providers?

Banks have invested millions of dollars in their treasury management products and services in order to provide their clients sooner cash availability; for example, lock-box, remote capture check and point of service collection (POS). Tailoring treasury management services to the health care provider sector by understanding their need to reduce accounts receivable as quickly as possible and providing creative solutions is a great benefit.

Technology advancements allow for transmitting certain data directly from the health plan’s remittances to provider’s patient financial system, thus bypassing input or the posting process. This capability results in streamlined operations and improved cash flows, and makes it possible for the health care provider’s employees to perform other functions.

How does the credit part of the package fit in?

As far as credit services go, banks consider the entire relationship that they have with their client. This makes it possible for them to offer competitive ‘relationship’ pricing on credit facilities. That is predicated to some extent on the RM’s deep understanding of the health care provider’s business and its unique reimbursement and collection process, which involves third-party payors like Medicare, Medicaid and commercial health plans’ payment structures. It is important for bankers to understand the health care provider’s business and cash flow, because the cash flow is the source of repayment for the loan. Bankers, therefore, can work with their clients to structure the loan in the most advantageous way.

Banks also offer a wide array of credit facilities, including accounts receivable financing, taxable and tax-exempt bond transactions, equipment leasing, medical office building and ambulatory surgery center financing, and interest rate management products.

What criteria should health care providers apply when looking for a bank?

Four key criteria are the bank’s willingness to work with health care providers of all sizes; the banker’s in-depth knowledge of the industry; the sophistication of the bank’s information transfer technology systems; and the spirit of enthusiasm and cooperation to allow specialists to work hand-in-hand.

MAUREEN CARSON is a first vice president, Healthcare Finance, with MB Financial Bank. Reach her at (847) 653-1038 or mcarson@mbfinancial.com.

JUWANA ZANAYED is a vice president, Healthcare Division, with MB Financial Bank. Reach her at (630) 203-2717 or jzanayed@mbfinancial.com.

Friday, 24 November 2006 19:00

Arbitration savers and killers

Arbitration is becoming more prevalent as an alternative resolution dispute method in today’s employment environment. Business owners look at it as a cost-effective, simple and less combative way of resolving disputes with employees. A growing number are including arbitration clauses in their employment contracts and even making them a condition of employment for at-will employees.

It’s helpful for business owners to work with attorneys to craft arbitration agreements that courts will approve and that will help alleviate some misconceptions of the way the judicial system resolves disputes. Enforceable agreements must include some of the “savers” that make an agreement enforceable and exclude the “killers” that have the opposite effect.

Smart Business spoke with Amy Dunn Taylor, a partner at Godwin Pappas Langley Ronquillo LLP, about recent developments in the use of arbitration agreements within the employment law context and to gain more insights into arbitration “savers” and “killers.”

How are arbitration savers and killers defined?

In general terms, killers may mean that the client's arbitration agreement is not enforceable. Savers give clients the best chance of making advantageous, yet enforceable, arbitration agreements. For the most part, the killers are the corollaries to the savers. As long as clients include the savers, they can avoid the pitfalls that might render an agreement unenforceable.

What are the perceived advantages of arbitration, and are they a reality?

Arbitration is perceived to be cheaper, quicker, simpler and less combative. None of these ideas is necessarily true.

Realistically, arbitration can be just as expensive, or more expensive, than traditional litigation. It can take as long or longer, and it may not be simpler or less combative, because it involves human dynamics and interactions. Since it is a dispute, people can be less than cordial, particularly in cases where employees feel that the process puts them on unequal footing with their employers.

There is also the danger of runaway arbitration awards, just as there is with some jury verdicts. These factors are not always present, but ‘bulletproof’ arbitration plans can help allay the fears of parties to employee disputes and facilitate their equitable resolutions.

How does a client enhance enforceability?

The client has to communicate unequivocally, clearly and formally with employees about the terms of the agreement and should consider an outward act by the employees that signifies their acceptance of it. For example, employees can sign a written document signifying their agreement to arbitrate any dispute or use voting buttons, which are a common feature used in many e-mail applications nowadays.

Another way to assure even ground and fairness is to split the cost of arbitration in a fair manner. For instance, the client can limit the employee’s financial liability to paying only the cost of filing a traditional case in court.

Next, check the policy for all elements of enforceable agreement, such as the Federal Arbitration Act and applicable state contracts and arbitration laws.

Consider including a de novo review provision in the policy. Some courts allow parties to agree that a trial court could review an arbitrator’s award on a de novo basis, which means that trial courts have the power to review and set aside part or all of the arbitrator’s decision.

De novo provisions add a safety net to the arbitration process and help alleviate fears about out-of-control arbitrators. Arbitration agreements can also help control costs by limiting the amount of discovery that will be allowed. This is beneficial for both sides. It helps them realize the benefits of limitations on discovery if a cheap, quick and unbiased decision is handed down from an arbitrator with sufficient knowledge of the underlying facts.

What can an attorney do to implement an arbitration policy that a client cannot?

An attorney may offer objectivity, counseling and advice that a client might not readily have available. The extent of the attorney’s involvement sometimes depends on the nature of the dispute. For example, if the dispute is about the payment of overtime wages or a holiday employment policy, the client may be able to handle the arbitration with little or no help from an attorney.

But if it is about something more complex, such as ERISA benefits, a client might have a difficult time handling it alone. It is always advisable to have attorneys involved in the drafting stage of any written agreement. This will help clients avoid the pitfalls that can be arbitration killers.

AMY DUNN TAYLOR is a partner with Godwin Pappas Langley Ronquillo LLP in the Houston office. Reach her at (713) 425-7404 or ataylor@godwinpappas.com.

Wednesday, 30 August 2006 02:36

Success by specification

Every company does it. An executive departs, there doesn’t appear to be a ready back-up on the bench, so they immediately turn to the “free agent” market. Unlike in sports, however, your competition’s roster isn’t published each day in the morning paper. It isn’t that easy to know what you need to go get, and who is available.

So how do you know who is out there, and how do you determine exactly what you are looking for? More importantly, how do you know when you find it?

Smart Business spoke with Brian Trueblood, vice president of TNS Partners Inc., for insight about how the more enlightened companies replace key executives.

Once a company realizes it has a need, how should it define that need, in order to have the best chance of success?
The best companies seize this opportunity to be introspective. They analyze the key business drivers the role will impact and how this executive will need to affect them. Do the key interactors dictate a certain skill set, style or ability? Often, companies are simply too focused on what the outgoing leader was doing to fully appreciate what the next leader needs to be. The breadth of experience and the outside perspective of an executive search consultant is a tremendous asset in this process.

But if a company has a specific need, why does broad experience help define it?
Because, by being too narrow, you risk overlooking a talented executive who might be the best candidate. When defining the need, many skills will be desirable. A seasoned executive search consultant simply has a larger and broader population base from which to assess an individual. Many of the skill sets companies are seeking today are transferable from one industry to another or at least from one industry segment to another. Broadly experienced consultants are more in tune with those skills.

Can you give me an example of how skills can be transferable across industries?
The easiest one is leadership. If you have led large, complex teams; put in place processes to manage them; developed techniques to measure success; and been responsible for the financials, resource allocation, customers and markets, does it really matter if the actual product was the same?

Beyond leadership, other people skills, technical competencies, measurement disciplines, organizational abilities, financial acuity and communications capabilities are all clearly transferable across industry and functional boundaries. The real question is whether the person will translate his or her successes in other organizations with the differing infrastructure and environment of the new company.

How is the specification able to define the culture and internal dynamics of the company?
The executive search firm must have a proven process that includes becoming intimately familiar with the internal workings of the company. By meeting with the entire management team, touring applicable facilities, interviewing internal candidates, team members, vendors and customers, the executive search firm can gain a true appreciation for the culture, working environment and personality of the organization. This knowledge is reflected in the position specification within the company description, the definition of the opportunity as well as the desired competencies, experiences and attributes.

During the interview process, how are executives evaluated to determine which are potential candidates?
The search specification is the gauge. This is why the ‘spec’ is so critical to the process. Search firms work hard to develop these documents, but expect the client to work just as hard and invest in them just as much. The specification development must be a back and forth process. If the first draft is approved outright and the search firm hasn’t done significant work with the company before, it’s likely that the specification is off target or too vague. There must be insight, discussion, refinement and adjustment before agreement. Only then can the specification be the appropriate tool throughout the process.

So once you have identified your candidates, what is the next step?
Continue to validate your belief that they ‘fit the spec’ using external sources such as background verification and reference checks, while the internal leadership team delivers on their commitments in the specification. Remember, the spec goes far beyond skills and also encompasses a description of the company, the culture and the opportunity. The company must use the interview process to provide a window for the candidate into the organization and it must be congruent with the specification. If the specification is properly developed and then diligently utilized throughout the search process, the likelihood of success is dramatically increased.

BRIAN TRUEBLOOD is vice president of TNS Partners Inc. Reach him at (214) 369-3565, ext. 114, or briantrueblood@tnspartners.com.

Sunday, 30 July 2006 08:32

Get on board

Most people recognize that volunteering to mentor a young person through the Boys and Girls Clubs or hammering nails for Habitat for Humanity yields both personal satisfaction and a tangible contribution to the community. Interestingly, serving on the board of directors of a nonprofit organization is a particularly meaningful volunteer service that research indicates benefits the individual and his employer as well as the nonprofit.

According to a Deloitte & Touche USA LLP survey released last summer, employed Americans overwhelmingly agree that volunteering advances them professionally and gives a positive career boost. Nearly three-quarters of those who serve on a nonprofit board of directors strongly agreed that volunteering advanced their leadership skills. James H. Quigley, CEO of Deloitte & Touche says, “What we have seen at Deloitte ... is that there is no question volunteering is an outstanding professional development tool because of the real experience it provides.”

The “real experience” Quigley cites includes making certain the organization they govern is well managed, has a clear strategy, and is accountable. Thus choosing the director to lead a nonprofit becomes a critical responsibility for board members.

Smart Business talked with Jim Chambers, vice president of TNS Partners -- whose principal focus is finding great leaders for nonprofit organizations -- about the benefits to corporations and individuals of volunteering, and their responsibility for selecting the most qualified person to direct the nonprofit.

Why should employees serve on the boards of nonprofits?
Our work with corporate leaders and nonprofit boards has yielded much insight on the value executives perceive from their volunteer service. People today want to work for companies that take their social responsibilities seriously and care about their communities. When a company’s employees join and participate on nonprofit boards, the company sends a clear signal that this service is valued, thereby attracting prospective employees and serving as a retention tool for current staff. But employees benefit as well, by strengthening their decision making skills, enhancing their public identification, deepening personal relationships with other community and corporate leaders, and gaining satisfaction from being able to ‘make a difference.’

How important is it to get strong, effective leaders on the boards of nonprofits?
The importance cannot be underestimated. The directors of a nonprofit serve in a governance and fiduciary capacity, and become communications and fundraising resources for the organization. They also play a significant role in selecting key personnel such as senior staff. The passion they bring, coupled with their expertise and willingness to participate, is essential for well-run nonprofits.

What is the directors’ role in selecting the staff of a nonprofit?
One of the directors’ most significant responsibilities is to make sure that the right staff is in place at the nonprofit. Typically, where there is a senior staff opening or a need to upgrade a position, directors will form a search committee that often will engage an executive search specialist to recruit suitable candidates for the opening.

The focus needs to be on criteria directly related to the nonprofit’s mission, rather than on the typical objectives of a private company. The difference is subtle, but important. In basic terms, a company’s general manager is ‘incentivized’ to maximize profits, whereas a nonprofit executive director must fulfill the organization’s fundamental service purpose while exercising fiscal responsibility and running ‘in the black.’ Directors have to understand the mission and culture of a nonprofit, and be committed to both.

Who has the primary responsibility in the search for a nonprofit executive director?Ultimately, the directors control the search and the selection. They hire the executive search firm, spell out the criteria for the position, and oversee the execution of the search. The retained firm must understand the culture of the nonprofit and be diligent when identifying prospects and communicating organization insights to candidates -- while assessing the optimum fit between prospect and nonprofit. It’s a clich, but it’s true: client and search firm must partner to attract the strongest possible executive to the organization.

Hiring an effective executive in the nonprofit arena is just as essential as recruiting ‘A’ talent to a for-profit organization. Superb nonprofit executives provide the vision and strategic leadership, lean and accountable financial management, and the facility to knit together a myriad of fundraising sources with a passion for the mission. A leader who comes up short in any of these areas will weaken the nonprofit’s ability to meet its goals, concurrently diminishing the benefits a board leader and his corporation derive from this service.

Any final observations?
Great American companies -- such as IBM, DeLoitte & Touche, EDS and American Airlines -- clearly understand their nonprofit involvement is a winning investment, paying dividends to their communities, their employees and their shareholders. Board participation yields an even greater return -- and enormous personal satisfaction.

JIM CHAMBERS is vice president of TNS Partners. Reach him at (214) 369-3565 or jimchambers@tnspartners.com

Tuesday, 25 April 2006 05:50

The Vioxx legislation syndrome

When Merck voluntarily withdrew Vioxx from the market in September 2004, it led to what has been described as a “feeding frenzy” by attorneys who sought clients allegedly harmed by the arthritis and pain medication. The move, which became a public relations nightmare for Merck, set off a flurry of lawsuits against the company and led to increased legislative activity aimed at full disclosure from drug manufacturers.

Moreover, Merck’s action increased concerns among other manufacturers over the possibility of lawsuits based on the safety of their products. Therefore, it is in product manufacturers’ best interests in general to prepare for lawsuits aimed at them.

Smart Business spoke to Kirk D. Willis, a partner at Godwin Pappas Langley Ronquillo, LLP, to determine what drug manufacturers and other companies can do to prepare for lawsuits regarding the safety of their products, and how they can respond to safety challenges and legislative changes that will increase regulators’ authority over specific industries.

How can manufacturers prepare for product liability litigation?
There are several ways, and the methods differ from manufacturer to manufacturer.

One suggestion is to retain qualified counsel to advise them how to lessen the possibility of product liability lawsuits. Counsel would have the capacity and experience to respond rapidly should lawsuits be filed. Choosing the right counsel keeps the corporate missions of manufacturers who have faced — or are facing — product liability matters.

Another is for a manufacturer to insure itself properly. Product manufacturers are advised to carry as much insurance as they deem advisable, taking into account deductibles and co-insurance.

A third is for a company to implement diverse pro-active managing, marketing and technological strategies aimed at ensuring product safety and addressing safety issues.

Another is to work with trade organizations to find out what they are doing to deal with product liability issues, and track regulatory and legislative changes to be prepared for possible changes that may be necessary to deal with potential lawsuits.

What strategies can product manufacturers employ to defend against product liability lawsuits should they be filed?
The available strategies should be carried out with an attorney’s assistance. The strategies might include filing actions in state courts to have cases transferred to a single judge in each state for coordinated proceedings, and filing motions to transfer to a single federal judge and consolidate for the purposes of all federal cases of similar nature alleging personal injury and /or economic loss relating to the purchase or use of a product named in a lawsuit.

Are there strategies that product manufacturers can develop to protect themselves in product liability litigation?
As in the case of preparation, different strategies apply to different cases. Again, manufacturers should follow the advice of their counsel. The strategies might include: procedurally challenging all frivolous lawsuits, fighting attempts to certify as ‘class action’ plaintiffs seeking medical monitoring, seeking attempts to dismiss claims based on the statutes of limitations, fighting discovery orders that involve products that are never used by consumers, challenging certifications in cases where it appears proposed plaintiffs have not suffered, attempting to recuse judges who might have used products involved in lawsuits, trying to move as many cases as possible to federal courts, and deleting the “proximate” from cause.

How is “proximate” cause relevant to product liability lawsuits?
The legal principle of proximate cause lies at the heart of product liability litigation. It simply means that there must be some reasonable connection between using a product and the “insult” that the plaintiff has allegedly suffered. In other words, for a manufacturer to be liable for a plaintiff’s injuries, the use of the product in question must be the proximate cause of plaintiff’s injuries.

Is deleting the “proximate” from the cause anything over which manufacturers have any control?
This takes us back to preparation. Merck took Vioxx off the market because the company recognized that consumers were being affected adversely. In fact, about 20 million users took Vioxx between 1999 and 2004. But a clinical trial showed increased cardiovascular risk in the patients using Vioxx beginning after 18 months of continuous use. The company acted immediately and appropriately to voluntarily withdraw Vioxx from the market, even though the FDA had approved it for treatment of pain and inflammation associated with osteoarthritis, menstruation and rheumatoid arthritis — and sales were generating $2.5 billion per year at the time the drug was withdrawn.

There is a lesson to be learned. If a manufacturer learns that its product is creating adverse effects on consumers, the best approach may be to withdraw it from the market. Doing so may invite a flurry of product liability lawsuits, but that is sometimes inevitable.

In the long run, deleting the “proximate” from the cause may work in the manufacturer’s best interests, especially if it is well prepared to deal with litigation, as we discussed earlier.

KIRK D. WILLIS is a partner and chair of the Personal Injury Trial Law section for Godwin Pappas Langley Ronquillo, LLP in its Dallas office. Reach him at (214) 939-4400 or kwillis@godwinpappas.com.