Many times, as business men and women in the community, we are offered opportunities to serve on executive boards for our local churches and nonprofit organizations. These are excellent opportunities to participate in community outreach and offer a chance to give back to the community.
“Before accepting a position on these boards, a person should be aware of the possibility of lawsuits against these organizations and how these legal proceedings can impact the individual board members,” says Dale Zellmer, regional director Gallagher Religious & Non-Profit Practices Group at Arthur J. Gallagher Risk Management Services Inc. “Determine your exposure and how best to mitigate any potential liability.”
Smart Business talked with Zellmer for more insight into things you should consider as you prepare to serve on nonprofit boards.
Are nonprofit board members individually responsible for board actions?
They can be, especially if an employee or stakeholder feels that the actions of any or all of the individual board members harmed them.
Are lawsuits against nonprofits a common occurrence?
One of the myths associated with nonprofit organizations is that there are few sources of claims since nonprofits don't have shareholders. While it is true that the vast majority of lawsuits filed against nonprofit boards are filed by current or former employees alleging wrongful employment practices, nonprofits serve large and varied constituencies to which their boards owe specific fiduciary duties similar to duties owed by corporate boards. These constituencies are potential plaintiffs in legal actions brought against nonprofit boards.
Who are the potential claimants?
1) Current Employees a current employee or former staff member of a nonprofit may bring actions alleging a host of wrongful acts, including wrongful termination, discrimination, sexual harassment and Americans with Disabilities Act violations. 2) Outsiders Third parties that have a relationship with the nonprofit may allege harm caused by the nonprofit and/or its directors, officers or employees. Outside sources can be vendors, funders or another nonprofit. 3) Clients/church members The people you are trying to help your service recipients may bring claims against directors and officers alleging wrongdoing. 4) Donors A nonprofit's contributors may sue directors and officers alleging misuse of a restricted gift.
What can be done to protect the individual board members?
Many state laws protect us from suits against directors and officers of charitable organizations. However, these laws provide limited immunity for certain volunteers, not nonprofits, under certain circumstances. The federal Volunteer Protection Act (VPA) preempts state laws except when they specifically provide greater protection. The VPA and its state-based counterparts do not prohibit suits. Even if one of these laws allows your volunteers to escape liability, substantial funds are required to defend even a frivolous claim. The best option for most nonprofits and their individual board members is to carry directors’ and officers’ (D&O) insurance.
What should we know about D&O insurance?
There are a wide variety of policies available. Each organization and board needs to evaluate both the organization’s and the individual’s needs. Desirable characteristics include: broad definition of insured, advancement of defense costs and broad coverage for employment practices liability.
For nonprofits, a broad definition of insured includes ‘any natural person who was, is or becomes a director, trustee, officer, employee, committee member or volunteer,’ as well as the nonprofit itself.
Obviously, a policy that advances defense costs is very beneficial. Funds needed for the nonprofit’s mission won’t be tied up if there is legal action that requires defense. Reimbursement language in a policy may require the nonprofit to pay all costs and attorney fees out of pocket and wait for repayment by the insurer. This could seriously stretch the nonprofits resources as D&O cases are often expensive and lengthy.
On employment practices liability, make sure what is and isn’t covered is clear and meets your needs.
DALE ZELLMER is regional director Gallagher Religious & Non-Profit Practices Group at Arthur J. Gallagher Risk Management Services Inc. Reach him at (281) 655-6720 or at email@example.com.
It seems that for as long as there have been businesses in the United States, there have been expense accounts.
Employees would have to make sure they kept receipts that accounted for every penny that they spent while away on business if they wanted to be reimbursed.
Today, that process has become a lot simpler because of something called the purchasing card.
“It’s a total expense management solution,” says Paula S. Lee, principal relationship manager for Wells Fargo Bank in Houston. “Users use it to pay for everyday expenses as well as travel, supplies and any other type of ongoing regular expenses.”
Smart Business talked to Lee about how the purchasing card has revolutionized company spending.
How does a purchasing card work?
Employees use it for any number of company, preselected services. Basically, the card eliminates the need for processing invoices, petty cash, purchase orders and numerous other requests. When a purchase is made with the card, the sale can be allocated to and actually interface with clients’ accounts payable systems. The charges are downloaded each month into the designated general ledger reports without someone having to go in and take the invoice, write the check and put it into the accounts payable system it’s been allotted to.
The program is great for companies that have employees who travel a lot, use a P.O. system or have numerous petty cash accounts because not only can they use the cards for their airline, hotel and car rental but also for out-of-pocket expenses, such as mileage, gas money or meals. And instead of having to fill out a manual employee expense report, the employee or contactor can just log into the system. The transactions then need to be submitted for approval by the employee electronically. If there are out-of-pocket expenses, upon approval, the money is deposited directly into the employee’s account of choice.
Do the cards have a preapproved limit?
As far as how much we approve each card for, the cards go through our normal credit approval process. Each card is designated with a specific limit and you can actually drill down to say a $1,000 limit, which can only be used for specific purposes.
For example, a card could be given to a driver with the specification that it can only be used at the pump meaning that person couldn’t go inside and spend it on snacks or other items in the store. Thus, the purchasing card allows you to keep more control over employee spending and a better eye on employees’ spending activities.
Would it be difficult for the holder to abuse the card?
Yes, because you can restrict use for business-related purposes; whether that be an office supply store or wherever you go to buy gas. A company can set up their own unique parameters for their program. These controls can be changed, by an authorized agent within the company, at a moment’s notice. In addition, should a card be denied, the company can go directly into the system and review where that cardholder has tried to use their card, even take away all spending capabilities, again at a moment’s notice. In addition, and subject to certain terms and conditions imposed by Visa, Visa provides a Liability Waiver Program which provides coverage against employee misuse up to $100,000 per cardholder.
How long have purchasing cards been available?
Purchasing cards have been around since the early ’90s. Initially, they were only used for MRO (maintenance, repair and operating) expenses. Today, purchasing cards encompass traditional MRO, as well as T&E (travel and entertainment), repetitive payments, such as cell phones, pagers, utility payments, even advertising. Initially, large Fortune 500 companies, as well as the federal government, were the only users of purchasing cards. Today, more small- to mid-size businesses are realizing the benefits of the purchasing card program. Clearly, companies are re-engineering the way that they are managing their payables and the purchasing card is an excellent tool for companies to use.
Does it cost the vendor anything to participate?
The vendor would get charged on the card side, similar to merchant card fees. On the flip side, vendors get their money quicker, usually within one to two business days, because the purchase isn’t made on a net 30-day purchase order. In turn, their account receivables move quicker as well, without the exposure or risk.
The company using the purchasing card, on the other hand, can pay for the product right away and their books are up to date, in addition to the knowledge of what exactly was purchased, a huge benefit for any company that is wanting to control costs.
PAULA S. LEE is principal relationship manager for Wells Fargo Bank in Houston. Reach her at (281) 476-4527 or Paula.S.Lee@wellsfargo.com.
No one is going to believe you. Not at first, anyway.
If you are ever in the same situation that Bob Peiser found himself in upon becoming president and CEO of Imperial Sugar Co. in 2002, Peiser says you shouldn’t expect to find a lot of allies within the company ranks at the outset.
In early 2002, Imperial had just emerged from bankruptcy, bottoming out at the end of a several-year slide that began when acquisitions the company had made in the late 1990s generated excessive debt. The effect of the growing debt was magnified by a downturn in the often-cyclical sugar industry.
By the time Peiser was hired, Imperial owed more than $300 million to its creditors.
“We probably could have survived one or the other, the debt or the down cycle in the industry,” Peiser says. “But we had trouble enduring both at the same time.”
Peiser was faced with the task of not only rescuing Imperial’s finances, but instilling confidence in a work force that wasn’t interested in believing anything upper management had to say.
“The company was in trouble for three or four years, so the people who came out of it were skeptical about whether there was a future here,” he says. “There was also a skepticism about me, the new boss with new ideas and a reputation for turnaround management. They were thinking of me as someone who was just going to come in and cut a lot of jobs, fix the company, and sell it. But that’s not what I am all about.”
What transpired in the ensuing few years tested every aspect of Peiser’s leadership ability his aptitude as a financial manager, his ability to manage people and, above all, his ability to create a new outlook for a sinking company by forming a new vision and outlook.
Peiser says there is no good way to perform cutbacks when you are trying to relieve your company of massive debt. Any way you slice it, you are going to rock your company’s foundation and upset employees.
He says the best thing you can do is be candid with your work force. Developing a bunker mentality because you are afraid of negative publicity will only make the situation worse.
Between 2002 and 2005, Peiser oversaw the sale or closing of 14 Imperial plants and factories, which came with a number of layoffs.
Peiser says he went to every single plant to personally announce the sale or closure.
“That’s not a particularly pleasant job,” he says. “But it’s important to not hide behind someone else to make that announcement. You get more respect from the organization if you do it yourself.
“I can remember the day we closed the Sugar Land refinery, right across the street (from headquarters). I was right across the street making the announcement. I’m not sure everyone would have done that, but people recognize that is a good thing to do, and it makes you much more visible.”
Peiser says he believes in a strategy of “overemphasizing personal presence.” In the first couple of years of his tenure, Peiser frequently traveled to Imperial facilities around the country for face-to-face interaction with employees and managers.
There is no substitute for being there when it comes to building trust, especially when employees have been conditioned to not trust management.
When Peiser traveled to factories, he was dealing with, in essence, survivors. The people still employed by Imperial felt guilty that their jobs stayed while the jobs of others were lost. They were also wary of it happening again.
“The people that survive downsizing are distrustful and guilty,” he says. “They might have lost someone who worked next door to them. The first time you go through that, the openness of communication is so vital, but you also have to recognize that nobody is going to believe that this is the only time you’re going to do this. Nobody believes that this is going to fix things.
“You just have to slog through it, and open yourself up to questions and doubts and be willing to talk about it.”
Peiser says only through frank, honest and repeated communication will employees start to see the big picture.
“They’ll start to recognize that the ones who are most vulnerable to losing their jobs are the ones that are not working hard and not contributing,” he says. “So, the message is do your job well, and you’ll have far less to worry about.”
Focusing on strengths
When a company has hit bottom, employees can tend to view everything within the company as inherently bad. But Peiser says most of the time, that’s not the case, and as the leader of the business, your job is to separate the flowers from the weeds.
From the outset, one of Peiser’s most important jobs was to identify the positive aspects of Imperial Sugar, and then stress those aspects to employees.
“From a confidence standpoint, it was important to stress that we had some significant strengths within the company,” he says. “We had and still have two very strong brands in the regions they are sold in, and we have very strong relationships with our customers.”
The longevity of the Imperial Sugar and Dixie Crystals brands throughout Texas and the Southeast was something Peiser played up to emphasize his belief that the company was built on a solid foundation, even if the previous couple of years suggested otherwise.
Peiser also wanted to harness the innovative power of Imperial’s employees, which he couldn’t do as long as there was widespread doubt and a pass-the-buck mentality throughout the company.
Peiser turned the tide by making accountability a buzzword throughout Imperial.
“We started communicating a message that we are really strong on accountability,” he says. “We talked about how everyone is responsible for their jobs, to the extent that if I think there are people who don’t take that seriously, we’re going to change those people.”
Peiser wanted his work force which currently numbers about 850 to concentrate on things it was capable of changing, steering his employees away from the mentality of concentrating on what they thought their peers or management weren’t doing and focusing instead on what they were doing themselves.
It’s something that, once again, came down to Peiser’s persistent communication and having his actions fall in line with his words. Even then, the change took years in his estimation.
“It took everyone a couple of years to realize I was serious on both,” Peiser says. “I was going to change the people that needed to be changed, and I was going to reward the people that are good and deserve to be rewarded.”
Gathering new ideas
Another way Peiser created and strengthened a sense of accountability was by enabling employees to take a more active role in the company’s future. He wanted new ideas to well up from within the company and lead to possible new directions for Imperial.
Sugar isn’t an industry known for frequent innovation. It’s basically a commodity product that has been sold in the same paper bags on supermarket shelves for years. In order for Imperial to get a leg up on the competition, Peiser needed his employees to start thinking with an innovative mindset.
He set up focus groups with a wide range of Imperial’s customers, from end consumers to retail stores to food manufacturers, in an effort to gather ideas.
He says allowing your company’s existing inertia to always drive you, never questioning what can be done differently, is a road to ruin. Everybody in your company should always look for ways to do things better. That starts with looking at things from the perspective of those who use your products or services.
“It would be very dangerous if I made decisions based on what I think is right and not listen to the customer,” he says. “So we spent a lot of time with our customers.”
Peiser also brought in a number of experienced consumer product consultants. The interaction with the consultants and customers planted the seeds for the innovative culture he was looking to grow.
From those meetings, eventually came a new line of sugar packaging and alternative sweeteners. It was a rare place for a sugar company to venture, but Peiser says breaking the mold was crucial for his company’s long-term health as it rebounded.
If you want to change the environment in and around your company, Peiser says patience is more than a virtue. It’s a necessity.
“Patience is really important,” he says. “A lot of what we were doing was change, and change is hard. It’s still hard for us. While we’ve attempted to promote our new products and make sure there is visibility, it still takes a long time.
“You need patience, and you need to demonstrate your early wins to your employees. It’s really important to show your population of associates that this really could work if given the time and the ability to produce a quality product.”
The comeback trail
The progress for Imperial since the dark days of 2001 and 2002 has been incremental but quite noticeable. When Peiser took over, the company had more than $300 million in debt, but as of the end of June, it was virtually debt-free.
Imperial had its comeback interrupted with a downturn in 2005, but in fiscal 2006, it posted net income of $50 million on revenue of $946 million.
For Peiser, the experience of the past five-plus years has reinforced some basic principles of turnaround management. Principles he calls the “Six C’s.”
“Turnaround management involves communication, credibility, consistency of message, culture, courage and commitment,” Peiser says. “It’s very important to demonstrate a commitment to a path and making sure people understand that you’re not going to sway from that path. We’ll learn from mistakes and do things differently, but we’re on a path to improve the company in a certain way, and that’s what we’re going to do.”
There isn’t a magic formula to salvaging a sinking company. Mostly, he says, it centers on your ability to be an effective communicator and seeing to it that your actions follow your words.
“You’re really going to be bored with my philosophy on communication. It’s really just hammering away at it. I talk about communication a lot but also credibility. I want to make sure everyone knows they have access to me because I believe being an effective leader really isn’t about doing everything. An effective leader hires people who do things. They set a vision, a strategy, and then they motivate.”
He says the only way to truly motivate employees is to make sure they know you care, and you do that by being visible and accessible.
“There are two ways communication works, and the first way only works if the second way is done,” he says.
“The first way is to tell people, ‘I’m going to make sure I get any e-mails you send me. It’s not going to go through an assistant. And if you call me, I’m going to answer the call, or I’m going to call you back.’ But that won’t work unless the second thing happens. And that means you have to do it. You have to answer that e-mail and return that call, and do it relatively quickly.
“Then the word gets around that not only are you asking for e-mails and phone calls, but that it’s important to you to spend the time to answer them. Then word gets around that you really are going to listen to people and answer them.”
HOW TO REACH: Imperial Sugar Co., www.imperialsugar.com
Be visible. Treat people fairly and be clear and communicative about that. If people are doing a good job, tell them they are doing a good job. If people need support, give them support. It’s about clarity.
People come to work to be challenged but also to have fun. I believe our staff is looking for interesting wor that challenges them, to be paid fairly and to work in an environment, which encourages them.
We pay attention to our people. How are they doing? What are we doing for them? How are we moving them forward?
A large part of a manager’s role is the encouragement, motivation and challenge of the people. Be clear and have clarity in the purpose in where you’re going and how effective you are.
It’s really clear how we made money, it’s really clear what our proposition is, and it’s really clear how we deal with each other. If you have got clarity in that regard, you’re a long way toward success.
Be engaging. I’d rather not just send e-mails. Management by walking around is not just walking around but stopping and talking to people and working with people to be supportive. That means being visible and engaging people.
It always impresses me when someone recognizes my name. I had a situation where I hosted a dinner, but I was more of a surrogate host. It included somebody who was extremely high-powered. That was on a Friday.
This person went and then had a huge number of social engagements over that weekend. I was walking through a huge event with thousands of people on the Monday after, and I walked past this person and I recognized him. He just grabbed me by the arm and said, ‘Simon, I’d like to thank you for dinner.’ It was the first time he had ever met me on that Friday, but he knew my name, and that made me feel really good.
How would you feel if this happened to you? Why wouldn’t you do it to engage with someone else?
Plan ahead. Recognize the balance between internal leadership and external leadership.
We know who our customers are. Spend as much time and as much energy with your customers as you do with your employees.
When I’m talking about customers, am I talking about spending time with them? Yes. Actually, it’s also about planning those conversations. Plan engagements that the company has with customers.
We’ll analyze, discuss and conclude, and be very clear what we are going to leave in the conversation. What do we want to learn from the conversation? What do we understand our customer’s issues are? What do we understand of opportunities from that? What can we do to support the customer? What do we want from the customer?
It’s those types of assessments that we undertake prior to any meeting.
Support ambition. Culture has become more important in a company. People have changed, and the demands of an employee have changed. If we’re dealing with younger employees now, for them, they are geared to what is the company going to do for me? Development is very important to them.
Being paid right and fairly is important. But development is very important to them to see where they could go and how they can get there.
I have some ambitious people who work with me. I think that’s good. Do I feel threatened? No. Do I feel comfortable? Yes. Part of the challenge with real ambitious people is to keep their ambition and drive going. In general, I’d like to have a team that has a good element of ambition in it, both for themselves and in the company. It comes back to being clear.
Individuals within the company, be they management or employees, want to succeed, and they want to support others to succeed. We’ve got some excellent (managers) that earnestly believe that a key part of their role is to develop individuals, and I think that swells through the organization.
Find the glint. We look for someone who has some background and had success in the past. Did they have both the academic and the business record?
The other key to me is the will to succeed and the glint in the eye, as people would say. If you have got someone who maybe has less experience, but they have a real will to be successful, and they have a drive in that regard and a real open manner, I think they will be successful.
Look for the opportunity in risk. We do risk assessments both for the company but also for our customer. The opposite of risk is opportunity. When people talk about risk, they always see threat. Our process does encourage the use and view of opportunity as the opposite of threat.
It’s an inherently difficult process because, in general, when you deal with these things, you don’t have all the information. You are dealing with the cards you’re dealt. You might not have the whole pack. In any risk assessment process, that’s a threat in itself to try to understand that.
We have a very thorough and robust risk assessment process within the business. Should we be pursuing this prospect? What are the risks and opportunities associated with pursuing and securing this prospect?
We’re in a competitive environment. We make offers to customers to do work for them. Sometimes they choose us, sometimes they’ll choose a competitor. I think it’s a case of learning from it and moving on and not dwelling on it.
HOW TO REACH: AMEC Paragon Inc., (713) 570-1000 or www.amecparagon.com
Business contracts often fail to include specific terms that provide basic, fair protection to all parties involved. As a result, businesses expose themselves to unnecessary disputes that, even if they win, leave them less than whole. Including sensible protections will help the parties to a business contract avoid disputes, or shorten litigation should it arise.
Smart Business spoke with Neil Kenton “Ken” Alexander, a partner of Porter & Hedges LLP, to identify the most common shortcomings in business contracts.
What are the most frequent shortcomings in business contracts?
My top ten list includes: no default interest rate; no provision for attorneys’ fees and litigation expenses; reliance on oral agreements; no notice of claim provisions; inadequate dispute resolution provisions; poorly drafted insurance and indemnity obligations; absence of proper warranties; no well-considered damage limitations; failure to conduct a risk assessment; no qualification of contract counterparties. These defects appear often in everything from insurance policies to supply and service agreements to construction contracts.
What is the impact of these shortcomings?
Without proper provisions for interest rates on default, attorneys’ fees and litigation expenses, well-crafted insurance and indemnity obligations, and warranties, it is practically guaranteed that a business owner will be exposed to risks it did not want, or will not be kept whole if the contract counterparty breaches. If the contract is signed without good notice of claim or dispute resolution provisions, or without applying proper risk assessment or qualification of the parties, the innocent business owner may be drawn into an expensive, time-consuming legal battle.
Why are these defects so common?
Business people sometimes rely on contracts provided by a trade association, an industry group, a customer, supplier, or even a competitor that are not well-tailored to the situation. A big reason is complacency. Sometimes business owners focus on the good things they expect from a transaction, but do not carefully consider the bad things that may cost far more than the revenue from the contract. They get lulled to sleep by repeat business, or assume that a standard contract protects their interests.
How can business owners make sure their contracts protect their interests?
Two important steps happen before you ever speak to an attorney. First, consider the real-world risks that the contract poses for all parties, not just you. If it places a risk on a party who does not understand it, or cannot manage or insure it, the result likely is nonperformance and maybe a nasty lawsuit. Second, contracts rarely really fully protect you from a dishonest, incompetent, or under-financed contract counter-party, so qualification of the companies with which you do business is essential.
I recommend specifying an interest rate on past-due sums, because the law provides for interest substantially below what most business people regard as sufficient to cover the real cost and risk of delayed payment.
What contract matters especially deserve review by counsel?
Here are some key examples. Courts almost never award attorneys’ fees to the successful defendant, unless the contract says so. In other words, if the other contract party brings a meritless lawsuit against your company, you do not recover your attorneys’ fees. A more level playing field is created in many situations if the contract provides that the prevailing party will recover attorneys’ fees. There are also many other expenses of litigation that are not recoverable unless the contract says so.
I encourage my clients to think through whether they want their contracts to be subject to arbitration, jury trial, bench trial, or mandatory mediation. Arbitration is good for some contracts; it is lousy for others. If you pick arbitration, have some well-considered specifics about the kind of arbitration you want.
Lots of contracts that I see in litigation, especially standard form contracts, have poorly drafted insurance and indemnity provisions. Indemnity provisions are often under-inclusive, over-inclusive, unenforceable, or downright incomprehensible. If you cannot figure out what it means, do not expect a court interpretation that you will like. Indemnity and insurance provisions are not one size fits all.
Your contracts need to contemplate what damages each party is really on the hook for. Lost profits? Costs of delay? Only outof-pocket costs?
Lawyers are like doctors. A checkup with one who is qualified to deliver preventive care is vastly cheaper than dealing with a problem through surgery or litigation. Good counsel sophisticated in these matters will help you create contracts that make all parties happier and lower litigation risks. If you fear involving counsel will make negotiating a good deal with the other party more difficult, maybe it is time to look for new counsel.
NEIL KENTON ALEXANDER is a partner with Porter Hedges LLP. Reach him at firstname.lastname@example.org. or (713) 226-6614.
The federal Department of Labor has issued new enforcement initiatives for the filing of Form 5500. The initiatives are designed to improve the quality of employee benefit plan audits and help employers select a qualified auditor to ensure the audit is performed correctly.
“Oct. 15, 2007 is the extended deadline for the filing of Form 5500 for employee benefit plans, which may require the attachment of an audit report,” says Meresa Morgan, audit shareholder for Briggs & Veselka Co. in Houston. “The annual audit has an original filing requirement of July 31, but can be extended to Oct. 15, if necessary.”
Smart Business talked to Morgan about why audits are necessary, who should perform them and the consequences for not filing the audits on time.
How do you know if your benefit plan requires an audit?
There is not a single answer, but generally speaking, an audit is required if you have more than 100 eligible participants at the beginning of a plan year. This means even if an employee does not make contributions to a plan offered by the employer, if he or she is eligible to participate then he or she is still counted when making that determination. Therefore, you could have 100 eligible participants with only 10 actively participating in the plan and still meet the requirement for an audit.
Who is responsible for engaging firms to conduct the audits?
The plan administrators have the fiduciary responsibility of engaging a ‘qualified’ independent certified public accountant to perform the audit of an employee benefit plan.
Why are these audits necessary?
In late 2005, the DOL began a new enforcement initiative to monitor the quality of the audits being performed by CPAs. This program was created because previous reviews had documented that audit deficiencies were occurring at an unacceptably high rate.
Just because a company uses a CPA to prepare tax returns or compile the company’s financial statements, it does not mean that the CPA meets the qualifications to perform an audit of an employee benefit plan.
How does a business owner know if an auditor is qualified?
Due to the complexity of the process, a business owner needs to find out if his or her CPA has a dedicated team that helps ensure compliance with the appropriate standards and changes in regulations related to employee benefit plan audits. Find out if the CPA firm has an ERISA (Employee Retirement Income Security Act of 1974) practice division. Of course, make sure the auditor is licensed. Inquire of the audit firm that it is independent, meaning it doesn’t have any financial interests in the company or the plan sponsor or the plan itself, that would hinder the firm’s ability to render an objective and unbiased opinion.
Inquire if the auditor received adequate training and if the auditor has adequate experience with employee benefit plan auditing. Perform reference checks of other ERISA clients of the auditor. Business owners can perform verifications with appropriate state regulatory authorities. They can inquire if the audit firm is a member of the American Institute of Certified Public Accountants Employee Benefit Plan Audit Quality Center. Membership is voluntary, but I can almost guarantee that if a firm has a dedicated team performing employee benefit plan audits, it will be a member of the center.
Are there penalties for inadequate or nonfiling of audits?
The DOL has the authority to assess penalties of up to $1,100 a day or $30,000 per year against plan administrators who fail to file or file inadequate Forms 5500 and the respective audits.
For more information on how to select a qualified auditor, plan administrators can go to www.aicpa.org/EBPAQC.
MERESA MORGAN is audit shareholder for Briggs & Veselka Co. in Houston. Reach her at (713) 667-9147 or email@example.com.
When Jon Silberman and his business partner bought NAI Houston in 1999, they quickly determined that they needed to overhaul the company’s culture if they were to succeed.
The key to making the major change work was the ability of Silberman and Randy Wilhelm, the company’s co-owners and co-managing partners, to clearly communicate their new plan to their employees.
“Explaining it and communicating what the game plan was and what the vision was, we did that regularly,” Silberman says. “People saw that there was a plan in place, and they understood that it wasn’t going to happen overnight but that there was a plan and there was a culture.”
The healthier culture has helped the 55-employee commercial real estate firm grow its revenue from $9 million in 2005 to $12.5 million in 2006.
Smart Business spoke with Silberman about the importance of having a plan and sticking to it.
Q: What is the best way to manage growth?
Have a plan. We have a planning retreat once a year where we sit down and spend two days going through our plan. What happened last year? What’s our plan for the next three years? How did we do?
That’s probably the most valuable thing that we do because it sets the direction every year. It sets the goals and objectives of the company as a whole. It gives us that map. It’s really helped us a lot to get everybody focused on that map and what they have to achieve during that year.
It has to be realistic and achievable. It has to be in steps. Little steps lead to big steps. Sometimes people try to accomplish too much in one year when they could accomplish 10 times that amount in five years. Execution is critical. You can plan all you want, but if you don’t execute, you’re not going to get there. It’s having the focus and motivation and discipline to focus on those things that are going to get you to where you want to go.
Q: What is an important lesson all leaders should keep in mind?
What you can accomplish in one year is very little. But what you can accomplish in five or 10 years can really blow your mind. We live in a culture where everybody wants everything yesterday, and they aren’t willing to be patient, and it makes it very difficult. If you’ve been through it before, experience, perspective and commitment (are key). Be willing to say, ‘I’m going to give this two or three years. I’m not going to quit. I’m going to stick to it.’
A lot of people fail because they quit too soon. It gets a little difficult, and they quit. They give themselves the latitude to quit versus saying, ‘You know what, I’m going to do this for three years. Maybe after three years, if I’m still flat broke and not generating any revenue, I might want to quit.’
Don’t give yourself a chance after a year to evaluate and quit because you didn’t get there as fast as you unrealistically thought you should.
Q: How do you approach the hiring process?
We’re very slow to hire. We take our time. We will interview at least three times. We look at references and talk to people. We look at their background and what they have accomplished in other jobs.
We’ll accept a little lower level of technical performance for somebody who just has the right attitude and is pleasant and helps out wherever they can. I’m not sure I would relate it to energy as much as attitude, enthusiasm, work ethic, reliability and dependability. Those all supersede the skill set.
We combine all those to determine if it’s the right fit. If we think we made a mistake, we’ll make a change very quickly. We won’t let the one bad apple ruin the rest of us.
Q: How do you help employees who want to move up?
You have to show a path. It depends a little on the position and the person. Some people are in a position they are very happy with, and they are not really interested in, ‘Where do I go next?’ For those people, they can just choose not to try to follow a path. The majority of the people want to know, ‘How do I get to the next level? How do I go from here to there? What do I have to do? What do I have to accomplish to get there?’
We have a very specific plan that is written and published that says exactly what you have to do. There is no mystery to it. A person knows, ‘If I do these things, I get this level, I get this promotion, I get this partnership.’ It’s very clear.
HOW TO REACH: NAI Houston, (713) 629-0500 or www.naihouston.com
Are you involved in any type of construction? Chances are good that you are, since there is a considerable amount of construction going on in the Houston area. Retail stores, warehouses, office buildings, factories, hotels, multi-use facilities, townhouses, apartments or single-family homes are going up all over the area.
With any construction there is risk. Have you thought about that? Have you done anything about it?
“Even though risk management can be a big line item on any project’s budget, it is too frequently a last-minute consideration for project managers,” says Jackie Whiting, account manager at Arthur J. Gallagher Risk Management Services, Inc.
“Owners, developers, managers and builders need to identify their exposure,” adds Jim Braniff, IV, senior vice president at Gallagher. “They need to determine how to mitigate their risks and transfer all the risk that they can.”
Smart Business talked with Braniff and Whiting for more insight into insuring property under construction.
At what stage in a project should the owner/developer consider insurance coverage?
They really should start to think about it at the very beginning of the initial project planning. That way they can make sure they are considering the right kind of coverage and have the right number in their budget for the project. It should be part of the due-diligence effort as a project is considered.
When they get into the project, they need to read and understand all contractual language before anything is signed. They need to, at a very minimum, have their experienced insurance broker review contracts and coverage offered by the builder to make sure the owner’s needs are met. They need to understand the significance of the risk management piece of their part of the project. Who is responsible under what situations? Who might be at fault? Where might there be gray areas? What about soft costs? What happens if the building contractor needs to be replaced? What happens if the builder doesn’t pay the subcon-tractors? The owner also needs to get his or her own insurance quote as a comparison before making a decision on accepting what the contractor offers.
Why not just let the builder take care of the insurance and include it in the bid?
There are a number of reasons. It should be up to the owner to protect his or her own interests. Owners have more control over the project and risks if they consider all of the ramifications of their own insurance. They have more control if something happens. They have their own broker working for them in the event of a claim. If, for any reason, the builder on the project has to be replaced, the owner isn’t exposed with no insurance because the builder’s insurance was the only coverage. They have another set of eyes going over the contracts to see that all risks are transferred. Soft costs are usually not covered by the contractor’s insurance. If the owners rely on the contractor’s insurance, they will be sharing the limits of the master policy and be subject to the deductible set by the contractor, whether it fits their needs or not.
What do you mean by ‘soft costs’?
Soft costs include additional taxes, additional interest, professional fees, permits, lost rental income and additional insurance. Any of these costs can come up if the building burns down or is damaged in some other way during construction. New plans may have to be drawn so additional architect fees may be needed. New permits may be required or expired ones renewed. Soft costs are not usually covered by the builder’s policy.
Any other thoughts?
The owners/developers should obtain some idea of what property and liability insurance rates might be on an ongoing basis after the project is completed. This adds important information to the feasibility study at the start of the project.
Also, there can be many differences between insurers and policies, so the options presented should be compared and key points analyzed to make sure coverage is spelled out and not just assumed. There are also many different needs depending on circumstances. Insurance coverage is a process of negotiation. It is imperative that your coverage is negotiated by an insurance broker experienced in your business area and placed with an underwriter that understands the coverage.
JIM BRANIFF, IV, is senior vice president at Arthur J. Gallagher Risk Management Services, Inc. Reach him at Jim_Braniff4@ajg.com.
JACKIE WHITING is account manager at Gallagher. Reach her at Jackie_Whiting@ajg.com. Reach either at (713) 623-2330.
Alex López Negrete has proven he has the skills to develop a business and make it thrive. But that’s not always enough to ensure success in the corporate world, says the president, CEO and chief creative officer of Lopez Negrete Communications Inc.
Without a lot of passion and heart, the entrepreneurial skills of López Negrete and his wife and co-founder of the company, Cathy, would never have gotten the chance to shine.
“It was a leap,” López Negrete says. “We did not have a rich uncle or a line of credit. We poured every bit of our own personal savings into it. We literally put this company before our own needs. We fed our kids before we fed ourselves. It’s that fearlessness. You’re only an entrepreneur when you put yourself on the line.”
Their efforts have paid off as the marketing firm has grown to about 140 employees, with 2006 revenue of $21.3 million.
Smart Business spoke with López Negrete about how to turn passion into success.
Q: What makes a good leader?
You have to earn the right to lead every single day. Leading by example means giving them a clear idea of what we’re doing, why we’re doing it and what’s the higher calling of what we do. It’s really not the classic, ‘I’m going to lead. You’re going to follow.’ It’s more of a, ‘Thank you for letting me lead. Let’s go this way.’
I have to be on top of my game every day. The people that have put their careers in your hands trust you to know the big picture and to be in touch with the big picture. A leader who cannot inspire is not a leader. You’ve got to inspire people to do the very best that is in them and sometimes even better.
But you’ve got to do that by doing that yourself. Up the ante on yourself every single day.
Q: How do you inspire people to follow you?
People want to come to work to a place where they feel that they make a difference and where they feel they will grow. Growth comes in a better job, a better title and better money. Growth also comes in, ‘I am a better professional today than when I joined this company X months or X years ago.’
The onus goes on the management to make sure that you are always aware of people’s contributions and that you stay in touch. ‘Hey, so and so is kicking butt. Let’s give her a little bump, or let’s recognize her somehow. Let’s make sure it’s in her file so she knows it’s recognized and it’s not forgotten.’
Make sure that you are diligent about your reviews and that your reviews are thorough. Give your people constructive criticism, stuff that they can really use to make themselves better.
Q: How do you keep a business growing?
Be willing, if not completely focused, on bringing in people that are better than yourself. You really have to decide, ‘OK, what is it that I bring to the table best?’ In ‘Good to Great,’ by Jim Collins, he says, ‘Figure out where you bring the most value and focus on that.’
This is an exercise that I do on a regular basis. How relevant am I to the marketplace? Is what I do still relevant and needed? Is it still special? If you make pipe, are you just another company that makes pipe or are you a company that makes pipe, which happens to ‘dot, dot, dot, fill in the blank?’
In today’s age, you cannot afford to not have a unique selling proposition. People around here will hear me say, ‘Choose your horse and ride it well.’
Ask yourself, have you defined a vision and a mission for your company, and do you live by it?
Q: What is the best advice you’ve ever received?
I had a great sales manager when I was in the radio business a long time ago. Every now and then, he’d sneak up behind me and he’d go, ‘No.’
And I’d go, ‘What do you mean, no?’ And he’d go, ‘No.’ He says, ‘That word sounds exactly the same coming from me as it does coming from Johnson & Johnson. So are you going to be more afraid of hearing no from them than from me?’
That taught me that you really have to lose your fear of the size of the door you are knocking on. If you believe in yourself and you believe you are unique and you believe you are relevant and you are living to your mission and your vision, you’ll have something to say regardless of how big that door might be.
Selling starts when you hear the word no. Otherwise, it’s taking an order. That’s not selling.
HOW TO REACH: Lopez Negrete Communications Inc., (713) 877-8777 or www.lopeznegrete.com
Not only is it good business to provide a safe workplace, it is a legal responsibility. Accidents do happen, no matter how many reasonable safety measures have been taken. To protect themselves from lawsuits, businesses must purchase, as a separate policy, insurance that provides medical care and compensation for lost income to employees hurt on the job. This applies whether they’re hurt on the workplace premises or elsewhere, or in auto accidents while on business. It also covers work-related illnesses.
“In many cases, worker’s compensation (WC) is the third largest expense in the budget after payroll and employee benefits,” says George L. Moody, licensed risk manager at Arthur J. Gallagher Risk Management Services Inc. “While many business owners feel they have no control over that cost, it is actually an area over which they can have the most control.”
Smart Business talked with Moody for more insight on how to save on WC insurance.
What are some ways to reduce the cost of WC?
There are four primary areas that should be monitored to assure business owners that they are paying no more than they should for WC. These areas are: experience modifiers, payroll audits, hiring and claims management/return to work.
How can hiring practices affect WC costs?
It is vitally important to make sure that you are hiring people who can do the job. Of course you must follow ADA guidelines, but provide a conditional offer of employment when you think you have the right person. The offer is contingent on them passing whatever physical and medical tests are necessary to determine if they can do the job. Have a detailed job description that outlines the requirements. Make sure that all your forms are reviewed by an experienced attorney to assure that they meet all legal requirements.
What should be included in payroll audits?
Monitor the premium audit closely, since most errors favor the insurance company. Make sure the premiums are accurate. Look closely for any clerical errors. Verify that payrolls are correct and that you are only including the correct amounts. The insurance company is entitled to a premium based on the actual work the employee is doing. Bonuses for ideas should not be included. In Texas, safety bonuses should not be included in salary figures used for the premium.
Each state has different rules, so make sure that you and your insurance adviser are up to date on your state’s laws. Contractors that are doing government work and must pay prevailing wages should look at that closely. There are ways to set aside the difference between normal wages and prevailing wages and only pay the premium on your normal wage. Severance pay is another item that should not be included in the premium calculation.
What are some experience modification strategies?
The experience modifier is calculated by comparing expected losses against actual claims. As long as actual claims are lower than the expected losses, the modifier will be less than 1.00. Check for any mistakes in the calculations, and when identified, bring them to the insurance company’s attention. In most states, large claims are capped and anything over that cap should not be included in the experience modifier rating. Again, it is vital that you work with someone who knows the state rules. Since claims are included in the calculation for a three-year period, any savings found are three-year savings.
What are some claims management/return to work strategies?
Have a package of information available so if an injury occurs the employee understands what to expect and how the company will help him or her. Set up a team of individuals to make sure an injured employee is getting the care he or she needs and making progress they should to get him or her back on the job ASAP. Communicate with physicians what the job entails so they understand and can help get the injured employee back on the job without undo delay. This reduces care costs and replacement worker costs, which translate into premium savings. This is important since, as a general rule, every claims dollar costs the employer about two dollars in additional premium. Continue to provide good communication so the employee knows you care, feels important and will do all he or she can to get back on the job.
Finally, take a risk management approach. Don’t just find a policy and pay the premium. Work with an experienced person who can help assure that you are getting the coverage and service for you and your employees without paying more than you should.
GEORGE L. MOODY, CIC, CWCA, CWCP is a licensed risk manager with Arthur J. Gallagher Risk Management Services Inc.
Reach him at (281) 655-6824 or George_Moody@AJG.com.