Politics Can Be Risky Business

The threat of political uprisings and civil unrest for companies doing business overseas has never been greater. In 2011 alone we have seen the power of the revolution and how it can wreak havoc on a geographic region. A year ago would anyone have predicted that Egypt and Tunisia would be in complete turmoil and that the threat of unrest could spread so quickly throughout other countries in the region – Libya, Bahrain, Syria, Yemen.

Political risks happen very quickly and without much notice. Contributing to the problem is social networking, which seems to be accelerating the pace and level of sophistication of these uprisings. Political activists are able to mobilize people faster and spread news that was previously tightly controlled by repressive regimes. Even security services of the various Western governments have been caught off guard.

Insurance policies are available to provide protection against some of the common political risk exposures such as:

• damage or destruction of physical assets due to political violence such as revolution, insurrection, civil unrest, terrorism or war
• expropriation or confiscation of assets by government authorities
• governmental frustration or repudiation of contracts
• business interruption associated with political uprisings
• currency inconvertibility or the inability to repatriate funds
• credit risk

Most comprehensive credit insurance policies also include coverage for the risk of “War, revolution, insurrection and civil strife or commotion.” The recent situations in Egypt, Tunisia and Libya definitely fall into this last category. This coverage relates to circumstances where the exporter’s contract is frustrated because the goods that have been shipped can’t be delivered or the financial system is in turmoil to the extent that payments cannot be processed.

Civil strife in the form of a General Strike is a definite risk in a country where the population is protesting austerity measures that have been adopted by the government. Such events, which can frustrate a contract, may also take place in developed countries.

The risks identified above are just the very obvious events that can trigger losses during times of political unrest. Other political and commercial risks can impact buyers as well. Businesses may have to close. A new regime may cancel signed contracts. A new regime may confiscate foreign investments or impose foreign exchange restrictions.

Export risk management must take into account all risks, not just the buyer credit risk, but also all of the risks that are outside the control of both the buyer and the exporter. If a company has a large export component to its sales or it has a concentration of buyers in one country or region, political events can create a major cash flow problem overnight.

Services companies with equipment abroad and companies with foreign investments are even more exposed because their assets are harder to extricate from the country when problems occur.

Current geo-political and economic trends require that companies develop a comprehensive risk strategy that encompasses all identifiable risks, before they become apparent. A TechAssure broker can help you assess your international risk exposures and develop a plan to mitigate your exposure to such risks.

Contributed by Ron Doyle for TechAssure
Ron is Vice President, Millennium CreditRisk Management Limited, Ottawa, Canada

Ernst & Young Entrepreneur of the Year 2011

Diversified has been a sponsor of the Entrepreneur of the Year Program for more than a decade. Last night’s event was the 25 year anniversary of the program and it was great as usual. It is always inspiring to hear stories of businesses that have bootstrapped for years and through persistence and hard work have created large thriving businesses. This year’s group of award winners and finalists are no exception.

The Ernst & Young LLP Entrepreneur Of The Year 2011 Award winners are:

• Paul Morrell, President, AI-Morrell Development, LLC
• David Dangerfield, President and CEO, Avalon Health Care, Inc.
• David Jenkins, President/CEO, Conservice, LLC
• Corbin Church, CEO, Miche Bag LLC
• William Haberstock, CEO, Million Air – Salt Lake City
• Blake Roney, Chairman, Nu Skin Enterprises, Inc.
• Orville Thompson, CEO, Scentsy, Inc.
• Heidi Thompson, President, Scentsy, Inc.
• Allan Ainsworth, PhD, Executive Director, Wasatch Homeless Health Care/Fourth Street Clinic
• Robert Mendenhall, President, Western Governors University

The Entrepreneur Of The Year Program honors entrepreneurs regionally in June, leading up to the
national awards in November. Additionally, venture-backed companies that win an Entrepreneur Of
The Year Award regionally are also eligible for the Entrepreneur Of The Year Venture Capital Award
of Excellence on a national level. The overall National us winner then moves on to compete for the
Ernst & Young World Entrepreneur Of The Year Award in June.

This year, the Entrepreneur Of The Year Program celebrates its 25th anniversary. The program
has expanded to recognize business leaders in more than 140 cities and more than 50 countries
throughout the world. Awards are given to entrepreneurs who demonstrate excellence and
extraordinary success in such areas as innovation, financial performance and personal
commitment to their businesses and communities.

What If My Company Computer is Hacked?

Funds transfer fraud and computer fraud are serious and growing threats to business. According to a 2008 survey by the Computer Security Institute, the average annual losses due to computer fraud were $289,000 and nearly $500,000 for financial fraud.

“Phishing” scams make it easier than ever for criminals to access your assets. Web-based commercial EFT origination applications are being targeted by malicious software, including Trojan Horse programs, key loggers and other spoofing techniques designed to circumvent online authentication methods. These attacks could result in monetary losses to financial institutions and their customers if not detected quickly.

Consider these examples:

A company’s finance director opened an email with an attached zip file that contained a virus. The virus obtained the user ID and password to the company’s bank account. Immediately thereafter, a fraudulent electronic wire transfer initiated by unknown persons caused $147,000 to be wired from the company’s bank account to an unknown account.

A company’s website was hacked by an employee of one of its customers who changed her employer’s bank routing code on the website to her own. When the company paid her employer for services rendered, the money went directly into her bank account.

While internal controls are extremely important to guard against these threats, they are not foolproof. Crime insurance is an effective backstop if you expand the policy to include Computer Fraud and Funds Transfer Fraud coverage. It is recommended to have limits equivalent to employee dishonesty limits sufficient enough to protect against a catastrophic attack.

Post by Brian Sandy for TechAssure

TechAssure Association, Inc., is a non-profit organization founded in 2001 for insurance and risk management professionals dedicated to serving clients in the Technology, Life Sciences, Digital Media, and Venture Capital industries.

So When Are Retirement Plan Fees Unconscionable?

Do the 401k Fees of Your Company 401k Plan Put You at Risk?

The New York Times had an interesting piece on 401K fees and whether and when they put the plan fiduciaries at risk:

Employers are supposed to act as a fiduciary when running a retirement plan, which is a legal way of saying that they are supposed to put your interests first. But in the context of fees, they must only keep them “reasonable.”

And there aren’t many specific definitions of what is unreasonable, for a couple of reasons. Benchmarking against other plans has traditionally been difficult, given that employers themselves often don’t know exactly what their plan costs. “If you don’t know what everyone else is paying, there is no way to know what is reasonable,” says Mike Alfred, BrightScope’s co-founder and chief executive, whose team has gathered information on 47,000 plans so far and sorted it by peer group.
. . .
DISCLOSING FEES Thankfully, the basic question of what fees you’re paying in your 401(k) or 403(b) is about to become easier to answer. Starting in 2012, according to new Labor Department guidelines, investment and other companies like Fidelity, which is a party to the ABB lawsuit, will need to be more clear with employers about how they are charging them.

Employers, in turn, will have to itemize more information on plan fees and expenses on account statements. In addition, they will need to display the costs of each mutual fund or other investment in a way that makes it easier for employees to compare their choices.

While it’s not yet clear how all of this will work in practice, there is real potential here for employers, especially executives at smaller ones for whom managing the retirement plan is one of dozens of duties, to get a harsh wake-up call about the size of their annual bill. And even if they don’t, their employees may see a menu of high-cost funds staring them in the face and begin to ask for a better plan.

To read more of this article in the New York Times go HERE