Tag Archives: management

construction companies

Construction Companies Can Be Exposed To Lawsuits When Assisting The Government During An Emergency

Imagine that you own a construction company and one of your employees comes in and tells you that the two largest buildings in town have collapsed. You receive a phone call a few days later from a government official who informs you that the police and fire department need your construction company to send heavy equipment and demolition crews to the site of the collapsed buildings to help remove large pieces of debris in order to save people’s lives.

Some large construction companies in New York were faced with that exact situation after the Sept. 11 attacks. The construction companies that helped clean up the World Trade Center disaster site were responsible for removing one-and-a-half-million tons of debris that covered many city blocks. Before long, the workers who were removing the debris started getting sick, as did police officers and firefighters who were stationed at the disaster site. Many of them have filed lawsuits against numerous entities, including the construction companies that were called upon to help with the debris removal effort.

The construction companies failed in a recent attempt to dismiss the lawsuits on grounds that they were immune from liability because they responded to an emergency situation.

Any business that decides to help in an emergency must protect itself, or face the legal consequences of the almost inevitable mistakes and accidents that will happen. With careful planning and prudent oversight, you can protect your business from lawsuits related to its help in an emergency or disaster situation in the state of Arizona.
Arizona’s immunity statute

The statute A.R.S. § 26-314(A) provides immunity for the state of Arizona and its political subdivisions (i.e., counties, cities and other local governments) for the actions or inactions of its “emergency workers.” The statute states that “emergency workers” shall have the same immunities as agents of the state of Arizona and its political subdivisions performing similar work. The term “emergency worker” is defined in part as “any person who is … an officer, agent, or employee of this state or a political subdivision of this state and who is called on to perform or support emergency management activities or perform emergency management functions.” Therefore, the only way to be sure your business is immune from lawsuits related to its assistance to the state or city government in a disaster or emergency situation is to wait until the government “calls on” your business to provide help.

Your business must always operate as an “agent” of the government to be considered an “emergency worker” and maintain its immunity. Your business will be considered an agent of the government if the government has the right to control the conduct of your business as it performs its work. Thus, you should determine who is in charge of the emergency site, and you should offer assistance to that person. You should seek detailed instructions from the person in charge and make sure it is clear that your business is operating under that person’s authority.

Should your business enter into a contract with the government to perform emergency services, then the rules change significantly. The provisions of the statute would still apply; however, a business that enters into a contract with the government would be considered an independent contractor. An independent contractor is an “agent” only if the government instructs the independent contractor on “what to do, not how to do it.” Therefore, when your business enters into a contract to help the government in an emergency situation, you must make sure the contract provides your business with control over the process and/or methods that it uses to do its work.

Of course, the Arizona Legislature can amend the statute to include immunity for any business entity that renders assistance during an emergency. If businesses were provided with clear protection under the statute, there would be no need for them to worry about being an “agent” of the government, and it would persuade more businesses to render assistance to the government in an emergency.

Stimulus Effect

Infrastructure Companies Are Big Winners Under Plan To Jumpstart Economy

Construction companies, big and small, figure to be the primary beneficiaries of some $4.2 billion in federal stimulus money that will flow into Arizona in the months ahead. But economists and industry officials say businesses across the board will share in what could be a spending bonanza.

Clearly not everyone is in construction. Yet, as major projects move from drawing boards to construction sites, laborers and management teams are in a better position to perhaps buy a car or get an old one repaired, purchase a needed washer or dryer, go out to dinner, or shop for clothes for their kids. That’s what many see happening as the money flows downstream.

Industry experts say estimates of the multiplier effect range from 3.5 to 5.5, meaning that for every dollar spent on construction, the impact on the rest of the economy is $3.50 to $5.50. Others say that every $1 billion spent on construction results in 35,000 to 40,000 jobs.

Other businesses in line to benefit include those related to health care, energy efficiency and home improvement. And it will help if a business is savvy about coping with government bureaucracy.

There are debates about whether the Obama administration’s $787 billion stimulus package involves too much government or not enough government, but everyone seems to agree that government has to do something to pull the nation out of the worse economic downfall in decades.

Economics Professor Dennis Hoffman, director of the L. William Seidman Research Institute at Arizona State University’s W. P. Carey School of Business, is among those who expect stimulus money targeted for indigent health care to have a ripple effect, impacting hospitals and health professionals. But, says Hoffman, who has done projects for Del Webb Construction, the Arizona Department of Transportation, the Arizona Department of Environmental Quality and APS, there is more.

“Any private sector business that supports K-12 and to some degree higher education, will benefit,” Hoffman says.

He includes suppliers, and maintenance and construction firms that serve the education field. Above all, construction companies involved in infrastructure and road building will receive what Hoffman calls “a needed shot in the arm.”

“The general contractors have been begging for this,” Hoffman says. “They were absolutely on the front lines working for this injection, because their businesses were dead in the water.”

Of the $4.2 billion in stimulus money, $522 million is allocated for transportation.

David Martin, executive director of the Associated General Contractors, Arizona Chapter, echoes Hoffman’s assessment. “All highway and heavy construction firms will be beneficiaries,” Martin says.

Additionally, contractors who work on education facilities, particularly in lower-income areas, and those that build water-treatment facilities, emergency shelters, and public infrastructure projects, such as streets and sidewalks, should benefit. Martin calls it “neighborhood stabilization.”

David Jones, president and CEO of the Arizona Contractors Association, says companies with experience in public works projects will benefit, especially those that “historically understand red tape and the bureaucratic levels of federal contracting.”

Utility companies should be able to take on energy-related projects, and work should be available for companies that retrofit residential, schools and government buildings to solar energy, Jones says. Women, minority and disadvantaged business enterprises, plus businesses run by war veterans “will have a place at the table,” he adds.

Homebuilders could benefit from projects on military bases, such as single-family units or replacing aging barracks.

Doug Pruitt, president and CEO of Sundt Corp., says contractors such as Sundt are positioned to do well in the stimulus world because of the company’s broad market diversification.

“We do highway work, industrial, water and sewage treatment, university work, K-12 — a whole host of building work,” Pruitt says.

He doesn’t expect much school construction, however, because nationally only 8.3 percent of the $143 billion allocated for construction is set aside for schools. Most of the money will go for highways, bridges and water-related projects, with funds funneled through such federal agencies as the General Services Administration and the Army Corps of Engineers.

Pruitt says Sundt is focusing on its federal divisions and moving personnel from other units that have suffered because of the economy.

At Sunstate Equipment in Phoenix, which rents a full line of hand tools to heavy equipment, CEO Benno Jurgemeyer says it all comes down to “job creation and getting consumers back in a spending mode.” He says his company would benefit directly from highway or vertical construction, and indirectly if the stimulus package keeps office buildings and retail centers rented and full of employees and customers, thus accelerating the development process.

Jeff Whiteman, president and CEO of Empire Southwest, an authorized Caterpillar dealer for heavy equipment including off-highway tractors and trucks, says his firm should see some benefits, but adds: “I think it falls far short of being a true stimulus package and truly creating jobs. What we have is better than nothing. It will help us as construction picks up and hopefully some highways are built.”

Typically, businesses such as Empire Southwest are the first in and the first out of a recession. When housing construction stops, site preparation and development stops, and when housing is ready to resume, site preparation resumes. But in today’s economy, so many improved lots are ready for building that Whiteman says his industry’s recovery will be tied to heavy and highway construction.

Investing man

Changing Investment Management Firms Can Be Costly

Patience, it turns out, can be indeed a virtue — especially for retirement plan sponsors. Sunil Wahal, professor of finance at the W. P. Carey School of Business at Arizona State University, and his co-authors compiled a database of hiring and firing decisions made by more than 3,700 plan sponsors between 1994 and 2003. The reasons plan sponsors change investment management firms vary, but often the sponsors hire firms that have recently earned significant excess returns.

However, Wahal and his team found that those high fliers do not perform as well after they are hired, and the fired firms sometimes go on to turn in impressive numbers. If plan managers had stayed with their original managers, Wahal says, their excess returns would have been larger than those delivered by the newly hired managers.

“When firing decisions are made, one needs to be very careful and cognizant of the costs involved,” Wahal says.

Factor costs into decisions
Wahal’s study of the selection and termination of investment management firms by plan sponsors looked at 9,684 hiring decisions by 3,737 plan sponsors between 1994 and 2003. The plan managers hired by the sponsors were responsible for delegating $737 billion in investments. The study also examined 933 firing decisions by 515 plan sponsors between 1996 and 2003. Nearly $117 billion of investments were impacted by those decisions.

“There is an enormous amount of money that is invested in the market by plan sponsors. These organizations make a lot of decisions about who gets to manage the assets for the beneficiaries,” Wahal observes. “Sometimes the hiring and firing decisions they make work well. Sometimes they don’t. The frictions involved in these decisions are costly to beneficiaries.”

The rationale for a change varies. Plan sponsors usually fire investment management firms for poor performance, but sometimes they act because of an organizational change. For example, the investment management firm may have gone through a merger, or a star stock picker or portfolio manager may have left. The plan sponsor also may decide to change direction with its investments, such as switching from running a large-cap stock portfolio to a bond portfolio.

Factors that point to success
Wahal found that consultants are hired to assist plan sponsors in nearly two-thirds of all hiring decisions. Excess returns from consultant-supported decisions are higher, consistent with the notion that a consultant’s expertise adds value when selecting managers. But there’s a downside to consultants. They often take the blame, in place of the firm’s treasurer, when a company with a defined benefits plan selects a plan manager that performs poorly. Even so, using a consultant led to a 3.7 percent increase in three-year, post-hiring returns.

The researchers also found that returns were higher as the size of the plan increased, presumably because the sponsors of bigger plans have more experience selecting investment managers. In addition, they discovered that plan sponsors like to hire investment management firms within their own states. The study found that those in-state, post-hiring returns were positive.

Despite evidence that a number of factors can predict success, plan sponsors typically selected investment management firms by screening their performance based on excess returns. Firms are usually hired after investment managers have done very well, with an average excess return of 13.8 percent three years before the hiring decision.
Yet, after an investment management firm was hired, the study found the excess returns were close to — or below — zero.

“It’s not that they do poorly,” Wahal explains, “they don’t do as well as they had been doing prior to being hired. In other words, when you chase returns, you chase hot hands. But those hot hands don’t seem to persist.”
Wahal also learned that three years after the firing decisions, excess returns were sometimes up, with performance-based firings resulting in bigger return reversals. In fact, it was discovered that had plan sponsors stayed with the fired investment managers, excess returns would be more than what the newly hired managers delivered at some horizons.

Transition costs can add up
When a plan sponsor decides to fire an investment manager, the sponsor then has to take those funds and provide them to the newly hired investment management firm. This process entails what are commonly referred to as transition costs, that is, the cost of selling the old portfolio and creating a new one. Wahal says that “such costs can frequently be as much as 2 percent, and add to any other losses that the plan sponsor might suffer.” So, the newly hired manager is expected not only to deliver superior returns, but also perhaps to recover the 2 percent transition costs. Wahal argues that “to the extent that we do not live in Lake Wobegon, this is quite a challenge.”

“What’s really important is that the firing and hiring process be set up very well,” he says. “You can’t be too quick to jump the gun on firing and hiring because those costs have to be factored into the decision. Someone’s going to bear that loss and typically it’s the beneficiaries of the plan sponsors.”

Hidden Tax Revealed Chart

Hidden Health Care Tax Hits Workers

The Arizona Hospital and Healthcare Association (AzHHA) and the Arizona Chamber Foundation are joining forces to stop what we call a hidden health care tax on businesses and consumers. According to a study released by the Arizona Chamber Foundation, which is associated with the Arizona Chamber of Commerce and Industry, Arizona employers and the state’s 3.5 million privately insured consumers pay 40 percent above cost for hospital services, primarily because the state and federal governments significantly underpay hospitals for those same services.

“This study shines a light on what Arizona business and health care leaders refer to as the hidden health care tax,” says Suzanne Taylor, executive director of the Arizona Chamber Foundation. “The study demonstrates that when state or federal lawmakers reduce hospital payment levels to below their costs, Arizona businesses and consumers pick up the tab in the form of higher health insurance premiums.”

The study, An Analysis of Hospital Cost Shift in Arizona, was conducted by the nationally recognized Lewin Group. It found that in 2007, private insurance payments for Arizona hospital services exceeded costs by $1.3 billion in order to offset underpayment from:

  • State government — The Arizona Health Care Cost Containment System (AHCCCS), Arizona’s Medicaid program that paid 79 percent of hospitals’ costs for providing services, underpaid Arizona hospitals by $407 million.
  • Federal government — Medicare, which paid 89 percent of Arizona hospitals’ costs for delivering services, underpaid Arizona hospitals by $481 million.

Uncompensated care — Arizona’s hospitals absorbed $390 million in 2007 — 4.4 percent of their total costs — for services they delivered, but for which they received no compensation.

Public insurance programs such as AHCCCS and Medicare are the primary drivers behind the hidden health care tax, paying hospitals below what it costs to treat patients. To cover these costs, hospitals shift the burden to private health insurers by negotiating higher rates to provide coverage.

“In this downturn, the hidden health care tax is particularly harmful to the economic well-being of our state,” Taylor says. “Employers throughout Arizona are grappling with incredible challenges ranging from declining revenues to shrinking credit. The hidden health care tax is another weight on businesses that want to continue providing employer-based insurance to their employees.”

Arizona employers and their employees typically share the cost of health insurance coverage, with employers paying an average of 81 percent of a single policy and 75 percent of a family policy for workers enrolled in their respective health plans. According to the study, in 2007 inadequate payment by AHCCCS and Medicare, as well as uncompensated care, increased private health insurance premiums in Arizona by 8.8 percent or $361 for every privately insured person.

The study revealed that public program underpayment in 2007:

  • Added $1,017 — $324 of which is due to AHCCCS underpayment — to the annual price tag of a typical family health insurance policy, bringing the cost to $11,617.
  • Increased by $396 — $126 of which is due to AHCCCS underpayment — the annual cost of a single health insurance policy, bringing the price tag to $4,519.

Underpayment by public insurance programs for hospital services exacts a steep price on employers, their workers and private purchasers of health insurance. In 2007, the cost shift due to AHCCCS, Medicare and uncompensated care cost: employers an additional $941.7 million, $301.3 million resulting from AHCCCS underpayment; employees an additional $292.8 million, $93.7 million of it due to AHCCCS underpayment; and private purchasers of health insurance an additional $41.4 million, $13.2 million of it resulting from AHCCCS underpayment
AHCCCS payment rate freeze.

  • Five percent AHCCCS payment rate reduction.
  • Disproportionate share hospital payments.
  • Graduate medical education.
  • AHCCCS payments to rural hospitals.
  • State savings of  $95 million.
  • Lost federal funds of $250.4 million.

Total dollar increase in private insurance premiums due to the cost shift of $1.48 billion in 2009 and $1.63 billion in 2010.
Individual increase in premiums of 19 percent for privately insured Arizonans due to the cost shift.

Wist Office Products - Best of the Best 2009 presented by Ranking Arizona

Best of the Best Awards 2009: Business Services

Business Services Honoree: Office: Supply Companies

Wist Office Products


Wist Office Products - Best of the Best Awards 2009 presented by Ranking Arizona

Photograph by Duane Darling


Wist Office Products has been providing superior service and the highest-quality products to Arizona businesses since 1955. The office supply industry has changed significantly since that time, and through the changes, Wist has emphasized keeping the focus on the customer. It strives to be a solution provider for its customers. As the largest independent office supplier in the Southwest, Wist has been a leader in developing the technology needed to efficiently manage inventory, as well as process and track orders. It has also incorporated various green product lines featuring both supplies and furniture. Many companies are looking for environmentally safe products, which is why Wist incorporated them.

The Wist name has been synonymous with the office product industry in Arizona, when founder Martin Wist started the business in 1922. The present company has been active since 1955. As a locally owned business, Wist is positioned to meet customers’ needs, as well as directly support the local economy.

107 W. Julie Drive, Tempe
480-921-2900
www.wist.com

Year Est: 1955 AZ Staff: 57
Principal(s): Ileene Wist,
Robert Wist, Ian Wist


Business Services Finalist: Employment: Temporary Large

Corporate Job Bank Personnel Services

In a time when technology has replaced the personal touch, Corporate Job Bank Personnel Services continues to grow and is dedicated to finding a job for every person who walks through its doors. They understand the value in creating a lasting relationship, not only with their clients, but with all candidates as they change and grow in their careers. Corporate Job Bank Personnel’s core competencies are in mortgage and banking, accounting and finance, call centers, office and clerical staff, municipalities, IT, distribution and warehousing.

1955 E. Broadway Road, Tempe
480-966-0709
www.corporatejobbank.com


Business Services Finalist: Employment: Leasing/PEOs

Diversified Human Resources Inc.

The perennial market leader in Arizona and one of the premier PEOs in the U.S., Diversified Human Resources (DHR) helps simplify client businesses by handling much of the administrative functions and paperwork associated with having employees. Services include human resources administration, payroll processing and management, employee benefits planning and administration, and workers’ compensation services for many industries within the business community. The key to DHR’s success is an intense focus on service and the ability to tailor programs specifically for each client.

3020 E. Camelback Road, #213, Phoenix
480-941-5588
www.dhr.net


Best of the Best Awards 2009 presented by Ranking Arizona

National Bank of Arizona - Best of the Best Awards 2009 presented by Ranking Arizona

Best of the Best Awards 2009: Finance & Professional

Finance & Professional Honoree: Banks: $900M or more in AZ assets

National Bank of Arizona

National Bank of Arizona - Best of the Best Awards 2009 presented by Ranking Arizona

Photograph by Duane Darling

With 25 years of strength, stability and profitability, National Bank of Arizona is one of the state’s premier financial institutions. Since its inception, National Bank of Arizona has been there for its customers, continually searching for new ways to help Arizonans meet their financial goals. As a community focused and locally managed bank with the resources of a major financial institution, we deliver industry-leading product solutions, award-winning service and innovative technology. Through our team of more than 1,100 employees, National Bank of Arizona reaches 55 diverse communities throughout Arizona. With this staff of experienced local bankers, we are able to respond to the needs of our customers with flexibility and custom solutions.

The effort, commitment and passion put forth by our bankers to deliver the very best customer service adds new honors to a bank that has been achieving firsts and bests since 1984.

6001 N. 24th St., Phoenix
602-235-6000
www.nbarizona.com

Year Est: 1984 Branches: 76
Principal(s): John J. Gisi,
Keith D. Maio
Assets: $4.8B


Finance & Professional Finalist: Accounting Firms: 26 CPAs or more

Deloitte & Touche LLP

Deloitte & Touche LLP’s goal today remains the same as it was since it began serving Arizona businesses more than 45 years ago. Deloitte & Touche is dedicated to helping its clients and people excel. Deloitte’s growing and thriving practice — the largest in the state — is the only company that provides Arizona businesses with a comprehensive range of professional services, including assurance, tax, enterprise risk management, management and information systems consulting, financial advisory services, employee benefits and human capital. Deloitte & Touche strives for the highest levels of integrity and public trust, every day, for every client.

2901 N. Central Ave., #1200, Phoenix
602-234-5100
www.deloitte.com/us


Finance & Professional Finalist: Law Firms: 65 Attorneys or more

Greenberg Traurig LLP

Greenberg Traurig offers an international platform built to meet the legal needs of today’s businesses. With 1,800 attorneys and governmental affairs professionals in 30 offices, our combination of wide-ranging experience and onthe- ground resources enables us to provide local insights and legal services in markets across the U.S. and around the world. Our Phoenix attorneys offer clients decades of local experience, complemented by the global reach of the GT network. GT helps clients take on the legal challenges they face today — and prepare for those they may face tomorrow.

2375 E. Camelback Road, #700, Phoenix
602-445-8000
www.gtlaw.com


Best of the Best Awards 2009 presented by Ranking Arizona

Pick the Right Employee

Hiring The Right People Is More Important Than Ever, But Are You Asking The Right Questions?

When the economy slows, companies tend to slow their hiring and expect more from their existing employees. It quickly becomes critical that employees perform up to these new, heightened expectations. For those positions that companies do hire for, selecting the right candidate becomes more important than ever. However, many hiring managers tend to ask the wrong questions, focusing the interview on traits that are very trainable versus those traits that a company cannot train.

Hiring managers tend to focus questions on experience for the position, systems knowledge, actual time spent doing the job with previous employers, etc. In fact, these are actually poor predictors of a candidate’s success in the workplace. Generally, only employees applying for professionally educated positions (e.g. engineers, chemists, attorneys, etc.,) are exempt from this best practice. So what should you focus your interview on?

Focus of questions
Center your questions on traits that take more effort to develop. Interview questions should dwell on attention to detail, the candidate’s passion for the job, their initiative, and their self-confidence, to name a few.

There are many hiring managers that value a relative lack of experience (and many human resource managers that agree). Candidates without experience tend to lack the bad habits typical of those with experience. It is often easier to train a green candidate from ground zero (sometimes called growing a candidate organically) versus “untraining” an experienced candidate’s bad habits and then inserting the desired habits. A candidate who has worked for several companies doing similar roles and is now in your office looking for a job may have a significant number of bad habits and has a track record of leaving previous employers for “employment competitors.”

Experience is one of the easier items to give a new hire. However, try giving a new employee stronger customer-service skills, greater self-confidence to deal with those problem vendors, or a hunger for doing a great job. Those are not easily trainable, so those traits are what an interview should focus on.

Types of questions
Spend your time asking the candidate behavior-oriented questions. Typically, these questions start with phrases like, “Tell me about a time when you …” or “Give me a specific example of a time when you …” When asking these behaviorally focused questions, it is critical that the candidate gives you one specific example. Further, ensure he isolates his role in his example; don’t allow him to use words such as “we” or “our.” If he does, ask him what his specific role. This helps ensure his answer provides you with the information you need.

The days of asking, “If you were a tree, what kind of tree would you be and why” are over. The current trend is asking negative questions — questions that force a candidate to talk about her weaknesses. This helps you see her willingness to admit mistakes, how she has handled mistakes in the past, and — most importantly — what she has learned from those mistakes.

Sample questions
Putting these guidelines together is the key to a solid interview. Some general, behaviorally focused questions include:

Tell me about the last time you had a disagreement with a co-worker and what you did about it? — Listen to what the issue was over, how productive and mature the approach was, and what he specifically did to solve the problem. Candidates who have a passion for their work will work to resolve issues with co-workers and will keep the boss informed of personality clashes, typically without asking for intervention.

Tell me about the biggest mistake you made in the last 12 months and what you learned from it. — This negative question forces the candidate to take ownership for a relatively large mistake and should end with her telling you what steps she took to ensure a similar mistake (e.g. a time-management snafu, a relationship-building blunder, etc.) would not happen again. All employees make mistakes. Admitting them and taking corrective steps is the absolute most an employer can ask from their employees.

Give me your top three strengths and your biggest developmental need (weakness). — It is very telling to hear what a candidate believes are his behavioral strengths, as well as his biggest need. Listen for strengths that are traits you cannot teach a candidate (e.g. passion for the job, ability to work with others, etc.). Do not let candidates get away with telling you that their biggest need is that they work too hard or plan too much. Tell your candidate to dig deeper.

Interviews can be very useful at pulling out the different strengths and weaknesses of a candidate, as long as the interviewer is focused on the right personality traits and asks the right questions. Pull their experience from their resume, but pull their personality from their interview.

Selling Businesses

Tips On Finding A Buyer For Your Company In Tough Economic Environment

Yes, the lofty business valuations supported by an overabundance of cheap debt have come and gone, but valuations are still attractive by historical standards and deals are still getting done. The companies that are achieving the highest valuations, best terms and actually getting to the closing finish line are approaching the market in a more systematic and pragmatic fashion. Even in today’s turbulent economy, it is still possible to achieve an attractive deal for your shareholders.Here are some practical tips CEOs should consider before endeavoring to sell their companies:

Strategic buyers are driving valuations
Corporate buyers are back with a vengeance after years of being at a significant competitive disadvantage relative to private equity groups flush with cheap debt and the ability to over-leverage deals to justify higher and ever higher valuations. While the market uncertainty has certainly made everyone more cautious, many companies have responsibly maintained conservative balance sheets and are actively seeking acquisition opportunities. You can expect a more thorough and lengthy diligence process, but the strategic buyers are often the most attractive and viable liquidity event available for most sale candidates in today’s market. Most sellers should now focus their efforts on well capitalized strategic buyers to achieve the most favorable outcome for shareholders.

Private equity groups are down but not out
Typically, private equity groups (PEGs) seek significant debt leverage on their equity investment to achieve higher equity returns. With the unprecedented collapse of the debt markets, there is little to no debt available for a typically structured PEG transaction. However, some PEGs specialize in full capital structure solutions, essentially underwriting their own debt for the deal. These PEGs are especially attractive in today’s market. Many of these full-capital-solution PEGs are understandably looking to capitalize on their unique advantage by acquiring companies at lower deal valuations, so they are not likely to outbid a well capitalized strategic buyer. At the same time, many traditional PEGs are still flush with cash and need to put the money to work, so they are accepting lower returns and are pursuing deals with more conservative capital structures. While PEGs are less aggressive on valuations across the board, they should still be approached by most sellers and included in any sales process intended to maximize valuation. Don’t count out the PEG world entirely, but at the moment, the smart sellers are focused more intently on well capitalized strategic buyers.

Create a competitive environment
The primary function of an investment banker is to identify all the likely potential buyers for a company, both strategic and financial, and then create a competitive environment whereby you are able to achieve the best possible transaction for your company by comparing various alternative proposals simultaneously. The best transaction usually involves numerous factors that are specific to each seller, but will generally include price, terms (cash, stock, earnouts, etc.), certainty of closure, cultural fit, and many times other qualitative factors. The sales process is part art and part science, and the experience of your investment banker is critical to achieving the optimal outcome. You should carefully evaluate the expethem, and be sure to ask for client references. Occasionally, a one-off negotiated sale can achieve an optimal outcome, but more often than not, a professional process run by an experienced investment banker will yield far superior results.

Create value with pro-forma “add-backs”
The primary valuation metric in most deals is a valuation multiple based upon earnings before interest, taxes and depreciation (EBITDA). Most buyers are willing to give credit for reasonable pro-forma “add-backs” to EBITDA. If you raise your EBITDA, the purchase price is raised correspondingly by a factor of the purchase multiple (every dollar you gain here can add $5, $6 or $7 to the purchase price). This can be a huge value creator, and can increase the valuation achieved for your company by 10 percent to 30 percent in most cases compared to relying on Generally Accepted Accounting Principles (GAAP) EBITDA. A professional investment banker is well versed in the types of issues that can effectively be positioned for “add-back” credit. These typically involve one time or unusual expenses, investments that GAAP won’t allow you to capitalize, excess salary draws (salary that should be viewed as dividends), M&A process costs, and certain legal costs, among others. This is another area where a good investment banker can add significant value to a transaction by providing good advice identifying and negotiating for these items and not leaving any economic value on the table.

Run your business and leverage your advisors
Letters of intent, or LOIs, are almost always non-binding; you don’t get your check until the deal closes. It can be a long and frustrating process managing the due diligence and documentation process, often taking between 8 to 12 weeks and hundreds of hours of time that can be a serious distraction from running your business. Make sure you have a point person on the management team to coordinate, and most importantly leverage off your legal advisors and investment bankers throughout the process. Good lawyers and investment bankers can take a good portion of this burden off your shoulders and leave you more time to run your business. This is critical. If the interim financial results of your business suffer as a result of your management team being distracted, this can sideline your deal or at the very least result in a downward renegotiation of valuation. Run your business, run your business, run your business. Nothing is more important.

world currency

Companies Need To Start Thinking About Converting To International Financial Reporting Standards

More than 100 countries have already adopted or base their own accounting standards on International Financial Reporting Standards (IFRS). Last August, the Securities and Exchange Commission approved for public comment its long-awaited proposed roadmap for the eventual use of IFRS by U.S. companies.

The proposal foresees that early adoption of IFRS could happen as soon as this year for very large companies. For others, mandatory reporting under IFRS could begin in 2014, 2015 or 2016, depending on the size of the company.

Why think about it now?
With the global financial crisis, business owners may backburner IFRS in favor of more immediate issues. That’s understandable, but it may not be the right approach. If you are contemplating new finance systems or software purchases, for example, the systems you implement today will likely require modifications to ensure that the accounting, tax planning and compliance processes continue to operate effectively and efficiently under IFRS.

While CPAs regularly adjust to evolving accounting rules and standards, my experience with some of the largest companies in Arizona has shown that focusing on longer-term issues such as the implementation of IFRS can have a positive impact on the bottom line. Learning to “speak IFRS” may be challenging, but it will lead to increased transparency and investor confidence, and when that happens, everyone wins.

As a general rule, IFRS standards are broader than those of U.S. Generally Accepted Accounting Principles (US GAAP), and there are fewer bright lines and less interpretive guidance. In addition, IFRS has far-reaching effects beyond the accounting differences, and will involve every area of the company, beginning with the way data is gathered and processed to how debt covenants are written to the metrics against which executives and employees are measured. Conversion will take focus, planning, time and resources. Getting comfortable with IFRS now will make the transition easier for the entire company.

Timely training will be one key to a successful transition — and not just for staff. Investors and analysts will need to be educated about the effect IFRS will have on financial statements. Audit committee members will need to become familiar with IFRS to function effectively in their oversight roles and to understand management’s strategies. These activities should not wait until the new reporting standards are actually in use.

IFRS 101
The first step in any conversion is a gap analysis, or diagnostic, that compares reporting under US GAAP to reporting under IFRS. In addition to the reporting differences, the diagnostic will identify the main business effects of conversion, any tax ramifications and hurdles to conversion that may occur in the present finance structure, and will discover if the company has the resources to carry out the conversion in-house.

The diagnostic will also provide a timeline on who should be trained, when they should be trained and in what they should be trained. In designing a training program, your primary question should be, “What do we need to do to be ready on time?” As with all decisions, it’s important to be strategic. Educating the accounting and finance organizations is a given, as well as the information technology team. But it’s also important to involve other departments affected by the conversion early on in the process (e.g., investor relations, HR, sales and marketing) to make sure conversion is embedded in your business.

Human resources will need to understand how key performance criteria for incentive compensation may be affected by the conversion. In addition, accounting for stock-based compensation is significantly different under IFRS than under US GAAP. Tax professionals will require training on the conversion methodology, as well as on new IFRS accounting principles, to ensure appropriate tax planning and reporting of the tax provision, balance sheet accounts and tax return information. The legal team will need to examine debt, equity and lease financing arrangements; long-term customer contracts and long-term sourcing agreements, among others. The internal auditor’s enterprise-wide purview positions it well toprovide consistency, oversight and control to all areas throughout the conversion process.

IFRS conversion most likely will be the largest, single change of accounting policies and procedures ever undertaken by U.S. companies. It is also an interesting challenge for businesses and provides a once-in-a-generation opportunity to review and synchronize the processes and procedures that touch the entire organization. Ultimately, the business “owns” the conversion, and the more fluently it “speaks IFRS,” the better off it will be.

Social media

Social Networks On Internet Pose Challenges And Opportunities For Businesses

Instinct: Nearly every decision a person makes in his or her lifetime can in some way be tied to an instinctual reaction. One of the most primal of instincts is survival and the key to our evolutionary climb has been the instinct to live in groups or the herd mentality. The instinct is simple — survival in numbers is far easier than going it alone.

The herd is now electronic and in the form of social networking on the Internet. No matter what your interests, you can find a social networking site that will allow you to communicate with like-minded individuals anywhere in the world, at any time. Technology, specifically the Internet, has removed traditional boundaries (distance, time zones, etc.) that previously limited “global gathering,” and this medium has literally exploded. Now more than any other time in our history people are gathering together. While virtual through the Internet, individuals continue to benefit from the comfort, safety and strength that are found in the herd.

Industries and businesses have increasingly been trying to figure out how to leverage the massive amount of information and consumers that are available on these social networking sites. Perhaps the two most prominent and recognizable social networking sites are Facebook and MySpace. Each has a demographic that is very appealing to businesses of all types. However, the primary obstacle to further leveraging these sites’ business appeal to date is resistance from the users to advertising or any other type of interference in their “personal space.”

For many social networking site users, the site represents a place of control and solitude from their everyday lives. Social networking site participants literally go there to get away and spend time in an environment that is entirely in their control. Now business is trying to integrate into a domain that many view as private.

While there may be a belief that these individual pages in MySpace, Facebook, Twitter, etc., are personal and private, the reality is they are not. Multibillion-dollar entities such as Microsoft and News Corp. would not have taken positions in them if they did not see the potential for a substantial return on their investments. The question is not if business is going to try to leverage these sites — the question is how. Advertising has always been the most obvious and first application of business on social networking sites, but how to advertise has been a trial-and-error process. Pushing advertising on users has proved problematic for both MySpace and Facebook.

The next avenue that business pursued was market research. In November 2007, Facebook encountered outrage from its users after it published users’ purchases for friends to see. While there was an “opt out” option, most users did not see it until after the fact. This tactic represented a huge PR issue for Facebook. However, this marketing tactic is another, and perhaps the most viable, business option for organizations to leverage through the social networking sites. The amount of data that the sites capture can be gold. But the site owners have to be extremely careful with how and what information they are sharing outside of the site. First there are privacy concerns, but second, a site that does not listen to the concerns and needs of its user base is destined for failure. With the rate at which new sites are popping up, the landscape to attract users is dramatically more competitive than it was even two years ago.

So the question still remains — will social networking sites become a tool for business to increaseproductivity, start small businesses, and develop larger organizations through market research? Maybe, but probably not.

To quote Tom Davenport, who holds the President’s Chair in Information Technology and Management at Babson College in Massachusetts, and formerly lectured at Harvard University: “I see no evidence that students andyoung adults — the audience for which these tools were originally intended — want to use the tools to do their business.”

The fact that many users go to these sites for relaxation and enjoyment leads me and others to believe that the use of social networking sites for business, other than advertising and marketing, is severely limited and not likely to take off anytime soon.

Do employees have a right of privacy in their e-mails and text messages?

Employers Should Learn Legal Rules On Employee E-Mails And Text Messages

Do employees have a right of privacy in their e-mails and text messages or may employers read them? May employers lawfully limit employee electronic communications? Are employees protected from retaliation for what they say in their e-mails? If so, can they lose protection if they go too far in what they say?

For several years, savvy employers wishing to monitor employee e-mails have issued policy statements to workers, putting them on notice that electronic communications they send on company equipment are subject to review by management. This notice is designed to preclude any reasonable expectation by an employee that his or her e-mails are confidential and may not be viewed by management, thereby shielding the employer from invasion of privacy claims.

A recent case from the Ninth Circuit Court of Appeals, with jurisdiction over Arizona, created quite a stir when the court concluded that an employer had invaded an employee’s privacy by reading the employee’s text messages, even though the employer had provided its employees with notice that their electronic communications were subject to monitoring by the employer. A careful look at the court’s decision, however, should dispel employer concerns.

The case doesn’t stand for the proposition that employer notice is no longer effective. A manager had undercut the employer’s policy statement when he told employees that their messages wouldn’t be reviewed as long as they paid for any monthly overage fees imposed because of excessive text messaging. When the employer was considering changing service plans because of recurring overage fees, it obtained employee text messages from the service provider to determine the extent to which non-work related messages accounted for the overages. The court concluded that employees had a reasonable expectation that the privacy of their messages would be protected because of the manager’s promise, despite the language in the official policy.

The lesson for businesses is that your employment policies are only as good as those who administer them. Managers and supervisors must be trained to properly administer your policies and not make statements inconsistent with those policies.

Employer restrictions on employee e-mail
Many employers have policies that prohibit use of their computer systems, including e-mail features, for personal communications. The difficulty with these policies lies in consistent enforcement. Non-union and union employers alike are subject to rulings by the National Labor Relations Board (NLRB), which has repeatedly held that such policies may not be enforced against employees who send e-mails pertaining to employment matters or unions if the employer does not consistently enforce its policy against other personal e-mails such as party announcements, solicitation of money for retirement or birthday gifts, offers to sell sports tickets, or sales, or others pertaining to non-business matters. Effectively policing such a policy is often a virtual impossibility.

The NLRB recently issued a new decision holding that employers may adopt policies that permit some kinds of e-mails, but not others, based on content. For example, policies may distinguish between charitable and non-charitable solicitations, offers to sell personal property (e.g., a used car) and offers to sell commercial products (e.g., Avon), and invitations to a personal party and invitations to attend an outside organization’s meeting. Distinctions, however, cannot be based on legally protected content such as complaints about wages and benefits or other terms of employment. In the new case, the NLRB held that an employer had lawfully disciplined an employee for sending e-mails that had solicited support for a union. The employer’s policy had prohibited solicitations for outside organizations, except charities, and the employer had not tolerated e-mail solicitations for other non-charitable organizations.

Employers, therefore, should consider adopting or rewriting their electronic communications policies to carefully draw the line between permitted and prohibited employee e-mails.

Protected e-mails and unlawful retaliation
The courts and the NLRB have broadly protected employee e-mails that pertain to wages, benefits and other terms and conditions of employment, even when those e-mails have criticized the employer, its officers or managers, and even when those e-mails have been addressed to customers, competitors orthe press. Employees may not be lawfully disciplined or discharged for sending such e-mails. Anotherwise protected e-mail, however, may lose its legal protection if the author attacks the employer’sproduct or service, encourages unlawful activity or otherwise crosses an often nebulous line between reasonable and unreasonable content. Note that the NLRB allows for some degree of employee indiscretion, without the loss of legal protection, because it recognizes that emotions often run high in this context.

Questions about the protected status of employee e-mails should be addressed to a competent labor attorney.

Jon E. Pettibone is chair of Quarles & Brady’s national labor and employment practice, where he advises management on labor and employment strategies. He can be reached at JEP@quarles.com.

Medical supplies

Applying Supply Chain Management Techniques To The Health Care Industry

Businesses in the 21st century frequently attribute success to the ability to tame their supply chains.

The business of hospitals, in comparison, is quite different. Hospitals are service organizations with diverse customers, including physicians who have strong commitments to given manufacturers and products. Patients, of course, are customers, and their treatment often requires costly items. Because their customer base is so diverse, and because the associated costs can be high, it is increasingly important for hospitals to purchase materials at the best price possible.

One of the distinguishing characteristics of the health care industry is the prevalence of national group purchasing organizations that leverage the purchasing power of many hospitals. In Phoenix, Premier provides Banner Health and St. Joseph’s Hospital and Medical Center with strategic procurement services. Mayo Clinic is a member of Novation, giving it access to services that support standardization for expensive clinical items. Amerinet assists Scottsdale Healthcare in managing purchasing costs and improving processes.

Escalating costs
Increased costs associated with health care represent a challenge, however, it is not always clear why or where health care costs are escalating. The escalation of supply costs, frequently at greater than 10 percent annually, means that supply costs are the second-highest area for hospital expenditures after labor.

Paul Carmichael, director of materials management at Phoenix Children’s Hospital (PCH), fears that manufacturers will not continue to absorb supply-cost increases on their own. In addition, an aging population that demands a high quality of life will also drive up overall costs.

Hospitals require significant supplies. Mayo Clinic Arizona, for example, itemizes more than 100,000 products. Banner Health, which operates 22 hospitals in Arizona, reported $2.2 billion in net revenue, with supply expenses estimated at $390 million. Of this, $190 million were expended for medical/surgical supplies and $90 million for pharmaceuticals.

Doug Bowen, Banner’s materials manager, points to the challenges associated with pharmaceutical costs that now consume almost a quarter of supply expenses. Banner very strategically employs centralized control and standardized processes to optimize its supply operations. Bowen believes that Banner’s data warehouse system will disseminate best practices across the system.

Ryan Kirane is materials manager for Mayo Clinic Arizona and points with pride to the integration of the supply chain organization across the Mayo network and the subsequent supply chain excellence. In Arizona, Mayo’s net patient revenue of more than $500 million is balanced against a supply expense of approximately $125 million — signaling supply-intense procedures such as implant surgery. With pharmaceuticals making up about $45 million in expenses, Mayo echoes Banner’s concern with the cost of medications.

Each hospital faces different challenges in managing the supply environment. PCH, whose patients range from infants to adolescents, requires up to a third more products due to patient-size requirements. PCH utilizes advanced supply chain management technologies, such as “just-in-time” stock replenishment, to maintain low levels of inventory, yet excellent access to products. It has also worked with its national distributor, Owens & Minor, to utilize activity-based management principles,leading to improved product access and efficiencies. With almost $360 million in total patient revenue, PCH reports more than $62 million in supply expenses for the thousands of different items necessary to deliver care.

Solving the problem
In 2004, the Health Sector Supply Chain Research Consortium was founded at the School of Health Management and Policy at ASU’s W. P. Carey School of Business. The consortium brings together U.S. firms to solve problems unique to the health care supply chain.

Eugene Schneller, Ph.D., is professor and Dean’s Council of 100 Distinguished Scholar in the W. P. Carey School of Business, School of Health Management and Policy. He can be reached at gene.schneller@asu.edu.

ethics scale

Making Ethics An Essential Part Of Doing Business

The challenge of building an ethical climate in businesses is not new. However, in the last decade, the importance of such a climate, and the heavy costs of ethical transgressions, have been prominent in the daily headlines. They reveal the impact of decades of ethical mismanagement that goes beyond explicitly breaking laws. Rather, the issue is the systematic failures of businesses in developing, executing and maintaining an infrastructure that fosters ethical decision-making.

By ethical decision-making, we mean the ability of employees to recognize and detect decision situations that risk damaging operations or investments, negatively impacting shareholders and other stakeholders, or harming the business’ reputation.

Business ethics are complex; we cannot trivialize the work of developing a culture of integrity. Nevertheless, here is a list of key guidelines that managers in companies of any size can use to build an ethical system of “doing what is right.”

The prerequisites
Start at the top — You are the ethical leaders of the business. Chief executive officers must formally commit to incorporating ethical behaviors as a guiding principle within their business’ mission statement and goals. Ethical core values should be consistently communicated, embraced and reinforced to stakeholders.

Know key laws and regulatory issues — Employees must know relevant laws such as Sarbanes-Oxley, Occupational Health and Safety, intellectual property, etc., that impact their responsibility areas. Many employees should know labor laws to avoid discriminatory behaviors. And, they should know that violating laws or trying to “get around them” will not be tolerated.

Standardize policies and procedures — This is where ethical lapses frequently occur, especially in small businesses. There is a tendency to ignore or resist putting in place formal codes of behavior because they can make the members of an entrepreneurial enterprise feel constrained, or worst of all, bureaucratic. But without written common rules and procedures for such areas as itemizing expenses, accepting gifts, incentive programs, days off, or handling customer communications, businesses lend themselves to problems of cheating, fairness and misrepresentations. This is not to suggest developing detailed manuals, but rather identifying key areas of inconsistencies that can cause financial, reputation or stakeholder harm, and then developing proactive communication to avoid potential ethical misconduct.

Implement a formal system to handle potential ethical problems — Employees should know where they can go within the company if they have or notice an ethical dilemma, particularly if they believe they cannot go directly to their manager. If a business has a human resources department, that is a logical place to go if employees are concerned about the risks of “whistle blowing.” Some businesses have designated an ethics officer, a hot line, or a suggestion box to foster an environment of integrity. Whatever approach is taken, employees must be assured that they will not suffer negative consequences for consulting with appropriate parties to discuss their concerns.

Conduct behavioral interviewing with potential employees — How do you hire employees who are ethical? Unfortunately, there are no valid and reliable “ethical behavioral” tests. Some businesses have job prospects take written exams that include questions addressing fictional ethical dilemmas; others ask those questions in interviews. These approaches may provide insights into a potential hire’s ethical reasoning and decision-making. While no one can guarantee a recruit’s future ethical behavior, the processes described above will help integrate him or her into the ethical climate of the business.

Building a foundation
Incorporate ethical behavior into performance expectations — This is a very new area. To ensure that the values of the organization are aligned with an employee’s conduct, ethics could be included as part of the performance appraisal process. Employees then become accountable not just for achieving business results, but also for how they went about accomplishing them.

Provide employees with mentors — One way to help employees in ethical decision-making is to provide them with colleagues who can offer advice and support. This can be done by establishing a formal system of mentors, or by actively encouraging employees to seek out others within the organization.

Hold periodic employee training sessions — Learning about ethics within a business context is an ongoing process. Holding periodic employee meetings where they can learn from one another about ethical dilemmas they faced and how they were resolved, situations where they should not push boundaries, and how to talk about ethical issues with others, can be invaluable in developing a collective ethical identity.

Identify and develop ethical leaders — As your business identifies employees who “do the right things,” the company should highlight their performance, reward them and promote them as role models to others.

Commitment to an ethical climate
Respond quickly to reports of unethical behavior — Investigate, and if confirmed, work to resolve them. You will want to do this, not only to reinforce a climate of ethics, but to prevent any possible escalation of an unaddressed ethical problem.

Establish and follow through with consequences for both positive ethical behaviors and misconduct — Reward employees who demonstrate sound ethical behavior, and be clear on the consequences if employees violate a law or policy, are deceptive in their dealings with others, do creative but dangerous manipulation of data or information, etc. Rewards and punishments can be tangible or intangible, but they must be consistent and appropriate to the potential or actual harm that results from the situation at hand.

Monitor ethical activity — If possible, do ethical audits. Like any business-result area, measurement is fundamental. One can accomplish this through looking at the number of ethical instances reported, doing a survey, compliance reports, etc.

Keep up to date on laws and compliance issues — Ensure that managers are current on any revisions.

CEOs have to be the ethical leaders. They need to stand for and drive the values they want their business to be known for as it succeeds in its performance. To do this, they must be clear on what their values are, communicate them regularly, establish checks and balances to ensure value commitment, and reinforce a culture of integrity. This is not an easy process, but it is a necessary condition toward building an ethical climate. And this is the ultimate leadership challenge.

Dale Kalika is a lecturer and Barbara Keats is an associate professor in the department of management in the W. P. Carey School of Business at Arizona State University. They are conducting research on Generation Y, their entrance into the work force, and ethical decision-making.

Doug Parker, Chairman and CEO of US Airways

CEO Series: Doug Parker

Doug Parker
Title: Chairman and CEO
Company: US Airways

Describe your very first job and what lessons you learned from it.
My first job was as a bagger at a Kroger store in Michigan. I started part-time the day I turned 16, but then went full-time in the summer the day after school got out. I did basic bagger duties — bagging groceries, collecting carts from the parking lot, etc. While most people preferred to stay inside and bag, I was always quick to volunteer to get carts, as I preferred the more physical work. It was a good experience, primarily because it taught me a work ethic at an early age. It helped me see what life was like in the real world and gave me a true appreciation of the value of putting in an honest day’s work. I also learned that if you put the cookies on the bottom of the bag, customers get upset.

Describe your first job in your industry and what you learned from it.
My first job in the industry was a financial analyst at American Airlines in 1986. I took this entry-level position straight out of business school in 1986. It was a great first job because American hired a lot of MBAs into finance, so it was both easy to get acclimated with other new hires and also a great place to learn the industry from a lot of talented professionals who had been in the business for a while. I also liked beginning in finance, because it allowed me to learn a little bit about the entire company and how it all fit together versus learning a lot about one certain area. That broad scope was helpful in allowing me to understand how the airline business worked in a relatively short period of time.

What were your salaries at both of these jobs?
Three dollars an hour at Kroger and $34,000 at AA.

Who is your biggest mentor and what role did they play?
I have had a number of great bosses over my career and I learned a lot from each of them. If I had to choose a single mentor in our industry though, I’d pick a person I never worked for, Herb Kelleher of Southwest (Airlines). I, like many people, have admired how Herb has built Southwest to be a successful airline with a true team spirit and camaraderie that other airlines haven’t ever been able to accomplish. I like how he has done so by communicating with his employees and making sure not to take himself too seriously. Over the past seven or eight years, I’ve gotten to know Herb well through industry associations, and whenever we’re together, I work very hard to observe what he does and how he thinks about situations – it’s served me well and I’m thankful that he’s given me that opportunity

What advice would you give to a person just entering your industry?
I would tell them that this is a great industry because virtually every management discipline is important and valued. Marketing is important because it’s a customer service business; operations is obviously important because there is arguably no more complex a series of operating issues than at an airline; finance is important because the business is so capital intensive; maintenance is essentially a very complex manufacturing organization, etc., etc. As a result, I think we have areas for everyone to make a real difference, which is not true of most industries. So I always recommend that unless people really know what they want to do, they should start in an area where they can learn a little about the entire company and then over time gravitate to the area they find the most interesting. I also advise them that this business is not for the faint of heart; it’s very dynamic and a bit like a roller coaster ride — but if you like action, change and a lot of moving parts (like most of us here do), you’ll love it.

If you weren’t doing this, what would you be doing instead?
I’m not sure since I’ve never worked outside of this industry, but my guess is I’d be doing something similar in a different industry. While I love airlines, I’m not the CEO because I know so much about this business — there are many people in our company who know much more about airlines and airplanes than I do. Most of what I do is find the best people I possibly can and make sure they are engaged and motivated and working together as a team to accomplish our collective objectives. It’s that team-building piece that I enjoy, and I imagine if I weren’t here, I’d be somewhere else where those skills were important.