Clare Cottrill

Owners of commercial real estate have taken their hits and have learned along the way about the most efficient use of capital. Still, this market has dictated that being profitable means owners are putting an even greater focus on keeping costs down while maintaining service delivery.

“There are two sides to the NOI equation: income and expense. A good property manager is always addressing both sides,” says Kenny Coven, managing director of asset services at CBRE. “It’s in making sure that a given asset out-performs the market relative to occupancy rates, that they’re getting the highest rents that the market will bear and that they are retaining their current tenants while bringing in new tenants. That’s the income side of NOI. On the expense side, you strive to keep expenses as low as possible while keeping the services delivery best of class.”

Smart Business spoke to Coven about how to address the key issues of income and expense in today’s market.

What is the biggest issue faced by owners of commercial real estate today?

If you asked four years ago, it would have been a different answer, but in this economy and with the current credit crisis, it comes down to funding. If they’re in that cycle where they have to refinance right now, especially if they bought in 2006 or 2007 at the peak, they were modeling their building at the then current rent, and property values were at their highest. Since then there’s been downward pressure on rent, there’s been greater vacancy and devaluation of property values. So if they are in the market to refinance today, it’s much more difficult for them, and if they’re looking to spend money on tenant improvements to attract new tenants, it can be very challenging to find those dollars.

Several years ago when a broker took someone out to look at space, there may have been seven or eight spaces that met their requirements; now there are 15-20 potential units. So it’s even more important that the service delivery be outstanding, that you respond to tenants’ needs within hours of when they come up, and that from the time you get out of your car at the curb to when you’re in the space that everything is well kept. In this competitive market, you need to do everything you can to retain your tenants, bring in new ones and keep your expenses down.

What type of building owner should engage third-party management?

Building owners that use third-party management are generally multi-tenant, institutional, or just private owners that understand that, because of our size, our nationally negotiated vendor contracts, the amount of staff that we have and our skill set and expertise, we can manage their properties better and cheaper.

Where a third-party manager like CBRE can be most effective is in cross-selling services. We do the property management, the leasing, the construction management, and provide technical services, i.e. engineers and technicians. All of those different entities are led by different groups, but we’re all under the same roof and the real estate manager becomes the general. When CBRE provides all of the services just mentioned we get a lot of synergies that help in providing a seamless operation.

When should a property owner seek the assistance of a property management professional?

I personally believe that looking at third-party management is probably a good idea for almost any owner. Because of economies of scale and nationally negotiated vendor contracts, we can generally step into most buildings today and instantly bring expenses down 7-12 percent. For example, we took over a half-million-square-foot office property two years ago for a lender that had taken the properties back. The day we stepped in that door, we saved them $1 a square foot on operating expenses.

Often it’s a question of going for a real estate tax reduction. In many cases the single largest component of operating expenses are real estate taxes, and it’s not a difficult argument today based on what’s happened to the value of real estate. In the case just mentioned, however, the $1-per-square-foot of savings was a combination of the reduction in costs of goods and services.

What are some of the keys to successfully managing commercial property?

It’s taxes, its utility costs, it’s any third-party vendor contract such as elevator maintenance, snow removal, landscaping, tenant improvements, etc., as well as supplies used in the building itself.

It’s also understanding the specific needs of that asset relative to the market it’s in as well as the owner’s given strategy, because it’s not the same for every owner. We have some owners that are currently in the market to try to sell their building, which will require a different strategy than someone that intends to own a building 10 years from now. You’re looking at capital expenses and you’re looking at value creation over the next 10 years as opposed to someone who knows they’re going to be selling in the next two to three years.

Are they coming up for refinancing in the next two years? Because then occupancy and the length of the lease is greatly important to them. It may be a case of talking to every tenant whose lease is expiring in the next three years and trying to work out a new seven- to 10-year lease with them now where you give them some savings or maybe some additional tenant improvement dollars. Then when you come up to refinance in two years you don’t have a lot of leases that are rolling immediately.

It’s key to try to stay ahead of what could potentially happen out there, and to figure out what to do to put yourself in the best position to get that space leased when it comes to market.

Kenny Coven is the managing director of asset services at CBRE in Cleveland. Reach him at (216) 363-6436 or

When CBRE decided to “green” its worldwide operations in 2008, the benefits were clear: reduced utility costs and water usage, happier employees, a major boost to company reputation. It experienced an added bonus just three years later when it was named by Newsweek as the 128th greenest U.S. company — the only real estate services firm to make the top 500.

“Our chairman got behind the sustainability practice group and set the goal that we were going to be carbon neutral by the end of 2010, and we met that goal,” says Tim Gascoigne, associate with the CBRE Sustainability Practice Group. “CBRE is now an experienced sustainability and LEED consultant with all the tools and resources to guide building owners and tenants through a successful ‘greening’ process of their full building or suite.”

Smart Business spoke to Gascoigne about what it takes to have a “green” building and why the advantages it creates are too great to ignore.

Why is it beneficial for companies to make efforts to be green?

The main drivers of the sustainable movement are large public corporations and the government. Both groups view ‘green’ as a way to reduce their costs, reduce their environmental impact and gain a heightened impression of social responsibility. More and more companies are putting out a corporate social responsibility reports. If you look at all the public corporations out there, many of them are starting to publish this to show how green and responsible their corporation is, which is becoming a wonderful marketing tool. As for the government’s commitment, they are looking to achieve LEED (Leadership in Energy and Environmental Design) certification in all the buildings they build, and will only lease certain buildings that have these characteristics.

Although tenants are definitely driving this movement more so than the building owners right now, a building owner will look at LEED as a competitive advantage to capture these quality tenants that want these LEED-certified spaces. They do get overall savings with energy reductions, but they also have to spend the money to get the tenants. It’s been shown that LEED-certified buildings far exceeded all the other buildings in terms of rent per square foot.

I think the ‘green’ trend will start moving to smaller companies who will also use a sustainable reputation as a marketing advantage.

What are the cost implications?

With larger multi-tenant office buildings in the 500,000-square-foot range, it’s running about 25-50 cents per square foot to make the building LEED certified. So there’s a cost, but then there’s a payback in how much you are able to reduce energy consumption and how much more you are able to increase rental rates.  In the most recent CBRE Green Building Survey, the average utility spend for the subjects’ multi-tenant office buildings was around $2.50 per square foot per year. It quickly adds up, as some building owners have been able to achieve a 50 percent reduction in this cost. Furthermore, this study found that the LEED-certified building were able to capture $4 to $7 per square foot more in rents. This is a great achievement that adds significant value to these buildings.

Oftentimes, there is intervention that improves the payback, whether it is a utility company offering a rebate or a state program that provides financial incentives to encourage lighting retrofit. That’s a pre-tax benefit; there are also after-tax benefits that come through cost segregation studies, which break properties down into component parts to accelerate depreciation.

Where should a business begin?

The first and simplest step toward being green is to look at the energy and the commodities that you consume — water and energy — and come up with a plan to reduce your consumption.  Next, focus on recycling. Simply recycling traditional items like cans and paper make a difference, or, if you want to get more advanced, you can look into commercial composting.

The No. 1 place to start if you’re a building owner is with regard to your lights. And it’s usually one of the easier places to achieve savings with how fast technology is moving in that category. You can put motion sensors in certain parts of the building so that lights automatically go off when no one is in the room. It’s tough to calculate the exact savings on sensors, but upgrading a lighting system has direct savings that are easily calculable. Typically, in older office buildings that have 4-lamp T-12 fixtures, you can upgrade to 2-lamp T-8 fixtures and achieve a 70 percent reduction in cost. If you look at the fixture wattage, you’re going from 188 watts in the older lamps down to 56 watts with the new lamps.

HVAC is also a great category to focus on for tenants. With improved indoor air quality your employees take less sick days, which improves your productivity. Most HVAC systems just need small adjustments to achieve significant increases in comfort levels and cost savings. We had a client in an office building that we managed that had a large central air conditioning system and, when the fan turned on, it would spike the utility usage. We were able to come in and put variable drive motors on that air conditioning system, which reduced the spike of electrical usage and made it run more efficiently.

So you’ve got to look at all of those components as a way to control and reduce. There are new systems that are much more energy efficient and there are ways that current systems can be modified to improve them.

What other things can businesses consider?

Everyone is trying to reduce the amount of storm water runoff — rain water that picks up waste and pollutes nearby water supplies. Parking lots are being developed with porous surfaces so the water runs through the pavement and reduces runoff. The new approach to landscape architecture involves more green space, which not only makes a property look better, but also reduces the storm water runoff.

Tim Gascoigne is an associate with CBRE’s Sustainability Practice Group. Reach him at (216) 658-6115 or

Maybe you’ve noticed that there are some members of your team who aren’t quite living up to their potential. Have you taken the time to figure out why, or whether these people should even be in these roles within your organization? To compound the problem, perhaps your top performers are starting to look restless.

If you’ve been delaying the task of getting your team in top-performance shape because you don’t know where to begin, the time to take action is now.

“Talent optimization is so important today because businesses and the economy are starting to recover, and now business leaders are challenged by a new concern: talent,” says Meghan Bilardo, director of Organizational Strategy and Assessment at Corporate College. “No longer are they cost-cutting and trying to survive; they’re really looking to innovate and grow, and that takes a new strategy and approach to talent.”

Smart Business learned more from Bilardo about what it takes to win the talent war in a make-it-or-break-it business climate.

Why is talent optimization so important?

To win this year and beyond, organizations need skilled and engaged employees. They can either build the talent that they have on their team through education, coaching and assessment processes, or they can work to recruit talent away from competitors. It’s so important this year — and especially with supervisory and mid-level managers — that people can innovate and that they have opportunities to develop and advance within an organization. Managers must understand their employees’ capacity for new and emerging skill sets in order to help the business reach its objectives.

What are the consequences businesses face by not paying attention to this?

Companies that are limited to the old hierarchical structures are becoming dinosaurs. We’re in a business environment that is more skills-based than ever and we know that talent drives performance. One piece of the puzzle is that organizations don’t understand where their talent lies, what people’s capabilities are, and what they need people to be able to do differently for their organization to win. Organizations must integrate talent optimization into their strategic planning process.

Another piece of the puzzle is the selection process, which includes everything from identifying the critical roles needed to meet business objectives, sourcing candidates and then hiring them. Many organizations do not have the processes and tools in place to be able to make that selection, so, again, they miss out on an opportunity to win.

How can businesses improve their hiring processes so they’re bringing in the right talent?

Begin with the end in mind. What are the organizational goals for this year? What skills, attributes and knowledge do your candidates need to have to meet and exceed those goals? Ensure that your job descriptions are up to date and accurately depict the tasks and responsibilities of each role. Job descriptions should clearly define what a person needs to do to achieve those goals.

Once you’ve identified qualified candidates, another best practice is using testing and pre-employment assessment tools. Using an assessment tool with high validity means that it’s got a greater predictor of success for certain roles, and would also be legally defensible since you’re using it for selection. The goal is to match a candidate’s capabilities with an organizational need. Assessment tools can help you identify knowledge or ability to apply skills, as well as analyzing and problem-solving abilities.

The next piece to focus on is the employment experience. Organizations need to develop a brand for what type of employer they are. Are they an employer of choice? Do the most skilled and talented people want to work there?  With a strong brand you can attract talent from the competition and decrease your time to fill open positions.

Once hired, it is essential to orient new hires to your organization so they can hit the ground running. Managers have a responsibility during the first 90 days to educate, support and check in with new employees.

How will talent optimization help businesses attract and retain top talent?

It relates back to your employment brand. If you are known for setting clear expectations, coaching employees, rewarding high performance, encouraging professional development and delivering bottom line results, the most skilled employees in the market will want to work with you. The best employee talent base is always learning, so businesses must understand what their people need to learn, why they need to learn it and the ROI in terms of increased performance and employee retention. Alignment with training companies and community colleges that offer curriculum and courses is a very important component as well. The entire skill acquisition learning space is evolving very quickly, and if businesses don’t understand this then they’re going to have difficulty in being agile and responsive to the market.

Most companies will burn out talent, as if they’re disposable. The companies that are going to win are those that feed their talent and give them what they need to realize personal, social and economic gain through their organization. That soon becomes the reason a talented person wants to work there: they know that they’re going to have an opportunity to grow continuously and to do new work over time. Those are the kinds of things talented people are going to be looking for when they’re deciding where to work, and they also drive employee engagement.  When engaged, employees go above and beyond, which of course leads to improved financial performance for the organization.

Having a good talent optimization system doesn’t mean you’re always going to win, but not having one means you don’t have a chance.

Meghan Bilardo is the director of Organizational Strategy and Assessment at Corporate College. Reach her at (216) 987-2800 or

Most people are not comfortable talking about their finances, even with family members. Parents especially can have a fear of sharing their estate and succession plans with their adult children; they’re afraid of upsetting harmony in the family, or they’re sometimes avoiding the perceived greed of hearing their heirs talk about “I want this, I want that...”

Yet, if they’re not communicating, then really it’s an artificial harmony, and the family won’t understand the effort the parents went through to create a fair plan, says Ricci Victorio, managing partner of the Mosaic Family Business Center.

“One of the most important aspects in planning for your family legacy, whether there’s a family business or just significant wealth, is communication,” she says. “Parents often use the family holidays, like Thanksgiving, to explain their gifting strategy. But these kind of family settings are almost always inappropriate for discussing emotional or delicate issues. The result is that the family will dread attending the next holiday or family event because they remember the blow-up that happened last year.”

Fortunately, discussing finances with the family and maintaining family harmony don’t have to be mutually exclusive. A better setting for those kinds of discussions is in a “family council” meeting.

Smart Business spoke to Victorio about using a family council to tackle the often daunting task of communicating with family members about estate and succession planning.

How can the process of family decision-making become easier?

One of the best venues to discuss the business of the family is in a ‘family council.’ What we’ve learned is that people should separate family gatherings from family business discussions. A more formal setting encourages a more professional and organized approach, often by having advisers and a facilitator present to help explain things in a way that won’t upset or confuse.

Unmet expectations or anxiety about the unknown can seriously undermine family harmony. Whether there is conflict or not regarding the succession plan or the division of assets you can sidestep potential years of tension and upset by tackling these tough discussions step by step with the guidance of a trained facilitator. Knowing, even if you don’t like the answer, is most often better than being in the dark.

How does a family council work?

Once a family makes a commitment to using a family council, I like to help them develop a ‘Family Charter.’ It’s a statement of purpose and vision and helps to define the core values that are important to communicate to the next generation. Objectives and goals are defined, which helps to keep everyone focused on creating an agenda for each meeting. With regular meetings and the integration of younger family members as they mature, this mechanism for problem-solving and planning for the future will be passed on to each generation long after it was initially created, contributing to building the family legacy.

Once I get to know the parents and their plan, what they want to communicate and what they’re comfortable communicating, I survey each of the involved family members. I ask such questions as: What do you know about your parents’ estate plans? What do you want to know? What is your vision of the future? If there’s a family business, to what do you attribute its success, and what are some ways you can think of to perpetuate that?

Another way families can better communicate is to learn one another’s personality styles. Understanding what kind of leadership styles are natural to each individual can make it clear where there might be points of tension. Often, conflict happens due to different personality styles, rather than it being intentional. Initiating a family council by learning about the best ways to approach one another as difficult decisions are made makes it much easier to talk about other complicated issues.

What kinds of issues are discussed?

In laying out an estate plan — especially one that is quite involved or intricate, where a family business or any kind of considerable assets are involved — the more complicated it gets, and the more you need to layer in the pieces of information. We can explain the concept of the estate plan and the succession plan without using numbers. Then it becomes more clear why, for example, siblings who are involved in the business are going to inherit voting stock in the business, and the non-active kids might either receive non-voting stock or other assets like real estate or securities or something of a fairly equitable range.

A family council can’t just be convened one time. It really needs to become a part of how you address the business of the family. And it may not always be related to estate planning — it could be used to talk about difficult family matters, charitable gifting, or other ways to support the community. You can also use it to introduce family members to a financial planner or to broach the subject of insurance or investing to help the kids learn how to handle the money they’ll inherit. A family council sets an atmosphere where everyone knows they’re going to be professional and courteous, even when making difficult decisions.

Who should consider a family council?

There are various levels of family councils, and I would suggest that families of more than one generation who have a family business or significant assets absolutely must consider this kind of vehicle. Every family needs to be able to communicate what their planning is to those impacted. The worst thing that can happen at the time of loss of a parent is to also experience the shock and surprise of not understanding what they had intended. You don’t want your kids resenting each other because they didn’t understand why Mom and Dad made the decision they did.

When someone says, ‘I’d rather just let them figure it out when I die,’ it’s setting the stage for eventual conflict. What kind of legacy is that? This isn’t the way you want to be remembered. Leaving a legacy of love and harmony, and then security and business success, would be any business owner’s dream.

Ricci Victorio is managing partner of the Mosaic Family Business Center. Reach her at (415) 788-1952 or

You are an emerging privately held company originally funded by venture capital. You have compensated your valued employees with stock options. For various reasons, certain employees decide to leave your company to work for competitors or are let go. Now, these former employees holding stock options in your company decide to make a claim against you and the rest of management alleging the value of their stock interests have been diluted by your subsequent capital funding.

Whether they have a valid claim or not, are you covered for the millions of dollars it may cost you to defend the litigation? The answer depends on whether you hold the right type of directors’ and officers’ (D&O) coverage.

Smart Business spoke to Jonathan Sokol, a partner with Greenberg Glusker Fields Claman & Machtinger LLP, about how business can ensure they have the D&O coverage that’s right for them.

Shareholder suits typically represent the majority of claims brought against directors and officers of a corporation. D&O insurance, unlike other lines of insurance, is not sold on a common policy form used by the insurance industry as a whole. Each insurance company has developed its own set of forms. Because D&O insurance involves a highly specialized line of insurance, the standard of care applicable to brokers representing clients in the procurement of such policies dictates that they be informed of the different insurers and their policy terms to place coverage at the best available terms for clients.

Unfortunately, however, not all brokers, upon whom most companies rely exclusively in the procurement of their D&O insurance, possess the expertise necessary to advise their clients properly regarding various options available in the marketplace.

Companies, particularly emerging privately held companies that hope to eventually go public and provide compensation to their valued employees and executives in the form of stock options, have a particular need for D&O insurance. This affords coverage for claims brought by employees or former employees owning stock or stock options in the company.

Not all policy forms used by the various D&O insurers provide coverage for securities claims brought by employees in their capacities as shareholders. Some policies contain a form of “insured v. insured” exclusion that bars coverage for securities claims brought by employees or former employees, unless the insured company purchases a special “carve-back” endorsement to the exclusion to provide coverage for such claims.

The insured v. insured exclusion

All D&O policies have an “insured v. insured” exclusion to prevent one insured from collusively suing another to trigger coverage (e.g., management suing itself to trigger coverage). A common form of this exclusion provides as follows:

The insurer will not be liable to make any payment of Loss in connection with a Claim brought by or on behalf of, or in the name or right of, the Insured Organization, whether directly or derivatively, or any Insured Person, unless such Claim is brought and maintained independently of, and without the solicitation, assistance or active participation of, the Insured Organization or an Insured Person.

The problem arises through the definition of an “Insured Person” that typically includes employees — a seemingly harmless act of expanding coverage under the policy for claims brought against employees. However, by expanding the definition of Insured Persons to include employees, the “insured v. insured” exclusion now becomes applicable to claims brought by those same employees against the corporation, creating a potentially huge gap in coverage for securities claims brought by employees or, worse, by disgruntled former employees holding stock options.

The “carve back” to the “insured v. insured” exclusion provides coverage for claims brought by employees or former employees in their capacity as shareholders without the active participation of the company’s management. Some insurers offer this coverage as part of their basic coverage form without the payment of an additional premium. Others require the purchase of a special “carve back” endorsement to obtain this coverage.

If a company’s broker places coverage with one of these latter insurers without obtaining the “carve back” endorsement, the company could be facing substantial uninsured exposure for securities litigation brought by employees, or more typically disgruntled former employees or directors of the company. Without adequate D&O coverage, the company could have to spend millions of dollars defending such litigation — even if the case has little merit.

Such a crippling scenario begs the question, “So what should a company do to protect itself against major gaps in D&O coverage?”

  • Use a retail broker who has expertise in procuring D&O coverage. The broker should be up to date as to the various policy forms available in the marketplace so that he or she can place coverage at the best available terms.

  • Make sure your retail broker works with wholesale brokers who have access to the marketplace and are also experts in the various coverages available therein.

  • Provide your brokers with as much information as you can about the nature of your business.  Include the nature of your employee and executive compensation so that they are well aware of your particular insurance needs.

  • Involve an experienced insurance coverage attorney in the process of reviewing your existing coverage to identify gaps. Your attorney can also work with your broker when it comes time to renew coverage to negotiate necessary changes to policy language to protect you and the company.

Understanding your coverage and working with the right brokers and attorneys can provide you with the security that you have got your bases covered.

Jonathan Sokol is a partner with Greenberg Glusker Fields Claman & Machtinger LLP. He has more than 20 years of experience representing policyholders in complex insurance coverage litigation. He can be reached at (310) 201-7423 or

The Economic Espionage Act of 1996 was passed by Congress to protect American intellectual property and trade secrets. The act makes the theft or misappropriation of a trade secret involving commercial information a federal crime. Thieves can be inside employees — identified as the culprit 60 percent of the time — competitors, hackers looking to sell the information over the Internet, or foreign governments.

Smart Business learned more from Ron Williams at Talon Companies about protecting the assets that keep your company in business.

Where should businesses begin to protect their data?

To prevent theft of proprietary data a company must first identify what their ‘crown jewels’ are. These trade secrets must be identified and treated as secrets in order to have standing to seek criminal or civil charges against those who steal the information.

The second step is to conduct a physical and IT Security Risk & Vulnerability Assessment to identify how the trade secrets are protected and how a culprit can steal the information.

What are some ways data can be stolen?

Culprits, who are frequently inside employees, are stealing trade secrets and sensitive intellectual property through a variety of straightforward and not highly technical means. For example, culprits are sending e-mails to themselves, including through their personal Web-based e-mail accounts, that contain information in attachments. In addition, portable hard drives can be easily attached to a computer and its contents downloaded in a matter of minutes. In addition to both of these techniques, culprits continue to print hard copy documents and walk out the front door with them.

What preventive measures should companies put in place?

Once the vulnerabilities have been identified, the company must establish an INFO-SEC program to compartmentalize the information and protect the data with firewalls and encryption. An audit system that tracks retrieval of the data should be implemented to determine who accessed the data with time and date.

Employee electronic transmissions should be monitored as well as printers that store valuable data. The IT system should be monitored on a 24/7 basis so that an intrusion or breach can be identified immediately and steps should be taken to thwart the attack.

How can businesses thwart attacks?

In light of the frequent use of portable hard drives as a means to steal trade secrets and sensitive intellectual property, there are significant methods that organizations can embrace to mitigate this risk. In fact, the use of such portable hard drives can be prevented by disabling their access so they cannot be used as a vehicle to house stolen trade secrets.

Risk can be further mitigated by preventing employees from being able to access personal Web-based e-mail accounts. In doing so, organizations can ensure that illicit communications are not taking place and trade secrets and sensitive intellectual property are not being sent by employees to themselves or to untrustworthy third parties.

Lastly, a layered and tiered security program integrating physical, electronic access and egress measures with cameras and IT security together with a training program backed with policies and procedures is the recommended method to protect valuable trade secret information and intellectual property.

For further insight and information:

U.S. Government for victims of identity theft:

U.S. Secret Service for victims of identity theft:

FTC consumer complaint form:

U.S. Department of Justice:

SSA Inspector General for fraud:

Ron Williams is the CEO at Talon Companies. Reach him at (800) 808-2566 or to schedule a training program. Reach Talon Companies Headquarters at, (800) 808-2566, or

As nonprofit facilities continue to face increasing financial challenges and uncertainties, executives are tapping and expanding their philanthropic activities to provide funding for vital construction projects, advanced health education, critical patient programs and unique medical technologies.

To learn more, Smart Business turned to Cecilia Belew, president of Saddleback Memorial Foundation in Laguna Hills and San Clemente, and Paul Stimson, director of Orange Coast Memorial Foundation in Fountain Valley.

Why is philanthropy so important?

Nonprofit hospitals typically began when concerned citizens raised funds to ensure local access to high-quality health care. Over the years, donors continued their support, helping add the programs, services and facilities necessary to keep pace with medical advances and innovations.

These are your community hospitals, and your philanthropy makes a difference.  Even in difficult times, we are witnessing a larger number of philanthropic friends making decisions based on the fundamental reason people give — to make a difference and ensure the best health care is available close to home. To protect and enhance this kind of care, ongoing philanthropic investments are critical.

How does it impact hospitals?

Philanthropy elevates a life of success to a life of significance. We see people making that choice every day: children raising $12 for cancer research through a lemonade stand, individuals that fund charitable trusts and annuities making outright major gifts, board members who provide expert leadership, the hundreds of volunteers and organizations that sponsor fund-raising events. Many choose to fund endowments that provide sustainability to critical patient programs and continuing medical education.

Every gift we receive has a story. All stories begin with a philanthropic friend, continue through the work of our health care team and then impact the lives of our patients and our communities. Every week, premature babies are saved, elderly patients comforted, illnesses diagnosed, bones mended and lives saved — thanks to the generous philanthropy of individuals, corporations and private foundations in our caring communities.

Philanthropic donors and organizations are vital partners in achieving success at Orange Coast Memorial and Saddleback Memorial Medical Centers. This is especially true during a time when hospitals are challenged in securing the newest technology and in expanding programs to meet the needs of the community. Thanks to the countless philanthropic friends, our hospitals are able to add the programs, services and facilities necessary to keep pace with the latest advances. And all our philanthropic friends appreciate the value of having extraordinary patient care today and in the future.

What are some examples?

Our decades of offering compassionate, quality care are based on the generosity and expertise of extraordinary people. Orange Coast Memorial Foundation supported development of the new six-story Patient Care Pavilion that provides access to some of the most respected physicians and advanced diagnostic and treatment facilities for cancer, surgery, obesity and imaging services at Orange Coast Memorial. Recent gifts are helping fund the new cardiac rehabilitation center, as well as nursing education.

Saddleback Memorial began when Leisure World residents, envisioning a world-class hospital in southern Orange County, raised $500,000 and the developer Ross Cortese donated nine acres. Opening in 1974, it was the first community health facility serving the growing Saddleback Valley. Since opening, Saddleback Memorial has received over $200 million in philanthropic gifts. These funds supported construction of Meiklejohn Critical Care Pavilion, the Women’s Hospital and the numerous programs, services and medical technologies at the Laguna Hills and San Clemente locations.

MemorialCare Health System does its share to help our communities. During the last fiscal year, our medical centers provided nearly $150 million in charity care and community benefits. We are also active in our communities, having supported organizations like March of Dimes, Susan G. Komen for the Cure and the American Heart Association.

We value the philanthropic funds that are entrusted to us by our donors and grantors. The gifts, grants and bequests given to our foundations help distinguish our hospitals as top medical institutions. We are confident that the philanthropy which built and sustained both Saddleback Memorial and Orange Coast Memorial as well as our many Centers of Excellence will continue, thanks to the commitment of our caring communities.

How can employers help?

We appreciate that businesses continue to leverage their resources to support their communities, even in difficult times. They understand their unique position as corporate citizens in taking a proactive role to making a difference and encouraging their employees to do so as well.

Orange County employers and their work forces help us ensure high-quality health care through a number of philanthropic channels — individual gifts, corporate grants, payroll deductions, endowments, estate and planned gifts, corporate gifts,  in-kind gifts, tributes, fund-raising events, sponsorships and much more. Even as businesses continue to be impacted by an uncertain economy, many of them give back by supplementing charitable giving with longer-term pledges as well as gift commitments.

Cecilia Belew is president of Saddleback Memorial Foundation in Laguna Hills and San Clemente. Paul Stimson is director of Orange Coast Memorial Foundation in Fountain Valley. The not-for-profit MemorialCare Health System includes Long Beach Memorial Medical Center, Miller Children’s Hospital Long Beach, Orange Coast Memorial Medical Center in Fountain Valley and Saddleback Memorial Medical Center in Laguna Hills and San Clemente. For additional information on excellence in health care, please visit

Whether an owner is near retirement or not, he or she should have a plan for how and when to exit from the business and incorporate it into the broader financial and management plan of the company.

“You can’t ignore it, particularly with a private business,” says Mario Vicari, CPA, CVA, a business advisor and a director in the Audit and Accounting group at Kreischer Miller. “Most business owners have the bulk of their wealth tied up in their companies. Owning 100 shares of your private company is not like owning 100 shares of IBM, where you can just call your broker and sell tomorrow. Exiting a private business is far more complicated.”

Smart Business spoke with Vicari about the four areas of readiness to consider for a successful and profitable exit.

What areas of readiness must a business owner consider when planning an exit?

One is owner readiness. Many people are unwilling to confront the fact that they’re getting older and that they have to address what they’re going to do with themselves and their business. This involves the psychological aspect of coming to grips with the fact that you’re probably not going to be doing what you’re doing forever and giving some thought to what that transition looks like. Owners who refuse to plan for this issue can create a bad situation that can do a lot of harm to the value of the company.

The other thing owners have to evaluate is their personal financial readiness. What does retirement look like, financially speaking? Have they saved enough money to maintain their lifestyle? If they decide to get out of the business, is it necessary to create liquidity by selling it? The owner’s estate planning should be incorporated into this analysis. The owner’s financial situation often dictates the exit plan for the business.

What other areas should an owner consider?

The second area of readiness is financial readiness of the company. In order to consider any kind of transaction, it is important to understand the company’s financial situation.

This typically involves the company’s earnings and cash flows, as well as its overall financial position. How well capitalized is the company? Is the company leveraged? Are the balance sheet and the cash flow of the company healthy so that there are a lot of exit options?

Suppose an owner is 53 years old and he wants to retire at 60 and sell his business. During those seven years, the company has to make decisions every year about how to allocate its capital — whether to buy new equipment, take on debt to buy a new building and expand the business. The financial condition of the company is a critical consideration because it dictates a lot of what you can do. If nothing else, a strong company, from a financial standpoint, will maximize the price if an owner decides to sell the business.

The third area of readiness is the performance of the company. How well does it perform in its industry and peer group? Is it being run in a way that is maximizing returns on capital and returns on assets? How well is it performing from a profit standpoint? If the company performs poorly, it makes any transition harder, and it makes the value of the business less.

The last area of readiness we focus on is management readiness. If an owner has been in that business for 20 or 30 years and wants to leave or take a lesser role, he needs to look at the next level of executives to ensure there are no weak links. It’s critical to make an honest assessment of the management team and make changes if necessary so that there is a clear succession plan.

A good executive team is probably the most critical piece of any exit because it allows an owner to exit knowing that the business is in good hands. A great management team is a critical cog if the owner sells the business outright or if he decides to do an internal transfer to family or the management team.

How does this relate to the owner’s ultimate exit plan?

In private companies, whether an owner plans to transfer the business to children or sell it to a third party, if these areas of readiness — financial, performance and management — are all functioning at a high level, it doesn’t matter which of those choices the owner makes because he or she will have a lot of flexibility in planning the exit. If it’s an internal transfer, the transition will be smoother if you have a good management team and balance sheet. If you decide to sell, you’ll get a higher price with a good management team and financials. There’s a lot of congruence in these areas, and they’re important no matter what the owner’s exit choices are.

What if an owner’s exit is more sudden?

Aside from the all-important planned exit, there should also be a plan for an emergency exit. If something were to happen to the owner of a private business, the company should have a strategy or a document in place for the management team, as well as the spouse.

The owner should take a close look at the buy-sell agreement, and his or her life and disability insurance. Especially in cases of a single-owner business, the owner should leave instructions on who does what tomorrow if something happens to them unexpectedly.

A basic set of instructions could include which advisors to use to help sell the company, or how to hire a new president until the company can be sold. These factors are often left unsaid, and the managers jump in to help, but it creates chaos if you’re not sure who’s in charge. Another way to address this is to form a board to oversee this process. When the business is so concentrated on one person, and something happens, the company can be at risk and place undue pressure on the spouse.

All owners will have to exit their businesses at some point. We feel it’s best to be prepared, because the consequences of not planning properly could be severe both personally and financially for the owner.

Mario Vicari, CPA, CVA, is a business advisor and a director in the Audit and Accounting group at Kreischer Miller. Reach him at (215) 441-4600 or

A letter of intent is used by a buyer and a seller to memorialize their intent to negotiate toward a sales transaction, and includes a general description of some of the fundamental terms of the deal. Naturally, any document that illustrates intent in an M&A transaction can have far-reaching implications for both parties.

“Even though letters of intent usually do not create binding obligations, they heavily influence future negotiations between the parties. And, if not drafted carefully, they may create unintended legal obligations,” says Todd Kegler, a director at Kegler, Brown, Hill & Ritter and the chair of the firm’s M&A area. “Business people frequently negotiate letters of intent without involving legal counsel; however, most would benefit from engaging counsel as early as possible and, at a minimum, prior to signing any letter of intent.”

Smart Business learned more from Kegler about how to approach a letter of intent from both a buyer’s and seller’s standpoints.

How should a business negotiate and craft a letter of intent?

The primary function of a letter of intent is to provide each party with some assurance that they’re in general agreement regarding the basic terms of a transaction prior to either party spending significant resources on comprehensive due diligence and preparing and negotiating definitive agreements.

A seller’s bargaining power is usually greatest prior to signing a letter of intent that contains any type of exclusivity provision. Accordingly, a seller generally should attempt to negotiate a letter of intent that is detailed and explicit with respect to the material terms of the transaction.

By contrast, a buyer’s bargaining power usually increases after signing a letter of intent that includes an exclusivity provision. Consequently, a buyer will often prefer to negotiate a non-specific letter of intent, using general language and deferring the most difficult negotiation issues until a later date. Of course, there are exceptions, such as when a transaction will require a unique or material covenant from the seller, in which case a buyer may prefer to address that issue early to be sure that the seller will agree before proceeding further.

What are the risks of using letters of intent?

There are several risks in using letters of intent. One is that letters of intent can create unintended, binding legal obligations, particularly if the parties do not involve legal counsel. Most often, some provisions are specifically intended to be binding, such as exclusivity provisions, while others are intended to be non-binding. This requires careful drafting, and the parties need to ensure that all non-binding provisions remain non-binding following the termination of the letter of intent, particularly if negotiations continue following a termination of the letter of intent. Second, a buyer risks getting bogged down in detailed letter of intent discussions too early in the process, before any momentum and trust has developed between the parties, which may result in a premature breakdown in negotiations.

What terms should be included in a letter of intent?

A seller should:

  • Insist that the letter of intent specifically addresses the form of the transaction; sellers generally prefer to sell stock rather than assets.
  • Negotiate the purchase price and any details regarding any pre- or post-closing purchase price adjustment, such as a working capital adjustment.
  • Insist that the buyer disclose any closing conditions to avoid later surprises, such as a financing or due diligence contingency.
  • Be specific with respect to what sort of indemnification provisions would be contained in the definitive agreement, including indemnification limitations such as indemnification caps, baskets, or other limitations on post-closing liability.
  • Negotiate a right to terminate the letter of intent and exclusivity in the event that the buyer attempts to renegotiate any of the material terms, such as purchase price.
  • Include confidentiality and non-solicitation provisions to protect the seller’s business, customers and employees.
  • A buyer should:
  • Try to describe the form of the transaction more generally to preserve flexibility as to whether to structure the sale as a stock sale versus an asset sale.
  • Describe closing conditions, indemnification provisions and so forth in a very general way, with language such as: ‘The definitive agreement would include such provisions as is usual and customary for transactions of this type.’
  • Always try to include an express exclusivity provision prohibiting the seller from entertaining offers from any other prospective buyers for some period of time — usually 60 to 90 days.

Todd Kegler is a director at Kegler, Brown, Hill & Ritter and the chair of the law firm’s M&A area. Reach him at (614) 462-5409 or

It’s a fact: government-related policies affect businesses, from unions and health care to labor law and workers’ compensation. Rather than sit on the sidelines and deal with the outcomes of the decisions made by state and federal governments, it only makes sense that businesses should make efforts to make their opinions known to those who make the policies.

“There are thousands of different points of view from different interest groups, and public policy makers try to take those things into account,” says Elise Spriggs, a director and the chair of the Government & Legislative Affairs practice group at Kegler, Brown, Hill & Ritter. “The concern is if they’re not hearing from you then your issue may be forgotten or they might not be aware of it.”

It’s not only large corporations that can have an influence; any company can simply take part in the process. And for those with a greater stake in the outcomes of these decisions, hiring a representative provides the guidance needed to more effectively, and legally, develop relations with government entities.

Smart Business spoke with Spriggs to learn more about what companies can do to make their voices heard on the policies that impact their practices, employees and operations.

What types of companies should concern themselves with including a government relations and lobbying strategy in their business plan?

This should concern most companies that are impacted directly or indirectly by government regulation. This can include such issues as changes to workers’ compensation laws; business taxes; anything related to health care, whether it be in its delivery or employee benefits; environmental regulations; or proposals to regulate current business practices. We in Ohio have an unemployment compensation trust fund problem, in that we’re under-funding it. We’re not yet sure what the outcome of the decisions regarding this issue will be in the future, but it is likely to impact companies when they decide what those changes might be.

Government policy impacts a wide spectrum of businesses. That’s what makes government relations and lobbying so important; it’s basically advocating a point of view.

How might the upcoming elections affect budget disbursements?

As it relates specifically to state elections, the state of Ohio is looking at anywhere between a $4 billion and $8 billion budget deficit going into the next fiscal year, which will start in July 2011. I think the upcoming elections will impact how public policy makers think that they want to address those budget deficits, whether it be by increasing different revenue enhancements through fees or taxes, or if it’s through cuts, collective bargaining agreements or consolidation. The election will impact how public policy makers decide to proceed.

How can businesses lobby effectively?

The key to lobbying effectively is that it involves more than just trying to persuade legislators/government officials. Businesses need to analyze and recognize the impact that current regulations and statutes have on them or how things that are being introduced or offered may impact them. They need to understand how to effectively communicate their concerns. Companies need to start developing relationships with public policy makers, whether it’s on their own or by hiring a lobbyist to do that for them, in order to educate public policy makers on what impacts their business.

Are there certain restrictions companies should be aware of?

You need to be aware of campaign finance restrictions in general. Specifically, if you get some type of government contract, there are going to be even more restrictions that relate to you. When hiring a lobbyist, it’s part of his or her job to make sure that companies are aware and counsel them on what they can and cannot do related to contributions and/or gifts and how to go about advocating their case in a proper, legal fashion.

What are the issues that companies should concern themselves with today?

The biggest issues to impact businesses are changes to the unemployment compensation fund, changes to the workers’ compensation fund and any proposed changes to Ohio’s business taxes as a result of the upcoming budget shortfall. The state also needs to determine how it is going to implement federal health care reform and how it will impact the state and its citizens.

Elise Spriggs is a director and the chair of the Government & Legislative Affairs practice group at Kegler, Brown, Hill & Ritter. She also works in the firm’s Administrative Law and Gaming Law areas. Reach her at (614) 462-5451 or