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Thursday, January 28, 2010

Why don’t back-office efficiency drives stick?

A granular look at back-office operations shows why across-the-board cuts make no sense.

McKinsey Quarterly
JANUARY 2010 • Marco Ferber, Jürgen Geiger, and Klaus Kunkel



Operations, Performance article, Why don’t back-office efficiency drives stick? Difficult economic times are spurring many CEOs to demand cuts in corporate back offices. … Yet the savings are often fleeting—we find that barely four in ten companies meet their targets one year into a cost-cutting program, and by year four fully 90 percent of back-office costs are right back where they started.
Why? One reason is that many companies pursue sweeping, top-down cuts that—while fast, easy, and seemingly fair—can unintentionally lower the effectiveness of back-office services and thereby fuel resistance among business units, many of which hire back the workers at first opportunity. To understand the risks associated with a broad-brush approach, consider the experience of a global European manufacturer’s finance group, highlighted in the exhibits in this article. This snapshot of one company’s situation is drawn from an ongoing proprietary benchmarking initiative that maps a range of back-office efficiency and effectiveness data at more than 900 companies in Europe and North America.1
A simple head count comparison suggests that the manufacturer’s finance department is somewhat leaner than that of its average competitors, though about a third less lean than that of its most efficient one (Exhibit 1). Many COOs, CFOs, and other executives armed primarily with such high-level information initiate across-the-board layoffs, process improvements, or both. That’s a mistake. In fact, a more granular look at the efficiency of the finance department’s constituent parts (general accounting, treasury, and so on) reveals that only its revenue-management operation has a leaner head count than that of the company’s average competitors. In other words, superior efficiency in one area masks moderate inefficiency throughout the rest (Exhibit 2, left side). Across-the-board layoffs would eliminate muscle as well as fat.


  • Exhibit 1: A global European manufacturer did not measure the performance of the finance department in a sufficiently detailed way.



    • Exhibit 2: In-depth analyses reveal many opportunities for improvement within the function.
      Of course, efficiency is only half of the equation. To capitalize on the potential for improvement and make changes stick, executives must also consider the effectiveness of back-office services. Here too a closer look is revealing, as it suggests that the manufacturer’s revenue-management operation, which takes fully twice as long as its rivals do to secure payment, is far less effective than its peers in managing receivables. Applying this lens to the rest of the company’s finance group suggests that its services could be 50 percent more effective (Exhibit 2, right side). The manufacturer’s executives could use that information to begin developing more accurate—and realistic—targets for efficiency and effectiveness. Simultaneously, they could probe the root causes of these performance deficits to learn where lean and other process-improvement techniques might be advantageous.
      Companies miss such opportunities when they take a hands-off approach to managing back-office complexity. By contrast, top companies closely monitor both the efficiency and the effectiveness of support activities and recognize that improvements to the former need not come at the expense of the latter (a key insight confirmed by our research). In fact, there are often interdependencies between the two. Greater effectiveness can even contribute to higher efficiency. Within the finance function, for example, paying more attention to the creditworthiness of customers and setting shorter payment cycles (effectiveness gains) help reduce the need for write-offs and make posting to accounts more straightforward (greater efficiency).
      Mastering such interdependencies across the breadth of a company’s back-office operations pays big dividends. … Moreover, greater transparency allows companies to make better offshoring decisions and to integrate back-office services more closely with core businesses, improving productivity in adjacent areas—all while helping to ensure that operational improvements stick.


      About the Authors
      Marco Ferber is an associate principal in McKinsey’s Stuttgart office; Jürgen Geiger is a principal in the Düsseldorf office, where Klaus Kunkel is a consultant.
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      Notes
      1 The data include employment figures, as well as various effectiveness metrics for 920 companies in Europe, North America, and elsewhere. The study spans a range of industries (automotive and assembly, banking, basic materials, consumer goods and services, among others) and includes all major general and administrative functions (for instance, data processing and IT, finance, HR, marketing, purchasing, and real estate). When possible, we break the functions down into subfunctions, such as employee benefits (HR) and accounts receivable (finance).

      Tuesday, January 26, 2010

      Indemnification Garrotte

      PLANSPONSOR.com
      Are you indemnified for a fiduciary breach? 
      …The beginning of the year is a good time to examine or assess your indemnification and insurance coverage. It … appears that the position recently taken by the Labor Department … has put into question the ability of plans … to indemnify plan fiduciaries in instances where there has been an allegation of fiduciary breach. …
      In one recent 9th Circuit decision, the court actually admitted that prohibiting the advancement of attorneys’ fees created difficult hardships for fiduciaries who are trying to defend themselves. Nevertheless, the court concluded that advancement was precluded and the defendant trustees would have to fend for themselves. …
      Moreover, it gets worse. We had always thought that, while the provision of indemnification by a plan is tricky, primarily because “plan assets” are being used to defend fiduciaries of plans, indemnification using corporate funds would not be subject to the same level of ERISA scrutiny. However, in some recent cases, courts have been willing to go much further and actually impose fiduciary responsibility on decisions not directly involving plan assets. In that 9th Circuit decision, which involved an ESOP, the appeals court said that, while decisions relating to corporate matters generally do not fall within ERISA’s purview, where an ESOP fiduciary also serves as a corporate officer or director, “imposing ERISA duties on business decisions” does not “seem unworkable.” …
      In summary, I am worried that, in cases involving a Labor Department investigation and the like, the agency or plaintiffs around the country will now try to cut off the payment of legal fees for plan fiduciaries from a company’s assets because such payment would adversely affect, albeit indirectly, the financial strength of the plan. If other courts jump on this bandwagon, continued reliance on corporate indemnification by fiduciary members of plan boards of trustees or investment committees will be undermined.

      Stephen M. Saxon is a Partner with the Washington-based Groom Law Group. Groom is one of the preeminent employee ­benefits firms in the country. Steve and his colleagues have worked on virtually every major legislative and regulatory initiative affecting employee benefits since the enactment of ERISA.
      PLANSPONSOR staff
      editors@plansponsor.com

      Friday, January 22, 2010

      Employers Admit to Discriminating against the Overweight

      PLANSPONSOR.com

      January 21, 2010 (PLANSPONSOR.com) – A survey by a U.K. weight loss program provider finds employers pass up overweight job candidates because they assume the candidates are "lazy," "lack self control," and are "not hard workers."

      According to a press release, the survey of 2,000 people by Slimming World and YouGov also found that when people who are overweight do get a job they are twice as likely to earn a low salary and four times more likely to suffer bullying about their weight. They are six times more likely to feel their appearance has caused them to be overlooked for promotion.
      Data from the survey's 227 employers indicates that male bosses are particularly discriminatory. One in four male bosses say they would turn down a potential candidate based purely on their weight and one in 10 admit they have already done so, the press release said.
      The survey found that people in the highest weight category (BMI 40+) are four times more likely than healthy weight people to ‘never’ feel confident and twice as likely to dread applying for a new job.
      Rebecca Moore
      editors@plansponsor.com

      Andy and Sarah are Sick AGAIN

      PLANSPONSOR.com

      January 21, 2010 (PLANSPONSOR.com) – A new study finds employees named Andy or Sarah call in sick more than others.

      According to the poll of 5,000 British workers and employers by the Viva entertainment channel, Steves are the next most likely males to call in sick to work, and Beckys are the next most likely females. … Paul, John, and Dave round out the top five for males, and Anne, Emma, and Debbie round out the top five for females.
      The survey found the average employee has taken three days off work in the last 12 months due to illness, but admit they were well enough to make it in for two of those days … .
      When faking sick, more than a third say they would try to avoid confrontation by texting their bosses, a quarter would e-mail them, and one in 14 would Tweet them. Among those who would phone their bosses, 44% admit to speaking in a quieter, more feeble voice to ensure their bosses believe them.
      Some workers are quite the actors, as almost a third exaggerate their symptoms and more than a fifth make a reference to the doctor to help legitimize their absences. … In addition, more than third say they fake a willingness to work by telling their bosses they'll try and make it in later if they feel better, and another 19% offer to work from home.
      However, it isn't illness that most employees use to get a day off. "The car wouldn't start" emerged as the most popular excuse, cited by a fifth of respondents, according to The Telegraph. One in six have gone as far as lying about their children being ill as a reason to dodge work, and the same number have claimed a death in the family.
      Why lie to get out of work? Three in 10 employees said they did because they "simply fancied a day off," and one in five just wanted to stay in bed. More than a fifth were too drunk or hung over to do any work, while 15% disliked the weather outside or wanted a long weekend (see Flu Season Brings Out Workplace Hooky Players).

      Wednesday, January 20, 2010

      Wellness programs’ role in retention cited by nearly half of U.S. workers

      Employee Benefit Adviser
      Posted January 15, 2010 by Editorial Staff at 03:07PM.
      Are wellness programs an effective employee retention tool? The results of a poll released Jan. 14 suggests that they are. In all, 45% of the employees surveyed said they would stay at their jobs longer because of the wellness programs their employers offered.
      The online survey, sponsored by The Principal Financial Group, polled 1,102 employees at small and medium-sized companies (under 1,000 employees) and 602 retirees. It was conducted in late October.
      The survey also found that 26% of employees miss fewer days of work because they participate in wellness programs. Just over half believe that wellness programs are very or somewhat successful in reducing health care costs, and about 30% participate primarily for that reason.
      Most employees are interested in wellness programs that improve their physical fitness, the survey found. Onsite fitness facilities were the most desired programs at 27%, followed by fitness center discounts (23%) and weight management programs (19%). Apparently at least some employers were listening last year: Significantly more workers (15%) reported having access to fitness facilities in the fourth quarter of 2009 than a year earlier (11%).

      Tuesday, January 19, 2010

      401(k) plans: Achieving the Lake Wobegon effect

      Channeling the serene Minnesota town from
      Employee Benefit Adviser
      By Roger Levy
      December 1, 2009
      One might imagine in regard to the 401(k) plans found in Lake Wobegon that all the employers are models of fiduciary conduct, all investment expenses are low and all investment returns are above average. In the rest of the country, however, much work needs to be done to improve 401(k) investment performance.
      This article suggests some alternatives consultants, 401(k) providers, employers and participants might consider…
      Professional management
      …What's really needed is a basic acknowledgment that participant-directed accounts don't work. The signs were there even before the market meltdown. …
      While few investors survived 2008 unscathed, there is evidence to suggest that professionally managed pension investments fared better than investments that were participant-directed.
      According to Milliman, investment returns within the largest 100 U.S. pension plans were -18.9% in 2008, compared to a -28.3% median rate of return in the same year for 401(k) plans, as reported by Hewitt, another pension consulting firm. …
      … [These] statistics suggest that where investments are managed by investment professionals, … investment returns will be better. …
      The solution to the problem is not to add more bells and whistles to what is an already overly complex employee benefit, but to take the investment decision out of the hands of plan participants and put it in the hands of professionals on a trustee-directed basis. This is perfectly permissible and, by following prudent investment practices, can be achieved without increasing the employer's fiduciary exposure.
      First, the plan must be amended to make it trustee-directed. Then, the following steps should be taken:
      * The employer appoints a trustee who will accept responsibility for investment direction. This could be a corporate trustee or members of management.
      * The trustees(s) name the plan fiduciaries to manage the plan assets. The fiduciaries could be members of the investment committee that oversees the selection and monitoring of the plan's current participant-directed investment options.
      * The investment committee adopts a new investment policy statement. This sets out the investment guidelines which will control how contributions are to be invested.
      * The investment committee then selects an investment manager. Then it delegates to him or her the day-to-day management of the prudent investment of the plan assets according to the new investment policy statement.
      As long as the manager to whom investment authority is delegated is a Registered Investment Advisor, bank or insurance company that acknowledges in writing its fiduciary status, the plan trustees and fiduciaries are relieved of their fiduciary responsibilities for managing the assets.
      However, they remain responsible for prudently selecting managers, establishing appropriate investment guidelines and monitoring investment performance, just as they are for the participant-directed plan. …
      Embrace annuities
      Another alternative for employers who want to help participants protect themselves from large losses is to introduce annuities as an investment option within the plan.
      Annuities provide a guaranteed rate of return and a guaranteed income upon retirement, which can increase under some annuities if market returns exceed the guaranteed floor.
      However, annuities are a tax-deferred investment vehicle, and some see them as a bad idea because they potentially add cost.
      …The answer is because of the guaranteed income and the potential to take full advantage of market upswings.
      Also, today, a variety of annuity arrangements are emerging from reputable insurance companies which are not as costly as those of yesteryear, and improvements in recordkeeping and the design of annuity products is making them increasingly attractive as a 401(k) investment option. Such an option could be included in both a trustee-directed plan as well as one that is participant-directed. … info@cambridgegroup.net.

      Levy, LLM, AIFA, is CEO of Cambridge Fiduciary Services, LLC, a fiduciary adviser and audit firm with offices in Greenwich, Conn. and Scottsdale, Ariz. He can be reached at (480) 607-2608 or

      A New Year's resolution: Pump up that wellness program

      Employee Benefit Adviser
      By Beth Taylor
      December 1, 2009
      A new year is about new beginnings. …[Now] … is a good time to pump up your … wellness programs. Whether [your] programs lost steam or never got off the ground, you can … plan for a jump-start in the new year with a few basic steps.
      Brainstorm
      Start by asking … why [your] wellness program stalled or hasn't started. What is at the root of the problem? Is it not knowing where to start, a lack of senior support, too little money or not enough time? Or all of the above? … Too many times, it is far easier, although much less satisfying, to simply not deal with the issue. …
      Tackle each obstacle separately, but don't try to do it alone. There is power in brainstorming with others who have the same challenges. … Perhaps you … know employer groups in the community with thriving wellness programs. … Interacting with peers creates a dynamic synergy for new ideas.
      Consider online wellness support groups and other online resources, such as the American Heart Association, American Cancer Society, WELCOA or Mypyramid.gov. There is a wealth of information and support out there. Find the champions for your cause.
      Make a plan
      Don't let the momentum gained from brainstorming wither and die like so many New Year's resolutions. Create a plan from the best ideas and start with what you know. … Gather information such as:
      • Employee demographics
      • Employee survey results
      • Wellness offerings from carriers
      • EAP benefits
      • Claims data
      The data provide insight into employees' interests, habits and possible topics for education.
      Establish a calendar of events or a timeline to serve as the framework throughout the year. A good place to start is by incorporating the national monthly observation calendar. You can download a copy from the U.S. Department of Health & Human Services' Web site, healthfinder.gov. Events such as October's Breast Cancer Awareness and November's Great American Smoke Out receive a good deal of media attention. That attention helps reinforce your … worksite activities on wellness.
      Start small
      Starting and sustaining a wellness program is like running a marathon. The race begins with the first step, so start small. If it's a new wellness campaign, newsletters, brochures and "lunch and learns" on specific health topics are inexpensive, manageable first steps.
      … If the wellness program stalled along the way, determine why and suggest a remedy. For example, if committee meetings don't produce results, introduce some "new blood." …
      Whatever steps you take, measure your results. … Use the results to adjust strategies to keep employees interested in the program. If you don't measure it, you can't manage it.
      Measuring results alone, however, may not provide the whole picture. A successful program encourages feedback. Invite "letters to the editor," evaluation forms or posts to an intranet. …
      Feedback and results enable you to take the pulse of your … efforts. Together, they build a strong base for future planning for a more robust and comprehensive wellness program.
      Just do it
      Some New Year's resolutions never make it out of the box. …[It] does not matter how small the step, doing something is better than doing nothing. There may be false starts or stumbles along the way, but [you] can't finish what [you] don't start. Make 2010 the year they pump up that wellness program. Just do it.


      Taylor is a consultant and a certified wellness program manager for San Diego's Intercare Insurance Solutions.

      Friday, January 15, 2010

      Price Fixing

      With economic recovery on the horizon, it's time to revisit the wisdom of rock-bottom prices.
      CFO.com

      Vincent Ryan - CFO Magazine

      … Squeezed by an historic recession, U.S. companies have slashed prices more deeply and cut deals more often than at any time in the past 50 years. … Even makers of heart-rhythm devices, like St. Jude Medical, saw prices fall as hospitals demanded discounts on pacemakers and defibrillators.
      … "Companies moved away from value-based pricing to being highly reactive to competitors and relying on cost-plus pricing," says Jamie Rapperport, founder and executive vice president of software firm Vendavo. "Many companies took business as long as it was priced above variable cost, in an effort to help cover their fixed costs." Often the price cuts went hand-in-hand with head-count reductions and other cost-cutting moves.
      … Now, with the economy finally swinging upward and customer demand beginning to thaw, companies should reconsider what they charge for their products. … "There's nothing you can do as a company as quickly to improve profitability — and nothing you can do as quickly to destroy profitability — as change your pricing," says Andre Weber, a partner at Simon-Kucher & Partners.
      It's a delicate art, however. "Commercial price discipline is important," says Robert M. Patterson, CFO of PolyOne, a maker of specialty polymers. "But you can't simply raise prices every year to improve profitability. You have to innovate, innovate, innovate to expand margins, grow profits, and win new business."
      Signals of Distress
      There are five signs that your pricing strategy might be due for an upgrade or overhaul, says Reed Holden, founder of Holden Advisors: (1) unit-sales volume growth slows down, (2) discounts fail to drive incremental volume, (3) competitors introduce new offerings, (4) lower-cost competitors enter the market, and (5) competitors start missing their numbers. (See "The Price Is Wrong" at the end of this article.)
      … One CFO describes a situation at his company in which anemic gross margins posed an issue, and a flawed pricing model was to blame. Not only did salespeople set prices, they would "give" on price to generate business, since they were compensated on the quantity of product sold. In effect, the company was engaging in cost-plus pricing, but its salespeople were shrinking the "plus." (See "The Many Minuses of Cost-Plus" at the end of this article.) "Any internal savings gained from raw-material cost reductions or plant and labor efficiencies were, by definition, passed along to the customer," the CFO says.
      The company shook things up in 2007. It gave the job of setting prices to marketing, changed the sales incentive to gross-margin improvement (based on each salesperson's revenue contribution), and trained salespeople to sell product on value. Disruptions like that often entail some pain, be it sales-staff turnover or even a drop in revenue, but pricing discipline does pay off. "We preserved cost savings for ourselves and our shareholders and did not give them away in price," the CFO says.
      Rethinking pricing may seem at first like a daunting, resource-consuming task. …
      A good way to begin is by plucking low-hanging fruit. For instance, a simple bell-curve analysis plotting every transaction and which price the customer paid can show where price is not being optimized — instances in which customers are not paying close to the amount they are willing to pay for a good or service, says Ralph Zuponcic, managing partner of business-to-business consultant Price-Point Partners. The analysis can help answer questions such as, Why are we selling our product to some customers at such a low price? (Move them up the bell curve.) What is the profile of customers willing to pay the higher price? (How can I get more of them?) How can I move the entire bell to the right? (Increase all prices.) The same analysis can be done with profit margin, says Zuponcic.
      A company can also audit for "price leaks" — instances in which it doesn't get the price it is entitled to, says Ryan White, managing partner at consultancy Price for Profit. … Process, data, and software errors (not to mention the human kind) can all cause price leaks. …
      Another transaction-by-transaction analysis that doesn't stretch IT systems or resources is analyzing the net price, which is the price net of adjustments, rebates, and volume or other discounts. Such scrutiny can turn up outliers — the salesperson who always cuts by 30%, the product that never gets sold for list price — fairly easily.
      In the B-to-B world, of course, excessive discounting can be price cancer. The goal should be "controlled variation," White says. Jim Geisman, a principal at Software Pricing Partners, recommends viewing discounting as an investment. "Are discount dollars being invested in the customer segments and products that provide the greatest strategic value to the company?" he asks.
      At NetSuite, an on-demand ERP software firm, CFO Jim McGeever controls discounting at a high level and sets floors on the rate per hour that can be charged for professional services. But he also wants to be flexible. Two customers that buy 1,000 seats of NetSuite's hosted programs may have quite different usage levels, so McGeever's team can charge less to the customer whose employees only occasionally log on to the system. …
      Three Choices
      A company that wants to overhaul its pricing strategy more substantively will have to address a constellation of factors, including its market, target customer base, product life cycle, and overall strategy.
      Analysis completed, however, Holden says the company will essentially have only three pricing strategies to choose from: skim (high price, at least initially), penetration (low price), and neutral (midtier price). …
      … "When markets are mature, price becomes inelastic," says Holden; lowering the price will not create more demand, and it will often eliminate profits.
      The same kind of strategic mistake is being made in wireless telecommunications services. Wireless carriers are focused on net customer additions and are slashing prices, says Weber of Simon-Kucher. But penetration pricing makes sense only if the product is "sticky" (hard to switch from), such as video-game devices. Because the U.S. mobile market is nearing saturation, there aren't many good new customers to be had. Indeed, "the industry is [inadvertently] encouraging customers to move back and forth," Weber says, "because the new customer gets the better deal."
      In some B-to-B markets, penetration pricing can be ineffective because there is little or no price elasticity. …
      Strategies that target customers who are less sensitive to price, as some skim strategies do, are often overlooked. While not technically using a skim strategy, Starbucks lowered prices last summer on products like iced coffees, where it now competes with McDonald's, but raised prices on other drinks like Frappuccinos and caramel macchiatos, points out Rafi Mohammed, a pricing strategist who is author of the forthcoming book The 1% Windfall. High-margin pricing makes sense for mature products that have loyal customers and few competitors, notes Holden.
      Margins and Errors
      For any of these strategies to succeed, a company must be conscious of the value that its product delivers. … NetSuite's low total cost of ownership is a value advantage, so McGeever doesn't have to offer drastic price cuts to win new business. …
      How do you measure the success of strategic pricing initiatives? As it turns out, profit margin is not necessarily the best metric, argues Mohammed. … Mohammed says the measurement should be total profits and growth. …
      "If you sell products that have high margins, you may be leaving opportunities on the table to sell to more people at lower price points," says Mohammed. …
      … As the economic recovery takes hold, focusing on "revenue causality" is key, says Vendavo's Rapperport. That means understanding, for a given market segment, how much of any changes in revenue (and profitability) is due to price increases and decreases, product mix, currency fluctuations, new customers coming in, or old customers leaving.
      Only with that information in hand can finance begin to steer the organization out of price-chopping mode and toward a saner, more sustainable — and more profitable — pricing strategy.
      Vincent Ryan is a senior editor at CFO.

      The Many Minuses of Cost-Plus
      Many companies employ cost-plus pricing, simply adding a desired margin to the cost of a product. But cost-plus has little to do with market reality, says Reed Holden of Holden Advisors. Because costs are often averaged across product categories, more-profitable products and services can appear less profitable than they really are. "If a competitor is highly specialized and understands the true costs better, it can attack you in your most profitable areas," Holden says. "And you will be led to believe it isn't wise to respond when it is."
      Cost-plus is useful for one thing: setting a price floor…. The ceiling, of course, is the perceived value of the product. Measuring the perceived value is hard to do; it's …. A key part of that research involves "value mapping," which tells a company what the customers' perceptions of its product's value are versus its competitors' products.
      Some companies have lost sales volume and salespeople when switching from cost-plus pricing to a value-based approach, but gross margins often improve dramatically. One company eased its switch by developing a proprietary tool that demonstrated how the use of its products can lower a customer's total costs, which helped persuade customers that the company's not-quite-so-low prices were still a good deal. — V.R.

      The Price Is Wrong
      Any one of these five signs could mean it's time to change your pricing strategy, says Reed Holden of Holden Advisors.
      1. Unit-sales growth slows down. When sales volume stalls, it may mean that the market is saturated, competitors are swiping your customers, or your pricing is out of line with your product's perceived value. If the market has moved beyond a high-growth phase, it may be time to switch from aggressive penetration pricing to a more stable and profitable stance.
      2. Discounts fail to drive incremental volume. If discounting doesn't drive more sales or increase total profits, why do it? …
      3. Competitors introduce new offerings. A new player's offering may change the value equation in the market. … A niche product may be called for, or marketing may need to work on stressing other product differentiators.
      4. Lower-cost competitors enter the market. If a market is in high-growth mode, the first company to adopt penetration pricing could gain economies of scale and have an ongoing competitive advantage, Holden says. Will your resources and cost structure allow you to compete in a price war? If not, lower-value "flanking" products may be needed to protect more-differentiated offerings.
      5. Competitors start missing their numbers. This circumstance could indicate changes in the market related to customer preferences and buying habits. Or, your competitor may have developed a weak spot that you can exploit. — V.R.

      Workers Heart Workplace Wellness Programs

      PLANSPONSOR.com

      January 14, 2010 (PLANSPONSOR.com) – Nearly half (47%) of employees recently polled say they either would like to or already do participate in a workplace wellness program so they can get healthier.

      A Principal Financial Group news release about the latest data from its Principal Financial Well-Being Index said employees cited reducing personal health care costs (30%), having a greater chance of living longer and healthier lives (30%), receiving employer incentives for participation (28%), and enjoying reduced stress (28%) as reasons to join a workplace wellness program.
      Twenty-seven percent said they would like in-office fitness facilities, 23% said they like fitness center discounts, and 19% expressed interest in weight-management programs. …
      Finally, 45% of respondents at small- to medium-sized companies said having a workplace wellness program would help keep them at the same employer longer, while 40% said the programs encourage them to work harder and perform better. More than one-quarter (26%) said the wellness efforts help them miss fewer work days due to illness.
      “Wellness programs are clearly a win-win, especially at a time when employers and their employees are more budget conscious,” said Lee Dukes, president of Principal Wellness Company, a subsidiary of the Principal Financial Group, in the news release.
      The survey was conducted online in the United States by Harris Interactive between October 20 and October 30, 2009, among 1,120 employees and 602 retirees at companies with between 10 and 1,000 workers.
      Fred Schneyer
      editors@plansponsor.com

      Thursday, January 14, 2010

      Five attributes of enduring family businesses

      The keys to long-term success are professional management and keeping the family committed to and capable of carrying on as the owner.
      McKinsey Quarterly
      JANUARY 2010 • Christian Caspar, Ana Karina Dias, and Heinz-Peter Elstrodt
      Family businesses are an often overlooked form of ownership. Yet they are all around us—from neighborhood mom-and-pop stores and the millions of small and midsize companies that underpin many economies to household names such as BMW, Samsung, and Wal-Mart Stores. One-third of all companies in the S&P 500 index and 40 percent of the 250 largest companies in France and Germany are defined as family businesses, meaning that a family owns a significant share and can influence important decisions, particularly the election of the chairman and CEO.
      As family businesses expand from their entrepreneurial beginnings, they face unique performance and governance challenges. … Indeed, less than 30 percent of family businesses survive into the third generation of family ownership. Those that do, however, tend to perform well over time compared with their corporate peers, according to recent McKinsey research. …
      To be successful as both the company and the family grow, a family business must meet two intertwined challenges: achieving strong business performance and keeping the family committed to and capable of carrying on as the owner. Five dimensions of activity must work well and in synchrony: harmonious relations within the family and an understanding of how it should be involved with the business, an ownership structure that provides sufficient capital for growth while allowing the family to control key parts of the business, strong governance of the company and a dynamic business portfolio, professional management of the family’s wealth, and charitable foundations to promote family values across generations (Exhibit 1).




    • Exhibit 1: For a family business to be successful, five dimensions of activity must be working well and in synchrony.


      • Family

        Family businesses can go under for many reasons, including family conflicts over money, nepotism leading to poor management, and infighting over the succession of power from one generation to the next. Regulating the family’s roles as shareholders, board members, and managers is essential because it can help avoid these pitfalls.
        Large family businesses that survive for many generations make sure to permeate their ethos of ownership with a strong sense of purpose. Over decades, they develop oral and written agreements that address issues such as the composition and election of the company’s board, the key board decisions that require a consensus or a qualified majority, the appointment of the CEO, the conditions in which family members can (and can’t) work in the business, and some of the boundaries for corporate and financial strategy. …
        Long-term survivors usually share a meritocratic approach to management. There’s no single rule for all, however—policies depend partly on the size of the family, its values, the education of its members, and the industries in which the business competes. …
        As families grow and ownership fragments, family institutions play an important role in making continued ownership meaningful by nurturing family values and giving new generations a sense of pride in the company’s contribution to society. Family offices … can bring together family members who want to pursue common interests, such as social work, often through large charity organizations linked to the family. … It can also keep the family happy by providing investment, tax, and even concierge services to its members.

        Ownership

        Maintaining family control or influence while raising fresh capital for the business and satisfying the family’s cash needs is an equation that must be addressed, since it’s a major source of potential conflict, particularly in the transition of power from one generation to the next. Enduring family businesses regulate ownership issues—for example, how shares can (and cannot) be traded inside and outside the family—through carefully designed shareholders’ agreements that usually last for 15 to 20 years.
        Many of these family businesses are privately held holding companies with reasonably independent subsidiaries that might be publicly owned, though in general the family holding company fully controls the more important ones. … Many family businesses pay relatively low dividends because reinvesting profits is a good way to expand without diluting ownership by issuing new stock or assuming big debts. …
        To keep control, many family businesses restrict the trading of shares. Family shareholders who want to sell must offer their siblings and then their cousins the right of first refusal. In addition, the holding often buys back shares from exiting family members. Payout policies are usually long term to avoid decapitalizing the business.
        Because exit is restricted and dividends are comparatively low, some family businesses have resorted to “generational liquidity events” to satisfy the family’s cash needs. … One chairman said of his company, “Every generation has a major liquidity event, and then we can go on with the business.”

        Governance and the business portfolio

        With clear rules and guidelines as an anchor, family enterprises can get on with their business strategies. Two success factors show up frequently: strong boards and a long-term view coupled with a prudent but dynamic portfolio strategy.
        Strong boards
        Large and durable family businesses tend to have strong governance. … On average, 39 percent of the board members of family businesses are inside directors (including 20 percent who belong to the family), compared with 23 percent in nonfamily companies, according to an analysis of the S&P 500.1
        Of course, it’s important to complement the family’s knowledge with the fresh strategic perspectives of qualified outsiders. Even when a family holds all of the equity in a company, its board will most likely include a significant proportion of outside directors. One family has a rule that half of the seats on the board should be occupied by outside CEOs who run businesses at least three times larger than the family one.
        Procedures for all nominations to the board—insiders as well as outsiders—differ from company to company. …
        Family businesses, like their nonfamily peers, face the challenge of attracting and retaining world-class talent to the board and to key executive positions. In this respect, they have a handicap because nonfamily executives might fear that family members make important decisions informally and that a glass ceiling limits the career opportunities of outsiders. Still, family businesses often emphasize caring and loyalty, which some talented people may see as values above and beyond what nonfamily corporations offer.
        A long-term portfolio view
        Successful family companies usually seek steady long-term growth and performance to avoid risking the family’s wealth and control of the business. This approach tends to shield them from the temptation—which has recently brought many corporations to their knees—of pursuing maximum short-term performance at the expense of long-term company health. A longer-term planning horizon and more moderate risk taking serve the interests of debt holders too, so family businesses tend to have not only lower levels of financial leverage but also a lower cost of debt than their corporate peers do (Exhibit 2).




      • Exhibit 2: Family businesses tend to have lower levels of financial leverage and a lower cost of debt than their corporate peers do.


        • The longer perspective may make family businesses less successful during booms but increases their chances of staying alive in periods of crisis and of achieving healthy returns over time. In fact, despite the unique challenges facing family-influenced businesses, from 1997 to 2009 a broad index of publicly traded ones in the United States and Western Europe achieved total returns to shareholders two to three percentage points higher than those of the MSCI World, the S&P 500, and the MSCI Europe indexes (Exhibit 3). It is difficult to provide statistical proof that the family influence was the main driver. The results were surprisingly stable across geographies and industries, however, and indicate that family businesses have performed at least in line with the market—a finding corroborated by academic research.2




        • Exhibit 3: Publicly traded family-influenced companies often have higher total returns to shareholders than do leading indexes such as MCSI Europe, MSCI World, and S&P 500.


          • This long-term focus implies relatively conservative portfolio strategies based on competencies built over time, coupled with moderate diversification around the core businesses and, in many cases, a natural preference for organic growth. Family-influenced businesses tend to … [make] smaller but more value-creating deals than their corporate counterparts do … . The average deal of family businesses was 15 percent smaller, but the total value added through it—measured by market capitalization after the announcement—was 10.5 percentage points, compared with 6.3 points for their nonfamily counterparts.3
            Nonetheless, too much prudence can be dangerous. … Excessive risk aversion might, for example, unduly limit investments to maintain and build competitive advantage and to diversify the family’s wealth. Diversification is important not only for overall long-term performance but also for control because it helps make it unnecessary for family members to take money out of the business and diversify their assets themselves.
            That’s why most large, successful family-influenced survivors are multibusiness companies that renew their portfolios over time. … In general, family businesses seek a mix: companies with stable cash flows and others with higher risk and returns. …The idea is to renew the portfolio constantly so that the family holding can preserve a good mix of investments by shifting gradually from mature to growth sectors.

            Wealth management

            Beyond the core holdings, families need strong capabilities for managing their wealth, usually held in liquid assets, semiliquid ones (such as investments in hedge funds or private-equity funds), and stakes in other companies. By diversifying risk and providing a source of cash to the family in conjunction with liquidity events, successful wealth management helps preserve harmony. …
            [Recent events] highlight the importance of a professional organization with strong, consolidated, and rigorous risk management to oversee the wealth family businesses generate. For large fortunes, the best solution is a wealth-management office serving a single family…. A wealth-management office that serves a group of unconnected families is an option when individual ones don’t have the scale to justify the cost of a single-family office. …

            Foundations

            Charity is an important element in keeping families committed to the business, by providing meaningful jobs for family members who don’t work in it and by promoting family values as the generations come and go. Sharing wealth in an act of social responsibility also generates good will toward the business. …
            Money alone does not guarantee a high social impact. In addition to the financial and operational issues facing any charitable activity, families must cope with the critical challenge of nurturing a consensus on the direction of their philanthropic activities from one generation to the next. …
            Almost all companies start out as family businesses, but only those that master the challenges intrinsic to this form of ownership endure and prosper over the generations. The work involved is complex, extensive, and never-ending, but the evidence suggests that it is worth the effort for the family, the business, and society at large.


            About the Authors

            Christian Caspar is a director in McKinsey’s Zurich office; Ana Karina Dias is an associate principal in the São Paulo office, where Heinz-Peter Elstrodt is a director.
            The authors wish to acknowledge the contributions of Andres Maldonado, an alumnus of McKinsey’s São Paulo office.

            Notes

            1 Ronald C. Anderson and David M. Reeb, “Founding-family ownership and firm performance: Evidence from the S&P 500,” The Journal of Finance, 2003, Volume 58, Number 3, pp. 1301–27.
            2 See Ronald C. Anderson; David M. Reeb, “Founding-family ownership and firm performance: Evidence from the S&P 500,” The Journal of Finance, 2003, Volume 58, Number 3, pp. 1301–27; and also Roberto Barontini and Lorenzo Caprio, “The effect of family control on firm value and performance: Evidence from continental Europe,” EFA 2005 Moscow Meetings paper, 2005.
            3 The sample includes 78 deals for family-owned businesses and 494 deals for businesses not owned by families. The acquirers (both kinds of companies) were constituents of the US S&P 500, the German HDAX, or the French SBF 120 (Société des Bourses Françaises 120 Index) stock indexes. Value added through the deal is defined as the change in market capitalization, adjusted for market movements, from two days prior to two days after the announcement. The analysis includes all deals completed from 2005 to late 2009 with a value of over $500 million in which the acquirers’ ownership went from nothing to 100 percent.

            Tuesday, January 12, 2010

            Survey: Small business owners’ outlook improves; concerns remain

            Kansas City Business Journal
            Kansas City Business Journal - by Kent Bernhard Jr. Contributing Writer
            Small business owners are feeling good, better than they’ve felt in more than two years. But that doesn’t mean this group — who own the majority of the nation’s businesses — doesn’t have serious concerns around the margins, think the U.S. economy will return to world dominance or plan to go on hiring binges.
            Businesses with five to 499 employees being tracked by the American City Business Journals, the parent company of the Kansas City Business Journal, are more optimistic than they have been since the first half of 2007. Yet shadows fall on that upbeat attitude.
            “The highest highlight is optimism is up again. It really is a 12-month high. We really haven’t seen this,” said Godfrey Phillips, ACBJ vice president for research. “But with that optimism is a worry that keeps pervading.”
            The survey shows that 75 percent of decision-makers thought at the end of 2009 that their business prospects would be “a lot” or “a little” better in the next 12 months, the best that level has been since the spring and early summer of 2007. And now 40 percent think the economy has turned around, …
            So where are the dark clouds?
            • The percentage of business owners concerned about the safety of their businesses shot up to 39 percent in December … that could well have something to do with worries about the increased cost of doing business and about the state of the economy.
            • The percentage of business owners concerned about the long-term survival of their firms grew to 42 percent … a small move but still an ominous one for those who expect small business to lead the United States out of economic doldrums, as it has in past postwar recessions.
            • Sixty-five percent remain concerned about the overall U.S. economy. …
            • Slightly more businesses are concerned about the cost of doing business, at 57 percent, …
            But with all those negatives, another small-business concern actually could be positive news for the economy. Many more business owners in December … said they were concerned about finding and keeping good employees.
            That kind of movement generally is an indicator of good times ahead for the economy as a whole because it means a robust job market is making it harder to find the right employees for small businesses. But … the total employment picture remains a problem. Employers shed 85,000 jobs last month, and the unemployment rate remained at 10 percent, still near a postwar high….
            That doesn’t mean there’s no movement in the job market, though.
            “I wouldn’t say that we’re seeing a tremendous increase, but we are seeing an increase,” Joanie Ruge, senior vice president at the nation’s largest temporary firm, Adecco, said the day before the latest job numbers were released. …
            “The smaller companies … they have to watch their purse strings a little bit tighter,” she said.
            Phillips said a fundamental change in hiring is happening. …[A] business owner said: “‘We used to hire three people for one job; now we hire one person for three jobs.’ They expect people to be more productive and be able to do more than one thing.”
            And there’s something else significant going on with small businesses, Phillips said. A smaller percentage of them think the nation ever will regain its former economic dominance. …
            That may just be the weariness at the end of a long recession talking. Or it may be an insight that the U.S. and global economies have changed, and American businesses will have to tap into new markets beyond a dynamic domestic one if they expect to thrive.
            “I think people realize that there’s going to be a little bit of a shift in the power base,” Phillips said. “This great recession, it really has left a scar.”
            Kent Bernhard Jr. is news editor of Portfolio.com, an affiliate publication.

            Monday, January 11, 2010

            The shape of things to come for 401(k) plans

            Employee Benefit News
            By Jerry Kalish
            January 1, 2010
            …Despite the continuing recession, 401(k) providers will still be … offering more and more features to plan sponsors. …
            Here are three more plan features that you are likely to see more of in 2010 and beyond:
            Individually managed accounts
            This is a plan option through which a 401(k) participant can elect to have his or her account professionally managed. A new survey by Hewitt Associates shows that more midsized-to-large employers are increasing their efforts to help employees meet their retirement income needs by adding outside investment advisory services. Approximately 50% of employees use such services (including advice, guidance and/or managed accounts), an increase from 40% in 2007, and 37% in 2005.
            … A DALBAR study showed that while the S&P 500 earned an average return of 8.41% from 1988 to 2008, the average equity investor earned a mere 1.87%.
            Regardless of the reason, more employers - particularly smaller employers - will be adding a managed account option that has two components. The first is personalized one-time investment recommendations. After that, participants are responsible for ongoing account monitoring, rebalancing and management.
            …The second component of a managed account is ongoing discretionary investment management for a fee, paid for by the individual participant.
            401(k) interfaced with payroll
            The second 401(k) trend is employers interfacing their plans with their outside payroll provider. …
            The appeal should be obvious. It allows employers to reduce their administrative involvement with both payroll and 401(k) plans. An interface allows employee and 401(k) participant data to be shared and updated in the course of the employer's normal payroll processing function. How this translates into cost-savings is an analysis that has to be done on an individual basis.
            Distribution planning help
            The third trend is employers putting programs in place to encourage terminating employees not to cash out.
            While the good news is that the cash-out rate hasn't changed much since 2005 despite job losses, according to a recent Hewitt study, the bad news is that almost 50% of terminated participants take cash distributions.
            It's a costly decision in terms of ultimate retirement income, particularly for those in their 20s. Terminated employees who cash out will miss out on years of tax-deferred growth in their account. …
            Helping employees make better decisions is more important now than ever before. It's a 401(k) world now for employer-sponsored retirement plans, and the majority of future retirees will never participate in a defined benefit plan that provides a guaranteed income for life. For them, it will be a defined contribution plan, personal savings and Social Security. …

            Contributing Editor Jerry Kalish is the founder of The Retirement Plan Blog and president of National Benefit Services, Inc., a Chicago-based employee benefit consulting and administrative firm.

            Achieving Sustainable Retirement Withdrawals: A Combined Equity and Annuity Approach

            Journal for Financial Planning
            by Craig Lemoine, CFP®; David M. Cordell, Ph.D., CFA, CFP®, CLU; and A. William Gustafson, Ph.D.

            Executive Summary
            • This article contrasts sustainable retirement withdrawals from strategies with annuity components and strategies without annuity components.
            • The authors discuss today's market environment as it affects retirement planning strategies with and without annuity components.
            • This study evaluates common retirement planning strategies by analyzing the withdrawal stability for portfolios consisting of equity, fixed income, variable annuity, and fixed annuity assets.
            • This article uses replacement Monte Carlo methodology to determine retirement success over investor accumulation and withdrawal phases. The goal of each trial was to secure calculated retirement funding rather than to maximize wealth.
            • Five retirement portfolio strategies are evaluated: (1) 50 percent in equities and 50 percent in bonds, (2) 100 percent in equities, (3) a combination of equities and bonds in which the equities percentage is calculated as 128-minus-attained-age, (4) a variable annuity with a 5 percent withdrawal rate, and (5) 100 percent equities with a fixed annuity lock.
            • Different rebalancing strategies were modeled to capture any variances between frequency. Portfolios composed of a higher portion of equities outperformed those with a higher portion of bonds. The trials using 50 percent equities and 50 percent bonds yielded the lowest chance of success. Attempting to reduce portfolio risk by reallocating to fixed-income assets annually is less likely to provide long-term success than an allocation that remains fully invested in equities.
            • The results indicate that using an equity portfolio with a fixed annuity component provides a higher chance of maintaining retirement distributions than other alternatives.
            Craig Lemoine, CFP®, is an assistant professor of financial planning at the American College. He also works with retirees and is completing a doctoral dissertation at Texas Tech University.
            David M. Cordell, Ph.D., CFA, CFP®, CLU, is director of finance programs at the University of Texas at Dallas.
            A. William Gustafson, Ph.D., is an associate professor at Texas Tech University.

            Wednesday, January 6, 2010

            Best and Worst Jobs of 2010

            Plansponsor.com reports on this year's CareerCast.com Jobs Rated report. After looking at such factors as stress, working environment, physical demands, income, and hiring outlook, here is how jobs are rated for 2010:

            10 Best Jobs
            1. Actuary
            2. Software engineer
            3. Computer systems analyst
            4. Biologist
            5. Historian
            6. Mathematician
            7. Paralegal assistant
            8. Statistician
            9. Accountant
            10. Dental hygienist
            10 Worst Jobs
            1. Roustabout (one who performs routine physical labor and maintenance on oil rigs and pipelines)
            2. Lumberjack
            3. Ironworker
            4. Dairy farmer
            5. Welder
            6. Garbage collector
            7. Taxi driver
            8. Construction worker (laborer)
            9. Meter reader
            10. Mail carrier

            Tuesday, January 5, 2010

            Congress restores incentives to make SBA loans more attractive

            Memphis Business Journal
            Memphis Business Journal - by Kent Hoover
            Congress … restored incentives that made Small Business Administration loans more attractive for borrowers and lenders.
            The $636 billion defense bill that was signed into law Dec. 21 includes $125 million for the SBA, which the agency will use to increase the government guarantee on its flagship 7(a) loans to 90%. The funds also will enable the SBA to eliminate fees for borrowers on its 7(a) loans and 504 loans, which primarily finance real estate. This will return the guarantee and fees to where they were before Nov. 23, when the SBA ran out of the economic stimulus funds that enabled the agency to make these enhancements.
            The new funding, however, is expected to last only through Feb. 28, 2010. The House, in a separate jobs bill, appropriated $354 million to keep the higher guarantee and lower fees in place through Sept. 30, 2010. That extension awaits Senate approval.
            “We’re hopeful that it gets done,” said Tony Wilkinson, president and CEO of the National Association of Government Guaranteed Lenders.
            …The SBA “needs to be stepping up and filling that void,” [Wilkinson] said. Given the constraints on bank lending, “this is pretty much the only game in town.”
            The SBA’s normal guarantee on 7(a) loans ranges from 75% to 85%, depending on the size of the loan. The higher guarantee made SBA loans even less risky for lenders, and the fee reductions made the loans more affordable.
            “These changes proved very effective at jump-starting small business lending, and the need to continue them is clear,” said Sen. Mary Landrieu, D-La., who chairs the Senate Small Business and Entrepreneurship Committee.
            …The SBA set up a waiting list for borrowers and lenders who wanted loans with a higher guarantee or reduced fees if more money for these breaks became available. As of Dec. 21, there were 838 loans totaling $431 million sitting in the 7(a) loan queue, and 192 loans totaling $114 million in the 504 queue.
            President Barack Obama, who urged Congress to renew the stimulus-funded breaks on SBA loans, also favors increasing the size limits on SBA loans. This, he said, would enable more businesses to expand and hire more workers as the economy recovers.
            Landrieu’s committee approved legislation Dec. 17 that would increase the maximum size of 7(a) loans from $2 million to $5 million. The bill would increase the size limit on regular 504 loans, which are paired with conventional loans, from $1.5 million to $5 million. The loan limit for small manufacturers or projects that meet certain energy guidelines would increase from $4 million to $5.5 million.
            This legislation also would allow businesses to refinance short-term commercial real estate into a long-term, fixed-rate 504 loan.
            Kent Hoover is Washington bureau chief for American City Business Journals. He can be reached at (703) 816-0330 or khoover@bizjournals.com

            Monday, January 4, 2010

            Green Business: Outsourcing the Carbon Accounting Chore

            CRM News
            By Ned Madden
            E-Commerce Times
            Part of the ECT News Network
            01/04/10 5:00 AM PT
            Accounting for the amount of carbon a business emits is already a fact of life for some firms, and it could soon become business as usual for many more. Doing the carbon accounting work in-house could be a major obstacle for companies worldwide as they scramble to deal with rising regulatory and market forces. Solutions for outsourcing the work are emerging.
            Carbon accounting outsourcing (CAO) could be the next big thing in the US$80 billion business process outsourcing (BPO) industry. …
            While numerous green consultancies offer firms advice on how to comply with carbon reporting requirements, none have been able to undertake the complex and time-consuming work necessary to collect and report on energy use and carbon emissions, according to Ian McGowan, director of FirstCarbon, a carbon data management Click to learn how AT&T Application Management can help you focus on the growth and profitability of your business. subsidiary of global outsourcing services provider ADEC Solutions.
            "We don't pretend to have huge expertise in carbon offsets and strategy Download Free eBook - The Edge of Success: 9 Building Blocks to Double Your Sales and so on," McGowan said. "But we are able to look at the granular level and pull together the information firms need to work out their carbon footprint and report on it."…

            In-House Accounting Challenges

            Counting carbon -- specifically, measuring and reporting the emission levels of its dioxide form (CO2) -- is big news. Carbon emissions made headlines worldwide in December, when delegates from 193 countries gathered in Copenhagen, Denmark, at the U.N. climate summit to discuss how to fund global greenhouse gas (GHG) emission cuts.
            Doing the carbon accounting work in-house could be a major obstacle for companies worldwide as they scramble to deal with the rising regulatory and market forces currently driving major organizations to establish public goals for reducing energy and resource use -- and all the carbon emissions that result from such activity.
            U.S. companies are gearing up for operating in an economy characterized as "carbon constrained" -- that is, one in which the government limits yearly carbon emissions and requires big emitters to accurately report them.
            Mandatory reporting of greenhouse gases (GHG) in the U.S. is now required for some companies nationwide. The U.S. Environmental Project Agency (EPA) Final Mandatory Reporting of Greenhouse Gases Rule requires reporting from most large U.S. GHG emissions sources. The stated purpose of the rule is to collect accurate and timely emissions data to inform future policy decisions. Initial reports, covering emissions during 2010, are due on March 31, 2011.
            Energy management outsourcing is a way of addressing the current energy challenges facing all organizations, namely high and volatile energy prices, the need to mitigate climate change and potential supply constraints as oil production peaks. … Carbon impacts are a growing consideration for managers deciding whether and how much to outsource…
            "The coming mandate for carbon management, while placing unwanted burdens on many enterprises, will certainly be keeping law practices busy helping their clients comply with carbon reduction legislation," said Shekhar Chitnis, president and CEO of Chisk, with offices in the U.S., UK, Germany, Japan and India. "Since tracking carbon credits is a non-core activity for most corporations, doing the work themselves offers very little direct economic advantage, which makes it an ideal activity for outsourcing to dedicated specialist third parties."…

            Enterprise Carbon Accounting Software

            Many companies begin the carbon accounting process internally by manually gathering baseline information, then using spreadsheets to calculate and track initial results.
            "If a firm needs to outsource this process, they hire a consultant who brings expertise and has a preferred tool," said Groom Energy Solution's VP of Consulting Paul Baier, who told the E-Commerce Times that "99 percent" of such consultants use Microsoft (Nasdaq: MSFT) Excel spreadsheets.
            However, according to Baier, a growing number of companies are also turning to new sustainability enterprise carbon accounting (ECA) software offerings, primarily Web-based tools intended to help businesses manage, analyze and report on their carbon footprints. …
            This development is giving rise to a global market for carbon accounting, collecting data and consulting services that is expected to reach $7 billion to $9 billion … by 2012, according to a Groom Energy June 2009 report.

            Knowing Your GHG Physics and Chemistry

            … BPO service providers have a strong potential future in implementing sustainability accounting software initiatives and GHG management, said Larry Goldenhersh, CEO of Carlsbad, Calif.-based Enviance, provided that outsourcers fully understand the business processes involved in achieving compliance with air, water and waste permits, and know how to use centralized software systems like the Enviance platform grounded in the physics and chemistry of GHGs.
            Given strict adherence to those constraints, "I believe carbon accounting will drive multi-billion dollar opportunities for all companies in this space," Goldenhersh told the E-Commerce Times. …

            Removal “Spot”: the duty to remove investments

            PLANSPONSOR.com
            It is commonly accepted that fiduci­aries of participant ‑ directed plans, such as 401(k) plans, have a duty to select, monitor, and remove investments prudently.
            The threshold question is whether a fiduciary’s duty to remove investments applies to individual investments or whether the decisions are judged on the basis of the investments in the aggregate. The trial court in DeFelice v. US Airways, Inc., applied an aggregate test. …
            The court was wrong. The duty of fiduciaries is to select, monitor, and remove individual investments prudently, in addition to considering the portfolio as a whole. …
            The DoL made it clear in the preamble of a regulation that its view is that the prudent selection of investments incorporates both a consideration of the individual investments and the portfolio.
            The regulation, however, is not intended to suggest either that any relevant or material attributes of a contemplated investment may properly be ignored or disregarded, or that a particular plan investment should be deemed to be prudent solely by reason of the propriety of the aggregate risk/return characteristics of the plan’s portfolio. Rather, it is the Department’s view that an investment reasonably designed—as part of the portfolio—to further the purposes of the plan, and that is made upon appropriate consideration of the surrounding facts and circumstances, should not be deemed to be imprudent merely because the investment, standing alone, would have, for example, a relatively high degree of risk.
            … While participants can decide which of the offered investments to use, they cannot decide which investments are offered—that job belongs to the fiduciaries. In fulfilling that responsibility, ERISA requires, in effect, that the fiduciaries make a legal “promise” to the participants that each of the investment options is selected and monitored prudently (and removed, if it is no longer a prudent choice) and that the lineup of options offered to the participants is prudent in the aggregate.
            Why is this the case? Unless a participant’s account is professionally managed, the participant must put together a portfolio in his account that is allocated among different categories of investments to create an appropriate blend of risk and return. If the investment choices are not prudent in the aggregate (for example, if the investments do not constitute a broad range that allows participants to balance risk and reward by selecting among them), the participants could not construct portfolios according to their needs. On the other hand, if some or even all of the investments were individually imprudent, then even a well-constructed portfolio would likely underperform. Thus, each investment must be prudent and suitable on a stand-alone basis, and the lineup of investments must be prudent in the aggregate. …
            Returning to my earlier statement that “the court was wrong,” it was not as brazen as it may have seemed. The 4th Circuit Court of Appeals subsequently reversed the trial court saying:
            “[A] fiduciary must initially determine, and continue to monitor, the prudence of each investment option available to plan participants.”

            Fred Reish is Managing Director and Partner of the Los Angeles-based law firm of Reish & Reicher. A nationally recognized expert in employee benefits law, he has ­written four books and many articles on ERISA, IRS and DoL audits, and pension plan disputes. Fred has been awarded the Institutional Investor Lifetime Achievement Award and PLANSPONSOR’s Lifetime Achievement Award. He is also one of the 15 individuals named by PLANSPONSOR magazine as “Legends of the Retirement Industry.”
            PLANSPONSOR staff
            editors@plansponsor.com