Chelan David

For many business leaders, effective teamwork is viewed as the ultimate competitive advantage that can deliver excellent results. Imagine what you could accomplish if you could improve the performance of your teams: increased market share, enhanced employee involvement, continuous improvement, innovation and reduced waste.

However, true teamwork, with skillful members working towards a common goal, is very rare. We’ve all learned from first-hand experience that not all teams are created equal. So why do some teams produce more excellent results than others?

“It takes more work than just grouping people together and calling them a team,” says Meghan McHale Bilardo, director of Organizational Effectiveness for Corporate College, who cites “The Wisdom of Teams” by Jon Katzenbach and “The Five Dysfunctions of a Team” by Patrick Lencioni as valuable resource tools.

Smart Business spoke with Bilardo about critical components for developing effective teams, common challenges and best practices.

What are the critical components to having an effective team?

There are three critical components. The first is that people working on a team need to have complementary skills. Hiring or selecting the ‘right’ team member is crucial.  Members should all be able to relate in terms of their technical proficiencies that they bring to the table. Think about the best performing teams in professional sports, each member is highly capable and well trained. Selecting skilled team members and maintaining their skills over time is essential.

The second critical component is that they have a clear and compelling set of goals. Winning teams have a defined purpose that members rally behind. They break the broader purpose into smaller goals and align each person’s efforts to specific tasks for which they are individually responsible. At Disney, for example, the mission of each employee is aligned with the mission of the larger organization — ‘Make dreams come true.’ This goal underlies all decisions made by teams at each of the Disney resorts.

The last critical component is mutual accountability. These are the promises that team members make to each other, starting with the leadership. Leaders should demonstrate accountability and respond to the lack of it on their teams. It is important to create a culture of responsibility, obligation and support to foster accountability. The best teams define who is responsible for what and track individual and group progress. Productivity is rewarded and celebrated. When individuals are struggling, the team provides support. The team creates a positive pressure to deliver results and members do not want to disappoint each other. Southwest Airlines has collective responsibility to ensure flights depart on time and to identify the root cause of a problem when flights are delayed.

What are some of the common challenges teams face and how can these challenges be overcome?

Even the most talented teams face obstacles. The first challenge has to do with building trust, a necessary foundation for a high performing team. With high levels of trust teams are more productive, have a great sense of unity and are supportive. The difficulty here is that trust requires time. In order to speed up the process an outside facilitator can guide your team through activities that help people gain new insight into each other, which builds trust. The second challenge that many team members face is conflict. It can be difficult to disagree with and debate members of your team. The Thomas-Kilmann Conflict Model, which we use at the college, helps members build assertiveness skills and understand how conflict can be productive and useful to a team. The third hurdle is a lack of accountability. The more ambiguous leaders are about goals and progress, the easier it is for people to be unaccountable. The best way to foster accountability is to be S.M.A.R.T when setting goals, to publicly post progress on goals and promote ongoing team dialogue on accomplishments and setbacks.

How do you know when you have a high-performing team?

Members of a high-performing team produce excellent business results. When you observe them you will see open-ended dialogue and group participation in meetings. You will witness ongoing and public tracking of their performance, regular evaluation of their processes, innovation and continuous learning. You will observe public rewards and group support for team members that aren’t able to deliver. At the end of the day you will see a collective result.

What are some common best practices to promote team development?

All teams move from forming, storming, norming and performing as they develop (Bruce Tuckman’s Stages of Team Development). Their needs are different in each stage.

  • When ‘forming’ a best practice, hire an outside facilitator to establish the team’s purpose, set performance goals and lead strategic planning. In addition, the facilitator can create a team charter, which helps members understand how they will work together.
  • ‘Storming’ is when teams most often struggle with conflict. Group learning in communication and social style workshops help people build their assertiveness and conflict resolution skills so they can have productive debates and ongoing dialogue with their new teammates.
  • The ‘norming’ stage is when a team begins to build a sense of unity so it’s best to review their progress and revisit their ground rules in the team charter. Professional development workshops for leaders are also recommended to help them learn proven strategies for increasing employee ownership and pride.
  • ‘Performing’ is all about productivity and knowing how each member can best contribute. Evaluate performance and reward members who are delivering the biggest results.

Meghan McHale Bilardo is director of Organizational Effectiveness for Corporate College. Contact her at (216) 987-2800 or to learn how you can build an effective team that delivers business excellence.

Last month Steve Carter, president and CEO of ii2P, challenged small and medium-sized businesses (SMB) to take a look at investment decisions around their current support models. This month, he stresses the importance of adopting a strong sense of urgency to avoid upcoming challenges.

“SMBs worldwide are projected to spend $1 trillion on IT by 2014. But unless something drastically changes, that spending could be like a heavy weight on a vessel headed into a perfect storm,” says Carter. “We want to stop, take a pause, and not repeat history by spending money on technologies without really looking for a composite solution.”

Smart Business spoke with Carter about the challenges SMBs face, how to avoid common traps and the importance of managing cost pressure while strengthening customer intimacy.

Why do you feel there needs to be a heightened sense of urgency around creating change this year?

There are two fundamental problems facing the SMB market space: 1) cost pressures to stay competitive; 2) customer intimacy is in jeopardy. All companies with products and services wrestle with relieving cost pressures to maintain competitiveness. However, the most significant challenge I see is declining customer intimacy. This is an aspect that has been ignored. In order to sustain and grow market share, maintaining customer intimacy is paramount. Overall, a quality customer experience is missing, which shows up in lost market share.

What factors do you feel are causing these challenges?

A perfect storm is described as having multiple conditions that are colliding at the same time. There is a perfect storm in the SMB market today. First, all too often we see both cost and customer intimacy elements are chained to an archaic standard support model. Such a model is actually designed to cost more to interact with the customer. Historically, this has been why companies scrambled to find ways to cut back on support costs. This standard model is also designed to drive customer interactions out because it costs so much and reflects pure overhead. What this does is create an environment for the SMB that says, ‘Use it less, find a way to reduce calls for support.’ Sounds like a good thing, but it is deceiving. It’s a death trap for the SMB.

At the same time the demographics of the end user have changed considerably and it is imperative that you respond to their wishes. Our clients have grown up in the technology world and favor what I call the ‘preferred end user support model’ — they prefer to satisfy the needs themselves rather than call a support center for help.

Lastly, by not considering and committing to a holistic approach when installing new technologies into your business, you are actually burdening your organization with incomplete and ineffective solutions.

How can the SMB know if it is facing the perfect storm?

There are some clear, obvious indicators that every SMB should use as beacons:

? Check your specific market growth. Has your business grown at a healthy rate? If you are not growing at a healthy rate, the storm will ultimately catch you.

? Check your client retention. This one is big. You can’t glaze over client loss as being a result of some external factor. Truth is, if you are losing clients, your model is working against you. The two key components are your cost competitiveness and your ability to be intimate with your end users.

? Check your profitability. This one should be obvious, but can be deceiving. If your margins are falling, for example, don’t automatically blame costs of raw materials. The cost of your support model is a more obvious culprit.

What options does an SMB have if it determines it is facing a perfect storm?

There are three options that always apply, and the first two are the most common traps that sink businesses. The first option is to do nothing. Keep steaming straight ahead, believing the situation will improve. The second option is planning to do something in the future. While this one doesn’t sound quite as bad as doing nothing, it has the same result: the longer you wait, the more you lose ground.

There is a third option: Do something new. Now is the time to face the perfect storm.

How should an SMB go about implementing a new approach in order to avoid the perfect storm?

The thing to remember is that surviving the storm requires a balance between the two elements I spoke of earlier: managing cost pressure while strengthening customer intimacy. The first step to bailing water out of your boat is to analyze and optimize your current support model. Then establish a clear strategy and create self-improving client intimacy through customer-facing self-service.

We’ve all made the mistake thinking that just purchasing technology is the answer. Take a new holistic approach that will bring technology, process and management disciplines as a complete and total solution. Examine the investment in current IT expenditures and make the hard assessment: ‘Am I getting real return on investment?’ If not, make a change. Finally, establish committed continuous improvement processes that focus on balancing the customer intimacy mandate with prudent cost management. With these approaches in place, clearing the perfect storm is simply a matter of having your clients use your new model more.

Steve Carter is president and CEO of ii2P. Reach him at (817) 442-9292 or

As a business owner, you may think that a national or large regional bank can best serve your business. But as a smaller business, it’s easy to get lost in the shuffle.

Community banks may be a better option — they are locally owned and operated, serving their hometown communities. The money deposited in a community bank is reinvested in ways that drive local economies, such as in the form of loans to local residents who want to buy a home or small business owners looking to open a business on Main Street, says Don Mann, former deputy commissioner of banking for the state of Michigan, regulatory liaison with the Community Bankers of Michigan and a bank consultant for a number of community banks.

“By banking locally with a community bank, you can rest assured that your banking needs will be taken care of and that your money will be put to work where it belongs — in your community in the form of loans to local residents and business owners,” says Mann. “It’s a hometown investment.”

Smart Business spoke with Mann about community banks, their importance to the Michigan economy and how they differ from credit unions.

Why are community banks important to Michigan’s economy?

Michigan’s banking industry has experienced a significant change in the past 40 years. Most cities were once lucky enough to have their own locally owned bank doing business on Main Street. In 1970, there were approximately 560 chartered banks in Michigan and more than 75 new banks have chartered since then. Today, the total number of banks is 130.

Where did all the banks go? In 1971, the Michigan legislature changed the law to permit corporations to own bank stock. Previously, only individuals or partnerships were allowed ownership. With that and other changes, bank holding companies were organized in Michigan and allowed to acquire banks, as were bank holding companies located in other states, resulting in a massive bank-buying spree.

Then large banks began buying locally owned banks, and by 2000, the number of banks was 188. Twenty-five banks also failed during this time, although due to FDIC protection, no insured deposits were lost.

The concentration of banking deposits controlled by out-of-state banks is noteworthy. Michigan’s banking deposits, which include consumers, businesses, schools and governmental units, as of June 30, 2011, totaled        $158 billion. Out-of-state banks doing business in Michigan control $110 billion, or 70 percent, of all deposits. The top six out-of-state banks hold 57 percent, or $90 billion, of Michigan’s deposit dollars. Decisions regarding how to invest or lend this money are made by individuals and boards of directors located in New York City, Dallas, Pittsburgh, Charlotte, Cincinnati and Columbus.

As we have seen during the recent recession, too many times, the deposits these banks collect from Michigan residents and institutions leave the state to be invested in distant communities far removed from the interests of the local account holders.

What is the makeup of community banks?

The ownership of the bank is generally made up of individuals who work and reside in communities they serve, and this extends to the board of directors, as well. Their local knowledge of the market area provides a significant advantage for the bank and its customers, as they can react more quickly to changing market conditions and customers’ needs.

Unlike the big banks, their business is relationship based, not transaction based.  Community banks continue to maintain a tradition of community service, whether financing local business and municipal projects or participating in and sponsoring local events.

What is the difference between a community bank and a credit union?

Community banks and credit unions generally offer the same type of products and services, with the exception of business lending. Credit unions once had membership restrictions, which are rare today, but they still have limits on business lending and are currently lobbying to expand those powers.

Unlike banks, credit unions are not as heavily regulated, are not subject to the Community Reinvestment Act, a federal law designed to encourage banks to help meet the needs of borrowers in all segments of their communities, and do not pay taxes. In fact, a single minimum wage worker pays more federal income tax than the entire credit union industry. Community banks invest in their communities. The taxes they pay support their local, state and federal governments, and they are a key supporter of a community’s infrastructure, making it a better place for all residents to reside.

What are the challenges and opportunities facing community banks today?

Because of the downturn in the economy since 2007, all banks are facing increased regulation and supervision. Congress passed the Dodd-Frank Wall Street Reform and Consumer Protection Act in July 2010. This 5,000- page act brought the most significant changes in financial regulation since the Great Depression. The act creates significant implementation issues and will be costly to both community banks and their customers.

Where the federal government was quick to bail out ‘too big to fail’ banks, most community banks were left to fend for themselves. Fortunately, because of their traditional, conservative management practices, most community banks remain among the most financially sound banks in the country.

As many consumers consider switching to a new banking relationship, they need to look no further than around the corner. The local community bank is a safe haven from impersonal bank practices. Community banks only thrive when their customers and communities do the same, so taking care of their customers and looking out for the best interest of their community is ingrained in the way they conduct business. By banking locally, consumers and businesses make a hometown investment they can be proud of.

Don Mann is former deputy commissioner of banking for the state of Michigan, regulatory liaison with the Community Bankers of Michigan and a bank consultant. Reach him at (517) 285-7758 or

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In this country, unlike many others, litigants — win or lose — generally pay the attorneys’ fees they incurred in litigation. This rule, known as the “American Rule,” can be frustrating for the winner. After all, if you have won the case, why shouldn’t the loser pay? Nevertheless, the American Rule is the default rule in our legal system.

As with most rules, there are exceptions.  Some contracts, statutes or codes of civil procedure trump the American Rule and provide that the loser is obligated to pay the winner’s reasonable legal fees. Given the American Rule’s sting, lawyers keep a keen eye out for such exceptions, hoping to recover fees for their clients.

Most lawyers know that, when the exceptions to the American Rule apply, courts will allow businesses to recover reasonable fees paid to outside counsel. But some do not know that many courts will allow recovery for a client’s in-house counsel as well, says Christopher Moore, a partner at Novack and Macey LLP.

Smart Business spoke with Moore about how to maximize chances for the recovery of in-house legal fees, the importance of detailed time records and how such fees are calculated.

Can a business recover for the legal services rendered by an in-house lawyer?

Most courts say yes. That might seem counterintuitive because an in-house lawyer typically is paid a salary, which would have been incurred whether he or she was involved in a particular litigation or not. Thus, the money paid to an in-house lawyer can be viewed as ‘overhead,’ rather than costs incurred as a result of litigation. And, while some courts have denied fee recovery for in-house counsel on that basis, that is, because a business incurs no added attorneys’ fees when in-house counsel assists it in litigation, many courts do not. As the Seventh Circuit has recognized, ‘every hour spent on a case by an in-house lawyer is an hour that he or she could have spent for the business on some other matter.’

What can a business do to maximize its chances of recovering for such services?

Just because a court may allow a business to recover for the services provided by its in-house lawyer does not mean that all — or even any — fees attributable to his or her work are recoverable. For example, litigants seeking legal fees have to show that those fees were reasonable, and this principle applies with equal force to businesses seeking to recover fees for their in-house attorney.

Reasonableness aside, businesses face an additional hurdle when they try to recover fees for work done by their in-house lawyer: They have to show that the in-house lawyer ‘actively participated’ in, or ‘substantially contributed’ legal services to, the litigation. Fees are not generally recoverable if the in-house lawyer was acting merely as a ‘liaison’ between the business and outside counsel.

What this means in practice is not always clear. However, a business’s chance to recover is maximized when that lawyer performs the type of work that is often associated with litigating a case. Examples include preparing discovery documents, outlining deposition questions, examining witnesses, or participating in tactical trial decisions. Obviously, it helps if in-house counsel files an appearance, presents argument, or appears in court at trial.

Conversely, fees will not be allowed when in-house counsel acts more like a client by, for example, merely keeping the business up-to-date on the litigation, transmitting progress reports to the business, or communicating the business’s views on litigation strategy to outside counsel.

What kind of time records should be kept?

Because fee recovery depends on demonstrating that the fees were reasonable and that in-house counsel was actively participating in a case rather than acting as a liaison, it is vital that in-house counsel keep detailed records of their work. At a minimum, those records should not only show the time devoted to each litigation task but also describe specifically how the work performed was work for which courts allow a business to recover. Courts have denied recovery when time records lacked such detail and thus failed to demonstrate that in-house counsel was substantially contributing to the litigation, rather than acting as a client liaison.

How are in-house fees calculated?

There are various ways that courts could measure recoverable fees for in-house counsel, but two principal approaches seem to have emerged.

In one approach, courts accept the view that the work performed by a salaried, in-house attorney is recoverable, but they are mindful that such work can be viewed as part of a business’s overhead. As such, a business seeking to recover fees needs to show these courts how much of its overhead can be allocated to the litigation at hand. The calculations needed to make such a showing can be complex. Still, courts favoring this approach, or something similar, are concerned that a different approach could permit litigants to recover more than the costs actually attributable with in-house counsel’s work, and thereby result in a windfall to the victorious litigant.

In another approach, courts have awarded fees for in-house litigation work based on a ‘market rate.’ Essentially, this is what non-in-house lawyers in the same market would have charged the business for the same services. Courts favoring this approach see at least one advantage: It avoids the need to make the complex inquiries and calculations that the first approach and similar methods require. Moreover, courts favoring this approach believe that the market-rate approach likely produces a fee calculation roughly equivalent to that given by the first-described approach. This is because, among other things, time devoted by in-house counsel to a particular litigation is time he or she could have spent on some other task.

In the end, courts favoring the market-rate approach reason that such time is no less valuable than what a business would have to pay outside counsel to do the neglected work.

Christopher Moore is a partner at Novack and Macey LLP. Reach him at (312) 419-6900 or

Think back to your first day as a manager. You’ve been praised as a high-performing associate for quite some time and becoming a manager is the next step in your career. However, upon assuming the reigns of leadership you quickly learn the skills you’ve employed to accomplish your own work aren’t so effective now that you’re leading a team of individuals with their own work styles and goals.

“Individual contributors are expected to execute work themselves and suddenly, once promoted to the role of manager, they are expected to execute work through others,” points out Sarah Eppink, Leadership Program Manager for Corporate College. “This can prove challenging to high performing individuals who have rightfully been praised for being accountable for their own good work.”

In order to ease the transition from being an individual contributor to a strong leader, organizations should provide support for new managers throughout the training process.

Smart Business spoke with Eppink about why new leaders struggle, what competencies should be developed, and how to choose appropriate training providers.

Why do most new leaders struggle?

Managers oftentimes are promoted through the ranks of their organizations as high-performing individual contributors with expertise in their field. This is important, as you certainly need a leader to have technical expertise and a solid frame of reference. However, these newly promoted managers tend to lack the soft skills that prove crucial to leading a team and managing relationships.

Another challenge can arise when a newly promoted manager is leading a team comprised of former peers. It can be difficult for teams to accept a former peer as a new boss because that person ‘used to be one of us.’ A manager doesn’t usually just receive respect because of a title, especially not in this situation. To gain acceptance, a new leader needs to leverage their relationships within the team and accomplish quick wins. Organizations must adequately support these new managers through training and reinforcement during this challenging transition.

What competencies should new leaders develop?

Individuals new to managing others should look to develop behaviors that would help them tackle both day-to-day tasks, as well as more strategic thinking. A solid training program for new leaders addresses the following competencies: leadership styles, building trust, communication, delegating tasks, developing and coaching others, change management, conflict management and decision making. Programs that focus on skill development in these areas can effectively minimize the learning curve of new leaders. You might be wondering why I didn’t mention skill sets like building a team and acquiring talent. New managers typically inherit a team and don’t have the luxury of hand selecting the talent they will lead. Depending on the organization, some new managers may not have a need to acquire new team members for quite some time. When the need arises to develop these skills, this training should be made available.

In addition to training, what are some resources organizations should make available to new leaders?

One can’t possibly master a new behavior through classroom learning alone. While training will provide you with new knowledge, it is our experiences that shape us. Be sure to provide new leaders with the space to demonstrate new skills. Ensure that the new leader’s direct manager is fully engaged with this person throughout their new leader training program. Their direct manager should act as a sponsor for them — developing goals as they go through the program, and assisting with identifying current projects for which these new skills can be utilized.

Mentoring can provide a tremendous learning opportunity for new leaders as well. Align new managers with seasoned, well-respected leaders within the organization. A mentor is invaluable when you’re starting out and can benefit from someone else’s learning curve.

What are the risks to organizations if new leaders are not developed correctly?

Frontline supervisors are the primary driver to higher levels of employee engagement, as they interface with more employees than any other level of the organization. The reverse is also true — frontline supervisors with inadequate leadership skills can decrease levels of employee engagement, leading to low morale, turnover, etc. It can be a slippery slope. If you’re a manager in a revenue-generating area of your organization, low employee morale on a team may also lead to profit loss.

How do you choose the appropriate provider to help create a new manager program?

Not all training is created equally. Make sure whatever curriculum you choose is industry-recognized for presenting quality content. Professional organizations such as the American Society for Training and Development (ASTD) and the Society for Human Resource Management (SHRM) can point you in the right direction of a reputable training provider. A training provider should meet you where you are in identifying the appropriate solution, which should assess what the aforementioned new leader competencies look like in your organization. For example, what does it look like for a new leader to manage change in your company? For some, it may mean communicating change to employees and coaching their teams through changes passed down by upper management. For others it may be having a seat at the table to create change within the organization and facilitating change for their team. Learning activities delivered around these competencies should address what successful demonstration of these behaviors looks like in your world.

Be wary of any provider that does not offer solutions other than a host of classroom-based courseware. Learning occurs in different ways. A good provider will offer blended learning solutions, leadership coaching, assessments and consulting.

Sarah Eppink is Leadership Program Manager for Corporate College. Reach her at (216) 987-2917 or

In the face of a stifling economy, many companies have focused on cutting costs as a means to improve profits. Such measures, however, don’t stand the test of time. Inevitably, quality goes down, as do sales over the long haul.

In the technology realm it is more important than ever for business leaders to invest in new platforms and cater to customers’ needs. According to Steve Carter, president and CEO of ii2P, the market has spoken and they are asking for small and medium-sized businesses (SMB) to provide self-service platforms.

“Our clients that truly have self-service platforms are seeing overwhelming results,” he says.

Smart Business spoke with Carter about issues SMB leaders currently face, the importance of investing in self-service models, and the rewards that can be reaped.

What main issues do SMB leaders face as it pertains to surviving in the marketplace?

First, I want to emphasize that the issues are not limited to small and medium-sized businesses. They face many of the same challenges that larger enterprises face — they need differentiating innovation such as a self-service platform. However, SMB leaders do have more difficulties adapting to the self-service platform. If they don’t embrace this new model and are unable to remain competitive from a cost and convenience standpoint, it will affect their ability to retain their company client base. Every decision that is made within a small business environment has an immediate and dramatic effect. Whereas with a large enterprise, although the results may be the same, the consequences show up in a longer time frame — it is not so immediate.

What should SMB leaders be investing in?

It is paramount to be market driven and keep pace with where your market needs are today. Today’s market — end users, clients, etc. — have changed dramatically. The demographics of the end user today are not in line with current service models. The service models of today, for the most part, don’t embrace self-service. Yet the behavior and desire of the end user is all about self-service. If you embrace innovative solutions and are able to provide a competent gateway to self-service you will reap the benefits.

What innovative solutions do you believe SMB players should take advantage of?

Many technology developments have been tailored to larger enterprise environments. A good example is something as straightforward as password management. About 30 percent to 35 percent of all IT service-related calls, whether it is in an enterprise environment or a small to medium-sized business environment, have to deal with this matter. Password management is becoming more of an issue today because, as security needs grow, the need for well-disciplined password management solutions becomes more pressing. While password management has been geared towards larger enterprises, this is an area ripe for small and medium-sized businesses as well.

How can this be funded?

The secret sauce is creating a formal strategy and approach for bringing innovation to the SMB, not just reacting. Over the past 15 years or so a lot of businesses have been plagued with what I call “drop off the technology and run syndrome.” The technology as a standalone looks good and accomplishes what it’s supposed to do. But unfortunately, that’s where a lot of companies have left it. They’ve made the investment in capital, but haven’t been able to realize the benefits because the solution really wasn’t a business solution, it was more of a technology solution.

In order to improve the existing platform you should first look at the inefficiencies within your end-to-end platform. Examine the platform and change it to make it more efficient and more effective. I have not yet experienced an engagement where there wasn’t significant amount of monies being spent on ineffective end-to-end support solutions. In most cases, the money saved by optimizing the environment is more than enough to support the investment for self-service. There is no magic or big bucket of money sitting out there, but there is a methodology to determining how to begin investing in a self-service platform.

Where should the recovered excess money be spent?

You should invest those dollars in creating a platform that is going to be more market-driven. Then you will be able to take the return on those monies and spend them on growing your business. It is important to invest in growing your business so you can become more competitive in the marketplace.

If this strategy is applied correctly, what are the outcomes to the SMB?

In today’s existing model, business is driven by using the platform less. In other words, providers are hoping that their end users, their B2B clients, etc, are using their existing model less because every time they use it, it costs the service provider. The paradigm shift is when you develop the self-service model; the more they use it, the cheaper it is. We’re talking about a complete reengineering that will affect not only the behavior of the end user, but the provider as well. When you adopt the model that your end users prefer, you will benefit because, the more they use it, the less it will cost you.

Steve Carter is president and CEO of ii2P. Reach him at (817) 442-9292 or

If you have ever read “A Tale of Two Cities,” you may recall the opening line of that book:  “It was the best of times, it was the worst of times … ”  And if you were seeking a commercial mortgage in 2006, it may well have seemed like the best of times. No guarantee. No problem. There were institutions seeking your business that were willing to offer non-recourse credit.

“It seemed like there were folks lining up to lend you money: the local bank, the regional bank, the multinational bank, the life insurance company, the finance company — each one had a hitch to make its deal enticing,” says John Guarini, second vice president, commercial lending, First State Bank.

Smart Business spoke with Guarini and  Michelle L. Smith, first vice president, commercial lending, about how the real estate lending climate has changed over the past five years and the new realities of the commercial mortgage market.

How would you describe the real estate lending climate in 2006?

Guarini: Money was flowing from Wall Street to Main Street, and your local banker may have brought someone from the investment side of the bank to show you how to use an interest rate swap to obtain a payment lower than that on a standard bank-offered, fixed-rate deal. You signed that commitment letter, then all you had to do was pay your commitment fee — or maybe not — and an appraisal fee. Your loan was subject to the findings that would be set forth in that appraisal, but there was no way a 100-page report would hinder your loan because your building was fully occupied and rental rates were climbing.

After six weeks, your lender notified you that your appraisal had arrived, and the value indicated was even higher than he or she had thought, allowing you to borrow more money than you requested, and you said yes. Now, if you have to refinance, it may seem like the worst of times. You return to the institution that made the loan five years ago, and you may find it no longer wants to be in the commercial mortgage business.

How should a business go about refinancing in today’s climate?

Guarini: Get an early start, especially if the property you seek to refinance tends toward the more unique or single purpose. Occupied properties that fit this definition include restaurants, gas stations, car washes and hotels.

That means initiating a dialogue with your existing lender. A lender may want to exit a market segment or geographic area, so much so that a borrower may be able to obtain a discounted payoff without further recourse. Much depends on where your existing loan balance is in relation to the current property value. If your loan balance is 75 percent or less of the value of the property, you stand a better chance of refinancing.

Smith: It can take two to three months to navigate through the loan/appraisal processes, which starts all over if the first bank says no. We can’t emphasize enough — start early.

How is a property’s value determined?

Guarini: If you paid for an appraisal when your loan was written, contact the appraiser and update him or her on the status of the property. The appraiser may be able to give you a rough estimate of value based on current rental rates in the area and sales of comparable properties. Know your property, and the rental rates and prices area properties are commanding. What are vacancy rates? Are other property owners poaching your tenants? Are you willing to ask your tenants to sign early extensions of their leases to satisfy a possible requirement of your new lender?

Why is it important to understand the market?

Smith: Appraisal valuations are still driving loan transactions. However, many loans are limited by the sales and income approaches. Sales comparables reflect discounted and foreclosed sales, depressing price-per-square-foot values. Appraisers will mark the square footage of your property to average market rental rates to determine gross rent on an income approach. The higher of market or actual vacancy is then subtracted, less expenses, to determine net operating income. Appraisers are applying 9 to 10 percent-plus capitalization rates to net operating income to derive appraised value, and loan advances are more conservative, generally 75 percent maximum.

What else should you consider?

Smith: Cash flow is still king. Besides loan-to-value ratio, the lender will review the historical cash flow of the property based upon the last three years of tax returns. Be sure to explain why income was inconsistent or expenses spiked. Did you reduce rent to retain a good tenant? Are your taxes being reassessed? Minimum cash flow coverage is 1.2 times after factoring in a 10 percent or market vacancy factor, 5 percent management fee and possibly a structural reserve. Rates are low, a big advantage when calculating cash flow coverage. Use a maximum 20-year amortization when you pro forma the new loan payment; 30-year amortizations are a thing of the past.

Also, know thyself. What is your credit score? What is your global cash flow? Know the total of your business and real estate property rental income, minus expenses and debt obligations. Are you positive or upside down? Look at your portfolio cash flow holistically. Banks want to know if there is a dog that will take down their new loan.

What are the new realities of the commercial mortgage market?

Smith: More information may be required. Be prepared with tax returns, not only for the project you wish to refinance but also others in your portfolio. The lender will look at your other properties; the global cash flow must demonstrate the ability to service related debt at a minimum of 1.2 times also. Have full copies of leases, along with a rent roll that ties back to the latest tax return on the property.

Navigating shifting financial tides can be challenging. By investing time and expertise, you can aid the lender in finding equitable solutions. Savvy real estate investors find a way to make it rain in good times, and bad.

John Guarini is second vice president, commercial lending, at First State Bank. Reach him at (586) 445-1022 or Michelle L. Smith is first vice president, commercial lending, at First State Bank. Reach her at (586) 445-4762 or

The cornerstone rule of discovery in civil litigation is that parties to a lawsuit must preserve, gather and produce relevant documents.

However, “it is becoming increasingly difficult and expensive to carry out this basic obligation, given the staggeringly high volume and informal nature of our electronic communications in the workplace,” says John Shonkwiler, a partner at Novack and Macey LLP. “Discovery obligations are not going away, and so it is important for employers to improve e-mailing habits by teaching discretion and organization.”

Smart Business spoke with Shonkwiler about the importance of forming better e-mailing habits and how to get started organizing e-mail.

What are some ways to improve e-mailing habits?

Stop ‘reflex’ e-mailing. Too often, we give in to the almost reflexive urge to respond to e-mail immediately, as if we were talking to someone. This is the texting culture invading the workplace, which is an environment that demands better judgment and discretion.

It is not inconsiderate or unprofessional to deliberate before responding to e-mail.  Sometimes just waiting 10 to 15 minutes can make a big difference. Except in those rare instances where an urgent response is called for and cannot be made by phone, people should not fire off immediate responses. Stop and think about what you’re sending and whether you need to send an e-mail at all.

Why is ‘reflex’ e-mailing problematic from a litigator’s perspective?

We create so much e-mail. And as the volume increases, so does the cost of electronic discovery. Reflex e-mailing exacerbates the problem by creating more e-mail unnecessarily. Hasty e-mail responses so often can be inconsequential. For example, a response of, ‘I’ll check on this and get back to you,’ is unnecessary unless you know you are not going to be able to respond to an e-mail within the time required or expected by the person who sent it. And you don’t have to be a physicist to understand the laws of ‘e-gravity’: When you send more e-mail, you receive more e-mail. So, carefully consider whether each e-mail you compose has a purpose.

Also, e-mails that are carelessly or informally prepared are more likely to reflect poor judgment, convey inaccurate information, or contain sarcastic or flippant remarks on serious topics that don’t translate well on paper. These things make for bad documents in litigation. You want to think of every e-mail like a potential trial exhibit. Ask yourself, if you were on the witness stand, would you like to be confronted with this? Almost invariably, the worst documents that we see as lawyers as we’re gathering documents in discovery — the ‘smoking guns’ — are careless e-mails.

How should employers teach employees about using better discretion?

Formal training should not be necessary. Just ask employees to place a higher value on their e-mail correspondence. Cut out the reflex e-mailing and start treating e-mail like paper. Apply the same care and consideration when you’re sending an e-mail that you would if you were sending a letter on your company’s letterhead. And remember to consider that your message might be better delivered in person or over the phone.

How does organizing help reduce exposure and litigation costs?

E-mail can be organized like paper correspondence. This means deleting the e-mail you don’t need, and organizing the messages that you keep into folders.

This helps in at least two ways. First, it makes it far easier and cheaper to find and gather relevant e-mail in response to discovery requests. When e-mail is not organized, a litigant often has no choice but to dump massive quantities of e-mail from the server and then use electronic term searches to cull through the data to identify potentially relevant documents. This is an expensive process that can be avoided when e-mail is organized like paper.

Second, when every e-mail must be accounted for and filed, or deleted, the sender tends to place a higher value on each e-mail, give greater care to the contents and more carefully consider whether a message needs to be sent in the first place.

That is the culture you want to instill.

For people who have never organized their e-mail, how can they get started?

When implementing new habits, it is easiest to start with a clean slate. If the task of sorting through every e-mail in your inbox is too imposing, just move the entire contents of your Inbox into a folder titled ‘My Inbox as of [date].’ You can do the same with your sent items. This way, you can start clean and use your new habits going forward, and still have easy access to your old e-mails if you need them.

Have there been any recent developments in the law concerning e-mail discovery?

Plenty. Electronic discovery is probably the single hottest topic in continuing legal education courses, and has been for years. The courts have been very active in this area, too. In fact, the Federal Rules were amended in 2006 to more fully address e-discovery, and the United States Court of Appeals for the Seventh Circuit has its own e-discovery pilot program.

Recently, the Federal Circuit adopted a Model Order designed to reduce the scope and expense of e-mail discovery in patent cases. The order has attracted considerable attention from other federal jurisdictions, some of which have adopted similar orders. It is interesting, however, that for all the attention given to the issue, there has been relatively little discussion about addressing the root of the problem, our e-mailing habits. I think this is going to change as employers continue to learn about the significant costs of housing massive amounts of unorganized e-mail.

John Shonkwiler is a partner at Novack and Macey LLP. Reach him at (312) 419 6900 or

When you think of project management, you tend to think of massive IT implementations, construction projects or enterprise-wide endeavors. Or, you think of meetings, bureaucracy and headaches. But truthfully, almost any change you implement in your professional life can be broken down as a project. The Project Management Institute’s definition of a project is “a temporary endeavor undertaken to create a unique product, service or result.”

“Through the use of project management techniques, companies have found a new and exciting culture change that can drive project and organizational success,” says Ed Siurek, director of Quality for Corporate College.

Many Fortune 500 companies have successfully incorporated this methodology into their way of doing business. But how can every organization take advantage of this opportunity? The key to understanding what is necessary and how to achieve those goals may lie in providing project management certification opportunities for employees.

Smart Business spoke with Siurek about project management and the importance of certification.

Why do projects fail?

The Bull Survey (1998) was conducted to understand how and why IT companies in the UK had project failure. It showed three primary causes: breakdown in communication (57 percent), lack of planning (39 percent), and poor quality control (35 percent) as the primary reasons. Given that most companies think they do these things well, it gives reason for pause. How can we do these things better and what are we doing wrong?  The secret may lie in what we think project management really is. Companies typically rely on individuals rather than methodology. If everyone is not on the same page as the project manager though, problems can and often do arise.

What are the benefits of formal project management?

It is process based and allows everyone to work from the same philosophy. Creating organizational standards, templates and procedures helps increase productivity, communication and employee understanding of the task at hand. Most employees involved in a project know what needs to be done but too often the lack of control and ability to manage all project details can be overwhelming. Using a formal approach keeps everyone on the project team on the same page and moving in the same direction. They know each step of the process and the expectations, and it forces everyone to think about risk and unforeseen obstacles. Planning for these obstacles can keep them from becoming project derailments.

Why is certification so important?

Certification in project management is not for everyone. It takes training, experience and using proven methodology to be successful. The certification process requires not only up-front training, but documentation of past experience, testing and continuing education.  Those that gain certification understand the importance and have the skill set to drive all aspects of a project to successful completion.

Certification to any of the project management standards is a great opportunity. Individuals can apply the skills learned across most industries and professions. It is a methodology that is highly valued by employers because of its success rate and discipline.

How does a certification impact your business?

Assigning a certified project manager to a project helps minimize risk. Projects are managed in a highly effective and efficient manner that produces on schedule, on specification and on budget results. Project managers understand that not every variable can be accounted for in a project, but they have learned how to manage and mitigate those risks before they become larger problems. Success in projects typically yields higher return on investments (ROI) and a better end product.

There is also a cultural benefit to providing a consistent approach. Employees understand their responsibilities and spend less time away from daily tasks while still being able to focus on the project. Highly engaged employees and successful projects will both contribute to a better working environment and higher returns for any organization.

What about the cultural aspect of project management?

When projects work properly and employees see success, confidence grows in the methodology. They begin to incorporate some of the tools into their work. Everyone wants to succeed, so what better way to do it than by using something that is proven? Soon, it becomes a way of doing business. Not only does this create commonality in practices in the company, but it also makes projects more successful. Project management can influence many aspects of an organization. Take, for example, a customer complaint. Using project management methodology, the complaint can be taken, evaluated and processed in a systematic manner. The reason for the complaint may lead to other projects to correct the product, process or system. The initial documentation from the first project will help to ease each subsequent project.

Who needs to get certified in an organization, and what certifications should they seek?

Certification is available ranging from the Certified Associate in Project Management (CAPM) to the Project Management Professional (PMP). Which certification is best for a particular employee? It depends on that individual’s experience. Experienced project managers will seek a PMP credential while those just entering the work force will seek the CAPM. Both provide valuable insight and training and can be assets to any project team and organization. As CAPMs continue to progress and gain experience, they can take on more responsibility and more complex projects. Ultimately, this leads to seasoned project managers. Once the CAPM has gained the necessary experience, they can gain further certification by means of the PMP.

Ed Siurek is director of Quality for Corporate College. Reach him at (216) 987-2838 or

Managing working capital and cash flow can be a complex endeavor. However, utilizing your financial institution’s treasury management resources can help you streamline the process.

Your banking partner can help you manage cash resources, accelerate collections, manage the payment cycle, reduce administrative concerns and mitigate fraud risk. Identifying how to accelerate collections and reduce expenses and disbursements by electronic means can even help you invest idle balances or pay down credit facilities.

“Businesses do not have to invest in software packages to accomplish this,” says Kerri Werschky, treasury management specialist at First State Bank. “Exploring the technology that banks have invested in to bring information to their clients quickly and accurately will not require companies to hire additional staff or make investments in technology.”

Smart Business spoke with Werschky about how technology can help businesses better meet their banking needs.

How have advances in technology improved the ways that businesses can handle their banking needs?

Through advances in technology, businesses are able to quickly communicate financial information to and from their financial institutions. With the advent of remote deposit capture, many companies are taking advantages of later deposit windows, simplified deposit creation and better record keeping.

How can remote deposit capture accelerate collections?

Companies are now operating with fewer resources and oftentimes are not able to drive to the bank daily to make deposits. Checks sitting in a drawer don’t help cash flow and availability of funds; those checks need to be in the account and quickly processed through the system for collection.

Remote deposit capture allows extended deposit cutoff times for same-day ledger credit and the convenience of scanning and depositing checks electronically from your office. This eliminates the need for your employees to drive to a branch in inclement weather and the liability of an accident, as well as unproductive time away from the office. In addition, a company with several locations can consolidate its banking relationships even if a bank is not located in the same geographic area.

Remote deposit capture provides quality control and data can be exported directly into your accounting system. With this image technology, businesses also have access to previous copies of transactions. Time and paper are saved because deposit tickets are not needed and a one-page report identifying the day’s deposit is available.

How do electronic payments reduce expenses and increase efficiency?

Reducing the cost of printing checks and the manual processing of paper items by using electronic, or Automated Clearing House (ACH) payments, can save money, as well as time. The most common use is for direct deposit of payroll, but there is an increase in the number of businesses that are focused on ‘going green’ and reducing costs associated with check stock, envelopes and mailings.

In addition to a robust ACH system, banks also offer an online bill payment service. Bill payment offerings in the past were reserved for consumers, but now commercial clients are becoming more comfortable with the service and leaving ACH or check issuance to the bank. As long as the business understands that the input date and settlement date are different and allows for a three- to five-day payment, the cost savings are significant.

While the three- to five-day payment settlement is at first of concern, once the business understands that the same delay applies by sending out checks, this becomes an obvious solution.

How can the bank and business work together to mitigate fraud?

Companies need to review their internal security and checks and balances policies. The bank puts control in the hands of the business — banks provide information through a highly secure website to a system that accommodates an unlimited number of users, and an administrator at the business can establish access and permission levels. By creating different access levels, the accounting staff has the ability to enter transactions so managers can review and approve them online. Each user’s identity is verified and companies can instantly add or delete employees when needed.

Positive Pay is a service whereby the company provides a check issue file to the bank with check number, payee and dollar amount when the checks are released. As those checks clear, the bank matches the items to the issue file the business sent.

If an item does not match, this is considered an ‘exception item’ and an alert is sent to the business advising it that it needs to review the check online and make the decision to pay or return, usually by 1 p.m.

Typically, the default is to return the item if the company does not give direction: It is presumed the item is fraudulent because the business did not advise it issued that check. In this manner, the business and bank work together to catch fraud before it hits the account.

These services can be implemented by your bank’s treasury management professionals and will most certainly help your organization operate efficiently and decrease costs.

Kerri Werschky is a treasury management specialist at First State Bank. Reach her at (586) 863-9485 or

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