With the recent dip in interest rates, the urge to refinance is in the air.
But before you go running to your bank to secure that million-dollar line of credit for your business, or even look into a personal loan, consider a peek at your credit rating.
People often take for granted that the information on their credit reports from the three credit reporting agencies is accurate, explains Matt Hollis, a partner at Summit Financial, one of four state-licensed consumer credit organizations in Ohio. But more often than not, one or all of your credit reports contain critical and inconsistent errors.
''If we were to pull your three credit reports and look at all of them, there may be a score of 600 on one, a 650 on a second and a 700 on the third,'' Hollis says.
While that may not sound like a very wide swing, your credit rating may be more important than you realize. Your credit rating is like your SAT score: Colleges may consider other factors for admission, but that scores is really the driving force. The same holds true for underwriters.
''A business owner may make $500,000 a year and have a million dollars in the bank, but neither his income or his assets are listed on the credit report,'' says Hollis. ''The fact that he makes that kind of money or he has those sorts or assets does not necessarily improve his credit score.''
Hollis and his partners, David Waltz and Tim Marotta, recommend pulling all three reports at least once a year or certainly prior to getting in front of a bank or other lender. The problem, Hollis admits, is that ''these reports come in hieroglyphics -- they are not that easy to understand.''
But all is not lost, says Marotta. If you find mistakes in your credit report, you often are able to correct them.
''There is not a lot of personality to credit reports,'' Hollis says. ''But the law protects consumers. It says if there are mistakes on the credit reports that (people) can notify the credit bureaus. Within 30 days (the credit bureaus) have to investigate the disputes and resolve them.''
As a credit service organization, Summit does just that for its clients. Hollis and his partners formulate personalized plans aimed at improving credit ratings.
The owners of small- to mid-sized companies are especially at risk.
''(Often) they will sign something and personally guarantee a debt,'' Hollis says.
This can be compounded if the owner uses a personal credit card to finance a building or expansion project. And, if the bank sees that someone has a line of credit for $500,000 or more, they will question why that person needs more credit.
There are numerous other credit traps a business owner can fall into. One example is high balances on credit cards due to delayed reimbursement for business expenses.
''If you have a credit card with a limit of $2,000 and your balance is $1,900, your credit score is going to be lower because you are perceived as overextended on your credit,'' Hollis says.
The rule of thumb is to keep cards below 70 percent of the limit.
Another common mistake is cutting up a credit card after you've paid it off. Waltz likens it to committing financial suicide. Credit scores are in part based on longevity of credit. It is better to keep a card with a zero balance than cancel all your credit.
Correcting mistakes, refinancing personal debt to corporate debt or re-establishing credit can have a profound effect on an individual's score.
Says Hollis, ''It depends what we see on their credit reports, but on average, we can raise a person's credit score 50 points. That is very significant. It can be the difference between being denied a loan or getting a loan, a sub-prime loan and a prime rate loan. We could be saving them four percentage points.'' How to reach: Summit Financial, (216) 283-1650 or www.auditmycredit.com
Kim Palmer (firstname.lastname@example.org) is managing editor of SBN Magazine.
There have been recent complaints about credit repair companies that claim they will remove bad credit for a fee. Matt Hollis, a partner at Summit Financial, says not only is that impossible, it is illegal.
''Intuitively that should strike you as preposterous,'' he says. ''If someone is promising to remove accurate information from your credit report, they are lying to you.''
However, Hollis says you can correct mistakes on credit reports if you know what to look for. Here are some of the most common problems:
* Erroneous collection accounts or old bills, judgments or tax liens that have been paid that aren't reported.
* Credit cards you don't know about.
* Bankruptcy accounts that are not listed as discharged.
* Commingling. Occasionally, a person whose name ends in Jr. finds his files mixed up with someone whose ends with Sr. Or a man's files are commingled with his ex-wife's. Even common names lumped together in the same file can cause trouble. Source: Summit Financial
If you plan to live forever, never get sick or hurt, never quit, never get fired or never sell your business, you need not read any further.
For the rest of you who live in the real world, and especially those involved in a business partnership, one or all of these issues is sure to arise at some point in your career. Most likely, it will happen when you least expect it.
''It is predictable that these events will happen to different people at different times,'' says Marc Morgenstern, managing partner of Kahn, Kleinman, Yanowitz & Arnson Co. LPA. ''The question is, 'Do you want to live life intentionally?'''
Death, disability, dismissal, dissolution and disagreement will happen in any business, and it's often a difficult time. Since it's impossible to always control what happens, the only other option is to plan for these things. That is where buy/sell agreements come in, says Morgenstern.
''Not all partnerships are made in heaven, and all jobs are not for life, he says. ''While addressing the problems may not make it a good set of circumstances, not addressing them makes it a disaster.''
Most closely held and smaller businesses are not designed for passive or unwelcomed shareholders. Buy/sell agreements are put in place so that when the unexpected happens, the expected outcome prevails.
The first scenario a buy/sell agreement should address is the death of a major shareholder. In this case, the agreement sets a fixed buyout of the shares back into the company and is often guaranteed by an insurance policy that pays for the buyout.
This is the easiest of the inevitabilities to deal with, Morgenstern says.
''Death is easy to deal with financially, very difficult emotionally,'' he says.
Just a flesh wound
On the other end of the spectrum is disability.
''There is not much of an argument about death, but what constitutes disabled is not so clear,'' Morgenstern warns.
There is physical disability and mental disability. Neither is defined, and there are very few insurance policies -- all expensive -- for long-term disability. Getting everyone to agree on what is a disability and what is not can be quantified by time away from work or based on a third-party opinion.
You can't fire me, I'm an owner
Firing a shareholder is another ambiguous area. There are two ways to fire someone -- without cause and for cause.
''Everyone agrees if you do a bad thing you should be fired,'' says Morgenstern. ''But that is not so easy. The question is, 'What constitutes a really bad thing?'''
He suggests setting guidelines but ''make it as conceptual as possible.'' The subsequent buyout should have a stipulation that includes either paying less money for the stock or having a longer noncompete agreement.
''There is an air of punishment, and the company is able to cut a different deal,'' he says. ''It often includes two to 10 specific things, including failure to perform one's job.''
50 ways to leave your job
It may be hard to believe, but there have been situations in which shareholders decided that working was no longer for them. When one shareholder unilaterally changes the rules of the game, a buy/sell agreement should be able to cut them loose.
Losing even one partner can adversely affect a business and, as Morgenstern says, ''Absent an agreement, if you ever sell the company -- regardless of their contribution -- what they get is their equal share of the (proceeds).''
Selling and going public
Most shareholders benefit most when a company is sold outright or taken public. The problem arises when not everyone involved wants to sell or go public.
The question a buy/sell has to contend with is what majority and on what terms can a company be sold.
''If the business is going to be sold, there are two kinds of situations,'' says Morgenstern. ''There are drag-alongs and tag-alongs. If an agreed percentage decided to sell, and if that percentage agrees to sell, then everyone agrees to sell for same terms.''
Talking or thinking about the inevitabilities addressed in a buy/sell agreement is time-consuming and usually unpleasant. Morgenstern likens it to bringing up a pre-nuptial agreement to a young couple about to get married.
''They think they will live forever,'' Morgenstern says. ''They think their business will succeed and their partners will be their partners forever.''
For most business owners, being so proactive goes against their grain.
''You are asking them to deal with the expectations of nonsuccess.'' How to reach: Kahn, Kleinman, Yanowitz & Arnson Co, (216) 696-3311 or email@example.com
Kim Palmer (firstname.lastname@example.org) is managing editor of SBN Magazine.
"Be the best, learn the business and expand by applying what you already know."
It could be advice from any business leader at any conference or presentation, but this is the philosophy of Mark H. McCormack, founder, chairman and CEO of International Marketing Group (IMG), the largest sports representation, marketing and licensing company in the world and winner of Ernst & Young's Entrepreneur Of The Year Award as the 2001 Master Entrepreneur.
As the story goes, IMG had a simple yet poignant beginning. It consists of a young lawyer from Arter & Hadden, a handshake and a rookie golfer named Arnold Palmer. And it begins with McCormack's idea that golfers could earn extra money off the course to supplement what they earned on the course. The reasoning was that business owners would pay athletes to endorse their products.
From that beginning, and an early client list of Palmer, Rod Laver, Jean Claude Killy and Jackie Stewart, McCormack came to recognize and capitalize on what he saw as "the enormous potential of sports as a corporate communications medium."
As the father of sports marketing, McCormack devised innovative ways to package and market every aspect of the game. Thus, the sports marketing industry was born.
IMG represents some of the most famous and most highly paid athletes in the world, including Tiger Woods, Joe Montana, Monica Seles and Wayne Gretzky. But that's just the tip of the iceberg. Since the mid-'60s, McCormack has practically cornered the market on as many entertainment venues and performers as possible. Performing artists, writers, models, broadcasters, cultural institutions and corporations from all over the world look to IMG to negotiate deals, market events and manage licensing agreements. Clients include Wimbledon, the British Open, Itzhak Perlman, Rolex and the Nobel Foundation.
With 85 offices in 33 countries and 3,000 employees, IMG is involved in an average of nine major events around the world every single day. The size and scope of IMG has surprised even McCormack.
"If someone had told me 30 years ago, when I was traveling the golf circuit with Arnold Palmer, that my little management company would one day be booking violinists and singers in Malaysia, or, for that matter, that we would be involved in classical music at all, I would have shaken my head in disbelief," he says.
Despite IMG's size and perpetual expansion, McCormack has stayed the course when it comes to his core business.
"It all starts with the clients," he says. "They're the core of our business. Without this core, the fringe opportunities have a way of passing us by. It's no different in any other operation. If you don't know your core business, everything you do will inevitably become a fringe business."
For McCormack, it all goes back to learning the business and applying what you already know. Even as the company expands into new markets and business divisions, McCormack stresses the core value of the company is its relationships.
"IMG understands far better than anyone in the world the relationship between the athlete and their fans, between television and sponsorship and between events and marketing," he says.
McCormack's business ability has not gone unnoticed. In May 1999, ESPN's Sports Century listed him as one of the Top 10 "Most Influential People in the Business of Sports." Sports Illustrated called him "The Most Powerful Man in Sports." Golf Magazine and Tennis Magazine proclaimed him, respectively "the most powerful man in golf" and "the most powerful man in tennis."
Founding and running the largest and most innovative sports conglomerate in the world hasn't take up all of his time. McCormack has found some free time to write a number of books, including "What they don't teach you at Harvard Business School," which spent 21 weeks on the bestseller list.
But the best place to see McCormack's business knowledge in action is to simply look at what IMG does besides represent athletes. The company continues to bolster its core business by developing or representing every aspect of the entertainment industry.
For example, McCormack has successfully used licensing to add revenue streams, enhance consumer awareness and create stronger brand loyalty. Since 1962, licensing has been one of IMG's core business activities. Today, it is the world's largest independent licensing agency. In 1997, IMG Licensing was responsible for more than $5 billion in worldwide retail sales of licensed product.
IMG has also developed its own sports distribution channels. Through its broadcast division, Trans World International (TWI), IMG is the world's largest independent producer of television sports programming and the world's largest distributor of sports television rights. IMG's television production operation in India produced more than 70 percent of all sports programming shown on Indian television. IMG was also the first company to introduce virtual advertising (VA) technology during live televised matches.
McCormack isn't stopping there. How do you ensure that, as a company, you always have business? Why not create your own client base?
With a strategic merger in 1980, IMG began its comprehensive sports academies. Thousands of potential clients from more than 70 countries attend IMG academies on a multiple week basis throughout the year. The academies cover 190 acres and are used by 700 to 800 elite athletes per week. Nearly 400 students take part in the full-time academy semester programs each year.
It all comes back to McCormack's ability to innovate and grow with the changing sports business landscape, and is a testament to his ability to find and recognize good ideas and talent.
"To me, Arnold was a pioneer in the spirit of Thomas Edison or Benjamin Franklin," he says. "Tiger is a pioneer in the spirit of Bill Gates."
And for McCormack, the idea remains simple.
"The core foundation of IMG's success has always been and will always be the representation of individual athletes," he says. "Because it is they who have the power to advance sport to a new level." How to reach: International Marketing Group, (216) 522-1200
Kim Palmer (email@example.com) is managing editor of SBN Magazine.
The irony of being the first woman at anything is that it's a big deal -- but we don't want it to be.
It's indicative of change, but often change is looked at negatively. And the fact is, in today's climate, it's a thin line between touting progress and putting too much emphasis on people's differences.
Unfortunately, what often happens is the event is cast as, "Well, she's a woman, but she's just as good as a man." Gender equality is often difficult to talk about, so there is a tendency to ignore it.
So it's important that Diane Kappas, a woman with a chemical engineering degree and an MBA, is the first female plant manager at PPG's Barberton plant. At the same time, it simply indicates that the make-up and the culture of the 120-year-old PPG is changing. It's a big deal, but in other ways, it's just business as usual for someone who has spent 16 years working to that end.
As plant manager, Kappas is responsible for overseeing all of the day-to-day plant functions. PPG, a global manufacturing company headquartered in Pittsburgh, has 120 locations worldwide, including the one in Barberton, which was established in 1899 when the factory supplied soda ash for glassmaking.
Now the Barberton plant is a specialty chemicals and products facility with approximately 140 employees who make everything from specialty eyeglass lenses to military aircraft windshields and an array of coatings and ingredients used in other products.
With 2,600 acres of land surrounding the facility, PPG is the largest landowner in Summit County. According to its literature, the company supplies "well over $30 million to the local and regional economy." PPG is a significant presence, and although Kappas has been at the plant less than six months, already she has had to contend with both an economic downturn and the expansion and creation of new product lines.
Although new to the plant, Kappas is not new to management at PPG. She began with the company in 1985 as an engineering intern with a research and development facility and moved through a number of manufacturing engineering positions.
With 16 years under her belt, Kappas, like her male colleagues, was on track to become a plant manager. There is a bit of a misperception, Kappas says, that woman don't go into engineering fields or that woman aren't represented in manufacturing.
"The number of woman who are going into the field has increased dramatically in the last 10 years," she says. "There has been a dramatic shift, and there are more women in our plants today than there ever has been. They are setting their own paths."
She says PPG is committed to promoting diversity but acknowledges, "It is the world that we live in, I suppose, that it does draw attention that I am woman."
Becoming the first female plant manager has been less difficult than even she expected, and she says her new employees have been very accepting.
"I don't feel any extra burden as a result of being the first female plant manager," says Kappas.
Regardless of how many women may follow her path or whether she feels a burden, there is still something to being the first. In such a traditionally male environment, she is acutely aware of what her position may mean to others.
"I do believe there are some expectations that different people are going to have. There are plenty of woman in this organization in the plant and outside the plant that are aware of this opportunity for me and that look to that and say, 'I hope she is successful,'" she says.
In her new position, Kappas has a nationwide slowdown in the manufacturing industry to deal with. In terms of layoffs and cutbacks, the Barberton plant has been relatively unaffected by the economic slowdown that has decimated other local companies. Kappas chalks that up to cost-effective management, proper staffing and the expansion of one product line and the creation of another.
"We have two new products. In addition to the new sales growth in the Teslin area, we also have some new products like optical monikers that are used to create plastic eyeware," she says.
Barberton's plant is the only manufacturer of Teslin, a paper substitute used in credit cards and "smart" cards. The majority of the product is used in European markets, but PPG is looking to expand into the laser and jet printer paper market as well.
As a result, the plant has not had to lay off employees. And even though Kappas says no company is truly insulated from the recent economic conditions, she believes her employees feel relatively secure.
"I think that our employees feel positive about the investment that we have made with the facility and the new Teslin line and bringing in some new products in our optical business," she says. "I think that helps settle some fears."
The investment in the plant is just one example of PPG re-evaluating traditional responses to manufacturing trends.
Although PPG has not always looked at it this way, Kappas believes that, "Now is the time to invest and reposition, because when the economy finally turns around -- like it ultimately will -- you are strategically positioned to handle the upturn, you've put in the capital investment."
Investing in a down economy isn't the only change Kappas has seen at PPG. One of the most fundamental progressions the company has undergone is the change in its corporate management philosophy.
Before her assignment at Barberton, Kappas spent three years out of the traditional path of plant manager when in 1998, she took a position in the corporate office as the manager for diversity and organizational effectiveness. Stepping out of the typical plant manager track and into a corporate human resource assignment has had a direct impact on where she is today, she says.
"It was a position that I accepted because I saw an opportunity to have an effect and have an impact on the entire corporation," she says. "There are not a lot of positions in corporate America today where you have the opportunity to affect the entire corporate culture."
Like many older corporations, PPG traditionally promoted from within, but in the last five years it has "recognized that there are a lot of talented people out there that bring new and different ideas to the table."
Hiring from outside has had a profound effect on the corporate culture.
"We have had traditionally a white male majority in the corporation," she says. "But in the last decade, there has been more of an emphasis on recognizing that people come to us with all different talents and kinds of background and races."
Since her tenure in that position, PPG has instituted a mandatory one-day diversity training course for its entire staff, from senior management to line workers.
"It challenged me to think about the organization in a larger perspective and devise ways and strategies to begin to change the longstanding 100-year-old chemical manufacturing culture that existed," she says.
Kappas acknowledges the effect corporate culture can have on an organization as a whole. But her move to the Barberton plant is as important as her last position in furthering PPGs diversity goals.
"It was important for me to get into a line management position," she says. "Not only did I do the work to effect a change on the perimeter, I am now in the heart of everything and I can now directly impact how people look at women in this nontraditional role. In many ways, I'm still effecting the corporate culture."
It isn't just management that has changed; the management style looks a lot different, too. Whether one affected the other or it's a circular progression remains to be seen, but Kappas says the role of plant manager is much different than it used to be.
"It is not just running a plant. It is an interesting change," she says. "Today, a plant manager's role is less technical than it use to be."
In the past, plant managers worked at a plant for years and knew the ins and the outs of the plant intimately. Now, Kappas, like most managers at PPG, has both a technical and a business background. Plant managers deal more with the business process and rely heavily on staff and teams and bottom-up management style.
"I rely a lot on my staff for the day-to-day technical issues and concerns and I get more involved more with the customers," she says.
Kappas says she is involved more in the strategic decision-making for the direction of the business as a whole, including marketing, sales and commercial development.
"That sort of dictatorial hierarchical management style has gone away in PPG," says Kappas. "We've realized the use of a more collaborative management style is far more successful in today's environment, more than someone dictating and ordering people what to do."
According to Kappas, Barberton's growth illustrates how the company now deals with business challenges.
"We came up with a new organizational structure to support the growth of the business," says Kappas. "It is really a change for the plant in some ways because we focus on the operations side and on what we do today and the focus is on the performance to improve the line."
In some ways, the new position is just business as usual for Kappas, and in other, more subtle ways, it is quite a milestone.
"If I'm successful, I do think it sends a message, and I recognize that there are woman who look to me and say, "If she can do it, why can't I?" How to reach: PPG Industries Inc., (216) 825-2199
Kim Palmer (firstname.lastname@example.org) is managing editor of SBN Magazine.
It used to be that finding a newspaper in the break room opened to the classifieds was a sure sign that someone in the company was looking to leave.
Today, however, most employers would need to check the History function on their employees' computers to learn who has been online at one of the many job boards.
Internet job postings and searches are becoming more and more popular, saving the job seeker and the job holder money and time, while increasing the scope of such searches from regional to international. Last year, there was a 15 percent rise in the number of employers who routinely use the Internet to find candidates for open positions, according to the SBN Magazine Workplace Practices Survey, conducted by the Employers Resource Council.
Forty-five percent of the 92 CEOs and HR managers who responded to the 2001 survey reported reliance on the Internet for recruiting, up from 30 percent in 2000. That's coupled with a jump in online recruiting budgets -- nearly double from last year -- and a drop of almost 15 percent in traditional classified advertising budgets.
Peter Tuttle, president of CareerBoard.com, a regional job board where job seekers are directly linked to potential employers, says his company has benefited from the growth in online recruiting. Unlike the behemoth site Monster.com, CareerBoard does not allow third party recruiters or anyone offering jobs outside Northeast Ohio to post jobs on its site.
Tuttle says by keeping it regional, the company supports the community in which it is based.
"Talent is in short supply," he says, "and it's tough enough to compete with other companies in the region without having to compete with companies nationally."
The approach has been successful, Tuttle says. Within the last year, CareerBoard has gone from 4 million hits a month with 35,000 unique users to 8.5 million hits and 90,000 unique users each month. CareerBoard has also become one of the largest regional Internet job boards in Ohio and, after Monster.com, is one of the largest in the nation.
"The job descriptions include compensation in the $100,000 to $150,000 on the top end," Tuttle says. "But I would say our sweet spot is around $40,000 to $60,000."
Jim Bennett is president and CEO of EmployOn Inc., parent company to the GrassIsGreener.com, a Euclid-based Internet employment firm. Bennett sees a future in Internet recruiting, but also believes that what we see today isn't what we'll be seeing in the future. For online recruiting to take the next step, there needs to be more sophistication added to the art of searching for an employee.
For $7,000 per year, a recruiter or business representative can access 2 million potential employees. What makes Bennett's approach different from everyone else's on the Internet is a technical, concept-based search engine that works with themes, ideas and desires, not just keywords.
The Internet is not just about more comprehensive searches.
Says Tuttle, "It levels the playing field for the small employer. Now they can have an equal shot at candidates."
What this means for CareerBoard clients is that they save money on advertising or third party recruiting fees and, more important, on lead time. No longer do they have to wait for a Sunday ad to run and resumes to come in.
Another benefit, says Tuttle, is that there are no real space restrictions, so employers using the Internet can go into more detail on available jobs.
For Bennett's part, he justifies the subscription cost by pointing to traditional recruiting searches.
"If a firm was going to charge or pay for a 25 percent search fee, it is paid back in one hire," he says.
One great thing about the Internet is that you open your company up to receiving resumes from all over the world. That's also the bad thing about Internet recruiting.
"It is here to stay," says Bennett. "However, there are some cases where it has caused as much pain as it has helped. If you post an ad and get 600 resumes instead of 30, your new problem is wading through all of those candidates."
But that's a small price to pay, says Tuttle.
"There has been a 30 percent crossover from Staffing Solutions (our traditional placement service) to CareerBoard," he says, adding that even if online recruiting isn't totally replacing print ads, it is often used in conjunction with them.
"A majority of the businesses use the Internet in conjunction with traditional print advertising," Tuttle says. "But a number of clients are putting the CareerBoard address in their print ads."
How to reach: CareerBoard.com, (216) 595-2200; EmployOn, (216) 502-5500
Kim Palmer (email@example.com) is managing editor of SBN Magazine.
But for some manufacturers, integrating certain technology -- such as Radio Frequency Identification (RFID) -- is no longer a question of if but of when. With RFID, manufacturers can embed tags such as miniscule computer chips in or on products to better track their movement through the supply chain. The tags respond with identification information when radio waves are sent from readers in a store or warehouse.
"It's like having a chip attached to every unit of product," says Rebecca Morgan, president of Fulcrum Consulting, a manufacturing consulting firm. "It adds data ... it's more than just a serial number. Everything a manufacturer makes will be tracked and traceable for its entire life."
Unlike bar codes, which are identical on every unit of the same product, the RFID number is typically unique to each unit or component. And RFID transmitters don't need to be in the line of sight like bar codes do; data on inventory can be read as long as it falls within the antenna's reach.
Businesses are using the technology to achieve cost reductions from better inventory control -- less lost and misplaced product -- and reductions in labor. Although the technology is relatively new and costly, many manufacturers will not be able to wait to adopt it.
"Wal-Mart announced that its top 100 vendors will have to have this in place by 2005," says Morgan. "Target, Kmart and Sears will do it because they have to, to compete. This will completely change distribution and how manufacturers get things from point A to point B."
Supply chain failures cost global retailers billions of dollars each year, and no one is affected more than big box retailers. And because of their size, what these companies want, they have the power to get, leaving retail manufacturers to figure out how to pay for it.
"One problem is that most manufacturers are already so behind the curve," says Morgan. "They will most likely try to wait until the technology matures. This is going to be another challenge for the smaller manufacturers," which face a big cost outlay to replace the traditional UPC shipping process that, for some, consists of a scanner and a printer for labels.
RFID technology will have to be integrated into the entire manufacturing process and include software to store the data.
"There will have to be a rethinking of the way you define space," says Morgan. "Companies will have to replace old equipment, change processes and procedures, and, of course, there will be training." How to reach: Fulcrum Consultant Works Inc., (216) 486-9570 or www.fulcrumcwi.com
Back on track?
According to Christian & Timbers, an executive search firm, demand for executives among manufacturing and industrial companies in the United States increased by 50 percent from 2000 to 2002.
Positions most in demand are strategic and revenue generating positions, such as marketing and sales.
According to Umesh Ramakrishnan, principal at Christian & Timbers, "It is a slow and steady increase, not a full-scale hiring rush, but the difference is significant."
Ramakrishnan believes that manufacturing and industrial companies suffered in two ways during the Internet and technology boom.
"First, their business suffered, requiring a reduction in the number of executives. And second, and perhaps more importantly, these companies saw many of their executives bolt to technology companies during 1999 and the first half of 2000 in search of higher pay and lucrative stock options," he says.
The abandoning of this industry by executives decimated the old economy, and when the tech bubble burst, executives did not find the welcome mat out for them when they returned.
"One of the most important values in these old-line, manufacturing companies is loyalty. Executives who fled for the tech world were seen as having misplaced loyalty and often were not rehired at their old companies," says Ramakrishnan.
According to the Aberdeen Group, companies on average spend 50 percent of every production dollar on supplied goods. Large manufacturers, in an effort to control costs, pay more attention to the quality and timeliness of supplied goods and are implementing quality standards and initiatives to track results.
That leads to a trickledown effect, as larger companies implement quality initiatives, then expect suppliers to adhere to the new standards.
"Your clients need to know your quality standards, so they audit (your shop)," says John M. Cachat, president of IQS Inc. "When different OEMs (original equipment manufacturers) change their process ... the little guys have to follow."
Take, for example, the automotive world. Ford requires its component suppliers to quantify its basic manufacturing and shipping processes. Those suppliers, in turn, demand the same from their suppliers.
This continues down the line to the small, multiperson machine shop, where the expectations put a squeeze on them, because in this highly competitive and consolidated environment, they have to listen to their customers.
"It is no longer good enough to provide the customer a high-quality product, fairly priced and on time," says Cachat. "Now you must prove you have a system to do that over and over and over."
The leader in system and quality management for manufacturers is ISO registration, but for many smaller companies, that process is too long and expensive. These shops are audited and fail because they haven't implemented the very specific ISO initiatives their customers want.
"They are making great product, but they may only be a 30-person shop," says Cachat. "But their customers come to them and say, 'You really have to do ISO.'"
Even though many smaller manufacturers employ business practices similar to those of their customers, the customers may not know it, in part due to the language ISO employs.
Cachat argues that although ISO is the standard because it "attempts to deliver generally accepted manufacturing practices," the specific language -- such as when suppliers have processes audited by larger component suppliers or OEMs -- can confuse suppliers.
"In these audits ... the owner doesn't understand the questions -- ISO language is a language in and of itself," he says. "They ask the same stuff, but in different ways in audits."
Cachat and his company try to take a pragmatic and affordable approach to ISO registration and quantify existing processes by the smaller manufacturers.
In some cases, these processes have always been done. But while most manufacturers have automated accounting systems, they don't automate basic operating processes -- processes that include shipping quality assurance, engineering change requests, maintenance schedules and basic intraoffice communications.
"If they are in business, they are doing something right," says Cachat. "They just need to organize what they have in place."
Cachat breaks down what he calls a quality information strategy into language every business owner can understand while teaching them the language their customers want to hear.
According to Cachat these basic principals apply: Listen to and respond to the customer; have an inventory process; prevent mistakes and calibrate systems; set up suggestion systems; and train, listen and respond to employees.
In the end, he argues, quality initiatives save money and increase productivity, and most successful businesses already have them in place
"Call it whatever you want, but find the business process," he says. "And show your customers that business model." How to reach: IQS Inc., (440) 333-1344 or www.iqs.com
When it comes to manufacturing, quality cost can have a profound effect on the bottom line. John M. Cachat, president of IQS Inc., says there's a direct link between quality of product and financial performance.
It all comes down to quality processes, and, according to Cachat, any process can be evaluated and measured on the basis of:
* Time it takes to complete
* Actual cost of the process
* Quality of the end result
Evaluating these processes, as well as what Cachat refers to as "hard costs," will identify inefficient or redundant activities.
Hard costs are identified by evaluating:
* Manufacturing quality costs -- machine calibrations, maintenance and rework
* Customer management costs -- customer service and follow-ups
* Supplier management costs -- shipping quality, product problems
* Document costs -- product orders, engineering changes, and reports
Just by quantifying the process and identifying the problems, a company can create and maintain performance objectives.
"You can only improve what you control. You can only control what you measure. You can only measure what you define," Cachat says.
"There are regulations under ERISA that set forth certain duties they (the company) have to comply with," says Daniel L. Bell, an attorney in the labor and employment practice group at Brouse McDowell. "The fact of the matter is that they are so generic, they don't have to fit any fact pattern."
It is not enough that employers simply offer a qualified retirement plan and make sure that its administration meets ERISA standards. The employer is also responsible for making sure the plan itself is a sound financial option.
"The duty of the service provider trustee is to invest the pension fund as any reasonable and prudent investment adviser would under those circumstances," Bell says.
The question is, what is considered "reasonable and prudent" under the ERISA regulations? Unfortunately, the language is ambiguous. However, in some cases, such as with Enron, the wrongdoings are clear.
"The Enron story is one where many employees had a significant amount of retirement invested in company stock, (and) you had the CEO telling them, 'You should buy this stock'," says Bell. "And all those (employees) who were at one time millionaires ... now have nothing."
Shareholders can bring class action lawsuits against companies for a number of reasons. And if the suit ever does make it to court, a judge may still determine there's no merit for the case and throw it out.
"It (the class action) is a very powerful tool when used for an alternative purpose ... which is often to receive significant legal fees," says Bell. "Often these suits are brought against companies already in trouble ... (the company) has one knee on the canvas and the buzzards are circling."
But a suit based on ERISA malfeasance falls under different rules of law, which means it is more likely to make it into court. This is where the fiduciary responsibility of the employer comes in.
"Anyone who offers a pension plan should be wary," says Bell. "It can cost millions of dollars to defend a lawsuit, even if it has no merit."
The big issue is prudence. All investment actions must be solely in the interest of the plan, not the plan provider or employer. The employee sues to recover the harm caused to the retirement plan - a distinction that is often not clear.
"The employee is not going to get direct recovery," Bell says. "They sue to recover for the harm caused ... and that is a battle extraordinaire and has been the subject of a great deal of expert testimony."
Because ERISA-based lawsuits are becoming more common, an employer might feel the urge to offer in-house financial advice to employees. But Bell cautions against that approach.
"You give the wrong advice and you get nailed that way, too," he says. "However, you would be wise to raise the issue (of advice) to the plan provider."
By simply doing an evaluation of the bias of a plan or the plan provider, or questioning the plan's investment strategy, you have taken a step toward fulfilling fiduciary responsibility.
"Some companies are hiring outside investors or an independent third-party financial adviser," Bell says. "Recent changes in the law have freed the hands of the employers, allowing them to do that."
How to reach: Brouse McDowell, (800) 837-5711 or www.brouse.com
Average starting salaries for accounting and finance professionals should remain consistent this year with 2003 levels, according to the 2004 Salary Guide from Robert Half Finance & Accounting and Accountemps.
Following are some other key points from the 2004 Salary Guide.
* Loan administrators can expect the largest salary increase of any accounting and finance category. Average starting salaries are projected to rise 9.1 percent, to the range of $32,750 to $45,000.
* Base compensation for credit analysts at large companies will increase an average of 3.3 percent, to between $34,500 and $44,500.
* Accounts receivable/payable managers at companies with more than $250 million in sales can expect average starting salaries to rise 2.6 percent, with base compensation ranging from $41,500 to $56,250.
* Senior financial, budget, treasury and cost analysts at companies with $25 million to $250 million in annual sales will see average starting salaries of $47,750 to $61,000, a 1.2 percent increase over 2003.
* Entry-level general and audit accountants at companies with less than $25 million in annual sales will see a 2.3 percent decline, with average starting salaries of between $28,500 and $34,500.
* Vice presidents of finance can anticipate a 12.3 percent decrease in average starting salaries at companies with $50 million to $100 million in annual sales, to the range of $95,000 to $125,000 per year.
"The health and human services needs of our community have continued to grow during the past several years," says Alexander "Sandy" Cutler, CEO of Eaton Corp. "(United Way) has targeted a goal of $50 million this year to help meet these increased goals."
Cutler's experience with United Way includes a long history of Eaton contributions. A large portion -- $1.6 million in 2002 -- of Eaton's philanthropic efforts focused on the United Way, which Cutler believes provides a health and human service safety net that is more critical than ever.
"Less than 12 cents per dollar contributed goes to administrative expenses, and the volunteer allocation structure ensures that contributions reach the most deserving programs," Cutler says.
In part, the United Way goal illustrates that Cutler is well aware that Eaton is one of the area's oldest and largest corporate headquarters, and that the firm and its employees are viewed as a vital part of the community.
"We feel it is more than an opportunity but an obligation to give back to our communities to ensure they stay sound, vital and dynamic," says Cutler. "We believe that talented people want to live and work in dynamic, safe communities."
But that commitment isn't contained within Cleveland's borders. With employees in multiple countries, Cutler ensures that Eaton's corporate culture supports philanthropic giving throughout the world.
And although a good deal of Eaton's contributions and efforts go toward local and United Way programs, employees are encouraged to contribute to other causes. In 2002, corporate and employee giving reached more than $4 million.
"We also match employee gifts, so we are supporting their individual leadership, involvement and donations," say Cutler.
The Eaton matching program -- employee donations and company matches -- made up 16 percent ($1.6 million) of total corporate donations.
"We trust our employees to make good choices, and our matching gift program is one way of reinforcing the choices they make," Cutler says. How to reach: Eaton Corporation, www.eaton.com
And some of those business owners have toyed with the idea of leaving traditional insurance coverage and replacing it with a self-funded plan.
"With self-funding, you are managing risk," says Mary Ann Tournoux, vice president of sales and marketing for HomeTown Health Network. "These companies look and see that for the last number of years, they've paid this much and haven't used it all."
But before jumping into self-funding, you need to ask a lot of questions, including, How much risk can we, as a company, bear?
Tournoux cautions that even if the math shows your company spends more in premiums than it gets in reimbursement, every business has good and bad years, and a bad year could be devastating to your company.
"Just one heart-lung transplant can eat up all the reserves you have on hand," she cautions. "If you do pull the short straw, you could have $500,000 in one claim alone."
One way to protect against coming up short is to partially self-fund, and buy a stop-loss policy, basically an insurance plan with a high deductible.
"It's like buying a plan with a huge deductible," says Tournoux. "The company decides it can cover about $500,000 or a million in claims, and the plan covers beyond that point."
But a company's cash flow is only part of the issue. Business also must consider the amount of time and paperwork that goes into self-funding.
"Large companies that are totally self-funded, they have a department in the company that processes the claims; they do it all themselves," says Tournoux.
That means knowing the laws. Self-funded plans are covered by ERISA laws, HIPAA regulations and other fiduciary responsibilities.
"The HIPAA privacy laws are extremely punitive," says Tournoux. "And the regulations state that there needs to be a firewall between the financial and administrator ... and there are tons of policies and procedures."
Another concern is that a company that self-funds, then wants to go back to traditional coverage -- especially after a big claim -- may find it difficult to do so.
"In some cases, no one wants to take them back," says Tournoux. "If you try (self-funding) and find it's not worth it, it can be a lot more complicated to return to traditional coverage."
The company may run into "lasering," in which the insurance company looks at what one or a few high-claim individuals have cost the firm, then offers to cover everyone but those people. For businesses required to offer health care benefits, this can be a problem.
"If you are over 50 employees and you are not protected by HIPAA laws, you run the risk that no insurance company will write you," says Tournoux.
There are benefits with self-funding, and Tournoux suggests companies that decide to go that route get a full-time administrator or a third-party administrator to process claims. And it's a good idea to lease a network; for a monthly fee, the network will provide a medical management program.
"There is really no right or wrong answer," says Tournoux "It's a game and an attempt to get a better deal." How to reach: HomeTown Health Network, www.homehealthnet.com or (330) 837-6869
The DOL, IRS and COBRA
The New Year is bringing with it a whole slew of health care changes. So if you want to stay on the good side of the DOL and the IRS, take notice of new COBRA and tax law.
The Department of Labor recently issued proposed regulations requiring employers to revise COBRA notice by Jan. 1, 2004.
The proposed regulations:
* Employers need to provide general notice of COBRA rights to new employees and qualifying family members 90 days after coverage begins.
* Employers must provide notice of why an individual is not entitled to elect continuation coverage and notice when coverage is terminated before the full period required by COBRA.
* An employer is no longer in good faith compliance with federal regulations by using the notice contained in the Department of Labor's Technical Release 86-2.
To view the proposed regulations and see model notices go to www.dol.gov/ebsa/newsroom/fs052803.html.
Also beginning Jan. 1, 2004, the amount deferred into a cafeteria plan will no longer be subject to city tax.
* This includes medical expenses and dependent care expenses if covered in the cafeteria plan.
* In the past, cities had the option of including these deferrals in the city taxable wage base or not.
* In most cases, the city wages should match the Medicare wages. Source: Bober, Markey, Fedorovich & Co.