It pays to advertise, and it seems that businesses are inundating consumers with more advertising today than ever before. Print, TV, radio and now the Internet are all serving as strong mediums to get companies’ messages out.
But what if the advertising is untrue? What if your competitor is seeking an edge over you by making false claims about its products? Rest assured that there are actions to take, says Ed Novotny, shareholder in the Atlanta office of Baker, Donelson, Bearman, Caldwell & Berkowitz, PC. The key is to know the laws and the “truth-in-advertising” rules.
Smart Business spoke with Novotny about what businesses need to know about false advertising and how to ensure a level playing field among their competitors.
What are the truth-in-advertising rules?
Under federal law, all advertising must be: 1) truthful and nondeceptive, 2) backed up by evidence, and 3) not unfair. There are additional laws for specialized products like consumer leases, consumer credit, 900 telephone numbers, and products sold through the mail or over the telephone. Most states have additional consumer protection laws that govern ads running in that state as well as additional particular products and services.
What makes an advertisement deceptive?
The Federal Trade Commission and the U.S. Postal Service (if mail is involved) are the federal agencies that have developed standards to determine whether advertising is deceptive. Under these standards, an advertisement is deceptive if it contains a statement or omits information that: 1) is likely to mislead consumers acting reasonably under the circumstances and 2) is ‘material’ that is important to a consumer’s decision to buy or use the product.
The advertisement is analyzed from the point of view of the ‘reasonable consumer’ the typical person looking at the ad. The overall impression is examined, not merely its specific words. The goal is to determine what claims about the product or service are being conveyed to consumers.
Both ‘express’ and ‘implied’ claims are then evaluated. An express claim is what’s literally expressed in the advertisement. For example, ‘Our widgets kill mice,’ is an express claim that the product will exterminate mice. An implied claim is one made indirectly or by inference. For example, ‘Mice fear our widgets.’ Although the ad doesn’t literally say that the product kills mice, a reasonable consumer could conclude from the statement that the product will kill mice. Under the law, advertisers must have proof to back up both express and implied claims that consumers take from an ad.
The next step involves the claims being categorized as ‘material’ or not. Material claims are those that affect a consumer’s decision to buy or use the product. Examples of material claims are representations about a product’s features, performance, price, safety or effectiveness.
The advertisement is also analyzed to determine what the advertisement doesn’t say. If the failure to include information leaves consumers with a misimpression about the product, it’s deemed deceptive. For example, if a company advertised a gold widget, the ad could be deceptive if it didn’t disclose that the widget was gold-plated.
Also, all claims made in an advertisement must have a ‘reasonable basis’ for the claims made. A ‘reasonable basis’ means objective evidence that supports the claim. The kind of evidence depends on the claim. At a minimum, an advertiser must have the level of evidence that the ad says it has. For example, the claims that ‘75 percent of consumers prefer our widgets’ must be supported by a reliable consumer survey to that effect. If the ad isn’t specific, the FTC and courts looks at several factors to determine what level of proof is necessary, including what experts in the field think is needed to support the claim. Advertisements that make health or safety claims must normally be supported by ‘competent and reliable scientific evidence.’
What are the risks in false advertising?
The remedies and penalties that the FTC or the courts have imposed include cease and desist orders, injunctions, civil penalties, consumer redress and other monetary remedies. Civil penalties range from thousands to millions of dollars, depending on the nature of the violation. Sometimes advertisers have been ordered to give refunds to all consumers who bought the product. Other remedies could include corrective advertising, mandatory disclosures and other informational remedies.
Also, keep in mind that false advertising from a competitor about your products can give you a right to sue under the federal Lanham Act and various state laws.
How does one prevent false advertising?
First, every advertisement should be examined to ensure that you understand every claim the advertisement contains. Second, make certain that you have the proof to support the claim, even if it’s implied. Third, make certain you’re knowledgeable about the myriad federal and state laws that may govern the advertising of your product or service.
ED NOVOTNY is a shareholder in the Atlanta office of Baker, Donelson, Bearman, Caldwell & Berkowitz, PC and concentrates his practice in business litigation. Reach him at (678) 406-8704 or firstname.lastname@example.org.
Some employers rely a great deal on foreign labor to run their businesses. But proper compliance with immigration laws is tantamount to ensuring they’re eligible to work and avoiding costly fines.
That compliance is even more important today since the government has increased enforcement efforts, says Hannah Meils, associate with Sommer Barnard PC in the Labor & Employment Law Practice Group.
Smart Business spoke with Meils about what a company needs to do to ensure its employees are eligible to work and pass a potential audit by the government.
What does the I-9 process require of employers?
The Immigration Reform and Control Act of 1986 made employers responsible for checking the identity of their employees and the eligibility of those individuals to work within the United States. The Act requires employers of all sizes to confirm employee identity and eligibility to work and to then complete the I-9 paperwork obligations within three business days of an employee’s employment start date.
How have the government’s I-9 compliance enforcement efforts changed over the years?
The discussions in Congress earlier this summer about potential immigration reform made clear that many believe that enforcement of current immigration laws has been lacking. The government recognizes that this lack of enforcement has contributed to the large number of illegal aliens presently residing in this country. In response, the government has begun to expend greater efforts to enforce existing laws against not only illegal aliens but also the employers that choose to employ them.
In April 2006, Immigration and Custom Enforcement (ICE), the government agency charged with enforcing immigration laws, began a new initiative to target employers who use unauthorized workers. ICE’s goal is to enforce the law and punish those employers who have violated it. The government is now using criminal investigation techniques to pursue violators far more widely. For example, ICE has conducted raids at numerous employment sites and has prosecuted the employer supervisors at those sites for criminal conspiracy and harboring illegal aliens. In addition to the wrath of the government, these employers have suffered significant bad publicity. In late 2005, Wal-Mart was fined $11 million when it was discovered that its subcontractor supplying janitorial employees had not been verifying employee employment eligibility. Wal-Mart's story has become the cautionary tale demonstrating why proper employer procedures and enforcement of those procedures is imperative.
What are the penalties for failing to comply with the I-9 requirements?
In addition to criminal investigation techniques, the government also conducts audits of employer I-9 documentation to ensure employer compliance with the verification obligations. While this is clearly less serious than a raid of an employer worksite and subsequent criminal charges, failure to properly comply with I-9 obligations can still result in significant civil penalties for employers.
Failure to comply with I-9 paperwork requirements can result in penalties ranging from $110 to $1,100 per offense. When an employer has knowingly the government uses a broad definition of ‘knowingly’ employed an unauthorized alien, penalties may range from $275 to $2,200 per unauthorized alien for the first offense, and steadily increase for any subsequent offense. Employers should keep in mind that failure to properly comply with I-9 obligations could result in the inadvertent employment of unauthorized aliens. If the government establishes that this inadvertent employment was the consequence of the employer’s careless I-9 compliance, it may find that the employer has ‘knowingly’ employed the unauthorized alien, which will result in stiff penalties.
Additional penalties include denial of federal contacts and potential criminal penalties for a pattern or practice of knowingly employing unauthorized aliens. Further, criminal penalties and charges can be assessed against both employers and individuals working for the employers in a capacity that has oversight of the I-9 process who have ‘knowingly’ engaged in improper conduct.
What are the biggest mistakes employers make with respect to their compliance efforts?
The biggest mistake an employer can make is to either ignore its obligations or to haphazardly implement compliance procedures. Employers should designate one individual to undertake the I-9 compliance process and ensure that the selected individual is properly trained in compliance procedures.
Another big mistake some employers make is to not uniformly comply with their verification obligations. For example, an employer may strictly enforce verification procedures with its Hispanic employees, but then halfheartedly verify the identity and work eligibility of its remaining work force. This approach clearly violates the Immigration Reform and Control Act’s anti-discrimination provisions.
HANNAH MEILS is an associate with Sommer Barnard PC in the Labor & Employment Law Practice Group. Reach her at (317) 713-3412 or email@example.com.
Today, the business world is more global and competitive than ever. Women are being placed in increasingly responsible positions within companies and need to have the proper skills necessary to do the job.
With more options available to pursue a Master of Business Administration, this is easier than ever to do, says Melanie Spangler, assistant professor of business at Mount Vernon Nazarene University (MVNU).
Smart Business spoke with Spangler about what skills women can expect to gain by earning an MBA and what options are available to accommodate their busy schedules.
Are there more options today for women to pursue an MBA?
MBA programs seem to be more accessible to women than they historically have been. Most colleges and universities, especially those with outstanding programs, have begun to structure their programs around the needs of the nontraditional MBA student.
Are there MBA programs tailored more toward women than men?
While I don’t believe it’s the intent of program creators to design an MBA tailored specifically to women, there are MBA programs that seem to have the ability to better meet the needs of female students. Students in our program meet one night a week for four hours and take one class at a time in six-week blocks. The majority of students can complete the program in 22 to 24 months. The night that students attend class remains consistent throughout the program. The program’s design allows female students to balance the demands of their professional, personal and academic lives. I’ve had students say that they appreciate how MVNU’s program is designed because they only have to be away from home and their children one night a week.
Offering an MBA program at several locations also seems to be beneficial for women. Instead of requiring students to travel to our main campus, they’re able to pick from several satellite campuses that offer an MBA. This design is beneficial to the female student as she’s able to pick the campus, including Cincinnati, that best meets her needs.
What value does a woman obtain in the work force and in her professional career from earning an MBA today?
It’s beneficial for a woman to obtain her MBA due to the number of opportunities that having one creates. With an advanced degree, such as an MBA, you have the opportunity to work in a variety of settings. These settings include the private sector, public sector or nonprofits. A leader in any of these economic sectors needs the skills for developing business plans, understanding financials and managing resources.
Quality programs also offer the benefit of establishing contacts and networks that become important for students after they leave school. Our MBA program is designed on a cohort model, which means that the same group of students will go through the entire program together. The students form a strong bond with one another and form strong networks, which they may use for future resources.
The MVNU program is also designed to be student-centered so that students are presented with the opportunity to apply the concepts talked about in class to real-world situations. They engage in exercises that require them to analyze the current practices being followed at their companies and design suggestions for improvement.
What sort of skills can a woman attain through participating in an MBA program?
A female student will obtain a multitude of skills through participating in an MBA program. Some of these include quantitative skills in the areas of accounting, finance and statistics; forecasting and planning skills; strategic management skills; and resource management skills. An additional skill, and one that’s emphasized at MVNU, is servant leadership. This concept is biblically based but also becomes an excellent tool to use in the workplace. It’s one’s job as a manager to come alongside your employees and give them the tools and support they need to truly succeed. Loosely paraphrasing Henry Ford ‘You may only need an employee’s hands to do the job, but you get the whole person.’ Our MBA students are given the tools to identify what motivates their employees as well as how to design systems that encourage employees to perform their best.
What financial aid and other options are available?
Federal Stafford Loans and private student loans are available to finance an MBA. Some institutions offer Direct Lending programs where you borrow money from the school versus a private lender. Private organizations also offer financial assistance to students. Money from private organizations isn’t guaranteed, and awards are made on a competitive basis after a review of a variety of factors. One of these factors could be a person’s gender.
For more information on financial aid call (800) 839-2355 ext. 4737.
MELANIE SPANGLER is assistant professor of business at Mount Vernon Nazarene University in Mount Vernon. Reach her at (740) 392-6868 ext. 4750 or firstname.lastname@example.org.
Lawsuits abound in our “sue happy” society, and businesses must necessarily be prepared should one be filed against them.
One major concern is the recovery of fees spent on litigation, which for some companies can reach into the millions of dollars. Most clients assume the losing party will have to pay for all of their fees, but this is a faulty assumption, says Kevin Stine, a partner with the law firm Gambrell & Stolz, LLP, in Atlanta.
Smart Business spoke with Stine about the misconceptions concerning the recovery of legal fees and what a business can do to make sure it’s compensated after a trial.
How does one go about recovering attorney’s fees and expenses in litigation?
When a client has a legal dispute and comes to me for advice, one of the first things I’m routinely asked is whether the other party will be required to pay their legal fees and expenses when they prevail in court. This is one of the most difficult issues to explain because most clients assume the losing party will automatically be required to pay all of their fees at the end of the case. We have what’s referred to as the ‘American Rule’ in this country. Whether in state or federal court, the American Rule provides that each party to a lawsuit, even the prevailing party, must pay its own fees and expenses. There are few exceptions to this rule.
What are the exceptions to the American Rule?
There must be specific authority for an award of attorney’s fees and expenses in a contract or statute. So, for example, if you sue another party for breaching a contract with you, the contract you’re enforcing must contain an express provision entitling you to recover your attorney’s fees and expenses in addition to any other damages.
What kinds of statutes authorize recovery of attorney’s fees?
There are two general types of statutes that authorize recovery of attorney’s fees. The first type creates the underlying basis for the lawsuit in addition to the basis for recovery of fees. Examples include the federal anti-discrimination laws and certain consumer protection statutes.
The second type is aimed specifically at bad faith conduct, prior to or during the lawsuit. One such law in Georgia permits the plaintiff to recover its legal fees where the other party, prior to the lawsuit, acted in bad faith, was stubbornly litigious or caused the plaintiff to incur unnecessary trouble and expense.
The other pertinent Georgia law is available to both plaintiffs and defendants, and concerns misconduct during the course of the lawsuit. This law is commonly referred to as the frivolous litigation statute and permits a party to recover its legal fees and expenses if the other party asserted a claim or defense that lacked any factual or legal support or unnecessarily expanded the proceeding solely for harassment.
Let’s say a client’s claim for legal fees fits within one of these exceptions to the American Rule. Are there any other restrictions the client needs to be aware of?
If you are enforcing a fee provision in a debt instrument, like a promissory note, Georgia law imposes two additional restrictions. First, you must serve a specific written demand on the debtor, which gives the debtor 10 days to pay the outstanding principal and interest, without the legal fees. Second, if a debt instrument permits recovery of ‘reasonable’ fees, your fee recovery is limited to 15 percent of the first $500 and 10 percent of the remainder of the outstanding principal and interest, regardless of your actual fees. If the debt instrument permits recovery of fees based on a specific percentage, the percentage is capped at 15 percent of outstanding principal and interest, again, even if your actual fees exceed this amount.
For other types of contracts with fee provisions and statutory claims, the court will award ‘reasonable’ fees. In practice, the judge or jury can often find only a portion of the actual fees incurred is reasonable.
Do you have any suggestions for improving the chances of recovering fees in legal disputes?
If the debt instrument will be governed by Georgia law, I advise creditors to make sure the attorney fee provision is based on the maximum percentage of principal and interest allowed in Georgia, or 15 percent. I also advise clients there are ways to plan ahead for bankruptcy. For instance, I advise creditors to require an express waiver of the 10-day demand in the debt instrument, because some bankruptcy courts have rejected claims for fees if the 10-day demand is not served before bankruptcy, or even if it is served beforehand but within 90 days of the bankruptcy. If a waiver is not practical, I encourage clients to get us involved early on, particularly if bankruptcy is a real possibility, so that we can make sure these laws are complied with and maximize the chance of a fee recovery.
KEVIN A. STINE is a partner in the Litigation Practice Section of Gambrell & Stolz, LLP, in Atlanta, concentrating in business litigation, creditor’s rights and bankruptcy. He can be reached at (404) 223-2207 or email@example.com.
Smart Business spoke with Hair about the value data mining can bring to companies that are looking to ramp up their marketing efforts and boost their bottom lines.
What is the number one marketing mistake companies make?
The number one mistake is probably not keeping up with changes in technology that impact marketing. Digital technology is pushing marketing into a new dimension. In the past 10 years, more than half of the human race has moved its work, shopping, playing and chatting online, creating mountains of digital data that once would have languished on scraps of paper or vanished as forgotten conversations. And until the last few years, a lot of information just disappeared. It either wasn’t collected or it was overlooked as a resource.
Much of it was potentially valuable for businesses and government. The information wasn’t collected or simply thrown away because it wasn’t economical to collect, store, analyze or interpret. Today, virtually all companies large or small can convert what once was a ‘waste byproduct’ into knowledge that improves its decisions, increases profits and provides added value to customers.
What sort of innovations in technology have made marketing more effective today?
Survival in a knowledge-based economy is derived from the ability to convert information to knowledge. To do so, managers increasingly rely on the field of predictive analytics, which uses confirmed relationships between decision variables to predict future outcomes. Data mining first searches for data patterns and identifies promising relationships. The relationships are based on searching data (numbers such as sales, cost, profits, etc.), text (words or phrases in both internal and external documents), Web movements (click-through and time-spent patterns), visual images and so on.
Predictive analytics then uses confirmed relationships to predict future trends, events and behavior patterns. By using predictive analytics, marketing and business researchers help companies solve problems, pursue opportunities and identify relationships as they currently exist or as they’re likely to exist in the future.
Increased data comes from many sources, including retail point-of-sale purchases, online transactions, medical, educational and governmental records, global positioning systems, RFID (radio frequency identification devices), wireless electronic data sensors and so on. In many instances, it costs little to collect data today since it’s a byproduct of information technology developments that are an integral part of modern organizations, including government agencies and most business types. Once data is collected, it costs little to store in data warehouses.
Another innovation in marketing technology is mobile phone advertising and, most recently, location-based advertising. Location-based advertising over mobile phones has been available for a couple of years, mostly in Asia. It gets ad messages out by installing special transmitters in prime locations for particular market segments, such as in airports, train stations, shopping malls and on billboards that send messages to anyone carrying mobile phones with Bluetooth technology.
What benefit can a company achieve through data analytics?
Mainly, companies can control costs and grow revenue. Many companies use the techniques to manage all phases of the customer life cycle, including acquiring new customers, increasing revenue from existing customers and retaining good customers. By determining good customers’ characteristics, companies can target prospects with similar characteristics. Profiling customers who have bought a particular product can focus attention on similar customers who haven’t bought a product or service (cross-selling). Identifying customers who have left enables a company to understand customers who are at risk for leaving (reducing churn or attrition), because it’s usually far less expensive to retain a customer than acquire a new one.
Predictive analytics is having the most impact on improving marketing research and changing advertising strategies. The result is that nontraditional media, such as the Internet, podcasting, blogs, product placement, video games and search ads, are now the fastest-growing media to communicate with customers and account for almost 20 percent of many companies’ annual ad budgets.
JOE F. HAIR, Ph.D., is a professor of marketing at the Coles College of Business at Kennesaw State University in Kennesaw, Ga. Reach him at firstname.lastname@example.org.
According to Terry Phillips, vice president of Robert Half International in Akron, frequent recognition of accomplishments is the most effective nonmonetary means for motivating staff. And that leads to greater job satisfaction and, of course, greater employee retention.
Smart Business spoke with Phillips about what company leaders need to realize about motivating employees, and what they can do to make sure their staff is adequately recognized for their accomplishments.
What were the results of Accountemps’ latest survey on what motivates workers?
The survey found that the majority of workers (35 percent) and executives (30 percent) polled agree that frequent recognition of accomplishments is the most effective nonmonetary means for motivating staff. Employees want to know that their efforts make a difference and that their input is valued. Workers and executives also both cited regular communication (30 percent for executives, 20 percent for employees) as the second most effective nonmonetary means for motivating staff. Both of these issues play a major role in the retention of skilled staff.
How much is too much when it comes to seeking recognition? Shouldn’t people be happy with having a job to go to and getting a regular paycheck?
Having a job and a salary are important but working with managers and colleagues who appreciate what you do can help you be more productive, more satisfied and more motivated to excel at work. And that benefits everyone.
I’m not advising that employees seek a pat on the back every day and for every project, but when a team pulls together to meet a tough deadline or complete a big project, those efforts should be recognized.
What should managers do to recognize the accomplishments of their staff?
There are several ways managers can recognize the achievements of their staff, including: offering verbal praise during team and/or company meetings, sending a written (e-mail or on paper) ‘thank you’ note or mentioning accomplishments in the company newsletter.
How can companies/managers increase the level of communication among their staff?
Encourage employees to motivate each other. If your entire team is involved and rooting for each other, a truly dynamic, supportive workplace is created.
Create a sense of community. Find ways to foster the ‘all for one and one for all’ approach to day-to-day operations. Go to lunch together. Help employees appreciate one another and the job that each person does.
Brainstorm. Schedule the occasional brainstorming session to help solve any challenges facing your team. By doing so, you’ll tell employees that you’re all in this together and that one person isn’t responsible for solving all the problems.
Provide mentors. By pairing veterans with early-stage professionals, you’ll accomplish three things: first, you’ll send a message to new employees that you care enough about their future with the company to take steps to ensure their success. Second, you’ll recognize current staff members for things they do well. Finally, you’ll create an environment where people take pride in helping others and everyone feels free to rely on one another’s assistance.
Are there times when staff should recognize their managers?
Absolutely. When significant work milestones are achieved or when complex projects are completed successfully, those in supervisory or executive roles deserve to be recognized for their accomplishments. In these situations, it’s often best to coordinate with others in the department and team so that all appropriate individuals are aware and engaged in the intention to recognize the manager.
What may be holding managers back?
One issue may be time. The pace of business is always accelerating, and today’s executives and managers sometimes work off-site. This can make timely recognition a challenge.
Another factor may be money. Some managers are accustomed to expressing their thanks through monetary rewards, but many may be working under tighter budget constraints.
Also, don’t limit recognition to predictable dates or occasions, such as once a quarter or at the conclusion of major projects. Rewarding employees as often as they deserve it will continue to build a positive work environment.
TERRY PHILLIPS is vice president of Robert Half International in Akron. Robert Half is a specialized staffing firm headquartered in Menlo Park, Calif. Reach Phillips at (330) 253-8367.
Astrong, motivated sales force has always been vital to a company’s success. But in today’s marketplace, where changes happen with lightning speed and more players are vying for a piece of the pie, the traditional way of selling just won’t cut it anymore.
According to Terry W. Loe, Ph.D., associate professor and director of the Center for Professional Selling at Coles College of Business at Kennesaw State University in Kennesaw, it is more important than ever for salespeople to understand their clients’ businesses, markets and financials as much as their clients in order to deliver value.
Smart Business spoke with Loe about what companies need to do to revamp their sales efforts in order to maintain their competitive edge.
In today's ultra-competitive marketplace, has the way a company approaches sales changed?
Sales has changed dramatically over the past 10 years. The speed of change in technology and the ways that companies do business has impacted the role of salespeople. Salespeople must have a strong business acumen and be prepared to manage relationships across organizations. Organizations have developed ‘supplier relationship management’ strategies paralleling customer relationship management (CRM). Additionally, more mergers and acquisitions have further reduced the number of customers in the market. This means salespeople have to fight harder to maintain their current account base, and gaining new clients will be even more difficult.
Another difference is that more companies are using multiple channels (Internet, call centers, contact centers) in order to allow customers to buy in the manner they prefer.
Also, competitive advantages for organizations will emerge based upon people (salespeople in particular) rather than products. Salespeople must understand their clients’ businesses, markets and financials as much as their clients in order to deliver value.
In what way has the burgeoning global economy affected sales?
Companies today are looking at low-cost countries and then low-cost vendors, which means that organizations and salespeople are having to compete on a day-to-day basis with India, China, Thailand and other countries with lower manufacturing and labor costs. Salespeople have to broaden their knowledge basis of competitors and develop and deliver strategies that provide value to their markets (customers) in order to offset pricing issues.
How are companies motivating their sales teams these days?
Companies today, in order to be successful, must develop a sales culture throughout the organization, which means that everyone in the organization must be focused on delivering value to the customer. Sales leaders must go beyond motivation and strive to inspire their sales-people and educate others in the organization on the importance of organizational customer focus. Inspiration encompasses the transference of belief of the corporate vision.
While attractive commissions, bonuses and compensation packages are still necessary, sales leaders must go beyond this type of motivation. In order to have breakthrough success, the organization has to change more than just behavior and methods it has to change the way it and its employees and salespeople think about the way they approach their jobs.
How important is goal setting to a company’s sales?
Without a vision, organizations and individuals will be destined to mediocre performance. Goals are important, but they must be meaningful and they must be based upon the core values of the organization or individual. Core values are those that the organization does not compromise. If goals are not based upon a set of core values, they are meaningless. Short-term goals may be adjusted and re-evaluated, and the organization and salespeople must be able to adapt to the environment. Ultimately, though, the organization must know where it wants to go.
How does one recruit a competent sales staff?
Recent studies indicate that 44 percent of U.S. employers can’t fill sales jobs. There’s a greater shortage of qualified salespeople than nurses or teachers. And the average turnover rate in professional sales is around 40 percent.
Organizations must use innovative approaches to acquire qualified salespeople. More and more colleges and universities have programs and degrees that are sales-focused an indication of the shortage of supply and recognition by higher education of the need. Twenty years ago, there were no universities with centers focused on the sales discipline. Today, there are 11 universities that have sales centers that focus on strong undergraduate education in sales and sales management.
TERRY W. LOE, Ph.D., is associate professor and director of the Center for Professional Selling at Coles College of Business at Kennesaw State University in Kennesaw. Reach him at (678) 797-2017.
Today is a whole new business world. Things are moving faster than ever, and companies are looking to the future as much as they are concentrating on the present.
James Snyder, professor and department chair of automotive supply management at Northwood University in Midland, says business is now global with rapidly changing technology. Executives must learn to lead efficiently while developing innovative products and services. And the key is continuing education.
Smart Business spoke with Snyder about how executives can hone their business skills and learn new ones to adequately manage innovation and technology.
Why is managing innovation and technology such a vital component of executive education today?
The impact of technology on today’s corporate executives is being felt not only with product and process innovation, global product development and new business models for innovation, but also in the way organizations are being restructured and managed. The factors that lead to a company’s success may also contribute to its failure. The leadership, vision and culture that have provided growth can become its Achilles’ heel as technological and market conditions change over time.
In order to prevent failure, senior executives and managers must learn to lead efficiently in current markets while developing innovative products and services for the future of their companies. The challenge is that the required internal structures and cultures needed to foster innovation are often seen as threats to an organization’s current priorities and future success.
Where does innovation come from in today’s business world?
Since the early 1990s, our competitive benchmarks have increasingly come from growth and development in Asia. Forty years ago, companies were typically provided a quotation to bid on for manufacturing a part. The customer would choose between one or two suppliers that would manufacture these parts. The question arose, ‘Do you want a quality part or do you want the part at the lowest price available?’
The quality revolution of the ’80s brought about experts in this field Deming, Juran and Crosby who emphasized that quality is free and that you can reduce cost without first addressing quality. Quality systems became the norm, and innovation in quality became the major selling point. In the ’90s, we implemented ‘lean and just-in-time’ delivery and emphasized the total cost impact these concepts held for the customer.
All along the journey, there were reasons why the early adopters received the orders. The innovation was not only in the product, but in the process of manufacturing and delivering parts.
What are some of the tangible results of honing an executive’s skills in this area?
An executive education program in managing innovation and technology should consist of an introductory module that provides a framework of how the manufacturing industry has created and embedded constraints that affect their ability to respond effectively to challenging competitors and the continual reshaping of markets. The program should also include a series of discussions around visualization, discovery, transformation and integration to provide the understanding of how transformation to self-sustaining organizational effectiveness may be achieved quickly by intelligently leveraging technology.
The tangible results of such a program include transitioning into leadership roles, creating long-term improvement in the organization’s performance, making more informed executive decisions, and attaining higher levels of sustainable growth.
What sort of options do executives have today for pursuing more education?
Executives continually face ever-increasing demands on their time. Many universities design class schedules structured to fit the schedules of today’s busy executive by offering programs at campuses, at company facilities, and distance education via Internet.
Why is it important for executives to continually pursue more education?
In today’s fiercely competitive global economy, almost every company faces the challenges of ever-increasing complexity. ‘Keeping up’ while maintaining competitive costs and satisfied customers has become more challenging due, in part, to supply-and-demand variables that are changing at a more rapid pace than ever before.
Despite these challenges, a handful of companies consistently produce strong revenue and profit growth. Market leaders have a common characteristic: agility an exceptional nimbleness and unparalleled ability to respond rapidly and appropriately to changing market conditions.
In order to survive and grow in the global market, executives must reinvent their business model through discipline (common processes and systems), yet maintain flexibility with their local management and decision-making process. Creativity and innovation will require more disciplined approaches and integration of the entire business, from design to delivery.
JAMES SNYDER is professor and department chair of automotive supply management at Northwood University. Reach him at (248) 649-5111.
It seems like large companies are falling more and more under the microscope for various financial wrongdoings. One of those wrongdoings is stock option back-dating.
Dana R. Hermanson, Dinos Eminent Scholar chair of private enterprise and professor of accounting in the Coles College of Business at Kennesaw State University, says evidence of backdating is widespread and companies need to perform internal audits to make sure they aren’t penalized by an investigative agency.
Smart Business spoke with Hermanson about what exactly stock option backdating is, why so many companies are being scrutinized for it, and what those companies can do to make sure they’re on the up-and-up.
What exactly is stock option backdating and
why are so many companies now being scrutinized for this?
Stock option backdating is lying about the date that stock options were granted to executives or employees so as to make the options more valuable. For example, assume that ABC Company issues three-year options for 100,000 shares to an executive on June 13, when the company’s stock price is $22 per share. The stock options give the executive the right to buy the company’s stock for $22 per share three or more years from then. This executive then has an incentive to work hard to increase the stock price in the future so he or she can buy the stock for $22 and resell it for much more.
Apparently, some companies secretly backdated their options so that those options were more valuable to the person receiving them. In the example above, the company might ‘pretend’ that the options really were issued on April 11, when the company’s stock price was only $14 per share. This backdating of the options means that the executive is getting options on June 13 with an exercise price of $14 when the market price has already risen to $22. The options are already ‘in the money’ by $8 per share rather than being ‘at the money’ where the exercise price equals the market price on the grant date. In this manner, the incentive compensation scheme has been rigged, as the executive already has paper profits of $8 per share when the grant is made. Shareholders are the big losers in this deal.
Building upon previous work by professor David Yermack at NYU, professor Erik Lie at the University of Iowa provided evidence suggesting widespread backdating. He found that stock prices typically dropped just before option grants and rose after the grants. Either the executives receiving options had been incredibly lucky, or someone was secretly fudging the grant dates. Following Lie’s research, regulators started to investigate.
Why have technology companies fallen victim to the most severe scrutiny?
Tech companies have traditionally been very heavy users of stock options, so it’s not surprising that many of the backdating allegations have been in this sector. Tech companies often have limited cash flow during their early years, so it’s difficult for them to afford high salaries. These companies have attracted talent by using options to provide potentially large payoffs. Also, many tech companies have vigorously fought against the expensing of stock options, so some tech companies might not have held the accounting rules for stock options in very high regard.
What steps can they take to solve the problem?
Solving the problem will require serious and sincere effort on the part of the board of directors. Executives involved in backdating may need to be fired, and the company will need to notify regulators of the problem and fix its internal control weaknesses. It also is critical to communicate with shareholders about the impact on the company. Ultimately, the board will need to focus on repairing the company’s reputation and on setting a clear tone that such behavior will not be tolerated.
What sort of actions or penalties can a company face if wrongdoing is found?
Companies that secretly backdated their options avoided recording compensation expense and, therefore, overstated their profits. We are seeing numerous restatements of previous financials due to understated compensation expense. In addition to restatements of previous financial results, companies engaged in this practice can expect Securities and Exchange Commission (SEC) investigations and possibly civil sanctions. Even more serious, some executives involved in backdating face criminal investigations or charges, and several executives have been fired.
Is backdating now a thing of the past?
The Sarbanes-Oxley Act now has made it more difficult to secretly backdate options. However, Lie and professor Randall Heron of Indiana University recently found evidence that backdating still is occurring, but to a lesser extent.
DANA R. HERMANSON is Dinos Eminent Scholar chair of private enterprise and professor of accounting in the Coles College of Business at Kennesaw State University. Reach him at (770) 423-6077 or email@example.com.
It used to be that employees who decided to leave a company were given a farewell lunch and a hearty handshake on their way out the door. These days are now gone, as the termination decision merely ushers in a new phase in an ongoing relationship.
A good separation agreement sets out both parties’ obligations in a clear, easy to understand manner and is more likely to be upheld in courts, says David E. Gevertz, shareholder with Baker, Donelson, Bear-man, Caldwell & Berkowitz, PC in Atlanta.
Smart Business spoke with Gevertz on what comprises a good separation agreement and why separation agreements are essential in today’s business environment.
Why have separation agreements garnered so much attention of late?
As the cost and consequences of employment litigation have increased over time, employers have increasingly conditioned severance payments on the execution of agreements that release claims for harassment, discrimination, personal leave and the like. Plaintiffs’ attorneys, in turn, have increasingly raised arguments that such releases even when signed and paid for are unconscionable or otherwise defective, such that their clients can keep the monies provided and still sue their former employers. At the same time, governmental agencies, such as the Equal Employment Opportunity Commission, have aggressively argued that employers cannot use releases to prevent departing employees from bringing complaints to their attention for investigation.
In the absence of clear guidance from the Supreme Court on these issues, the lower courts are split on a number of these issues, creating a confusing and potentially costly patchwork of rulings concerning what claims employees can be asked to waive and under what circumstances.
Why are good separation agreements important for a company to have?
In addition to most employers’ obligations to continue health insurance via COBRA and/or pay unemployment insurance or accrued bonuses to departing employees, businesses must also consider the likelihood that a departing employee may go to work for a competitor or even reapply for employment some time in the future. In this environment, good separation agreements are essential to setting expectations for the relationship going forward much the way an employee handbook does at the beginning of the relationship. Separation agreements provide the ideal forum for the parties to negotiate where the employee may or may not work next, how the employer will handle reference inquiries, and whether and when an employee may reapply to return to work at the company.
What are some of the dos and don’ts that go into a good separation agreement?
First and foremost, a good separation agreement sets out both parties’ obligations in a clear, easy to understand manner. The use of descriptive headings before each paragraph and initial lines at the bottom of each page are important. Where a release of age discrimination claims is being sought, federal law requires that employees be given at least 21 and sometimes 45 days to consider the agreement as well as seven days to revoke their waiver. Further, certain claims, including those for unpaid wages and workers’ compensation claims, are only valid if they’re presented to and signed off by a court or appropriate administrative agency. Agreements that implicitly or explicitly impede an employee from filing a charge with certain state or federal agencies are not only invalid, they may actually provoke a lawsuit by the government. Also, while it’s often desirable to impose confidentiality obligations on employees who receive money or other benefits in order to prevent an air of expectation about such payments, it’s critical to avoid imposing unduly ‘punitive’ sanctions on employees who violate those obligations, lest the entire confidentiality obligation be overturned by a court.
Do courts generally side with those terminated from employment or the companies that terminate them?
While the past few years have definitely seen an uptick in decisions overturning overly broad and/or vague restrictions, courts continue to uphold separation agreements that clearly set out employees’ obligations and steer clear of the increasingly complex minefield of claims that cannot be released and post-employment activity that cannot be restrained. That said, parts of the country have long been perceived as being more ‘employer-friendly’ than others. Georgia courts, for example, are widely perceived to be straightforward in their analysis of releases while simultaneously zealous in their scrutiny of noncompete and nonsolicitation provisions to ensure that they’re fair to departing employees. Consequently, it’s always a good idea to clarify which state’s law governs the agreement as well as to include a severability clause to prevent a court from striking large parts or all of the agreement in the event one provision is found to be noncompliant.
DAVID E. GEVERTZ is a shareholder with Baker, Donelson, Bearman, Caldwell & Berkowitz, PC in Atlanta. Reach him at (678) 406-8716 or firstname.lastname@example.org.