The 2010 Dodd-Frank Wall Street Reform and Consumer Protection Act is one of the largest pieces of legislation in history, and it has complicated the regulatory environment by increasing the government’s oversight, supervision and resolution authority over financial institutions.
“As a result of Dodd-Frank, there are more agencies with oversight over more and different types of institutions, so compliance can be difficult,” says Michael K. O’Connell, managing director and Financial Institutions Practice leader at Aon Risk Solutions. “There are a lot of new agencies and those with redefined roles. There is new regulation of over-the-counter derivatives, a new agency for enforcing compliance with consumer finance rules, reformed credit rating agency regulation, changes to corporate governance and executive compensation, the Volker Rule, new registration requirements for advisers to certain private funds and significant changes in the securitization market.”
Smart Business spoke with O’Connell and Jo Ellen Thelen, managing director, Aon Risk Solutions, about safely navigating this new, stricter regulatory environment.
What are some of the risks for noncompliance that businesses face with Dodd-Frank?
You might immediately think of the obvious financial risks — fines, penalties and injunctions — of not complying with any regulation, including Dodd-Frank. But before you get to that point, your business can incur significant costs responding to a regulatory investigation. On the back end, there also can be reputational harm, which is hard to pre-quantify but can be quite impactful.
These risks are interconnected, increasing the need for financial institutions to maximize the value of their risk transfer spend. Experts can aid with this process by using robust data and analytic tools that help financial institutions understand their exposure, develop their modeling capabilities and ultimately derive the most value from their investment in insurance and risk mitigation.
How has executive liability changed with Dodd-Frank, and how can companies protect themselves?
There definitely is increased pressure on corporate boards of directors. The provisions of Dodd-Frank create new obligations that will drive shareholder expectations and potentially lead to heightened executive liability exposure. Directors and officers (D&O) liability insurance is designed to protect individual directors and officers, as well as the corporate entity from governmental or shareholder investigations and/or legal proceedings.
It is important to understand the Dodd-Frank provisions of clawback compensation, where boards can force executives to pay back some of their compensation for wrongdoing, corporate governance and whistleblower activity within the context of your company’s D&O liability program. Pay close attention to policies’ definitions and exclusions to understand the extent of coverage available.
In these areas, it’s critical to discuss what you really want to cover and how to achieve that within the context of the policy in the current insurance market. Understanding the scope of coverage is especially important in Side A D&O policies, which can provide dedicated personal asset protection to individual directors and officers when the company is either prohibited from indemnifying or not able to indemnify.
What are the best ways for financial institutions to cover privacy and security liability?
Privacy and security continues to be an area of focus for financial institutions. At the same time that the volume of personally identifiable information is increasing, so is regulatory focus on and awareness of privacy and security risk. With this, it is important for financial institutions and others to really understand and tailor their privacy and security coverage to their exposure.
Base policy forms vary greatly and must be customized to ensure maximum possible coverage. Take a diagnostic approach to privacy and security liability. Review the scope of coverage for first- and third-party exposures in conjunction with your existing insurance program and discuss coverage priorities with experts to fully define what you’re seeking.
The breadth of coverage available has evolved, as have the service offerings that can be bundled with a risk transfer program. An example is with breach management, where insurers offer turnkey solutions that can help financial institutions quickly and effectively recover from a breach. This approach is popular among mid-tier financial institutions that may not have pre-established relationships and resources to quickly handle a breach.
What are some other risks financial institutions are facing with operations and compensation?
Some financial institutions continue to struggle to meet regulatory requirements while maintaining sound compensation strategies. As regulation shifts from being guidance-based to rules-based, for smaller banks the question is when they will have to comply. Regardless of size, all financial institutions are being tasked with balancing risks and results, creating controls to reinforce that balance and ensuring effective management of incentive compensation.
The first step in managing compensation compliance is identifying covered employees. The process, and ultimately the covered population, may vary by firm and is primarily determined by business mix. Often the most effective and well-received approach is to include risk adjustments at the time of award or deferral, with potential future forfeiture, for incentive compensation plans.
With the evolving issues related to compensation, executive liability, privacy and security, and other risks, it’s important for institutions to take an enterprise-wide approach to risk identification, quantification and mitigation. Using experts, many financial institutions accomplish this with the goal of keeping their risk perspectives current in the changing regulatory environment. Risk management professionals can help implement risk frameworks, analyze key risk scenarios and model risk, and then align an institution’s insurance and risk transfer program to their underlying risk profile.
Michael K. O’Connell is a managing director and Financial Institutions Practice leader at Aon Risk Solutions. Reach him at (212) 441-2311 or email@example.com.
Jo Ellen Thelen is a managing director at Aon Risk Solutions. Reach her at (314) 854-0710 or firstname.lastname@example.org.
Insights Risk Management is brought to you by Aon Risk Solutions
When times are tough, the temptation for employees to dupe the system and steal cash or assets increases. The economy is a key driver in fraud activity, and over the last several years, organizations of all sizes have been victimized.
So is the fraud environment improving now that there’s news of an uptick in the economy? Not yet, says Jason Buhlinger, a supervisor in financial advisory services at Brown Smith Wallace LLC, St. Louis, Mo.
“While there may be signs of the economy getting a little better, people still feel uncertain — and as long as that feeling is in the back of their minds, there is motivation and a rationalization to steal,” Buhlinger says.
Companies are running leaner, which means there is less management oversight at some firms, and others have eliminated internal audit personnel. One person may be doing the job of two or more employees, so the work force is spread thin. And that may mean that no one is watching should an employee decide to commit fraud.
“Imposing internal controls becomes harder to accomplish with less staff,” Buhlinger says.
Now is not the time to let your guard down as a business owner.
“The longer the economy trickles along, we’ll continue to see people who are looking for easy ways to get cash,” Buhlinger says.
Smart Business spoke with Buhlinger about the types of fraud being committed and how to establish strong internal controls to protect your business.
What specific economic factors drive individuals to commit fraud?
The recession began in December 2007, and at one point, the Dow Jones Industrial Average was down as much as 50 percent. People had to become more frugal. Those who planned on retiring early had to re-examine that goal as they watched their investment savings dwindle. And home prices dropped significantly in some areas of the country.
All of a sudden, the asset values that many people counted on were gone and they had to figure out a way to supplement that. This is where the fraud triangle comes into play — opportunity, rationalization and pressure. All three of these stress points have increased in the past several years, and this continues to be the case.
As long as people feel a sense of economic uncertainty, that can evolve into rationalization and pressure to find more money somehow. When the opportunity to commit fraud presents itself, rather than taking the higher moral road, as they might in better times, they justify the act and take that opportunity. Your organization can’t realistically eliminate all rationalizations and pressures, but it can manage the opportunity side of the triangle.
What types of fraud are most common today?
Asset misappropriation remains the most common type of fraud. That includes, but isn’t limited to, cash theft, payroll schemes and inventory theft, to name a few. A worker might file false expense reports and pocket the cash, or take product from a warehouse and sell it for a profit.
Stealing from cash registers $20 at a time can go unnoticed if proper controls aren’t in place. Asset misappropriation tends to involve smaller amounts of money, but those dollars add up over time.
What are the components of an effective fraud awareness program?
Organizations need to take a proactive approach to prevent fraud. Owners need to be involved in the financial aspect of the business rather than passing that role off entirely to a manager. For example, we recently handled a fraud case in which a CFO had complete financial control of the company and could take whatever he wanted. If their company had implemented the critical concept of segregation of duties, it would have been more difficult for him to pull off fraud.
Segregation of duties is critical to prevent fraud, and this can be a challenge in small businesses. That’s why owner involvement is critical at every level of a business, from reviewing financial statements to checking in at the cash registers. It also helps if organizations provide a way for employees to anonymously report fraud through a tip line or even a simple suggestion box.
By keeping fraud at the forefront of your business, you will discourage those who are teetering on the edge of committing fraud. And with internal controls in place, you will be more likely to catch fraud early before it causes significant damage to the business.
How can a business be proactive about creating a culture of honesty?
It’s important to create a fraud prevention program and talk about it regularly with employees. Hold quarterly meetings to discuss fraud and internal controls. Let everyone know your organization has a zero tolerance policy. By making employees aware that fraud is on the radar and no one is going to get away with it, you decrease the rationalization and opportunity for fraud to occur.
Begin a fraud prevention program to learn what areas of your business are susceptible to fraud. A risk assessment will help you zero in on entry points for fraud so you can watch those areas carefully.
A certified fraud examiner (CFE) can help you get that fraud policy on paper, and it’s a good idea to incorporate it into your employee handbook. Secure a commitment in writing from every employee that they understand the policy and the ramifications if fraud is committed.
Jason Buhlinger, CFE, AVA, is a supervisor in financial advisory services at Brown Smith Wallace, St. Louis, Mo. Reach him at (314) 983-1310 or email@example.com.
Insights Accounting is brought to you by Brown Smith Wallace LLC
The Medical Loss Ratio (MLR) mandate, within the Patient Protection and Affordable Care Act, requires insurance companies to spend 80 to 85 percent of premium dollars on medical care and health care quality improvement. This provision just started in August, but how will it impact the insurance industry and employers?
“The MLR Legislation has a perverse incentive; when utilization and costs increase, an insurance company makes more money,” says Mark Haegele, director, sales and account management, with HealthLink.
Smart Business spoke with Haegele about what MLR does and the ramifications for health insurance companies, brokers and, ultimately, employers.
How does the MLR mandate work?
Medical loss ratios refer to the percentage of premium dollars an insurance company spends on providing health care and improving the quality of care, versus how much it spends on administrative and overhead costs and, in many cases, salaries or bonuses.
In August, health insurance companies paid $1.1 billion in total rebates to customers when less than 80 percent (for individual and small group markets) to 85 percent (for large group markets) of premiums were not used for health care costs. Approximately 31 percent of Americans with individual insurance got the rebate, with an average check of $127, according to the Kaiser Family Foundation. Rebates went directly to businesses that sponsor their own plans and they decided whether to distribute them or put the funds toward lowering future premium costs.
Why does MLR create a problem for insurance companies and, subsequently, employers?
Many insurance companies have had to make up a gap of up to 10 percent by balancing their administrative costs in order to pay for overhead, employee salaries, etc., and to run their business. In the individual market, for example, typically 70 to 85 percent of a premium is used to pay for the claim, according to a 2010 report by the American Academy of Actuaries.
Now, if you are an insurance employer, suddenly you have to spend 85 percent of the premium that you take in on claims. That means that 15 percent is the only bucket of dollars that you have for profit, administration, overhead, etc. So, logically, there are only two ways that insurance companies make more money year over year and increase their profits. They can either reduce their administrative overhead by cutting staff or have a claims increase.
For instance, if your premium was $1,000, $850 goes back to claims and $150 goes to profit and overhead. Let’s say next year your premium is $1,500; now the insurance company has increased its potential for profit by 50 percent — to $225 rather than $150. Artificially increasing utilization isn’t good for our health care system, and increasing premiums wasn’t part of the reform game plan.
The more realistic and impactful method is reduction. Insurance companies are in it to win it; they are not going to sacrifice profits. With insurance companies facing huge budget constraints, what does that mean for employers and their employees? It means a lower level of service because there are fewer people answering phones and less staff to handle claim issues as insurance companies are forced to squeeze their administration expenses.
In addition, employers will want to know if their group is subsidizing other employers. Insurance companies will need to provide information about the cost of claims, how much is being spent administratively and where are the funds going, and how groups compare. The president of an insurance company recently received a call from an employer who was very upset about the payment of his rebate check because he knew that his premiums were artificially high for many years and that he’s been subsidizing other employers.
How have insurance brokers been negatively impacted by MLR?
The U.S. Department of Health and Human Services has decided that agent commissions are not exempt from the administrative calculations. This creates a difficulty because brokers rely on incentives/bonuses from insurance companies to sell their business.
With the MLR mandate, the broker’s commissions have been cut considerably, if not all together. The National Association of Insurance Commissioners recently released a study that reported that a significant number of health insurance companies have reduced commission levels, particularly for the individual market. Brokers and agents are worried that this will run them out of business.
In the era of health care reform, it is important for employers to have consultants to ask questions, which often is the broker’s role and where that person earns his or her 6 to 10 percent fee. This will be even more vital if insurance companies themselves are giving lower service.
Are there other health care solutions not affected by MLR?
Self-funded programs are not held to the MLR and other PPACA mandates. Therefore, consultants who work off commissions could be suggesting self-funding more frequently. If business owners feel their group is not benefiting from MLR requirements, they also could look at self-insured models.
There’s no doubt that the MLR is clearly another driver to push employers to look at alternative methods of health care, including self-funded insurance. This already has been demonstrated by more interest from brokers and others entertaining a self-funded solution; they are not all buying it, but they are all looking at it.
Mark Haegele is a director, sales and account management, with HealthLink. Reach him at firstname.lastname@example.org or (314) 753-2100.
Insights Health Care is brought to you by HealthLink®
Being able to tell your story is critical in today’s fast-paced world, where cutting through the noise to be heard gets harder each day. With so many media options fighting for attention, it’s imperative to identify new channels where you can stand out.
That’s why as part of our expansion last year, we saw an opportunity to tell entrepreneurs’ stories in greater detail and share lessons learned by launching a book division.
Our book division is unlike traditional publishers, because we do all the work for you. We develop the story and outline, conduct the interviews with the author and other contributors, and then write the book and handle all of the other elements through publication of an e-book and hardback editions.
The time commitment from you is minimal. Once the story is determined, we will conduct a series of short interviews to get the information we need to write the book. You approve everything that goes into the story and have final say on every aspect of the project. We help you take an idea for a book and turn it into a reality that you can share with others.
As an example, last year, we worked with auto dealers Rick and Rita Case to produce “Our Customers, Our Friends.” In the book, the Cases lay out their theory that the secret to successful retail sales is through building long-lasting relationships with customers and treating them as you would your best friend.
Whether your goal is to use a book as a business card for your organization by sharing knowledge with others or to further a cause and help raise awareness for something you believe in, we work with our author-entrepreneurs to identify what makes them unique and what insight they can share with others. We also build an author’s website and set up social media channels to help them promote the book. And, we’ve recently established an authors’ speakers’ bureau that will help extend the reach of sharing that entrepreneur’s knowledge across the national footprint of Smart Business Network.
So far this year, we have eight books in various stages of production. Among them are books for the CEOs of three publicly traded companies on topics ranging from mergers and acquisitions to building sustainable businesses to how to conduct successful turnarounds. We’re also publishing books that introduce exciting new business theories, as well as one that explains how to lead with a philosophy of giving back to the community.
What direction your book takes is up to you. It can tell the story of how your business started small and grew into what it is today, or it can explain the details of what you see as the keys to being successful in business.
Breaking through the clutter of information is tricky, and writing a book is one way you can make yourself heard. It’s also a great way to explain your philosophies to employees, customers and your peers.
There’s a widespread belief that everyone has at least one book within them. In the business world, that’s even truer. If you think that’s you, we’d be happy to help you turn your ideas into reality.
If you are interested in learning more about publishing a book, please contact our publisher, Dustin Klein, at email@example.com or (440) 250-7026.
Fred Koury is president and CEO of Smart Business Network Inc. Reach him with your comments at (800) 988-4726 or firstname.lastname@example.org.
Not a day goes by when I don’t ask myself, “Why do smart companies do such dumb things?”
A sweeping answer is that companies are run by smart people, and smart people do dumb things. However, when smart people assemble in companies, they are still capable of doing dumb, if not even dumber, things. Here are some reasons why.
Consensus. When it comes to doing dumb things, the sum of the parts is less than the whole. Throwing more minds at the problem means more data, more perspectives, more possible solutions, more critiques of these solutions and more minds (and hands) implementing the solution, right?
Possibly, but there’s also the downside of more people: Once consensus starts to build, it’s harder to alter a decision. It’s one thing to argue against a few people; it’s much more difficult to argue against the wisdom of a crowd. Individuals who hold out, question or disagree are labeled as clueless, uncooperative and not team players.
Conviction. Consensus rears its ugly head during the decision-making process. The situation can get worse once implementation occurs because the organization marches along with a firm belief in what it’s doing. At that point, a decision takes on a sacred life of its own, and a company cannot see flaws. Conviction is not inherently bad, and truthfully, it’s an important component of success. The trick is to combine conviction with open eyes and open minds to reduce the likelihood of having a conviction in the wrong thing.
Experts. If there’s anything smart people worship it is other smart people. It’s tough to be strong enough to not defer to an expert. Most experts have a tough time accepting surprises that are outside of their comfort zone.
Good news. A company is constantly assaulted by its competition, customers, governments and schmexperts (schmucks + experts). Faced with this onslaught, good news is an addictive, illegal and dangerous drug. It makes you crave more good news, and you refuse to communicate bad news up the chain of command. Ultimately, it may even make you refuse to hear bad news at all.
Lofty ends. Lofty ends can justify all sorts of weird and inappropriate means. Look no further than the quests for peace that produce mayhem and violence. Or, the desire to make a profit (something that is genuinely good for shareholders and customers) that warps a company’s code of ethics even though the company is made up of smart, honest people. Companies trying to achieve a lofty goal can start believing that any means to achieve it is OK.
So what can you do to prevent doing dumb things?
• Say, believe and act in a way that convinces employees that differences of opinion and diversity of thoughts are good things. Frankly, a couple of curmudgeons is a good thing for a company.
• Don’t be in a rush to meet consensus. In particular CEOs should not rush into a decision even though the image of decisiveness is so seductive.
• Spell things out. It’s not enough to say, “Plug this leak in our company,” and assume that it will be done legally. You should say, “Plug this leak in our company by using only legal, ethical and reasonable methods.” That’s when you’re done.
• Move the crowns. When employees go around saying, “We need to do it this way because Bill/Steve/Carly/Larry wants it this way,” you’re in trouble. It means that employees are making decisions based on what they think will make kings and queens happy, as opposed to what’s right for the customer, employees or shareholders. Good CEOs put the crown on the heads of customers, not themselves.
• Restrict the use of experts to narrow areas. Never use experts to create your product roadmap or marketing plans unless you want MBAs who have never run anything larger than a school snack bar to decide your fate.
• Ask for bad news. Don’t assume it will find you — you have to find it. You should allocate a time that’s specifically for communicating bad news.
• Don’t shoot the messenger who brings the bad news unless he or she caused it.
• And finally, don’t reward the messenger who brings good news unless he or she caused it.
Guy Kawasaki is the co-founder of Alltop.com, an “online magazine rack” of popular topics on the Web, and a founding partner at Garage Technology Ventures. Previously, he was the chief evangelist of Apple. Kawasaki is the author of 10 books including “Enchantment,” “Reality Check” and “The Art of the Start.” He appears courtesy of a partnership with HVACR Business, where this column was originally published. Reach Kawasaki through www.guykawasaki.com or at email@example.com.
We’ve all seen it before, where co-workers in a company recognize a problem performer, but these same people can’t understand why the boss hasn’t yet taken action or has taken so long to come to grips with the issue.
Conversely, as the boss, how many times have you made what you considered to be an extremely difficult personnel decision and have done so only after protracted analysis, a fair measure of agony and more than an adequate amount of second guessing yourself?
Case in point: One of your top managers has hit the skids, and in your gut, you know that a change is needed. Fearing the worst, you play over and over in your mind the potential negative consequences that could occur if you were to fire this individual. Finally, after all else fails, you pull the trigger and decide to part ways with the onetime A player. Before you tell associates, you rehearse in your mind how you will explain your decision. Once you gather your lieutenants together and finally utter the previously unthinkable, the reaction is almost a unanimous, “What took you so long?”
After you breathe a sigh of relief, your team members start making not-so-subtle comments suggesting that they weren’t surprised, followed by a litany of examples of why your now fallen superstar wasn’t hacking it.
This begs a bigger question: Were you really the last one to realize that there was a problem? Furthermore, did it actually take you too long to make that final decision that, as they say in spy novels, this person was “beyond salvage”?
This provides a good opportunity for introspective analysis. The end result just might help you understand that you were not the last to know, but in fact, you may have been the first to recognize what was looming on the horizon.
Virtually every leader has to rely on experience, combined with instincts, to decide when to either cut and run or try to rectify a problem. Being an executive requires being a very good teacher. When a pupil is not measuring up, the first question is how can you help and what can you do to improve a person’s performance? Most everyone at one point in his or her career hits a rough spot, and with a bit of mentoring, a fair number of wayward employees can turn the corner and again blossom. Also, it’s more economical to at least try to turn someone around after investing time and money in developing the individual. After a certain period, the employee has gained valuable empirical knowledge about the ins and outs of the company and, just maybe, a little extra coaching can make the difference.
However, in some situations, your optimism for achieving Mother Teresa status through patient mentoring wanes, and you begin to come to grips with the fact that it’s time for a change. You then map out your what-if scenarios. Not only one but several. You ruminate over your game plan until you have the best probable solution locked and loaded in your mind for that moment when you have concluded that you’ve run out of road.
Most times, trying yet failing is not a bad thing; actually, it is a good thing and the way a responsible leader must approach an important human resource decision. You can never forget that you’re dealing with the life and livelihood of a person and his or her family, which can be adversely affected by the decision. Many top employees who veer off course and don’t work out were, at one time, effective and loyal contributors to the organization. It’s mandatory to make the effort not only to try to stem the negative tide of poor performance, but also to develop an alternative replacement and transition strategy. This takes time and can be a very solitary task depending on the level of the person to be replaced.
In reality, the boss knows in his heart of hearts before most, if not all, others when something ultimately has to give. Being the boss requires making the difficult decisions after meaningful deliberation and then living with them and making them work.
The boss the last to know? Highly unlikely. Instead, he probably is the first to know when the time to act was finally right.
Michael Feuer co-founded OfficeMax in 1988, starting with one store and $20,000 of his own money. During a 16-year span, Feuer, as CEO, grew the company to almost 1,000 stores worldwide with annual sales of approximately $5 billion before selling this retail giant for almost $1.5 billion in December 2003. In 2010, Feuer launched another retail concept, Max-Wellness, a first of its kind chain featuring more than 7,000 products for head-to-toe care. Feuer serves on a number of corporate and philanthropic boards and is a frequent speaker on business, marketing and building entrepreneurial enterprises. Reach him with comments at firstname.lastname@example.org.
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How Jane Saale joins her employees at Cope Plastic to constantly seek a better way to get things doneWritten by
Jane Saale isn’t happy with the way communication flows at Cope Plastics Inc. It results in wasted time, missed opportunities and a shortfall in productivity — and that bothers her.
“One time it’s like this and the other time it’s like that,” says Saale, president and CEO at the plastics fabricator and distributor. “We don’t have a clear process and place to say, ‘Every time we do this particular thing, we’re going to communicate it like this.’ I would say from a communication standpoint, we have lots of room for improvement.”
Saale is hardly alone, however, in bemoaning her 380-employee company’s communication difficulties. It’s pretty safe to say if you’re reading this story or if you’ve ever been part of any kind of organized activity, you’ve experienced problems communicating. It’s all part of the human struggle to interact with each other.
“Does anybody ever get up in the morning and go, ‘How am I going to communicate today’?” Saale says. “Nobody says that. But it’s a challenge. You have so many different dynamics of people and personalities and different backgrounds and knowledge and expertise. You have different ways of how people interact with each other. It’s a big challenge.”
Despite the ongoing challenge of improving communication, Cope Plastics has weathered the storm of the 2008 economic crash and is back on track toward hitting the $100 million mark in revenue. Revenue in 2011 totaled $86 million, up from just under $70 million in 2009. Saale says the key to success is being yourself, accepting that you’re not perfect and making sure your team members understand that and are ready and willing to do their part to fill in the gaps.
“You have to earn their respect by being genuine,” Saale says. “They’ll trust you if you are genuine and if you talk on their level. Be yourself, know your audience and know where you need to be and what kind of conversation you should be having with the people you’re talking to.”
Here are some of Saale’s thoughts on becoming a better leader and striving for better lines of communication in her organization.
Focus on yourself
Saale’s efforts at becoming a better communicator begin with herself. She’s the leader, after all. If she does a poor job of sharing information, the company has no hope of becoming a more cohesive and more informed group.
“You have to have clear and concise directions and you have to make sure your folks know where you’re headed,” Saale says. “You have to be a good listener. You have to understand and know your audience. You have to set expectations, and they have to be clear.”
She says growth in her confidence as a communicator has been achieved through plenty of practice.
“It’s come from experience,” Saale says. “We have trade associations and I’m on several boards in the area. I’ve also gone through some leadership roles and done some speaking. The folks in my community and on the boards that I serve on, they have helped me grow as a communicator and as a leader.”
If you feel like you’re not as effective as you could be talking to your people and delivering information, find ways to practice. Learn what works and doesn’t work, and it will help you improve.
“I have topics that I need to speak about and those topics are written down, usually on a piece of paper,” Saale says. “But I don’t write it out. I used to write it out and I used to read from the paper, but I’ve come a long way. Now I just kind of go with the flow. “I try to talk to them on an even keel, and I don’t try to be this person who is the president and is trying to make this big statement. I’m much more personable. I engage my people. I giggle or sometimes I tear up, depending on what I’m talking about. I just try to be very personable.”
Another important component is the fact that Saale doesn’t shy away when she makes mistakes, either through action or something she said.
“You’ve got to lead by example and if somebody has a critique about something I did or didn’t do, I listen,” Saale says. “It’s a consistency thing that you always have to be aware of. “It’s about talking to them on their level and getting them to understand why some of the things that we do, why we do it that way. They need to know the whys behind things and I think that gets them to buy in.
“They may not all agree about certain things, but it is what it is. It’s all about engaging them as a team and helping them understand that we’re all in this together.”
When you get feedback in those situations and people pose questions back to you, the same rules apply as to any other situation: Don’t be afraid to admit that you don’t know the answer.
“I don’t have a problem saying, ‘You know what, I have no idea,’” Saale says. “If you try to come up with a half answer, that’s not good enough. I usually just say, ‘Good question. Let’s get so and so in here who is more of an expert. I’ll learn from it, too, as we go through it.’”
You can’t worry about what your people think or about cynics who believe as the CEO, you should know everything about every last detail of the company.
“If people want to think that, they are going to think it, and there is nothing I can do about it,” Saale says. “But I’m surely not going to be one to say I know something when I don’t know it. I think I’m versed in all the different divisions in my company, but there are things I don’t know how to do. I understand the process. I’m versed in as much as I need to know.
“If there is an issue that comes up, I can get the background to understand what the problem is so we can try to get to the root cause to try to fix it.”
Bring people together
One area that has been a particular concern for Saale at Cope Plastics is interdepartmental communication.
“Most of our groups are pretty cohesive,” Saale says. “The challenge is when you start talking about inventory management to salespeople or to the branch managers and that dynamic of getting them to understand what the inventory manager’s role is or the material manager’s role is or what the salesperson’s role is. Everybody has their own directives and goals and objectives. It’s trying to get them to mesh.”
As part of the effort to fix this and bring more common purpose to everyone’s work life, Saale is working to instill shadowing opportunities for people to experience what happens outside their department.
“I need to get them to understand the whole piece — salespeople shadowing people in corporate and corporate going out and shadowing salespeople just to see what their challenges are on a daily basis,” she says. “That’s the kind of stuff we’re looking at to meld these departments together and communicate better and understand both sides of the equation.
“I just think it’s a huge value to have people who understand and are better-rounded and understand not just what they are doing, but how all the other departments need to work together.”
When you have meetings with department heads, make sure people are getting an opportunity to get familiar with what others are doing. You don’t want to overload them with things they don’t need to know or that don’t concern them. But a basic level of knowledge can go a long way.
“I’ve grown a lot with my plant manager and my director of manufacturing and understanding their challenges and the whole process of manufacturing and all that goes into that,” Saale says. “I feel with the background I have, I can be very empathetic and sympathetic when I need to, but I also understand these are the things we need to do to make it better.”
When Saale addresses her employees, she doesn’t go in expecting a ton of questions at the end of her remarks.
“Usually there are one or two people that you know are going to ask a question,” Saale says. “For the most part, people don’t raise their hands in those meetings. You just have to say, ‘OK, I have an open-door policy. But do me the courtesy of making sure your supervisor knows that you are coming to me.’ I don’t like people to do end runs.”
If you want to be collaborative, you’ve got to make yourself available. But you also need to take care that you’re not cutting out leaders who you’re paying to serve in a supervisory role and deal with certain situations on their own.
“That puts their supervisors in a bad way, and I don’t like that,” Saale says. “As long as their supervisors are aware of it and for whatever reason, they can’t get the answers they are looking for or they are frustrated, that’s fine. I just try to encourage them to go through the proper channels first. It is somewhat of a reflection on them if they don’t and it makes them look bad.”
As much effort as you make to hear the concerns of your people, you’ve also got to be careful that you don’t let them rely on you or on their supervisors so much that they become unwilling or unable to make decisions on their own.
“There are times I want to go, ‘Guys, you’re the experts. I’m not in your field, so guess what? You make that decision. If you fail, that’s fine. Try something else. I’m not perfect. We go one way and that doesn’t work, we’ll admit it didn’t work and go in a different direction,’” Saale says.
Saale takes the same approach of instilling self-reliance when she asks others to deliver information to the rest of the company. She doesn’t go overboard imposing her will on their thoughts and she doesn’t ask them to recite everything they are going to say to her before they talk to the team.
“You just have to ask questions, things like, ‘OK, what are you saying? Does that make sense?’” Saale says. “You have to give communication back to them. I try to be collaborative, almost to the point where people think I’m too collaborative or too soft.
“I don’t say, ‘OK, now read that back to me. Or tell me what I just said.’ I guess it’s a matter of how you present it back to them. But my approach is to give the people the opportunity to decide and make their own decisions. It’s always about, ‘How can I make you better.’ It’s all in the approach.”
How to reach: Cope Plastics Inc., (800) 851-5510 or www.copeplastics.com
Don’t think you’ve arrived as a great communicator.
Make sure your departments are coordinating.
Don’t let people shy away from decisions that can make.
The Saale File
Born: Alton, Ill.
Education: Eastern Illinois University, Charleston, Ill. Business administration degree with a concentration in accounting. I love numbers, but I’m also an extrovert. Most of the time, your numbers people are kind of black and white. I’m not black and white. I’m definitely gray. I have a mixture of accounting and marketing in my blood.
What was your first job? I worked at Ken’s Pizza as a waitress. I learned about dealing with people and being a servant. It somewhat humbles you to serve other people and want to do the right thing and make them happy so they enjoy their experience.
Who would you like to sit down and talk to? Because I was too young and too inexperienced and naive to think about it before he passed away, it would be my grandpa. He’s the one who started this business. He passed away in 1995. I was 30 at the time and I didn’t have the experience and knowledge and know-how I have today. So I never sat down with him on a business level. He was always just Grandpa. And I would love to do that. Boy, would I like to pick his brain about things at work.
Don’t let the words “competitive intelligence” intimidate you. First, there’s nothing underhanded about using the resources at your disposal to keep a close eye on your competitors. We’re not talking about sneaking into a competitor’s office to find proprietary information or planting a “mole” to report back to you on the competition’s latest research.
Those over-the-top (and illegal) activities are the stuff of spy novels and big-screen thrillers. Instead, think “information gathering.”
Second, it’s quite likely that you’re already engaged in competitive intelligence, but without assigning this label to your efforts. If so, it’s merely a question of taking these ongoing activities to the next level. But regardless, the bottom line is that the failure to make information gathering on your competition a top priority will create a huge blind spot for your company that will severely constrain success.
The good news is that you can launch an aggressive competitive intelligence program with fairly little of your valuable time and even less cost.
All of the information you need to gather for a robust competitive intelligence program can be found online using free online tools. Here are the steps for getting on track to regularly analyze your market competition.
Develop a list of competitors
You know who your competitors are, of course, but have you built a list?
Create one that includes the address of each competitor’s website, the company’s key leadership and a sample of any articles on your competitors or their key team members that have appeared in the media in the last two years.
Employ free tools such as Google News
Think about what an executive from Coca-Cola might do to find intelligence on Pepsi.
When we went to Google News, we discovered that five of the top 10 results generated would be very useful to Coke. Included were recent articles on new products, class-action lawsuits and sponsorships that Pepsi has undertaken.
Of course, whereas Pepsi and Coke generate daily articles on popular search engines, sometimes even hourly, your competitors may generate news much less frequently.
Nonetheless, set aside time each week for your own effort, and don’t allow a dearth of results — even for several weeks or even months — to deter you from what must be a regular activity to be effective in the long run.
Get specific and narrow the results
Consider narrowing your search to include the name of a top executive or a target area of the business. For example, that same Coke executive might want to stay informed about Pepsi’s CEO, Indra Nooyi. When we performed this test, the results in Google News for “Indra Nooyi” included almost 10 important articles in the first 10 results listings.
Automate the flow of this information
You or someone else in your company may have set up a Google Alert on your company’s name so all mentions in the news are sent to your e-mail inbox. If you haven’t, stop reading this article and go do it quickly.
Now, do the same for the names of all of your competitors. In addition to Coke and its main competitor, Pepsi, that same Coke executive would likely have created Google Alerts for its other competition, including “Dr Pepper Snapple Group” (use quote marks because you want all the words to appear next to each other).
You could also set up alerts that will snare general industry information as it breaks, just as our Coke executive might establish an alert for “beverage industry” to receive news aligned with this topic.
Delegate — if you wish
After you’ve handled these competitive intelligence tasks for a while, you may decide to turn the effort over to an assistant, an employee at a lower level or even an intern. What’s key is to keep refreshing and growing the search terms you use based on the information you’re netting – as well as to cull from your list of terms those that aren’t pulling in useful intelligence.
The regular flow of information you’ll receive on your competitors, your industry and your market will keep you on top of — and even a few steps ahead of — the competition.
Tony Arnold is founder and principal of Upfront Management, a St. Louis-based management and executive consulting firm. He can be reached at (314) 825-9525 or email@example.com.
After the hit insurance companies took in 2011, businesses are continuing to experience changes in the property market in 2012.
“Companies can expect modest upward rate pressure due to severe global property losses back in 2011,” says Rick Miller, managing director of the National Property Practice for Aon Risk Solutions. “Capacity remains stable and some increased underwriting discipline is apparent, particularly around the peril of flood.”
Risk Management Solutions’ (RMS) latest version of catastrophe modeling software is estimating increased damage impact from Atlantic-based tropical storms from Texas to Maine. Miller says the new software has translated to many underwriters pushing for higher pricing for exposures subject to losses from tropical storms.
Smart Business spoke with Miller about what is happening in the property market and what new developments companies should expect to see this year.
What kind of market conditions can businesses expect as a result of recent developments, and who will be most affected?
Businesses can expect a modestly firming property market for natural catastrophe — exposed risks (windstorm, earthquake and flood) and generally flat pricing for all other risks. Windstorm and earthquake are more geographically predictable: Gulf Coast and Eastern Seaboard for windstorm, and California and Pacific Northwest for earthquake, while flood-prone areas exist in every U.S. state.
The newest versions of catastrophe modeling software contemplate more severe losses further inland for windstorm than previous models. While global earthquakes have been severe over the past couple of years, the U.S. property marketplace has only been minimally impacted.
Earthquake risk in the U.S. is more commonly associated with the West Coast, but Virginia had a moderate earthquake felt from Washington to Boston this past August. There are seismic areas in the middle of the U.S., as well.
The 2012 Atlantic Hurricane forecast is for lower-than-normal tropical storm activity.
What is behind the firming market?
The biggest drivers behind the firming property market and the resulting upward price pressure are insurer-incurred losses and lack of profitability. Most large property carriers suffered significant losses in 2011. Year-to-date losses in 2012 have been low compared to 2011.
The good news for businesses looking for property coverage is industry surplus or capacity is near historic highs. Buyer demand has been, at best, flat, following a few years of a slow economy. Strong supply and lagging demand have maintained a relatively competitive pricing environment despite the recent lack of profitability for insurers.
How quickly will these changes occur?
We saw modest upward pricing pressure the last two quarters of 2011. That’s not to say that if you look at the entire portfolio of accounts that all received an increase. Certainly, accounts that are more challenging from an exposure perspective, or those that have had losses, have already seen pricing pressure.
Most natural catastrophe property business renews in the first two quarters of the year, as these buyers do not want to be in negotiations during hurricane season June through November. Many large businesses say, ‘I don’t want to be in the market buying insurance if there is a big storm coming.’ You lose negotiating ability and potentially are exposed to reactive market behavior.
The flip side to that argument is that if there isn’t a big storm, you might have a market that is keener to do business; however, most buyers still choose to renew their property insurance in the first two quarters.
Accounts renewing in the first two quarters of 2012 experienced slightly more upward rate pressure than what was seen in 2011. The increase for most accounts was less than up 10 percent on rate. Some accounts that renewed in May or June had already experienced increased rates when they renewed last year and that reflected in less upward pressure than accounts that renewed in the Q1 and early Q2 of 2012. Absent a significant loss event such as a land-falling hurricane or earthquake in 2012, we expect rates will moderate and increased competition will return in 2013.
How will new developments affect limits, deductibles and coverage?
As far as limits, deductibles and coverage, we expect the market will remain generally stable. Some increase in underwriting discipline is likely to be felt in respect to coverage, limits, deductibles and pricing for commercial flood coverage (not the national flood insurance program).
What new products and services have been developed for the property market, and how can these benefit companies?
Aon has developed bed bug and rent protect insurance products. The bed bug product can provide cleanup/extermination and loss of income coverage to a variety of businesses and has seen the most interest from the hospitality and real estate industries.
The rent protect product can help real estate owners protect their income stream from tenants that default on their obligations.
Rick Miller is managing director of the National Property Practice for Aon Risk Solutions. Reach him at (617) 457-7707 or firstname.lastname@example.org.
Insights Risk Management is brought to you by Aon Risk Solutions
The remainder of 2012 presents a significant opportunity to gift assets and take advantage of unprecedented tax benefits. With the increase in the gift tax and generation-skipping tax (GST) exemptions to $5,120,000, wealthy individuals should be having serious discussions about whether it makes sense to take advantage of this window of opportunity.
There’s no time like right now to make small to large gifts, without shouldering a gift tax burden, and time is of the essence because the window may be closing. The gift and GST exemptions are set to expire on Dec. 31, 2012 — and no one is sure what 2013 and beyond hold, given the uncertainty of an election year. It is possible that gifting opportunities at this level will not be available after the New Year.
“We know what the law is today and what we expect the law to be for the balance of 2012, but next year, after the election, today’s gifting opportunities could go away,” says David Heilich, principal, tax services, Brown Smith Wallace, St. Louis, Mo.
Smart Business spoke with Heilich about estate tax planning tools that wealthy individuals should consider before the increased exemptions potentially expire at year end.
What gifting tools are advantageous for wealthy individuals right now?
In 2011, there was an increase in the gift exemption from $1 million to $5 million, which was adjusted for inflation in 2012 to $5,120,000. This is a significant increase, since in 2010, the gift limitation was $1 million.
Additionally, there is the GST exemption of $5,120,000 that allows an individual to transfer wealth to generations beyond children, to grandchildren and future generations. Essentially, the GST exemption protects those assets for a longer period of time before the IRS can assess an estate transfer tax. The ability to make large gifts without paying gift tax to a trust for the benefit of future generations is a significant opportunity that could expire after Dec. 31, 2012. After this point, the exemption will ‘sunset’ because the Tax Reform Act of 2010 only changed the law for 2010-12, and the estate, gift and GST tax laws could revert back to the 2001 law of $1 million estate, gift and GST exemptions with a maximum tax rate of 55 percent, compared to today’s 35 percent.
Who should consider taking advantage of gifting before year end?
Anyone with assets worth $5 million or more, depending on their age and type of assets, should be having serious discussions about their current estate and their motivations and desires for their wealth. Other factors to take into account are potential inheritances, small business appreciation, earnings potential and charitable intentions. Consider both your net worth today and your potential net worth in the future. Make sure you know how to best use today’s estate and gift tax vehicles.
What steps are necessary to execute a gift before the close of 2012?
The critical first step is — don’t wait to act. It’s not too late, but time is of the essence with estate planning. It’s not an overnight process, although it is possible to accelerate planning in order to get gifts in place before Dec. 31, 2012.
When you meet with a qualified estate planning adviser, he or she will first provide education about the laws. From there, a snapshot of the net worth of the estate is gathered, boiling it down to a one-page summary of assets and liabilities. Many times, individuals do not realize how much they are really worth until going through this exercise.
During this time, the adviser will review the current estate plan and the assets of the estate. It is important to understand all trusts (revocable and irrevocable) and entities that are in place, along with a review of any current life insurance policies, and to make sure your health care directives, durable powers of attorney and beneficiary designations are in line with your wishes.
After you create an estate plan, it is important to review your estate plan annually, as well as upon any important ‘life events,’ and update the plan as necessary. This is all part of the process of determining how and what to gift before the end of 2012 and creating an estate plan that accomplishes your goals and desires.
What is an example of how gifting can work if planned properly?
For those who have not taken full advantage of their life exemptions and for whom it makes sense to make a lifetime gift, a wise gifting vehicle is an Irrevocable Trust. This vehicle allows the client to make gifts to a trust and allocate the GST exemption.
In essence, there are two pieces to the gifting puzzle: a gift to the trust, and if the trust includes grandchildren, the potential to apply the GST tax exemption when filing the gift tax return. Ultimately, this means the client is able to transfer the assets today without paying current gift tax and move all of the appreciation out of their estate. If the succeeding generation leaves the assets in trust, those trust assets could potentially be free of estate tax in perpetuity. However, keep in mind that this is just an example of how gifting can work, and it is important to understand a client’s assets and goals before creating a plan.
What other gifting tools can relieve tax burdens at this time?
Another component of gifting is the annual exclusion — think of this as a ‘freebie’ from the IRS. You can give $13,000 individually to anyone (and married couples who consent to gift split can gift up to $26,000 to anyone). The annual exclusion gifts are not added back to your estate and are a simple way to transfer assets to the next generation.
No one knows what 2013 will bring, but we do know that right now the window is open, and it is a great time to review and update your estate plan and consider taking advantage of these unprecedented opportunities.
David Heilich is Principal, Tax Services at Brown Smith Wallace in St. Louis, Mo. Reach him at email@example.com or (314) 983-1273.
Insights Accounting is brought to you by Brown Smith Wallace LLC