Marcia Passos Duffy
I see privacy policies going the same route as the Federal CAN-SPAM (Controlling the Assault of Non-Solicited Pornography and Marketing) Act, which became effective January 1, 2004. The idea of the CAN-SPAM Act, which spells out penalties for spammers, originated in California. Other states began issuing similar laws, and dealing with these Internet laws that vary slightly from state to state was a nightmarish proposition for companies that conducted business on the Web. The Federal CAN-SPAM Act preempted all the state laws.
We are seeing a similar scenario with privacy policies. Right now, there are 22 states that have a breach-of-security law on their books, which essentially means that a company needs to inform customers if any information has been digitally stolen (i.e., first name, last name, credit card or Social Security number). Like the state spam laws that existed before the Federal CAN-SPAM, the state laws are not identical, which makes it extremely difficult to comply if you have a national business.
Will there be a future federal privacy-policy act?
If the CAN-SPAM Act is any indication of the wave of the future, you can bet that there will soon be a federal privacy-policy law. So it would be wise for companies doing business on the Web to start thinking about their privacy policies.
One caveat: once you write one, the Federal Trade Commission considers it binding, so you can be exposed to FTC legal action if you mislead your customers about what you do with their information. So make sure you run it by your attorney first.
Benita A. Kahn is a certified privacy professional and an attorney whose practice areas include privacy, telecommunications and energy law. She is partner at Vorys, Sater, Seymour and Pease LLP, one of the largest law firms in the United States with offices in Columbus, Akron, Cincinnati and Cleveland, Ohio, as well as in Alexandria, Va., and Washington, D.C. Reach Kahn at (614) 464-6487 or email@example.com.
While most family business operators believe the concept of future leadership is important, very few have developed the necessary leadership and training plans to ensure their family business survives to future generations, says Mario O. Vicari, a CPA who heads up the family business practice at the Horsham, PA-based accounting firm, Kreischer Miller. “Creating a plan is more complex than people think...but without one the outlook for the future of a family business can be grim. It often means the company may not survive after the older generation steps down.”
Smart Business spoke with Vicari about the importance of creating a family business succession plan and how business owners can take steps today toward creating strong succession leadership.
What are the critical steps to ensure a successful family business succession plan?
The very first step is to recognize the complexity of what a succession plan means. Most people confuse it with a transaction, like selling stock, or a tax matter. In reality, succession planning means preparing successors for leadership.
Business owners have to get clear about their future and the future of the business. This is a difficult thing to do because this involves making hard choices about when you plan step down, if you plan to sell the business or pass it on to family.
If a business owner decides to pass on their business to the next generation, the next stage in the process can be fraught with emotion, because the owner needs to make an evaluation of family members and who is best suited to lead. Many business owners can’t get past this step because of the emotion associated with it.
Many family issues can arise, such as sibling rivalry. This step needs to be handled carefully and is best handled with third-party involvement so relationships are not destroyed.
How ready is this generation of baby boomers to hand over their businesses to family members?
A survey of family-owned businesses in the region found that half of family businesses didn’t have a formal succession plan at all. These baby boomer business owners are fast approaching retirement but many have not done the hard work of succession planning that is necessary. And time is running out.
Creating a strong succession plan is a long process; it can take 10 years or more. A business owner at 50 who wants to retire in 10 to 20 years needs to start the process today. Of course, even with a succession plan there are no guarantees that the next generation will be ready when the business owner steps down, but doing nothing is a recipe for ineffective transition.
What are the challenges to creating a succession plan?
The biggest challenge for family business owners is facing the difficult decision of what is best for their business versus the natural feelings they have for their family members. It is hard to handle hurt feelings and hurt relationships. When feelings get in the way, the business owner tends to avoid confrontation rather than do what is best for the business.
What advice can you give to businesses looking to set up a successful succession plan?
Start early and get good counsel from someone who understands family businesses. Families that manage succession well recognize that are three distinctly different aspects to a family business: management, ownership and family. Problems occur when there aren’t clear boundaries around these three issues.
One good way to help establish these boundaries is to form a board of directors. This serves as a way to not only have another body helping to drive the company but it is an excellent way to separate some of the emotional aspects of running a family business. In other words, the burden of the decision-making will not fall entirely on the senior generation family members, because there is a board of directors there to assist and provide counsel.
Without clear boundaries between management decisions, ownership and family, these boundaries become blurry and can create chaos. Conflict is inevitable in this environment and relationships are under stress all while these people are all trying to work together and make decisions. It is like a perfect storm. Without a plan the family could lose the business and destroy relationships.
There’s been plenty of blame to go around for our current financial predicament: subprime lending, regulatory mandates, unmitigated Wall Street greed. But what has rocked our financial world may have more to do with a variety of elements lining up over the course of many years — even decades — than one single problem, says Marc Simpson, associate professor of finance and department chair at Northern Illinois University’s College of Business.
“Taken alone, none of these events are necessarily bad, but you get a perfect storm when all of the events coincide and then you have a housing bubble that burst,” Simpson says.
Smart Business spoke with Simpson about the current economic situation and what needs to occur in order to calm our turbulent financial waters.
Could you outline the sequence of events that created this ‘perfect storm’?
To understand what has happened, we need to go back to 1938 when Fannie Mae (the Federal National Mortgage Association) was created. Fannie Mae provided money to banks to encourage lenders to invest in home loans. Fannie Mae became a private entity in 1968. Freddie Mac (Federal Home Loan Mortgage Corporation) was set up in 1970. From 1970 to just recently, Fannie Mae and Freddie Mac were publicly traded companies, but there was a widespread belief — which turned out to be correct — that they were implicitly backed by the U.S. government.
Freddie and Fannie do not issue mortgages, but instead purchase mortgages from banks — thereby creating a secondary market for mortgages. This makes the mortgages more liquid, which in turn makes banks more likely to make mortgages. Taken alone, the creation of a secondary market for mortgages was a positive development that has worked well for the past 30-plus years.
The next step was the securitization of mortgages. In this process, mortgages from disparate borrowers are bundled together in a portfolio and interest in payments from this portfolio is sold to other investors.
Again, this bundling process is, in itself, a risk-reducing measure, as the risk is diversified across a number of mortgages. There is, however, a limit to the risk that can be eliminated through diversification.
In the early 1980s subprime mortgages were able to help more people buy homes. But it was not until the mid-1990s that pressure intensified for banks to make these types of mortgages and for Fannie and Freddie to purchase them. The Community Reinvestment Act (CRA) requires banks to make home mortgages available to all segments of the population where they do business. Nothing in the CRA requires a bank to make a bad mortgage, but in practice, this may have been an unintended consequence.
If you take each event alone, it does not have the kind of impact that all of these events together have, resulting in the crisis we are in the midst of today.
Shouldn’t the $700 billion rescue package help stop the bleeding?
There is no reason why it shouldn’t work — except for psychology. The problem is now a crisis of confidence.
What kind of confidence is needed to jump-start the economy?
Consumers could be afraid of spending or borrowing money because they have been watching their 401(k)s and IRAs dwindle. If consumers cut back, companies will be afraid to expand their operations. More importantly, lenders are afraid to make loans because they fear not getting paid back — by both consumers and companies. What most people don’t realize is that the current default rate on mortgages is only about 3 percent; there is a perception that it is much higher than that.
Most homeowners won’t default on their mortgage, and the mortgage-backed securities that the federal government plans to buy will have been purchased at trading values below the estimate of their value, if held to maturity. There is the potential, as with the S&L crisis, for the federal government to make money.
What are the lessons we can learn from this ‘perfect storm’ financial crisis?
For one, government regulation and intervention — such as the push to provide housing to lower income families — however well-intentioned, can cause unanticipated consequences.
Second, subprime mortgages should not be issued without regard to the risks involved. Many loan originators were not exposed to the risk because they could sell the loans to Freddie and Fannie.
Lastly, I hope we have learned about systematic risk. That is, you can eliminate some risk through diversification but not all risk. In other words, you can’t bundle together a bunch of bad loans and then assume you’ve got a good loan. It doesn’t work that way.
When your business needs temporary staffing help, you may look in the phone book or online for a staffing company or call a business colleague for a recommendation or two. But once you get the staffing provider on the phone, how do you know if the agency is right for your business? Before you pick a staffing provider, remember that filling positions fast is not a magic pill to solving your staffing problems.
“The reality is that all staffing companies draw from the same pool of talent; no one has the monopoly on recruiting,” says Ray Culver, Regional Vice President for the Southeast region for Talent Tree, Inc. of Houston. “Better to base a decision on what the staffing company does to ensure a quality fit for your organization than one that promises to fill every job with a warm body.”
Smart Business spoke with Culver about what you should look for when selecting a temporary staffing agency and some red flags to avoid.
What can happen when a business picks a temporary staffing agency that is not a right fit?
A business simply won’t get what it needs in terms of staffing. Jobs won’t get done, and turnover will increase or remain the same. A staffing provider that only cares about filling slots but not necessarily filling it with the right candidate for a particular business culture is not a provider that is listening to its clients.
How can business owners know if a staffing company is more interested in placing the right person rather than just a ‘warm body’?
You will know if this is the provider’s goal because you will not only talk to the outside salespeople at the staffing firm, but you will talk to or even meet the inside team the people who do the actual recruiting. A member of this team should actually come into your office space to get to know your business, even if just for one meeting. These are the people who need to get a feel for the culture of your company so they can send you the right talent.
Another conversation that needs to happen between the staffing provider and client is identifying the client’s ‘pain’ surrounding staffing issues. It could be, for example, that turnover is high and that is why there is a need for temporary help. The staffing company ought to ask the business why that is happening, and if it doesn’t know, then lead the discussion in discovering why; it could be internal management, pay rate or a host of other reasons. A truly consultative staffing provider helps to dig in to what is hurting the company and works to help ease that pain.
What are some red flags to look out for when selecting a staffing provider?
- If the provider is not honest. There
will always be problems and times when
a provider can’t find good candidates.
But a good staffing provider should always keep you in the loop about what is happening. This honesty needs to go both ways.
- If the provider fails to offer solutions to deeper staffing problems. Don’t pick a staffing company that throws people at a client to see who sticks. This wastes time and money. The provider needs to take the time upfront to get to know your needs and the company’s culture.
- If the provider is not reachable. The level of customer service needs to be extremely high for temporary service personnel, because, frankly, if one does-n’t work out, there are 15 other ones waiting in the wings. If you are not being treated like you’re the only client, even if you are a small client, if the provider is not returning phone calls, not responsive to needs and not taking an active approach to sending the best people, that is a huge red flag; it’s time to look for a new staffing provider that is a better fit.
What are the benefits of having the right fit?
If you have the right fit, it will make your job easier. That staffing provider acts as an extension of your HR department. If you have the right staffing provider, the ‘pain’ your business feels, in terms of staffing issues, should subside and your business should run smoother. Whatever your ultimate goal is to increase production, phase out departments or any other goal using a temporary staffing provider should mean your business ought to be moving in that direction.
In today’s declining housing market, the discrepancy between home value and cost to insure a home is widening, says
Michelle Mendes, vice president for Aon Private Risk Management for Aon Risk Services, Inc.
“It can be confusing to the homeowner if the house has a market value of $400,000 and they are told they need $800,000 in insurance to replace the home,” says Mendes.
The reason is that the cost to replace a home exactly the way it was, if it burned to the ground or got swept away in a storm, is almost always more than the house is worth on the open market, according to Mendes, particularly if the house is old or has customized features.
Smart Business spoke with Mendes about why homeowners should not assume that the amount of coverage on their home is enough to replace it if disaster should strike.
What is the confusion surrounding home market value and replacement costs?
The amount of insurance coverage needed is rarely close to the price you paid for your home. While the market value of a house can vary widely depending on the neighborhood location, area of the country and other factors, what usually does not vary much is the amount it will cost to replace that home — board by board — if a fire should burn it to the ground or if it gets swept away by a flood, hurricane, tornado or any other natural disaster.
In areas where home prices are spiraling downward, such as in the southeast and mid-western parts of the U.S., that gap between cost to replace and market value is ever widening. On the East Coast, where homes are holding value the best, the market value of the home is closer to the cost to replace.
Are most homeowners, then, underinsured?
Yes, most homeowners are severely under-insured; the latest estimate is that 64 percent of U.S. homes are undervalued and underinsured. The problem is that people don’t understand the cost of replacement of their homes, which is usually shockingly high.
Why aren’t more homeowners savvy to this fact and insured to the right level?
Most insurance companies leave it up to the individual and his or her agent to determine how much insurance the individual wants. But there are many unseen elements of homes that may not factor in. Take, for example, many of the ‘green’ updates homeowners are adding, such as geothermal. That ought to factor into the valuation of the home when determining the right amount of insurance to cover that home.
Then there are homes, for example, with period-style detailing, such as customized moldings and woodwork. If the house’s market value is $1 million, you can bet, in this market, that the cost to replace it will be much higher than that. Homeowners need to realize that if they plan to put the home back to its original condition after a disaster, they will have to insure it for replacement value, not market value.
What are some steps homeowners can take to ensure that they are adequately covered?
Be sure to choose an agent/broker with personal insurance knowledge that also represents more than one insurance company. They should be able to help you understand the valuation of a replacement cost. Quite a few companies will appraise your home for you.
Decide if you want unlimited replacement cost or a capped amount for your home. This will dictate which companies you are quoted and therefore which contract is chosen to insure your home. Would you settle for a minimal rebuild rather than an ‘exact’ rebuild (i.e.,in an older home this may mean sheetrock walls instead of plaster walls, etc.). There are even insurance contracts that utilize ‘functional’ replacement costs. This is the most minimal replacement available. Hard wood floors would likely be replaced with linoleum in this case.
Are you choosing homeowners insurance to fulfill the mortgagee’s requirement or to protect one of your most valuable assets? If you are more concerned with asset protection you will find yourself working with both an agent and an insurance company who will assist you in the valuation process. Some companies will do prospective appraisals so you can know prior to placing coverage what they feel the replacement costs would be. In either situation, a knowledgeable insurance consultant is one of your best tools.
Do you have any advice about home insurance considering the current economic situation we find ourselves in?
Despite decreasing market values, your home’s replacement cost is increasing. The cost of construction, building materials and fuel all play a part in the annual replacement cost increases that all policies experience. If your home is an integral or large part of your portfolio, as it is for many of us, you should consider providing it with superior protection. Seek good counsel and choose the insurance product that best fulfills your needs.
Regardless of whether your business exports a few products overseas or is a far-flung multinational, assessing your international insurance coverage is important to limit exposure, particularly in this ever-changing global economy.
“There are many factors that must be taken into account before a business can be fully insured overseas, including ever-changing compliance and regulatory issues within a country,” says Steve Henthorn, the director of Aon Global Client Network for Aon Risk Services, Inc.
Smart Business spoke with Henthorn about how businesses can determine if their overseas operations are adequately covered and what to do if they are not.
What challenges do businesses face today when operating an organization abroad?
Legal environments are constantly changing. The United States has exported some of its litigious culture to Europe. The EU and its member states are not always consistent in their approach to products liability issues. There is also an increase in ‘forum shopping’ (favorable jurisdiction to bring a lawsuit and more class actions suits).
The placement of D&O policies is also undergoing a significant change. Historically, a single policy was issued in the corporate home country, intending to cover exposures on a worldwide basis. Now, policies are being issued in numerous countries for tax reasons, indemnification considerations and at the request of local directors or officers who want to make sure coverage is in place.
There are other pressing challenges as well:
- Compliance. Regulations vary depending
on the country and can change periodically.
Two examples are: the proper payment of
insurance taxes (which can change as local
tax structures change), and the use of local
policies rather than ‘nonadmitted policies’
(policies issued in one country to protect
clients with operations in a second country).
In some countries, ‘nonadmitted’ policies are
allowed, but in others, it is strictly forbidden.
- Emerging nations (BRIC — Brazil,
Russia, India and China). Nearly all major
multinationals are setting up shop in one, if
not all, of these countries. There are some
interesting challenges in these countries. For one, the regulatory landscape is a moving target and must be constantly monitored.
Second, while we have a pretty good understanding of natural hazard exposures in the United States and Western Europe, the same cannot always be said for the BRIC nations. Because we cannot always assess the risk from earthquakes, floods and windstorm with the same degree of comfort, a business’s operations and profits may be vulnerable.
- Political risks. In some cases, insurance
is available for political risks, and in other
cases, it is difficult to get insurance. One risk
is that if a country nationalizes outside ownership, such as Venezuela has, it becomes a
major problem for multinationals operating
in that country. Another major concern is
inflation because a business can quickly
become underinsured in a country with high
inflation. This is why it is important to
reassess an overseas policy annually.
What can businesses do to make sure that their international operations are covered?
Risk managers need to do a risk assessment for operations abroad exactly the way they would conduct an assessment in the United States. Remember, a building in Shanghai can burn to the ground exactly like a building in Cleveland. Similar approaches are needed to protect the property.
This process includes taking inventory of assets and the insurance the business currently has to cover these assets. It also involves assessing the costs to replace equipment and property, and any interdependencies with other companies (such as suppliers) that could negatively impact sales.
Is just one insurance company enough to get adequate coverage?
The number of underwriters required to adequately insure a multinational company varies. Some companies are licensed in many countries and can match the global footprint of major multinationals. Rarely, however, is one insurer used for all coverages. Property and/or liability coverage may be provided by a group of carriers. Finally, certain programs must be underwritten ‘in-country.’ Selection of insurers should be based on coverage, costs, services and financial security.
It is common for both liability and property coverages for a Controlled Master Program to be created. Local policies are issued and a Master Policy written in the home country. This approach fills in the gaps between a very broad corporate contract and what may be good local standard.
What can happen to a business when it does not have adequate international insurance?
One major area of concern — that can be covered by insurance — is problems within the supply chain. More companies are sourcing component parts from around the world. Problems can happen anywhere along the way. For example, if a natural disaster damages or shuts down a supplier’s factory, the company won’t be able to make a complete product, and it will lose sales and market share, and earnings will go down.
The general impact of not having international insurance is very much like not having insurance in the United States. The corporation is exposed to financial loss, which often can be huge.
STEVE HENTHORN is the director of Aon Global Client Network for Aon Risk Services, Inc. (www.aon.com), a risk management, human capital and reinsurance consulting firm based in Cleveland. Reach him at (216) 623-4153 or firstname.lastname@example.org.
Corporate events range from afternoon parties to daylong meetings to three-day conferences. Ideally, employees or clients look forward to the event, participate in interesting activities, eat great food, get to network, learn something new and, in the end, walk away with a positive impression about the company.
But, unfortunately, not all events turn out that way, according to Michele Clark, an event-planning expert and the program manager for training and development at Corporate College. A poorly planned event can be a public relations disaster, she says, resulting in a long, drawn-out day — or days — that attendees find disappointing, boring or awkward.
“A successful corporate event has three important elements: diligent planning, consideration for guests and, most importantly, a commitment to fun,” says Clark.
Smart Business spoke with Clark for tips on how to make your next corporate event a successful one.
What are the biggest mistakes businesses make when planning a corporate event?
The biggest problem is when a business owner or CEO hands off the event-planning opportunity to an administrative professional thinking that he or she can handle it in his or her ‘spare time.’ Often, administrative professionals are thrown in without any training, have to shoot from the hip and hope all turns out well. Business owners tend to think that event planning is like planning a party, but, in fact, it is a full-time job that requires great attention to detail and time-consuming organization. It is a lot to ask of someone.
Another major mistake is not allowing enough time to plan. Many CEOs don’t have a concept of what it takes to plan an event — even a company holiday party or picnic. Not having enough time to prepare could result in lack of attendance, absence of key VIPs, and places or entertainment that are already booked.
A third mistake is when the event planner does not do enough research when booking an event or consider the target audience that will be attending the event. For example, don’t host an event for your ‘green’ company at a hotel where a nuclear conference is going on at the same time; and make sure that you check for food allergies and offer alternative meals so that you don’t contribute to an allergic reaction. Without research and attention to detail, your event could be a PR disaster.
How can a business avoid these mistakes?
Hire an event planner or train someone in your company to do the job, such as your administrative assistant. Make sure the event planner has the resources and enough input from you and other employees to do the job right. Make sure there is no conflict of interest in the chosen venue. Have all printed materials on a disk. If for some reason your materials don’t arrive on the event day, you can take them to get printed. Finally, have a plan B in case a key speaker cancels or other unforeseen events happen.
What are the elements that make a memorable, successful company event?
- Emotional involvement. The audience
needs to be invested in and committed to the event. You want them to feel excited
about going, wonderful when they are
there and happy when they leave. Provide
incentives for employees to attend, for
example, give away an iPod to the first 10
attendees or tickets to a show. Just
because it’s a company event doesn’t mean
you can’t use your marketing know-how to
get people to attend.
However, remember your event is not just a big party — get your attendees involved in the learning process in creative ways, rather than just have them sit through a three-hour PowerPoint presentation.
- Consistent message. Know the purpose for the event and articulate that purpose in your invitations and marketing
materials. Without a purpose and a consistent message, the event will feel directionless and will flop.
- Time used wisely. Have an agenda and
stick with it. Don’t allow long, drawn-out
speeches. Make sure you have a facilitator
to move things along and not let anyone —
even a VIP — dominate the conversation.
- Movement. If it is a long conference,
make sure that you schedule some physical activity, even something as simple as
touring the facility. Movement reduces tension and makes people more alert.
- Attention to detail. If the person planning the event is organized, you will have a
better company event. Little details go a
long way in keeping attendees happy.
What can a company gain (or lose) from company events?
A good event creates loyalty, provides education and develops a team-building environment for employees and/or clients. However, a poorly executed event can do a lot of damage. You can lose credibility with employees and clients. You can lose time and money. It takes effort — and a well-trained person — to pull off a successful event. But once you host a successful party, meeting or conference, people will talk positively about it and will be eager to attend your next one.
MICHELE CLARK runs The Shlensky Institute for Event and Meeting Planning and is the program manager for training and development for Corporate College, which offers employers custom-designed training programs to enhance future work force development, job growth and job retention in Northeast Ohio. Reach her at (216) 987-2909 or email@example.com.
Business strategies are often created to solve a problem or to save time or money. But company strategies are often created by CEOs or business owners in a vacuum, with little input from the employees that the strategy will ultimately impact.
“If management doesn’t bring in people who are close to the problem, the strategy often doesn’t work,” says Brenda Harris, President and Chief Operating Officer of Talent Tree, a staffing company based in Houston. “You need buy-in from the people who are close to the problem if a business strategy is going to stick.”
Smart Business spoke with Harris about the benefits of bringing employees to the table to create business strategies that are consistent and solve problems.
Could you give an example of a typical business strategy that is directed from the top down, without input from employees?
Most of the business strategies that are issued from the top down are ones that save money or time, but the CEO or business owner who creates these new business strategies often fails to see how it will affect people on a day-to-day basis. It could be a simple change, such as giving out paychecks at a slightly later time on Friday, to convenience management to wholesale changes in company policy, such as reworking vacation or sick-time policies.
Why is it important to get input from employees?
Because oftentimes, changes in policy directly affect how employees do their jobs. Changes in policy issued from the top down, without any say by the workers themselves, can decrease productivity, create resentment and even negatively effect retention. And, CEOs also need to realize that they don’t have all the good ideas. Of course, there are some business decisions that can’t be put out there and are at the discretion of the CEO or business owner, but decisions that affect the way people do their jobs or feel about their jobs do need to be bounced off of employees in various departments.
How can a CEO or business owner get employee input?
The best strategy is to create a task force of key employees to look at the new business strategy. Create a time frame to allow the task force to find facts and come up with a recommendation or revisions to the strategy. This must be a very open process where dissenting opinions are heard and acknowledged. The task force can also make recommendations as to how the business strategy can best be implemented. This improves credibility with your workers and is an opportunity for employees to gain recognition once their ideas are implemented.
Could you give an example of how this might work?
We wanted to change from issuing paychecks to giving employees a pay card, which would be deposited with the appropriate funds every week. We wanted to do this for a number of reasons, including convenience and cost/time savings of printing and distributing checks. We also thought it would be a better alternative for our temporary employee staff who had to come into the office every week to get their checks. For us, in management, it made sense all around.
However, the idea was met with resistance among employees, perhaps because it was new and unknown. We decided to set up a task force consisting of employees who were for the idea as well as those who were against it. The task force’s job was to learn about the pay card system, explain it to employees, get their feedback and report back to management with the pros and cons of the new payment system. By the way, even the people who were dead set against it ended up seeing the positive aspects of the system, and it was adopted in our company.
What if the task force decides not to implement a business strategy?
Management, of course, does have the final say. But the task force has a chance to make a persuasive argument about the reasons why a business strategy would be a bad move for the company. In many cases, the task force is seeing things that management cannot.
However, there may be times that the CEO or business owner sees the bigger picture that the task force does not. For example, task force members might find that they do not want to make certain cost-cutting changes in their departments. But the CEO or business owner knows that those dollars add up to significant savings across the entire company at the end of the year. That is the advantage of having both the employees’ point of view as well as the CEO’s.
Does your insurance broker have a conflict of interest? If your insurance agency is a small- to medium-sized regional or local agent/broker, you may want to inquire about “contingent commissions.” These commissions — paid to the agent or broker by some insurance carriers in addition to an upfront commission — are often not, or only vaguely, disclosed by local and regional insurance agencies.
“Contingent commissions may cause conflicts of interest,” says Jerry G. Kysela, resident managing director for Aon Risk Services Inc. “Insurance agents that take contingent commissions have an incentive to steer their business to the carrier who pays them the most, regardless of the client’s best interest.”
Smart Business spoke with Kysela about the practice of contingent commissions.
Could you briefly explain how contingent commissions get paid to the broker or agent?
These are cash incentive payments, in addition to upfront or base commissions, paid to brokers and agents by insurance carriers after the end of the year for the total volume of premium these brokers and agents placed with the carrier. These payments (which are sometimes called ‘overrides’) can be as much as 5 percent of the policy total, above the up-front commission or fee the agent receives. For example, if a premium is $100,000 and Carrier A pays the broker a 12 percent commission plus a contingency commission of 3 to 5 percent, the broker will get up to $17,000 for the placement. If Carrier B charges $95,000 for the same policy, pays a 10 percent commission but gets no contingent commission, the broker would only net $9,500 from that deal. If the client isn’t aware of how this works, and doesn’t have the opportunity to discuss the broker’s true incentives in connection with the relative merits of carriers A and B and their proposed policy terms, the broker may be tempted to recommend Carrier A to the client — regardless of what is the better deal for the customer.
So these volume-based commissions can cost money to the business customer?
Yes. Even for buyers who are aware of these side agreements, many don’t understand the magnitude of this additional cost and the extent to which they foot the bill. Businesses may not even know whether or not their broker has solicited quotes from multiple insurance companies to find the best value for them. They may be only presenting to the client the option that has the highest total base and contingent income.
Are contingent commissions transparent to the customer?
Generally, no. And, as a result, clients cannot make an informed, apples-to-apples comparison of their coverage options; they are unable to completely evaluate the insurance quotes they receive, nor do they understand how their brokers are compensated. I want to stress that contingent commissions are legal, but the problem is their lack of transparency and the ability of the client to fully understand what they are paying their insurance agent. A large insurance broker was found to be actually ‘rigging’ bids to drive clients to the insurers that paid the highest contingencies. But, despite reforms by large brokers, many small- to medium-sized insurance brokers and agents in local and regional companies still accept contingent commissions. This has resulted in a two-tiered insurance agent/broker compensation system where the large brokers, who generally have higher cost structures due to their greater levels of expertise and resources, are paid less by insurers then local or regional agents.
How can business owners demand greater transparency from their broker/agent?
Full transparency and disclosure is becoming increasingly important in all business relationships given Sarbanes-Oxley and the heightened regulatory environment. It is simply good business for all relationships to be fully transparent. Whether it’s property and casualty or employee benefits insurance, customers have a right to have all the facts. This information should not be shrouded in secrecy. In the interest of full transparency, in addition to ensuring you secure the most cost effective insurance program available, businesses should consider the following recommendations when evaluating their agency:
- Make certain your insurance agent/broker does not accept any contingent or volume-based compensation of any kind in
addition to a base or up-front commission or
fee. If it does, find another insurance agent
- Ask your insurance agent/broker for a
complete explanation of its transparency and
disclosure practices, and get a copy of this
policy in writing.
- Ask if you will receive a year-end statement outlining and summarizing the agent’s/
- If the agent still accepts contingency payments, ask to have your premiums excluded
from the contingency calculation and require
the agent/broker secure a letter from the
insurer confirming this (many agents make a
verbal commitment to doing this but fail to
follow through, at their clients’ expense).
- Require your insurance agent/broker to provide complete written copies of all insurance company proposals to show you how your program was shopped/marketed in accordance with your direction.
JERRY G. KYSELA is the resident managing director for Aon Risk Services Inc. (www.aon.com), a risk management, human capital and reinsurance-consulting firm based in Cleveland, and the largest middle-market insurer in the world. Reach him at (216) 623-4150 or Jerry_Kysela@ars.aon.com.
Your company’s e-mail marketing campaign might look successful — well branded, pleasing to the eye and filled with useful content. But is it successful in converting subscribers to customers? While there are countless bells and whistles you can add to your e-mail marketing campaign to make it look polished and high tech, what matters most at the end of the day is if the e-mail gets opened, read and converted, according to Brad Kleinman, an e-marketing consultant and instructor at Corporate College.
“There are three basic steps an e-mail campaign needs to follow if it is going to be successful,” he says.
Smart Business spoke with Kleinman about the three steps and how to implement them to create a solid foundation for a successful e-mail marketing campaign.
What are the benchmarks of a successful e-mail marketing campaign?
The true success of an e-mail marketing campaign is measured by the conversion rate from a prospect to a paying customer. This does not happen if the e-mail is not read or ends up in a spam folder. An e-mail campaign will not get much ROI if readers are not compelled to click through to the company’s Web site for more information or to make a purchase. While it is important for subscribers to open an e-mail, the best measure is conversion, that is, if the campaign is actually turning into cash.
What’s the first step of a good campaign?
The first step, once you have a list of optin subscribers to your campaign — which could be a newsletter, an e-course, tutorial, series of white papers, etc. — is to get the recipients to open the e-mail. If a recipient doesn’t trust the subject or ‘from’ line, the e-mail will get deleted. To avoid this problem, make sure you put a name of an actual ‘trusted’ person in the ‘from’ line. To avoid triggering spam filters, do not use words like ‘free’ or exclamation points or all capital letters in the subject line. Make the subject line enticing or intriguing. Creating a ‘tip-based’ subject line often gets higher open rates.
Once a subscriber opens the e-mail, what is next?
The second step is to design the e-mail so that there is a combination of both pictures and text — not just one or the other. The biggest mistake e-mail marketers can make is to write the e-mail all in 12-point font, with no breaks or headlines. This makes an e-mail very hard to read online. There are schools of thought that say e-mail marketing campaigns should be short and to the point, others say that e-mails should be longer. But I have found that it depends on the industry and type of e-mail that you are sending out.
The content needs to be interesting, useful and not 100 percent self-promotion. Many researchers say that the percentage of content to advertising should be 60 percent to 40 percent. But, the e-mail marketing campaign is not all about good tips and content. It must move the subscriber to step three, which is action. This call to action must be located not only at the bottom of the e-mail but, more importantly, above the fold, or what is on the subscribers’ screen before scrolling down.
What is the action that makes an e-mail campaign successful?
The action hooks the subscriber into getting beyond passively reading content to doing something. That could vary from campaign to campaign. It could be a phone call, visiting a Web site for more information, purchasing an e-book, or booking a free or nominal-fee consultation.
The foundation of a successful e-mail marketing strategy is the same as traditional marketing: making sure that there is a salesperson available so that the customer buys. Try not to build an e-mail marketing campaign that is completely ‘e.’ In the cyber world, we tend to leave that part out, but the most successful e-mail marketing campaigns rely on human interaction to make the conversion from prospect to customer. At some point, businesses need to take the conversation offline.
Is there anything else that is critical in creating e-mail marketing campaigns?
Yes, the names on a list are gold. You always want to improve and add to this list. There are many e-mail marketing programs available that can help marketers segment and categorize the lists to help create target marketing and experiment with conversion rates. Even changing one adjective in the subject line can make a huge difference in open rates.
E-mail marketing has been an extremely helpful tool because data can easily be captured. Through your e-mail marketing program, you will know how many people opened the e-mail, clicked on a link and, potentially, how much your sales went up as a result. Any changes you make can easily be measured, as well. The beauty about e-mail marketing is how little it costs and the high ROI that is possible, if you do it right and follow the basic steps.
BRAD KLEINMAN is an e-marketing consultant and instructor at Corporate College (www.corporatecollege.com) based in Cleveland, which offers employers custom-designed training programs to enhance future work force development, job growth and job retention in Northeast Ohio. Reach him at (216) 339-0353 or BSK@BSKConsulting.com.