Jerry Roche

Thursday, 21 September 2006 20:00

The future is now

PBX (private branch exchange) systems can now connect via Internet protocol. They are called, logically, IP PBX systems, and they are more convenient and less expensive in the long run than traditional systems.

A PBX connects telephone trunk lines with individual user lines and other equipment. It funnels and then distributes all incoming and outgoing calls, allowing a company to have fewer outside lines than extensions.

“The IP PBX system is more flexible than a traditional PBX,” says Jonathan Curry, vice president of sales and marketing for Curry IP Systems Inc. “Your desk phone can be plugged in anywhere there’s a high-speed connection, and people can connect to you by simply dialing your extension.”

Smart Business talked with Curry IP about the advantages to an IP PBX system and some of the disadvantages.

What are some of the differences between a traditional PBX system and an IP PBX?
Physically, they are very similar. With both, you have one main server that’s connected to all the phone jacks in your office. The only thing that sits on your desk is the extension phone.

A traditional analog system connects directly to the PSTN (Public Service Telephone Network) while the IP PBX is digital and more flexible because its main connection is to the ‘Internet cloud.’ In an analog set-up, the server always has to be directly connected to the extensions by a telephone line. With an IP system, your phones can be plugged in anywhere there’s a high-speed Internet jack — meaning that if you are across the office or across the country, you are always in touch.

The biggest advantage, though, is that an IP PBX makes the rest of your phones mobile. It’s great for satellite offices. And sales people who go out of town can take their desk phones with them and just plug into any high-speed Internet connection. This can provide companies with cost-cutting solutions, because they don’t need to pay for huge cell-phone bills.

IP PBX is also a more robust system. If a larger corporation wants to be interconnected, an employee can pick up his phone, hit a three-digit number and be connected across country — for free, just like it was an internal call, even if you’re overseas. So if you’re making a lot of long-distance calls, the monthly operating costs are much less expensive than if you use a traditional PBX system.

What about disadvantages?
One of the biggest concerns among corporate executives is reliability, because IP is such a new technology. In those cases, we’re able to give references or let customers try the equipment, and that usually helps put their mind at ease.

The upfront cost is another concern. It’s not an inexpensive thing to upgrade to, but inexpensive adapters can help ease into the digital service while retaining the analog phone system. This allows a company to upgrade one piece at a time.

Quality? The only time that people complain about quality is when their high-speed Internet connection is poor. But most companies are located in urban areas where quality is micromanaged, so it is often not a big factor.

The system itself is very dependable; in many cases, we have found it better than what companies are currently using. But like everything else in the VoIP world, the Internet and VoIP service providers are what make the difference.

What features are available with IP PBX systems?
All the features of the newer traditional PBX systems — call forwarding, call waiting, caller identification and more — are available in IP PBX systems. Just about anything you want, including conference calls.

In some instances, IP systems are even better than a traditional analog system. For example, I have centralized my voicemail and e-mail through the same program, Microsoft Outlook. It is set it up so that copies of my voicemail messages are sent to my e-mail. If I get a voicemail, I can forward the message to one person — or to a group — via e-mail and even add text to the message.

What’s next in IP telephony’s future?
The next big thing might be using voice-over-Internet in a wireless (wi-fi) environment. Google Wi-Fi was launched last month in Mountain View, Calif. There are citywide networks like that all over the country. In Mountain View, where Google’s headquarters is located, it’s a $1 million network and the antennas installed on light poles cost about $13,000 a year.

The technology is there to have a big umbrella over the entire city of Pittsburgh. In fact, just recently a company was contracted to provide that type of service here.

JONATHAN CURRY is vice president of sales and marketing for Curry IP Systems Inc. Reach him at (412) 307-3600 x14 or

Wednesday, 30 August 2006 19:47

Predictive risk modeling

Foretelling who is going to get sick and how to stop or delay that particular sickness is perhaps the most important factor in keeping health care costs to a minimum. In today’s health care parlance, that process is more science than art, and it’s called “predictive risk modeling” (PRM).

Though proven, PRM is not yet an exact science. Some sources say that even the best predictive risk models account for only 40 percent of variations in actual health and medical resource use.

“We are in a knowledge-based employee world right now,” says Larry Mullany, M.D., regional medical director for AvMed Health Plans. “Companies are investing in training and retaining and increasing productivity of employees. They want to keep them around in good health — and they want their health care plan to enhance their benefits package as well.”

Smart Business talked with Mullany about how health care risks are predicted and how PRM interacts other health care options that employers can provide their employees.

What are some employer options for offering health care coverage to employees?
Several tools are available. One would be mapping your health risk assessment program to your care management program, particularly the high-cost issues. The second is doing predictive modeling, looking at experience, asking where the future costs are going to be — even down to an individual level — and asking what you and your benefits provider can do to manage those costs.

In addition, high deductible insurance coupled with Health Savings Accounts (HSAs) are an exciting new approach. They are a way to engage people in their own disease care by bringing market sources to play. But I’m going to submit to you that the type of predictive modeling we’re going to discuss could apply to any number of tools, including HSA use.

What is unique about predictive modeling?
It forecasts the entire continuum of care for people, including a whole line of episodic treatments that help prevent them from going into the hospital. Predictive modeling also means enhancing up-front resources.

Upon what facts, data or theories is predictive modeling based?
You can observe various health factors to identify persons at risk.

In disease management, we know that the 80/20 rule applies: 80 percent of your resources will be expended by 20 percent — or less — of the population. If you can identify the people at risk beforehand, you can stratify them into categories and have action plans in place, even though some people may be more advanced in a disease condition than others and acuity levels are different at that stage of care.

What has experience shown?
A good example is what happened in the city of Asheville, N.C., which has a small health care program.

Managers identified certain high-risk populations of diabetics that included hypertensives and high-cholesterol people. They gave those people medications at a reduced co-pay and were able to sustain, over five years, a flat cost per diabetic patient. More excitingly, they also had no evidence of people going on long-term disability and no worker’s comp. That was a pretty dramatic impact.

More specifically, we know from experience that health care for just plain high blood pressure for a particular group might amount to about $450 per member per year. If there are complications, that amount jumps up to approximately $27,000 per year. The average cost for plain diabetes is about $1,000 per patient per year. Add complications like a stroke and it becomes about $3,000 per member per year; kidney disease becomes around $10,000 per member per year. If you can anticipate future risks and then intervene to reduce those risks, you can make a profound difference.

PRM benefits can impact a company’s bottom line by decreasing health care costs, decreasing the rate of medical inflation, decreasing the downstream illness burden, and decreasing the higher premiums that are passed along to the employer. There is good data on all that.

What should corporate managers and directors look for in a health care plan?
You as a CEO want to avoid premium increases in subsequent years. You do that by making sure to keep your experience (health treatment rate) down. If you can keep your people healthier, you can reduce your rate of inflation. Then you don’t get the double-digit or higher premium increases.

Five to 10 percent of any population will already be in various complex case and care-management programs, but predictive risk management helps you anticipate the people who are likely to get to that stage in the future. If you can pro-actively treat them before they hit the hospital — with medication or nurse time or other resources — that’s when you can really realize some substantive savings.

Companies like ours are in business to first deliver good care, because a healthy work force is the primary benefit. Second, we want to do it in a affordable way, with quality that will ultimately be a cost-reducing measure. And predictive risk modeling can help achieve those goals.

LARRY MULLANY, M.D., is regional medical director for AvMed Health Plans. Reach him at (352) 372-8400, ext. 2869 or

Sunday, 30 July 2006 20:00

Sticker shock

Last year, a record 28 named storms in the U.S. included 15 hurricanes. The insurance industry covered $40.6 billion in losses from Hurricane Katrina alone, while total catastrophe losses were $61.2 billion.

Underwriters that insure commercial properties in Florida and other high-risk areas have reacted this year by drastically increasing their rates. Property owners must either pay more for insurance every year to insure a less desirable building or pay up front (dig deeper footers, add concrete to walls, use thicker metal on roofs, etc.) to build a more insurable building.

According to local newspaper reports, some businesses on Florida’s beaches can’t be sold because potential buyers can’t afford insurance or even secure wind coverage. Businesses that have wind coverage and whose deductibles have ranged from 2 percent to 5 percent of the building’s value can expect to see deductibles up to 10 percent of the building’s value, the media says. Why? Because insurance carriers are increasingly reluctant to write policies and will continue to charge higher prices in exchange for assuming higher risks.

“Insurance rates are skyrocketing,” says Howard Rosenthal, principal and senior vice president at Colliers Arnold. “In some cases, they’re up 70 percent.”

Smart Business talked with Rosenthal about how potential buyers — including investment buyers — can cope with insurance and other concerns.

With insurance rates so high, what should potential real estate buyers look for?
It really depends on the property. People who are looking to purchase commercial properties initially don’t consider insurance premiums. It’s usually not until they get into the due diligence process that they start thinking about insurance. And that’s when some of them are shocked.

If you’re interested in buying a property, insurance rates should be considered up front — one of the top things in due diligence. If you don’t pay close attention and instead wait until two weeks before you close, you may find that you won’t be closing.

Is lower-risk real estate available?
Water properties are most valuable and higher risk. Properties that are away from the water are more easily insured or rates are lower.

There isn’t a lot of oceanfront property left. Condos are going up in place of the old motels.

Typically, real estate is all about the location. Waterfront is prime property in terms of condos, but commercial property is typically away from the water at a main corner or on a main thoroughfare.

Property is moving very well nowadays. Retail is moving very strongly because people are moving down here, and offices are moving as well. There’s a tremendous amount of opportunity to rehab and/or redevelop retail sites, because old regional malls built by DeBartolo are being converted to big-box centers and multi-use projects.

What actions are buyers taking to offset insurance premiums?
Florida insurance has been a little bit higher over the last couple of years but particularly this year. The situation in New Orleans doesn’t help. Nobody has control of insurance rates anymore. The government is trying, but they’re not doing it. The National Flood Insurance Program is geared more toward homeowners rather than commercial properties.

In cases where the buyer will be leasing the property, high insurance rates could be offset by expenses being passed through to the tenant. Some leases are called triple-net leases, which means that the tenant pays for expenses of the property. That would include all operating expenses including utilities, insurance and taxes.

The only other way to cope with increasing insurance premiums is try to work toward reducing the property’s overall operating expenses.

What about insurance pools?
Florida officials are looking into reviving a property insurance pool that would cover malls, office buildings and other commercial property in South Florida. _The size and strength of a pool allows it to negotiate the most competitive deals from re-insurers. But when you go to an insurance pool, you stand the chance of not getting the amount of coverage that the bank lender requires.

Do you make insurance recommendations?
If our client has not already arranged the insurance through a policy they have on other properties, we will help them arrange for coverage. And we’ve been fortunate enough to get it for most of the properties that we’ve dealt with. The larger the portfolio, the easier it is to get better rates from insurance carriers. Because of our portfolio of properties and the relationships we’ve built with insurance carriers and brokers, we’re able to leverage our influence.

HOWARD ROSENTHAL is senior vice president of Colliers Arnold, based in its Clearwater office. Reach him at (727) 442-7184 or

Sunday, 30 July 2006 10:25

Ethics in business

You cannot judge the ethics of a whole group by the actions of a corrupt few. During the last decade, the corporate business community has begun implementing safeguards that will prevent companies from becoming future Enrons or Worldcoms.

The real answer to corporate moral misconduct, however, may lie in the next generation of managers.

“Most people assume that they understand the concept of universities,” says David Fry, D.B.A., who is president and CEO of Northwood University. “Most universities consider themselves venues. We take a different view. We are an incubator of enterprise and character. We take in product and transform it. The business equivalent is value-added.”

Fry contends that character, ethics and morality must be taught. Smart Business asked him how.

In the context of business, where do ethics begin?
One key ethics issue is integrity, which is what you do in the dark when nobody is watching. And you are never better than the most deficient example you can provide. These days, integrity is providing visibility into the company and what it does, and always performing or attempting to perform at the highest limit of what you promise, and to exceed expectations, if possible.

How do you teach integrity and other business virtues to raw college undergrads, many of whom aspire to become future leaders?
Don’t just find a list in a book and put it on a wall and forget about it. Every successful business manager is skillful at inspiring colleagues to be creative and effective. If not, the organization fails. But first, a manager must have a view of the role of the entity: a paradigm of what the business does. The first thing a business owner must figure out is the context of its environment such that the product enhances the environment.

We get students, faculty and administrators together, then use a brainstorming technique in several dozen values-clarification sessions to solicit what they think appropriate ethics are. The groups will develop very similar lists and feelings about what’s ethical behavior. Having gone through the process, they develop an investment in the list. And the list becomes our Code of Ethics.

Ethics become much more top-of-mind, and they become the ethics that we pledge to each other. The faculty holds students to those, and students hold faculty to those, and they call each other on it if we fail to perform.

Don’t most colleges and universities attempt to teach virtue?
Unfortunately, their method is to discuss ethics, not to demand them. Go to a university Web site and type ‘code of ethics’ in the search box. Most will have to do with dating behavior, because administrators and students are always hassling about it. For them, that’s the context of ethics: very situational, very immediate.

A true code of ethics, however, deals with the basic values that you find important in your life. We try to define those and require them of each other.

Can you give us an example?
In any given term, we choose a single book that everybody masters and talks about in a series of threaded discussions woven into every classroom <m> for instance, Tom Friedman’s book, ‘The World Is Flat.’ If you go into a CEO’s office, she might not have an accounting book on her desk, but she might have Friedman’s book. And the point is that you have to be engaged in the ideas that are driving today’s business leaders.

What are some elements of a corporate code of ethics?
Our students and professors have defined the following as our Code of Ethics.

Integrity - In all our actions we shall be guided by a code of behavior that reflects our values, unimpeded by circumstance, personal gain, public pressure or private temptation.

Respect - We will treat all others with consideration for their circumstances and with thoughtful regard for their value as human beings.

Honesty - We will embrace truthfulness, fairness and probity, and demand the absence of fraud or deceit in ourselves and others with whom we act.

Responsibility - We will be accountable for the care and welfare of others and responsible for the intended and unintended consequences of our actions.

Freedom - We will exercise personal freedom while insuring others be immune from arbitrary interference on account of condition or circumstance, insuring that freedom will be constrained only by our responsibility for its consequences.

Empathy - We will endeavor to understand the feelings, thoughts and notions of others in order that compassion and fairness of our actions may result.

Spirituality - We will seek the spiritual development necessary for our happiness and growth, and encourage an environment that supports this growth for all.

Achievement - We will exercise our skills to create high achievement and applaud the high achievement of others.

DAVID FRY, D.B.A., is president and CEO of Northwood University. Reach him at (989) 837-4229 or

Friday, 30 June 2006 07:01

Customized continuing education

Educators from coast to coast agree that flexibility and customization are two of the dominant current trends in executive education.

“What I’ve seen in the past six years is a change from companies sending employees to open-enrollment programs to the companies cooperating with colleges and universities on customized training programs,” says Ben Welch, Ph.D., who directs the Center for Executive Development at Texas A&M University’s Mays Business School.

The key for medium and large businesses is to find an executive MBA program or courses that fit the needs of the individual as well as the corporation.

“It has been several years,” says Welch, “since we’ve done an open enrollment program, because companies want the training specific to their industry and to their employees.”

Smart Business talked with Welch about the format and benefits of customized executive education programs, as opposed to open-enrollment programs and even online education.

Why customize executive programs?
Companies are demanding it. They want faculty members who are teaching in the MBA program and the EMBA program to deliver the instruction that they deliver in their graduate program, but make the content specific to their companies.

The executive education that we do — students get the equivalent of a mini-MBA program — is 100 percent corporate-funded.

What are the benefits to everyone involved in a customized executive education course?
Faculties learn so much from these companies, and they can use multiple examples that they have gathered from the corporate training in the classroom. More classroom students hear companies mentioned multiple times during a semester, and they begin to think that they might be interested in working for that company. So the company derives a benefit from the message that is being delivered to students in the academic realm.

A benefit for the university is that the partnering relationship can become a financial benefit when the corporate client decides to sponsor a center or to donate scholarship funds. Hopefully, those donations are the result of people who have gone through our corporate training.

What is your most requested topic?
The one thing I find interesting — and it may be a norm across the field of executive education — is that our most requested topic is financial leadership geared toward nonfinancial managers.

Companies are realizing that their employees have to have a rudimentary foundation in financial acumen. One of our faculty members will even bring in, as his sole source of instruction, the company’s annual report.

We’re doing 6 to 12 weeks training out of the year just on financial leadership. If you look at the recent guilty verdicts on Enron and with the Sarbanes Oxley Act, more companies are demanding that their managers have a fundamental handle on financial acumen.

Tell us a little bit about how classroom instruction might be organized.
Optimal size is 25 per class with a minimum of 20 and a maximum of 30. If it gets in excess of 25, the group dynamic changes.

Classes are 100 percent during the day, and they’re typically week-long programs that start on Sunday afternoon and end on Friday afternoon. Other schools might work it differently. For instance, Southern Methodist University does the bulk of its executive education in nighttime and weekend programs.

As for the actual classroom instruction, the No. 1 thing we’ve found is that participants don’t want lectures but interactive discussions, and they really want cases incorporated to solve using their analytical skills. A faculty member can discuss theory or what we teach in the academic realm, but it’s great when you present the challenge back into the group. Corporate students really like that because it brings it back to a personal level. Overwhelmingly, the participants rank the faculty member much higher if they have an opportunity to have an interactive discussion. And the faculty member also learns tremendously.

Because we want to take on the flavor of a mini-MBA program, depending on what the training is, those cases make rigorous homework at night, too.

And as for ‘final grades,’ there’s no final assessment — you’ve either passed or failed. But the companies will often ask us for individualized feedback at the end of the training.

How much impact will Internet education have in the future?
There is certainly a demand for online Internet education, closed-circuit television instruction, more telecommunication-based training, but our clients demand more. The one thing most clients want from executive education is partnering and networking among their employees, so the employees can learn from one another and feel a part of one family.

BEN WELCH, Ph.D., is director of the Center for Executive Development for the Mays Business School of Texas A&M University. Reach him at or (979) 845-1216.

Invariably, a last-minute scramble happens a day or two before scheduled employee business trips. Employees need to know what their employer wants them to do at the time the rental vehicle is taken out. Do they purchase the additional coverage offered at the rental counter? Does the corporate policy provide protection for them while they are driving?

Smart Business spoke to Lisa Lancaster, an account executive at DLD Insurance Brokers Inc., about how to handle these sometimes vexing travel problems.

What do employers need to be concerned about with respect to employees renting vehicles while traveling?

Employers should make sure that their employees know what coverages to select when renting vehicles while traveling. Car rental companies will try to sell additional coverages that may already be provided under the employer’s corporate auto policy. Employers should try to negotiate contracts with select rental companies so they can minimize contractual obligations faced by employees when signing a rental agreement.

What are the hidden responsibilities that renters might not be aware of unless they read the fine print?

In addition to assuming one’s own liability, a renter is responsible for the vehicle in the event that it is stolen or damaged. What may not be evident is that the renter is also frequently responsible for the rental agency’s loss-of-use, reasonable administrative and even diminution-of-value fees, which are seldom defined.

What is the best way for a company to communicate the terms of its auto insurance policy or rental agreements with employees?

There are a couple of ways. One of our clients put together a little summary of what people should do as far as the rental of corporate vehicles. It was a single-page document that also incorporates other travel policies — both domestic and abroad — like what to do and who to call in the event that the employee becomes sick or injured during the course of a business trip abroad.

Another way of communicating procedures is through the employee handbook. When available online it is particularly effective as it can incorporate current coverages in place.

Finally, meetings are a great way to communicate. For example, if you have a sales team getting together routinely on various issues, you can incorporate this topic into one of your meetings. It is good to let them know what the corporate concerns are and where they can access the information they will need when traveling.

Is a collision damage waiver a form of insurance?

From the prospective of a renter, collision damage waiver (CDW) offered by the rental agency is not insurance. A CDW releases a renter’s liability for any physical damage that the vehicle sustains in exchange for a payment. It does not release the renter from any person or corporate liability as a result of the rental or operation of that vehicle.

What is the definition of an “insured contract”?

Within a standard ISO commercial auto coverage policy, an “insured contract” includes a rental agreement, but does not provide coverage for property damage to any rented or leased vehicle. It is important to note that the commercial auto policy has evolved over years and older versions may need to be endorsed to extend “insured contract” to rental agreements.

What is “hired auto physical damage” coverage?

It provides coverage for physical damage to a hired vehicle. On a standard commercial auto policy, “hired” is defined as an “auto leased, hired, rented or borrowed.” This does not include vehicles that are leased, hired, rented or borrowed from any of a company’s employees, partners, members (if an LLC) or household member.

What is loss-of-use coverage?

The term “loss of use” is defined under a typical ISO policy as those expenses that an insured becomes legally responsible to pay as a result of a written contract. The term is not typically further defined in the policy. Each policy is different. Many policies cap loss-of-use fees to a certain dollar amount per day, subject to a maximum amount.

What happens when an employee rents a vehicle, but is involved in an accident while on his or her “personal time”?

Without a properly endorsed ISO policy, a carrier could conceivable deny a claim if the vehicle was rented in the name of an employee. As discussed previously, endorsements can be added to the policy to alleviate this problem.

Does a person’s credit card provide adequate rental car insurance?

Credit card coverages are as varied as the types of vehicles out on the road. Some credit card companies offer “free” coverage, which is usually coverage excess over any other available. Many credit card companies provide no extensions for loss-of-use coverage. I would recommend that you obtain copies of your credit card company’s terms and conditions with respect to coverage and review it to determine to what extent coverage is being provided.

LISA LANCASTER is an account executive at DLD Insurance Brokers Inc. Reach her at (949) 553-5670 or

Wednesday, 26 April 2006 10:48

Fraud: the crime of choice

Whether or not you buy into the theory that fraud and embezzlement are more prevalent in today’s business world than they were in the past, you at least have to admit that they do, indeed, exist — and that they have dire consequences. Fraud at publicly-held companies can drive stock prices down. Fraud at privately-held companies can put them out of business. Negative publicity can affect company morale and culture. Customers can stop doing business after seeing corporate “dirty laundry” aired out in newspapers and business publications.

But in all cases, management sets the tone and corporate culture.

“An effective fraud prevention message starts at the top,” says Frank Suponcic, a principal and Certified Fraud Examiner at Skoda, Minotti & Co. “If management demonstrates a sound ethical approach to managing the company, it will disseminate down to the staff employee.”

Smart Business talked to Suponcic about how to minimize the chances that your company will be a victim of fraud and/or embezzlement.

What’s the difference between fraud and embezzlement?
By definition, embezzlement is the wrongful appropriation of money or property to which it has been lawfully entrusted, most commonly with cash or even inventory. Usually, the person committing the act of embezzlement is benefiting personally.

Fraud is any intentional and willful act to deprive one of property or money by deception. Such an act may or may not personally benefit the person perpetrating the fraud. For instance, if Wall Street is expecting a publicly-traded company to reflect earnings of 4 cents per share, and in reality the company is only earning 2 cents per share, a person in a position of authority might be persuaded to record revenues in advance of them being earned or to delay recording some expenses.

Why are fraud and embezzlement becoming so prevalent?
They’ve always been present in the business community, but there is a greater awareness these days as a result of the national scandals like Enron and WorldCom. But today we’re more aware of it, because they are getting a lot more notoriety. These actions are no longer swept under the carpet because the carpet’s bulging; there’s no more room under it.

What types of companies are most at risk?
Smaller companies with fewer controls are more vulnerable. But companies with annual revenues in the multi-millions — ones that you think would have adequate safeguards — are victims as well.

A lot of the crimes against the larger companies are the result of management overriding the established internal controls. CFOs and CEOs have almost carte blanche authority in some of those companies. Consequently, the dollar losses are greater, though statistically there are fewer instances of financial crimes discovered among larger companies.

What are the most common fraud controls?
Those in management have a fiduciary responsibility to protect their company’s assets. Too many of them don’t ask for help to prevent an asset misappropriation. People are entrenched in their daily activities and have a false sense of security that their existing internal controls are effective. Most financial crimes are based on a violation of trust. Good people, at times, do bad things. We’ve seen an increase in the amount of smaller privately held companies — companies with revenues from $1 million to $10 million — that want us to help them determine where they are vulnerable and, more importantly, how they can strengthen the existing internal controls.

The greater segregation of duties a company has and the more people involved in a transaction, the less likely a fraud will occur — unless the people involved collude.

We’re seeing more companies inquiring about establishing fraud policies wherein the employees sign an acknowledgement of a corporate fraud policy that highlights a corporate lack of tolerance. The policies can include civil prosecution, criminal prosecution, paying restitution and, certainly, termination.

Years ago, more often than not, when a company became a victim of an embezzlement, the company would fire the employee, demand its money back and just go back about its business. They didn’t like going down the path of criminal prosecution, because it took productive personnel away from making money.

Can audit committees have a positive effect on minimizing corporate fraud and embezzlement? How?
Any measure is a good measure. The more eyes that are looking at transactions, the less likely there is to be improprieties. Audit committees are more prevalent in publicly-held companies where there’s more emphasis on earnings and meeting Wall Street expectations. That’s where you’re seeing more fraud than embezzlement.

If management suspects that fraud has occurred, what steps should be taken?
First thing is to contact their attorney, a CPA, or a Certified Fraud Examiner to come in to quantify the loss and basically put the case together. Then it’ll be management’s option as to how to proceed with regards to litigation.

FRANK SUPONCIC is a principal, a Certified Public Accountant and a Certified Fraud Examiner for Skoda, Minotti & Co. Reach him at (440) 449-6800 or

Tuesday, 28 February 2006 11:20

Doing business with China

The United States purchases more than $85 billion in Chinese products each year. Virtually every major consumer product retailer in America is sourcing at least part of its product line from China, because it has the labor rates and technical know-how to produce many products for pennies on the dollar, compared to U.S.-sourced products.

In 2002, China surpassed the U.S. as the world’s leading destination for foreign investment. Now a member of the World Trade Organization (WTO), many of China’s restrictions on foreign investment have been eased or eliminated. Nonetheless, foreign investments there remain highly regulated by the Chinese government.

Gary Biehn, partner in and the chair of the business department at White and Williams LLP, recently returned from China, where he was working for White and Williams LLP’s clients. Biehn spoke with Smart Business about the challenges of doing business in China.

If a company is interested in doing business with or in China, what crucial factor must managers realize?I always start off by saying that you have to be patient. There are great opportunities over — provided that you pick the right opportunity, the right partner, the right location. If you have a tendency to rush into China, you can end up making the wrong decision.

What kind of business is the Chinese government looking to do?
Five years ago, most of the emphasis was on taking advantage of lower manufacturing costs. But in the past few years, there’s been a shift. China has a system that evaluates and then encourages or restricts certain industries. At first, the government encouraged manufacturing, but not retail or service. That is changing.

The Chinese now want to expand their manufacturing success to other industries. They are also making it easier for U.S. companies to do business in China.

Their domestic global policy is also changing. There used to be a cap on the amount of U.S. currency that China would allow its domestic companies to hold for purposes of investing in the U.S. In January 2006, the government eased that cap, and is now encouraging investment abroad, particularly in the U.S.

Also, under WTO rules, China must allow other businesses into the country. An example is retail. China has 1.3 billion consumers, so Westerners have always been interested in opening up that market.

But the Chinese government wasn’t interested, because it wanted to protect its own retailers. Now, the Chinese government has lowered restrictions on the companies entering, consistent with its WTO compliance obligations.

What are some of the major obstacles to doing business with China?
A major difference is that, here, businesses are guided by well-defined legal standards. Over there, you can get a sense of the direction of the law, but you have to talk to the authorities. The law isn’t as black and white, and there’s more negotiation as to how any law will be interpreted.

In China, you have the law in books and the law in practice, and sometimes they don’t line up. For instance, there may be exemptions to their value-added tax, but the exemptions aren’t published, so you need to know what authorities to talk to. But [the situation] is getting better over time.

What also concerns Westerners is the lack of protection afforded intellectual property rights. Even though great strides have been made to get such laws on the books [in China], the enforcement of those laws is inconsistent. Often, judges are political appointees and what is sometimes seen is an interpretation that is more political in nature than legal.

Finally, Chinese banks historically have been controlled by government. In the past, the state-owned enterprises could borrow money without following the commercial standards familiar to western companies. Soon, as part of their WTO commitments, the Chinese banking system will have to be completely in compliance with international banking standards, which should be positive for U.S. companies doing business in China.

What’s the first step in having a successful business interest with China?
You have to visit the country — often more than once — and meet the people who are going to be the right match to work with. Once you see the land in person, you’ll know it’s all real. It’s by far the most dynamic world economy that I’ve ever seen.

But when you’re considering doing business with China, you’ll find that you won’t be traveling a straight line, and some of the process will be frustrating. Due diligence is the critical step.

Gary P. Biehn is a partner in, and chair of, the business department of White and Williams LLP. He focuses on assisting clients in the pursuit of global business opportunities. Reach him at (215) 864-7007 or

Friday, 26 December 2008 19:00

Avoidance therapy

Because it has become difficult to get business loans through the normal channels, you might be tempted to investigate and possibly take advantage of alternative financing schemes. This course of action might not always be prudent.

“It doesn’t hurt to look at alternative lenders,” says Mike Petersen, a partner at Shulman Hodges & Bastian LLP. “But first consider your side of the lending relationship — particularly if you have deposits. Be aware that credit is less available and lending terms are changing because of the state of the economy. Valuations of assets are changing, too, even though the assets themselves might not be changing.”

Smart Business talked to Petersen about assessing the risks of taking out loans that involve personal guaranties and hard money.

What are personal guaranties, and how can they put you at risk?

A personal guaranty means that you are personally liable for the payment of your company’s obligations. If the company defaults on its obligation to pay a debt, a personal guaranty allows the creditor to bring legal action against you and your personal assets. Although retirement plans offer some protection from creditors, most other personal assets are generally subject to this action, including homes subject to a homeowner exemption, which in most states is quite modest.

Before entering into a personal guaranty, you have to realize that it is not for your benefit, but the benefit of the lender. If all goes well, the guaranty doesn’t matter, but if your company’s financial situation goes south, the guaranty can hurt you significantly.

Most businesses start with an entrepreneur assuming a personal guaranty. When the business becomes successful and viable and has a credit line of its own, that’s the time for the entrepreneur to get his or her name off the guaranty.

How can a business owner limit the reach of a personal guaranty?

You certainly want to be careful about signing a guaranty without fixing finite obligations.

If you have the bargaining power, you can limit it to a fixed dollar amount, which can be smaller than the loan. As credit gets tighter, however, this option becomes less feasible.

The other factor you could negotiate is a homestead exception to protect your house (and proceeds from the house if you sell it and move elsewhere). Similarly, you can carve out other assets from the reach of the guaranty, such as a bank account set up to provide college funds for children.

Finally, avoid self-renewing guaranties that apply to loans beyond what you’re borrowing for today. That is something a wise borrower should be able to negotiate, even in these times. Without a sunset provision, you can be held to a guaranty executed years ago.

What about credit lines and company credit cards?

Company credit cards often require a personal guaranty from the person to whom the card is issued. When the card is issued to a business and the business is in financial distress or financial extremes and there is a high balance, you can get stuck with paying the balance.

If you have a guarantied revolving credit line, your obligation does not go away just because you paid it off. The line will have zero against it, but if you draw down on it after it is reduced to zero, the guaranty still applies to the new debt you’ve incurred on that line.

You cannot afford to forget about any guaranties you sign on or revolving lines. The guaranty is on the line of credit established with the bank 10, 15 or 20 years ago, and it is effective as long as the credit line exists.

What is ‘hard money lending,’ and what are the dangers of it?

Hard money lending refers to lenders that are charging much higher rates of interest than traditional lenders. They tend to quote rates in percent per month rather than percent per annum — typically, 3 percent to 5 percent per month. These loans are entered into on a short-term basis to meet a particular business need or take advantage of a particular high-profit opportunity.

It is rarely the sort of loan a company should take out, because the risk is so great if things go badly: You can lose your whole business and its assets.

What advice are you offering clients who might be contemplating taking out a nontraditional loan?

The root cause of our problems today are people who borrowed money that they could not pay back. So don’t borrow more than you are very sure you can pay back.

Look at the terms of the loan, including its length. Examine the costs of borrowing, like interest and various fees. Before signing the papers, consider scenarios where your business might not do as well as planned.

The higher the rate of interest and ‘cost’ of the loan, the greater the risk of something going wrong and the situation fast becoming a disaster.

MIKE PETERSEN is a partner in the law firm of Shulman Hodges & Bastian LLP. Reach him at or (949) 340-3400.

Tuesday, 25 November 2008 19:00


The ADA Amendments Act, or the ADAAA, was signed into law by President Bush and takes effect on January 1, 2009. This Act makes significant changes to the Americans with Disabilities Act of 1990, which will pose challenges to employers in avoiding and defending claims of disability discrimination.

“The congressional intent conveyed in the ADAAA is that courts should focus on whether covered employers are complying with their obligations under the Act, rather than on whether an individual’s impairment constitutes a covered disability,” says Patricia Diulus-Myers, a partner and a member of Jackson Lewis LLP’s Disability, Leave and Health Management Practice Group.

Smart Business spoke with Diulus-Myers about the new law’s implications.

What’s so new about the ADAAA?

The ADAA is a reaction by Congress to the perception that the judiciary has too narrowly construed the scope of an individual’s access to protection under the ADA, thus limiting rights of the disabled. Historically, employers have won more than 95 percent of ADA lawsuits, mainly because of the narrow construction courts have given to the definition of a ‘disability.’ In referencing several landmark ADA-related Supreme Court decisions, the Act’s expressed purpose is to overturn those decisions and to have the definition of ‘disability’ interpreted more broadly.

What should employers do?

Companies will face more challenging ADA issues and should prepare to defend more complex cases in this area. Now is a good time to review existing procedures for compliance at every stage of employment, including hiring, medical testing, accommodations, leaves and termination.

Those dealing with leave and health management issues should be well aware of the amendments and have processes in place to address requests for accommodation. Training in this area will be critical.

Other considerations include:

  • When determining who is covered under leave management policies and if accommodations should be provided or if they pose undue hardships, be prepared to defend those judgments.

  • Evaluate workplace risks according to the ‘direct threat’ standard under the ADA.

  • Essential job functions, performance and conduct standards should be scrutinized as to their job-relatedness.

  • Documentation and record keeping will be very important in order to defend these decisions in a court of law.

How will legal decisions be affected under the ADAAA?

It will be easier for ADA plaintiffs to prove that they are disabled. Prior to the amendments, mitigating measures such as prostheses and medication could be considered in this analysis, but the ADAAA has rejected such consideration. Whether someone is ‘regarded as’ being disabled, is another factor under the ADA, and the amendments have made it easier for plaintiffs here also. A plaintiff can prevail in showing he or she is ‘regarded as’ having a disability, whether or not the physical or mental impairment actually limits or is perceived to limit a major life activity.

Whether more plaintiffs will prevail at trial remains to be seen. Courts will be less likely to rule in an employer’s favor, both on summary judgment before trial, or by directing a verdict for the employer at trial. Thus, juries

will be deciding these cases more frequently.

Can you cite an example of how the new law can impact past court decisions?

Let’s take a plaintiff who has a limp. Under the old act, the limp alone probably would not constitute a disability. Under the amendments, courts are cautioned not to give extensive analysis to the alleged disability, so a limp alone may constitute a disability. And, because the limp may be related to a chronic condition that lasts more than six months, the plaintiff more easily can prove a ‘regarded as’ disabled claim. In such a case, the new act does not require a showing that the alleged impairment is even perceived to limit a major life activity. Luckily, employers will not be required to reasonably accommodate individuals who are only ‘regarded as’ disabled. This is just one of many conditions to which courts will be giving closer scrutiny.

How can employers assure that their key personnel are versed on the law?

Both the ADA and Family and Medical Leave Act are very complex statutes which require familiarity, education and experience. No one should tackle these issues without a firm knowledge base. Some law firms offer ‘preventive lawyering’ through training programs for key legal and human resources personnel, and educational programs on cutting-edge workplace laws. On-going counseling and legal updates are also recommended to remain current on leave management developments. One resource available to employers, particularly for attendance issues, is the EEOC’s new ADA Guidance on Performance and Conduct Standards.

Do you anticipate more ADA litigation in the coming months and years?

Yes. Plaintiffs’ attorneys will welcome the amendments, since the prior hurdle of proving a covered disability won’t be a significant focus of courts. In the past, in view of the 95 percent failure rate, these cases were avoided. Now, they’ll be more attractive.

PATRICIA DIULUS-MYERS is a partner and a member of Jackson Lewis LLP’s Disability, Leave and Health Management Practice Group. Reach her at (412) 232-0180 or