Philadelphia (1114)

Thursday, 25 September 2008 20:00

The Ballbach file

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Born: Salisbury, Md.

Education: B.A., Georgetown College, Georgetown, Ky.; MBA, Harvard Business School

First job: I had a very large paper route delivering the Pittsburgh Press when my family lived in Pittsburgh. My family was often concerned about me getting up and delivering the paper at 5 or 6 in the morning, but that job taught me a lot about self-discipline. If you’re not up that early, the paper doesn’t get delivered.

What traits or skills are essential for a business leader?

The obvious one is integrity. You always take the high road; you never compromise on the mission and the principles, even if the cultural norms in another part of the world say it’s acceptable. I’m known for repeating that it’s a very small world out there and you have to protect your integrity.

Second, you need to set high standards, expecting everyone to work up, not down, to those standards. I have a basic belief that people either work up to those standards or work down to them, so prefer to ask them to work up to those standards.

The third thing would be consistency. It’s important for leaders to not just expect consistency from others but also from themselves. The fourth and final is that you need to be willing to embrace change and encourage constructive debate. If you don’t embrace change, you can’t expect others to embrace change. Leadership isn’t what you know; it’s what you do. You have to set the example and not be afraid to roll up your sleeves and do the work.

What is your definition of success?

I’ve got to tear it apart and break it into three phases of my life. The definition of success is really going to change for everybody over time. For me, ashamedly so, I have to admit that earlier in my life, it was all about personal accomplishment. Then as I moved toward the middle part of my career, it moved more toward delivering on the expectations of corporate stakeholders and of my family, people close to me. As I move to the latter part of my career, success more recently and in future years, I think, is going to incorporate a broadening circle of people and constituents, people who benefit from the achievements both at a corporate and a personal level.

I’m starting to feel more of a commitment to working with people less fortunate, who haven’t been able to enjoy the successes that not only I’ve had in my career but my associates at VWR have had as we’ve been successful as an organization. Again, I go back to leadership not being about what you know but what you do. If I set the example and I’m part of a community effort or helping other people, hopefully our associates would follow.

The meaning of success is an interesting question, and someone who gives a simple answer probably just doesn’t know how to answer it.

Tuesday, 26 August 2008 20:00

Down to earth

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Elvis is alive and well and working in the banking industry inthe person of John Featherman.

Or so he would have you believe. Last year, Featherman — chairman and CEO of First Chester County Corp. and First National Bank of Chester County — donned a jumpsuit reminiscent of The King and climbed aboard his company’s float at the Christmas parade.

“We paraded around in front of 10,000 people who are customers as well as our employees,” Featherman says. “The people enjoy the parade, and it’s consistent with our role as being a community bank.”

With 258 employees and $68.2 million in 2007 revenue, First Chester County Corp. is the bank holding company for First National.

A proponent of infusing fun into the workplace, Featherman’s also been spotted in a tuxedo at his company’s recent annual employee meeting, and he opened the ceremonies at his company’s Hollywood-themed gala that included dinner, an annual company report and employee participation awards.

Smart Business spoke with Featherman about how he manages the fundamentals of leadership.

Know all the characters. I’m a huge relationship person. I focus on building relationships with all the parties that I’m involved with. That includes our employees, customers, clients, executives, shareholders, vendors, investment bankers, community members and competitors.

On a personal basis, I know most of the CEOs of the other banks and financial institutions that we compete with. I’ve been here for a number of years, so I know a lot of them just through business activities, community activities or social activities.

When you get to know your competitors as best as you can, it helps you to understand their business model. You see what succeeds for them and what doesn’t succeed, and you learn from that. It’s a big part of knowing your marketplace.

Manage by walking around. I try to be as visible as possible. I look for participation and collaborative efforts.

For example, we hold our executive meetings once a week, and we move them around to different areas of the bank. I’ll arrive early at the meeting, and I’ll go into the employee lounge and talk with whoever’s coming in to get coffee. I’ll say, ‘Good morning, how are you doing, what’s going on, what’s new?’

Then, after the meeting, I try to have enough time to walk through that building and talk with people that I see or stop into someone’s office and inquire about a project that I know we’re working on. You can learn a lot about what’s going on, and the employees see you in a different light.

Another example is our Chairman’s Birthday Breakfast for the employees who celebrate a birthday that month. We have a breakfast at a local country club. During the breakfast, we each have the opportunity to talk about what we’re doing at the bank and what we’re doing in our personal life — our families, our children. That’s another opportunity for me to meet with the employee in an unstructured atmosphere.

They seem to enjoy that. I pick up a lot of information, and they have the opportunity to ask me questions about anything going on with the bank.

Other companies could do something similar to that, in which the employees bring their own lunch to a lunch meeting so it doesn’t cost the employer anything.

I’m an optimist, and it’s an opportunity for me to show confidence and optimism about the direction that we’re heading, in the way I carry myself and the way I conduct the conversation. Also, it gives the employees the opportunity to express their concerns, and I wouldn’t get that information if I just stayed here in my office and did all the work from this location.

Foster employee relationships. If we hire a new teller at the main branch, I purposely do personal banking in the branches just so that I can select a teller or a customer service rep that I don’t know well or haven’t worked with before and interact with them. I’ll talk about something in addition to the business so I can form a relationship with them.

The more people, the more difficult it is to know everyone. To me, it’s all about people. You have to care about them, and that’s something that goes on 24 hours a day.

That’s not fake; I want to know what’s going on.

Practice good listening. One of the most important skills that a successful business leader needs is to be a good listener. I find that it’s absolutely imperative to listen to people but also watch them and try to ascertain all that they’re trying to convey.

I was a lawyer for 35 years before I took on this job, and I learned early in my career to listen to clients who came in to see me. Many times, what they thought they wanted wasn’t really what they wanted at all, and if I listened long enough, they would eventually get around to expressing their ultimate concern.

When you go into a business meeting, whether it’s with other executives in your own company or with your customers, you need to remind yourself to listen and be conscious of that. Perhaps, you can listen until everyone else has spoken, and then if you feel you have a contribution to make, speak and ask questions. And never, ever interrupt or talk over someone — it’s a matter of showing respect for the other person that you’re dealing with. You’ll see the results and see how engaged the other participants are.

HOW TO REACH: First Chester County Corp., (877) 362-0100 or www.fnbchestercounty.com

Saturday, 26 July 2008 20:00

Donor tax breaks

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The significant tax value of charitable contributions makes donating to organizations, such as museums, churches and educational groups, a win-win for individuals seeking an effective wealth planning strategy.

“The donation of art and collectibles is a tax win for the donor, both from an income tax perspective and because it removes the respective asset from the donor’s estate,” explains Harry F. Murphy, a director in the tax strategies group at Kreischer Miller, Horsham, Pa. “The charity also benefits since the tax exemption is perpetuated.”

Smart Business discussed with Murphy the tax treatment of charitable donations and how donors should plan gifts to realize the most benefits.

Do all charitable gifts qualify for tax deductions?

Prior to any gift transaction, the donor must verify that the charity is a qualified organization. This is easily accomplished by requesting a copy of the organization’s most recent IRS charitable status letter. This should also be verified by checking the IRS’ list of qualified charities in IRS Publication 78 or on its Web site: apps.irs.gov/app/pub78.

Are there deduction limitations based on an individual’s determined tax status?

Artwork and collectibles are tangible personal property and, for income tax purposes, have certain tax limitations. It must be first determined who is the owner of the property for tax status purposes. Is the owner or donor a collector, the creator, an investor or a dealer? Although the terms appear to be self-explanatory, they have specific tax definitions.

An individual who buys artwork or collectibles for personal use is a collector. The creator, of course, is the individual who created the property or participated in the creation. An investor is someone who buys and sells art and collectibles with a profit motive. Personal enjoyment is not a factor. Anybody who sells art and collectibles to clients or the public is deemed to be engaged in a trade or business.

In particular, how does the IRS treat collectors’ gift transactions?

Different tax treatment depends upon the individual’s determined tax status. Let’s focus on the collector and assume that the artwork or collectible is a capital asset. Since art and collectibles are tangible personal property, the donor must confirm that the donee will use the gift in such a manner that it is related to the donee exempt purpose. This is known as a ‘use-related’ donation. A use-related donation is deductible at its fair market value (FMV). It has a tax deduction limit of 30 percent of the donor’s adjusted gross income (AGI). If the FMV exceeds 30 percent of the AGI, the remaining unused deduction can carry over for up to five years.

If the charity will not use art or collectibles in a manner related to its exempt purpose, the donation is considered ‘use-unrelated’ and the deduction is limited for income tax purposes. Any tax deduction is limited to the initial purchase price or other tax basis in the art or collectible up to the normal 50 percent limitation of the donor’s AGI. The five-year carryover rule is also applicable. Therefore, it is critical that the donor find out how the donee will use the ‘gift.’

Are there tax traps associated with collecting artwork or collectibles?

There is a tax trap if the donor also holds a copyright regarding the art or collectible. In this situation, both the property and the copyright must be transferred to the donee charity. Another tax trap is where a donor reserves the right to keep the art or collectible in the donor’s control until some subsequent event, such as the death of the donor. This ‘future interest’ donation is not deductible until the donor no longer has ‘any interest’ in the property. This rule also applies if the artwork is held by the donor’s immediate family members.

The donation of art or collectibles must be supported by a qualified appraisal if the property is valued at more than $5,000. There are special rules regarding appraisers and, if not followed, the IRS may impose penalties. For large or substantial donations, the donor may request what is known as a Statement of Value from the IRS. An IRS user fee of $2,500 must be submitted along with a complete qualified appraisal. This approach eliminates any subsequent disputes with the IRS over the FMV of the donation.

What other planning techniques provide tax benefits on charitable gifts?

The use of a charitable remainder trust (CRT) is another planning technique. An irrevocable trust is created. The CRT pays a fixed income percentage from the trust to the donor (grantor of the trust) for a term of years (20 years is the limit). At the trust’s termination date, the donated property is passed to the charity. For income tax purposes, a charitable deduction is available to the donor based upon the IRS’s value of the remainder interest that will be passed to the charity. There is no income tax regarding the trust, and the remainder interest at the death of the donor is deemed not to be included in the donor’s estate. The donor must find a charity willing to participate in such a transaction. This is usually related to the potential value of the art or collectible.

HARRY F. MURPHY is a director in the tax strategies group at Kreischer Miller. Reach him at hmurphy@kmco.com or (215) 441-4600.

Wednesday, 25 June 2008 20:00

Contractual risk transfer

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Keeping insurance costs to a minimum can be a challenge. One way to reduce long-term cost is by using the proper indemnification and insurance language in business contracts. By doing so, companies can limit their liability when working with outside parties and improve their risk to loss. Having strong contract administrative controls and a good loss picture ultimately leads to lower insurance premiums.

“Whenever there are two parties to a transaction you want to transfer your risk of loss (claims for bodily injuries, property damage, environmental loss, etc.) to the other party if you can,” says John Kurtz, vice president of The Graham Company. “By doing that you’re forcing the other party to assume liability.”

Smart Business asked Kurtz for more on how to take advantage of contractual risk transfer.

How does contractual risk transfer work?

It protects the company when you’re under contract by transferring responsibility for claims and loss and damages to the other party. So to the extent that you can transfer that risk to another party, you’re not responsible for it.

Can this be used in all forms of contracts?

In construction, it can be a subcontract or the contract that a construction manager has with an owner. Outside of construction, it could be a contract that you have with a major vendor, a major customer, a party in the product distribution chain or a financial institution. It could even be with a party sponsoring a special event.

Depending on which side of the transaction you’re on, you look to transfer that risk through contractual risk transfer anywhere you can. There are times when you may not have leverage in a transaction to transfer that risk, but at a minimum in those situations, you don’t want to be indemnifying the other party for their negligent acts.

Do companies still need insurance?

Regardless of whether you’re able to transfer the risk or not, you need to have insurance for the risk you assume. You’re going to have contractual liability insurance. But you still want to transfer the risk even if you have the insurance because it protects your loss experience. If your insurance company had to step up and pay a claim for a risk that you weren’t able to transfer to another party, you have that claim as part of your loss experience. If you’re able to transfer it, the broker is in a better position to negotiate lower premiums, and then also generate more interest among the insurance companies because you have strong contract administration in place and a favorable loss picture.

What should be included in a contract for effective risk transfer?

The business owner is going to want to have strong indemnification language shifting responsibility for claims and losses to the other party. So, again, even if you do not have the leverage in the transaction, you don’t want to indemnify the other party for their negligent acts. The most you want to be responsible for in that situation is your own negligence. If you have leverage in the transaction, you look to get that party to pick up as much as possible, including your negligence.

Who’s going to benefit the most in contractual risk transfer?

The party that benefits the most is clearly the party that’s able to transfer the most risk. It’s not a one-way street. I could sell you a product, and I might want indemnification and additional insured coverage from you. And you might say, ‘Why? I’m buying your product.’ The reason is that you’re going to buy my product and then make alterations to it and then re-sell it. So I want indemnification for that because I know you are going to make changes to my product. So there are all kinds of scenarios. Your broker needs to understand the nature of the transaction, how much leverage you have and how your policy coverage is structured.

What else should owners do to protect themselves when using contracts?

The other thing that the business owner wants in addition to the strong indemnification language is to be listed on the other party’s insurance as an additional insured on a primary and non-contributory basis.

There are two avenues for transferring the risk — the one is the indemnification language, and that transfers the risk to the other party. If you are sued, you point to the indemnification language that’s working in your favor. And then you show that you’re also listed as an additional insured so your coverage is also on that policy. Those are the two avenues of recovery under the other party’s insurance.

What else should a business owner understand before signing a contract?

The smart buyer has his broker look at anything before he signs it or before developing any subcontract language that he plans to use on a regular basis. Because in many cases it’s a couple of sentences or even a couple of words that can make a dramatic difference.

JOHN KURTZ is vice president of The Graham Company. Reach him at (215)701-5237 or jkurtz@grahamco.com.

Wednesday, 25 June 2008 20:00

Guidance consultant

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Lou Polisano says that the peaks his company reaches may not be very high, but during down times, the valleys are very shallow. That’s because the president and CEO of ISA Consulting Inc. stresses consistency in his company.

“To use a baseball analogy that we throw around here, we say every year we are going to bat .300,” he says. “We may not go to the All-Star game, but we’re certainly not going to sit on the pine. We are going to be playing, and we’re going to be a contending team for the playoffs year after year after year.”

Polisano especially wants consistency in the guiding principles of the company, which posted approximately $24 million in 2007 revenue.

Smart Business spoke with Polisano about how expressing your guiding principles out loud at every possible opportunity can help move your company forward.

Q. How do make sure you aren’t losing sight of your guiding principles?

Just recently, we just started to embark on some leadership stuff. I brought somebody in from the outside in the contract capacity, and we’re going off-site and having a lot of meetings with the management team, and we more clearly defined who we are as a company.

And we actually say the words. We say the words, ‘We are a group of hardworking overachievers who do the right thing by our company, our clients and our co-workers.’

So, we not only defined it, but we constantly say it. We say it in the interviews we conduct, we say it in company meetings, we say it in ... training sessions, in review sessions with individual consultants.

I think in our world, if you don’t stay consistent and continue to do the right thing, this is a very tight employment market, and you get punched in the nose in the form of turnover if you deviate from your guiding principles. I do value our employees tremendously, and we definitely do all that we can to help them meet their learning and career requirements.

Q. How do you find employees with the same guiding principles?

There are a couple different levels of folks. With one exception, we have not brought in a single person from the outside to immediately jump into the management team.

Nor have we brought in somebody to jump into a fairly senior level in the organization of an engagement manager, sales manger, etc. I believe in rewarding those for accomplishment from the inside.

One of the big things that you do in the interview process is you do have to say the words. So, we say the words in the interview process, and I personally am involved in every final-stage interview process. I don’t care if it’s a consultant, sales rep, administrator, whoever it is in the organization, I want to meet that person, and I want to ask them and quiz them on examples of their integrity and ethics in the past.

It’s important that they understand that they are going to be asked to do the right thing, so their core values need to align with ours. Functional and vertical skills are extremely important, but they are kind of baseline things.

I think the one thing that’s a little bit harder to put your finger on is the integrity and ethics standpoint, and we ask for a lot of examples —real-world stories where you had a challenging decision that you had to make and how you arrived at the right decision. I also do find that in our processes, we try ... and shut up. We try to ask some questions, sit back and shut up.

We find that after five or six or seven people interview a person and we all triangu-late, we do come to the similar conclusion at the end. At some point, somebody’s going to trip up and say something that’s inconsistent if they don’t share in the same guiding principles.

Q. What is a pitfall to avoid when following guiding principles?

You don’t want to have too much pride. I’ve found that human nature is, people are forgiving — forgiving of honest mistakes. They are not as forgiving of sneakiness.

My feeling is you are not expected to have all the answers. So, why pretend you do?

So, don’t have too much pride, be open, be honest, admit your mistakes if you make them or when you make them. Don’t fear going before your people and saying those things.

Human nature is, ‘Wow, Lou, I appreciate you saying that, and I like the solution that you’ve come up with to rally and move forward,’ and it works every single time. I have not had one single instance in the 10 years that I’ve run this place that, that approach has been met with complete antagonistic behavior.

HOW TO REACH: ISA Consulting Inc., (877) 646-8676 or www.isaconsulting.com

Monday, 26 May 2008 20:00

Industrial bond financing

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Public sector financing can support private development projects that will fuel economic growth in communities. The lower interest rates and longer payment terms characteristic of programs such as tax-exempt Industrial Revenue Bonds (IRBs) can be used to finance a significant part of an industrial project. Because these projects tend to be larger in scope and the potential exists for them to create jobs and expand a community’s tax base, manufacturers frequently receive these funds. However, many companies often do not pursue government-issued loans due to the increased complexity of the application and approval process.

Smart Business talked to Rob Thomas of PNC’s capital markets group about IRBs and how manufacturers who are thinking about expansion can benefit from this low-cost, flexible financing solution.

What are Industrial Revenue Bonds and when are they typically used?

Industrial Revenue Bonds are tax-exempt loans issued by state or local governments to finance a private company’s expansion, construction or acquisition of manufacturing facilities and equipment. Local and state governments support these projects because they can improve the economic well-being of a community.

IRBs are issued at rates lower than conventional loans because interest paid on the bonds is exempt from both federal and state income tax. The lower interest rate reduces the cost of financing and makes projects more attractive to pursue. Additionally, these bonds can mature in 20 to 30 years as compared to five to 10 for typical bank loans.

What are some of the criteria for qualifying?

If your project involves manufacturing, waste disposal/recovery or wastewater treatment then you probably meet the qualifications for an IRB. The next step is reviewing capital expenditures at the project site for the three years prior and subsequent to the issuance of the bonds, which must be $20 million or less.

Most public sector loan programs have specific goals that must be addressed if a company is to obtain financing. You will have to put together a project description and outline how the community can benefit from your project — whether it be through the creation or retention of jobs, increasing the tax base or attracting other businesses to the area.

What are the steps to apply for an IRB?

The process will vary from state to state, but there are some general steps you must take in order to obtain a bond.

  • Retain legal counsel experienced in the area of IRBs to initiate the process with the government agency and provide legal documentation.

  • Discuss the project with your lender to help you to identify what financing structures are best suited to your company and project. An underwriter may also be necessary to include at this point if the bonds will eventually be purchased for public resale.

  • Contact the government, corporation or agency legally authorized to issue bonds and start the application process. Depending on the state, this can be an independent authority, a city or a county.

  • The application procedure for IRB financing typically requires 30 days. The local agency will approve the project. From this point, any expenditure incurred less than 60 days prior to that date can be included in the project. The overall process from application to funding can take 90 to 120 days. You can use interim bridge financing if you need to proceed more quickly.

What are other considerations for companies who are thinking about IRB financing?

First, there are some upfront costs associated with issuing an IRB. These include ancillary costs like underwriter fees and additional legal fees. Second, any assets financed with tax-exempt IRBs must be depreciated on a straight-line basis. Lastly, the process to issue an IRB can be complicated; however, the right selection of experienced counsel and financial partners will make the process go more smoothly. And, in most cases, the benefits gained from 20 years of interest savings significantly outweigh these issues.

This was prepared for general information purposes only and is not intended as specific advice or recommendations. Any reliance on this information is solely and exclusively at your own risk.

Monday, 26 May 2008 20:00

Managing for tomorrow

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Matt Emmens wrote the book on keeping a business culture fresh and relevant.

No, really, he did.

Published in January, Emmens co-wrote a book with author Beth Kephart called “Zenobia: The Curious Book of Business.” It’s a fable that illustrates what can happen if weeds are allowed to grow under a business’s culture.

“It starts with a quote from an Italian author about a city that is built on stilts,” says the chairman and CEO of Shire plc. “At one time, there was water there, but now it’s on stilts in the desert. That is kind of poignant about a culture and structure that is no longer relevant. That’s what the whole book is about. You have people doing things the way they have always done it and the world passed them by.”

Emmens calls business culture one of his hot-button issues. Many times over the course of his career, he has seen businesses fall by the wayside because the people within the company, management and employees alike, failed to adapt the culture to keep up with the times.

It’s the biggest reason why Emmens places a high priority on having an adaptable culture and adaptable people at Shire, a global specialty biopharmaceutical company that had $1.8 billion in 2006 revenue.

“That’s my biggest fear in business, that you’re going to set up a wonderful culture but it’s no longer relevant,” he says. “Then your performance falls off over the years, and sooner or later, your company is in trouble, and it’s largely due to lack of awareness and stifled creativity.”

Emmens says finding capable employees and developing a culture that gives them the latitude to create and innovate is the only way you can expect your business to flourish over the long haul. This is how he has accomplished that at Shire.

Keep your culture flexible

As a company built almost entirely on acquisitions, Shire’s culture has more potential outside influences than a lot of companies, so Emmens and his management team have a full-time job in deciding how they want to merge cultures with each acquired company.

When introducing new aspects to your culture, Emmens says it’s imperative to take a best-practices approach. It can be counterproductive to simply throw the new company into a prestamped mold. You could overlook a new perspective or a new procedure that could lead to more efficiency.

As your company grows and develops more levels, it takes more and more work to ensure that you can incorporate new elements into your culture. Often, growing companies value a stable organization above new ideas, and that can lead to culture stagnation.

Emmens says stability is good but not if it leads to stagnation. He tries to combat that at Shire by keeping many acquired companies under one business umbrella with regard to finances and communication but giving each a high degree of autonomy when it comes to operations. With that set-up, Shire’s management is exposed to best practices that can be implemented across the organization while still allowing each business unit to operate in the way that made it an attractive acquisition candidate in the first place.

“There is really no Shire way,” he says. “Culture is a constantly evolving thing. One of our recent acquisitions had a culture that was totally different from Shire, and we left it in place. That flexibility gives us a competitive advantage. We have the ability to develop specialized cultures, and I think businesses need to do that more often.”

Don’t fall into the comfort zone of valuing the status quo above all else. Emmens says the value of your organization lies not in steadiness of your culture but in your employees’ ability to create. He says your culture should never get in the way of innovation and creativity.

“As your organization grows, you have a tendency to develop these kinds of secret cultures where you have a slogan on the wall, but everybody has a different idea of what it means,” Emmens says. “That can be destructive.

“Size and creativity are often at odds with each other. When you are a large organization, it often gives you comfort to know how organized you are. But all value is ultimately created by the people in your company, by their creative acts, and I think creativity is squelched in organizations that have a lot of levels and rules.

“You’re always trying to have a balancing act of the best of both worlds, and one way to do that is through network of smaller business units that are allowed to function as a more nimble, creative unit.”

Make culture personal

It’s easy to say you have an entrepreneurial spirit in your company. It’s much harder to actually live it.

At Shire, Emmens keeps his company’s entrepreneurial spirit alive by introducing actual entrepreneurs into his company, then driving his creativity-first culture down to the level of each individual.

When Shire makes an acquisition, a major factor in whether Emmens’ leadership lets the acquired company operate with high level of autonomy is whether there is a strong entrepreneurial presence within the leaders of the acquired unit.

The stronger and more relevant the ideas and products that are coming from a business unit, the more freedom Emmens gives its leaders.

Emmens says it’s all about one word: passion. “We like to have those people stay on and have their passion continue to influence the business,” he says. “We basically license the drugs but keep that company separate and doing its thing because you don’t want to lose the knowledge and creativity those people have.

“Then, later, when they need help in terms of capital and resources, we can provide that. But having the flexibility to keep the passion of the entrepreneurs that started each of these companies is important to us.”

By keeping your company’s creative impetus close to the ground level, you can keep your company closer to your customers. Reading the pulse of the market will allow you to better meet your customers’ needs. Emmens says any business needs to give the people closest to your customers freedom to operate and meet their needs. Only when your customers’ needs aren’t being met should you intervene.

“Going back to the example of my book, it’s about not being in touch and not responding to external environmental changes,” he says.

“It’s like the idea that you built the cheapest and best buggy whip when there are no more horse buggies. It’s the idea that you have to stay close to the customer and really understand the challenges of the industry and what you have to overcome in order to be successful. Many businesses are at risk for thinking that they are the reason for the market existing. They’re not. Businesses have to follow the needs of the marketplace. You can’t become totally commoditized and falling asleep at the wheel.”

Emmens says taking a personalized approach to creativity and culture has been an uncommon concept throughout much of the history of business. If you’re not used to putting the future of your company in the hands of people other than yourself and your direct reports, it can take you out of your comfort zone. But the long-term survival of your business could depend on it.

“If you look at the history of companies that have failed, there is an element of that (lack of an entrepreneurial spirit) in a lot of them. They stifled creativity and refused to take risks, and as a result, they killed off the entrepreneurial spirit in their people.”

Build the right kind of team

Emmens says employees will respond positively when management places them in a culture where they are allowed to be flexible and creative. But that’s only part of the equation. You also need to hire people who are comfortable taking risks and working with less structure.

It starts with knowing exactly what you want in an employee. Emmens and his leadership team often discuss the traits they don’t want in a person as much as the desirable traits.

“You want to find someone who is willing to be comfortable in a rapidly changing environment,” he says. “You have to have the mentality that your company isn’t just a place to have a 9-to-5 job.”

You can start to get a feel for a person’s willingness to adapt and openness to change by looking at his or her resume and noting the number of different responsibilities that person has assumed previously.

“It’s especially important as you become a smaller company growing into a larger company,” Emmens says. “Working in a smaller company is a very different undertaking than a larger company. You need more of a jack-of-all-trades, someone willing to roll up their sleeves and get their hands dirty, going back and doing the things you used to do, things that you might have had subordinates doing in a larger organization. Sometimes, that can come as a shock for someone going from a bigger to a smaller company.”

You can look at a resume and ask questions, but there is a limit to what one interviewer is going to be able to learn about a job candidate. That’s why Emmens has no fewer than three managers interview each candidate separately.

During the span of three separate interviews, you will be able to paint a much more accurate picture of a job candidate. Following the series of interviews, the interviewers confer and compare notes.

“We often choose those three people to solicit different views from each of the interviews, to contrast those viewpoints to get a full story,” Emmens says. “It’s one of the most careful things we do, finding the right people to come into the company.

“You want job candidates to be able to have real, measurable things they can show you that would prove they’re a good fit for your company. But to me, the most important thing is what they want to do, what is important to them. There are a lot of very smart people in the world, but if what they want to do is not consistent with what needs to be done, you’ve got a real problem.”

When interviewing a job candidate and getting a read on the individual, it’s as important that you give him or her an accurate depiction of the company and the job.

Emmens says you can’t sugarcoat the situation the candidate will encounter should you hire him or her. Even if the candidate is highly creative, highly talented and seems like a perfect match for your culture, if the circumstances surrounding the job are too much to handle, the hire will be a failure.

“That’s probably the first thing you have to do, explain what the company is and what the issues are,” he says. “You don’t just tell them how wonderful everything is. You tell them perhaps ways to fail in the role. You’re not just trying to attract them, you want to tell them the truth the best you can so there are no surprises.

“It’s a matter of portraying the company as accurately as possible, then contrasting that against what a person can do. You really want a person to see and be able to meet the challenges they are going to face.”

HOW TO REACH: Shire plc, www.shire.com

Friday, 25 April 2008 20:00

The ‘R’ word

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We’ve all seen the media hype about the possibility of a U.S. recession, some of which implies dire consequences for all Americans.

To help cut through the clutter, Smart Business sat down with Robert Dye, senior economist at PNC, to find out more about what a recession is and how it may impact companies.

What is going on with the economy?

The strong majority of recent economic data suggest that there is increasing risk of a recession in the first half of 2008. This includes payroll employment data and housing market indicators. In fact, at PNC, we now believe that there’s a 60 percent chance that we are currently in a recession. But because of the time-lagged nature of economic data, we won’t know for sure if we’re in a recession until months after it has started.

What makes it a ‘recession’?

Traditionally, a recession is defined as two or more consecutive quarters of declining gross domestic product. However, there may be special circumstances that suggest that we are in recession even if we don’t meet the traditional definition. Over the past 30 years, there have been just four recessions in the U.S. economy, with three of them lasting eight months or less. Conversely, the economic expansions between recessions have tended to last longer.

What companies are most at risk from a recession?

During periods of recession, demand for goods and services for many industries declines, investment and hiring stall, and the unemployment rate rises. Both primary producers and service companies, like transportation providers, may experience weaker demand. And as a recession gathers momentum, consumer and business confidence typically fades, adding further fuel to the recession fire. Industries that have strong cyclical components are most vulnerable, but many industries, such as education and health care, often continue to experience solid demand.

In today’s environment, we see the greatest weakness in real-estate-related markets, including residential construction, some manufacturing industries, including automakers, and industries that support residential construction and, of course, parts of the financial services industry, particularly those financial service providers that have invested heavily in the subprime mortgage markets.

So what can be done to help promote economic growth?

As you may be aware, there are two levers being pulled to help support economic growth this year. The first lever is represented by the sizable cuts in short-term interest rates by the Federal Reserve. The Federal Reserve has dramatically lowered its Fed Funds rate, which in turn allows banks to lower their prime lending rates to their best customers. In addition to cutting interest rates, the Federal Reserve has been very innovative in developing new programs to shore up financial markets when they have shown signs of stress. Among other things, the Federal Reserve has extended its lending facilities to major investment houses and has widened the types of financial instruments that banks and investment houses can use for collateral for short-term loans.

The second lever soon to be working on the economy is the fiscal stimulus plan that was enacted by Congress earlier this year. Under the plan, individuals with annual earnings up to $75,000 will receive as much as $600. Married couples earning less than $150,000 combined will receive up to $1,200. Businesses are able to use an accelerated depreciation schedule, and small businesses have greater flexibility in writing off their expenses. Also, conforming loan limits for Fannie Mae and Freddie Mac were raised for many areas, which makes loans for higher-priced homes more affordable, thus stimulating home sales.

What happens next?

While the interest rate cuts and the fiscal stimulus package are not expected to have an immediate effect on the economy, they are expected to lead to stronger economic growth before the end of this year.

Together, we think these measures will motivate both consumer spending and business investment in the second half of this year. And we continue to believe in the long-term potential of the U.S. economy, which will emerge from this period of unsettled economic indicators stronger, just as it has done so many times before.

The material presented is of a general nature and does not constitute the provision of investment or economic advice to any person, or a recommendation to buy or sell any security or adopt any investment strategy. Opinions and forecasts expressed herein are subject to change without notice. Relevant information was obtained from sources deemed reliable. Such information is not guaranteed as to its accuracy. You should seek the advice of an investment professional to tailor a financial plan to your particular needs. © 2008 The PNC Financial Services Group, Inc. All rights reserved.

ROBERT DYE is senior economist at PNC. Reach him at (412) 762-2116 or Robert.dye@pnc.com.

Friday, 25 April 2008 20:00

Revising the recipe

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Charlie Pizzi says his greatest challenge as the president and CEO of the Tasty Baking Co. is ensuring that the company will be as relevant in 2010 as it was in 1950.

The trouble is, when Pizzi took the reins of the company five years ago, its state was much closer to 1950 than the 21st century.

The company, which produces Tastykake snack foods, had no technology platform of which to speak. Its line of baked snacks was produced in an outdated, six-story factory constructed in 1922. The building required workers to pump ingredients up to the top floor, then gravity-feed the products down through the building during the preparation and baking process. And further complicating matters was the fact that the company’s warehouse wasn’t a part of the production facility.

Pizzi says it became evident very quickly that the company needed to modernize.

“The way we were doing things, it was probably good in 1930 but certainly not after that,” he says. “Our competitors were in a situation where they had more modern facilities and had a technology platform. When you’re competing in a marketplace, you need to be as efficient as your competitors, if not more efficient.”

And that wasn’t the only problem. “Those were the leading indicators, but we had other things we needed to fix before we tackled that element,” he says. “We had to reconstruct our financial structure before we put in the new technology platform. Then we had to start marketing and advertising again to bring news and excitement back to our great brand.”

Pizzi needed to change the way Tasty Baking Co. did business. People would have to learn new systems, prepare for a move to a new facility and new life needed to be injected into the iconic East Coast snack-food brand.

But change doesn’t come easy for everyone, and many changes can have far-reaching effects. It requires finding people that can help you win over employees, having a solid understanding any change might have on your brand and making sure the changes actually stick.

Cultivate change agents

In a company of nearly 1,000 employees, the number of people who were using computers as part of their jobs when Pizzi took over was minuscule.

“Before, we had about 60 people utilizing computers in the company,” he says. “We went from 60 to 450 computer users in the company and are now probably closer to 500.”

It didn’t quite happen overnight, but the introduction of the company’s first real technology platform jolted the Tasty Baking Co. into the computer age full bore.

Pizzi says he generally favors a steady, methodical approach when it comes to change. But in the case of the Tasty Baking Co.’s technology platform, the change was so radical, it took more of a leap of faith on the part of both him and his employees.

Any type of internal change can create resistance within your company, especially if your employees are used to doing things a certain way. That makes achieving buy-in from your employees paramount, especially from the employees who have been with your company for a while.

“They are the people who are most important if they’ve worked for a company for a substantial amount of time,” Pizzi says. “They’ve seen a lot. They’ve seen things the company has done right and things the company maybe hasn’t done so well. They are looking for the opportunity to give us their perspective. If they do that, then they have bought in to the new process of transforming the company.”

Pizzi says the key to achieving buy-in from employees who have been with your company for years is to make them feel like their experience counts for something. You do that by letting them have a hand in steering the company toward its new direction, which is accomplished through proper training and creating a culture that values accountability.

“One, you can’t hold someone accountable if you don’t train them properly,” he says. “Then once you train that individual, you also make sure they understand how their job impacts the greater organization on an ongoing basis.”

It’s what Pizzi calls a “bottoms-up” approach. He gives his managers and employees reasons to get involved by actively asking for their input, then rewards outstanding ideas on a quarterly and yearly basis.

“When I first took this job, I ran into another CEO and he told me, ‘I ask one simple question: “So what do you think?” and then I listen.’ A good leader is a good listener. That is the biggest thing as to how you can get people to buy in. You listen. It’s basic courtesies and respect for each other.”

Pizzi says identifying change leaders is the No. 1 criteria for any change or transformation in a business. Those change agents can come from within the business or from outside sources. During the Tasty Baking Co.’s transformation and modernization, Pizzi recruited people from both sources.

“We brought people into this company along with identifying people within the company,” he says. “We brought significant talent to this business from lots of different places, different food companies.”

Change leaders are important because they will set the example for the rest of the company. If employees see their colleagues buying in to the company’s new direction, there is a better chance that they will, as well.

“That (leadership) is the No. 1 criteria for change that can be brought to the table, where people will follow and embrace change instead of fight it. It’s about providing an environment of trust and credibility, being open and honest, and communicating.”

Know your brand

When taking your company through a major change, you need to understand not just how it will affect your company internally but how it will affect your customers.

Pizzi says the effects of major change will be felt by the people your company serves, so you need to have a thorough understanding of your brand and how it is perceived by your customers.

Pizzi’s plan to overhaul the Tasty Baking Co. didn’t start and end with the internal workings of the company. It was also an opportunity to refresh the Tastykake brand, which has existed for nearly a century.

“You really have to have an understanding of the depth and breadth of your brand and how far that brand can be lever-

aged,” he says. “That leads you into two different decision-making processes. One is through product innovation and the other is through new geographic distribution.”

As with the company’s technology platform, Pizzi and his management modernized Tastykake’s array of products. Following the recent low-calorie trend in snacks, Tastykake introduced sugar-free and 100-calorie snack lines.

“Every company has a brand,” Pizzi says. “It’s about, what is the strength of your brand to move the business? We are blessed with one of the best brands — a brand that has lots of emotional ties to it.

“We always send products over to the troops in Afghanistan and Iraq, and I once had a mother write me and tell me that her son is over there [and] had received some of our products. She sent an e-mail and asked me to look at the attached photograph. She said, ‘This is the first time I’ve seen my son smile since he’s been in Iraq.’ That’s what the depth and breadth of your brand is about.”

Developing a new understanding of the depth and breadth of your brand doesn’t necessarily mean you have to redefine what your brand stands for; it might mean you need to find new ways to leverage your brand while staying built around the core pillars of your business.

“You have to remain very cognizant of your core products and core users,” Pizzi says. “You have to analyze the depths of your brand and business to help keep your core consumers happy while meeting the lifestyles of today.”

In contrast with the relatively sudden and radical shift of launching the Tasty Baking Co.’s technology platform, Pizzi’s brand and market analysis spurred a far slower, steadier transition.

“You do it through a lot of analytics and a lot of consumer testing of your products, and develop a database on which to draw from,” he says. “A big part of our brand is our sales distributors. We have approximately 500 sales distributors with roots in our core market area. With my past experience of working with small businesses, we try to create an environment of trust, partnership and listening. In that vein, we created a sales distributor council where they come in twice a year to meet with management.

“We get almost 8 to 10 percent of our folks in to meet with us. They give us a firsthand view of what is going on in the marketplace. The latest thing is, with our technology platform, we have been able to provide them with lots of information so that the ordering process becomes much more mundane, as opposed to having any mystery.”

Sustain the change

When you are considering a major shift in how your company does business, produces products or brands itself, you need to ask yourself one overarching question: “Is it sustainable?”

Pizzi says short-term shifts might make your profit-loss statements look good for a while, but if you haven’t put the framework in place to sustain the transformation, the chances of a successful change go way down.

To that end, the Tasty Baking Co. has been successful. The company reported $267 million in gross sales in 2006, up from just more than $250 million in 2003, and is slated to open a new 345,500-square-foot production facility in Philadelphia’s Navy Yard complex in 2009.

“What we did when we put together our plan was to put together a sustainable plan that would provide a long-term return,” he says. “That comes back to discipline and focus.”

Once you have collaborated with your managers, received input from employees and feedback from customers, then formulated your go-forward plan, you have to will yourself to stick to it. Communication is a big factor to making a companywide plan take root and grow.

“Once you have your plan in place, you have to be disciplined in executing it,” Pizzi says. “That means don’t stray, keep your sights at hand to really make sure you execute. You have to do that through a lot of communication. If everybody understands the plan, everybody is going to be rowing in the same way.

“Everyone from our sales distributors on down the line is constantly updated with where we are in the project. We even attached a camera to the Navy Yard building site so employees can see where [we are] in that process.”

Pizzi says that, in the end, a good communicator is a good storyteller. If you can communicate your company’s story to employees and customers, where you’ve been, where you are and where you’re going, you’ll be able to lay out the case for change in a compelling fashion.

“I find the most effective way is if I can tell our story to our employees, our sales distributors and our customers, and do it in on an ongoing basis every step of the way,” he says. “That was why we wanted to hook up the camera, so that everyone can actually see the construction of the facility. It is our hope and our vision that this will really revolutionize our company.”

HOW TO REACH: Tasty Baking Co., www.tastykake.com