- For employees, the law provides a no-fault system requiring a safe workplace environment and financial compensation in case of injury.
- For employers, it provides a system whereby an employer can fulfill their requirement to provide protection for employees and have a better way to budget a cost for workers’ compensation injuries.
However, due to increased litigation, costs for employers have skyrocketed in recent years in California. The key to avoiding exorbitant costs, says Ken Kessler, president of Sander A. Kessler & Associates Inc., is to create a safe environment.
“If an employer subscribes to running a safe organization, no matter what type of market we have in California, they will be able to obtain the best rates that are available. Creating a safe environment should be the guiding light for all employers,” Kessler says.
Kessler spoke to Smart Business about the effects that litigation has had on workers’ compensation rates and steps that a business can take to minimize this outlay.
What are some of the factors that are pushing up workers’ compensation costs?
First, realize in California today prices are going down. For the last year and a half, the California market has been adjusting. Previously, the cost of workers’ compensation rose substantially. The days of open rating (1995) and rate slashing brought workers’ compensation premiums below the cost of the workers’ compensation claims.
Carriers did not anticipate the expansion of what was considered a claim in the scope of employment. Costs rose and carriers in turn tried to pass the increase cost to employers.
What part did litigation play in the rising costs?
Litigation was a key factor in the rise of premiums.
Litigation helped drive a disability claim from an average cost in the State of California from $17,000 to $55,000. This, as well as other factors, caught several carriers off guard and as a result several carriers folded or severely restricted their writings in California.
Prices rose to cover costs and California became a difficult state for insurance carriers as well as employers who had to pay the rising cost of the workers’ compensation.
What are some steps that a business can take to minimize workers’ compensation costs?
Workers’ compensation costs are driven by claims. The higher the cost of claims, the higher the premium. To minimize the cost, I would suggest the following.
- Top management must become committed to creating a safe place in the work environment. This should become the culture of the organization.
- Appoint a safety organization with accountability and authority that can implement ideas and actions to create a safe environment.
- Look to identify hazards or conditions that may lead to unsafe acts, and correct them.
- Monitor results to be sure that the organization is moving in the right direction.
In addition, there are several financial alternatives available today that could minimize the cost of workers’ compensation, including deductible programs (partially self-insured), retro programs and group self-insurance
These are three considerations that, if your company is qualified, can substantially reduce the cost of workers’ compensation.
What is your forecast for workers’ compensation costs in 2006?
On January 1st, 2006, an additional 15 percent rate decrease was suggested both by the California Commission and the Workers’ Compensation Bureau.
Premiums will continue to go down for much of the 2006 year.
However, a word of caution: As the result of the losses of Katrina and Rita, the reinsurance market has begun to raise prices. Some of the reinsurance carriers also reinsure workers’ compensation carriers and we may see some pressure to increase prices.
More probable is the fact that the reforms provided in the recent legislation for workers’ compensation are under attack by applicant attorneys. Should they win some of their arguments, claims costs will increase leading to a rise in premiums.
The best safeguard for controlling workers’ compensation costs continues to be creating an organization that has minimal losses. That way, you can prevent human loss as well as take advantage of the insurance marketplace, regardless of the fluctuations in the insurance market.
Ken Kessler is president of Sander A. Kessler & Associates Inc. He functions as the leadership liaison in charge of the Commercial, Personal Lines and Claims departments, and actively participates on advisory councils for several major carriers as well as professional organizations. Reach Kessler at (310) 309-2225 or firstname.lastname@example.org.
At the Santa Monica-based agency, which provides advertising, public relations, promotions and marketing consulting services, the general rule is that two heads are better than one. Associates work together in clientcentric self-management teams toward a common goal of doing a great job for the client and bettering the agency as a whole.
“The idea is if you get good people and you give them the right environment, and then you bathe them in enough feedback and collaboration, the answer will come,” says Phelps.
And not just any answers but good answers. The company billed more than $60 million last year and has seen double-digit annual revenue growth for more than 20 years.
Smart Business spoke with Phelps about how he attracts and retains customers by fostering agency-wide teamwork.
How do you get results for your clients?
I think it starts with the people at the agency. Once we have the mission and the vision and the values and the core competency determined which we have years ago then the No. 1 job is finding the right people and finding people who can do the job, want to do the job and are passionate about it. Once those people are in place ... it’s downhill from there.
We have a very heavy profit-sharing plan so that everyone in the agency wants every other team to be successful, and everybody’s headed in the same direction. When you get all the horses headed in the same direction, you have a lot more power.
How is this model different from what many of your competitors are doing?
The general way to organize is by functional department. You have a production department, a media department, a creative department, and those departments are headed by a director. And that director is often compensated by how much money goes to their department.
So the advertising guy will be with the PR guy at a client, and they’ll be hoping that the client doesn’t take their PR money and put it into advertising or vice versa. So what happens is the client’s best welfare is not at heart. What they are looking for is what’s best for the agency’s individual departments.
We don’t have functional departments. That is a real key differentiator for us. You always know who you are working for when you are at the agency. You’re working for the client. You are not working for a department head.
There’s a lot of conflict of interest that comes in those situations. I learned a lot working for other people and other corporations. One thing I wanted to do was design the conflict of interest out of our company.
How do you find people to carry out your mission and vision?
Because of our mission which is to do great work for deserving clients, and we define deserving clients as those clients whose products ... make the world a better place that’s tending to attract a certain type of person, a person that’s looking for a balance in life, worthwhile work and so forth.
I did an analysis awhile back, and over 60 percent of our people came as a result of a recommendation of one of our associates. And our associates care about who they work with 10 hours a day, five days a week. They pretty much know who is going to work out and who’s not.
When we look for people, we look for obviously talent, experience, desire, and I used to say a good heart. But then I met a few people that had a good heart but they couldn’t play on teams. So we changed it to a good team player.
What are your strategies for customer retention?
Once thing that’s happening and it’s happening at an accelerated pace is whatever you deliver for your client, they’re naturally going to want it the next year faster, better and cheaper.
What you do is you give input to your brain, you let it percolate for a while and then the answer comes. But if the demand is for faster, better and cheaper, you are losing time in the subconscious. So if you don’t have more time, then what we’re doing is we’re putting more brains on the business.
If a regular team of five people can’t come up with the answer in three days, what if they brought that question before a body of 50 or 60 people? The answer could pop faster. Having a lot of people look at the work really is not only a safety net but it’s a great research tool, and it actually improves the work.
What has been your biggest challenge associated with growth, and how have you managed it?
My biggest challenge personally is that if we’ve grown 20 percent a year for the past 18 years and that has been about our growth rate then I obviously can’t work 20 percent harder every year and cover 20 percent more territory. My job changes rather rapidly, and I have had to learn to let go and trust more.
HOW TO REACH: The Phelps Group, www.thephelpsgroup.com.
It is important, says Mary Ann Quay, the co-managing partner of Vicenti, Lloyd & Stutzman LLP, to be cognizant of this law.
“People really need to be aware that the possibility is there,” she says. “Without knowing that, you can unwittingly do some things that you think are going to save you taxes but don’t.”
Smart Business spoke with Quay about why the AMT was originally implemented, the difficulty in minimizing this tax and why she doesn’t expect lawmakers to make any radical adjustments to it anytime soon.
Why did Congress originally institute the AMT?
The alternative minimum tax, which was started in 1979, came at a time when tax rates were fairly high. Congress was concerned that there were a number of wealthy taxpayers who were not paying their fair share of taxes by...taking deductions that were allowable and that were generally only available to the wealthy.
Things like depreciation, depletion and high deductions for state income taxes and property taxes that normal people don’t get. There were enough people in the wealthier category who weren’t paying very high taxes. So in order to remedy that situation and get more tax revenue, they passed the alternative minimum tax.
Why are people in the middle-class tax bracket now being hit so hard by this tax?
Over time several things have happened. One is that in 1986, the tax laws changed so there were fewer brackets and the rates went down. As a result, the wealthier taxpayers, and even the people in the middle tax brackets, are not being taxed at as a high a rate on the top side as they used to be.
At the same time, peoples’ incomes have gone up due to inflation and general increases in earnings. So people have higher incomes and the exemption amount, the amount that’s allowed as a deduction for alternative minimum tax purposes, has not been indexed to inflation.
The level at which taxpayers are being hit by the alternative minimum tax has decreased so that middle-income people are now being hit. There are projections that by the year 2010, one-third of all taxpayers will be paying alternative minimum tax.
How can people plan ahead to minimize tax liability?
The way the AMT works is there are two tax calculations that everyone needs to do: the regular tax and the AMT tax. If the AMT is higher, then you pay it. The things that you do to reduce AMT also increase your regular tax. So you really don’t plan to minimize AMT so much as you plan to find the crossover point where your taxes are the lowest they can be and at the same time not lose the deductions that you end up losing with AMT.
What you try to do is make sure that you know whether or not you’re going to be in the AMT situation for the year, and if you are, you defer or put off those types of deductions so you don’t lose them. Hopefully you can put them into the following year so you can use them when you might not be affected by the AMT.
How can a company help to protect its employees from the AMT?
If a company requires employees to pay for certain things on their own like automobiles, computers and travel, the employees do have the ability to deduct those on their tax returns, but they’re usually itemized deductions. If you have a large amount of those, you end up losing them to AMT.
What a company can do to benefit their employees is pay those things for the employee rather than have them pay it directly. Even if you do that, while at the same time reducing wages, the employee comes out better in the long run and it’s the same out-of-pocket total for the company.
How does a small corporation qualify for the AMT exemption?
If they have average earnings in three years prior to the tax year of under $5 million in revenue, then they are exempt from the alternative minimum tax.
What changes do you expect to see in regards to this tax law in the future?
There has been a lot of talk about repealing the AMT, but I don’t think that is going to happen, especially with the budget being like it is. It would be giving up a huge amount of revenue for the government. In fact there are projections that by the year 2008, the AMT is going to be more tax than the regular tax; it would be cheaper to eliminate the regular tax than to eliminate the AMT. So I don’t think it’s going to be eliminated.
Mary Ann Quay is co-managing partner of Vicenti, Lloyd & Stutzman LLP. Reach her at MQuay@VLSLLP.com.
He and his wife, Susana, were able to transition their home-based office cleaning business into a booming company that now also offers maintenance, landscaping, security guard and food services. The key, Fortunati says, was never straying from their core values of speedy and superior customer service.
“Our company does a lot of business, and we have a 98 percent retention rate,” Fortunati says. “If we lose a customer, usually it’s because there’s a competitive bid. But we haven’t lost customers based on quality.”
Support Services of America has been on a solid track of double-digit growth since it was founded in 1996. Fortunati expects the company to log between $16 million and $18 million in revenue this year after raking in $12 million last year.
If Support Services continues on its current growth track, it should see $24 million in revenue by the end of 2006.
Smart Business spoke with Fortunati about how he’s grown his company and how he finds the right employees to help him do it.
How did you transition your company from a one-man side business to a multimillion-dollar company?
When we first started, we operated out of our house. We started with only one account cleaning a medical building. My wife and I, from 6 p.m. until 1 a.m., would clean this medical building by ourselves.
We got lucky. We basically did a great job, and by word of mouth, that particular customer started referring us to other accounts and other clinics and other buildings.
Little by little, a year later, we had 10 or 12 accounts and I was able to quit my day job and basically start growing the company. After three years, we were able to open a professional office.
Once we opened up the office, we were able to hire people to answer the phones, and we got a professional accountant to help us. Today, we are in 23 states.
How are you able to outdo your competitors?
We created a model to duplicate. And the model was based on two or three very basic premises. One, to always go the extra mile. You never say no. If (the customer) gives you a lot more work that is not in the contract, you show them good faith and willingness. I think the customer appreciates that kind of attitude.
The second thing is we have predicated our company to be very fast. Speed has to do with everything you do. You take care of an issue, whether it’s a request or a complaint, and you take care of it fast. If you can turn around that request or complaint within 30 minutes 60 minutes at the most that shows the customer that you are on top of it.
Then you start to build your reputation around those two issues. We duplicated that every single time with every customer.
How do you find employees dedicated to your mission of customer service?
That’s always a challenge because our industry is a low-wage (industry). Obviously, we have turnover and we try to manage [that] as closely as we can.
The way we hire people mostly is by word of mouth. Our own employees bring us friends and family. They recommend people and ... there is a little bit more of a commitment when we hire that way.
We try to inspire them to do a good job and to be proud of what they do. If you manage that process well, then you have a happy customer and happy employees. And that makes a good company.
What has been the biggest challenge of growth, and how have you managed it?
We find it difficult to manage at a distance, and we’re trying to use all of the technology to be in constant contact with our supervisors and managers and work force. Finding competent management is an issue for a smaller company.
Competent management ... from larger companies still think that we are a small company, and obviously when you are a smaller company, [you] have more risk. That translates into difficulty in hiring good, competent management.
As we keep on growing and building our brand recognition of our name and our reputation, hopefully every year it breaks a little bit of that barrier in the eyes of outsiders. And I think every year we have been capable of recruiting better talent.
How did you penetrate the market for government contracts?
It took us a couple of years to penetrate the federal government contracting. We actually have a vice president of federal procurement, and he has been very capable in gaining market share.
It took us some time because the federal government is highly competitive, very regulated, and people that participate in that need to have a lot of technical skills. There’s a lot of performance reviews. It’s a lengthy process.
I think we got much better at the game, and finally we’re seeing the results. We persisted, and because of that persistence ... here we are. We’re gaining contracts almost every month.
HOW TO REACH: Support Services of America, (562) 868-3550
But getting your employees to participate requires more than simply letting them know it’s available, says Pete Gautreau, a partner at accounting firm Vicenti, Lloyd & Stutzman LLP.
“It’s an educational process which heightens visibility that is effective in bringing more people to participate in the plan,” he says. “And the more people that participate, the better off everybody else in the company is who wants to save.”
Smart Business spoke with Gautreau about pension plans, how 401(k) plans have provided employees with greater control of their financial future and what can be done to encourage higher participation in company-sponsored plans.
The number of benefit plans is large and constantly evolving. What advice would you give to companies about selecting pension plans in the current landscape?
The first piece of advice would be to determine if and which type of a pension plan provides the most value to the company for those who wish to participate. A cost-benefit analysis should be done. Most companies determine that a plan is of value, and therefore, if they’re going to determine what type of plan to make available to their employees, I would certainly advise that the company hire a third-party independent investment professional that can help them through the selection process.
Many times when a company chooses to institute a 401(k) plan, for instance, the selection process turns into a dog and pony show with various providers offering the latest and greatest. You need a professional, especially on the investment side, to help analyze the costs involved, the fees, and also be responsible to conduct due diligence that is necessary to ensure that the selection of investment options covers a broad array of choices.
What is the difference between a defined benefit and a defined contribution plan?
A defined benefit plan is a plan in which benefits are definitely determinable. For instance, one in which a participant would receive, say 30 percent, of monthly compensation for the rest of his life after he retires. So he knows what benefit will accrue to him starting with retirement and ending with his death. A defined contribution plan is one that provides an individual account for each participant and that account accumulates his contributions, the employer’s contributions, earnings and incurs fees.
How important are pension plans in helping to attract and retain key employees?
They can be very important or not important at all. Let’s say in a manufacturing sector where the vast majority of employees are blue collar and not highly paid, putting away for retirement is not that attractive to them. And if they don’t participate, the executives of the company are limited in their ability to participate, so therefore, the plan itself might not be seen as a great benefit. On the other hand, for more professional service companies, those with more white-collar flavor, it’s very valuable because people are more cognizant of their obligation to put away for retirement. As more people participate in the company, the more everyone can put away.
What kind of tax advantages can businesses enjoy by contributing to their employees’ retirement?
The company gets a tax deduction for the amount it funds in a pension plan. That funding can actually occur more than nine months after a year ends as long as the contribution is funded by the company before it files its tax return. It can get a deduction that’s actually not paid until the following year. Plus, all the fees and costs involved in maintaining the plan are deductible.
How has the advent of 401(k) plans changed the structure of pension plans?
The employees are now more responsible for their retirement savings and they’re also afforded more options and security. The responsibility lies in the fact that participants now can determine how much to put away, how to spread their investment, if they want to diversify, if they want to increase their risk, if they want to be safe. They’re really more in control of their own destiny, whereas those participating in the older, more traditional defined benefit plans are discovering those retirement benefits might not be as secure as they thought.
Saving among Americans is very low. What can an employer do to encourage employees to participate in company plans?
Number one, they can offer a match, meaning that the employee will receive a contribution from their employer into their account based on a matching/percentage formula. The educational process is critical. The plan should be publicized. The employer needs to give frequent opportunity for employees to learn about the plan. This can be done by bringing in the investment provider servicing the plan and offering quarterly or semi-annual enrollment and educational meetings. It’s also effective to post results of the funds in the pension plan in a common workplace area in which employees can see, normally through graphs and schematics, how their savings are growing.
Pete Gautreau is a partner at accounting firm, Vicenti, Lloyd & Stutzman LLP. He heads the commercial business division. Reach Gautreau at (626) 857-7300 or email@example.com
As Bec Edelson, partner of Alschuler Grossman Stein & Kahan LLP points out, even negative research can be an important asset.
“If a business spends a lot of time and money coming to the conclusion that a particular path is not the path to take, that can have value to the business and may be considered a trade secret,” she says.
Smart Business spoke with Edelson about what trade secret protection is, why it’s so important and what businesses can do to safeguard their sensitive information.
What elements of a business are eligible for trade secret protection?
Under California law, a trade secret is defined as information which derives independent economic value from not being generally known to the public or from other persons who can obtain economic value from its disclosure or use. It also has to be the subject of efforts that are reasonable under the circumstances to maintain its secrecy.
Even though most people usually think of it as research and development, it can virtually be anything. Businesses should think out of the box and should not limit themselves to the stereotypical R&D. They should consider whether their marketing information, financial information, businesses strategies in general, customer information and database information qualifies as trade secrets. They might also want to consider an idea in someone’s head as a trade secret. It doesn’t have to be put down on paper or even in a computer to qualify as a trade secret.
How can businesses ensure that when an employee leaves, they won’t take any trade secrets with them?
There is actually no way that they can possibly ensure it, but they can certainly take steps to reduce the possibility. They can require the employee to agree to return physical things that reflect trade secrets; for instance, documents and computer discs. Also, it’s important to remember that employees keep things at home, so you need to remind the employee that they check at home. A more difficult issue is what employees keep in their heads. For that, you’ll want an agreement that they won’t use or disclose an employer’s confidential information. A helpful device, as well, is the exit interview.
If a business discovers that someone has already violated a nondisclosure agreement, what steps should they take?
The first thing you probably want to do is consult a lawyer. You also want to consider interviewing relevant witnesses, although admittedly it is not always easy to figure out who the relevant witnesses are. Also, tread lightly with the interview; for instance, one of the witnesses turns out to be the best friend of the person who violated the nondisclosure agreement.
Let’s say that the person has just left and is no longer an employee. What sometimes happens is the employer will immediately reassign that person’s computer to a new employee and important files will get written over or destroyed. Although you don’t necessarily want to dive right in and look at what’s in the computer, you don’t want to reuse the computer either.
You need to consult with a lawyer as to whether or not there are privacy issues, but you want to keep the computer intact. Let’s say you just suspect that there is an employee who has breached their nondisclosure agreement. Then you want to try and cut off access to sensitive information. On the other hand, you don’t want to immediately terminate them without consulting with a lawyer as to what their rights are and what your rights are.
How long does trade secret protection last?
As long as the trade secret remains secret and continues to have value. For instance, if everyone else discovers the alleged trade secret, it’s not going to continue to be a trade secret. Some trade secrets last longer than others; for instance, the recipe for Coca-Cola. Sometimes there’s a technology that’s replaced by a better technology, so it’s not worth anything eventually, even if it remains secret.
Why is it a smart idea to protect your company’s business practices, products, services or intellectual property?
If something has value you want to protect it. If you don’t, rest assured, somebody will steal it. Treating something as a trade secret is not the only way to protect intellectual property. You need to figure out what makes sense for the particular intellectual property at issue, and for your company. Some types of information can’t be protected by trade secret protection. Some intellectual property you may want to protect by trade secret because it can be less expensive than other means of protection and because it’s less rigid. It just really depends on the circumstances of your business and the intellectual property at issue.
Rebecca Edelson is a partner in Alschuler Grossman Stein & Kahan LLP’s Business Litigation Department and is a member of the firm’s Intellectual Property and Patent Litigation Practice Groups. Reach her at (310) 255-9151 or firstname.lastname@example.org
Mike Klowden is at his desk by 7 a.m. most mornings, and he feels like he’s getting a late start. The former COO of Jeffries & Co., a securities brokerage and investment banking firm, used to begin his work day at 4 a.m. It’s a habit he finds hard to break, even though he’s not required to punch in quite so early in his current position as president and CEO of The Milken Institute. Founded in 1991, the institute’s core mission is to promote positive global change and social vitality through entrepreneurship, job creation, economic development and increased availability of financial resources. The institute’s scholars provide practical, results-oriented research disseminated in numerous reports and publications, including the highly regarded The Milken Review quarterly, as well as through seminars and forums.
Smart Business talked with Klowden about doing good, the global economy and how leaders can apply forward-looking thinking to their daily operations.
We believe in market-based solutions. By creating jobs and making access to capital more efficient and democratic, private businesses and financial institutions can drive sustainable development that will help solve many of the biggest challenges facing us, from poverty to pollution.
What we call the democratization of capital [making money and financial tools more broadly available to citizens from all segments of society] has the potential to change and improve the quality of life for everyone, everywhere. In this country, it already has. Much progress has been made over the past hundred years, but there is still a great deal to be done, here and abroad.
I am convinced that it is possible to do well by doing good. Of course, there must be a nexus between shareholder interests and everything else a corporation does. And many companies set aside money for charitable contributions. But rather than just giving a dollar — and I’m not saying anything negative about this — businesses can play a much larger role. When there’s a recognition that it’s an interconnected, interdependent world, then trying to do what is right is not at odds with the bottom line. If a company is heavily invested in a region, for example, its future health is directly connected to the regional economy. Strengthening the local community makes good business sense.
The most successful corporations are those that recognize and address long-term issues. That often means taking chances. This is difficult to do when leaders are under pressure to constantly increase earnings. I think the tendency to focus on quarterly earnings is unfortunate because it puts the emphasis on short-term goals.
Human capital, the most important asset of a society or a business, doesn’t show-up on a balance sheet. As we continue to move toward a knowledge-based economy in this country, hard assets become less meaningful. It is people that will make communities and companies thrive. The emphasis should be on new ideas and the development of intellectual property, education and training of the work force, and providing them with continuing opportunities for advancement. The best CEOs have people skills and understand the value of human capital. They work hard to attract talent, and equally hard to foster and nurture it.
The real question for American business is, what’s our comparative advantage? In a global economy, it’s inevitable that some types of jobs will be lost. But if we understand what our national strengths are and make decisions that emphasize those strengths and positively impact them, we can also increase the number of jobs in other sectors.
Today’s CEOs face a real challenge. They must demonstrate not only ability but integrity. All their constituents, inside and outside the corporation, must trust in the quality of their product and their practices, and have confidence in their capacity for leadership. I feel very strongly that everything one does and says as a business leader should be fit to print on the front page of the Wall Street Journal. All companies have their secrets. There’s nothing wrong with that. But every executive should be prepared to have those secrets made public. Although I’m the head of a nonprofit research institute, my job is the same as every other chief executive office. First and foremost, I must keep us true to our mission. It’s also up to me ensure that we have the financial resources we need to achieve the mission. And it is my responsibility to motivate and manage people, so that they do their jobs and help us achieve our goals. That’s really what all leaders should do, isn’t it?
Much of what we’re involved in here at the institute can directly relates to the business community. By monitoring demographic and market trends, tracking developments in emerging industries such biotechnology and showing how to take advantage of innovative financial techniques, we provide real benefits. One of the key areas we focus on is economic opportunity. For example, we’ve studied the impact of the bio- pharmaceutical industry on job creation, analyzing where these companies are most likely to locate and what the multiplier effect of their presence can mean. Another important sector to pay attention to is minority businesses. The Institute coined the term EDM, emerging domestic markets, now widely used to talk about the tremendous potential within minority communities for buyers, sellers and investors. Entrepreneurial capital can make a big difference here.
Another initiative we’re involved in is accelerating the delivery system of medical science to the marketplace. We’re looking at what can be done to facilitate the transformation of research into new treatments and cures for deadly and debilitating illnesses.
We hold a global conference annually that brings business and policy leaders together with some of the best minds of our times, including some Nobel laureates. Last April, 2,400 attended. There were 325 panelists discussing 90 different topics. The feedback we’ve gotten on this gathering and others that we host throughout the year is that those who attend are stimulated and excited. They say we’ve helped them think about the issues that face them in new ways, and that they are highly motivated to apply what they learn.
How to reach: Milken Institute, (310) 570-4600, www.milkeninstitute.org
Instantly likable and approachable, and with a ready sense of humor, he disproves the old adage that nice guys finish last. Because as chairman, president and CEO of VCA Antech, the nation’s largest provider of pet health care services, he’s definitely a winner.
The company he co-founded in 1986 with his brother, Arthur, who serves as COO and senior vice president, has doubled in size in the last five years to $674 million in annual revenue. That growth has continued this year, with sales up 25 percent in the first half to a record $393 million and profits up nearly 19 percent to $81.8 million.
Since going public in 2001, VCA Antech’s stock has more than quintupled in value and the company now boasts a market value of nearly $2 billion.
But for Antin, being top dog isn’t just a numbers game.
“Success is about more than the bottom line,” says the 55-year-old entrepreneur. “I also measure how well I’m doing in terms of my relationships. Would the people I work with want to have lunch with me? Do they speak well of me, feel kindly toward me? What’s the feedback from our employees? How do they feel about how I’m doing?”
That’s how nice guys think. But it also reflects something good leaders know.
“Companies run on their people,” Antin says, “not titles and job descriptions. Invest in them.”
That’s been the policy of VCA Antech originally called Veterinary Centers of America since its inception.
Building on people
VCA Antech, which acquires and manages veterinary practices, operates in 37 states, with more than 360 freestanding animal care facilities that treat domestic pets on an inpatient and outpatient basis. It also runs 28 clinical laboratories that provide testing and diagnostic services to approximately 15,000 independent animal hospitals.
A third arm of the business is the sale of diagnostic equipment. This network synergy, plus centralized administration and group buying power, enhances the caliber, efficiency and profitability of each site. But the company’s most valuable asset, in Antin’s eyes, is the creative energy of the men and women it employs.
“We’ve tried hard to create an environment that is the opposite of a ‘Yes sir, no ma’am’ corporate culture,” says Antin. “Our management style is open, horizontal and based on mutual respect. Anyone can call my brother or I to talk about what’s on their mind, and they do. Most importantly, we want managers to feel comfortable making decisions. It’s not out of the ordinary to try something new.”
In many cases, standardizing operating systems makes sense, he says, but an inflexible structure that “puts people in a box” and does not allow for individual differences is always counterproductive.
“There’s a lot of talent within this organization,” Antin says. “I welcome other visions of how things should be. I hope the people I work with will challenge me and fight for what they think is right. No one will ever get fired for speaking up.”
This is especially important for a company that’s in the business of buying established entities. An added factor for VCA Antech is that the entities it’s buying animal hospitals are usually owned and operated by vets.
“Once they sell to us,” Antin says, “they decide whether they want to stay on, and in most cases, they do. It can be hard at first. Overnight, they lose their identity and their position. But we don’t come in and start rearranging the furniture. We adapt to them rather than the other way around.”
There are 1,400 doctors on the company’s payroll, and while many are happy to turn over the administrative responsibilities and headaches to the parent company, there is some fear among practitioners that they’ll lose their autonomy when VCA Antech takes over.
“Initially, vets worry that we’ll interfere with how they practice medicine,” Antin says. “This was especially true in the early years. We had to earn their trust, convince them we were on their side and demonstrate that we had something to give them.”
The company provides equipment, expertise and training; runs the hospitals; handles employee benefit programs; pays the bills; and implements systemwide policies and procedures for quality assurance. What it does not do, says Antin, is tell vets how to do their jobs.
“We understood from the start that veterinary medicine is a hands-on art and not something to be managed,” he says. “Individuals in this field are passionate about what they do. Our policy is to leave doctors free to work in their own way, as they see fit. I think that’s why we’ve been so successful.”
Seizing an opportunity
Some of that success is also attributable to seeing and seizing an opportunity. Bob and Arthur Antin had pioneered the development of outpatient surgery centers for human health care, and when the company they founded, AlternaCare Corp., merged with another firm in the mid-’80s, the brothers began looking for a new focus and found it in pets.
“People love their pets,” says Antin, whose household includes his dog, Buster, his wife and three kids. “When they get sick, owners want them to have the best care possible and are willing to pay out of their own pockets for it. Arthur and I thought we could use our experience in human heath care and apply it to the practice of veterinary medicine.
“We put together a plan with input from two vets who owned the largest animal hospital on the West Coast. Our goal was to upgrade every aspect of the profession and the quality of care available to consumers.”
They bought their first hospital with a group of private investors and took the company public in 1991 before it was bought out by equity firm Leonard Green & Partners LP in 2000 and returned to private ownership. In 2001, VCA Antech went public again, and two years ago, Leonard Green sold its stake in Antech. Throughout all these transitions, Bob Antin has remained in the driver’s seat.
“Suddenly I found myself in a position analogous to our doctors’. One day I was the boss, the next day I was working for somebody else,” Antin says. “But the new owners were management geniuses, and I learned a great deal from them. The more freedom you give people, the better they work.”
With that freedom, the company has grown and its mission has expanded to include continuing education and advanced specialty training.
“Historically, that didn’t exist in this field,” Antin says. “Today’s vets want postgraduate training. We established our own internship program and have driven changes within the industry by increasing what vets are paid and providing access to new treatments, new tools and new diagnostic techniques. This has prompted a shift from general medicine to the development of various veterinary specialties that parallel those in human health care.
“One of our doctors just did an endoscopic procedure on a lion. We’ve also created more of a career path within the profession for nonvets.”
Today the company has 9,800 full- and part-time employees, including 1,400 doctors in its hospital division and 80 interns. Another 180 people work at corporate headquarters in Los Angeles. And regarding those employees, Antin defines his role as one of guide, mentor, communicator, listener and resident encourager.
“In graduate school, they taught me how read a financial report,” Antin says. “That’s helpful. But of all the skills needed to run a business, none is more essential than the ability to get along with people.”
Baseball Hall of Famer Leo Durocher coined that expression about nice guys finishing last. But pitcher Sand Koufax disagreed.
“Nice guys can win,” Koufax said, “if they’re nice guys with a lot of talent.”
And it’s Antin’s talent for playing well with others learned, he says, at home and growing up on the streets of New York City that’s helped him make VCA Antech a leader of the pack. How to reach: VCA Antech, (310) 571-6500 or http://www.vcaantech.com
When a top-level executive suddenly leaves or is terminated, it is imperative that a system is in place to handle the proposed departure and ensure a seamless transition, says Mary Lee Wegner, a partner in Alschuler Grossman Stein & Kahan LLP’s business litigation department. “Separating an employee even if it’s amicable is more complicated than it appears,” says Wegner. “Employers need to consider how to address several important issues before a termination happens.”
Smart Business spoke with Wegner about the importance of handling executive separations.
In the case of an executive termination, what factors should be considered before taking action?
The starting place is whether the executive has a contract, and if so, what the contract says about the circumstances in which the executive can be terminated. Even if the employee has no contract or is at-will, I still advise employers to think through the potential issues before discharging someone.
Consider whether the employee is in a protected class or recently has engaged in protected activity, like taking a disability leave or complaining about sexual harassment, just to be sure there isn’t some type of discriminatory or retaliatory motive that taints the discharge decision. Also check to be sure that there are memos and performance evaluations to substantiate the reason for the termination.
If the employer can document a legitimate business reason for the decision like monetary-based layoffs, performance issues or the desire to change business direction there shouldn’t be an issue.
If an executive leaves, voluntarily or otherwise, what steps should be taken to protect a company’s intellectual property, client base and reputation?
Hopefully, the company has had its executives sign some type of confidentiality and nonsolicitation agreement as a condition of employment. When an executive is on the way out, give the individual a memo that attaches whatever agreement has been signed or that at the very least reminds him or her not to use or disclose confidential information (or solicit employees, if applicable).
Ask the employee to sign a statement verifying the return of all confidential documents or data, including copies or summaries. Additionally, make sure your IT people are ready to shut down the individual’s access to the computer network and e-mail and voicemail systems as soon as the termination occurs.
Collect the employee’s office keys, security passes, parking cards, Blackberries, laptop computers, credit cards and anything else that could compromise physical or technological security.
If a company uses a noncompete agreement, what should be included?
In California, as a general rule, covenants not to compete are not enforceable except in very limited circumstances, such as when they are accompanied by the sale of the good will of the business. For example, if a business owner sells and executes a noncompete for a reasonable period of time, that probably would be enforced.
On the other hand, if an executive signs an agreement not to solicit employees or clients for a limited period of time after employment ends, those agreements can and will be enforced. The agreement needs to be reasonable in time (usually a year or two), scope and manner. It can’t be so restrictive that it essentially prevents the executive from competing in the industry or it will be challenged.
Are there any instances in which you can extend that one- to two-year period for the agreement?
In California, most employers don’t ask for more than a year or two with respect to a nonsolicitation agreement because the courts have found two years to be reasonable. Again, if a business owner sells his or her business or there is another situation, like sale of a partnership interest, where a noncompete would be legitimate, then the buyer also might be able to get more than a two-year nonsolicit from the seller.
Absent those circumstances, it’s questionable whether a longer agreement would be enforced.
What should a CEO do to keep morale high and prevent a mass exodus following the departure of a popular executive?
The CEO needs to let people know about the change immediately and explain how the transition is going to be handled. People always have a certain degree of fear about change, even if they disliked the executive who is leaving.
They want to know that someone is in charge, has thought about the issues and is prepared to tell them what is expected of them. If the separation is voluntary, the CEO and the departing executive may announce it in advance, together and provide details about a proposed succession plan.
If the separation is involuntary, then immediately after the executive’s departure, the CEO should issue an announcement, either orally or in writing, and provide instructions about how the departing individual’s responsibilities are going to be handled.
Mary Lee Wegner is a partner in Alschuler Grossman Stein & Kahan LLP’s business litigation department. Her practice focuses on commercial and employment litigation. Reach her at (310) 255-9146 or email@example.com.
Although they can’t perform surgical tasks on their own, they are a useful tool for surgeons. Peter Schulam, M.D., Ph.D, who practices at UCLA Medical Center, is a big fan of the efficiencies this technology brings to the operating table.
“If I give you a robot and it helps you see better, then I know that the variability for a particular task is going to decrease. Instead of having this wide bell-shaped curve of outcome, it will be very narrow,” he says. “That’s the goal of innovation and technology in the operating room.”
Smart Business spoke to Schulam about robotic surgery, the importance of medical innovations and how physicians work hand-in-hand with companies to bring new products to the market.
How important are innovations such as robotic surgery in the medical world?
Without innovation, there is no forward progression of the science of surgery. At times, even though it may not be what we think is the most cost-effective or efficient manner, if we don’t continue to explore these areas, then we’ll be standing still and there will be no advances made within surgery.
If there is no one out there willing to explore, then unfortunately, it will never be ready for primetime. It takes people with a certain amount of patience and dedication to drive these technologies.
Who is typically involved in the development of these technologies?
Most of the medical innovations in the past have been driven by industry, but now there seems to be more of a collaboration or cooperation between industry and physicians. The two are working more closely, and, in fact, I think the more successful ventures are those that have a better collaboration with the surgeons and physicians involved in the workings of the technology.
What type of research and development processes are used?
A lot of it starts out with an idea. A prototype is developed, it’s usually tested in an inanimate system basically just being sure that it functions as we suspect then it may move into an animal system with a laboratory setting. In order to actually bring something to the patient, it becomes much more difficult.
Initially, it involves the internal review boards of hospitals, and then this information is usually taken by the company back to the FDA in order to get approval for use with humans.
How do you take a something like robotic surgery from idea to practice?
We’ve learned that it’s difficult for surgeons or physicians on our own to bring something to market. Usually, once an idea seems to be brought to fruition, and we feel as though we have reasonable inanimate or animal testing, then we may go out and look for industry to help us further test, and then sponsor, its production. That’s if something comes as a pure idea from within the hospital.
Other times, even from the outset, the idea may be generated by a physician directly to a company. Then, working together with the company, the idea is brought to fruition. Most of the time, especially if you talk about things like robotics, industry is leading and we’re collaborating.
What changes in training will this type of technology require?
We don’t know. What we’re trying to do overall with innovation is we want to improve the standard of care provided to the patient. The question is, how do you improve the standard of care? Instead of training people in the actual operating room when we’re operating on patients, can we use innovations to train surgeons in more of a simulated environment? That would improve skill sets so that when the patient and the physician actually meet, the physician has a higher level of skill.
The presumed learning curve would have been addressed early on in a simulator or inanimate model, much like how a pilot learns how to fly planes.
What efficiencies does robotics create in medical operations?
Robotics is what I like to refer to as an enabling technology. There are a lot of surgeons who, without the robot, can perform a particular task, but it’s not every surgeon. If you take 10 surgeons and ask them to perform a particular task, some will do well on it and some may not do as well. What the robot does is it levels the playing field and it allows all 10 surgeons to accomplish the task at an acceptable standard.
Dr. Peter Schulam is director of laparoscopic surgery at UCLA Medical Center. Reach him at (310) 825-1172.