Arthur G. Sharp

Tuesday, 25 September 2007 20:00

Brand identity

Your brand is one of the most valuable assets of your company. When correctly built and promoted, it can add immense value to your business and allow you to command a higher price for your products or services while at the same time keeping your customers loyal. Companies of any size can benefit from a strong brand, and more and more small businesses are starting to focus on building, maintaining and growing their brands.

Smart Business spoke with Jonathan Ebenstein, vice president of marketing at Skoda Minotti, to learn more about the value of a strong brand, how to develop one and what benefits it accrues for a company.

How do you define a brand?

A brand is the promise, the big idea and the expectations that reside in each individual’s mind about a product, service or company. Think of it this way: Products are created in a factory; brands are created in the mind.

How does a company benefit from having a strong brand?

When all things are equal, price typically becomes the determining factor. Having a strong brand takes price out of the equation and allows for larger profit margins and increased profitability. Just think of how many times you have found yourself willing to pay a little bit extra in order to own a name brand. With increased profitability and strong brand loyalty, a well-branded company will be better positioned to not only ride out an economic downturn, but to actually thrive. Meanwhile, weaker branded competitors often suffer and, in some cases, fail all together.

In addition, strong brands attract valuable employees and business partners, adding even more value and credibility to your organization. Strong brands provide companies the credibility and leverage to successfully expand new products or service offerings into new markets and industries. Every company, product, city or even person can reap these benefits if they focus on building and maintaining their brands.

Why should a company invest in building a strong brand identity?

It makes it easier for the consumer to purchase by limiting and, in some cases, eliminating the competitive options from the decision-making process. For example: You’ve got a car packed with kids and you’ve been driving for five hours and need to stop to eat. Faced with the choice of McDonalds or Uncle Rico’s Hamburger Palace, which place would you go? McDonald’s, of course. Why? Because you know exactly what you are going to get: Happy Meals, shakes and french fries, and the kids are going to love it. Another reason to invest in a strong brand identity is that it makes it easier for your sales force to sell because it brings in more opportunities with higher margins.

How does a company build a successful brand?

It starts internally with every employee, from CEO to receptionist. Your people are your best source of internal evaluation, insight and information because they live and touch every aspect of the business.

They are also your most important marketing tools. So it is imperative that they be included in the brand development process because as ambassadors of your brand, they will all be charged with the responsibility of delivering on the brand promise. Including everyone in the brand-building phase gives them ownership. It makes it theirs. This is essential because they are the ones who need to own, sell and defend the brand everyday.

Employees are just the starting point. You have to do your homework from an external standpoint, as well. Analyze how your competitors have positioned and differentiated themselves so that you do not duplicate their brand messaging. Next, validate what you’ve come up with by interviewing customers, ex-customers, prospects, industry experts, business partner, etc. See what they have to say. They’ll tell you if they think you can deliver on your brand promise.

Is it an expensive process to create a brand?

The return on investment on a branding process is not immediate, so you have to look at the expense of developing a brand as an investment in your company that will, over time, yield increased dividends. If the process is done right, and the brand is properly leveraged and maintained over time, the ROI will far exceed any upfront dollars you spend.

Is branding restricted to just larger companies?

Absolutely not. Any company, no matter its size can reap the advantages of a strong brand. In fact, having a strong brand can be even more beneficial for small- to mid-sized companies because it gives them a distinct advantage over similarly sized competitors who typically lack a strong brand identity of their own.

JONATHAN EBENSTEIN is vice president of marketing with Skoda Minotti, based in Mayfield Village. Reach him at (440) 449-6800 or jebenstein@skodaminotti.com.

Sunday, 26 August 2007 20:00

The value of a valuation

Owners of privately held companies do not always know how much their company is worth. At times, they are too engrossed in overseeing their every day business operations to pursue a professional analysis to determine the value of their assets, which can be used to establish a fair market value for investors or buyers.

An occasional business valuation can be a helpful tool for owners’ strategic planning purposes. Ideally, business owners should not wait too long to decide what to do with their company or determine how significant the company’s value is in their financial portfolio.

Smart Business spoke with Roger T. Gingerich, CPA/ABV, CVA, a principal with Skoda Minotti, to learn why business valuations should be a regular part of a business owner’s strategic planning “check up,” what they involve, and why they should be done by certified analysts.

Are business valuations ever required?

They can be, e.g., for estate tax or gift tax valuations for IRS purposes and, often-times, for divorces. For example, business valuations are required when settling an estate in order to support the value of an owner’s company or business interests. The IRS wants to know how parties calculated the value of the business interest in the company. The same holds true with ‘gifting.’ If owners want to give their shares of stock or ownership interest in a company to their children, the IRS will require data supporting the value of the gift.

Should business owners retain professionals to conduct business valuations?

Definitely. There are organizations that certify valuation professionals, such as the National Association of Certified Valuation Analysts (CVA) and the American Institute of Certified Public Accountants (ABV). The IRS specifically says in its rules that people who represent themselves as business valuation professionals should have the proper credentials. So, business owners whose valuations deal with estate or gift taxes are advised to hire certified valuation professionals. In fact, that is advisable for all business valuations.

In what other cases are valuations recommended?

Business valuations are recommended when owners are selling their company or getting involved in mergers and acquisitions. This ensures that the fair market value is acceptable to all parties involved in a transaction. Often, people who are selling their companies think that their business is worth more than the market can bear. Buyers, on the other hand, want to find every angle that will help them generate the best purchase value possible. The truth lies somewhere in the middle. A business valuation analyst can consult with both buyers and sellers to help them meet reasonable expectations and get the best deals they can.

What criteria are involved in a business valuation?

Two common areas are the underlying net assets and liabilities of the business — such as a cost approach — and the future benefit stream, such as earnings, dividends and cash flow. The analyst has to determine, as closely as possible, a rate of return that a buyer or investor would want in a business.

Another factor considered is a company’s ability to turn investments into cash flow. A privately held company cannot ‘buy and sell itself’ every day in the stock market, as public companies do. So, valuation analysts have to apply a discount for a lack of marketability. That involves privately held companies’ inability to turn their investments into cash flow within a three- to four-day time period, which has a negative impact on their values.

Does a valuation have to include an entire company?

No. There are situations in which analysts value a fraction of a company or one owner’s stake instead of the whole business. All things being equal, an analyst who does only a percentage of a company will arrive at a different value for that part than for the entire company. For example, a valuation for the owner of 10 percent of a company, which is owned 90 percent by another individual, might involve intangible issues like lack of control. A 10-percent owner who has little or no control over a company cannot make policy or business decisions without getting the majority owner’s consent. So, buyers or investors will not pay as much for the 10 percent as they would the 90 percent.

What will business owners learn from a valuation?

One thing is the owner’s net worth. The business is usually one of the owner’s biggest portfolio assets. The knowledge gained from a valuation is essential if the owner is doing personal financial planning or long-term planning. Valuations also uncover what will impact the business, both negatively and positively, and lead to recommendations to help the owner mitigate the negative factors and capitalize on the positive factors to improve the overall value of the company. Part of what the business owner derives from a valuation is a road map to enhance the company’s overall value going forward.

ROGER T. GINGERICH, CPA/ABV, CPA, is a principal with Skoda Minotti, based in Mayfield Village. Reach him at (440) 449-6800 or rgingerich@skodaminotti.com.

Thursday, 26 July 2007 20:00

Negotiating M&As

Mergers and acquisitions (M&As), leveraged buy-outs, spin-offs, restructurings and work outs might sound to some business owners like terms that apply only to Fortune 500 companies or multinational corporations. There are times when small- to mid-sized businesses will need outside counsel to work with management and their in-house or regular outside lawyers in M&A transactions. When such needs arise there has to be a well-thought-out, mutually agreed-on plan in place if the client and attorneys are to work as a smoothly functioning team.

Smart Business spoke with Chris A. Ferazzi, an attorney with Porter & Hedges LLP, to learn how in-house and outside counsel can work efficiently to complete M&A transactions and satisfy the interests of all parties as expeditiously as possible.

Why would a small- to mid-size business need to hire outside counsel to complete an M&A transaction?

Businesses do not always have control over their own destinies. For example, they might become targets of companies that want to acquire them or they might actively seek ‘strategic alternatives,’ including selling their companies, and thus, putting the business in ‘play’ for sale to the buyer willing to pay the highest value. In addition, an experienced outside M&A lawyer is better equipped to negotiate more favorable terms and conditions in the transaction, including items that may have monetary implications, and will likely be in a position to complete the transaction on a more expeditious basis due to his or her understanding of the process and related best practices. In such scenarios, the client’s in-house or normal outside counsel may not have the experience to conduct a complex business transaction like an M&A transaction.

What services can outside attorneys provide for businesses in M&A transactions?

Outside counsel can provide advice on legal, regulatory and tax implications of alternative transaction structures and proposals; organize and implement legal due diligence reviews; draft and negotiate transaction agreements; tender offers and related documents; assess litigation and regulatory risks; and make presentations and offer advice to senior management and boards of directors during the process.

What must outside counsel understand to complete an M&A transaction successfully?

In addition to general M&A experience and competency to deal with the process and issues involved in a typical M&A transaction, the process requires a great deal of organization and communication. One of the most important criteria is to understand and prioritize the client’s goals, objectives and concerns in the transaction. Depending whether the client is buying or selling and the form of the consideration to be paid in the transaction, the client’s goals, objectives, legal duties and concerns can differ substantially.

It is also important to recognize that M&As are done from a transactional standpoint, rather than the litigation perspective where the ultimate goal is generally to get the deal done on terms as favorable as possible to your client but reasonable from the other party’s perspective. This requires a bit of give and take on both sides.

Understanding in-house counsel’s staff is also important. The outside counsel needs to understand what is important to in-house counsel to stay focused on, what he really cares about, and what he will rely on the outside counsel to handle rather than get involved with personally. In-house and outside counsel have to work as a team, and outside counsel should strive to make in-house counsel look as good and effective as possible to its management team and board of directors.

Is there a ‘game plan’ that the M&A team should follow to complete the transaction?

There are several steps that are consistent in virtually all M&A transactions. The team has to assemble a working group and make sure the members understand their related roles and responsibilities. Once the team is assembled, everybody involved in the transaction must be made aware of the proper person to contact for specific subject matters.

A key part of this process involves establishing detailed timetables and responsibility lists, since there will likely be timetables and responsibilities for different stages of the transaction.

The timetable for most M&A transactions is a moving target and will generally require frequent updates, but it is outside counsel’s goal to keep things on track as much as possible. To that end, it is generally useful to have daily or weekly telephone conferences or e-mails relating to status. The frequency of these communications will depend on what stage of the process the parties are in, and may include what legal or business decisions need to be made, what appropriate business information has to be made available to deal with specific issues and information about people in the process who might be impeding the work.

CHRIS A. FERAZZI is a partner, Corporate Practice Group, with Porter & Hedges LLP. Reach him at cferazzi@porter&hedges.com or (713) 226-6626.

Monday, 25 June 2007 20:00

Competitive customer service

In the world of technology and customer service, Fortune 500 companies are finding that customers still prefer to speak with a real person. After all, high touch always exceeds high tech when it comes to influencing customer satisfaction and retention. Not surprisingly, then, talented and engaged customer service associates are in high demand, from retail sales to tech support. Differentiation through customer service provides the greatest opportunity to impact ROI with customer retention and selling new products and services.

Top management in an organization must be aware of the pulse of the organization’s customers. Consequently, call center employees should be valued for their interaction with customers and encouraged to give management feedback on customer concerns.

Smart Business talked with Yvonne Abel, Division President of Delta Dallas Call Center Staffing, to gain some insight into the impact of customer service staffing today.

What are the skills required for customer service call center positions?

Call center positions require a blend of technical proficiency and interpersonal soft skills. Being detail-oriented with good written communication skills is also at the top of the list. Bilingual fluency, especially in Spanish, is a plus. And, since positions vary within call centers, each one has to be profiled to determine the skills required for that position. Some may require higher-level technical skills for providing tech support and analytical skills for problem solving the customer issues. In other positions, sales skills are required for upselling. These positions require people who can multitask while speaking on the phone and working on the computer.

How do search firms assess candidates’ skill levels?

To determine the skill level of candidates, it is important to use a multitiered interview process that includes a first step of prescreening the candidate for applicable experience and verbal communication skills. The second tier is evaluation of computer skills, such as MS Office, data entry and keyboarding, through a validated assessment program. Today’s assessments include customer service soft skills, such as call etiquette, inbound/outbound sales and problem solving. Once the candidate’s skill level is determined, behavioral assessments and interviews are the best predictors for on-the-job performance. Getting to know the candidate’s interests and experience is key to confirming he or she is the right person for the job.

How can search firms help companies find qualified candidates?

By far the biggest recruitment challenge is having resources to continuously attract applicants for call center positions. Many companies use a variety of methods; most do not understand recruitment and use the hit-or-miss process of working with job boards or advertising. These methods can generate a plethora of candidates. However, the time invested by hiring managers detracts from the company’s core functions and results in ‘filling a seat’ versus finding the most qualified and best candidate for the job.

Finding a business partner that specializes in staffing for call centers allows the hiring manager to interview only pre-screened, qualified candidates, resulting in a focus on the specific skills and experience needed to service customers. Treating the recruiting process as a core competency is a necessary step toward meeting and exceeding call center and organizational goals.

What can call centers do to retain employees?

In the call center environment, taking the time to recognize individuals and teams reinforces the performance desired, especially when it is done by a C-level executive.

Career-pathing shows employees that future opportunities await them. Without a clear path for the future, employees will look elsewhere for their next opportunity. Ongoing training is an investment that will provide ROI with enhanced customer satisfaction and retention. The key to employee retention is developing new skills faster so they can take on larger opportunities successfully.

How does all of this positively impact a company’s bottom line?

The enterprise call center can get new customers, keep existing customers and grow profitable customers. Research shows that far and away the biggest single factor for customer loss is poor customer service. Since it costs approximately five times more to attract new customers than to retain current ones, it is easy to see how important the customer service role is to a company.

Hiring and retaining the right people reduces training costs. Statistics show that it costs one-third of the annual salary to train a new employee. Retaining employees with knowledge about customers and products means they can be more creative in providing customer service that differentiates a company from its competitor, resulting in customer retention.

YVONNE ABEL, SPHR, is Division President of Delta Dallas Call Center Staffing. Reach her at yabel@deltadallas.com or (972) 788-2300.

Monday, 25 June 2007 20:00

The Texas margin tax

The Texas Legislature has reformed its tax structure to supplement property taxes with business taxes to fund its education system. One component is a new business tax called the taxable margin tax. Consequently, businesses operating in Texas may be liable for substantially different tax bills when they make payments in May 2008.

Before the margin tax was introduced, Texas business owners were liable for a franchise tax, which was relatively easy to avoid by using loopholes. Some Texas businesses did not pay any taxes at all under its provisions. The legislature eliminated some of these loopholes with the margin tax.

Smart Business spoke with Patrick O’Shea of Grant Thornton LLP to learn about the Texas margin tax, how it will affect business owners and how they can comply with it.

What is the gist of the margin tax?

The margin tax essentially replaces the franchise tax. It is a tax on taxable margin, which is generally gross revenue less the greater of cost of goods, compensation or 30 percent of gross revenue. Being a tax on margin, even companies with net operating losses will likely be liable for some amount of margin tax.

How is the margin tax calculated?

The margin tax is based on a percentage of ‘taxable margin.’ It is the lower of total revenue minus cost of goods, total revenue minus employee compensation and benefits, or 70 percent of total revenue. The taxable margin is then apportioned by the percentage of the entity’s business done in Texas. This percentage is calculated by dividing gross receipts from business done in Texas by gross receipts from business done everywhere. The margin tax rate of 0.5 percent for taxable entities engaged primarily in retail or wholesale trade, or 1 percent for all other taxable entities, is then applied to the apportioned taxable margin.

Service businesses are not eligible to use the cost of goods sold method. In fact, service providers that were generally exempt under the franchise tax because of the way they were organized are expected to be impacted detrimentally by the new tax.

Does the margin tax apply to all Texas business entities?

Even if they are not taxed under federal income tax laws, they may not be exempt from paying the margin tax. In addition, the tax is computed and reported on a combined group basis, which is a significant change. Entities with gross receipts of $300,000 or less (inflation adjusted every two years), estates, escrows, nonprofits, insurance companies and passive entities are exempt. Sole proprietorships and general partnerships that only have human beings or the estates of human beings as their partners are not taxed under the margin tax law, either.

What does the combined reporting requirement mean to business owners?

First, this is an entirely new concept in Texas. Related entities that are unitary businesses with greater than 80 percent direct or indirect ownership (legislation passed to change to 50 percent, but not yet law) must compute and report the margin tax as if it were one taxpayer. This will now include unitary companies that did not file Texas franchise tax returns due to a lack of nexus in the state. Essentially, combined reports are very similar to the consolidated returns filed for federal income tax purposes. Even if affiliated companies do not experience increases in their tax liabilities to the state, they will certainly have greater compliance complexity.

When should companies start taking steps to deal with this new tax?

Hopefully they already have. Although the tax is effective Jan. 1, 2008, it is based on the activity of companies as early as June 1, 2006. That means all taxpayers are already in the years on which the tax will be based, and there is not one specific solution to minimize their margin taxes. There is a transition provision regarding the effective date that was passed in the current legislative session (currently under consideration by the governor) that may allow entities not previously subject to the old franchise tax to terminate prior to July 1, 2007 and, at least, avoid the margin tax through that date.

Can financial services advisers help businesses deal with the margin tax?

They can help business owners understand the margin tax impact to them and comply with its changes and clarifications, such as the combined changes. They can also assist with the proposed transition rule currently being contemplated and the wind up of structures that are no longer necessary to minimize the old franchise tax. And, they can start helping them prepare for and minimize the future ramifications, such as the audits on the tax, which will start four years down the road and will likely be messy.

PATRICK O’SHEA is tax partner — State and Local Tax Practice, with Grant Thornton LLP. Reach him at (214) 561-2356 or pat.oshea@gt.com.

Monday, 26 March 2007 20:00

Bubbling crude

Drilling an oil or natural gas well involves much more than poking a hole in the ground, pumping petroleum, shipping it off and waiting for the profits to flow in as fast as the product flows out.

That procedure was not the norm even in the most romanticized days of oil- and gas-drilling operations, and it is less so today, particularly for landowners on whose property companies drill. Today, landowners must grapple with a complex range of legal and environmental issues, and many are best dealt with by involving attorneys who specialize in oil and gas issues and environmental liability.

“Landowners should work with attorneys to protect their property regarding oil- and gas-drilling operations, because there is such a disparity in knowledge and sophistication, especially among landowners who are fairly new to the process,” says Thomas S. Hoekstra, chair of the Energy and Environmental Law Practice groups in the Dallas office of Godwin Pappas Ronquillo LLP.

Smart Business spoke with Hoekstra about how landowners can protect themselves as much as possible from the legal and environmental problems associated with oil and gas production.

What is the key issue regarding drilling operations on private property?

One key issue is the prevention of petroleum releases, or spills, affecting ground water and surface water, which may result in additional contamination of subsurface aquifers. Similarly, releases of natural gas into the atmosphere can result in significant environmental issues.

Most companies in the industry today are sophisticated about preventing the environmental problems associated with the production and transportation of petroleum and natural gas.

Landowners, especially those who are relatively inexperienced in mineral leasing, are often less knowledgeable. They need to ensure there is no contamination of the soil or subsurface aquifers from crude oil or natural gas drilling that will affect them or their neighbors.

How can releases of hazardous substances adversely impact landowners?

Off-site migration of contaminants that are the byproducts of drilling can also be a problem. For example, if contaminants migrate off-site into an aquifer and contaminate the drinking water source for a neighbor’s livestock, the landowner may be a target of litigation, even if the drilling company is the culpable party.

The landowner might have claims against the drilling company, and probably would, but he still has the problem of the migration of contaminants off his property onto adjacent property.

At what point should landowners involve attorneys in leasing?

The earlier the better, particularly if they are relatively new to the process. These days, with oil at $60 a barrel, anybody can go out and drill for oil and gas.

So it makes sense for inexperienced landowners to work with attorneys to protect them against potentially expensive environmental problems.

How can attorneys provide guidance to landowners?

The simple answer is to help them minimize risks and maximize financial benefits from the lease. Attorneys can help draft and execute a lease that allows them to obtain the highest royalty, bonus and delay payments available from that lease. They can advise landowners about their risks and exposures, depending on the sophistication of the lessee company that is going to develop the minerals on the land.

The attorneys will make sure that the landowners require the lessee to have the appropriate insurance, determine that it has sufficient financial capabilities to respond to any damages not covered by insurance and take all proper precautions in building the pad site for drilling. They also can advise the landowner about what the company must do with the saltwater byproducts associated with the oil and gas coming out of the ground, and how it must handle the drilling mud and other materials used in the completion of an oil well that might have to be treated as a hazardous waste.

Finally, the attorneys can make sure that when the production cycle is completed, the property is returned as completely as possible to the condition it was in prior to development.

How does the landowner benefit from involving an attorney early in the process?

The most significant benefit is saving money in the long run. Even though the landowner may spend some money up front, he can more successfully avoid the environmental problems and associated costs that can be incurred if something goes wrong during the lease development. For example, if the drilling company goes broke, its insurance lapses, or it just abandons the lease, or does not or cannot restore the lease. The landowner may be facing major expenses with no means of recovering such costs from the drilling company. The landowner’s liability for these major costs can be prevented with proper management.

THOMAS S. HOEKSTRA is chair of the Energy and Environmental Law Practice groups at Godwin Pappas Ronquillo LLP’s Dallas office. Reach him at thoekstra@godwinpappas.com or (214) 939-4496.

Wednesday, 31 January 2007 19:00

Future of the ‘death tax’

There has been a great deal of discussion recently about the impact of federal elections on estate planning. After all, the Democrat and Republican parties do have differing philosophies about levels of exemptions, tax rates on the amounts above the exempted levels, the impact on different groups of wage earners, etc. But, regardless of which party is in power at any given time, people concerned about protecting their wealth should plan for their futures without trying to look into a crystal ball to guess what Congress will do — or try to do — to tax their estates.

Smart Business spoke with estate planning specialist attorney Robert McGuire, a partner with Godwin Pappas Langley Ronquillo LLP, to learn more about the impact of political philosophies and legislation on estate planning and what people can do to adapt to it.

Should people be concerned about the impact of the predicted changes in estate taxes based on the changeover in political power in the U.S. Congress?

The situation may not be as bad as a lot of people feared during the heyday of the Republican majority because 2011 is probably not indicative of what we are going to get now with the Democrat majority. Traditionally, the consensus has been that if the Republicans were to lose power, it would result in a severe increase in what is called the ‘death tax.’ Based on recent research about what has happened, that may not be the case.

Does speculation about changes in federal estate taxes play a role in estate planning based on the change in political power in Washington D.C.?

Not to a large extent. The documents involved in traditional estate planning pretty much allow for any eventualities. They tie the wording to whatever Congress decides the exemption level is going to be. So people should do estate planning as they normally would. Wealth management planners will set up plans that will take maximum effect of whatever the exemption level may be.

Will exclusion rates and tax rates above those levels change dramatically in the next few years?

Bear in mind that the exemption level is only one component of the estate tax. That is the exclusion amount that any individual can leave to an heir without estate tax. Right now, that is $2 million, and is scheduled to rise to $3.5 million by 2009. Then in 2010, the estate tax is scheduled to be repealed altogether and return a year later. In 2011, it reverts to a $1 million exemption, which is a significant decrease from what people are used to now.

The second component is the tax rate on the amount above the exemption amount. The Democrats’ strategy will be to impose significant tax rates on the amounts over the exemption level.

Who will those significant tax rates affect?

With the current exemption rates of $2 million per individual, significant tax rate increases above the exemption levels will affect only the top 2 percent of the U.S. population. Even that may go down, since there is some speculation that the Democrats may raise the exemption level to $3 million per individual and the tax rate on the amounts above it to as high as 55 percent. If that were to happen, only 3/10ths of 1 percent of Americans would pay an estate tax. In any case, the amount raised will only be about 1 percent of the overall income tax.

Remember, though, that both the exemption levels and tax rates on the amounts above them are subject to compromise between the two parties. Therefore, estate planning based on the proposed changes would be sheer speculation, which is not viable. That explains why people and their estate planning advisers should plan their wealth management strategies just as they normally would, rather than on what they think might happen.

What should people include in their estate plans to protect against anticipated changes in exemption levels and increased tax rates above those amounts?

The most important thing is to set up proper estate plans that will protect them from opening up their estates to taxes when none are necessary. For example, married couples with estates worth more than $2 million can set up simple estate plans that include Marital Bypass Trusts or Life Insurance Trusts, depending on how much life insurance they have. These trusts enable both spouses to get their exclusion amounts and therefore pass each of their exclusion amounts to their heirs.

If a husband and wife don’t set up a plan properly, then anything over $2 million will be taxed upon the death of the second spouse when it doesn’t need to be. The best way to make sure that doesn’t happen is to consult with estate planning specialists — especially those who do not use crystal balls.

ROBERT MCGUIRE is a partner with Godwin Pappas Langley Ronquillo LLP in the Dallas office. Reach him at (214) 939-4819 or rmcguire@godwinpappas.com

Sunday, 31 December 2006 19:00

Defending against liability

Being sued for liability is one of the risks professionals such as accountants, insurance agents, attorneys, and directors or officers of a business take. The best defense against liability lawsuits is to prevent them from being filed in the first place. Therefore, it is in the best interests of professionals, directors and officers to retain the best defense attorneys possible when liability lawsuits are filed against them. Ideally, the attorneys should specialize in liability issues.

“Attorneys can help minimize defendants’ exposure and sometimes get them exonerated,” says Bruce Bowman, a partner with Godwin Pappas Langley Ronquillo LLP. “Defense attorneys can help resolve disputes before they get to court, which results in cost savings for the defendant, but if not settled can actually try cases and convince the jury their clients’ conduct was proper.”

Smart Business talked with Bowman about how attorneys defend their clients in liability lawsuits, how the two can work together to gain favorable outcomes, and how clients can actually save money by establishing long-term relationships with attorneys to forestall lawsuits before they are filed.

Are there differences in liability lawsuits among professionals, directors and officers?

Generally, lawsuits filed against professionals involve the actual work they do. For example, the plaintiff might have had misguided perceptions and expectations about the services the professional was to perform. When the services were not performed to the client’s satisfaction, a lawsuit resulted.

Lawsuits against officers or directors revolve more around vicarious liability. They are not aimed at something the director or officer has done personally, but at something done by an employee of the corporation that the director or officer should have caught, or a perceived misuse of the director’s or officer’s personal position. In any case, the result is the same: the client needs an attorney to defend him. The best time to retain one is before a lawsuit is ever filed.

How can attorneys protect their clients from liability lawsuits before they arise?

One of the best ways is for attorneys and clients to establish an ongoing working relationship that includes counseling and education. Clients should be willing to keep their attorneys advised of events in their work-related endeavors, which gives them the opportunity to provide counseling before anything untoward happens that might lead to a liability lawsuit. And the attorneys can offer education sessions that focus on legal and ethical business practices as a way of forestalling liability lawsuits.

Clients who wait to hire an attorney until after being sued may end up paying a lot more for legal expenses in such cases than they would if they had established an ongoing relationship earlier.

What can an attorney do to defend a professional, director or officer in a liability lawsuit that the individual cannot do himself?

The answer to that question seems obvious. After all, an attorney is trained in law and experienced in courtroom procedures. But there are times when professionals, directors and officers think that if they can explain what they did to the plaintiffs or their lawyers, the lawsuit will suddenly disappear — especially because they are sure they did nothing wrong.

People have to remember that lawsuits are not always about right or wrong. They are often aimed at a monetary settlement, which explains the need for defense attorneys in liability lawsuits.

Defense attorneys are more objective in their approaches to defending a client and the nuances of the law, and can provide a buffer between defendant and plaintiff. That is important, because emotions sometimes run high in a lawsuit, and clients often have misguided perceptions and expectations about what has to be done to resolve it. Attorneys can also encourage clients not to talk directly to the other party in a lawsuit, which some of them might want to do in an effort to settle it independently. That is not a viable way for clients to resolve a liability dispute.

What criteria should a defendant apply when hiring a defense attorney in a liability lawsuit?

A key criterion is to look for an attorney who has experience in a courtroom, or who at least has access to co-counsel who does. Some attorneys can make things look good on paper. They can do excellent transactional work, but they have never actually had to defend it before six or 12 people, depending on the size of the jury.

Other factors to look at are where the trial is to be held, who the judge is, the size of the jury and whether the attorney has a good working relationship with a jury consultant in order to get a ‘mind read’ on prospective jurors. Being able to do that is helpful to the defense attorney and the defendant as well.

BRUCE BOWMAN is a partner in the Dallas office of Godwin Pappas Langley Ronquillo LLP. Reach him at (214) 939-8679 or bbowman@godwinpappas.com.

Friday, 24 November 2006 19:00

Watch that patent

The value of intellectual property has never been as high as it is today. Patents in particular have become valuable assets for businesses of all sizes. Over the past decade, the number of patents issued by the U.S. Patent and Trademark Office has more than doubled. During that same time, patent infringement damage awards and settlements in the United States continue to increase, reaching beyond $1 billion in some cases.

The value of intellectual property is directly related to the ability to defend that property, whether through litigation or through a structured licensing program.

Smart Business spoke with Monte M. Bond, partner and section chair, Godwin Pappas Langley Ronquillo LLP, to learn more about the role of patent attorneys in patent infringement cases, and how business owners can protect themselves against infringement.

Why are patent infringement cases on the rise?

It is due in large part to a change in attitudes toward patents. Twenty years ago, large corporations simply obtained patents in the belief that if they had enough of them they could defend themselves against others in their business. That was called a ‘mutually assured destruction’ scenario.

Things began to change in the early 1990s as large companies moved to exploit their patent portfolios, which sometimes numbered thousands of patents. They began to market them and obtained record amounts of licensing fees as a result. Companies realized that their patents and fees were a money-making asset.

Smaller companies emulated their larger counterparts, which marked the beginning of a paradigm change. As a result, companies of all sizes nowadays are extremely protective of their patents and intellectual property in general, and challenge any real or perceived infringement in federal courts.

Why is it important for companies to protect their patents?

Effective intellectual property evaluation, protection, exploitation, enforcement and defense are crucial to the survival and success of a business. Therefore, executives have to understand the risks and rewards of intellectual property asset management and know how to develop and integrate plans to make sure their intellectual property becomes and stays an asset of their operations.

The whole point of protecting intellectual property is for a company to be rewarded for the risks it takes by investing in research and development. So investments have to be protected under the rule of law.

Do clients need an attorney to help them protect their patents?

Patents are federal rights that can only be enforced in federal courts. Attorneys who deal with patents and patent infringement cases have to be highly specialized in that area of the law. It takes a great deal of experience and knowledge to handle these highly complex cases.

To practice patent applications for clients, an attorney must be licensed to practice before the Patent Trademark Office. Litigation requires a combination of patent-savvy knowledge of the technology and trial skills.

Why is there a need for strong patents?

In essence, the client is making a bargain with the government. If a technology owner discloses everything that he or she knows about the invention as required by the patent laws of the United States, the government, in turn, will give the owner the right to commercially exploit that invention for 20 years. That explains why it is essential for clients to protect themselves against patent infringements.

At what point in the patent process should clients involve attorneys?

Clients should involve attorneys before the patent is ever filed. The attorney can help get the information needed for filing and prepare and complete a proper application with the assistance of the inventors. Attorneys can work with clients to develop plans to protect their intellectual property and recommend courses of action to be taken when infringement lawsuits are filed against them.

What benefits accrue to clients who involve attorneys in the patent process?

Clients who acquire patents have made significant investments in time, money and effort in research and development. By filing a patent application, they have complied with patent law and should receive the benefit of doing so. They do not want others to come in and take advantage of their hard work and money spent.

If clients have competent counsel who knows the ins and outs of several aspects of patent law and prosecution — someone applying for and nursing through the patent process — they will be better prepared to protect their own patents and defend themselves against infringement claims.

MONTE M. BOND is a partner and chair of the Intellectual Property Section at Godwin Pappas Langley Ronquillo LLP. Reach him at (214) 939-4617 or mbond@godwinpappas.com.

Wednesday, 25 October 2006 08:36

A potential nonissue

Business owners generally understand the need for insurance. But they don’t always understand exactly why they need it or exactly what their coverage includes once they acquire a policy. Failure to purchase the proper coverage can be devastating in the long run, which is why business owners should review their present and future needs frequently. And they should not always rely on themselves or their agents and brokers to perform those reviews.

Smart Business discussed business owners’ insurance needs and coverage issues with Kevin Riley, a partner at Godwin Pappas Langley Ronquillo LLP, to learn why constant coverage reviews are essential components of an overall business strategy and how utilizing the services of an impartial adviser like an attorney can be a wise investment.

Should business owners rely solely on their experiences and agents to understand their insurance needs and what their policies include?
Experience is not always the best teacher, and agents do not always explain fully what insurance policies do or do not cover. All too often, business owners find out after they have had a loss what their policies lack in coverage. By then, it is too late to do anything about their coverage or their losses. It is important to note that these ideas apply to owners of all sizes of business.

What can attorneys do in negotiating insurance policies and coverage issues to assist clients?
For one thing, attorneys can recognize that an insurance policy a client may already have does not cover it for a loss for which it seeks coverage. They can also identify coverage that a client needs or may not even know is available, but which it would want to have.

Here is an example. An angry employee in a small company approaches his boss after being employed for three or four years, but without getting the raise he thinks he should have received. He says he worked a lot of overtime hours for which he never received any compensation. He demands to be paid that money, and threatens to file a claim against the employer. Not all business owners are aware that they may be able to insure themselves against such situations. An attorney can bring the availability of this type of insurance to the employer’s attention, and possibly save the company substantial revenue.

The same idea holds true with sexual harassment claims, director and officer liability claims, business interruption claims, etc. If business owners have to pay the costs and expenses of such claims out of general revenue, these types of unexpected expenditures could have a dramatic and adverse effect on a company’s finances — and threaten its very existence.

So an attorney is able to give the client and the insurance agent a ‘from-the-trenches’ view of insurance policies and coverage issues that confront all businesses.

At what point should business owners get attorneys involved in the insurance policy/coverage issues?
Ideally, attorneys should be involved when the principals of the business first buy insurance, or at least within 90 days of a policy renewal. In any event, business owners should consult with attorneys at least yearly so they can integrate insurance costs into their operating and forecasted budgets without running into any surprises regarding premium bills, like health care increases.

Should business owners keep attorneys apprised on an ongoing basis of significant events affected by insurance coverage?
Yes. A simple e-mail from a business owner to an attorney advising him of significant events that have occurred can help an attorney decide if they are likely to have an impact on the company’s budget or need for additional insurance in the next year. Business owners who keep attorneys involved in the insurance coverage issue can help themselves and their employees in the long run. For a small business, there is nothing worse than personnel litigation.

What criteria should a business owner apply when retaining an attorney who specializes in insurance issues?
The first is to retain a law firm or lawyer that deals with insurance issues as part of its primary practice. It is important to work with an attorney who has some working knowledge about the client’s business as well, and one who is willing to visit the company to learn more about its operations. If the law firm is not willing to allow that, find another firm. Attorneys need to be on the ground to see the business’s operation in order to provide the essential advice about insurance issues that a business owner needs to operate successfully.

KEVIN RILEY is a partner in the Houston office of Godwin Pappas Langley Ronquillo LLP. Reach him at (713) 425-7435 or kriley@godwinpappas.com.