Improve performance, optimize efficiency and deliver value. That’s what employers are always under pressure to do. What many employers do not realize is that an integrated approach to safety and health can play a major role in creating healthier, high-performing workforces.
“Employers can have a major influence on the health and care behaviors of employees,” says Dr. Michael Parkinson, senior medical director for health and productivity at UPMC Health Plan. “Employers have a major role to play in both improving health and reducing health-related costs.”
Smart Business spoke with Parkinson about how to best improve employee health and productivity and reduce health costs.
What is the connection between employee health and company productivity?
Growing competitive and economic forces increasingly challenge employers and leaders of all organizations. A core asset of any organization is the health and productivity of its workforce, its ‘human capital.’ And as visible leaders, employers can influence their employees. It makes sense to provide an integrated, incentivized strategy to address the core drivers of poor health, excessive medical costs and lost productivity. Healthier employees are safer employees, and healthy, alert employees reinforce properly designed workplaces and safety policies.
By following an integrated and incentivized strategy that addresses the core drivers of poor health, excessive medical costs and lost productivity, employers not only improve the health and care behaviors of employees and their families but also add dollars to both their top and bottom line.
Total health management is increasingly being recognized as a business necessity, not a ‘nice to do.’
What’s the first step?
Building a culture of health, performance and productivity has been shown to be a critical determinant of the health and competitiveness of any business.
A comprehensive assessment of environmental drivers of health and productivity is an essential first step to determine an organization’s strengths and needs. The work environment is not just the traditional physical workplace, but also attitudes, behavior policies, compensation schedules and promotion opportunities.
Creating simple, reinforcing messages in corporate vision, compensation, and promotion and benefit alignment sends the message that employee and family health is core to the organization’s success.
How can healthy behaviors be improved?
Assisting employers to create the infrastructure to sustain health, wellness and productivity is a key responsibility of a health plan. A health plan can help sustain health and productivity through consultation, educational support, benefit alignment, and the creation of a wellness committee to initiate and sustain wellness efforts.
The recognition and rewarding of healthy employee champions is a key leadership message, along with making it known that the employer wants to assist employees and their families in achieving health goals.
By offering employees a health plan with appropriately designed and communicated incentives, employers have an evidence-based method to improve behavior change and increase employee engagement. Account-based, consumer-directed plans with additional targeted incentives for health improvement and care management decisions increase employee engagement and produce health care costs savings.
What results can an employer expect from an integrated and incentivized strategy?
The majority of the known causes of excessive health care and productivity costs — stress and mental health, absenteeism, short- and long-term disability, workers’ compensation, occupationally-related illness and injuries — can be addressed by an employer using a comprehensive and integrated strategy supported by targeted tactics, programs and practices.
By improving the health status of employees (and their families), by assisting them to get involved in their medical care decisions with their doctors and by directly targeting specific ineffective and inefficient medical practices and delivery modalities, both the employer and the employee can improve health and produce savings. ●
Insights Health Care is brought to you by UPMC Health Plan
A commercial interior design firm works to help companies find a space that’s an effective setting for their operational and aesthetic needs, and tailors its services to best suit specific client goals. For example, one client may be relocating because of growth, another wants to reflect its rebranding throughout a new office, and another is downsizing operations and needs a cost-effective relocation solution. Design firms help clients such as these achieve their goals while saving them money, time and hassle along the way.
Smart Business spoke with Sam McWilliams, managing partner at SMC Consulting, LLC, to learn more about effective office relocation and design.
What are some ways to ensure a space suits a company’s needs?
A designer uses programming to learn about a company and its needs. He or she will spend a day at your office talking with management and employees to understand what is and isn’t working, then develop a space plan that will maximize efficiencies and increase productivity.
Another aspect of programming is learning about the company’s desired image and work to reflect that in its office look and design. Companies can effectively market themselves by injecting their brand image into their physical space. This can be achieved by using logo colors within the space or by finding ways to highlight the company’s products and services through imagery and design. If your space welcomes the public, then it should remain consistent with your brand promise and image.
How can a design firm help during relocation or construction?
A professional designer can help you get the most out of your rentable square footage by doing ‘test-fits’ in several buildings. This will help determine which building gives you the most usable square footage while comparing rentable cost per square foot rates.
Once a site is chosen, third-party oversight becomes an extremely valuable service to clients. Having a project manager represent you on a construction or relocation project ensures quality, cost control and that schedules are kept.
Weekly project update meetings will keep you informed and assured that the project is running smoothly. Project managers will keep control of the schedule, providing sufficient time for long-lead items and ensuring all the elements are in place and tasks are completed when they should be.
What needs to be done with the former location upon leaving?
First, know when your current lease termination date is and plan accordingly to avoid penalties. The more lead-time you have, the better project costs and schedules are controlled.
Next, avoid unexpected costs by reading and understanding the termination requirements in the lease. Some leases require that the building be restored to its original condition, which may require demolition, construction, data cable removal, etc. Some leases only require a cleaning after all assets have been removed. A relocation manager can provide assistance in the building closeout process.
What are ways a company can minimize the impact of a move on employees?
Companies should provide perks when relocating farther from ‘home’ because the risk of losing good talent is possible. Offset additional travel costs by offering free or reduced parking fees, public transportation discounts, or institute a flextime or a compressed workweek schedule. You can also identify area day care facilities and other personal services that are important to your employees before you announce the new location.
How can companies minimize operational interruptions when relocating?
Relocation managers take the hassle out of a physical move, whether it’s a multi-phase move, consolidating multiple offices into one or a single-phase move over a weekend. Let them get you from point A to point B with little or no downtime.
Choose a design firm that can build an in-house team of designers, furniture planners, project managers and relocation experts. Firms that provide one point of contact, with all the resources at hand, makes the entire process seamless, which enables clients to focus on their core business. ●
Insights Facilities is brought to you by SMC Consulting, LLC
Whether you love it, hate it or are still “on the fence,” the implementation of health care reform is in full swing.
“While escalating health care costs have long been a concern of employers who desire to offer a quality, competitive employee benefits package to their workforce, health care reform has presented even more challenges in terms of changing legislation, compliance issues and requirements,” says Ron Smuch, insurance and benefits analyst at JRG Advisors. “The business decisions that employers face today are more complex and require educated consideration and guidance.”
Consumerism, however, is a strategy often overlooked by employers in their efforts to keep health care costs down.
Smart Business spoke with Smuch about how to better manage health plan costs by promoting consumerism strategies.
How does consumerism help with costs?
Employees who make smarter, more cost-effective health care decisions have a positive impact on health care costs for themselves and for their company. Many employees simply underestimate the value of asking questions, researching health care options and taking a more active role in their health care purchasing.
What does it mean to engage employees to be wiser health care consumers?
Most people already practice ‘consumerism’ with purchases they make. Individuals will dissect a newspaper or magazine in search of coupons that will save them 50 cents. Yet when it comes to health care, which is a more complex and costly service, rarely do they ask questions or even consider other options that could save money.
How can you get started?
Making more conscientious health care decisions starts with educating employees on how their health insurance plan works. They need to know what is covered and what is not, and which providers or facilities to use to receive the most cost-effective, quality outcomes-based care.
Employees should be educated to ask their doctor questions such as: ‘How much does the treatment cost? Is there another option that is equally effective but less costly? What are the risks or side effects?’
Another area to educate employees is about prescription drugs. Surprisingly, many people mistakenly think that there is a difference between generic and brand name prescription drugs. They are unaware that the difference lies in the drug name and, yes, you guessed it, the cost.
How can making wise choices extend to emergency room use?
A trip to the emergency room is one of the most expensive types of outpatient care. Emergency rooms should only be used for true emergencies, as they are staffed, equipped and best suited for medical emergencies. Going to an emergency room for non-emergency care is a poor use of health benefits and is very costly.
Consumers should consider using an urgent care facility to assist with non-emergent care needs. For example, if you have a cold or unidentifiable rash that needs attention sooner than waiting through the weekend to see your general practitioner, consider going to an urgent care facility.
What’s the best way to create and implement a strategy that engages employees?
While these are just a few examples of wise health care purchasing, companies need to choose an advisor who can properly review its workforce demographics, utilization, trends, risks and rewards to create the consumerism strategy that is engaging, measureable to objectives and effective in achieving established goals.
Today’s health care landscape requires a consultative approach and commitment to strategic planning, expertise, innovation and technology. Companies should partner with an advisor who takes a proactive approach to educating employees about consumerism strategies. Through the use of employee communications, fliers, posters and payroll stuffers, employees can be educated to make wiser health care decisions and in turn become smarter health care consumers.
At the end of the day, quantifying the overall plan cost savings and improving employee health is the best and most rewarding engagement tool for employers and their employees. ●
Insights Employee Benefits is brought to you by JRG Advisors
Moody Nolan set up shop in 1982 as one of a few minority-owned architectural firms in the United States. The company started out with loads of confidence in our abilities and a drive to succeed, just as all start-ups do.
Of course, it takes more than confidence to succeed, or every business would. It takes technical skill, the ability to provide a service in ways others can’t, business acumen and an ability to get along with people.
For Moody Nolan, it also required the ability to overcome preconceived notions about what an architectural firm looked like. Consider that, in 1982, the company was a small two-person African-American owned architectural firm; today, we’re the largest. So, the lessons learned as we grew sometimes had to do with race.
As we celebrate Black History Month, it would be shortsighted to focus on those lessons alone. In fact, most of the important lessons I learned are lessons for any time and for anybody who dreams of building a successful business.
Lesson 1: Don’t let anyone talk you out of your passion.
If I had listened to the naysayers, I never would have become an architect. In high school, I paid too much attention to basketball and not enough to my math grades. So, when I told a school counselor I wanted to be an architect, she advised me to be a draftsman instead, adding that “there are no black architects.” Instead of listening to her, I got my math grades up and the rest is history.
Lesson 2: Don’t take things personally.
It’s easy to let personal snubs or doubts from others derail your focus. Over the years, Moody Nolan has surprised a number of potential clients who didn’t know until the day of our presentation that it was an African-American owned firm. Some — both white and black — have reacted as if they weren’t sure the company could do the job.
I took it in stride, realizing that if they’d never seen a black firm do the job before I would have to show them. Because each successful project tends to lead to three more, that approach has served us well.
Lesson 3: Partner with those who can do something you can’t.
When I decided to start out on my own, I partnered with Howard Nolan, a civil engineer who had been assistant director of transportation for the state of Ohio. Howard’s work in state government had given him extensive connections and relationships around the state.
The lesson is that you sometimes don’t get chosen because you’re the most qualified, but because someone knows you and trusts what you can do. People trusted Howard, and that helped us do business with those who didn’t know me.
Lesson 4: Remember who you serve.
Moody Nolan was built on a concept known as “responsive architecture.” The concept is simple: We design what our clients want and need, not what we’d like to see built.
Of course, we have some dream projects that we’d love to see come to fruition. But our first priority is to provide clients with what they need to be successful. This approach is why we’ve continued to grow. •
Curtis J. Moody, president and CEO of Moody Nolan is an award-winning designer. Moody has been involved in the design of projects that exceed several billion dollars in construction over the past 40 years. A winner of the prestigious Whitney M. Young, Jr. award as an outstanding African American Architect in the United States, Moody’s designs have won nearly 200 design citations, including 30 from the American Institute of Architects (AIA) and 34 from the National Organization of Minority Architects (NOMA) — more awards than any other minority architectural firm in the United States.
When James D. White came on-board with Jamba Juice Co. in December 2008, same store sales dipped 8 percent and the company lost $149 million for the year. The recession had prompted consumers to cut discretionary spending, and smoothies just weren’t considered essential.
Management created a road map to get the business back on track.
“We made a commitment that we’d effectively turn the company around in a three-year-time horizon,” says White, chairman, president and CEO. “I’m happy to report that we completed the turnaround. In 2012, we registered our first year of profitability as a public company.”
That included a 5 percent increase in same store sales. Jamba Juice remained profitable in 2013, although same store sales were flat to slightly up.
Here’s how White and Jamba Juice developed a plan and expanded offerings to set the stage for the turnaround.
Strategies for growth
Management needed to develop a plan that would allow Jamba Juice to grow and return to profitability within three years.
Key to the turnaround was creating the blend plan, which drove strategic choices that were made. First up was facilitating fast growth through aggressive franchising and a move away from the core portfolio of company-owned stores.
“By 2011, we were in the middle of refranchising or selling company stores to become more of a franchise model. Today, roughly 35 percent of our locations are company owned,” White says. “That significant shift in the business model gave us the opportunity to accelerate growth, leveraging local partners in specific geographies.”
Jamba Juice added more than 30 locations in the United States in 2013 and expects to open 50 more this year. Currently, there are more than 800 Jamba Juice stores across the country.
A second component of the blend plan addressed the product portfolio and the creation of more “better for you” products.
“We added products like steel-cut oatmeal, which has been a hit with consumers,” White says. “We added more fruits and vegetables to our smoothie lineup. We also added more food items that pair well with the smoothies.”
Vegetables like kale, beets and cucumbers were added to the menu as items to be blended or juiced.
“Those have become increasingly popular as consumers look to cleanse or add healthier on-the-go solutions to their diet,” he says.
Another component of the blend plan involved expanding into international markets — Jamba Juice went from zero to 50 international locations in a 2½-year span, with the 50th store opening in early 2014.
Jamba Juice executives started the process by picking about a dozen potential markets to explore — including Canada, Mexico, South Korea and the Philippines — prioritizing them and then looking for partners.
“Partners typically have an existing restaurant or retail holding that Jamba Juice would complement,” White says. “In South Korea, our partner, SPC Group, is a multi-billion dollar company that runs 4,500 restaurants. We have a commitment with them to build 200 locations in South Korea over a decade.”
The company expects to hit the century mark in international locations before the end of 2014, with a major focus in Canada and the Philippines.
“Mexico is the fourth market where we have a commitment to build new stores. We expect our first stores to open in Mexico in early 2014,” White says.
He expects Jamba Juice to have about 1,500 locations internationally in the next decade.
“A significant portion of agreements are lined up already with the first four initial markets. We’ll announce other international markets this year, which we’re excited about,” he says.
A final piece of the blend plan was JambaGO, which was piloted in schools to deliver healthier solutions for students. Whether self-service or behind the counter, the dispensers feature high-quality smoothies, White says.
While JambaGO remains heavily focused on schools, the dispensers will also be located in Target stores as part of a recently announced deal.
“Target is a perfect fit for our brand. There’s a good complement between the Target brand and the Jamba brand, and an overlap of customers,” he says.
Keeping management focused
Having a focused agenda, and continually refining it, is a central part of the management philosophy at Jamba Juice.
Focusing on core stores and core operations, including the addition of new menu items, resulted in 2½ years of same store growth until a dip in the third quarter of 2013.
“But that was still at the top of our industry from a performance perspective,” White says, acknowledging that having a focused agenda was critical to the company’s growth.
Management also refined the agenda on a regular basis, although emphasis was placed on keeping it limited to only a handful of tasks.
“You tend to add more things to the agenda over time. If you can keep a tighter agenda of three to five items, that’s about all most management teams can focus on at one time,” he says.
It’s also important to ensure that the right team, with the necessary skills, is in place to execute the plan — and tying that team to the key set of metrics that drive the overall growth strategy.
“One of the ways we were able to pull off the great success we’ve had over the last several years is being very aligned and very focused as a management team around the growth priorities,” White says.
Jamba Juice is on what he calls version 3.0 of a three-year strategic plan that guides choices made around the business, which is broken down into annual operating plans that management reviews on a regular basis.
“We do that every week and it keeps us aligned both on the close, short-term, quarterly milestones that need to be accomplished to deliver the annual plan, but it also keeps us very tightly focused on the longer-term, multi-year game plan,” White says.
On a monthly or quarterly basis, the team takes a more lengthy look at longer-term, annual or multi-year strategies, to see if any adjustments are needed to make sure resources are lined up behind growth initiatives with the highest rates of return.
“One example would be how we’ve recently taken several of our growth initiatives that would have been incubated in various parts of the company and formalized some of those, and created standalone business units with their own sets of resources to maximize those opportunities,” he says.
Listening to customers
Jamba Juice develops its strategy based on input from a variety of sources, but always takes feedback from customers into account.
“We try to make sure to embed the voice of the customer in every choice, every decision we make, from the launch of our oatmeal platform to the work we’re doing around whole food blending and juicing,” White says.
JambaGO, for example, was developed after talking to school administrators and parents who wanted better nutritional options for students. But it’s not the only program that the company developed from listening to customers.
“Earlier this year, we launched the Jamba First for Kids platform, which moms had been asking us to do for some time,” White says.
Jamba Kids™ meals each contain 2½ servings of fruits and vegetables and a serving of whole grains. There are four smoothie options and two food choices — a Pizza Swirl and Cheesy Stuffed Pretzel.
The kids menu has great growth potential, according to White.
“The kids platform in our stores in growing, and we’re thrilled about the work we’re doing in schools,” he says.
White envisions Jamba Juice playing a leadership role in promoting nutrition for children and supporting parents with better choices for their youngsters.
“We just hosted a town hall related to healthy choices, better-for-you products, and physical fitness for kids in conjunction with the University of San Francisco and the GENYOUth Foundation,” White says.
Success of the kids platform, launched because of consumer demand, illustrates the importance of listening to customers.
“For most businesses, particularly consumer-oriented businesses, you can’t ever have too much input from the consumer,” White says.
That means mining various inputs available to marketers, including social media, to reach out and engage customers that can help shape how solutions and products are built.
“We talk a lot about big data and how to take all of the inputs, whether that’s social media from various channels or other ways we reach out to the customers from a loyalty perspective,” White says.
In addition to listening to customers, Jamba Juice looks at trends worldwide.
“We try to integrate the ideas that make the most sense for the role we see ourselves playing in the world, which is about making better-for-you, great-tasting products,” he says.
The company takes consumer feedback, global trends and other inputs and mixes them together in formulating strategy. White sees opportunity for far more growth on the horizon.
“There is a fair amount of data to suggest that the consumer trend for healthier products, investing more in the foods they put in their bodies from a healthy fuel perspective, is moving well beyond a niche to a big mega trend that will really drive the marketplace moving forward,” White says.
The premium juice category alone is a $5 billion business that has been growing annually at a rate of 4 to 8 percent, he says.
“Jamba Juice is on the forefront of that moving forward,” White says. “We love the early response to the premium juice offering that we’re starting to roll out and we will accelerate the rollout of our whole food juicing and blending platform in 2014.” ●
- Keep management agendas focused.
- Find good partners in international markets.
- Listen to your customers.
The White File:
Name: James D. White
Title: Chairman, president and CEO
Company: Jamba Juice Co.
Born: St. Louis, Mo.
Education: He received a bachelor’s degree from the University of Missouri and a master’s degree in business administration from Fontbonne University.
What was your first job and what did you learn from it? I was a busboy at a burger joint called Jacks Are Better. I learned the value and importance of two things: hard work and showing up on time; and providing great guest service. Those things have helped shape my work over a 30-year career.
What is the best business advice you ever received? My parents taught me the value of hard work and effort. The other lesson was becoming a student of business and staying in a mode of constantly learning. That’s been an accelerator from a career perspective.
What are your favorite Jamba Juice products? My favorite smoothie is the Aloha Pineapple; my favorite food item is the steel-cut oatmeal; and the new lineup of premium juices — any of them with kale are my absolute favorites.
If you could speak with anyone from the present or past, with whom would you want to speak with? Warren Buffet is on my bucket list. His wealth of experience running great companies over time would be fascinating to break bread over.
Learn more about Jamba Juice at:
The Institute of Medicine estimated 30 percent of health care spending in 2009 was wasted. Patients get duplicate services, unneeded services or services that haven’t proven to have medical value, which is where medical management can help.
Utilization management enables health plan members and network providers to contact a benefits manager to determine whether services are medically necessary before they are rendered, says Dr. Robert Sorrenti, medical director at HealthLink.
Years ago, physicians, hospitals and providers strongly opposed utilization management, feeling it intruded upon their ability to make decisions. Today, there is acceptance, along with strong interest from those paying for health plans.
“It’s evolved,” Sorrenti says. “I can’t say providers embrace it and love it, but we’re at a time where people accept this as a tool to help manage some of the utilization that takes place.”
Smart Business spoke with Sorrenti about the value of utilization management services to manage unnecessary clinical procedures.
What’s the benefit of utilization management services?
Utilization management moves people to getting the right quality of care at the right time through evidence-based medicine. If you don’t medically need a service, you really shouldn’t get it. CAT Scans involve a lot of radiation, one MRI can lead to another, and certain procedures with unproven outcomes can be deleterious in the long run.
The bottom-line is: Managing expensive and sometimes unnecessary services will result in health care that is less expensive for employers and health plan members. As plan sponsors, employers have taken a renewed interest in medical management, particularly those struggling to keep pace with health insurance cost increases. They are looking for ways to control that without shifting all cost back to their members.
How does utilization management determine what is, or isn’t, medically necessary?
Health benefits managers, who are accredited through organizations like URAC, employ an extensive process to determine if a service is medically necessary. They utilize medical policy and clinical guidelines to determine the appropriate rationale for carrying out a procedure or service, or using a particular drug. Then, they match up each member’s situation with these policies and guidelines to see if the service makes sense.
Is time a factor with this kind of review?
No. Emergent procedures aren’t reviewed, and with elective procedures there is time for due diligence. Accredited utilization managers have reasonable turnaround times — usually no more than three days — to get back to providers and members.
What services are typically reviewed?
In-patient days are reviewed to ensure patients are moved through the continuum of care. You don’t want them staying in the hospital for $5,000 per day, waiting for a bed to open up in a skilled nursing facility where the cost is $1,000 per day.
Other services being reviewed are:
- Radiology services, particularly MRIs and CAT Scans.
- Physical therapy. At some point, patients can continue the exercises at home.
- Sleep studies. Can a study be done at home, rather than at a costly lab or hospital?
- Durable medical equipment, such as wheelchairs, mattresses, hospital beds or braces. Are patients being persuaded to over-purchase or over-use?
- Nasal and eye procedures, to distinguish between cosmetic versus medical.
- Back surgery. This ensures a standard approach of time, medication, physical therapy and watchful waiting is followed before surgery. Back surgery has variable outcomes. You don’t want to jump into it.
How else can employers deter over-use?
Many providers say patients are the ones demanding more services. Employers can empower plan members to have realistic expectations and be careful about demanding unnecessary services. Encourage them to take pride in the decision-making — be wise consumers and ask questions. •
Insights Health Care is brought to you by HealthLink
Looking back, 2013 was a very busy year for most of us — what a blur of activity! Some of my closest friends were worried that I wouldn’t be able to sustain the pace of traveling, speaking, book signing, consulting, coaching and even working on a new book. There were challenging moments, but amazingly my energy and spirits remained high. I attribute this not to a special energy drink but to the infusion of generous encouragement and affirmation that I received from so many people throughout the year. Not only did I receive much more than I gave, but I’ve never felt so free to be myself. This giving from others brought me a new level of freedom and made the difference in my year.
As a former Vietnam POW, you can imagine how meaningful freedom is to me and how sensitive I am about the concept. As a leadership consultant and coach, I see that we all have mindsets from our past that are like shackles holding us back from being our best self—hence the tagline for my consulting company that says “Freeing Leaders To Lead Higher.”
“Not only did I receive much more than I gave, but I’ve never felt so free to be myself.”
Now in reflection, I can see how others freed me to climb higher in 2013. With this fresh perspective, I’m making a commitment to pay it forward in 2014. To do that I’ll need a spirit of giving not just at the holidays, but I’ll need to be a giver every day of the year in three specific areas: personhood, performance, and potential.
1. Give Affirmation
This is about personhood. We all want to count, to be valued, to know that we are important in this life. In our daily interactions with others, we have a choice to be a giver or a taker; it’s much healthier to give than to be needy taker. My goal is to authentically lift others up and not add to the burdens of self-doubt that we all carry. I’m going to be more intentional about affirming their uniqueness, recognizing their talents, and helping them see how special they are.
2. Give Encouragement
This is about performance. Positive feedback reinforces mental and muscle memory, and it also energizes the recipient. That’s the energy that was propelling this old fighter pilot to light the afterburners and soar rather than fizzle in 2013! I want to encourage others, but sometimes my old habits as an Air Force instructor pilot kick in. Grading every maneuver against perfection was required in that job, but it’s not very helpful in leadership (and most relationships, for that matter). I need to raise my awareness and emotional intelligence to quickly and consistently recognize small successes and good execution.
“Grading every maneuver against perfection was required in that job [as an Air Force Instructor], but it’s not very helpful in leadership (and most relationships, for that matter).”
3. Give Others a Vision for Their Future
This is about potential. From my early years, I had a few people who saw something in me that I didn’t see. In small and large ways, they communicated that vision to me—subtly calling me out to reach my potential. During the difficult years in the POW cells, those messages echoed through my mind and inspired me onward toward the day when I would finally be free again. For years I’ve made it part of my mission to pay back the bank for this great investment that was made in me by so many. This year, I want to take the risk and double down in expressing my faith in others because I personally know how valuable it can be.
We all have times when we fight the demons of discouragement and doubt, but focusing on ourselves usually makes us needy. Instead of being takers, let’s commit to become better givers. It’s a freeing behavior for the giver and the receiver, and it’s mutually beneficial for both parties. Will you join me in my effort to free others to live and lead higher in 2014? Share your comments and plans for the new year in this forum.
As president of Leadership Freedom® LLC, a leadership and team development consulting company, Lee Ellis, of Atlanta, Ga., consults with Fortune 500 senior executives in the areas of hiring, teambuilding, leadership and human performance development, and succession planning. His latest book about his Vietnam prisoner of war experience is entitled “Leading with Honor: Leadership Lessons from the Hanoi Hilton.” For more information, visit www.leadingwithhonor.com.
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The Foreign Account Tax Compliance Act (FATCA) has been in the news for years, but the effective date of July 1, 2014 is fast approaching.
Any U.S. business that makes a payment to a foreign vendor or investor will need to determine whether or not the payment is subject to FATCA.
The act’s new disclosure requirements cast a pretty broad net — especially with business becoming more and more international, says Chris Paris, regional tax leader in the Greater Bay area at Moss Adams LLP.
“It’s either going to be a big demand on businesses’ internal resources, or they will outsource it to a third-party provider to ensure that they are FATCA compliant,” Paris says. “I believe it will be a pretty extensive list of internal policies and procedures that they are going to need to come up with.”
Smart Business spoke with Paris about what you need to know about FATCA.
What’s the purpose of FATCA?
Part of the Hiring Incentives to Restore Employment Act of 2010, FATCA requires disclosure of information related to payments made to organizations located outside the United States. It seeks to detect and discourage offshore tax evasion by making payments to overseas accounts more transparent.
Ultimately, the U.S. government wants other countries to sign agreements about sharing more information on payments across borders. The idea is slowly gaining traction, although those FATCA provisions are phasing in over 2015 and 2016.
The act’s first step, which starts July 1, is identification — understanding where funds are going and to whom. Step two will be deciding what to do with this information.
The act’s implementation was extended because the new reporting requirements are complex, and the resource-constrained IRS and Department of Treasury took awhile to issue regulations and guidance.
So, who needs to pay attention to FATCA compliance this summer? Is it just banks?
Beyond banks, non-U.S. foreign financial institutions (FFIs) and non-financial foreign entities (NFFEs) are subject to FATCA. There are a number of different investment funds that are going to be identified as FFIs, such as U.S. management companies and investment funds — private equity, venture capital, hedge funds, real estate funds, etc. — with foreign owners. And, of course, U.S. businesses that make payments to foreign entities may become subject to FATCA.
What do business owners need to know?
If you make payments to foreign vendors or investors, you have two options:
- Choose to be FATCA compliant — meaning you must obtain information on the foreign parties that you’re paying, and disclose it to the IRS by filing additional forms, such as Form 8966 and 1042-S.
- Decide you don’t want to become FATCA compliant, and then become subject to the 30 percent withholding penalty on payments to any foreign payees.
However, there are a number of exceptions. Just because your company makes a payment to a foreign payee doesn’t mean FATCA will be an issue. For example, paying rent to a foreign entity is exempt.
If you are subject to FATCA, you’ll need to discuss it with your foreign investors or vendors, who may value their privacy. Many of these, such as a high net worth family entity or sovereign European or Middle Eastern wealth funds, don’t necessarily want the U.S. government to know they are receiving payments. That’s why they are organized in the Cayman Islands or Switzerland. Certain foreign partners may opt to pay the 30 percent withholding tax, as a cost of doing business.
How time consuming will it be to set up a FATCA compliance process?
Really large companies are already hiring third parties to come in and FATCA test to ensure they will be compliant. Most business won’t have adequate internal resources, so they’ll outsource this compliance function.
Basically, an organization needs to assess what it’s doing now — identify its current processes and procedures related to payments overseas, determine if exemptions apply and then decide what needs to be done differently, including training staff.
It will be pretty time consuming, but the penalties are so significant that most organizations will likely make the effort. ●
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Enterprise risk management (ERM) has become a big buzzword in business the past few years. However, corporate governance and compliance, which is how business executives utilize ERM, is really a traditional management function.
“What’s new about it is that there’s market interest and significant value associated with an enterprise that has implemented true ERM,” says Alyssa Martin, a partner in Risk Advisory Services at Weaver.
When an investment company is looking at an enterprise’s value, a consortium of banks are considering giving a syndicated loan, or companies are weighing a merger or acquisition, an ERM program increases the company’s intrinsic value, illustrating the sophistication of its corporate governance. An organization can also use ERM to improve internal decision making, promoting and instilling risk awareness within its culture.
Smart Business spoke with Martin about integrating ERM into strategic, business and financial management processes.
How does ERM differ from other methods of assessing and managing risk?
Risk assessment was more widely implemented during the regulatory increase and Sarbanes-Oxley wave, but companies often assess risks at the process level in silos.
ERM looks at risk across the entity, casting a wide net, incorporating the results of the risk assessment with integration practices throughout the organization. The first step is to perform an entity level risk assessment identifying the most critical risk categories and related events that influence the organization’s success. Then, you drill these risk considerations down into processes and functions.
An ERM program considers the business goals, objectives and strategies at all times, following these steps to monitor and manage risk on an ongoing basis:
- Identify, assess and prioritize business risk.
- Analyze key risks and current capabilities.
- Determine strategies and new capabilities.
- Develop and execute action plans and establish metrics.
- Measure, monitor and report risk management performance.
- Aggregate results and integrate them with the decision-making process.
An organization identifies the risk categories and specific risk events that have the most material influence, which are not necessarily the most common, for current operations and strategic initiatives. So, a domestic company that wants to grow internationally is changing its business condition and risk influences, and in turn, the management of related risks.
One of the advantages of ERM is that business leaders can move from managing negative events that have occurred to managing key risk indicators, which allows you to get in front of identified critical activities. For example, if a retailer that does 60 percent of its sales on credit monitors key risk indicators, such as U.S. consumer credit ratings and credit interest rates, it can modify business practices or promotional tactics before a credit freeze trickles down. Instead of offering customers no interest for one year, the retailer can offer no interest for six months.
Are many companies already following ERM?
Absolutely. ERM practices such as building internal controls, joint venturing with business partners or identifying regulatory requirements are already occurring within management functions. But an ERM program helps bolt decision-making and business tactics together to create cohesiveness within an organization, where everything is based on the same risk profile and agreed-upon risk tolerances.
With that said, companies must align the ERM program with their existing goals and strategies. This alignment is crucial. It ensures that program activities are not just new tasks but rather different ways of executing the tasks that may or may not include additional elements.
Where do companies fall short with ERM?
The most common mistake is thinking that entity level, enterprise-wide risk assessment equals ERM. That’s only the first step. Companies must use what they’ve learned through the assessment to put management tactics and monitoring into place.
An entity level risk assessment also does not instill a risk-awareness culture. Risk must become part of a company’s operations and decision-making processes through business planning, product development and regulatory compliance.
As an example, when considering performance evaluations, managers need to ask: Did you consider risk when you made that decision? Did you incorporate more anticipatory business planning versus reactionary planning? Risk management must become a component of the executive management’s responsibilities while ERM is integrated across the organization. ●
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You’ve just launched your product, which has taken months of research and development effort to bring to market. Soon after its debut you receive a notice that you’re infringing on an existing patent or trademark.
You’re now left with a decision: License the technology that you’ve infringed, which you may or may not be able to do, or wind up with a costly infringement suit. You could fight the suit, retreat and try to design around the patent, or scrap the whole thing and start again. Any of those choices come with substantial costs. All the while knowing that with a little bit of due diligence up front all of it could have been avoided.
“Don’t undervalue your business’s IP,” says Jeffrey N. Zahn, an attorney with Fay Sharpe LLP. “Do what’s required to make sure it’s protected and not potentially infringing a third party’s IP rights. This will help you protect your investment in your IP and avoid unnecessary third-party, IP-related expenses down the road.”
Smart Business spoke with Zahn about the intellectual property (IP) mistakes companies most often make.
What IP mistakes do businesses make most often?
The three biggest IP mistakes, in no particular order, are the failure of a business to adequately protect its IP, failure to avoid infringing the IP of other companies and failure to seek the advice of an IP attorney.
There are many ways a company can leave its IP exposed. Those include not using nondisclosure agreements when working with outside parties; forgoing patentability investigations to determine if a patent would suitably protect company technology; failing to file provisional and regular utility and design patent applications when appropriate; allowing trade secrets to leak; not ensuring employees, outsiders and third parties maintain the confidentially of the company’s critical technology; and failing to federally register trademarks to protect brands.
Another major problem is failing to avoid infringing on another’s existing IP rights. This is often the result of not conducting freedom to operate searches for issued patents, as well as published pending patent applications, and trademark clearance searches.
But the one mistake that often leads to all others is failing to seek the advice of an IP attorney. This is a critical aspect of due diligence and developing a solid and secure IP strategy.
Do large or small companies typically make these mistakes?
Smaller companies are more likely to make these mistakes. Smaller businesses often believe an IP attorney is a service they can’t afford, or one is only needed when filing a patent or trademark application. In most cases, it comes down to not recognizing the value of IP to their businesses.
In contrast, the larger a company is the more likely the company is educated about IP and has in-house counsel and/or a relationship with an IP firm to address these issues.
Is there a particular time when a company is more vulnerable to IP issues?
Businesses are typically more at risk during the early stages of their existence. That’s why companies should take stock of their IP and look into the market to identify the IP of the relevant third parties, such as competitors, early on. This can save a lot of time and expense if it’s done up front.
Companies are also vulnerable during the early stages of a product development cycle. Bringing a potentially infringing product to market may require the company to license the infringing technology or trademark, or rebrand or redevelop the product if the technology or trademark can’t be licensed. That’s why it’s critical to conduct freedom to operate searches and trademark clearance searches during the initial stages of a product’s development.
What can help businesses prevent these errors from happening?
The best tool is education and a proactive IP management program. Have conversations with those who know the issues — someone who works in the IP field regularly, whether that’s an in-house attorney or an IP attorney at a firm — because affected parties must be aware of IP issues. Then continue to talk with an IP attorney as your business grows, new products are developed and new markets are served. Many businesses would be pleasantly surprised how valuable an initial consultation with an IP attorney is relative to the expense.
An ounce of prevention is worth a pound of the cure. This is especially true in the area of product design and branding where a little due diligence to investigate third party IP rights can help you develop your product and brand strategy so it doesn’t potentially infringe existing rights. This can help you avoid potential infringement issues, such as a costly patent or trademark infringement suit.
Jeffrey N. Zahn is an attorney at Fay Sharpe LLP. Reach him at (216) 363-9168 or email@example.com.
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