Paul Harvey

Monday, 25 June 2007 20:00

Boardroom exposure

Federal regulators, investors and the public are aggressively seeking to punish directors and officers (D&O) who enrich themselves at the expense of shareholders.

Incredibly, while most directors and officers abide by a code of ethics, you need only pick up the latest Wall Street Journal to see the next parade of people under investigation.

“Some institutional investors have actually provided their law firms with a bounty if they can get the company directors to pay personally out of pocket to intensify their pain,” says J. Glenn Dockery, executive vice president, Hilb, Rogal and Hobbs, Executive Risk Solutions.

Smart Business recently spoke with Dockery about why it’s necessary for directors and officers to not only obtain, but also compare and customize, D&O insurance policies to best protect their personal assets.

What is the current status of D&O liability insurance and how has it changed?

We are in an extraordinarily soft market, so the good news for buyers is that the coverage is extremely reasonable, relative to price. The coverage terms are exceptionally broad compared to prior periods. Deductibles are fair, and there is more capacity chasing fewer premium dollars, which results in a more competitively priced product.

Historically, private companies haven’t worried about D&O liability coverage, believing they had little exposure compared to public companies. Their largest exposure is and has been employment practices liability (EPL). Now, private companies can purchase a bundled insurance product that includes EPL, and D&O and may include other coverage, such as fiduciary liability.

What are the first steps to obtaining D&O coverage?

Am I protected? Anyone who is going to sit on a board of directors — whether it’s a not-for-profit, private or a publicly traded company — should request a letter from outside counsel setting forth those circumstances where the entity cannot offer indemnity and how that entity would propose to fill those gaps to provide the diligent director with personal asset protection. The initial focus should be on the entity’s indemnification provisions, not the D&O policy.

Don’t the indemnification provisions provide adequate protection?

Most companies, general counsel and risk managers — at even some of the largest companies — largely overlook indemnification issues when they’re evaluating their directors and officers insurance. Indemnification is really the bedrock of personal asset protection.

D&O insurance works in lockstep with indemnification. In the event there is a loss and you are sued as a board member — and assuming you meet all the standards of conduct — the corporation will agree to indemnify you. Now, how is it going to pay for defense costs, charges, settlement expenses and judgment amounts? It either comes from the company’s coffers or D&O insurance. The D&O policy is an off-balance-sheet asset, which funds, subject to a deductible, the corporation’s indemnification obligation to the director or officer. D&O fills the gaps when the corporation cannot legally or financially honor its indemnification obligation.

Are all D&O policies the same?

D&O insurance policies are written in English, a very imprecise language, and are drafted by attorneys. They are one of the most litigated contracts in the history of insurance because of the vagaries in policy language and evolving risks. Consequently, every client is very concerned about the wording in these contracts.

Often, although there may be no specific exclusions, clients think they have coverage when, in fact, they do not because it is taken away somewhere else. For example, in the state of Florida, the insurability of punitive damages is absolutely prohibited. These policies are not standard and there are significant differences between and among policies even within a carrier. It is important that each company understands its risk profile to negotiate a best-in-class insurance contract.

What types of claims does D&O insurance protect against?

Claims may be brought by past, current and present employees, competitors, suppliers, contractors, customers, government and regulatory agencies, shareholders, investors and other third parties. Additionally, mergers and acquisitions, especially in view of the recent spate of going-private transactions, can be a significant source of claims, public or private.

When a board is sued, three questions are asked: (1) Do we have insurance? (2) Is the claim covered? and (3) Why didn’t we buy more? Are you prepared to answer these questions?

J. GLENN DOCKERY is executive vice president, Hilb, Rogal & Hobbs, Executive Risk Solutions, in Atlanta. Reach him at (404) 942-5140 or glenn.dockery@hrh.com.

Monday, 25 June 2007 20:00

MOSS 2007

It may not contain a tiny pair of scissors or a wine corkscrew, but Microsoft’s latest iteration of Office SharePoint Server (MOSS 2007) certainly is the Swiss Army knife of software.

“Companies are using MOSS 2007 to collaborate, manage content, implement business processes and workflows, and create access to information that is crucial for organizational goals and operations,” says Bill Russell, executive vice president of Allegient. “The breadth of MOSS 2007 gets to the heart of what most knowledge workers struggle with on a day-to-day basis.”

Smart Business recently spoke with Russell about the breadth and features embedded in Microsoft’s Office SharePoint Server 2007.

What features of MOSS 2007 are most appealing to small and medium-sized companies?

The breadth of collaboration and content management is the capstone of the many capabilities that this cost-effective, portal-based platform provides. It integrates extremely well with Microsoft Office and Outlook, allowing businesses to take full advantage of their existing desktop document, spreadsheet and e-mail applications. MOSS 2007 also pushes the ability for end-users to manage Web content and not use technical staff. This will allow businesses to deploy new information more quickly, to meet customers’ needs quicker and be more agile in responsiveness to market changes.

Another attractive feature is the improved search capability. In concert with content management, the search function has the ability to search across an entire enterprise.

Why is MOSS 2007 superior to previous versions and other platforms?

The major improvement is clearly the richer and highly integrated Web development, content and management capabilities. MOSS 2007 allows a small firm, which might have had multiple Web sites, with all different looks and feels, to present a more transparent experience to its Web users. They can manage their content more easily and quickly, with little need for their IT department’s assistance. Where appropriate the MOSS 2007 development environment makes it much easier for companies to build and integrate Web parts, or small applets, like a ‘ticker’ of their stock price or the latest headline news. It makes it very easy to buy or build these applets, integrate them and update the site in look and feel, for the information.

A second enhancement from other versions is the included dashboard/business intelligence features that can be utilized to notify companies about how certain parts of their business are doing, as an example.

What unique or hidden features are included in MOSS 2007?

The platform allows companies to build and integrate workflows, or use the improved, packaged workflows to mirror parts of or complete business processes. The most popular workflow included in the platform is what’s called an approval workflow. MOSS 2007 gives you a basic approval workflow that you can configure to match your needs.

MOSS 2007 also features integrated Infopath, a set of capabilities that allow a company to easily build forms that can be included on a Web site and filled out by the user for any number of business needs or applications.

Many businesses have spent enormous amounts of time and money to build Excel spreadsheets, which they use to run their business. Certain editions of MOSS 2007 include a powerful set of what are called ‘Excel Services’ to take advantage of these existing applications so companies can leverage them.

What processes might companies first tackle with MOSS 2007?

MOSS 2007 embeds powerful and intuitive tools for providing more structure and efficiency to everyday business or knowledge worker processes. For example, MOSS 2007 allows business users to create, publish and manage Web content. The toolbars mirror the familiar features in Microsoft Word, allowing authorized users to change fonts, colors and other appearances right inside the pages. Companies can use these capabilities to move more of the content management back to business users and save their IT technical team for the more complex requirements.

Companies can also leverage the package’s much improved document management capabilities and collaboration features around those documents. Creating group, team or individual workflows that allow a knowledge worker to get work done is another very fundamental, generic work process included that can be applied across any business.

Should companies use outside resources to implement MOSS 2007?

Some small firms are implementing it right now with their existing IT staff, and frankly, they’re getting themselves in some difficulty because they’re not using enough outside expertise and help to get a good start. The outside resource can help identify one or two areas of what we refer to as low-hanging fruit, or obvious business processes, that could quickly improve with MOSS 2007’s capabilities.

BILL RUSSELL is executive vice president of Allegient. Reach him at (317) 564-5701 or brussell@allegient.com.

Tuesday, 25 September 2007 20:00

Fuzzy math

Sometimes numbers don’t add up. The San Diego housing market has been slumping, with housing starts down, residential builders closing their doors and scores of mortgage industry workers enduring layoffs. The application of basic economic principles to this scenario might suggest that commercial construction costs would be declining in the near future.

“The reality is that, while the residential market is down, there’s so much commercial and municipal construction going on in San Diego County that the cost for build-outs has continued to rise,” says Kirt Gilliland, senior vice president of project management and principal, Irving Hughes.

Smart Business recently spoke with Gilliland about San Diego’s rising construction costs and how they impact commercial leasing, our cost of living and Southern California’s future growth.

How do increased construction costs affect commercial leases?

The reality is that the cost of construction materials is driven by the international demand for basic construction materials like fuel, concrete and steel. Locally, the cost of living drives the cost of wages that contractors and subcontractors have to pay, whereby San Diego is still one of the most expensive markets in the country. As we’re negotiating new leases, construction costs continue to rise. Since some amount of build-out costs typically are amortized in a lease, the instinct is to want to ask for less tenant improvement money to lower lease rates, but it’s not that simple.

Why isn’t the housing slowdown cooling commercial construction costs?

There’s so much commercial and municipal construction going on that many of the housing subcontractors have simply been absorbed into these other environments. San Diego County’s adjoining suburban markets — Vista, Escondido, San Marcos, Chula Vista and others — are going through huge growth, building retail and commercial projects. Additionally, public entities, such as city governments and redevelopment agencies throughout the county, are all undertaking large projects. In National City, there’s been a proposal for a new sports facility for the Chargers, and they’re considering a new billion-dollar convention center, so the pipeline of work doesn’t have contractors concerned.

Add to all of that the work on Interstates 15 and 125, the ongoing hospital modernization projects and huge projects at nearly every college or university, and it’s easy to see why the demand for builders has not diminished. If you’re a pool installer, you may have seen a slowdown, but if you’re in concrete, framing, drywall installation or plumbing, you don’t care whether you’re doing a residential or a commercial project. There’s enough commercial construction out there now for workers.

What factors are driving the increased costs?

Increased costs include higher fuel costs, rising consultant fees, public improvement fees and ‘green’ requirements. Fuel costs not only impact the manufacturing of materials, they ripple their way through everything. Materials, equipment and workers have to be transported, so when gas prices increase, contractors are forced to pass the increase along to the end users.

Consultant fees are also on the rise for the first time in several years. There is now such a shortage of quality architects and engineers that most firms in town are scrambling to hold on to their good people or find good people. The higher salaries used to attract and retain these workers are then passed through to the corporate tenants and landlords hiring these firms.

Further, since government agencies have less money for public improvements, when people apply for building permits, the agencies are saying, ‘Great! No problem. You can have a building permit, but you have to pay to upsize the intersection, modernize the stoplights and add a merge lane onto the freeway.’ These are huge costs, and they get passed along to consumers or whoever is building the project.

What are ‘green’ requirements?

It is a general term for items like energy efficient equipment, the use of renewable resources and the process by which waste is recycled. We’re finding more clients that want to be somewhat green and do their part to combat global warming. These requirements add from 1 percent to 10 percent to the cost of a project, but they’re willing to pay the dollars to have these things done. Some of the green add-ons do have a payback, like solar energy systems that generate electricity and reduce utility bills.

How is San Diego’s cost of living impacting construction costs?

The cost of living in San Diego continues to rise and this affects wages and, ultimately, the cost of labor to install materials and equipment. There also is a shortage of labor here in town because people don’t come to San Diego for entry-level construction work. They can work someplace else and make the same kind of money without the high cost of living. In order to keep their best employees, contractors are raising their prices to retain workers.

How will this cycle play out?

I don’t see things changing any time in the near future. Some people are talking about the economy crashing, but in the last election, we approved several billion dollars worth of bonds for public improvements and construction. Just because there’s a housing slowdown doesn’t mean people aren’t being born here and moving here. As long as our population is increasing, there is going to be a demand for construction.

KIRT GILLILAND is senior vice president of project management and principal for Irving Hughes. Reach him at (619) 238-1518 or kirtg@irvinghughes.com.

Thursday, 26 July 2007 20:00

The cost of doing business

The real estate market’s effect on businesses, big and small, is undeniable. When San Diego sees major changes in affordable commercial space, the economic impact is far-reaching.

“Building sale prices are at historic highs, as are asking rents, but the leases we are getting done haven’t changed much, materially, from 2005 and 2006,” says David Marino, principal with Irving Hughes in San Diego.

Smart Business discussed with Marino the causes and effects of the spike in local commercial real estate building sale prices.

What has been driving the record-high sale prices of commercial real estate?

Fundamentally, there is too much money chasing a fairly fixed supply of assets. After the Internet bubble of 2000, institutional investors allocated more money into real estate, which is a hard tangible asset. There has been a flood of capital through pension funds, private equity groups and REITs [real estate investment funds] that has driven the supply of capital out of balance with the asset base’s supply, and institutions rightly bet that commercial real estate was undervalued. Fueling the fire, commercial real estate sellers then reinvest in new assets at inflated prices through tax-deferred exchanges to defer paying capital gains taxes.

We have a financial engineering environment in commercial real estate. REITs have been gobbled up by private equity groups, whereby the assets are then broken up into smaller asset sales where the parts are more valuable than the whole. Most of the buyers of these parts are then other REITs and institutional buyers. In a market of high leverage and low cost of capital, owners are trading on the razor’s edge of cap rates to generate returns through flipping assets rather than operating them. Most of the buyers are from out of town and generally don't understand the market. But it turns out they don't have to, since they turn around and sell the asset to someone who understands the market even less.

Other than the supply of capital, what is the rationale of these buyers paying such premiums in San Diego?

The argument is that San Diego is running out of developable commercial land, but I have been hearing that for my entire 18-year career. Someone could say New York City is running out of land, but that has been the case for 100 years and there have been wild swings in asset value over that time. Also, buyers and their brokers argue that San Diego has macro-level job growth and population growth as well as a diversified economy. But most of that job growth hasn’t been in industries that occupy office space, so the translation of jobs and population to the demand for space is relatively weak. They also argue that rents are relatively lower in San Diego than in other major markets around the U.S., and investors believe there is room to push for rent increases. However, with the cost of labor, taxes, gas and living in San Diego, rents need to be affordable for tenants so that businesses will continue to start and grow in San Diego. Shockingly, some of these investors are putting 10 percent annual rent inflation in their pro formas.

Do you see the landlords getting these inflated prices?

No, but they have to build a pro forma that justifies hyped-up purchase prices. The reality is that virtually none of these landlords is making money on the cash flows from commercial real estate. They are buying with huge leverage and low-cost financing and then selling at a profit a year or two later. It's sad to me that many of these investors really don't care about the tenants or the tenants’ businesses or about putting capital into the buildings to make them better facilities.

One of the most painful effects of this buying and selling is that the tax basis becomes reassessed to the new value, and that tax increase gets passed right through to the tenants. Existing tenants have been hit with unexpected and nonbudgeted tax increases ranging from 30 cents to 60 cents per square foot per month. In the short term, tenants are paying for this buying and selling game, but in the long term when those tenants renew with new base years, or move and get a new base year, the owners are going to have to stomach those former pass-throughs, and landlords aren’t going to be able to build those higher tax costs into their new rents.

But wouldn't overall higher costs of buildings and taxes for the landlords mean they have to charge more, and that they would get it?

The capital markets for real estate are acting independently of the leasing market. The reality is that there has been virtually no net absorption in any submarket in San Diego in over a year, with the exception of Del Mar Heights, and that the market is stalled. All of these new buildings you see being finished are raising vacancy rates, and supply is beginning to exceed demand. Aggregate sublease space across all product types has been rising for more than a year, topping 4,800,000 square feet, which is the highest level we have seen in three years, and presents tough competition for landlords going into 2008. Meanwhile, landlords in lockstep, propped up by the brokerage community, are raising asking rents all over town. There is no economic supply-and-demand basis in reality for rents rising in an environment like this, but landlords and their outsourced sales and marketing departments — the brokerage community — are all trying to make it happen.

DAVID MARINO is a principal with Irving Hughes. Reach him at (619) 238-4393 or david@irvinghughes.com.

Tuesday, 25 September 2007 20:00

A healthy dose of knowledge

As health care costs continue to rise, it is important to consider all aspects involved in managing health and welfare plans. There are many mechanisms to contemplate, and with knowledge, plan managers can make educated decisions instead of making decisions in a black box.

“Reinsurance, prescriptions, mental health and disease management programs are all potential and substantial cost-saving areas,” says Jim Powell, senior vice president, Hilb, Rogal & Hobbs, Tampa. “I have yet to find a plan that does not have one of these potential areas for improvement.”

Smart Business spoke with Powell about key information that helps plan managers improve their company’s health and wellness programs and identify areas to carve out benefit plans for cost savings.

Should companies simply raise plan benefit levels to save money?

Many companies initially focus on the benefit levels, including co-pays, deductibles, co-insurance and employee premium contributions, as the first mechanism to save plan dollars. A forensic approach can be more beneficial. Typically these plan changes are the last area to look at because they most directly impact the ultimate consumer of the plan — your employees and their covered dependents. Looking at areas outside of benefit and contribution changes may identify areas of improvement and cost savings without negatively impacting the employee.

Should companies consider self-funding?

Many times, it is assumed that self-funding automatically saves money. The decision to self-fund a health and welfare plan is really one born from the desire to control the plan. Once the plan sponsor decides to self-fund, many new alternatives become available, like the ability to carve out the reinsurance, for example. Very few brokers and consultants, however, are real craftsmen in this area. It requires skill, expertise and market relationships to properly structure and manage a comprehensive reinsurance program. Overall, benefit design is more flexible in self-funded plans as the plan sponsor begins to move away from state-mandated insurance benefits and is subject to ERISA [Employee Retirement Income Security Act].

Can alternative prescriptions/Rx benefit programs lead to plan savings?

Pharmacy benefit managers (PBMs) have become more aggressive in their pricing and rebates, and this can be an important area of focus in reviewing potential plan costs and identifying areas for savings. It may not always be the most cost-effective solution for the plan to simply go with the Rx vendor recommended by the health insurance carrier. A full-service broker/consultant can analyze the pricing and services in this area, request and negotiate proposals from alternate vendors, and present a recommendation for the plan sponsor to consider. The resulting savings to the plan and to the employees can be significant.

What about insurance carrier service?

Companies deserve and should request a senior customer service representative from their insurance carriers. What a difference you experience when dealing with a seasoned professional. Additionally, companies that use outside consultants benefit greatly when their consultant discusses plan financials with senior sales representatives and senior underwriters in order to achieve the most advantageous outcome.

Should companies consider raising the plan deductible?

Finally, it is important to benchmark the plan provisions to ensure a competitive position in your recruitment and retainment efforts. With this data, a plan sponsor can make educated decisions about which benefit levels can possibly be modified for plan savings.

How are companies reinventing health plan funding?

There are many creative ideas to consider in the plan design area. One firm I worked with has tied their plan’s medical insurance deductible to salary — the higher the salary, the higher the annual plan deductible. The more an employee makes, the more they share in the initial plan claims. Another firm developed a varying employee premium contribution schedule based on earnings, so the more you make, the more you pay in monthly premium contributions for health plan coverage. Other clients are considering varying premium contributions through participation in wellness, exercise and smoking cessation programs as a means to encourage healthy lifestyles and lowering medical plan costs. Health risk appraisals can also be used as a means to collect data and motivate individuals toward lifestyle changes, which ultimately lowers health plan cost.

JIM POWELL is senior vice president, Hilb, Rogal & Hobbs, Tampa. Reach him at (813) 261-7971 or jim.powell@hrh.com.

Tuesday, 25 September 2007 20:00

Uncovering hidden productivity

Acorporation must change in order to survive and thrive. Change will include process re-engineering, or the analysis of business processes with the goal of improving communication, methods and procedures to align with the organization’s needs.

“You need to have the mindset to revamp something you may have initially designed because now you can make it better with new information, new knowledge and new systems,” says David Davis, Risk Management Services partner, Armanino McKenna LLP. “Process re-engineering can suggest scrapping an entire process or uncovering simple solutions, like improved system and software training.”

Smart Business spoke with Davis about how process re-engineering can reveal improvements to core processes that ultimately produce tangible and intangible benefits for growing companies.

What size companies can benefit from process re-engineering?

What I’ve seen in my career is that companies with more than $25 million in revenue, and specifically those that have been growing, can benefit from engaging in process re-engineering. Growth companies need to reanalyze their processes on an ongoing basis instead of just adding more resources.

What core business processes should be analyzed?

Some areas that present problems for companies are inventory management and logistics and any department responsible for moving goods from one place to another or coordinating the receipt of products and services. There is always a ton of paperwork associated with these functions, which seems to bog down a lot of companies.

There are also other areas around manufacturing. For example, the management of raw materials that go into the process, the proper inventory of the finished goods and how that information is properly communicated internally so companies can more accurately record information that will better service customers in a timely manner.

Some additional processes to consider are how financial reporting integrates with other departments as well as budgeting and forecasting processes and performance analysis. How do you know you should be implementing changes, adding staff or considering a different vendor unless you are doing some type of analysis and forecasting about what’s going to happen to your business?

What gains should be expected from a re-engineering effort?

One area includes tangibles like hard cost savings from reduced shipping, reduced replacement costs, savings from head count improvements and cost reductions in manufacturing. There also are intangibles like improved communication within the company and the benefits from people better understanding what other workers do and how they do it. Communication is the biggest problem I see in companies today.

How are target processes identified?

Mapping is an important place to start. If a company doesn’t have their existing processes mapped so they understand what they can do, then they really need to do that. You can’t just come in and say, ‘Change this and change that,’ unless you understand the processes. If the company tells me they already have their processes mapped, then I strongly suggest that we walk through them to make sure they are accurate. Otherwise, wrong decisions can be made, or perhaps the process only needs a tweak here and there instead of throwing it out and starting from scratch.

Often, it’s just a training issue because people aren’t doing things the way the company first designed it. Chances are a large percentage of the people you trained when the process was first put in now have different jobs or are gone completely. One recommendation I always seem to end up making is for companies to get their people better training on the systems. Workers like to create spreadsheets and programs on the side, and they’re the only ones who know the information contained there. This slows down other people.

Can employees view re-engineering as invasive or threatening?

Sometimes there will be head count reductions, but that’s not always the goal of process re-engineering. Upon my initial engagement with a company, I tell the staff that my goal isn’t to eliminate jobs, but to make their jobs more efficient so that, as the company grows, they can do more but not have to work more. You’d be surprised how enthusiastic people get if they think it’s going to make their life better. It’s also important to get a company’s senior management behind the effort early on.

Should companies tap outside resources?

Many times it makes sense to bring in outside help. Consultants bring a different and more critical view than the insiders who may have originally designed a process. They’re not biased — they come in, and if they see a problem, they tell management what they’ve uncovered.

DAVID DAVIS is a Risk Management Services partner with Armanino McKenna LLP in San Ramon. Contact David at (925) 790-2726 or David.Davis@amllp.com.

Thursday, 26 July 2007 20:00

Executive coaching

Tiger Woods knows how to play golf. He’s proven himself so well, in fact, that it begs the question of why he would require a coach to improve his game.

Consider upper-level corporate executives: Why would these obviously accomplished professionals need additional training or coaching to sharpen their business skills?

“What a coach does for Tiger is to help him become aware of elements of his swing, something he’s doing differently or some new ways of thinking,” says Dr. Stephen Brock, LPCC, professor at Coles College of Business, Kennesaw State University. “In an analogous way in the business community, coaches use assessments and tools to help managers and executives leverage strengths, identify and compensate for vulnerabilities, and develop additional skills in a particular area to be even more effective.”

Smart Business spoke with Brock about the evolution of executive coaching, and how managers and executives can improve and enrich their professional and personal lives through coaching.

How are mentoring and coaching different?

Mentoring and coaching often are used as interchangeable terms, but in reality, they are two distinctively different activities. Mentoring is much more akin to the guild system in the Middle Ages where a master craftsman took on apprentices to teach skills, give direction to move his charges along to journeymen and, finally, to become master craftsmen themselves. Alternatively, coaching is a collaborative relationship that does not require the coach to be a subject-matter expert in a particular field, other than the field of human development. A coach understands the process of enabling people to explore their goals, to do critical thinking about their challenges, their talents, their abilities, how to access and leverage those to accomplish their goals, and how to create measurable steps as they move forward.

How has coaching changed over the last decade?

For several decades, professional consultants have been coaching personal development. Often, the coaching involved a problem employee who was going to cost a company a great deal of money to replace. So coaching started as a kind of remedial intervention process. That has changed dramatically. Today, the focus of coaching emphasizes working with people who are already functional and performing well but who want to achieve an even higher performance in their life.

Meanwhile, coaching is right at the cusp of becoming a singular profession unto itself — perhaps in the next five years. England and Australia already have graduate degrees in coaching, and several U.S. schools are developing graduate degrees and certificates.

Who are prime candidates for an executive coaching program?

Senior executives are driving decision-making down in the ranks to become more efficient and effective, and they are using coaching at all levels of their organization. I’ve seen law firms, cardiovascular practices, hospitals, manufacturing facilities and sales groups, all of which are using coaching in slightly different ways. In some instances, it’s used as part of succession planning where higher performers are groomed to move into greater levels of responsibility. Coaching is also effective for people who have been promoted and must learn a new set of responsibilities. Senior executives use coaches as an objective frame of reference because presidents and CEOs often don’t have people they can talk to and get straight answers from. A coach becomes their sounding board — someone who can say the unpopular thing or point out counterproductive behavior.

Today’s managers routinely have to play multiple roles to their subordinates, so companies have started training their middle and lower management to become more effective coaches as part of their management skill set.

What are key components of an external coaching program?

There are a significant number of responsible organizations rooted in solid theory and practice that train and certify coaches. There also are a number of fly-by-night outfits that realized they could make money selling coaching certifications. Some of these programs require very little on the part of the individual to become certified. A good program is one that engages both business acumen and acumen in psychology. It should provide people with a basic understanding of how a business operates and a true understanding of interpersonal and intrapersonal dynamics. Another factor is trust. Coaches should meet a potential client at least once or twice to see if trust will develop and if it’s a good fit.

How does coaching impact today’s business climate?

Some companies are starting to develop their own internal coaching programs. These internal coaches become a resource to anyone in the organization who would like to have coaching. Front-line superintendents, supervisors or cell leaders could easily gain from trained, internal coaches. However, I think we’ll continue to see the use of external coaches who have no investment in internal politics and who can give the tough message that truly benefits the person receiving it. Of course, there are also companies that use a combination of these approaches.

DR. STEPHEN BROCK, LPCC, is a professor of leadership and executive coaching at Coles College of Business, Kennesaw State University. Reach him at (678) 231-3812 or stephen_brock@coles2.kennesaw.edu.

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