Orange County (1091)

Tuesday, 28 March 2006 11:12

Guarding trade secrets

Written by
The term “trade secret” conjures up images of shadowy figures making clandestine deals in dark alleys as a clock somewhere in the background strokes midnight. But nowadays, stealing trade secrets is nothing of the sort. Trade secrets can be exposed and even passed around with one or two simple keystrokes on a home computer.

“You can’t be too careful about guarding trade secrets, particularly now with telecommuters and hackers having access to company computers, and cell phones that can take photos of your business. Just because you’re paranoid doesn’t mean someone’s not following you,” says Tom Newmeyer.

Smart Business asked Newmeyer, a founding partner of the law firm Newmeyer & Dillion LLP, to further expound on the topic.

What is a trade secret?

According to the Uniform Trade Secrets Act, it’s defined as, “...information, including a formula, pattern, compilation or program that (1) derives independent economic value — actual or potential — from not being generally know to the public or to others who could obtain economic value from its disclosure or use; and (2) is the subject of efforts that are reasonable under the circumstances to maintain its secrecy.

Most businesses think of customer lists as being something they want to protect.

Another example of a trade secret would be a formula such as the one for Coca-Cola. The Coca-Cola formula hasn’t ever been patented, but the company has kept it a secret for 100 years. Patents protect you, but once one runs out, everybody in the world can manufacture the product. Coke keeps its formula secret to protect its competitive advantage.

Why is it advisable for corporations to safeguard their trade secrets?

It all has to do with competition. You do not want somebody to take your trade secrets, your property, away from you and compete using that property.

Let’s assume that I’ve got a client list for all the department stores in my area. It’s not a protectable trade secret, because the information is public. But if I am an insurance agency and spend years compiling a list of customers who purchase a particular insurance product, when their policies renew and what their premiums are, that is a trade secret that I have to protect to maintain my competitive advantage with those customers.

How do you safeguard your secrets?

First, you have to implement procedures to keep that information protected. Have all your employees sign an acknowledgment that certain information is confidential and belongs to the employer and that they will not disclose that information to anyone.

Next, restrict access within the company. For instance, restrict computer-accessed information with passwords that are given only to employees who need to know that information — and change the passwords frequently. You should also have policies denying visitors access to certain areas in the company unless they’re chaperoned.

Unfortunately, as a result of today’s technology, you can’t be totally secure. A salesman may have his entire contact list on his cell phone. I don’t know a way that you can actually protect information on an employee’s cell phone.

How does taking steps to protect your trade secrets make your company more secure?

Let’s suppose a salesperson leaves the company and starts soliciting all those customers he serviced for you. If your customer list qualifies as a trade secret, under the law, you can get an injunction to keep that salesman from going after those customers. You would need to file a lawsuit and seek a preliminary injunction. Nine times out of ten, the case is over if you get the injunction, because the person who’s lost will not want to litigate whether they can contact the customers when the case is over. The case simply takes so long that all the value from the customer list to the competitor is gone.

Another problem is if you allow employees to access your computer from home. Someone can log into the computer, download all the contact info, print it out at home, and you’d never know about it. But if you have auditing software, like we recommend, you’ll know immediately what they’re up to. The software can be very valuable in getting an injunction, because it’s proof that someone’s violating the trade secrets.

What role does a law firm play in protecting trade secrets?

By advising the client how to protect its specific information. One of the big mistakes that a lot of lawyers make is that they don’t tailor the language of “trade secret” to fit the particular customer. They make the definition of trade secret so broad that it almost doesn’t mean anything at all.

At Newmeyer & Dillion, we try to find out what truly is important to the client and tailor the agreement so it stands a better chance of being enforceable.

It’s more economical to use a pre-existing form. But when you do that and apply it to a special circumstance, you run the risk that it won’t give you the protection you want.

We recommend that our clients protect the confidentiality of their trade secrets with employee policies and written agreements. And the policies and agreements should be written by knowledgeable counsel.

TOM NEWMEYER is a founding partner of Newmeyer & Dillion LLP. Reach him at or (949) 854-7000.

Thursday, 23 March 2006 19:00

Loyal sovereigns

Written by
Ask someone how they built their billion-dollar company, and you will get answers including hard work, perseverance, good timing and innovative thinking.

Rarely does the list include “painful memories.” But for John Tu, CEO of Kingston Technology, it does.

Those memories are pretty high up on the list, and they’ve gone a long way toward making the multibillion-dollar computer hardware manufacturer one of the best companies in the country to work for.

“The reason is because we suffered a tragic, financial disaster,” says Tu.

They called it Black Monday — the stock market crash of 1987. Tu and Kingston co-founder David Sun lost nearly $6 million that day — all the money from the sale of a previous business.

But out of those dark days, Kingston was born, along with a heightened appreciation for the human spirit.

“All the people in the beginning that we recruited, we were just so appreciative that they came and worked for us,” says Tu. “We knew that maybe we’d be OK, but maybe we’d be on the street. So we really appreciated the little things.

“The (corporate) culture is influenced from (Black Monday) because our lives were so painful and hopeless. You think you’ll never recover from that.”

Kingston’s company values include terms such as “respect,” “loyalty,” and “fairness.” Also on the list is “Having fun ... working in the company of friends.”

That seems to be what really fuels Kingston — there is a driving range behind the headquarters, a company band that Tu participates in and the eye-popping $100 million in employee bonuses awarded back in 1996.

The company also has a “Superstar” program that recognizes employees for exemplary work. Nominated by their peers, winners have their biographies and photos posted throughout the company and have lunch with Tu and Sun.

“We just wanted to make sure that the people are being heard and respected,” says Tu. “We always want to think about decisions we’re making and how they may cause pain for other people.”

So far, the decisions have been good ones — in 2004, the company broke $2 billion in revenue. But that success hasn’t kept Tu and Sun bottled up in ivory towers. They don’t just have an open-door policy — they have a no-door policy, opting to work in cubicles among their employees and department heads.

“It’s a very open environment,” says Tu. “We all sit outside in the open and have these cubicles. David has his, and maybe 20 feet away, I have mine. We are very visible. The cubicles are not high, maybe 3 feet tall.”

Sun made the move before Tu, who had to be coaxed out of his fishbowl by his partner.

“One day I just moved my desk out there,” says Tu. “I was a little bit skeptical, but after a month, I never wanted to work in offices anymore.

“When you sit next to people, you break the barriers. There are no titles. The advantage is communication. You don’t have to go out of your office or call someone on the phone from your office. That’s horrible.”

Tu says that many of the things that create an enjoyable working environment at Kingston revolve around common sense. The driving range behind the company headquarters is a good example.

“In the beginning, we had maybe 10 or 15 people working,” says Tu. “And then, we usually were there until 8 or 9 in the evening. We didn’t go to lunch, we’d just eat in the office. So it was one of those things where you had to do something to have some fun.

“David [Sun] is a golfer. A golf nut. It was his idea. Whenever we were tired or wanted to stretch, we’d just go back there, drive the ball and feel totally relaxed before we went back to work. People have a lot of flexibility, and I think they like it. If you make life more flexible, people have more excitement.”

There need to be boundaries, but being too rigid a leader can backfire. There will always be someone who abuses a privilege but, says Tu, those people are few.

“Which one is more important — to have a good, comfortable working environment that is fun and lets people know it is their place, or to worry about a few and then have a very rigid culture?” Tu says. “The majority of people are good and conscientious and willing to put their best foot forward.”

While Tu and Sun do their share to make Kingston a good place to work, Tu says that employees create most of the environment through their loyalty.

“Loyalty is the culture,” says Tu. “I always go back to that. Some say money is the culture, but money is secondary. Loyalty is what you have when you feel the company is fair. You can trust the company. You can depend on the company when it’s a critical time or harsh time.

“Money is always a short-term thing. You can go to some other jobs and other places that will pay you more and more, but there will always be other things you are looking for.”

Tu says he’s not an expect at conducting interviews, but he has learned a few things about finding the right people to fit in, be productive and contribute to the culture at Kingston.

“The questions you ask aren’t important,” he says. “You should just sit down and talk. It doesn’t have to be about trick questions.”

Tu says he talks to candidates about life, family, even last night’s baseball game.

“The most important thing is having common sense,” says Tu. “That’s what you look for. You have to have it. Whether you’re a team player or very smart or a hard worker, it’s all a risk. You don’t know. You’ll find out, but if this person has very good common sense, then you most likely have a successful hire.”

By 1995, Kingston had made enough successful hires to reach $1.3 billion in sales. That prompted Tu and Sun to take out advertisements in the Wall Street Journal and Los Angeles Times saying, “Thanks A Billion!” and listing each employee name. They ran similar ads thanking their suppliers and distributors.

“That was not some well-planned marketing thing,” says Tu. “We figured we have to say something about it. And then maybe the best way to do this is ‘Thanks A Billion!’ in publications all over the world.”

The next year, after 80 percent of Kingston was acquired by Softbank Corp. of Japan for $1.5 billion, Tu and Sun allocated $100 million in employee bonuses.

Not surprisingly, two years later, Kingston began a run of five straight years as one of Fortune magazine’s 100 Best Companies to Work For.

Kingston has won similar recognition for its work environment from other publications, but Tu shies away from the publicity.

“I don’t want to discredit being listed,” says Tu. “But I think if we start becoming conscious of it — we have to be listed every year — maybe we are doing something that has less substance, and that’s not good.

“Just let it happen. If you do the right things, it will keep the value. The most important thing is that we feel we are doing things the right way.”

That thinking continues to work for Tu and Kingston Technology.

“We are all born equal,” says Tu. “We all have the same desires and pain and happiness. It’s all about coming to work together. Hopefully, what we have done means something to ourselves and other people. Hopefully, we have made some difference in some people’s lives. That’s the success.”

HOW TO REACH: Kingston Technology,


Sunday, 26 December 2010 19:00

Forecasting and budgeting when times are tight

Written by

The economy remains tough for most industries, so heading into 2011 is uncertain for many business owners when it comes to forecasting and budgeting. Do you expect strong profitability? What else can possibly be cut to reduce expenses? How can you pay the bills? These questions, plus many more, form the foundation of concerns for numerous business owners in these uncertain times.

“A couple of useful financial tools to help calm nerves and gain a handle on finances are preparing an annual budget and projecting cash flow. Cash flow management is the process of planning, budgeting, measuring and controlling the money that flows into and out of your business,” says Jeff Hipshman, partner at HMWC CPAs & Business Advisors in Tustin. “Since high operating costs and low profit margins, coupled with tight credit and a shaky economy, can mean poor cash flow for many companies, a firm grasp of cash flow can be critical to your business success.”

Smart Business spoke with Hipshman about how he helps clients with their annual forecasting and budgeting process.

How should I use our financial statements in budgeting?

The balance sheet provides a picture of your company’s assets and liabilities, measuring a single point in time. This is only a partial picture of the company, since it only tells part of the story. For example, it may indicate significant accounts receivable, but, if payment is running far behind, the company can face a cash flow issue soon.

The income statement indicates the business’s profitability during a certain period, which can be misleading for some business owners, especially under the accrual method of accounting if they don’t fully understand it. Further, the income statement contains many arbitrary noncash allocations, such as pension contributions and depreciation and amortization.

The cash flow statement, however, connects the balance sheet and income statement to provide a more comprehensive view of your finances. For example, when analyzing your company’s liquidity, cash flow information is more telling. A cash flow statement reconciles and records the changes in the other statements and nets out the bookkeeping, showing the amounts and sources of profits and losses for any given period. The cash flow statement also maintains records of your company’s fiscal transactions.

So how can I best forecast income and expenses?

Among the most valuable tools in this effort is the annual cash flow projection. With it, you can set realistic profitability goals, measure your progress toward those goals and head off trouble before it gets too serious.

To get started on an annual cash flow projection, use your general ledger’s income and expense account categories to budget cash inflows and outflows. You’ll be able to easily predict many routine, fixed expenses, such as facility rent due at the beginning of each month or semiannual insurance installments. Compare previous years’ figures to your current projection to ensure reasonableness. Your CFO or CPA should be able to prepare the projection, along with your guidance on specific projected changes in income and expenses.

My business is losing money. What quick fixes can I do to solve money problems?

In response to dire times, many business owners may look for quick fixes to tide them over until the economy recovers or at least until the next big customer or project comes along. Yet this thought process can be extremely dangerous — particularly when full economic recovery remains nowhere in sight.

Each situation is different. A business that is only recently losing money might be able to proactively make moves that will stop the bleeding, such as reducing employee hours, changing inventory purchase practices and reducing various variable costs. On the other hand, a business that is on the brink of closing its doors may need to downsize by moving or renegotiating its lease, selling assets, laying off employees and asking for extended terms with creditors, etc.

You should work with your financial team (CFO, controller and outside CPA firm) to identify reasonable approaches to improve accounts receivable collections and reduce fixed and variable costs. Since a CPA typically has experience with many companies in similar situations, he will likely provide some very viable solutions that you may not otherwise have considered.

Ultimately, you need to give serious thought to your business strategy when facing tough financial decisions. Although quick fixes may be tempting, they’re detrimental without a well-thought-out plan to back them up.

Why is long-term thinking important in a recession?

When faced with less-than-desirable financial circumstances, you must think long term. While knee-jerk downsizing and cost-cutting may be your first instinct, they often aren’t the best options. Specifically, you must identify the driving forces of your business by asking questions such as:

  • What are your company’s strengths and weaknesses?
  • What is the economic state and forecast for your industry and market area?
  • What variables affect your business?
  • Where do you want to be in 10 years?

Through strategic analyses such as these, you may find, for example, that talented employees and technological innovations are invaluable to your company and are areas in which you must invest — even when money is tight. These analyses may also identify areas that are less of a priority where you can make effective cuts.

Jeff Hipshman is a partner at HMWC CPAs & Business Advisors in Tustin. Reach him at (714) 505-9000 or

Last year marked the historic passage of health care reform. As provisions of the act begin their multiyear phase-in, health care organizations are clamoring to identify new and better ways to deliver the highest quality of care and improved clinical outcomes in a cost-effective manner.

Smart Business turned to MemorialCare Health System President and CEO Barry Arbuckle, Ph.D., whose organization has gained national attention as a unique model for establishing outstanding clinical care through best practice medicine.

What is best practice medicine?

Approximately 15 years ago, a group of MemorialCare physicians decided to make a difference in the way health care is delivered. They believed that quality — and not economics — was the most important element in health care.

Today, the physicians at MemorialCare continue to lead teams of nurses and other clinicians devoted to the study and implementation of best practice, evidence-based medicine. Together, they identify the best diagnostic, treatment and preventive techniques, focusing on specific populations of patients and a wide variety of diagnoses and procedures. These include heart care, emergency medicine, cancer, orthopedics, childbirth, pulmonary disease and scores of other medical conditions. The best practice clinical guidelines that develop from these efforts have become standards of practice at all of our Southern California facilities.

How does it affect outcomes and cost of care?

While these accomplishments in clinical excellence ultimately translate to lower cost of care, more importantly, they translate into extraordinary quality, proven treatments and comprehensive care that continually raise medical standards for our patients. We are constantly improving our efficiency and effectiveness and profoundly impacting our patients and their families. By pursuing those treatments and therapies that work best, the results are outcomes that frequently exceed state and national averages for most diseases.

What has been the impact on staff?

An empowered and powerful network of clinicians and support staff works in the best interest of every patient. With shared purposes and bold goals to achieve perfect care for our patients, every health care team member is devoted to aligning safety and quality aims, while also offering support and continually learning from one another. And the Physician Society — that includes 2,000 physicians and drives our clinical standards and performance — issues report cards to its members so they can track their progress in surpassing state and national outcomes. Quality, safe health care and a passion for excellence remain MemorialCare Health System’s top priorities, keeping us clearly focused during challenging times.

Can we expect other changes in patient care?

As the United States enters an era of transformation in health care delivery, hospitals are redesigning the way they provide patient care. For our health system, care model redesign is being guided by the principles of perfectly executed care by the right people at the right time. We’re ensuring the most qualified person is closest to the patient to provide perfect care and reduce duplication — all at the lowest cost. It’s about streamlining the way we provide inpatient care and also offering ambulatory services outside of the hospital to help patients manage chronic disease and stay healthy.

What’s the role of digital patient records?

Electronic medical records, or EMRs, are critical to patient quality and safety. EMRs place a patient’s full medical history onto computers and information systems, which allows clinicians to better coordinate care through immediate access to patient data. This maximizes clinical quality through real-time decision support at points of decision-making and also eliminates most paper used in patient documentation. Paper records can slow care and create environments that are ripe for error. Efficient electronic care delivery prevents unnecessary orders and diagnostic tests, reduces medical errors and improves patient quality, safety and health. MemorialCare is among a small percentage of hospitals nationwide to implement fully integrated medical records linking inpatient, emergency and outpatient patient records at all our major sites.

How can employers help ensure quality care for their work force?

Learn about the steps hospitals and physicians are taking to improve health care in your community. Do they have best practice teams design and implement best practice tools, offer education and monitor outcomes and opportunities for further improvement? Are clinical outcomes documented and, if so, easily accessible? Have or will they shortly be implementing comprehensive electronic medical records in inpatient and ambulatory settings that interface with affiliated physicians? How intensive is their focus on supporting a strong culture of patient safety and vigilance? What procedures have they implemented to reduce hospital acquired infections and risk of complications? And what awards and recognition have they received for quality and safety performance?

BARRY ARBUCKLE, Ph.D., is president and CEO of MemorialCare Medical Centers ( and past chair of the California Hospital Association. Reach him at or (562) 933-9708. The not-for-profit MemorialCare Health System includes Long Beach Memorial Medical Center, Miller Children’s Hospital Long Beach, Orange Coast Memorial Medical Center in Fountain Valley and Saddleback Memorial Medical Center in Laguna Hills and San Clemente. For additional information on excellence in health care, please visit

Thursday, 25 November 2010 19:00

The D’Arcy file

Written by

Grubb & Ellis Co.

Real Estate and Construction

Orange County


Born: Providence, R.I.

Education: Bates College, B.A. in political science

What was your first job, and what did you learn from it?

I started in the commercial real estate business right out of college working for R.M. Bradley & Co. in Boston. I worked in property management and learned a lot about attention to detail, solving problems and the need to always stay incredibly organized.

Whom do you admire most and why?

The person I most admire is my father. He joined the Army to fight for his country the day he graduated from high school. He and my mother went on to raise seven children and, without abundant resources, provided my brothers and sisters all we needed to pursue our dreams and ambitions. He worked hard every day of his life, always trying to improve the lot of his family and, with only a high school education, went on to become a very successful business executive.

What’s your definition of success?

The best definition of success I have heard is that success is the progressive realization of a worthy goal. Being a goal-oriented individual and knowing that success is found in achieving your own personal goals, the journey toward these goals is part of the definition of success.

What’s the best business advice you’ve ever received?

It is simple, but the best business advice that I have received is to be yourself. Don’t try to be someone you are not, and stay true to your principles.

What’s your favorite stress relief?

For me, it is exercise — mostly running.

As the future of national health reform legislation remains in question and California employers manage the impacts of health benefit cost increases of 150 percent over the last decade, Smart Business turned to Barry Arbuckle, Ph.D., president and CEO of MemorialCare Health System, for answers.

What changes are expected from mid-term election results?

The 2010 health care reform legislation is far from perfect, yet its goals to insure 32 million more Americans, eliminate barriers to coverage for those with pre-existing conditions and extend coverage to age 26 for many young people are big steps forward. Expect vigorous Congressional debate to unfold over the next few years.

Are wellness and prevention programs worth the investment?

The work force is as critical to your bottom line as the quality of products and services. Costs of high-risk workers are nearly three times that of healthy employees. Nearly 70 percent of the nation’s work force is overweight, and each of those employees costs businesses an additional $500 to $2,500 in medical expenses and work loss. Wellness activities can save $1.49 to $4.91 for every dollar spent, reduce absences by 30 percent and help recruit, retain and increase employee productivity. Costs can be minimal. Instead of building a fitness center, offer pedometers, mealtime walking programs and sessions on achieving better health.

Can you describe MemorialCare’s Good Life?

Like other health-conscious employers, we implemented The Good Life to build a culture of excellence that encourages healthier daily choices for our staff. Focusing on such areas as hypertension and high cholesterol, our hospitals offer walking trails, fitness centers and nutritious, lower calorie cafeteria food. We sponsor wellness fairs, newsletters, tracking tools and incentives to improve health. Our data suggests just a 2 percent movement from chronic to improved health can save us more than $600,000 annually.

Is there evidence executive health programs are beneficial to employers?

The stress of long work hours, constant challenges and never-ending commitments can result in lack of exercise, unhealthy diets and skipped doctor visits for busy leaders.

Physicals offer quality preventive care that includes comprehensive evaluations, screenings and physical exams that are personalized, convenient, streamlined and meet the schedules of busy executives. Studies show executives undergoing physicals have 20 percent fewer health claims and lost 45 percent fewer workdays than those who did not.

Can implementing Lean initiatives help?

With declining revenues, escalating costs and demand for increased value and quality, the Lean management philosophy and workshops create a sense of purpose, team problem solving and long-term thinking by proactively engaging staff. In three years with a new ‘Lean’ approach, our medical centers have eliminated 502 unnecessary process steps and reduced distances staff travels to carry out their jobs by 1,702 miles. We expect $57 million in net revenue returned over a decade. Most importantly, we are improving the care of our patients.

Do electronic medical records improve care?

EMRs allow clinicians immediate access to a patient’s health and medical history, minimize waste and inefficiency of manual and paper-based processes, maximize clinical quality and patient outcomes at points of decision-making, reduce medical errors and improve patient care. Physician offices can link to our hospital EMRs, and patients can access their records through an online portal.

What about retail health centers?

Retail health clinics offer convenient and affordable care for consumers seeking treatment for common medical conditions, basic health needs and immunizations. Our clinics located within three ALBERTSONS/Sav-On Pharmacy stores are staffed by highly trained nurse practitioners with close oversight by physicians. Clinics offer treatment for common illnesses like colds, flu, earaches, sore throats, sinus infection, skin conditions, minor wounds and school physicals.

Where can employers start?

Make prevention a part of your business. Begin with simple screenings to make employees aware of their health status. Offer sessions that share advice, activities and coaching to reach and maintain goals. Identify employee advocates to motivate others to follow their lead. Engage your employees’ families to extend healthy habits at home. MemorialCare’s business outreach programs include workplace education, health prevention, screenings, an immunization program and health fairs. Our experts help employers identify cost reduction strategies through benefit audits and partnerships that ensure you achieve competitive prices and packages. has free online tools, calculators, guides and referrals to physicians that help your work force reach a healthier life. MemorialCare’s Presidents’ Partnership sponsors annual programs that inform and engage employers on issues they all face and seeks solutions that address the challenges and costs of health care. Working together, we can identify improvements and advocate for better care for communities we serve.

BARRY ARBUCKLE, Ph.D., is president and CEO of MemorialCare Medical Centers ( and past chair of the California Hospital Association. Reach him at or (562) 933-9708. The not-for-profit MemorialCare Health System includes Long Beach Memorial Medical Center, Miller Children’s Hospital Long Beach, Orange Coast Memorial Medical Center in Fountain Valley and Saddleback Memorial Medical Center in Laguna Hills and San Clemente. For additional information on excellence in health care, please visit

Tuesday, 26 October 2010 20:00

Year-end tax planning and retirement accounts

Written by

As the economy continues to limp toward recovery, many people are finding that their investment portfolios are a mixed bag of gains and losses. As year-end approaches, it’s smart to review your situation and consider strategies that can minimize capital gains tax and use capital losses to your tax advantage.

“Too many investors sit on their portfolios because of uncertainty on how to handle tax issues,” says Curtis Campbell, partner, Tax Services department at HMWC CPAs & Business Advisors in Tustin. “Yet if they knew what to do it could make a significant impact on their tax situation.”

Smart Business spoke to Campbell about how to approach year-end tax planning to your advantage.

How should I handle capital gains and losses?

Investors typically know that they can offset capital gains with capital losses. Depending on the individual’s investment portfolio, there might be fairly substantial losses that are still present, due to the volatility in the market. If your losses exceed your gains, you can offset the excess against up to $3,000 in ordinary income (with unused losses carried forward to future years).

Net short-term gains are taxed as ordinary income, while net long-term gains enjoy a lower tax rate — generally 15 percent for taxpayers in the middle and higher brackets. But as of this writing that rate is scheduled to increase to 20 percent in 2011 if Congress doesn’t take action. If as year-end approaches it looks like rates will indeed go up next year, you might want to sell appreciated investments by December 31 to take advantage of the 15 percent rate. But if you have a net gain for the year and want to reduce your 2010 tax bill, consider selling underperforming investments to generate losses to absorb the gain. Your tax advisor can prepare an analysis to help in determining the appropriate move.

For example, let’s say that your portfolio includes $20,000 of a technology stock that you paid only $10,000 for. You’d like to sell it to diversify your portfolio, but you’re concerned about the capital gains tax. You also have $5,000 of an auto industry stock that you paid $15,000 for. You’re thinking about selling both stocks so your $10,000 loss on the auto stock can offset your $10,000 gain on the tech stock. But you may want to think twice. If you have more capital gains to recognize next year, you could be better off holding on to the auto stock and paying capital gains tax on the tech stock sale. Why? The tech stock gain will be taxed at 15 percent, so offsetting it with the auto stock loss will save you $1,500. But if you wait until Jan. 1 to sell the auto stock and use it to offset a $10,000 gain next year and your capital gains rate is 20 percent, it will save you $2,000 in taxes. (The figures presume that the share prices stay the same regardless of whether the sale is in 2010 or 2011.)

What if I still have high hopes for a poor-performing investment?

One option is to sell the investment at a loss to generate tax benefits and then reinvest to keep your portfolio intact. For this strategy to work, you must beware of the wash sale rule, which prohibits a loss deduction if you acquire substantially the same security within 30 days before or after the sale. To avoid a wash sale, you can (1) sell the investment at a loss and wait 31 days to reinvest, or (2) buy replacement securities first and wait 31 days to sell the original investment. Either way, you assume the risk of price fluctuations during the 30-day waiting period.

Can I use losses on stocks, bonds or mutual funds held in IRAs, 401(k) plans or other retirement accounts to generate tax benefits?

Unfortunately, in most cases, the answer is no. Traditional IRAs and employer-sponsored plans generally are funded with pretax dollars. Even if they’ve suffered substantial losses, if you sell the investments and close the account, the amount you withdraw will be treated as taxable ordinary income.

You may, however, be able to deduct losses in a Roth IRA, traditional IRA or employer plan if you’ve built up a sufficient tax basis through nondeductible contributions. Suppose, for example, that you’ve made $30,000 in nondeductible contributions to a traditional IRA, but the IRA’s current value is only $20,000. If you close the IRA, you’ll realize a $10,000 loss.

The loss has limited value, though. To deduct the loss you’ll be required to close any other traditional IRAs you own. Plus, the loss can be deducted only as a miscellaneous itemized deduction. Such deductions are subject to a 2 percent of adjusted gross income (AGI) floor, so you’ll enjoy a tax benefit only if your total miscellaneous deductions exceed 2 percent of your AGI.

For a traditional IRA that has lost value, consider converting it to a Roth IRA. Doing the conversion while the IRA’s value is depressed can minimize the tax hit. Plus, if you convert in 2010, you can defer the income and report half on your 2011 return and the other half on your 2012 return.

Are taxes the major consideration?

Investment decisions should never be based on taxes alone. But taking taxes into account in your planning can help improve your after-tax return. Numerous factors must be considered before making an investment decision, including your goals, time horizon and risk tolerance, plus various factors related to the investment itself. Tax considerations are also important, but they shouldn’t be the primary driver of investment decisions. Still, with rates potentially increasing next year, taxes may take a more prominent role.

Check with your tax advisor for the latest information on all time-sensitive facts in this article.

Curtis Campbell is partner-in-charge of the Tax Services department at HMWC CPAs & Business Advisors in Tustin. Contact him at (714) 505-9000 or

Your company may have the best policies and procedures in the world, but if your managers aren’t implementing them consistently across all departments, you could be opening yourself up to a lawsuit.

Having a handbook is not enough, says S.A. “Sam” Murray, CEO of ManagEase. You have to train your managers and meet with them regularly, both to ensure that everyone is on the same page and to hold them accountable.

“Managers tend to implement their own values,” Murray says. “They impose the ways they have always done things on their employees, which is usually not the same as what managers in other departments are doing and may not be what the business owner wants them to do. In this type of environment, when an employee is fired for some infraction, this person can easily claim that the practice was not fairly implemented across the company and that he or she was somehow discriminated against.”

Smart Business spoke with Murray about how to clearly communicate your vision to your managers and how training can help you hold people accountable.

How do you make sure your vision is being clearly communicated to your managers?

A company leader needs to meet with department heads on a regular basis, preferably weekly, and vision needs to be a part of that meeting’s agenda. When vision is regularly discussed, managers become focused on how they’re implementing the vision of the company, the initiatives of the company, the immediate and long-term goals, and how they are working toward long-term sustainability. Meeting regularly assures that these vital topics are always top of mind.

How do you get managers to implement policy consistently across departments?

You need to train people. You can’t achieve consistency by just telling them or giving them a handbook; you need to have more comprehensive training on how to implement policy. Then you need to have training on how to correct employees who aren’t following policy, what actions should be taken and how to write a performance improvement plan.

Too many times, a company focuses on having managers oversee employees on whatever their job is. If employees are producing widgets, the manager is just checking to make sure that widgets are being produced.

Instead, managers really need to be trained on how to manage employees in a way that correctly implements policy. They need to be very well instructed on what appropriate behavior is, when to correct employees and what kind of climate you — as the business owner — are trying to achieve in the workplace to best manage your liability.

What would you say to business owners who say they can’t afford the time for training?

It doesn’t have to take much time. Every company should have an HR calendar, and on that calendar should be two or three manager training sessions. Just a few hour-long training sessions over the course of the year can really make a difference. Training with respect to policy implementation is critical and needs to be recurring; you can’t train someone once and expect that, five years later, they will still be following the instructions received in the past. Too many owners tell their managers something one time and think that everything will stay the same and they don’t have to reinforce the message periodically. They assume things are being done a certain way, and they don’t find out they are not until they are sued.

Business owners want to spend time doing what they’re good at, sales or product development, for example, and if they can get more wheels under their managers, it really unburdens the owners to spend time doing those things they do well. Having reasonable but modest training programs scheduled throughout the year can help keep those manager wheels greased.

What are the consequences of failing to train and consistently implementing policies?

Say, for example, one manager is writing up his employees for being five minutes late, but in another department, employees stroll in 20 minutes late and nothing is said. This kind of inconsistency causes resentment; rank-and-file employees tend to resist the supervisor who is following the letter of the law, and resent coworkers under other managers who are getting away with murder. They’ll sabotage that manager, gossip and waste time, stonewall requests from the other department. Sooner or later productivity declines and often customer service is impacted.

Employees often start keeping records of every conversation or decision the manager makes, thinking they’ve been treated unfairly and that they need to be prepared to sue if they get fired. It’s very damaging and consuming to all involved.

How can you ensure managers stay on the same page?

Weekly meetings are critical. Business owners trying to run in one direction make a huge mistake when they don’t realize that managers are running in another direction and, worse, feeling justified in doing so. The futility of this situation costs you money in ways you often can’t measure.

It’s not only communicating your vision — it’s coaching managers on how to implement it. Don’t just tell them customer retention is a priority; meet with them regularly, talk to them about their customers and their retention strategies, give them the tools to improve the necessary skills and provide a forum for them to discuss what they’re concerned about so you can guide them toward success.

Make it as easy as you can for managers to measure their department initiatives against the company’s initiatives. And at meetings, have them talk about what they’ve done that week that ties into your vision. They will learn from the responses of other managers, creating more alignment and more productive interaction within the company.

S.A. “Sam” Murray is CEO of ManagEase. Reach her at (714) 378-0880 or

Compensation planning and decisions remain challenging management tasks in many businesses, even large ones. Money is tighter than ever and there is plenty of opportunity for faulty plans to emerge guided by business owners’ lack of attention to, or comfort with, the process. Contrary to popular thinking, fairness doesn’t require us to treat every employee the same. In fact, provided we are non-discriminatory in our decisions, employees are often happier and more productive when they are not treated the same way in matters of compensation.

Smart Business spoke with Peggy Pargoff of ManagEase about how to reward your best employees and why you shouldn’t treat all employees the same.

How should employers address compensation?

It is a best practice to assess compensation and performance at least annually. Ask yourself: How important is compensation in our industry or area? Are we competitive within our market? Are we successful in hiring and retaining good performers? What does this mean with regard to compensation planning?

Participating in an industry salary survey or acquiring local pay data can be important to making good decisions. Creating salary ranges for positions and re-evaluating these over time also helps ensure a good program stays in place. Ensuring that employees who started 10 years ago are not disadvantaged in pay over current hires brought in at higher starting pay is also crucial to fair compensation.

While compensation technically includes benefits and non-cash reward programs, the amount of cash a person receives is still usually paramount. Non-cash rewards like regular company-sponsored lunches or generous sick time programs build morale and can positively impact retention, but don’t pay the employees’ bills.

What is the cost of flat compensation?

First and foremost is the loss of your best employees and salespeople. When compensation is flat, those employees who are at the top of their game and have good skills will look for better paying jobs. In fact, competitors often seek to steal top performers during down market cycles when small raises can cause good people to jump ship. Those employees with marginal skills and no ambition hang on to their jobs with even greater tenacity because they know they can’t compete for a new job. This can cause a downward spiral in overall employee quality.

The second impact involves a subset of employees who seek to increase their ‘compensation’ by exploiting regulatory claims, filing unwarranted workers’ comp claims, embezzling or stealing products or customers.

The third impact involves the costs of recruitment and training, loss of experience and expertise, or customer relationships, which can be far more than providing modest compensation increases to your good people.

How can an employer determine who deserves raises?

The practice of giving cost of living adjustments (COLAs) across the board should be gone, but is not. Business owners who may be uncomfortable with compensation discussions often fall back on giving everyone a 2 percent raise, thinking they are being fair. A 2 percent raise does not make a discernible difference in pay for most employees. And COLA strategies favor the weakest and worst performing employees over the high performers and discourage great performance.

Unfortunately, compensation decisions are often not kept confidential and it’s prudent to assume your decisions will become known. This underscores the need for objective legitimacy in the decision-making process. Set quantitative benchmarks and standards for performance whenever possible and communicate to employees which soft skills are valued. This makes it clear what contributions will be rewarded. If your managers are making compensation decisions, ensure they are using the same criteria. Should employees learn that you have provided raises only to the highest producers or best contributors, the fairness of your decisions can mitigate disappointment in their own exclusion. At the least, you will send a powerful message that your rewards system has integrity.

How can employers manage the ‘no-raise’ message for the best possible outcome?

When business performance prohibits raises, it’s important to get out in front of this decision with the proper messaging. You might say, ‘Profits are down 15 percent, and we have to defer raise reviews until January. I wish we could make another decision at this time, but we cannot.’ This message should not be communicated via memos, e-mails or water cooler gossip. Frank discussion with employees, individually or in groups, shows respect for their need to plan their lives and financial matters. If you have a large business, taking time to ensure all managers communicate this message consistently is crucial. If you need to delay raises again, give employees a new date when your decision will be reviewed. Avoid creating confusion and uncertainty to prevent having employees share their frustrations with customers or vendors.

This process is often not just a one-time activity. Consider providing some simplified information on what’s being done to reverse declines and return to normal operations in order to enhance morale and productivity during difficult periods. Regular updates help people see light at the end of the tunnel.

How can employers create money for raises?

One approach is to eliminate one or two positions held by low performers and use their compensation (or part of it) to provide raises to the better performers. Often good people will gladly shoulder more work for higher pay. Redesigning territories so the retained sales people can achieve higher commissions may also be a reasonable alternative to continuing pay for all sales people, including the underperformers. In many companies employees see this as a fair solution because it acknowledges that some employees are contributing and some are not.

Peggy Pargoff, PHR, is senior vice president at ManagEase. Reach her at or (714) 378-0880.

Thursday, 26 August 2010 20:00

The McCluney file

Written by

Born: I’m Scottish by birth, as you may be able to tell from my accent. I actually was born in Ireland and was brought up and educated in Glasgow, Scotland.

Education: Honors degree in business administration from Strathclyde University in Glasgow

What was your very first job, and what did you learn from it?

Actually my very first job — this will show my age — was a grocery delivery boy on a bike going around the neighborhood. I think I got the princely sum of one shilling and sixpence for that job.

After leaving college though, I went into the automotive industry. And back in those days, it was a great place to (transition) into the management development stream. My very first day was on the shop floor where they made trucks and the first lesson I ever got was from the superintendent there who told me, ‘You’re probably a very smart lad, but don’t touch anything unless I tell you to,’ because that was his territory.

Whom do you admire most and why?

I have strong admiration for my parents. They came from very low, working-class life and fought real hard to get me an education, which I always appreciated.

From a business perspective, there are two leaders that I had the fortunate time to experience their leadership. One was Ken Olsen, who was the founder and leader of Digital Equipment Corp., my first high-tech company I worked for. I learned a lot about entrepreneurship and creativity from him. And then the second person was Steve Jobs, and I learned a lot about innovation and marketing and determination and focus from Steve. I only worked for him for about nine, 10 months, but it was quite an experience.

What’s your definition of success?

Achieving your goals in the way you wanted to achieve them and true to your conviction.

Your workday is off to a bad start. How do you turn it around?

I have a cup of coffee, think about the problems and just go tackle it head-on.

If you weren’t in your current position, what might you be doing instead?

I’d probably be a consultant to other companies. A lot of my experience has been in taking companies public, turnarounds, [leading] companies that need to change direction and get back on a growth trajectory, and I’d love to help other companies do that.