Meredyth McKenzie

Saturday, 25 April 2009 20:00

Behind the scenes help

All health plans are not alike and offer different services and benefits to consumers. But one common thread is that health care costs are continuing to increase and are expected to exceed $8,000 per person this year. You cannot control future health care costs and improve your employees’ health unless you find a carrier that will work behind the scenes to effectively manage your total medical spending and solve these problems by providing value-added services.

“Knowing more about these services can help an employer sleep better at night, knowing that they are getting great value for their health care dollar and that their employees are being cared for by a team of professionals,” says Amy O’Meara Chambers, associate vice president of market development at Priority Health.

Smart Business spoke with Chambers about behind-the-scenes work that takes place at health plans, how to take advantage of value-added services offered by health plans, questions to ask regarding your health plan, and what elements make up a good health plan.

What goes on behind the scenes with health plans that employers or consumers might not know about?

Health plans have many services in place to keep members healthy. These services help employers maintain a work force that is healthier and more productive. Employers also see their health care expenditures’ bottom line improve.

Health plans also have many health experts on staff who are tasked with bringing the best health care solutions to members. These people research, work on quality initiatives, help coordinate member care and help members manage chronic disease. Health plan experts are also conferring with community doctors, nurses and pharmacists either in committee formats or one-on-ones, discussing individual member cases to determine the best course of action.

What are some value-added services offered by health plans, and how do they work?

Examples include case and condition management, disease management, wellness programs and prevention. These services monitor and utilize data that’s received through medical claims to identify complex member cases and chronic conditions. Health plans also reach out and help members coordinate their care while experiencing intensive treatments and offer educational support to those with chronic conditions.

Other areas of value-added services are wellness programs and first-dollar preventive care. These services encourage members to take an active role in their health care and address health issues early. Members have preventive care built into their coverage and have access to programs such as community wellness classes, fitness discounts at area retailers and interactive tools on the plan’s Web site.

What questions should employers ask their health plan regarding the services in their contract?

Take advantage of your health care dollar by educating yourself on all your health plan has to offer. There could be free wellness programs just waiting to be utilized, but if you don’t ask, you may never know they’re available. Your employees will be thankful for their reduced gym memberships or free classes on something such as ‘quick and healthy meals.’ Healthy employees make for a healthy bottom line.

What kind of reporting can you expect from a health plan to help structure effective programs for employees?

Employers are able to make good decisions when they receive accurate and actionable data reporting. Financial data supplied to large groups help guide them toward the best funding option, whether it’s self-funding, shared funding or fully funding their health plan’s expenses.

Health and wellness information is presented to assist with identification of opportunities for case and disease management as well as wellness programming support. Lastly, plan design data is reported with a focus on utilization by benefit type to identify potential changes to member liability and alignment of benefits with the employer’s benefit strategy. Smaller groups that take advantage of a community or book rating do not typically have access to group specific data reporting; however, data becomes more available as groups reach or exceed 50 employees.

What sets a great health plan apart from a good health plan?

Great health plans provide excellent health care that is affordable. These plans receive high honors when compared with peers and garner respect from the employer and provider communities and the membership at large.

Great health plans offer a range of products that complement your employer benefits strategy. They offer excellent claims systems, the highest caliber customer service and excellent health management programs that show a return on investment, online tools, etc.

AMY O’Meara CHAMBERS is the associate vice president of market development at Priority Health. Reach her at (616) 464-8540 or

The current recession has created numerous financial problems for businesses, especially the smaller ones. With people cutting back on spending, many businesses are struggling to keep their doors open and remain profitable, as evidenced by the numerous stores closing across the country. Payment cycles have also changed and been shortened for many businesses, making it tougher for them to collect on receivables.

“Customers are having their own financial issues that are causing them to pay slower, which is ultimately causing a slower receipt of cash,” says Bill Lambert, vice president and credit officer at Fifth Third Bank. “On the flip side, vendors are requiring faster payments in some cases, which has snuck up on a lot of companies. These changes in the payment cycle have been a big cash flow issue for a lot of companies.”

Smart Business spoke with Lambert about how to improve your cash flow in this down economy and how creating a cash flow budget can make you flexible for the future.

How can you improve your cash flow?

Take a look at a 13-week cash budget going forward. Simple is better with cash flow. Take a look on a week-by-week basis, roughly a month to a quarter out in the future, and put down what you expect to receive and what checks you actually expect to write. It sounds outrageously simple, but a lot of companies don’t do that. If you look at your historical business from last month or last year, that’s a decent indicator of your ability to be profitable. But when you break out the cash in and cash out, it can be enlightening.

Be more aware of the sources and uses of cash in your balance sheet and working capital accounts. There are three primary issues to be concerned with here, the first being appropriately managing the accounts receivable, which includes preparing bills faster for customers. When economic times were better, some companies could maybe go a week or two at a time without preparing and sending bills because the cash flow wasn’t quite as important. Today, it is more important to prepare and collect the cash faster.

The second component is inventory. Having a lot of cash tied up in your inventory can be a constraint on the company. You need to limit the amount of time that your cash is tied up in inventory. The third piece is with accounts payable and how slowly or quickly you pay your vendors. If you have the ability to wait a little bit longer to pay your vendors without hurting your credit standing with them, that can ultimately be a source of cash, as well.

How does cash flow analysis come into play here?

From a traditional standpoint, companies will look at their net income, add back noncash items like depreciation and consider that their cash flow. Look at more of the cash flow budget, because it adds a little more reality to the scenario. Analyzing your cash flow like that can get to the heart of the issues a lot faster sometimes.

How can you make your budget flexible for any unexpected receipts of expenditures?

The key is to keep it on a rolling basis. Looking at it weekly, you can better account for the things that you didn’t plan on. If you can look out over four to six weeks, to the extent that some vendor credit terms allow you to you delay the payment of an item for a week in order to accomplish paying something else, you can see your short-term future much better. Constantly updating that allows you to be flexible.

What problems can you run into if you don’t improve your cash flow?

Ultimately, it’s not a lack of profitability that causes problems but a lack of liquidity. People talk about the five Cs of credit, but the only important C is cash. That liquidity is either cash the company has or the company’s ability to turn their assets into cash quickly. Without that liquidity, the company has a hard time making its payroll, paying its bills, etc.

What are the benefits of improving your cash flow?

Financial flexibility. When you are as efficient as you can be, that gives you the ability to reduce leverage and not carry as big of a debt load. It allows you to be in a better position if you have a period of time when revenue drops or general economics are tough. That financial flexibility buys you time during those points.

BILL LAMBERT is vice president and credit officer at Fifth Third Bank. Reach him at (513) 965-5163 or

Saturday, 25 April 2009 20:00

Guarding your valuables

When you hire employees, you want to assume they are protecting your intellectual property and not sharing confidential information with competitors or creating items for other companies while employed by you. But that’s not always the case. Intellectual property is a significant asset, so it’s important to protect it from employees who might be looking to cash in on your trade secrets, patents or copyrights.

“Make sure to clarify in writing that anything your employees create while working for you is vested with your company,” says Clint Crosby, shareholder at Baker, Donelson, Bearman, Caldwell & Berkowitz PC. “Should there be a valuable invention, there might be battles with employees who contend that an idea or invention belongs to them. At the end of the day, you may be victorious, but litigation can last multiple years and costs hundreds of thousands of dollars.”

Smart Business spoke with Crosby about how written agreements can help in protecting your IP, what to do if an employee breaches that agreement and recent lawsuits that have involved IP issues.

How can businesses protect their IP?

The most important thing is to have written agreements with employees. You should have a clear, concise and easily understood written document that both sides can agree to at the inception of the relationship. This will allow both sides to know what the intellectual property is and also define that any invention or idea developed by the employee while working for the company will be company property.

Presuming that the employee will leave your company at some point, you want to have a document that they can refer back to, so that when they decide to go, they understand their obligations concerning IP.

What information should be included in an agreement?

? Define that the IP and confidential information provided to employees when they are hired belongs to the company. You expect them to keep that information in confidence and use it only for work

? Have employees disclose any IP they already own, including patents, copyrights and trademarks. You can better protect yourself and resolve later confusion if the employee defines any IP they own in advance.

? Prohibit employees from using any confidential information or IP they know about from a former employer at your company. This will prevent a later claim that any IP created at the company is derived from another company’s IP or confidential information.

? Employees need to agree to assist the company in registering and protecting any newly created IP.

? Have employees accurately track what they’re creating and what they’re using existing IP for and disclose that information to you.

What should you do if an employee breaches that agreement?

You may need to seek an injunction to get some relief from the court to prevent the employee from continuing to share that information. You also might want to pursue litigation if there are damages that could be awarded to compensate for that loss of information or secret.

You want to define in the employment agreement what the company can do if there is a breach. Both sides then know what can occur, and it will discourage employees from doing something that may violate the agreement.

How can you make sure your trade secrets are protected?

Trade secrets are generally defined as some type of information, product or process that’s not readily known or easily accessible to the public and brings value to the company. You need to demonstrate that it is indeed a secret and that you’re making some effort to keep it confidential — it’s kept under lock and key, there’s some password protection or encryption — in order for it to be protected as a trade secret. You also need to show that it’s not something commonly disclosed throughout the company, just to limited personnel as needed for their work.

Have there been any major cases involving IP issues?

There was a case in 2008 where inventor Carter Bryant came up with the Bratz doll concept while at Mattel Inc. and then moved to competitor MGA Entertainment Inc. MGA developed the product and made a significant amount of revenue from it. The question was: When was this concept invented, and did it fall under Mattel’s IP rights or MGA’s IP rights?

Ultimately, the court found in Mattel’s favor, that Bryant had created Bratz while at Mattel, and awarded Mattel $100 million for the copyright infringement and breach of contract. Mattel also filed a permanent injunction against MGA to stop them from making and selling Bratz and to dispose of all Bratz-related marketing material. The injunction was granted, but enforcement of it has been held until at least the end of 2009 while MGA appeals the decision.

The case highlights the importance of having an agreement in place and having employees clearly document their work. If they’re coming up with new concepts and ideas, you want them maintaining records that show the ideas and dates of creation. If a question comes up down the road, you can hopefully clearly define the date of creation and eliminate the long-term, expensive litigation.

Clint Crosby is a shareholder with Baker, Donelson, Bearman, Caldwell & Berkowitz, PC. Reach him at (678) 406-8702 or

Thursday, 26 March 2009 20:00

A silver lining

In these current economic conditions, it’s a good time to reassess your tax and estate planning. Whether it is gifting stock and real estate to shore up your estate, or trying to make up for losses in your business, there are many ways to help make sure your finances are in order and your estate tax posture is maximized.

“Estate planning is the silver lining in the economic gloom,” says Robin Bell, a member at Brown Smith Wallace LLC. “While people always need to be cognizant of the value of their estates, you still need to do the basic blocking and tackling to make sure that your wishes are granted, and your heirs and beneficiaries are taken care of.”

Smart Business spoke with Bell about the new estate tax exemptions, how to take advantage of quick tax refunds if you have experienced a tax loss, the basics of the Section 179 deduction and new tax law changes.

How do you gift stock and real estate?

With the current value of stocks, you can gift more, and when the market does rebound, the appreciation in those marketable securities is out of the estate of the person who made the gift. Now is a good time to think about ways to reduce your estate, so in the future you can control and reduce estate tax problems.

Just as giving stock in a down market can be beneficial considering future appreciation, the same holds true with real estate, family limited partnership interests and closely held companies. You must go through the proper channels in order to benefit — have an appraisal or a business valuation conducted — but you will benefit greatly in future years by gifting these items when we are in a down economy.

What is the impact of the new estate tax exemptions?

The exemption had not increased for several years. Finally, the exemption has increased. For 2009, the exemption is $3.5 million. In 2010, estate tax totally goes away, unless we have another big tax bill in the next 10 months. In 2011, the exemption is supposed to be reset to $1 million. The general feeling is that they will probably permanently increase and index it to a level that makes sense, which could be somewhere between $2.5 and $3.5 million on a go-forward basis. However, with the latest news from President Obama, we can only plan for the laws today.

What types of quick tax refunds can you get for net operating loss years?

For companies that incur a tax loss, it can be carried back to recoup tax paid in the preceding two years. The goal would be the sooner the better, as the refund could impact cash flow planning.

Some companies may not have a net operating loss, but paid a lot in estimated taxes for 2009 based on 2008 results. If their 2009 year doesn’t look as good as their 2008 year, they can use Form 4466 for a quick refund. This can be filed before their return is filed, which is another way to impact the company’s cash flow. There are requirements — it has to be at least $500, at least 10 percent of your current estimated tax liability and the service has to act on it within 45 days.

What is the Section 179 deduction?

The Section 179 deduction is designed to help businesses that need to make investments in capital assets. For any business that places $800,000 or less of assets in service during their fiscal year, they are allowed to write off up to $250,000 immediately. Also in place is an immediate 50 percent bonus depreciation, which is for all assets placed in service for that year. This is available to everyone — some of the larger corporations that may have placed more than $800,000 of assets in service are not eligible for the entire 179 deduction, but they would be for the bonus depreciation. You can take the bonus depreciation if you have taxable income or loss. You have to have taxable income in order to take the 179 deduction. You can carry the deduction forward, but cannot create a loss with it, nor file a carry back claim.

How will the new tax law changes affect companies?

The new tax law targets individuals and small businesses. But for larger businesses, there is a work opportunity tax credit that has been expanded to include two new classes of people — unemployed veterans and disconnected youth — which might encompass more employers who qualify for that credit.

The credit is up to 40 percent of the first $6,000 of wages paid to the qualified employee. They’ve also expanded the rules for cancellation of certain indebtedness income. Consult your tax adviser on that. The rules are detailed, so make sure that you are following them correctly.

ROBIN BELL is a member at Brown Smith Wallace LLC. Reach her at (314) 983-1217 or

Thursday, 26 March 2009 20:00

Is your broker accountable?

Companies need to be able to depend ontheir professional service partners toprovide them with the necessary protection to survive and thrive during challenges. A key member of every risk management team is the property/casualty insurancebroker.

“The broker is not only responsible for providing the right combination of insuranceprotection for company, customers, assetsand employees but is accountable for protecting the net worth of the company and itsowners,” says Griff Griffith, CPA, CIC, principal with Garrett/Mosier/Griffith/SistrunkInsurance Services.

Smart Business spoke with Griffith aboutwhat to look for in a superior broker and thetools to ensure accountability.

What should you look for in a broker?

A great insurance broker functions beyondthe traditional role of a broker and providesrisk management service. They should betechnically proficient — someone who actually reads and understands the policy forms.Many brokers today function on their entertainment skills and don’t rely on technicalskills to get the job done.

The adept broker needs to understand yourbusiness and industry. The broker must alsoanalyze your particular exposures and evaluate how to control, transfer or assume thecorresponding risk.

There are many brokers who will promiseservice but never deliver. Brokers are alsocutting services today because they’re costly.The difference between a good broker and agreat one is someone who does not cut services but rather puts their service commitments in writing and into action.

How can a broker put those commitmentsinto writing and what should that include?

Service commitments need to be incorporated into every proposal and service meeting. They are not just pretty adornment for abrochure but a pledge to provide services:


  • Exposure identification and analysis



  • Insurance coverage design. You’re not just taking the prior year’s policy and replicating it but analyzing the present exposures and finding the best way to cover them.



  • Strategic marketing of coverage. Instead of making the clients part of the marketing process and presenting them with various quotes, a lot of brokers come to their clients and say, ‘Here’s the best quote available, should we go ahead and bind coverage?’



  • In-house claims management service that reduces insurance costs



  • In-house loss control and safety management. Many companies do not have the need or resources for a safety director, but a full-service broker can provide some of these services for no additional fees. The result is a safer work environment and potential premium savings.



  • Employee training and education. If brokers assist in educating employees on safety and insurance, the employees are more likely to buy in to your safety program and become partners in this process.


What documents, proposals and servicesshould a broker provide?


  • In-person presentation of proposals. Too often, brokers take the lazy way out and fax over an insurance quote. Protecting your net worth merits an in-person discussion, not a last-minute telephone call or quick fax.



  • Exposure synopsis and a full scope of coverage options



  • Summary of all marketing efforts and insurance quotes



  • Cost benefit comparisons of presented coverage options



  • Historical exposure, premium and rate comparisons



  • Summary of service and broker-facilitated cost reductions


Each year, approximately 90 days beforeyour renewal date, your broker needs topresent a plan for marketing your insuranceprogram. Beware of brokers who insist onkeeping the same coverage and carrier yearafter year without first surveying the marketto ensure that your company is receiving thebest combination of coverage and premiumfor your needs. If you choose to stay with thesame insurance company, you need to makesure it’s the best option for your company.

What is a broker service calendar?

A service calendar is potentially the mosteffective tool for ensuring broker accountability. It includes the list of broker servicespromised during the policy year. These services are prioritized with scheduled deadlinesand assigned personnel to ensure completion. This is a perpetual tool and is updatedregularly to ensure ongoing accountability.The calendar also serves as a broker reportcard at the end of each policy period.

Why should accountability be the focus ofbusiness-broker relationships today?

Accountability ensures that the brokerservices you are promised are the servicesyou are delivered. The result is the highestvalue of service attainable for your dollar. Asa broker becomes truly accountable, he orshe becomes an active member of your management team, without being on your payroll.An accountable insurance broker alsoenables your people to focus their time andresources on other business matters, whilehaving the confidence that your insuranceprogram is being professionally managed.

GRIFF GRIFFITH, CPA, CIC, is a principal with Garrett/Mosier/Griffith/Sistrunk Insurance Services. Reach him at (949) 559-3370

Thursday, 26 March 2009 20:00

Budget-friendly travel

The recession has led to cost increases everywhere, including the travel industry. The National BusinessTravel Association forecasts business travel costs will increase between 5 to 8 percent this year, while there could be anywhere from a 20 to 30 percent decrease in the number of trips being taken.

Companies across the board are lookingto cut costs from every operating unit, and while cutting travel expenses can have a short-term impact on your bottom line,there are ways to reduce your travel budget without sacrificing sales and revenue.

“A common mistake companies make isnot having truly structured and managed travel programs,” says John L. Sturm, executive director of sales and marketing at Professional Travel Inc. “Many corporations have general guidelines they implement when traveling, but few specific policies — with little or no checks and balances. They’ll place those recommendations into the travelers’ hands to manage on their own.”

Smart Business spoke with Sturm about how to use cost containment to make reductions in your travel budget and how a managed travel program can save you between 12 to 17 percent annually on travel.

What are some costs issues that companies are running into with travel?

Notwithstanding the basic costs of air, car and hotel, travelers need to be aware of the impact of hidden fees, surcharges, cancelation fees and penalties. Certain hotelsare resorting to 48-hour-minimum cancellation policies, along with totally nonrefundable room rates. Now more than ever, it’s important to read the fine print on each and every agreement you sign.

At the end of the day, these fees and penalties need to be understood and managed with your overall travel policy. These penalties can quickly add up and, if left unchecked (as with your overall travel strategy), can lead to 20 to 30 percent in excess spending.

The efforts made on the front end totighten up your policy and communicate possible pitfalls associated with small upfront gains will ultimately lead to the type of comprehensive savings that canonly be achieved with a global corporate travel program.

How can cost containment help you save on expenses?

The strategic implementation of a budget and identifying benchmarks are crucial to maximizing your overall savings. Negotiated savings with each of the key vendors dealing with air, car and hotel willdrastically reduce your T&E. Additionally, many of these vendors are more than willing to add amenities into their contracts that further reduce your costs. Driving consistent behavior across all entities and to your vendor partners truly impacts the overall cost containment.

Consider the impact of loyalty programs on individual shopping preferences. When you contractually work with preferred suppliers and structure loyalty and reward programs throughout the entire organization, you realize exponential savings not obtained by individual efforts.

How long will it take to realize the greatest savings potential?

Many are immediate, but others depend on the design of your current travel policy, the level of sponsorship of your program and the operational effectiveness of your travel management company. The level of controls over your process and single source aggregation of data are crucial to your savings. Your travel management company should conduct an internal SWOT analysis to identify gaps and the low-hanging fruit to immediately impact savings. The collection and aggregating of data into meaningful leverage with vendors or internal processes become invaluable within two to three months.

What types of reductions can you make toyour travel budget?

Again, if your policy is structured effectively and your travelers are utilizing your preferred vendors (air, car and hotel), you will maximize the savings on each transaction and your overall savings potential. As with virtually all other decisions you make, the answers are in the data and the collective aggregation will identify where your opportunities are.

Have your current travel management company negotiate preferred rates for frequently visited hotels and utilize one car rental company. Negotiated savings on these two items alone can result in a 20 percent-plus savings over standard corporate rates.

How can a managed travel program help you cut costs?

Most times companies don’t have a lot of relevant travel data to negotiate savings, let alone to allow you to evaluate internalpolicy against industry best practices. The data is your biggest opportunity and becomes an integral part of negotiating better rates, fares and amenities. Your travel management company not only represents your travel, but the entire portfolio of the clients they serve. They are your advocate and should be leveraging their relationships along with their buying power to secure you the best rates possible.

JOHN L. STURM is the executive director of sales and marketing at Professional Travel Inc. Reach him at (440) 734-8800 x4089

Thursday, 26 March 2009 20:00

Fifth Third Bank expands growth

With marketplaces expanding across the globe, importing and

exporting have become important parts of business on almost every

level. Leaders are looking at markets they

might be missing overseas as well as how

they can source product there in order to

add to their margin with the same quality

of product made in the U.S.

“Exporting can bring increased revenues, growth of the business and diversification of customers,” says Dan

Flanigan, vice president and senior foreign exchange adviser at Fifth Third Bank

in Cincinnati.

Smart Business spoke with Flanigan

about successful strategies for importing

and exporting, how to manage your foreign exchange and business risks, and

what Single Euro Payments Area (SEPA)

means in today’s global marketplace.

What are some strategies you can use when

importing and exporting?

For companies just entering the global

market, finding a good partner or distribution source is key. It’s hard to access

those markets without doing your

research and finding partners, whether

it’s a joint venture or an entity that you

can lean on a bit to get into those areas.

Think about ways to evaluate the export

potential of your products and services in

an overseas market. The easiest approach

is to look at the success of your products

in the U.S. There’s a good chance they will

be successful in markets abroad, at least

where there are similar needs and conditions as in the U.S. Examine the unique or

important features of your product. If

those features are hard to duplicate, it’s

likely those products are going to add

value outside of the U.S.

Is now a good time to export your goods?

It’s good to look at alternatives. Clearly,

the challenges we have here are being felt

globally. You have companies that are

pulling back and not looking outside the

U.S., trying to focus on their core business. The numbers for exporting have

certainly gone up over the past decade.

The trend in foreign exchange markets,

up until recently, has been a weak dollar,

so the revenue generated outside of the

U.S. has been more tangible for U.S.-based companies in U.S. dollar terms, and

their foreign exchange gains have been

significant. The euro hit an all-time high

of 1.6038 on July 15, 2008. It has lost more

than 20 percent of its value since then.

How do you manage foreign exchange and

business risks?

The volatility in the current foreign

exchange market is unprecedented. In

order to manage these risks, you first

need to look at how you want to do it.

Based on the business that you’re doing,

if you are exporting and have revenue

outside the U.S., you are going to be in

receipt of foreign currency. As a U.S.-based company, you’re going to need to

come up with a policy where you’re more

disciplined in converting that currency

into U.S. dollars. The most successful

exporters are those that are disciplined in

their hedging programs. Establish a foreign exchange hedging policy and come up with strategy that you want to execute

to manage that risk.

There are three main products in foreign exchange. First are cash or ‘spot’

trades. These are the most risky as you

have left yourself completely open to

market fluctuations. The second is a forward contract, which is simply that ‘spot’

rate and an adjustment to that rate in the

way of positive or negative forward

points. Forward points are simply interest rate differential between the two

countries of the currency pair (i.e.

USD/CAD). These contracts, not to be

confused with rigid futures contracts,

eliminate all downside risk as well as all

upside. They are very conservative. The

last product set are options, which give

you the right, but not the obligation, to

buy or sell a currency for specific settlement date and amount. Options take on a

variety of different looks and can be as

conservative or aggressive as you want

them to be.

What is SEPA and how does it affect businesses?

SEPA is an effort to hook all 27 countries that make up the European

Economic Union into one standardized

payment system across all of those countries. It harmonizes millions of everyday

retail payments in euro all over Europe.

SEPA defines the specific rules, practices

and standards or schemes for SEPA credit transfers and SEPA direct deposits. The

project will impact electronic payments

and card payments, changing and reshaping the role of the automated clearing-house in the Euro Zone, and providing

common standards, enabling true cross-border electronic and card payments in

the Euro Zone. The SEPA pay instruments are credit transfers, direct debits

and payment cards. Since 2008, the

instruments have operated alongside

existing national processes, with full

migration targeted for the end of 2010.

DAN FLANIGAN is a vice president and senior foreign exchange adviser at Fifth Third Bank. Reach him at or

(513) 534-6872.

Thursday, 26 March 2009 20:00

The right choice

According to a survey from the Ethics Resource Center, some of the top ethical challenges facing businesses today include individual rights and values in the business, operations, competition, product, shareholders and government. Not establishing a code of ethics for employees to follow can make your company more open to some of these challenges.

“If an executive knows or has knowledge of something that’s going on in their company that’s wrong, it should be addressed,” says Frederick Jones, business law and ethics lecturer at Kennesaw State University Coles College of Business. “If they turn their head and it’s found out later that the issue was ignored and they knew it was there, that’s where possible criminal liability comes into play.”

Smart Business spoke with Jones about how to maintain a culture of ethical standards within your company, what to do if there has been a breach of ethics and how maintaining high standards can create a more positive work environment.

Where do ethical standards begin?

Management must set an example and model the behavior they would like to see throughout that company. Set up a code of conduct, a business code of ethics, and make sure that employees and management know the law. If an employee sees that he or she is violating a rule, he or she will know to stop. Ignorance of the law is no defense or excuse.

Help employees evaluate their values. Establish policies that encourage employees to ask themselves, ‘Am I looking for a loophole or am I trying to follow the letter of the law when it relates to internal policies?’ Encourage employees to follow their conscience and be aware. If you feel guilty about something they’re doing, it’s probably not good. Would you want that decision you’re about to make to be published? If you wouldn’t, it’s probably not a good idea.

Encourage employees to keep their promises. Everybody wants to know that he or she can deal with somebody who has integrity. If every business is based on trust, your customers will feel better about dealing with you.

Encourage employees and management to ask themselves, ‘What would my hero say about this decision I’m about to make?’ If it’s something that your hero wouldn’t feel good about, you shouldn’t do it. If companies incorporate this into their policies, procedures and training, it would be a big help.

How can you create guidelines for ethical practices?

Sit down with corporate counsel and line up some of the main issues that your company deals with on a regular basis. Itemize that list, coordinate that information with human resources and make it a part of every new employee’s hire package, making certain that all of the established employees are aware of it, as well. Organize training sessions, and annually, quarterly or biannually review those guidelines and procedures.

What happens if there is a breach of ethics?

Take each situation case by case and evaluate the facts, because some ethical breaches or violations are more severe than others. If an individual broke one of those rules, management would have no other choice, if notice has been given, to terminate the employee. It will send a message to the rest of the team and the company that this type of behavior will not be tolerated. If management merely turns its head concerning unethical behavior, management is by default approving that behavior. So something must be done once unethical behavior has been exposed or made known.

What consequences might businesses see if they do not maintain ethical standards?


  • We live in a litigious society; many are looking to file a lawsuit. Unethical behavior is a breeding ground for litigation.



  • A company can expect long-term profits to be minimized. The company can lose profits from lawsuits, litigation expenses and fees, negative public relations, and loss of company morale. All those things will have a negative impact if unethical behavior leads to a lawsuit.



  • There is the possibility of prison time, heavy corporate fines and penalties, or loss of license.


What are the benefits of maintaining and creating a culture of ethical standards and practices?

Employees will not view work as work, because the culture will be positive and uplifting. Companies can expect higher profits. There will also be long-term success of the company. Lawsuits and legal issues will be minimized.

FREDERICK D. JONES is a business law and ethics lecturer at Kennesaw State University, Coles College of Business. Reach him at (770) 499-3627 or

Thursday, 26 March 2009 20:00

All in this together

Mardi Norman says that trust is the cornerstone of being a good leader: You have to gain the trust of the members of your team, trust them and then get them to trust each other.

“If you can create a culture where everything is based on trust, it will help you succeed,” says Norman, president and CEO of Dynamic Systems Inc., an IT service provider and project management company.

Norman’s focus on creating a trusting culture among her 50 employees has helped her grow the company to 2007 revenue of $66 million.

Smart Business spoke with Norman about how to create that trust with your employees.

Q. How do you develop a trusting culture?

You have to remove any fear that if you make a mistake, there will be some type of consequence or penalty. Mistakes are going to happen, unfortunately, and if you create a culture where everyone just trusts that they can be upfront and honest and bring mistakes to light instead of trying to cover them up, then they know that the entire team is there to support them.

We’re all going to come together to fix it, instead of pointing fingers and putting blame on one another. Removing the blame and a feeling of fear that there will be a negative consequence, that helps to build trust.

Providing honest feedback is a cornerstone to trusting. If all the feedback you ever get is, ‘Oh, you’re doing a great job,’ and then all of a sudden someone finds themselves in a situation where something isn’t going right — ‘Well, wait a second, you’ve been telling me all this time I’m doing a great job, where’s the disconnect?’ It’s being honest and candid.

Q. How do you provide that honest feedback to your employees?

If it’s not something that has a timing issue, those are the types of discussions that can happen during performance reviews. A structured performance review is always a good time to provide that feedback, because it’s a structured situation and the individual is prepared to hear both positive and negative feedback.

But if it’s a situation that can’t wait for a formal performance review, then having the type of open relationship where you can call someone into a conference and sit down with them and let them know, ‘Here’s my observation. Here’s where we’re not quite on the same page, and your actions aren’t quite within the culture of the company, and here’s what we can do to rectify that.’

The most important thing is hiring the right people. If you invest the time to hire the right people, you can find that type of quality in an individual that you know will work well in your culture.

Q. How do you find the right people to fit in to your culture?

Invest the time. That’s key. People try to shortcut that whole process because it can be lengthy and time-consuming, but the biggest asset you have is people.

Investing the time to make sure you’re bringing the right person on board, it saves so many headaches down the road. Bringing the right people on allows you to maintain the type of culture that you worked so hard to establish.

A resume is great for analyzing someone’s skills, but skills are secondary. Those can be taught. It’s really about meeting the individual.

(It’s someone who has) the ability to be an independent thinker and strong judgment skills — individuals who are self-motivated and strong enough to be able to make a decision themselves.

I have them meet more than one person. And by having time with multiple individuals, hopefully if we’re doing everything right, we’re all on the same page and presenting the company story in the same fashion.

Q. How do you make sure you are reinforcing the culture and living it for employees?

Actions speak louder than words. I try to be the example of what our culture is. If I’m noticing we’re off track somewhere, I reinforce what is expected and give an example of, ‘We failed in this area, and let’s get back on track.’

Or the opposite — ‘Here’s an example of where we’re having great successes.’ Acknowledging people’s success feels good for the individual, but it also feels good for the group, because everyone wants to be part of a winning team, and sharing in people’s successes is a great way to feel like you’re part of that.

When you trust everyone, it’s easy to provide flattery and acknowledge what people did. You’re not feeling like, ‘I have to take all the credit, because if I give any credit to that other person, they’re going to take something away from me.’ There’s not that feeling of you’re going to lose anything. It’s all good. You can share and be open.

Q. What’s the benefit of having an open and trusting culture?

You have employees who are willing to go the extra mile for you. If they know you’re trusting them to make the right decisions and do an excellent job, they’re going to want to do an excellent job. It’s a motivator.

Jeff Osterfeld knew nothing about running a restaurant, but after graduating college in 1983, he decided to give it a try.

He opened Jeffrey’s Delicatessen in the Dayton Mall and quickly found that it was hard work. Osterfeld learned not only how to run a restaurant and the ins and outs of the industry, but he also had to do most of the jobs on his own.

“I feel like in the first 10 to 15 years of the business, from having one store and growing it to 30 to 40 units, I was forced to handle all the different positions and do everything myself,” the founder and CEO says. “I couldn’t afford to hire the right people, and for that reason, I tended to micromanage.”

As the business grew into several locations in the Cincinnati area under the newly created Penn Station East Coast Subs name, Osterfeld knew he needed more people to help keep up with the demands of growth and success. But he first needed to find people who shared the same commitment that he did for the sub sandwich restaurant.

“I became frustrated and disillusioned that people didn’t take the same passion to work every day that I did,” Osterfeld says. “When you create the business, there’s an innate emotional attachment to the success of the business. Other people didn’t treat it the same, and I became frustrated with that.”

Once he found a way to get the right people in place, it was only a matter of empowering them to help him grow the company. The results are a successful quick-service food company with 2008 revenue of $112 million and more than 200 locations.

Here’s how he did it.

Find the right people

Getting the right people in place in your business, especially if you started the company on your own, can be tough. You want to find people who share the same passion and commitment for the business as you do to help you grow.

“You’re only ever going to be as good as how good your employee base is,” Osterfeld says. “You can take any well-run company or any good concept and ruin it in a short period of time with poor people.

“The flip of that is, you can take some pretty underperforming companies and inject a new employee population that is immensely talented and turn that company around in pretty short order. In the end, people will always make the difference.”

Osterfeld uses a strategy of trying to find people that can move up in the company. He has a commitment to hiring from within, so he looks for employees who can become future leaders when he is hiring.

“When you hire from within, employees after awhile understand that and are more motivated when they see a company that’s not only growing, but as they grow, they are taking the employees to fill the upper-echelon positions from the existing employee base,” he says. “If you continually bring in outsiders, their sense of thinking is that there’ll be no room for growth. You’re going to have a hard time holding on to employees and garnering any loyalty with your existing employee base.”

Osterfeld says take the time to go through the interview process and make the right judgment on whether the candidate has the talent and aspirations to eventually move up to a higher position.

“I look at that individual before we hire them and ask myself, ‘Is this somebody who can come in and grow with the company?’” Osterfeld says. “Do they have enough talent and aspirations to want to move up within the company?’ If you do that, and you’re not shortsighted about your hiring, you’ll find that in four, five, 10 years, you have enough talent in the lower levels to replace the people in the upper levels; as there’s turnover in management or as you grow, there are new positions that become available.”

Osterfeld also keeps his eye out for young people who are talented and can bring something to the industry. While building his golf course, The Golf Club at Stonelick Hills, Osterfeld met a young man on the construction crew who impressed him by showing up on time every day, sometimes even coming early and staying late. He kept in touch with the young man throughout college and eventually offered him a job after he graduated.

“You ask yourself constantly whether or not you think that particular individual has talents that fit within your organization,” he says.

Empower your employees

Once you have those right employees in place, you need to spend time with them to get to know them and find out what motivates them so that they will be successful employees for your company.

“It’s just staying connected to your employees and having an ongoing relationship with the individual employees,” Osterfeld says.

You need to treat your employees like individuals and take an interest in them both personally and professionally. Take time out of your day to talk with them and learn more about who they are as a person, where they want to head on their career path and what is going on in their lives outside of the workplace. Find out if they’re happy at your company, what they like and dislike about their job and what their goals are. You can then use this information to motivate your employees toward the things they want to achieve.

“For some people, it’s strictly money; for others, they do or don’t want responsibility,” he says. “Some may want to travel and some not. Some may want to be in operations, another in sales; they may require all sorts of different needs and wants. Just understanding that you care puts you ahead of the game.”

Osterfeld says it sometimes can be difficult to find the time do this, but pushing yourself to do it will have value for your company.

“You simply have to be cognizant of the fact that establishing a connection with those employees has a value and make that effort on a day-to-day basis to remember a name, to spend a little time to talk to people about what they like and dislike, where they’re headed, and how they’re connected to the company,” Osterfeld says. “Show them that you care.”

Being able to motivate your employees comes from not only understanding what motivates them but also from being able to challenge them.

“When employees see you growing as a business, they realize that new positions are going to be created, and there is competition for those new positions,” Osterfeld says. “You motivate them by challenging them to grow with the company, to take on additional responsibilities and move up as the company grows. The degree to which you find out what their motivations, interests and goals are professionally, and you stay in tune to that, you’ll motivate them. As soon as you become, in their eyes, disinterested in what they want out of the business, you’ll end up losing them sooner or later.”

One way Osterfeld has motivated and empowered his employees is through the general manager program. The program puts the ownership mentality behind the counter in his stores, directly tying profits to general managers at each location.

Osterfeld created the program back in the mid-1980s after getting frustrated about how some of his stores were being run day to day. With this concept, general managers were hired for each location and would evenly split profits from that store with the owner.

“Those general managers are not only motivated properly on a day-to-day basis, but we have a lot less turnover, because they split the profits 50-50 with the owners,” he says. “They also need less supervision. What you get is an ownership circumstance behind the counter, and every day, they are as concerned as the owner about sales and expenses, because the only way for that general manager to make money is to maximize sales and minimize expenses. So they do the things necessary to make sure that happens.”

Implementing a program like this was hard at times, as Osterfeld ran into problems when interviewing prospective franchisees who simply did not want to share profits with someone else. But once franchisees found out that putting general managers who were vested in the company behind the counter meant they were able to grow the business and add multiple units faster, it became easier to convince them. The program also helped draw more quality employees to the business.

When creating a program that will empower and motivate employees, you need to make sure it’s quantifiable and that employees will see some measure of their success. Having a contract that both parties sign is good, because it puts the agreement in writing.

You’ve also got to be consistent and not have different deals or goals from one employee to the next so that there is no resentment among them.

“We don’t have a verbal agreement; we have a written, quantifiable agreement,” Osterfeld says. “And the franchisor and the franchisee both realize that it’s in our long-term best interest to make sure that we not only sign a contract that they’re comfortable with but that we honor the parameters of that contract.”

To get people to help your grow your business, you have to learn to delegate responsibility to the talent you have hired. But if you are a micromanager like Osterfeld was, who felt like he had to do every job in the company, it can be hard. Overcoming that hurdle took him some time to realize that the company was better off if he didn’t try to do every job there and delegated some of the responsibility to others.

“In time, you learn that to grow you’re going to have to delegate, and … unless you delegate and trust people, you’ll not get anywhere,” he says. “If you give responsibility to employees but don’t let them make some of the decisions that come with those responsibilities, they sense that, and they realize that you’re still micromanaging.”

Following this recipe has been successful for Osterfeld. After 25 years and 202 locations, he has only had one location fail. He attributes his success to finding the right people who have a vested interest in the company to run the business day in and day out.

“The smart leader is somebody who is self-aware enough, critical enough of themselves to make judgment about what they’re good at and what they’re not so good at and hire accordingly,” Osterfeld says.