Sue Ostrowski

Volatility in the marketplace can have a significant impact on investors’ accounts and psychology.

But while many people think of volatility as a negative, there is an upside, says John Micklitsch, CFA, director of wealth management at Ancora Advisors LLC.

“For those who are still accumulating and investing in the market on a regular basis, volatility to the downside can create buying opportunities and the ability to buy shares on weakness,” says Micklitsch. “However, if you’re at a point in your life where you’re done adding to your account, volatility can be very frustrating and emotionally challenging.”

Smart Business spoke with Micklitsch about why the markets are so volatile right now and how to approach the market in this environment.

What is volatility?

Like everything there is a technical and a practical definition of volatility. To most people, however, volatility is a change in the value of their investment accounts from one measurable period to the next. Generally speaking, volatility is associated with risk.

Why are today’s markets so volatile?

It goes back to the globalization of the world economy. It used to be that what happened in a small country such as Greece, stayed in Greece. But today, everything is linked. Financial institutions hold sovereign bonds to facilitate worldwide trade and then hedge positions with other global financial institutions and incur counterparty risk. Corporations generate earnings from all over the world and now investors can trade in just about any market with the click of a mouse or tap of a smartphone. It’s all linked and it is in our face all the time with the 24 hour news cycle. For a long time, globalization has been a good thing, but lately it seems we are only as strong as the weakest link. Add in the uneasiness associated with huge, unresolved global debt levels and you can begin to see why markets have been so volatile.

Is volatility the new normal for investors?

Volatility in many ways, is the norm for now. We are in a period of relatively low returns in both the equity and fixed income markets due to sluggish economies. Buy and hold investors are frustrated. As a result there is tremendous pressure on managers to generate returns for clients with many now resorting to trading in an attempt to generate returns. There are inverse and leveraged vehicles that allow investors to turn risk ‘on’ and ‘off’ in their portfolio throughout virtually every minute of the day. Until we get sustained improvement in the economy this in and out activity is going to be the norm. The IRS and brokers will be happy, but it is less clear how investors will fair.

How should investors approach a volatile market?

The best way to approach today’s volatility, like anything, is to have a plan. Every investor should know how much of their portfolio they want to have in a given asset class and the potential volatility of their overall asset allocation. Then, when volatility soars they can dial into that plan to see just how much their actual allocations have deviated from their target percentages and whether reallocating or rebalancing is necessary. By having that plan in place, a touchstone if you will, investors are more likely to stay the course, as opposed to falling into that ‘just sell everything’ mentality. We think it is best to work with a financial professional to create long-term targets that are appropriate for your risk tolerance and your stage in life because they have the tools to help you model risk.

How often should that plan be reviewed?

The plan should be a living, breathing reflection of your goals and objectives at any particular moment in time. You should work closely with your advisers to update them on your changing risk profile and needs. If your risk profile changes and it is not reflected in your investment allocation, your portfolio might be more volatile than is appropriate. That could lead to making poor decisions at a market cycle bottom or in a period of particularly high volatility. Taking a few minutes to regularly review your plan can reassure you just enough to avoid making a 100 percent move to the sidelines, because then the challenge becomes deciding when to get back in, an error that could compound the situation.

What advice would you give to investors in this market?

There is a tendency for people to find safety and security in a stock market characterized by high prices. Although it is counterintuitive, the lower the stock market goes the safer it becomes from a margin of safety standpoint.

To reverse that basic decision-making apparatus and embrace lower prices is really the key to long term investing success. The only time volatility is not something to take advantage of is when you are done accumulating shares. At that point in life, you should probably have a more conservatively positioned portfolio that is not as highly impacted by market swings. All of this can seem overwhelming, which is why it is important to work with a professional adviser who can help you plan for and manage volatility in your portfolio.

John Micklitsch, CFA, is the director of wealth management, as well as an Investment Advisor representative, of Ancora Advisors LLC, an SEC Registered Investment Advisor. Reach him at (216) 593-5074 or johnmick@ancora.net.

Insights Wealth Management & Investments is brought to you by Ancora

Hundreds of businesses were recently destroyed or severely damaged in the Joplin, Mo., tornado, and if statistics hold true, fewer than 20 percent of those will be up and running again within three years.

If that happened to your business, would you be in the 20 percent or the 80 percent?

“Too many business owners fail to obtain business interruption coverage, or, if they do have it, are surprised in a disaster to find it is not written to properly cover their needs,” says Parker Berry, an executive vice president with SeibertKeck Insurance Agency. “If your plan is not properly designed, you may find you don’t have the coverage you assumed you did.”

Smart Business spoke with Berry about how having the right business insurance coverage can mean the difference between rebuilding and going out of business.

What is business interruption insurance?

A business interruption occurs when you have a physical loss to your location. For instance, if there is a fire at your manufacturing plant, there will be a loss of income because you are no longer able make a product.

The insurance will pay for loss of business income, expenses such as moving to another location while the building is being rebuilt or repaired, and continuing to pay your employees until they are able to work again.

Business owners should look at it as disability insurance for the business itself.

What types of businesses need this insurance?

Most should at least have the extra expense piece of it. For example, contractors make most of their money in the field, but if they have office operations, and something happens to that physical location, they will still have those extra expenses, and some lost income.

With a manufacturer, restaurant or retail location, all revenue comes from the physical location. So there are certainly some classes of businesses that need it more than others.

How does a business determine how much coverage it needs?

There are formulas your agent can use to give you a good idea of the amount of coverage you need. Other businesses will use monthly multiples of sales.

For example, if you are a manufacturer that uses certain machines and they are destroyed, you’ll need to replace them. But there may be a six-month build-out time. You are never going to start loss adjustment from day one because you have to clean up and take inventory. Then you have to order new equipment and it’s a minimum of six months before it arrives.

Do you have a contingency plan? Is there disaster planning? How quickly can you replicate what you’re doing somewhere else? Those are all items for discussion when determining the amount of coverage.

Each business is different, and it’s an art to figure out the right number. This is why an experienced agent is critical when working through the process.

What questions should business owners ask their agent to make sure they’re getting the right coverage?

Are there coinsurance limits? Are there time limits? Is the coverage paying for a regular work force? Is it covering ordinary payroll — because if it’s not, your employees are not going to wait for you to start paying them again. Is it paying fixed bills like utilities and rent? For what length of time is the coverage?

The agent should be asking questions of the business, as well. While most businesses have some form of business income coverage, it may be poorly written because the coverage isn’t designed specifically for them, or the agent isn’t asking enough questions.

Without a true understanding of your business, the agent won’t be able to design the best coverage for your needs.

What other areas should a business consider when buying business interruption coverage?

You can have ordinance or law issues, or power interruptions. For example, an ice storm could cause a manufacturer to be out of business for weeks without power. Or if a restaurant loses water service, it’s out of business until that is restored. The building itself may not be physically damaged, but the business has sustained a business interruption loss.

There is also a form of contingent business income. Say you have a large vendor or client that is damaged by a fire. That can have an impact on your ability to do business.

Or you may have a retail business anchored by another large business that pulls in a lot of traffic. If that business is damaged and no longer operating, causing a loss of traffic and, as a result, income, you can recover that through dependent property coverage.

How can an agent work with a business to minimize the chances of a disaster and increase its odds of recovering if one does occur?

An agent can do a risk management audit, trying to find the weaknesses in coverage and where the company is weak in loss control. Risk management can help prevent bad things from happening, but if they do occur, it can help ensure you have the right coverage in place.

Business owners can do a lot to make sure that if a claim does happen, it will move quickly and in the way they want. If data are backed up offsite, they will be easier to recover than if everything is inside those four walls.

You will recover much more quickly if you truly spread your risk and have a disaster plan. If you lose your physical plant and don’t have a plan, it’s going to be a long road back.

Parker Berry is an executive vice president with SeibertKeck Insurance Agency. Reach him at pberry@seibertkeck.com or (330) 867-3140.

Insights Business Insurance is brought to you by SeibertKeck Insurance Agency

Hundreds of businesses were recently destroyed or severely damaged in the Joplin, Mo., tornado, and if statistics hold true, fewer than 20 percent of those will be up and running again within three years.

If that happened to your business, would you be in the 20 percent or the 80 percent?

“Too many business owners fail to obtain business interruption coverage, or, if they do have it, are surprised in a disaster to find it is not written to properly cover their needs,” says Marc McTeague, president of Best Hoovler McTeague Insurance Services, a member of the SeibertKeck Group. “If your plan is not properly designed, you may find you don’t have the coverage you assumed you did.”

Smart Business spoke with McTeague about how having the right business insurance coverage can mean the difference between rebuilding and going out of business.

What is business interruption insurance?

A business interruption occurs when you have a physical loss to your location. For instance, if there is a fire at your manufacturing plant, there will be a loss of income because you are no longer able make a product.

The insurance will pay for loss of business income, expenses such as moving to another location while the building is being rebuilt or repaired, and continuing to pay your employees until they are able to work again.

Business owners should look at it as disability insurance for the business itself.

What types of businesses need this insurance?

Most should at least have the extra expense piece of it. For example, contractors make most of their money in the field, but if they have office operations, and something happens to that physical location, they will still have those extra expenses, and some lost income.

With a manufacturer, restaurant or retail location, all revenue comes from the physical location. So there are certainly some classes of businesses that need it more than others.

How does a business determine how much coverage it needs?

There are formulas your agent can use to give you a good idea of the amount of coverage you need. Other businesses will use monthly multiples of sales.

For example, if you are a manufacturer that uses certain machines and they are destroyed, you’ll need to replace them. But there may be a six-month build-out time. You are never going to start loss adjustment from day one because you have to clean up and take inventory. Then you have to order new equipment and it’s a minimum of six months before it arrives.

Do you have a contingency plan? Is there disaster planning? How quickly can you replicate what you’re doing somewhere else? Those are all items for discussion when determining the amount of coverage.

Each business is different, and it’s an art to figure out the right number. This is why an experienced agent is critical when working through the process.

What questions should business owners ask their agent to make sure they’re getting the right coverage?

Are there coinsurance limits? Are there time limits? Is the coverage paying for a regular work force? Is it covering ordinary payroll — because if it’s not, your employees are not going to wait for you to start paying them again. Is it paying fixed bills like utilities and rent? For what length of time is the coverage?

The agent should be asking questions of the business, as well. While most businesses have some form of business income coverage, it may be poorly written because the coverage isn’t designed specifically for them, or the agent isn’t asking enough questions.

Without a true understanding of your business, the agent won’t be able to design the best coverage for your needs.

What other areas should a business consider when buying business interruption coverage?

You can have ordinance or law issues, or power interruptions. For example, an ice storm could cause a manufacturer to be out of business for weeks without power. Or if a restaurant loses water service, it’s out of business until that is restored. The building itself may not be physically damaged, but the business has sustained a business interruption loss.

There is also a form of contingent business income. Say you have a large vendor or client that is damaged by a fire. That can have an impact on your ability to do business.

Or you may have a retail business anchored by another large business that pulls in a lot of traffic. If that business is damaged and no longer operating, causing a loss of traffic and, as a result, income, you can recover that through dependent property coverage.

How can an agent work with a business to minimize the chances of a disaster and increase its odds of recovering if one does occur?

An agent can do a risk management audit, trying to find the weaknesses in coverage and where the company is weak in loss control. Risk management can help prevent bad things from happening, but if they do occur, it can help ensure you have the right coverage in place.

Business owners can do a lot to make sure that if a claim does happen, it will move quickly and in the way they want. If data are backed up offsite, they will be easier to recover than if everything is inside those four walls.

You will recover much more quickly if you truly spread your risk and have a disaster plan. If you lose your physical plant and don’t have a plan, it’s going to be a long road back.

Marc McTeague is president of Best Hoovler McTeague Insurance Services, a member of the SeibertKeck Group. Reach him at (614) 246-RISK or mmcteague@bhmins.com.

Insights Business Insurance is brought to you by SeibertKeck Insurance Agency

When the developers of Watters Creek at Montgomery Farm were looking for a location for their unique, resort-style, mixed-use development, they had a number of options.

Plans for the 52-acre project included a large creekside village green, interactive public art, a variety of retail options, restaurants with al fresco dining and views of the water, and office space and residential lofts, says Cornell Holmes, senior general manager of Watters Creek.

Ultimately, they found that Allen, Texas, offered everything that they needed to succeed.

Smart Business spoke with Holmes about the reasons for choosing Allen and the role the Allen Economic Development Corporation has played in its success.

What played into your decision to locate Watters Creek in Allen, Texas, over other available locations?

As a developer of regional malls, outdoor retail and mixed-use properties, we were conducting a nationwide search for development opportunities. At the time, we used a software program that identified pockets of areas of qualifying population density, growth trends and demographics.

After that, population pockets were further qualified by distance to existing higher-end retail centers. As a company based in Fort Worth, Texas, we were pleasantly surprised when Allen, Texas, ranked in the top five of our nationwide search. Additionally, award-winning Montgomery Farm was being developed and land within a half mile of Central Expressway frontage was available.

What role did the Allen Economic Development Corporation play in your decision to locate in Allen?

Initially, we were attracted to Allen for the fundamentals: strong job growth, an educated work force, household income levels and an outstanding location with available land. Next, the stakeholders committed to creating a truly unique environment and due diligence was conducted based upon plans of creating a LEED certified, vertically integrated urban village with ample open space and top retailers.

At that point, things became challenging. We had already decided that we loved Allen before we knew much about the Allen Economic Development Corporation. But when the due diligence process started to get rough, the AEDC really stepped up and made this opportunity go much more smoothly for us. The AEDC bridged the gap and played a monumental role in making Watters Creek at Montgomery Farm a reality.

How has your relationship with Allen Economic evolved and been maintained?

As a developer/landlord in multiple markets, we appreciate the economic or business Development teams in all the cities in which we have projects. A good ED/BD team helps get the initial project done, assists with attracting quality tenants and helps drive up occupancy. Many cities have good economic development teams. However, Allen has a great economic development team.

The AEDC continues to connect with the existing business community in Allen and they have a real pulse on everything that is happening in the business community. They continually reach out and share ideas. They also provide introductions between existing area businesses and are committed to maintaining a happy and productive work force in Allen.

And of course, they promote our businesses. The Allen Economic Development team is like an extension to our own team and it is incredible to have access to such talent and support.

How has the location impacted your success?

The old cliché is that the three most important things in real estate are location, location and location, and Watters Creek at Montgomery Farm nailed all three. Besides being in a city that is strategically located just 10 minutes north of Dallas, the location along Central Expressway is approaching the 200,000 cars per day mark.

Second, the location is surrounded by growing daytime employment centers. Just across the street is Allen Central Park, a 38-acre site which, when complete, will be a million-square-foot, master-planned office development. Directly across the interstate are more than 500,000 of existing square feet of office, with plans for further development.

Third, the location is part of the Montgomery Farm development, an interconnected master plan on one of the most beautiful landscapes in North Texas. Montgomery Farm is a model for the environmentally conscious community and connects prairie, forest, upscale residential (high, medium and low density), retail and office within 500 acres.

What advice would you give to other business owners considering moving their companies to Allen?

I would advise other business owners not only to meet with the Allen Economic Development Corporation but to take a look at the total package that Allen has to offer as a place to work, live, and play.

  • Ranked among the Top 10 Safest Cities in the country.
  • Ranked among Forbes Top 20 Best Places to Move.
  • Allen Independent School District is lauded as one on the best in the nation, with 10 campuses rated as exemplary and seven earning a recognized rating under the accountability standards set by the Texas Education Agency.
  • The city council, mayor and city manager, and every department from planning to parks to police to fire exhibits the same level of commitment that the AEDC exhibits in partnering with the business community. It is like having additional members of your team without the additional payroll.

And when you’re not working, there is also plenty to do and places to play, including 700 acres of parks, 40 miles of hiking and nature trails, five recreation complexes, a skate park, Hydrous Water Park and top dining and shopping.

To anyone looking to relocate a business, I would recommend contacting the AEDC to see what Allen, Texas, has to offer.

Cornell Holmes is senior general manager of Watters Creek. Reach him at (972) 521-5005 or cholmes@trademarkproperty.com. For more information on the Allen Economic Development Corporation, visit www.allentx.com.

Insights Economic Development is brought to you by Allen Economic Development Corporation

Many companies offer their employees bundled 401(k) products from mutual fund or insurance companies, but if the organization is unhappy with any component of the plan, it is forced to physically move the plan’s assets and start over by selling them and then repurchasing them elsewhere because the individual plan components cannot be “unbundled.”

However, an open architecture plan allows employers to change any of the silos of the plan — the registered investment adviser, the third-party administrator, the record keeper — without having to move the plan itself, says Peter Mooney, CEO of Source Companies LLC, a subsidiary of The Ancora Group.

“The strength of open architecture is that you can custom build your plan to meet your needs and those of your work force,” says Mooney. “You can change any of the components of the plan without having to start over.”

Smart Business spoke with Mooney about how open architecture can ensure that you never have to move your plan again.

What are the disadvantages of bundled products?

When you use a bundled product, that plan is not owned by you, the employer. Instead, it is owned by the investment company, which negotiates each of the components and their fees, and then sells them bundled together.

As a result, you are tied to whatever the investment company has negotiated. If you are not happy with some component of the plan, you must sell all the assets, move the entire plan to another investment company and then repurchase the assets. That also requires terminating the relationship with your third-party administrator and setting up a relationship with a new one.

What is changing in the 401(k) industry?

Instead of the insurance or mutual fund company owning the 401(k) plan, companies are moving toward having a direct relationship with a custodian through open architecture. Then if, for whatever reason, you are not happy with an investment, for example, you can just change the investment. The same would be true with your third-party administrator, your record keeper or the performance of your investment adviser. The employer has control and can change out any of those components without ever having to change that core custodial account because your company owns that relationship.

With the recent requirements of full disclosure of 401(k) plan fees and more thorough reporting, there is an increasing trend toward open architecture. People are tired of physically moving their plan from company to company. It is disruptive to employees to have to sell everything and then repurchase it, requiring them to fill out forms and re-elect how their money is being allocated.

Open architecture makes everyone’s lives easier, allowing you to have a direct relationship with the custodian and giving you control over that relationship. You can replace your investment adviser, the third-party administrator or the record keeper, but you do not have to replace the base of what you started with.

Is an employer qualified to make decisions about changing components of the plan?

If your investment adviser is doing his or her job properly, you should be educated enough to make those decisions. There should be checks and balances of what to look for and to make sure that other people are doing their jobs. It sounds like it puts more onus on the employer, but it really does not.

As long as the plan sponsor and the advisor establish a proper investment policy statement, there is no more burden on the employer. In fact, it actually makes their life a lot easier in the long run.

What would you say to an employer who doesn’t want to be involved in those decisions?

Your investment adviser can take a fair amount of the responsibility off of the employer, but ultimately, you are still responsible for the plan. You need to be educated about the issues, and if you do not want to be involved in it at all, I would recommend that you do not offer a retirement plan.

What does a company need to be aware of regarding 401(k) fees?

Previously, many advisers claimed to sell 401(k) plans but were not really in the 401(k) industry. They may have sold two or three plans but were not advising them properly. Fees at that time were very, very high.

Over the years, the industry has consolidated and the surviving organizations that are in the business really understand 401(k) plans and make them their focus. The good ones are trying to drive down fees for employees as well as the employer while educating the trustee on the changes in the industry.

Most important, regarding fees, an employer must understand the value of the services being delivered by each of the service providers to ensure it is getting what it is paying for.

Employers should drill down to find out what each of the fees are. What are the investment adviser fees? What are the third-party administrator fees? What are the record keeper fees? And what are the custodian fees? Those are the biggest areas of fees associated with a 401(k) plan, outside of the expense ratio for mutual funds. What questions should a company be asking to ensure that they have the right 401(k) plan to meet their needs?

The plan sponsor should ask every service provider: How are you going to help my employees meet their retirement needs? What type of education do you provide me and my employees? Do you have a product that can grow with me as my business expands and changes? Can you provide me three references of similar companies to mine in size and industry?

Then make your decision based on what you learn.

Peter Mooney is CEO of Source Companies LLC, a subsidiary of The Ancora Group.  He is also a Registered Representative of Safeguard Securities, Inc. (Duly Registered Member FINRA/SIPC and an SEC Registered Investment Advisor). Reach him at (216) 593-5095 or pmooney@sourcecompanies.ws.

Insights Wealth Management & Investments is brought to you by Ancora

When choosing an investment adviser, many people are quick to hand over their money without asking questions. But failing to ask the right questions can lead to choosing an adviser whose philosophy doesn’t match yours and could cost you money, says Patrick Griffin, senior vice president, Lorain National Bank.

“Too often, the first question people ask an adviser is, ‘What should I buy?’” says Griffin. “What you should be asking is, ‘Who am I doing business with?’ This is the person to whom you are turning over your life savings. You have to ask the right questions to find the best person who fits your comfort level.”

Smart Business spoke with Griffin about the six Ps — profile, philosophy, people, process, performance and price — that can help you identify the right adviser for your needs.

When interviewing a prospective adviser, where do you start?

Start with the profile of the organization with which you are potentially going to do business. How much in assets is it responsible for? How many locations does it have? How many clients does the adviser have, and what other resources are available?

If you’re considering a jack of all trades, explore that person’s capabilities and the resources available for helping you with your portfolio. Also ask how many people are employed in the organization and what their roles are.

Finally, the single biggest question is how will your account be impacted if the person you are working with leaves the company? With a smaller organization, if that person leaves, all of that expertise goes out the door. A larger organization might offer greater continuity.

What does an investor need to know about a potential adviser’s philosophy?

This is the single most important thing investors fail to explore. Or if they do ask, the investment person responds, ‘My philosophy is to make you money.’ However, that’s a goal, not a philosophy. The bigger question is how are you going to make me money? Are you going to take risky positions and jeopardize my money? Are you gong to be ultraconservative and never meet my goals? Advisers should be able to clearly articulate their investment philosophy and how they operate their business.

It’s essential to find an adviser whose philosophy matches yours. If you are risk averse, an adviser who purchases gold is not a good fit. If you’re conservative, find a conservative adviser. If you like speculation, you need an ultra-aggressive investment firm.

What questions should an investor ask about people?

Ask about experience, education, professional designations and licenses. Then ask about structure. How are people’s responsibilities and efforts segregated? Is the person a jack of all trades, or is there a division of labor among selling, investing, researching and administration? Also, ask who you will be dealing with once the account is opened. Will it be the person who opened the account or someone else? How many other clients are they responsible for? If it’s hundreds, are you going to get the attention you need?

What is the next step?

The next step is process. Where is your money going to be invested? What is the process? Too often, advisers simply say you should buy X. But how do they know that if they don’t know what you need?

The first thing a professional should do is a needs assessment. Before recommending anything, that person needs to determine your requirements for liquidity, how much you have on hand, your time horizon, your tax situation and your expectations.

Next is an assessment of risk tolerance. What is your appetite for risk? Are you comfortable if your portfolio fluctuates? Are there any constraints on your investments? What will the asset allocation be? What are you going to invest in, and how much? How often will that allocation be rebalanced? Is the adviser going to buy the portfolio and forget it, or will your account be rebalanced so the original allocation remains consistent?

Finally, ask about the decision-making process. There are thousands of companies and mutual funds, so how will the adviser decide what to buy for your portfolio? And what are the criteria for selling?

What does an investor need to know about performance?

Look at the performance over time of the person managing your money and of the investments because, otherwise, you may be building on short-term anomalies that could send you in the wrong direction.

Second, how is performance communicated? By law, the adviser must send statements, but too many companies rely on that alone. Does the adviser meet with you about performance, or do you have to decipher the statement on your own? Will you receive additional information, such as how your portfolio has performed relative to the indices? If you lost 5 percent, but the market is down 20 percent, your adviser has done a good job of protecting your money.

How important is price?

The first thing people ask is what an adviser charges. Everyone gets paid, so if someone says there is no charge, it should be a red flag.

There are three ways to pay. With transactional fees, you pay every time you buy or sell. With asset-based fees, money managers charge a percentage of the value of the account. With advisory fees, the adviser gets a flat fee for advice but doesn’t do the actual investing.

Also ask about fees that you won’t see that may impact your account, such as withdrawal and redemption fees, fund expenses and bond commissions.

If you are handing over your life savings, you have to overcome the awkwardness of asking questions, because you won’t know something is wrong if you don’t ask.

Patrick Griffin is senior vice president at Lorain National Bank. Reach him at (440) 244-7119 or PGriffin@4lnb.com.

Insights Banking & Finance is brought to you by Lorain National Bank

Under new National Labor Relations Board rules, your employees are finding it much easier to unionize. And with micro-units now permitted, even companies with fewer than 50 employees may find themselves dealing with more than half a dozen unions, says John Entenman, a member at Dykema Gossett PLLC.

“This is a tsunami coming at employers, and many are not prepared for the implications of the new rules,” says Entenman. “The next few months could see an explosion of union organizing.”

Smart Business spoke with Entenman about changes to NLRB rules and how employers can react proactively.

What new rules has the NLRB enacted?

Historically, the NLRB has only rarely engaged in rule making. But last fall, it decided two major rules would go into effect on April 30.

The first would have required employers covered by the National Labor Relations Act to post a notice, ostensibly designed to inform employees of their rights. It further said that failure to post would result in a per se unfair labor practice being committed by the employer, and that the six month statute of limitations on the amount of time in which a charge can be brought could not be used as an affirmative defense, resulting in open-ended liability for acts an employer may or may not have committed.

In a South Carolina lawsuit, a federal court said the NLRB did not have the authority to require posting. However, in a separate lawsuit, the federal district court in Washington, D.C., said the Board had the authority to issue the rule but not to declare the failure to post a per se unfair labor practice, nor to toll the statute of limitations.

However, on appeal the Board was enjoined from making employers post the notice until a final ruling is issued.

What other rules did the Board issue?

The second rule did go into effect on April 30 and allows for expedited union elections. It greatly shortens the time from when a union files a petition to the holding of a secret ballot election.

Previously, it was 30 to 40 days before a vote, giving employers time to communicate to employees why it hoped they would not vote for union representation.

Under the new rule, the period between filing a petition and holding a vote has been shortened to 10 to 15 days, meaning that employees will not get a meaningful opportunity to hear from their employer. In addition, matters that were appealable prior to the election are no longer appealable until after the election, so a secret ballot election could occur within 10 days.

We expect to see a significant uptick in the number of union petitions filed. Employers will be receiving documents from the NLRB, and by the time they meet with a lawyer and assess the situation, there’s an election in five days, and they’ve got problems.

How will the new rule impact employers?

This will greatly increase unions’ chances of winning elections from the current 50 percent  to a union success rate of 80 to 90 percent. An employer may not even be aware its employees are interested in a union until it gets a petition, and then there’s an election 10 days later. Many employers are going to blindsided.

How will the ability to form micro-units impact unionization?

Micro-units are a new phenomenon. In 2010, a union petitioned to represent a collective bargaining unit of poker dealers. The employer (a casino) said that was not appropriate because the result would be separate unions for each card game it offered. The NLRB decided, only 2-1, that a unit solely consisting of poker dealers was not an appropriate bargaining unit.

A year later, a union petitioned to represent only CNAs at a nursing home and the NLRB approved the petition. The nursing home objected, saying it didn’t have many employees and couldn’t deal with a multiplicity of unions, but the ruling held.

Finally, in a recent case at the Denver International Airport, a union wanted to represent just rental car agents at a car rental company. The NLRB ruled that was fine, that each job category could form its own separate union.

As a result, unions are poised to represent these micro-units. And most employers are not going to fare well if their work forces are composed of multiple unions all whipsawing each other. If one union goes on strike, and the others observe the picket line, the employer could be in real trouble.

What can employers do?

It starts with sitting down with a labor lawyer, who can help assess your situation and define what, if anything, you should be doing. If you haven’t yet prepared for this new legal environment, you need to do so immediately.

Employers should also be educating their employees, explaining what unions may mean to the workplace. Tell them there are reasons to believe they may be approached by a union organizer and that you want them to know the good, the bad and the ugly about what is involved with union representation.

Tell them you are educating them so that if a union asks them to sign an authorization card, they will know something about this and will have heard the employer’s side of things.

Employers may not want to raise the subject with employees, and that may work for some, but you take the chance of employees only hearing one side of the argument, that of the union. It’s better to be proactive, because union organizing is expected to increase significantly the next few months.

John Entenman is a member at Dykema Gossett PLLC. Reach him at (313) 568-6914 or JEntenman@dykema.com.

Insights Legal Affairs is brought to you by Dykema Gossett, PLLC

As a family business owner, you may want to bring your children or other family members into your business. You may have already done so and discovered it’s been a bumpy ride. How do you do work with family members and still protect family relationships?

According to Ricci M. Victorio, CSP®, managing partner at Mosaic Family Business Center, this can be a difficult thing to do.

“When family members work together, the boundary between work and family time becomes blurred, and the relationships overlap,” says Victorio. “Families need to think through how to separate the parent/child relationship from the owner/employee relationship.”

Smart Business spoke with Victorio about how to preserve family relationships and set boundaries while working together as a family.

Why is it important to separate family relationships from business relationships?

It’s pretty clear that you can’t run a business like a family, and you certainly can’t run a family like a business. So when family members work for you, it can get very complicated. Family relationships are based upon unconditional love and acceptance. Business is all about performance and accountability. So how do you hold your family members accountable to performance without getting it confused with love? How do you demote or fire a family member without destroying your family? It is naïve to think that your company’s employee handbook will be sufficient for these complicated issues.

How do you untangle those relationships?

An experienced succession adviser can help you create a family member employment policy to define the qualifications for entering the business, such as education and job experience. This should include the minimum requirement of two to three years working somewhere else before beginning their career in the family business. Working in an environment where your successors are employees and a manager can hold them completely accountable for doing stupid things or be acknowledged for doing a great job is extremely important before coming under the scrutiny of your management team.

In a family business, negative behaviors of developing successors might be overlooked, tolerated or excused, but in the outside world, where their last name isn’t on the wall, these behaviors create real consequences that provide opportunities for learning.

Secondly, the adviser can help you design your expectations of what it is to be a family member employed in the business. Make it clear that because they are family members, they are going to be held to a higher standard:

  • We expect you to be here early, to stay late and be the example.

  • Keep a positive attitude and opinions about family members or management to yourself.

  • Be gracious and respectful. You can learn from everyone.

  • Be willing to do any job that’s asked of you.

How do you set expectations for managers of family members?

Bring your key managers in as mentors to define how you want to handle your children’s professional development, as well as the predictable bumps and challenges.

Triangulation can be a really big problem in family businesses. For example: The manager is asked to train and manage Dad’s son, Sam. But Sam is acting up, coming in late and overall not doing a very good job. The manager chastises Sam and gives him specific instructions for modifying his performance.

Instead of taking the correction as an opportunity for growth, Sam complains to Mom who then goes to Dad saying Sam is being treated unfairly. This forces Dad to ask the manager why he’s being unfair to Sam, putting them both in an awkward situation. Does the manager please the boss and spoil the child, or does he try to be a good manager and make sure the job is done right, standing up to the boss and saying his son is not doing a good job?

The best thing you can do is talk about triangulation before it happens. Sit down with your managers and define how you want to interact with them. If a situation arises, who decides the course of action? You need to build a bridge of communication so the owner, parent, manager and incoming family member have the opportunity to talk these things through before relationships get tangled up.

If a family business hasn’t planned up front, is it too late to make changes if the child is already working at the company?

It’s never too late. A succession adviser can help you begin to untangle the knots that have people tied up. Next-generation family members can exhibit entitled, blasé or even toxic behavior at any age.

Don’t think you can turn a blind eye to it if you want to have a smooth and successful leadership transition. The situation can be turned around if you address it with determination and commitment.

Tough love may be required. For children to succeed, parents need to hold them accountable, set boundaries and communicate their expectations or ground rules for participating in the family enterprise. Included in these ground rules, there must be accompanying consequences for noncompliance. After all, employment should be considered an opportunity, not a birthright.

You love your child unconditionally and will love him or her forever, but this does not always qualify a family member as a good fit for your business. Your job as a parent may be to help that child find a career in which he or she can succeed, even outside of your business.

Many business owners feel it’s not worth all the ‘trouble’ to bring their children into the business. However, if done right, it can be extremely rewarding to to see your children growing and thriving in a business that you’ve created, contributing to the company, being respected by others and perpetuating your legacy into the next generation.

Ricci M. Victorio, CSP®, is managing partner at Mosaic Family Business Center. Reach her at (415) 788-1952.

Insights Wealth Management & Family Business Consulting is brought to you by Mosaic Financial Partners

Thursday, 31 May 2012 20:00

How to respond to a class-action lawsuit

Your company has been hit with a class-action lawsuit. So what do you do next? The first thing is to remember that it’s not like other lawsuits you may have faced, says J. Kevin Snyder, leader of the Class Action Defense Practice Group at Dykema Gossett PLLC.

“There are a number of things a company should do when it is served with any lawsuit, including conducting a prompt investigation, implementing a litigation hold, and objectively evaluating the case,” Snyder says. “But for a class-action suit, there are a few things you need to add to that list as you develop a response to the complaint.”

Smart Business spoke with Snyder about how to respond to a class-action suit and steps you can take to stop a suit in its tracks.

What is a class-action lawsuit?

A class-action lawsuit is brought by one or more people on behalf of themselves and other similarly situated persons, typically against one defendant. The complaint must include a class definition that will identify the scope of those who fall within the class. For example, a class may be defined as ‘all New York residents who bought widgets from Acme Stores within the last four years.’

How should a business address a class-action lawsuit differently?

First, many class-action lawsuits involve consumers who have entered into contracts that provide for arbitration of their disputes. In a recent decision, the U.S. Supreme Court upheld the use of class action waivers in arbitration agreements. As a result, it is now more likely that a defendant will be able to require that the case proceed as an individual claim by way of arbitration, thereby avoiding the class action altogether. Defendants should carefully review the relevant contracts for arbitration clauses and then consider promptly enforcing those rights.

Second, while a defendant should always consider whether a case can be removed to federal court, there are benefits that are particularly important to defendants in class actions. It is therefore important in a class action to thoroughly consider all options for removal (diversity, federal question, pre-emption, etc.).

Finally, in addition to evaluating whether there are challenges to the sufficiency of the pleadings, in a class action one should also consider preemptively challenging whether the case is of the type that is suitable for class treatment. Courts are increasingly willing to entertain motions to strike or motions to ‘de-certify’ at an early stage and before the plaintiff moves for class certification. Once a defendant defeats the class claims, settlement is likely.

How can a business minimize the expense of responding to a class-action lawsuit?

Recognize that a significant number of class-action cases are filed by individuals who sincerely believe they have been unfairly treated by the defendant. Often, however, their only interaction was through customer service. Because a single person can bring a class action on behalf of thousands of unnamed persons who were ‘similarly situated’ the first thing a company can do to minimize the expense in a class-action suit is try to avoid it in the first place by having excellent customer service.

Once a suit has been filed, and your investigation completed, one should consider an early and informal fact exchange with the other side. I have resolved many class action cases at an early stage by sitting down with the opposing counsel, and explaining why I believe their case lacks merit. If you can, offer documents revealing holes in their case, and discuss other facts that might undermine their claims. If you can convince the opposing attorney that the suit is a long shot, that attorney is much more likely to abandon the case outright, or at least discuss an individual settlement in the early stages.

If you cannot dispose of the case at an early stage, recognize that most of your legal fees will typically come from discovery. You can minimize the costs of discovery by appointing a single contact person for your counsel to work with in locating relevant documents and witnesses. In addition, clients are often capable of doing much of the leg work themselves. Your attorneys don’t always have to be the ones to sort through boxes of documents or storage cabinets to find relevant materials. If you can do those things in house, you will generally save a significant amount of money.

What steps should a business take if its investigation reveals that the plaintiff’s claims have merit?

First, take steps to modify or stop whatever the practice is. You don’t want to continue a problematic policy or procedure, or continue manufacturing and selling a product that you’ve determined is defective or creates liability or exposure for you.

Second, explore settlement. If you are not concerned with follow on litigation, consider trying to settle the case on an individual basis. Alternatively, consider settling the case on a class wide basis by stipulating to certification for the purpose of settlement and negotiating an agreement that resolves the issue once and for all. If a decision is made to settle on a class basis, there are a number of ways to reach an agreement that fairly compensates the class while minimizing the economic impact on the client. It is far easier to structure a favorable settlement early on than after two or three years of heavily fought litigation.

J. Kevin Snyder is leader of the Class Action Defense Practice Group at Dykema Gossett PLLC. Reach him at (213) 457-1810 or ksnyder@dykema.com.

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Dealing with payroll, employee benefits and workers’ compensation is time-consuming and can be a distraction from the job of running your business.

Engaging with a professional employer organization can remove those obstacles, allowing you to focus on growing your business, says J. Richard Hicks, CEO of HR1 Services Inc.

“A PEO is a single source provider of integrated services that allows business owners to cost-effectively outsource the management of strategic services such as recruiting, risk/safety management and training and development,” says Hicks. “The PEO becomes the employer of record for employees for both tax and insurance purposes in a practice called co-employment.”

As of 2010, there were more than 700 PEOs operating in the United States, covering 2 million to 3 million workers, and that number is continuing to grow.

Smart Business spoke with Hicks about how engaging a PEO can allow you to concentrate on your business.

How does a PEO work?

A small or mid-sized business enters into an agreement with a PEO to establish a three-way relationship among the PEO, the client company and the company’s employees. This now becomes a co-employment arrangement, as the PEO co-employs your existing work force and becomes a legal employer that is responsible for such functions as payroll, record-keeping, benefits and services, and participation in hiring, evaluation and firing.

Dealing with the day-to-day functions of running a business can distract an owner from the big picture and focusing on a strategic vision to move the company forward. Services typically provided by an employer are outsourced to the PEO; the PEO takes over the management of human resources and employment-related issues, freeing up the business owner to focus on the core operations of the business.

The role of a PEO goes far beyond that of a temporary firm, staffing agency or payroll administration firm. Instead of simply taking on one role for a company, the PEO offers comprehensive HR services to clients, either as a bundle or a la carte.

What are the benefits of a PEO?

In addition to allowing leadership to more sharply focus on the business, a PEO can manage your unemployment claims and keep current on tax laws to ensure your business remains in compliance. When employers need to submit employee paperwork to the government, the reporting experts at the PEO will ensure the documents submitted are in compliance with all regulations.

In addition, a business’s employees are eligible for the group benefits offered by the PEO, including medical insurance and 401(k) plans, and it can often get better rates than a single company could on its own. Because it is working with multiple companies, the employees of each of them can be pooled together, creating a larger group and potentially lowering costs. This also removes from the employer the hassle of having to deal with multiple vendors in areas such as health insurance, payroll, 401(k) management and other areas. And because the work in all of these areas is being done by one provider, instead of several, the company’s records are more uniform, allowing for less work in case of an audit.

How can a PEO assist in the area of workers’ compensation?

A PEO can be involved in the management of both workers’ compensation and unemployment claims. In the case of workers’ compensation, the PEO can work with a company to get injured workers back on the job through a light duty program more quickly than they otherwise might return. And as with health insurance premiums, the larger pool of employees created by joining the work forces of multiple employers under the PEO umbrella can often mean lower workers’ comp premiums than an individual employer would pay on its own.

Employers can also receive assistance from the PEO when implementing risk management programs. Having the proper safety initiatives in place can significantly lower workers’ comp premiums and help maintain a more productive work environment.

The PEO also eliminates the need for year-end premium audits, as the company’s expense is billed in the same amount each month.

What are the potential disadvantages of a PEO?

Although the PEO is responsible for all of the above-mentioned services, the employer is still responsible for the productivity and conduct of its employees. Also, some state laws or labor contracts may limit which employers can enter into such an arrangement.

What questions should an employer ask before choosing a PEO?

First, make sure you know what you are paying for. Services are often bundled, and unbundling them can give you a better idea of what you are paying for. Also ask who you will be regularly working with and ask about that person or that team’s background. Determine how often someone from the PEO will visit your office and whether someone will be available on short notice if you run into a problem.

Find out if the PEO will do an analysis of your company before agreeing to take you on. The PEO should be interested in working with you to make things more efficient and help you lower costs and shouldn’t agree to work with you without first thoroughly understanding your business.

Also ask about development and training. A good PEO will be interested in the growth of your employees to help grow your business, so ask if those services are included in your fees, or whether there is an additional costs.

Check with your local PEO expert to ensure that your business is eligible to participate and to get more information about how to proceed.

J. Richard Hicks is CEO of HR1 Services Inc. Reach him at (800) 677-5085 or RHicks@HR1.com.

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