William Hoffman

Monday, 22 July 2002 09:33

Paid leave, or paid to leave?

Proposals to lower the exemption threshold for small businesses under the Family and Medical Leave Act died this fall with the 106th Congress.

Yet a Clinton Administration initiative to let states spend unemployment insurance funds on paid leave for new parents survives, while advocates of the lower FMLA exemption vow they'll be back early in the incoming 107th Congress.

"The discussion in Washington about lowering the threshold from 50 [employees] to as low as 20 has the attention of small employers," notes Dan Toussant, principal in the New Philadelphia office at Rea & Associates, a regional CPA and business consulting firm.

"Family and medical leave is a very popular idea, whether you are a Democrat or a Republican," adds Roger R. Geiger, state director for the Ohio chapter of the National Federation of Independent Business in Columbus. Despite continued GOP dominance of the Statehouse and legislature, Geiger expects Ohio to begin debating the merits of using unemployment insurance for paid parental leave sometime early next year.

"This confirms our fear about [FMLA] taking us down the slippery slope, in which unpaid leave will now be paid," Geiger says. As for the unemployment insurance initiative, "It's a huge, huge shift from what the program was meant to do."

Tightening FMLA

The Family and Medical Leave Act passed by Congress in 1993 lets most workers take up to 12 weeks of unpaid leave from their job to care for a sick relative or greet the arrival of a new baby. Companies with fewer than 50 employees won a small business exemption from the law.

At least a dozen bills were introduced in the 106th Congress to lower that exemption.

The unemployment insurance initiative began with a directive to the Department of Labor from President Clinton in May 1999. The final rule -- officially a clarification of existing law that some advocates say already grants states the option to use the funds for paid leave -- became effective in August.

What seems like two separate issues are, in fact, closely linked, Geiger and other business advocates say. In fact, the interaction between them will have adverse consequences for small and growing companies, advocates said.

FMLA "was well-intended but vague in some respects," according to Deanna Gelak, executive director of the FMLA Technical Corrections Coalition (TCC). Labor Department interpretations of the 1993 law caused a "litigation explosion [that] has made it extremely difficult for employers to comply with the act, because the definitions keep changing."

The TCC -- founded by the Society for Human Resource Management and joined by the NFIB, the National Association of Manufacturers and the U.S. Chamber of Commerce, among others -- lobbied Congress to tighten definitions of eligible employees and FMLA-covered leave, winning support from early FMLA champion Rep. Nancy L. Johnson (R-Conn.). That legislation will have to be reintroduced in the 107th Congress.

The National Partnership for Women and Families "supports lowering the small business exemption to 25 employees, primarily because we think the evidence is clear at this point that those companies won't be harmed," says Donna Lenhoff, NPWF general counsel and author of the original FMLA.

A 1995 survey of FMLA-covered businesses by the NPWF showed 89 percent of employers reported "no [or] small increased" administrative costs resulting from the new law. More than 93 percent of employers surveyed cited no or small increased benefit costs, while nearly 95 percent reported no or small increased hiring costs. More than 90 percent reported no noticeable effects from the law on business growth and profitability.

Further, Lenhoff notes, the survey showed subsidiaries of larger companies exempted from the law because their parent company was located within 75 miles also reported only negligible effects.

"So many of the business community's dire predictions about this law killing off jobs and businesses never came true," she says.

Yet businesses under the current 50-employee threshold face a higher burden, Gelak says, because they have fewer resources.

"Having an FMLA that is clear and sound and strongly enforced is something that we all want," she says.

The TCC and its allies will resume their push for congressional clarification of the law as soon as the 107th Congress gets down to business.

Making unemployment pay?

"Clinton's unemployment insurance regulation essentially negates the small business exemption under the FMLA," Gelak claims.

Giovanni Coratolo, U.S. Chamber of Commerce director of small business policy, adds, "We feel that small business is actually subsidizing larger companies in the use of these funds."

Here's how these business advocates see it: FMLA mandatory unpaid leave applies in most cases only to companies with 50 employees or more. The Labor Department's paid parental leave provision would use state unemployment insurance trust funds paid for by all employers.

Employees of big companies who used to take unpaid parental leave would thus be able to draw unemployment compensation. Yet many employees at small companies would be ineligible for leave, under hardship exemptions meant to protect small businesses, even though their employers helped pay for their counterparts at the bigger companies.

Lenhoff replies: "I think that's dead wrong on two counts."

First, nothing in the new program would require employers to return employees who take leave to their old positions. But it would allow those who take leave for the birth or adoption of a child to draw unemployment compensation if they need to look for a new job.

Second, many small employers already provide some unpaid leave to retain valued employees. The new unemployment insurance program would allow them to provide paid leave, and thus increase the chances of retention, Lenhoff says.

"I think the smaller employers should be jumping on this bandwagon. Unpaid family leave is good, but it doesn't help anywhere near enough people."

Gelak, Geiger and Coratolo argue that state unemployment insurance trust funds -- some tapped nearly to insolvency as recently as a few years ago -- should be sequestered for cushioning the next recession.

"This proposal is founded on the proposition that the good times will never end," Gelak says.

Lenhoff counters that no state is required to undertake a paid parental leave program. Indeed, she says, some states probably shouldn't try. Labor Department calculations indicate Ohio's 1999 unemployment trust fund would last only 60 percent of one year under the stress of an average recession. The national average is 94 percent of one year, she notes, "which might explain why Ohio hasn't faced this issue yet."

The TCC filed suit in federal court this fall to overturn the Labor Department rule. The Labor Department challenged the suit on grounds of "ripeness" -- basically arguing the court can't nullify a rule that hasn't been implemented yet. The TCC responded that businesses are already gearing up for the rule, so the damage is done.

Oral arguments on both sides were scheduled for late November.

Setting priorities

Most local employers are in a "wait-and-see mode," according to Toussant, whose company writes employee handbooks for small and growing companies.

"They don't want to spend any more time thinking or talking about it than they have to," he says.

At the same time, they prefer to retain their autonomy in dealing with employee leave: "I think it would clearly be to the benefit of the [small business] owners that they control this thing, rather than have it mandated," he says.

Dorene A. Miller, president of Black Tie Affair Party & Conference Center in Wooster, says her company grants unpaid leave whenever possible to accommodate employees. Her 30 employee "feast-or-famine" catering and conference operation alternates between hectic, appointment-filled weeks and extended periods during which employees may not draw a paycheck.

"We take the position that we will be as flexible as we can with you, since we're going to ask you to do the same," she says.

Ronald R. Lyons, president and CEO of Stewart Bros. Paint Co. in Alliance, says his company usually pays employees during unexpected absences to care for a parent or relative.

"We in small business have to make a lot of decisions based on our employees, because they're the most valuable asset we have," Lyons says. "We don't have the luxury of being able to say we have to get someone else in here to do your job, mainly because of the amount of training it takes."

Miller says that she was a school teacher when the FMLA became law in 1993.

"You came back to work [soon] after you gave birth, or you lost your job. We didn't have options," she says.

She supported the FMLA law then; she still supports it in principle now. But she opposes extending it to companies with 25 or more employees.

"If we had the opportunity for employees to stay home and get paid for a set period of time, I just see the opportunity for a massive amount of abuse there, both as an employer and a taxpayer," Miller says.

The ethical considerations make family leave decisions difficult when they collide with small business economic dilemmas, she says.

"You almost have to take it on a case-by-case basis. I think in this economy we need to be careful that we don't tap into funds just because they're in pretty good shape right now," she says. "You have to set your priorities. For how many decades have people done that?"

Lyons says his company now pays limited leave because "I feel we need to do that to keep good people on staff." But if the state offered a paid leave benefit, he'd consider using it.

Coratolo, at the U.S. Chamber, said businesses would be better served if Congress repealed the 15-year-old, .2 percent "temporary" FUTA (Federal Unemployment Tax Act) surcharge, originally imposed to shore up states' flagging unemployment insurance trust funds.

"Refunds are where it should be, not in expanding benefits," Coratolo says. How to reach: Ohio chapter of the National Federation of Independent Business, (614) 221-4107; Rea & Associates, (330) 339-6651; The National Partnership for Women & Families, www.nationalpartnership.org

Tuesday, 23 October 2001 10:50

Raising the stakes

Business consultants are fond of noting that the Chinese character for "crisis" combines two other characters, those for "danger" and "opportunity."

Jeff Rich's strategy for confronting a widely anticipated national recession appears to be a real-life test case of the consultants' interpretation.

"We may not win," says Rich, president of Midlake Products & Manufacturing in Louisville. "But at least we've got the bat in our hands."

Fresh from a bruising buyout of his family-owned hinge and custom metal-working operation -- an experience he and his family resolutely refuse to discuss -- and heavily invested in new technologies he hopes will double the size of his company in three years, Rich now faces a business environment turned suddenly and inexplicably hostile, and completely outside his control. He sounds eager for the challenge.

Prospective customers "are responding differently this year than they did a year ago," says Rich, 31. "When you call them, they're now actually taking your phone call, instead of just putting you in voice mail. If you've got something they want to hear, they'll actually listen to you."

It wasn't always this way. Midlake soldiered for more than a decade as a manufacturer of commodity hinges to build a clientele.

"It was a battle of pennies" to win new customers, Rich says.

Employment was a family affair, involving siblings and both parents. Decision-making was shared with his older brother and partner, Kevin. Administration relied heavily upon the experiences of his father, Virgil.

"I couldn't run the company the way I wanted," Rich says.

Now, Rich's hand is firmly on the helm. Dad retired. Kevin Rich left the company after the buyout was completed late last year. Jeff Rich hired fresh senior management. New equipment is coming online to help Midlake carve a niche beyond the commodity manufacturing business. And customers who wouldn't give Midlake a second look are now buying its specialty products and services.

"I know we're not going to get everything we go after," Rich says. "I just want the opportunity."

All in the family

Jeff Rich was barely out of high school in Chicago, where his father had transferred to take a position at another hinge company, when his brother, Kevin, asked him to join his new business back in Ohio.

"I didn't care what we were going to be doing," Rich recalls, "as long as I could get back home."

It was 1986. The brothers were buying hinge, made in long loops, cutting it down to size, and selling it to small Northeast Ohio fabricators and welding shops. All their energy went into the product.

"We were really just responding to inquiries and not taking into account anything related to running a business," Rich says. "We just wanted to make product."

That couldn't last. So the brothers approached their father, an experienced hand in the hinge business, and recruited him to handle the accounting, insurance, banking, sales and marketing duties necessary to put Midlake on its feet.

"He took a huge risk, at his age, to leave what he was doing -- the security of his job -- and come back and basically start with this fledgling company all over again," Rich says of his father.

Dad's help proved invaluable. Besides assuming or directing many of the administrative tasks, Rich says his father's reputation brought customers straight to Midlake's door. Some, like the woman who had hinge supplier problems, were won over by the elder Rich's salesmanship.

"Had she met with just myself and my brother, I don't know that the outcome would have been the same," Rich says. "We have an awful lot of business that's still with us today because of the groundwork he laid."

Yet Virgil Rich did little hand-holding, his son says.

"My dad was very good at letting us take our lumps and learning from that," Rich recalls. "He would know how to handle a particular customer or how to handle a particular employee. ... I'm sure we could have avoided a lot of problems had he actually just stepped in and done what he knew was right.

"But at the same time, he knew that he was giving us real life experience. That's how we learned."

Business at Midlake continued that way for nearly a decade. Dad balanced the books; Kevin and Jeff cut, sorted and shipped hinges for a gradually growing, but stubbornly single product clientele. Yet even modest growth demands changes.

Breaking out

Jeff Rich remembers his move to Midlake's front office as "natural."

"There was really no discussion about it," he says. "Kevin is the mechanically-oriented one; he likes to work around equipment and build things. I like to come up with ideas that sell."

One day, father Virgil needed help in the office, and Jeff stepped forward.

Virgil Rich retired from Midlake in 1996. The company was healthy, with about 30 employees, but still stuck supplying commodity parts that buyers could find elsewhere.

Rich credits his brother with breaking Midlake out of its commodity manufacturing status, starting in the late 1990s. Before, Midlake bought finished continuous hinge from Chicago-area suppliers and resold it. However, lead times, freight and other costs reduced the company's margins and thwarted its competitive ambitions.

"Kevin was very instrumental in developing this technology that allowed us to manufacture continuous hinge from coil material," Rich says.

After what he describes as a "huge investment," Midlake stopped buying from Chicago suppliers and started making its own lines of custom hinges.

Next, it invested in a computer-controlled 3,000-watt oxygen laser. The precision cutting system allows intricately programmed instructions to be accurately executed without the customary (and expensive) intervention of human labor to switch tools and manipulate components. The machine is particularly well-suited to small-batch jobs that might otherwise leave the area for completion, Rich says.

"It's certainly opened us up to more markets, new markets, and to customers that don't require hinges, companies in our backyard that in the past possibly wouldn't have looked at us because we're a hinge manufacturer, [who are] now looking at us because we have this laser technology," Rich says.

Midlake's capital investments position it to diversify and simultaneously create a niche among Northeast Ohio manufacturers.

"If we were just the same old hinge company going into a recession, things would be tough, we'd have to do some damage control," Rich says. "But now, with this new technology, these new capabilities, we're not just limited to hinges. We can manufacture anything. Which makes us more viable to our customers."

Meet the new boss

While Midlake's new manufacturing capabilities expand its product and service offerings, it's the company's new senior managers Rich counts on for the company's future.

"What I was looking for was someone from the outside who was not going to care necessarily about the personal issues of the buyout," Rich says.

In the past six months, he's hired a new production manager, a controller and a sales manager. Expertise in the field was desirable for these managers, Rich says, but teamwork and compatibility with his management style were also important qualifications.

Richard Mayle is Midlake's new production manager.

"Jeff made it very clear that he didn't necessarily need someone who knew the hinge business," says Mayle, in whom Rich invested full responsibilities for production. "He wanted more someone in line with his philosophies, someone who left their ego at the door and was very team-oriented."

Rich's trust was tested not long ago when his new production manager decided a shipment didn't meet rigorous new quality standards. Mayle had been charged with securing ISO 9002 certification for Midlake, but says production floor employees doubted the company's commitment when profits were threatened.

"As a manager, it's tough to see those kind of dollars go down the tube," Mayle recalls. "But it earned the respect of the guys for sticking to the plan."

And he says Rich didn't bat an eye.

The buyout tumult and the new managers put some production floor employees on edge, notes salesperson Danny Stangelo, a 13-year company veteran.

"A lot of people just weren't sure what direction we were going," says Stangelo, who started in shipping and receiving before moving to sales seven years ago.

Yet as new managers establish open-door policies, and Midlake veterans see the promise of the new laser technology, Stangelo says most workers' attitudes are changing.

"I think they're getting better. ... They know the change is here," Stangelo says. "I tell them, 'Make the best of it. Just come in and do your job to the best of your ability, and everything will work out fine.'"

Ready or not

Rich knows rough seas are ahead.

"We're certainly seeing a lot of local companies that are laying off right now," he says. "The economy is definitely the topic of the year."

But with powerful new equipment and his hand-picked management team, he figures Midlake is as ready as it's going to be.

"We needed to be more diversified," Rich says. "One thing our customers are constantly talking about is vendor reduction. We want to make sure we're very difficult for them to walk away from. If they're into us for different types of products other than hinges, that makes us a very viable supplier."

Rich sounds excited (though also a bit apprehensive) about testing his company against a recession.

"We actually in a weird way were kind of hoping this would happen," he says. "When everybody's fat and happy, nobody's interested in looking at new companies. They're buying from the same people they've always bought from, and they're going continue to buy from them. Purchasing agents, I think, become kind of lazy, and they're not willing to look, even though you have something you can offer them.

"When things become slow, like they have, people really start looking at every penny. These people are forced to really look at their suppliers, and if they are doing a good job for them. ... [The economic slowdown has] given us an opportunity to get the attention of some purchasing agents, some engineers. If we can show them cost savings, they're now ready to listen."

"I don't know if it's a gamble or not," Rich says of his strategy for Midlake. "Either way, it's going to slow down. But I'd rather be slow and offer all the capabilities and products that we offer than to be slow and have nothing to offer at all." How to reach: Midlake Products & Manufacturing, (330) 875-4202

William Hoffman is a free-lance writer for SBN Magazine.

Monday, 22 July 2002 10:09

Tick, tick, tick...

Tick, tick, tick...

The Year 2000 problem is like a nationwide tornado alert. We know its going to hit-the only question now is, will it hit you?

By William Hoffman

You don't have to wait until Jan. 1, 2000, to see the impact of the Year 2000 problem. For some people it's already here.

Federal authorities recently sanctioned a Georgia bank for leaving customer accounts vulnerable to damage from the epic computer glitch. Downtown Auckland, New Zealand, lost electricity for almost three weeks, reportedly after testing its power grid for Year 2000 compliance. And anywhere companies make projections past the looming deadline, noncompliant systems will fizzle and crash because of a decades-old economy written into their software.

You've been hibernating if you haven't yet heard of the Year 2000 (often abbreviated as "Y2K") problem-the software code written into many, especially older, date-sensitive programs, which assumes that all years begin with 19-, thus changing the year 2000 to the year 1900. But apparently even those who've heard of it have a hard time taking it seriously. "The situation has deteriorated," says William M. Ulrich, author of The Year 2000 Software Crisis: The Continuing Challenge. "It is already too late is the bottom line, and the question is what can we do to insulate ourselves from the problems that are going to occur?"

The federal government has taken baby steps to protect America's financial lifeblood. A reform passed in March requires federally insured lending institutions to instruct their staff to recognize Year 2000 problems among borrowers, and to train them in turn. "The legislation is forcing lenders to play the role of educator first, and then to pass that along to their clients," notes Tim Carlsen, president of Systemic Solutions Inc., a Y2K consultant. The Securities and Exchange Commission has mandated that public companies disclose their Y2K exposure and how much they are spending to fix it. "But there's nobody requiring small businesses to address the problem," points out Frank Orfanello, a partner at the Boston CPA firm of Parent, McLaughlin & Nangle.

One reason business and government have dallied is the sheer size and scope of the problem. Fixing Y2K could cost upward of $1.6 trillion, Carlsen says: "There's really no way to carve off a piece of it to identify that that's my share of the problem." Further, not only computers, but fax machines, automobiles, elevators, security systems, heating systems, airplanes-in short, anything containing a microprocessor-is potentially vulnerable to Y2K. Jill Austin, director of Norstar Marketing, a division of telecommunications giant Nortel, says her company has been working for years to ensure that its computerized telephony components-voicemail, call centers, interactive response, etc.-are ready. "This is something you need to talk with your people about right now," she urges.

Even if your house is in order, it doesn't mean your vendors' and customers' systems will be. The Boeing Co. last October experienced a non-Y2K supply-chain failure that cost it in excess of $2 billion, and from which it has yet to fully recover. That illustrates the ripple effect Y2K will likely have in the economy, according to Edward E. Bambauer, director of financial markets consulting for Arthur Andersen LLP. "Remember your contingency plan," Bambauer advises, even after you think you've licked your Y2K problems.

Insurers are already stepping forward with Y2K policies (which still require that you try to fix the problem), and bankers are offering Y2K loans. Yet, "there will be litigation, and it will get more than its share of publicity," predicts Barry D. Weiss, a partner at the Chicago law firm of Gordon & Glickson PC.

Monday, 22 July 2002 10:08

Sure, we'll take you for a ride

WASHINGTON - If this country's truth-in-advertising laws weren't a cruel joke, half of this city's lobbyists and most of Congress would be doing time.

The same principles Madison Avenue uses to convince you that your armpits stink, your breath smells and your car is a lemon are now common practice among Capitol Hill shills who want to sell you phone and electricity deregulation while blocking a tobacco settlement and any meaningful health reform.

Americans in general and Beltway pundits in particular have become accustomed to tossing their hands in the air and chuckling ruefully, 'That Keystone Kongress, they've done it again,' as though our elected representatives can't protect constituents from ripoffs. Taxpayers shelled out between one-third and one-half a trillion dollars over that dumb Congress's most famous "goof," the 1980s savings and loan scandal. A few white-collar criminals did poster-boy penance in country-club prisons for that goof. But the criminals who made that scandal possible-our elected representatives-simply pushed their way through the revolving door into cushy private sector jobs. And you can bet their successors today won't serve an hour for foisting the scams currently posing as reforms in Washington today.

Keeping in mind the rules of Madison Avenue-sell the sizzle, not the steak; make the customer pay; bait and switch; never give a sucker an even break-may help some voters avoid the mistakes others have made:

The 1996 telecommunications reform was a classic example of selling the sizzle and not the steak. Competition, lower prices and new products were the lobbyists' promise (disseminated with nary a skeptical peep from the unblinking big business media). Mega-mergers between Bell Atlantic and NYNEX, Ameritech and Southwestern Bell; 35-cent payphones; and "slamming and "cramming" of unwitting long-distance customers have been the result. All unintended consequences of well-meaning if misdirected legislative efforts, we're assured by TV talking heads.

When conservatives realized voters wouldn't let them strangle the welfare state in the 1980s, they decided to pull it off life support in the 1990s. Abetted by the best Democrat president the GOP has ever had, right-wingers pitched life-time limits on most welfare payments combined with job training and education programs to break the cycle of welfare dependency. Then, pleading poverty, Congress reneged on-the-job training and education spending necessary to make real reform work. The results of this bait and switch should become painfully obvious on inner-city streets early in the next recession.

Perhaps the most galling recent example of lobbying legerdemain is the one going on right before our eyes with the federal tobacco settlement. As soon as states starting winning from cigarette companies some of the billions Medicaid has spent treating nicotine addicts, in barges Congress, ostensibly to negotiate a comprehensive deal. But where states wanted Big Tobacco to pay from its profits for medical expenses, the Feds now want to make the customer pay in the form of higher taxes, while limiting their ability to sue for damages in the future. Tobacco companies still will likely take a hit, but not too hard from a Congress that pulls its punches when the target is a big campaign contributor.

You're supposed to be frustrated by the incompetence of a Congress which writes legislation to protect consumers that inadvertently abets speculators and profiteers. You're supposed to hold blameless the lawyers and the lobbyists who, after all, are just zealously defending their clients' best interests in a Byzantine system of laws and regulations not of their making. You're supposed to go to the polls in November to throw out the bums who misrepresent your concerns, and replace them with fresh-faced honest Democrats and Republicans who will clean up that mess on Capitol Hill. You suckers.

William Hoffman welcomes your comments at whoffman@erols.com.

Monday, 22 July 2002 10:05

Myth information

Best-selling author Michael E. Gerber confesses: He almost fell victim to the very myth he discovered. "In 1985, I was told by my then-partner-who is no longer with us-that we were broke," explains Gerber. Over the past 20 years, his E-Myth Academy in Santa Rosa, Calif., has trained more than 15,000 companies to avoid some of the mistakes he's made. "I immediately became aware of the major omission I was guilty of, that I was ignoring the financial reality of the company because I was so consumed with the work I knew how to do. It almost put us out of business."

Instead, Gerber pulled through and wrote his now-classic The E-Myth, followed by The E-Myth Revisited and, most recently, The E-Myth Manager: Why Management Doesn't Work and What to Do About It. Gerber took a few minutes with Small Business News to discuss perfection, leisure and the epiphany that changed his life.

What is the "e-myth"?

It is the entrepreneurial myth, which essentially means that most people who go into business aren't entrepreneurs, but technicians suffering from an entrepreneurial seizure. Technicians suffering from an entrepreneurial seizure go into business for themselves, believing that because they understand how to do the work of a business-fix cars, clip poodles, program computers-they understand how to create a business that does that work. And it's a fatal assumption.

From a question in your book that you ask business owners to ask themselves: Where were you psychologically before you started your own business?

I was in a completely open state of mind. Any option was possible. I was learning about business by being a sales consultant to high-tech start-up companies in Silicon Valley. I walked into these companies with questions because I didn't have the answers. And I began to realize that not only did I not know the answer to those questions, but just about every question I asked drew a blank.

I had an epiphany: It was extraordinary to me how little these clients knew about business. I had started with the presumption they knew about business, and I discovered that, in fact, not only didn't they know, but they were absolutely as unknowledgeable about it as I was. That's when I discovered the e-myth.

If as you say business is a reflection of its ownership, what do you see of yourself in your company that you'd most like to change?

The gap between the idealistic and the pragmatic. I'm talking about the company and all individuals within the company, and the way we manage our company, and the way we epitomize the ideal that I constantly communicate. I have an image of the perfectly operating company, and then I have the reality. I only wish we had the ability to close that gap, not toward the middle, but toward the ideal. Because everything offends me because it isn't perfect, because I'm a relatively irascible guy, it's about how to control my own reaction and yet still manifest right action through other people.

What of your own advice do you find you violate or ignore most often?

Not paying attention to detail. Even more important, violating staff accountabilities. I'll go directly to somebody's subordinate, and get them thinking about doing something I never should have gotten involved in talking to them about in the first place. You might better put it-screwing over my managers. I drive them nuts: "Uh-oh, here comes Michael." It takes an enormous amount of discipline not to do that.

If you had nothing in the world except $100,000 in cash, what would you do with it?

I'd spend it on whatever seemed like the best idea to spend it on at the time. I live mostly in the moment. I don't plan anything. I go with my instinct. So anything I spend it on at that moment. Understand, I've been without $100,000-without anything, and had to act. I'd find the best action. And that would be whatever seemed best to me at the time. I'd take an action. I'd do something with it.

What's your idea of a relaxing weekend?

Doing that weekend whatever came to mind. There'd be no compulsion to do anything. There'd be nobody who needs me to do something. There'd be nothing I planned to do. I could simply be with myself, free to be and do anything.

How often do you get that kind of weekend?

Not too often. That's why it sounds so relaxing.

What's the personal or professional vice that you'd most like to give up?

Fear. Fear of loss. It's a vice. It consumes you. It keeps you from engaging joyfully in whatever.

Monday, 22 July 2002 10:05

A wise decision

Why pay severance? After all, the departing employee or executive is no longer your company's responsibility. For whatever reason-market shifts, business reversals, poor performance-what does the business owner have to lose by returning a worker to the tender mercies of the market?

According to the experts: plenty. "Most companies want people leaving happy," says Barry K. Lawrence, manager of media relations for the Society for Human Resource Management in Alexandria, Va. "That certainly helps avoid lawsuits. But it also does another key thing: It gives you some good public relations, so when things are going good again, people will want to work for you again. And when things go bad, they still know you'll take care of them." Severance packages, Lawrence and others believe, can be key for employers hoping to retain the goodwill of the community and the available labor pool. "You kind of want to be seen as the employer of choice," Lawrence adds.

A 1995 survey by the Society, the latest available, found that 83 percent of responding businesses-250 of 1,000 member companies-provided severance pay to eligible employees who are terminated. Perhaps surprisingly, nearly 23 percent of these offer severance even to employees fired because of poor performance.

Another survey, of discharged executives and managers, by international outplacement firm Challenger, Gray & Christmas, found that after a long slide in severance totals, employers in 1997 offered an average 21.8 weeks severance, up 70 percent from 12.8 weeks in 1996. Companies are now as worried about losing the goodwill of employees who remain, observes Executive Vice President John A. Challenger, as they are about those discharged.

"It's as much about retention as it is about goodwill," agrees Jane K. Weizmann, senior consultant with the human-capital group at Watson Wyatt Worldwide in Washington, D.C. Employers should structure their severance packages in accordance with the company's strategic goals, including fairness to the employee and impact on the business's reputation among potential employees-especially in tight labor markets.

For employers who want to formalize a policy, Weizmann says a recent Watson Wyatt survey showed the standard severance for executives is now two weeks per year of service; 1.6 weeks for the salaried manager; and 1.4 weeks for the wage-earner. Some companies offer an additional week of severance pay for each year after four years of work. Some employers also supplement or supplant portions of severance pay with in-kind contributions, including use of office equipment and automobiles.

Fortune 500's may take a "cookie-cutter" approach, but smaller companies with valuable employees who wear many hats should consider tailoring severance packages to the individual's contributions, says Willard Archie, CEO of the New York City management consultant firm, Mitchell & Titus, LLP. "We want to feel that maybe we'll have a friend wherever they land," Archie says, because a discharged employee may wind up working for a client.

Severance may be proportionately higher older employees, Archie adds, since some may have a harder time finding appropriate new work. Weizmann cautions employers to avoid discriminating on the basis of age, race or sex. But Archie adds that some firms he advises attach a signed, written agreement with a severance package to protect against future litigation.

Monday, 22 July 2002 10:04

The indispensable person

Ask David Gewirtz what he expects from his sales reps and he'll tell you: "Sales." He's kidding, sort of. An enlightened business owner sends his sales force out to find people who will get value from his product, says Gewirtz, CEO of Component Enterprises, a developer of specialty Internet journals says. "A less enlightened one will ask you to sell ice to Eskimos, as long as you make your numbers," he adds. "A truly enlightened company will have all the departments working together with the sales force under his direction to provide as much of what the customer asks for as it can."

There are as many different relationships between CEOs and their sales forces as there are businesses in America. But there are right ways and wrong ways, good relationships and better ones. "What works for Rhino doesn't mean that's the way it should work for other companies," says Ted Castle, president of Rhino Foods Inc. in Burlington, Vt. And while Castle feels comfortable in his relationship with his sales force now, he acknowledges he may feel differently five years from now.

Interviews with Castle, Gewirtz and others revealed special and diverse relationships and challenges that business owners face with their sales forces.

Gewirtz has just five employees. All are considered sales reps, though just one has the title. In a small shop, he finds it's best to be flexible. After offering an aggressive bonus for a new publication that missed its opening date through no fault of the sales rep, Gewirtz felt obliged to partly compensate the employee despite the revenue shortfall. But when reps misdirect their energies, Gewirtz notes, "I'm hell to be around."

Castle, with 15 years and 75 employees in the specialty-desserts business, relies on his director of sales and marketing to sell Rhino's biggest line, its ice cream products. He also maintains a nationwide network of 15 brokers to push smaller lines such as chocolate chip ice cream sandwiches, bakery good and cheesecakes. "You really have to work closely with your director of sales and marketing," Castle says.

Max Carey, CEO of Corporate Resource Development Inc., has 40 employees in Atlanta, about half of whom he calls "consultants." These salespeople are governed by a detailed process Carey has developed to maintain control over price and profit. "The biggest mistake made by sales forces in general is that they lose control of the sale very early on," Carey says. "What we've learned is often it's not the behavior of the sales force, it's the design of the sale."

Michael Marchesano, president and CEO of BPA International, the New York City-based circulation auditing firm, has a far-flung network of regional salespeople across the United States, in London and in Canada. They report to his senior vice president of marketing, who reports in turn to Marchesano. He relies heavily on his marketing managers for new business development, communicating with sales reps through e-mail and meeting his reps as a group no more than twice a year.

Each of these business owners agrees that sales results are the paramount responsibility of their sales staffs. But they also rely on their reps for additional help. Castle depends on his reps and brokers-and on his own personal interaction with sales calls-for intelligence on how the dessert foods industry is developing. Gewirtz expects his salespeople to take the closing off his hands so he can concentrate 60 percent to 70 percent of his time on business development.

Each entrepreneur faces his own sales challenges, despite the similarities. "In an economy that's going strong, making sure [salespeople] don't get picked up by another company" is a major effort, according to BPA's Marchesano, reflecting a similar concern about getting and keeping good help expressed by Gewirtz: "It's proving to be a real bear."

"The biggest thing is the focus," says Castle, of organizing a far-flung sales force. "[Focusing on] what business we are in, so we don't try to be everything to all people, and yet delight the people we do serve." For that, the CEO is the indispensable person, Carey believes: "I don't think the entrepreneurial CEO ever fully could or should delegate the sales function out of his office.... Nothing else in the economy happens until someone leans across the table, shakes hands and makes the deal."

Monday, 22 July 2002 10:03

Nice guys, finished

"Winning isn't everything," legendary Green Bay Packer's coach Vince Lombardi preached: "It's the only thing." Growing up in my house in the 1960s and 1970s, where Lombardi was a god and the Packers were gridiron angels, that competitive spirit animated my father, and me and my siblings through adolescence, until we realized that The Coach's mantra was becoming as much prophecy as predicate.

Winning certainly beats the alternative-just ask any loser. And there are still relatively few competitions today where one side goes home a champion and the other side just goes home. Even Super Bowl also-rans get a ring. But winner-take-all is increasingly becoming the rule in our market culture's politics and economy as well as in sports, while little consideration is given to the consequences for society of exalting one winner above all the losers.

House Republicans seem oblivious to this concern in their pointilistic prosecution of President Clinton. Second-place is clearly not good enough for them. Despite surveys consistently showing that voters don't want Clinton removed, and heedless of the yawning absence of impeachable offense, Hyde-bound Taliban Republicans insist on pushing an all-or-nothing strategy that has already begun to backfire. When winning is the only thing, losers must be willing to settle for nothing.

Microsoft-the world's other superpower-has pursued the brass ring so determinedly it's tried to kick all the other riders off the merry-go-round. After all, if winning is everything, then rules are for losers. But the losers in this kind of competition have options, such as appealing to the ticketmaster (in this case, the antitrust division of the Department of Justice) to re-enforce or even change the rules. Simple mathematics demonstrates who will win this kind of competition.

In court or at the ballot box, winners may at least enjoy the satisfaction of winning once and for all. In the global economy, however, the King of the Hill must be prepared to compete perpetually, with certainty only that the winner must eventually lose and battle be rejoined. Shareholders at Connecticut-based Long Term Capital Management recently re-learned this lesson, when two-thirds of their value vanished on bad bets in world stock markets. Rules being for losers, though, select winners know they can count on a timely bailout courtesy of their friends at the Federal Reserve, and later perhaps taxpayers, to get them back in the game.

Of course, few achieve solely on their own efforts, knives clenched boldly in teeth. Mark McGwire acted sportsmanlike during his race with Sammy Sosa to set a new homerun record. That both were abetted by weak pitching staffs, baseballs sewn tight as golf balls, and league management eager to alleviate a ticket-sales slump should serve to remind us that sometimes winners get by with a little help from their friends. McGwire's indulgence in half-a-dozen performance-enhancing "nutritional supplements" (several of which are banned in other pro sports) shows that when it comes to winning, one's long-term health may not be sacrifice enough.

Often as not, though, winners don't just beat losers, they keep them down. Long Term Capital Management's fall threatened not just its shareholders but investors around the world, and millions of companies that had never heard of LTCM until the Federal Reserve intervened. Proponents of Lombardi's pan-Darwinism argue that a society advances on the shoulders of its winners. But everyone contributes in a competition, and winner-take-all is only one way to award the victor.

Perhaps most lamentable about the assimilation of Lombardi's ethic into our market culture is that it draws in, molds and ultimately perverts so many worthy individuals and aspects of society that might otherwise contribute in a less cut-throat contest. This was on my mind as my employer, the publisher of this magazine, told me of the deep and sincere spiritual awakening that made him less interested in being biggest (a quantifiable, winner-take-all goal) than in being best (always a subjective measure). I didn't have the heart to tell him that, in a society where winning is the only thing, then nice guys always finish last.

William Hoffman can be reached at whoffman@erols.com.

Monday, 22 July 2002 10:01

Accounts, payable

Four years ago, Columbus, Ohio-based apparel manufacturer The Limited had only to hint it might move a portion of its operations out of state for the government to offer a $600,000 tax incentive to stay put. Those days of easy money may gradually be coming to an end.

Donald T. Iannone, director of the economic development program at Cleveland State University, will deliver "the most comprehensive research on economic development programs [we've] ever done" this month on the efficacy of Ohio economic development programs-tax incentives among them. State Sen. Charles Horne's committee is expected to take up the report early next year as part of a review of state economic development initiatives.

In Washington, D.C., the National Association of State Development Agencies is conducting a survey of state economic development cost-benefit analyses, comparing how each determines the value of incentives to taxpayers, communities and states. And this fall, Greg LeRoy, author of the groundbreaking 1994 "No More Candy Store" study on corporate tax breaks, used a $100,000 charitable grant to establish Good Jobs First, the nation's first watchdog group to promote accountability of tax incentives and jobs subsidies.

These and other oversight activities constitute "a quiet revolution of accountability" for corporate tax incentives, according to LeRoy. The libertarian Cato Institute estimates federal corporate welfare costs taxpayers $110 to $140 billion a year, while state incentives cost $50 to $100 billion more-and no one has calculated the cost of county and municipal munificence. A 1995 KPMG Peat Marwick survey of 203 Fortune 1000 companies found 160 received some state or local incentive. "There should be better evaluation going on. If we're going to spend $100 billion a year on incentives, we ought to be willing to spend $10 million to make sure we're getting some bang for our bucks," LeRoy says.

Lately, states and communities have become more cautious about simply passing out tax breaks. Some have switched to performance-based incentives. "Some states will literally calibrate the incentives depending on the goals you achieve," rather than just handing over tax money and trusting companies to hire or grow, says Dr. Sheri Garmise, director of research at the Council for Urban Economic Development, in Washington, D.C. States are also leaning more heavily toward statutory incentives, for which any qualified business may apply, and away from deals negotiated on a case by case basis. This removes the perceived favoritism of some incentives, Garmise says, and spreads the opportunities around.

Other checks on incentives have proved more controversial. Some governments have attempted to write "claw-back" provisions into incentives deals, so companies are obligated to reimburse a portion of tax breaks if the promised job growth or economic development fails to meet expectations. "Sometimes just the threat of the claw-back is enough to make [companies] deliver," Garmise says. But James A. Schriner, director of location strategies at Deloitte & Touche Fantus Consulting, a site-selection adviser, says, "Claw-backs have proved just a disaster for the states." Courts rarely uphold them, and communities that use them are stigmatized as unfriendly to further relocations.

Small businesses rarely enjoy the public largesse of tax incentives: Schriner says that's because states offer small companies a different set of incentives-industrial revenue bonds, workforce training, retail development programs-specially tailored to small business needs. Jim Weidman, manager of state media relations for the 600,000-member National Federation of Independent Business, adds that government oversight, paperwork and accounting changes discourage many from applying for what's available, while some simply disdain government helping to pick the winners. Most NFIB members would prefer a broad-based tax cut, he says.

"That way everyone's on a level playing field. Maybe we won't be able to add 200 employees at my flower shop, but we might be able to add one, and the flower shop down the street might add one," Weidman says. "It's less spectacular good news, but it's good news all around."

Monday, 22 July 2002 09:59

Only money

For a guy with a national radio program, a cable TV show, online chat sessions, newspaper columns to write, newsletters to edit, books to promote and $900 million of investors's money to manage, Ric Edelman is a pretty easy person to get ahold of.

Actually, Edelman is a master of multitasking, the art of doing several things at once, as one can quickly tell from the frequent interruptions from bustling assistants and competing phone calls. It's only his self-imposed role as America's premier educator on the subject of money that makes him more accessible than most. Money is a simple concept to grasp, he believes, and the rules for making more of it are ones he is glad to share.

In an admirable example of deferred gratification, Edelman took a few moments away from making yet more money to talk with SBN.

You write in your new book, "The Truth About Money" [HarperCollins] that "Few subjects are as intimidating as money." Why is that so?

Two reasons. First, we receive no formal education about money. Think about it. In all your years of schooling, in how many did you have classes about money? Zero. And we tend to be scared and intimidated about things we don't understand. The lack of education helps bolster that.

The second reason I think is more psychological. I tend to spend a lot of time with the psychology of money, because we find that many of the decisions people make that are financially oriented often have to do with their own feelings of self worth, their culture, their upbringing.

We find that people are often intimidated about money because there is a misconception about what money is. Sometimes people feel bad about having money. Or they feel empowered to spend money. People often have a poor relationship with money and intimidation is often one of those feelings.

How would you advise people who feel intimidated by money to overcome that feeling?

It's remarkably easy. All you have to do is learn how money works, which is what my book is all about. Once you understand how it works-and it isn't hard to understand, you don't need a college degree to understand money, you don't need to be a rocket scientist to figure this out-the fundamental principles of money are really very simple. And once you understand them, you'll begin to realize how easy it is to achieve financial success, how easy it is to do the things that are helpful and beneficial as opposed to destructive. And much of the fear factor, the intimidation, will go away. Knowledge is power.

If you had $1 million you could invest in just one financial instrument for just one year, what would it be?

U.S. Treasuries.

If you had $1 million you could invest for just five years?

A balanced mutual fund.

For 20 years?

A stock mutual fund.

If you could enact or repeal one federal law or regulation pertaining to money, what would it be?

I'd repeal the estate tax completely.

Have you ever been cheated on an investment deal?

No, I've never been defrauded. However, I've certainly made investments that have failed to do what I expected or hoped from them. If you perform proper due diligence when making the investment decision, you never will be defrauded.

If you were starting a new business right now, what would it be?

If we're excluding the financial services industry, I would build a business in information services.

Broadly speaking, there are two elements: hardware and software. Hardware could be computers, a radio or TV station, a highway. I prefer software. In other words, what are you going to put on the air on the radio show, what's the television programming? You can build a movie theater or you can make movies.

Again, knowledge is power. People will pay for information, they will pay for knowledge. That means I'd rather write a software program than manufacture a computer chip. I'd rather make a movie than buy a movie theater. I'd rather build a car than a highway.

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

"If at first you don't succeed, try another way," from my father.

What's the title of the last book you finished reading?

"The Professor and the Madman." It's the story of the creation of the Oxford English Dictionary. It's really very fascinating. The professor was the senior editor of the book. The compilation took 70 years and he died before it was finished. Because they knew no one person could complete this, the OED editors sent an open letter to the English-speaking world, asking everyone who reads books to send words and context so the usage would be complete.

There was this Dr. Minor who sent them lots of entries and ended up being the most prolific, key contributor to the finished work. And Dr. Minor was in an insane asylum for murder the whole time. It's a fascinating story of this professor and the madman, and the relationship between them, and the contributions they made.

What is your favorite virtue in others?


What's the highest compliment you've ever been paid and by whom?

I gave a seminar in Chicago recently, and at the end, one of the participants came up to tell me he's just getting started trying to learn about money, and he's been listening to my radio show for quite a long time, and he's read both of my books, and wanted to come to the seminar. He said he just wanted to thank me for providing him information he could understand and teaching him how to make the changes he needs to make in his life for the benefit of his family. And he just wanted to thank me and ask me to keep on doing it. That's pretty humbling when someone says that to you.

What personal vice or habit would you most like to break or give up?

The need for eight hours of sleep. Actually, I try not to dwell on what my vices and habits are. I use bad language more than I should.

What's your guiltiest pleasure?

I'd say chocolate, but I don't feel guilty about it. Rather, it's doing something completely unproductive or nonproductive.

Complete this sentence: "I always thought I'd make a darn good...."


If your life were an episode of "The Jerry Springer Show," what would it be called?

"Who Do You Think You're Kidding?" I think the people who knew me years ago would be astounded at the level of success that the company has enjoyed so far. Maybe instead call it, "You've Got to be Kidding."

What living person do you most admire?

John Glenn.

Name three people, living or dead, you'd most like to have home for dinner?

Moses, without question No. 1. Lots of questions I'd like to ask him. The others are lots of different toss-ups. By using Moses, I almost feel that Jesus is unnecessary, but that's not really fair. And Jesus has to be on the list, because he's Jesus, you know, he has to be on the list. They'd be redundant, I fear; it'd be like having both of George Bush's sons over.

I'd also do Thomas Edison and Thomas Jefferson. It's a toss-up between him and Galileo. I'll go with Jefferson.

If you had to choose, which would you rather be, rich or famous?

I'd rather be rich.