Chelan David

Friday, 24 November 2006 19:00

Retirement services

Competition runs rampant in the retirement services sector. Banks, mutual fund companies and insurance companies are all vying for a slice of 401(k) business.

However, not all retirement plan providers offer the same level of commitment when it comes to making sure employees are well-versed in eligible plans.

After all, getting employees to participate involves more than merely letting them know a plan is available. Education is an important component that providers should bring to the table.

“Commitment to the education process is key,” says Frank Ricchiuti, vice president and retirement plan consultant at Comerica Bank. “A successful 401(k) plan usually has good participation levels. Education is the driver to good participation.”

Smart Business spoke with Ricchiuti about what functions a retirement plan provider should be responsible for, how often a retirement plan should be reviewed and how service providers can assist in employee education.

What are some key factors to consider when looking for a retirement plan provider?

The wish list is obvious: competitive pricing, quality investments, efficient service and great technology. Unfortunately, this reads like every providers’ marketing brochure. Some plan sponsors know what they want; many know they have a problem but don’t know how to fix it; and some don’t know what they don’t know. So the combination of product marketing and not knowing enough to cut through the spam makes it very difficult for a plan sponsor to identify and evaluate those key factors.

What functions should a retirement plan provider be responsible for?

The three main components are record-keeping, administration and investments.

The less obvious but equally important issues are compliance oversight, ongoing due diligence of the investments and the level of commitment toward participant education (preferably live meetings). These services do not totally relieve the plan sponsor of fiduciary obligations, but they can certainly assist the employer to make prudent decisions in selecting a provider.

Once in place, how often should a retirement plan be reviewed?

This is a huge fiduciary liability issue, and many plans have now established investment policy statements for guidance in this regard. Investments move in and out of favor, so they should be reviewed at least annually.

Larger plans review their investments quarterly, which may be the result of a very specific investment policy. We also believe that plans should have an administrative review to measure the overall efficiency and competitiveness of the program in a fast moving industry. We find that many of our clients are not being offered these reviews by current service providers.

How can a company encourage its employees to participate in retirement plans?

This varies by employer. A high-tech company or a law firm does not have the same issues educating participants as a manufacturing company has.

Employers concerned by productivity and thin profitability margins are often reluctant to make 401(k) plan enrollment meetings mandatory. We also see successful 401(k) plans where enrollment meetings are presented in other languages (e.g. Spanish) with enrollment materials to match.

The new Pensions Protection Act brings a potential solution to the problem — automatic enrollment and auto deferral increase — options we expect plan sponsors to consider in the future.

How should employees be educated about retirement plans?

Ultimately, it is the fiduciary responsibility of the employer to provide that information. The employer achieves this by partnering with effective resources.

Those resources can be the actual service provider and/or a good broker or consultant who will focus on developing and driving an effective ongoing action plan. Multiple tools are available now with more being developed all the time. We’re seeing live workshops with worksheets and pencils in hand (even PDAs); seminars to existing participants on different investment-related topics; Webinars; Internet-based education and financial planning models; and user-friendly investment options that promote asset allocation through target retirement date funds. The key is choosing the right team, because a dedicated retirement plan consultant can make all the difference.

FRANK RICCHIUTI is vice president and retirement plan consultant at Comerica Bank. For a no-obligation assessment of your current retirement plan, reach him at (714) 433-3235 or flricchiuti@comerica.com.

Wednesday, 25 October 2006 11:25

Modern technology

The wide-spread use of e-mails, databases and laptops has changed the way that companies and attorneys alike conduct business. The recent proposed amendments to the Federal Rules of Civil Procedure regarding electronic discovery highlight the fact that e-discovery is a growing part of court proceedings.

Being well versed in relevant procedural rules relating to e-discovery is important to ensure that necessary information is preserved, located, and possibly produced in the event of litigation. The new amendments, scheduled to become effective in December, provide a reminder about the importance of having document-retention policies that take into consideration electronically stored records and data.

“The amendments are going to force companies to look at their policies ahead of time, before litigation starts, or in the early stages, to make sure that they don’t run afoul of their responsibility to preserve electronic as well as paper records,” says Pauline Massih, a partner in Alschuler Grossman Stein & Kahan LLP’s Business Litigation Department.

Smart Business spoke with Massih about the proposed amendments and what steps in-house counsel should take in response to the changes.

How has electronic discovery impacted the legal system?
E-discovery is dynamic in nature, voluminous in scope, and multiplying at a far greater rate than paper records. By one account, we’re receiving 20 percent more e-mails per day than a year ago. The sheer volume of information that is now available has had an impact on discovery and the ability of parties to seek and exchange information. It has put greater responsibility on each and every company to assess what kind of records they have, understand how that information is stored, and for how long.

As we move from file cabinets to file servers, the universe of information a company must review in order to make sure it has complied with its discovery and regulatory obligations has definitely expanded.

What are the proposed amendments to the Federal Rules of Civil Procedure regarding electronic discovery?
The federal rules are playing a little bit of catch up in regard to e-discovery. After approximately five years, the U.S. Judicial Conference Advisory Committee on the Federal Rules proposed a series of rule amendments relating to e-discovery. The proposed amendments are intended to lead to greater certainty, less burden and lower costs. They fall into five main categories.

The first category relates to the separate treatment and definition of electronically stored information under Rule 34. The second category requires counsel to include e-discovery in their initial disclosures and planning conferences under Rules 16 and 26. The third category provides procedures under Rule 26(b)(5) for a party to assert privilege or work product after inadvertent production of e-discovery.

The fourth category allows relief from production under Rule 26(b)(2) if the information is not ‘reasonably accessible because of undue burden or costs.’ The last category is designed to provide a safe harbor from sanctions under Rule 37(f) for companies that, because of automatic retention policies, may have inadvertently deleted otherwise responsive electronically stored information.

What impact will the proposed amendments have on the manner in which parties handle written discovery?
The proposed rules will clearly require considerably more attention by in-house counsel to early preparation for e-discovery. The impact of the amendments will be more on the front end in forcing litigants to assess the universe of electronically stored information on their systems, including off-site back-up tapes, voicemails and e-mails. The proposed amendments underscore the need for effective corporate policies governing the use and retention of electronic information, especially e-mail correspondence.

What steps should in-house counsel take to respond to the changing rules regarding electronic discovery?
All in-house counsel should review their company’s document-retention policies with a new eye to the issue of e-discovery. They need to determine which business records are truly important and which are superfluous. Generally, ‘important’ documents include those necessary to meet governmental requirements, contracts, insurance policies, personnel files, tax-related documents, certain corporate policies and official correspondence. Superfluous material — such as personal e-mails, personal correspondence, preliminary drafts of letters, brochures and newsletters — do not typically need to be preserved in the same manner, but still need to be explored and dealt with.

Creating schedules for document management and guidelines for litigation holds are also critical. If a lawsuit or a government investigation is pending, threatened or even reasonably foreseeable, then automatic retention policies must be suspended and effective preservation policies put into effect.

Lastly, whatever policy is in place must actually be complied with through proper training of key personnel and system-wide application.

PAULINE MASSIH is a partner in Alschuler Grossman Stein & Kahan LLP’s Business Litigation Department. Reach her at (310) 255-9120 or pmassih@agsk.com.

Thursday, 21 September 2006 07:31

Trademark laws

A trademark uses words, names or symbols to help identify and distinguish the goods of one source from another. The process of registering and protecting trademarks is an important function for companies looking to make their presence felt overseas.

Establishing trademarks is beneficial to companies and consumers alike in the realm of international business. “It helps to show that all goods sharing the same trademark have the same level of quality,” explains Jonathan Stern, an associate in Alschuler Grossman Stein & Kahan LLP’s Entertainment & Media Department. “For example, if I go to a McDonald’s in Cairo I know that the French fries that I get will be the same quality that I get in Los Angeles.”

Smart Business spoke with Stern about the most common international trademark disputes involving the Internet, how to resolve domain name disputes and the importance of registering trademarks overseas promptly.

There is no such thing as a universal trademark that is enforceable in every country. What type of problems does this cause?
It is quite problematic because trademark rights are entirely territorial in scope. Worldwide, hundreds of countries and jurisdictions have their own laws, their own regulations and their own registration systems. There are a number of existing comprehensive treaties that establish requirements for obtaining trademark registrations in many countries with just one filing. Usually, however, if you want global protection, the rights have to be acquired and protected on a piecemeal basis.

What is the most common type of international trademark dispute involving the Internet?
One of the most common disputes involves counterfeiting. Without any sort of uniform standard in place for the buying and selling of counterfeit goods, companies that have valuable trademarks continue to have significant and potentially expensive hurdles to surmount in globally enforcing their trademarks. Companies that manufacture goods such as clothing need to be vigilant about tracking down and stopping counterfeiters. If possible, they should work to foster relationships with auction Web sites such as eBay. This way, they can work together to implement procedures that will discourage trademark infringers from using such sites.

How common are domain name disputes?
Disputes involving domain names continue to be a problem, but less so for established companies whose trademark names have been in existence for quite some time. The main reason for this is that they’ve likely resolved their disputes by now. Companies that are in the infancy stages of creating their brand need to conduct preliminary research to make sure that their desired domain name hasn’t already been acquired. It’s also important to conduct research in countries that companies might seek to expand into to make sure they’re not unintentionally infringing on trademarks in foreign countries.

How can domain name disputes be resolved?
There is a mechanism to adjudicate disputes involving generic top-level domains such as .com, .net, .org, .biz, .info and .name. This dispute-resolution process also applies to some country code top-level domains. For example, .fr is the domain code used in France.

The generic top-level domains and country code top-level names have adopted the Uniform Domain Name Dispute Resolution Policy (UDRP), which provides a streamlined administrative procedure to help curb abusive registration and use of a domain name.

The UDRP administrative procedure covers three different situations. The first situation is when the domain name registered by the domain name registrant is either identical or confusingly similar to a trademark belonging to the complainant. The second situation is when the domain name registrant has no rights or legitimate interests with respect to the domain name in question. The third situation is when the domain name has been registered and is being used in bad faith.

Is there a system in place to help curb counterfeiters?
There is no uniform system for dealing with the buying and selling of counterfeit goods. Different countries have different statutes on their books. Some provide criminal sanctions. Almost all provide monetary damages, but in different amounts, and usually not as generous as in the United States.

What steps can a company take to safeguard against international trademark disputes?
It’s important for a company that is just developing its brand and trademarks to select a mark that is acceptable in prospective international target markets. Assuming a company can trademark its goods, it’s important to register the marks promptly. This is particularly important for companies that don’t have very large budgets because most countries follow the first-to-file rule. Also, a company should consult with legal counsel that has international trademark experience.

JONATHAN STERN is an associate in Alschuler Grossman Stein & Kahan LLP’s Entertainment & Media Department. Reach him at (310) 255-9138 or jstern@agsk.com.

Thursday, 21 September 2006 07:11

Business leadership

Effective leadership is a requirement for the success of any business venture. A business strategy must be communicated with conviction. Ethical practices should be on display rather than tucked away in a handbook.

While there are many styles of leadership, ranging from team-oriented to dictatorial, sometimes the best approach is to be flexible.

“I don’t think there is any one best leadership style,” explains Don St. Clair, vice president for enrollment management and marketing and adjunct faculty member of organizational leadership at Woodbury University. “The smart leader surveys the situation, surveys the organization and then chooses the style that is most effective for that moment.”

Smart Business spoke with St. Clair about what makes a good leader, how a person can improve his or her leadership skills and how an organization should groom leaders for the future.

What are some of the characteristics of an effective leader?
Effective leaders need to be able to communicate well and need to have a clear vision of what they want their organization to do. Also, they need to have good organizational skills, they must be very courageous, and they have to be highly ethical.

What type of leadership style tends to be the most effective?
One camp says that there is a best style, which is a team or coaching leadership type of approach. This involves a high regard for the person being led and there’s a focus on task orientation. The other camp favors situational leadership. I favor the approach which says there is not one best style that is effective. The style of leadership that’s most effective is dependent upon the person you’re leading, the organization you’re leading or the circumstances in which you’re leading.

How can a person enhance their leadership skills?
This is another area where there has been a great deal of study over the past 50 years. One camp thinks leaders are born. We’ve all heard of born leaders and may think of people like John F. Kennedy, Mother Teresa, or Michael Jordan. There’s another group, however, that thinks leadership can be learned. I think there is a middle-ground that you can take here. There are certain characteristics that we’re drawn to such as people who have a vision, have the ability to communicate their vision clearly, are honest, and have a good ethical compass. Some people are born to some extent with those characteristics. However, these characteristics are also ones that can be learned to a great extent.

How important is it for a leader to lead by example?
There’s simply no substitute for alignment of words and actions. We’re in a day and age, where more than any other time in human history, what we do is on public display. I remember as a child sometimes people would say to me, ‘Do as I say, not as I do.’ I knew even as a child that was a losing proposition. You have to demonstrate leadership. No matter what you say, what you do speaks much louder.

What advice would you give about tailoring one’s leadership style to accommodate individual differences within an organization?
This is really hard to do and it requires a great deal of commitment and work. One of the reasons it’s so hard to do is all of us have a preferred style of leadership that is second nature to us. We may be very directive or even dictatorial. We may be very easygoing or team oriented. It’s important to recognize when a style works and when it doesn’t. Go back and do an inventory on when your preferred style hasn’t served you very well. You have to be perceptive enough to recognize what your preferred style is, when it hasn’t worked well, and then be flexible enough to adapt that style when necessary.

How can an organization most effectively groom future leaders?
It’s important to look at people who are good at what they do; they could be proficient in sales, marketing, customer service, strategic planning or any function of your business. Then it’s important to develop their leadership skills which can be accomplished two ways. I’m a big fan of mentoring. The best way to teach future leaders is one-on-one. Also, you can have people engage in formal education through degree programs in leadership and seminars on leadership. A combination of structured education in leadership and management skills, along with mentoring, is the best formula.

DON ST. CLAIR is vice president for enrollment management and marketing and adjunct faculty member of organizational leadership at Woodbury University. Reach him at don.stclair@woodbury.edu.

Tuesday, 29 August 2006 20:00

Intellectual collateral

A company’s intellectual property can often be one of its most valuable assets. This is especially true for high-tech companies.

For instance, intellectual property is particularly prized by computer software developers who have copyrighted their software and by life science firms that design proprietary products.

The value that intellectual property provides shouldn’t be viewed strictly in revenue terms. It can also serve as collateral to secure various types of financing. Of course, lenders require legal documentation to prove that these assets are, indeed, proprietary.

“If a business is interested in leveraging its intellectual property by offering it up as collateral for a loan, that business owner should ensure that it is properly patented, trademarked, copyrighted, et cetera,” says Bonnie Kehe, senior vice president and regional managing director for Comerica Bank’s Technology & Life Sciences Division.

Smart Business spoke with Kehe about how value is assigned to a company’s intellectual property, the steps a business should take to secure a loan with these assets and why an increase in this financing option is a good sign for the tech sector.

What types of businesses use intellectual property as a financing option?
Businesses that have a valuable portfolio of intellectual property, such as a software company. A medical device company, where the technology is its own and employees have actually designed and developed the product.

Most companies have some sort of intellectual property, such as trademarks. Also, there can be value in a branded name, which is intellectual property.

How do you assign value to a company’s intellectual property?
It’s typically a subjective valuation, and it’s based on a variety of factors. For example, if you can project future cash flow based on the sale of a product that is your own, like software, then you can come up with a value of that intellectual property.

In the situation where a company has institutional investors, like venture capitalists, then the investors have likely assigned a value to the company in connection with a recent financing.

The third way would be independent intellectual property appraisers that institutions hire to value a company’s intellectual property portfolio. Again, the valuations are based on a lot of different matrixes, including discounted cash flow.

How important is it for CEOs to look after intellectual property, not only as a legal asset but also as a financial asset?
If the company is planning on leveraging its intellectual property portfolio or if intellectual property is integral to its business, then it’s very important.

The CEO or business owner should ensure that it’s legally registered and properly protected.

What are the first steps to securing a loan with intellectual property assets?
There has to be some matrix for assigning some sort of valuation, even though it may be a very subjective valuation. If it’s just a brand name that the company is looking to leverage, there are some lenders that will lend against brands.

What’s key for other lenders is that the intellectual property is adequately protected — it’s registered, it’s patented.

Software needs to be not only copyrighted but also registered with the Library of Congress. So there is a two-step process with the registration and copyright of software.

Also, the business should work with intellectual property attorneys because there are a lot of law firms that have special practices specifically related to intellectual property.

How common is it to lien intellectual property when making a loan?
In middle-market lending, it is not terribly common. It is very common if a financial institution is banking a technologically driven company, meaning a company that is deriving a part of its revenue from its intellectual property.

Do you expect to see an increase in using intellectual property for financing options?
We hope so, because it’s indicative of a strong technology market. With the dot-com bust, the entire tech sector was in a trough from 2000 to 2004, and we’re now just beginning to see some activity. The sector is here to stay.

It’s the future, both on the life sciences side as well as the information technology side. We would hope to see continued growth in the financing of tech companies. A lot of it is going to be an economy- and industry-driven phenomenon.

BONNIE KEHE is senior vice president and regional managing director of Comerica Bank’s Technology & Life Sciences Division. Reach her at (714) 433-3266 or bekehe@comerica.com.

Wednesday, 30 August 2006 12:42

From one black box

It’s hard to imagine the modern-day office without the technological advancements that have taken place in the past couple of decades. For example, can you picture yourself running to the fax machine or stuffing an envelope every time you need to correspond with the outside world? It’s easy to forget that, prior to the advent of e-mail, that’s how things worked. Or can you fathom having to locate a land line to check messages while away from the office? That was the harsh reality before cell phones burst onto the scene.

Of course, the idea of using several different devices to communicate may seem quaint before long. Unified messaging offers the enticing prospect of simplifying communication methods while saving time. Hormazd Dalal, president of Castellan Inc., believes the rise of unified messaging will reshape the way that office communication is handled.

“I think it will be mainstream before the end of the decade,” he says.

Smart Business spoke with Dalal about how unified messaging can add to the productivity of employees, the type of software that he expects will take unified messaging mainstream and what advances he envisions in the future.

What is unified messaging?
Unified messaging is the convergence of the different forms of messaging. It brings e-mail, voice mail and faxes into one inbox. Benefits include the ability to have your e-mail read to you from a phone, retrieving your voice mail from your e-mail inbox, or retrieving either from a remote device. It unifies the entire process into one mailbox so you can check your e-mail, voice mail or faxes at the same time.

How will unified messaging add to employees’ productivity?
Currently, most communication is done by the phone, through voice mail or e-mail. To retrieve these messages a person must either log onto a computer or dial into the office to retrieve voice mail. This is time consuming. Employees will be far more productive if they can just go to one place and see all communication in one area — be it voice, fax or e-mail.

What software will make unified messaging mainstream?
Today, Microsoft Exchange has the largest market share for messaging servers in the business world. We believe that the next version of Microsoft Exchange combined with Microsoft’s commitment to unified messaging will make it mainstream. Microsoft has also indicated that it will be going into the phone business. It has agreements set up with companies like Samsung and Nortel, so you’ll be able to purchase a phone system that will integrate seamlessly with your mailbox and likewise.

When the product that has the largest market share makes unified messaging an added feature, at no additional charge, I think it’s safe to say that unified messaging will be compelling enough that no one is going to leave it by the side.

When do you anticipate unified messaging becoming mainstream?
Certainly by the end of the decade. The next version of Exchange that supports unified messaging will be released early next year. Unified messaging will be one of the compelling features that will make people want to upgrade.

As usual, it takes about two years for a new technology to start getting deployed in the marketplace.

What types of questions should a business ask vendors when exploring a unified messaging solution?
You want to know if the vendor has the correct skill set. It’s important that he or she has worked with both messaging systems and voice systems. Whether it be a Cisco voice system or any other IP-based phone system, the person must show familiarity with both and understand conceptually how the unified messaging system works. You will want to ask the same types of questions that you would ask of any vendor to test his or her knowledge of the solution you’re looking to deploy.

What do you see in the future for unified messaging?
In another five to six years, we’ll probably be able to retrieve or communicate with people from practically any device. It could be a device in your pocket that’s doubling as a unified messaging client and your cell phone.

As third-generation wireless networks begin to be deployed in the United States, as well as globally, workers will be able to retrieve unified messages from any device; typically one that is in your pocket or in your car.

HORMAZD DALAL is president of Castellan Inc. Reach him at (818) 789-0088, ext. 202 or hormazd@castellan.net.

Thursday, 27 October 2005 20:00

Growth through deductions

In October of 2004, President Bush signed into law the American Jobs Creation Act, which includes a tax benefit for certain domestic production activities. The production activities that qualify run the gamut, from software development to construction of residential and commercial buildings to engineering and architectural services.

One common thread that runs through the legislation is that the goods and services must originate in the United States. That’s a stipulation that can benefit middle-market manufacturers that don’t have global operations scattered across the world, says Colleen Taylor, a senior manager at Vicenti, Lloyd & Stutzman LLP.

“The spirit of the law was designed to help out small manufacturers that are engaged in domestic production,” she says.

Taylor spoke with Smart Business about how businesses can take advantage of the new law and why it is crucial for manufacturers of all sizes to educate themselves about the changes.

What is the underlying goal of the new tax deduction for manufacturing activities?
Primarily, this tax deduction came as a result of a repeal of the Extraterritorial Income Exclusion. That exclusion was ruled as an illegal subsidy by the World Trade Organization about four years ago, and the American Jobs Creation Act of 2004 provided for the new deduction for U.S production activities. It is designed to give U.S. manufacturers a break for domestic production activities versus going overseas.

What steps can a business owner take to capitalize on the tax changes?
The number one step is to identify what their domestic production gross receipts are and to determine if there is an allocation that is going to be required. The new deduction is effective for the period beginning after December 31, 2004, so anyone with domestic production activities in the year 2005 would definitely be able to benefit from this.

Businesses need to start doing their homework, as far as identifying domestic gross receipts versus other gross receipts. Also, they have to identify the costs related to those domestic gross receipts. The best thing to do would be to read some of the guidebooks put out by the U.S. Treasury Department.

They can go to the U.S Treasury Web site to get guidance and look at the fact sheet on Section 199, which provides a really good overview. This is a good place for manufacturers to get started to see if this affects them and what steps they should take.

What constitutes manufacturing activities?
This law has been defined very broadly to include not only traditional manufacturing, but also engineering, energy production, computer software, construction activities and processing of agricultural products. It’s a very broad, broad range for manufacturing.

In what ways can a business benefit from these tax deductions?
Businesses as well as individuals, corporations, partnerships, trust and estates can take advantage of this credit. The deduction is based on the profit from domestic production activity and therefore the more they produce domestically, the more their deduction will be, up to a limit. They’re limited to 50 percent of the W-2 wages.

Congress has enacted safe harbors to ease the burden of calculations. Why is this so important to small manufacturers?
The small manufacturer is so overwhelmed. They usually don’t have the expertise in-house and a lot of times can’t afford to pay for somebody to do a lot of very difficult calculations. So Congress has provided some de minimis rules and simplified formulas to assist small taxpayers in determining their taxable income from the qualifying activity.

The de minimis rules, for example, state that if less than 5 percent of a manufacturers’ gross receipts are from nondomestic production, they are able to include their total gross receipts and they don’t have to separate it out. Also, they have simplified formulas for determining the W-2 wage limit. There are three different methods and there is a simple method that people can take advantage of.

The problem with the small manufacturer is that if the process is too difficult or takes too much time to calculate, they’re not going to take advantage of it. It’s important that small businesses talk to a tax professional and educate themselves so they can take advantage of the credit.

How will the deduction be phased in?
It’s going to be phased in over a period from 2005 to 2009. So for the years beginning in 2005 and 2006 it is 3 percent. For 2007 and 2008 it will be 6 percent. Then for years beginning after 2009 it will be 9 percent. There again, it is still limited to 50 percent of the W-2 wages.

Colleen Taylor is a senior manager at Vicenti, Lloyd & Stutzman LLP, a business consulting and CPA firm based in Glendora, Calif. She plans, directs and supervises accounting and consulting services for the firm’s corporate and individual tax clients. Reach her at (626) 857-7300, ext. 248 or ctaylor@vlsllp.com.

Monday, 31 July 2006 08:57

Thin client architecture

In the technology world, a thin client doesn’t allude to a client who’s been sweating on the treadmill. Rather, it refers to a system where the computer — the client — is configured with only the essential equipment.

Thin client systems are attracting the attention of businesses for several reasons. First, they offer a way to protect confidential data. Also, there is no need to fret about individual PCs passing viruses to other company PCs.

“The new-found interest in thin clients is because of the security and lowered total cost of ownership,” says Hormazd Dalal, president of Castellan Inc.

Smart Business spoke with Dalal about why a company would want to pursue thin client architecture, what types of businesses can benefit most and how he sees thin clients being used in the future.

What are thin clients, and how do they differ from PCs?
A thin client is a device that typically does no processing and accesses a server where all of the applications and data reside. There are no programs or data on the thin client. It provides access to a virtual desktop on a centrally located server that allows users to function. A PC has its own hard drive and a processor fast enough for it to run applications locally, which requires the software to be managed.

How do thin clients compare price-wise to PCs?
In today’s marketplace, thin clients are around the same price — if not, in certain cases, a little more expensive than PCs. Thin clients are more specialized products and they tend to cost between $600 and $800, whereas today you can buy a PC for the same price with an operating system loaded and ready to go.

Why would a company want to pursue thin client architecture?
The primary reason would be for management purposes. If the cost of acquiring the hardware is the reason for pursuing this type of architecture, then it would be the wrong reason. You want to go with thin client architecture because of manageability issues — there is no management required on thin clients. You don’t have to worry about virus protection, you don’t have to worry about data on the thin client, and you don’t have to worry about a broken application on the thin client. It all resides on a backend server.

What security and maintenance advantages do thin clients offer?
You never have to reach out to the thin client to do any security or maintenance issues. Typically, you do all this on the server. Thin clients are not vulnerable because there is no activity on them.

What types of businesses are most likely to use thin clients?
Large organizations and any organization with multiple sites. A large organization has management issues that an organization with just 20 or 30 users does not have. When there are multiple sites, you can have one centrally managed location where hundreds or thousands of thin clients can be accessing their desktops from all over the world. This allows for everything to be managed on one server, or for a cluster of servers to be load-balanced to handle the volume of users.

Thin client architecture has been around for some time. Why is there a new interest in this old concept?
It’s an old concept because, in the days of the mainframe 20 or 30 years ago, that’s how most people computed. Large organizations had a dumb terminal that would access a session on the mainframe. Then as PCs became easier to use with graphical interfaces, there was a logical shift toward client server architecture. Technology was developed to allow the management of remote PCs so that users could function with the latest graphically oriented software.

Today, with Citrix and Microsoft’s terminal servers, a thin client can enjoy the graphical user interface (GUI) that was not available with the dumb terminal of the past, allowing the management and security advantages of centralized computing.

What do you see in the future?
I see the future of thin client architecture taking off. We deploy terminal services to many of our customers. However, they don’t necessarily use a thin client. They’re using a PC, but that PC isn’t required to do anything. The drawback of a thin client is that it won’t do anything on its own as a standalone machine, whereas if you buy a PC it can be used as a thin client and also as a standalone device.

The architecture and concept of thin clients are taking off, but I don’t think the actual use of a thin client machine will become mainstream for awhile. This is because they are not necessarily cheaper. People will still pursue the architecture, but they will use the regular PC as the client.

HORMAZD DALAL is president of Castellan Inc. Reach him at (818) 789-0088, ext. 202 or hormazd@castellan.net.

Friday, 30 June 2006 09:44

Accountants be advised

Ben Franklin once famously said, “Nothing in life is certain except death and taxes.” While certainly unavoidable, both can be kept at bay to some extent. Whereas healthy habits can help keep the Grim Reaper from making a premature visit, keeping attuned to the shifting tax code can reduce outlays to Uncle Sam.

Following changes to the tax code is important for businesses and individuals alike, says Mary Ann Quay, co-managing partner of Vicenti, Lloyd & Stutzman LLP. “You need to plan ahead, be aware of what’s going on and then determine whether or not it affects you,” she advises. “If it does affect you, you need to maximize that deduction or benefit before the end of the year.”

Smart Business spoke with Quay about the recent changes to the tax law, why these modifications were made and what businesses should know about the Section 179 deduction.

What are some of the recent changes to the U.S. tax law?
The new law that was signed by President Bush on May 17 has a lot of significant changes in it. Its biggest impact is keeping the tax rate on investment income — capital gains and qualifying dividends — at a very low rate. The rates on this type of investment income were scheduled to increase in 2009 and the new law has extended the current low rates through 2010. The second significant item that affects individuals is the exemption for the alternative minimum tax has been increased for 2006. This is just a one-year change, however, and the anticipation is that there will be more legislation later to address the problems we currently have with this type of tax.

Another big change for individuals has to do with Roth IRAs and high-income tax payers. Under the old law, if you were a high-income taxpayer, which is over $100,000 of income, you could not convert a regular IRA into a Roth IRA. After 2009, high-income taxpayers will be able to convert their IRAs into Roth IRAs if they choose to do so.

The new law also allows the income that is recognized on a conversion done in 2010 to be spread out over two years. Normally, all of the income has to be recognized in the year of conversion. The one major item that affects businesses is the Section 179 deduction.

How can a business take advantage of the Section 179 deduction?
This is a special deduction that allows businesses to immediately write off expenditures that they make for capital items. Under normal procedures, you would have to capitalize them on your books and take depreciation, which means write them off over a number of years. Instead, you can now purchase up to $100,000 of equipment, furniture, fixtures or computers and immediately write them off.

This law has been around for awhile, but the new law allows it to continue at the $100,000 level, adjusted for inflation, instead of dropping back to $25,000, which it was scheduled to do in 2008. This is indexed, so in 2006 the amount that can be deducted is $108,000 and, presumably, that will go up for the next few years.

Why were the changes to the tax law made?
This is part of a comprehensive bill that was started back in 2005 by Congress. A lot of things that should have been included in the bill got left out because they couldn’t agree. There are expectations that there might be some stand-alone legislation later on this year that would address some of these things. For example, state and local sales tax deductions as well as some other popular deductions and credits.

What changes have been made to the Domestic Production Activities Deduction?
This is a special deduction for manufacturers and other businesses that produce goods and services here in the United States. Prior to this year, the amount of a deduction could not exceed the W-2 wages that you paid for the year. Now, the deduction can not exceed 50 percent of your wages that are allocable to domestic production. This will reduce the amount of deductions that a business can take.

Why is it so important for companies to stay abreast of changes to the tax code?
All companies are concerned about the bottom line. Any thing you can do to decrease your taxes is going to make that bottom line better. Frequently, these tax code changes are very complicated, and in many cases they only affect a small number of companies. But if they do affect your company, they can potentially have a large effect on your cash flow and your taxable income.

MARY ANN QUAY is co-managing partner of Vicenti, Lloyd & Stutzman LLP. Reach her at MQuay@vlsllp.com or (626) 857-7300.

Friday, 30 June 2006 08:31

Is it for the birds?

Historically, influenza pandemics have occurred three to four times each century. With the last one taking place nearly 40 years ago, health experts agree that another is inevitable. Some believe that avian influenza, an infectious disease of birds, will be responsible for the next human plague. Of the 15 avian influenza virus subtypes, H5N1 is of particular concern because of its ability to mutate quickly.

Fortunately, it is improbable that the strain will surface on American soil without advance warning, says David Pegues, professor of clinical medicine at the UCLA Medical Center. “We’re planning for something that nobody knows when it will strike or how severe it will be. These viruses come from China and the Far East, so we’ll have a matter of weeks or months to increase our preparedness.”

Smart Business spoke with Pegues about how the pandemic is being tracked, how businesses should prepare for an outbreak and the challenges involved with distributing effective vaccines.

How serious is the current pandemic risk?
To date, there have been just over 200 cases reported in humans since 1997, although the case fatality rate (over 55 percent) is high. In contrast, each year about 7.5 percent to 8 percent of all deaths in the United States are related to seasonal influenza or pneumonia. I think this puts things into perspective.

Right now, there is very little evidence that supports direct person-to-person spread of avian influenza. These are bird-adapted, not human-adapted, viruses. But the possibility remains that these viruses could adapt, change and become easily contagious to humans while retaining their ability to cause high fatality rates.

What would be some warning signs that a pandemic is about to start?
The warning signs would be based on laboratory detection, or what we call laboratory surveillance. The WHO (World Health Organization) along with the CDC (Centers for Disease Control and Prevention) participate in a worldwide network of laboratories that identify and characterize, or type, influenza strains. It would be on the basis of this laboratory surveillance network that we would identify the emergence of a new influenza virus strain and — very early on — know that we’re dealing with a potential pandemic.

What policies can be implemented to help stop the spread of a deadly virus?
When you’re coughing, cover your mouth with your hand.

When you’re sneezing, cover your mouth with a tissue.

Always clean your hands with soap and water or alcohol hand gel after coughing or sneezing.

The other commonsense thing is to avoid going into a workplace when you’re ill with an influenza-like illness: fever, cough and muscle aches. Employees who go into work sick have the potential of transmitting the infection to coworkers as well as to people in the community at large during their commute. The best thing you can do when you’re sick with a flu-like illness is to stay home.

How should a business owner prepare for an outbreak?
First, focus on what you do and the business that you’re in. Who are your essential employees? Who are your suppliers? What is the potential implication on your business plan?

For us in the health care industry, our essential employees are the direct caregivers, the people who keep the hospital running and the people who supply our critical patient-care supplies. We’ve identified the supplies that we need in order to keep people alive in an influenza pandemic and determined how we will run our business if a pandemic strikes. We’re going to shut down and stop delivering services to all but the most critically ill. Elective services will be stopped and patients will be discharged from the hospital whenever possible to alternate care sites or home.

The other thing that we work on regularly at the hospital is a disaster drill. If you have a plan but it’s just on a piece of paper, it doesn’t really serve anyone’s best interest. Businesses not only need a preparedness plan, but also need to know how and when to implement it.

What are some challenges that health officials are faced with in developing and distributing an effective vaccine?
The first thing that we’re trying try to do is predict what the pandemic flu strain will be. There is a great risk involved in our current strategy of manufacturing millions of doses of vaccine against the current avian influenza strain, because many think that this is not likely to be the strain of virus that adapts, circulates and causes a pandemic. It doesn’t do much good if you have 40 million doses of avian influenza vaccine and it’s not the avian influenza strain that causes the pandemic.

What we’re really focusing on right now is looking at new ways to more rapidly produce, and get out on the market, effective influenza vaccines once the pandemic strain is identified.

DAVID PEGUES is a professor of clinical medicine at the UCLA Medical Center. Reach him at DPegues@mednet.ucla.edu.