William Hoffman

Monday, 22 July 2002 10:09

Is the price right?

Is the price right?

Not for a lot of companies squeezed by suppliers and workers on one side, and by customers on the other. But there are some things you can do.

By William Hoffman

Two decades ago, businesses cringed at the idea of passing double-digit annual price increases along to their customers. Today, with inflation flat and intense pressure to keep prices nearly so, it may be hard for some companies to decide which is worse: bumping up prices-or failing to do so.

"Businesses have been having problems passing along price increases for the last two or three years," according to John R. Kerr, Bruning professor of entrepreneurial management and director of the Small Business Institute at Florida State University. Cost pressures from suppliers, wage demands from workers and global competition made local by the Internet and other communications tools squeeze profits at a growing number of companies. How they cope with the situation depends in part on what sector of the economy they occupy, and how they position themselves in the markets they serve.

"What's happening now is the start of that kind of [profit] squeeze, because labor costs are rising, and labor is a big factor in retail," says Rosalind Wells, chief economist for the National Retail Federation, representing 45,000 stores. So far, the squeeze hasn't shown up in higher prices, she says, in part because sectors such as apparel have benefited from a strong U.S. dollar and favorable exchange rates against foreign currencies, and because technology sellers may be making up in volume what they lose in price. "They seem to be coping," says Wells. "Of course, there are others who will find it more difficult."

Dave Huether, economist at the National Association of Manufacturers, says his group's latest survey (3,000 companies in March) found small and medium-sized manufacturers slightly more optimistic about the economic future than their large counterparts, though all were very hopeful. The Asian crisis has hit larger companies that export finished products harder than smaller businesses whose components of these finished items comprise "invisible exports."

Huether says, "One way companies are tackling [cost pressure] is to invest in the type of capital equipment that will let employees become more productive, so they can still turn out products at a competitive price." Wage pressures have so far been negligible, he adds.

By contrast, Ron Schreibman, vice president at the National Association of Wholesaler-Distributors, says his 40,000 constituent firms are content with the current environment. Low inflation rules, he agrees, "but neither do we see significant cost pressures in the labor-cost pipeline at this time." Productivity increases, better inventory controls, the macroeconomic shift from goods to services and "ingenious" management of the money supply by Alan Greenspan's Federal Reserve have made a low- or no-inflation economy sustainable over the long term, Schreibman says. "It is not inevitable that if inflation is low that wage expectations must be high." Barring war, an oil disruption or the like, "There's no end in sight" to the current stable price market, he says.

For those companies that cannot resist the cost-push and believe they must raise prices, Kerr says, distinctiveness is key. "The small businesses today are trying to figure out what gives them some kind of distinctive competence in the marketplace." He adds, "That competence can be either real or imagined." A "real" distinction is a product or service that distinguishes your business from its competitors. An "imagined" competence can be a customer service that places you far ahead of competitors.

Economists are usually loathe to guess how long any economic phenomenon will last. "I think we're in kind of an unusual economic period right now, and I don't know how long this is going to last," Kerr says. Huether notes that NAM forecasts a .1 percent increase in the producer price index in 1998 (from a minus 1.2 percent decline in 1997). Wells, at the National Retail Federation, says that low inflation "is not a particularly new phenomenon," and that since consumer price inflation "is much tougher to estimate ... we don't do it." Schreibman, for the wholesalers, says simply, "There is no end in sight."

Monday, 22 July 2002 10:08

Taking stock

(Part one of a two-part series)

It's not hard to understand the appeal of the American stock markets.

With the nation barreling toward a seventh year in the second-longest economic expansion of the 20th century, every stock market-NYSE, the American Stock Exchange, NASDAQ-is breaking new records every month, or even every week. The Dow Jones Industrial Average alone has risen more than 11,000 percent since 1982, and more than doubled over the last four years. Approximately 40 percent of adults are now invested directly or indirectly in stocks. With corporate profits high and foreign investors flooding in, indeed, it would be hard not to be tempted by the appeal of America's stock markets.

The market is not for everyone, and hard-working, otherwise-preoccupied small business owners often figure it's especially not for them. But investment educators like John W. Evans, director of national accounts for The Financial Literacy Center, argue that entrepreneurs who invest all their time and resources in a business are placing all their eggs in one basket: "If their business goes under, they've lost their entire future." Yet for as little as $50 a month, an entrepreneur can sock away a rainy-day mutual fund that may provide a valuable cushion in equity markets with double-digit annual returns.

Here are some things experts say novice investors should think about when considering whether to take stock:

"What we see in the marketplace currently with a lot of small investors," Evans says, "is that you need to have money to invest, and how people interpret that is that you need a lot of money." It's not true. You can open an individual brokerage account for $500 or so at Charles Schwab or T. Rowe Price, and pump $50 a week into investments after that. Or you can get into a mutual fund for even less. Unless you trade frequently, fees and charges are likely to be low or non-existent until you withdraw your funds.

Trust-in the individuals and institutions that administer stock funds and your money-may be hard to come by. "A plaque on the wall doesn't tell you that the person is a) honest, or b) qualified," notes Stephen E. Frank, banking reporter and contributing author to "The Wall Street Journal Guide to Who's Who and What's What on Wall Street" (Ballantine Books; $29.95). Franks says, "That's really the goal of the book, to bring Wall Street to Main Street." The book presents sketches of the brokerage firms, banks, exchanges and regulators a novice investor will encounter, how they work and interact.

"Whether you have a million dollars or $50, it's not going to do you any good unless you have information," Evans agrees. "Information is key." The Internet has replaced the library when it comes to locating most investment information, says Douglas Gerlach, author of "The Investors Web Guide" (Lycos Press; $39.99). "It's important not to be overwhelmed," he warns. "You can just get lost right away."

But Gerlach's book, with enclosed CD-ROM, offers thousands of (mostly free) sites such as www.investorwords.com (more than 4,000 investing terms explained); www.naic.org (investor clubs and much more on safe investing strategies); www.sec.gov (free annual reports, etc., direct from the Securities and Exchange Commission); and his own www.investorama.com (thousands of links to investment sites). "I wouldn't send anybody to the library anymore," Evans says.

For those who need a guiding hand, financial advisors are available to provide a sounding board, a second opinion, or just an objective observer. "The main advantage to a small business owner is that it saves you a hell of a lot of time, and time seems to be the biggest factor nowadays," says Barbara Levin, executive director at The Forum for Investor Advice in Bethesda, Md.

The forum offers free brochures on how to choose an adviser. Frank, at the Wall Street Journal, suggests verifying any credentials and checking for disciplinary actions with your state's banking commission or the federal SEC. As with all investment issues, the more questions you ask, the better. "It's just like dealing with a doctor," Frank says. "You can rely on the doctor to dispense medical advice and treatments, but a patient who informs himself about options will usually receive better medical outcomes over the long run."

(Next month: Tips for staying out of trouble in the markets.)

Monday, 22 July 2002 10:08

Safety is the law

Business groups are mobilizing to pound the final nails into an OSHA program to upgrade injury and illness standards at 12,000 companies even as the agency is targeting 3,300 more employers with an alternative plan.

The U.S. Chamber of Commerce, the National Association of Manufacturers, the Food Marketing Institute, the American Trucking Associations and others won a court stay in February to halt implementation of OSHA's "cooperative compliance program." The complainants meet in court Dec. 3 to decide the ultimate fate of that program.

Meanwhile, OSHA has instituted an "interim plan for inspection targeting" that focuses on employers in 99 industries with illness and injury rates above the national average. "They are going to be inspected, whatever," says an OSHA information specialist who agreed to be interviewed but wouldn't let his name be used. "In other words, there's no partnership agreement with them."

"Partnership agreements" were key to OSHA's CCP proposal last December to 12,000 companies it identified as having injury and illness rates twice the national average. The agency told those firms that if they signed agreements to institute comprehensive safety and worksite hazard prevention programs, they could reduce their chances of inspection from 100 percent to 30 percent, or as low as 10 percent for small businesses. Eighty-seven percent of the original 12,000 firms signed up.

The Chamber and other groups protested that there was nothing cooperative about the CCP. "OSHA should work cooperatively with business and not force them to comply with costly standards that have not been validated," says Sussan Mahallati, labor counsel at the National Chamber Litigation Center in Washington, D.C.

Mahallati says the CCP should have been subjected to public notice-and-comment procedures to which all federal agencies must submit when proposing new rules. The Chamber argues that the CCP imposes safety rules-especially on ergonomics standards which OSHA has fought long and unsuccessfully to impose-not already codified in regulation or law.

The OSHA spokesman declines to elaborate on Chamber challenges to the CCP, except to say the agency does not believe the program is coercive and that, "We're pretty confident we're going to win that suit."

He adds that updated site-specific injury and illness data helped identify the 3,300 employers being targeted with the one-year interim program started April 10. That takes the place of the CCP while the Chamber's court challenge is being heard. But "as soon as the court clears the cooperative compliance program, we'd go back to that."

But Eugene Scalia, an attorney for the Chamber at Gibson, Dunn & Crutcher, LLP in Washington, D.C., says, "They can't have it both ways." Many of the companies targeted under the OSHA programs reported injuries and illnesses that did not constitute violations of agency standards, meaning a higher level of reported incidents doesn't necessarily mean a higher level of OSHA violations.

Monday, 22 July 2002 10:08

Date with an angle

Managers at Belvac Production Machinery Inc. knew that when you spend more time working than at any other activity expect sleep, you're likely to get some fraternization among co-workers. The can-making machinery manufacturer took a fairly laissez-faire attitude toward that fraternization, too, until the marriage of two senior executives sent ripples of consternation through the Lynchburg, Va., company's 300-strong workforce.

Now, laissez-faire is gone. "We don't say you can't date; we don't say that it's against the rules," says Bob Perrin, Belvac director of human resources. "What we do say is that if it affects the company or the performance of the employees... we give them 90 days to decide which one will leave." Now, Belvac doesn't hire relatives of current employees. If two employees decide to marry, one must go; if they can't decide themselves which will leave, management decides for them.

Belvac is one of just 10 percent of companies that have a written policy governing workplace dating and romance. According to a February survey of 617 human resource executives by the Society for Human Resource Management, 72 percent of companies have no policy at all for interpersonal relationships on the job, while 14 percent foster a "culture" (but no written policy) that discourages such relationships. Though awareness of sexual harassment has become acute and, some would argue, even overbearing, the more innocent but no less problematic issue of workplace romance remains largely ignored.

H.R. professionals generally agree that, if your company already has a strong, well-disseminated sexual harassment policy in place, the best policy on workplace romance is no policy at all. "My recommendation would be to stay out of their lives until or unless it becomes a problem in the workplace, and then you deal with it individually as a performance problem, or it falls under your sexual harassment policy," says Beverly R. Davis, owner of Davis HR Consulting in San Diego. Trying to arbitrate the myriad of personal relationships that can blossom on the job is a Sisyphean task. "You get into gray areas," Davis says. "Written regulations can only go so far."

You run other risks by writing detailed regulations on office dating. "If you start legislating office romances and workplace dating, you're sending out a message that you're a pretty uptight employer," says Barry K. Lawrence, spokesman at the Society for Human Resource Management. Your company's culture should match closely the formal or informal policy you enforce. A firm trying to paint itself as "worker-friendly" should avoid Draconian restrictions that might drive away otherwise promising recruits. "You don't want to trade one problem for a worse problem," Lawrence says.

Still, some intimate relationships-such as those between supervisors and subordinates-skirt close enough to sexual harassment to merit scrutiny or even prohibition. Employees must feel free to voice their legitimate feelings about any relationships both to the couple and to management. If either balks, you have a problem, either with the couple, or with your managers.

Shirley T. Deen, owner of Human Resources Trainers & Consultants in Evington, Va., suggests the standard: "If it is something that you would expect from a reasonable person in a professional environment, it's probably OK. If it's somebody who is not necessarily a professional, we usually tell them to ask themselves, 'What would your mother think?'."

If you insist on writing a policy, the experts advise running it by a lawyer. Then, distribute it widely and repeatedly among your employees. In formulating the policy and answering inevitable employee questions, SHRM's Lawrence suggests you also be prepared to answer: how "dating" is defined; how marriages and same-sex relationships will be treated; whether relationships will be prohibited or if managers must simply be notified; how supervisor-subordinate relationships will be affected; if the policy will be enforced equally on management; and what enforcement means will be employed.

Monday, 22 July 2002 10:06

Hot stock tips

After a long rise, U.S. securities exchanges suddenly seemed uncertain. Gold prices plunged to historic lows. Troubled foreign markets sent shock waves through the American investment community. Twenty-five years ago, it seemed like a terrible time to get into the stock market.

Yet the investors who persevered, Robert A. O’Hara says, “have no financial concerns at all at this point.” The vice president for development at the National Association of Investors Corp. in Madison Heights, Mich., recalls business magazines in the ‘70s full of predictions about the demise of the individual investor. NAIC lost more than three-quarters of its membership in the mid- to late-1970s before a resurgence in the 1980s.

Similarly grave prognoses now haunt the U.S. stock market, as concerns about the fate of Asia keep many would-be investors on the sidelines. Yet observers say the world market is different today. The Cold War is over. Capitalism is being embraced around the world. Capital flows into and out of investments globally with greater ease than ever before. Even after the markets’ early-summer stumble, returns remain at or near record highs.

It’s been estimated that approximately 40 percent of Americans are invested directly or indirectly in the stock market. That estimate includes investments such as mutual funds. While the savvy novice investor is first advised to stay alert, it’s never been easier to get started in equities. Part One of this story (see Opportunities for July) introduced some simple, cheap tools new investors could use. Offered here are a few relevant tips for staying out of trouble.

Know your risk tolerance. Evaluate how much can you afford to lose in the worst case without harming your quality of life. “Think about the downside before you ever make the investment,” says Alvin D. Hall, author of “Getting Started in Stocks” (John Wiley & Sons). Consider starting in mutual funds and using the experience gained there to dabble in individual equities.

Understand what you are buying. “If you can’t understand what’s happening with American Online or Yahoo!, then you shouldn’t be buying them,” Hall says. Start with stocks in the industry you already know; use the education you get to branch out slowly.

Buy quality. Initial public offerings, suddenly-hot properties, penny stocks and such are for insiders, speculators and people with money to burn. Getting started, a boring but reliable stock like Coca-Cola, IBM, AT&T will produce solid returns and an opportunity to learn how to read the newspaper stock pages, annual and quarterly reports, and the vicissitudes of the markets.

Consider joining an investment club. “We encourage people to start in a club, and within two years they are usually on their own,” O’Hara says. A club gives you the benefit of other people’s perspective and experience, at a very low cost and little continuing obligation.

Don’t fret about scams and con artists. “Those concerns are always there,” O’Hara notes, “though probably less so with our membership.” Complex investment instruments like commodities, options and futures are more prone to con-artists than simple securities, especially if an investment club is there to hold your hand. Hall adds: “The only way someone can get taken is when they don’t do their homework.”

Invest a little every month. This is called dollar cost averaging. Besides assuring historically strong returns on investment (when the stocks selected are not dogs), dollar cost averaging also teaches the discipline of not giving up when the markets seem to turn south. If you’re not prepared to stay in the market for at least three to five years, you probably shouldn’t be in at all, according to Hall.

Monday, 22 July 2002 10:05

Waiting for the other shoe

The smart betting among Washington pundits is that the 1998 congressional election cycle will be a "status quo" year with little change in the balance of power between majority Republicans and anxious Democrats. But if the economy, foreign affairs or President Clinton's personal crises intervene, these same observers agree, then all bets are off.

"Everyone is expecting a very low [voter] turnout," says Charlie Cook, Washington, D.C., political consultant and publisher of The Cook Report. "Now, the Republicans are saying that the Democratic voters are feeling disillusioned and won't turn out, and the Democrats are saying the Republicans are feeling disillusioned. And the fact is, they're both right." Cook predicts a 97 to 99 percent re-election rate for incumbents: "Neither side is going to pick up more than four or five seats."

Cook and others credit the healthy economy, the absence of major foreign crises and the President's Teflon poll numbers for most of the ho-hum reaction to most of this year's congressional races. Public-opinion polls rate education, the future of Social Security and crime as the major concerns of average voters, according to Tom Silver, publisher of The Polling Report, a biweekly newsletter on national issues and trends. "I'm not sure ... that any single issue can be called a deciding issue right now," Silver says.

Pro-business activists hope that taxes will become the deciding issue driving their constituencies to the polls in November. The National Federation of Independent Business has so far gathered 800,000 signatures for its "Scrap the Code" campaign to ditch the current system. Kelley Rogers, the federation's national field director for grassroots political activity, calls the campaign "extremely successful," though the nation's largest small-business group missed a self-imposed June deadline for gathering 1 million signatures.

Even elected officials not usually identified with the federation's positions have shown up in favor of tax- reform measures: Sens. Carol Mosely-Braun (D-Ill.) and Harry Reid (D-Nev.) broke a late-July tie vote over tax reform, "and that really shows you the power of the issue," Rogers says. That didn't prevent the federation from endorsing Mosely-Braun's GOP challenger Peter Fitzgerald and Reid's opponent Rep. John Ensign (R-Nev.) in the general election this fall.

National Small Business United, with 65,000 members across the country, has gone from scrapping the code to endorsing a replacement. Todd McCracken, the group's president, says the group recently endorsed what it calls the "fair tax," an approximately 23 percent national sales tax rate to replace income, estate and FICA payroll taxes all at the same time. The small-business group didn't endorse the federation's "Scrap the Code" campaign, McCracken says, because it would be "irresponsible" to abolish the tax system without having a replacement ready. Still, McCracken says NSBU may approach the federation and other groups to push the "fair tax" in Congress during the next session.

Small-business interests to date haven't played the same pivotal role they did in the 1994, and to a lesser extent the 1996, election cycles, says Ron Faucheux, editor and publisher of Campaigns & Elections magazine. "I actually find that somewhat surprising," Faucheux says, considering "small business is the most popular aspect of the free enterprise system from a political point of view." The major political parties need to advocate positive change to galvanize entrepreneurial constituents, he says, rather than campaigning on their opponents' weaknesses.

The GOP could still blow its majority in Congress, Faucheux says, if it relies too heavily on Clinton's alleged peccadilloes to shore up its support. Silver observes: "If there had been Republican hopes that the White House scandal was going to erode [Clinton's] popularity, they haven't been fulfilled." Or Democrats could get sandbagged by the Clinton scandals and a sudden economic reversal spawned in Asia. "It would take an unusual mix of events to have that effect," Faucheux says, "and of course time is running short. But it could still happen."

Monday, 22 July 2002 10:05

Desktop to go

When it comes to remembering appointments, project schedules and phone numbers, most business owners still rely on their DayTimer, their personal secretary, or (shudder) their memories. But if sales of PIMs are any indication, increasing numbers of CEOs are letting their styluses do the walking.

PIMs are electronic personal information managers. With megabits of memory, backlighted touch-screens, plastic styluses for data entry, and synchronization of computerized information, PIMs are easy to spot in the hands of tech-oriented execs at meetings, restaurants and airports. 3Com Corp. has sold more than 1 million of its PalmPilot units, while a baker's dozen of competitors are gaining market share with Windows-compatible products. "They're here to stay," says Bary Sherman, CEO at the Institute for Business Technology-West in San Diego. "And I think the prices are going to drop dramatically over the next 18 to 24 months."

The first PIMs debuted more than a decade ago with tiny screens and keyboards and memories capable of storing dozens of addresses. Today's PIMs store thousands of phone numbers and addresses, hundreds of appointments with alarms, and transfer data between desktop computers and the handheld device. Some offer e-mail and Web access. But the true success of the new-generation PIMs can be measured by the number of suits-and-ties flipping them open for quick access to data. "I can't hardly go out for a pizza in Brooklyn without seeing someone pull one out of his pocket," says Robert S. Anthony, senior writer for PC Magazine, who compared PIMs for that publication in March.

After the earlier withdrawal this year of Apple Computer's star-crossed Newton PIM, the market offers two basic types. First, 3Com's Palm products were first out of the gate, with a 6-ounce, shirt-pocket size organizer and a starting price around $300. Reviewers gave it high marks for ease of use, though its proprietary operating system made it a difficult fit with Microsoft's then-emerging Outlook PIM software. The Palm III, the latest 3Com offering, has developed the largest following of independent software products (more than 3,000 at last count), many of them available as freeware or shareware over the Internet.

Second, Microsoft roared into the race last year with its Windows CE operating system, the platform of choice for PIM hardware vendors from Philips to Compaq to Sharp. CE's primary advantage appears to be the resemblance of its user interface to that of the Windows 95 operating system: check pull-down menus, pop-up queries and icons. CE products may come with a miniature keyboard or touch-screen or both. Reviewers generally rate Palm products easier to use, but favor Windows as the eventual winner for market share simply because of Microsoft's 80 percent-plus market share.

Choosing which is right for you can be difficult because, Anthony says, "No matter what you buy, something better is being sold tomorrow." The key, he and Sherman agree, is to figure out exactly what you need a PIM for. If being alerted to appointments, having your Rolodex handy, or editing e-mail while waiting in line is important, a PIM could help. If you need a keyboard, or extensive note-taking capacity, or video-presentation capability, stick with your notebook computer.

Using a PIM in a real-world setting is the best way to choose. Unfortunately, the sales desk at your local retailer can't simulate the effect on the PIM's screen of your office's fluorescent lights or direct sunlight, or the rush to your next sales call. Find a retailer with a good return policy, Sherman suggests; two weeks to 30 days is best. Avoid those with restocking fees. Buy a PIM and try it in your business environment. If you return it in like-new condition with all packaging and documentation intact, you should be able to trade it for a more suitable model if necessary.

Monday, 22 July 2002 10:04

Submitted for your approval

These days it seems you're as likely to have a "Dilbert" cartoon making fun of suggestion boxes as it is that you have a working suggestion system. But employee involvement and empowerment activists say if you want to eliminate waste and save money, a well-considered suggestion system should be part of your company's operations.

"What I always say, unless I'm speaking to the United Way, is that everyone is interested in the bottom line," quips Tom Dupre, president of the Employee Involvement Association of Longwood, Fla. "People are naturally creative. People not only want to do a good job, but they want their jobs to be easier." Employers can tap into a valuable source of money-saving ideas by creating outlets for these natural inclinations, Dupre and others agree.

Tom Jensen, president of The Center for Suggestion System Development in Orlando, Fla., cites 1997 EIA research indicating each idea generated at the 700 member companies saved $4,700 over the course of a year. Member companies generated 28.6 ideas per 100 employees, with an adoption rate of 40 percent. Though most EIA members are large businesses, Jensen and Dupre argue that even half or one-quarter the amount of annual savings at a smaller business would repay the investment of time and money in a professional suggestion system.

They add that an effective system is usually produced in consultation with a paid adviser. "If someone were to try to design a process themselves," Dupre believes, "they would get frustrated, because they'd probably miss something." John Tschohl, president of the Service Quality Institute in Minneapolis markets his BAD (for "Buck-A-Day") program to inspire employees to reduce costs, identify recurring problems, eliminate bottlenecks and generate revenue. "We want little ideas" that add up to big savings over the course of a year, Tschohl explains. Yet, "Our goal is not the total dollar value as much as it is participation. The closer we can get to 100 percent participation, the better."

Even if you don't want to hire a consultant, here are some tips to make a suggestion system work for you:

  • Throw out the suggestion box. "That just gives the whole idea of a suggestion program a bad name," Jensen says. Distribute to employees preprinted cards, with name, department number, manager's comment space and final disposition to route their ideas through the system.

  • Recognize and critique every suggestion. Acknowledgement should take no more than 48 hours. A progress report, preferably with final disposition, should follow within 30 days. Prompt feedback is key to convincing employees their ideas are really welcomed.

  • Start a friendly competition. Offer companywide recognition through a newsletter, poster or prominent bulletin-board notice to the department and the employee that submits the most cost-effective suggestion. Publicly track results of suggestions that save money and time.

  • Be sparing with prizes, but generous with praise. Tickets to a theater or sporting event, dinner for two, a special coffee mug or a plaque will usually be appreciated as much as money. Offer different awards each month. Keep monetary prizes small. No amount will be enough, and too much could spark controversy.

  • Encourage everyone to submit ideas. The purpose of a suggestion system isn't just to save money, but to get every employee to participate. Don't worry if some of the ideas stink; acknowledge participation and explain why the idea isn't appropriate at this time.
Monday, 22 July 2002 10:04

Credit where it's due

Bankers aren't used to defeat on Capitol Hill. But they lost a major battle with credit unions this summer, and their loss could be small businesses gain.

President Clinton signed H.R. 1151, the Credit Union Membership Access Act, in August, after the bill passed overwhelmingly in the Senate (92-6) and the House (411-8). The new law overrides a Supreme Court decision in February that the National Credit Union Administration, which charters credit unions, had overstepped its legal authority by allowing credit unions to seek members outside their common occupational, employment or geographic bounds. "Clearly this [new law] will expand access to credit unions," applauds Stephen Brobeck, executive director for the Consumer Federation of America.

Credit-union activists argued that the Supreme Court ruling would have barred 20 million of the 70 million current members from access to the nation's 11,500 credit unions. Banking lobbyists countered that H.R. 1151 would dilute the original intent of the 1934 act establishing credit unions for low- and moderate-income consumers who had little access to banks at that time.

Credit unions responded that changes in the economy in the 1970s and early 1980s-specifically widespread corporate mergers and high interest rates-changed their membership base, obliging them to seek new recruits. Banks charged that not-for-profit credit unions enjoy an unfair competitive advantage because they are tax-exempt, and can thus offer members lower fees and interest rates.

Now the issue has been decided by Congress (and the Supreme Court acknowledged in its February ruling that Congress would have the last word). "The whole credit-union community is standing with one foot in the air waiting to move on this," according to Ken Robinson, president and CEO of the National Association of Federal Credit Unions. NCUA is expected to write new rules to implement the law later this year. Approvals for new and expanded credit unions could be issued as early as January.

That's important to small and growing companies because, until the law was clarified, credit-union membership for employees at firms with 500 workers or fewer was an iffy proposition. Such firms aren't large enough to support their own credit unions, and the high-court ruling effectively banned credit unions from supporting more than one group.

Now, according to an analysis by university economists and the Filene Research Institute in Madison, Wis., 62.8 million employees of smaller firms will have access to the same credit-union benefits-lower-interest loans, lower fees-enjoyed by better-compensated, big-company workers. (The numbers show an average of $25,046 annually at under-500 employee businesses vs. $31,214 in over-500 firms).

Bank representatives range from resentful to resigned over the issue. "I just find it ironic that so many small-business groups lined up behind credit unions on this issue" when many also claim to be opposed to corporate welfare, such as tax exemptions, says Virginia McGuire, spokeswoman for the American Bankers Association. She says ABA will remain vigilant for opportunities to raise credit unions' tax-exempt status in Congress again.

Fritz Elmendorf, spokesman for the Consumer Bankers Association, says he understands the frustration felt by smaller institutions and "community banks," the rehabilitated name for savings and loans. CBA, representing the nation's 700 biggest retail banks, largely passed on the issue because a "$100 billion-bank complaining that a $200 million-credit union has an unfair advantage is just not the best face to put on it."

But Karen Kerrigan, president of the Small Business Survival Committee in Washington, D.C., recalls, "It was a very vicious battle." Banks and credit unions flew in lobbyists to schmooze with lawmakers. At least seven new credit union PACs were formed to do battle this year, according to the Center for Responsive Politics. Credit unions donated almost $800,000 to federal campaigns in the six months ending June 30. Bank contributions specific to the credit-union issue could not be culled, because so much more financial legislation is pending this year.

Kerrigan, whose group sided solidly with credit unions, sees this as a big win for small business. Yet, she adds, "I don't think the credit unions would have fought this so hard if they hadn't seen that there was such a market for them among small businesses." Credit-union representatives such as NAFCU's Robinson say they'll encourage member institutions to reach out to smaller companies now that the regulatory road is clear. But they are scant on details. "There is a gap there," Kerrigan notes. "There is an opportunity for someone. The question is, who's going to take it?"

Monday, 22 July 2002 10:03


Jack Faris says he isn't a Republican, though he's portrayed as one on TV.

In fact, while the president of the National Federation of Independent Business has never registered with either major party, Faris once worked for GOP presidential candidate Lamar Alexander and served as finance director for the Republican National Committee. Polls of NFIB members consistently favor conservative political stands, and Faris dependably carries that water to Capitol Hill. But, he insists, "I'm a salesman first and everything else second."

A conversation with Faris late this summer reveals a man with deeper concerns on his mind: A deep commitment to Christian life and a yearning to spend more time with his wife, tempered by his determination to energize small business owners to promote their agenda in Washington.

What one thing have you accomplished in the last year as president of NFIB that most directly improved the environment for small businesses?

Probably the IRS reform legislation passed by the Congress and signed by the president this summer.

What would you like most to accomplish for small businesses in the coming year?

A substantial gain on getting a new tax code; that's going to take not just next year, but an awful lot of time, effort and energy, resources and push. We hope next year we can get substantial tort reform.

You tell small business owners, You'd better get involved in politics, or politics will run your business. If you had to run for any public office, which would it be?

President of the United States.

What's the worst part of your job as president of NFIB?

How long it takes to make effective change. My background is small business; you want to make a change, you focus on it, you can get it done in a fairly short period of time. [NFIB] is a fairly large business operation. We have an $85 million budget, 1,100 employees.

What's the best thing about the job?

I get to be with small business people all across the country. It is the most incredibly interesting thing to do, because I have never met two alike.

If you owned a small business, what would it be?

Management consulting.

What small business would you least like to own?

A restaurant. You're dealing with the lowest paid people, with a perishable product, and you're depending on other people coming into your business, and you've got 1,600 different people examining your books and looking at your workplace and deciding what's clean and not clean. You've got to have a dependable product that's consistent. You work incredible hours. I just think that's a real hard business.

What living person in business do you admire most?

Jim Herr. He lives in Nottingham, Pennsylvania. He and his wife started a little potato chip business there years ago. They now have a business called Herr Foods. They're dominant in Philadelphia, and they're in nine states, and he has about 1,100 employees, so it's not a real small business anymore. This man is the picture of integrity, he's a smart businessperson, he's a giver not a taker. He is the chairman of the board of NFIB.

What living person in government do you most admire?

Ronald Reagan.

What are you going to do when you retire?

Work hard. I can't read of any example in the Bible where God talks about what you do in retirement.

What is your most valued possession?

My golf clubs. But, a little more than four years ago, I nearly died from an infectious disease. I got down to 140 pounds. I looked worse than death. It took me about 18 months to get over it. You realize that all the stuff you can see, that aren't relationships, don't make any difference. So I value and covet being around people I respect and admire. Some people have things they'd just die if they lost. I didn't really understand how beautiful sunsets are. I didn't see the color of the leaves. But I've gotten to where now, I'll just stop the car and look.

What's the best advice you've ever gotten?

"Always, always, always tell the truth," from my father. He said, "You'll never be smart enough to remember everything you've ever said." I don't know anything that'll keep you out of more trouble.

What is your greatest fear?

That when all is said and done, I will have disappointed God in who he wants me to be.

What is your greatest regret?

What is your personal motto?

A quote from Arthur Ashe, who was talking with a group of students in Atlanta shortly before he died. He talked about achieving excellence. He said: "Start where you are, with what you have, and do the best you can."