Arthur G. Sharp

Thursday, 21 September 2006 05:32

Equipment leasing

The equipment leasing industry presents significant opportunities for lessors and lessees alike. Businesses of all sizes lease an array of “big-ticket” ($500,000 and up range), “middle-ticket” (between $250,000 and $500,000), and “small-ticket” (under $250,000) items that lessors can provide.

The costs of those items can be daunting at times, especially for lessors, since equipment leasing companies are traditionally undercapitalized and can take advantage of “leveraged leases.” That provides significant opportunities for full-service commercial banks to serve their financing needs by discounting the stream of leasing payments and providing the lessor bridge loans, working capital loans, equity loans, or equity investments on a residual sharing basis.

Smart Business talked to Brian Griffin, senior vice president with MB Financial Bank, to learn how equipment leasing companies and lessees can utilize banks’ services to leverage and expand their businesses.

How do lessors benefit from the bank’s role in the leasing process?
Since most lessors are not well capitalized, they often offer leveraged leases to their customers (lessees). The lessor determines the amount of equity he feels is appropriate for a transaction, based on his estimate of the value of the equipment at the end of the lease term, and invests that amount into the lease. The bank provides the ‘debt side’ of the transaction to the lessor by lending (on a nonrecourse basis) the difference between the equipment cost and the equity, and takes an assignment of the lease payments from the lessee and the underlying equipment as their collateral.

How does such a partnership work?
For example, if a piece of equipment the lessor wants to purchase costs $1 million, and he determines that the amount of equity to invest in the transaction is 10 percent, based on the estimate of the residual value of the equipment at the end of the lease term, he will invest $100,000 into the transaction. Then, the lessor asks the bank to discount the stream of the rental payments from the customer. If the bank agrees, it will provide the balance of the remaining costs, secured by the assignment of the rental stream from the lessee, as well as the underlying equipment.

When can lessors take advantage of beneficial loans?
If a lessor needs to close a transaction before lease funding is available, a bank can provide a bridge loan. Similarly, if the lessor wishes to finance his equity investment or spread his risk, a bank can provide equity loans or consider sharing in the equity with the lessor.

How do lessees benefit?
Leasing equipment frees money from a business’ excess cash balances and allows it to be used for other purposes, like research and development. Leases are often carried off balance sheet.

Timing is also an issue. A lessee may need a specific piece of equipment, but on a short-term basis only. Thus, it makes more sense to lease the equipment than buy it. Conversely, the lessee can lease a piece of equipment, decide it needs the equipment on a long-term basis, and purchase it. In either case, the outcome gives the lessee flexibility, which is an additional benefit to the leasing strategy.

How important is creditworthiness in the leasing process?
Lessors and lessees alike must maintain the highest investment-grade credit ratings possible. Banks’ decisions to provide loans are based primarily on their creditworthiness. High credit ratings can sometimes speed up loan committees’ approvals, and the better a company’s credit, the better pricing it will get on its leasing transactions.

Companies without the highest ratings are eligible for loans as well. Some banks will look at full three-year audited financial statements and current interim figures for unrated companies.

Are legal documents complicated in a lease transaction?
Some lease structures are a bit complex, but most small- to middle-sized transactions are not overly sophisticated. So most leasing companies utilize a standard set of documents. They must be completed diligently, though, since regulatory agencies are giving closer scrutiny to documentation and conforming to laws and guidelines.

What criteria should lessors and lessees consider when selecting banks for equipment leases?
The size of its lease funding portfolio, its minimum and maximum levels of funding transactions and lease funding history, what types of companies the bank typically finances, whether the bank will consider equity financing or investments and provide bridge loans, and flexibility in funding leases.

Some banks specialize in three- to five-year leases, for instance, but might grant longer terms for selected transactions. Other factors are the bank’s longstanding relationship in the leasing community and membership in organizations such as the Equipment Leasing Association (ELA) and Information Technology Resellers Association (ITRA).

BRIAN GRIFFIN is a senior vice president with MB Financial Bank. Reach him at (847) 653-1874 or

Wednesday, 20 September 2006 10:35

Developing an ADR program

The number of legal disputes between employers and employees is increasing, which places new demands on both parties to resolve them quickly, efficiently and fairly. A number of internal binding and nonbinding methods are available to employers to resolve employment disputes, including arbitration, mediation, and peer review programs.

Sometimes the dispute resolution process requires the inclusion of attorneys. Employers, especially those in medium- to large-sized companies, should be prepared to manage employee dispute situations before the situations manage them.

Smart Business spoke with Thomas E. Reddin, a partner at Godwin Pappas Langley Ronquillo LLP, to learn how employers can manage their employee disputes fairly, in a timely, cost-effective manner.

What is causing the rising number of employment-related disputes?
The reasons vary. Among them are the changing dynamics of the workplace, new laws that give employees more rights, a growing sophistication among employees regarding those laws, a multigenerational work force, the portability of key personnel, and decreased union influence. Some of the disputes that management and labor union representatives used to resolve now require other methods, which makes it advisable for employers to implement Alternative Dispute Resolution (ADR) programs.

How do ADR programs benefit employers?
Significant benefits include prevention of problems before they start and cost savings — not necessarily measured entirely in dollars. If a legal dispute with an employee goes to trial, the process takes key company personnel away from their routine duties, which can be costly, especially since litigation can be quite lengthy.

ADR methods can significantly decrease the length of time needed to resolve disputes. Perhaps most importantly, a properly designed, communicated and utilized system makes a statement that management cares about its employees and will treat them fairly.

What should a company look at when choosing the dispute remedy?
One factor is the company’s culture.

A second is a careful analysis of what the company wants to accomplish. For example, does it want to open the lines of communication and give employees various avenues to address a complaint, or simply serve as a mechanism to resolve disputes after they have developed?

Another consideration is the sophistication of the company’s Human Resources Department. Some companies are well prepared to deal with employee disputes based on previous experience, the level of training their employees have received in resolving them, and the programs they may already have in place.

Naturally, cost enters the selection process. Employers must look at the cost of litigation versus arbitration, mediation or peer review. Generally, litigation is more costly in terms of time and money, but implementing an ADR mechanism may result in an overall greater number of complaints. Companies are well advised to perform careful cost/benefit analyses when weighing their ADR options.

Finally, the alternatives to litigation have their own merits. Does the employer want a legally binding resolution involving a neutral third party, as with arbitration? Or is the preference to try and resolve the dispute inhouse, via a peer review board, which might be more suitable in company cultures that make it more amenable?

At what point in the legal dispute resolution process should attorneys be involved?
Most companies would probably tell you that the ideal situation would be to keep lawyers out of it altogether. That is not always possible — or practical. In cases where their participation is advisable, it is best to get them involved as early as possible.

Attorneys can help draft and implement effective workplace policies, including ADR and arbitration programs; provide behind-the-scenes counseling and guidance during the dispute resolution process; and frame issues correctly.

Employers that choose peer review boards to resolve disputes should make sure the panel members are trained and willing to maintain confidentiality regarding the parties involved and outcomes. Attorneys can provide peer review board training.

How can companies forestall disputes with their employees in order to reduce litigation costs?
Two keys are increased communications and training programs. A significant percentage of employee disputes are the result of front-line supervisors’ actions. Companies that implement and monitor sophisticated communications and training programs to better equip their front-line supervisors to cope with potential employee problems reduce the number of disputes.

Interestingly, studies have shown that companies that are well prepared to deal with employee disputes based on sophisticated communications and training programs for their supervisors can reduce problems from ever arising by as much as 50 percent to 75 percent.

THOMAS E. REDDIN is a partner and Chair of Labor and Employment Section with Godwin Pappas Langley Ronquillo LLP in the Dallas office. Reach him at (214) 939-4821 or

Sunday, 30 July 2006 08:08

Investing in the energy market

Why do business owners pay such close attention these days to the cost of energy? Because the energy markets directly affect fuel costs, and fuel costs directly affect bottom lines. It is possible, however, that some of the efforts and expense going into energy planning might be better spent in the energy market itself. In fact, earnings from oil and gas investments might offset increases in the rising costs of fuel, electricity, natural gas, transportation and shipping -- and help the company’s bottom line.

Smart Business talked with John Barnes, chairman and CEO of B&R Energy LLC, about the pros and cons of investing directly into energy markets.

Regarding energy investments, tell us how you define ‘invest.’
I define it in two ways. First, business leaders can invest company funds in money-saving energy cost-cutting programs. Or they can see to it that employees drive less, telecommute more, drive more fuel-efficient vehicles, install smart thermostats, and develop a culture of conservation among their employees.

Second, they or their companies may also invest the savings into the energy market, particularly petroleum.

How does it benefit business owners to invest in energy?
Energy is the single most important way to advance and maintain civilization. Let me put it another way: a nation’s GDP grows in proportion to its energy use. Technology gives us increasingly efficient and effective use of energy, but energy growth itself is the essential engine for economic growth. To maintain its growth, a nation must constantly find new energy supplies <m> beckoning every investor to a golden opportunity in petroleum ventures.

Is direct investment in petroleum ventures limited to businesses with specific capital in their investment portfolios?
There is no set dollar figure, but companies or individuals with at least $1 million to invest might want to invest a reasonable portion of it in petroleum -- a direct investment in drilling, perhaps, rather than in stocks. Drilling has tax advantages, but stocks do not.

Why is this a good time to invest in petroleum?
In recent years, investors have laser-locked on high-tech industries; in particular on computers, telecommunications and the Internet. Perceived low-tech fields, such as the petroleum industry, have attracted considerably fewer investment dollars.

Meanwhile, ironically, the high-tech industries have served the petroleum industry by improving the prospects on wells drilled. Few industries rely on and employ emerging technology more than the petroleum industry -- making today’s petroleum investments that much more lucrative.

What motivates individual investors to pursue petroleum ventures?
Financial returns: in many cases payback is within a year or less, at an annual return that can top 30 percent.

Second are the IRS regulations on the investors’ side. Up to 90 percent of an investment in oil and gas wells may fall under ‘intangible drilling costs,’ which investors may deduct in the year paid.

The federal (IRS) tax code also gives the investor a 15 percent deduction in the form of percentage depletion of gross oil and gas income. Moreover, reinvesting oil and gas profits in drilling new wells enables the investor to defer taxes while earnings compound.

Are investments in oil and gas ventures risky?
No investment is risk free. But the average risks of oil and gas ventures are well below what they were only a decade or so ago. Some projects offer a probability of success up to 80 percent to 90 percent. And many of them would result in profits even if oil and gas prices were to drop dramatically.

The same guidelines for investments in general apply to oil and gas. Investors should weigh opportunities against their personal risk avoidance threshold and anticipated returns on their money -- and then thoroughly research every opportunity.

As with any investment, direct investments into petroleum are subject to rules and regulations. Of course, prospective investors should consult their tax advisers when deciding whether to invest directly in petroleum ventures. So the usual caveat is in order: Do your homework.

What does doing your homework entail?
To find out if an energy producer is reliable, follow a few simple steps.

Determine how much experience the producer has. Companies with five or more years of experience might be more reliable than a first-time driller.

Find out something about the backgrounds of a producer’s owners and managers. Find out how much of the producer’s own money will be invested in the program. Often, such information is available through producers’ Web sites and Internet sources.

Talk to other investors, particularly those who have put money into nonproducing projects. Read the producer’s progress and year-end reports and other documents carefully.

In short, weigh carefully every potential advantage and disadvantage.

JOHN BARNES is chairman and CEO of B&R Energy LLC. Reach him at (972) 934-3800 or

Sunday, 30 July 2006 07:53

Bankruptcy: always a last resort

The much-heralded bankruptcy law that took effect in October 2005 did not have a major impact on businesses. Most of the changes were aimed at individuals. Nonetheless, for businesses facing insolvency, bankruptcy remains a viable option.

Business owners still have to consider carefully what kind of relief is available to them, what the universe will look like after financial problems surface, and whether filing for bankruptcy is a smart move for them. But, a decision regarding filing is not one to make without consulting professional advisors regarding the advantages, disadvantages, and possible outcomes.

Smart Business discussed the pros and cons of bankruptcy with Vincent Slusher, partner and chair of the Bankruptcy Section at Godwin Pappas Langley Ronquillo LLP in Dallas, to get an idea of how it affects business owners, the myriad details associated with the process, and the value of advisors who specialize in that field.

Are there any advantages to filing bankruptcy for a business?
Filing for bankruptcy provides businesses faced with overwhelming debts immediate relief from creditors, and a breathing spell that gives them time to reorganize and develop a strategy for the effective reorganization of their operations.

What are the disadvantages?
Meeting deadlines and complying with reporting demands can be time consuming during a time when the company’s workforce has often been scaled down and profits are the goal. Often, these demands are frustrating to the president and CFO of the debtor. Furthermore, a company in bankruptcy operates in a fish bowl. The process is completely transparent. Debtors are generally surprised by the lack of confidentiality in the bankruptcy process.

Competitors and customers can use the information that becomes public as a factor in formulating their strategies for dealing with the bankrupt business. There are, however, procedures available to protect customer lists and other trade secrets of the debtor.

What alternatives to filing for bankruptcy exist?
The key to utilizing alternatives is to consider them early in the financial distress timeline. It is never too soon to consult a bankruptcy attorney or reorganization specialist. By investigating and educating themselves early, business owners will understand all the options that are available to take advantage of before bankruptcy becomes inevitable.

The first step is often for business owners to try and negotiate with creditors and investors to work out a plan to eliminate the immediate liquidity problems. Remember, business tends to be cyclical in nature. The cash flow solution might be simple if creditors are willing to work to establish payment plans to carry the business through the slow periods. Creditors are often willing to make such arrangements, especially if they have a long-term relationship with the business owner.

If that strategy is unsuccessful, business owners might need to employ professional advisors such as bankruptcy attorneys and financial advisors to establish payment plans with creditors or an out-of-court restructuring plan.

Often, because of the amount of the debt or the urgency of payment deadlines, the only remedy is a bankruptcy filing. Business owners should remember that these filings don’t typically happen. Attorneys need some lead-time to prepare the case before a petition for relief is filed in bankruptcy court. The sooner business owners involve bankruptcy professionals, the better the process will work for them.

Once business owners decide to file for bankruptcy, how should they go about it?
The safest approach is to work with attorneys who are bankruptcy specialists. They can efficiently guide you through the bankruptcy process and help your business enjoy the greatest benefits of bankruptcy protection.

Bear in mind that bankruptcy laws have been codified by the United States Congress, and they do not always make sense to a lot of people, particularly creditors. Bankruptcy lawyers are adept at making sense out of these laws, which benefits debtors and creditors alike in the long run.

These attorneys work with a wide range of people involved in the complex bankruptcy process, including business owners, financial advisors, insiders such as directors, and others with a fiduciary interest in the outcome to formulize payment and reorganization plans. In short, they guide business owners through a process they cannot negotiate themselves.

How do business owners select a qualified bankruptcy attorney?
Through due diligence. Business owners can ask their own attorneys, bankers, and other advisors for recommendations. They probably should not, however, talk to their own bankers, because they might be in a position where they have to reveal some potentially damaging information.

They can also check local and state bar associations, and Internet sites such as Martindale-Hubbell, which provides rating referrals. Sometimes, searching for individual attorneys’ names in conjunction with bankruptcy reveals some interesting results.

VINCENT SLUSHER is a partner and chair of Bankruptcy Section for Godwin Pappas Langley Ronquillo LLP in Dallas. Reach him at (214) 939-4492 or

Sunday, 30 July 2006 05:38

Sec.1031, IRS Code

1031 Exchanges -- so called because they are covered in Section 1031 of the Internal Revenue Code written by the U.S. Congress -- are not widely publicized in the business world. Yet they can be highly beneficial to taxpayers who want to defer capital gains taxes from commercial real estate swaps.

A 1031 Exchange is a good public policy incentive provided to investors by the U.S. Congress. It allows investors to trade real estate or capital equipment for similar assets, and defer the capital gains taxes on the increase in value of the property being exchanged. And it is not an abusive tax shelter, as some people might believe. But those who qualify for and take advantage of 1031 Exchanges do realize significant capital gains tax savings.

Smart Business spoke with Richard Witek, vice president of MB Financial Bank’s Asset Management and Trust Group, to gain an insight into 1031 Exchanges and the benefits involved.

Who is eligible for 1031 Exchanges?
Taxpayers who hold property for productive use in a trade or business or for investment can take advantage of 1031 Exchanges. 1031s are not available to taxpayers who want to trade property simply for personal use or who hold it primarily for sale.

How does a 1031 Exchange work?
First, the taxpayer sells his old or relinquished property, then identifies new or replacement property. This has to be done within 45 days of the sale of the old property. Generally, the taxpayer closes on the purchase of the new property within 180 days of the sale of the old property.

One of the beauties of 1031 Exchanges is that a taxpayer can then sell the new property as part of another Like-Kind exchange and continue to roll over the proceeds. There is no limit to the number of times this can be done.

What types of property are included in Like-Kind exchanges?
Properties include domestic apartment buildings, farms, shopping centers, railroad and computer equipment, boats, trucks ... the list goes on. It is important to note that foreign property cannot be exchanged for U.S. property.

Not all property has to be tangible. For example, the IRS allows taxpayers to sell real estate property and transfer all the money into entities like petroleum producing wells without paying any tax on the profits.

Can taxpayers trade one type of property for another?
Yes, but there are some caveats. For instance, a taxpayer can trade an apartment building for a shopping mall, or a farm for a warehouse. But once an exchange involves smaller assets like boats and trucks, Like-Kind is interpreted more narrowly. If a taxpayer is going to swap a truck, for instance, it must be traded for another truck.

Nuances like these suggest that taxpayers interested in 1031 Exchanges should work closely with professional advisors such as tax attorneys, commercial bankers, and accountants to make sure everything is done according to IRS guidelines. Therefore, choosing a qualified intermediary, defined as an independent agent that facilitates an exchange, is advisable.

How does an eligible business person identify a qualified intermediary to implement a 1031 Exchange?
One way is to identify experts and institutions that have positive track records in administering 1031s. Look for information about how much experience they have, how many transactions they have completed, and whether they can be trusted to hold investors’ money. The last concern has a major impact on who is ultimately selected as a qualified intermediary.

Why is it important to choose a qualified intermediary who can be trusted with clients’ money?
Qualified intermediaries perform important functions. They simplify the process, keep taxpayers aware of deadlines, make sure that everything is in compliance with IRS guidelines, and maintain control of the funds that result from sales.

It is important to recognize that a client involved in a 1031 Exchange cannot take ownership of the funds from a transaction. Once a transaction is complete, it is too late to set up an exchange. The qualified intermediary must control the funds in order to implement an exchange.

The theory behind this is important to understand. The intermediary holds the proceeds from the sale of the relinquished property until the taxpayer directs it to release them to acquire the replacement property. Effectively, the taxpayer has never had control of the relinquished property sale proceeds, which are then rolled into the purchase of the Like-Kind replacement property. That is the essence of the 1031 Exchange concept envisioned by Congress. And, even though it sounds complicated, a Like-Kind exchange can be implemented efficiently when qualified professionals are involved in it.

RICHARD WITEK is vice president of MB Financial Bank’s Asset Management and Trust Group. Reach him at (847) 653-1788.

Friday, 30 June 2006 06:52

ADR: Solving problems out of court

At times, business people become engaged in disputes that require legal remedies. In the past, that meant suffering through lengthy periods of time waiting for cases to be put on the docket and for trials to end. That is becoming less likely in today’s fast-paced, information-based business world in which innovative methods such as Alternative Dispute Resolution (ADR) exist to speed up the resolution process.

The dynamics of the business dispute and settlement environment are dramatically changing the way attorneys and clients interact. Today, business people are more apt to seek business settlements for their legal problems and get involved in the resolution process.

Smart Business spoke with Christopher Pappas of Godwin Pappas Landley Ronquillo LLC to find out how business people can benefit from partnerships with attorneys in their efforts to reach out-of-court settlements for their legal disputes.

What is changing in the litigation landscape from a business dispute perspective?
Clients are becoming more sophisticated about dispute remedies available to them. They recognize that the idea of preparing the case for ultimate resolution by way of trial is no longer a practical concept in many situations. There are, however, numerous cases where the only way to resolve a given dispute is to utilize the courthouse process.

Is it just clients who are looking for early, cost-effective solutions to their business problems?
Not in my view. Attorneys who are interested in representing their clients well are pro-active in examining cost-effective solutions to their clients’ problems. I believe there is an awareness that a large number of legal problems can be resolved without the necessity of a trial, just by utilizing alternative dispute resolution mechanisms that are designed to help foster settlements.

In addition, attorneys should also focus upon all the various options that may be available to help solve the client’s problem, which should include both early and cost-effective solutions. In some cases, these solutions include a combination of legal and business-driven concepts or principles.

Is there any evidence to support the idea that courts are less involved in business dispute resolution than they were in the past?
Statistics indicate that, on the average, less than 5 percent of the cases that get into the court system ultimately are disposed of or resolved by way of trial. The traditional concept of preparing each case for resolution or disposition through trial has certainly changed. It should be noted, however, that courts are much more pro-active in fostering resolution of legal disputes by encouraging the use of alternative dispute resolution mechanisms.

What roles have business people played in this trend?
In my view, the business community is more interested these days in looking at all the possible options that may be available to resolve a given problem. At the same time, business clients are more interested in being involved in the legal process and in the decision-making in terms of defining litigation strategy. This has led to a greater need for legal partnering between the attorney and client in working toward a commonly defined solution to the problem. Attorneys who recognize this trend begin to see their role much like a quarterback who has been given a playbook and whose job it is to implement the agreed-upon plan that is the by-product of the partnering process.

Does the trend toward the attorney-client ‘team’ speed up the resolution process?
Yes, basically because a true partnering process fosters a proper level of communication between the attorney and client which can lead to a carefully defined game plan from the inception. That doesn’t necessarily eliminate the need to initiate legal action in order to get the issue on the table, but it can result in the development of a ‘surgical plan’ in selecting the best option available to achieve a solution.

What is the client’s role in this process?
The client’s role is critical in terms of the partnering process. The client must be prepared to become more informed, involved and invested in the dispute resolution process.

How do clients become more invested and involved?
Clients must become more educated about dispute resolution techniques and the options available to solve their problems. This requires a greater understanding on their part as to how the legal process works and a greater insistence on being involved in the process of dispute resolution. Clients should be selective in retaining legal counsel who understand the value of partnering and recognize that there are a myriad of approaches that may be considered in approaching any given problem.

CHRISTOPHER PAPPAS is a partner and chair of General Insurance Practice Group for Godwin Pappas Langley Ronquillo LLP in the Houston office. Reach him at or (713) 425-7401.

Monday, 15 May 2006 13:16

The fuel and the furor

Astronomical gas prices are a punch in the budget, as business owners who depend on moving their products to market know. As consumer demand climbs, and as oil producers, refiners and distributors struggle, supply shows no significant or immediate hope of increase.

One long- and short-term tactic for business owners is to bulk-buy or sign long-term distributor contracts. They can also use alternative fuels such as propane and diesel, and reduce company vehicle use. As they do, it may turn out that prospects are not as grim as they sound today. However, the return of cheap and easy-to-find crude oil is not likely to return any time soon, if ever.

Smart Business spoke with oilman John Barnes of B&R Energy LLC about the pump fees and business fears, changes that recovery may bring, the hidden costs in refining and gasoline distribution, and possible improvements in coming supply and prices.

What’s causing all the price drama at the pumps?
No one thing ever drives pump prices. Behind every new number at the local station is a line of government and EPA regulations, drilling and exploration costs, reduced storage and refining facilities, and the shortage of ethanol — mandated by governmental regulations to be mixed with gasoline by summer 2006 to reduce pollution.

Add to that the unstable global geo-political issues that affect supplies and free-market pressures driving prices steadily upward, and you soon discover that combined factors can and do affect us all.

How does ethanol play into prices at the pump?
Ethanol is an oxygenate that, mixed with gasoline, reduces ozone haze and smog. Not only is it currently in short supply, but it’s always costly and it’s a negative-energy product. That is, it provides less energy than it costs to make. There is also a large tariff on imported ethanol. One national distributor I know recently paid more for the ethanol to mix in its gasoline than for the gasoline itself.

Another problem with ethanol is getting it from A to B. Gasoline and most oil-refinery products travel by pipeline, but since ethanol tends to absorb water from the atmosphere, it has to be trucked or shipped by rail and mixed at the local gasoline distributor’s site. Obviously, any transportation delays of the ethanol can also cause spot shortages of gasoline — which also affects gasoline availability and prices.

Does this imply that an adequate supply of ethanol would help stabilize gasoline prices?
There’s more to it even than supply. While ethanol does a good job of oxygenating gas and cutting pollution, a high mix of it with gasoline also reduces miles per gallon. In other words, we use more gasoline to drive the same number of miles — which also affects gasoline availability and overall costs per gallon.

As one local gasoline refiner reported this week, ‘Ethanol is good for my business; when I have fuel to sell I get more for it, and since it does not do as good a job in cleaning fuel injectors and pumps, I’ll get more repair business.’

How do refining costs and utilization influence gasoline costs?
Over the past 20 years, in every single year except for the last five, the refining industry has lost money. For the past 20 years, Congress has burdened the industry with billions of dollars in environmental costs on refiners who lacked the profits to cover them. Smaller refineries that were required to spend hundreds of millions of dollars to stay in business lost money and had no choice but to shut down.

Capital markets are not kind to companies losing money. The only profitable oil-related companies were those involved in production, and even they weren’t making much then. Today, we have roughly the same refining capacity of 20 years ago, spread over half the number of refineries. No new refineries have been permitted to be built.

How do demand and supply affect prices?
Although U.S. refineries have maintained their capacity with expansion off-setting closings, we can import gasoline and other products as we do oil. However, supplies of oil and oil-derived products have ceased to grow and demand continues to grow rapidly. As oil supply has tightened, oil prices have risen to bring supply and demand into balance. Higher oil prices bring higher gasoline prices.

Are there any bright spots?
Researchers are working with cleaner diesel fuels, which are a bit more fuel efficient, and biodiesel, which is energy-efficient and can supplement or replace some diesel usage. Hybrid cars, electric cars and more fuel-efficient cars can also mitigate oil demand. The search is on for positive-energy fuels that provide more energy than they cost to make. In that respect, a shift to diesel and a growth in biodiesel fuels does look promising.

JOHN BARNES is chairman and CEO of B&R Energy LLC. Reach him at (972) 934-3800 or

Global markets and logistics have prompted business owners to seek more efficient, secure, reliable and cost-effective communications networks. The emergence of Virtual Private Networks (VPNs) satisfies their need.

VPNs, which are viable for businesses of all sizes, are private communications networks that use a public network such as the Internet to connect remote sites. They route “virtual” connections from a company’s private network to remote sites, or employees through public networks. In a practical sense, they eliminate the need for leased lines, which is a cost-saving benefit.

In many cases, they are managed turnkey systems that do not require the acquisition of new hardware or software or the availability of a dedicated IT staff. More importantly, they are secure and reliable.

Smart Business spoke with Jim Ferguson, president of sales and marketing for Mpower Communications, about the benefits of VPN and network security.

How do VPNs benefit a business?

Historically, businesses built and deployed mission-critical applications over private local- and wide-area networks (LANs and WANs), where the network infrastructure and access was tightly controlled. The end result was a private data communications network that had somewhat predictable application availability, performance and security.

Enter the Internet. The desire to use the Internet for business and the associated risk factors has created a new technology niche, because VPNs use encryption and tunneling to achieve one or more of the following goals:

  •  Connect users securely through their own corporate network (remote access)

  •  Link branch offices to an enterprise network (intranet)

  •  Extend organizations’ existing computing infrastructure to include partners, suppliers and customers (extranet)

VPNs extend trust relationships across an economical public network without sacrificing security. Ideally, a VPN should behave similarly to a private network; it should be secure, highly available and have predictable performance.

How secure are VPNs compared to LANs, WANs, etc?

Secure VPNs use encryption protocols to provide the necessary confidentiality (preventing snooping), sender authentication (preventing identity spoofing), and message integrity (preventing message alteration) to achieve the privacy over a public IP network.

Why would business executives want to move to a VPN, since part of the transmissions go over a public network, such as the Internet?

A well-designed VPN provides the same level of security as private networks using low-cost public Internet. That means significant advantages for businesses. For example, it:

  •  Extends geographic connectivity: local, regional, national or global.

  •  Reduces operational costs versus traditional WAN.

  •  Reduces transit time and transportation costs for remote users.

  •  Improves productivity and communications.

  •  Provides telecommuter, mobile user access to corporate network.

  •  Provides faster ROI than traditional carrier-leased or carrier-owned WAN lines.

  •  Shows good economies of scale, as the business adds locations.

Are the benefits of VPN more relevant to larger companies than to smaller ones?

They are equal to both. Currently, small business owners are looking closely at managed VPN providers. They often lack the IT support staff and capital funding to create and manage their own VPNs. Larger enterprises tend to manage their own VPNs. They have the IT staff, CAPEX and OPEX to support and manage their own WAN networks.

How does a company measure ROI when implementing VPN?

There are several ways, such as reductions of operating expenses and capital. VPNs allow end-user/corporate applications such as video conferencing, VoIP and bandwidth intensive applications that couldn’t be used with more expensive frame relay or point-to-point.

What questions should business executives ask when doing a cost-benefit analysis on VPNs?

They should be considering the benefits of managed turnkey solutions versus unmanaged — those that require hardware, IT staff and so on.

JIM FERGUSON is the president for sales and marketing for Mpower Communications, which serves California, Nevada, and parts of Illinois. Reach him at

Monday, 30 January 2006 09:20

Complementary and alternative medicine

The use of complementary therapies such as herbs, supplements and modalities — acupuncture and chiropractic — is growing in the United States. Physicians and health care practitioners of all types are becoming aware of the importance of discussing complementary and alternative medicine (CAM) with their patients.

Concomitantly, many health benefit carriers are providing coverage or discount programs for their members who choose certain CAM treatments.

“With CAM discount programs, employers and consumers can save on a variety of alternative approaches to preventive care and the maintenance of good health, from chiropractic services to vitamins, nutritional and herbal supplements, and related products,” says Thomas J. Scurfield, vice president of sales and service for Aetna’s north central east region.

Smart Business spoke with Scurfield to learn more about complementary and alternative medicine and how it is being incorporated into health benefit plans.

What is complementary and alternative medicine?
The industry defines CAM as a group of diverse medical and health care systems, practices and products that are not presently considered to be part of conventional medicine. While scientific evidence exists regarding the safety and effectiveness of some CAM therapies, for most therapies these key questions still need to be answered through well-designed scientific studies.

As CAM therapies are proven to be safe and effective, they are often adopted into the conventional health care system. Since information on CAM is changing constantly, patients should talk with their doctors before using any CAM therapy.

Do complementary medicine and alternative medicine differ from each other?
Yes. Complementary medicine is used with conventional medicine. For example, aromatherapy is used to lessen a patient’s discomfort following surgery.

Alternative medicine is used in place of conventional medicine, such as using a special diet to treat a diagnosed cancer, rather than having the patient undergo doctor-recommended surgery, radiation or chemotherapy. Any time complementary or alternative medicine is being considered, it’s vital to research the effectiveness of the therapy.

What is the employer perspective on CAM?
Employers are showing increasing interest in CAM and looking for value-added CAM programs offered by health benefit carriers. And they are concerned that patients have accurate information regarding CAM therapies.

There is a significant amount of advertising and promotion of CAM products in the marketplace. This information shouldn’t be confused as an objective account of scientific research.

One good place to find information about CAM therapies is the Web site, which features Harvard Medical School’s consumer health information. We also encourage members to speak with their doctors about any CAM therapies they may be using, because the therapies could cause dangerous interactions with other medicines.

How should individuals find a doctor who understands CAM?
Finding doctors who understand CAM is becoming easier. Many doctors have grown more receptive to the potential benefits of CAM treatments.

But, individuals should research basic information about the doctor first, including location, gender, medical school, year of graduation, residency training, board certification, and specialty and hospital affiliation.

Then learn about other health care professionals who are affiliated with that doctor. Many health carriers maintain online provider directories that contain much of this information.

Next, individuals should ask the doctor directly about the type of practice and the doctor’s attitude toward complementary and alternative medicine.

Does the doctor give you the balanced advice you are seeking? You may have to pay for a couple appointments before you find the right doctor to guide you through the maze of complementary and alternative therapies. Whatever your goals, you will benefit most from a doctor who neither condemns complementary and alternative medicine wholesale nor blindly advocates it

Does the insurance industry make CAM services available?
This varies by carrier and is subject to benefit plan designs. Frequently, discounts will be offered if a patient uses a provider that participates in a carrier’s health plan. Examples of CAM services available at a discount include acupuncture, nutritional counseling and chiropractic services.

Other carriers provide discounts for over-the-counter vitamins and nutritional supplements purchased through contracted vendors. Again, before individuals purchase a discounted service or product, we recommend that they ask their physician if the service or product is right for them.

Who is eligible to participate in CAM programs offered by carriers, and how much do the programs cost?
This varies, depending on the carrier. Experience suggests that many carriers do not charge additional fees or premiums to employers or employees for access to their CAM discount programs. Generally, the employee only has to pay the discounted cost of the CAM service or product.

Thomas J. Scurfield is vice president of sales and service for Aetna’s north central east region. He has more than 25 years of experience working in employee benefits and holds both the Chartered Life Underwriter and Certified Employee Benefit Specialist designations. Reach him at (330) 659-8020 or

Tuesday, 27 December 2005 10:17

Fair and equal

There is growing concern among employers about the impact of religious discrimination lawsuits on their businesses. Fortunately, there are steps individual employers can take to reduce the likelihood of such lawsuits against them, according to Attorney Mark Knueve, a partner at Vorys, Sater, Seymour and Pease’s Columbus, Ohio office.

Dealing effectively with religious discrimination lawsuits, “frequently boils down to communications,” Knueve says. “If an employer communicates openly with employees and provides a reasonable accommodation when viable, often problems can be avoided before they reach the lawsuit stage.”

But, he adds, that is not always possible. So, it is in employers’ best interests to retain competent legal advisers who can help develop plans to forestall religious discrimination lawsuits or take advantage of a growing body of case law to deal with them when they do arise.

Smart Business spoke with Knueve about the developments in religious discrimination laws in recent years and how employers can protect themselves against employee-initiated lawsuits.

Have there been any significant recent developments in religious discrimination law?
Religious discrimination has become a hotter topic since Sept. 11. Federal statutory law hasn’t really changed, but there is more exposure now, and more people know about the religious discrimination laws.

What are the bases for religious discrimination lawsuits?
There are two kinds of theories of relief in cases based on religious discrimination: Disparate treatment discrimination and failure to reasonably accommodate.

The first theory is based upon an allegation that the employer treated the plaintiff differently from other employees because of religion. The second theory, and a more interesting area of development, is an allegation that the employer failed to accommodate the employee’s religious beliefs.

What must the plaintiff do to prove a failure to accommodate?
The plaintiff has to prove three elements.

  • There is a sincere religious belief that conflicts with an employment requirement, i.e., the plaintiff must show that there is some belief and there is a conflict.

  • The employer is aware of the conflict, typically because the plaintiff informed the employer.

  • The employee received some kind of adverse action for failing to comply with the conflicting employment requirement.

Once the plaintiff establishes those three elements, the burden shifts to the employer. The employer must demonstrate that it couldn’t reasonably accommodate the employee without undue hardship. But, in religious discrimination cases, the employer only has to show a de minimis (minimal) cost. And that’s where a lot of the case law has developed in the past eight years.

A message here is that there is a duty to accommodate religious beliefs, but it is not an unlimited duty. The employer has to show only a de minimis cost to demonstrate undue hardship. That is what a lot of employers may not be aware of.

How can business leaders protect themselves and their companies from religious discrimination lawsuits?
There are several things they can do.

  • Don’t ask about religion during interviews of applicants, which is prohibited by law.

  • Implement a policy that prohibits discrimination based on all kinds of protected categories, including religion. The policy should include a process that allows an employee who has an issue to discuss it with a staff member who can be reasonable about the issue.

  • Be consistent. For instance, some employers allow employees to meet in the break room to talk about charity work. But, if a group of employees says, “Hey, during our break time we want to meet in the lunch room to talk about the Bible,” it is difficult for the employer to say no when it is allowing employees to meet in the same room during break times to talk about charitable functions.

  • Avoid challenging employees on their religious beliefs.

  • Talk to an attorney who is knowledgeable about religious discrimination law to get advice to set up a program to deal with lawsuits — preferably before charges are filed.

Can we expect to see more emphasis placed on the application of religious discrimination laws in the future?
We may not see the same high-water mark that we saw right after Sept. 11, but there may be continuing development of the law and a continuing steady flow of claims as the country becomes more and more diverse.

For employers, the key to preventing religious discrimination lawsuits often comes down to open and fair communication with employees.

Mark Knueve is a partner with the law firm of Vorys, Sater, Seymour and Pease LLP. He is based in the Columbus, Ohio office. Reach Knueve at (614) 464-6387 or