Where were you born?
I was born in Colombo, Sri Lanka. I’m one of the few people that’s probably lived in three different continents. I was born in Sri Lanka, I went to the U.K. when I was young and did my engineering degree in the U.K. I had my first 10 to 15 years experience there and then I came to the States in ’94 working for Texas Instruments.
What was your very first job?
The very first job was in an ice cream and jelly-making factory. I worked on the manufacturing line lifting boxes and crates of jelly and ice cream. It was at that point I decided that I didn’t want to work in a manufacturing department and I better go get a degree.
Whom do you admire most in the business world and why?
Steve Jobs, for me, at Apple. I have a tremendous amount of respect for him. I just think he’s created an innovation culture at Apple. I buy Apple products and I love them, and to me, that is what it’s all about in the technology world that we live in. If you create products that your customers really love, there’s a certain pleasure in that, there’s great satisfaction. I think what he’s done at Apple has just been tremendous.
If you could be one superhero, who would you be and why?
This is funny because I have a 7-year-old boy and we play together I have two teenage girls, as well but you know boys, they love superheroes. So this was easy for me because every time I discuss them with him, I always tell him about Superman, and the thing that I like about Superman is just one thing: that he can go back in time and change future outcomes. So with all the bad things that go on in the world, one of the things that I always think about is if I were Superman, I could go back and find out what went wrong and fix it.
Unified Communications (UC) is defined as integrated means of communications, used to optimize the flow of information across an organization. UC integrates real-time and not-real-time communications components with a consistent unified user interface and experience across multiple devices and media types.
“When businesses are ready for increased productivity they are ready for UC,” says Monty Ferdowsi, the president of Broadcore. “And, the more the better; the whole is greater than the sum of its parts.”
Smart Business spoke with Ferdowsi about UC and how it can help your business become more efficient and profitable.
What applications or components are included in UC?
UC solutions are made up of a variety of components and elements, including calling (IP audio and video), messaging (e-mail, instant messaging, voice, video), conferencing (audio, Web, video), presence (online and telephony), mobility (client and device awareness), collaboration (whiteboard, document and file sharing), business process automation (customer relationship management interface and Web 2.0 integration), contact directory management and calendaring. In a complete UC solution, all these components are tied together with a consistent, unified user interface and experience across multiple devices and media types.
What differences will a company experience when integrating UC?
The main benefit of UC is increased productivity. The most common and costly pain point in organizations is the latency or waiting to receive information from colleagues who are not available when needed. Loss of several hours per week may be attributed to the disjointed systems and inefficiency in flow of information.
With UC, each employee is aware of the status of his or her associates and there is no need to play phone tag. In fact, in many cases an instant message is all that’s needed between two coworkers working on a task. The communications between associates may begin with an instant message, escalated to a phone call, clarified through a collaboration session, and followed up with a detailed e-mail.
The unified messaging component of UC allows users to be able check voicemail in their ‘e-mail clients.’ Employees no longer need to call into their voicemail box and plow through several messages just to get to the one message they need. With messages stored in the e-mail client, the users can easily go right to the message they want.
A single user interface is all that’s needed to make and receive calls, check voicemail, and send or receive e-mails and instant messages. There is no need to switch between client applications or devices to access different UC components.
Should businesses invest in premises-based UC or hosted UC?
Hosted UC is definitely better for several reasons:
? Lower initial capital investment: Clients do not invest in purchasing network and application hardware or software.
? Flexibility: The on-demand, pay-as-you-use model allows organizations the flexibility to grow as fast as their business requires, without investing in excess capacity.
? Lower predictable total cost of ownership (TCO): The larger the organization the lower the per-unit TCO. Hosted providers are generally able to deliver their service at prices lower than premises-based solutions. The cost of ownership is a predictable flat monthly fee that is based on the number of current users.
? Reliability backed by a service level agreement (SLA): Hosted providers offer specific SLAs that establish objective tools and processes to measure and verify compliance, along with appropriate incentives or penalties based on service performance and reliability.
? Focus on core competencies: You can focus on your core business objectives instead of getting involved in the ‘business’ of providing communications tools for your employees.
? Shorter and more successful deployments: Hosted providers have established process-led, repeatable implementation workflows, resulting in more successful and timely deployments.
? Future-proof investment: There is no hardware or software that needs to be upgraded or replaced. Upgrading and adding new functionalities and features are all part of the service.
? Hardware agnostic: Hosted providers use the Session Initiation Protocol (SIP) open standard to deliver their solutions. Hosted providers are indifferent to which network equipment, voice endpoints, desktop clients and mobile devices are used.
? Technical resources are not necessary: You no longer need to hire and retain highly technical staff members with special skill sets just to maintain and manage resources.
? Geographical independence: Hosted UC is delivered over any private or public IP network without requiring virtual private networks (VPN) or multi protocol label switching (MPLS) designs. Clients are able to easily maintain a distributed work force with unified presence and receive the same user experience.
? Reduced energy consumption: It is estimated that an individual premises-based IP telephony solution consumes about 20 to 30 amps. A hosted solution removes this consumption from the customer’s premises to the carrier’s data center and reduces the customer’s direct consumption by about 50 percent.
? Single-vendor accountability: Hosted providers are responsible for delivering the whole solution to their customers. There is no separation between providing access or UC components and there is no finger pointing. The one single vendor is ultimately responsible for ensuring uptime at all times.
There was a time when Memo Kahan believed that payday was the day that mattered most to employees.
“I used to be a guy who believed that getting your paycheck was all that there should be. You signed a deal or you get paid for doing a task,” says Kahan, the president and founder of PromoShop Inc., a promotions and marketing services company that generated $33 million in 2008 revenue.
But his management team thought otherwise and, eventually, made Kahan see the light.
“What our management team did was they tried to convince me that there was more to coming to work than a paycheck,” he says. “Fortunately, I was open-minded enough to try anything. Our management team put new programs in, and I found that the effect has been pretty amazing.”
Kahan’s realization has helped create a culture at PromoShop that is focused on employee motivation through competition and recognition.
Smart Business spoke with Kahan about how you can place an emphasis on motivation at your company.
Value recognition. Recognition doesn’t have to come in the form of tangible cash recognition, but it has to recognize that someone is going above and beyond in their job. It can be a letter, it can be a speech, it can be a pat on the back, but recognition is so important these days because we are all reading the paper too much and we are all so enthralled with layoffs and what is going on out there in the business climate. Your people need to be recognized and valued, not just because they get a paycheck, but let them know that they belong and are an integral piece of the operation.
We recognize our people in front of their peers. We are a sales organization, and we always have incentives for our salespeople, but sometimes we forget the operation is the backbone to our company. Without our operations people, our salespeople wouldn’t be able to sell anything. With that in mind, we have a program called the ‘five star.’ Anytime someone goes above or beyond, or does something that is not part of their day-to-day operation, we’ve set up a Web site where salespeople and fellow operations people can recognize their peers. On a monthly basis, we read out the employees that are recognized. Some people are recognized five or six times a month for doing things that are above or beyond their normal scope of work. On a quarterly basis, we name a five-star winner who was most recognized over the quarter, and we give two big awards on a yearly basis, as well.
Promote constructive competition. About six years ago, we did the first sales contest, which also included the operations team. The salespeople would always come in saying, ‘I’ve got an order.’ But then, during the contest, their behavior pattern would change, and they’d come in and say, ‘I’ve got a contest order.’ They’re making enough money that the gifts they could win in the contest are things they could buy anyway, but it is all about winning the contest, not making the money.
That taught me some amazing lessons, and these contests have evolved into quarterly contests and monthly competitions. It’s really powerful.
If you engage employees like this, you will become a believer, too. The investment of time, resources and money that you put into an endeavor like this is the best money you can spend.
However, implementing a program to reward and motivate employees is a little bit of trial and error, based on the culture throughout your company. Different people are motivated by different things. Through trial and error, sooner than later you will recognize people’s patterns and people’s desires and fears, which will help you round out whatever program you’re looking to implement.
Put the team first. Even when competing with each other, you need to instill as part of your culture that if your neighbor wins, we all win. We play as a team and we win as a team. If we win as a team, everyone’s successes really allow the company to foster a winning attitude and will foster more success.
I’ve worked in environments before where people locked their doors and hid their Rolodexes for fear that their neighbor would come in and steal their opportunities. Very early on, we decided that was something we would not tolerate in our organization. Besides the accounting door, we keep every office opened; nothing is ever locked. We truly believe that fosters a team spirit that is a means to success. We share information. We share situations, knowledge and experiences. Everyone in the company is willing to help their neighbor, even though everyone is going after the same audience. But there is enough to go around where, if you do it for the right reasons, it works really well. It’s not something that you necessarily preach; it’s something that you just have to do.
Open-mindedness on your part is the beginning of forming a team-first mentality. It’s a willingness to take criticism; it’s the understanding that we’re all on the same team and working toward the same means and ends. It’s the sharing of information and engaging of people. As leaders, we don’t have all the answers, and we don’t sit down and tell our people how it needs to be. We just express what our experiences have been.
Revenue is down, the budget has been hacked away and now you’re edging toward reducing employee health care coverage — or even eliminating it outright. Before taking action, take into account the short-term benefits and long-term effects of your options.
A knee-jerk reaction may be to shift the benefit burden to employees. But those who have been down that road, say there are ways to take a strategic approach to generate value from a shrunken budget and employee pool. The most successful organizations over the long-term will be the ones that cut costs now, while improving the health of their employee populations.
Utilize existing resources to find out how you can save money, starting with your health insurance provider.
“If your insurance provider builds plans on wellness and prevention, you could save money by initiating a wellness program to complement your current employee health insurance plans,” says William B. Caswell, senior vice president of operations for Kaiser Permanente, Southern California Region. “You don’t want to be asking all of the time how you got sick but, ‘How do I get better and stay better?’”
Awareness of the claims filed by your employees will allow you to determine the best health plan move that will work for their needs and devise a health promotion program that will be most appealing to them. While moving to a lower-cost plan may be a necessity, it is a temporary fix and should be complemented with an emphasis on health that will have a more lasting impact.
A 2009 Watson Wyatt report shows that 67 percent of employer respondents to an Annual National Business Group on Health survey say the top challenge to maintaining affordable benefits coverage is employees’ poor health habits. Only by managing these habits can you truly get your costs under control.
Work with your provider
Work with your health insurance provider to decide what the best options to your budget will be. Negotiating rates with insurers isn’t usually effective, as insurers aren’t offering massive discounts because of the economic downturn. The option you usually have is a different plan with reduced coverage.
One option is cost shifting to save the company money while increasing the cost to employees. But altering plans and shifting costs to employees isn’t solving the problem of high premiums. A Hewitt Associates LLC executives’ survey shows that participants found cost shifting didn’t bring out desired behavior changes in employees and that an emphasis on health at the workplace is needed.
Another money-saving health care option is risk sharing.
“You can switch to a plan that only pays when there is a medical event,” Caswell says. “But this is risky because an employee could get a costly ailment or go on maternity leave. You need to couple a doable plan with a wellness program. But when you implement these programs, don’t expect a dramatic, immediate change.”
A third option is a health savings account, which takes money out of an employee’s check pretax and the employer has the option of adding money to the account, as well. If the employee switches jobs, he or she will take this health savings plan to the new position and the employer will retract its contribution from the fund.
“The economy will improve, and the way you treated your employees during this downtime will make a difference in your future business,” says Christopher DeRosa, president and general manager, CIGNA HealthCare, Southern California. “You don’t want to drop their coverage or cut them way back at the worst time.”
While health promotion — or wellness — programs aren’t usually at the top of the list when contemplating short-term health insurance savings, a program will have positive results in the short term with the best outcomes in one to three years. Companies that effectively promote health see immediate savings in premiums of 10 to 13 percent with the potential of reducing future medical costs. The investment has a $3 to $6 payback on the dollar.
Your best bet to cut costs will be a two-prong approach. Change your health plan for instant budget relief and initiate a health promotion plan.
“You will see an 8 to 10 percent trend reduction in premium and 2 to 4 percent reduction in program costs when a wellness program is initiated,” DeRosa says.
Design your health awareness plan with consideration of the number of employees that will be participating. A smaller company of 50 employees or less shouldn’t invest more than $25 per employee initially, but should focus on raising awareness by providing educational material that emphasizes preventive care, proper nutrition and health-related Web sites.
A midsized company of 300 or more employees should invest about $90 per person. Providing educational tools, focusing on the population’s main areas of concern and taking a competitive, fun approach is effective. A large company with a willingness to invest about $240 per employee can have a comprehensive program using education, financial incentives, include spouses and offer perks like gym memberships.
Your insurance provider may have free online health risk assessment surveys. By surveying your employees you can determine ways to meet the company’s and employees’ financial needs. Ask questions about physical activity, stress management, tobacco use and general disease risk factors.
“People move and take action only when they feel they need to,” says Jim Elliott, vice president, mid/large sector sales, Southern California, Blue Shield of California. “Discuss the economic reason to alter health insurance plans and tell them what benefits a wellness plan can have on not only their health but their finances.”
Discussing what your insurance company provides to you at no cost or at reduced rates is a great first step. Many employers are unaware of fringe benefits included in their plans. If the insurance provider doesn’t offer what you need for free, it should be able to direct you to an organization or local hospital program that does.
After you’ve determined a health awareness focus for your employee population, you can create a plan of action.
“If you offer more incentives to lead a healthy life, your employees will do it,” Caswell says. “Why does a football coach care if his team is fat and smokes? They won’t be winning any games, that’s for sure, and it’s the same with your staff.”
You also need to make an assessment of your workplace wellness environment. Identify strengths and areas that need improvement. Enforce no smoking on the campus; provide healthy choices in vending machines and the cafeteria.
“Foster an atmosphere of health, make your office a no-smoking campus,” Caswell says. “If employees have to migrate too far, they might start thinking about giving up smoking instead of taking the long walk.”
Provide health tips, programs, discounts to gyms and other information through multiple delivery sources. Some employees are more receptive to e-mails or newsletters — or they just need to hear the same message multiple times to get motivated into action.
“If you have 60 to 80 percent participation in a wellness program, you will see serious changes not only in employees’ day-to-day health but in health care costs,” Elliott says. “It will be worth all of your effort, and you’ll wonder why you didn’t start a wellness program sooner.”
Peter H. Griffith is far from old, but he understands his employees today live in a different world than he did when he was starting his career at Ernst & Young LLP.
“I started in 1981,” he says. “That’s a different environment, and a majority of our people in our firm have started within the last five to six years, so when you think about those people, that does create a challenge.”
But that challenge is one Griffith, who today is vice chair and managing partner of the Pacific Southwest region, has actually spent a good portion of his career thinking about. He’s twice come back to the greener pastures at the professional services behemoth that employs more than 135,000 people, and he says the reason is simple.
“Ask anyone at the firm why they stay here, and they all say the same thing: Our people and the culture that they’ve created,” he says. “We’re very proud that we’re consistently recognized as a great place to work. I have the cover of BusinessWeek from last year where they named us the No. 1 best place to launch a career, and that means a lot to me, because I have a daughter graduating from UCLA, so I know students scrutinize these things.”
But while Ernst & Young continues to pile up best place to work accolades, Griffith can’t take his eye off his evolving work force. Beyond a more diverse employee base, the firm estimates that by 2010, approximately 60 percent of its client-serving work force will be from Generation Y, which is loosely defined as those born between 1980 and 1999.
So Griffith has taken a close look at the 2,200 people in his region and found out that flexibility is a key component of retention. He started by communicating to Gen Y employees on their level, created systems to promote flexibility and learned what it meant to be a leader who accepted the terms of a new work environment.
Figure out what your employees want
Griffith has four children, so he has experienced and mastered every new communication outlet short of Twitter. But even though he understands the changes, he still spends a good bit of time learning what younger employees want.
“I try to understand what they’re looking for,” he says. “I speak to our new-hire groups and have a two-way dialogue (to learn) what are they trying to get out of their experience and their career at Ernst & Young.”
Griffith realizes the best thing he can do in his endeavor is to get help, since he can’t regularly speak with 2,200 people. Ernst & Young has a lead people development consultant, something most companies wouldn’t swing for, but that has led them to a practice anyone can afford. The firm has partner-Gen Y panels, which pair a half dozen younger employees with several senior executives for a conversation about the work atmosphere. The key is realizing the best way to get more from your younger employees is to start a dialogue about what they expect from you.
“I find the way that we solve a lot of things at Ernst & Young is we create a lot of awareness around an imperative and then we move to action,” he says. “It’s not always an easy thing. Sometimes you’ve got to make people aware of the issue and make sure it’s on the front of their mind.”
Using his comfort with modern communications, Griffith also likes to “play on their field,” creating the company’s first Facebook page, texting potential job candidates and creating a blog. It is in these communications where he began to realize what many leaders fail to see: Younger employees want to work hard, but the old rules are out. Griffith uses his blog to create a two-way forum where he can get real-time feedback on issues they see in the firm.
“One thing I know about the blog is, it’s available to our people, I know that I can control the content, so that it’s accurate, timely, virtual, and it gives us the ability to message what we want to accomplish in the sub-area and in the firm,” he says. “Leaders need to think about this because the people that I’m trying to communicate with, they expect a two-way platform.”
You can use whatever forum you like, but Griffith says the key is sparking a two-way conversation. He helps push that on his blog with things like Starbucks gift cards to the first five or 10 responders who respond to posts with viable ideas or suggestions, giving him fodder for ongoing dialogue.
“Sometimes you need to encourage and enthuse them to create the two-way platform,” he says. “But, remember, it goes both ways, and then I can respond again if something’s not perfectly clear with my own comment to their comment on my original blog entry.”
Put programs into action
To Griffith, his connection with employees reiterated one key thing about the mushrooming Gen Y work force.
“You’ve got to give people some flexibility,” he says. “You’ve got to develop a culture of flexibility to allow them to team together. And so we redefined how our people work. We provide all of our [employees who directly serve clients] with laptops and with 24-7 access to technology assistance anywhere in the world. And we have provided resources for our people to have flexibility in their professional and their personal lives.”
Flexibility is about making your people’s lives easier by adjusting their work-life balance, which Griffith says clears their mind and allows them to spend more time at work worrying about, well, work. Among other things Ernst & Young did, beyond giving flexible hours, was create a concierge service for traveling employees, help employees handle personal financial planning, and create backup child and elder care programs.
But Ernst & Young is careful not to just give people such freedom without taking into consideration how it benefits the business. Griffith says you have to know where your core success is and tie accountability to flexibility.
“The most important thing we do is we assess our client service satisfaction,” he says. “We have a client service quality program with our clients, and we ask them how happy they are with our team and the relationship and how much time our team is spending on it, are they responsive and so on and so forth, and our people would be held accountable for that. So if there was an issue there relative to somebody maybe using flexibility to the point that it might disadvantage our service to a client, then we’re going to hear about that really quickly.”
If and when something like that does come through, Griffith cautions that it’s not cause for an instant suspension of flexibility. Instead, he says you need to do a sit-down with those involved to reiterate that flexibility has to go around the vision. Ernst & Young also pre-empts that by doing what is called acceleration sessions.
“Before we even start serving the clients, we’ll get the team together,” he says. “We’ll run a big calendar on what everybody has going on during that project, so let’s say we have a six-month project that has 30 people working on it, we’ll sit down and create a master calendar.”
During that session, employees are asked to think about their upcoming schedule. While you have to realize there will still be emergency situations, mapping out people’s personal lives in conjunction with a fair and accountable work session can keep everything on track.
“Maybe we’re coming up on graduation season, so maybe somebody has their child graduating from school. … We can’t expect them to work that day,” Griffith says. “But if we plan that all out for all 30 of those people, and be thoughtful about it, we will accelerate our success as a team delivering service to that client. So there’s a loop there that we’re very careful about to make sure flexibility is working and clients are getting passionately served.”
Understand your flexible culture
Griffith is a family man, which is where he uses the flexibility in his own schedule, but he learned a lesson from an old boss that he never forgot.
“It’s critical as you’re developing this to realize that as a leader, it’s vital that you suspend judgment on what people do when you provide them with flexibility,” he says. “People do different things. You cannot have any opinions on, ‘Gee, they want flexibility in order to do X, and I only think you should have flexibility in order to do Y,’ OK, because we have lots of people in our work force that don’t have children, so you don’t need flexibility for that. Maybe they need flexibility because they want to go do an Ironman competition. That’s not my business to judge. If they get their work done, and they get it done in the highest quality manner, and that client is really happy, that is what we want to drive. So I would recommend to leaders they think about it that way.”
Moreover, if you want to implement flexibility, you have to give that open mind to everyone — even your senior leaders. Watching a normally hardworking vice president take off at 3:30 one afternoon may be hard to swallow, but that’s part of fairness to the program.
“If you have key executives that are on flexible work schedules, you have to support that,” he says. “It’s really important that they have the opportunity to be exceptional performers and leaders just like everyone else.”
And exhibiting that has to go all the way up to your office. Griffith works a lot of hours in a high-demand business, but he makes it a point to flash his own use of flexibility.
“Flexibility has to be something that you begin to get into your DNA,” he says. “Leaders have to demonstrate how they utilize flexibility. So, in other words, if I’m going to watch my daughter’s swim meet … I let people know. I might say to someone, ‘I can’t do that conference call right then, but can we do it an hour and a half later, I’ll be done with the swim meet, I’ll be at a landline, and it will work just fine.’ And I’m honest about it, and I work it out, and I demonstrate that type of flexibility.”
It’s not always easy for Griffith to exhibit that, but he does his best to do what he expects of his people, keeping a smart calendar and using his 24-7 access to his work files.
“If I need to go home and leave the office at 4 and get home and have dinner and then fire up the e-mails later that night, then I do it,” he says.
That attitude hasn’t just kept home life on the up and up for Griffith, who is closing in on 30 years of marriage, it also improves his leadership abilities at Ernst & Young. His use of flexibility shows his young talent their career can be satisfying on a personal and professional level. That, he says, is what keeps the firm on everybody’s best place to work list.
“Our people want to see that,” he says. “These are really smart people here, and to make this thing a career and become a great leader and to take this firm over from myself and my peers, they need to be excited about what they see. And balance is something I’m proud of and I hope that people say it’s the biggest success that they observe in my career so far.”
How to reach: Ernst & Young LLP, (213) 977-3200 or www.ey.com
In order to prosper in this challenging economic climate, it’s important to have a professional wealth manager who understands your goals and objectives. Such an adviser can help you build a long-term investment plan with diversification across multiple asset classes.
For optimal results, communicating regularly and directly is paramount.
“As an investor, don’t be afraid to ask questions. And don’t be afraid to say, ‘No, that’s not the strategy that I want,’” says Dennis Gilkerson, senior vice president and Western Market group manager for Comerica Bank. “A portfolio manager works for the client.”
Smart Business spoke with Gilkerson about how to recession-proof wealth, why it’s important to have ready lines of credit and what to look for in a portfolio manager.
What steps can individuals take to recession-proof their wealth?
In order to recession-proof one’s portfolio, it’s important to look at capital preservation and deleverage as much as possible. What I mean by this is paying off excess debt, such as home equity lines of credits, unsecured lines of credit and credit cards. It’s inevitable that we’re going to have mortgage debt and automobile debt, but as we work to recession-proof our portfolio, building liquidity is paramount.
Why is it so important to have ready lines of credit?
Having a line of credit available provides cash flow for emergencies. I tell my clients it’s like an insurance policy on your income or cash flow. It’s important to maintain some type of a line of credit so you can meet unanticipated expenses; however, you want to make sure that you have the ability to repay it within a relatively short period of time. In this recession, things are happening so quickly. It’s easy to find our income adversely impacted. A line of credit is a backstop.
Credit is currently tight; do you have any recommendations?
It’s critical to maintain one’s present obligations. A ready line of credit will not help someone if he or she suddenly stops making credit payments. In order to obtain or even retain credit, it’s also important to establish a relationship with a bank that is going to be there for the long run. We talk to a lot of clients that have multiple banking relationships. As one of the commercial banks currently lending money, we find that it’s helpful to consolidate banking relationships into one place. An individual’s balance sheet is composed of the liquidity, or cash piece, as well as the liabilities side: credit lines, mortgages, automobile loans, etc. By consolidating all of these pieces, your financial institution will be able to do more for you.
How should one go about evaluating one’s investment portfolio?
In this environment, it’s important to be actively involved with your portfolio manager. Even if your portfolio manager has discretionary authority — they can buy or sell based on their investment strategy — it’s important to communicate on at least a quarterly basis. Individuals who fail to communicate with their portfolio manager have greater exposure to volatility.
What advice would you give to someone who has available cash on hand?
First, ask yourself if you need the cash for short-term needs. Are there upcoming life events, such as paying college tuition, having a child get married or a business opportunity requiring an outlay of cash? If so, the advice is to hold on to that cash — keep it in relatively short-term, liquid instruments like a money market or CD.
On the other hand, if there isn’t an immediate need for cash, you need to evaluate your appetite for risk. If you’re comfortable owning equities for the next five years or so, there are some good equity strategies available to execute. If you’re not comfortable with the equity strategy, there are some solid short-term, fixed-income instruments that can match a life event and one’s level of risk tolerance. There are some great opportunities available for someone who has cash and a long-term outlook. That’s why it’s important to have an investment adviser or portfolio manager that you feel comfortable communicating with.
What qualities should an investor look for in a portfolio manager?
There are a number of attributes an investor should look for in a portfolio manager. One is longevity. For example, if a portfolio manager who has spent decades as a large-cap growth manager suddenly appears as a fixed-income or small-cap adviser, it should raise a red flag. The ability to communicate effectively is also important. Are you able to understand the strategy that the portfolio manager is executing? Are you comfortable with the portfolio manager? Do you trust the person?
Finally, there is performance. I put performance as the last on my list, not because it’s the least important but because portfolio managers need to have longevity in the particular discipline they’re focused on and experience in the industry, and you have to be able to communicate with them. These screening criteria can be helpful whether you’re evaluating your current portfolio manager or looking for a professional wealth manager.
Dennis Gilkerson is senior vice president and Western Market group manager for Comerica Bank. Reach him at (310) 712-6767 or email@example.com.
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Estate tax is fluid by nature, changing constantly as new social and fiscal policies emerge. Our country’s history of estate tax laws has been a veritable roller-coaster ride: reform followed by repeal followed by re-enactment.
Under the current law, the estate tax and the generations-skipping transfer (GST) tax will be repealed for one year in 2010 only to be resurrected the following year if Congress does not take action. However, this scenario is unlikely now that President Obama strongly supports retaining the estate tax and Democrats have taken control of both houses of Congress. A bill recently introduced in Congress (HR 436), if enacted, will finally remove a lot of uncertainties that clients face when planning their wealth transfer plan.
Smart Business learned more from Mouris Behboud of Gumbiner Savett Inc. about why waiting to conduct proper estate planning until the law changes “once and for all” is unrealistic and can prove to be very costly to you and your heirs.
What does the new proposed legislation provide?
In January 2009, a bill was introduced in Congress titled ‘Certain Estate Tax Relief Act of 2009.’ Under the act, the current $3.5 million estate tax exemption will become permanent. This means that if your entire gross estate is more than $3.5 million ($7 million for couples) your estate is subject to estate tax. This new proposed law will also freeze the maximum estate tax rate at 45 percent and, if enacted, will be effective for the estate of decedents dying after Dec. 31, 2009.
Why is this act any more important than prior estate tax acts?
There is a controversial section under this act. Generally, under the current law if a taxpayer transfers a partial ownership interest in his or her business to his or her children, the amount of the transfer can be reduced by application of valuation discounts, thereby saving a lot of money in transfer taxes. The use of discounts is a very popular strategy in transfer of wealth by business owners and high net worth individuals.
This proposed act will limit the use of valuation discounts only to transfers of ‘active business assets.’ It specifically states that ‘the value of any nonbusiness assets held by the entity shall be determined as if the transferor had transferred such assets directly to the transferee and no valuation discount shall be allowed.’
The term ‘nonbusiness assets’ means any asset that is not used in the active conduct of one or more trades or businesses. Examples of passive assets are: cash or cash equivalents, stock in a corporation, annuity, commodity and real property.
What are you recommending your clients do in light of these new developments?
With the effective date for this new proposed law as Dec. 31, 2009, time is of the essence. This leaves only a very short window of opportunity for people to revisit and update their estate plan to take advantage of the current valuation discounts in the context of transferring wealth to the next generation.
As a former IRS estate tax attorney, what are your recommendations for clients who want to minimize audit risks or even a potential IRS audit?
I have three pieces of advice: 1) Updating your estate plan on a regular basis can save you and your beneficiaries future headaches with court costs, taxes and attorney fees. In a recent survey, nearly one in every four wealthy individuals stated that their will and trust was last updated five or more years ago. High net worth individuals should revisit their estate plan at least once a year. If you do not already work with someone who is an estate planning specialist, you should spend time and find the right professional with expertise in this area. Not every accountant or attorney is qualified to prepare or to consult on estate and gift tax returns. Finding a licensed and qualified professional with years of experience will pay off with less time, money and effort being wasted by you and your heirs.
2) When making a gift or documenting estate assets, you should consider making full disclosures. Once you have made full and adequate disclosure, the IRS is barred from auditing you once the statute of limitation has expired on your gift or estate tax return.
3) The final and most important advice is that, in the unfortunate scenario that you are subject to an IRS estate and gift tax audit, remember the Three Golden C-Rules: cooperation, communication and compromise (though the IRS may want you to think concede, rather than compromise).
Currently, there are about 300 attorneys working for the IRS’s estate and gift tax division. Now that the repeal of estate tax is unlikely, the IRS has been aggressively recruiting attorneys to audit more estate and gift tax returns. The latest IRS annual data book for fiscal 2008 shows that 8.1 percent of all estate tax returns filed in 2008 were audited, which is significantly higher than the prior years. Almost one-third of all estate tax returns filed in the nation come from California. Therefore, I will not be surprised to see more audits coming our way in the near future.
Mouris Behboud is a principal-attorney at law for Gumbiner Savett Inc. Reach him at firstname.lastname@example.org or (310) 828-9798.
Although a business owner may not be planning to sell his or her company now, Rick Parent, vice president of Gumbiner Savett Inc., an accounting and business advisory firm, says owners should always operate the business as though they are.
“Everything is for sale at the right price,” says Parent. “I’ve seen many instances where business owners say that they are not going to sell. ‘This is always going to be a family business, even when I’m gone.’ But at the right price, everyone’s mindset changes.”
To make sure owners are prepared to sell when a buyer approaches them with an offer, Parent says businesses should build a solid foundation with a strong infrastructure, implement internal controls, establish sound policies and procedures and prepare a business plan with financial projections.
“Businesses that don’t have a strong infrastructure leave a lot of money on the table or can kill a sale because buyers generally do not feel confident about the integrity of the numbers when they question the way the business is run,” he says.
Smart Business spoke with Parent about how to prepare your business for sale.
When is the best time to sell a business?
The best time to sell a business is when the owner can obtain the best price. This sounds simple, but a business needs to be achieving maximum profitability and the market conditions need to be favorable for a sale. Those factors in place will allow for the highest rate of return for owners.
How can owners maximize the value of their business and its attractiveness to potential buyers?
Most well-run businesses go through the internal process of developing three- to five-year business plans. If a business owner envisions selling in the next few years, a business plan and financial projections are necessary for a prospective buyer. Once a business plan is created, it is best to have the financial statements audited or at least reviewed. Unless required by lenders, many companies do not have their financial statements audited or reviewed.
However, most buyers of businesses will require that historical financial statements be certified by an auditor to validate the reported historical earnings, which are typically used for deriving a purchase price. This will allow for a maximum purchase price for your company because critical financial data will be in the format needed for proper due diligence in establishing the value and price.
It’s very important to have good advisers — an attorney, an investment banker and an accountant — usually obtained through a referral from a trusted friend or business associate. These advisers need to understand the business and be positioned to provide the necessary level of service for the business profile. Using an investment banker as an example, you wouldn’t necessarily want to get the biggest investment banker and end up being a small fish in a big pond. Rather, you should find a banker who specializes in your industry and who’s best suited for your business.
Once advisers are in place, how will they help the business?
Advisers will help owners refine their business plan and get the financial statements in place. You want to create a situation where, when a prospective buyer expresses an interest in the company, the buyer’s due diligence process is seamless and, in a sense, turnkey. Having everything ready for a buyer — the analyses and historical as well as forward-looking statements — can create more value.
Businesses with good business plans, projections and audited financial statements, as well as solid internal controls and procedures, generally receive the highest sales offers.
How will sales contracts add value to a company?
Long-term customer contracts can be a value-add for a prospective seller. Termed ‘backlog,’ the value of the backlog (total contractual revenues) validates the revenue projections. Customer contracts are typically found in industries such as software, contractors and entertainment.
How will employees help an owner prepare for a business sale?
A business owner should invest in qualified personnel to manage the various departments. Their worth to the company is invaluable, not only during a sale but on a regular basis. Many entrepreneurs underplay the importance of hiring a professional financial staff. The CFO or the corporate controller is the linchpin to establishing and monitoring internal controls. He or she is responsible for ensuring that policies and procedures are properly documented, that there is segregation of duties and that key controls are in place to prevent fraud. A business owner should include the key department heads in the sales process and financially reward them from the success of the sale.
Knowledgeable, qualified department heads, along with a solid foundation and the right advisers, are key to preparing a business for sale. The amount of the sale price is likely to increase if owners invest upfront in establishing this infrastructure.
RICK PARENT is vice president of Gumbiner Savett Inc. Reach him at (310) 828-9798 or email@example.com.
When Holly J. Mitchell took over as CEO of Crystal Stairs Inc. in 2003, she realized the organization needed to evolve.
The nonprofit, which works to provide early childhood care and education, had never adapted to its new size following a period of rapid growth in the 1990s — from a small nonprofit into a 350-employee the organization with an operating budget of $130 million.
And there was too much emphasis on looking to the top for answers.
“There was a line of middle management who were wonderful workers, compassionate people who did their jobs at their level well and really looked to leaders of the organization for answers, direction and strategy,” she says.
To adapt to the organization’s increased size, Mitchell wanted that to change. Instead of having people look only to the leaders, she wanted employees at all levels to step up and assume a certain level of responsibility. To begin that process, three years ago she began instituting a pay-for-performance system.
Smart Business spoke with Mitchell about how to turn your employees into leaders and how to focus your organization on performance.
Spread the responsibility. For this institution to continue, we’ve got to grow leaders from within. Part of that is taking on different and higher levels of responsibility as managers within the organization.
So we instituted a budgeting process that required managers take on a greater level of responsibility for developing and managing the budgets for their departments. It was a push down, from my perspective, in terms of management in responsibility.
Whoever is in the seat of leadership, it shouldn’t matter because all of us have a responsibility for maintaining this organization and the integrity of its work.
I’ve worked since I came in the door to spread the responsibility, hold folks accountable at a different and higher level than they had been, and really create a new paradigm around accountability and responsibility as managers of the organization.
That’s the way I know how to lead, and I believe that’s the best strategy in terms of truly creating an institution where, as my grandfather would say, ‘One monkey don’t stop no show.’
Create metrics for accountability. When we made the transition to our performance management system, we created a whole system where supervisors work with their staff to develop their performance plans for the year, develop metrics by which they would be measured and, therefore, held accountable.
We created documents that each staff member has the opportunity to work with their supervisor to develop their individual performance plan and their individual professional development plan for the year.
So in January, when you work with your supervisor to develop these documents, you both sign off. You understand those are the standards by which you are being appraised. Meeting those standards will determine whether you will get an increase and what level. Instituting this performance management team really helped solidify an expectation around performance.
We had to look at and refresh job descriptions. We created standards by job description. If you’re a specialist, we developed baseline standards on what your skills needed to be and what your work performance needed to be. Standards for how many pieces of paper you were expected to process, how many cases you were expected to manage. We had to create those norms and standards by which people would be held accountable.
The process of creating those metrics involved input from staff and management. We looked at the work. We looked at funding terms and conditions. We looked at a variety of data points to determine what was reasonable for each employee in every job.
There is flexibility based on how many years you’ve been here, but for every job, there would be some basic core standards that are expected of employees. If you’ve been here 15 years, the core standards for your job may be the same as your office mate, but your individual performance plan may be different.
You may be higher on the pay scale, having been here longer, so there is a different expectation for you individually, but there is a core level of standards for all jobs in the organization, including mine.
Explain how things work. I spend a great deal of time helping people connect the dots — understanding our funding sources, understanding the source of our revenue, helping them connect the work they do. If we have a dip in productivity, show them how that impacts our revenue and, therefore, the type of decisions we have to make.
We earn our revenue based on the number of families we serve. So people understand, ‘Oh, gee, if I meet my goal and enroll 20 families a day, I’m contributing to the revenue that keeps this corporation running.’
Having a fuller understanding about their role, the kind of work the organization does and how that plays into the revenue that we earn ultimately helps people understand the decisions that are made that may have an impact on them as employees.
For example, I update the staff when the board passes the corporate budget about how that will impact them. This year, we had to make an adjustment to benefits, had to pass on more costs to employees.
Two weeks before Christmas, I had to tell employees that we were not in a position to make pay increases available beginning in January. I was overwhelmed by the responses from staff members who said, ‘We get it. We understand. We’re glad we’re not getting pink slips.’
I’m crystal clear that’s due to the work we’ve engaged in the past year and a half in making sure our employees understand how we earn revenue and how the external landscape directly impacts that. Three or four years ago, it would not have been received the same way.