Education: Bachelor’s degree in history, University of South Carolina; juris doctor, Boston University School of Law
What is the best business lesson you’ve learned?
If you want to know what is going on in business, you have to ask the people who are doing the work on the front lines. I think a lot of businesspeople just aren’t that collaborative and inclusive.
They think they live in ivory towers, but if you want to be successful in business, you have to make the front-line people a very important part of everything you do.
What traits or skills really benefit a business leader?
The ones that normally come to mind would be confidence, intelligence and the ability to communicate, but I would say the ones that probably don’t come immediately to mind but are equally or more important are vision, empathy, a willingness to lead from the front lines, humility, realizing you don’t know all the answers.
Understanding the success of the company is not because you’re a genius but because there are a lot of people working together to make it happen.
I would say, finally, the most important trait or skill of a successful business leader is probably the ability to deal with ambiguity.
What are some universal truths you’ve learned about leading a business?
One, if you want to know what is going on, ask the people who are actually doing the work. Two, if you think you can’t live without someone, you probably can’t.
Three, nothing is ever as good as it sounds. Four, very few skeptics are successful.
How do you define success in business?
It’s different for different people. Some people want to get a big contract or a parachute. For me, success is building something that is viable and sustainable for the long-term. That’s where I get my satisfaction.
That includes not just a collection of assets, it’s building a family of people, too. That’s what a company is.
It’s a family, and to me, putting it together and building it is very satisfying, and that’s what gets me up every day.
In reducing overall insurance costs, aggressive claims management can be just as important as the rate a company pays for its insurance policies. Getting the commitment of its higher-level executives to effectively manage claims is just the beginning.
“Just getting high-level commitment from top managers within an organization is critical,” says Michelle Leighton, vice president-claims for The Graham Company in Philadelphia. “It’s important in defining the corporate culture with respect to losses.” Smart Business spoke to Leighton about the importance of a good claims management team and what companies can do to keep costs low by managing the claims process.
How do losses control insurance costs over the long term?
Insurance premiums are ultimately based upon the average amount of losses, or claims, a company experiences in a given year. Insurance companies want to charge enough premium so that they will have the money to pay for the company’s insurance claims throughout the year. Insurance underwriters usually charge a premium so that 60 percent of it can be used to pay for losses. For example, if a company’s average losses were $60,000, its insurance company would want to charge a premium of approximately $100,000.
If insurance premiums are ultimately based on losses, then what are some of the steps a company can take to reduce losses?
There are two main things you can do to reduce losses. The first is to prevent the losses from occurring in the first place, and the second is to manage the claims that do occur so that the claims are paid as inexpensively as possible. If you do these two things consistently, over the long run a company’s insurance costs will go down.
What impact can a safety program have on preventing losses?
A good safety program, combined with an effective safety coordinator and management commitment, can have a significant impact on preventing losses. The safety coordinator is responsible for developing and implementing the policies and procedures so that every employee can work safely and every product or service is delivered safely. Lots of resources are available to help companies create and maintain the right safety policies. Asking your insurance broker for help is a good place to start.
What are some of the other things a company can do to prevent losses, especially workers’ compensation claims?
Hiring the right person for the job is important. Implementing the right procedures such as pre-employment physicals, substance abuse testing and ensuring the right benefits and compensation package for the positions are critical to attracting and retaining the very best employees. For example, an employer that hires a lot of seasonal employees will want to manage that hiring practice closely to ensure that at the end of the season, they don’t have significant increase in workers’ compensation claims once the season is over.
Once accidents have already occurred, what can a company do to aggressively manage those claims?
One of the key initiatives a company can implement to reduce losses is to have an internal point person for all claims issues. This person works closely with the insurance broker and the insurance company to regularly review the details of the company’s claims, especially the potentially costly cases. This team works together to ensure that claims are reported promptly, designated medical facilities are in place, claims are thoroughly investigated, and employees are promptly returned to work. An aggressive action plan is a must to bring a claim to a prompt and cost-effective conclusion.
How is management and leadership commitment important in this process?
Safety and claims performance are directly affected by whether they receive top commitment from managers and leaders in their organizations. Some examples of a strong commitment include the implementation of accountability programs, publication of safety expectations, hiring top physicians to be on hand to medically manage claims, implementing return-to-work programs and allocating the necessary resources to ensure that the job fits the worker from an ergonomic perspective. Most importantly, top management and leadership commitment will define a culture that encourages strong safety and claims management practices that will lead to good results.
MICHELLE LEIGHTON is vice president-claims for The Graham Company in Philadelphia. Reach her at (215) 701-5232 or email@example.com.
In May 2005, Michael Boult took over as CEO of StarCite Inc. and made it a priority to get to know his employees. Employees saw him walking around the meetings management company getting to know the more than 400 workers, which helped them learn to trust him. “People will identify you and be open with you when there is trust,” says Boult, who also serves as president. “But, you can’t mandate trust. You have to create it. I’m not sitting in an office dispensing e-mail. I’m trying to be visible on the floor, talking with people. People get to witness that and then you get a waterfall of goodwill.”
Smart Business spoke with Boult about how to reward employees, conduct interviews and grow a company.
Q: How do you get employees to buy in to the company message?
We’re trying to reinforce over and over again that we pay for performance, that we recognize performance and celebrate it when we find it.
We have a ‘StarCite Spotlight’ every two weeks where we embarrass someone who does something exemplary. Last week, I think we sent someone noise-canceling headphones for something they did.
We do silly things and fun things. I’m a Brit, so the World Cup was pretty important to me this year. We did a huge World Cup pool. I think the winner got $500 bucks.
It was like an international catering day. So I assigned a team to Mexico and they were responsible for feeding the office a Mexican lunch. The employees voted on what was the best lunch.
Q: How do you find good employees?
If I can find the smartest people and the most passionate people together, that’s a rarity. If I can find the smartest people without the right attitude, I give them a pass. I’ll find the second smartest person with tremendous passion and a great attitude every day of the week. We’re looking in all sorts of different places. Our employees make recommendations of friends and families. Those types of endorsements are usually the best types of endorsements.
If someone knows someone really good and they want to bring them into the company, then that’s a pretty good endorsement for the company and of the person.
Q: How do you conduct interviews?
If it’s an executive position, the executive will have to meet essentially every one of their peers. They may have eight different hour conversations with their peers and the peers will meet and talk about the person.
If we schedule them again, then they will come back for another three or four hours. We want to make sure the chemistry is right. (For lower levels) they are going to meet with the hiring manager. Then on the hiring manager’s discretion, depending on position, they are going to have that person come again and meet with their peers.
We think of it as a two-step process. One is explaining the culture and values and benefits of working in the company.
We know the person is interviewing us as well and comparing us to different places in the market. We’re very much of the mindset that we are trying to convince this person that this is the right place to work.
In an interview process, which is typically a beauty pageant, we want the person to get a real sense of the business, what’s it really going to feel like and for them to have the ability to ask some tough questions.
If we want to extend an offer to a person, then we want to take some of the guesswork out of it and make sure that person is going to be absolutely focused on the business.
Q: How do you grow a company?
You just have to go through a checklist that begins with, ‘Do I have a product people are interested in?’ Getting the product right, not internally thinking, ‘This is the greatest thing in the world.’
Then having the right marketing around it. Then you have to have the right sales strategy and that’s about people. People only buy things from people they like to do business with.
Then you have the right market. We could go to Finland, Iceland and Russia as much as we want, but people wouldn’t buy our stuff so we don’t go there.
If you get the prices in place, sales are going to flow naturally. We like to start small. We aren’t going for the home run or the Hail Mary. We like to go for singles and the occasional double.
We’ll start small with the companies, a small contract, and build performance and build trust. Over time, we’ve found we can grow 10 to 20 times the original contract inside a company.
HOW TO REACH: StarCite Inc., (800) 628-1058 or www.starcite.com
Get busy improving, or get busy declining. The greatest enemy of any business is inertia. It will stop a business quicker than anything else. It’s toxic; it should be avoided like the plague. You keep your business fresh by constantly questioning whether you can do things better. ... Look at what works, and remember, ‘If it ain’t broke, don’t fix it.’ You’re not going to start all over if what you’ve got is working. As for the stuff that’s not working? You’ve got to fix it; you cannot stand still. This ties in with looking for people who are still growing. Finding somebody who has done all the growing he or she is going to do and is just maintaining what he or she has accomplished is not real promising going forward because nothing stands still. Everything moves in one direction or the other, so if you’ve gone as far up as you’re going to go, there’s only one way to go from there.
You cannot stand still in business, in life, or in biology. Even the simplest organism the amoeba is either growing or dying. You can’t stand still; it’s just not possible. It isn’t a question of choice. You can try to stand still - it won’t work. That’s why inertia is death.
Just make the decision, already. The most important skill for business leaders is a comfort with making decisions. Not everything is always easy, not everything is always obvious. Especially with lawyers, there is a tendency to process problems endlessly.
That’s why the most important skill for running any business, especially a large law firm, is to be decisive. You need to be prepared to make decisions and move on.
You work an issue to the point where you know what you need to know. You’ve talked to who you need to talk to, you’ve looked at it from all the different sides, and then it’s time to make a decision. There’s always one more thing you can look at, there’s always one more person you can talk to, and at some point, all that’s got to stop and you’ve got to decide and move on.
There’s an infinite number of moving parts in any position. And the skill in leadership is knowing when enough process has been done and it is time to decide. It’s experience, it’s intuition; if you’re lucky enough, it’s a bit of wisdom.
Mostly, it’s a comfort with making a decision. Most often, it’s not a lack of information that slows people down; it’s a discomfort with finality and decisiveness.
If it’s the wrong decision, admit it. The most important thing you can do with a bad decision is to admit to it. Everybody makes bad decisions every day.
You hope they’re trivial and inconsequential, but the only thing you can do with a bad decision is deal with it honestly, try to understand where it went wrong and how to fix it, so you can do better next time. But none of that is possible without the self-honesty to say you’ve made a mistake
Keep the big picture in sight. It’s a forest and the trees thing. You’ve got to be involved to the degree required to understand the business, to really have the dirt under your fingernails. You can’t do it by remote control.
But you can’t be so involved in the daily operation of your business that you spend all day bumping into trees and you lose sight of the forest. You’ve really got to keep the forest in sight as a leader, and that means that though you have to venture in among the trees, you have to make sure you get back out again and look at the forest overall.
Learn to let go. Delegation is critical. It’s the hardest thing to learn, and absolutely the most important. You cannot possibly run a business like ours let alone a larger one without it. You can’t get through the day without delegating.
It’s very hard to learn to let go. But what you have to do one more time is make good decisions about people. Then let go, let them take it from there. Empower them, let them rise or fall, but be available, and don’t hesitate to point them in the right direction.
You need to decide they are worth empowering and investing in. That’s the hard part, letting go of that decision. You’ve got to let them make their own decisions, got to let them make their own mistakes.
Empower them by letting go of the ultimate decision. You make the good decision to put a good person in that position. Their decision is going to be good or bad, but it will be theirs.
One of the biggest challenges a leader faces is letting go, whether it is developing a comfort with making a decisions and letting go, or empowering a colleague and letting go. It’s imperative to be comfortable with your decisions, and delegation is a decision. Everything you do all day is a decision, and the hard thing is getting comfortable with making those decisions.
Be courageous in the face of risks. Don’t be afraid to fail. If you are afraid to make a mistake, you’ve already failed. You will never get anywhere if you are afraid to make a mistake.
If that seeps into your leadership, it’s lethal. You have to have the courage to decide and the courage to be wrong. We all are wrong sometimes; if you’re wrong too much of the time, you’re not going to be a leader very long, but you can’t be afraid to be wrong.
HOW TO REACH: Wolf, Block, Schorr and Solis-Cohen LLP, (215) 977-2000 or www.wolfblock.com
Planning for the succession of a family business can be time-consuming and difficult, especially when issues of family dynamics come into play. Just making the decision to turn the business over to the next generation, rather than selling it to a third party, can be agonizing. Once that decision has been made, selecting members of the next generation to run the business takes a fair amount of time and planning.
Once developed, family business succession plans should be monitored and revisited over the years as the business and family dynamics change. It is important to understand that succession planning for a family business takes time, and careful consideration can help avoid conflict within the family, says Stephen C. Zivitz, a partner in the business department and chair of the Tax, Pensions and Estates Practice Group at White and Williams LLP. “There is an old saying that succession planning is a journey, not a destination,” he says. “It must constantly be re-evaluated as the family and business dynamics change.”
Smart Business spoke with Zivitz about the importance of succession planning for a family business and how the issues differ from nonfamily businesses.
How common is it for owners of family businesses to neglect succession planning?
I don’t see a lot of neglect, but I do see recognition that the decisions are difficult and time-consuming. There are basically three clusters of problems for family business owners to consider: whether to sell the family business to maximize value; who in the next generation will be selected to run the business if it is retained; and how to compensate family members who are not participating in the business. Each of these decisions can be difficult and can take some time for the business owners to think through.
How does succession planning differ between a family-owned business and other types of businesses?
In a nonfamily-owned business, decisions are generally made based purely on economics. In a family business, owners often make accommodations for the benefit of family members and do not necessarily try to maximize shareholder value. Additionally, family business owners need to consider the complexities and planning implications of death taxes as well as compensation for family members who are not active participants in the business.
When should owners of a family business begin succession planning?
As soon as possible particularly if there are multiple owners in the current generation. In that situation, a buy-sell agreement is a must. It is important to remember that succession plans will often change over time. It is ultimately a result, but it is as much a constant re-evaluation and analysis as it is a target.
Succession plans need to be periodically reviewed and adjusted to meet any changes in the business and family dynamics. Members of the next generation who are under consideration to run the business in the future should be given as much time as possible on the job to learn and perfect the necessary skills.
How can owners of a family business objectively plan for succession?
This can be one of the greatest challenges facing a family-owned business. It is probably not possible to remain completely objective when it comes to succession planning, particularly when there are multiple business owners from the current generation, each with their own family members who may or may not be under consideration to take over the business.
In my view, it is not critical that individuals in the next generation who are in contention to be the owners are the best persons available. However, they must be capable, interested in running the business, and ideally the best among multiple competing family members.
How do family dynamics affect succession planning for a family-owned business?
Most of the problems that I see fall into two basic clusters of issues.
First, there is a perceived need to be fair to all members of the family, particularly those who are not involved in the business. However, fairness is often difficult to achieve due to differing perspectives. As a practical matter, those not involved in the business may have to receive less in order for the business to remain in the family and survive.
Second, family relationships and perceptions may have to be overridden when designing a success plan. For example, it may be natural to assume that the oldest child will be tapped to take over the business; but a younger sibling, or even a sibling’s spouse, may be more capable and/or more interested in doing so.
STEPHEN C. ZIVITZ is a partner in the Business Department and chair of the Tax, Pensions and Estates Practice Group at White and Williams LLP. Reach him at (215) 864-6240 or firstname.lastname@example.org.
No business can afford to ignore the risk posed by corporate identity theft. By assuming the identity of a corporation, perpetrators can establish new corporate credit card accounts, set up false subsidiaries using the names of legitimate companies to perpetrate fraud, or even pose as reputable businesses to lure customers into providing personal information (phishing).
The Federal Trade Commission estimates that identity theft costs American consumers and businesses more than $50 billion each year. To address this criminal activity, the Federal Financial Institutions Examination Council (FFIEC) recently updated its guidelines for authentication in an Internet banking environment.
Smart Business talked with Lynn Nettleton of PNC to learn more about the new guidelines.
What effect will the new guidelines have on financial institutions?
The financial services industry is the top sector affected by identity theft, so banks are strongly committed to enhancing security to protect our clients’ financial information.
In October 2005, the Federal Financial Institutions Examination Council noted that for high-risk online transactions involving access to customer information or the movement of funds, single-factor authentication (such as user name and password) is no longer adequate. By the end of 2006, most financial institutions will have taken measures to enhance online authentication for their consumer and corporate customers, such as requiring their customers to answer a secret question or type a unique code.
How secure are electronic payments?
Paper transactions actually carry more risk than any other payment type. Advances in technology are helping businesses make online payments in a secure environment. The added benefit is that some of these transactions are also cheaper to process.
Automated clearinghouse payments (ACH) are a cost-effective way for suppliers and customers to make electronic payments, reducing labor costs for printing and stuffing envelopes, mailing and manually entering data. However, anyone leveraging the ACH system must enter bank account information before an electronic payment can be initiated.
To reduce the risk of account information being compromised, companies can apply for a Universal Payment Identification Code (UPIC), a unique account identifier issued through a financial institution that becomes an organization’s permanent electronic payment address. By obtaining a UPIC number, companies can mask their real account numbers. UPIC technology also limits account activity to credits and blocks all debits. If a company should move its accounts, the UPIC number remains the same.
Credit cards can help to streamline operational efficiencies. Both VISA and MasterCard have implemented universal precautions for businesses that accept card payments. These standards require companies to follow certain procedures when handling cardholder data and include a number of criteria, such as quarterly network scans and audits by qualified independent security assessors, to ensure that merchants and service providers protect cardholder data.
Purchasing cards can actually help companies better manage their spending and improve bottom-line results. New technology is available to enhance controls on purchases made by employees with purchasing cards, such as monthly and per-transaction limits, as well as merchant spend categories that only permit use of the card with certain merchants.
What additional steps can you take to protect your company from fraud-related online banking?
- Work with information technology (IT) experts to ensure security measures are in place, such as anti-virus and anti-spyware software and up-to-date software patches.
- Take advantage of bank security tools to protect your business. For example, Positive Pay allows businesses to send a list to their bank of all checks issued, so the bank can match the check numbers, dollar amount and account numbers of all in-bound checks against the list. Any checks that do not match are flagged for review. Positive Payee adds a layer of security by including the payee name on the list provided to the bank.
- Avoid writing down passwords or storing them in computer files. Enforce standards that require employees to periodically change passwords and use a combination of numbers and letters.
- Don’t conduct business from a public or shared computer.
- Don’t click on links in e-mails or enter credentials on the linked site.
- Educate employees on the risks posed by corporate identity theft and the steps they can take to protect financial and personal information.
This was prepared for general information purposes only and is not intended as specific advice or recommendations. Any reliance upon this information is solely and exclusively at your own risk.
LYNN NETTLETON is senior vice president and group manager of online banking for PNC. Reach her at (412) 762-6018.
Born: Upper Darby
Education: Bachelor of science degree, electrical engineering, Penn State
First job: Electrical engineer for DuPont
Community service: Board of education chairman for the Archdiocese of Philadelphia; United Way of Chester County board member
How would you describe your leadership style?
I think it’s very hands-on. I build strong organizations. I also believe that one of my strengths is that I have a technical background, I’m interested in the technical side of the business.
What are some universal truths you’ve learned about leading a business?
You need to lead from the top. You always need to be fair. You must have integrity, and you must work hard.
What are some important things to remember about running a family business?
You need to be very dedicated. This isn’t something you can just come in and do part-time. That’s not a challenge for us, because our family members are very dedicated, but it is a commitment that you are going to work very hard for the family business.
If you need to fly to Europe with one day’s notice, you just do it with no complaining. In a family business, there really is no room for the word ‘complain.’ You can’t really complain about anything.
It was 2001, and CEO John Westrum had had enough of squabbling over lot sizes at township zoning board meetings. To remedy the situation, he took Westrum Development Co. out of the suburban real estate development business. Now, instead of cookie-cutter homes, Westrum is putting his creative side to use revitalizing underdeveloped properties in urban areas. As a result, the company which had been at $100 million with 70 employees fell to seven employees after Westrum sold off its suburban developments. Since then, as a result of his new business model, Westrum has grown the company to 80 employees generating revenue of $78 million in 2005 and more than $100 million in 2006. Smart Business spoke with Westrum about how he changed his company’s reputation and why he encourages employees to challenge his ideas.
Find a niche in your industry that you can enjoy. You have to decide how you want you and your company to be perceived. Find the niche within that expertise that you have that gives you the self-esteem that you want.
In the mid-’90s, the general trend in society was to not like the suburban residential developers. There was really a hatred toward them. I didn’t like doing something society didn’t like, and I thought I was good at understanding market niches.
So I sold all the suburban stuff and retooled to be an urban developer and go where people wanted us to go. We went from being considered almost a devil out there tearing up cornfields, and we changed into the angel reclaiming abandoned and underutilized properties in urban centers and depressed neighborhoods.
We’re doing the same thing, we’re just doing it in areas where there is a desire for you to come in and do things creatively.
Hire team players who can think. The key part that I look for is a motivated and intelligent person. The order of priority first would be intelligence, secondary is drive and motivation, third is their compatibility with others to work on a team, the last one is their expertise in the business.
We actually try to hire folks with expertise, but not so much expertise in the business because you have to buy in to that team-building program. If you come in to the program and you want to be a super-star, it’s just not going to be a good fit.
When I interview people, I don’t even look at the resume. I see if I feel they fit into the company mold and if they can be compatible with the team. Because if they’re not, it’s not good for anybody.
My son is 13 years old and plays on a football team. All the kids go out there and say, ‘What position do you want to play?’ Well, every one of them wants to play quarterback or runningback or wide receiver. Then someone has to say, ‘Look, kids, you can’t all do that. Someone’s got to snap the ball, someone’s got to play guard, someone’s got to play tackle. Let’s figure it out. You’re the best-suited for this position, you’re the best-suited for that position.’
If the tackle always thinks he should be the runningback and is annoyed about that, then he’s not going to do his job right. That’s why, as a CEO, you have to leave your ego at the door.
Emphasize personal responsibility. The theme of my management system is democratic decision-making and autocratic implementation. We’re into consensus-building, we all agree on what the goals are, we assign people to get to those goals as a team, and then we plow forward.
It means the group makes a decision about what the results should be, and we break down the tasks and they volunteer to be the person responsible and they set their own due dates. There’s an acronym called PRIDE we use; it stands for ‘Personal Responsibility In Delivering Excellence.’
We emphasize the personal part. It’s not where I say to people, ‘You have to do this, you have to do that.’
We all decide what we have to do, and if some people don’t pull their own weight, there’s usually other people there to back them up.
Empower your team to challenge your ideas. The biggest pitfall a CEO can face is his own ego. That’s why we clearly go with the democratic decision-making and autocratic implementation. It really comes down to the fact that there’s nobody in our company that is afraid to challenge a decision.
For example, if we go out to a site and I say, ‘We really need to put a fence around that model,’ they don’t just cower and say, ‘Well, the CEO said to do it, so we’re doing it.’ Everybody feels comfortable saying, ‘Well, we looked at that and that fence will make people feel they’re trapped in their community. Why don’t we use hedges?’ or something like that. Always empower your team around you, allow them to feel free and feel comfortable challenging your decisions.
I surround myself with extremely intelligent people who are motivated, and I focus on the results and let them achieve those results in their own way.
Communicate like regular people. We have what we call ‘hats off’ meetings. We’re all just people; we’re all just adults who have come to a meeting.
You may be informed about things, but you are allowed to ask anything of anybody. You’re allowed to challenge them; you’re allowed to compliment them.
The ‘hats off’ meetings just really allow people to feel comfortable about communication. I might get a little annoyed sometimes if I’m trying to get some work done and people come bopping into my office, which is why we try to do most of our communicating through e-mail and regular meetings. But if someone feels strongly about something, speak now or forever hold your peace.
It allows for a much more comfortable environment. And people feel respected and desired rather than they’re just here to make money for somebody else.
HOW TO REACH: Westrum Development Co., (215) 283-2190 or www.westrumhomes.com
In an increasingly litigious society, it’s no surprise that product liability cases have drastically increased in the past 20 years.
Businesses even those with good product safety policies and procedures can’t afford to ignore the risk or not take product liability seriously.
Product liability is far-reaching, putting many different types of businesses even those that don’t directly manufacture products at risk, according to Jerrold Anders, a partner in the Product Liability Practice Group at White and Williams LLP.
“Product liability holds manufacturers, distributors, suppliers, retailers and others who make products available to the public responsible for the injuries those products cause,” he says. “It’s a very real business risk in today’s world.”
Smart Business spoke with Anders about product liability and how businesses can protect themselves against the risk of lawsuits.
What is product liability?
Product liability encompasses a number of legal claims that allow an injured party to recover financial compensation from the manufacturer or seller of a product, including negligence, strict liability, breach of warranty and various consumer protection claims.
Product liability laws vary widely from state to state, and each type of claim requires different elements to be proven to present a successful claim. It involves claims that the product was defective by design, a manufacturing flaw or because of a failure to warn about a risk or danger.
How concerned should the average business be about product liability litigation?
Product liability is a very real business risk, and not just to those who manufacture products.
A retailer has a responsibility as a seller who puts a product in the marketplace, and there’s also risk for sellers who install products. While some states offer pass-through liability for retailers which provides some level of protection against product liability claims here in Pennsylvania, a business must prove that it is entitled to be indemnified by the manufacturer. This may involve litigation to determine the facts and their legal effect.
What is product liability insurance?
Product liability insurance is an important type of insurance for any business that sells manufactured or assembled products. It covers damage to property or injuries to a person for which your business is held responsible, and it protects your business from a variety of lawsuits.
Business owners should check with their insurance carrier and lawyer to see if they are already covered. This is a complicated area involving completed operations, vendors endorsements and additional insured coverage.
What should businesses look for in a product liability insurance policy?
Most small-business owners may not realize that they can try to negotiate the right to appoint their own legal counsel to represent the business in a lawsuit. Even if the insurance carrier does appoint an attorney for the business, business owners should consider hiring an attorney with expertise in the area of overseeing and coordinating such cases to ensure that the business’s interests are protected during the course of the lawsuit. I frequently do this for retailers, manufacturers and component part suppliers.
How can a business protect itself against product liability lawsuits?
While there is no guarantee that a business can avoid a product liability lawsuit, there are some very basic things businesses should do.
First and foremost, be aware of and comply with all the guidelines for the product you’re making or selling, including government regulations, industry standards and trade association recommendations. While compliance may not save a company from liability, not complying can sink a business in a liability lawsuit.
Second, ensure you have good risk management and quality control programs in place, including periodic product testing and monitoring trade associations and industry standards. It’s important to understand that punitive damages are generally not covered under product liability insurance; so even if you lose the case, you want to demonstrate that you did not act in a willful, outrageous manner. A business will want to show that it had these programs in place and was acting in a reasonable manner.
A practical piece of advice is to simply follow up on warranty claims before they turn into product liability claims. Take customer complaints seriously. Don’t let a small problem become a big one.
A retailer dealing with manufacturers should try to have a type of vendor’s agreement saying that the retailer agrees to buy the product and sell it to the public, but if any lawsuit claims arise, the manufacturer agrees to defend and indemnify the retailer. It’s also possible to negotiate to be an additional insured on the manufacturer’s insurance policy.
JERROLD ANDERS is a partner in the Product Liability Practice Group at White and Williams LLP. Reach him at (215) 864-7003 or email@example.com.