Many retirement plan sponsors don’t realize the significance of breaching their fiduciary responsibilities.
“Being a plan sponsor should not be taken lightly, and being a fiduciary especially should not be taken lightly. There can be, and have been, severe consequences for breach of fiduciary obligations,” says Rob Martin, ERPA, QPA, Senior Team Manager at Tegrit Group. “So, take them seriously and find sound professionals and service providers to guide you.”
Even though the company is sponsoring the plan, a fiduciary is a named individual. Therefore, with very egregious errors, the personal assets of the individual fiduciary could be at risk.
Smart Business spoke with Martin about handling fiduciary obligations.
What fiduciary obligations are retirement plan sponsors responsible for?
The fiduciary obligations are to look out for the best interests of the plan participants and to put their needs before any personal or employer needs. The plan sponsor must have a written investment policy statement that includes how the selection of fund offerings and service providers are made.
If one of the funds has a bad year, it doesn’t necessarily mean the sponsor didn’t do its job. As long as the process is in place to select that fund beforehand — a process that compares past history with benchmarks and other funds in that same category — then there will be no problems from a Department of Labor (DOL) standpoint.
What can happen if sponsors fail to meet their fiduciary obligations?
The DOL has made a point of emphasizing fiduciary obligations when it comes to auditing retirement plans. The DOL audits can occur randomly or if there’s been a complaint against the company.
If a DOL audit finds problems, the sponsor will need to correct them quickly. For egregious errors, the DOL will hold the fiduciary in violation and go through the legal system. Even if a fiduciary is found in good standing, it takes extra work and time, including possibly paying service providers, to find needed items.
Civil lawsuits are another danger if you’re not following DOL guidelines.
How should these obligations be managed?
One of the best places to find information is on the DOL’s Web page: Meeting Your Fiduciary Responsibility, www.dol.gov/ebsa/publications/fiduciaryresponsibility.html. Plan sponsors should call third-party investment administrators or investment advisors for further assistance.
Sponsors need to answer participant questions in a timely manner. Otherwise, participants may file a DOL complaint and/or lawsuit. Once a suit is filed, fiduciaries will have legal fees and face the consequences of the case’s outcome.
Plan sponsors should also have a default account, known as a Qualified Default Investment Alternative (QDIA). A QDIA protects the fiduciaries from participants who do not make an investment election or who fall short in making a full investment election.
What is the biggest hot button area to keep an eye on, as a fiduciary?
The hot button area right now is fees. Part of being a fiduciary is to provide the new fee disclosure notice to the participants. This started in 2012 and now must be provided annually or quarterly to the participants, depending on what’s being disclosed.
Another important fiduciary responsibility is making sure plans have reasonable plan expenses. The plan sponsor should have a process, as part of the investment policy statement, to examine service providers and see whether it pays reasonable plan expenses, by utilizing professionals who provide benchmarks for comparison.
Do late deposits remain a concern?
The DOL is still pursing this. These typically apply to making timely participant contributions and loan repayments — not employer contribution deposits. More specifically, for plans with fewer than 100 participants, the DOL considers timely to be within seven business days.
With all fiduciary obligations, the key is choosing professionals with a good understanding of the requirements, which can be investment advisors, third-party administrators or record keepers.
Rob Martin, ERPA, QPA is a Senior Team Manager at Tegrit Group. Reach him at (614) 458-2023 or email@example.com.
For additional retirement planning tips, visit Tegrit’s Advisor Resource Center at www.tegritgroup.com/arc.
Insights Retirement Planning Services is brought to you by Tegrit Group
Private equity firms use pools of capital that are raised from a variety of sources. This capital comes not only from wealthy individuals, but also from insurance companies (that pay retirement plans and annuities) and pension funds.
As a result, school teachers, police officers and others often have a portion of their retirement assets allocated to private equity, which bolsters the overall investment returns of the fiduciaries that run these funds. These higher returns are increasingly important in today’s low interest rate environment. Private equity firms use this capital to invest in all sorts of companies, creating jobs and economic growth along the way.
“Private equity firms are easily and inaccurately portrayed as corporate pirates,” says Jackie Hopkins, managing director, Sponsor Finance Group, at FirstMerit Bank.
“But these firms are willing to invest in businesses that need capital to grow as well as companies that might go bankrupt if not supported with new capital in exchange for ownership. In order to induce them to accept the risk of these investments, private equity firms need high returns. Sometimes the returns are very large. Sometimes the firms lose their investment. Either way, they provide critical capital that allows the economy to grow.”
Smart Business spoke with Hopkins, who lends to private equity firms, about how these serial entrepreneurs operate.
How does the private equity world work?
Private equity companies use pools of capital from investors, called limited partners. The general partner of the private equity firm is tasked with finding good investment opportunities to generate above average returns. The partner is usually paid operating expenses and a portion of the profits earned. In most cases, the general partner buys a controlling interest in a company with a leveraged buyout (LBO), and uses his or her expertise to improve revenue and profitability, such as helping a Midwest firm expand product sales internationally. After three to seven years, the company is typically resold.
What is a leveraged buyout?
In an LBO, an investor uses debt to finance a portion of the purchase price of a company. Depending on the underlying business risk of the transaction, the amount of debt can be very low or up to 65 percent of the purchase price. Using debt allows the investor to amplify his or her return. In addition, interest costs are deductible while equity capital is not, providing a built-in bias toward debt financing in the capital structure.
The debt to equity ratio changes depending on market conditions — today, the average equity investment for a middle market company is 40 to 45 percent in a LBO. For larger companies, it is usually less, because a bigger company can absorb more financial risk.
How is private equity financing different than traditional middle market bank loans?
Traditional middle market loans focus on the balance sheet —assets, inventory, receivables, equipment, real estate, etc. — so if the company is unable to service its debt out of earnings, the collateral can be sold to repay the debt.
Private equity financing tends to be enterprise value loans, looking at the company’s earnings before interest, taxes, depreciation and amortization (EBITDA). Financial institutions look at selling the entire company as an enterprise for a multiple of EBITDA. They consider how sustainable the EBITDA is to figure out how much debt the company can safely carry. So, if you think the average multiple of a middle market company is six times (that is, its total value is six times its most recent EBITDA), the bank might lend up to three times. The inherent risk is the possibility that EBITDA will decline or that the prospects for the company or the industry lead to a lower multiple. So to qualify for this type of enterprise loan, a company should have a sustainable level of EBITDA that is not too concentrated in terms of customers, products or suppliers, and is not prone to cyclical swings.
Jackie Hopkins is managing director of the Sponsor Finance Group at FirstMerit Bank. Reach her at (312) 429-3618 or firstname.lastname@example.org.
Website: Get information about FirstMerit’s Sponsor Finance Group services.
Insights Banking & Finance is brought to you by FirstMerit Bank
Performance-based compensation is the variable component of total compensation that may be paid to an individual, team or even companywide upon achieving some defined performance metric. For instance, when a salesperson is paid a commission for achieving a sales target, or an annual bonus is distributed after meeting a companywide goal.
“You need some form of performance-based compensation to keep top performers motivated and happy,” says Brian Berning, managing director at SS&G’s Cincinnati office. “They want to believe that they can make as much as they possibly can if they are able to achieve goals. And with a variable component, there’s rarely a ceiling on it.”
Smart Business spoke with Berning about using incentives to benefit both the employee and the company.
How do companies typically pick incentives for performance-based compensation plans?
It’s largely based on defining goals and setting performance benchmarks around them, which can be for an individual, team, companywide or any combination of the three. It’s important to understand that without consequences, positive and negative, it’s not a goal — it’s a wish. The best companies develop incentives with clear, objective and measurable goals, stating exactly how to successfully get to the target.
You also want to target the right people. A shop foreman of a manufacturing company can influence on-time delivery but shouldn’t be tied to goals for meeting sales initiatives.
Which incentives can be problematic?
Those that are difficult to explain, to measure or achieve are prime for failure. Remember you’re trying to reward results that are largely influenced by behaviors in connection with the company’s goals. So, if the incentive is tied to a behavior that the responsible party has no control over, or the performance measurement isn’t in alignment with meeting the desired goals, it simply won’t work. Employees must be able to understand it, measure it and achieve it.
Why is it important to avoid rushing in?
Look at various scenarios and test to make sure that they mathematically work — that they’re achieving your desired goals. There’s nothing more embarrassing than implementing a performance-based incentive structure that doesn’t work.
On a commission-based structure, for example, be careful when trying to reward certain behavior. If you sell two products, product A and product B, and you want to encourage additional product B sales, you may increase B’s commission. But if everyone is focused on selling product B, there could be a loss of sales in product A. It’s better to use minor awards or only change the commission structure minimally, enough to keep people conscious of it, but not enough for them to ignore product A.
So, talk to your staff and others, and make sure the plan is designed properly.
How can awarding equity in a private company be problematic?
There seems to be two situations that prompt a company to look at a plan like this.
1. Senior management thinks that by giving employees ownership, it is going to motivate results. But by giving stock, you haven’t tied that to goals. The award isn’t instantaneous; employees don’t have more cash. As an owner, how is an employee going to behave any differently?
2. The business uses this as a tool to recruit talent when cash flow is tight. It may work, but it can have consequences later if it doesn’t work out with that employee.
There are other options that look and feel like equity, such as contractual arrangements that don’t necessarily result in the award of true stock or units in a partnership.
What should management be doing to measure, review and adjust these plans?
Measure it frequently and pay promptly. Otherwise, people will lose interest in it.
When reviewing or adjusting the plan, that should be far less frequent. If you’re continuously tweaking your plan, you’re going to create confusion. If there’s some anomaly, fix it immediately, but if you’re making wholesale changes right away, you made a mistake and didn’t do your due diligence. A well-defined performance-based compensation plan provides employees with an upside they feel they can achieve that ultimately helps the company.
Brian Berning is managing director at the Cincinnati office of SS&G. Reach him at (513) 587-3270 or BBerning@SSandG.com.
Website: SS&G was named a top workplace in Northeast Ohio.
Insights Accounting is brought to you by SS&G
Whether to buy or lease is a question real estate professionals hear from business owners all the time. It’s a difficult decision that’s based on several factors.
You should evaluate your needs, as well as your personal and business goals, with a qualified real estate consultant, says Joseph V. Barna, SIOR, principal at CRESCO Real Estate. Also, understand your motivation drivers — are you interested in the bottom-line cost of occupancy, long-term ownership, image or flexibility?
“You need to step back and look at where you’re at, where you want to go, and how important your personal goals on the ownership side are in order to understand the best manner in which to invest your money,” he says.
Smart Business spoke with Barna about what propels owners to buy or lease.
What drives owners to buy?
One example would be if you are in a specialized industry and you’re going to make a significant investment in the space’s infrastructure. You don’t want to be unable to come to terms on a down-the-road lease renewal or expansion and have to reinvest in another building.
Another scenario is that you don’t anticipate long-term future growth and the facility you identify is in a desirable location that meets your projected needs.
Many times, the deciding factor is whether you can buy a building, ‘right.’ If a building can be acquired in the lower range or below market value and/or combined with market-driven incentives, the opportunity is worth serious consideration.
Sometimes it comes back to pride of ownership. In Northeast Ohio, we are fortunate to have a wealth of successful entrepreneurs who want to own their real estate simply for pride or a desired image, even if they have to pay a premium for it.
Why do business owners decide to lease?
One reason would be that your space requirements could fluctuate, so you don’t want to be locked into a building. Often this can be market driven; your business grows when the market’s healthy and contracts when it’s not. Also, many large national or global companies lease space because they don’t want to be in the real estate business and worry about selling a property when they decide to relocate.
You also should look at the return on investment. In real estate, a typical return for a market transaction would be 8 to 13 percent on the property’s value. However, if you have a dynamic business that’s getting a 25 to 30 percent margin on your products, it may be better to put your cash into increasing manufacturing and market share for the higher ROI. In addition, our financial markets have changed over the past five years. In most cases, traditional real estate financing has higher equity requirements, such as 25 to 35 percent down, which could also be a deal killer.
How can a lease-purchase analysis help?
To determine the actual cost of occupancy, bring in a qualified broker or consultant to run a lease versus purchase analysis. On the lease side, you look at your base lease rate, utilities, pass throughs and any other additional costs. On the sale side, you’re weighing your equity requirement, mortgage payment, property upkeep, maintenance, insurance and taxes. The analysis gives you a clear-cut idea of whether you’re better off leasing or buying.
The final decision will not always be the lowest cost alternative, but this analysis will at least let you know where you stand based on the cost of occupancy. Then you can consider other factors, like proximity to your customer base as well as employees, flexibility and personal objectives.
How far out should you start considering whether to lease or buy?
The perfect situation is at least one-and-a-half to two years ahead of when you need to make a decision. You need to understand the current market trends, all of the logical lease and sale alternates and the price of new construction, while projecting where your business will be in five or 10 years combined with personal objectives. You can go into the market and identify the perfect alternative, but it could take a year to consummate a transaction — and even more time if you’re building new, retrofitting or applying for government incentives. If you let that fuse get too short, it limits your alternatives.
Joseph V. Barna, SIOR, is a principal at CRESCO Real Estate. Reach him at (216) 525-1464 or email@example.com.
Get analysis of trends in the industrial and office real estate markets by downloading our quarterly Market Beats report.
Insights Real Estate is brought to you by CRESCO
Health care cost transparency is the ability of patients to learn how much a medical service or treatment costs, preferably before receiving the service or treatment. This is important because treatment and service costs vary widely from doctor to doctor and from facility to facility.
“In all my travels, with all the different hospitals I visit — hundreds of them — only one had the general charges of fees and services, like cost per day in the hospital, posted up on the wall. It just doesn’t exist today,” says Mark Haegele, director, sales and account management, at HealthLink.
“This system has made it difficult for people to get the information. We’re getting there, but a spotlight on transparency and the cost and options gives people a little more decision-making authority,” he says.
Smart Business spoke with Haegele about the shift toward transparency and helping employees shop for better health care prices.
Why do health care prices vary so much?
Physicians are just trying to diagnose you to help you get better. In addition, surgeons only get paid if they recommend surgery. So, cost doesn’t really weigh into whether patients get knee replacement surgery or are sent to therapy for six months.
If you go to a store and look for a refrigerator, one of the first things you try to figure out is the price. But if you go to the doctor, and you’re talking about getting your knee replaced, that conversation — if it ever comes up — comes up at the very end.
The average treatment for heart failure might vary by tens of thousands of dollars within the same city. A list of Medicare costs, released by the Centers for Medicare & Medicaid Services, found a difference of $21,000 to $46,000 in Denver, Colo., or $9,000 to $51,000 in Jackson, Miss.
Only some rate differences are because of health care’s complexity. If two people with the same insurance get a tonsillectomy at the same hospital, they still could have different doctors ordering different levels of anesthesia and pain medicine with different philosophies on hospital-stay length.
How does transparency lower costs?
As the government, media and patients push for reliable cost and quality information, it motivates the entire system to provide better care for less money. For example, according to the book “Unaccountable: What Hospitals Won’t Tell You and How Transparency Can Revolutionize Health Care,” the governor of New York mandated that hospitals publish their mortality rates for heart surgery. By the year following, hospitals started implementing quality metrics to reduce mortality, and the trend in the mortality rates dropped dramatically, which ultimately saved lives.
In another instance, a Thomson Reuters study of a Chicago employer found a cost variance of 125 percent for health insurance members receiving an MRI of the lower back without dye, with similar differences in diagnostic colonoscopies and knee arthroscopy procedures. If employees were given information to select providers at or below the median cost, it was estimated the company could save $83,000.
What can benefit administrators do to help facilitate transparency?
As a general rule we feel helpless, but there are some things benefit administrators can do to move costs. You’ve got to get information out to members, and then align incentives. The average member, once he or she meets the $2,000 out-of-pocket maximum, for example, doesn’t care if a hip replacement costs $5,300 or $223,000. They should — but most don’t make better purchasing decisions until it impacts them.
Under a self-funded health plan, you have more control over what you are able to publish and demonstrate to employees, as well as more ability to align incentives. But regardless, you need to start identifying costs of providers of key procedures to treat your health plan like an asset.
By putting together a best-in-class grid for your members, and then aligning incentives to ensure they use the lowest cost providers, such as giving a $200 gift card, you can empower your members and move the needle on health care cost.
Mark Haegele is director of sales and account management at HealthLink. Reach him at (314) 753-2100 or firstname.lastname@example.org.
Website: Visit the website to learn more about transparency and other key health care business trends.
Insights Health Care is brought to you by HealthLink
Business owners and corporate executives tend to overinvest in their businesses, often ending up with a large portion of their wealth at risk to the fortunes of one company. However difficult, these owners need to diversify their financial assets to better survive periods of stress. The rules of prudent investing tell us that any more than 10 percent of one’s wealth invested in any one company is too much.
“Diversifying is not natural to individuals so closely connected to one business, but it can be a serious risk to their underlying wealth and the financial health of their entire family,” says Nina M. Baranchuk, CFA, Senior Vice President and Chief Investment Officer at First Commonwealth Advisors.
Smart Business spoke with Baranchuk about how to structure portfolios to diversify or offset these concentrated risks.
Why do corporate executives or business owners need to diversify?
Even regular employees get a company paycheck and buy company stock in the 401(k) or the employee stock purchase plan, so the concentration risks for all employees can be severe. Senior executives often accumulate additional large holdings of company stock and options as part of their compensation.
A business owner’s company may also be a disproportionately large part of his or her portfolio as well. An owner bears the risk of the entity and any economic, competitive or regulatory forces that might impact it. Like putting all your chips on red, there are serious consequences to holding so much ‘concentrated’ wealth if things don’t go well. In addition, these holdings can be illiquid — there is no easy exit under times of stress.
How should business owners construct their passive investment portfolios?
In some cases, it may not be possible to diversify much. If an owner can take cash out of the business, he or she should work with a qualified portfolio adviser to ensure that all of his or her passive investments are built to complement or offset the risk. A qualified adviser can craft a portfolio that helps to mitigate your specific concentration risks and manage your overall exposures.
For example, a local Pittsburgh businessperson might be concentrated in a steel or metal fabrication business. So, he or she would share exposure to the fates of this or other industries as well their end markets in the U.S. or overseas. He or she also may have significant risks to things like geography, interest rates, significant product input costs, etc.
You can easily have issues of exposure based on subtle or indirect connections. Some risks to a firm are really in your supply chain or the financial health of a customer’s industry. Maybe you have one or two dominant clients that represent a large percentage of your revenue stream. Geographical risks loom large for some companies as well.
A portfolio built to offset these risks might exclude many other holdings in the industrial arena and overinvest in industries that often do well when industrials/metals do not — think consumer-purchase staples like food and household products or utilities.
What’s another example of offsetting your risk?
One family we worked with had made its wealth in the real estate business — owning everything from apartment complexes to high-rises. Our analytic work found that two good offsets for these holdings were private equity and financial stocks. Thus invested, whatever happens to interest rates, private equity and financials will react in opposition to the direction of real estate, counteracting one of its most impactful environmental factors.
What should executives consider?
While many executives have limited ability to divest their options or stock, they should certainly not invest their 401(k) in the company stock or buy additional shares. Remember that the executives at Enron and WorldCom went down together, along with their options, pensions, paychecks and other compensation.
In this world of heightened competitive and financial risks, no business is immune from potentially negative outcomes. We urge our clients to make sure they have done everything possible to ensure their family’s financial health by planning for worst-case scenarios.
Nina M. Baranchuk, CFA, is a senior vice president and chief investment officer at First Commonwealth Advisors. Reach her at (412) 690-4596 or email@example.com.
To learn more, call (855) ASK-4-FCA, or visit ask4fca.com.
Insights Wealth Management is brought to you by First Commonwealth Bank
The Family and Medical Leave Act (FMLA) entitles eligible employees of covered employers to take unpaid, job-protected leave for specified family and medical reasons. However, should an employer fail to comply with the FMLA requirements, the employer could be subjecting itself to litigation and possibly fines from the Department of Labor.
“There are a lot of obligations on the employer. To the extent that you’re not aware of these, you should contact an attorney to make sure you’re following the strict requirements of the FMLA,” says Michael B. Dubin, a member at Semanoff Ormsby Greenberg & Torchia, LLC.
Smart Business spoke with Dubin about employer compliance with the FMLA.
What does the FMLA allow employees to do?
Eligible employees are entitled to 12 workweeks of unpaid leave in a 12-month period for:
- The birth of a child and to care for the newborn child.
- The placement with the employee of a child for adoption or foster care and to care for the newly placed child.
- To care for the employee’s spouse, child or parent who has a serious health condition.
- A serious health condition that makes the employee unable to perform the essential functions of his or her job.
- Any qualifying exigency arising out of the fact that the employee’s spouse, son, daughter or parent is a covered military member on ‘covered active duty;’ or 26 workweeks of leave during a single 12-month period to care for a servicemember with a serious injury or illness if the eligible employee is the servicemember’s spouse, child, parent or next of kin (military caregiver leave).
What employers are covered by FMLA?
The FMLA only applies to employers that meet certain criteria. A covered employer includes a private-sector employer with 50 or more employees in 20 or more workweeks in the current or preceding calendar year; and public agencies and public or private elementary or secondary schools, regardless of the number of employees.
What employees are eligible for FMLA leave?
Employees are eligible if they: have been employed by a covered employer for at least 12 months, which need not be consecutive; had at least 1,250 hours of service during the 12-month period immediately preceding the leave; and are employed at a worksite where the employer employs at least 50 employees within 75 miles.
Can an employee take intermittent leave?
Under certain circumstances, an employee may take FMLA leave on an intermittent or reduced schedule basis. That means an employee may take leave in separate blocks of time or by reducing the time worked each day or week for a single qualifying reason. When leave is needed for planned medical treatment, the employee must make a reasonable effort to schedule treatment so as to not unduly disrupt the employer’s operations. Employers must be careful to accurately track intermittent leave.
Can an employee be terminated at the conclusion of the 12-week leave?
Upon return from FMLA leave, an employee must be restored to his or her original job or to an equivalent job with equivalent pay, benefits, and other terms and conditions of employment. However, there is a limited exception for ‘key employees’ where reinstatement will cause ‘substantial and grievous economic injury.’
Many employer FMLA policies provide that if an employee fails to return to work at the conclusion of the 12-week leave, the employee will be deemed to have abandoned his or her job and/or will be automatically terminated. Employers are discouraged from maintaining this type of policy as it may be deemed a violation of an employee’s rights under the Americans with Disabilities Act (ADA). At the conclusion of an employee’s FMLA leave, employers should consider whether the employee will be able to perform the essential functions of the job with or without a reasonable accommodation (pursuant to the ADA), which may include additional time off following FMLA leave.
If confronted with an issue under FMLA, employers are cautioned to contact an attorney to ensure they are acting in conformity with the FMLA and avoiding the numerous pitfalls inherent in complying with the FMLA.
Michael B. Dubin is a member at Semanoff Ormsby Greenberg & Torchia, LLC?. Reach him at (215) 887-2658 or firstname.lastname@example.org.
Insights Legal Affairs is brought to you by Semanoff Ormsby Greenberg & Torchia, LLC
Many owners of small and midsize businesses are aware of cloud technology and software as a service, but don’t understand its radical cost transformation. It’s no longer a technical curiosity but a competitive necessity.
“The cloud brings a tsunami of cost-effective IT to the small business’s front door,” says Kevin O’Toole, senior vice president and general manager of Business Solutions at Comcast Business Services. “But it does bring two challenges with it. You have to pick the right partners, adopt the right technology and have good support. And your competition is going to embrace these technologies, so if you don’t figure out how to embrace this your business will be at a competitive disadvantage.”
Smart Business spoke with O’Toole on what to know about software as a service.
Why are small and midsize businesses buying software in the cloud?
IT for small and midsize businesses used to be about scarcity. They couldn’t afford expensive servers and staff to maintain them. Now, the cloud allows everyone to buy applications and services on demand, as they need it. Instead of having a server that may or may not get backed up or upgraded, everything is housed in an industrial data center with strong security and software that is regularly patched.
Also, when you buy a server, you’re buying capacity for the future. But when you buy software from the cloud, you can get it on a per user basis, adding or taking off users as your company changes.
Overall, software as a service allows you to focus on your core business. The cloud can help you get customers and serve them more efficiently, help your back office run more productively and help keep your costs down.
What kind of software applications are businesses getting from the cloud?
Pretty much anything can be managed out of the cloud at this point. Business owners are getting messaging through a hosted email exchange service. They are buying data backup services and file sharing services. With conference services, literally a couple of minutes later you can be doing a conference from six different locations with video and screen sharing. Other applications being adopted are financial and human resources services.
What do businesses need to know upfront?
The biggest things to know are:
- There are a lot of providers out there, but you want to buy from providers you can trust. It’s actually not that hard to start a cloud company, but it is hard to run one well. Sorting through the clutter and having someone vet providers for you is very valuable. Make sure when you put your business information into someone’s hands, it’s someone you trust.
- Have insight on what you intend to do with the system, so you don’t implement one system only to find out you really wanted additional features in a larger system. Also, even though your overall financial costs are lower with the cloud, there are also adoption efforts to consider, such as training your employees.
- Try to buy services in an environment with great user management and support. For example, if you’re using five different cloud applications, you don’t want each employee to need five logins and passwords. From a support perspective, make sure you have a partner on the other end to help with any troubleshooting.
- While a Google search of any cloud-based application or service will give you many listings, it is important to work with someone who can sort through it all. Find someone to ask hard questions of the cloud provider and set the bar high on quality.
What do companies do if they have technical questions about cloud-based software?
Like any technology project, you will have support questions — things do go wrong and there is confusion. It goes back to how you bought your cloud service. You can go to the source and work directly with a software vendor to purchase, onboard and maintain business applications via the cloud. You may get great support, or your provider may not always answer the phone leaving you with a major problem that you can’t solve right away. By going through a cloud expert that has the technical know-how to answer questions and troubleshoot when necessary, you can maintain that focus on your core business while also making your business more effective with the cloud.
Kevin O’Toole is a senior vice president and general manager of Business Solutions at Comcast Business Services. Reach him at (855) 867-5010 or email@example.com.
Learn more about Comcast’s new online marketplace of business-grade cloud solutions with simple access and account management.
Insights Telecommunications is brought to you by Comcast Business
The Division of Corporation Finance, a part of the Securities and Exchange Commission, issued guidance on disclosure obligations related to cybersecurity risks and incidents a few years ago. Public companies aren’t yet required to disclose this information to shareholders, but they could be at some point, says Brittany Teare, IT advisory manager at Weaver.
“Right now, this is guidance that is in the best interest for your shareholders, but that will likely change. It could become a requirement sooner rather than later,” she says.
Smart Business spoke with Teare about the guidance and how businesses can measure and guard against cyberrisks.
What are the SEC reporting requirements for cybersecurity under this guidance?
The guidance expands upon the existing requirements that public companies follow, but there’s no mandatory piece yet that results in a direct impact if a company doesn’t disclose information.
Basically, the guidance states that if cybersecurity risks and cyber incidents have a material effect on your shareholders — if it could affect how financial information is reported — you have to report them.
How do you know when cybersecurity risks materially impact your company?
The guidance addresses some possible risks and whether they should be voluntarily reported to shareholders. If you don’t have cybersecurity controls around your key financial systems, for example, then the way you record or report your data can be easily manipulated or altered. Even if a cyber breach has not yet occurred, it is very likely.
Cybersecurity is a gray area. Employers typically know that network and perimeter security, access and change controls should be in place, but executives may not consider disclosing vulnerabilities. CEOs and CFOs typically look at balance sheets and see line items for hardware and other things they can touch, but it can be challenging to consider the ways a breach can happen.
How would you advise CEOs to quantify data and see vulnerabilities?
First, designate a person or group of people to be responsible for cybersecurity. They should not only understand SEC requirements and where they are potentially heading, but also must identify specific risks.
There is a central entry point in any network, so key people need to know where the sensitive data is because if an attacker gets there, it could add up to a huge loss. If the company does not store much sensitive information, an attack could impact its reputation, which is more difficult to value.
Another challenge is improving communication from the CIO or IT manager. Often, IT will say, ‘We need X dollars for new equipment, applications and hardware that are going to help make our organization more secure.’ When management hears this number, which can be millions in larger organizations, they want to know the ROI. However, IT personnel typically struggle to quantify that.
A CIO needs to be able to tell other executives, ‘If this firewall, application or system is not installed, a breach would cost us X dollars, or the company could lose X dollars per day,’ for example. Not everything can be quantified, but this gives CIOs a starting point.
What will protect your data and reputation?
Some key, high-level steps to consider are:
• Take inventory of the data systems and gain an understanding of where critical data is located. Then, work to ensure that there is an appropriate amount of security in those areas.
• Use complex, strong passwords to protect the network, systems and data, and regularly change them. Have the system lock out users after a certain number of failed attempts and log all such activity.
• Heavily monitor networks and systems. Check who is logging in and from where, who is successfully entering and who is failing. Then, set a baseline to understand any abnormalities.
• Use the principle of least privilege, especially for critical accounts and functions. This ensures that no single employee has all access; rather, access is tailored to the job function.
There is more companies can do. But by implementing key, basic controls, if a breach occurs, the business can more easily identify what happened and how.
Brittany Teare is IT advisory manager at Weaver. Reach her at (972) 448-9299 or firstname.lastname@example.org.
Website: More information about the SEC guidance.
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As an in-law coming into a family business, you’re stepping into one of the hardest working environments imaginable. A family member is held to a higher standard than regular employees, but an in-law has to work even harder than a family member.
“It really takes someone with vision and purpose because there will be a lot of extra challenges,” says Ricci M. Victorio, CSP, CPCC, managing partner at the Mosaic Family Business Center.
If you lay the right groundwork, establish clear expectations, and work with an adviser familiar with the challenges that will occur, she says it can be a productive and joyous experience.
Smart Business spoke with Victorio about how in-laws can successfully enter the family business and thrive.
What challenges do in-laws face when coming into the family business?
The hardest thing to overcome is perception. It doesn’t matter if you have an MBA from Cambridge or a Ph.D. from Harvard. When it comes to in-laws, the fact that you married into the business downgrades any credentials in the eyes of non-family managers or employees. People will tend to judge you harshly, so be patient and don’t take it personally.
How can an in-law successfully enter into the business?
The position, pay scale and responsibility must match the in-law’s experience and education. Thrusting an unqualified in-law upon people, no matter how great he or she is, makes it a much harder road. For example, an in-law was a sales manager making six-figures who was downsized. Now, he’s in trouble financially, and the family is worried. The family can bring the in-law into the business, which might be in another industry, but he shouldn’t start as the head of the sales division. He needs to learn the business and earn his way up the corporate ladder. If parents are still concerned about the financial gap, they can consider gifting additional monies from outside of the business — to help until he earns his way up.
It can be helpful to have the in-law candidate interview with the executive management team to gain support.
How can in-laws overcome the assumption that they have the boss’s ear?
You can’t expect the employees to be your friends, because they are going to assume that anything they reveal will get back to the boss. It can feel isolating and you have to be above reproach. Stay professional and never assume to be the heir apparent.
Also, if you have a problem, resolve things through the proper chain of command. If you’re not reporting to your father-in-law, don’t go to him when you have an issue.
Remember when you come home and complain to your spouse about work that you’re talking about a family member. Your spouse may get defensive, run to whomever you’re complaining about or start disliking that person. Try to share more than just the bad days.
What documentation is needed to protect the business, and the in-law?
Families with a high net worth business typically will require a prenuptial agreement that protects the stock from leaving the family in the case of divorce or death of the blood relative. However, there are incentives such as restricted or phantom stock for high-performing managers, which can provide financial incentives that feel like ownership for growing the company.
It’s also critical to create family member employment and stock qualification policies. These policies define the benchmarks and requirements for all family members, whether an in-law or not, as to how they can become stockowners or hold key executive positions, clarifying the pathway and making family employees more accountable.
Why is having a succession coach valuable?
Engaging a coach who specializes in succession transitions to help employed family members can smooth the predictable challenges along the way. Family employees, including in-laws, need a safe place to talk, and guidance to strategize through the maze of issues that will occur. The coach also can facilitate a family business council, which provides a venue for family members to talk about business related topics, questions and issues that would normally feel inappropriate to bring up in a productive environment.
Ricci M. Victorio, CSP, CPCC, is a managing partner at the Mosaic Family Business Center. Reach her at (415) 788-1952 or email@example.com.
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