It's hard enough to get the business started on a sound foundation; it's oftentimes much more challenging to continue operating and transitioning into an adult/mature business. The key to success is establishing and maintaining a "trust-centric leadership" model.

Notice that I haven't used the term manager, or management or manage.

Leadership is much different. Leadership helps others advance to a higher level.

Management, in effect, manages the checkers on a checker board. Leadership helps businesses become thriving organizations.

Management stifles creativity, creates meaningless tasks and frustrates employees, while at times satisfying the manager's selfish desires to be in charge. Leadership doesn't focus on being in charge; it focuses on effectively getting an organization to an important place.

Micromanagement is leadership gone bad. You never hear the term micro-leadership unless you are talking about a very short leader.

The following diagram presents a model for Trust-Centric Leadership.

This can be described from two different perspectives: that of the leader and that of the subordinate or staff person. Both are critical to high performance.

The Leader's Perspective (i.e., How They View Staff)
The leader's responsibility is to develop a trusting relationship with the staff. This is exemplified by developing and maintaining your own trustworthiness as a leader and also demonstrating your trust of the staff.

Without trust the business will eventually fail. Without trust an organization can never thrive and never achieve the adult/ mature stage of its life. Quality recruiting and careful selection of staff improves the likelihood that staff can be trusted. No one is to blame for not achieving this other than the leader. The leader sets the standard and makes the final decisions. Sloppy recruiting can kill an organization. Replacement costs from high turnover rates are wasted dollars. Effective recruiting minimizes turnover rates. Choosing the best available candidate will keep overhead costs down. Choosing candidates who are qualified to replace you will improve performance throughout the entire organization.

After the leader has developed a healthy trusting relationship with the staff, it is the leader's responsibility to share their vision for the organization with their staff to obtain the staff's help in achieving the vision (i.e., positive outcome). Without a trusting staff, this effort is futile. The leader cannot do it alone. This is moving from the core of the leadership model to the top where vision is shared.

Once the vision is communicated in an environment of trust, it is important for the staff to be sure they know how to do their job effectively to help accomplish the tasks at hand and achieve success. This is moving clockwise around to Process. If they don't know how to do their part, they need to be taught. The effective leader helps staff learn what they should do or need to do. Whether the leader directs the training activity personally, or works through professional trainers or other skilled laborers, effective training is required for the staff to do their job right. This must be done in an environment of trust or the training will not be effective.

As the staff begins to understand how to do its job and the trusting relationship continues between the staff and the leader, staff empowerment is a natural next step. This continues to move clockwise around to Empowerment. The leader has to create an environment that welcomes and rewards staff empowerment. The leader needs to be involved in personally encouraging empowerment steps. Some staff will get it but others won't. The leader demonstrates his trust in the staff by yielding to the staff and delegating key responsibilities to them. Back to trust, the leader has to be confident the staff is ready to be empowered (i.e., trusts their ability to be empowered). When the staff is ready and the leader is confident of it, the leader needs to advance the empowerment process. It is the leader's responsibility to take the lead in empowerment. This is not something the staff should initiate or in many situations it doesn't advance. Waiting for the appropriate time demonstrates the staff's trust of the leader.

As the staff person advances further around the circle, vision is next. An empowered staff person has the right to help craft the future updated vision and perhaps expand the vision beyond that of the original leader. As long as mutual trust exists at the core, the input on vision from staff will be welcomed by the leader as part of the process. Likely this involves expansion with more individuals being part of the trust cycle with much greater scope of activity naturally leading to more, more, more. Since trust is at the core, the effective leader welcomes this input and recognizes the value of the broader participation.

The Staff's Perspective (i.e., How They View The Leader)
Little progress will ever be made if staff fails to trust their leader. Trusted leadership is a pre-requisite for effective progress. A trusted leader has the potential to effectively lead. A non-trusted leader is impotent. When staff trusts their leader they are willing to listen to the leader's vision, accept it and adopt it as their own. Without trust, staff will discount the value of the leader's vision, possibly discredit it and most likely will ignore it and not adopt it. Staff will treat their position as nothing more than a job. Staff will show limited or no commitment to the process and where possible may even undermine the success of the operation. Staff will err on the side of doing as little as possible, just enough to get buy which jeopardizes the company's success. Most vision requires significant commitment to achieve. To succeed, the business needs everyone doing all they can to achieve the company's mission. Compliance is a very poor substitute for commitment. Compliance leads to distrust by all which destroys harmony and leads to dysfunction junction.

Moving around the circle, staff will take the time to learn what they need to be doing only when they sincerely trust the leadership and the direction the company is going. Unless staff feels valued by the leadership, they will assume empowerment is not an option or even a possibility. They at best propagate compliance and no commitment. It becomes a self-fulfilling prophecy. They will not do what it takes to be empowered, therefore they never become empowered. They most often complain about the leadership further proving to the leadership that staff can't be trusted. They lack the desire to take the next step since they don't trust the leadership or believe there is much chance of empowerment ever happening. Never being empowered, they fail to advance, keeping them in a position of distrust since leadership doesn't recognize their capabilities or potential. The business doesn't advance and often leads to a decline or even failure.

Diagnosing a Trust Problem
Many dysfunctional organizations simply suffer from a trust problem (i.e., lack of trust). Example after example shows a breakdown in trust. Business failures go back to a core trust problem. Some real life examples of this are:

• Non-performing sales operation: This mid-sized company was not achieving its sales goals. Discussions with sales leadership showed significant frustration that sales had no seat at the table. The company's leadership team had representatives from each of the key areas of the company except for sales. They saw no need to include them since they were just sales personnel. Sales felt they deserved more respect and a seat at the table.

  We recommended that this be changed to include someone on the leadership team, someone new with strong sales skills. Within a few weeks of restructure, sales performance improved and the business started to thrive. Today several years later the company has almost doubled in size and trust has been built around the leadership table. No more criticism with leadership, they are all in it together.

• Non-performing nurse care managers: This health plan employed physician medical directors and nurse care managers in their care management operations. In addition to being trained in care management, nurses were often utilized as cost effective substitute experts for physicians, essentially physician extenders, especially on simple and more straightforward items. During an operational audit, we observed overly cautious nurses that were not appropriately providing care management. It seemed as though they were afraid to make simple judgements. They weren't making decisions as expected and seemed to be overly timid in their process. By definition, the job description required more aggressive behavior.

  Further investigation showed that performance stopped shortly after an incident where the medical director didn't stick up for the appropriate decision of a care management nurse in a controversial situation. The nurse felt abandoned and betrayed by the medical director even though they had made the correct decision. This nurse and others who became aware of the situation no longer performed their task effectively since they could no longer trust their leader, the medical director. Once the leader let the staff down, they could not and would not perform. This trust failure led to significant financial losses as health costs skyrocketed.

  This particular situation could not be fixed with the current medical director. Once the medical director was replaced, with clarification of how the process was to work, this led once again to a trusting fully functioning operation. Trust could not be rebuilt with the prior leader.

• Higher than average turnover rates: An organization was experiencing very high employee turnover rates in a particular department that was critical to the company's success. Initially the concern was focused on finding problems with recruiting since the company had lost four different key staff members in this single position over the past three years. Leadership was very concerned about impact of losing so many people from a single position.

  Investigations showed that the problem was not recruiting but rather an unwillingness of the department leader to empower the position to do what it should be doing. The leader wanted to maintain the spotlight on themself and keep staff away from more senior leadership. This executive was threatened and frankly was operating at a much higher level than their own level of competence. They weren't able to do their job effectively and relied upon staff to make them look good. They were not trustworthy themselves and clearly were not willing to give staff the attention and credit they were entitled to.

  Once discovered this leader was removed with one of the recent staff people rehired to take this position. Trust was rebuilt and now the company thrives. The leader's willingness to delegate, give credit as it is due, show higher leadership the value of their staff, and share the credit helps to quickly build leadership.

Preserving Trust
It is critical that trust be preserved at all cost. This requires direct accountability and open and transparent two-way communication. Without clear communication, trust will erode eventually hurting the business. Trust assures success and accountability, and communication assures trust.

Conclusion
Take a close look at your organization's TQ (i.e., its Trust Quotient). If high, strive to raise it even higher. If low, take prompt action while there is time.

If you are the leader and have a hard time really trusting your staff, go back, look in the mirror and be sure you are a trustworthy leader. Go out of the way to demonstrate your trustworthiness, be true to your word, show that you really care, and your staff will respond. First one at a time, then in larger groups, then everyone. Trust is catchy and very obvious. Mistrust spreads faster and is more obvious.

Based upon President Obama's proposed budget, Succession Planning in 2012 is critical to the survival of all family businesses.

Overview
Last week President Obama introduced proposed tax changes that will significantly impact a family business's ability to perpetuate and retain employees. Specifically, the proposed 2013 tax changes call for:

• Higher Estate Taxes
• Reduction in Life-time Gift Exclusion
• Higher Tax Rates for Shareholders of S Corps and LLC members
• Tax Advantages for Wall Street

If a family business is committed to perpetuation, now is the time to transfer ownership to the next generation, but be careful. Transferring ownership to the next generation without considering governance and management succession issues is like giving your children a Ferrari when they have been driving a VW, a catastrophe waiting to happen.

Succession Planning: Key Elements
If we are to successfully perpetuate our family businesses to the next generation, a Succession Plan needs to be designed and implemented that addresses these key elements:

• Ownership Transfer
• Governance
• Management Succession

Ownership Transfer
Under current tax law, a married couple can give $10 million to their children without incurring gift taxes.

After considering valuation discounts and other planning techniques, a significant number of family businesses will be able to be perpetuated and ownership can be efficiently transferred to the next generation of owners. However, after December 31, 2012, the estate tax will return to the higher rates and lower exclusion that was in effect in 2009. This is significant for a family business!

Current shareholders still face the challenge of being fair and equitable to all their children while making sure the assets end up in the right children's hands. Ownership of your family business will eventually transfer, voluntarily or involuntarily. There are much better choices you can make now rather than letting government agencies sort it out for you later. Further, how much do you want to give the IRS? You have options, today, that you may not have going forward.

Governance
Clearly understanding "how" we make decisions is critical to resolving conflict. We should not transfer ownership to the next generation without updating our governance structure and our governance documents. All family members need to know what hat they are wearing and their leadership role. Governance structures need to be created to maintain harmony and develop the next generation of responsible shareholders. Family Councils, Board of Directors and Advisory Boards need charters and governance documents that express the family and businesses' values and vision, and performance agreements should be developed so everyone knows their role and responsibility.

Articles and bylaws, buy-sell agreements, wills and trusts and funding strategies need to be updated. Life and disability insurance needs must be reevaluated and an audit of existing life insurance policies should be performed.

Management Succession
The Succession Plan must address the needs of the business and the management team. The strategic plan should identify the Company's Vision.

A leadership team needs to be developed that will work together and protect the next generation of shareholders. Individuals need to know what is expected of them and their role in the organization.

In addition, key members of the management team need to be retained, rewarded and treated as if they are members of the family and a culture needs to be developed that promotes trust and accountability.

Summary
Now is the time to implement your ownership transfer plan. However, do not forget to address how decisions are going to be made and who is going to make them. You currently have a window of opportunity — don't miss it.

Take action today.

Authors
Kurt Glassman collaborated with Hal Johnson in writing this article. Hal Johnson, also an Insurance Thought Leadership author, has been CEO of eight different companies in the US and the UK. His primary focus has been building management teams to produce outstanding performance. In addition to serving on several boards of directors, Hal is Chairman and CEO of LeadershipOne. He consults widely and speaks regularly on how to mentor a company to greatness.

This is the final article in a six-part series based on the material from the book, The Accountable Executive, expected to be released in the Spring of 2012. In this series, Hal Johnson and Ed Street of LeadershipOne, address what they observe as major contributors to low accountability cultures — which they have observed as a meaningful area of struggle in many mid-market companies — and the antidote. Previous articles in this series can be found here: Part 1, Part 2, Part 3, Part 4, and Part 5.

One of the most significant challenges to senior executives is to keep the pressure on the organization to continually be looking for ways to improve. This falls under the heading of change management.

The recognized guru for change management is Professor John Kotter at Harvard. Dr. Kotter, as you would expect, has published several books on the topic, the most widely known for insights and impact is simply titled Leading Change. It definitely is one that should be in your business library if you don't have it. Well, as business professors do, he has a new book out on the topic of change. It's a good update, and reminder of our continuing responsibilities as executives to be vigilant in our leadership roles to effectively manage change.

Kotter's new book is A Sense of Urgency in which he reports some rather worrisome trends. In tracking corporate performance over the past decade, it is observed that about 70% of needed changes fail to be effectively carried out. He concludes the culprit in most cases is laxness — no sense of urgency. The senior executives have not established a strong sense of "must do" around their leadership initiatives.

Kotter states that he has become more convinced than ever that the path to effective change starts with a sense of urgency. It is what overcomes complacency — a position people gravitate toward much too easily. And that is what effective leadership does — provides a boost toward keeping the focus on the most important things. We need to be the stem winders. We have noticed that change is happening outside the organization much faster than inside the organization. Generally, they are not keeping up. That spells trouble down the road.

Our friends at the Balanced Scorecard Consortium at Harvard report, disturbingly so, that only about 10% of businesses are really effective in executing strategy. Adding that to Dr. Kotter's findings, we have to conclude one of our greatest competitive opportunities is to be really effective at executing change. With that in mind, let's consider our opportunity to systemize our change management process, while keeping it vital. Here are some thoughts on a process we find accountable executives follow in effectively managing change.

In the previous articles in this series we addressed what accountable executives need to assure is in place to achieve high performance levels in their organizations:

1. Effective Direction
2. An Effective Leadership Team
3. Peak Performance Culture and Chemistry
4. Systematic Performance Management

This last article places the emphasis on the process — and discipline — of what should be happening in regards to the previous four, happening in a systematic, predictable way. And that the process delivers on the kind of continuous improvements that are supporting on-going success. In today's business environment, this is no small challenge.

Your Management Strategy
What is needed is a management system. This is a system designed into your business model to produce the desired results. The more automatic the system is, the more effective the business model will be. A management system is a routine for getting jobs accomplished in an effective manner. In a hotel setting, it is the way a room is cleaned, or the guest is greeted and checked in. It is detailed in a company's Operations Manual. The operations manual describes the best way to do a specific task. When a system is consistently used, a company can provide quality, dependable service or product even in the most difficult businesses.

Your Systems Strategy
The success of your business depends on your appreciation and effectiveness in the integration of systems. This material is aimed at providing the reader with an appreciation for a systematic approach for maximizing business effectiveness. Doing so is the highest application of "working on the business."

An important aspect that you should know about systems is that they should be dynamic, not static. The value of a system is directly related to the "care and nurturing" it receives. Every system need a "champion," to tend it to keep the system "in tune and in sync" with its purpose of being. Business process management, which embodies a systematic approach to maximize business effectiveness, then enables the achievement of four outcomes crucial to a high performance-based business:

• Clarity on strategic direction
• The alignment of the business' resources
• Increased discipline in daily operations
• Effective change management

It's important to understand that there is an emphasis on the whole end-to-end, cross department business processes, and not simply the improvement of specific work activities. Accountable executives provide the vision and discipline to stay the course. Healthy, effective organizations need to be change-systemic. Kotter would say you also need to add a dash of urgency. We would say "What are you going to do about it?"

Authors
Hal Johnson collaborated with Ed Street in writing this article. Ed Street is a LeadershipOne Associate and has over forty years of professional and management experience in finance, strategic planning, general operating management and information systems design & implementation. He has a proven record of competence in achieving performance, productivity and cost improvements in team based environments while enhancing long term value creation. He has significant experience in facilitating and teaching finance, entrepreneurship and strategic planning in both academic and business environments.

There are some very interesting and emerging trends regarding insurance fraud. Sadly, the resources to address these problems are not commensurate with the need to combat fraud in the most effective manner. State and local government budgets have been reduced greatly, which often puts white-collar criminal investigation as the "luxury item" category in a law enforcement agency's budget. As a result, insurance fraud is increasing throughout the United States.

For instance, in 2009, a study conducted by the Insurance Information Institute revealed that fraud accounts for 10 percent of the industry's incurred losses and loss adjustments expenses every year, which translates to $30 billion involuntarily transferred to criminals every 12 months. In addition, the current problems in New York and Florida (No Fault and Personal Injury Protection), and an increase of questionable claims by 24 percent from 2008 (as reported in the Insurance Crime Bureau's 2010 report) illustrates how much fraud is on the rise. Simply stated, insurance fraud is not a victimless crime — every consumer pays, and pays more, because of fraud.

Organized fraud groups, and the people who facilitate the frauds (lawyers, health care providers, office administrators, etc.), grow more sophisticated every day designing and carrying out their fraud schemes — from who to bring into their enterprise to what insurance companies to prey on. Insurance companies not committed to identifying suspected fraudulent claims compound the problem.

The stakeholders in this problem need to start thinking more creatively about ways to systemically reduce fraud. This is not an easy problem to fix, but if our government and industry leaders follow the "Rule of Three" for creative problem solving, amazing things can happen.

The Rule Of Three
The Rule of Three is a "best practice" in strategic planning and is a core concept taught by Professor Moshe F. Rubenstein at the UCLA School of Engineering and Applied Sciences. Professor Rubenstein is also the Director of the ABC Corporate Network at the Anderson Graduate School of Management. Moshe's Rule of Three boils down to:

1. State the purpose.
2. Discover the possibilities.
3. Execute.

So, how does this model work for insurance companies and law enforcement agencies to reduce insurance fraud? The critical force multipliers in this model are relations and collaboration. When these two are combined with the three steps, all weaknesses identified in strategic planning are mitigated, and the resulting plan is strengthened to a point where its implementation will actually achieve intended goals.

First Steps
How can you inspire your team to think differently about this problem? What are the first steps that need to be taken to affect positive change?

The first step is to assemble a group of stakeholders and key members of your team together to discuss this issue, and identify the strengths and weaknesses of your business process. Is your staff properly trained to handle fraud? If not, you need to immediately start a continuous training program to educate them about fraud, how to identify it, and what to do with a questionable claim (a great place to start is to follow your Department of Insurance guidelines and reporting requirements).

I am always amazed on the consultations that I perform for fraud and bad-faith actions where the communication breaks down between the claims personnel and the Special Investigations Unit investigators. The lack of an internal policy, compounded by inconsistent, or absence, of training are the common denominators of when claim investigations go wrong.

What about technology? The Information-Technology Revolution is over, as far as competing in today's market place. If your company is not utilizing analytics in the business practice, you are destined to lose the race against your competitors who are operating with basic and advanced analytics.

This requires a hard look at your current information technology platform, and the courage to move forward by bringing in cutting edge solutions. The initial cost of an advanced analytics solution will usually give a great return on the investment (ROI) if it is constructed properly with the right data. Think of the "Three Rs:" The Right Data, To the Right People, at the Right Time. Analytics will increase your success rate in curtailing fraudulent claims.

When the communication and collaboration among the stakeholders in an anti-fraud program erode, bad things will happen. All of us have critical roles in the fight against insurance fraud. We need to change our thinking and strategic vision on this issue if we really want to reduce fraud, which affects all of us — the consumer.

This is the fifth article in a six-part series based on the material from the book, The Accountable Executive, expected to be released in the Spring of 2012. In this series, Hal Johnson and Ed Street of LeadershipOne, address what they observe as major contributors to low accountability cultures — which they have observed as a meaningful area of struggle in many mid-market companies — and the antidote. Additional articles in this series can be found here: Part 1, Part 2, Part 3, Part 4, and Part 6.

We know management is in place when we have established predictability: predictable outcomes are systems based. This foundational truth is at the core of a well managed business. It takes well maintained systems to produce, and re-produce, high level performance. Systems take the randomness out of performance and offer sustainability and predictability. And that is what a business leader is accountable to produce.

Evaluating enterprise performance from the perspective of process management is receiving increasing executive attention. Delivering ultimate value to customers is dependent on advancing the effort to define, improve and manage the end-to-end, enterprise processes. The side benefits include gaining clarity on strategic direction, achieving better alignment and installing more operating discipline.

Process Driven Management
Business Process Management (BPM) is a systematic methodology that helps an organization make significant advances in the way its business processes operate. It provides a system that aids in simplifying and streamlining your operations, while ensuring that both your internal and external customers receive surprisingly good output. The main objective is to ensure that the organization has business processes that:

• Eliminate errors
• Minimize delays
• Maximize the use of assets
• Promote understanding
• Are easy to use
• Are customer friendly
• Are adaptable to customers' changing needs
• Provide the organization with a competitive advantage
• Reduce excess head count

The Balanced Scorecard And Business Process Management
We reach into the Balanced Scorecard Methodology to identify the four basic perspectives of corporate performance. The Balanced Scorecard brings together several dimensions of strategic management and measurement, articulating a practical approach to combining strategy, management, systems and measurement.

In 1996, Robert S. Kaplan and David P. Norton published the book The Balanced Scorecard: Translating Strategy into Action. Since the original concept was introduced, it has become a fertile field of theory, research and consulting practice. The Balanced Scorecard has evolved considerably from its roots as a framework for developing performance metrics. It has evolved into a strategic performance planning and measurement framework. The Balanced Scorecard addresses strategies for organizational performance across four balanced perspectives:

• Financial
• Customer
• Internal Systems and Quality
• The Growth/Development of the Human Resources

The perspective provided by a well-designed scorecard puts the focus on the blended activities that have the greatest impact on delivering the company's overall performance. Of the four perspectives, Internal Systems and Quality has the lowest visibility and focus in most organizations. It lacks a natural champion, such as the Vice President of Human Resources for People, Chief Financial Officer for Finance and Vice President of Marketing for Customers.

The astute business will do well to have a Systems Czar to champion the contribution from a strategic and highly refined systems focus. The following material is based on the premise that Business Process Management, integrated with the Balanced Scorecard, creates a very powerful combination.

Analytics — Drucker Meets The Balanced Scorecard
In his lifetime, management philosopher and guru Peter Drucker made monumental contributions to the practice of management. Heading the list is the identification of the five functions of management:

• Planning
• Organizing
• Communicating and motivating
• Measuring
• Developing people

We have developed a tool for manager-leaders to effectively evaluate how they are doing in their pursuit of systems effectiveness by combining the perspectives of the Balanced Scorecard and Drucker's five management functions.

We encourage our executive colleagues to evaluate where they are in deploying a robust systems strategy in their businesses. If you are truly driving for top level performance, this is a productive place to look. See if you can fill in each cell with your particular systems that support your delivery of superior performance. The optimal strategy is to know your systems and have them under continuous improvement.

Not there yet? This is an area for fertile improvement in most mid-market companies. By the way, we have filled in the grid with what we believe are the “best practice” systems for mid-market companies. If you would like a copy to compare, contact us, and we will send it to you. We have no doubt this exercise can put you onto several productivity improvements. Good hunting!

Authors
Hal Johnson collaborated with Ed Street in writing this article. Ed Street is a LeadershipOne Associate and has over forty years of professional and management experience in finance, strategic planning, general operating management and information systems design & implementation. He has a proven record of competence in achieving performance, productivity and cost improvements in team based environments while enhancing long term value creation. He has significant experience in facilitating and teaching finance, entrepreneurship and strategic planning in both academic and business environments.

A central theme is emerging in the insurance fraud space: individuals will continue to commit opportunistic acts of insurance fraud but the risk from organized fraud activity is quickly becoming a massive problem.

On the heels of recently published Insurance Research Council reports on the No-Fault/PIP fraud problems in New York and Florida, the National Insurance Crime Bureau (NICB) recently released a report detailing 2010 questionable claim referrals and indicating that suspicious claims are up 24 percent over 2008 levels. But this statistic only reveals part of the story. Digging into the details of the NICB report, some interesting patterns emerge and suggest that the landscape of insurance fraud is shifting.

Organized Fraud Is Up And Medical Providers Are Leading The Way
The data suggests that organized fraud activity is rapidly increasing and that insurers are taking action. Unsurprisingly, medical providers are a growing part of the equation, helping drive up claim values:

• In the National Insurance Crime Bureau's report, which compares 2010 questionable claim referrals to 2009 and 2008, most of the referral reasons reflected on casualty claims have to do with staged accidents or medical provider fraud: excessive treatment, inflated billing and solicitation for example. Every casualty claim referral reason saw an increase in volume this year except for a small 1 percent decrease in slip-and-fall claims: arguably the one reason that is not directly related to staged accidents.
• On vehicle claims, suspicious towing and storage charges were up 116 percent. This is a common component of some organized fraud rings where inflated tow charges are buried in the repair bill and hard to spot.
• Five out of the top six fastest growing miscellaneous referral reasons are connected to staged accident activity: vendor fraud, attorney activities, organized group/ring activity, medical provider, and medical provider/attorney relationship (leaving only Malingering as the sole opportunistic fraud in this bunch).
• Even among workers' compensation claims, inflated medical billing leads the category with a 38 percent jump this year, suggesting that the focus may be shifting from claimant frauds — which still have the highest volume — to medical provider frauds.
• While medical provider-based frauds lead the way, organized fraud can take other forms as well. For example, auto glass fraud is up a whopping 450 percent.

Economy-Driven Opportunistic Fraud May Not Be As Bad As We Thought
Given the tough economic conditions in the United States, many investigators opined that more individuals would be driven to this type of insurance fraud but the statistics suggest otherwise:

• Somewhat surprisingly, arson referrals continue a decline. Despite the noise in the press about desperate home owners torching their properties for insurance money, arson/fire claims have decreased over the past two years. And in the commercial market, arson/fire claims are down 11 percent this year.
• After a jump last year, commercial slip-and-fall claims are down this year.
• Vehicle owner give-ups (where an owner fakes an auto theft to dispose of the vehicle and get the insurance proceeds) are also down this year.

Anti-fraud groups like the National Insurance Crime Bureau are focusing more of their resources on medical provider fraud and staged accidents. Special Investigation Units within insurance companies need to do the same. But the industry faces some hurdles in addressing this evolving threat.

This is the fourth article in a six-part series based on the material from the book, The Accountable Executive, expected to be released in the Spring of 2012. In this series, Hal Johnson and Ed Street of LeadershipOne, address what they observe as major contributors to low accountability cultures — which they have observed as a meaningful area of struggle in many mid-market companies — and the antidote. Additional articles in this series can be found here: Part 1, Part 2, Part 3, Part 5, and Part 6.

An organization's culture is a direct reflection of the business leadership. A careful look at the culture can provide a vivid image of what the leadership team models as their "walk." Former IBM CEO and author, Lou Gerstner (Who Says Elephants Can't Dance?: Leading a Great Enterprise through Dramatic Change), claims culture is not just one aspect of the game — it is the game. With an influence as powerful as culture, it is surprising how little time and attention leadership spends on developing the desired culture. Indeed, it is even more surprising how infrequently a strategy is developed to take advantage of the impact a high-performance-oriented culture can have. There will be a culture. And that culture is definitely going to have an impact on the organization's performance.

The only way that culture development occurs in most organizations is if the leadership team initiates it. The single most visible factor that distinguishes major cultural changes that succeed from those that don't is competent leadership at the top. Culture is a powerful force that in most cases exists with very little forethought about what can be done to improve it or make it more effective. But that is changing. The senior management teams of many businesses are beginning to realize the value of a strategy to create and support an effective culture. It takes awareness and commitment.

A key component of a high performance oriented culture is the development of a core ideology — core values and sense of purpose beyond just making money that guides and inspires people throughout the organization and remains relatively fixed for long periods of time. The real difference between success and failure in a corporation can very often be traced to the core ideology of how well the organization brings out the great energies and talents of its people.

Attitudes affect behavior, which in turn produce business results. The relationship between culture and business performance is significant. Various patterns of culture and performance relationships are identifiable. Considering the tremendous impact that an organization's culture — whether "healthy" or "unhealthy" — has on performance, a close look at what a strategy for creating culture can accomplish is warranted. But first you need to understand what makes a culture either healthy or unhealthy. The term "healthy" is used to describe a condition in which positive behaviors are produced that are supportive of and conducive to desired performance and outcomes. Similarly, an unhealthy condition influences or produces behaviors that create less-than-desirable performances and outcomes.

Two Harvard Business School-sponsored studies on the relationship between business culture and business performance of more than 200 firms were conducted by John Kotter and James Heskett. Their research and conclusions are described in their book, Corporate Culture and Performance. They reveal that:

• Corporate culture can have a significant impact on a company's economic performance.
• Corporate culture will most likely become an even more important factor in the future in determining a company's success or failure.
• Cultures that can help organizations anticipate and adapt to change will be associated with superior performance over longer periods of time.
• Companies with more adaptive cultures strongly emphasize that managers throughout the business should provide leadership to initiate change in strategies and tactics to satisfy the interests of stockholders, customers and employees.
• It is not easy to change a corporate culture. It takes a specific strategy and strong leadership.

The basic premise is simple: cultural change gets real when your aim is execution. The leadership that succeeds is the one that can assemble the architecture of excellent business execution, focused on achieving great business results and how you achieve them. It's based on a culture and supporting processes for executing, promoting people who get things done more quickly and giving them greater recognition and rewards. Organizations don't execute well unless the right people, individually and collectively, focus on the right details at the right time. A culture emphasizing results facilitates the perpetuation of great companies. That is what leaders are accountable to do.

The mission of the management leadership is predictable, successful performance. The successful companies that consistently achieve their objectives have the following characteristics:

1. Focus on results — we all are judged by our results.
2. Hold one another accountable for results.
3. Choose clarity over accuracy — be decisive, but flexible.
4. Encourage harmony with creative conflict — open communication; get the unvarnished truth.
5. Be real and vulnerable — build trust.

And that should be the objective of the culture — to reinforce these essential success-supporting behaviors. All it takes is accountable leadership.

Authors
Hal Johnson collaborated with Ed Street in writing this article. Ed Street is a LeadershipOne Associate and has over forty years of professional and management experience in finance, strategic planning, general operating management and information systems design & implementation. He has a proven record of competence in achieving performance, productivity and cost improvements in team based environments while enhancing long term value creation. He has significant experience in facilitating and teaching finance, entrepreneurship and strategic planning in both academic and business environments.

Earlier this year, Assembly Insurance Committee Chair Jose Solorio (D-Santa Ana) introduced Assembly Bill 1454, which would allow audiologists under certain conditions to be qualified medical evaluators (QMEs). One might be tempted to look at this as yet another example in the long history of California allowing a broad spectrum of health care professionals to engage in disability evaluations and medical treatment.

On closer examination, however, AB 1454 is identical to legislation sent to former Governor Schwarzenegger in 2007 — Senate Bill 557 (Wiggins). That bill ultimately passed out of the Legislature unanimously after a series of amendments that accommodated the concerns of various professional groups, such as the California Medical Association, and the Department of Industrial Relations. It apparently did not, however, remove the opposition of the Governor, who vetoed the bill.

So here we are in 2012 and the bill as enrolled (sent to the Governor) in 2007 has been reintroduced. There should be little if any opposition, right? Well, not so fast. The absence of opposition is not always a guarantee of legislative success — especially when there is the potential of a "big deal" on an issue in the Legislature. Workers' compensation squarely falls within that maxim.

In 2011 a number of proposals changing aspects of the workers' compensation system, including changes to the supplemental job displacement benefits and further expansion of temporary disability benefits made it to Governor Brown's desk only to be vetoed. The constant theme from the Governor's Office was that he did not want to deal with this volatile issue on a piecemeal basis.

This year, the Department of Industrial Relations is spending much of April on the road soliciting input from stakeholders across the state on how the system is performing. On March 28, the Senate Labor and Industrial Relations Committee and Assembly Insurance Committee will hold a joint hearing to discuss the effect of the SB 899 reforms on permanent disability benefits.

One might be tempted to think that all this activity may signal a larger bill in the works. Certainly there has been no shortage of reports, reviews, and commentary from the Commission on Health and Safety and Workers' Compensation (CHSWC) on what troubles this system and how to fix it. The empirical analyses they have undertaken over the past several years sets out a fairly comprehensive road map for changes that would strongly suggest we already know what to do to curb the alarming rate of increases in medical costs, the abusive practices of lien claimants and time consuming and costly litigation over permanent disability.

So, where's that bill? It doesn't exist, yet. And it probably won't until fairly late in the legislative session — perhaps as late as August. Through a variety of procedural rules and votes, a bill as potentially large and complicated as a major workers' compensation overhaul will always find a placeholder that has been parked in a strategic holding pattern awaiting what is affectionately called a "gut and amend" to put in language largely vetted by the major stakeholders in the system.

Will that happen in 2012? No one can be absolutely certain of that in early March. But one thing that is highly probably — bills such as AB 1454 won't be on a fast track to Governor Brown's desk until the bigger picture is resolved.

This is the third article in a six-part series based on the material from the book, The Accountable Executive, expected to be released in the Spring of 2012. In this series, Hal Johnson and Ed Street of LeadershipOne, address what they observe as major contributors to low accountability cultures — which they have observed as a meaningful area of struggle in many mid-market companies — and the antidote. Additional articles in this series can be found here: Part 1, Part 2, Part 4, Part 5, and Part 6

Our last article addressed being accountable for effective direction. In this material we will address the importance of a leadership team being in place to execute on the direction that has been determined would be best for the business.

The complexities of business are leading to a greater acceptance and use of empowered leadership teams to run the business. CEOs are becoming the "captains" of powerful, knowledge-driven leadership teams. Numerous books and articles have been written on this topic, so we are not going to try to convince our readers this is the smart course to follow. We believe most executives understand that. The difficulty seems to stem from not knowing exactly how to go about it. And that is understandable. There are definite steps involved in getting a group of executive managers to function as a team for the good of the business.

So how do you go about turning your management group into a high performance team? First, you, as the executive leader of your company, have to not only understand the difference, but be convinced to take action to make the change process happen. The latter is usually the bigger hurdle. Like many successful management practices, effective teamwork is knowledge-based. In fact, we think teamwork is one of the most misunderstood concepts in business. In most mid-market companies, all that is required to be considered a team is to have a seat at the table. Big mistake. Being an effective team is a lot of work, just like a sports team. You need to know the plays (teamwork principles), and the rules of the game, then you can concentrate on working together effectively to put them in play. It sounds easy, but in reality it isn't.

We can recommend a great book on the topic (The Five Dysfunctions of a Team: A Leadership Fable by Patrick Lencioni) . However, reading the book does not convert your group to a team. There is a definitive process, and it takes time — and leadership. But the rewards are significant and make the process worth the effort.

The point here is it takes a leader who understands that this is the direction to go and then is accountable to his constituency to see that it happens. Part of that process on the part of the leader is to come to an understanding that (1) there is a difference between a group and a team, and (2) an effective management team will position the enterprise to be even a more effective producer. To buttress this perspective we refer you to a particularly compelling Harvard Business Review article — The Discipline of Teams by Katzenbach and Smith, July-August, 2005. Here are eight important steps they suggest to build an effective team:

1. Establish urgency, demanding performance standards.
2. Select members for skill and skill potential; performance not personality.
3. Pay particular attention to first meetings and actions. Initial impressions always mean a great deal.
4. Set some clear rules of behavior.
5. Set and seize upon a few immediate performance-oriented tasks and goals.
6. Challenge the group regularly with fresh facts and information.
7. Spend lots of time together.
8. Exploit the power of positive feedback, recognition, and reward.

Business literature, as well as loads of experience, tells us the business environment is becoming more daunting and complex: more moving parts, more competition, more everything. A well disciplined team is much better prepared to respond to that kind of market force than the single manager-leader.

The problem is many manager-leaders, not knowing what a real leadership team looks like, think they are there. Another big mistake. Check your criteria. A great checklist is found in the Harvard Business Review article cited above (Teams & Groups: How to tell the difference). You will see accountability looms large in the process. In fact, accountability is one of the key drivers to get to the point of deciding to pursue a better understanding of what real teamwork is and how it can add to your performance capability. Even if you believe you have a strong performance-oriented team, a "check-up from the neck-up" every so often is a good accountability move. In that vein, score your team on a 1-5 scale (i.e., Likert) on the above eight items. Then, think about steps to refresh your team. That is a good accountability move.

Authors
Hal Johnson collaborated with Ed Street in writing this article. Ed Street is a LeadershipOne Associate and has over forty years of professional and management experience in finance, strategic planning, general operating management and information systems design & implementation. He has a proven record of competence in achieving performance, productivity and cost improvements in team based environments while enhancing long term value creation. He has significant experience in facilitating and teaching finance, entrepreneurship and strategic planning in both academic and business environments.

In a recent release, the Federal Equal Employment Opportunity Commission (EEOC) announced its new enforcement approach to get more efficient usage of its resources and to build on its present system to remedy discrimination.

This is a four year plan which was approved by a 4-1 vote and begins this coming month. They are calling this a "framework for achieving the Equal Employment Opportunity Commission's mission to stop and remedy unlawful employment discrimination, so that the nation might see the commission's vision of justice and equality in the workplace."

Here is the scary part. The Equal Employment Opportunity Commission's planned outcomes include developing significant partnerships with organizations that represent vulnerable workers (my emphasis) and/or underserved communities, and using technology "to streamline, standardize and expedite the charge process across its field offices." This will include all levels of government, and if I read it properly, labor unions.

And California Is Already Implementing Their Plan
The Department of Industrial Relations (DIR) — which includes the Division of Workers Comp (DWC) — has beaten the feds to the punch. They are already increasing staff to better serve employers, injured workers and other stake holders in the workers' compensation community. This is from Rosa Moran, the new Administrative Director (AD) of the Division of Workers Comp. But of greater import is her message to the "bad actors" out there. They are on notice that the various branches under the Department of Industrial Relations, as well as other independent branches, e.g. the Department of Insurance, are now actively sharing data and will be targeting the worst of the lot first with enforcement actions.

She presented the opening speech at the Division of Workers Comp's annual education conference attended by over 900 participants. "We have people sharing data in the state with agencies including the Employment Development Department, the Division of Workers Comp, the Division of Occupational Safety and Health, and the California Occupational Safety and Health Administration, to name but a few." They have also included the Board of Equalization and the Labor Commission. She went on to say, "If you are a bad employer — and there are many more good employers — but if you are a bad employer, you tend to be bad all around. You're not just cheating on your workers' comp, you're probably cheating on your payroll, you're probably not asking for documentation from your workers. By sharing that data, it's amazing how we can target a small group of people instead of bothering the employers who are actually trying to follow the rules."

This whole process is "about targeted enforcement. It's not about going around randomly to different companies. We can use the data that we have — and we have good data now — and we can use that to look for the bad actors and go after them and support the good employers."

What is even more encouraging to me with this new administration is the Department of Industrial Relations. Christine Baker, the new Director, really wants our input and has scheduled six forums around the state and I hear more are being added. These are designed to solicit real problems and hopefully, real solutions.

I am already signed up to speak about a subject near and dear to my heart which is Continuous Trauma (CT) claims that are growing at a ridiculous rate due to the current state of the economy. These are what I lovingly call the "wearing out" disease wherein you can work for an employer for one day, one week, one month, one year or your whole career. The law simply states that if you can show as little as one percent of loss of function due to the job, you are entitled to money. I have always maintained that I hire the whole package and when I do that, I also am hiring the package the skills come in.

I am not sure how much success I will have with this one. I propose that the legislature do away with this type of claim as we are only one of six states in the nation that allow for continuous trauma claims. In the alternative, I will propose that at least the entry standard for this type of claim be changed to one similar to what is required for a psych or stress claim. That standard is that "an employee shall demonstrate by a preponderance of the evidence that actual events of employment were the predominant as to all causes combined," and not that they simply worked there.

This article is an excerpt from the March 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.