Archive for February, 2010

Share What You Know

February 26th, 2010
Share What You Know

(Periodically, I receive articles from Harrison Barnes – this one I thought worth sharing…GBd)

By Harrison Barnes (CEO of BCG Search)

Every interaction you have with another person is a chance to make a difference in that person’s life. Every piece of information you have about the world is unique to you and the more you share this information with others, the more others will share information with you. In addition, when you share information, you will be sought out by others.

I’ve noticed many, many people are extremely concerned about protecting every single piece of helpful information, such as a certain way of making a sale in business, a good source of information, a contact who can get things done, or a special method of doing something.

The people and the companies that do the best, I have noticed, are those that do everything they can to share information. In fact, they empower people by sharing information. By doing this, a reciprocal pattern is developed. When there is useful information these people should know about, they are told about it as well.

The most important thing you can have inside a company and at work is information. You may be working for a company right now that is about to file for bankruptcy and lay off all of its employees. If you had this information you could be looking for a job. There may be an incredible position opening up in your company for which you’re qualified. If you had this information, you could start communicating and getting to know the right people inside your company. The benefits of having the right information are huge. Your work colleagues will seek you out to give you information if you start sharing information with them. You need to proactively be a source of information and never try to protect information. Every piece of information you put out in the world will come back to you with more information.

The information others give you could save your career, or get you a raise. There are so many benefits to having access to the right information it’s hard to list them all. Information tells you what to do in order to get ahead. The only way you are going to get access to this sort of information, however, is if you get a reputation for sharing information yourself.

A couple of years ago I learned Mark Victor Hansen, the author of the book Chicken Soup for the Soul, was holding a three day business conference at the Westin near the Los Angeles Airport. A couple of people who’d written books I enjoyed were scheduled to be there and I was eager to attend.

When I got to the conference I immediately noticed huge rows of tables in the halls where vendors were set up, selling various courses. I’d arrived at the conference a bit early and walked from table to table talking to the vendors. In most cases, they were selling courses that cost anywhere from $495 all the way up to a few thousand dollars.

The conference was organized so that each speaker would speak with the audience for about an hour. The topics the speakers discussed were about things like ”How to double your business in 90 days” and ”How to make everyone in the world buy your products.” After a few hours, I quickly realized each of the speakers was offering the audience a small bit of information, but basically they were not giving us any substantial information whatsoever. They were only giving the audience a little taste of what they knew.

Each speaker would get up and tell the audience how smart he was and how valuable what he knew was. Then he would give people in the audience a small peek at the knowledge he had. This took about 40 minutes of the speaker’s time. Then, for the next 20 minutes, the speaker would launch into a sales presentation about CD ROMs of him talking on tape, exclusive access to them via teleconference, and more.

About two days into it I realized how ridiculous I was being. I was at a conference basically being given little information and sold the promise of more information for a couple of days straight. I like Mark Victor Hansen and think he seems like a nice man, but I went to his seminar to gain information. In the end I felt like the seminar was all about trying to sell me more information.

This dynamic is very common in the world. In fact, there are tons of people who refuse to share the information they have with others. They fear if people get hold of the same information they have, they will gain an unfair advantage over them.

At the conference, what happened is that even if you purchased a set of CDs from one of the speakers, he or she would still try to sell you more and more. I enjoyed one of the speakers a great deal and after he spoke I went up to him and told him I liked his talk. He encouraged me to purchase a set of CD ROMs and workbook from him for $3,000, essentially saying ”If you liked my talk so much then purchase my set of CDs and workbook.”

I told him that was fine but I was interested in having him consult for one of our companies. This person had a very good background in sales and I thought he could really make a difference if he analyzed one of the companies I was running at the time that specialized in student loans. He said sure, and a couple of days later called me.

He told me that for $35,000 he would do extensive interviews and write a report about the company and the improvements it needed. I agreed.

A few days before he was scheduled to complete the report he called me and said for an additional $5,000 and travel expenses he would present the report live. I discussed this with someone in our company and this person suggested we should go visit the guru to get the report personally. When I suggested this to the speaker, he said that this would not work because he worked out of his home. We agreed to have him come to our offices and give the presentation live.

The presentation he gave offered some interesting insights into our business but for the most part it was just another sales pitch. He was essentially trying to get control over various resources in our company to set up businesses using our people and make us give him a percentage of the revenue. In addition, he proposed what he called ”CEO Coaching” at $5,000 an hour in 40-hour increments. I did not buy anything. What had happened, of course, was he’d used the knowledge he’d gained through his research to try to sell us more and in addition was holding back even more knowledge for a proposed ”coaching engagement.”

It is not a good idea in business, or in your professional life, to hold back knowledge. You need to make people aware of what you know and put information out there to try to help others do well as quickly as you can. The more you teach others how to do something, the better you’ll end up becoming at what you do.

Another damaging dynamic set up by people who hold back what they know is others pick up on this and know you’re not really interested in helping them. When every action you take is calculated and every piece of information you put out there is carefully apportioned, you are constantly guarding the fort instead of providing value to others. You need to be constantly providing value and not holding it back. When you are constantly holding back, people will choose to deal with others who are willing to provide more information and value than you.

When you are holding information back all the time and not sharing what you know, you start viewing every interaction you have with other people in a competitive sort of way. Your goal is to be on guard and only exchange information if it suits your best interest and you feel like you can get ahead. You need to be seen as someone who will freely provide the information needed to assist others and who will always be there to help.

You should volunteer information about how to do something if you see a co-worker doing something incorrectly, or if you’ve discovered a better way to do something. The more you volunteer information, the more people will look out for you and assist you with information as well.

The smallest piece of information you learn could make a giant difference in the overall course of your career. It is the same with the information you share with others. Many people are stuck in a rut of sorts and believe if they share information with others, those people will somehow think less of them, or the information they share will somehow diminish its value. When you do not share information with others you are preventing yourself from achieving personal growth.

You never want your personal agenda to become an obstacle to your progress. There are many people in the world who do everything they can to preserve their superiority in the eyes of others, and sharing information, they fear, will threaten this superiority. The truth is that the more information you share, the more people will come to you to reciprocate. Being on the receiving end of information is where you want to be.

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Environmental Indemnities for Hazardous Substances

February 10th, 2010

Question

My borrower’s business operations involve the use and storage of hazardous substances, ie like a fuel at a gas station or liquid chlorine at a retail Pinch-A-Penny.  While there are no documented spills, there is the potential that these hazardous substances might be accidently released and negatively impact the facility.  What can we do to protect our collateral interest when making a loan to such businesses?

Response

It is in the borrower’s best interest to run the business operation properly and in compliance with the applicable laws, rules and regulations; after all, spilled fuel or chlorine is product which cannot be sold, resulting in lost revenue.  However, incidents can happen.  Therefore, a lender can incentivize a borrower to superior performance, as well as secure more protections for itself, by requiring that borrower execute a tailored environmental indemnity agreement as part of the initial loan documents.   An environmental indemnity agreement, preferably with both the borrower and separate guarantors as signatories, can give the lender a separate operational enforcement tool to help borrower concentrate on both putting in place mechanisms which can help prevent incidents, as well as set out the parameters for response and responsibility if an incident does occur.

An environmental indemnity, whether it covers previously identified impacts or is pro-actively designed to address potential incidents in the future, can be a stand-alone mechanism requiring borrower to put in place policies, procedures and mechanisms to promote proper handling, storage, use and disposal of the hazardous substances necessary for the proper operation of the borrowers’ business.  These obligations can include requiring operations and maintenance plans, separate pollution insurance coverage identifying the lender as an additional insured, and periodic notification of compliance with applicable rules and regulations.

In the event of an incident, an indemnity can clarify the roles, responsibilities and expectations of the parties, from requiring the borrower and/or guarantors to clean up the impacts, to what rights and options the lender may have to protect its interests if the borrower cannot or will not perform.

A recent example of how an environmental indemnity was used to protect a lender relates to a now defunct car dealership in Hillsborough County.  The borrower sold cars and had maintenance facilities to provide after sales service.  A leaking used oil tank caused a spill, which the borrower failed to address before defaulting on the loan and shuttering its operations.  The bank was able to successfully compel the indemnity guarantor to reimburse the bank for its costs and expenses in addressing the impacts, as well as covering its legal fees.   While an indemnity does not prevent environmental incidents from happening at sites which have hazardous substances, such an agreement can help mitigate a lender’s exposure to impacted assets and associated costs.

Environmental insurance for Unquantified Issues

February 10th, 2010

Question

My loan officer is working with a borrower to finance a purchase of a restaurant which was, at one time, part of a larger parcel which was formally a gas station site.  The current Phase I states that the former underground storage tanks (USTs) do not appear to have been situated on the current restaurant plot, although it appears that the USTs were probably located just over the property boundary line.  Additionally, the gas station was shuttered prior to regulatory requirements for a clean closure, meaning we are not sure whether the former underground storage tanks (USTs) leaked or even if they were removed or merely abandoned in place.  Because of the inconclusiveness of the information, the Phase I assessment recommended Phase II investigations, including ground penetrating radar and soil and groundwater borings and sampling.  The seller has adamantly refused to allow the borrower to conduct any Phase II activities, presumably because seller doesn’t what to assume responsibility for issues that it did not identify when it acquired the property a few years ago.   The borrower is planning to run the restaurant facility “as is,” without making any material improvements or changes to the property during the term of the loan, so it does not appear likely that there will be any changes to the current status of the property.  Seller has indicated that it will pay a reasonable amount for an environmental insurance policy in lieu of allowing Phase II activities which might scuttle the deal.  Would such an insurance policy ameliorate the risk to which the bank might be exposed from proceeding with the proposed 7 year loan?

Response

If a reputable and suitably financially stable environmental insurance carrier (ie, XL insurance, Chubb, Zurich) would be interested in underwriting coverage for the restaurant site (meaning that the insurance company felt the risk was insurable), then it would be appropriate for the bank to consider accepting a policy for which it would be an additional insured, together with the borrower, in order to close this proposed loan. In this case, such a policy should be available, so long as the coverage and term of the policy are manageable within the context of the business operation and servicing of the loan.   Environmental insurance tends to be a better tool if used on an individualized basis, as in this particular instance.

Necessary Elements for Underwriting of a Policy

The cost of a policy will depend on the length of the term and the amount and type of ocverage sought.  For example, a 7 year, first party damages and corrective action policy with between $1.0 million to $3.0 million coverage, written in 2009 had a $50,000 – $75,000 pre-paid premium range associated with such policy.  As discussed in the an early posted Lessons Learned entitled Environmental Insurance for On-site Issues, and assuming this cost is acceptable to the Seller, the borrower will have to get the property qualified for underwriting by submitting as much information and/or current and historical environmental assessments as are available.

Term/Coverage Amount

The bank must insist that the policy term be at least the same duration as the term of the loan, and that the bank be listed as an additional insured on the coverage. Additionally, the bank should ensure that the entire premium for the whole term is paid up front, to avoid coverage lapses due to mistake or cash flow problems

Transferability

The policy should be written to accommodate a change in control of ownership of the property, in case of a proposed sale, refinancing, or an issue regarding ability to service the loan.  Having a policy which contemplates a change of ownership will allow the bank the flexibility it needs during the term of the loan to properly adjust to changing circumstances.