Archive for June, 2010

A Tin Ear in Washington

Monday, June 21st, 2010

A Tin Ear in Washington DC

A Tin Ear in Washington DC

Kenneth Feinberg, the man appointed by President Obama to administer a $20 billion fund to compensate Gulf Coast oil spill victims, promised to speed claims payments even as a federal judge considers a lawsuit to lift the moratorium on offshore drilling. The U.S. Department of the Interior stopped the approval of any new permits for deepwater drilling and suspended drilling at more than 30 existing exploratory wells in the Gulf of Mexico. But Hornbeck Offshore Services of Louisiana filed a lawsuit in which it claimed that the government acted arbitrarily without any proof that the operations posed a safety risk. Hornbeck claims that the moratorium causes additional hardship to Louisiana, which stands to lose thousands of jobs in the oil and gas industry, even as its fishing and tourism industries are already devastated by the oil spill. Today, Judge Martin Feldman heard arguments in the case in New Orleans federal court. He will issue his ruling by Wednesday. Louisiana Governor Bobby Jindal filed a brief with the court supporting the plaintiffs’ lawsuit. What is most outrageous about the federal government is that it did not consult Louisiana officials before imposing the moratorium, in violation of federal law. U.S. District Judge Nancy Atlas in Houston listened to the New Orleans court hearing today by telephone. She is hearing a similar case against the federal government filed by a Texas-based operator of drilling rigs. Let’s hope that the judges send the federal government a clear message about abuse of power and overreach.

A Disastrous Weekend

Sunday, June 20th, 2010
I Miss Winter

I Miss Winter

The weekend began with a series of giant tornadoes tearing through Minnesota, destroying buildings and causing at least three deaths. The National Weather Service received 36 reports of tornado sightings which, if all are confirmed, would exceed the previous record of 27 tornadoes striking Minnesota in a single day, back in 1992.

Estimates of the volume of oil leaking each day into the Gulf of Mexico were revised upward as more information about the extent of the rig damage came to light. More Gulf Coast tourism and fishing businesses closed as a consequence of the environmental damage. USA Today published an excellent article about the disaster fatigue suffered by Gulf Coast residents who are “forever in recovery” as Katrina-inflicted damage is still with them even as they face the consequences of the oil spill.

The southern states experienced an extreme heat wave, with temperatures in the high 90s/100s. And summer doesn’t officially begin until tomorrow! We are in for a tough weather season. To get you thinking about updating your disaster recovery plan, check out the following article by Inc. magazine columnist Donna Fenn.

The Value of Mutuality

Thursday, June 17th, 2010

Mutual insurance companies are owned by their policyholders and, as such, are limited in their ability to raise capital. Unlike stock companies, mutual insurers cannot raise equity by selling additional shares. This constraint prompted the demutualization trend in the U.S. and in the U.K. in the 1990’s as mutual insurance companies, such as the Metropolitan Life Insurance Company, launched initial public offerings of stock. Demutualization was believed to raise capital for expansion, increase efficiency and motivate management by offering stock-based incentives for performance. But what of the policyholders? I have observed that small business commercial policyholders of mutual insurance companies are generally more satisfied with their coverage than policyholders of stock companies. In particular, the process of adjusting and paying claims appears to be more transparent and fair to the mutual policyholders. Now, the Association of Cooperative Mutual European Insurers has published a study “Valuing Our Mutuality” that examines the performance of mutual insurers. The researchers looked at premium income and growth, claims payments, expenses and financial performance. The study substantiates what I had observed anecdotally: mutual insurers generally have higher claims ratios than publicly traded insurers, such that more money goes back to the policyholders per paid premium. What was even more striking was the finding that mutuals are more efficient in their expense management: the five-year average expense ratio for life mutual insurers was 13.2% vs. 14.8% for their publicly traded peers. (The expense ratio represents the insurance companies’ expenses divided by its net premiums earned. A lower ratio represents better cost control measures.) The researchers limited their review to European life-health and property-casualty insurance companies; it would be interesting to learn if we have a similar result in the U.S. insurance industry. In Prepare for the Worst, Plan for the Best: Disaster Preparedness and Recovery for Small Businesses (Wiley, second edition paperback, 2010) I urged small business owners to carefully consider the claims paying record of an insurance company when choosing coverage. Make sure to obtain quotes from mutual insurers as part of your selection process. The research shows you may be happier with the results.

State Contracting Becomes Riskier

Wednesday, June 16th, 2010

The states face budget shortfalls in excess of $100 billion and are coming up with creative ways to conceal their problems, including stiffing vendors. The Wall Street Journal reports that New York State has been unable to pay approximately 30,000 agencies with which it contracts for social services. State agencies are quietly asking the contractors to continue to provide services without any assurances that the government will pay them or when any payment could be expected. Typically, New York uses emergency appropriations, called extender bills, when it cannot reach a budget agreement between the Governor and the State Legislature. This may be the first time that funding for such social services has not been included in the extender bill. The Governor warns that chaos may result if a budget is not passed this week. But it is not just social service agencies that are suffering; construction companies report that New York State is also in arrears in paying them, as well, and they have been quietly asked to continue to work without pay. Given that nearly all of the states are facing varying degrees of fiscal strain, New York’s experience is not likely to be unique. Small businesses that have the state government as a client face an awful choice: do you continue to provide services, if you have a sufficient reserve of working capital to do so, in the hope your loyalty will be rewarded later? Or do you cut your losses and deem the government an undesirable client?

Breakfast with Congress

Tuesday, June 15th, 2010

Small Business Front and Center

Small Business Front and Center

One of the highlights of the National Small Business Association presentation in Washington DC was the Congressional Breakfast, held this year in the Senate Caucus Room where Senators and Congressmen addressed key small business issues and answered questions from NSBA members. Senator Landrieu (D-LA) secured the facilities for the Congressional breakfast, but unfortunately was unable to attend, owing to last-minute emergencies related to the oil spill. Her staff represented her at the breakfast. Rep. Niki Tsongas (D-MA) spoke on the Small Business Innovation and Research program. Rep. Peter Welch (D-Vt.) spoke on small business credit card issues. Sen. Scott Brown (R-MA) and Rep. Nita Lowey (D-NY) spoke separately on the small business legislation initiatives currently moving through the Senate. Sen. Kit Bond (R-MO) urged the NSBA delegates to engage with their representatives in Congress to raise awareness of small business issues. Rep. Edward Markey (D-MA) closed the breakfast with remarks in support of small business credit card reform and preservation of the SBIR program. We should all reach out to our representatives in Congress to make our voices heard. The viability of the small business sector is critical to our economic recovery, so we have visibility now.

Let’s Fix the CARD Act

Monday, June 14th, 2010
Reading the Fine Print

Reading the Fine Print

In May of last year, President Obama signed into law the CARD Act, which restricts some of the more abusive practices of credit card accounts, such as retroactive rate increases on outstanding balances. Unfortunately, despite the heroic efforts of Senators Landrieu and Snowe, the protections are limited to individual consumers and do not extend to small businesses. The bank lobby argued against extending protections to small businesses, claiming that such action may limit the availability of capital for revolving loans on credit card accounts and may result in higher interest rate charges. Of course, small businesses are already experiencing lack of access to credit and high charges, so if you accept the banks’ argument at face value, there was nothing to lose by extending the CARD Act to include small businesses.

As a concession of sorts, the Senate, in quashing the attempt to include small businesses in the CARD legislation, directed the Federal Reserve Bank to conduct a study of credit card use by small businesses. The Fed has just released the study, smallbusinesscredit click to download it. The Fed’s report does confirm the positions taken by small business advocacy groups as to the extensive use of credit cards by small business owners for working capital needs. It also highlights the benefits of improved disclosure requirements. However, it stops short of offering specific recommendations to protect small business credit card accounts from deceptive practices by the issuing banks. The good news is that the Small Business Credit Card Act of 2009 (H.R. 3457) is working its way through Congress. Add your voice to the fifteen national business and consumer organizations that have endorsed this legislation. Write to your senator and congressman and urge his support of this legislation at a critical time when small businesses need transparent terms on their credit card accounts.

Politics Before People

Sunday, June 13th, 2010

The Honorable Geert Visser, consul general for the Netherlands in Houston, gave an interview to the Houston Chronicle in which he revealed that his government extended an official offer of assistance to the U.S. three days after the oil well explosion in the Gulf Coast. The administration wrote back to decline the offer. Now, after nearly two months of an oil gush that is savaging the wildlife and economy of the Gulf Coast states, our government is reconsidering the Dutch offer. No doubt the Dutch are horrified by what they are seeing on the news, as this paralysis and political blame would not be tolerated in the Netherlands, where the government gives an oil company twelve hours to contain a spill. If the oil company’s response is insufficient, the government steps in, assumes control of the cleanup and bills the oil company to ensure that taxpayers are reimbursed.

The Netherlands is certainly experienced with building dikes and managing water, as most of its terrain lies below sea level. The Netherlands had proposed a plan for building sand barriers affording some protection to the vulnerable marshlands. The Dutch were also willing to provide equipment to implement the plan, including ships equipped with oil-skimming booms. But our government got in the way. Dutch ships were prevented from approaching the U.S. coast by an anachronism of maritime law, the Jones Act, which limits access to the U.S. coast to U.S. ships. This week, the federal government allowed for U.S. ships to be equipped with four pairs of the skimming booms delivered from the Netherlands, which should be put in use in the Gulf Coast very soon. Each pair can process 5 million gallons of water daily, removing 20,000 tons of oil and sludge each day that they are in use.

The plan for the sand barriers was enthusiastically endorsed by Louisiana Governor Bobby Jindal and tentatively endorsed by the Coast Guard. A Dutch marine contractor has worked out a plan for building 60-mile long sand dikes within three weeks, which plan is opposed by American dredging companies that want to do the work themselves. But they lack the dike-building experience of the Dutch. This, of course, is a sad replay of what occurred in the aftermath of Hurricane Katrina, when the U.S. government declined offers of assistance from the German government. The Germans had emergency relief equipment and evacuation plans ready to be deployed, but Washington insisted that it had everything under control. The people of Louisiana are paying a very high price for this silliness.

Small Business is Too Big to Fail

Saturday, June 12th, 2010
Not So Welcoming in Washington

Not So Welcoming in Washington

The National Small Business Association published “Squandered Opportunities and Misplaced Priorities: Why Small Business is Too Big to Fail”, a report chronicling certain of the largest opportunities Congress and the administration missed in addressing the biggest challenges facing U.S. small businesses.

“There are more than 70 million people in the U.S. who work for, or run a small business – one-third of the voting population in the U.S.,” stated NSBA President Todd McCracken. “Despite that number, and the increased public profile of small business, not enough has been done to actually help small businesses survive the economic downturn.”

NSBA’s campaign, “Small Business: 70 Million Strong…And Voting” educates lawmakers, candidates and the public on the importance of small business to the U.S. economy. In the two years since the campaign was launched, the U.S. economy has plunged into recession, resulting in a new (at least in word, if not deed) recognition of the importance of small businesses to job creation. But speeches have not led to constructive policy.

“Squandered Opportunities and Misplaced Priorities” highlights Washington’s most disappointing failures, including the failure to enact long-term reauthorization of the Small Business Innovation and Research Program, the exclusion of small business credit card accounts from the protections afforded by the CARD legislation; failure to correct the distorted incentives of the estate tax and the failure to ensure fair labor law processes. The report compares the cost of addressing these key small business priorities to the cost of other initiatives of the administration, such as the Troubled Asset Relief Program (TARP) and health-care reform legislation. The cost differential is staggering: $2.9 trillion spent on major initiatives vs. $358 billion, the estimated cost of small business programs called for in pending legislation.

“Despite our very-well earned frustration at these many missteps, NSBA’s small-business members still believe there is a way forward,” stated NSBA Chair Keith Ashmus and co-founding partner at Frantz Ward, LLP in Cleveland, Ohio. “However, more can and must be done—small business will no longer accept rhetoric in the place of action.”

The Economist Reports on Louisiana Oysters

Friday, June 11th, 2010
Still Yummy

Still Yummy

On June 6, I wrote a blog posting about the importance of perception with respect to the safety of seafood harvested in the Gulf Coast. Today, The Economist asks “No mo’po’?” meaning “no more poor boys?” reflecting concerns about the fate of Gulf Coast oysters after the Deepwater Horizon spill. The po’boy, or poor boy, is a sandwich for which Louisiana is famous. My favorite is served at Brennan’s in New Orleans. Fresh oysters harvested from the Gulf Coast, which have a uniquely sweet flavor, are served in a sandwich made with French baguette breads. The taste is exquisite. The five Gulf Coast states (Texas, Louisiana, Mississippi, Alabama and Florida) harvest more than 20 million pounds of oysters annually, which sell on the market for about $60 million. Two-thirds of the oysters consumed in the U.S. come from the Gulf and while oysters are a less valuable harvest than shrimp, they are more difficult to replace. But the immediate concern, reports one fisheries owner quoted in the article, is the perception that the oysters are not safe to eat. Media reports of the oil spill have led consumers to shun Gulf Coast seafood, further compounding the economic losses. This is when small businesses in the Gulf Coast need us most; the seafood that has been harvested to date has been collected in areas unaffected by the spill and has been tested by authorities. And the Gulf shore is still a great place to take a vacation. I look forward to my next trip there.

Sign of the Times: Investing for the Future

Thursday, June 10th, 2010
High Hopes

High Hopes

FedEx Office released the findings of its third annual Sign of the Times national small business survey. The study, conducted in April, finds that small business owners are more optimistic now relative to their views last year at this time. They look forward to leading the U.S. out of its protracted recession, as 72% expect to be the driving force of the economic recovery in 2010. Half of those surveyed stated that their businesses have recovered or will fully recover by year-end. Perhaps these findings should be taken with a pinch of salt, as the survey was conducted before the Gulf Coast oil spill changed the outlook for our energy markets. Nevertheless, other findings of the survey continue to resonate. About 42% of small business owners are considering increasing spending on marketing and advertising initiatives this year and 30% may increase spending on sales programs. It is encouraging to read that small businesses see the opportunity for growth in the recession; perhaps opportunities that were previously out of reach have now become affordable. That is certainly my experience. To read the full FedEx Sign of the Times survey and learn of the sentiment of your peers in the small business community, click here.