Born: Long Island, N.Y.
Education: Bachelor’s degree in psychology, University of California at Santa Barbara; master’s of social work degree in community organization, management and planning, Boston University; master’s degree, business administration, University of California at Berkeley
What was your first job?
I worked for my parents. They owned a real estate business. They used to buy places, and I used to fix them up when I was in high school. I learned a lot of things; I could do carpentry, some plumbing, some electrical kind of a little bit of everything.
Then I got a job at a shotgun range. I was a puller a puller was a guy who got on one of these five stations where the shooter comes. When they say pull, you push the button to launch the bird. That was a pretty fun job because you got good tips when the tournaments came. And I learned how to shoot a bit myself.
Whom do you admire most in business and why?
I had a lot of respect and admiration for the leaders I worked for at Sun Microsystems. I thought Scott McNealy was a very charismatic and effective leader in terms of motivating people and being a tough competitor in the marketplace. Sun had a great run while I was there, but I always thought he did a great job of communicating to the employees that they were important, that they were valued, that they would create a positive work environment for us, and that we were going to be aggressive in the marketplace. Instilling confidence and motivating the company were things he was good at.
What advice do you find yourself giving most often?
One of the things I like to tell the engineering teams and my executive team is that, every day you come into work, you need to look at our vision and mission, and say, ‘Is what I’m doing today somehow contributing to that?’ Then you’ll know if your goals and objectives are aligned with the vision and mission. If they’re not or if you’re not clear about how they relate to that, then you’ve got to go to a manager and have that discussion.
Hampered by a steady rise in energy prices, a downturn in the housing market and woes in the credit market, the U.S. economy has been sluggish throughout the first half of 2008. The good news, however, is that despite this confluence of negative economic indicators, the economy has shown growth.
“The U.S. economy has been remarkably resilient,” says Dana Johnson, Comerica Bank’s chief economist. “It has grown nearly 1.5 percent at an annual rate over the first half of the year, despite a rise in energy prices, a fall in housing prices and a consistently disturbed credit market.”
Smart Business spoke with Johnson about his economic outlook for the coming months.
What is your economic forecast for the remainder of 2008 and moving into 2009?
The second half of 2008 is going to look a lot like the first half where growth averaged about 1 percent on an annual rate. As we move into 2009, I see the economy accelerating gradually. Six months from now I think the problems with the credit market will be less intense and the credit crunch will be less evident. I also think by the time we reach the end of the year we will have seen a partial reversal in the runup of energy prices particularly crude oil and gasoline.
We’re beginning to see more evidence that the plunge in building activity is beginning to slow and perhaps the bottoming-out process is underway. The drag from home building is going to become smaller as we move through the second half of the year into 2009. Finally, I think we’re going to continue getting good support to the economy from a narrowing of our trade deficit in real terms. The weakness in the dollar has been underway for about six years and decent growth abroad helps the trade deficit continue to be a source of support for the U.S. economy.
Do you anticipate continued turmoil in the financial and housing markets?
In the near term I certainly do. There are still tremendous concerns about the size of the losses that may result from further defaults, and there is no sign yet of a peak in default rates in mortgages. Until we see clearer evidence that the home price declines are beginning to subside, there is going to be a lot of concern about the condition of financial institutions that, in one way or another, are exposed to the housing market.
California has relied heavily on the subprime mortgage market. What impact will this have on housing prices in the state going forward?
House prices have already declined quite sharply, particularly since last fall, when the credit crunch cut off the flow of new jumbo and subprime mortgages. The decline in home prices has been sharper in California than in most other parts of the country. Over the next year, California home prices are probably going to under-perform against the national average by 10 percent. We are seeing a much more rapid adjustment in home prices in California in this episode than we did in the first half of the ’90s. In the past, adjustments have taken quite awhile, but this one is progressing quite quickly.
Do you expect oil prices to continue rising?
I have given up believing that I can forecast the near-term movements. I do believe that we have been in an overshoot episode. I also believe that any retracement in energy prices is likely to be quite modest compared to the run-up we've experienced over the past six years.
How will this impact the economy as a whole?
The spike in energy prices has created tremendous hardships for any heavy user of petroleum-based products. Overall, the energy price increases have created a drag equal to about $100 billion this year as compared to last year. This figure matches the order of magnitude of tax rebates that people have received. Without the tax rebates there would have been a much more visible impact of the run-up of energy prices on the economy.
One of the bright spots in the current U.S. economy is exporting. Do you expect this trend to continue?
Yes, I do. The dollar has been going sideways since March. It’s beginning to stabilize and when the Fed starts tightening, which I expect to happen sometime next year, I wouldn’t be surprised if the dollar begins to firm a bit. The dollar is very low compared to what it was a year ago, or six years ago, and is creating a good, competitive position for anybody producing goods and services in the U.S. and trying to sell them abroad. Growth abroad has slowed, but not as sharply as it has in the U.S. The combination of growing incomes abroad and the low value of the dollar signals that we will continue to see good growth in our exports in the coming six to 12 months.
DANA JOHNSON is chief economist for Comerica Bank. Reach him at (214) 462-6839 or email@example.com.
Search the Federal Accounting Standards Board (FASB) Web site for information about FAS 109 and you will find 14 pages of technical bulletins, accounting pronouncements, interpretations, opinions and assorted topics. No wonder accountants think it is so complicated. Yet, FAS 109 can be made easier for those who do not work with it consistently and, at times, for those who do.
Satisfying FAS 109 requirements can be simplified, especially if the parties involved listen to one another’s concerns, work together to boil the standard down to its nuts and bolts, and resolve any inconsistencies that exist in the reporting process.
Smart Business spoke to Jim Parks of Burr, Pilger & Mayer LLP about how to demystify FAS 109, access experts and employ effective communications as a tool for the tax provision process.
What is FAS 109?
FAS 109 is an accounting standard that requires that financial statements reflect the tax consequences of all book/tax differences. Its primary objective requires companies to recognize the amount of taxes payable or refundable for the current year and compute deferred income taxes for future tax consequences of events that have been recognized in their financial statements or tax returns.
Why is meeting those requirements so complicated?
It doesn’t have to be. There is no doubt that FAS 109 can be frustrating even for people who work with it regularly. But, satisfying its requirements lies in distilling the tax preparation process into five separate and distinct steps for calculating tax provisions: identify permanent and temporary differences, calculate current income tax expense, calculate deferred income taxes, determine the need for a valuation allowance, and record the calculations on the financial statements.
Following these steps enables someone reasonably proficient in accounting and tax matters to prepare a tax provision. Virtually all tax provisions and software follow these steps in some fashion.
How can companies navigate through the calculations and required documentation?
One way is to follow Edmund Burke’s advice: ‘Good order is the foundation of all great things.’ Building on that premise means including in the process the proper tools and worksheet templates. But they won’t do the trick alone. Tax preparers need a little more to be successful! One path is to partner with trained and experienced preparers, utilize state-of-the-art technology and apply well-defined processes and procedures.
What benefits accrue from following that advice?
Tax provisions prepared by experienced personnel with the proper procedures in place yield better results. Regarding the people process, tax provisions should be prepared by trained and qualified individuals familiar with the local jurisdictions. The preparers could include in-house personnel and outside professionals. It is highly recommended that personnel familiar with the applicable jurisdiction prepare and/or have input on a tax provision. This is particularly important for foreign and state jurisdictions.
What role do technology and processes and procedures play in satisfying requirements?
Adequate technology is essential to a well-prepared tax provision. Companies and their outside accountants demand it. There are several good software programs available to preparers. Many companies, however, use Excel-based programs very efficiently. A world-class software template should be able to address downloading of company financial statements, automatic book/tax difference updates, jurisdictional issues, currency conversions, foreign tax credits, valuation allowances, etc. Additionally, documentation supporting the calculations and technical conclusions reached should be clearly presented and understandable to the reader.
The processes and procedures applied should be used with a high degree of integrity. Any deviation will likely produce unsatisfactory results. Through strict adherence to the tax provision processes and procedures companies can consistently ensure quality. This often entails the use of checklists, flowcharts and internal and external reviews.
Should the tax preparation process be done independently by internal personnel and advisers?
No. Companies need significant coordination among their auditors, outside service providers and internal personnel. Everyone is better served if they are talking ‘on the same page’ two to three times a year. This is one of most important elements of the tax preparation process. It’s also where professionals can excel and provide better services.
The tax preparation process should include a series of meetings among the practitioners that clearly lay out the expectations, time-lines and deliverables, and measure against desired results. A planning meeting maps out expectations. A post-review meeting is essential to obtain feedback, which enables everyone involved to adjust accordingly and learn.
Systemic coordination of the tax provision process is a key element to success. It’s a function of consistently improving upon what works the best. And, it doesn’t hurt to listen to what others have to say.
Competition in the U.S. banking industry is undoubtedly increasing. Banks that can provide product innovation without sacrificing security, efficiency and reliability will remain successful in the payments landscape of the future. Yet there are reasons for businesses that are not directly involved in the financial industry to be on top of the changing landscape in the electronic payments industry.
Smart Business recently spoke to Zahara Alarakhia, attorney at the Dallas law firm of Munck Carter, P.C., for insights into the changes in the card payments industry.
What are the new dynamics of competition for banks in the payments industry?
Service businesses will compete with traditional banks on brand, cost and service standards. Technology vendors are offering solutions for cash management integration and function as intermediaries for capital flows. There is a proliferation of nonbank e-billing services that continue to expand their proposition to consumers. All of these initiatives come from outside the banking system.
While banks face regulatory challenges, many of the new nonbanking players have a greater ability to innovate and take advantage of emerging opportunities. They have no responsibility to ensure that the underlying banking framework is secure in the battle against fraud and anti-money laundering.
For instance, the concept of micro-payments is transforming the way things are done in the payments industry. The forefront leader in revolutionizing this concept is PayPal. As each new generation spends an increasing amount of spending dollars with online retailers, PayPal’s consumer base expands. Now, PayPal is itself crossing boundaries and developing an existence away from retail Web sites. It has launched a service called PayPal Mobile where people can text money to each other. This takes the whole payment experience to a different level.
Prepayment cards are another example of the revolution that is being led by nonbank players. Large numbers of corporations use prepaid cards as a paperless payment solution that cuts costs, reinforces brand awareness and improves efficiency.
What are the market forces that are driving the change in the payments industry and reshaping its future?
Technology is reshaping consumer expectations of access, timing, speed and cost. The Internet is the perfect example. The Internet has revolutionized how we communicate and interact in our daily lives. Also setting the pattern for the future is mobile technology. Today, I can take pictures, play music, surf the Internet, write e-mails and make payments through my smart phone.
Technology has enabled customers to research, compare and form and break relationships with financial institutions while demanding new channels and greater control over their transactions. Customers are redefining banking to mean anytime access to transactions and information. Increasingly intolerant of poor responses from banks, knowledgeable and more demanding customers are no longer blindly loyal but ready to move around frequently, shopping around for the best products/services and reliable advice.
What are the legal and regulatory considerations in managing risks of fraud or abuse in the payments industry?
Security breaches are becoming more common, identity theft is an issue, and privacy and data protection are of concern to all organizations. The theft of 46 million credit card and Social Security numbers from TJX Companies, Inc. by a hacker in December 2006 underlines a number of important issues in security and regulation. And customers are becoming more aware of fraud and identity theft.
Unlike the nonbank payment institutions, banks have faced mounting federal and state legislation in the past few years, especially in the areas of privacy, data protection and telemarketing. Know-your-customer (KYC) continues to be an issue for banks. In October 2001, the Basel Committee on Banking Supervision issued customer due diligence for banks, which was subsequently reinforced by a general guide to account opening and customer identification (CDD) in February 2003. The CDD paper outlined four essential elements necessary for a sound KYC program. These elements are: (i) customer acceptance policy; (ii) customer identification; (iii) ongoing monitoring of higher-risk accounts; and (iv) risk management.
The purpose of the KYC standards is to protect the integrity of the banking system by reducing the likelihood of banks becoming vehicles for money laundering, terrorist financing and other unlawful activities. Educating consumers on the latest threats, encouraging them to monitor their accounts and establishing ways for them to cost-effectively interact with their banks can be very effective in dealing with most types of fraud and can provide a competitive advantage to banks in the payments industry.
ZAHARA ALARAKHIA is a member of the Corporate Transactions and Securities Practice Group of Munck Carter, P.C. where she focuses her practice on technology, electronic commerce and general corporate and securities law matters. She has extensive experience counseling financial services businesses with respect to their electronic banking, merchant-acquiring, electronic fund transfer, credit card, debit card and stored value card businesses. Reach her at (972) 628-3641 or firstname.lastname@example.org.
Hiromitsu Ogawa had a vision. After working for Itel Containers for 12 years as vice president of marketing for Japan and Korea, he was ready to set out on his own, and he wanted to create the world’s foremost container leasing company.
He borrowed seed capital from a relative and founded CAI International Inc. in 1989. At the time, he had only three employees, including himself, and about 5,000 20-foot equivalent units of containers.
In the early stages, Ogawa didn’t pay himself a salary until the business became profitable enough to do so. In order to compete with large shipping companies and other container leasing firms, he used created financing, his experience in the industry and the relationships he had built at Itel. In 1998, he modified the company’s focus from the traditional container leasing to include container management, which gave him more financial freedom and garnered higher returns than traditional leasing companies.
In May 2007, CAI went public. Today, the company is one of the world’s leaders and is quickly growing. He’s grown what little he had in 1989 into 75 employees in 11 offices with 754,000 20-foot equivalent units of containers. On top of that, nearly one-third of the company’s revenue last year became profit.
As he looks toward the future, this chairman hopes to expand CAI by purchasing more conventional dry van containers and increasing its refrigerated containers fleet. Additionally, he will also look at acquiring smaller companies.
HOW TO REACH: CAI International Inc., (415) 788-0100 or www.caiintl.com
While Telegent Systems Inc. was founded just four years ago, under Weijie Yun’s leadership and vision, it has become the fastest-growing company in semiconductor history.
Yun founded the company in 2004 when he saw how mobile television was growing as a result of the convergence of video and handsets. At the time, he thought he could improve performance five times over existing products, and many didn’t think mobile analog TV was possible. During the next two years, the company developed the necessary technology, and today, it is the only company that can provide this solution.
As CEO, he drives innovation throughout his company by not allowing anyone to have a door. Every employee including himself works in a cubicle in order to better share ideas with each other. This and other ideas have paid off for him and his team.
The company’s sales have surpassed that of all other digital standards combined, and now, companies around the world are looking at analog mobile TV as a way to deliver products to the market without the billions of dollars of investment that new standards require. Now, the company has quadrupled the revenue number Yun originally told venture capitalists he would reach, and as Yun looks toward the future, he knows the company will continue to grow.
HOW TO REACH: Telegent Systems Inc., (408) 523-2800 or www.telegent.com
While Shaun Bishop and Michael Stajer had different career paths to success, they both shared a love of wine, so the two founded WineCommune LLC, an online wine network and retailer, in 1999.
They faced many barriers early on. They both worked full time Stajer as an attorney and Bishop as a stockbroker to support their business and also used their credit cards and savings accounts. They faced other challenges, including the dot-com bust and the fact that, at the time, wine could only be sold and shipped between 18 states and government regulations discouraged commerce between individuals. To overcome these issues, they developed creative revenue streams in advertising and proprietary technologies in order to grow.
From the beginning, they also believed strongly in giving back to their employees. In addition to the normal health, dental and vision insurance, WineCommune also offers to pay for employees’ education, even if it doesn’t relate to their jobs. The company also provides lunch every day and routinely provides ergonomics and fitness seminars. On top of these perks, Stajer and Bishop look to their current employees to fill the next layer of management as new positions are created as a result of their rapid growth.
TheireffortshavelandedthemtheNo.35spot on the Inc. 500 list and No. 1 as the Bay Area’s Fastest Growing Business. They’ve also earned the distinction as a Top 10 Online Wine Retailer, according to Food & Wine magazine.
HOW TO REACH: WineCommune LLC, (510) 632-5300 or www.winecommune.com
When Steven W. Berglund joined Trimble Navigation Ltd. in 1999 as president and CEO, the company had just finished two years of losses, had more than 30 percent turnover and had lost its focus since going public in 1990.
Berglund quickly reset the company’s focus by creating a clear strategy and focusing on the commercial markets. He also took on a major acquisition to consolidate Trimble’s offerings in the engineering and construction segment. While this was risky at the time, it worked out well, as the engineering and construction business became No. 1 in market share and its revenue grew 600 percent from 1999 to 2007.
On top of that, Berglund has led the company through 30 small technology acquisitions in the last eight years. All of these are aligned with Trimble’s core strategy of using technology to transform processes and impact users’ capabilities and economics.
His efforts have paid off, as he’s led the company through nine straight years of 20 percent growth and increased revenue by 1,200 percent from 1999 through 2007. Trimble is now No. 1 in all of its business segments, and to stay that way, it spends more money on research and development than any of its competitors and owns more than 700 patents. As Berglund looks toward the future, he looks to grow more by taking new products to existing customers and expanding new technologies to new customers.
HOW TO REACH: Trimble Navigation Ltd., (408) 481-8000 or www.trimble.com
When Clinton Severson arrived as CEO of Abaxis Inc. in 1996, the company’s future looked bleak.
The company makes small, portable blood analyzers for physicians and veterinarians that require minimal training and yield results in less than 12 minutes. Despite this remarkable product, it was trying to do something that hadn’t been done yet in marketing these devices for use in physicians’ offices. In the veterinary realm, it was also up against a much larger company that controlled 90 percent of the market. If those weren’t big enough hurdles to jump, Abaxis was also losing money and barely had enough cash to stay afloat.
Despite all of this, Severson had confidence in the product. He found more investors in less traditional investment firms and raised capital from 1996 to 2002. With the cash he needed, he transformed Abaxis from a losing company to a force in health care. He asked his manufacturing director to reduce the cost of making one component of the product from $22 to $4, and he was told this was impossible. He disagreed and found a new director and management team to make this and other improvements. Today, that part costs $4.13 to make.
Under Severson’s leadership, Abaxis has grown from margins of negative 50 percent to positive 65 percent and now has 20 percent of the veterinary market, proving that sometimes you just can’t take no for an answer.
HOW TO REACH: Abaxis Inc., (510) 675-6500 or www.abaxis.com
In 1994, John G. Varel saw an opportunity in the marketplace. At that time, customers would purchase hardware, software and the consulting services needed to integrate solutions all separately. Varel realized that if there was one company that could create a fusion of the best products in all three of these areas, he could cut expenses and build long-term relationships with customers and vendors.
With that realization, he founded FusionStorm, but he didn’t have any money only his good credit and name. In the beginning, he did all of the selling himself, and within a few months, he began adding sales representatives as fast as he could. He continued expanding rapidly, and sales grew significantly by 2000. Then the dot-com bust hit. Revenue plummeted during the next few years, but once information technology spending started to go up again, so did FusionStorm’s revenue. Between 2003 and 2004, the company’s revenue grew by 260 percent, which spurred VARBusiness magazine to recognize it as the second-fastest-growing company in the industry.
Under Varel’s leadership and commitment to success, FusionStorm has also grown to more than 21 offices throughout the country with more than 320 employees. While there were setbacks along the way, this chairman and CEO has proven that with a solid idea, sound vision and being true to your word, you can and will succeed.
HOW TO REACH: FusionStorm, (415) 623-2626 or www.fusionstorm.com