When an employee gets hurt at work, or at least claims that they did, it can be a very stressful time for employers. Sometimes the injury is obvious, the employee is not exaggerating, and the employee simply wants to go back to work as soon as possible. Other times there are conflicting stories about whether an injury actually occurred or whether the injury is as severe as claimed.

In addition to following the applicable reporting requirements, there are several things employers can do to help develop a stronger defense.

1. Write Down The Facts
When you find out that an employee intends to file, or has filed a claim for injury, write down all the facts you know. Talk to any witnesses who might have seen the accident happen. If the employee has not retained an attorney, speak with them. Find out what happened, when, what the conditions were, who was present, and any other facts you believe are relevant.

Be objective when you are discussing this. Your role is to gather information, not argue the case. You want to be careful to avoid a situation where your employee could claim that you discriminated against them for filing or threatening to file a workers' compensation claim. In California, your insurance company has 90 days to admit or deny a claim from the employer's first date of knowledge, so this information will be very important.

2. Make A Timeline Complete With Relevant Documents
Sometimes a workers' compensation claim is filed soon after an employee is denied a promotion or raise, is placed under disciplinary warning, or has an interpersonal conflict with a co-worker or supervisor. This information is highly relevant, particularly when many cases filed for injury to other parts of the body systems eventually include a psychiatric component.

In many cases, if a person claims psychiatric injury and the defense can demonstrate that it is at least partially related to a good-faith personnel action, the degree of permanent disability or even compensability of the psychiatric portion can be challenged.

Keep any doctor's notes, job applications with applicable history, disciplinary warnings, wage information, notes, and other documentation and present it to your claims adjuster or the insurance defense attorney. Include everything you have. A separate timeline will also be useful in defending your claim.

3. Take Photographs
Photographs of the scene of the incident, or alleged incident, taken from various angles can be very valuable in establishing whether a claim is credible. This is particularly true in cases involving vehicle accidents, the use of equipment, or the physical attributes of a building. Without photographic evidence, it is difficult to challenge an employee who might testify under oath or tell his doctors that the ladder was taller, the fall was further, or that something that was physically impossible occurred.

A few years ago, an employee claimed that the vehicle he was driving had struck a forklift, causing severe injury to his left leg and back. He had been terminated soon after for reckless driving and then decided to file his claim.

At deposition, I was able to produce a copy of a "parts cart" on four caster wheels that had simply rolled out of the way when struck. He reluctantly admitted that this cart was the "forklift," and the case settled for a nominal amount. A simple photograph saved thousands of dollars.

4. Attend The Deposition
If your defense attorney or insurance company schedules a deposition of the employee, if at all possible, you should attend. You will not be asked to testify, or say anything at all on the record, but you can listen to the testimony. Before the deposition, you can consult with the attorney or insurance hearing representative regarding the facts of the case. You know the situation and can provide valuable insights and help clarify any of their questions about the facts or the people involved before the deposition starts.

During breaks, you can speak with them about the testimony, give ideas about what they should ask, and suggest areas that could be clarified with the employee. Your presence will also help the employee realize that their version of facts may be challenged and can encourage them to be more truthful in their testimony. It will also give you an idea of what they may testify to at trial.

5. Keep In Communication
As a workers' compensation defense attorney, I always appreciate it when employers communicate with me. If you need an update, call your adjuster or attorney. If you learn new facts through the rumor mill that the employee is working somewhere else, or that the facts of the injury are not accurate, let the defense team know.

Of course, the best thing is to avoid injuries in the first place through promoting workplace safety, but when they happen or are alleged, these are a few ways that employers can proactively address these claims.

We are all familiar with the various classes of people provided for by both the Federal and State fair employment practices acts. These include the traditional race, gender, age, disability and many more too numerous to be listed here. Well, hold on to your hats as there seems to be a new one being added. It now seems that the unemployed are being added to the list.

The unemployment rate seems to be on the decline, i.e. around 8.3% still without jobs. However, this is still 3% higher than when the financial "fit hit the shan" almost 4 years ago. Obviously, when the ranks of the unemployed are high, employers who are looking to hire are inundated with candidates. So much so that some employers are now disqualifying qualified applicants by advertising that "the unemployed" need not apply.

In light of this phenomena in job advertisements, Congress in their usual, under-informed method of operating, as well as several states, have begun the process of amending their anti-discrimination laws to add "unemployed status" as a covered class. New Jersey has already passed such legislation and believe it or not, the California legislature is also considering a bill. I can only wonder if this tendency to stupidity will ever end. In the meantime, be forewarned ...

Can You Refuse To Hire A Felon?
Suppose you are looking to hire someone for a sensitive position? One where the person hired will handle large amounts of money and/or materials. Your normal practice is to conduct a criminal background check on all applicants. What do you do when during your initial telephone interview, the applicant reveals a significant criminal felony conviction for the distribution and sale of narcotics, she/he has served time, and is now on probation?

Most employers would normally reject this applicant out of hand. The basis for your decision would be two-fold. First is the timing of the recent conviction with the second being the very nature of the offense. The person you are looking to hire could be responsible for large amounts of money, merchandise or even supplies. You conclude that if this person is willing to sell drugs for money, they are too a high a risk for you to hire them. However, like the situation with the "unemployed" person noted above, don't be so hasty to act.

In this case (it is real), the applicant filed a charge of discrimination with the Equal Employment Opportunity Commission (EEOC) alleging race discrimination. Your initial reaction, which was mine as well, is "You have got to be kidding."

You conducted the interview over the phone so that you could not see what race the person was. Secondly, your decision to not hire was based on a legitimate business reason. You would think this would be more than enough to defend your position. Well, it was not ...

The Equal Employment Opportunity Commission decided that they would expand the overall scope of their investigation and began looking at this employer's entire hiring practices including its use of criminal background checks. They have taken the stance that an employer's policy or practice of not hiring someone because of a criminal conviction is a violation of Title VII of the Civil Rights Act of 1964 unless the policy or procedure can be show nto be a necessary business practice.

They start by using statistics that show that African-Americans and Hispanics are convicted at a higher rate than other races. They then extrapolate this to mean that employment decisions which have a criminal conviction component create an adverse impact on the two classes which they have labeled "adverse impact discrimination" which they define as a "substantially different rate of selection at all levels of employment."

It must be noted that both the Fair Credit Reporting Act (FCRA) and the Equal Employment Opportunity Commission as the enforcement agency have established the overall legal framework. Note that they are very serious about this issue as evidenced by the recent agreement entered into by Pepsi where Pepsi agreed to pay over 3 million dollars and to provide job offers and managerial and supervisor training to settle the case.

Here in California, an employer cannot ask questions about any arrest that did not end in a conviction and may not get this information from other sources. Even if the employer does gather this data, but does not use it in its employment decision, the fact that they had it could have a chilling effect on their final decision, which would be very difficult to overcome if challenged. The best way to protect yourself is the development and implementation of a policy that takes into consideration the actual offense, the timing (6 weeks ago or 16 years ago) and of course the very nature of the job that you are looking to fill.

This is very similar to what you go through when doing an interactive process with an employee who is ready to return to work. Employers need to be thorough in your hiring process and if someone is going to be rejected because of a criminal conviction, be sure to go that next step to ensure that you have all the information needed to make an informed and defensible decision. And of course document, document, document everything in case you are challenged.

And to add fuel to the "big brother is watching you" fire ...

The following is a direct quote from a recent Board of Equalization flyer (Publication 165):

"Board of Equalization (BOE) permit and license verification visits help educate business owners and keep our tax system fair".

"Most business owners know they need a state seller's permit to sell or lease merchandise in California ..."

I cannot argue with this statement. It is the next paragraph that scares me:

"As part of the Statewide Compliance and Outreach Program (SCOP), Board of Equalizattion representatives (SCOP specialists) conduct door to door visits to nonresidential businesses. They visit individual businesses to educate business owners regarding their tax responsibilities, to make sure the business has the required state tax and fee permits they need, and to make sure the business has a city or county business license, if one is required. In addition, they verify/update Board of Equalization account information and review business operations compared to returns filed to provide guidance on proper reporting." You can limit what they see, so if someone from the Board of Equalization arrives, ask for specifics as to what they want to see.

This article is an excerpt from the April 2012 edition of From The Hotline published by Stuart Baron & Associates and Workers' Compensation Claims Control. It is used with permission under the copyright of Stuart Baron & Associates.

If employers could have influence over their cost of workers' compensation insurance, wouldn't they want to know how?

If insurance agents would help their employer clients lower their costs, wouldn't that be a valuable service?

Most employers consider the renewal date of their workers' comp policy to be the most important annual date for their policy. Unfortunately, employers have been misinformed by the insurance community and this is not the most important annual date.

Yes, the renewal date is when the incumbent carrier offers a new 12-month policy with their rates. This is also the date when the employer's new Experience Modification is used to modify the rates the employer will pay. The Experience Modification is an important factor that rewards (lowering the Ex-Mod) for employers with little or no claims and penalizes (raises the Ex-Mod) for those employers who have had greater than expected claims for the employer's industry and size.

The application of the Experience Modification is a State process that applies to employers who meet a minimum annual premium. One of the goals of the Experience Modification process is to promote low claims activity and to provide a means to compare that success between employers.

The most important annual date to employers is the review and evaluation of all claims information from the employer's workers' compensation carriers before this data is presented to the California Workers' Compensation Rating Bureau. This data determines the Experience Modification that in turn calculates what the final rates the employer's incumbent, or any other insurance company, can offer when the policy renews. This event occurs approximately six months into the employer's policy term. The information provided includes payroll (per classification) and the actual value of each claim the employer may have incurred over the last 4 years. All insurance companies are obligated to use this Experience Modification factor.

Just before the information is sent is the time the claims information needs to be reviewed and perhaps questioned to make sure it is an accurate reflection of the employer's claims. In my experience, the majority of the value for open claims at this time can be lowered — which will result in a lower Experience Modification factor — which results in a lower future premium paid by the employer. This is really the most important time for employers to be involved — armed with advisors to review claims and audit payroll, the employer has a golden opportunity to reduce their future premiums.

Workers' compensation is unlike other insurance programs. Think of it as a credit line. Use it and you must pay it back plus more. So, workers' comp is more of a way of financing workers' comp claims.

It is amazing to me is that this most important annual opportunity for employers is continuously ignored by insurance agents, insurance companies, and employers (who typically are not informed of this opportunity). Those employers who know about this process become immediately engaged and involved and actively participate in this review process.

Any insurance broker who is not working with their clients to manage this information in an effort to reduce employer's cost is committing malpractice and should be dismissed. Unfortunately, I continue to see that most insurance agents overlook this important time because they are either disorganized, do not know what to do, or just don't care.

Insurance companies also seem to not have any financial incentive to lower employer costs. Even Warren Buffett, Chairman of Berkshire Hathaway, a large insurance holding company, commented that since open claims are like free money,we have all of these extra funds to invest to increase stockholder value and higher profits. (Stockholder Letters)

Facebook Frenzy Over Password Privacy Misses the Bigger Legal Point: Most Social Networking Profile Content is Off Limits for Hiring Decisions

Unless you took an early Spring Break on a deserted island over the last week, you've seen the explosion of media stories surrounding the practice by some employers of asking applicants for their Facebook passwords in order to view a profile (or Wall) that is set for viewing only by the individual's "friends," and therefore not publicly accessible.

The reaction was swift and almost universal condemnation of the practice as an invasion of privacy. One law professor likened it to asking for the applicant's house keys, in order to have a look around their personal living space.

Facebook's website focused exclusively on the potential privacy issue: The company strongly condemns the trend and urges users of the service never to share account information: "The most alarming of these practices is the reported incidences of employers asking prospective or actual employees to reveal their passwords. If you are a Facebook user, you should never have to share your password, let anyone access your account, or do anything that might jeopardize the security of your account or violate the privacy of your friends. We have worked really hard at Facebook to give you the tools to control who sees your information."

Two U.S. Senators who just happened to be interviewed on National television on Sunday morning (March 25, 2012), called openly for a formal investigation by the U.S. Justice Department to determine whether asking applicants for their password violates the Federal Stored Communications Act. They also called upon the Equal Employment Opportunity Commission to investigate whether the practice itself (presumably just asking for the applicant's password or viewing his/her social networking profiles) runs afoul of discrimination laws. There are rumblings about Congressional hearings and proposed legislation to ban this approach to the pre-employment process.

Turning to the Internet for information about job applicants isn't new. Public and private sector employers often perform Google searches for information on potential new hires and draw tidbits from many sources, including social networking sites. In a study last year of 300 hiring managers and recruiters, Palo Alto-based social networking monitoring service Reppler reported that 76% of hiring managers look at applicants' public Facebook profiles. An additional 56% are looking at Twitter.

Whether the practice of asking applicants for their Facebook passwords is legal or even advisable will be debated thoroughly in the weeks to come. The current Facebook frenzy about password privacy misses entirely the reality for hiring managers and Human Resources professionals: much of the information they are likely to see on an applicant's social networking profiles is simply off limits in any hiring decision. And, this is true even for information that is publicly available.

Under the laws enforced by the Federal Equal Employment Opportunity Commission (EEOC), it is illegal to discriminate against an applicant or employee because of that person's race, color, religion, sex (including pregnancy), national origin, age (40 or older), disability or genetic information. An employer may not base hiring decisions on stereotypes and assumptions about a person's race, color, religion, sex (including pregnancy), national origin, age (40 or older), disability or genetic information.

The California Fair Employment and Housing Act (FEHA) also prohibits employment practices that discriminate against applicants or employees on the basis of race, religious creed, color, national origin, ancestry, physical disability (including HIV-positive status) or mental disability, medical condition (specifically cancer-related conditions and genetic characteristics), genetic information (added in 2012), marital status, sex (including pregnancy, childbirth, or related medical conditions, and gender), age (40 years and older), sexual orientation, and gender identity or expression. It includes discrimination based on a perception that a person is a member of a protected class or is associated with a person who is, or is perceived to be, a member of a protected class.

Personal profiles on social networking sites such as Facebook and MySpace are a rich source of information about an individual: gender, sexual orientation, marital status, number and ages of children, national origin or ancestry of family members, religious affiliations or organizations, even preferred charitable giving. Pictures with family and friends don't have to be risqué to be revealing. Posts about the activities of spouses and children — activities, schools, ages, health issues, etc. — are all conveniently collected in a single location on the applicant's Facebook wall. Employers cannot use the majority of this information for any lawful purpose.

Consider the most common areas of employment discrimination lawsuits based on rejections of a job applicant: age, gender, national origin/race, religion disability and recently, genetic information.

Age Related Inquiries: Most hiring managers in today's environment know that they can't ask applicants for their age, birth year, or even the year they graduated from high school because it might reveal age-related information that they cannot use for any lawful purpose. So, what happens when the same savvy manager logs onto the Facebook profile and stumbles on a flurry of "Happy 50th Birthday," posts from the applicant's friends and family?

It's not a defense to a later age discrimination lawsuit to say, "Well, I didn't ask the applicant for his birthdate." You cannot use it to inform a hiring decision, just as you must ignore the applicant's date of birth if it is prominently displayed on an educational transcript properly obtained to verify the conferral of a required degree.

Gender, Family Status And Related Information: The Equal Employment Opportunity Commission provides the following pre-employment inquiries may be regarded as evidence of intent to discriminate when asked in the pre-employment context:

• whether applicant is pregnant;
• marital status of applicant or whether applicant plans to marry
• number and age of children or future child bearing plans
• childcare arrangements
• employment status of spouse
• name of spouse.

Now, consider the typical Facebook profile: posted pictures with family (including children), postings about school activities for the applicant's children, affiliations that may include religious schools, information that discloses the employment status, chatter about the travails of childcare or spouses, and more.

Religious Questions: Questions about an applicant's religious affiliation or beliefs (unless the religion is a bona fide occupational qualification) are generally viewed as non job-related and problematic under federal law. Do you attend church or synagogue? Do you belong to any outside organizations? What clubs or organizations do you belong to?

From a cursory review of a Facebook profile or "news feed," it is likely that your organization will uncover a lot of personal information. Some of this information will serve no employment-related purpose or will provide information regarding an applicant or employee that would be better left unknown.

National Origin Questions: Improper interview questions include questions about the applicant's "native language," or where parents and grandparents were born. Now, consider the Facebook post that congratulates the applicant's grandparents on their wedding anniversary, including a picture with the creative caption: "Gramma and Grampie's wedding picture from the old country."

Disability Related Inquires Are Strictly Forbidden: The Equal Employment Opportunity Commission's published "Prohibited Employment Practices" states: "As a general rule, the information obtained and requested through the pre-employment process should be limited to those essential for determining if a person is qualified for the job; whereas, information regarding race, sex, national origin, age, and religion are irrelevant in such determinations. Employers are explicitly prohibited from making pre-employment inquiries about disability."

Acquisition of Genetic Information — Including Family Medical History: Facebook and other social media sites are also a high risk area for acquiring improper genetic information about applicants and employees.

The Federal Genetic Information Non Discrimination Act (GINA) prohibits requesting, requiring, or purchasing Genetic Information about an applicant, employee or family member. And, it defines "genetic information" to include family medical history — down to fourth cousins. The Genetic Information Non Discrimination Act allows acquisition of genetic information that is publicly and commercially available. But, the Equal Employment Opportunity Commission expressly states that this does not apply to the acquisition of genetic information from "social networking sites and online media sources which require permission to access from a specific individual."

A manager who reads about an employee's family medical history on the applicant's Facebook page will not be able to defend against a charge by saying that the information was "commercially and publicly available" if the employee has set the privacy settings to "friends only." This is true even if the employee has previously accepted a "friend request" from the manager, or voluntarily provided his/her password to the employer for a pre- or post-employment process.

If a manager or Human Resources specialist learns protected information by doing a simple Google search, it will likely be an inadvertent acquisition. But, in-depth searches or visiting sites that are likely to uncover genetic information about applicants, employees or their family members violates Genetic Information Non Discrimination Act standards and California law. A post such as: "I can't wait for this weekend, when I'm participating in the Susan G. Komen Race for the Cure in honor of my grandmother and my sister" is enough information to cross the line by providing information you can't possibly use to make an employment decision. Just acquiring the information violates the tough new standards.

Avoiding Unlawful Recruiting And Hiring Practices
This isn't a new area of the law. And, it isn't a "gray" area either. If you cannot properly ask the applicant for the information in a personal interview, you cannot obtain it from any other source and then use it to deny an otherwise qualified individual an equal employment opportunity. The California Fair Employment and Housing Act specifically prohibits employers from asking questions about protected characteristics (or activities associated with those characteristics, such as family status and religious affiliations) unless the characteristic is related to the applicant's ability to perform the job. The California Fair Employment and Housing Act covers employers with as few as five employees.

Managers or others tasked with conducting interviews should be aware of areas involving impermissible inquiries. Remember, disability-related questions are unlawful on their face — the applicant has an automatic discrimination charge without having to prove the information was used improperly to deny employment. With every other area of protection, it is not the question itself which is unlawful — it is how the manager/employer uses the answer.

For example, if an applicant is asked about marital or family status and then is not hired because of those factors, the employer has discriminated on the basis of gender. Likewise, if a manager inquires about a person's age, date of birth or date of high school graduation, and then does not hire the person because of an objective determination that he or she does not have the skills for the job, no discrimination occurred. But, if the manager does not hire the person because of his or her age, and he or she is otherwise qualified for the job, the result is unlawful age discrimination.

Prevention Strategies
Develop concrete pre-employment practices, including background investigations and personal interviews. Then, train your Human Resources staff and managers or supervisors who make hiring decisions on what's lawful — and what's not. Develop a policy on whether the employer will search the internet or social media sites in hiring. If you decide to use social media in hiring, do the searches on applicants consistently and in a uniform manner. Notify candidates in writing about what your company gathers on the web.

Designate a non-decision maker to conduct the search. The individual should be properly trained to avoid improper access and to screen out information that cannot be lawfully considered in the decision-making process. That way, the non-decision maker can segregate the information that can't be used to make an employment decision, and can keep the decision maker from having to later explain how he or she ignored the plethora of information from the applicant's Facebook profile.

Finally, train your decision makers to rely only on objective, job-related requirements for vetting candidates for every job. Then, apply consistent documentation procedures to capture the non-discriminatory reason for the ultimate decision to hire or reject particular candidates.

Boardroom protocol is being exposed every day on the internet. Does Rupert Murdoch really think we can't see beyond his prepared remarks to determine for ourselves the "tone at the top" coming from his boardroom?

Imagine what happens when 100 million people on Twitter can now get involved in the conversation happening in the boardroom from the outside in.

I know that many people in the boardroom are still on the sidelines about social media. What will it take to get your board ready to tackle their willingness to learn what is happening on the internet? Will it take seeing your company's name in the news before you add digital literacy to your director's education? I can see the incredulous look on the directors' faces when the board is called on for their oversight of digital issues.

I can only imagine a board being characterized as:

• "illiterate": showing or marked by a lack of personal knowledge with the fundamentals of a particular field of knowledge.
• Or maybe a board will be portrayed as "ignorant": Lacking knowledge, information, or awareness about something in particular: "ignorant of social media."

Worse yet is as a board leader to know that it is true. So I ask, when are you planning to get digital and social media on your agenda? Who is going to be responsible for taking action to get it on your fall board agenda? Whatever title you have in the boardroom (board chair or lead directors), you are setting the boardroom agenda. Are you waiting for your CEO, Corporate Secretary, Corporate Counsel, Audit Committee Chair to bring resources and spend budget to get this to happen for you and your board?

Time To Learn Where Your Customers Spend Their Time
Social media accounts for 22.5 percent of the time that Americans spend online, according to "State of the Media: The Social Media Report." This is compared with 9.8 percent for online games and 7.6 percent for e-mail. You can read more in the New York Times.

This is a voluntary opportunity for you to keep your board current and relevant. If you're waiting for a regulatory push to get your boardroom thinking digitally, you may not be ready to take action and learn what is happening 24/7 on computers and mobile devices around the world.

Here are some statistics about digital connectivity to help you consider moving this up as a priority. Digital knowledge leads to opportunities for companies to grow, reach and help their customers, employees, investors and stakeholders. Are your business revenues connected to connectivity in Asia? Has digital connectivity impacted new patterns in:

• Consumer and supply chain behavior?
• Operating model innovations?
• Security and transparency issues?

Connectivity In Asia
Growth in mobile Internet usage is outpacing them all:

• 45% of metro Chinese are online via a mobile device at least monthly, up 21% from 2010.
• 11% of metro Indians access the mobile net monthly, up from just 1% in 2010.
• Japan saw the biggest jump in mobile Internet usage: 57% of adults now have access, up 24% from last year.

Are you challenging yourself to look beyond the status quo, to understand how changes are disrupting your business? Is your board operating in a twentieth-century mode? If so, your business is being challenged to expand communications, attend to shareholder concerns, address issues of trust, take on new technologies (cloud, social media) and more, in order to succeed in and meet the needs of the twenty-first century.

Preparing Our Board Leaders For What's Next
When most of our board chairs were deciding on a college major, the founders of Google were not yet born. Fast forward a couple of decades (or more), and we see that the career landscape has changed so drastically that jobs need new definitions: social media strategist, app developer, mobile web engineer.

How can you prepare for what's ahead? Cathy Davidson has a few ideas. She is a professor at Duke University and suggests that "65 percent of today's grade-school kids may end up doing work that hasn't been invented yet."

"We're 15 years into something so paradigm-changing that we have not yet adjusted our institutions of learning, work, social life, and economic life to account for the massive change."

www.theiirc.org The International Integrated Reporting Committee (IIRC)

Corporate Spring — Is It Only A Matter Of Time?
Salesforce.com CEO Marc Benioff last week predicted that following the Arab 'spring' uprising against dictators facilitated by social media, it would only be a matter of time before similar demonstrations would unseat CEOs — what he referred to as 'corporate springs.'

Benioff has said, "We need to pay attention [to the Arab spring] because it is not so long from now that we'll start to hear about corporate springs and enterprise springs. We've seen Mubarak fall, Gadaffi fall — when will the first corporate CEO fall for the same reason? Because of unhappy customers rising up, or not listening to their employees. Not paying attention. Because it is more important to listen than ever before. That is the social revolution."

On Leading A Digitally Intelligent Board:

1. Time is now to get your board "on board." Schedule a briefing to level-set the board on the fundamentals of your social media risks and opportunities:
   1. Have your board briefed on social media's impact on your business, competitors and mentions of key executives.
   2. Identify where your business is positioned in the conversation: Google, Yahoo, Bing, Facebook, Twitter, LinkedIn. Understand the sources where you can go to gain independent information and business intelligence.
   3. Expand your sources of information on the business beyond management reporting.
2. As you start asking digitally literate questions of your CEO, have a baseline "Social Media for the Boardroom" assessment of your company from an enterprise perspective:
   1. Know the risks on how your company is using social media;
   2. Have a map of your company's engagement:
      1. What marketing is doing for outbound conversations, along with other departments' usage (human resources, customer service, etc.)
      2. What is being said by whom on major social media sites: Google, Facebook, Twitter, LinkedIn.
   3. Become familiar with your own website from a corporate governance and investor relations perspective;
   4. Identify what policies are in place for employees, contractors, etc.;
   5. Begin the discussion on your business readiness to manage crisis communication on social media;
   6. Identify how your board is being portrayed in social media. Think executive and board compensation, say on pay, etc.

Use this briefing and/or assessment to introduce your board to the fast-changing communications happening on line.

If your board is beyond this basic information, it would be great to hear how you got this ball rolling. I'd love to hear how you see this digital business mandate being managed in the boardroom. Do you see a committee taking this on in their charter, or will individual board members be stepping up with "digital expertise and skills" to guide the conversations?

This is the third and final installment in a three-part series of articles on the ten questions all prospective captive owners should ask themselves (or, that their financial representatives should ask them) to help in the captive formation decision making process. Part 1 in the series can be found here, and Part 2 can be found here.

Forming a captive insurance company is an incredibly big decision. To help decide if you should form a captive, please answer the 10 questions, the last three of which are presented below.

Am I comfortable placing money into a business enterprise for an extended period of time?

When forming the captive insurance company, the insured — the person forming the captive — must place money into the captive so that from day one, the captive can pay claims. While some people use jurisdictions that have a low initial capital requirement, the Internal Revenue Service will look at the captive's ability to pay the actual claims underwritten, making a low initial statutory capital requirement moot.

In addition, the captive can't do anything to jeopardize its financial position regarding the risks it has underwritten, so removing money via dividends or loans can't be considered until the captive has developed adequate reserves and surplus (usually 3-5 years minimum). So, after placing capital into the captive, you have to leave it there. Are you financially able and willing to do this?

Am I committed to lowering the cost of my risk?

Captives should be used in conjunction with an overall plan to lower the cost of insurance coverage. As such, are you ready to undertake risk minimization strategies?

For example, if your captive underwrites a cyber-risk policy, are you willing to purchase anti-hacking services from third-party vendors? If you underwrite an employment practices policy, are you willing to hire a third party human resources company to help with your internal HR policies?

Am I willing to add another set of corporate responsibilities to my schedule?

Remember, you're starting another business. That means you now have additional corporate responsibilities to undertake — more reports to read, another set of corporate meetings to hold, etc. A properly run captive has at least one annual meeting, quarterly reports and standard ongoing conversations with the captive manager about a variety of issues. Do you have the time to engage in this activity, and do you even want to?

You'll notice that I've specifically mentioned nine items, and yet the title of the article states there are 10 questions. In theory, the tenth question to ask is, do you want to lower your taxes — which is a trick question because everybody would answer yes.

Underneath the captive transaction is a tax mitigation event. In each year in which the insured pays a premium, he is also lowering his taxable income. This money is placed into an insurance company, which, if it writes less than $1.2 million in premiums, can elect to be taxed on its investment portfolio rather than its gross income. And when the insured sells the captive (or liquidates it after 15-20 years of operation) the transaction is a capital gains transaction.

However, if this is your primary motivation in forming the captive, you will run into a legal buzzsaw called anti-avoidance law, which stands a high probability of taking away the deductions associated with the insurance premiums (but only after you've claimed them for a few years, creating an even bigger headache). In short, this should not be the primary reason to form the captive, but is instead a happy benefit thereof.

This is the second installment in a three-part series of articles on the ten questions all prospective captive owners should ask themselves (or, that their financial representatives should ask them) to help in the captive formation decision making process. Part 1 in the series can be found here, and Part 3 can be found here.

Forming a captive insurance company is an incredibly big decision. To help decide if you should form a captive, please answer the 10 questions, the second three of which are presented below.

Have I seen my insurance prices increase?

Sometimes, simply being in a certain line of business can mean you see insurance costs increase despite your individual loss experience. For example, OB/GYNs have incredibly high insurance costs, simply because of the nature of their work.

And some individuals — depending on their geographic location and despite having an excellent loss history — have seen sharp increases in their premiums for certain types of coverage. For example, after Hurricane Ike in Houston, property owners saw their property premiums increase.

For people in this situation, a captive makes tremendous financial sense. Remember that most large insurance companies spend between 20 percent and 30 percent of their gross revenue on selling, general and administration expenses. Captives, in contrast, are much leaner and have far lower overhead, thereby lowering the overall cost of insurance.

As a corollary to the above point, captives can also provide stable pricing. When the public's premium for a particular line of insurance increases, a captive's may not, depending on the experience of the parent company.

Captives focus on a smaller number of insureds. Therefore, if the insureds also control their risk, they can work to prevent premiums from increasing, thereby creating a more stable pricing environment.

Have I started an asset protection or estate plan?

Asset protection is the legal discipline of mitigating, or attempting to mitigate, the negative impact of various financially and legally catastrophic events, while estate planning is the process by which the client plans for the disposal and dispersion of his estate on death. A captive insurance company, while primarily a risk mitigation tool, also has ancillary benefits.

Primary among these ancillary benefits are the fact that they also provide some degree of asset protection (by segregating assets into a separate business entity) and estate planning (operating in a manner similar to a family limited partnership). However, these are not and should never be the main reason for forming a captive.

Am I committed to a long-term business plan?

That is, am I willing to see this through for at least 3-5 years? Captives require a long-term commitment; you can't simply start one and then end it a year later.

There are many reasons for this. First, because a captive is an insurance company — and therefore what an economist would call a financial intermediary — it takes at least several years for the captive to build up capital and reserves to become a truly independent company.

However, the owners have to let the captive actually go through the process to get there, which takes time (and the time value of money).

Second, a captive should also be part of an overall risk-mitigation plan, meaning that the company is probably going to engage in certain policies and practices to lower their long-term cost of risk. But, again, it will probably take several years for these plans to take effect.

Third, starting and then ending a captive after only a few years will probably draw unwanted regulatory scrutiny.

The above reasons — considered alone — are all good reasons for form a captive. But we'll add to the list in the next installment.

This is the first in a three-part series of articles on the ten questions all prospective captive owners should ask themselves (or, that their financial representatives should ask them) to help in the captive formation decision making process. Part 2 can be found here, and Part 3 can be found here.

Forming a captive insurance company is an incredibly big decision. To help decide if you should form a captive, please answer the 10 questions, the first three of which are presented below.

Has there been a problem with one of my existing property and casualty insurance plans?

For example, have I had a difficult time getting a claim paid, have I have a hard time reaching my agent, or have I found the service to be lacking?

Two personal stories should help to illustrate this point. I have several friends who are corporate counsel, meaning they are attorneys whose client is a corporation rather than an individual. When asked what their biggest problems are, dealing with insurance companies tops the list.

Or, consider another story from my personal experience. I had a real estate development corporation client that had a claim related to Hurricane Ike. It took the company two years and the actual filing of a lawsuit to receive payment on their claim. During those two years, the property could not be rented, negatively impacting the company (which eventually dissolved).

Most professionals in business for a number of years typically have at least one insurance company horror story to tell. This is a prime reason to form a captive: to take control of the captive in order to prevent an insurance company horror story from happening to you.

Do my current policies cover all my risks?

Even if you have an insurance policy, it's likely there are big gaps in your coverage. For example, most manufacturers have inadequate (or non-existent) product liability and product recall insurance.

I was recently looking at an employment practices policy for a company that had an annual cap of $300,000 — which is not going to provide adequate coverage in case of a large claim. In short, most policies don't have adequate coverage for certain risks that, should they occur, could seriously jeopardize a company's financial well-being.

A captive insurance company can help to fill gaps in coverage, ultimately creating what I call an insurance tapestry where third party policies cover standard risk and the captive covers specialty risk.

Can I actually negotiate the coverage terms with my current insurance carrier, or do they hand me a policy to sign?

Remember that an insurance policy is in fact a contract between the insured and the insurance company.

Case law provides an excellent example of this benefit. The Beech Aircraft Company was sued in the early 1970s, but their insurance company maintained complete control over the attorneys during litigation; the insured had zero input.

Beech did not like their attorneys — in fact, they went so far as to file a motion to remove their counsel a few weeks before trial. The court denied this motion and Beech went on to lose the case to the tune of $21.7 million. Because of this loss, Beech formed a captive in order to gain control of their attorneys during litigation.

There are many other contract terms that can be included in the policy — in fact, the only limitations are commercial reasonableness and legality (which are standard restrictions on a contract).

The above three reasons are all great reasons — in and of themselves — to form a captive. However, in Part 2 of this series, we'll add to the list.

Political pundits continue to argue the advantages and disadvantages of President Obama's health care reform act (i.e., Patient Protection and Affordable Care Act). Early projections of the potential cost were estimates at best and even the Congressional Budget Office estimates of the cost were seriously questioned by most (i.e., proponents thinking they were too high, opponents thinking too low). In a report¹ released last week by the non-partisan Congressional Budget Office, the latest projections showed:

• The Congressional Budget Office and the Joint Committee on Taxation now estimate that the insurance coverage provisions of the Affordable Care Act will have a net cost of just under $1.1 trillion over the 2012–2021 period — about $50 billion less than the agencies' March 2011 estimate for that 10-year period.
• The Affordable Care Act's provisions related to insurance coverage are now projected to have a net cost of $1,252 billion over the 2012–2022 period (see Table 2 in the report, following the text); that amount represents a gross cost to the federal government of $1,762 billion, offset in part by $510 billion in receipts and other budgetary effects (primarily revenues from penalties and other sources).
• Fewer people are now expected to obtain health insurance coverage from their employer or in insurance exchanges; more are now expected to obtain coverage from Medicaid or the Children's Health Insurance Program or from non-group or other sources. More are expected to be uninsured.

Whether or not you are for or against health care reform, the projected costs of this program are much higher than initially anticipated. Some of this cost increase is directly tied to the way the program was initially introduced. The Congressional Budget Office completes its analysis over a ten year period. The first few years of the program, once approved, offered limited benefits and changes but started to collect taxes to help fund it. When we look at the program today, those years of no cost are cycled out of the projection with additional years with costs now included. So some of the cost increase should be expected, but there is more to consider.

First of all, costs continue to escalate and it will be harder to "bend the trend" and get the system under control. As initially predicted by some experts, it is more obvious that fewer people will be covered through the exchanges and more groups will be willing to pay the penalty and discontinue their benefit programs. These undesirable changes show some of the flaws of the proposed program.

The President's proposed gross cost of about $900 billion has nearly doubled to $1.76 trillion, with the net cost increasing substantially. Although there are many advantages to the new program, the projected cost is much different than anticipated by those voting for the program. The advantages fail to offset the price tag, but is the price worthwhile? Some recently observed examples in my sphere of influence include:

• Introduction of Health Information Exchanges: San Diego County is one of the Beacon communities where hospitals are now able to communicate with each other, transferring valuable medical record information to assist with the care in other facilities. A recent study showed that almost 90% of those being readmitted within 30 days of a stay go to a different facility. Oftentimes that facility knows nothing about what happened at that stay and usually orders tests that are unnecessary if they had access to what happened elsewhere. This is now a reality in San Diego County based upon funding from the Patient Protection and Affordable Care Act.
• Creation of Accountable Care Organizations and Coordinated Care Organizations: Accountable Care Organizations and Coordinated Care Organizations are being developed in many communities. The Patient Protection and Affordable Care Act encouraged providers and risk bearing groups to get together and establish entities that, through the assumption of risk, would be able to impact the cost of care. These are being established all over the country. In Oregon, Governor Kitzhaber recently introduced the Coordinated Care Organization concept and will be establishing these through the State of Oregon as an extension of the Accountable Care Organization concept. Significant activities are underway and progress being made.

Yes, the cost of the Patient Protection and Affordable Care Act has changed. It is more expensive. Yes, some advancements have been made and/or are in progress. These, although encouraging, don't offset the increased costs.

The big question is whether or not the system would have been better without the Patient Protection and Affordable Care Act. This will not likely result in agreement. The big question is, are we moving in the right direction? From my perspective, we need solutions or we will experience financial costs far worse than projected under the recent Congressional Budget Office projections.

¹ http://cbo.gov/sites/default/files/cbofiles/attachments/03-13-Coverage%20Estimates.pdf