Chelan David

Wednesday, 25 April 2007 20:00

Commercial real estate appraisers

Real estate is one of the primary drivers of wealth in the global economy. Therefore, those who own, manage, sell, purchase, invest in or lend money on the security of real estate must have ready access to unbiased opinions of value. Sound information, analysis and advice on issues pertaining to real estate components such as equipment, businesses and personal property are also critical to those in the real estate field.

That’s where commercial real estate appraisers come into play, says Steven Hodge, vice president of CB Richard Ellis’ Valuation and Advisory Services in Cincinnati. “Appraisers play a vital role by providing an unbiased opinion of value on a multitude of real estate components,” he says.

Smart Business spoke with Hodge about the services that commercial real estate appraisers provide.

What services can a commercial appraiser provide?

The common perception of the commercial appraiser is that of an individual or company providing valuation for financial institutions in regard to a buy/sell transaction. In addition to providing financial institutions with an analysis of the underlying asset used for collateral, a qualified appraiser can assist attorneys, corporations, government agencies and individuals. Appraisals may be required for a multitude of properties, including single-family homes, apartment buildings, condominiums, office buildings, shopping centers, hotels, industrial sites and farms, whenever real estate is sold, mortgaged, taxed, insured or developed.

An appraiser can provide a vital role in just about every aspect of real estate. An appraiser can analyze the feasibility of a project by underwriting a development prior to committing capital, provide expert testimony about real estate in litigation proceedings, perform business or partial interest valuations, assist in estate planning or provide assessment for tax implications.

When is it necessary to engage an appraiser?

The reasons for performing a real property appraisal are varied. Clients typically seek out a professional appraiser for an opinion on the current value of property being bought or sold, future value of property being built, value for mortgage or lending purposes, feasibility analysis on proposed projects, value to assist in investment decisions, value to measure property tax assessments and other taxes. They also will seek an opinion on the value of property to determine compensation where property is to be taken, value of property involved in litigation or divorce, value of private property for estate planning purposes, value of property as it affects pending business mergers or dissolution, value of a partial interest in real estate, and value of real estate as a charitable contribution.

In addition, there is increasing demand for consultative services offered by valuation professionals. In recent years, the real estate industry has experienced significant and ongoing changes as predicated by the Sarbanes-Oxley Act. This legislation requires changes in accounting conventions in the United States and Canada from depreciated historical cost to market value reporting of assets and is important to public, domestic and international investors, regulators and reporting entities. Today’s professional appraisers are highly qualified and able to fulfill this need and a wide range of value-added real property advisory and consulting services.

How should one determine if an appraiser is properly qualified?

An appraiser needs to be able to make prudent judgments and independent decisions. He or she must be skilled in gathering and evaluating facts, and should understand how to access the variety of data sources that are needed for comparisons and analysis.

As a minimum requirement, an appraiser should be state certified. Being state certified requires a commitment by the appraiser to complete specific education and testing requirements by the licensing state. A better option is a designated appraiser. An appraiser who has obtained a professional designation, such as the MAI designation from the Appraisal Institute, has exceeded the minimum requirements set by the state legislature. This distinction denotes a level of competence attained only by the most accomplished appraisers and is recognized throughout the business community.

What are clients seeking from appraisal service providers?

Today’s global economy has forced both financial institutions and corporations to seek more strategic real estate solutions, increasing the need for valuation services. Clients are looking for efficient delivery systems from their service provider. Whether it’s a single, local transaction or a national portfolio, many institutions and corporations require a single point of coordination, uniformity of product and local expertise on a national platform.

STEVEN HODGE, MAI, is vice president and leads CB Richard Ellis’ Valuation and Advisory Services in Cincinnati. Reach him at steven.hodge@cbre.com or (513) 369-1368.

Wednesday, 28 February 2007 19:00

Your best interests

The environment in which officers and directors operate has changed considerably since the stunning collapse of Enron, WorldCom and Tyco. The Sarbanes-Oxley Act, which was signed into law in 2002, expanded the responsibilities as well as the potential liabilities of corporate officers and directors.

In order to protect against claims that can cost millions of dollars to defend, it is important to have directors and officers (D&O) liability insurance in place.

“D&O liability insurance protects the capital base of the corporation from catastrophic loss,” explains Jerry Henderson, area executive vice president for Arthur J. Gallagher & Co. “It also protects the personal wealth of directors and officers, who have unlimited liability for their actions.”

Smart Business spoke with Henderson about what D&O liability insurance policies entail, who should be covered and what factors should be considered when selecting coverage.

How does D&O liability insurance work?

D&O insurance policies usually have three basic insuring agreements.

Insuring Agreement 1, or Insuring Agreement A, depending on the policy form, covers individual directors and officers when indemnification from the company is not available or provided. Insuring Agreement 2, or B, covers the corporation for its indemnification obligation to the directors and officers.

Every company has in its bylaws and Articles of Incorporation a certain provision that says ‘we will indemnify, or be responsible for, taking care of any liabilities that arise against our directors and officers.’

Insuring Agreement 2 is the transfer of risk from the company to the insurance company for that indemnification obligation. Insuring Agreement 3, or C, covers the entity itself.

For public companies, the entity coverage is limited to securities-related claims. For private companies, the entity coverage is for all claims. A D&O policy covers claims brought by third parties alleging that a company’s directors or officers did something to harm them under the provisions of these three insurance agreements.

What risks can be mitigated by having a D&O policy in place?

A claim can be catastrophic to the balance sheet of a company in terms of providing defense costs. The largest and most expensive area of D&O claims for public companies are securities-related claims — claims arising out of an offer to purchase or sell securities of a company.

If you have a claim and you don’t have D&O coverage, you could incur millions of dollars worth of defense costs alone — not to mention the impact of a multi-million dollar settlement.

Who should be covered by such a policy?

There is a lot of debate about this. It really depends on your risk appetite and how you want to use the coverage. Historically, D&O policies only covered a company’s directors and officers; it didn’t cover the entity and it didn’t cover employees. But now they are also used to cover the corporation, and in some cases the employees, either directly or on a co-defendant basis with the directors and officers.

What considerations should be taken into account when selecting coverage?

Each carrier writes its own forms and, while terms and conditions are similar, every D&O policy is different.

You definitely need to take a close look at the terms and conditions. For example, you have to understand the difference between one type of fraud exclusion and another type of fraud exclusion and understand the severability clause in one policy versus another.

Secondly, you need to look at the quality of the carrier: What’s its longevity? What’s its financial wherewithal? How much of this type of business does it write? Does it outsource or does it have internal claims people? All of these are factors that should be taken into consideration. Finally, you should look at price.

How has the Sarbanes-Oxley Act expanded potential liabilities of corporate officers and directors?

The Sarbanes-Oxley Act has had a lot of different effects in the D&O arena. Claims are trending downward: 2006 was the lowest frequency level of claims since 1995. A lot of people attribute the drop in claims to Sarbanes-Oxley because it has given people a road map for disclosure and how to set up internal controls. On the other hand, it has given more responsibility to the independent directors, specifically the chairman of the audit committee. In the past, these directors may have been only nominal defendants in an action while the CEO and CFO would have really been on the frontline.

JERRY HENDERSON is area executive vice president for Arthur J. Gallagher & Co. Reach him at Jerry_Henderson@ajg.com or (818) 539-1328.

Wednesday, 31 January 2007 19:00

New medical technology

Like the wrinkles that furrow one’s brow, varicose veins, for many, are an inescapable part of aging. Varicose veins are veins that become swollen and large, usually due to defective valves in the vein. The enlarged veins, often with a dark purple or blue coloration, protrude from the surface of the skin and frequently have a worm-like appearance. Although females are more likely to develop varicose veins, both sexes are susceptible to developing symptoms.

“Varicose veins are very common,” says Dr. Cheryl Hoffman, director of interventional radiology at the UCLA-Santa Monica Medical Center. “Greater than 20 percent of women and 7 percent of men suffer from venous disease in the United States.”

While varicose veins don’t signify a life-threatening condition, they can cause discomfort. Common symptoms of varicose veins include aching pain, swelling and itching in the legs. In the past, the removal of varicose veins required invasive surgery. New minimally invasive procedures, however, have provided a breakthrough in how venous diseases are treated.

Smart Business spoke with Hoffman about when a doctor should be consulted about varicose veins, how varicose veins are treated and what types of minimally invasive therapies are now available.

What causes varicose veins?

There is usually an incompetency to the valves of the veins that causes reflux. Gravitational forces then overcome the veins and blood pools, causing a distension to the vein. This can lead to a dilation of the vein, worsening valve function and retrograde, or reversal of flow, within that vein — all of which can lead to venous stasis, varicose veins and ulceration.

How can people reduce their chances of getting varicose veins?

Usually it is genetic. However, wearing compression stockings, especially when engaging in standing activities, can help to decrease the effects of gravitational forces on superficial venous valves. Typically, though, it is something that just develops over time. In addition to advanced age, other factors that increase a person’s chance of developing varicose veins include having family members with vein problems, obesity, pregnancy and hormonal changes, which can be spurred by taking birth control or other medicines containing estrogen.

Can varicose veins lead to serious medical problems?

There is no life-threatening danger; unlike the deep veins, which can have blood clots that eventually go to the lungs. But there is severe pain and disability that can result from varicose venous disease, what we call superficial venous abnormality. Patients can have serious disability from superficial valvular incompetence and varicose veins.

When should a doctor be consulted about varicose veins?

When a patient has phlebitis, an inflammation of one of the superficial veins, typically he or she goes to a physician because there is pain associated with this condition.

Also, when edema, skin changes and ulceration occur, patients are directed toward medical care. However, prior to that point, before these changes become severe, it is a good idea to seek medical attention because now we have minimally invasive therapies that can prevent the serious complications of varicose veins. Therefore, I would advocate for a patient to seek evaluation once a dominant varicose vein is identified.

How are varicose veins treated?

Currently, our technologies allow us to close these veins using very small stab-like entry points. No longer are large incisions needed. Therefore, the cosmetic results are outstanding.

Endovenous laser therapy and radio frequency ablation therapy are two forms of therapy that are used to close varicose veins. Basically, when we go up through the veins we can use either a laser or a radio frequency probe to close the veins. Old fashioned surgery with large incisions is no longer needed to successfully treat chronic venous superficial vein disease. Minimally invasive therapies can now be used through very small 2- to 3-millimeter incisions.

Can varicose veins return even after treatment?

Yes, because it is a long-term chronic disease. Veins that are not a problem when the first veins are treated can become a problem over time. However, by getting therapy to some of the large dominant outflow veins, the chances of having further problems to other veins, which are currently not a problem, are minimized.

DR. CHERYL HOFFMAN is director of interventional radiology at the UCLA-Santa Monica Medical Center. Reach her at chhoffman@mednet.ucla.edu or (310) 319-4033.

Wednesday, 31 January 2007 19:00

Exit strategies

Every business owner knows that he or she will eventually exit the business. However, they often fail to properly plan their exit strategy, and that can have major repercussions.

One specific issue that should be addressed as part of any exit plan is how business income should be taxed upon the owner’s departure. After all, the form of tax entity that is chosen will have a major impact on future outlays to Uncle Sam.

“The structure of the ultimate sale of the business will determine to a great extent how much tax you pay,” points out Carl Pon, co-managing partner of Vicenti, Lloyd & Stutzman LLP. “Failing to plan could actually double the amount of income taxes that you pay upon the sale of your business.”

Smart Business spoke with Pon about the importance of exit planning, what factors to consider when choosing a tax entity and the consequences of operating under the wrong tax entity.

From an income tax perspective, why is it so important for business owners to plan for their eventual departure?

We see many clients who spend their adult lives building a business and building wealth inside that business. Then, when it is time to sell that business, they are surprised to see how much the tax burden reduces what is left to invest to provide for their financial security and that of their families. With proper planning, you can reduce the share of the take that goes to the taxing authorities.

What factors should be considered when choosing a tax entity?

Some of the factors that should be considered include: Who will own the business — will it be individuals, trusts or other corporations? Will there be any non-United States taxpayers? How important is it to have the current benefit of lower tax brackets? What kind of fringe benefit plans will be offered to owner-employees?

What are the consequences of operating under the wrong tax entity?

The most obvious one would be paying too much in income taxes. But another consequence is that you will have to wait longer to accumulate the wealth that you need to achieve your personal goals. In fact, it is conceivable that operating under the wrong tax entity could double the amount of time that it would take to achieve these goals.

How do the tax structures of C Corporations and S Corporations differ?

A C Corporation is a taxpayer all unto itself and it has its own set of tax brackets, some of which are lower than personal income tax brackets. An S Corporation doesn’t pay any income tax itself; rather, its shareholders pay taxes on their personal tax returns on the S Corporation income.

The biggest tax advantage with an S Corporation is that you avoid taxes at the corporate level, depending on when you made the election to become an S Corporation.

What type of entity is most effective when transferring a business to family members or key employees?

They are all just about the same except the S Corporation, which is a little more difficult to use. This is because an S Corporation is not allowed to have more than a single class of stock or ownership interest.

Several of the techniques for transferring wealth most tax efficiently involve creating two types of ownership interests for the same business. You can do that with C Corporations or LLCs, but it is much more difficult to achieve the same effect with S Corporations.

How far in advance of an anticipated departure should exit planning occur?

I would say five years to get the largest benefit from the planning process and to implement what the plan identifies as the things you want to accomplish. If you’re looking at a conversion from a C Corporation to an S Corporation, then 10 years is the best timeline to work with.

What should be discussed with advisers when planning for an exit?

Early in the process, you should focus on setting your personal goals and identifying strategy changes to increase the value of your business. Also, you should develop a contingency plan for the business and assemble a team of advisers. The team should include an attorney, CPA, exit planning specialist and financial planner.

CARL PON is co-managing partner of Vicenti, Lloyd & Stutzman LLP. Reach him at CPon@VLSLLP.com.

Wednesday, 31 January 2007 19:00

So few solutions

Health care costs continue to rise substantially faster than inflation and wages. In fact, they now account for 16 percent of the nation’s economic output. There are a number of factors behind the soaring costs, but so far, few solutions.

As a result, many businesses have struggled to maintain the level of health care benefits that they’ve provided in the past. While the increased premiums are hard to avoid, steps can be taken to mitigate health insurance costs.

Perhaps the best strategy, says Stephen J. Peck, president of Kapnick Insurance Group’s Benefits Division, is educating employees about how they can best use their programs. “Employee communication and education is critical,” he explains.

Smart Business spoke with Peck about why health care costs have risen, steps to help control mounting insurance costs and the importance of open communication and employee education.

What are some of the factors behind the rising costs of health care?

The obvious factor is that we’re all getting older, and the older we get, the greater the need for health care. These needs are being filled with wonderful new advancements in medical technology and pharmaceuticals, but each of these advancements, generally speaking, is more expensive than what it replaced.

Other factors that contribute to the rising costs of health care are the impact of the uninsured and underinsured, the cost of malpractice insurance, hospitals and physicians practicing medicine defensively, and inefficiencies in the health care system. The lifestyle choices that we make like sedentary lifestyles, poor diets, smoking, not wearing seatbelts and drinking too much also play a large role in the escalating costs.

What strategies can be implemented by businesses to help control health insurance costs?

Businesses have to start looking beyond just cost shifting to employees and downsizing benefits. They have to start addressing — and, more importantly, impacting — how their employees use health care programs. If an employer can decrease the utilization of its health care program, then costs will ultimately fall.

A number of employers are addressing employee lifestyle choices through education, implementing health risk appraisals, wellness programs and disease management programs.

How should an employer communicate with employees about health care plans?

First and foremost, if an employer is making any plan design changes, it needs to be open and honest in its communication. This is crucial for a change to be successful and for employees to embrace the change. Employees are very adept at seeing through any type of smoke and mirrors that an employer might be putting out there.

Beyond that, employees need to understand what benefits they do have in order for them to effectively use the resources available. To achieve this familiarity, many employers are looking beyond employee communication at open enrollment and implementing a multi-pronged education program that touches employees throughout the year. Some of the methods include ‘lunch-and-learns,’ employee newsletters, spousal meetings (as opposed to just employee meetings), posters and payroll stuffers.

Why is it important to provide employee education so they know how to best use their programs?

Most employees get their benefit information at open enrollment. But that’s the last time they really look at that information. It sits in their inbox or in a folder somewhere. There needs to be ongoing education and ongoing information distributed to employees. A great example is providing employees with the information of the generic equivalents available to substitute for brand-name prescription drugs. It is important that employees are aware of what their benefits are so they can use and access their plans in the most efficient way possible.

What is your forecast for health care costs?

All indications are that there will be no significant decreases in health care costs in the next couple of years. I wish I had a crystal ball to answer this question more completely, but that is about as far as anyone can really look into the future.

If employers and employees can work together to positively impact utilization through lifestyle choices, disease management and health management programs, then hopefully this strategy will work to create a downward trend in costs. Employers need to properly motivate and incentivize employees to make healthy choices, and employees have to realize the impact — both positive and negative — of their lifestyle choices.

STEPHEN J. PECK is president of Kapnick Benefit Services. Reach him at Steve.Peck@kapnick.com or (888) 263-4656 ext. 1147.

Wednesday, 31 January 2007 19:00

A sound strategy

In the past, real estate departments were often under-utilized in the corporate hierarchy. Now, however, executives are keenly aware that having a sound corporate real estate strategy in place can pay huge dividends.

In order to operate most efficiently, some companies are outsourcing a portion of their real estate needs.

“Companies are outsourcing to maximize the use of internal resources on the core business functions and leaving noncore business items for outside experts to manage,” says Ed Schreyer, senior vice president of CB Richard Ellis.

Smart Business spoke with Schreyer about how corporate real estate is evolving, the impact of Sarbanes Oxley and how changes within the real estate structure are affecting industry players.

What has been the greatest change over the past few years in how corporate real estate is being handled?

The traditional corporate real estate department primarily operated in a reactionary role. These departments historically reported through purchasing or supply chain management and the role was simply to execute transactions and preserve physical assets. They were viewed as a necessary evil by senior management and primarily a cost center that demonstrated or created no annual profit to the bottom line.

Magnified by the challenges to drive additional shareholder value and bottom-line revenue, companies are now empowering corporate real estate departments to become proactive and strategic to assist in these new initiatives. In order to effectively achieve this goal, there is a shift for corporate real estate to report directly to a CFO or through finance instead of procurement or purchasing as in the past.

What other internal changes are companies making to achieve these savings?

To facilitate portfolio-wide cost savings, corporate real estate decisions are becoming centralized. The structure is becoming aligned with upper management to drive the process back to the divisions or branches versus the opposite.

Historically, most corporate real estate departments worked within a decentralized decision-making portfolio structure. Many key decisions were left up to divisional or branch managers, and then run through corporate real estate in the latter stages of the project. There was also a disconnect between corporate levels as upper management failed to communicate new corporate objectives to the real estate department. Centralizing the real estate allows companies to implement company standards including space allotment per employee, image of facility, desired lease language clauses and insurance liability issues.

How has Sarbanes-Oxley impacted corporate real estate?

Over the past few years, ‘post-Enron,’ corporations have been somewhat handcuffed, or, at a minimum, fearful to utilize any creative off-balance sheet or alternative financing vehicles other than the standard. We are seeing a shift as most companies have established their Sarbanes-Oxley compliance processes and are now becoming more comfortable with alternative financing structures.

One of the innovative financial vehicles being used is the Port Authority lease. Once only used for public benefit initiatives, the Port Authority lease has been made more flexible in an effort to trigger corporate growth initiatives. While the Port Authority is just one example of new financing alternatives, it is very attractive to corporations with the ability to provide a very low fixed rental rate and complete financial transparency. These transactions can be much more complex to manage, but with the large financial savings potential, this trend will continue to gain momentum.

Outsourcing of certain real estate functions continues to be a growing trend. Why?

While companies have cut back in personnel to operate in the most efficient manner possible, corporate real estate departments have witnessed significant downsizing. As previously witnessed, companies will rely on more outsourcing to assist in their overall initiative. This outsourcing includes items such as transaction management, project management, facilities management, portfolio administration and a host of other internal functions covered within the corporate real estate department.

What effect, if any, will these changes have on investors and landlords of space?

These changes within the corporate real estate department structure will continue to affect landlords, developers and investors. To improve speed to market, real estate needs will be more clearly communicated upfront. Lease audits to determine the accuracy of operating expenses will be commonplace. The need for flexibility in space will be more important than ever. Quality construction and project management will be a necessity. Companies will look for landlords to provide such services in an effort to maximize their time and efficiency.

ED SCHREYER is a senior vice president of CB Richard Ellis. Reach him at (513) 369-1331 or ed.schreyer@cbre.com.

Sunday, 31 December 2006 19:00

Sourcing, manufacturing, selling

China is the fastest-growing importer and exporter for the United States. Chinese citizens are experiencing greater earning power, which in turn has led to huge demand for consumer products and services. The economic strength and population provide opportunities for American companies interested in doing business in China.

“There are three ways for American manufacturers to do business and make money in China: sourcing, manufacturing and selling,” explains Helen Huang, vice president and chief representative of the Comerica Bank Shanghai Representative Office, which opens this summer. “Most American companies understand the advantage of reducing costs via a China strategy, and more are realizing the opportunity to sell in China to its 1.3 billion people who now have more spending power.”

Smart Business spoke with Huang about the reasons behind China’s economic emergence, how a company should proceed if it is interested in doing business in China and what types of opportunities she foresees in the future.

What are some of the driving factors behind the tremendous economic growth that China has enjoyed?
The low labor costs and availability of skilled workers combined with favorable government policies have enabled China to become the No. 1 destination for foreign investment. In addition to exports, another important factor behind the tremendous growth is the need for massive infrastructure within China itself.

Also, China’s stable political environment has played a role. Since the 1970s, China’s government has changed its focus from political movements to economic growth. The central government has implemented policies encouraging trade, foreign investment and economic growth while maintaining stability.

In what ways does the Chinese business environment differ from the United States?
Historically, the Chinese economy was totally state controlled. Today, government at different levels can still have a big impact on businesses. The Chinese legal system is still evolving. The rights of each party in the economy are not clearly defined, and it is not easy to enforce one’s rights. Signing a contract doesn’t necessarily mean you are protected by the laws. If you don’t understand the culture, there will be misunderstandings. A typical Chinese is not as direct as a typical American. It may mean ‘no’ even when you don’t hear that word.

What advice would you give to a company that is interested in doing business in China?
In general, U.S. businesses should understand that China is a very different culture — including the way in which business is conducted. You need patience, an open mind and a long-term view. It is probable that you need a local partner or consultant who understands Chinese culture and its business practices.

In addition, the regulatory environment is very different in China. Understanding government policies relevant to your industry and the type of business that you want to set up should be a very important part of research and planning of your strategy.

How can a company find suitable business service providers in China?
You can ask for referrals from your bank, CPA, attorney, and others who have had experience doing business in China. A credit reference system is not necessarily available. You will probably find that good business service providers come from introductions from a trusted source who knows the providers.

How should a company evaluate locations to set up an office or manufacturing facility?
Currently, most foreign investment takes place in three regions: Yangtze River Delta, Pearl River Delta and Bohai Rim. These three regions are the most developed areas in China with the best infrastructure, the most sophisticated business environment and the best trained professionals. Obviously, these regions are significantly more expensive than inland areas.

When evaluating locations, there are many factors that a company should take into consideration. Labor cost is one of them, but not the only one. Other important factors include close proximity to highways, ports and airports; close proximity to customers and suppliers; and local government incentives to foreign direct investment.

Over the next several years, what types of opportunities do you anticipate for American manufacturers in China?
China will remain an attractive location for manufacturing due to its low labor costs and improving infrastructures. The cost has been going up in coastal areas and Chinese currency is expected to continue to appreciate against the U.S. dollar, but manufacturing costs will still be much lower than in the U.S. The provincial and local governments are eager to attract foreign investments and therefore have very favorable incentives.

HELEN HUANG is vice president and chief representative of the Comerica Bank Shanghai Representative Office. Reach her at helen_huang@comerica.com or contact Glenn Colville in Comerica International Trade Services at (925) 941-1931 or glenn_l_colville@comerica.com.

Sunday, 31 December 2006 19:00

The great communicator

Effective strategic communication is a critical component for the success of any business. A clearly defined message serves as the backbone of a company’s identity and articulates its future vision.

Edward Clift, assistant professor of communication at Woodbury University, believes it is a mistake to consider communication as a separate entity that exists apart from the fabric of a company.

“Strategic communication seeks to align an organization’s goals with its communication practices,” he says. “It is about creating a coherent mindset that values differences, handles conflict constructively, operates according to larger ethical principles of community and minimizes the destructive effects of bias and stereotyping.”

Smart Business spoke to Clift about using strategic communication to motivate employees, the importance of having a clearly defined strategy and the dangers of poor communication.

What are some effective methods of communication that can be integrated into a company by the CEO?
Communication, even when it’s not the subject of a CEO’s self-reflection, saturates all organizations. It is what defines corporate identity. Once the CEO starts to self-reflect about communication practices, then corporate communications can become subject to modification and improvement.

I recommend that CEOs start at the top by learning how to listen before they lead. Concentrating only on the effectiveness of communication, however, will limit the growth of the company. One should focus instead on maximizing the full potential of all interactions so that the company can find ways to direct its own change.

How can effective strategic communication help motivate employees and aid retention?
The idea behind strategic communication is to align corporate interests with the full range of messages distributed to the public, employees, the media and others. Employees want to understand how their labor contributes to the success of a company, and this alone will motivate them and increase retention.

Because of flatter of management in the corporate world, employees are increasingly responsible for their own oversight. The employees that survive in such a world are those who grasp the strategic mission of the business and make it their own. An effective strategic communication policy will help employees identify and understand the vision of the company.

How can a CEO or business owner be sure that employees are satisfied with the company’s communication program?
People are satisfied when they feel like they’ve contributed to the environment that they work in. You want to build an organization that is open to the input of all the employees. This can be designed into the corporate communication policy, but it has to begin by recognizing that people are sometimes scared of their own ability to influence the world.

You not only need to create the avenues but also find ways to encourage participation in those communication practices. Concrete ways to measure how satisfied employees are would include feedback forums, participant observation, anonymous surveys and quality control indicators.

Why is it important for senior management to have a clearly defined communication strategy?
No company can compete in the Information Age unless it reflects upon its own communication practices. If you develop a well-defined communication strategy, you can link your corporate goals to your way of knowing and interacting with the world as a business.

The relative success of one business over another is in large part attributable to the communication strategies it chooses to implement. This is why many investment professionals choose to buy the management team of a company rather than the product; they want to know that the communication strategy internal to the corporation is aligned with their business goals.

What are the dangers of poor communication in business?
The goal of a CEO is to create a coherent vision of a company that articulates a mission that matches what it is doing. Otherwise, you say one thing while doing another, and people don’t trust you.

This is one reason why many corporate reorganizations and mergers fail. You can’t just make a structural change and expect the communication practices to also change.

The dangers of poor communication do not end at the door of the company. Huge external risks face all organizations, but especially those operating on a global stage. These include natural disasters, forced changes in ownership or management, powerful stakeholders, ideological challenges and direct attack.

Strategic communication dictates that any business become conscious of these potential perturbations to its viability. It should then use its observations to strategically design a robust set of internal and external communication practices.

EDWARD CLIFT is an assistant professor of communication at Woodbury University. Reach him at (818) 252-5197 or through the university’s Web site, www.woodbury.edu.

Sunday, 31 December 2006 19:00

Serious undertakings

Finding a suitable property and negotiating lease terms is a serious undertaking. After all, occupancy-related expenses represent one of the largest outlays that most businesses face.

In order to get the most bang for your real estate buck, says Ken Murawski, managing director of CB Richard Ellis, it is important to get a quality broker into the fold early on — when you are just beginning to think about your future real estate needs. “A professional can assist at this time by conducting a space needs analysis and helping to establish strategies to minimize space requirements and costs,” he explains. “The sooner a commercial agent is brought into the process, the more value he or she can provide.”

Smart Business spoke with Murawski about the services that commercial real estate agents provide, how to find a suitable broker and the current Cincinnati market.

How can a company benefit from retaining a commercial real estate agent?

A company will always benefit by retaining a commercial real estate professional because he or she understands the ‘real estate game’ just as the landlords in the real estate business. Commercial agents acting as fiduciaries for the company work to ensure that the best deal is attained. And, since occupancy-related expenses rank just behind labor as the second-highest fixed cost of running a business, a solid real estate decision and a solid business decision must be one and the same.

What types of services does a quality broker bring to the table?

A quality broker will bring myriad value-added services to the table for the benefit of the company. These include market knowledge and research, comprehensive property analysis, financial modeling, space optimization analysis, lease negotiations and project management services. These are all things that a company is not typically set up to handle itself. When a company does try to handle a lease or purchase by itself, it will likely leave money on the table for the landlord or seller.

Does the size of the real estate transaction factor into the level of service that is provided?

No, the size of the deal does not really matter. A commercial real estate professional will lead the process and create the necessary leverage for the company to ensure its real estate goals are achieved. In many cases, the value that professionals provide is perceived to be even higher by smaller tenants, mainly due to the company’s lack of knowledge of the market and the process, as well as its lack of internal resources.

How should a business go about finding a good broker?

The commercial real estate business is very much a relationship-based business. All of our professionals work extremely hard every day to build relationships with company owners and decision-makers.

A company selecting a commercial agent should interview several qualified professionals and/or firms and solicit their feedback on such things as market rates, comps, experience, their process for tenant/buyer representation and other resources such as project management and financing. It is very important for a company to not only hire a firm that understands real estate, but look for one that also understands their business and their goals.

What is the current environment for commercial real estate in Cincinnati?

The current environment is stable. In the office sector, although overall absorption of office space is very flat, many Class A buildings have experienced reductions in vacancy. The submarkets along the I-71 corridor — namely Kenwood, Midtown, Blue Ash and Fields Ertel/Mason — all have seen positive absorption. In Blue Ash, Citicorp recently signed a lease to take 195,000 square feet at The Landings, which is the largest suburban lease in the past five years.

The downtown market vacancy rate jumped up earlier this year due to Convergys vacating 350,000 square feet in the 600 Vine Street Building. Overall, CBD vacancy is at 16.10 percent, which has caused some landlords to lower their rates and provide more concessions. There is currently about 1 million square feet of new office projects under construction.

On the industrial side, the market has maintained relatively steady activity. In 2006, more than 2 million square feet of new industrial space was constructed in the marketplace, which has caused overall availability rates to go to 6.27 percent. Overall, sales and leasing activity is on pace for about a 35 percent reduction from 2005 levels. Although deal velocity has simmered year to date, we have recently seen an improvement in activity as some of the newly constructed buildings come online with larger contiguous spaces available.

KEN MURAWSKI is managing director of CB Richard Ellis Cincinnati. Reach him at Ken.Murawski@cbre.com. or (513) 369-1349.

Saturday, 30 September 2006 20:00

Checks and balances

The ability to prevent fraud is crucial when competing in a competitive marketplace. Check fraud, in particular, can have a major impact on a company’s bottom line. Certainly, the use of ACH (Automated Clearing House) transactions to transfer and process electronic funds is on the rise. According to the Electronic Payments Association, 14 billion payments were made in 2005 through the nationwide ACH network, an increase of approximately 16 percent over 2004.

Safeguarding against check fraud — both traditional and electronic — requires diligence and determination, but new technologies are making the process simpler and more cost-effective.
“Financial institutions offer tools that allow customers to protect their assets for a relatively low cost,” says Lynnell Harris, senior vice president of Comerica Bank. “It’s very much a win-win situation.”

Smart Business spoke with Harris about methods that can be used to help prevent check fraud, the benefits of Positive Pay and what distinguishes ACH Positive Pay from other fraud-protection products in the marketplace.

What types of companies are most susceptible to check fraud?

All types of companies. In today’s environment, anyone who sends out checks or transacts business with partners or consumers is subject to fraud and should take precautions. Companies across America, regardless of their size, are at risk.

What are some methods that companies can utilize to help prevent fraud?

There are a variety of safety measures and financial tools. For example, employees can help protect sensitive information by making sure items such as checks, account numbers, bank statements and other sensitive financial information are locked up and stored away. A system of checks and balances can be employed within the company to ensure appropriate access and approval authority.
In today’s environment, electronic transfers offer more control, as systems enable companies to set up various layers of authority based on dollar amounts or transaction types. Other tools include online account review and Positive Pay.

How does Positive Pay work?

Essentially, the bank delivers information to the customer regarding checks or ACH transactions that will be posted against his or her account. The customer then has the opportunity to review the information and determine if they are valid items. The customer authorizes the posting of the transactions and notes any unauthorized transactions. When notification is returned to the bank prior to the deadline, unauthorized transactions are returned to the depositing/originating financial institution.
Tools such as Positive Pay significantly mitigate risk for the company without requiring a huge investment in technology.

How can a business utilize ACH Positive Pay to accept or reject ACH transactions before they are posted?

In a manner similar to checks, the bank will present to the customer, before posting, all ACH transactions. The customer then has the opportunity to identify any unauthorized ACH activity. The customer authorizes the posting of the transactions and notes any unauthorized items prior to the notification deadline. The bank will return those items before posting to the customer account.

What distinguishes the ACH Positive Pay service from other fraud protection products?

Solutions that enable a business to protect and control electronic activity on its accounts isn’t commonplace. Debit blocking provides one level of protection but doesn't offer the full range of decisions that true ACH Positive Pay solutions do. By reviewing and making decisions on all ACH activity before it posts to the account, ACH Positive Pay offers a greater degree of control and information management.

If a business detects suspect items using either Positive Pay or ACH Positive Pay, what course of action can it take?

The first step would be to contact its financial institution prior to the Positive Pay notification deadline and advise which items should be returned. Typically, the information regarding suspect items is available first thing in the morning. Customers pull information electronically, review it and authorize payment of the valid items. If there is an unauthorized item, they would notify their bank in that response. The bank would then return those unauthorized transactions before they post to the customer’s account.

LYNNELL HARRIS is senior vice president of Comerica Bank. Reach her at (714) 424-3895 or lvharris@comerica.com.