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Monday, 22 July 2002 09:48

Hot Issues in HR

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Looking back on 1999, there have been several important changes in human resource policies and guidelines issued by the Equal Employment Opportunity Commission (EEOC) and some being currently debated by Congress, the EEOC and the IRS. The following is a summary of those changes in three key HR areas: the Americans with Disabilities Act, Undocumented Workers and Pension Plans.

Changes in the Americans with Disabilities Act

Summary: In March, the EEOC released new guidelines for reasonable accommodations and undue hardship under the Americans with Disabilities Act (ADA).

The bottom line: From now on, if an employer has some idea that an employee with a disability will need special accommodations, then the responsibility now rests with the employer to provide those needs. The employer also can’t “require” the disabled employee to go to another “company” appointed physician for a second opinion, even if the employer has doubts about the employee’s personal physician’s diagnosis of the existence of an ADA disability and the need for reasonable accommodation.

These EEOC guidelines also have some specific changes that companies must familiarize themselves with, especially in the areas of reassignment, denial of leave of absences by employees with disabilities, job restructuring and/or reassignment, disability-related misconduct, telecommuting, and accomodation of medical side effects.

The federal courts can be expected to afford significant weight to the EEOC guidance, even though EEOC guidelines generally do not command the deference that is afforded to formal regulations. Nevertheless, these types of guidelines receive significant judicial consideration and also alert employers to the likelihood that the EEOC will challenge specific employment policies and decisions.

Changes Regarding
Undocumented Workers

Summary: In October, under federal employment discrimination laws, the EEOC modified its position on remedies available to undocumented workers (those without legal authorization to work in U.S.).

The bottom line: The EEOC states now that “even if the workers are undocumented they are still entitled to the same remedies as any other worker — including back pay and reinstatement.” They have also outlined different levels of remedies and addressed the issue of retaliation and the employer’s liability.

Converting Traditional Pension Plans to Cash Balance Plans

Summary: As political pressure builds against converting a traditional benefit pension plan to a cash balance pension plan, companies considering this move should do their homework and understand the positives and negatives. Agencies such as the EEOC, IRS and Congress are currently examining these plans.

The bottom line: The crux of the debate is whether older workers, who are closer to retirement, are unlawfully discriminated against when employers convert from traditional-defined benefit pensions plans to cash balance pension plans. Experts estimate that in a conversion, an employee who is five to 10 years away from retirement may lose 20% to 50% of the expected age 65 benefit. However, the ERISA Industry Committee (ERIC), a trade association representing larger employers, says cash balance plans don’t violate the ADEA just because benefits accrue more rapidly in a cash balance plan during an employee’s initial years of employment.

Several alternatives exist to alleviate the potential problems that may result from a conversion. Employers and employees should be aware of what is involved. We will be hearing more about these plans in the coming year.

Phyllis Shurn-Hannah is president of Cascade Associates, Inc., a human resource consulting and staffing/recruiting company in Blue Bell, PA.

Professional liability insurance is traditionally purchased by firms made up of architects and engineers, physicians, dentists, accountants and lawyers to protect against patients or clients alleging that negligence on the part of the professional caused physical injury or possibly economic loss to their clients.

“Over the last 20 years, the definition of professional services and the related duty of care owed by various consultants to their customers has broadened considerably,” says Philip Glick, a senior vice president with ECBM Insurance Brokers and Consultants. “As examples, real estate brokers, computer consultants and software engineers, insurance brokers, construction managers and contractors, and other miscellaneous types of consultants now are considered as professionals and face potential errors and omissions types of liability claims.”

Smart Business spoke with Glick about how professional liability insurance is changing and why you may need it.

Why doesn’t a general liability policy cover these types of claims?

General liability insurance is intended to cover claims arising out of bodily injury, or property damage arising from the client’s premises or related operations, including potential product liability losses. Similarly, a contractor’s general liability policy would cover potential claims based on completed operations such as construction of buildings or maintenance of facilities. General liability insurance does not cover economic loss suffered by a client due to an error or omission committed by a business, for example, if a client buys a new product, such as a high-speed printing press, and the press works but produces a lower hourly volume than expected.

Additionally, general liability insurance companies often exclude bodily injury claims arising from other types of professional services, such as pharmacists, health club operators, physicians and surgeons, architects and engineers and security guard companies. This exclusion mandates the need to buy separate professional liability coverage that will pick up both economic loss and bodily injury claims arising out of the designated professional’s products or services.

What is the solution to these gaps?

For firms traditionally recognized as professionals, the solution is to specifically purchase separate professional liability insurance in addition to commercial general liability insurance. For sports therapists, health clubs and sprinkler protection contractors, the simplest solution is to be sure that there is no specific professional services exclusion in their commercial general liability policies so bodily injury or property damage claims arising out of services will be covered. If there is also a potential exposure for pure economic losses to their customers, they will have to purchase a separate, stand-alone professional liability or errors and omissions policy.

What are some coverage pitfalls to avoid in insuring these exposures?

It’s critical to coordinate coverage provided under a commercial general liability policy with that provided in a separate professional liability or errors and omissions policy. Any professional services exclusion in a firm’s commercial general liability policy eliminates any coverage for claims involving bodily injury or property damage liability claims arising out of their professional services.

At the same time, some professional liability policies only cover pure economic loss and exclude bodily injury liability claims, resulting in a significant gap in coverage The solution is to buy broad professional liability coverage that includes bodily injury and property damage liability-type claims, as well as pure economic loss. Although insurers sometimes will not provide this full protection, they will provide contingent bodily injury and contingent property damage coverage, which cover claims due to physical injury or damage to the property of a client if not covered in the client’s general liability policy.

Another typical exclusion involves claims due to contractual guarantees or other express warranties of price, cost or performance, or a return of fees. Unfortunately, these claims are not insurable in a professional liability policy. A solution is to amend the policy so the coverage is still provided for claims arising out of contractual guarantees or warranties if the underlying cause is due to the insured’s negligent acts or omissions.

Many professional liability policies are written on a claims-made basis, meaning that the insurance only covers claims that are filed or made during the current policy year and the related error or wrongful act occurred on or after the starting date of the policy — a so-called prior acts inception date. In this case, the insurance buyer wants to negotiate a prior acts date for its professional liability policy as early as possible. Each year coverage is renewed, the insured should be certain that the same prior acts inception date is maintained.

What coverage extras should be included?

The policy should include:

  • The option for the insured to choose its own defense lawyers subject to approval from the insurer.
  • The broad definition of a covered claim that includes regulatory investigations or administrative actions by a government agency; coverage of legal fees incurred to defend against a demand for an injunction or other nonmonetary relief; coverage for a claim alleging a dishonest or a criminal act until found by a court upon final adjudication; and coverage of punitive damages to the extent allowable by state law.
  • An absolute right to buy a ‘tail’ or ‘extended reporting period endorsement’ of one to three years in the event that the policy should not be renewed by either party. This extends the policy after it has expired to cover a claim arising from a wrongful act or error during the prior coverage period.
  • A very broad listing of covered professional services under the policy.

Philip Glick is senior vice president with ECBM Insurance Brokers and Consultants. Reach him at (610) 668-7100, ext. 1310, or pglick@ecbm.com.

Nearly every state charges a state sales tax, and you’ll see this charge on most purchases. However, because there is no national law for sales tax, the amount you’ll pay and the items subject to tax vary.

West Virginia became the first state to pass sales tax legislation in 1921. Today, 45 states, and many local jurisdictions, have some type of sales and use tax. However, there has been a recent political push to switch to a value-added tax, which exists in Europe, or a national sales tax based on federal income taxes and a system of rebates.

“On average, sales taxes generate $150 billion a year and account for nearly one-third of a state’s total revenue,” says Timothy A. Dudek, director, Tax Strategies, at Kreischer Miller. “With the potential to increase this amount by taxing online sales, state governments are not likely to give up on the idea of a national sales tax. And enough state pressure may be able to force the federal government to pass such legislation.”

However, a new theory called “affiliate nexus” is emerging, which may override the older concept of “physical presence nexus.”

Smart Business spoke with Dudek about the latest trends in sales tax imposition and collection.

Recently, states have expanded the sales tax to apply to affiliate nexus. What is affiliate nexus?

Many out-of-state retailers enlist independent in-state websites known as affiliates to promote sales. An affiliate places links on its website to a retailer’s site and receives a commission when someone follows the link and buys goods. This affiliate nexus will now require out-of-state vendors to collect and remit sales tax, even though the vendor does not have a physical presence in the state where the purchaser is located.

New York was the first state to adopt sales tax affiliate nexus legislation, known as the Amazon law. Under the legislation, a remote seller is presumed to be a vendor required to collect New York sales tax if:

? The seller enters into an agreement with a New York state resident, under which a commission or other compensation is paid, if the resident directly or indirectly refers potential customers to the remote seller, whether by link, an internet website, or otherwise, and

? The cumulative gross receipts from sales by the remote seller to customers in New York as a result of referrals total more than $10,000 during the preceding four quarterly sales tax periods.

North Carolina and Rhode Island have adopted similar legislation. In California and Hawaii, New York-type statutes have been vetoed by the governors.

In response to the Amazon law, more than 30 electronic retailers registered as sales tax vendors in New York. New York estimates that it will receive approximately $70 million in revenue for fiscal year 2009-10 from these vendors. According to some sources, as many as 60 sellers have ended their affiliate programs in New York to avoid the burden of collecting New York sales tax from customers.

What other approaches have states adopted to increase sales tax collections?

Several states require more reporting by out-of-state vendors. For instance, on Feb. 24, Colorado signed into law legislation that will impact e-commerce and catalog companies.

The first part states that a remote seller that is a member of a controlled group is presumed to be doing business in Colorado and is therefore required to collect sales tax if any member of the controlled group has a physical presence in Colorado. This includes parent-subsidiary, as well as brother-sister, relationships. This started as an affiliate nexus bill similar to the New York law, but the final law requires an actual corporate relationship to impose the sales tax collection obligation.

The second part is aimed at encouraging customers to pay their fair share; for example, the use tax due on purchases. Remote sellers that are not registered and therefore do not collect sales tax are required to notify customers on the sales invoice of the customers’ responsibility to pay use tax to the state.

Colorado also requires the remote seller in January of the following year to send to customers by first class mail an annual information statement detailing purchases for the prior year. This must also be sent to the Colorado Department of Revenue. To persuade remote sellers to comply, Colorado is imposing penalties for failure to notify customers or to submit the annual information statement.

Oklahoma has also passed legislation requiring remote sellers to notify customers on the invoice of their use tax responsibility, but there is no requirement to submit an annual information statement.

Other states, such as California, are considering enacting similar laws to encourage customers to pay use tax on their purchases.

What is economic nexus, and how is it applied?

Economic nexus is a standard touted by states within the context of net income tax. This concept will appeal to many states within the context of sales tax, since this standard is one without a physical presence.

The result of a widespread economic presence standard would put U.S.-based firms at a disadvantage versus foreign-based competitors. In the expanding global marketplace, this is hardly the right policy choice to promote U.S. competitiveness. U.S. companies should only pay business activity taxes in those states in which they are physically present. The physical presence rule is fair to businesses because it requires tax in exchange for government-provided benefits in every state in which companies employ labor and capital.

Physical presence is also more consistent with the language in U.S. tax treaties and thus creates a more level playing field between U.S.-based and foreign-based corporations doing business in the U.S. The physical presence standard has other benefits, including the promotion of a robust interstate market, maintenance of state tax competition and a reduction in the number of states in which corporations have to pay tax.

For these reasons, Congress should consider moving ahead with the adoption of a physical presence standard for state business activity taxes.

Timothy A. Dudek is director, Tax Strategies, at Kreischer Miller. Reach him at (215) 441-4600 or tdudek@kmco.com.

Tuesday, 26 October 2010 20:00

How occurrence can affect your insurance claims

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The term “occurrence” seems simple enough, but when it’s used in insurance situations, it can lead to dangerous misunderstandings, says Kevin Forbes, sales executive with ECBM Insurance Brokers and Consultants.

“The term ‘occurrence’ has several uses in insurance contracts and can be a significant source of misunderstanding,” Forbes says, adding that it is important for policyholders to understand how occurrence is interpreted in their insurance program.

Smart Business spoke with Forbes about the importance of occurrence and how it can affect your insurance claims.

What is an occurrence?

When a claim is made, the first act an insurance company will perform is to determine if the claim meets the definition of an occurrence. An occurrence is defined in most liability insurance policies as ‘an accident, including continuous or repeated exposure to substantially the same general harmful conditions.’ Before any policy responds to a loss, the circumstances must meet the definition of occurrence in the liability policy.

Occurrence can also refer to the type of policy trigger, such as occurrence versus claims made. Finally, occurrence is used to define how the policy limits of insurance are paid.

What is the difference between a claims-made insurance policy and a per-occurrence policy?

There are two ways a liability policy can be written. An occurrence policy is written to cover incidents that take place during a specific time period, the policy period. It does not matter when the suit for damages is filed under these contracts, only when the occurrence that caused the loss takes place. This is what you would typically find on a commercial general liability policy and other public liability policies. Typically, these policies are written for companies where accident or loss exposure is of a specific nature and you can pinpoint the time it took place.

The other policy form is a claims-made coverage form. In these contracts, the coverage is triggered on the date the claim against the company is made. A long time can pass between the time of the occurrence and the actual filing of a claim. These forms are used for businesses that have losses that take place over a long period of time, including such exposures as pollution, pharmaceuticals, chemical exposures and similar operations.

How can occurrence affect an insurance claim?

Managing coverage triggers can be tricky. A company can be in business and make a product for 20 years and be insured under an occurrence form general liability policy for products liability during that time. Let’s assume that company no longer makes the product and discontinues insurance coverage in year 21. If a claim took place during the 19th year but it wasn’t filed against the company until two or three years after it ceased coverage, the policy in effect when the accident took (the year 19 policy) would still provide coverage to the policyholder.

A claims-made policy only covers claims filed during the policy period. Once the policy expires, so does coverage. In the example above, a claim filed after the contract expires would not have coverage, even though it was in force when the accident took place. There are ways to extend the coverage forms to provide a somewhat broader period, but there are still pitfalls that need to be managed.

How do occurrence limits work?

The occurrence limit on the insurance policy is the most the insurance company is going to pay for any one event or accident. Policies may have split occurrence limits between bodily injury to another party and property damage to property of others, or there may be one total limit that applies in the event that an accident or occurrence takes place.

This is important to keep in mind because, regardless of the number of people who are injured or the number who have damaged property, the occurrence limit is the most the policy will pay for that event.

How do recent court decisions affect the interpretation of an occurrence in insurance policies?

Due to a ruling by the Pennsylvania Supreme Court in the 2006 Kvaerner Metals Division v. Commercial Union Insurance Co. case that a subcontractor’s faulty workmanship was not ‘accidental’ and therefore not an occurrence under the policy, claims resulting from faulty workmanship have been limited, if not excluded altogether, under the commercial general liability (CGL) policy.

A ruling in a more recent case in front of the Pennsylvania Superior Court deemed that consequential damage caused by any faulty workmanship was also not covered under the CGL. Your own faulty work was never covered under a policy, but resulting injuries or damages were, prior to this ruling.

Construction defects that develop over time because of poor workmanship are not meant to be covered under a commercial general liability policy. However, it is feared that damage by any faulty workmanship, whether performed by a subcontractor or not, could be construed to be excluded under the CGL policy. This could have the effect of virtually removing all coverage under a general liability policy in Pennsylvania if there is faulty workmanship that results in injury or damage.

What should business owners know about the definition of occurrence in their insurance program?

With the Kvaerner ruling it is important to know the wording in your insurance policies and make sure your insurance policy addresses this potential lack of coverage. Most insurance companies are amending their definitions of an occurrence in their policy language, but some do not address the complete issue.

It is important that you speak with your insurance broker to make sure that your insurance policies are addressing not only giving back the faulty workmanship coverage, but also provide coverage for the consequential damages to the policyholder’s own work.

Kevin Forbes is a sales executive with ECBM. Reach him at (610) 668-7100 or kforbes@ecbm.com.

Tuesday, 26 October 2010 20:00

The Morel file

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Born: Richmond, Va.

Education: Bachelor’s degree in engineering, Lafayette College; Ph.D. in materials engineering, Cornell University

First job: As a kid, my first job was the traditional paper route. I was paid a penny a paper, so I had to deliver a lot of papers to make a buck.

What is the best business lesson you’ve learned?

The most valuable lesson is you don’t have all the answers, and you’d be fooling yourself to say that you do. You need to surround yourself with the best people and trust them to do the things you’re not good at.

What traits or skills are essential for a business leader?

The ability to listen. You have to be open to dissenting points of view. It’s very easy for someone in the CEO’s spot to speak up first instead of shutting up and listening to what the problem is. But you need to do that as a leader.

What is your definition of success?

What I like to see is when plans that are set in place come to fruition, and people around me are having success, as well.

With economic uncertainty becoming a way of life, most businesses struggle to find new sources of revenue growth. As a result, they are looking harder than ever for ways to improve profitability through more efficient use of working capital.

Accounts receivable remains the lifeblood of most companies and, therefore, it is one of the first places they should look to refine their processes, says William J. Booth, executive vice president, Treasury Management, PNC. The opportunity for improvement in working capital management is significant.

Smart Business spoke with Booth about the latest techniques and technologies for improving working capital performance.

What’s the first step companies should take to make working capital more efficient?

Companies should look first at the way that cash comes in the door. For most, that ‘cash’ looks a lot different than it did a few years ago. Electronic payments are becoming the norm. Even credit card payments can be a meaningful component of your mix thanks to commercial p-card applications. New technologies, including ACH, EDI and wire transfers, allow companies to better integrate these payment streams, allowing the business to benefit from controls visibility and technology not only with traditional paper receipts through a traditional lockbox but also electronic payments through a virtual lockbox.

What about payments outside the lockbox?

Companies occasionally receive payments at a facility other than a lockbox. Using remote deposit technology, you can integrate these payments and the remittance detail into the lockbox process. The information is then incorporated into the overall consolidated stream of data coming back to your system.

Are there ways to make foreign-denominated payments less of a nuisance?

Ask if your bank is capable of processing foreign-denominated payments through its lockbox. Some banks can provide a spot rate foreign exchange for certain currencies, then seamlessly integrate the payment, saving up to two weeks of collection time.

How important is it that information be current and correct?

Past due accounts and unauthorized deductions can significantly reduce cash flow, so up-to-the-minute receivables information is a critical piece of the process. With current information at your fingertips, you can significantly improve daily sales outstanding, deduction management and collections.

Even if you use a lockbox solution to collect payments, there are more advanced features to take receivables collection to the next level.

What are some advanced technologies?

Intelligent character recognition software, virtual batching and accounts receivable matching are some of the most useful advanced tools for improving A/R performance.

How does intelligent character recognition work?

Data that was manually keyed in is now automated. Information contained in columns and rows from statement and invoice documents is captured and uploaded immediately, reducing processing time and improving the quality of receivables information.

What is virtual batching?

Virtual batching is a way to customize data grouping so that you can access the information that’s important to your business. Receivables can be grouped by department, transaction size, or client — or even matched and unmatched payments. Exceptions, such as out-of-balance situations and incomplete checks, can be isolated and dealt with right away, allowing you to get through your exception processing more quickly. Virtual batching can also be used to segregate different categories of customers, allowing data to be pushed to the right group of accounts receivable people, which improves workflow.

How can companies use A/R matching?

Accounts receivable matching allows your bank to compare, validate and match payment data to an external source such as an open invoice file. If items don’t match, additional data elements can be added. Say a client submits an invoice with a partial invoice number. Accounts receivable matching takes what was provided and attempts to match the information until a valid number is found. The result is that you’re able to post information more quickly and reach customers faster when legitimate exceptions are found.

What is the role of online correction tools?

Sometimes, the lack of any invoice or posting information cannot be effectively resolved through accounts receivable matching. An online correction feature allows your bank to identify the exception item and post it in a website for your immediate review. You can then research and manually input the missing information so the item will post automatically when your receivables file is received from the bank. These solutions can be structured to work together or tiered to process receivables in the best way for your organization.

When considering a provider for your receivables management, make sure that your bank can provide comprehensive capabilities. You can then identify the solutions that will address all aspects of your receivables needs and maximize your cash flow.

This article was prepared for general information purposes only and is not intended as legal, tax, accounting or financial advice, or recommendations to buy or sell securities or to engage in any specific transactions, and does not purport to be comprehensive. Under no circumstances should any information contained herein be used or considered as an offer or a solicitation of an offer to participate in any particular transaction or strategy. Any reliance upon this information is solely and exclusively at your own risk. Please consult your own counsel, accountant or other adviser regarding your specific situation. Any views expressed herein are subject to change without notice due to market conditions and other factors.

©2010 The PNC Financial Services Group, Inc. All rights reserved.

William Booth is executive vice president, Treasury Management, for PNC. Reach him at william.booth@pnc.com.

Every business in the modern world uses technology to communicate. Which means that every business will find itself in need of communication upgrades sooner or later.

At printing services provider ANRO Inc., IT Director Paul DeSantis tries to keep his company on the cutting edge of phone and Internet service, which helps the nearly 200-employee company serve its customers with optimal efficiency.

Along the way, DeSantis has learned some lessons about how and when you should evaluate the state of your communication system and when it might be time to look into upgrades or replacing your system outright.

Smart Business spoke with DeSantis about how to keep current with communication technology.

How can a company know when it’s time for an upgrade?

There really is a lot that goes into that. It’s a unique decision process for any organization. But typically, you’re going to start with inadequacies in the current solution. Does your system have an interface compatible with other technologies that are coming out? A good example is unified communications. Every business has its own system for taking calls. Those call systems are independent of cell phones or e-mails that have inherent inefficiencies. Once you’ve identified those, then you can start to think about how to address them. But it would start with seeing if your current phone system can field a call from a cell phone and access someone’s voice mail, how closely are the systems tied and how closely do they interface with each other. Any organization is going to have questions about that from their staff. If you are fielding a lot of questions about technology, it’s probably time for an upgrade.

What are some of the other indicators that systems aren’t working well together?

That goes above and beyond the obvious problems you’ll have, like call quality issues and call volume issues. If people are calling into your main number and getting busy signals, you need to be aware of those things and take action pretty quickly. Any telecommunications managers or executive in a business is going to want to have those kinds of resources available. You’re going to want to have a readily available phone line when that sales call comes in. You’re going to want to know that your system is going to take and deliver that call effectively and accurately.

What comes with those types of upgrades today is a whole new level of visibility into the operation of the phone — better reporting, real-time reporting on call volume, things that would be important to an executive considering whether to make that kind of investment.

How should a company be budgeting for communication upgrades?

That’s a critical mass type of investment. You should be reviewing it biannually, even if you can’t do anything for 36 months due to the constraints of your lease. We review biannually but stick to 36-month leases. A 60-month lease is going to be too far. You’re going to want to make changes to that.  But that should definitely be a high priority on the budget list.

How does a phone system upgrade play into a company’s overall communication infrastructure?

You really do have to package all of that together. There are some areas of convergence that are critical, one of which is bandwith. Obviously as a business grows, you’re going to have more employees who are going to be doing more things via the Internet. Sooner or later, you probably are going to require additional bandwith. So having two different vehicles to deliver voice and Internet connectivity is going to be a problem. You’re going to want to converge those two into a voice over IP system so that you can maximize your investment in that Internet connectivity and use it for all of your voice communication.

In the operational aspects, this is especially critical because for most businesses, in most cases, the phone is the most critical customer-facing component of your business. The effectiveness of your voice transfer system can really change clients’ perception of your entire business. So when you’re having phone issues or problems, it’s a customer-facing problem and needs to be addressed quickly.

On the employee side, it’s going to save time. Having one address book for all of your communications, having one location for all of your e-mail and voice-mail messages, is probably going to make your employees more effective.

How does a company choose what features are right for them in a communications system?

That is going to be a decision that is unique to your organization. But now, some of the features and how they’re packaged into systems are different than what they were in the past.

It used to be that you were buying a mechanical switch, and it had a layer of software that could utilize that switch in different ways, but today all of the new phone systems are server-based. All the functionality is software-based, so the ability of the manufacturers to include more functionality into the base or core package has definitely brought those costs down. Whatever your buying power is, you’re going to get more from the new system than you could have ever achieved trying to upgrade your legacy system, because of the way it’s structured.

So even if you are just two or three years into an analog system that seemed like a good option for you at the time, it needs to be re-evaluated because of the dynamics of the new feature sets.

How to reach: ANRO Inc., (800) 355-2676 or http://www.anro.com/

Thursday, 02 September 2010 11:15

Pick a direction and go

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Michael Araten knows it’s not easy to develop a new strategic plan and lead employees in a different direction than they’d been used to travelling.

 

But that’s just what the president & COO of toy-maker K’NEX Brands did after he arrived in 2006 and was tasked with outlining a vision for growth.

 

In a June 2009 interview with Executive Leaders Radio, Araten talks about what it takes to be a strong leader and successful strategies he uses to lead K’NEX.

 

When Smart Business spoke with Araten in February 2009, he explained his keys to creating the plan, among them “listen before you act” and “ask yourself the right questions.”

 

Part of the plan involved diversification, which Araten will discuss on November 17, 2010, as part of a national Smart Business Webinar.

 

The bottom line is this:  When it comes to developing strategies for growth, you better map the road you’re planning to take, get the team who is going to get you there motivated about the journey, and be prepared for all the twists and turns that you’re sure to encounter along the way.

 

Executive Leaders Radio and Smart Business are content partners. Executive Leaders Radio is dedicated to honoring individuals who have risen to leadership roles through hard work and determination. Araten appeared on the same Executive Leaders Radio program as Allen Khorami, president & CEO of International Communications Research Inc.; Kevin McCarthy, president of Liberty Personnel; and John Prosock, president of John Prosock Machine Inc.

Companies that make working capital efficiency part of their organization’s culture have the opportunity to generate more of their capital internally, thereby lowering costs, improving their performance and boosting their competitive position.

When outside capital is needed, good cash flow and working capital management will make it easier to find and less expensive, no matter what the economic cycle.

Smart Business spoke with Joe Rockey, executive vice president, Commercial Banking for PNC, about how attitudes toward working capital have changed and what steps companies can take to improve their performance.

What impact does the current economic climate have on working capital strategies?

Faced with uncertainty around tax law and health care changes, as well as a slowing economic recovery, 400 financial decision-makers told us in a recent survey that they are still ‘hunkered down.’ The strategies they deployed to deal with the financial crisis have become the new normal.

And one of these strategies is to make working capital work much harder.

Even the best companies can do better. And they know it. Ninety-five percent of the financial leaders in the survey said that there is room for improvement in their company’s working capital efficiency.

What steps can companies take to improve working capital performance?

The key is not to treat the pursuit of working capital efficiency as a limited project that ends at implementation but to realize that implementation is just the beginning of an ongoing process.

The first step is to establish best-in-class performance goals around central issues, such as the length of your cash conversion cycle, and develop metrics that measure actual performance against the desired outcome. Continuously monitor performance against your goals and analyze gaps to determine their root causes.

Then, develop and execute detailed action plans to address and remedy performance shortfalls and uncover additional metrics or measures that should be tracked.

What are some of the elements of a good action plan?

Your action plan might include establishing a closed loop procedure to link cash management processes across departments. This move can improve control and decision making and increase operational flexibility.

Consider reinforcing the importance of working capital efficiency throughout the organization. For example, you might tie management and employee bonuses to working capital metrics, sending the message that they are just as important as revenue and profitability goals.

In order for this strategy to be effective, you will need to make the tracking of performance measures transparent throughout the organization.

What role can external resources play?

Look to external resources for fresh approaches to continuous improvement.

Benchmark your results against those of companies that are recognized as best in class for optimizing working capital. Scorecards from industry publications put a microscope on the details of financial performance and can help you identify the most effective companies. Find out how those enterprises manage and measure cash flow performance.

You might even consider reaching out to peers at leading companies to gather more insight, or participate in industry research panels.

Once you make working capital efficiency part of your company’s DNA, it becomes more than a strategic priority. It is a daily pursuit. Continuous improvement naturally follows.

Becoming best in class in working capital efficiency in your industry will lead to lower cost, better performance and an improved competitive position. <<

This article was prepared for general information purposes only and is not intended as legal, tax, accounting or financial advice, or recommendations to buy or sell securities or to engage in any specific transactions, and does not purport to be comprehensive. Under no circumstances should any information contained herein be used or considered as an offer or a solicitation of an offer to participate in any particular transaction or strategy. Any reliance upon this information is solely and exclusively at your own risk. Please consult your own counsel, accountant or other adviser regarding your specific situation. Any views expressed herein are subject to change without notice due to market conditions and other factors.

©2010 The PNC Financial Services Group, Inc. All rights reserved.

Joe Rockey is executive vice president, Commercial Banking, for PNC. Reach him at joseph.rockey@pnc.com.