Bridget McCrea

Wednesday, 30 August 2006 09:48

Corporate responsibility

With scandals involving companies like Enron, WorldCom and HealthSouth screaming from the pages of the business section, it’s no wonder that firms of all sizes — and across all industries — are turning their attention to corporate responsibility and ethics.

“It’s a huge issue right now, due to the failures of some very large organizations,” says Jerry Strawser, Ph.D., dean of Mays Business School at Texas A&M University in College Station. “And while the scandals involved some very large corporations, there were some fundamental issues with their governance structures that would have been prevented with the kind of best practices that any company should have in place.”

Smart Business spoke with Strawser about how to create an ethical, responsible corporation in today’s business environment.

What’s the first thing a company should know about corporate responsibility?
No matter how large or small the firm is, the first step is to set up a good system of controls. In the past, small to midsize companies have thought of these controls as only being for the big guys. Smaller firms thought they knew all of the elements of their operations, employed trusted workers and had effective processes in place. So while the fraud that makes the headlines did take place at large corporations, fraudulent activities occur in companies of all sizes.

How can a company ensure that it’s operating responsibly?
It all starts with hiring. If you bring in people of character and integrity to start with, a huge part of the battle can be fought and won at the outset.

Technology is making this easier.

Before so much information became available on the Web, a company would have to hire a consultant or group that could help conduct background checks on prospective employees. Now, this can be done in a much faster, convenient way that helps unveil any ethical or work issues that employers should be aware of.

A good whistleblower program is also necessary, as is protection for people who report unethical conduct and breaches in the code of ethics. It doesn’t do any good to have a whistleblower program if management doesn’t act on it, and it doesn’t do any good to have that if people get punished.

Where do businesses run into challenges with corporate responsibility and ethics?
The expense is a challenge. To put controls and governance mechanisms in place costs money. Right now, for example, the nation’s largest companies are saying that the costs of Sarbanes-Oxley compliance outweigh the benefits of it by a large multiple. For smaller firms, it can be even more expensive, relative to their revenues.

What are the benefits of running a responsible, ethical firm?
The main benefit is almost impossible to measure. Compare your stock price today to what it would be if you didn’t have an auditor who examined your internal controls and said that they were effective. Compare what your company would look like and operate like if your management didn’t go through and do the required assessment of controls compared to what it looks like and operates like now. The problem is we don’t have that other information. Ultimately, research will probably find that the value of Sarbanes-Oxley for organizations will translate into higher public confidence in the stock market.

A company that’s looking to go public, for example, could likely get a higher offering price for its securities because of the increased confidence of investors brought on by Sarbanes-Oxley.

How are business schools teaching these values?
One model is for students to take courses in humanities (particularly philosophy courses) to understand how ethical reasoning works and what factors contribute to different types of ethical behavior.

Other models are used by schools that are doing a course in business ethics that addresses various ethical dilemmas. Our school devotes a week to ethics education as it relates to specific areas within business in each of our core courses (such as accounting, finance, management, management information systems, and supply chain). That means students in finance courses learn about the issues that have happened in the investment industry, while those in marketing courses will discuss issues such as products and product warranties, and so on.

This type of education reinforces to the students that ethics isn’t just something that happens in one area, and that it’s critical across the board. It also teaches them about the fraud that has taken place at large organizations, and the criminal prosecution and job losses that took place as a result of those fraudulent activities.

JERRY STRAWSER, Ph.D., is dean of Mays Business School at Texas A&M University in College Station. Reach Strawser at (979) 845-4172 or

Friday, 30 June 2006 09:57

Using ESOPs to minimize taxes

In today’s competitive business environment, no company can afford to have uninterested, unproductive workers on its team. And while some firms opt for incentive programs and other perks to keep employees motivated and productive, others have found the answer in an innovative ownership structure known as an “ESOP,” or employee stock ownership plan.

At their simplest, ESOPs are tax-qualified, deferred-compensation benefits that make the employees of a firm the beneficial owners of its stock. ESOPs are unique in that they’re the only corporate entities required under U.S. tax and labor laws to invest primarily in the securities of the sponsoring employer. They’re also the only employee retirement savings plan that may use borrowed funds to acquire its asset, the employer securities.

“We’ve seen a major increase in the number of companies interested in forming ESOPs,” says Glenn Gelman, managing director at Glenn M. Gelman & Associates CPAs. “They not only provide significant tax benefits, but they also serve as an effective management tool, helping companies motivate their workforces to higher levels of productivity.”

To help, Smart Business spoke with Gelman about the tax benefits of ESOPs and how companies can take advantage of them.

What’s driving the growth of ESOPs?
In 2000, the IRS ruled that S-Corporations owned by ESOPs are essentially free of federal taxation. That increased significantly the number of firms interested in doing 100 percent ESOPs within their S-Corporations. Today, literally thousands of companies nationwide are ESOP-owned.

Currently, about 11,000 ESOPs are in place in the U.S. (up from 5,000 in 1987), covering 10 million employees, or 10 percent of the private sector work force. These employees draw in excess of 3 percent of their total compensation from ESOP contributions.

According to the ESOP Association, about 7 percent are publicly traded companies, and 25 percent are in the manufacturing sector, followed closely by construction and distribution.

What tax benefits can a company expect from an ESOP?
An ESOP plan is a form of a defined benefit pension plan, with the major difference being that the only investment that the pension plan can have is the stock of the employer. That makes an ESOP different than any other pension plan, and the tax benefit is tremendous because the seller of the shares (or the majority shareholders) can defer the gain on the sale of their shares to the ESOP by rolling over the proceeds into domestic securities.

Many times these shareholders are older, and should they continue to hold the replacement property indefinitely, when they pass away that replacement product would get stepped up in basis. At that point, there would be no income tax whatsoever on the transaction. If the owner sells 100 percent of his or her shares to the ESOP, and if an S-Corporation selection is made, then that selection creates a non-taxable environment that the company can operate in forever.

What does a company need to think about before forming an ESOP?
For starters, it would need to be a very profitable company that is seeking tax benefits as well as an exit strategy for the owner. The ideal ESOP candidate should have multiple employees and an owner who is looking for a long-term (as opposed to short-term) exit strategy.

How can a company introduce the concept to employees?
Employee education is critical to the ESOP’s long-term success. Tax advantages aside, another byproduct of an ESOP is that employees feel involved and think like company owners. As a result, they tend to save money and they are more careful in everything they do. They take on an entirely different level of ownership and attitudes about the products/services. They also pay more attention to their individual performance. This kind of buy-in can be a double-edged sword for the employer, who must keep those workers informed or risk having them feel left out.

How should a company launch an ESOP strategy?
It first needs to determine the value of the business by relying on a company that’s familiar with ESOPs and that handles business valuations. From this exercise, one should be able to determine hypothetically how much money the shareholders could get through the sale to an ESOP. If that money is ample — given the fact that it would be tax deferred and potentially tax free — and if it’s more money than the company could get by selling to a competitor or to an outside party — then owners should consider whether they would come out ahead in the long run by instituting an ESOP. Another benefit of selling to an ESOP is that owners need not disclose confidential information to a potential buyer who could turn around and use it to compete against you.

GLENN GELMAN is managing director at Glenn M. Gelman & Associates CPAs in Santa Ana, Calif. Reach him at (714) 667-2600 or

Wednesday, 29 March 2006 12:00

Consumer-driven health plans

Employers today are grappling with a host of health care-related issues, not the least of which is the rising cost of providing health care benefits for their employees. To solve the problem, some employers are turning to consumer-driven health plans, which put at least some of the risk and cost in the hands of those consumers who are dealing with issues like chronic diseases and epidemics like obesity.

With 95 percent of American medicine focused on treatment and only 5 percent on prevention, the movement to consumer-driven health care has been slow. “Up to 70 percent of all health care costs are related to chronic diseases, most of which are preventable with proper lifestyle choices and behaviors,” says Scott Lammie, senior vice president and CFO at UPMC Insurance Services Division in Pittsburgh. “It’s all about bringing together our members with their providers, employers and health plans to help drive positive behavior change.”

Smart Business spoke with Lammie about trends in consumer-driven health plans, how to tell if a high-deductible plan will work for your business, and the risks associated with such plans.

What trends are we seeing in “consumer-driven” health plans right now?

Recent reports indicate that approximately 3 million individuals nationally have signed up for one of these plans over the past two years. Consumer-driven health plans are more than just HSAs (Health Savings Accounts) and HRAs (Health Reimbursement Accounts), they’re also the high-deductible plans that wrap around those two vehicles. The average price to employers is generally 20 to 40 percent lower than the price of traditional comprehensive plans. Employer savings are dependent upon the purchased benefit, including employee deductible levels and employer HRA/HSA contribution levels.

What do you see as the key benefits of these “consumer-driven” plans?

Given the high percentage of health care costs related to chronic diseases that are preventable, environmentally-based and related to lifestyle decisions and behavior, the idea of consumer-driven health care involves providing information on cost and quality of health care to help drive behavior change on the part of the individual. Most people are unaware of the cost of the care that they receive, since many services are covered in full or with a minimum co-pay. In addition, they are often not aware of how their lifestyle contributes to high cost conditions.

How can a business owner tell if a high-deductible plan is right for his or her employees?

The employer’s goal should be to engage the employee and his or her family members in healthy lifestyle choices. HSAs and HRAs are tools that are available to employers and their employees to help facilitate some aspects of changing behavior, but an HSA isn’t going to cure diabetes. These vehicles must be augmented with high-deductible plans, which may be appropriate for employers who may not otherwise be able to offer insurance to their employees, and for individuals who wouldn’t otherwise be able to afford to pay the premiums for employer-provided coverage. The latter can secure this basic level of coverage, which is much better than no coverage at all.

Should employers offer a choice of plans?

Across the industry, roughly 70 percent of all health care costs are incurred by 30 percent of the members, which means 70 percent of the typical workforce will be relatively healthy and will not incur significant health care costs in a given year. When an employer offers a choice of plans, healthy employees will normally sign up for the high-deductible plans at lower employee out-of-pocket premiums. This means there will be a much lower premium base, previously funded by healthier employees, available within the traditional plan which still needs to fully fund the cost for the 30 percent of members who consume the majority of health care costs. As a result, employers wind up with adverse selection and altered risk pools among their multiple plans. An employer with 100 employees, for example, might contribute $1000 to fund an HSA account for each employee, of which $70,000 is funded for the benefit of their 70 healthy employees. Such funding is then no longer available to cover the current year health care costs for 30 employees consuming the majority of care.

What kind of cost savings or other benefits can an employer expect from a consumer-driven plan?

Over time, as you build employee incentives and rewards into the program, those employees will begin taking charge of their own lifestyle behavior, enrolling themselves in care management programs, and paying more attention to physical fitness programs, nutrition and diet. The anecdotal evidence is pretty clear in that many of these conditions could at least stabilize - if not reverse - over time. That leads to one of the best benefits for employers: a healthier, more productive workforce.

SCOTT LAMMIE is senior vice president and CFO at UPMC Insurance Services Division. You can reach him at (412) 454-7646 or

Tuesday, 28 February 2006 11:54

Putting the brakes on absenteeism

Absenteeism is one of the most significant employer issues that companies face today. The costs from unscheduled absenteeism can reach as high as $1.17 million annually for companies with 1,000 to 2,499 workers, and up to $2.16 million a year for those with 5,000 to 9,999 employees.

“Unscheduled absenteeism also affects employee morale and productivity, and can have an impact on the overall success of many companies,” says Sally Stephens, president of Spectrum Health Systems in Indianapolis. She estimates that many organizations set aside 3 percent of their budgets to compensate for absenteeism, which averages eight days per employee per year.

Smart Business spoke with Stephens about absenteeism, how it can hamper a company’s progress and what organizations can do about it.

How does high absenteeism affect company performance and progress?
Employers today are continually faced with challenges in managing costs, including the costs associated with unscheduled absenteeism. Unfortunately, unscheduled absenteeism will only increase with the increase in stress-related illnesses and the incidence of chronic conditions.

Productivity is affected when employees carry an extra workload, or when companies need to hire new or replacement staff, or when employees are required to train them. At that point, both staff morale and employee service may suffer. Financial costs include payments of overtime and the cost of replacement staff, while administrative costs include the extra staff time required to secure replacement or reassign staff.

What other impacts can absenteeism have on a firm’s growth?
As a company grows, the tendency toward higher rates of absenteeism increases. Women are absent more frequently than men, and single employees are absent more frequently than married employees. Younger employees are absent more frequently than older ones, but the latter are absent for longer periods of time. Unionized organizations have higher absenteeism rates than nonunion organizations.

How can a business reduce absenteeism?
Traditional methods of absentee control based on disciplinary procedures have proven highly ineffective.

The good news is that absenteeism can be controlled through attending to the physical and emotional needs of employees. Companies can also accurately track absenteeism, thus gaining insight into the root cause of absenteeism. Areas to examine include: whether absences are seasonal, or occur on certain days of the week; individual employee history; reasons for absenteeism; and dollars associated with absenteeism.

One good way to attack the problem, for example, is by implementing policies on causal absenteeism, such as those that occur on Mondays (after a long weekend) or Friday (in anticipation of a long weekend).

Where do companies go wrong when it comes to absenteeism?
Too often they overlook the emotional and physical needs of their employees, and neglect to implement a comprehensive absenteeism-tracking program. Other areas of concern include improper implementation of policies and procedures on absenteeism, and not requiring managers and supervisors to speak with employees who were absent and have returned to work.

How can a company create an incentive plan aimed at reducing absenteeism?
To do this, firms must first create incentives for reduced absenteeism. For example, entice employees to cash in unused sick days, or dole out bonus pay for every month of perfect attendance. Companies may also want to reward workers based on their age, and just how difficult their specific job is to perform. The idea is to start with small incentives and work up to larger ones as needed.

How effective is an attendance policy?
A good attendance policy can go a long way in preventing absenteeism. Companies should also consider allowing managers to intervene with an employee who is frequently absent and investigate the prevalence of absences that might be related to personal problems such as alcohol, domestic violence or family issues (these can be referred to the employee assistance program). If absence is related to a medical problem you may have to consider allowing them to use benefits allowed under the Americans with Disability Act (ADA) of the Family and Medical Leave Act (FMLA).

Make sure you have an attorney review your policies to make sure they do not violate any state or federal labor laws. Another strategy is to implement a comprehensive wellness program that incorporates health improvement resources as well as services like a 24-hour nurseline or medical self-care education.

These benefits will support employees in improving the management of chronic conditions and general health, and help employers cultivate healthy workers who incur fewer absences.

Sally Stephens is president of Spectrum Health Systems in Indianapolis. Reach her at (317) 573-7600 or

Wednesday, 30 August 2006 18:19

Competing internationally

The number of American businesses sending their goods and services overseas has tripled since 1990. Businesses that don’t export are 9 percent more likely to fail in any given year than comparable firms that do, according to the U.S. Department of Commerce’s International Trade Association.

“If your market has matured in the U.S., you owe it to your business and your employees to think in terms of global markets,” says David Dietrich, vice president at the Family Business Center at NexTier Bank. “The first step is to create a strategic plan for entering a foreign market, while at the same time looking at where your company wants to be over the next few years.”

Smart Business spoke with Dietrich about the most effective steps that companies can take to successfully compete in international markets.

Why should a company be thinking about international business?
It’s something that American companies can no longer ignore. With their own markets maturing domestically, they simply have to look outside of the national boundaries in order to expand their pieces of a shrinking pie. Companies can’t create value unless they grow, and that goes for small businesses all the way up to large conglomerates, and everyone in between. If the proper growth patterns aren’t created, then the company will become worthless. International business is one of the best ways to make sure that doesn’t happen.

How can companies compete effectively in the international arena?
They need to develop a plan and budget right in the very beginning. That means looking at the business strategically and figuring out where they want it to be within the next three, five and 10 years. From there, they need to determine where the international business fits into the existing operations, and carefully allocate resources, talent and opportunity to that new facet of their company.

Due diligence and homework are critical, and must be done on every country and opportunity that presents itself. Businesses also need to understand that those opportunities won’t present themselves, and they have to reach out and grab them or risk being overlooked or passed by.

How can a company find opportunities overseas?
You can attend trade shows and trade missions or seek out less developed nations that are in need of American products and/or services. The opportunities for growth in the latter are just tremendous, but penetrating these markets requires more due diligence because they can be risky to do business with. Check out all of the background nuances and technical issues that could affect how you do business with customers in that country, including export customs duties and the rules and regulations that come with selling products and services there.

Does that apply to both product and service businesses?
There are opportunities for both product and service businesses in developing nations, with technical areas like engineering and environmental sciences in particular demand right now.

How important is it to have incountry local partners when transacting business on a local basis?
It’s critical. Get involved with local partners who know the lay of the land and can help you navigate the international trade waters in their respective countries. An export consultant or export management company can serve as your liaison and walk you through the intricacies of selling goods and services in their area of the world. This is particularly important in nonEnglish-speaking countries, where language barriers can quickly turn into major challenges for American firms.

The biggest challenges come when a company doesn’t adequately prepare for its international launch. Things to be aware of include cross-cultural differences, exchange rates, political issues and the certification requirements (such as product certifications of authenticity) of different countries, each of which likely has its own criteria.

Where can a company go for help?
Once a firm has determined the right strategy and assessed the market potential in the country of choice, it can hire a consultant or participate in an overseas trade mission sponsored by the Department of Commerce or a state export development program.

What advice would you give a company that needs help competing internationally?
Companies need to protect their intellectual property and develop a strategy from country to country on how to do that successfully (using copyright laws, for instance). And while there is no 100 percent guarantee that your product or invention won’t be knocked off, morals and ethics vary from country to country and need to be taken into account when doing business overseas.

DAVID DIETRICH, Ph.D., is vice president of the Family Business Center at NexTier Bank. Reach him at (888) 829-2162 or

Wednesday, 30 August 2006 16:42

Engaging the experts

In today’s increasingly litigious business environment, lawsuits are fairly commonplace. Those involving financial and accounting practices are particularly prevalent, according to Glenn M. Gelman, managing director at Santa Ana-based Glenn M. Gelman & Associates CPAs, who advises companies involved to seek out reliable, expert witnesses for support when making their cases in court.

“When businesses enter into litigation,” says Gelman, “their attorneys often have to retain an expert in the field of accounting or finance to help support the calculation of any damages that result as a byproduct of the litigation and to present financial evidence in accordance with court procedures.”

Smart Business spoke with Gelman about how companies can go about engaging reliable witnesses, and the challenges they face in doing so.

How are expert witnesses used in the financial and accounting fields?
Lawsuits commonly occur between shareholders in a corporation where one wants to leave the corporation by being bought out. The absence of a predetermined buy-sell agreement valuation creates an automatic conflict. There can be accusations of a breach of fiduciary duty between the shareholders. For example, the minority shareholder may claim that a majority shareholder has breached his or her fiduciary duty to the minority to protect the value of his or her investment and/or mismanaged the corporation.

Many business lawsuits are brought by creditors who will accuse the controlling shareholder of using the corporation as a personal pocketbook. In other cases, creditors will sue corporations and try to pierce the corporate veil by stating that the corporation is nothing more than an alter ego of a shareholder. These claims are often proven using expert witnesses — accountants, CPAs and financial professionals — who find proof that the corporation didn’t follow corporate protocol, and that it was indistinguishable from its shareholder in terms of its actions.

The best way to avoid this type of lawsuit is to keep annual minutes, document all board meetings, and treat the closely held corporation at arm’s length.

How should a company go about engaging an expert witness?
First, it needs to hire a proper attorney to handle its case. If it’s a business lawsuit, for example, the company must hire a litigator who has experience in that specific type of litigation. The chosen attorney will generally use certain experts repeatedly, knowing that they have expertise in a specific field.

You want someone who has testified in court many times, and who is considered independent. You don’t want someone who is a hired gun that would say or do anything depending upon who is paying the fee.

What challenges do companies face when using expert witnesses?
When companies enter into litigation, they can quickly find themselves in unfamiliar territory and relying on an attorney to manage the process for them.

Legal fees begin at about $10,000 for the most basic cases. On top of that, the client is usually surprised that the attorney has to hire an expert to calculate the impact of any financial result of the lawsuit. If a minority shareholder sues a majority shareholder, for example, then the attorneys would need a CPA to testify as to how they arrived at the damage amount. Lost profits calculations must be performed when a company goes under, due to unfair competition or acts of God such as floods and hurricanes.

There’s generally an expert for the person who files the complaint, and one for the person who responds to the complaint, and both charge their own fees for the work.

What advice would you give a company that needs an expert witness right now?
I recommend strongly that it avoid the use of ‘joint experts’ where both parties hire one expert to express an opinion. The joint expert has quasi-judicial immunity and cannot be sued. Generally, you want an expert who works as an ally to your attorney and is indirectly an advocate for your financial case.

However, you must keep in mind that those experts must stay independent. Clients shouldn’t try to influence them unduly or withhold payment from them to try to influence them, because in the court of law the expert is going to testify under the penalty of perjury and will be absolutely unwilling to ever impeach himself.

Experts also cannot rely upon hearsay, which means that they need independent facts that support the case and help them reach the most accurate financial conclusions possible.

GLENN M. GELMAN, CPA, MST, is managing director at Glenn M. Gelman & Associates CPAs in Santa Ana. Reach Gelman at (714) 667-2600 or

Monday, 31 July 2006 11:47

Legislative impact on health care

As our government struggles with the issue of how to handle escalating health care costs, several alternatives have surfaced as possible solutions. Where market reform stands as one of the most talked-about options, more extreme solutions like universal health care are also being discussed.

While individual businesses scramble to deal with their own rising costs, there is a bigger picture that should also be considered.

“Over the last five to seven years, there have been a lot of discussions about health care costs and who is going to pay for them,” says Joe Wise, senior director of government relations at UPMC Health Plan in Pittsburgh.

Smart Business spoke with Wise about how companies can stay on top of legislative activities and better understand the implications that those activities have on their health care options.

Why should companies be concerned with legislative activity that involves health care reform?
For starters, the tax implications on businesses are incredibly important as state budgets tighten, and as those look to the private sector more and more for their solutions. If companies aren’t fully engaged and fully focused on what their legislators are trying to do, both at the state and federal level, they may find themselves on the opposite side of a tax bill, single-pay or universal care health care bill — all of which have to be paid for. Inevitably, the government will look to businesses to help cover the expenses associated with those programs.

The present system is based on a public-private partnership. What we’ve seen over the past decade or so is an increasingly viable and productive relationship between government and the private sector to provide health care for the employees and the community at large. We’ve seen this system work here in Pennsylvania in terms of the dollars derived from public-private partnerships like the Pace program (prescription drugs for seniors), as well as Medicare and Medicaid. Through these programs, the public-private partnerships provide market-based solutions instead of having the government pay for everything.

What are some of the challenges of universal health care?
Right now the Canadian legislature is struggling to find money to support a government-backed health care system, and a similar situation is unfolding in Britain. The problem is that these systems often wind up with major backlogs from the patient’s perspective. If it takes four to six months to get a basic heart operation, then the cost to society comes not only in dollars, but also in lost productivity.

Universal health care can also wreak havoc on the provider landscape. For instance, many Canadian physicians are looking to leave their system and come to the U.S. because they’re fed up with the universal care system.

Yet another challenge is, ‘Who pays for all of this?’ The issue is particularly important for businesses, which may be called upon to help support a system because the government simply cannot pay for everything.

How do the costs of market-based reform compare to the costs of having a government-run system?
Universal care may sound like a great one-size-fits-all solution for companies in theory, but it’s not. In looking at the total cost of supporting such a system, the government will pick and choose what it can pay for and how soon it can pay. Where companies will feel the greatest impact is in lost productivity, since the government will offset the billions it pays out every year by limiting access through these means, and by making it difficult for companies to keep their work forces healthy and productive.

What can a company do to provide its workers with affordable, quality care options that best suit their needs?
Businesses need to be fully aware of what’s going on at both the state and federal level. What is their state representative doing? What legislation is out there right now that could impact their business? How is it going to impact their business? It’s a matter of becoming more aware and realizing that this isn’t a situation where you can sit back and say, ‘Here’s our problem, you fix it.’

Companies must become a part of that solution by activating themselves now, as opposed to waiting two or three years down the road when a single-care or universal care system is foisted upon them.

What has the insurance industry done to jumpstart the process?
The insurance industry is working directly with the Pennsylvania governor’s office and the state legislature to help craft legislation that take into consideration the impact on the state’s businesses and on employees. The industry is also developing products that fit almost every employee through products like inexpensive, high-deductible programs.

JOE WISE is senior director for government relations at UPMC Health Plan in Pittsburgh. Reach him at (412) 454-5175.

Friday, 30 June 2006 09:55

No information overload

Technology is the great enabler; transforming small business communications in profound ways and helping companies achieve better results with fewer resources. Just a decade ago, although e-mail was emerging; most small businesses still relied on faxes and phone calls to conduct business. Processes were highly manual in nature, with technology only just becoming a “way of life” for most companies.

Ten years later, everywhere you look, technology is being deployed at both the personal and business level, and in ways previously unimaginable.

“The productivity impact of technology on businesses has been remarkable,” says Kevin Teeters, vice president of marketing at Mpower Communications. “Small businesses are no longer ‘local-only’ enterprises, and can choose to market their products and services globally via e-commerce Web sites.”

Smart Business spoke with Teeters about how companies can maximize their technology investments and fully utilize their capabilities.

How has technology changed the way we do business?
The Internet alone has created a broader universe of opportunity while reducing selling and back-office support expenses. Small businesses can collect and leverage information about customers, competitors and markets previously unavailable or available with high cost. They can then use this information to tweak their operations and better serve their customers, and wind up increasing profitability and building strong reputations in the process.

What challenges do companies face in trying to maximize their technology?
Technology can lead to information overload. With so much information at our fingertips, we’re overwhelmed when it comes to effectively managing and translating knowledge into productivity. Businesses pay a high price when they cannot manage their information. Estimates are that information workers spend as much as 30 percent of their time searching for information necessary to conduct business, at a cost of $18,000 each year per employee in lost productivity. A study from the University of California, Berkeley predicts that the volume of digital data we store will nearly double in the next two years.

How can companies work around these technology issues?
For a company to best manage its information and make smart business decisions, it has to first understand the implications of competing in a global market. Small and mid-sized firms need to adapt and leverage a new generation of communication tools that allow them to communicate with their customers, partners and analyze data quickly; and to use that information to drive intelligent decision-making. Concurrently, they must also share the knowledge that results across the enterprise and beyond.

What benefits can a company expect in return for these efforts?
Businesses must ask themselves: Relative to the highest performer in your industry, from a scale 1 (worse) to 5 (best), how has your business performed over the last three years in the following categories: financial, customer satisfaction, business process and innovation? Any business investment should have a scorecard view of how any change to how they are currently conducting business will affect their performance.

What tools are available to help companies do this?
Managed intranet/extranet services are now available that securely connect remote workers, partners, and customers to their pre-defined security level for files, applications and network resources via any Web browser. Secure intranet services are not new. However, what was previously available to the large enterprise, small to mid-sized businesses can take advantage of managed secure remote Web portals that provide centralized access to internal resources services, removing the need for IT management and hardware investment to do so in-house.

In addition, online Web meeting applications allow for simple, cost-effective, distributed meetings and provide rich tools that enable team members to work together.

What’s ahead for businesses looking to leverage technology in the next 10 years?
Businesses need to be able to manage the information they collect and translate this information into competitive advantages within their industry. The managed service provider will look to provide relevant Enterprise solutions for the small to mid-size business market. Smart workflow tools that help reduce friction points which hamper organizational agility. These tools will automate the movement of approvals, alerts and exceptions. They will also have the intelligence to recognize inefficiencies in existing processes and make improvements.

To enable these new tools, networks will be faster, computer processing will continue to increase, and data storage costs will continue to fall. Mobile devices will rival today’s desktop PCs for power and storage. Most important, managed service providers will provide application tools that tie it all together in ways which will be streamlined and intuitive in the way businesses use it.

KEVIN TEETERS is vice president of marketing at Mpower Communications. Reach him at (714) 453-6705 or

Tuesday, 16 May 2006 05:32

Creatively minimizing taxes

They say the only things guaranteed in life are death and taxes, and nowhere does the latter hold more true than in the business world, where everything from profits to payroll to purchases are taxed by various governing bodies. And with the IRS Tax Code only becoming more complex, what’s a business owner to do?

“Minimizing and managing income tax expense is an ongoing issue for any profitable business,” says Glenn Gelman, managing director at Santa Ana-based Glenn M. Gelman & Associates, “yet few companies actually take the steps required to reduce their tax burdens.”

Smart Business spoke with Gelman about some key strategies that companies can use to manage and minimize their tax obligations.

Why should companies be thinking about creative ways to minimize their taxes right now?
This is an ongoing concern for any profitable business that’s faced with the issue of reducing and managing income tax expense. Additionally, the IRS has increased the number of audits — and the quality of those audits — through automation, which means companies have to go about doing this in a legitimate, above-board manner, or risk having to pay hefty penalties and fines.

How can businesses go about minimizing their tax burdens?
The first step is to take advantage of the various types of pension plans that are allowable by IRS Code. You can chose from profit-sharing plans, pension plans, defined-benefit plans and others. All of these help reduce taxable income for an employer. And while companies are not allowed to discriminate in favor of highly compensated employees, there is a great deal of creativity that can be used by reputable, knowledgeable professionals in the profit-sharing/pension arena that allows for tax reduction for the employer.

What other strategies should companies be using?
They can also control the timing of income and use accounting methods to minimize their taxes.

If, for example, a firm is a cash-basis taxpayer, it can defer income from one year to another, thereby minimizing or delaying the tax. If the company pays taxes on an accrual basis, then it will want to be sure to accrue all expenses that it possibly can to minimize taxable income. The key is to use an accounting method that reflects the company’s taxable income.

Tax credits are another way to reduce tax burden. There are research and development credits, manufacturing credits, enterprise zone credits and other options, depending on the company’s line of business and location. Enterprise zone credits, for example, apply to companies that are located in (or, that have employees who live in) certain zones of a city or county that are defined as ‘tax favored.’ These firms are generally eligible for significant credit at either the federal or state level. To take advantage of these tax savings, business owners should work with an accountant who is familiar with the credits, and with the company itself.

Do businesses do enough to minimize their tax burdens, or not?
They don’t do nearly enough to plan for the current year, nor do they implement long-term tax strategies that can help. This is a major weakness, especially among smaller companies that are afraid of paying professional fees and unaware of how the tax savings would far outweigh the cost of those fees. If an employer really wants to get the benefit of every tax deduction available, then he or she must work with professionals who are familiar with every single type of deduction available.

What other tax tips can you offer business owners?
They need to get started right away, and plan major shifts or strategies months in advance. Companies may opt to be taxed as S-Corporations, for example, instead of traditional C-Corporations. Or a company might want to be able to deduct life insurance premiums by paying for them with a pension plan. At a more complex level, a corporation may want to take advantage of more aggressive strategies, such as spinning off a division.

Regardless of which strategy is being used, they must all be planned carefully in advance in order to achieve the maximum benefits. There are effective ways of dealing with everything, as long as you plan. If you wait until the last minute, then you haven’t done anything to help yourself.

GLENN GELMAN is managing director at Glenn M. Gelman & Associates in Santa Ana, Calif. Reach him at (714) 667-2600 or

Tuesday, 31 January 2006 11:21

Using integrated care management

In the era of managed care, health insurance companies historically used utilization management, care management and disease management programs to improve clinical outcomes and manage the cost of health care.

Over the last few years, those strategies have evolved into a bigger-picture approach to health care, known as integrated care management, or ICM. “ICM takes a more holistic approach to clinical care in collaboration with the health care provider to meet all of the patient’s clinical, psychosocial and environmental needs,” says Dr. Michael J. Culyba, vice president, medical affairs, at UPMC Health Plan in Pittsburgh.

Smart Business spoke with Culyba about integrated care management, and what its use means for businesses, individuals and health care providers.

What is integrated care management and how does it work?
The concept of integrated care management takes health care to the next level by recognizing that individuals with chronic diseases really have multiple conditions. Rarely, for example, do individuals have only diabetes, or only heart failure. Instead, they usually have two or more medical conditions.

If you look only at the clinical needs, and not at the whole environment of the patient, then you miss opportunities to improve the processes of care. ICM looks at the population holistically, manages each patient from a broader perspective and addresses their clinical care using evidence-based medicine and best practices. It also factors in their psychosocial and environmental needs, and ensures that those are also met.

How does ICM help medical professionals provide a better standard of care?
For starters, it addresses the idea that the health plan works collaboratively with medical professionals to identify gaps in care and to address them whenever possible. Health plans have a wealth of data and information that they can provide to physicians to improve their capability to clinically care for their patients.

Integrated care teams, for example can use predictive medicine tools to identify patients who may be at risk ... (and) share this information with their physicians to better coordinate care. ICM focuses on improving the clinical process of care, which improves outcomes and positively affects resource utilization and tempers the cost of care.

How can ICM help people better manage their health?
Through ICM, the health plan can use clinical assessments to identify member needs and make suggestions to help them better manage their own care. Some may need community services, for example, while others may need transportation to and from the doctor’s office.

Still others may lack knowledge of their disease, and may need help understanding how to monitor their medical condition. Through ICM education and resources, those individuals can gain valuable insights into their own conditions working with nurses, social workers, pharmacists and other team members to ensure that their health is taken care of in a comprehensive, effective manner.

What can business owners/leaders do to encourage their employees to take advantage of ICM?
As the business world moves toward the concept of consumerism (in which consumers play a more active role in their own health care), many employers will be creating benefit designs that actually encourage the use of ICM as a modality for their employees who have medical conditions. Some employers, for example, report that once their employees complete health risk assessments, the company will remove a deductible or waive a month’s worth of their contributions. To promote the programs, employers can also market the programs in a positive fashion, and encourage employees to participate.

How does ICM improve cost effectiveness in medical settings?
If improving the quality of care and improving clinical outcomes ultimately reduces cost, then tools like ICM can ultimately have the maximum impact on cost effectiveness. It can be particularly effective when it comes to medication, since some people either forget to take them or stop taking them completely. Doing so can cause even more medical problems, which in turn lead to hospitalization or trips to the emergency room.

ICM can be effective in making sure people take their medication, leading to improved clinical care and clinical management in the outpatient environment, while reducing hospitalizations, readmissions to the hospital and emergency room visits.

How can ICM help businesses control/reduce their health care costs?
If you’re a fully-insured employer, this program will ultimately affect the overall medical trend and will allow insurance trends to temper. If you are a self-funded employer, ICM can play an integral role in helping to manage medical costs.

Dr. Michael J. Culyba is vice president, medical affairs, at UPMC Health Plan in Pittsburgh. Culyba can be reached at (412) 454-7905 or

Page 1 of 2