Escalation in the hourly rates charged by attorneys, experts and court reporters has driven the cost of litigation up. This makes the need for pragmatic decision making by CEOs vital especially when it comes to deciding if “having your day in court” is the best way to handle business disputes.
Using an average cost of $400 per hour for attorneys’ fees and the customary charges for court reporting services, a oneday deposition taken from a single witness in preparation for trial can cost $5,000. While the trial itself may only last a few days, most of the costs associated with going to court revolve around all of the discovery and preparation needed to actually bring the case to trial.
“It’s vital for CEOs and other executives to really conduct a thorough cost-benefit analysis before deciding if they want to litigate a matter, and they need to have a cost estimate based upon winning or losing the case,” says Richard A. Heller, partner with Procopio, Cory, Hargreaves & Savitch LLP.
Smart Business spoke with Heller about how CEOs can manage these costs.
What makes litigation expensive?
Clients have played a role in attorney rate increases. While clients don’t want to be charged above-market hourly rates, they often correlate an attorney’s capability with the rates he or she charges. This assumption may not be accurate and it could result in overpaying for attorneys’ fees. I also recommend a process that I call reverse engineering the litigation budget. Before deciding if you want to take a case to trial, request a full disclosure of all immediate and long term litigation costs. While trials aren’t cookie cutter, you should be able to get a fair estimate of the total cost from your attorney, so you can make a pragmatic business decision.
What is the client’s role in managing litigation costs?
The client needs to be engaged and maintain a proactive posture from the outset.
Inquire about the outcome of various steps in the litigation process, such as the result of hearings conducted on pre-trial motions. E-mail is a cost-effective way to get updates about the status of your case, and staying involved keeps attorneys on their toes. Also, while you don’t want to nit pick invoices, you certainly want to review them. Look at the trends and keep a running tabulation of the total costs of projects so you can continue to track actual expense versus budget. Also, note how many attorneys are billing on the matter. Each time you bring in a new lawyer, he or she needs to get up to speed on the case, which generates billable hours.
Is mediation an effective alternative to litigation?
I have observed that clients frequently have the notion that if they propose mediation to settle a matter that it’s a sign of weakness. As a 32-year litigator, I don’t see it that way. When used at the right time, mediation can be a cost-effective solution to disputes. The key is proposing mediation when you have conducted enough relevant discovery to begin to project an outcome for the case and to allow both sides a clear understanding of the issues, but before the cost of conducting full discovery is incurred. It also allows diversion of funds earmarked for trial costs to be used toward settlement of the matter. The thing to remember about mediation is that the process itself doesn’t decide who was right and who was wrong, and participation is purely voluntary. This is where pragmatic decision making comes into play, because success is not always about being right it’s about how little you have to pay.
When should arbitration be used as an alternative to trial?
Arbitration used to be considered the cheaper, faster alternative to trials, but today that may be changing. Arbitrators are independent judges who can make rulings as to who wins or loses the case, but those rulings do not have to follow the law and they cannot be appealed. In addition, more discovery is allowed in arbitration these days, which doesn’t do much to reduce litigation costs. And arbitrators can charge up to $1,000 per hour.
Aren’t litigation costs paid by the losing party?
Frequently disputes occur over issues governed by business contracts, and unless the contract contained a provision stipulating that the winning party can recover attorney’s fees, you will be unable to do so in California. Clients sometimes mistakenly think that it’s better not to settle a case because if they prevail, they’ll recover attorney’s fees. Knowing if it will be possible to recover attorney’s fees is all part of doing your homework and should be part of your cost benefit analysis before deciding if you should take a case to trial. More facts and less emotion make for good litigation decisions and better managed costs.
RICHARD A. HELLER is a partner with Procopio, Cory, Hargreaves & Savitch LLP. Reach him at (760)496-0774 or email@example.com.
What would you do if a natural disaster, a fire or other catastrophic event destroyed the business in which you have invested all of your time, money and heart?
No one likes to think about or plan for the effects a catastrophe or theft, but unexpected events do occur and planning is necessary.
After a catastrophe, one of the first things you will need is a list of all the assets that were lost or destroyed. With the stress and shock of the situation, it will be very hard or near impossible to recall opening the door to possibly understating your business loss, says Jim Coleman, a property documentation specialist at Westland Insurance Brokers.
A cost-effective video property inventory service that can better prepare the business owner for a future catastrophic loss is currently available.
“‘A picture is worth a thousand words’ describes the situation perfectly,” says Coleman. “Video property inventory is an innovative way for business owners to protect their assets and their business.”
Smart Business spoke with Coleman about video property inventory services and how they can protect a life savings and provide peace of mind.
What is a video property inventory?
This comprehensive service offers a complete visual record of your business assets in the event of catastrophic property loss due to fire or theft.
It has two components. The first is a high-quality digital video documentation of all business assets, which gives you a general view of quality and quantity of assets of the business. The second component is digital photographs of specific assets. This can include custom equipment or items you might want to document in greater detail than you get with video. The combination of video and photos provides the details you need when submitting an insurance claim.
The video is presented on a DVD, and digital photographs are encoded to a CD. The DVD can be played on any DVD player, while the CD can be viewed on and photos printed from any computer. Scanned business documents can also be encoded to the CD. Within a week, the client receives a package that includes two copies of the DVD and CD along with other valuable information.
How does this inventory service assist in the claims procedure?
Having a pre-loss visual record of your business assets will help you identify specific items lost and provide accurate information to the adjuster. This is an added value for everyone involved in the claims process. Insurance companies want to pay fair value. Reviewing a video inventory saves time and money in claims research. A fair value can then be assessed for payment of claim and restoration of normal business operations as soon as possible.
How should business owners prepare for the video inventory?
The types of assets we record vary from business to business. Items may include machinery at a printing company, fabric rolls in an upholstery warehouse, or computer equipment, plasma TVs and expensive furniture at a mortgage company.
A business owner should think about suffering a loss. Any relevant documentation should be set out to be photographed during the inventory.
It is important that you accompany the photographer on the inventory tour to describe any valuable machinery or assets so you have a visual and audio record.
Besides a visual record, what does this service provide businesses?
This service can assist a property broker in making sure the business has proper insurance coverage. After the inventory is collected, you should meet with your insurance broker to review your assets and determine if there is sufficient coverage. Inventory should be updated every three years or when a business is growing or immediately after a new major purchase.
In the event of a catastrophic loss, an inventory can assist in speeding up the claims process and getting a business back on its feet as soon as possible. High-quality digital video and photographic documentation allows an accurate assessment of the loss in a timely manner. This service can provide business owners or homeowners peace of mind, knowing they have a complete digital record of their assets without having to be a technology wizard themselves.
Can customers use this service for their homeowners insurance?
Absolutely. If it makes sense for a business, your next greatest asset is probably your home. Almost always, a business owner will see the value of the business inventory and request a home inventory.
Any items of particular value, such as jewelry or heirlooms, should be pulled out and documented. A property documentation expert can help you document items you may have overlooked as valuable. It is a small amount of time and money for such a significant protection.
JIM COLEMAN is a property documentation specialist at Westland Insurance Brokers Inc. Reach him at (949) 388-0211 or JColeman@westlandib.com.
As a leader, you are often forced to make decisions that aren’t necessarily popular. Some of the decisions are the “make or break the business” kind, while others are less significant or so you think until you make them.
For instance, take Walt Disney and how sticking to his conviction created a whole new segment of an industry.
Back in the early 1930s, Disney’s studio had just produced the two most successful cartoon series in the industry, but he was still dissatisfied with the returns. He began plans for a full-length animated feature, something that had never been done before.
When the rest of the film industry heard about his plans to produce “Snow White and the Seven Dwarfs,” they started referring to it as “Disney’s Folly” and were certain it would destroy the studio.
Disney didn’t find much support at home either. Both his wife and his brother tried to talk him out of the project. Instead, he pushed forward, investing in training and technology to take animation to a new level of sophistication. He started experiments with realistic human animation, distinctive character animation, special effects, and the use of specialized processes and new camera equipment.
All of this innovation came at a price. At one point during production, he ran out of money and had to show a rough cut of the film to a bank to get the money to finish it.
The film was released in 1938 and the results were impressive. The film became the most successful motion picture that year and earned more than $8 million which would be about $98 million today in its original theatrical release. The numbers are more impressive when you realize that kids were only charged a dime to see the film.
Disney ended up taking home an Oscar and enough money to build a new campus for his studio in Burbank, Calif., which went on to produce many more animated classics.
Had Disney listened to his detractors, he would have abandoned the project and kept making short cartoons, and Disney as we know it today wouldn’t exist. But he had a vision of what could be done and saw potential that no one else saw, so he pressed forward, risking it all and, ultimately, scoring big.
Not every decision you make will be as far-reaching as Disney’s, but if you stick to your convictions and press forward, you will be much closer to achieving your vision than if you listened to your detractors.
In my case, I made a decision back in the early ’90s to allow some people in my company to work on flex-time. Today, flextime is pretty common, but back then, it was a pretty radical idea and there were a lot of detractors.
Other CEOs told me I was crazy and that people wouldn’t be doing any work, and I’d be paying people to sit at home and watch television instead of being productive. But I saw it as a way a small company could keep key people who wanted more time with their young children and less time in the office, even if it meant working at night.
I focused on the results I wanted from the people instead of when they were physically in the office.
The results have been great. I kept the key people I needed to grow my company, there’s a strong sense of loyalty for trusting them to work at home some of the time, and everybody came out a winner. Had I listened to my detractors, I may have lost the very people I needed to reach my growth goals.
Change is always difficult, regardless of whether it’s changing office furniture or changing your business plan, but sometimes you have to stick to your guns, even in the face of opposition.
There are different types of leaders, but effective ones all maintain their convictions. It doesn’t mean you don’t listen to objections, but if after listening to them, you still believe your decision is right, then you stick to it. A lot of little decisions can add up to a big success, and a handful of big decisions can add up to a grand success and maybe even reinvent the way people do business.
FRED KOURY is president and CEO of Smart Business Network Inc. Reach him with your comments at (800) 988-4726 or firstname.lastname@example.org.
Just do it. You have to have confidence in yourself and trust yourself and know that you can learn how to do different things.
Selling is so much about people. You have to like other people. You have to like yourself. You have to have good communication skills. Selling is so much about relationships and liking other people. You have to learn specific sales skills as you get going.
Empower people. People tend to be afraid to make decisions, and they want to come to their boss and ask, ‘What should I do, what about this or what about that?’ Our approach is if they don’t have enough information to make the decision, lead them in the direction of what else they need to learn to be able to make the decision and sort of mentor or guide them.
For them to really be responsible, they have to be able to make the decisions pertaining to what they are doing. You effectively remove them from being the person in charge of that area if you come and make decisions for them.
It’s really just a matter of communication, sitting down and discussing the issues and trying to broaden the perspective enough so they are looking at it from enough angles. You’re providing them with a primer on areas that they are not that familiar with. It’s definitely a two-way communication.
Don’t make rash decisions. You’re trying to get enough information to sort out what’s going on while things are changing around you.
You hit a stretch where there are a lot more moving parts. You’re trying to get a hold of them to resolve the confusion of what you’re faced with. That’s a matter of getting good data and having good investigatory skills.
Develop an ability to not take data or reports you’re presented with at face value. You can’t just act on them. Look at them and then go out and verify the validity of what you’re presented with before you try to make decisions or act on it. A report you would get from an employee about a situation or about other employees, especially if it’s something that’s negative or critical, you can’t act on that.
You have to find out what’s true for yourself. That’s a matter of integrity. If you hang on to that, you can generally get to the bottom of it. When you do that, you can make a good decision.
Never stop learning. I just had to develop a skill of knowing how to spot-check information. You don’t have to go over every single bit of data.
You have to be able to pick out certain things that you know you can easily validate. You find things you can easily validate and then based on that, you either feel confident or see that things are not what they appear to be, and then you start digging deeper.
We’re always paying attention to the market. We get various market intelligence reports. We get sell-through reports that tell us what products are selling in the marketplace. I can get a sense of who has what market share. You get a snapshot.
Be open to change. Markets mature and develop and splinter. There’s a danger of hitting a winning formula and then going with that and riding it for a while. It’s not going to last forever.
You really have to have your finger on the pulse of the market. Have good people in the company who can go out and take readings on the market. Be willing to change and take a little risk and start heading in another direction.
Embrace diversity. I noticed something back 15 years ago when I had a couple Harleys. You can go riding with people, and being on the Harley was like the great equalizer.
You didn’t know if some guy was a welder or if he was a brain surgeon, but everyone was at the same level when they were on their Harley. I try to make it that way here.
Bob [Taylor] and I own the company. We’re here every day and we run the company. But we are all here working together, working on the same thing.
We’re working on the company’s goals and purposes and making the company’s product, and we’re each doing our own part. We have a very diverse group of people working every day.
I like that part of it way better than the opposite of, ‘Here I am, Mr. Important, in my office.’
Make employees feel appreciated. I know my feeling, and Bob’s, too, is that the management and executives can really determine the fate of the company better than anyone, and they should be paid for it.
But it’s the rank-and-file that do 90 percent of the work in the company, and they are all good people, too. Maybe they don’t have the same level of ability as a vice president, or maybe that’s just not their purpose to have a job like that. But they are decent people and they all have families, and they are the people you need to reach your hand out to and make sure you take care of them and help them.
It’s kind of a fraternal thing. Everybody gets a year-end bonus. The rank-and-file isn’t as much as the executive. But if we had a lousy year, I would make sure the rank-and-file had a year-end bonus before I would make sure the managers did.
HOW TO REACH: Taylor Guitars, www.taylorguitars.com
Companies seeking to lease a corporate facility justifiably spend a great deal of time and focus with a qualified broker hammering out location, rent, term and other primary business points. Many executives mistakenly feel that once the key deal points are covered in a letter of intent or otherwise, the rest of the lease document is mere “legalese” or “boilerplate.”
That kind of thinking will get you burned. The lease agreement has been carefully drafted and refined by the landlord’s attorneys. Consequently, the overwhelming majority of the terms contained in the lease are heavily weighted in the landlord’s favor. These terms often include critical provisions such as the method for calculating triple-net pass-through charges. At the very least, having the lease agreement closely reviewed by qualified legal counsel will help level the playing field between the tenant and the landlord.
“The tenant and the landlord often have totally different views about the intent of the initial draft lease document,” says Tom Turner, managing partner with Procopio, Cory, Hargreaves & Savitch LLP and a long-time commercial leasing expert. “The landlord typically expects the tenant to use the document as a starting point for negotiations. The tenant often assumes that boilerplate leases are all about the same so the detailed terms aren’t worth negotiating. This assumption can leave the tenant extremely vulnerable.”
Smart Business spoke with Turner about the negotiable elements generally contained in “standard” lease agreements.
What are some negotiable financial terms contained in boilerplate leases?
Provisions regarding the pass-through of triple-net operating expenses should be reviewed carefully, because the language often shifts the majority if not all of the operational expense responsibility to the tenant. The lease should expressly exclude numerous inappropriate expenses from the pass-through calculation. In addition, the tenant should have the unfettered right to conduct an audit of the costs after the fact. It is important that the audit not be restricted as to when it is performed, what time period it covers or who the tenant chooses to conduct it. Many other financial components, such as late charges and holdover rent, security deposits and other credit enhancements, are often presented by the landlord as ‘standard,’ but are in reality very much negotiable.
Are lease expansion and termination provisions negotiable?
The right to extend or terminate the lease or to shrink or expand the space are negotiable areas that are often overlooked.
It is not unusual for a lease agreement to have a heading titled ‘Option to Extend,’ but in reality provide the tenant with little more than an option to negotiate. This really isn’t a tenant benefit at all. The tenant needs to work carefully through the lease language to make certain that these are truly enforceable rights that are also workable from a practical perspective.
As an example, if you think your business may be growing, you may want the right of first refusal on any adjacent space that becomes available, on pre-established terms. Moves under any circumstances are costly, so by anticipating growth, you can eliminate much of the cost of expansion by simply adding on rather than relocating. But if you are not careful about the detailed language of the lease, you may end up with a worthless right to sit down and talk with the landlord.
Why are boilerplate relocation provisions problematic?
In the event of disasters, such as floods, fires or earthquakes, the lease typically allows the landlord to evict tenants or move them to an alternate location of the landlord’s choosing. You can bet these provisions are overwhelmingly favorable to the landlord, so it’s important to spend the effort to assure they are fair and reasonable.
Also, it isn’t uncommon to find a hidden provision near the end of a standard form lease that gives the landlord the right to actually relocate the tenant to other premises, almost on an unrestricted basis. Usually, if you push back, this provision will simply be deleted; at a bare minimum, should relocation be required, the tenant should have the right to acceptable comparable space and be completely reimbursed for all related expenses.
What eviction provisions should tenants watch out for?
I have seen landlords actually searching out a basis to put a tenant into a technical default, in order to give them the boot in favor of a more attractive deal. As an example, the landlord requests that you deliver an estoppel certificate and subsequently evicts you, without recourse, if you deliver the certificate a day late. As the tenant, you want to retain the right to be notified of any default and a specific time frame to cure it before you can be evicted.
By closely reviewing the entire lease document before signing it, the tenant can gain important leverage by negotiating all of the terms and conditions up front, when the landlord and the brokers are eager to get the deal done.
TOM TURNER is a commercial real estate attorney and the managing partner with Procopio, Cory, Hargreaves & Savitch LLP. Reach him at email@example.com or (619) 515-3276.
Most CEOs purchase insurance coverage believing that it will protect their business from risk. The reality is that buying insurance merely transfers the potential for economic loss to an insurance carrier. To truly reduce the possibility of financial loss, the core culture must include an effective risk management program.
Over the past 60 years, risk management has become a sophisticated discipline. Today’s best-in-class risk management programs help keep workers safe and on the job, and define accountabilities for results and ways to measure them.
“The total cost of risk (TCOR) includes, but is not limited to, insurance premiums, retained losses, the indirect cost of losses, outside services and risk management administration costs,” says William A. (Bill) Werber, a Certified Risk Manager (CRM) with Westland Insurance Brokers. “The indirect costs of a loss, such as training time, overtime, lost productivity, opportunity costs, lost customers and management time dealing with claims, increase the direct loss by two to five times, and that directly impacts after-tax profit. Truly controlling the cost means stopping the losses from occurring and aggressively managing those losses that do occur.”
Smart Business spoke with Werber about how CEOs can design and implement an effective risk management program.
What defines the risk management process?
Risk management is the practice of protecting an organization from financial damage by identifying, analyzing and controlling risk at the lowest possible long-term cost. The phases of the risk management process contemplate the identification of risk, then analyze and quantify the exposures based on the potential for economic loss. Then select effective risk management techniques for controlling and financing the risks, implement the selected techniques and continuously monitor the results.
The process itself has value because it causes managers to be focused on the continuing dynamic process. Insurance premiums will go up and down as part of the cyclical nature of the insurance business, which is naturally tied to the stock market. Workers’ compensation costs are directly tied to your experience, so regardless of what happens with rates, you can exercise greater control over your costs by reducing your losses and subsequently your experience modification factor.
What constitutes an effective risk management program?
Many components individually may produce some results, but the synergistic combination of the important elements of a best-in-class risk management program will produce dramatic results.
- Establish a corporate culture that highlights safety accountability as a core value and a way of doing business. It is unacceptable to get hurt on the job or crash a company vehicle.
- Initiate a well-defined process around incident and injury reporting that places clear accountabilities for managers and employees alike and includes the necessary protocols and forms.
- Establish and communicate an effective ‘return-to-same’ work policy coordinated with medical treatment and work restrictions.
- Train supervisors and employees in incident and injury prevention and what to do when they happen. Injured employees often seek attorneys because they don’t know what to expect.
- Develop and implement an incentive program that rewards supervisors and employees for working safely. Carefully done well it will produce excellent results.
What risk management factors should be tracked and monitored?
CEOs should develop a ‘vital signs report’ of key risk management indicators. Measure your results what gets measured gets managed. Monthly track your data and weekly manage your claims-loss ratios, loss frequency and severity, employees with multiple injuries and, most importantly, the status and strategy to get an employee back to work and well.
In the experience modification calculation and also in real life, claim frequency will breed severity. It is important to focus on the small claims and near misses to prevent the large ones.
Finally, hold everyone accountable.
How much money will a quantified risk management program save?
Two janitorial clients in a tough risk management business have reduced their workers’ compensation costs by 50 percent to 60 percent. Another client in the vending industry embraced effective components of a risk management program, improved its excellent core culture, and the result has saved hundreds of thousands of dollars.
In the long run, CEOs will see dramatic financial benefits from embracing an immediate and long-term risk management culture.
I’m standing in line at the airport, suffering through the usual delays and hassles that accompany air travel, when a woman starts making a fuss.
“I’m a first-class passenger,” she cries, looking for the better service that’s supposed to come with the higher price.
I just laughed to myself, because I, too, was a first-class passenger and wasn’t being treated any differently than those flying coach, despite the premium ticket cost. People from the main line had already slid to the desk that was supposedly for first-class passengers only.
Once on the plane, the “exclusive” first-class bathroom was frequented by coach customers. I think I got a better meal, but who knows for sure.
Maybe I got a garnish and the people behind the curtain in coach didn’t. Drinks were served in the first-class cabin before they were served elsewhere, but that perk hardly justified the ticket price.
After exiting the plane and the disappointing experience with the airline I met up with friends and family at a top restaurant, only to be served by what must have been an airline employee on loan from the attitude desk at the airport. We ordered king crab legs but weren’t given any butter or nutcrackers to break open the legs. I flagged down the waitress.
“I need to take this other table’s order,” she said.
Meanwhile, we’re looking at a table full of crab legs that we can’t do anything with, except watch them cool.
Both the airline and the restaurant built their brands on customer service. The problem is, the customer service only exists in the companies’ marketing materials. The restaurant delivered great food but failed in the service department, making it a disappointing experience.
What I realized in both cases was that I was supposed to be a first-class VIP to these companies, but the only thing first class about the experiences was the bills.
It was all a sham. Glossy brochures, expensive television ads and glitzy decor are all nice, but where’s the actual experience?
I don’t blame the waitress, the person behind the ticket counter or even the managers. I blame the CEOs.
The CEO is the one responsible for setting the tone of the organization and for creating a culture where customers are taken care of. Nordstrom stores and Ritz-Carlton hotels are well-known for their customer service, but it didn’t happen by accident.
Those companies are built on a customer-centric model, where employees are selected based on how well they fit that model, where customer service training is an ongoing process and where people are measured and rewarded on customer-centric behaviors. They are committed to the customer and do whatever it takes to create a great experience.
For example, the average Ritz-Carlton employee receives 232 hours of training per year, about four times as much as their peers at other hotels. The company constantly measures customer and employee loyalty, and employs continuous improvement initiatives. It pays more than the competition does and spends a lot of effort recognizing employees for their customer service efforts, which combine to keep turnover low and enthusiasm high.
Nordstrom recognizes great customer service with cash awards, extra discounts and favorable work assignments. Employees and departments are singled out for praise during morning intercom announcements before the doors open. And the company monitors sales performance and encourages competition by posting every person’s and every department’s sales figures from across the chain.
These companies got where they are by putting the customer at the center of the organization, building everything around that, and doing whatever it takes to ensure the customer is always happy. When that happens, the customer becomes your best marketing tool because they tell others about the experience, driving company growth.
Don’t be a company that promises a first-class experience but delivers disappointment, the way the airline and restaurant did to me. If you are going to promise a certain standard to your customers, you’d better be doing everything you can to deliver on it.
FRED KOURY is president and CEO of Smart Business Network Inc. Reach him with your comments at (800) 988-4726 or firstname.lastname@example.org.
Don’t be an employee. In the beginning of the business, before I even had a CFO, I wrote every check. As a small business owner, there comes a time you have to make a decision. Do you want to work as an employee in your business, or do you want to work on your business?
I’m not here to be an employee. I’m here to run a business and grow a business.
That’s a difficult step. But once you get into that mindset, you can start letting go of things. It’s like having a child. It’s very hard to let go. It’s hard to let them take that first step, go to that first day of kindergarten or get that driver’s license.
But each one of those is a progressive step. All that is a process of letting go, and a business is the same way.
Once you get that, it can change your whole focus on everything you do. Your focus then is to work on it as a business.
Stay connected, but don’t hover. I like to stay connected with people and with my employees without hovering. Concentrate on not getting caught up in the minutiae of things but in giving general guidance to people and being available without hovering.
Help employees build their own strengths and what is unique to them.
I’m available. I’m around. Sometimes it’s easy to get caught up in some details and want to hover. I really just consciously try not to hover.
Be a good listener. Enroll people in your vision and get people on the same page. Everybody has a different way of looking at something. Sometimes you are all on the same page and you don’t even realize it.
Make people realize that we’re all after the same thing; we’re just looking at it from a different point of view. Be receptive and flexible.
Listen to people’s ideas about change. Try not to be formulating your answer to somebody when they’re talking. Actively listen. Ask them questions back. ‘Do you mean this?’ or ‘Am I hearing you right?’ Pull it out of them. The main thing is trying not to formulate the answer in my head while somebody is talking.
Accept failure and move on. We deal with let-downs all the time. We may not be awarded a job. How you deal with that and respond to that is important.
A failure is a loss. Learn from it, get over it and move on. But I think it’s OK to allow yourself a little bit of sorrow about that and to feel bad about it.
A lot of times, people think, ‘Just get over it.’ But let’s lament that we lost. You feel bad about it and deny it. You go through all those steps of loss. The idea is to go through them pretty quickly and say, ‘OK, we’re over that now, let’s move on. What did we learn?’
If they have made a mistake or had a small failure, how is it going to serve you in the future? I really emphasize that because you learned that lesson, you will now be a greater value to our business from learning that lesson.
It could potentially save a lot of bigger mistakes. They kind of breathe a sigh of relief. You truly do learn from your failures.
Be open to change. Change is the most difficult thing for anybody. If you’re not always recognizing new markets or the way businesses are getting things done because of technology, you will die as a business. It just won’t happen.
When we started the business 26 years ago, I had a typewriter, an adding machine and a telephone. That was it, not even a copier. It was tough for me when the fax came, because I thought I cannot fax a bid to somebody. I have to hand deliver this, or I may not get this job.
You become invested in the way you do business. It is really difficult for people to change. As a leader, you have to be able to cheerlead that through. You look at what’s working and what’s still appropriate which, obviously, you don’t change. What is changing in the industry or for your clients, you need to embrace that and bring people along with it.
Talk to your peers. Other people are going through the same things you are. It can be an environment to bounce things back and forth, a common ground.
People that are in any profession, they get together and brainstorm. You can’t be an island. You don’t dream these things up on your own. It’s usually a process.
Those are things that as a business owner, you will not notice if you are working in your business and not on your business. If you have a job in your business and you’re an employee of your business, you will never notice those things. You are very caught up in the day to day and you can’t see beyond that.
Get yourself to a situation where you can see the big picture. For me, what helps is to physically be gone. The people that you have trained and mentored, they step up to the plate and go beyond.
One thing that really helps is there are certain times during the year that I may be gone. It has really propelled the people in the company that have been in those appropriate positions to go ahead. It’s stepping back when appropriate, just a consciousness of stepping back.
HOW TO REACH: Johnson & Jennings General Contracting, (858) 623-1100 or www.johnsonandjennings.com
Probate proceedings, estate taxes, business succession planning, and decisions regarding the care and education of minor children are just a few of the issues that family members might have to deal with, devoid of your input, should you die or become disabled without an estate plan.
Setting aside the time to discuss the subject with your family and then drafting a written plan can provide peace of mind for everyone involved.
Individuals with a total net worth of $100,000 or more should have an estate plan, says Eric Lodge, partner and head of the Trusts, Estates and Probate Practice Group with Procopio, Cory, Hargreaves & Savitch LLP. Life insurance and equity are two great causes for advance planning.
“Without estate planning documents such as wills and trusts, executives lose control over the situation, as does their family, because the legal system will step in and presume what might have been intended,” says Lodge.
Smart Business spoke with Lodge about what executives should know about estate planning and the steps they should take to put their affairs in order.
What is estate planning?
Estate planning is the process of working with clients to make choices about how their estate and personal affairs will be administered in the event of their death or disability. An estate planning attorney will incorporate tax savings techniques and help executives specify how they want their assets distributed and even how they would like their remains handled.
What are the essential elements of a coherent estate plan?
Usually, the centerpiece of the estate plan is the living trust document. It directs who will manage the estate and how the assets are to be utilized. Within the document, you can provide for a spouse and include specialized provisions for dealing with the financial needs of those caring for your minor children. Also, an estate planning attorney usually prepares a will that provides for the disposition of any assets that are outside of the trust and nominates guardians for minor children. The process itself has value because couples can decide their children’s guardians and they can discuss the responsibility with prospective guardians in advance of the need.
Powers of attorney over both financial matters and directives for medical wishes will allow a representative that you name to act on your wishes if you are unable to do that for yourself.
In the event that there might be significant estate tax issues, an estate planner can employ more sophisticated techniques such as irrevocable life insurance trusts, qualified real property trusts and charitable giving.
What are the most frequently overlooked items when developing an estate plan?
Retirement plans, including IRAs and ERISA-regulated pension plans, and life insurance are not automatically governed by the trust document. They have their own beneficiaries, so it’s important to update them to be consistent with the overall estate plan. Also, estate planners cannot effectively do their job in a vacuum, so it’s important to present the total picture of your wealth when planning. We like to send out a questionnaire in advance so the clients can come to the initial estate planning session prepared with all of their information.
Business owners frequently overlook the need for succession planning. This is an important part of the estate plan, which includes dealing with the continuance of the business after your death or disability and providing the necessary funds to replace you or to make other siblings ‘whole’ if the business is left to just one child.
What is the status of estate tax law reform?
The law provides that the first $2 million is exempt from estate tax and an unlimited amount can be left to a surviving spouse. In 2009 the threshold on non-spousal inheritance increases to $3.5 million. In 2010 the estate tax is repealed altogether, and then in 2011 it returns with a $1 million tax-free limit.
Most experts are fairly confident that before 2010 the repeal will be eliminated, which means that estate taxes are probably here to stay. My advice is to stay in touch with your estate planning attorney because the current federal estate tax rate is 45 percent, and minimizing this tax consequence might require revising the language and provisions in your trust document, depending upon what happens.
ERIC LODGE is partner and head of the Trusts, Estates and Probate Practice Group with Procopio, Cory, Hargreaves & Savitch LLP. Reach him at email@example.com or (760) 931-9700. For more information, visit www.procopio.com.
At first glance, that all seems like great news for CEOs. Upon closer examination a familiar problem may be re-emerging. New insurance carriers frequently offer lower rates to initially attract new customers, but if their motive is to make a quick profit and run, or if they lack the sufficient resources to handle the complexities of workers’ compensation in California, the cyclical nature of the industry may find them leaving as quickly as they came.
“The last time we had a soft market for workers’ comp coverage in California, when the cycle ended and the claims started hitting, many of the carriers became insolvent or left the state all together taking their clients’ experience rating data with them,” says Pat Reilly, commercial insurance broker with Westland Insurance Brokers. “Costs escalated because it was a nightmare closing claims with carriers that became insolvent.”
Smart Business spoke with Reilly about how CEOs can benefit from the current soft market and not repeat past mistakes.
How has workers’ comp reform affected the market for insurance coverage?
Reform has made it easier to control the cost of a workers’ comp claim. There have been benefits from structural changes such as new calculations for permanent disability and changed parameters around the litigation of claims and in settlement structures. It takes as long as two to three years for the effects of reform to be realized, but when combined with very proactive and aggressive loss-prevention efforts by clients, the results are finally here. This is attracting new players to the coverage market.
At least 12 new carriers are trying to establish a California presence. In some cases, these new insurance carriers are simply marketing extensions of insurance companies that exist only on paper. I would estimate that at least 10 percent do not have fully functioning claims departments or loss-control units, so they are set up to sell the business but not to service it.
Why be concerned about purchasing coverage through one of these carriers?
The last time we had a soft market, many carriers were writing coverage. But when the conditions changed, they left the state without filing modification experience data for their clients with the state bureau. I acquired one new client when this happened and it had been running an 80 percent ‘mod,’ which translates to a 20 percent discount from standard rates. When its carrier defaulted, there was no way to document the modification, so the coverage reverted back to full rates. The short-term savings from the less-expensive carrier was quickly negated by the cost of coverage at a ‘zero mod.’
What factors should CEOs consider when selecting a workers’ compensation insurer?
First, the carrier should be ‘A’ rated so you know it is financially stable. Preferably, it has experience in California through both up and down cycles. This demonstrates the company’s commitment to the market and its ability to withstand the natural swings associated with workers’ comp.
Second, it should have local claims and loss-control functions staffed by a team that understands all of the regulations surrounding workers’ comp in California. Defending claims and conducting surveil-lance in cases of suspected fraud are all highly regulated activities here. If these things are not done correctly, you can quickly see claim pay-outs escalate, which will chip away at any short-term premium savings. Or, if you end up hiring a loss-control expert because the insurance company doesn’t have a local representative, you also won’t realize the savings you had anticipated.
Third, do you homework before switching insurance companies and check references by asking to speak with clients who use the company’s claims and loss-control services and who have been with the carrier for a few years.
What role should my insurance broker play in helping with carrier selection?
Your broker should be able to provide a substantial list of ‘A’ rated insurance companies for you to choose from, and it should be able to supply references of other long-term clients it has placed with the carrier.
It’s a soft market for all carriers, including the ‘A’ rated ones. Now more than ever, brokers should be able to help CEOs realize value for their insurance dollar. In some cases, value might include a premium reduction, while in other cases value might be achieved by taking this opportunity to upgrade your insurance carrier. There has never been a better time to find workers’ compensation value in California.