Historically, private business owners overestimate what their comprehensive general liability (CGL) policy covers, and therefore don’t buy the additional insurance they need.
According to the Chubb 2013 Private Company Risk Survey, 44 percent of private companies have experienced at least one claim in directors and officers (D&O), employment practices, fiduciary liability, employee fraud, workplace violence and cyber liability in the past three years. More than half of the executives interviewed mistakenly believed they had some form of coverage under their CGL policy.
As business owners run into a wide range of costly lawsuits, government fees, data theft, criminal activity and employment claims, they must deal with these disruptive issues, which tax their administrative capabilities and put a financial drain on the institution. Until a company experiences an event that isn’t covered by CGL, however, a business owner may not realize where the coverage gaps are.
“They are starting to understand that they have a problem but very few of them actually buy the extra insurance,” says James A. Misselwitz, CPCU, vice president at ECBM.
Smart Business spoke with Misselwitz about where CGL falls short and what to do about it.
What do private business owners need to know about CGL coverage?
- Cover legal liability arising out of bodily injury and property damage, and also advertising injury and personal injury (libel and slander).
- Defend the company from lawsuits rising out of their operations.
- Defend against infringement on a trademark or copyright.
- Defend and litigate publications that involve liable and slander.
However, it doesn’t protect against:
- Wrongdoings of a director or officer of the company.
- Employment-related lawsuits, such as retaliation, harassment or sexual bias.
- The personal liabilities arising out of mismanagement of a pension or 401(k) plan.
- Professional liability risk arising out of services rendered for a fee, such as charging for estimates and quotes.
With D&O liability, why would a privately owned company be affected?
It only takes a marriage, divorce and/or another generation to get involved for a company to become vulnerable. Let’s say a second-generation heir is going through a divorce that isn’t amiable. Now, their spouse may feel like they have a right to an asset that they think is being mismanaged.
Almost all CGL forms exclude cyber liability arising out of social networking and social media, even as defamation and copyright infringement lawsuits increase in this arena. With social media, nothing is as simple as it seems and the ramifications of doing something wrong can be devastating.
In addition, business owners may believe their required ERISA bond covers fiduciary liability. An ERISA bond only protects a retirement plan’s assets from theft. It doesn’t protect the personal assets of fiduciaries who are found in breach of duty, such as making poor investment decisions. For that, you need to buy fiduciary liability insurance.
What’s your advice for business owners who may not have enough coverage?
You need to examine the activities of your company closely, while comparing current insurance policies, so that large holes in coverage don’t crop up. Basically, business owners need to discuss with a knowledgeable insurance broker what risk they can effectively transfer to an insurance company.
But as business owners start becoming aware of areas where coverage is a concern, some still fail to pull the trigger on an up-to-date insurance program. Many think this kind of additional coverage is expensive. However, the marketplace has already responded with insurance companies forming management liability packages that combine risks and lower costs.
The other problem is that some insurance brokers are unable to have an in-depth discussion about these types of coverage. Interview your broker to assess your risks,
and whether or not those risks have been transferred. If you feel your broker is not knowledgeable, then it may be time to call another broker. ●
Insights Risk Management is brought to you by ECBM
Two years ago, multiple bidders for commercial property in Northeast Ohio would have been unheard of. Now, market power has shifted from the buyer/tenant to owner/landlord. Vacancy rates have dipped and the quality of the product on the market has significantly decreased, says George J. Pofok, CCIM, SIOR, senior vice president at CRESCO.
“As the market and the economy continue to improve, with the lack of quality product out in the market, I think we’re going to see more multiple-bid situations,” Pofok says.
Smart Business spoke with Pofok about what to do when you’re competing for commercial property.
What determines if a property might have multiple bidders? Is it the type of building or location?
Right now, multiple offers are happening more with industrial properties as opposed to office — and a lot of that has to do with the quality of the building. Class A Industrial buildings are in limited supply. So, a property’s cleanliness, building amenities and ceiling height make it more desirable and thus more likely to be competitive.
Location is important, including freeway accessibility, being near public transportation and your labor force, but amenities to a building sometimes outweigh location. If you were to build a new industrial building today versus purchasing another facility already equipped, there are cost savings in addition to being able to get widgets to the market quicker.
How does the bidding process typically work with more than one bidder?
Everything ends up being a one or two-step process, usually. The seller might give you a revised counter or just send you a letter saying, ‘We have multiple bids. Give us your highest and best offer.’ Then, you’ll have a couple of days to a week to respond. Obviously, getting your response in by the timeline the seller dictates is critical, but the terms of the offer are what drives everything.
There can be a lot of back and forth or the seller may end up picking a lead horse, and then try to fine-tune the economics with that bidder. They may like your offer but have one objection. They’ll come back to you about that objection.
So, how can you make your offer the most attractive one?
You’ll need to consult with your broker and your lawyer, and most importantly not play games. If you’re going to play games, you’re going to lose. Many buyers or tenants still think, ‘I’m going to get this great deal on this building.’ When in fact, the market has shifted in favor of an owner/landlord.
You want to be as highly competitive and flexible as possible. In addition to increasing your offer, some advantages a buyer or tenant can use are to pay cash or increase the amount of earnest money. Earnest money is put toward the down payment when the transaction is finalized but may be kept by the seller if the buyer defaults on the purchase.
It helps if you’re able to shorten the amount of days you have requested for due diligence or financing contingency, where you apply for lending. For example, 90 days may be too long under these circumstances; something in the 45-day range is better.
Also be flexible when negotiating reps and warranties. Buyers sometimes ask for the owner to warranty and represent various issues regarding the title or environmental concerns for an extended period of time. However, owners just want to sell, cut the cord and be done. Consult with your attorney when discussing these issues. Money talks. So, increasing your offer from a purchase price perspective is critical, but it’s not the ultimate factor. If an owner has two offers and one is for $50,000 less, but the terms in the lower offer are much more palatable with less due diligence and more earnest money, he or she may be willing to take the lower offer. Sellers and landlords are going to look at everything.
Are buyers assuming more risk under these circumstances?
At times, yes, it’s riskier. You may take a little more risk than you’d prefer. If the terms of the deal get too onerous, walk away. There will be other opportunities, but it needs to make sense. That’s why you definitely want to leave the emotional part out of it. Look at it from a business perspective, and put together the best offer you can. ●
Insights Real Estate is brought to you by CRESCO
Technology is impacting business owners at jet speed with accelerating volatility and rate of change — and it’s caught some off guard.
Historically, if you were making a product or providing a service, your only job was taking care of your customers, says Bill Julka, vice president of Blue Technologies Smart Solutions.
“Now, technology has become so pervasive, it has become the business. If business owners neglect technology, they do it at their own peril,” he says. “They have to pay attention — hiring the right people and interfacing with the right vendors who can help them navigate through technology and all its myriad uses in their own business.”
Smart Business spoke with Julka about business technology and IT budgets today.
What has changed with technology?
Technology has gotten complex. The days of needing computers and an IT department for just basic accounting functions are gone. With social media and mobile devices, the world is connected any time, anywhere. Employees want to print from their mobile devices and access office computers, information and databases when on vacation.
This makes it difficult for business owners to do everything in-house. Companies depend on reliable technology vendors, which act almost like business partners. By partnering with somebody attuned to technology, business owners aren’t spending time in areas they aren’t comfortable with.
When creating an IT budget, what’s important to understand?
Many business owners feel their largest discretionary expense is IT. But you need a consistent IT budget, good times or bad. In good times, it helps you run your business and create satisfied customers. In bad times, you need to spend the IT dollars wisely to improve efficiency to gain a competitive advantage and provide better service at a lower cost.
When setting IT budgets, management needs to understand and be able to measure the direct relationship between IT and productivity. A trusted, proven vendor can help provide analytics that show the results of technology adoption.
What are common IT budget concerns?
Many business owners feel IT budgets keep increasing, while the level of service deteriorates. They also complain about the unpredictability. For example, software upgrades aren’t easy to manage.
In addition, companies are finding they need electronic content management software to take full advantage of their technology, research and data. Without software to rapidly search the enterprise’s servers, efforts are duplicated or wasted, further stressing IT budgets.
Why is outsourcing a good answer, and when doesn’t it work?
Technology has indirect costs often left off IT budgets. The budget needs to account for the energy it takes to house infrastructure or the cost of rolling out technology. With labor, outsourced support can provide services more efficiently. The outside provider monitors a network cost effectively with better-trained people assigned over a large number of clients. Also, what if you need one-eighth of a network engineer and half of a firewall expert? Outsourcing helps a company only pay for what it actually needs.
One company switched to an outsourced vendor and its IT budget went from increasing 10 or 20 percent annually to 3 percent. Customer service went up in a measurable manner. With an outsourced vendor, costs are predictable, no matter the technology and how often it’s upgraded.
However, there are exceptions, based on the product or service. If your unique product or service doesn’t have skilled vendors for your particular area, you won’t achieve economies of scale. Also, you may not want to share proprietary knowledge with anyone, even an outsourced vendor.
What’s key to measuring ROI?
First, calculate where you are now. Then, implement the technology and gauge key performance efficiency measures, with help from your vendor. Certain efficiencies are instantly noticeable, such as customer service or costs. Other complex technologies may take a few months or a year to generate results. It’s a matter of developing a strategic plan, following it and then measuring the results. ●
Bill Julka is vice president at Blue Technologies Smart Solutions. Reach him at (216) 765-1122, ext. 8211 or email@example.com.
Insights Technology is brought to you by Blue Technologies
If your company sponsors a pre-approved defined contribution retirement plan, such as a 401(k), money purchase or profit sharing plan, your plan documents will need to be completely revised and restated sometime between May 2014 and April 2016.
The IRS requires this restatement process every six years to incorporate all of the regulatory and legal changes that have been imposed by Congress. Without it, the plan will lose its tax-favored status.
Your retirement plan administrator should be having a dialog with you about this already, says Bonny Lightner, J.D., Manager of Technical and Legal Compliance at Tegrit Group.
“We try to get to people right away, especially if they haven’t done anything with their plan in the past six years,” she says. “If plan sponsors know in advance, they can budget for it and have time to be able to really look at it.”
Smart Business spoke with Lightner about what employers need to know regarding restatements, and how to take full advantage of this opportunity.
Which plans must undergo restatement?
About 80 percent of all retirement plans rely on pre-approval letters from the IRS, where the IRS gives its ‘blessing’ to a plan document format with certain limited elections for plan provisions. While all plan documents are extremely complex, a pre-approved document can make a plan less expensive to create and operate than an individually designed document.
All pre-approved defined contribution plans must undergo the restatement process during the upcoming two-year period.
What does the restatement process involve?
This process involves the document drafter — such as a third-party administrator — reviewing, rewriting and updating the plan and summary plan descriptions (SPD), and then assembling and delivering the plan, SPD and related policies to the plan sponsor for approval and signature. Related policies may include separate loan policies, qualified domestic relations orders policies — which are used as part of divorce settlements to divide up a participant’s 401(k) benefits — or withdrawal policies.
How else can business owners benefit from going through a restatement, aside from retaining their IRS tax-favored status?
The plan restatement process is an opportune time for a comprehensive plan review. Don’t just update and restate the document, have your document drafter take an in-depth look at the plan in order to see if it is really meeting your needs. Use this time to:
- Confirm the document provisions match the actions of how the plan is being operated.
- Identify whether changes are necessary or wanted going forward, such as wanting to add a Roth feature.
- Enhance the plan design to be more in line with your objectives, such as tax and retirement objectives, based on workforce demographics. For example, if a person is 50 years or older, he or she can defer catch-up contributions on top of his or her regular deferral amounts. If an employer sees its workforce is aging, the company might want to add that.
- Maximize the value of the plan by making sure that it still meets the needs of your company and its employees.
This type of consulting may or may not be part of the restatement fee, but either way it’s something to strongly consider. Otherwise, six months down the road, the plan sponsor might say, ‘I really don’t like X provision.’ The change will then require an amendment — and amendments have a fee.
Even if you love your plan the way it is and want to keep all plan provisions the same, you still must have your plan updated during the restatement period from May 2014 to April 2016. The fee to restate the plan for IRS compliance may be paid from the plan’s assets if the plan document permits.
Remember, failure to restate a pre-approved plan could result in loss of the plan’s tax-favored status with the IRS. This in turn could result in loss of deductibility of employer contributions to the plan, immediate recognition of income to plan participants on vested account balances and loss of tax-exempt status to the plan’s trust. Missing the restatement deadline is a serious matter. ●
Bonny Lightner, J.D., is manager of Technical and Legal Compliance at Tegrit Group. Reach her at (330) 983-0560 or firstname.lastname@example.org.
Insights Retirement Planning Services is brought to you by Tegrit Group
Emergency room overutilization is a prevailing problem for most employers. For example, looking at HealthLink’s book of business, almost invariably more than 65 percent of ER visits are for non-emergency reasons. They fall into the categories of disease and virus or symptom, such as headaches, gastroenteritis, sinusitis and influenza.
“The cost of an average ER visit ranges from $1,300 to $1,500, but the average urgent care or client visit ranges anywhere from $120 to $500,” says Mark Haegele, director of sales and account management at HealthLink.
“If you move any of those visits from the ER to other care settings, you’re saving roughly $1,000 per visit,” he says. “And hundreds of visits add up to hundreds of thousands of dollars.”
Smart Business spoke with Haegele about turning member information into intelligence, in order to control plan costs.
What’s the first step to creating a strategy to decrease ER utilization?
It’s important to look at your health plan membership data to find patterns. Then you can focus on a communication strategy and specific messaging to change behavior. It helps if your health care plan is partially self-funded or self-funded because you typically have access to more data.
To determine what actions to take to control ER utilization and cost, first look at the number of visits your group has in 12 months, comparing that year-over-year. Even if you’re not seeing an increase, there will be opportunities for cost containment.
Also, find out if you have a frequent flier issue. Are people going to the ER three or more times in a given year? Are some going five or more times? Determine what days of the week people are visiting the ER. If there’s a spike on weekends, educate members on how to access other care settings on Saturday or Sunday. You can look at where the emergency care is taking place. Is it isolated to a particular community or split across a region of the country? Finally, break the visits down by disease, virus and symptom versus injuries and poisonings. If someone breaks an arm, for example, he or she is going to go — and should go — to the emergency room.
Once you’ve examined the data, what’s next?
Once the data is gathered, and you’ve discovered some of the challenges, set up metrics. If your average number of ER visits have been consistently at X per 1,000, or X per year if your membership has been consistent, then the question becomes can you eliminate 30 or 40 percent of the visits for disease, virus or symptoms? That’s your target for the following year.
How can employers educate and influence health plan members?
You need to come up with a multi-faceted communication strategy. Create one piece of communication that goes to all members, such as a flier on the proper use of the ER. But you also should reach out to certain groups differently, such as frequent fliers.
Use the information about what hospitals members are visiting to generate a directory of urgent cares and clients in and around the same zip code. Nearly 80 percent of adults ages 18 to 64 visited the ER in 2011 due to lack of access to another provider, according to Amerigroup. Another way to influence members is to ensure they know the number for the health plan’s 24-hour informational nurse line, which most plans have.
The more you share specific costs in your communications, the better people will respond. Include a grid that specifically shows the cost to the employer and member for all different care settings.
Another idea is to communicate a list of non-emergency diseases or symptoms that create overutilization. This gives people food for thought. And put it in plain English. Don’t say gastroenteritis; say stomach pain. Don’t say urinary tract infection; say kidney pain. However, be careful how you coach this; you don’t want to tell people not to go to the ER. It’s more about awareness and education.
What about raising co-pays?
Yes, higher co-pays get people out of the ER, but raising the cost has become too abused — and it often gets shifted from the employer to members. Before you start digging into the member’s pocket, give them the opportunity to do the right thing on their own. ●
Insights Health Care is brought to you by HealthLink
Health care reform news, and the ever-present talk of delays, has created confusion for employers and employees alike, but they still must consider certain tax issues for 2013 and 2014.
“There’s so much information, you might ask yourself, ‘Where do I turn?’” says Kimberly Flett, CPA, QPA, QKA, director of retirement plan services at SS&G.
Beyond starting with the major federal governmental agencies — the IRS, Department of Labor (DOL) and Department of Health and Human Services (HHS) — for the rules, employers need a team of well-informed advisers.
“A plan sponsor’s burden is to make sure that they have the right players,” she says.
Smart Business spoke with Flett about tax implications of health care reform that everyone needs to know.
What do taxpayers need to know for their 2013 taxes?
High wage earners — a $250,000 threshold for married filing jointly, $125,000 for married filing separately and $200,000 for all other taxpayers — must pay a Medicare tax of an additional 0.9 percent, for a total tax of 2.35 percent. Those with $200,000 or more of income had this tax withheld at the payroll level during the year, but it doesn’t take into account spousal income. As you get your tax information together, review your W-2 to ensure payroll withheld enough, and work with your tax adviser to determine if adjustments are needed on Form 1040.
A second Medicare tax of 3.8 percent will be assessed on net investment income of high wage earners, which includes gross income from interest dividends, royalties, rents and annuities; other gross income derived from a trade or business; and gain attributable to the disposition of property. This applies to many business owners who need to make sure they’ve kept good records for their tax advisers.
Another change is with the itemized deductions on Schedule A of Form 1040. The medical expense deduction increases from 7.5 to 10 percent for those under 65.
Is the individual mandate still going ahead?
The individual mandate is still going into effect for 2014 taxes, on an individual’s Form 1040, with few exemptions. Those without health insurance coverage will pay a penalty based on the household, so a taxpayer could be paying penalties for dependents as well. The 2014 penalty is the greater of either $95 or 1 percent of modified adjusted gross income. Over time, the $95 increases to $695.
What’s crucial for employers to understand about the upcoming year?
There’s a lot of confusion surrounding the Patient Centered Outcomes Research Institute (PCORI) fee, which helps pay for the Affordable Care Act. If your company sponsors a fully insured health plan, the carrier was required to pay $1 per covered life by July 31. An additional fee of $2 per covered life is due by July 31, 2014.
However, if your company self-funds its health plan, it was required to pay the PCORI fee in July. Many businesses missed this, and therefore need to talk to their tax advisers immediately. Although guidance is still evolving, the IRS may assess penalties.
If your company has a health reimbursement arrangement (HRA) or flexible spending account (FSA) that’s not affiliated with a medical program, it’s considered self-funded and could be subject to PCORI fees for employees. Again, many employers missed these fees.
Other areas to watch are:
- FSAs have been capped at $2,500, but an employer sponsoring one of those plans must have all document amendments related to this in place by the end of 2014.
- Self-funded health plan sponsors must pay a reinsurance fee — $63 times the covered lives — by the end of 2014. A head count is due to HHS by Nov. 15, 2014.
- The employer mandate may have been delayed, but 2014 is the time to plan. Start realizing how you can count your employees, and fulfill the requirements.
Finally, the DOL is now auditing health and welfare plans. They are looking to see if medical plans, HRAs and FSAs all have updated Summary Plan Descriptions. They also are checking on notice requirements, such as the Summary of Benefits and Coverage given to employees. This has been a highly unregulated area, but the DOL is starting to be active — and companies are coming under scrutiny. ●
Kimberly Flett, CPA, QPA, QKA, is director of retirement plan services at SS&G. Reach her at (330) 668-9696 or KFlett@SSandG.com.
Insights Accounting & Consulting is brought to you by SS&G
To organize and carry out your household financial plan, you need to ensure finances are checked regularly and action is taken as needed.
“It’s easier to do these things in small bites. You don’t want to try and do a year’s worth of financial planning in one sitting. It can be too daunting, and then it never gets implemented,” says Geoffrey M. Zimmerman, CFP®, senior client advisor at Mosaic Financial Partners Inc.
Smart Business spoke with Zimmerman about executing personal financial planning.
What should a year of financial planning include?
January — Prepare a household net worth calculation that looks at all your assets against debts and liabilities. Compare last year’s statement to this year’s to see if you increased your household net worth. Also review your spending plan for the year as year-end reports become available.
Adjust your payroll elections to maximize contributions to employer retirement plans and/or executive top hat plans. For corporate executives, implement any exercise and hold strategies with incentive stock options.
February — Review your property and casualty insurance, such as homeowners and auto, especially if you made a major purchase last year. Your excess liability coverage needs to be adequate relative to both your current net worth and earnings potential.
March — Pull out old statements and clear out the deadwood. You’ll need to keep certain documents for tax purposes, like your cost basis on securities, but your advisers can suggest how long to retain documents.
It’s also time to look at your portfolio, and rebalance it if needed. According to Gobind Daryanani, in a 2008 Journal of Financial Planning article, if you look frequently and rebalance when an asset class has deviated from its target by 20 percent or more, you can pick up some additional returns.
April —Increase your Individual Retirement Account (IRA) contributions for the prior year before the tax-filing deadline. By funding your IRA now with $5,500 annually, $6,500 if you’re older than 50, funds are less prone to leak out of the ATM.
May — Update estate plan documents. Have there been changes affecting the people you have in place to act on your behalf? Were there changes in the tax laws, exemption amounts, your net worth or state of residence?
June — Time for a midyear review. Evaluate your placement of assets for tax efficiency, rebalance your portfolio and consider midyear tax loss harvesting in your after-tax accounts. If your non-IRA account has a security at a loss, you can sell it, take the loss and buy something similar but not identical. The losses can be used throughout the year or carried into the future.
July — Think about the future with your significant other, spouse or partner. Kick back, dream about what you and your family want, and jot down a few notes.
August — Check your Section 529 savings accounts for the kids and grandkids. If they aren’t set up yet, don’t wait; college isn’t getting cheaper. These plans allow contributions to be made to pay for post-high school education at a qualified institution, tax-free.
September — Pull out the notes on your future plans from July. Use it to update the financial plan, looking for necessary changes. Also, rebalance your portfolio.
October — With open enrollment, review employee benefit elections for medical, life, disability, vision, dental, etc. Also look at your outside insurance such as life and long-term care against current needs. Corporate executives with nonqualified deferred compensation plans need to elect salary deferral for the following year.
November — Begin year-end tax reviews to manage tax liability. It’s also a good time to finalize remaining charitable donations, including appreciated stock.
December — Do an end of year wrapup, such as annual gifting, financial portfolio rebalancing or tax-loss harvesting. IRA to Roth conversions must be done before Dec. 31. Also, go back to exercised incentive stock options and decide whether to do a disqualified position and sell that stock, or to hold it into the following year.
Finally, take a look at this list and see how much you were able to complete this year. Were you able to do it all? Lift a cup of egg nog and celebrate. And, if you didn’t, then consider enlisting the help of a financial planner to help you stay on track. ●
Insights Wealth Management & Finance is brought to you by Mosaic Financial Partners Inc.
Corporate social responsibility is the duty of a corporation to create wealth by using means that avoid harm to, protect or enhance societal assets.
“Since the U.S. is a developed country, people are more sensitive about not only the quality of products but also the actions of the corporation,” says Ekin Alakent, an assistant professor in the Department of Management, College of Business and Economics, at California State University, East Bay. “This is even true for companies that do not act responsibly in other countries where the public does not have the opportunity to voice an opinion.”
For example, the negative reaction to Apple, Inc., which was criticized for working conditions at the Foxconn factory in China a few years ago.
So how do corporations counteract a negative image?
One strategy is to get involved in public policy, by investing in lobbying, establishing political action committees or making soft money contributions, to offset negative corporate social responsibility records.
Smart Business spoke with Alakent, who researched this topic, about her findings.
How are corporate social and corporate political strategies interrelated?
Both corporate social and political strategies are considered nonmarket strategies, which deal with a company’s engagement with society. Therefore, both strategies have uncertain outcomes, and it’s very difficult to measure their effect on profitability.
To further cloud the causality, smaller companies can indirectly benefit from the investment of a larger company in the same industry. They may also belong to a chamber of commerce that has political action committees to lobby on their behalf.
However, in most cases, companies use both strategies simultaneously.
Which companies are more likely to use political strategy to improve public opinion?
One consideration is what issues are relevant. If there’s an upcoming election and a proposed regulation that would increase business costs, that year a company might heavily invest in issue advocacy groups.
In addition, companies that have poor social responsibility records tend to spend more money on political strategies to offset their negative image in society, such as those in oil and tobacco. Other factors that increase political strategy spending are available resources, size, industry and the extent they depend on government subsidies or support. For example, sugar, energy and agriculture all spend a lot of money on political strategies because they are directly affected by public policy.
Businesses that are more visible, measured by their advertising, care more about their public image, and tend to spend more money on political strategies.
Are there negative side effects to using corporate political strategy?
There is that possibility. Companies that heavily invest in lobbying — and that data is available, who invests and how much, on the OpenSecrets.org database — can be perceived as buying politicians. But, overall, the effect of not investing in political strategy is much bigger.
Corporations tend to overwrite the possible negative image. In fact, businesses spend more money on lobbying than other political strategies.
What do you think business leaders can learn from your research?
An important implication is that political involvement can benefit organizations in many ways. It helps them pre-empt unwanted regulation that could significantly increase their operating costs and improve their public image.
Since both formal institutions, such as laws and regulations, and informal institutions, such as social groups and nonprofit organizations, influence companies, they need to engage with their social and political environment. Be active in shaping the rules of the game. Being proactive with nonmarket strategies can help companies have strong brand reputation and forestall costly legislation.
By using these strategies, businesses are actually investing in a safer, better-educated and healthier society. It shouldn’t only be about offsetting negative public image, greenwashing or having a window dressing. It’s in their best interest to invest in their communities and act responsibly. ●
Ekin Alakent is an assistant professor in the Department of Management, College of Business and Economics, at California State University, East Bay. Reach her at (510) 885-2076 or email@example.com.
Insights Executive Education is brought to you by California State University, East Bay
Halal is the rules that influence consumption in the Muslim world, directed by the values and beliefs defined in the Quran. It refers to anything considered permissible and lawful.
The global halal market — food and non-food — is estimated to be in excess of $2.3 trillion, with the food sector alone reaching $700 billion annually, says Angelo A. Camillo, Ph.D., associate professor of strategic management in the School of Business at Woodbury University.
In Muslim countries, the halal industry is vital to societal development and economic growth. Global marketers also are strategically promoting the halal industry by targeting geographic clusters with large Muslim populations like France and Italy.
“The primary factor for the rapid expansion of halal is health related,” Camillo says. “Halal industries are emphasizing the sustainability, cleanliness and healthiness of their products.”
Smart Business spoke with Camillo about where this globalization is heading, and how business owners might get involved.
What kinds of products must be halal?
Halal impacts many products and services, although those that impact daily life most are food and beverage. In the Islamic religion, these products must be clean, pure and contaminant-free. For example, Muslims don’t consume pork byproducts, animals contaminated by intoxicants or killed prior to slaughter, or carnivorous animals or birds of prey. Many Muslims cannot take pain relievers manufactured with gelatin made from pigs’ feet and ears.
Some industries directly affected by halal guidelines are agricultural products (plants, animals and derivatives), chemical, health care, cosmetics, personal care, pharmaceutical and medical devices, and financial activities and business transactions.
How are halal products being globalized?
Halal food products produced and consumed locally may have a higher nutritional value, so halal businesses are emphasizing this over culture or religion. However, Islam is the main expansion driver — by 2030, the global Muslim population is expected to grow by 2.19 billion.
Halal producers often make their products on location, leaving insignificant carbon footprints without pesticides, fertilizers or genetically modified organisms. Despite this appeal, non-Muslim consumers may be reluctant to buy halal food products due to the religious implications — a halal-certified Muslim blesses slaughtered animals in the name of Allah.
Who are the industry players?
It’s difficult to obtain true data, as this industry is extremely fragmented. Malaysia appears to be developing as the major halal player, followed by Indonesia and Pakistan. Competition between businesses in these areas, as well as Singapore, New Zealand and Australia, is fierce.
In 2010, the size of the industry in the U.S. was approximately $13.1 billion, compared with Europe at $67 billion, and Asia at $416 billion, according to the Islamic Food and Nutrition Council of America. Many Muslims may be willing to buy strictly kosher meat products, processed according to kosher dietary laws, because that’s the closest thing they can find.
Halal is likely to grow as marketing raises awareness and links halal to sustainability and healthy choices. In the past two years Italy has exploded with halal food products. With a large Muslim population already supplying most of Europe’s organic food, it was a natural fit for companies in every sector to become halal-certified. But the road ahead is bumpy in the U.S. business landscape for halal industries. In addition to non-Muslims’ discomfort with religious implications, there is a lack of trust by Muslims regarding the safe production and distribution of U.S.-made halal products.
What’s the best market entry for U.S. companies?
There are opportunities for profit — as a case in point, Brazil has started producing halal food. Aside from product production, businesses along the supply chain can tap into this market in areas such as research and development, finance, marketing, support service, hospitality, life sciences, agro-based industries or food additives/enhancers manufacturing. However, the best entry for a U.S. company is overseas halal markets that produce products and services locally. ●
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To manage the risk of loss to commercial property, business owners can self-insure (absorbing any losses), transfer the risk to someone else or buy insurance. But not everyone is insurance savvy, understanding exactly how property is covered and what triggers coverage.
“When it comes to business building and personal property coverage, it’s important to have an insurance broker who takes you through the what ifs,” says David Oliver, senior vice president at Momentous Insurance Brokerage, Inc. “If the broker understands exactly what assets you have, what you do, how you do it and where you do it, you should have the proper coverage, insured for the right values.”
Smart Business spoke with Oliver about insuring for the correct perils, before it’s time to make a claim.
What types of business property insurance are available?
A named peril policy covers only specified perils; a basic or broad form policy will cover a longer list of specified perils; and special form covers anything that is not specifically limited or excluded. Most businesses start with a special form policy. Then, if it excludes something you want to cover, you can buy off the exclusion or have it added for an additional premium. Other times, you’ll need to buy a separate policy, such as a difference in conditions or builders risk policy, to cover that risk.
Usually a property policy covers direct physical loss or damage to the building and/or personal property at a certain named location(s). However, if you have a business where you’re moving around, touring or traveling, you can get an inland marine floater to cover property. This can be added as an endorsement to a business property policy or bought separately, and isn’t designated to one premises. It’s essentially floating, so you have coverage no matter where it goes. It also might have broader coverage, such as earthquake and flood.
What’s typically covered on property policies?
Sometimes, when you go to court, if a policy is silent on a particular peril, it may be deemed covered. Judges tend to lean in favor of the insured, especially in California.
It is critical to understand what your policy excludes. The policies are usually definitive when they tell you what’s not covered; they want you to know what the exclusions are. Where they may tend to be vague is in the area of what is covered. Basically, the policy covers actual, unintentional physical loss to the asset, such as if there’s a fire or something gets broken, vandalized or stolen.
How can business owners make sure they have the right coverage?
Read your policy carefully to understand what’s excluded, covered and not covered. Policies are complicated, so this is where a good broker helps. Make sure that whatever you think you’re buying the insurance for is actually covered. Usually, you can get a business personal property policy endorsed to cover excluded perils like earthquake sprinkler leakage, even though you can’t get full earthquake coverage.
When it comes to triggering coverage, insurers look for the proximate cause. If what directly caused the damage is covered, then you have a claim. You may not have earthquake insurance, but if an earthquake broke a gas main, which caused a fire, you’d have coverage for fire-damaged equipment. The policy needs to insure for the cost to repair, rebuild or replace something.
Many policies have a coinsurance clause. For example, if you have $1 million worth of property with an 80 percent coinsurance, that policy requires you have at least $800,000 in insurance. If you’re not insured to that percentage, your claim is reduced proportionally.
Another mistake may be not insuring for replacement cost, but actual cash value. So, if you bought something 10 years ago with an eight-year useful life, you may get next to nothing in actual cash value. Replacement cost allows you to replace it with like kind and quality, even if that’s more than what you originally paid. For example, a five-year-old specialty lighting fixture might be replaced with a newer model, costing more than the originally damaged, obsolete and no longer manufactured fixture.
These details are why having the right broker helping you take care of your property exposures will save you money in the long run. ●
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