The recession has led to an increase in fraud perpetrated on businesses. For example, identity theft has become more common, with employees taking images of customer credit cards or hacking into their employer’s system to steal personal information.
“There’s also increased pressure for publicly traded companies to meet earnings expectations,” says Donna Beck Smith, CPA/CFF, CrFA, who leads the financial advisory services practice at Brown Smith Wallace LLC. “Earnings manipulation, via overly aggressive interpretation of accounting rules and manipulation of inventory costs, comes into play, which can lead to fraudulent reporting.”
With companies reducing their work forces, it’s important to put tight controls and surveillance systems in place to minimize opportunities for fraud.
“There’s an opportunity for weaker internal controls because there are not enough people for an effective system of segregation of duties,” says Don Mitchell, CPA/CFF, CFE, co-leader, audit at Brown Smith Wallace LLC.
Smart Business spoke with Mitchell and Smith about the components of the fraud triangle, the warning signs of fraud, what to do if you suspect it and how to prevent it.
What are the components of the fraud triangle?
One is motive — there’s some type of financial pressure, whether from banks or personal financial problems. The second is opportunity — when you have a reduction in force, there is more opportunity to commit fraud because there are fewer checks and balances and less segregation of duties. Finally, there is rationalization — you make the situation look better by thinking you’re just doing it for a short time or you’re going through a difficult period or you’re entitled.
What are the warning signs that fraud is occurring?
You have to watch cash and have good controls over wire transfers and who can set up vendors. Watch for eroding profit margins that you can’t explain, inventory shrinkage or unusual changes in revenue. You might just think it’s because of the down economy, but there could be underlying fraud issues. There’s a much higher need for analysis in this environment.
Another red flag is employees who have a change in demeanor or appearance. If they’re not taking any time off, coming in early or staying late, they may be doing something on the side and can’t afford to be away. Companies are cutting back on overtime, so there shouldn’t be a lot of late night or early morning work.
Background checks are also important during hiring. Many times, people continue to perpetuate the fraud, moving across the country and industries. They just pick up and do their work until just before they get caught, leave, and by the time the fraud is revealed, they’re continuing it someplace else.
What should you do if you suspect fraud?
You should contact a certified fraud examiner (CFE) or certified forensic accountant (CrFA) to assist in determining whether fraud has occurred and the extent to which it has. Is it limited to one employee, or is it a broader base with a large network?
Companies will also typically have insurance coverage for employee dishonesty. You need to give notice to the insurance company, and the CFE or CrFA will assist in filing that claim. After that, it’s up to you to file charges and pursue prosecution. You want to recover what you can — if you can’t recover from the fraudster, you can try to recover on insurance coverages and let the insurance company go after the perpetrator.
How can you educate employees about fraud?
It’s critical that the proper tone is set at the top. If you wink at small indiscretions, employees are going to see that and follow suit. Set up mandatory fraud awareness training for employees so they understand the risks, red flags and repercussions of fraud. Whistleblower policies have also become more common to help protect those who report fraud.
How can a business leader prevent fraud from occurring?
There are many action steps you can take, but the following are critical:
- Separate duties and have a strong set of checks and balances. No one person should have access to a process, such as the cash flow stream, from beginning to end.
- Cross-train employees so you can enforce mandatory vacations. You may boast that Sally or John never took a day of vacation, but if he or she has easy access to cash, that could be an indication of a fraud scheme.
- Secure your check stock and endorsement stamps.
- Set up an ethics hot line for employees to anonymously report fraud. Public companies are required to do this.
- Enforce conflict-of-interest statements requiring that employees not have side businesses or steer work toward companies they have relationships with.
- Have adequate software and IT security.
- Establish an audit committee.
- Conduct a fraud risk assessment to determine which areas of your company are at risk for fraud.
Fraud is a big expense that contributes to the increased cost of goods and services. If you can keep that under control, you can improve your business’s profitability. People also feel better when they know they’re working for organizations with high moral and ethical standards.
Donna Beck Smith, CPA/CFF, CrFA, leads the financial advisory services practice at Brown Smith Wallace LLC. Don Mitchell, CPA/CFF, CFE, is co-leader, audit at Brown Smith Wallace LLC. Reach Smith at (314) 983-1259 or email@example.com. Reach Mitchell at (314) 983-1248 or firstname.lastname@example.org.
When Mary Alice Ryan is interviewing for new members of her executive team, she thinks about her siblings.
As one of 10 children, she says it’s OK for a group of people to have different personalities, but it’s essential that everyone has the same values.
“It’s important you hire people not only because they have the best qualifications but because they also have the ability to fit into your culture and your team,” says Ryan, president and CEO of St. Andrew’s Resources for Seniors, a $65 million company that owns and manages housing and care facilities.
To find a surefire match for her team, Ryan prepares for interviews with the candidates by first narrowly defining the position. First, you first have to identify the position, its mission and its qualifications to use as a guide throughout the process. Second, you have to understand the leadership traits that your ideal candidate would possess. For each interview, Ryan uses a list of 15 traits that, she says, has “turned my whole world around.”
Smart Business spoke with Ryan about how to prepare for interviews to ensure you find the ideal candidate.
Decide what the position calls for. I start off the process by writing and then rewriting what I call a position profile. This is one page — almost in a way, an ad — but it’s a simple one page that tells what’s the position, what’s the mission of the position, what are the qualifications, what are the core responsibilities and a little bit about who we are.
We use it to enthuse a person or attract them so that every word in this is not only what you need to have, but it’s written in a way to attract them to get excited about this kind of position.
It’s the document I use as I go through the entire process, so everything that I want is really defined in here.
You’ve got to write it very tight. Every word needs to convey something so that they’re not supercilious because people don’t like to read a lot. Any executive is skimming things, so what you want to do is minimize code words. A lot of people, unless I’m getting someone who is very technical in my field, may not know those code words.
I also want to say it in a wording that is simple; that way, everything that they want is on here. What is the mission of this job? It’s really a one-sentence-type thing that says what we really want you to accomplish in the world is this.
This has worked out really well for me because if you just put a simple, little paragraph that you send out to all of your networking friends and you say, ‘I’m looking for a person to do billing,’ or, ‘I’m looking for a CFO,’ that doesn’t say enough.
Determine the position’s needed characteristics and questions to verify them. Then, along with (the position profile), what I’ve done is I’ve defined what the superior candidate is going to be and how I can state that in some sort of quantifiable language. What are the behaviors, what are the skill sets, how do they need to fit into my organization, who they are?
(I have) a list of 15 leadership traits, they’re like problem solving, technical learning, consumer focused. Each type of job needs different traits. I re-rank these traits to what are the most important ones to the least important ones for this job. When I’m looking for a CFO, I may be looking for something different than the head of my charitable foundation because of the traits they need to do the job. So when I interview people, I use these traits in my interview.
If I know I’m going to be interviewing more than one person, I try to use the same questions in each interview. So if one of these traits is problem solving, if that’s a really important one, then I want to ask them questions about telling me about situations where they might have to deal with X type of problem and how did they deal with it. If it’s presentation skills, they’re really going to make a lot of presentations, ask them about how do they prepare for a presentation, what are they at ease with, how do they go about giving a presentation. Taking any of these qualities and just trying to bring those back in to using their work history along with the leadership traits.
Understand your own culture. Finding the right fit is so important. There are a lot of people out there with wonderful backgrounds and skills. If it’s the CFO they probably know accounting, they probably have done management of people before, they’ve probably done major financing.
Those are almost the easier things to find out about a person because it’s quantifiable. What’s hard is the value system of how do you find that they could be a good part of a team. Every person’s team has their own traits — they work differently, they have a different culture.
You need to understand your own culture, and the people not who will be working for that person, but the people that will be working with that person, the other executives that they will have to interact with. Know how that person, or get the best feel of how that person, would react with those personality types.
So you really need to know the personality types of each of your executives that are on your team. That’s why you interview to the leadership traits.
After you’ve found out the person can do the job, they know the books, then you say what are the traits that are most important.
Tom Cornwell has seen the way a group of people can bond as a team at the right time in order to accomplish greatness. Just look at the St. Louis Cardinals’ improbable playoff run to win the 2006 World Series.
The team struggled throughout the regular season, and while it managed to finish on top in its division, no one expected the Cards to make any noise in the playoffs. Instead, the team jelled and ended up winning it all.
“Exceptional teamwork allows you to take good, but not necessarily super performers, and accomplish extraordinary things,” says Cornwell, general manager at DRS Sustainment Systems Inc., a subsidiary of $3.3 billion (FY2008) DRS Technologies Inc. “What we attempt to do as leaders of this organization is to recognize that the benefit of the team and its success is greater than any individual’s objective or goal.”
In the business world, chemistry problems often occur when the broader team that represents the entire company begins to split off into smaller teams, each with its own set of goals and objectives.
“There is a natural tendency that when we organize a group of individuals, we establish a leader and we typically then want to treat that organization as a team,” Cornwell says. “There is also the element of competition within our society. If you’re not careful, having multiple individual teams as part of an organization can create competitive situations that actually become conflicts between departments. In its most extreme example, you get type A personality leaders with a conflicting objective to another department. It’s akin to all-out war.”
When Cornwell took the helm of the 800-employee DRS-SSI, he did not see a war brewing at the defense contractor, but he did see some cracks in the foundation.
“What I was seeing was that we had functional organizations that were created, supported and focused for the benefit of the functional organization,” Cornwell says. “It wasn’t necessarily for the benefit of the whole organization or the benefit of the customer.”
Cornwell needed employees to commit fully to their individual tasks but to do so in such a way that they wouldn’t lose sight of the big picture.
“If done correctly, every employee should have an individual goal that supports the strategy so they can relate to it and say, ‘I’m helping grow the business because I’m doing the following and it’s part of my goal,’” Cornwell says.
Here are some of the ways Cornwell helped employees see that connection to make DRS-SSI a stronger team.
One of the best ways to keep employees from being distracted or drawn into tangential conflicts is to keep their task simple. It’s something Cornwell has made a priority at DRS-SSI.
“It may seem strange that I would mention this in the concept of teamwork,” Cornwell says. “We have a very complex business. We have over 150 products that we’ve manufactured in recent history, anything from a ground surveillance radar, which is a very complex piece of electronic equipment, to a water bottling machine that is used on the battlefield, and everything in between. … Trying to manage that can be very challenging.”
It becomes less challenging if you overlay the work that your employees do with a basic idea, a core competency that defines what your organization is all about.
“When you can define your business with one core competency and then pursue it, you will move forward in simplifying the business,” Cornwell says. “There are certainly support functions that you must have in the process of doing that. But if you can define one core competency, you can have employees rally around that specific opportunity.”
In the case of DRS-SSI, Cornwell felt the best core competency to rally around would be providing great customer service.
“We’re very fortunate that we can group or categorize our customer into one very important category,” Cornwell says. “It starts with rallying around that. That’s a wonderful opportunity in terms of customer focus.”
The idea is that no matter what department you’re in or what product you’re making, you all are working toward the goal of getting your customers what they need.
“One day we’re working on this program in support of the Navy,” Cornwell says. “Another day we’re working on another program in support of the Army. At the end of the day, we’re all working together under a standard set of expected rules of engagement.”
As a means of promoting the team concept, Cornwell and his team tasked a group of employees to come up with an idea to recognize teams who exhibited strong performance in support of the customer and worked together to do it.
“I personally recognized a couple years ago that I wasn’t sure we were treating one another in a respectful way,” Cornwell says. “I wasn’t quite sure if we were recognizing employees for good behavior and good things. And I certainly wasn’t sure about the reward system we had in place.
“They created what we call the R3 initiatives: respect, reward and recognition. We’ve used that as a basis to try to establish standard practices of what’s acceptable behavior and this idea of customer focus, but at the same time, working together as a team. That’s probably been one of the most significant successes associated with this concept of empowerment holding all levels of the organization accountable.”
The reinforcement and reward encourages employees to do their best to support the team concept. So what happens when people show that they don’t want to or can’t work with others as part of a team?
“I’ve made it very clear relative to what’s acceptable and what’s unacceptable relative to working together,” Cornwell says. “In those instances where individuals were incapable of working together, we’ve made changes.”
Set a good example
It sounds too obvious to even say it, but in a good organization, employees take leads from their leaders on how to act and behave in the workplace. If you want employees to feel like they are part of a team and act accordingly, you need to show that you support it, too.
“If the employees that we have as part of this organization can see us as a leadership team visibly working together for a common cause and promoting the organizational goals over departmental goals, I think employees and members of our team begin to get it and support it,” Cornwell says.
“It’s the point of time when the actions don’t support the words that can be very hypocritical and destructive. So we are constantly needing to monitor that, and it’s not easy.”
DRS-SSI has a legacy that stretches back to World War II, and Cornwell says that wasn’t always easy to work with in his effort to come up with the team concept that he wanted to develop.
One of the key steps in the process is the idea that employees can see their importance in the organization being in direct correlation to how their team rates or is thought of. If it feels like the team you are working on is making a difference and contributing to the goals of the company, you’re going to feel a lot better being part of that team.
Cornwell had to work through the challenge of getting leaders of his various departments to take authority and show leadership to their teams.
“Every question that was asked, the middle manager would just
send it up the chain of command and say, ‘They want to know this,’” Cornwell says. “We finally said, ‘Guys, you have that answer. You have that ability to answer that question, please go ahead and answer it.’ It’s been very rewarding in terms of watching our leaders grow and provide on-the-spot feedback to our employees to what might be considered in the past difficult questions to answer.”
To ensure that these middle managers could be strong leaders for their teams, Cornwell initiated what he called huddle manager meetings.
“Every two weeks, we assemble about 10 percent of our organization who are middle-manager leaders, and we have a senior leadership team member who will share information firsthand,” Cornwell says. “We can then discuss at that meeting any questions, issues or feedback. We ask those huddle managers to go back into their natural work groups and share that information. They are empowered to address questions or concerns from their employees.”
Cornwell says he is willing to accept that, in some cases, the communication may break down and a middle manager may provide incorrect information.
“We just go ahead and correct it,” Cornwell says. “We stand behind the leader recognizing that none of us are 100 percent, and we support them when maybe the answers aren’t as accurate as they need to be.”
The goal is to give those leaders an active role in what you’re doing so they convey the energy and sense of team that you need to get things done.
“We challenge our collective 800 employees to think in terms of, ‘How do you take that vision and goal and drive it into your day-to-day job?’” Cornwell says. “That’s how the leaders of our company are challenged. They are asked to sit down with each of the employees and talk in terms of what they can do and what we can do in support of the goals.”
When you or others leaders in the company talk with employees, don’t just say, ‘Hey, I’m here, you got any questions,’ Cornwell says.
“People are very quiet,” Cornwell says. “They’ll say, ‘Nope, I don’t have any questions.’ But if I go into a work environment and see what they are doing and I ask them, ‘What is that? What are you doing? Where is that used? How is that used?’ People then are comfortable and they’ll talk about that. Maybe that’s the icebreaker. Then I believe they are very quick at that point to share concerns they might not have brought up in a strictly question-and-answer group thing.”
You also need to resist the urge to try to fix every problem on your own.
“That’s probably one of my biggest challenges,” Cornwell says. “I have a tendency when someone brings an issue to me, I feel compelled to fix it. In my career as a leader, I’ve had to train myself to accept the input but allow the responsible party to address the issue. … It’s very important that employees have a sense that we support the managers, supervisors, vice presidents, whatever in this organization and that we support the work that they do. Otherwise, I don’t think anybody would want to be a leader.”
How to reach: DRS Sustainment Systems Inc., (314) 553-4000 or www.drs.com
DRS Sustainment Systems Inc.
One of the first things Tom Kraska talks to potential employees about is the tenure of his staff.
His 12 superintendents have all moved up through the general contracting firm, and the company’s 60 employees average 15 years at K&S Associates Inc.
Those numbers are a result of Kraska’s commitment to growing leaders from within the company, which posted revenue of $104 million last year.
“When people come here, I ask them what’s different about places you’ve worked in the past,” says Kraska, the company’s president. “One of the things they like about K&S is that we provide the best possible lower-level management staff we can find. We are developing new managers, future managers within our own system.”
Keeping people for the long haul means hiring employees who are dedicated to the industry and who complement your culture, says Kraska. From there, you have to provide training that will serve them throughout their careers and increase responsibility as it’s earned.
Smart Business spoke with Kraska about how to grow your employees into your company’s future leaders.
Look for people devoted to the industry. We look for people that have made a commitment to this business. And one of the ways you judge that is what type of college courses they’ve taken and what type of degrees they’ve obtained.
We are strictly looking at the college, the degree program. We know a little bit about the construction management programs that are available, and if we don’t, we do a little bit of research to find out what the courses center around, if it’s the type of work we do.
Set expectations during the interview. We look for people that are interested in starting from the ground up and learning the business. We’re not really interested in the prima donnas that come out of school with the attitude that you owe them something.
We look for humble people that are willing to learn, that have a good work ethic. Then we assign them to some of our top managers as assistants … and they learn the business from the bottom up.
I have a tendency to be completely open and honest with people about what they should expect. I generally invite them to spend a day here while we’re working and get a feel for us. While they’re doing that, I watch their expressions, I listen to the questions that they ask and get a gut feeling for whether it’s a fit or not, while they’re doing the same thing.
Generally within the interview process and the job offer, there is a job description that is attached that sets not only the basics out but also the long-term goals and gives people some idea of what we’re looking for and how they’ll be graded or judged, if you will.
Being open and honest about the company is very important, and I think that if you try to sell the position that it’s something that it’s not, you’re just setting yourself up for failure.
Teach new employees the business by working as a team. They usually are assigned to a project manager or senior project manager as support staff, which ties back to that solution of, how I keep my senior people is to provide them good support staff. It’s a nice circle.
The support staff helps me keep my senior-level people so they’re not overwhelmed, and at the same time, the junior people are getting that experience and I’m growing them from within the organization.
(You learn) the business from on-site experience, hands on. Being on site, have your office in a construction trailer, dealing with the trades and seeing the building being built, being part of that team.
As a manager who will later spend most of their time in the office that part of your career that’s spent out in the field is invaluable. I don’t think you can succeed without a good handle on that.
Slowly hand out responsibility. You have to be patient with people. You can’t expect too much right off the bat. You have to limit their authority so that they don’t make any mistakes that get you in trouble. At the same time, you have to give them some freedom so that they can make mistakes and learn from them.
There’s a fine balance there of how much authority you can give them so mistakes don’t have a severe impact.
There are some givens within our management group, [like] our management duties that you don’t let the assistant project manager handle. We categorize the work from experience as to what is safe to be handled, what needs to be reviewed by senior project management, and we just assign those tasks based on that.
Slowly, as people prove themselves, you start to increase their responsibility, increase their authority and, eventually, increase their job description.
It’s the comfort level from the way they’re handling their assignments and feedback we get from our subcontractors, owners, representatives of our clients that we work for. It’s a combination of gut feeling and customers.
Look at employees’ track records to determine whether to promote someone. Look at the success of the employee, the success of their projects, the success of their tasks.
I am not a tenure person. I strictly respond and promote due to their success, and depending on a position, that’s measured in so many different ways.
There are criteria that you have that are completely different than someone in an estimating role or an administrating role or a superintendent role. There are separate criteria that you (use to) gauge their success.
How to reach: K&S Associates Inc., (314) 647-3535 or www.ksgcstl.com
“You don’t know whether you’re on the 90th floor or the ninth floor heading down,” says Vrabely, president and CEO at Huttig Building Products Inc. “So the biggest challenge is not really knowing where the bottom is.”
Vrabely thought his millwork and building products distribution company had found the bottom in mid-2007. Housing starts had fallen to the level his team had predicted and the market appeared to be stabilizing.
Unfortunately, it was just pausing before an even more severe dive. Instead of bouncing back, the housing market only got worse in the second half of 2007 and still has yet to recover, putting Vrabely and his company in a precarious state. Revenue fell from $875 million in 2007 to $671 million in 2008.
“It’s a very delicate balancing act to ensure survivability while keeping an eye on the future,” Vrabely says. “You’re trying to maintain a strategic view of the future, but you are challenged with immediate needs that need to be addressed from a financial and cost perspective.”
So what’s a leader to do? How do you keep 1,200 employees from being distracted about the potential loss of their jobs and focused on the work they were hired to do while you try to save the company?
The biggest mistake you can make is to hide in your office and say nothing. You need to lay out the facts as you see them and give your employees a sense of what is happening with the business.
“At the end of the day, I always try to communicate to our employees that not everyone will agree with the decisions that we make,” Vrabely says. “But my hope is that they at least understand why we are making those decisions as well as the impact those decisions will have on our business. Ultimately, all of our goals collectively should be to ensure that we survive this market downturn.”
Here are some of the techniques Vrabely has used to give his company hope for the future.
Be clear and decisive
Speculation is one of the biggest drivers of anxiety at a company where business is hurting. Employees worry about whether their job might be affected or if their plant might be shut down.
Huttig shut down 11 locations in 2007 and reduced its head count by 30 percent in response to the continued decline of the housing market.
Vrabely says there is no easy way to tell people they are being let go, especially during a recession when their ability to find a new job may be difficult.
But when it became clear what moves needed to be made, he did not waste much time.
“If you’ve already made the decision that an individual or location is not part of the go-forward plan, you have to be willing to pull the trigger earlier than later,” Vrabely says. “If there is any doubt, and what I mean by doubt is the decision hasn’t been made, you have to focus on the fact that you’re going to do everything you can to ensure that they survive.”
If employees are wondering whether or not they are going to be coming to work tomorrow, their focus is not going to be on the job.
“You have to provide them with hope that, ‘Guys, we can’t focus on the what if we lose our job or we can’t focus on the what if our branch gets shut down. The key is to focus on what do I need to do as an employee to ensure that I’m going to be here.”
Removing that doubt is not easy, and perhaps impossible, when employees see their colleagues and friends being let go. But when you demonstrate that you have a plan, it gets a little easier.
“You want to try to provide everybody with the opportunity that, while we are all in this together, you do control your own destiny,” Vrabely says. “If you do perform well as an individual or you can perform well as a branch, there would be no need for us to look at eliminating your position or your location.”
It’s critical for a leader to understand in his or her own mind what the ramifications of a decision might be before stepping into a meeting with others.
“I consistently spend time by myself thinking about the business, analyzing the business and developing my own action plan,” Vrabely says. “I never walk into a strategy meeting or even a staff meeting or a conference call with folks running our field locations without my own plan.”
Vrabely recalled the discussions, which took place heading into the 2009 budgeting process, that concerned the possible cutbacks in employee perks and benefits.
“We collectively put together a list of potential cost-cutting activities, pulled the management team together and went through this list one by one quantifying what the savings might be as well as the impact that those cost-saving activities would have on every employee in the organization,” Vrabely says. “As we went through that list, the pushback from certain individuals on the team around certain items became personal.”
He says he does not open the meeting with a deep explanation of his position on these topics because he wants to hear what others think. Sometimes, that feedback gets heated.
“What I don’t want to do is lay out my plan and then ask for feedback,” Vrabely says. “That tends to stifle communication and feedback. Even if you foster a very open environment where you encourage people to challenge your thought process and even if you do not view yourself differently, one of the things I’ve learned from being the CEO compared to the COO is that other people do view you differently.”
Vrabely simply presents a topic for discussion and asks others what they think.
“I solicit input on a very consistent basis and I think throughout most of the organization, employees are pretty comfortable providing me with their feedback and with their thoughts,” Vrabely says. “I always try to be cognizant of taking in their opinions and feedback prior to making any decisions. As a leader, I think it’s critical that you don’t isolate yourself, even in tough times, and think you’re the only person who has all the answers about what needs to be done. You have to be willing to allow people to challenge your thought process.”
Vrabely says he began to realize that the group would be unable to reach a decision regarding the possible cutbacks on its own.
“The buck stops here,” Vrabely says. “I am willing to make whatever decisions are necessary to ensure our survivability. I walked out of that meeting with a very clear understanding that I needed to return to my office and do my job, which was to make the decisions. I think once I made those decisions, the way in which I communicated them not only to my team but to their teams made all the difference in the way people perceived the decisions.”
Vrabely and his executive team met with general managers and told them what was happening. He documented each decision, explained why each decision was being made and what impact it would have on the company’s profitability.
The effort to explain the process showed employees that there was thought given to the moves.
“People get very nervous when they feel decisions are being made in a vacuum and just being announced without any logic or communication or explanation behind the decisions,” Vrabely says.
“It comes back to my fundamental rule that I understand not every decision I make is going to be popular. There are going to be people who are going to disagree with the decisions I make. That is their right. At the end of the day, all I can ask is that they understand the thought process I went through to make the decision. The only way you get that level of understanding is through openness.”
Despite your best efforts, very few leaders will accomplish everything on their checklist on a regular basis, especially when you’re managing in tough times.
“It is literally an issue of prioritizing my workload, prioritizing the strategic decisions that need to be made and then literally filling in with the day-to-day operational duties I have,” Vrabely says. “So depending on what day of the week it is and what’s coming at me over the course of the next month, you just block the time off, dig in and get it done.”
Vrabely equates the process to a juggling act consisting of beach balls, volleyballs, softballs and golf balls.
“The key is to ensure we do not let any beach balls or volleyballs hit the ground,” Vrabely says. “Occasionally in this environment, if a softball or a golf ball hits the ground, chances are it’s going to bounce back up. We just have to make sure the key aspects of the business do not deteriorate in this environment.”
You need to find ways to keep the big picture in sight during those particularly difficult times.
“The only way I rationalize in my own mind the fact that I may be eliminating positions and putting employees out on the street seeking new employment is that I still have 1,200 people that are employed and I’m still supporting 1,200 families,” Vrabely says.
You need to find ways to celebrate the small victories that your company sees and use those victories to boost employee confidence going forward.
“I probably do it more than anything through my personality and just through my face-to-face and phone communications with people within the organization,” Vrabely says. “I was walking through our corporate office, and this goes back to shortly after we made the announcement on many of the contingencies that we pulled in 2008. I had a director-level staff person within our organization pull me aside and say to me, ‘How can you be so upbeat? How come you are smiling and joking around with people?’ My response to that individual was, ‘What is the alternative? Would you prefer me to be walking through the office, with my head down, not talking to people, not being upbeat, not smiling?’
“At the end of the day, this is a very important endeavor that we are all embarking on. But it is still business, and it’s still work, and it’s still a job. We have to consistently keep it in perspective that, yes, this is the most important thing we do because it’s how we support our families. But at the end of the day, that’s what it’s really all about.”
How to reach: Huttig Building Products Inc., (800) 325-4466 or www.huttig.com
Handle with Care Packaging
124 W. Lockwood Ave.
St. Louis, MO 63119
Shipping and packaging
Input Technology Inc.
1470 S. Vandeventer Ave.
St. Louis, MO 63110
Data entry programs
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1430 Washington Ave.
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As the stock market continues to fluctuate, it is common for investors to keep a close eye on their money. And, when money is lost, it is natural to want to know what happened and who is to blame. However, these can be very difficult questions in something as inherently risky as the stock market.
“Where there has been a public outcry or investigation of particular activity, traditionally lawsuits generally follow involving the same type of activity,” says Lisa A. Nielsen, Esq., an officer with Greensfelder, Hemker & Gale, P.C.
Smart Business asked Nielsen how companies can prevent litigation, and be prepared for it when it becomes inevitable.
What is the difference between this economic downturn and the most recent one in 2000?
In 2000, many of the complaints and lawsuits that followed were related to the burst of the dot-com bubble, the decline of technology stocks or the lack of diversification of customer accounts.
The current market downturn is not quite as discriminating and has impacted all sectors, including those that have traditionally been characterized as safer than others. Almost everyone has been affected and investors appear to be focused on corporate behavior, as well as the behavior of the truly egregious, such as Bernard Madoff, rather than blaming their traditional brokers.
I do not think anyone could have predicted what happened in the market during the past year, with the Dow Jones plummeting to below 7,000 points. I have seen a difference in the nature and the character of the lawsuits and the arbitrations that have been filed recently. The Financial Industry Regulatory Authority (FINRA), the arbitration tribunal where most broker/dealer cases go to be heard, has seen a 90 percent jump in the number of new arbitration cases filed in the first couple of months in 2009, much of which is due to auction rate securities and collateralized debt/mortgage obligation cases. FINRA has set up a separate track for cases relating to auction rate securities to handle the volume in a more expedited manner.
So the recent increase in case load is not necessarily due to the case where a client’s portfolio has declined by more than 30 percent and they attempt to hold their broker responsible for no reason other than its decline.
When is the best time to get your lawyers involved in an issue?
Ideally, get your lawyers involved in a matter at the outset of a potential problem — before litigation has been filed. Whether it’s in regard to a compliance issue, a particular broker issue, a product failure or a regulatory inquiry, your lawyers will work with your compliance and legal departments to pursue the goal of preventing a matter from becoming larger than necessary. Generally, a party’s approach to a matter changes once litigation has been filed. After the regulators and the individual litigants have committed to their positions, people have a tendency to dig in their heels in anticipation of a battle.
By getting involved early in the process, your lawyers can assist you in securing better document management, maintenance and retention and they can assist you in fact gathering. I have found that when lawyers get involved early on, they can get right to the heart of the matter so that you know from the outset what the pros and cons of the case are. Therefore, you can make early decisions on your approach to the case before spending money on protracted litigation. It’s important to determine whether it is a matter you want to resolve quickly, or if it deserves to be fought and vehemently defended.
Your lawyers should also counsel you on the approach to the investigation and how to appropriately preserve attorney/client and work/product privileges. Often times, at the outset of the problem you are not thinking about the consequences of a future suit. Or, you will involve witnesses to the event who really should not be a part of the subsequent investigation. It is not your fault; you just are not thinking about subsequent litigation. You are thinking of immediate response.
Has the volume of litigation increased in a down economy?
Some litigation has become more common than others. We are seeing an increase in collection matters, foreclosures, bank and other lender matters. In terms of the securities arena, we are seeing an increase in regulatory matters, private litigation that follows regulatory investigations, and matters involving pension and retirement plans.
Is it harder to litigate in today’s economy?
I really do not think so. I do think, consistent with cross-effectiveness and overall cost issues that firms are experiencing, that businesses are taking a very hard look early on at whether or not it makes sense to arrive at a resolution early or litigate. Strong legal advice adds value for the clients before the resolution stage by assisting in their investigation, properly advising them of the matter and making an informed decision relating to that resolution.
Lisa A. Nielsen, Esq., is an officer with Greensfelder, Hemker & Gale, P.C. Reach her at (314) 516-2669 or email@example.com.
In these current economic conditions, it’s a good time to reassess your tax and estate planning. Whether it is gifting stock and real estate to shore up your estate, or trying to make up for losses in your business, there are many ways to help make sure your finances are in order and your estate tax posture is maximized.
“Estate planning is the silver lining in the economic gloom,” says Robin Bell, a member at Brown Smith Wallace LLC. “While people always need to be cognizant of the value of their estates, you still need to do the basic blocking and tackling to make sure that your wishes are granted, and your heirs and beneficiaries are taken care of.”
Smart Business spoke with Bell about the new estate tax exemptions, how to take advantage of quick tax refunds if you have experienced a tax loss, the basics of the Section 179 deduction and new tax law changes.
How do you gift stock and real estate?
With the current value of stocks, you can gift more, and when the market does rebound, the appreciation in those marketable securities is out of the estate of the person who made the gift. Now is a good time to think about ways to reduce your estate, so in the future you can control and reduce estate tax problems.
Just as giving stock in a down market can be beneficial considering future appreciation, the same holds true with real estate, family limited partnership interests and closely held companies. You must go through the proper channels in order to benefit — have an appraisal or a business valuation conducted — but you will benefit greatly in future years by gifting these items when we are in a down economy.
What is the impact of the new estate tax exemptions?
The exemption had not increased for several years. Finally, the exemption has increased. For 2009, the exemption is $3.5 million. In 2010, estate tax totally goes away, unless we have another big tax bill in the next 10 months. In 2011, the exemption is supposed to be reset to $1 million. The general feeling is that they will probably permanently increase and index it to a level that makes sense, which could be somewhere between $2.5 and $3.5 million on a go-forward basis. However, with the latest news from President Obama, we can only plan for the laws today.
What types of quick tax refunds can you get for net operating loss years?
For companies that incur a tax loss, it can be carried back to recoup tax paid in the preceding two years. The goal would be the sooner the better, as the refund could impact cash flow planning.
Some companies may not have a net operating loss, but paid a lot in estimated taxes for 2009 based on 2008 results. If their 2009 year doesn’t look as good as their 2008 year, they can use Form 4466 for a quick refund. This can be filed before their return is filed, which is another way to impact the company’s cash flow. There are requirements — it has to be at least $500, at least 10 percent of your current estimated tax liability and the service has to act on it within 45 days.
What is the Section 179 deduction?
The Section 179 deduction is designed to help businesses that need to make investments in capital assets. For any business that places $800,000 or less of assets in service during their fiscal year, they are allowed to write off up to $250,000 immediately. Also in place is an immediate 50 percent bonus depreciation, which is for all assets placed in service for that year. This is available to everyone — some of the larger corporations that may have placed more than $800,000 of assets in service are not eligible for the entire 179 deduction, but they would be for the bonus depreciation. You can take the bonus depreciation if you have taxable income or loss. You have to have taxable income in order to take the 179 deduction. You can carry the deduction forward, but cannot create a loss with it, nor file a carry back claim.
How will the new tax law changes affect companies?
The new tax law targets individuals and small businesses. But for larger businesses, there is a work opportunity tax credit that has been expanded to include two new classes of people — unemployed veterans and disconnected youth — which might encompass more employers who qualify for that credit.
The credit is up to 40 percent of the first $6,000 of wages paid to the qualified employee. They’ve also expanded the rules for cancellation of certain indebtedness income. Consult your tax adviser on that. The rules are detailed, so make sure that you are following them correctly.
ROBIN BELL is a member at Brown Smith Wallace LLC. Reach her at (314) 983-1217 or firstname.lastname@example.org.
When Joe Steiner saw a headline that read, “Reinvent or die,” the phrase hit him so hard that he went to his top management and proposed that they rebrand the company.
When they were done, the company had a new vision for growth and would soon have a new name — Color Art Integrated Interiors Inc. Steiner, chairman and CEO of the office interiors dealer, walked the company through the rebranding process nearly seven years ago, and the company continues to grow: Color Art posted 2007 revenue of $92 million and anticipates $115 million for 2008.
“You have to constantly reinvent yourself and do things differently in the market, or the competition will either catch up or pass you,” Steiner says.
The rebranding process starts with understanding your clients and the market needs, evaluating your vision and then educating your employees and the marketplace about the changes, he says.
Smart Business spoke with Steiner about how to craft and implement a new brand for your company.
Evaluate your vision.
We go through a process of making sure where we’re going is still in alignment with our vision.
The vision meetings have some structure to them, but we don’t try to limit any thought or input or idea that somebody has because basically, our vision is as broad or as focused as we make it.
We don’t talk anything about numbers or goals or objectives. We just talk about where we want to go as an organization — looking at different ways to grow our business.
If you don’t do something differently, it’s just so hard to grow.
We keep ourselves wide open, and after we come out of the meeting with ideas and thoughts and where we want to go, we put it up on the whiteboard and say, ‘Is this in line with our vision?’
Align your new brand with customer and market needs.
As you look at your core competencies, you have to say, ‘Who is your customer?’ You try to take a look at your core competencies versus what your customer is really asking for.
That requires face-to-face visits with customers. It also requires taking a look at what they do and trying to cater your services around their needs.
I think it needs to be well thought out; that’s why we went out and hired a firm to help us through the process.
We hired a firm, and the firm basically did a marketing study on all the various businesses we were in and took all of our competitors and our strengths and our weaknesses and our threats and our opportunities and kind of brought that back and said, ‘How does the marketplace currently look at us, and ideally, how do we want them to look at us?’
[Ask], who are you? How does the marketplace perceive you? How do you want the marketplace to perceive you? And, if those are different, how are you going to change it?
Educate your employees.
First of all, we went through an extensive six-month process within our organization to help everybody understand what our vision was, how they fit in to the vision and what we were going to be doing and how that would make us different.
We had a booklet made up. We told them how we were changing our name, told them how we were branding ourselves going forward, and what the expected and the desired results of those were.
If employees don’t understand how we’re different and why we’re different, then it’s hard for them to envision how they play in to that, and everybody has to play in to it.
When I talk about our employees, I’m talking about every employee in our organization and how they have to understand.
We had a multidisciplined team that went down throughout the organization. We tried to seek input with every level of the organization to not only confirm we were on the right track but to gauge what their understanding level was and try to get a feeling of how they were going to be able to understand it and take it to the marketplace.
Your people have to understand the vision and the process thoroughly before you can take it to the market.
Inform the marketplace.
I’m a strong believer in core competency, and the way we define core competency is being able to do something that nobody else in the market can do. There may be others that say they can do it, but they can’t. And then taking that core competency, branding it and taking it to the market so that the marketplace knows how you’re different and why you’re different.
The significance is as an example: When we went out and researched the marketplace, the marketplace thought of us as an office furniture dealership. We already knew we were much more than that.
If we had all of this and we were trying to accomplish a certain thing in the marketplace but the marketplace only viewed us as an office furniture dealership, then we would have to do something to tell the marketplace how we were different, why were different, why we were better.
As we went through this whole rebranding process, we first of all ran two advertising campaigns. We went out and told the marketplace how we were different, which was basically expounding upon our core competencies.
After the first year of advertising, then we went into another campaign that basically said, ‘We’ve been telling you how we were different. Here are the results of that.’ We had customer testimonials, we had projects that we did and customers commented on.
HOW TO REACH: Color Art Integrated Interiors Inc., (314) 432-3000 or www.color-art.com
In the seven years that he’s been running Precision Practice Management Inc., Mike Barnell has probably used thousands of sports analogies.
The president and CEO of the medical billing company says that he sees a strong connection between sports and business, and he uses that connection to motivate his 85 employees.
“People get the concept of never giving up until the whistle blows, giving the extra effort, or knowing that races can be won and lost by tenths of a second,” he says. “When you apply that to business, that delivers a message that strikes home with people.”
Smart Business spoke with Barnell about how to communicate your message effectively and how to develop a vision your team will believe in.
Q. How do you create a vision your employees can buy in to?
You have to really know your business. That comes from being involved in a lot of the day-to-day things going on in all parts of the company.
You obviously can’t do that on a full-time basis, or you’d be micromanaging people. But if you are able to step in and step out of various issues, your people pick up a lot from you as the CEO from that process, and you get to know your business.
As you’re developing your vision, you had better know what your capabilities and limitations are because you’re the top guy who is trying to set the vision for where the company’s going. You obviously have to know your competitors and the industry you’re in — the big picture. It’s a great idea for the top guy to be involved in a trade association so you can make sure there’s not something big that’s happening in your industry or about to affect your industry that you’re not aware of.
Then your goal would be to carve a path for your company that is not just tracking where your larger competitors are going. That can be tempting — there’s someone bigger than you that has been successful, and you think, ‘If we just do what they’re doing, we can be successful, too.’
I’d much rather believe the Wal-Mart or Enterprise car rental examples, where they took a different path in an already well-established industry and carved a different niche for themselves.
Q. How do you avoid copycat visions?
If your vision is really somebody else’s vision, something you picked up from reading a book on Jack Welch or something, then your staff is going to pick up on that.
Your vision has to be real. It should come from the core, inside of you. Otherwise, you’ll find out over time that your staff just doesn’t buy in.
Then, you have to go live the vision. It’s one thing to say what you believe and what you think the company should do. But if you don’t yourself live and breathe that vision every day in terms of your actions, they’re going to pick up on that, as well.
It’s like the manager of a baseball team telling his players to be on time for every practice, and then the manager shows up late himself. Obviously, he’s lost a lot of credibility if that’s what he does.
Also, be consistent in your vision. If you’re changing your vision every 10 days, it’s not much of a vision after all. Not to say you don’t adjust what you do with new facts and circumstances, but there should be some consistency in the message you send to your staff and your clients.
Q. How do you make sure everyone gets the message?
When it comes to communication, I’ve found as our business was small and growing larger, I found the total volume of information that had to be managed, the total amount of detail that had to be taken care of was huge. We had different people struggling to communicate with each other on those various details.
So one thing we did was set up a client/staff meeting. Every two weeks, we have a meeting that actually takes a full day. You can imagine the commitment that it takes — one day out of 10 is devoted to all the senior management getting together, going over every single client, talking about what’s going on with that client.
But look at the results: On a routine basis — not random — we have a structure where everybody gets together and is able to share information about what took place in regard to a specific client or issue. And it updates everyone on what got taken care of, what new issue needs to be decided.
We do the same thing on a monthly basis with our operating teams — staff members who do the day-to-day work with clients.
I’ve found it eliminates the e-mails, the phone calls, the other meetings that might otherwise have taken place between those two weeks. We all get to influence each other, trade a lot of good information. Then, we depart for two weeks and get our business done somewhat independently before we have the next meeting.
HOW TO REACH: Precision Practice Management Inc., (314) 787-0681 or www.precisionpractice.com