Your vision and values can be clearly stated on signs throughout your office, but in the end, it’s still more about what your employees think it is than what you say it is.
It’s a lesson that Michael Evans has taken to heart at the American Institute of Toxicology Inc., a forensic testing and research company that does business as AIT Laboratories.
As the founder, president and CEO, Evans says his job is to identify the vision and values for the company, and then communicate them to the company’s 325 employees with consistency and passion.
“My real job is keeper of the culture,” Evans says. “I maintain the culture, I maintain the standards by which we operate, the values, and make sure that we constantly drive those values as we make our decisions going forward. If it’s not consistent with our values, we’re not going to do it.”
Smart Business spoke with Evans about how you can build, maintain and communicate your vision and values at your company.
Know what you stand for. Establishing your vision and values comes down to knowing what you are really about, who are you, and do you stand for anything. You need to establish that early on. That message has to resonate throughout the company, and the hardest job I’m faced with is to make sure that message gets down to every employee as we continue to grow.
When we first started the company, it was me and a few other people. It’s pretty easy to communicate values at that point. But as we grew, the question became how to continually do that. It’s showing it every day, even in little ways. It’s just saying thank you to people when they do a good job, showing recognition to people when they do a good job, showing your appreciation to them, showing them that they’re valued members of the company.
As an example of how we convey our values, we donate 5 percent of our net profits to charity. We do that because it’s part of our values system. We engage our employees in doing that, we have a contributions committee that decides where the money is going to go. We demonstrate through our actions what we’re about as a company, what values we stand for.
Communicate with passion. Be authentic, be yourself and don’t try to fake it. If you’re not authentic, communicating the vision won’t work. I find it amusing that some CEOs would claim equality with their employees, but if you look at their take-home bonus at the end of the year, there is no equality. Our bonuses are shared equally by everybody. In fact, the executive management team does not share in the net-profit bonus. That’s for the employees.
You just have to be honest with your employees, even to a fault, and keep showing passion for the company, for your business, for serving your people and recognizing that people are the foundation for your company. I saw an article in the news recently about how companies are having a tough time in the economy right now. Some CEOs who are really successful are turning down their bonuses. It goes back to reinforcing the idea that you and everyone at the company are in this together, and if the team has to sacrifice due to tough times, you should be sacrificing, as well. Some CEOs won’t do that, and I don’t really understand that. You’re not showing that you care about your employees. Showing that you’re authentic and that you’re part of the team is essential to build that bond with your employees.
We have a number of committees that are run by employees. They’re not run by the management team. We tell them that their job is to communicate with the rest of the employees, their co-workers, to bring feedback to the committee and then on to the executive management team.
What is really important in that whole structure is that you and your management team have to continually demonstrate that you’re listening to your employees, that you’re really hearing them. You have to give them feedback so that they know that you want to hear what they are telling you. You need to be responsive. I do a lot of walk-around managing. It’s what I mostly do. I walk around, get a sense of what is going on, and my employees know that. I know one fact about every employee here. I know something about their family, their kids, their dog, their hobbies, whatever it may be. I know something about them because it shows I’m willing to take an interest in who they are and what they do, even outside of work. Honestly, it’s just caring about them.
Tie everything to the vision. Every decision you make, you have to place it in the context of the vision and values.
For example, back in 2000, I could see the technology changing, in terms of the type of equipment we were going to use. So we made those changes in terms of purchasing equipment. It was about five times more expensive than the technology we had at the time, but these are our values. We’re about leadership, about being thought leaders, about good science, and this is better science, even though it’s more expensive.
We decided that we weren’t going to look at return on investment, cost and profitability. We’re going to do the best science and do it well. If we do that, profits will come. It comes down to what you’re all about in the end, and we’re all about quality science. So that decision to go with the new technology hurt our bottom line, it cost more money, but it paid off because it was the right thing to do. That is what you have to consider as you make decisions that impact your business.
How to reach: American Institute of Toxicology Inc., (317) 243-3894 or www.aitlabs.com
Paying a lawyer may be the last thing you want to think about. But when it comes to keeping your company afloat, seeking counsel can be your life vest.
During troubled times, you need an adviser who understands your business and your leadership personality. While many CEOs see trips to the lawyer’s office in terms of dollar signs, keeping ahead of the legal curve will pay off in the long run.
“Seeking legal advice can prevent small legal issues from becoming big, expensive legal problems,” says Byron Myers, chief managing partner, Ice Miller LLP.
Your attorney can be a valuable member of your cabinet who provides strategic advice to boost your bottom line. By viewing your lawyer as a business partner and his or her fee as an investment in your company you can capitalize on your lawyer’s legal training and experience.Develop an effective relationship
By understanding where you’ve been and where you’re headed, your attorney can help you navigate the corporate waters and avoid legal icebergs. But the only way he or she is going to acquire that knowledge is through open discussions.
“It’s good for a company to form a relationship with legal counsel, much like they do with other professionals,” Myers says. “Most firms are very willing to invest time with a client in getting to know their business, what the goals are and what the business challenges are. Then they will be in a position to give them better counsel and advice.”
While some matters, such as tax tips, can result in tangible savings, others may not show an immediate fiscal return. Still, it’s hard to image what costly bumps you may encounter without the foresight of a seasoned professional.
“If you wait until there is a problem and then start looking for a lawyer or start engaging your counsel, you’re already behind,” says James A. Reed, partner, Bingham McHale LLP. “Lawyers are at our best as counselors.”
The best advice at the right time can save a bundle. However, you can’t be shelling out for unnecessary discussions. Thinking through an issue before calling your lawyer makes the best use of his or her time and your money. Routine situations, such as hiring matters, may be handled by your human resources department, where more complex situations, like harassment claims, require immediate legal attention.
If a matter requires a meeting with your lawyer, prepare notes, gather documents and create an agenda in advance. Sending information to your attorney ahead of time lets him or her come prepared to address the issue. Ensuring that the appropriate people are in the meeting or available on-call can avoid a costly follow-up.
“Where you can end up spending a lot of billable time unnecessarily is when you, as a client, are not really clear about what you need to accomplish,” Reed says.
Investing in appropriate communication builds a long-term partner. However, it’s important to trim away excess chatter. Designating one contact person in your company eliminates the chance of your lawyer giving the same advice twice. If you have a recurring document, such as a purchase agreement, ask your attorney to approve a form you can use repeatedly, without getting his or her OK each time.
If you are hesitant to call your lawyer for fear of being charged by the hour, you may find relief in negotiating a flat rate for some services. Flat fees work best with a finite project, such as trademark filings. With many companies anxious to budget their costs, most attorneys will discuss fee structures.
“Lawyers are very aware that it’s expensive dealing with a lawyer,” Reed says. “We want to be as efficient as possible and as economical as possible.”
The billable hour makes sense when it is unclear how much attention the matter will require, such as litigation. In hourly situations, it’s wise to ask for the person with the lowest billing level who can perform the work well. A junior associate can handle smaller issues in exchange for a slimmer bill. With complex matters, it is more efficient to pay a higher hourly rate for a fast-working, experienced partner.
No matter the billing structure, be sure to get a written contract that includes not only the services and the rate but also builds in checkpoints where the lawyer will call to discuss progress.
“The key is to have a mutual understanding of what the scope of the work is and what will be required,” Myers says.
When your business is moving along, it’s beneficial to check in with your attorney at least once a year. Such interactions make you a household name in the firm and can result in better overall service.
“I think a lot of firms are willing to invest time on their own to do things with their clients to put (the firm) in better position to serve the client,” Myers says.Find the right fit
Before you turn over your spreadsheets, make sure your attorney complements your style. You may be eager for your day in court, but your attorney is best in settlements. Being on the same page is imperative to long-term success.
“There is a necessity for people to understand each other and for businesses to understand what the lawyers do,” Reed says.
Finding a legal mind that matches your corporate spirit is no small task. As with other services, it’s wise to get recommendations from your colleagues. Referrals from your current professional team, such as your banker and accountant, can be especially helpful. Also consider the lawyer’s role in the area.
“It takes time to form that kind of relationship,” Myers says. “If I was a company looking for someone, I’d talk to business colleagues and see who they developed faith and confidence in.”
Consider where others in your industry get their legal advice. Intimate knowledge of your market is priceless when it comes to staying on top of regulatory changes. And the legal relationship is bound by attorney-client confidentiality, so you can sleep easy knowing your company’s dark secrets aren’t being broadcast.
Once you’ve identified a few lawyers, schedule brief meetings with each. While many firms can handle the technical work, it’s important to find someone you feel comfortable with. Ultimately, the better you and your lawyer know and understand each other, the more hazards you can avoid.
“Look at a lawyer as your partner in your business and that will help you make that decision about when you need to involve legal counsel,” Reed says.
Born: Beaver Dam, Ky.
Education: Bachelor of science in allied health sciences, Western Kentucky University; Master of health administration, University of Louisville
What was your very first job?
Registering patients in the emergency room at the (former) Norton Children’s Hospital in Louisville. You got to experience behind the desk an extremely busy inner-city emergency room. It got me excited about the potential of working in health care.
I spent eight years as a respiratory therapist specializing in newborn ICU. I started my career in a clinical role before moving into management. Most of my career has been in cardiovascular service administration.
Whom do you admire most in business and why?
One of my favorites is an author and it’s John Maxwell. I am so intrigued not only by my personal faith but also in experiencing who I value as leaders. It’s those that lead and teach according to the concepts of servant leadership.
What’s the best advice you’ve ever received?
You can’t do it all.
If you could have dinner with any three people in history, whom would you pick?
Former presidents Abraham Lincoln and John Kennedy and Jesus Christ.
More about St.Vincent Heart Center of Indiana: St.Vincent Heart Center of Indiana performed more open-heart procedures for the 12 months ending June 30, 2007, than any other hospital or health system in the state of Indiana.
According to the Society of Thoracic Surgeons in 2006, patients have shorter-than-average stays for cardiovascular services than the national average, are less likely to return to the operating room after a procedure and have lower mortality (2006).
Savvy CEOs are taking advantage of the slumping commercial real estate market by evaluating whether their space meets their needs while the cost to buy or lease is low.
Commercial real estate prices fell again in the second quarter, showing an 18 percent national decrease compared to the previous quarter, according to Massachusetts Institute of Technology Center for Real Estate’s index. The drop placed the price index 39.2 percent below its 2007 second-quarter peak.
Clearly, the market is experiencing volatility, but opportunities are presenting themselves.
“With a stalled or slowing economy, demand is way off, and that has increased vacancies and caused a lot of challenges for business owners,” says Samuel F. Smith II, principal and CEO, Resource Commercial Real Estate LLC. “However, that’s created some real opportunities on the flipside for tenants to get a great deal and prime space at big savings that they couldn’t get before this recession.”
Whether you’re searching for a new property or hoping to reconfigure space for efficiency’s sake, cost savings can be yours. The first course of action is to connect with an experienced commercial real estate broker to weigh your options, because there are plenty of them.Debate to buy versus lease
The decision to buy or lease property has less to do with the current state of the market and more to do with each company’s individual circumstances.
Think about your industry, your strategic plan, your company culture and what those will look like five or 10 years from now; then add the amount of capital you have for discretionary spending. Most companies lease to stay adaptable.
“My recommendation today is the same as it would be two years ago,” says Brian Zurawski, COO, Summit Realty Group. “You look at both buy and lease options and analyze what’s the best bottom-line solution for the customer, and that’s not only going to be dependent on real estate costs.”
One of the bigger challenges facing the market today is that the capital markets are at a standstill, leaving few lending opportunities. The loan-to-value ratio has changed dramatically. Once, you were putting 10 percent to 30 percent down for a loan; today it might be as much as 50 percent.
“Despite all the even trillions being spent to get our economy back on track, it has not yet been resolved in the commercial real estate and the credit markets; there is still a challenge to get credit these days,” Smith says.
It’s important to work with your broker to analyze your options and ensure the best deal, especially because prices and volatility vary by market and even within markets. Renting sublease space may even be the way to go because it’s cheap, but be sure to investigate the leaser’s financial standing before signing anything.
No matter what your decision, you’ll more than likely see savings because sales prices have fallen and landlords are becoming more and more creative with incentives to retain and attract tenants.Renegotiate your lease
If your lease has been tucked away, dust it off and read the fine print. Renegotiating your lease can lead to immediate savings and even allow you to get better use out of your space. Again, the returns may vary based on your landlord’s willingness to bargain, but your market insight can be used as leverage.
Before you go to your landlord, there are a few questions to ask yourself. First, how much time do you have left on your lease?
“Probably the ideal would be in the one- to two-year range,” Zurawski says. “If you get out beyond that, that’s when you get landlords saying that they’re willing to just let the lease lie and take the position that three years down the road the economy is going to be better and things will be back on track.”
Second, how much time do you commit? If you discuss the popular blend and extend deal, where you sign a lease extension in exchange for reduced rent, you have to think about whether the space will continue to meet your needs for that length of time.
Third, can you give back or add space? If you’re cash-strapped or your company has reconfigured its employee base, maybe you can work the renegotiation in a way that better uses your space, such as adding or subtracting square footage.
Fourth, use your broker to research your landlord’s financial position, such as insight on how large the mortgage is and whether your landlord has good credit. The information can be insight on how your landlord is weathering the economy.
Fifth, research your options in the marketplace. Even if staying makes the most sense, at least you can present your landlord with the possibilities that wait should you leave. Some landlords are offering free rent, moving allowances and increased improvement dollars to attract new tenants.
“Knowledge of the circumstances of that owner and your other options out in the market, that’s your leverage,” Zurawski says.Consider more than just costs
Before you sign next to the X, take into consideration more than just the monthly dollar amount you’ll be paying. The general checklist for picking property once emphasized location, employee driving time and amenities. Those concerns remain important, but the current state of the economy has also brought to light the need for efficiency, flexibility and sound deals.
Working with a broker will allow you to receive the best bang for your buck, meaning fair market value, tax breaks, relocation incentives, landlord concessions and operational costs, while making sure it’s a strong deal.
“As far as what’s different today versus a couple years ago, I think it’s increasingly important to analyze the financial strength of both the lender and landlord involved,” Zurawski says.
The real estate crisis has left landlords hurting. Work with your broker to determine whether your landlord is currently facing or could face financial distress and how that affects the tenant improvements or possible free rent he or she promised.
Nonetheless, you should take the time to work agreements into your lease that protect your rights as a tenant if your landlord forecloses on the property and the lender takes over. Time and savings might also be found in the long run with contraction, addition and termination agreements for flexibility.
Flexibility is key for surviving this economy and that includes your real estate. Your broker will have a space planner who can help you efficiently design the space you’re in or determine which space best suits your company. Companies are saving money by going to open floor plans, narrowing cubical sizes and hoteling, which supports employees working outside the office and sharing desk space.
Whether you’re planning to buy, lease, move or stay, make sure you give yourself ample time at least a year but probably longer depending on size to ensure you’ve settled on the best choice for your company.
“The best opportunity is (for companies) to look at their options in the market,” says Smith, who recently saw companies save anywhere from 5 percent to 40 percent on transactions.
“The one thing you can count on is, every time you talk to your employees and you tell them something, they are going to remember,” says Klipsch, the company’s chairman and CEO. “When the facts all become clear, they know whether they got the straight scoop or not.”
When the national economy went into the tank in 2008, Klipsch knew changes needed to be made. He also knew that he had to be very forthcoming with employees about what they were facing at the company, which he says has net sales well in excess of $175 million.
“Whenever there is any change that occurs anywhere in the organization, we lay it up on the table and explain it,” Klipsch says. “We don’t hide it. We keep it as open as we can. It has to be a proactive, consistent, almost 24-7 intent to keep your employees informed with what’s going on.”
Klipsch’s business of selling high-performance speakers began to nosedive in October 2008. The company’s core business is for residential consumers, and with new home construction down sharply, Klipsch knew his product would take a hit.
He needed to make a quick read of the market, figure out where to focus the company’s sales efforts and then get his team on board with the changes.
“Every company’s challenge is to be sure their vision of who they are and what they do is current and correct,” Klipsch says. “The vision of a company in a growing economy like ours was in 2008 is one thing. The vision of a company that needs to survive a serious recession gets less strategic and far more tactical in nature.”
Klipsch knew he had to adjust. By developing a clear vision and communicating it to his team, he was able to stay focused on what needed to be done to survive.
Figure out what you do
Klipsch defines vision as a narrative statement about why you’re in business. Figuring out the answer to this question is a key component to success for any business.
“We’re in the loud speaker business,” Klipsch says. “Then the next cut would be, ‘OK, are you mainly commercial loud speakers or residential loud speakers?’ In our case, we’re residential loud speakers.
“Then you’d say, ‘Are you trying to sell standard products at commodity price points where you’re looking for high volume in dollar sales but lower margin in the per unit sales? Or are you prepared to take lower sales volumes by maintaining a higher quality product at a higher gross margin? We’re the latter. We call that premium loud speakers, best of class.”
The point of this exercise is to be clear about what your vision is supposed to be. If you don’t know that, how can you expect to be attractive to a market with many, many options for just about anything you can think of?
“That vision statement has to nail down all those variables,” Klipsch says. “You are this, but you are not that.”
It’s not as if Klipsch hadn’t had to modify its vision before the recession. The home entertainment industry has been in a state of tremendous flux for more than a decade.
“It’s more matching up to the ever-changing dynamics of the retailer, and then, in our case, understanding new product categories that the consumers have bought in to like earphones and ear buds and docking stations for their telephones and other devices,” Klipsch says.
You need to be in touch with the people who buy and sell your products to get a read on what they are looking for you to do.
“You do that by having interaction with your consumers so you know what’s happening at the ultimate consumer level,” Klipsch says. “There is no reason to wait until the end of the month to know what’s going on during the month, and how we know is by interacting with our customers on a daily and weekly basis all the time. I was with one of our largest retailers all day yesterday and for dinner last night. In those meetings, we get a feel for where they are. If they are starting to see more traffic and are starting to see a recovery and are increasing their orders for October and November, that’s an indicator.”
When two or three other indicators tell you the same thing, that could be perceived as a trend.
“If only one retailer is doing it, maybe he has some unique capability, but it doesn’t represent the market,” Klipsch says. “That’s the judgment call we have to make every day.”
When you’re talking to your buyers and sellers, don’t just ask questions. It doesn’t hurt to talk shop once in a while and get into the details of your strategy.
“We develop strategies so that we provide a product to Best Buy that’s not like the product we provide to hhgregg. The strategies we come up with are meant to give the major retailers some unique product lines and somewhat separate from what some of the other major retailers are selling. So the merchandisers at those different retail stores are participating in how they would like to see that strategy evolve and how they would use their part of the strategy to their advantage. There is a coordination that is occurring.”
As Klipsch has expanded around the globe, the company has also focused on developing strong relationships with distributors so it has a contact point from which to gather feedback about consumer habits.
“They become the primary interface for language issues, credit issues and inventory issues,” Klipsch says.
The goal is to be in touch with your customer and the market and be able to tweak your vision to meet the changes as they occur.
“It’s an ever-changing set of priorities that you tend to have to constantly evaluate,” Klipsch says. “You’re looking at your key profit centers. You’re deciding whether one has growth opportunity or the other one. You just want to protect and stabilize and you reallocate resources, therefore accountability, to evolving new responsibilities as the business has evolved. Let’s face it, your two resources are people and money, and you’ve got a limited amount of both.”
Talk to your team
As you start to figure out the vision piece to the puzzle, don’t do it alone.
“No matter what position you have in senior management, there needs to be at least one other person that you have value in their opinion,” Klipsch says. “Two people really do make more thoughtful and better decisions than any one of us could. Two people or three people ask other questions, generate other thoughts and bring in other things to consider. And after you complete that discussion, you end up making a more informed decision because you didn’t do it all by yourself. That’s true no matter what level manager you are.”
If you don’t feel like you have clear lines of communication in your business, Klipsch says you may want to start troubleshooting by looking in the mirror.
“If you do want an interactive management team where you do listen to people because you do respect their opinion, they have to believe you respect their opinion,” Klipsch says. “That selling job is up to the CEO. If you’re complaining that your team is weak, go look in the mirror.
“If his people are not prepared to say, ‘Hey boss, I disagree with that or let’s rethink that,’ if they are even hesitating doing that, then I promise you they are mo
re than hesitating. There are lots of things going on that they don’t agree with and the CEO’s style or what he said or how he said it has made it impossible for other people to feel like their recommendation makes any sense.”
If you don’t have a good relationship with your management team, pick the person on the team who you trust more than anyone else.
“Pick the person in the senior management team that you frankly have the most confidence in and the two of you start talking about what’s wrong with the entire management team,” Klipsch says. “Start with one person and try to build a team of two or three people. Maybe I replace somebody or maybe I replace one or two people. But you still have to be accountable for that team or you’re not the CEO.”
When it comes time to speak to the company as a whole, go in with your eyes wide open.
“Most employees in most companies know whether they are working for a company that has a management team that’s aware and is trying to do the things that need to be done or whether they have a management team that is ineffective,” Klipsch says. “There’s not an employee of any company today that doesn’t go home and wonder, ‘Could this economy be worse and could I lose my job?’ If anybody said they never have had that thought, whatever they are drinking, I’d like to have a drink of that.”
Once you’ve communicated the plan, it’s up to you to enforce accountability that the plan is adhered to.
“The thing that makes accountability work is reporting,” Klipsch says. “It’s clarity on whether the objectives are truly being accomplished in the time frame they were supposed to be accomplished.”
Klipsch is a big believer in a single piece of paper with four to six bullet points that clearly list the areas of responsibility for an individual.
“Let them expand on that from their perspective on what those mean and then agree about the writing,” Klipsch says. “Have a document written that both sides say, ‘I understand that, and I agree that’s what we want to do.’ It’s very focused on three or four topics and you make it clear what you are looking for and what time frame you want and the intended results you want. Then you’ve got to report on it at least monthly. There’s got to be a checkpoint each month that says, ‘I’m on track,’ or, ‘I’m not on track,’ ‘I have issues,’ or, ‘I don’t have issues.’”
So how do you make sure that managers stay current with the checkpoints?
“It starts at the top with the major corporate objectives and then drops down to lower-level departments to pick out the things they can do relative to the corporate objectives because not every department has a role in every corporate objective,” Klipsch says. “So department by department, by having a top-down approach, eventually what you’ve done is tied in the lower-level organizations in some support way for what that higher-level objective is.”
With a redesigned Web site debuting earlier this year and 35,000 members in its online forum, Klipsch is doing its best to weather the economic storm.
“There is no crystal-clear answer when you have the evolving and dynamic marketplace that you sell to where your customers change quite often,” Klipsch says. “It really is the senior management team’s responsibility to collectively ensure the vision and the financial model and the team that’s put in place in fact matches up to expectations.”
How to reach: Klipsch Group Inc., (800) 554-7724 or www.klipsch.com
This economy probably has your company facing heightened risks risks that you might not be prepared for and that could ultimately cripple your business.
The global economy is the No. 1 risk businesses say they face today, according to the Aon 2009 Global Risk Management Survey. But the survey points out that less than 66 percent of respondents have formally reviewed their major risks or have plans in place to deal with them, including the economic downturn.
Now is a crucial time to have a detailed risk management program in place. After all, budgets are tight, you’re looking for savings and managing risk can directly influence your bottom line.
“(Managing risk) gives you a lot more control over your bottom line outcome if you are acutely aware of what your risks are that you face every day and you have a clearly communicated strategy across your organization to deal with those risks,” says Colin MacNab, vice president, MJ Insurance Inc. “It can help eliminate surprises that can impact your bottom line negatively.”
Hiring an in-house executive to focus on risk may financially be out of the question. But a good insurance broker can help you put the puzzle pieces in place, starting with the questions that will lead to true solutions.Identify potential exposure
Like anything in business, a true commitment to risk management starts with the company’s leadership. Set aside time for your organization’s key players to sit and outline the different risks you might face, such as financial, property and casualty, and legal.
There are a number of assessments you can do such as risk mapping or enterprise risk management depending on the amount of detail and commitment you want your program to include. Regardless of what direction you are going, you should include your insurance broker in the conversation. Odds are his or her experience, benchmarking data and outside eye will lead to valuable questions. A good broker has dedicated risk management and claims services and will go through a checklist that will bring your risks to light.
Once your risks have been identified, your broker can help you develop a strategy to quantify your risks and determine whether you should mitigate or transfer the risk.
“There are a number of different tools that can be used for companies to better understand their exposures, and once they understand exposures, they can then determine what the impact of those exposures would be to their company and their bottom line,” says Tom Breiner, managing director and head of the Indianapolis office, Marsh Inc. “An effective assessment process will also help them determine the types of insurance they should carry and the amounts of insurance they should purchase.”
The process is fairly systematic, but it’s also continuous. A true risk management plan involves constant monitoring. It’s worth the effort to work with your broker to match a timeline of monthly musts with your plan. Especially in volatile times like today, your company could face different risks than it did six months ago.
“Although an insurance program may be adequate when it is first delivered, changes in the legal and business climates may cause the coverage to become inadequate as times change and the environment evolves, creating new exposures and challenges,” says Roy Geesa, senior vice president and manager of commercial sales, Gregory & Appel Insurance.Review risks
Your risk analysis is a great guideline for your specific needs, but there are a few areas of coverage the economy has made more relevant. And today’s evolving risks can be enhanced by geography and industry.
“In the state of Indiana, we clearly have been hit by the economy especially in the manufacturing sector, so there have been a number of risks that have become more significant in this day and age,” Breiner says. “A lot of those relate to business continuity and supply chain exposures, related to the potential insolvency of trading partners.”
Business interruption and trade credit insurance are two areas to review. If a client can’t pay or your operations are halted, how will those scenarios affect your balance sheet if you’re already strapped for cash?
Insurance executives are warning that desperate times produce desperate people. If you’ve decreased your work force or plan to, keep in mind workers’ compensation and employee discrimination claims tend to rise in a down economy, as do employee crime and cyber theft. Now might be a good time to evaluate directors and officers coverage, employment practices liability insurance, crime insurance, cyber insurance and workers’ compensation coverage.
“As the economic situation squeezes employers and as employees are faced with uncertainty, certain areas deserve special attention and certain housekeeping procedures can help reduce your insurance expense,” Geesa says.Find cost-saving solutions
Insurance is one line item that hasn’t been immune to budget cuts. But before you start scaling back coverage, keep this in mind: We’re still in a soft commercial insurance market meaning insurance is a cheap form of risk capital.
A 2009 benchmark survey by the Risk and Insurance Management Society Inc. shows a lower average in premiums contributed to a 9.4 percent drop in the average total cost of risk per $1,000 of revenue.
If you’re worried about the size of your insurance allotment, call your broker now, review your contracts and review your risks. You don’t have to wait until your renewal in order to find savings or renegotiate your contract. Just remember, before you can responsibly lower costs, you need the details of what you are and aren’t covered under.
“People worry about being overinsured, but it’s scarier to be underinsured,” MacNab says. “I think in today’s economic climate it’s a good exercise to go through and really analyze the coverages and see if there are any that could be scaled down if cost savings is important.”
Immediate savings can be found by passing risk to others, such as tenants or vendors. You also can play around with increasing deductibles to lower premiums or scaling back nonmandatory insurance. If the latter two are options, first weigh whether you can financially assume the risk or if the cost of managing the risk is cheaper.
One of the only ways to decrease the costs you can control is by reviewing your claims. You should have regular claims review meetings with your broker to see where prevention methods can be put into place. Your insurance carrier can help with loss control, such as safety training.
Some brokers say clients recently have seen cost savings of 20 percent.
Part of the answer is building a long-term relationship with your broker and even carrier. Share with them details of your operations. Invite them to tour your facility. The more your broker understands your business, the better he or she will be able to provide holistic advice. And a lasting relationship with an insurance carrier can mean more flexibility and negotiation.
In the end, it’s your choice as to how comfortable you are with your risk.
“That’s part of the discussion, understanding well how much (does) the insurance costs and is that a good investment, is that a good use of our dollar to transfer the risk,” MacNab says. “And honestly the answer to that question is very personal. It depends on the individual business and the people running that business and what their real appetite for risk is.”
Education: University of Arizona, bachelor of arts in marketing
What was your very first job?
I worked here at HP. I filed and answered the phone. I was 16. My father, Donald Ames Shuel, started this business a long time ago. He bought the company back in 1964, and he began making it a success before I was born. He was instrumental in instilling a work ethic in my life. He has been a huge mentor in my life. He taught me the business.
It was his vision to diversify product lines and to expand to other product categories, which has been a huge differentiator for us.
What’s the best business advice you’ve ever received?
Listen to the customer, and anticipate the right goods and services needed.
What would be the first thing on your bucket list?
To start a charity, probably something to do with children. I feel like they don’t have control of their destiny a lot of times, and if there was someone in the world I would want to help, it would be kids.
In response to current market conditions, many organizations are paying increased attention to carefully managing balance sheets in an effort to remain competitive or, in some cases, viable. Companies are taking steps to free up capital and cut costs while also trying to keep their work forces engaged and productive.
In that climate, many employers are finding that health care programs present a cost reduction opportunity, as it’s their fastest-growing business expense.
One way to reduce those costs is to make sure that you are only paying for dependents who meet the company’s eligibility guidelines for group medical benefits. Conducting a dependent eligibility audit not only helps reduce your overall costs but also avoids shifting those costs to your employees, or for public entities, to taxpayers.
Smart Business spoke with John Boss, executive vice president with Aon Consulting’s Health & Benefits Practice and head of the Aon Risk Services office in Indianapolis, about how to save money by conducting dependent eligibility audits.
Why should employers conduct audits?
For the past 30 years, most plan sponsors operated on the honor system when newly hired employees added dependents to group health coverage and other employee benefits. However, with the financial pressures of our current economy and health care costs continuing to increase at double-digit rates, employers are motivated to look to other options to reduce costs.
A variety of federal compliance requirements, such as Sarbanes-Oxley and ERISA, have also prompted employers to conduct audits on dependents.
What are the potential savings in health care plan costs as a result of conducting a dependent eligibility audit?
On average, each dependent costs an employer $3,400 annually, and employers who conduct audits typically find 4 percent to 6 percent of dependents who are not eligible for benefits.
Ineligible dependents cost employers 5 percent to 10 percent higher in dependent health care costs, and companies report a return on investment averaging from 10-to-1 to 25-to-1 or more.
While the audit itself is a one-time opportunity to voluntarily remove dependents who should not be covered under the medical plan and realize savings within four to six months, it should also be a natural part of an organization’s health care strategy. By implementing a long-term plan, employers can make sure proper controls are in place for future new hires, life events and annual enrollments to prevent the buildup of ineligible participants. These controls can ensure a maximum return on the organization’s benefits investment and help sustain long-term savings.
What are the reasons dependents are found to be ineligible?
A variety of factors contributes to ineligible dependents covered on the employer medical plan, but the most common reasons are inconsistent or a lack of internal eligibility processes and procedures; poor communication about eligibility requirements; multiple acquisitions and divestitures, leading to multiple plans and eligibility criteria; or a shortage of internal HR resources to manage and/or conduct periodic audits of dependent eligibility.
Consequently, dependents who don’t meet the eligibility requirements set forth by the plan sponsors include overage dependents, such as children who are no longer students; stepchildren following a divorce of the natural parent; extended family dependents under no legal guardianship; and unmarried partners with no recognized relationship under the plan or children of live-in partners with no legal relationship.
What are the steps to conducting an audit?
1. Get executive management buy-in. Obtaining management buy-in is critical. Presenting the facts about how HR is helping to drive cost reductions, improve legal compliance and promote operational excellence establishes the business case for investing in an audit and also helps to advance the brand perception of the internal HR team.
2. Arrange options for those removed from the corporate plan. The most successful tactic to combat negative perceptions of an audit is to create coverage options for ineligible dependents who are removed.
3. Overcommunicate. Employers should communicate the mutual benefits of controlling health care costs for employees and the organization, such as money to invest in research and development, training, etc. The communication campaign should contain a personalized notification letter that includes:
- Explanations on the purpose of the audit, guidelines to protect confidentiality, the name and experience of the company hired to conduct the audit, and information about the call center to answer questions about the audit.
- Information on which dependents are legally eligible and a list of the individuals currently enrolled under the employee’s coverage.
- A list of valid documentation needed to verify all dependents, such as a birth or adoption certificate, marriage license, etc.
- A clear statement of the consequences of keeping ineligibles enrolled that emphasizes the benefit of arranging for proper coverage through other insurance to avoid claim denials with no recourse to other coverage after expenses have been incurred.
4. Involve a third party. Using a third party whose core business is the administration of eligibility can ensure the process includes best practices (such as offering health options for those removed) and adds a layer between you and your employees that can help allay concerns about confronting employees about the legitimacy of their dependents.
John l. Boss iii is executive vice president with Aon Consulting’s Health & Benefits Practice and head of the Aon Risk Services office in Indianapolis. Reach him at (317) 237-2411 or firstname.lastname@example.org.
Chuck Johnson has nearly 25 years in education, training and human resource management. Johnson, who has been with Purdue University’s Krannert School of Management for 12 years, serves as director of executive education programs. He manages the administrative aspects of Krannert’s MBA programs for working professionals and teaches organizational behavior and human resource management courses, all while pursuing his Ph.D., which focuses on training and adult education.
Q. How can a company determine effective training techniques to maximize training spending?
To the extent possible, I’d encourage companies to develop longer-term partnerships with training and education providers. Identifying and establishing such partnerships can be a bit challenging, but doing so can produce multiple benefits to the organization. Among those advantages are having training and education providers who possess a deeper understanding of the company’s goals and needs, greater consistency of training and development programming, and potential cost-savings over time.
Q. How can a business form a successful training regimen?
Tying training and development efforts to performance management systems and competency models ensures companies that they are training and educating the right people in the right areas. Developing a performance and competency-based training and education program is a big endeavor, but it is a signpost to organizations that their training and education investments are aligned with the business needs and goals of the organization.
Q. Are there resources that businesses can look for to more efficiently train employees?
A resource often overlooked by businesses is colleges and universities. Many have faculty experts in a wide range of subjects who can be called upon to deliver short and long courses according to a company’s needs. Technology is seen by many to be a great way to cut down on the cost of training, but I would caution companies not to overrely on technology. Desktop training solutions are great for some knowledge transfer and skills training needs, but there is still a tremendous benefit to having a room full of bright people exchanging ideas and discussing concepts with an instructor or facilitator who is an expert in his or her field.
As health care costs continue to rise, employers are searching for progressive strategies to improve the performance of their health plans.
One way to do that is with a worksite wellness program, which uses a variety of methods and incentives to reward employees for making healthy lifestyle choices. Incentives are typically activity-based, rewarding participants for doing things such as completing a health screening, and employers are now recognizing that they can gain tremendous savings by implementing a well-designed, achievement-based wellness program.
“Achievement-based programs create a win-win situation for employers, employees and their families,” says Sally Stephens, president of Spectrum Health Systems. “These incentive models, if well executed and managed, are financially beneficial to all stakeholders.”
Smart Business spoke with Stephens about how implementing a results-driven approach to wellness can benefit your company.
What types of wellness programs are available to employers?
The types of wellness program services are vast, so an employer has much to consider when deciding to implement a program. Some are more effective than others in changing behavior and reducing the overall risk profile of the organization.
It is increasingly evident that the most effective wellness programs are the ones that reward employees for meeting or achieving certain health goals.
One such strategy is a bona fide wellness program. Employers are adopting this approach at an increasing rate largely due to the associated results.
What is a bona fide wellness program?
Generally speaking, a bona fide wellness program must offer some type of discount or limited reward. They must be in place to promote overall good health, as well as disease prevention.
Some bona fide wellness programs may offer a reduced premium to participants who achieve a certain goal, such as low cholesterol or weight. The rewards must be available to all employees who are in similar situations.
If it is not feasible for a participant to reach a certain health standard, an alternative must be created and implemented. Alternatives typically consist of various health improvement programs to be chosen by the participant.
What issues do companies need to consider before creating a wellness program?
As employers seek to achieve measurable results and communicate a greater level of accountability to employees, achievement-based rewards are receiving greater consideration. Employers adopting this approach need to be aware of the Health Insurance Portability and Accountability Act (HIPAA) guidelines that are specific as to what is allowable in a bona fide wellness program.
Why should companies consider implementing a wellness program?
A successful wellness program benefits an employer in many ways. Within a few years of implementation, the most effective ones reduce the rate of health care cost increases, as well as costs for disabilities and workers’ compensation programs. In addition, well-designed programs help reduce absences and presenteeism and increase productivity.
Research has shown that the healthiest workers are nearly three times more productive than the least healthy. Other benefits include improved workplace safety and employee morale.
The underlying philosophy is that health risk factors such as nutrition, weight control, exercise, cholesterol, blood pressure, safety and mental well-being are strongly influenced by an individual’s lifestyle practices and contribute to the incidence of preventable illnesses.
What kinds of results can be expected?
The best way to illustrate results is through a case study. American Structurepoint Inc., an Indianapolis-based architecture, design and engineering firm, introduced a comprehensive wellness program in 2002. In 2006, the company moved to a bona fide wellness plan design and included spouses, bringing the total eligibility to 355.
It offered a generous premium discount for employees and spouses who completed the health assessment and met certain health goals. The average completion rate for the health screenings has been in the high 90th percentile for all program years.
Comparative biometric data on participants completing the assessments in 2002 and again in 2008 is quite impressive:
- A 15 percent decrease in the number of participants with abnormal measurements
- A 28 percent overall decrease in the number of abnormal measurements A 37 percent decrease in abnormal blood pressure
- A 37 percent decrease in abnormal cholesterol readings
- A 25 percent decrease in abnormal blood sugar readings
- A 14 percent decrease in abnormal HDL cholesterol readings
- The number of employees and spouses with a Body Mass Index greater than 30 decreased from 31 percent to 28 percent
The results from the highest risk segment of this population showed tobacco use decreased from 19 percent to 6 percent and obesity from 56 percent to 31 percent.
The company’s success is due to a well-designed program that drives the highest-risk participants into health coaching programs. It’s also due to the commitment of the management team to be an employer of choice, provide valuable benefits, create a culture that supports healthy behaviors and show employees that they care about their health and well-being.