Pension Liability: How Did It Get So Big? - WSJ.com

Pension Liability: How Did It Get So Big? - WSJ.com

Michael Moran talks about how companies got into this mess—and how they might get out of it

By VIPAL MONGA

The growing weight of pension obligations is forcing more corporations to take dramatic steps to lighten the load.

WSJ: What are some strategies companies are using to shrink these pension deficits?
MR. MORAN: We've seen a number of strategies undertaken by plan sponsors. Some have shifted asset allocation to more of a dynamic framework, where asset allocation changes as funded status changes. Simplistically, this involves increasing allocations to fixed income as funded levels rise as a way to lock in that funded status.
More recently, we have seen plans instituting lump-sum options to their participants as a way to shrink their gross pension obligations. We've also seen some plans enter into annuity contracts with some insurance providers as another way of moving the liability off their books.
Finally, we've also seen a number of plan sponsors making voluntary contributions, taking advantage of the record amount of cash that's on corporate balance sheets, as a way to help improve funded levels.

Small management risks that make a big difference | SmartBlogs SmartBlogs

Small management risks that make a big difference | SmartBlogs SmartBlogs
By Mary Jo Asmus on November 7th, 2012

A few other small personal risks come to mind that make a big difference to your leadership:
Including others. You are creating a vision, mission or strategy for moving your organization forward. Or maybe you have some decisions to make about the customers you need to focus on. Perhaps you want to decide on organizational values or change the culture. Don’t do it in a vacuum! Invite your team into the conversation so that they have a say and feel ownership for the end product. The perceived risk here is that you might not get exactly what you want. The benefit is a sense of community and team ownership for outcomes.

Admitting your mistakes. Everyone makes mistakes. Admitting yours and apologizing when appropriate shows that you are human. People want to see your humanity; it helps them to know that you are more like them than different, thus creating a relationship bridge. The perceived risk is that you may believe they will think less of you. The benefit to admitting your mistakes includes creating an open, safe environment for others to make mistakes and admit them, too.

Asking for feedback. If you aren’t in an organization with a culture of feedback — or even if you are — it can feel uncomfortable to ask for it. However, all leaders have blind spots, and getting feedback is one of the best ways to conquer those. Ask for specifics (not just “How am I doing?”) in order to get specifics (“Was the information I gave about X in our meeting today enough so that you can do Y?”). The perceived risk is that you may feel you are showing weakness by asking for feedback. The benefit is that what you hear provides a roadmap for your improvement.

Listening when you want to talk. Something happens sometimes when individuals become leaders; they talk and talk trying to prove that they know everything. Try more listening instead. Deep listening (mouth shut, ears wide open, attention on the speaker) is rare, and you’ll stand out. The perceived risk is that you might think that listening to others signifies agreement with what they say or that you have nothing to add to the discussion. The benefit to listening is that you learn more and develop deeper relationships with others.

Leaders are supposed to take risks, but sometimes the personal ones are the hardest. However, they can also be the most effective.


What risks have you taken that made a difference in your leadership?

Mini Debate Between Fred Leeb and the Attorney for the Opposition

Debate Over Proposal #1  The Emergency Manager Law   Spotlight on the News-Channel 7 WXYZ

Please Click on the Picture Above to See the Debate Video Proposal #1, the Michigan Emergency Manager Referendum, is on the ballot in Michigan for the November 6th election.  If the referendum passes (by voting "Yes", Public Act 4 (which was passed by the Michigan legislature in 2011 as the Local Government and School District Fiscal Accountability Act) will be adopted but if the proposal is defeated (by voting "No"), the law will not take effect.  I strongly recommend that you vote YES on Proposal #1. A mini-debate on Proposal #1 was held and aired Sunday, October 28, 2012 on WXYZ Channel 7's Spotlight on the News program hosted by Chuck Stokes.  The participants were Herb Sanders, attorney for Stand Up for Democracy (the coalition that sought to place the referendum on the ballot) and me (the former Emergency Financial Manager of the City of Pontiac).  The video of this debate can be seen by clicking on the picture above.  [The portion related to Proposition #1 is from the beginning of the clip until 13:16, sorry about the initial advertisement.] I believe that there are many reasons to vote yes on Proposal #1, as follows: The law has been used very rarely and only when it has been absolutely necessary to try to save a local governmental unit from a financial disaster.  I do not believe the State has any desire to take over the responsibility for managing many governmental entities.  There are currently only 5 cities (Flint, Pontiac, Ecorse, Benton Harbor and Allen Park) out of about 2,900 local governmental units in Michigan and 3 school districts (Muskegon Heights, Detroit and Highland Park) out of 579 school districts that have an Emergency Financial Manager.  In addition, there are three cities working with a consent agreement (Detroit, River Rouge and Inkster). If the law is defeated, it is likely to cause additional lengthy delays in the process of helping cities to get back on track financially as the parties argue about what should be done instead.  The biggest loser is likely to be the City of Detroit because it already has "hit the wall" and is only able to operate with the State providing managerial assistance and financial resources.  On December 21, 2011, Andy Dillon, the State Treasurer, said that Detroit had total liabilities estimated at more than $12 billion and that the deficits in the General Fund  have fluctuated between over $155 million and over $300 million each year from 2005 through 2011.  Total General Fund debt and other liability proceeds have been over $600 million for 2005 through 2010. Under Public Act 4, the local governmental entity has many opportunities to avoid the need for an Emergency Manager, even after what may be decades of poor financial management.   There also are a number of checks and balances.  First, the State has to conduct a preliminary review of the level of financial stress.  Second, if necessary, there must be a more formal review including representatives or nominees from the State Treasurer, the State House, the State Senate, the State budget office and others appointed by the Governor.  Third, there is an opportunity for a consent agreement for continuing operations.  There also is the potential for a recovery plan in which additional powers can be granted to the local officials to help them in their efforts to correct the situation.  Fourth, if the Governor decides an Emergency Manager is necessary, the local unit can request a hearing.  Fifth and finally. the local governmental unit can appeal the decision to the Ingham County Court. Public Act 4 requires communication and disclosure of the Emergency Manager's decisions to the State and to the public.  For example, the Emergency Manager must have a financial plan in 45 days and conduct a public information meeting.  The Emergency Manager also must report all details of expenditures, hiring, transactions, etc. every three months.  In addition, the Emergency Manager may retain a local inspector or auditor (from an approved list provided by the State Treasurer) to oversee and report on the local governmental unit. Property tax revenues will not increase significantly and help local governments for many years even if the economy experiences an economic boom.  Michigan's Proposal A already limits increases in property taxes per year to the lesser of 5% or the rate of inflation (which has been recently at only 2-3%/year). Chapter 9 municipal bankruptcy (one of the alternatives) has been used very rarely by local governmental units anywhere in the country.  Its provisions are very different from Chapter 7 or Chapter 11 bankruptcy.  Chapter 9 generally leaves the local administration in place running the local governmental unit without a trustee and without court oversight.  It is unclear to me how any major operating changes would be considered or implemented.  Even if there was a plan approved by the bankruptcy court to reduce the local government's liabilities, it is likely that new deficits would continue to be generated since the underlying operating structure and processes wouldn't necessarily change.  Chapter 9 is a debt adjustment plan without a reorganization function.  A couple of the cities in California, however, have used it primarily to reject collective bargaining agreements quickly and to significantly reduce or try to eliminate retiree healthcare.   I strongly believe it is time to get past arguing about who is in charge and get into developing and implementing good ideas for sorely needed major changes.  There are many other cities that already have had great success for years in working to improve their communities.  We should spend our time examining places like New York City (with one-eighth the murders per capita of Detroit), Colorado Springs, Turin, Italy, downtown Las Vegas, Atlantic City and many others.  Let's get on with making Detroit's turnaround a huge success.    [Please note that, contrary to current TV ads from Stand Up for Democracy regarding Prop #1, I have never been a partner of the person who bought the Silverdome.  Two years after the sale I did begin to supply limited consulting services to him to help improve the property to try to again encourage business growth in Pontiac.]

 


http://myemail.constantcontact.com/Interesting-Mini-Debate-Between-Fred-Leeb-and-the-Attorney-for-the-Opposition.html?soid=1101086242761&aid=cp3gkeA8YVU

Campaign 2012: Meet the Candidates, Audio On Demand « CBS Detroit

Audio On Demand « CBS Detroit

Recorded Live, Talk Radio 1270 WXYT afternoon host Doc Thompson and WWJ Tech Editor Matt Roush hosted this special election forum at Lawrence Technological University. Those in attendance had a chance to ask local candidates questions and learn more about the six statewide ballot proposals.

I participated in a very interesting discussion in presenting the case in support of Proposal #1, the Emergency Manager Law. Please vote Yes on this proposal in the November 6th election.  My comments start at about 5:20 into the audio recording.

Nonprofit Accountability and Ethics: Rotting from the Head Down - NPQ - Nonprofit Quarterly

Nonprofit Accountability and Ethics: Rotting from the Head Down - NPQ - Nonprofit Quarterly
 Written by Woods Bowman   Created on Friday, 26 October 2012
Editors’ note: This article was excerpted from a chapter in a forthcoming book, Practicing Professional Ethics in Economics and Public Policy, by Elizabeth A. M. and Donald R. Searing, published by Springer. Used with permission.

Slightly more than half of employees in nonprofits observed misconduct in the previous year, and this is roughly on par with that observed in the other sectors. “On average,” the report states, “nonprofits face severe risk from a handful of behaviors: conflicts of interest, lying to employees, misreporting hours worked, abusive behavior, and Internet abuse.” The value of a well-implemented ethics program is beyond question. In organizations with little to no ethics and compliance program, 68 percent of employees observed two or more types of misconduct over the course of a year. This is significantly reduced to just 22 percent in organizations with a well-implemented program.

Although 60 percent of nonprofit employees who observed misconduct reported it, nearly 40 percent of witnesses remained silent, due largely to feelings of futility or fear of retaliation. Indifference is harder to combat than fear. Several famous controlled psychological experiments clearly demonstrate that most people in a crowd will wait for someone else to take action—whether it is helping someone in distress or reporting a crime. Even if employees do not fear the kind of retaliation that is forbidden—discharge, demotion, stalled advancement, and reassignment—they may not want to “get involved” in other people’s affairs. “It’s not my job,” they might say. The best ethics programs address this perverse psychology by providing training that sensitizes people to their personal responsibility in addition to the rules and regulations.

Although nonprofits may believe they have a strong ethical culture, this does not always translate into better ethical behavior or better reporting of unethical behavior. So possibly nonprofits do not deserve the public’s confidence....

Fred Leeb: I think that this is an excellent article.  As a turnaround consultant with a specialty in nonprofits for many years, I have found many of the points in the article to be true in practice.  I particularly agree that "fish rots from the head down" and that it takes constant vigilance on the part of the board to ensure that the organization is behaving in an ethical manner.  Board members serve for many reasons but few serve expecting to ask tough or embarrassing questions or dig into matters not elaborated upon by the CEO.  CEO's often perceive that the board members want meetings to be as short as possible and that they don't want to work hard on key issues.  This leads the CEO to sanitize the information provided at board meetings.  If nobody complains, this results in the CEO realizing that there is really no supervision by the board and no scrutiny of decision-making.  The results of this are obvious.   I wrote an article myself (Who Cares About Nonprofit Finances?  The Top 12 Reasons Why the Most Vulnerable are at Risk) on similar issues and it can be found on my Huffington Post blog at http://www.huffingtonpost.com/fred-leeb/who-cares-about-nonprofit-finance_b_1871260.html.

Rolling the Dice with Taxpayer Money

Rolling the Dice with Taxpayer Money

Posted In Governing By Charles Chieppo | October 25, 2012

The recent bankruptcy filing by A123 Systems, a maker of batteries for electric and hybrid cars, once again shines a spotlight on the use of government subsidies to aid individual companies. In A123's case, it was the federal government that awarded the company nearly $250 million in stimulus money, but states don't exactly have an admirable track record when it comes to this issue.

Massachusetts loaned money--$5 million--to A123, but that's just the tip of the states-as-venture-capitalist iceberg. State investments in private companies generally come in two forms. The first is grants or loan guarantees, such as the $75 million that Rhode Island taxpayers lost when the state invested in former star pitcher Curt Schilling's failed video-game company, 38 Studios. The other is tax breaks and other tax incentives. Massachusetts provided a combination of grants and tax breaks that added up to more than $30 million for Evergreen Solar, a clean-energy company that declared bankruptcy last year.

Either way, it's a bad deal for taxpayers. States aren't very good at venture capitalism because it's a skill very few public officials have. For them to roll the dice on a specific company is like me joining a high-stakes Las Vegas poker game. The difference is that I'd lose my own money in Vegas. When states play venture capitalist, they play with taxpayer money.

States don't do much better when they use tax breaks to try to lure specific companies. In the wake of the Evergreen fiasco, Massachusetts officials formed a Tax Expenditure Commission to review the Bay State's web of tax breaks, also known as "tax expenditures."

The commission pegged overall foregone state revenue from tax breaks (not just those for businesses and economic development) at an estimated $26 billion this year, more than the total amount of tax revenue the commonwealth expects to collect during the fiscal year. And a 2011 analysis by the state auditor of 91 business tax breaks offered that year found that only a few came with mechanisms for reviewing their effectiveness or recovering lost revenue if the breaks failed to produce the hoped-for economic benefits.

In addition to being ill-suited to investing in individual companies, states also shouldn't subsidize specific industries, as with the federal oil-industry subsidies that, along with investments in companies like A123, have become an issue in the presidential campaign. What state governments can do is create opportunities by funding research through public universities or other outlets. Companies can then compete to put the fruits of that research to the most lucrative use.

A123 reminds us that the federal government isn't so good at picking winners and losers. But the evidence is clear that states are no better. Both taxpayers and state revenues would be best-served if state officials realize their limitations, focus on creating an environment of economic opportunity and let the market sort out the details.

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Fred Leeb: I agree that it makes a lot more sense for government to support research rather than trying to pick a specific business or individual company to subsidize to guarantee its success.

How to Get High Returns on Your Hidden Assets

The summer is over and it is the perfect time to take a fresh look at all of your assets, bring in new perspectives, and get the resources you need to improve your business now.  This is the time to focus on your most important, highest return projects.  Don't wait until you clean up all your other loose ends.  Stay out of the trap of working on your lowest priority projects before getting to your highest priority projects.

This newsletter is designed to give you some tangible and valuable ideas on how to break out of this trap, focus and move ahead on your high payback projects today.

During our 20+ years of consulting with many small, medium and large businesses we have been able to identify and take advantage of many significant opportunities to help CEO's bring their major projects to fruition.  We are often the turbo-charger to get more out of all of your assets to help you realize your goals.  For example, many times we find that our clients have unrecognized and underutilized assets that they already have paid for and we help them to increase their returns significantly, as follows:

• Fully utilizing your employees' knowledge:  the employees frequently know more about the business, on a collective basis, than the CEO and are a tremendous untapped source of valuable information.  But it is extremely difficult for a CEO to find out what the employees are really thinking or to get past barriers built up over the years.  By  bringing in a consultant to team with employees, the CEO is telling the employees that: he/she respects their expertise, is serious about wanting their input, there are new opportunities for employee advancement and visibility (by providing new ideas) and that the employees can speak confidentially, if desired, for the benefit of the company and themselves.  Tremendous value can be generated in many areas because:

1) Employees will provide their knowledge on issues that go beyond their current role.  They frequently have a storehouse of untapped information from having many face-to-face/first-hand meetings with your customers and vendors.  During these meetings and discussions, they get valuable feedback on product pricing, quality, delivery timing, product features, packaging and potential add-ons.

2) Employers working in teams can take some of the burden of innovation and implementation off of the CEO.  They will pull together and commit to achieving success instead of pulling in different directions.    

3) Employees don't like to use a suggestion box.  They want someone to discuss  their ideas with them to try to implement them in a practical manner.  With a demonstration from the CEO that each idea will be taken seriously, they will often come forward with great ideas for potential innovations, cost reductions, new efficiencies, decreases in "shrinkage", better usage of inventory and methods of collecting receivables.  

• Breaking through your managerial constraints: your company now may be limited more by the lack of middle management resources than a lack of cash, but this constraint often can be broken quickly. CEO's frequently are afraid to give much more responsibility and authority to their management team.  On the other hand, with the help of an experienced consultant, these managers could succeed more easily and free-up more management time.  They will be able to take on more work and help you complete your high-return special projects.  This also would cause the rest of the business to be managed much more effectively.  Without this boost, however, it will continue to be very difficult to get more out of your existing management team.  

• Increasing your return on professional expertise: Your company probably already has paid for at least four outside advisers (your banker, accountant, attorney and insurance broker) to go up the learning curve on the intricacies of your business.  After working on your company's investments, business plans, financial projections, acquisitions, divestitures, real estate, financial statements, tax returns, audits, employee disputes, benefit plans, collections, etc., these professionals are a tremendous storehouse of knowledge and ideas about potential business improvements.  With a small amount of guidance from an experienced management consultant experienced in working with other professionals, a CEO could use these professionals judiciously but much more effectively, rather than try to keep them at bay.  This could significantly improve your return on your investment in these professionals.  Your already have paid them to go up the learning curve--these professionals are often-overlooked assets.

Paradoxically, CEO's sometimes try not to involve these professionals in their business in an effort to reduce cost.  This is the equivalent of buying a large, expensive and flexible piece of equipment for one application and then purposely trying to never use it again.   

• Strengthening knowledge of your competition:  Salesmen, engineers and others in your company have a substantial body of knowledge about competitors' product features, pricing and upcoming new developments.  They also  have many contacts outside the company through which they could get highly valuable additional information.  If you seek out this intelligence and communicate it across departmental boundaries as an integral part of your business planning process, your management will be much better informed and your investments will generate much greater returns.

• Tapping your customer and vendor relationships:  CEO's frequently miss opportunities to gain assistance from two of their most important stakeholder groups, their customers and vendors.  This is because CEO's jump to the conclusion that customers and vendors will abandon them in a heartbeat at the first hint of trouble.  The reality is that this is not the case--customers and vendors also have developed a strong reliance on you because you, in turn, are one of their stakeholders too.    

Vendors know that many other customers, particularly in this economy, also are having great difficulty and they know that it would be hard for them to replace you.  They also may have tailored their company to meet your needs and it might take a long time before they can replace you and collect from their new customers.   

Your customers also have come to rely on you and trust your processes and quality. Their personnel may have built strong relationships with your employees and they may not want to change.  

Momentum is on your side with both your customers and vendors.  They generally want to help you.  For example, they can slow their collections of receivables from your company and can speed up payments of payables to your company, etc.  This additional credit may not be available to you anywhere else. But, you must communicate with your customers and vendors properly and build their confidence and trust.  If they think that you are taking advantage of them they will run the other direction as fast as they can.  

• Freeing up wasted resources in your underutilized buildings and equipment:  Buildings and equipment often are much larger and more sophisticated than needed now because they were sized and priced based on your needs before the economic downturn.  They are likely to remain too large and more expensive than needed for years.  This represents your sorely needed cash that is trapped in these assets.  Through effective planning and negotiation, you often can eliminate this cause of waste and free up valuable resources.