MANUFACTURING Home goods retailer mDesign sees big opportunities in online. PAGE 2
FINANCE: Banks, credit unions are feeling the heat of a tight labor market. PAGE 10
CRAINSCLEVELAND.COM I NOVEMBER 1, 2021
Companies scramble to recruit students
Northeast Ohio movie business is growing
Employers target colleges amid a booming job market
Productions big and small build economic presence in state
BY AMY MORONA
BY JAY MILLER
Kristin Williams, executive director of career exploration and development at Kent State University, noticed an immediate shift in recruitment activity when she and her team returned to campus full time this fall. “Everyone was knocking on our door for every kind of position,” she said. That includes part-time roles, internships and full-time gigs. The bustle isn’t just at Kent, either. Employers are reaching out in droves to Northeast Ohio’s colleges and universities to tap into talent amid the booming job market. Williams said she hasn’t seen anything like this over her 15 years in the industry. Baldwin Wallace University, for example, receives about 250 new job and internship postings on its online platform every day. Recruiting activity is up about 10% compared with pre-pandemic levels. Officials at Lakeland Community College said its job board is “inundated,” too, adding there’s an especially high demand for those in fields like nursing, respiratory therapy and CNC programming. In many ways, the ball now rests in the students’ court, leaving companies to figure out how to differentiate themselves to stay competitive and recruit the talent they need. Part of Williams’ job at Kent State is talking to employers to advise them on how to best connect with the students they’re courting.
and a member of the Federal Aviation Administration’s Drone Advisory committee. “It will get to the point where it’s just a matter of ‘where is the navigable airspace with respect to drones? But in the meantime, you’re going to have all of these little cities passing their own laws.”
After Walmart moved its Cleveland Heights store to South Euclid in 2019, its former store at Severance Town Center stood vacant. But since June, the empty big-box store has been the base of operations for film crews at work on a feature-length movie with the working title “Wheat Germ.” While it’s not going to be a major employer any time soon, the film industry is building a significant economic presence in Northeast Ohio, purchasing goods and services and putting people to work. Bill Garvey, president of the Greater Cleveland Film Commission — the local nonprofit that works to attract the production of movies, television shows, documentaries and even commercials to the region — believes that role can grow. While big budget projects that come along maybe once a year get the headlines, there is more to the local industry. But movies like “Wheat Germ” have an impact on the regional economy. The movie, Garvey said, has a budget of more than $100 million, with much of that being spent in Northeast Ohio. By comparison, the producer of “Judas and the Black Messiah,” spent $20.9 million locally when it was filmed in its entirety in Cleveland in 2019, according to a tally by the film commission. That film hired 118 local crew members and 3,000 extras, as well purchasing goods and services from 60 local businesses and booking thousands of hotel room nights.
See DRONE on Page 33
See MOVIE on Page 32
See STUDENTS on Page 32
Legal skies overcast for drone businesses Vic Moss of the Denver-based Drone Service Providers Alliance is one UAS advocate who thinks the FAA’s rules should govern how airspace is used. | MOSS PHOTOGRAPHY
BY DAN SHINGLER
Learning to fly a drone is easy. Learning to navigate the laws that govern where they can be flown, by whom and for what purposes is the hard part. Even the experts on drones, also known as unmanned aerial systems (UAS), can’t agree on what’s legal
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and what’s not. They do largely agree on one thing, though: There needs to be some consistency before a patchwork of local laws and regulations stifle the UAS industry. “I think it’s going to end up at the federal level and probably before the Supreme Court,” predicts Vic Moss, chief operating officer of Drone Service Providers Alliance in Denver
THE
LAND SCAPE
A CRAIN’S CLEVELAND PODCAST
10/29/2021 1:57:08 PM
MANUFACTURING
Home goods retailer mDesign sees big opportunities online BY RACHEL ABBEY MCCAFFERTY
You won’t find mDesign’s products on the shelves of your local big box store. Or on the shelves of a nearby mom-and-pop shop, for that matter. MDesign’s home goods products are made for online retail. Glenwillow-based mDesign is a spin-out from InterDesign in Solon, which has been selling consumer products for more than 40 years. InterDesign sells its products to retailers, who then sell them to consumers. About six years ago, the company decided to try online retail, launching a new brand to sell its products on Amazon, said Bob Immerman, founder and chief innovation officer. Today, mDesign is bigger than the company that launched it. “Before the online platforms, the retailers were the gatekeepers. If you wanted to sell to Americans, Immerman you had to go and sell to the large chains,” Immerman said. “And the paradigm shift is that now a manufacturer can design and sell directly via an Amazon platform to the consumer. That’s been a game changer.” Retailers choose which products they want on their shelves. Where a chain may have chosen three of 20 products to sell in-store, companies today can put all 20 products online if they want and let the consumers decide, he said. MDesign officially spun out from InterDesign in June 2020. It primarily sells its products online-only, with “very rare” exceptions where the company sells something to an offprice retailer, said CEO Stacey Renfro, who joined the company in August 2020. Today, mDesign is on more platforms than just Amazon. Renfro said mDesign sells as a third-party seller, so it has control over its pricing on those different platforms. And it sells products directly from its own website, too. Renfro sees plenty of opportunities to continue to grow the company and its brand. It’s a $275 million-plus retailer, she said, that employs about 200. MDesign does its design work inhouse, but it relies solely on contract manufacturing to make its products. Around 2000, InterDesign began to move its supply chain to China, where production was faster and less expensive in a wider variety of materials, Immerman said. That opened up the product possibilities available to InterDesign beyond the plastics in which it had gotten its start. Fast forward 21 years, and the advantages to manufacturing in China aren’t as strong, particularly for a company that needs to be nimble in order to quickly adapt to consumer demands online. And that became even more true during the COVID-19 pandemic. “This year, the logistics thing has just become an absolute nightmare,” Immerman said. The cost of containers has skyrocketed, and the time it takes them to get to the U.S. has grown. And Renfro
Stacey Renfro is CEO of Glenwillow-based mDesign. The company makes home good products like pantry organizers. | MDESIGN PHOTOS
“AND THE PARADIGM SHIFT IS THAT NOW A MANUFACTURER CAN DESIGN AND SELL DIRECTLY VIA AN AMAZON PLATFORM TO THE CONSUMER. THAT’S BEEN A GAME CHANGER.” — Bob Immerman, founder and chief innovation officer of mDesign
said, even before the past year’s challenges, the cost of goods in China has been rising. Using local manufacturing allows mDesign to adapt to changing consumer demand, offering a “huge competitive advantage,” Immerman
said. Customer wants can change quickly. For example, when the pandemic began, Renfro said the demand for home office goods rose fast. The company had to react, even reframing some goods such as drawer
organizers for that use, she said. At the start of 2020, mDesign had about three primary manufacturers it used in the United States, Renfro said. Today, there are 10. Four of those are in Ohio, including Design Molded Plastics Inc.,
which began working with mDesign in the fall of 2020. The Macedonia-based contract manufacturer does plastic injection molding, said CEO Keith Zeiler. The company now makes a variety of home design products for mDesign, and Zeiler said it already has become a “core strategic customer” for Design Molded Plastics. The companies work closely to rapidly adapt to changes in orders. It can be difficult to change out molds on short notice, but that ability to adapt quickly has been an expectation from the start of the relationship with mDesign, Zeiler said. About 50% of mDesign’s plastic products are now made in the U.S., Renfro said. That grew by at least 10 percentage points in the last year, she added. For the total business, about 30% of mDesign’s products are currently made in the United States. Renfro said mDesign continues to grow its domestic supply chain, with plans to add more U.S. manufacturers even just this year. And the company is looking to onshore manufacturing in different materials in the future. Rachel Abbey McCafferty: (216) 771-5379, rmccafferty@crain.com
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Geis Cos. plans 470-acre business park in Portage County BY MICHELLE JARBOE
A busy developer of business parks aims to start moving dirt next year in Portage County, on a 470acre property set to be the largest construction-ready site in Northeast Ohio. Plans drawn up by Geis Development, an arm of the Streetsboro-based Geis Cos., show more than 7.3 million square feet of buildings rising along the Ohio Turnpike in Shalersville. The property, now farmland, sits northwest of where the toll road crosses state Route 44. Economic development officials say such a project is sorely needed in a market where major industrial users can’t find land or buildings to suit their needs. “It is probably one of your best sites left in the region, in my opinion, for that large mega-project,” said Brad Ehrhart, president of the nonprofit Portage Development Board. A Geis affiliate bought the property in July, according to public records. Those documents don’t show the price of the real estate, sold by a holding company associated with the founding family of Swagelok Co., a manufacturer based in Solon. Developer and builder Greg Geis said that his family had watched the property for decades. “I looked at this land with my father 25 years ago,” said Geis, the company’s second-generation owner. Now the moment to act seems to have arrived, with Geis’s nearby business parks in Streetsboro near capacity and strong demand from a procession of ever-larger tenants looking to move fast. “We don’t have any millionsquare-foot, new industrial buildings anywhere,” Geis said of Northeast Ohio. “Where if you go to Columbus, they’re stacked up like cordwood.” An early site plan for the project, called Turnpike Commerce Center, shows 10 buildings ranging from 250,000 to 1.2 million square feet.
Geis is betting on the appetites of e-commerce tenants, manufacturers and companies that, rattled by supply-chain disruptions, want to return distribution to the United States. Team NEO, a regional economic development nonprofit, receives at least one call a month about companies in search of sprawling sites, said Christine Nelson, the group’s vice president of project management, site strategies and talent. And there’s not much to offer. “We’re definitely seeing upticks in requests for over 500 acres or over 500,000 square feet,” she said, expressing hope that Geis will land one or two oversized deals in Shalersville. The project will require significant infrastructure upgrades, including utility extensions and improvements to Beck Road, which bisects the site. Geis would not put a price tag on that work, beyond saying it’s “a lot.” A few years ago, a massive distribution center floated for the property had a financing gap of about $6 million, Nelson said. That project ultimately landed in the Columbus area. Nelson would not identify the client, but a real estate broker said the company was discount retailer Dollar Tree Inc. “We went down the road pretty far in 2017 with an end user and just couldn’t get the infrastructure piece figured out and financed in a way that made their deal work. … We’re just turning over every rock right now to figure out how we can get that done with Geis,” Nelson said. Team NEO is exploring avenues to tap federal funds, either through economic-stimulus money flowing to local governments or the bipartisan infrastructure bill. JobsOhio, the state’s private, nonprofit economic-development corporation, offers loans and grants for site preparations and speculative building construction — projects without a tenant in hand. Tax-increment financing, which pledges new property taxes from a project to repaying development
costs, also could be a way to finance public infrastructure, Ehrhart said. “We’ve got a developer,” he said. “That’s probably one of the things that the site has really lacked, is having someone that can focus on it.” Real estate records show that Swagelok owned the Shalersville land for decades before transferring it to the holding company. The Ohio Turnpike Commission opened the interchange in late 1994, priming the area for eventual development and giving motorists a new path to the now-defunct SeaWorld Cleveland theme park and Geauga Lake amusement park. The former Swagelok property officially hit the market in 2007 and, early on, carried an asking price of $12 million, according to real estate data provider CoStar Group. “We had a few false starts over the last few years and almost had a couple of potential kickstart projects, but between various reasons, they just didn’t happen,” said Chris Hondlik, a senior vice president with Hanna Commercial Real Estate, which had the listing. Fourteen years later, Geis’s Frost Road Commerce Center and Interstate Commerce Center in Streetsboro are largely built out. Along state Route 43, to the east, the developer recently completed a 434,000-square-foot spec building called Gateway Commerce Center — and is in talks with more than half a dozen prospective occupants. Moving outward along the turnpike is a logical progression, said Geis, who chuckled at a question about how long it will take the new business park to materialize. “It’s either going to be sold out in 36 months, or he’ll be developing it with his kids,” he said, gesturing to his son Conrad, a director and managing partner at Geis Cos. “But there are a few indicators that are making me believe that it’s going to be sooner rather than later.” Michelle Jarboe: michelle.jarboe@crain.com, (216) 771-5437, @mjarboe
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HEALTH CARE
Apex Dermatology opens 11th location, continues growth at 10-year mark BY LYDIA COUTRÉ
As it celebrates 10 years in business, Apex Dermatology & Skin Surgery Center continues to expand with a new Cuyahoga Falls location opened in October and a research center launched last year. The new office in Cuyahoga Falls is the group’s 11th overall in Northeast Ohio and its fourth added since the pandemic began. Apex opted to continue forward with projects already underway, ultimately opening offices last year in Canton, Mentor and Ashtabula. “Obviously, that put a big a financial stress on the practice, but we decided to continue with those projects because we felt strongly that the whole point of Apex is really access and community involvement,” said Dr. Jorge Garcia-Zuazaga, Apex founder and president. Apex Dermatology & Skin Surgery Center’s new Cuyahoga Falls office. | CONTRIBUTED When an opportunity arose this year for a good location in ways to retain employees who are er practices. But the pandemic Cuyahoga Falls, where Apex had al- overworked and suffering with low changed the circumstances for ways wanted to expand, the team morale. many of them, he said. She’s seen the staffing shortage decided to make another investAfter a “strange” 18 or so months, cause a “very significant, dramatic there’s a sense of exhaustion among ment. Though it was able to continue impact” for her health care clients many health care practices, Hickits geographic growth in the past and other organizations she’s inyear and a half, Apex’s finances still volved with. “I would say within the past took a substantial hit with a 25%30% decrease in 2020, which fol- month, the number of discussions lowed years of 25%-30% annual I’ve had and the number of board revenue growth, Garcia-Zuazaga meetings that I’m part of where we’ve been addressing the topic said. Just like many health care prac- has really dramatically increased,” tices, Apex — which specializes in Hickner said. Garcia-Zuazaga said that staff remedical, aesthetic and surgical dercruitment is getting a bit matology — had to postbetter month by month. pone nonessential surgerThe new Cuyahoga Falls ies and procedures last location has a dedicated year. That, combined with provider, but isn’t fully patient hesitancy, reduced staffed, which Garvolumes from 500 patients cia-Zuazaga said allows a day to about 80, includthe office to get estabing telehealth visits, he lished in the community, said. bring in patients and “You just don’t have hopefully attract staff by that in the business plan,” Garcia-Zuazaga the time it has steady, full Garcia-Zuazaga said. By the third quarter of this year, volumes. While new office openings convolumes were back between the 400 and 500 range. And by the end tinued in the past 18 months, other of September, finances were up plans were put on a temporary 50%, he said. Still, even with the im- hold, including a proposal for a new headquarters in Mayfield provements, he remains cautious. “I think we’re still very guarded, Heights. Garcia-Zuazaga said that because anything can happen with will be back on the agenda for the the pandemic,” he said. “If there’s city’s planning commission in Noanother spike, you’re always in that vember. If approved, he hopes to guarded position. Will you have to start building the 18,000-squarego back to telemedicine or back to foot, single-story facility next sumrationing the schedule? Things like mer to begin seeing patients in summer 2023. that, which is really tricky.” The pandemic allowed GarOne of the biggest ongoing challenges Apex faces is staffing, said cia-Zuazaga to move forward on Garcia-Zuazaga, adding that most another vision he’s had for Apex. of the group’s offices are under- For years, he has wanted to offer clinical trials for patients but didn’t staffed. This is a pain point for many have the time to establish a prohealth care employers right now. gram. When COVID-19 slowed paKathryn Hickner, a health care at- tients to a trickle, he had time to detorney with Brennan Manna Dia- velop and launch last year the Apex mond, said she’s increasingly hear- Clinical Research Center. “Now we’re able to do clinical triing about staffing concerns from clients. Some of the for-profit prac- als and provide really cutting-edge tices she works with, including medications or therapies to our pathose in Northeast Ohio, were wor- tients,” he said, adding that the cenried that a vaccine mandate would ter is now running five or six cliniimpact staffing, but that alone cal trials that patients are enrolling in. doesn’t explain the issue. If approved, the new flagship fa“Now it seems to be something else,” she said. “There just aren’t cility in Mayfield Heights would house Apex’s research, lab, a spa, enough people.” Clients have called her to ask medical office and its corporate about things like the legality around headquarters. The proposed builddenying vacation requests because ing is smaller than his initial vision, staffing is critically low or about which would have also housed oth-
ner said. Apex is “not the typical for-profit practice” in Northeast Ohio or anywhere, she said of its continued growth in this time. “At the end, it made sense just to kind of scale down the project and
just have something for Apex that we could kind of grow into,” Garcia-Zuazaga said. Lydia Coutré: lcoutre@crain.com, (216) 771-5479, @LydiaCoutre
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FINANCE
Elizabeth Park Capital Management launches banktech consortium with Strandview Capital BY JEREMY NOBILE
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Smaller regional and community banks are fighting to compete with the fintech capabilities of their larger counterparts and nonbank competitors, and Elizabeth Park Capital Management thinks it knows a way to help them level the playing field. The Pepper Pike-based money manager — known for its bank-centered hedge fund that’s doing very well in what’s been a profitable year for the banking industry — is launching its first private investment vehicle in partnership with Strandview Capital, a California venture capital outfit focused on the fintech sector. The vision for this new banktech strategy is to pool $100 million in capital from a consortium of community-oriented banks across America that will be invested in emerging fintech companies specializing in serving the community bank industry over the next few years. The combination of Elizabeth Park’s familiarity with the banking ecosystem and Strandview’s expertise in the fintech space will power this effort and possibly help differentiate it from other banktech funds in the marketplace. “We are bank analysts,” said Elizabeth Park founder and president Fred Cummings. “We knew that if we were going to do something like this that we need to talk with someone who knows these private fintech companies. And that is where Strandview is.” Elizabeth Park and Strandview will collect and split management fees for their work. But there’s a greater purpose beyond that. The strategy will give both firms greater insight into the wants and needs of banks on the technology front as well as overall trends in the banktech space. “That should make us even better analysts,” Cummings said. As for their commercial bank limited partners (LPs), they stand to gain access to new vendors supplying the fintech applications and solutions they desire. They’ll also get exposed to opportunities for equity participation in those very same startups. “This is much different from most traditional VC in that this will be highly strategic,” said Mike Sekits, Strandview co-founder and managing director. “It’s all about empowering the community banks. We think there will be excellent opportunity to leverage our bank partners and drive revenues at the portfolio companies.
Fred Cummings, Elizabeth Park founder and president
Mike Sekits, Strandview co-founder and managing director
Kevin Covert, co-founder at Strandview
er of a cloud-based loan origination software for commercial real estate lending that helps streamline what remains a rather cumbersome process for banks. Any software that improves internal workflow processes or offers new
“IT’S ALL ABOUT EMPOWERING THE COMMUNITY BANKS. WE THINK THERE WILL BE EXCELLENT OPPORTUNITY TO LEVERAGE OUR BANK PARTNERS AND DRIVE REVENUES AT THE PORTFOLIO COMPANIES. AND WE EXPECT THAT MANY OF OUR (LIMITED PARTNERS) WILL BECOME CUSTOMERS IN THE COMPANIES WE INVEST IN.” — Mike Sekits, Strandview cofounder and managing director
And we expect that many of our LPs will become customers in the companies we invest in.” The sort of companies Elizabeth Park and Strandview will target might include, for instance, a provid-
tools for commercial and retail clients could be of potential interest, depending on the common themes of what bank investors are most captivated with. Another example, said Kevin Co-
vert, Sekits’ fellow co-founder at Strandview, might be call-center software that helps intuitively guide customer service reps through client interactions with the help of machine learning and artificial intelligence. “The world is going to digital and that trend has only accelerated with COVID,” Covert said. “Now, all these traditional, local-business banks are looking to keep up.” Elizabeth Park and Strandview intend to bring on about 50 banks as investors for their banktech strategy, which will function with a capital-call structure. The banks they’re seeking out will be between $1 billion and $70 billion in total assets. Those firms will invest approximately $2 million on average. The goal is to raise roughly 35% of the $100 million in commitments sought by year end and the rest by the conclusion of the first quarter of 2022. From there, capital will be deployed over the next four years through minority equity investments in potentially eight to 12 companies. The banktech strategy will acquire stakes of approximately 20%, Cummings said. The targets will likely be mid-stage startups, which tend to have software developed but need growth capital and clients, the latter of which will be baked in with the participating banks. When investments are made, bank LPs will be given an option to co-invest directly as well, providing opportunities for those firms to directly participate in any upside or future liquidity events. Elizabeth Park and Strandview want to move fast because of the competition in this space with venture capital, private equity and established banktech funds. That includes groups like BankTech Ventures, which is backed by The Venture Center and the Independent Community Bankers of America trade group and targeting a $150 million to $200 million fund, and JAM FINTOP, which is working out of its own $150 million fund. “There is a lot of opportunity right now,” Cummings said. “And the reason we have to move quickly is there is a lot of competition.” To industry observers, the strategy sounds promising. “Fred Cummings and his colleagues at Elizabeth Park have tremendous knowledge of the banking industry as well as bank contacts around the country,” said Charlie Crowley, a Cleveland managing director with Boenning & Scattergood Inc. “By teaming up with a fintech-focused firm like Strandview, they hope to bring some helpful fintech ideas to their bank partners. If all goes well, there will be some good ideas generated that will help the banks and their customers. A lot of fintech firms — including local companies like Splash Financial and Alviere — are hoping to team up with banks in some capacity, but the bank and the fintech executives generally don’t know each other and need to gain a greater understanding of each other. Building a network in this manner may make sense.” Jeremy Nobile: jnobile@crain.com, (216) 771-5362, @JeremyNobile
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GOVERNMENT
Lawmakers look to fintech, blockchain legislation to modernize BY KIM PALMER
State Sen. Steve Wilson, who chairs the Ohio Senate’s Financial Institutions and Technology Committee, wants to get the state government out of the way of innovation, and he thinks two bills in hearings this month at the state legislature could help make that happen. The Republican from Maineville is the primary sponsor of one of the bills, Senate Bill 249, which if passed would create what is known as a “regulatory sandbox” for financial products and services. Wilson, who worked in the banking industry, said he wants to find ways to encourage both the private and government sectors in Ohio to more fully embrace emerging technology. “The whole idea is that (this bill) gives the ability for our regulators to allow banks or any other financial services firms to develop new and innovative products,” he said. Part of the motivation, Wilson said, is to take advantage of possibilities of “fintech,” a term that combines finance and technology and refers to any business that uses technology to modernize or automate financial services and processes. A fintech sandbox, he said, functions like an incubator, allowing both traditional banks and nontraditional financial firms to build and evaluate new financial products outside of state regulatory requirements that apply to traditional products. Wilson believes that less regulatory oversight will expedite these new products by allowing them to be tested quickly. It is “hard to be innovative or to come up with new products” in highly regulated industries, he said in committee testimony on Oct. 19. The Ohio Department of Commerce’s Division of Financial Institutions would oversee the sandbox program, which would permit a twoyear pilot to test a novel product or service, during which time that fintech operation would be exempt from state laws, other than those outlined in the legislation. That two-year time period can be shortened by commerce department officials overseeing the program, and consumers cannot be charged interest and fees that are higher than “otherwise permitted under Ohio law for a substantially similar loan product,” according to the bill’s language. Wilson also has championed bills permitting the use of electronic signatures and notarization, a move he hopes creates a more modern and efficient way to conduct business in Ohio. “The real motivation for me is for this technology to be developed so that the public sector can begin to be more efficient,” Wilson said. As of March, nine states, not including Ohio, have passed or proposed similar sandbox laws, according to a report by the American Bankers Association. The sandbox bill, introduced in early October, had its first committee hearing on Oct. 19. Wilson and his committee also heard testimony on a House bill that would “allow a governmental entity to utilize distributed ledger technology, including blockchain technology,” according to the bill’s language.
Sen. Steve Wilson (R-Maineville) is the primary sponsor of Ohio Senate Bill 249. | CONTRIBUTED
House Bill 177, introduced in early March, passed that chamber in May and had a first Senate committee hearing in early October. The bipartisan bill follows a move in 2018 that enabled the use of blockchain-secured contracts by the private sector. With the passage of the bill, Ohio would join 21 other states that have passed blockchain legislation or have it in the works, according to Brian Ray, a Cleveland State University Cleveland-Marshall College of Law professor who deals with researching blockchain-related legal and regulatory issues. Blockchain, or, more generally, distributed ledger technology, “enables shared transactions” using code that allows for decentralized verification that doesn’t require third-party verification, Ray said. “You are basically distributing the recording of information across multiple servers,” Ray said. “The technology creates a system that can allow multiple people to both record and access the information, and trust it, without the need for a central authority to verify.” Ray, who from 2017 to 2020 was co-lead on the Cleveland-based Blockland initiative’s legislation subgroup, said blockchain applications also have the potential to streamline processes, reduce redundancies, increase security and ensure data integrity for a number of public and private industries. “The application can be used to create a more efficient and reliable verification of critical government records, including things like land titles, vehicle registries, business licenses, birth and death certificates, and proof of insurance,” Ray said. Blockchain often is associated with the more controversial cryptocurrencies, which are not permitted as payment by the state. Ray said there remains a good deal of confusion about blockchain and its applications, and HB 177 could go a long way toward offering greater clarity and paving the way for more innovation. “It gets that conversation going,” said Ray, who testified as a proponent of the bill in the House. “It gives some cover to the entrepreneurial people within state leadership, and in the various agencies, who are already looking into the application
by private companies that are already using the technology.” The passage of the bill would be a significant next step to modernizing
public services and in creating public-private collaborations using technology, he added. “It would be really nice if Ohio
Brandon Miller, CPA, CGMA President & CEO, HW&Co.
created a commission and took on a more sustained look at where the opportunities are, both in the private and public sector” for blockchain technology, Ray said. One supporter of the bill is MetroHealth president and CEO Akram Boutros, who submitted testimony in the Senate arguing that blockchain and distributed ledger technology have “great potential across health care to improve patient care and reduce costs.” Boutros’ statement indicated that blockchain and distributed ledger technology can be used to better secure private patient health data; reduce costs for consumers, hospitals and the state by digitizing birth and death certificates; and make physician credentialing more efficient. “It will provide nearly costless verification and distribution,” Boutros said in his statement. “Today, this process involves a costly settlement and reconciliation process of paper, manual data entry and validation.” Kim Palmer: kpalmer@crain.com, (216) 771-5384, @kimfouroffive
Dave Shealy, CPA, CGMA Managing Principal, HW&Co., Mansfield
has joined “The Shealy Group provides HW&Co. the opportunity to expand our presence throughout Ohio, not only with their exper�se in Agribusiness, but they also add to our extensive list of Manufacturing and Distribu�on, and Healthcare clientele. Dave Shealy and his staff have excep�onal talent and we look forward to integra�ng them into our team.”
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NOVEMBER 1, 2021 | CRAIN’S CLEVELAND BUSINESS | 7
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PERSONAL VIEW
Helping middle market companies ‘clean out the closet’
RICH WILLIAMS FOR CRAIN’S CLEVELAND BUSINESS
BY MELVIN SMITH
EDITORIAL
Downtown is up A
mong the many anxieties brought on by the pandemic is this: What happens to cities? And specifically, what happens to downtowns of large cities, which rely on office workers to fill buildings, eat, shop and provide the daytime energy that keeps them vibrant? With respect to downtown Cleveland, we got a snapshot last week when Downtown Cleveland Alliance released its inaugural Recovery Report, which it described as a “data-driven look at downtown Cleveland’s resurgence.” It’s DCA’s job, of course, to promote downtown, so it’s fair to apply some skepticism to the report’s upbeat tone. Still, there are numbers that are worthy of attention as we think about where downtown stands 19 months into the pandemic. Consider these: ` Foot traffic in downtown Cleveland, measured by a Placer. ai location analysis of the number of residents, workers and visitors between 7 a.m. and 7 p.m., seven days per week, rose nearly 100% in September from the like month of 2020. Given the huge shift to work-from-home that began in March 2020, though, downtown still has not returned to pre-pandemic levels of foot traffic. ` Ridership on Greater Cleveland Regional Transit Authority buses and trains is up, with 1.4 million rides reported in August, a 17% increase from August 2020. ` DCA found that 26 downtown businesses have closed permanently during the pandemic as a result of declining foot traffic, but 35 new shops and restaurants have opened in that time, for a small net gain. ` A DCA survey conducted over the summer of downtown employers found that “90% of the respondents have returned to the office in some fashion.” However, those returns “are dominated by hybrid work from home and in-person work models,” so most firms do not yet have people back in the office five days per week — and some likely never will. The report on balance paints a picture of a downtown that’s improving at a good clip but still has a lot of ground to make up, with a good portion of its direction, at least in the short term, determined by the return to work. The increased takeup of COVID vaccination is helping. DCA reported that as of Oct. 8, 65.9% of Cuyahoga County’s
eligible population was fully vaccinated, about 6 percentage points higher than the statewide average. That’s important because, as the survey of downtown employers found, 83% of respondents “are considering vaccination status in implementing their return to work policy.” Cleveland and other downtowns nationwide are counting on a widespread return to work to speed the return to normal. Is that realistic? Still hard to say. Many office-based businesses prefer to have people in a physical space to improve, from their perspective, collaboration, communication and culture. But that’s not a universally held belief, and many employees, after so long working partly or entirely from home without a loss of productivity, are not eager to be back at a downtown office five days a week. Urban studies theorist Richard Florida, in an analysis for Bloomberg CityLab, pointed to research from the University of Chicago that found remote work done from home “will likely account for roughly a fifth (21.3%) of all work-days, compared with just 5% pre-pandemic.” That, in turn, will reduce demand for office space — but open up opportunities for a new wave of redevelopment that builds on downtown’s momentum in becoming more of a residential and cultural destination. Uncertainty about office work aside, downtowns have a lot of assets. They’re meeting grounds for everybody. They’re walkable and connected to transit. They offer more restaurants, entertainment and arts and culture activities than most parts of town. This is the week Cleveland will elect a new mayor, and that person will be responsible for helping guide a resurgence of downtown. There are no guarantees that things return to normal, and we have to be extra vigilant to make sure downtown continues on an upward trajectory, because a vibrant downtown is one essential element of creating an appealing city. It’s also a good time for people who have been gone a while to check out downtown. Big events, including the weekend’s Rock Hall induction ceremony, have been happening, the Cavaliers are back at Rocket Mortgage FieldHouse (and they look promising), and Playhouse Square is in full swing again. We’re entering a new normal, but those old standbys remain important.
Executive Editor: Elizabeth McIntyre (emcintyre@crain.com) Managing Editor: Scott Suttell (ssuttell@crain.com) Contact Crain’s: 216-522-1383 Read Crain’s online: crainscleveland.com
If you’re anything like me, you don’t realize that your closet needs a good cleaning until one day when you pull the door open and a random hockey stick smacks you in the face and you think: Why is this even here? We don’t play hockey … Closets are marvelous repositories of everything we hold valuable and dear. Of course, circumstances change over Smith is a time and our needs and priorities professor of change with them. organizational Leaders of middle market businesses behavior at Case often find themselves in a similar situa- Western Reserve tion, faced with a realization that it’s University’s time to clean out the proverbial closet. Weatherhead The strategies that worked well in the be- School of ginning when the company was small Management and lean no longer seem to be effective. and faculty The leadership style that resonated with director of a handful of employees no longer works Weatherhead with the addition of a whole new layer of Executive Education middle managers. It can be difficult for leaders of successful middle market businesses to know what to keep from the company’s founding days and what to let go to enable the business to grow to its full potential. I suggest approaching it like the popular closet cleaning method of dividing items into three piles: one pile of things to keep, one to discard, and a third for things we’re unsure about.
Keep: Values
Your company’s values are the beliefs that define who you are as an organization. They tell your employees how to treat your customers, how to interact with their co-workers, and how to conduct business with vendors. Values are like the most precious family photos in the closet. They remind you of who you are as a company and how you came to be in the world. For example, The J.M. Smucker Co. is now a multi-billion-dollar global corporation, but it didn’t start out that way. It was founded as a family business and preserves that culture through deliberate communication of its values, or as they call them, “basic beliefs.” Smucker was intentional in providing employees a common language to communicate what is important to the organization. They did this by partnering with Weatherhead Executive Education to design a custom-tailored leadership development program. The result is a new generation of employees that has internalized Smucker’s original values — a guiding light that has endured despite growth and acquisitions.
Discard: Wearing many hats
When a company is new and staffed by just a handful of people, its leader is likely to wear many hats. It’s a simple math equation: There’s a lot to get done and few people to do the work, so out of necessity, tasks will be divided among the small fledgling staff. Everyone is expected to pitch in, even the president or CEO. As the business grows, its leader may have become accustomed to being involved in all aspects of the organization, or even attribute the success of the business to a hands-on leadership style.
Write us: Crain’s welcomes responses from readers. Letters should be as brief as possible and may be edited. Send letters to Crain’s Cleveland Business, 700 West St. Clair Ave., Suite 310, Cleveland, OH 44113, or by emailing ClevEdit@crain.com. Please include your complete name and city from which you are writing, and a telephone number for fact-checking purposes.
See MIDDLE, on Page 9
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8 | CRAIN’S CLEVELAND BUSINESS | NOVEMBER 1, 2021
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Working at home is hiding a heavy social and mental toll BY ROB ROE
Employees miss face-to-face interactions, leading to a drop in emotional engagement
Roe is managing director of JLL’s Cleveland office.
feel they maintain strong working and personal relationships with colleagues, leaving the majority to experience challenges in communication and collaboration. Over the long-term, this will have the greatest impact on an employee’s sense of belonging within an organization, which may lead to high turnover, burnout and negative effects on productivity levels.
Flexibility will remain a ‘must-have’
It’s clear flexible work arrangements are here to stay. Work-life balance is of utmost importance to the workforce, even ahead of salary. And though employees value remote setups, more than half want the option to alternate between different places of work, including an office. Three days in the office per week is the new employee preference, with two days working remotely. In fact, just 37% of the workforce feel more productive at home than in the office today—a significant drop from 48%in April 2020. Working and living priorities have also changed considering the pandemic. Factors such as high broadband speed, natural light, outdoor space and optimum air quality were all ranked of higher importance compared to pre-pandemic times. This creates a unique opportunity for leadership
A social life and proper work environment continue to be missed when working remotely. In our survey, 61% of respondents ranked human interactions as the most missed element of the office routine, followed WORK-LIFE BALANCE IS OF UTMOST IMPORTANCE TO closely by collective face-to-face THE WORKFORCE, EVEN AHEAD OF SALARY. AND work (46%) and clear personal and THOUGH EMPLOYEES VALUE REMOTE SETUPS, MORE professional boundaries (46%). With nearly one in two employees THAN HALF WANT THE OPTION TO ALTERNATE BETWEEN struggling to achieve boundaries and manage their mental load, DIFFERENT PLACES OF WORK, INCLUDING AN OFFICE. many are experiencing social isolation, fewer meaningful interactions, and difficulty setting boundaries. As a result, emotional and office managers to consider the kind of experience their workplaces create. Think: health and engagement at work is at a serious risk. well-being amenities and areas that facilitate effective teaming. There is an urgency to Following months of research, it’s our belief that reconnect the workforce with the office will remain an invaluable hub for work, on a shared vision and purpose the condition that it meets the new priorities of today’s workforce. An increased focus on health and While remote work has allowed for greater flexibility, well-being, flexible work arrangements and creating long periods of it have led to feelings of disconnection a purposeful office will all be key in re-engaging employees that are overwhelmed and disconnected among the workplace community. Survey results showed that only 36% of employees from their organization’s vision and culture.
MIDDLE
From Page 8
But at some point, it becomes unattainable for a leader to be involved in the day-to-day operations of the business. This becomes like the hockey stick in the closet — no longer an asset, but instead an impediment getting in the way. Senior leaders need to be able to let go of some of the day-to-day operations and empower others, hiring and promoting bright people they can trust. They need to see their role as shifting from doing and directing to more leading and inspiring that next layer of leaders, and that’s not always an easy shift.
Unsure: Culture
When a business is starting out, culture is something that often emerges organically. It develops out of the
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PERSONAL VIEW
In the almost two years that have passed since the first major lockdowns were implemented across the world, the pandemic has created a seismic shift in working and living patterns. The workforce adapted to remote work, revealing a strong appetite for greater flexibility, new hybrid ways of working, and desire for work-life balance. Despite these new hybrid opportunities, remote working is also exposing new social risks. In a study of more than 3,300 office workers around the globe, our research points to higher expectations among office workers when it comes to supporting their well-being. The research shows that employees are consistently experiencing an increased amount of virtual fatigue and burnout, disconnection from their colleagues, and loss of a sense of purpose in their organization. As the “Great Resignation” continues in droves, it’s more important now than ever that employers re-engage their teams and leverage the workplace as an experiential tool instead of a place where work happens.
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OPINION
React less. Plan more. Let your goals be your guide Ruggiero Wealth Management UBS Financial Services Inc. 600 Superior Avenue East 27th Floor Cleveland, OH 44114 216-736-8317
Modesto “Moe” Ruggiero Managing Director– Wealth Management Senior Portfolio Manager Wealth Advisor modesto.ruggiero@ubs.com
ubs.com/team/ruggiero
As a firm providing wealth management services to clients, UBS Financial Services Inc. offers investment advisory services in its capacity as an SEC-registered investment adviser and brokerage services in its capacity as an SEC-registered broker-dealer. Investment advisory services and brokerage services are separate and distinct, differ in material ways and are governed by different laws and separate arrangements. It is important that clients understand the ways in which we conduct business, that they carefully read the agreements and disclosures that we provide to them about the products or services we offer. For more information, please review the PDF document at ubs.com/relationshipsummary. © UBS 2020. All rights reserved. UBS Financial Services Inc. is a subsidiary of UBS AG. Member FINRA/SIPC. CJ-UBS-2031105874 Exp.: 10/31/2021
values of the founders and the circumstances of the operations, and it is often what first attracts new employees to join the business. But when a company grows beyond a certain size, there is an inevitable culture shift. One of the challenges for leaders is figuring out how to maintain what has made the organization what it is, while simultaneously creating and putting in place systems and structures to allow the organization to grow and achieve a different level in the marketplace. The key is to strategically examine the elements that comprise the culture of the business to determine which parts to keep and which to discard. Going back to the closet metaphor, think about how there are some pieces of clothing that are timeless, transcending fashion trends. Leaders of middle market companies need to determine what these timeless gems are for their organizations. For J.M. Smucker, it was keeping the small family feeling, even as their business grew. NOVEMBER 1, 2021 | CRAIN’S CLEVELAND BUSINESS | 9
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PUBLIC BANKING IN CLEVELAND? An activist is spurring stakeholders to push for an exploratory committee against opposition from the commercial banking industry.
FINANCE
PAGE 14
FEELING THE HEAT
Banks and credit unions see effects of a hot labor market BY JEREMY NOBILE
When it comes to hiring and retaining people amid the lingering outbreak of COVID-19, PSE Credit Union CEO Joseph Anderson said this past year-and-a-half feels like he’s been living in “The Twilight Zone.” “It felt like June 1 is when the challenges really started to hit us,” Anderson said. “Since then, it’s been the wild, wild West out there.” Anderson said PSE, which has about $203 million in assets, has seen uncommonly high turnover with tellers and “front-end-platform people” in the neighborhood of 30% to 40% just this year. The credit union is currently looking to fill a number of positions because of this.
“MY HR MANAGER WILL SCREEN THESE PEOPLE, PUT IN ALL THIS WORK, BUT IT JUST FEELS LIKE WE’RE ON A HAMSTER WHEEL.” — Joseph Anderson, PSE Credit Union CEO
people seeking careers in banking in the wake of the financial crisis. Then there are veteran bankers increasingly joining fintech companies. This effectively reduces the pool of people banks draw workers from. Consultants say that making banking seem cool again is something the industry must work on in order for it to bolster its ranks of workers for the future. Challenges with filling jobs today have become a common matter of concern among members of the Ohio Bankers League and
See LABOR on Page 14 GETTY IMAGES/ISTOCK PHOTO
It’s certainly not just PSE facing challenges on the hiring front, which go much deeper than merely tellers and customer service reps in the world of financial services. From restaurants and hotels to trucking, farming and even some professional services, employers in a variety of industries are grappling with a dearth of employees, and pickier ones at that. The reasons for this are nuanced in the banking sector and others. Regardless, add financial services to that list of industries facing what Robert Palmer, president and CEO of the Community Bankers Association of Ohio, prefers to frame as a labor “crunch” in his industry as opposed to a shortage. He said there’s been a “talent shortage” for years in the banking field. The pandemic has just exposed those cracks more than before. Some of this is driven by fewer
CBAO. The industry isn’t hurting as bad as restaurants, of course, some of which have blamed a lack of staff for closing their doors or cutting business hours. The situation isn’t a “dire” one in that sense, said OBL spokesman Evan Kleymeyer. However, in banking, many jobs are going unfilled, even as firms adapt to demands percolating with today’s labor force. Whatever the case, it’s creating a racket for many institutions. “My HR manager will screen these people, put in all this work, but it just feels like we’re on a hamster wheel,” Anderson said. “It’s never-ending.” Those challenges will likely spur more consolidation in the credit union space, where PSE has been active — Orange School Employees Credit Union of Cleveland merged with it earlier this year. PSE has at least seven open teller positions. Anderson would like to open additional branches in its two-county footprint, but that’s been put on hold. There just aren't enough tellers for the offices it has now. PSE has lifted entry-level wages by about 25% to 30% to come into the middle of a $12 to $16 hourly range offered to many tellers today in the credit union space. But PSE has also had to adjust pay scales across its operations in line with these rising wages on the lower end. In other words, it’s getting more expensive and more cumbersome to place less-experienced and less-sticky workers.
10 | CRAIN’S CLEVELAND BUSINESS | NOVEMBER 1, 2021
CELEBRATING #GIVINGTUESDAY 2021 WITH C L E V E L AND FO U NDAT I O N O RG ANI ZAT I ON AL F UN D PART N ERS
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ARTS & CULTURE Apollo’s Fire: The Cleveland Baroque Orchestra Art House, Inc. Artists Archives of the Western Reserve BAYarts Cleveland Arts Prize Cleveland International Film Festival Cleveland Philharmonic Orchestra Cleveland Play House Cleveland Pops Orchestra Cleveland Public Theatre Collective Arts Network (CAN) Credo Music DANCECleveland Dobama Theatre Fine Arts Association Great Lakes Science Center Heights Arts ideastream MEFGOX - Mid-Eastern Federation of Greek Orthodox Church Musicians Museum of Contemporary Art Cleveland (moCa) Near West Theatre Polish-American Cultural Center Rabbit Run Community Arts Association Singing Angels SPACES The City Club of Cleveland The Music Settlement The Musical Theater Project The Singers’ Club of Cleveland Union Club Foundation Zygote Press
EDUCATION Alpha Omega Foundation America SCORES Cleveland American Orff-Schulwerk Association Andrews Osborne Academy Assad Abood Foundation Bay Village Educational Foundation Bay Village Public Schools Alumni Foundation Black Professionals Association Charitable Foundation Breakthrough Schools - Initiatives in Urban Education Foundation Business Volunteers Unlimited Cadiz Alumni Association Scholarship Fund, Inc. Candid Center for Arts-Inspired Learning Cleveland Hungarian Development Panel Cleveland Kids’ Book Bank Cleveland Leadership Center Cleveland Metropolitan Bar Foundation College Club of Cleveland Foundation Delta Sigma Theta Sorority, Inc. Early Childhood Enrichment Center, Inc. Esperanza Inc. Euclid Public Library Foundation Euclid Schools Foundation Family Connections of Northeast Ohio Friendly Inn Settlement, Inc. Friends of Breakthrough Schools Friends of Cleveland Heights-University Heights Library Friends of the Mentor Public Library Fund for the Future of Heights Libraries
The Cleveland Foundation is proud to partner with the organizations listed here that are working hard to make a difference in a variety of sectors and have established funds to support their long-term mission and present numerous giving opportunities for caring donors. This holiday season, consider organizational funds for your meaningful year-end and November 30 #GivingTuesday donations. Visit www.ClevelandFoundation.org/OrgFund to learn more and make a gift.
Harvey Alumni Association Hawken School Heights School Foundation IPM (International Partners in Mission) Kiwanis Foundation of Cleveland, Inc. Lake/Geauga Educational Assistance Foundation (LEAF) Leadership Geauga County Metro Catholic School National Black MBA Association, Cleveland Chapter Nature Center at Shaker Lakes Northern Ohio International Dyslexia Association Polonia Foundation of Ohio, Inc. Reaching Heights, Cleveland Heights-University Heights Public Schools Foundation Say Yes Cleveland Scholarship, Inc. Shaker Heights Public Library South Suburban Montessori Association Spirit of Geneva Scholarship Fund The Adhesion Society The Andy Nowacki Foundation, Inc. The Educational Gift Fund of the Woman’s Club of Chagrin Valley The Literacy Cooperative The Union of Poles Boosters and Sports Committee Inc. United Macedonian Diaspora Wildcat Community Foundation Zeta Omega Scholarship Fund Inc.
HEALTH & HUMAN SERVICES Adoption Network Cleveland American Society of Andrology Association of Indian Physicians of Northern Ohio Blossom Hill Foundation Centers for Dialysis Care Circle Health Services Cleveland Eye Bank Foundation Cleveland Rape Crisis Center Community Resource Services Cornerstone of Hope Creative Living for Life, Inc. Crossroads DDC Clinic Deepwood Foundation Down Syndrome Association of Northeast Ohio East End Neighborhood House Euclid Hunger Center Family Planning Association of Northeast Ohio, Inc. Front Steps Housing and Services Goodwill Industries of Greater Cleveland & East Central Ohio, Inc. Greater Cleveland Food Bank Hanna Perkins Center for Child Development Hattie Larlham Foundation Healthnetwork Foundation HELP Foundation, Inc. Hopewell Hunger Network of Greater Cleveland Journey Center for Safety and Healing Lake County Council On Aging Lake-Geauga Habitat for Humanity Lake Humane Society Lake-Geauga Recovery Centers
Lesbian, Gay, Bisexual, and Transgender Community Center of Greater Cleveland Lifebanc Lifeline, Inc. Linking Employment, Abilities and Potential (LEAP) Long Term Care Ombudsman Lutheran Metropolitan Ministry Magnolia Clubhouse Make-A-Wish Foundation of Ohio, Kentucky and Indiana MedWish International Medworks Merrick House Milestones Autism Resources NAMI Greater Cleveland New Avenues to Independence New Directions North Coast Community Homes Northeast Ohio Neighborhood Health Services One Health Organization Paralyzed Veterans of America, Buckeye Chapter Pathway Caring for Children PeopleBeatingCancer Phillis Wheatley Association of Cleveland Planned Parenthood of Greater Ohio Prayers from Maria Foundation Ravenwood Mental Health Center Recovery Resources Red Tulip Project of Geauga Ronald McDonald House Charities of Northeast Ohio, Inc. Scarborough House, Inc. Shoes and Clothes for Kids Stella Maris Stewart’s Caring Place The Carter Nedley Foundation The Center for Community Solutions The Lakewood Foundation The Ohio Affiliate of Prevent Blindness The Salvation Army - Greater Cleveland Area Services Transplant House of Cleveland Ursuline Piazza Volunteers of America Greater Ohio Womankind Inc. WomenSafe, Inc. Zonta Club of Cleveland
HISTORY & PRESERVATION Bedford Historical Society Canalway Partners Cleveland Grays Armory Museum Dunham Tavern Museum East Cleveland Township Cemetery Foundation Geauga County Historical Society Intermuseum Conservation Association Lake County Historical Society Muktabodha Indological Research Institute Siegel & Shuster Society The Cuyahoga Valley Scenic Railroad The Lakewood Historical Society Western Reserve Historical Society
NEIGHBORHOODS, COMMUNITY & ECONOMIC DEVELOPMENT Bay Village Foundation Bellaire-Puritas Development Corporation
Burton-Middlefield Rotary Club Cleveland Metroparks Cuyahoga Metropolitan Housing Authority Detroit Shoreway Community Development Organization Downtown Cleveland Alliance Fairfax Renaissance Development Corporation Famicos Foundation Foundation for Geauga Parks Greater Cleveland Sports Commission Historic Gateway Neighborhood Historic Warehouse District Development Corporation of Cleveland JumpStart Inc. LakewoodAlive League of Women Voters of Greater Cleveland MidTown Cleveland Painesville Community Improvement Corporation Project Hope for the Homeless Tremont West Development Corporation Union Miles Development Corporation University Circle, Inc. Western Reserve Junior Service League Western Reserve Land Conservancy Westlake Porter Public Library Foundation
RECREATION & ENVIRONMENT Cleveland Championship 2000 Conservancy for Cuyahoga Valley National Park Green Ribbon Coalition Ohio Environmental Council The Great Geauga County Fair Foundation
RELIGION Antioch Baptist Church Bethany Baptist Church Building Hope in the City Chaplain Partnership Cleveland Church of Christ Citadel of Hope Ministries East View United Church of Christ Faith Cumberland Presbyterian Church in America Forest Hill Presbyterian Church Lee Memorial Endowment Incorporated Olivet Institutional Baptist Church Saint James AME Church St. Paul AME Church The Word Church
WORKFORCE DEVELOPMENT Cleveland Sight Center Dress for Success Forum for Volunteer Administrators Geauga Growth Partnership NewBridge Cleveland Center for Arts & Technology United Black Fund of Greater Cleveland, Inc. Vocational Guidance Services
YOUTH Aiki Extensions, Inc. First Tee of Cleveland Ginn Foundation Girl Scouts of North East Ohio Urban Squash Cleveland Youth Challenge
To learn how you can help a nonprofit you care about establish an Organizational Fund at the Cleveland Foundation, please call 216-685-2006.
FOCUS | FINANCE
Here for you. Here for life.
Ohio banking industry looks to ramp up diversity efforts BY KAREN FARKAS
www.ncafinancial.com (440) 473-1115 Securities offered through Royal Alliance Associates, Inc. (RAA), Member FINRA/SIPC. RAA is separately owned and other entities and/or marketing names, products or services referenced here are independent of RAA. RAA does not provide tax or legal advice. Investment advisory services offered through NCA Financial Planners. 6095 Parkland Blvd., #210 Mayfield Hts., OH 44124 F: 440-473-0186
seek diversity at all levels of the institution." It is difficult to determine diverThe Ohio Bankers League has become a national leader in develop- sity in the banking industry, being programs to improve diversity cause banks and other financial among employees and bank services firms do not fully disclose their diversity and inclusion data. boards. Its Summer Banking Institute, That's because regulators issue which provides internships for mi- guidance, not requirements, on dinority college students, and Diver- versity, according to a report on disity Directors College, which pro- versity and inclusion released in motes diversity on bank boards, 2020 by the majority staff of the U.S. House of Representatives’ Commithave garnered national attention. The OBL, the nonprofit trade as- tee on Financial Services. The report, which compiled data sociation for the Ohio banking industry, is comprised of more than submitted by America’s 44 largest 170 large and small FDIC-insured bank holding companies and loan financial institutions ranging in holding companies, showed the fisize from just over $13 million in nancial services industry remains mostly white and male. assets to more than $2.5 trillion. It found that banking institutions "Diversity has certainly been an ongoing issue that we have worked were 58% white in 2018. African hard on over the last couple of Americans made up 12% of the years,” said Evan Kleymeyer, OBL’s workforce, Hispanics 11% and Asian Americans 12%. In the board“EVERYONE (IN BANKING AND OTHER room, however, INDUSTRIES) IS WORKING ON THIS the census of senior-level emISSUE, AND I DO NOT THINK ANYONE ployees is 71% HAS CRACKED THE CODE ON HOW TO DO male and 81% white. IT PERFECTLY.” The report not— Evan Kleymeyer, OBL’s senior vice president ed that banks are of government and external relations recruiting diverse talents, establishsenior vice president of govern- ing employee resource groups and ment and external relations. “We linking diversity and inclusion recelebrate diversity of all underrep- sults to performance. The OBL is committed to diversiresented communities. For banks, it is really a matter of the employee ty, Kleymeyer said. “There is no blueprint for this,” he base looking and being like the said. “Everyone (in banking and community they serve.” Improving diversity is part of the other industries) is working on this OBL’s Diversity, Equity and Inclu- issue, and I do not think anyone has sion initiative as it works with its cracked the code on how to do it members to change the face of perfectly.” Keith Borders, vice president of banking. “What do we look like as a bank- community development at Union ing industry — bank boards and Savings Bank, a residential mortdirectors, bank management and gage lender headquartered in Cinbank employees?” he asked. “We cinnati, said the OBL “is doing dy-
namic work” on diversity. Borders, an attorney who spent much of his career focusing on human resources, diversity and inclusion in the retail industry, said he was hired by Union Savings in 2016 specifically because of his diversity expertise and work with communities. “Banks had a way to go, and I think our chairman was looking just for that type of talent,” he said. Borders, who also serves on the OBL board of directors, said that organization is embracing the need to promote diversity, equity and inclusion, which is why it supported the suggestion of Union Savings’ leaders that it establish the summer internship program. Here is a look at current OBL DEI initiatives.
Summer Banking Institute The OBL, through the Ohio Bankers Foundation, partnered with Central State University, Ohio’s only public historically black college, to create a summer internship program. Students at the university, located near Dayton, take banking classes for four weeks in May. They remain on campus and complete an eight-week paid summer internship at participating banks. The program grew from nine students in 2017 to 42 students in 2019. Only five participated in 2020 due to COVID-19 restrictions. The cost of the program, including room and board, averages about $10,000 per student and is covered by the participating banks and the OBL Foundation, according to the OBL. “One of the things I love about the Summer Banking Institute is that we bus the interns every day
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to and from their internships,” Kleymeyer said. Of the 76 minority students who have participated in the program, 30 are currently employed in the banking industry. "It was really a program of getting diverse students internships within the banking industry,” he said. “We are currently planning on launching in 2022 the Summer Banking Institute statewide." The association is seeking state funding to help it expand. Banking and university officials in other states have inquired about the program. This summer, Prairie View A&M University in Texas launched the PV Summer Banking Academy, modeled after the Central State program.
Diversity Directors College The OBL worked with community institutions and federal regulatory agencies to create a program to attract a diverse group of talented men and women to serve on bank boards, Kleymeyer said. The program, held for the first time this summer, included presentations of the requirements, roles and duties of a bank board member and a panel of former bank directors who talked about their experiences and the available opportunities. In addition to working with regulatory agencies, the OBL partnered with chambers of commerce and community groups, including Hispanic and African American organizations. More than 100 attended the virtual program, including about 20 from outside Ohio. “The No. 1 thing we said to them is to go out there and start a relationship with your local bank,” Kleymeyer said. “On the back end, we worked to play a little bit of matchmaker. If a person attended the program from Lorain, we shared their info with two community banks and hopefully started connections.” The program will be offered annually in person, he said. Federal agencies, including the FDIC, have
discussed replicating it in other states.
GEAR UP BEFORE YEAR-END
Diversity roundtables The roundtables are monthly professional development programs to provide expert insights and best practices for banks beginning, enhancing or maintaining diversity, equity and inclusion programs, the OBL said. Topics have included enhancing inclusion and employee education, addressing unconscious bias and understanding and improving equity.
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Diversity dialogues “Diversity dialogues are how we talk about these types of topics in our institutions,” Kleymeyer said. “It is best-practice sharing, and we are all learning from each other.” The virtual program kicked off in 2020. Sessions included creating interest in banking careers, developing long-term community partnerships, finding ways to foster diversity in small towns and maximizing relationships with diverse customers.
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Future plans “We are one of the most vibrant financial services states in the country,” Kleymeyer said. “I think what we have learned and strive to do is to tailor all of our talent acquisition and DEI strategies for the communities that each member bank operates in.” And one way to meet community needs is to encourage the establishment of women-owned or Blackowned banks. “One of the things I think is incredibly important is that we currently do not have any minority-owned depository institutions,” he said. “There is significant interest in creating the institutions, and we have talked to a few organizing groups interested in doing that. That would be great for the state and the communities they serve.”
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Could the public banking movement take root in Cleveland? BY JEREMY NOBILE
nicipal bank could have a potentially transformative impact on a commuA Cleveland public bank could nity struggling to lift itself out of povpossibly rebuild the widespread dis- erty. That’s a guiding start for Minocha, trust in institutional financial services, bank unbanked populations who is working to spur a conversaand address the lingering effects of tion about public banking and its decades of redlining while leveraging possible virtues in one of the poorest taxpayer funds and steering them to- cities in America. But she has a steep hill to climb to ward uses that matter most to local citizens — at least, those are the get her message to resonate with the public. hopes of one local activist. Minocha posted an open “Because I grew up in letter online about public Northeast Ohio and this banking in the spring. In tiny little community in that, she asks politicians, central Florida, I was able businesses and various othto see different kinds of poverty and the different er community stakeholders and disparate impacts of to sign their names to show the Great Recession,” said support for the formation of Geeta Minocha, a 23-yeara group that would merely old second-year law stu- Minocha explore the feasibility of a municipal-owned bank in dent at Columbia Law School. “This drove me to study Cleveland. She’s drawn just 33 signatories so health care policy and economics in college. That’s when I stumbled upon far, after months campaigning on the public banking. I drank this policy effort by herself. Some have said they don’t want to up, and I think it’s right not just for Cleveland, but for the rest of the take a stance until they see others come on board with the initiative — a country.” In theory, a Cleveland-owned mu- true chicken-and-egg problem.
“A PUBLIC BANK’S PURPOSE IS NOT TO MAXIMIZE PROFITS OR MAKE SHAREHOLDERS BETTER OFF. THEIR PURPOSE IS IN THESE OTHER KINDS OF SOCIAL AND ECONOMIC ISSUES, LIKE LOCAL JOBS, LOCAL BUSINESS, AFFORDABLE HOUSING, SUSTAINABILITY.” — Kevin Jacques, Boynton D. Murch chair in finance for Baldwin Wallace University
Others have outright rejected the idea out of fears of upsetting their large bank donors. While a public-banking movement is gaining steam in pockets across America, according to The Public Banking Institute (PIB), these government-owned, not-for-profit institutions are exceedingly rare. There is only one in operation in the U.S. today, in fact. That is the Bank of North Dakota, which is 102 years old and boasts roughly $8 billion in assets, comparable to a goodsize community bank. Being uncommon makes public banks less understood. A distrust of government also plays against the concept. But while there are legitimate
questions to be asked about how a public bank might operate, the good it could do and the very real risks that come with them — because public banks are not insured by the Federal Deposit Insurance Corp., taxpayers would bear the loss in the case of a failure — a greater hindrance to their existence is surely the for-profit, commercial banking ecosystem, which has a vested interest in quashing anything it might see as competition for loans and deposits and community goodwill. “A public bank’s purpose is not to maximize profits or make shareholders better off. Their purpose is in these other kinds of social and economic issues, like local jobs, local business, affordable housing,
LABOR
From Page 10
Personnel costs are rising across the board. And more time and resources are being spent training people who may leave in a few weeks for another job — something that’s been happening more in a post-COVID world.
Remote-work resistance For Carole Shaull, senior vice president of human resources for The Middlefield Banking Co., a community bank with approximately $1.4 billion in assets, a challenge is finding not just tellers, but qualified people for more skills-driven positions. For entry-level jobs, the bank is being a bit less selective than it used to be. “But it is close to impossible to find anybody to work in mortgage lending who will come into an office,” Shaull said. “With the competition out there, everyone works remotely — so remotely they could do the job from California.” A lack of people for certain positions is leading to long hours in situations where others need to pick up the slack. “On the mortgage side, we are making money there. But you have to close the loan very, very quickly, because if there is a Realtor presenting the loan, they want to close that loan and the buyer wants to close that as well as the seller,” Shaull said. “Sometimes it leads to more pressure and longer hours for the mortgage department because they have to get this done, otherwise we lose the deal.” These challenges are popping up for bigger banks, too. “I think we are participating in the same labor market as everyone else,” said Chris Gorman, chairman and CEO of KeyCorp, which has $187 billion in assets. “The (effects) are particularly acute at the entry level.” Key’s minimum wage is $15 an hour. But in the past year, pay there has gone up to a range of $16 to $18 for
PNC Bank has raised its minimum wage to $18 an hour, and Bank of America has boosted its to $21. | STEFANI REYNOLDS/BLOOMBERG
posts in technology and operation centers, as well as branches. But Key, PSE and Middlefield alike are competing in this market with firms like PNC Bank, whose minimum wage has risen to $18. Then there's Bank of America, which has boosted its minimum wage to $21, with plans to lift that to $25 by 2025. But smaller and midsized community banks and credit unions are struggling with the labor-force challenges more than their larger counterparts, which have the advantage of greater size, scale and brand recognition. To be sure, smaller banks will find a $21 minimum wage tough to swallow. “We are doing more work at the lower level than I would typically expect,” said Brian Rhonemus, founder and CEO of the Rhonemus Group, a talent management and executive consulting firm that is often recruited for filling C-suite posts at banks in Ohio and across the Midwest. A main issue, Rhonemus said, is whether they say it outwardly or not,
many bank CEOs simply want people back in the office. Some are at midsize regional banks that would seemingly be more likely to embrace virtual work, compared with community banks that may also struggle with getting people to work in rural markets. Of course, firms that do embrace remote work cast a wider net in the candidate pool. This can create further challenges for banks where recruitment markets overlap like never before with competitors. It may also create opportunities for those who could hire someone in another part of the country for a job that lends itself to remote work. Rhonemus pointed to comments by JPMorgan Chase CEO Jamie Dimon last fall complaining of a lack of productivity among remote workers, especially on Mondays and Fridays. It’s a point of view some execs reject, but that others very much subscribe to. “I have some CEOs saying, ‘I don’t do remote; I don’t want hybrid employees; I don’t want telecommuters,’”
Rhonemus said. “I would say they’ve become pretty resistant to this whole work-from-home thing.” On the other end of the hiring spectrum, Rhonemus said he has mid-career candidates for some roles who won’t entertain a job offer that doesn’t allow remote work, or at least good flexibility there. “If you are a C-level banker, you have more sway today and may think you can be more picky,” he said. “We talk to candidates week in and week out who say, ‘If it doesn’t have a hybrid component, don’t call me.’ These are $150,000 to $300,000 base salary people.”
Pandemic 'upset the apple cart' While banks may vary in size, they’re all deploying or at least considering similar tactics beyond higher base salaries in order to land workers in today’s job market. Many are expanding paid time off. Middlefield, for example, now offers
sustainability,” said Kevin Jacques, Boynton D. Murch chair in finance for Baldwin Wallace University and a former bank regulator. “The big banks won’t take kindly to this idea.”
So what is public banking? “Public banking is banking operated in the public interest, through institutions owned by the people through their representative governments,” PIB explains. “Public banks can exist at all levels, from local to state to national. Any governmental body which can meet local banking requirements may, theoretically, create such a financial institution. Public banking is distinguished from private banking in that its mandate begins with the public’s interest.” While almost nonexistent in America, approximately 40% of banks globally are publicly owned, according to PIB. They’re more common in countries where the government has even more say and control over the business ecosystem. See BANKING on Page 34
four weeks of vacation for some mid-level and lender positions, double what was given at the outset just a couple of years ago. Retention bonuses and tuition reimbursement are becoming more common. So is bank-owned life insurance for executives. Referral bonuses, 401(k) contributions and employee-stock purchase plans are some of the other perks being promoted in front of candidates today among various firms. Smaller banks, like Middlefield, are looking into providing better career paths for entry-level workers who might see a customer-service post as a dead-end job. Companies like Key have expanded parental leave. Key also offers identity-theft insurance and a reimbursement for health club fees. While pay isn’t the only thing attracting employees, it’s going up all the same. Where raises are happening, it’s common for them to be in a range between 20% to 40% instead of 15% to 20% as was more standard just a couple of years ago, Rhonemus said. He added that employers are also much more likely to extend counter offers when a lateral hire is about to be recruited away from them. “Compensation has just gone off the charts,” Rhonemus said. “The comp surveys we see are out of date by the time they are printed. That is how much flux there has been in base salary.” Rhonemus thinks this dynamic is the new standard. Compensation and raises may stabilize. But it's unlikely firms immediately revert to previous norms, especially while the labor market remains this competitive. “I think the pandemic upset the apple cart for everybody,” said Mark Nicastro, chief human resources officer for The Farmers National Bank of Canfield, which has about $3.3 billion in banking assets. “You do have a labor shortage and you can point to a lot of reasons why that is. We just have to be smarter about recruiting and how we manage our culture.” Jeremy Nobile: jnobile@crain.com, (216) 771-5362, @JeremyNobile
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The foundation and pillars of a strong relationship By JOHN MICKLITSCH, Ancora
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lient/financial adviser relationships are unique. Advisers become privy to some of your most privileged personal information. In addition to having a clear and complete picture of your financial situation, advisers also have a front row seat for your hopes and dreams, your worries and fears and what a life well-lived means to you. For the client/adviser relationship to reach its full potential, we believe there are three principals built on top of two concepts that every successful advisory relationship should have. We explore these building blocks of the client/ adviser relationship below. PRINCIPAL #1 TRUST: Trust should not be easily given. It should be earned and given only after careful assessment of both party’s intentions on entering the client/adviser relationship. Are each party’s expectations and capabilities clearly and transparently outlined to create alignment? At Ancora, we believe the starting place for any discussion around trust and alignment starts with the fiduciary standard. Fiduciaries must always put the client’s interest above
their own. Think of your fiduciary adviser as your personal bodyguard who is constantly looking out for you. Be cautious because this is not the standard for all financial advisers but, in our opinion, it should be your standard as you look to form an advisory relationship built on trust and your best interests. PRINCIPAL #2 COMMUNICATION: There are things in life we don’t always want to hear, but we need to hear if we are going to be successful in achieving our goals. I can remember like it was yesterday; I thought I had played well in a high school game when my most influential coach shoved a game tape in my chest and asked me to watch it and think about whether I liked what I saw. I didn’t want to hear that I was making the wrong decisions on the field, but I needed to see it from a different and more objective perspective, free from my own bias. The same communication patterns can improve outcomes in client/adviser relationships. We don’t always want to hear that our instincts or gut feelings may be lowering the probability of achieving our long-term financial goals, but sometimes we just need to see the issue from a different perspective or, more importantly,
through the lens of the appropriate time horizon. PRINCIPAL #3 EXPERTISE: Credible expertise in any field comes from thousands of hours of study, practice and application. I had another influential teacher in my life who said, “life is cumulative.” The same holds true in your professional life. The client/ adviser relationship is built on the premise that both parties come to the relationship with credible expertise earned over time that will enhance
A client/adviser relationship built on mutual trust, communication and expertise is likely to succeed. the working relationship. The adviser must continually develop and sharpen their craft throughout the years while the client continues to invest in their personal and professional growth. Together, through a commitment to expertise, they both grow in mutually beneficial ways. FOUNDATIONAL CONCEPT #1 HUMAN CAPITAL: Human capital is
a reference to the labor and problemsolving skills we bring into our careers each day. In proportion to the value created by those efforts, we receive financial capital as compensation. In the client/adviser relationship, the services the financial adviser provides should be so complete and well-conceived, communicated and constructed that they allow the client to work undistracted on maximizing their human capital, which in turn will produce financial capital that can be invested. This positive feedback loop is the mark of a successful client/adviser relationship. FOUNDATIONAL CONCEPT #2 FINANCIAL CAPITAL: There comes a time, however, in virtually every client/ adviser relationship where the client has less human capital to commit. Age, new personal goals, health and changing interests all can reduce human capital output. At this point, it is the role of the adviser to help the client transition from relying on human capital to relying on their accumulated financial capital to fund the life they want to live. The client should be honest and forthright with their level of desire to continue to produce human capital
and the adviser should be prepared to show the client if their financial capital is sufficient or when and under what conditions it will be sufficient to replace their human capital. A client/adviser relationship built on mutual trust, communication and expertise is likely to succeed. Those three pillars are foundational to any long-term professional relationship, not just a client/adviser relationship. These three principals, on top of the foundational understanding of the role human capital and financial capital plays at different points in our lives, will provide a clear understanding and road map for working well with your adviser and getting the most out of your personal and professional financial journey.
John Micklitsch, CFA, CAIA, is chief investment officer at Ancora. Contact him at 216-825-4000 or jmicklitsch@ancora.net.
MICKLITSCH
Get more with Ancora. Life. On your terms. We offer investment opportunities covering equities, fixed income and alternatives, as well as wealth planning and retirement plan solutions— all delivered with a personalized service that’s focused on helping you to get more out of life. Get more with Ancora. 216-825-4000 / www.ancora.net
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Organizations partner through sustainable investments Sustainable investing: the what and how By Andres Arsuaga, Clearstead
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he last eighteen months have been marked by health and economic crises, as well as renewed calls to confront social inequalities and climate change, all of which are taking their toll throughout the globe. As difficult as these issues are, they provide a spark to sustainable investing. In 2021, there were record inflows to these strategies as investors emphasized investments and companies tackling these difficult issues. Yet while progress has been made to better define sustainable investing and utilize consistent data, it is still in its infancy. WHAT IS SUSTAINABLE INVESTING?: Sustainable investing is an investment approach that seeks to incorporate economic, social and governance factors into asset
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allocation and risk decisions to generate sustainable, long-term financial returns, according to a 1984 article in The Academy of Management Journal. Many investors associate sustainable investing with environmental issues, but it encompasses much more. Below are examples of the types of criteria included in sustainable investing: • Environmental: Natural resource use, carbon emissions, energy efficiency • Social: Workforce, human rights, diversity, supply chain • Governance: Board independence, board diversity, shareholder rights, and corporate ethics
Navigating toward sustainable investing approaches can be a complicated process that must consider investment objectives as well as organizational and financial priorities. DRIVERS OF GROWTH: Sustainable mutual funds during 2020 saw inflows amounting to $51.1 billion, which were double 2019 flows and nearly ten times 2018 flow, according to a 2021
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report from Morningstar. Of all the net flows into stock and bond funds in 2020, sustainable investing mutual funds accounted for approximately a quarter of all flows. There were multiple drivers that likely caused such a large increase, including the pandemic, changing views toward climate change, social movements, and a new president and administration. Fund flows are not projected to slow any time soon. Deloitte estimates that by 2025, in the U.S. alone, half of all managed assets will have some type of ESG mandate. Institutional investors also contributed to the acceleration of sustainable investing, a shift that has received wide publicity, even more
than the shift among retail investors. According to the US Sustainable Investing Foundation’s 2020 report on US Sustainable and Impact Investing Trends, institutional assets account for 70% of sustainable investing assets. Institutions have been vocal about these changes, which include Norway’s sovereign wealth fund announcing the sale of all fossil fuel assets representing $13 billion of their $1 trillion fund. The $500 billion New York State pension fund announced that, over four years, they will divest oil and gas holdings. This momentum among institutional investors is unlikely to slow as trustees, shareholders and boards of directors ask more questions about what companies
are doing to address sustainable investing issues. Climate change is a cornerstone to Biden administration policies, both from economic and environmental perspectives. Biden created a specific Climate Change position in his cabinet to address this issue. In January 2021, Biden issued an executive order establishing climate considerations as an essential element of U.S. foreign policy and national security; mandates that the U.S. government use its buying power to enact positive changes; and plans to rebuild U.S. infrastructure for a sustainable economy. In addition, the U.S. Department of Labor is making it easier for 401(k) plans to invest in
STEADFAST CLARITY FOR YOUR COMPLEX WORLD Clearstead is relentless in providing financial solutions so our clients can exceed their aspirations and build stronger legacies for their families, their communities, and themselves. PRIVATE WEALTH MANAGEMENT INSTITUTIONAL INVESTMENT CONSULTING 401(K) & RETIREMENT PLAN CONSULTING OCIO / DISCRETIONARY VISIT CLEARSTEAD.COM TO LEARN MORE
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WEALTH MANAGEMENT sustainable investing funds. These initiatives, focused on climate change, should be a tailwind to sustainable investing. CLEARSTEAD’S APPROACH: ESG principles are increasingly being incorporated into investment programs. ESG considerations are categorized into three main investing strategies. This continuum ranges from exclusionary screens, which ensure investments are not made in unacceptable activities; to ESG integration, which uses sustainable factors to proactively move a portfolio toward desirable attributes; to impact investing, which makes direct investments in assets that generate acceptable financial returns and positive social or environmental effects. Institutions like The MetroHealth Foundation have begun to formally integrate ESG factors as a component of their investment philosophy and manager research process. Each manager goes through a rigorous selection process and receives a sustainable investing rating based on our assessments. Navigating toward sustainable investing approaches can be a complicated process that must consider investment objectives as well as organizational and financial priorities. Sustainable investing is not a fad and will continue to grow. However, it
is in its infancy and can be difficult to put into action. There are 836 registered investment mutual funds and ETFs with sustainable mandates, according to US SIF. There also are numerous private strategies that incorporate ESG factors. Deciding which strategies best align with an institution’s values can be daunting. Clearstead’s experience and commitment to sustainable investing can help clients integrate values and goals into portfolios. As more sustainable investing options become available and mainstream, companies will be incentivized to push a higher ESG standard in their business practices. In 2020, Clearstead partnered with The MetroHealth Foundation to incorporate sustainable investing into their investment program. This collaboration allowed Clearstead to continue prudent management of the investments, and The MetroHealth Foundation to meet their investment objectives while moving the portfolio toward alignment with the broader Foundation mission.
Andres Arsuaga, CFA, is director of portfolio management at Clearstead. Contact him at 216-621-1090 or aasuaga@clearstead.com
ARSUAGA
Sustainable investing: The why By Rob Soroka, MetroHealth
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he MetroHealth Foundation seeks to support The MetroHealth System by developing philanthropic resources and relationships to advance MetroHealth’s goals of health, healthy communities and health equity for all. One way in which we deliver on our mission is through our financial impact. Over the last year, we have taken a deeper look at how we can align our investments with our mission. As a health care provider, we see firsthand the negative impact of things like tobacco, firearms and climate change on the well-being of individuals and communities. We partnered with our investment adviser, Clearstead, to incorporate sustainable investing into our investment program. First, we conducted basic education on the topic of sustainable investing to our Finance and Investment Committee. Committees can have varying opinions and attitudes, and it was important to make sure that everyone understood the topic. Second, we discussed our investment objectives and how to emphasize key areas of our mission. Third, we focused on ways to
incorporate both exclusionary and inclusionary approaches. This included negative screens for areas like tobacco and firearms, as well as positive screens toward securities that score well from their environmental, social and governance practices. Fourth, we reviewed several investment options that would achieve this objective and moved forward with
We are proud of the steps that we have taken in aligning our investments with our mission. implementation. It was important for us to balance the sustainability considerations with financial considerations and not sacrifice return. The options that we evaluated performed in-line or better than nonsustainable investments, with similar levels of risk. We will conduct an annual audit of our holdings and exposures to sensitive areas. Over time, we believe these sustainable investments will grow and be emphasized. We are proud of the steps that we have taken in aligning our investments with our mission. This is an area that is increasingly important to all stakeholders, including patients,
doctors, board members, donors and the broader community. We believe that we can equally do well by doing good. Information provided in this article is general in nature, is provided for informational purposes only and should not be construed as investment advice. These materials do not constitute an offer or recommendation to buy or sell securities. The views expressed by the author are based upon the data available at the time the article was written. Any such views are subject to change at any time based on market or other conditions. Clearstead disclaims any liability for any direct or incidental loss incurred by applying any of the information in this article. All investment decisions must be evaluated as to whether it is consistent with your investment objectives, risk tolerance, and financial situation. You should consult with an investment professional before making any investment decision. Performance data shown represents past performance. Past performance is not indicative of future results. Current performance data may be lower or higher than the performance data presented.
Rob Soroka is treasurer and vice chair of finance and investment of The MetroHealth Foundation Board of Directors. Contact him at 216-7785665.
SOROKA
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Business succession planning strategies for entrepreneurs
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By JACLYN M. VARY AND MAUREEN T. PAVICIC, Calfee
By J Elios
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aving a business succession plan that is congruent with your estate plan will avoid confusion as to ownership, management and control of your business while ultimately ensuring that your business and personal legacy flourishes. Does your estate plan work with your business succession plan? The following explores a few succession planning considerations for entrepreneurs: OWNERSHIP: A few questions to consider: Do you envision your children ultimately owning and running the business? Do your children have the desire and ability to do so? Do you have multiple children in the business? If multiple children and/or their spouses are officers and/or employees, how will differences be resolved? What if you have some children involved in the business but others who are not? Should the children who are not involved still benefit from the family business (such as receiving health insurance or a company car)? If you do not envision your children owning the business, lifetime
exit possibilities include selling the business (possibly to another family member) or establishing an Employee Stock Ownership Plan (ESOP). If the business is not sold until after your passing, it may lead buyers to think that the company is in distress without its founder and should be sold for a bargain or to provide liquidity for estate tax purposes. If you decide your children should ultimately inherit your business, your estate planning counsel will probably continue to ask you a series of questions: Should the business be transitioned during your lifetime or at your death? Should it be transitioned outright to your children or held in a multigeneration trust? If you give the business to a child during your lifetime, will you “equalize” gifts to your other children during your lifetime or wait to “equalize” gifts at your death? MANAGEMENT AND CONTROL: Further, you must determine which individuals should continue to manage the business operations. Perhaps you include incentives for the retention of key employees and also provide a clear hierarchical management structure. Additionally, you must decide who will
control the voting interests and whether to restrict a future transfer of business interests (in a buy-sell agreement or in a trust instrument) so that the ownership must remain in a family line or be sold. REVISIONS TO CORPORATE DOCUMENTS: Consider the dayto-day role you play in the business. If you are the only person with certain banking or check-writing privileges, you should determine who should take over these duties in the event of your incapacity or death. Corporate resolutions may be put in place to add a succession of individuals to fill these roles if and when necessary. TITLE THE BUSINESS INTEREST: Ensure that the business interest is held in non-probate title. Options include titling the business interest directly in your revocable trust or adding a transfer-on-death designation to your revocable trust. Your estate planning counsel should work with corporate counsel to ensure the corporate records are appropriately changed. Titling may also have tax implications if the entity is an S-corporation; therefore, tax advisers also should be consulted.
SPECIFICALLY NAME THE ENTITY IN THE TRUST: Estate planners are all too familiar with the “Prudent Investor Rule” under the Uniform Trust Code. This rule provides that the trustee of a trust must make investment decisions in the context of the trust portfolio as a whole and as part of an overall investment strategy, with having risk and return objectives reasonably suited to the trust. This means a trustee must generally diversify the trust portfolio. However, many business owners may want to ensure their business is retained regardless of the nature of the other trust assets. Thus, the trust should specifically name the business and provide that the trustee has the power to specifically retain that business. This strategy will protect the trustee from objections that the trustee has violated the Prudent Investor Rule. APPOINT A CLOSELY HELD BUSINESS ADVISER: Consider nominating an independent person in your trust to act as a closely held business adviser. This adviser would handle business interests held in the trust, and this structure shifts much of the burden from the trustee to this adviser. This person could be someone
who has more familiarity with the business than the trustee might have. TIME IS OF THE ESSENCE: The time to create or revisit your estate and business succession plans is now. The current federal estate, gift and generation skipping transfer tax exemption is $11.7 million per person. Current tax proposals seek to lower the exemption amounts to $5 million (plus inflation) per person (or possibly even lower) and would also change individual and corporate income tax rates. Jaclyn M. Vary is a partner with the Estate and Succession Planning and Administration group at Calfee, Halter & Griswold LLP. Contact her at jvary@ calfee.com. Maureen T. Pavicic is an associate with the Estate and Succession Planning and Administration group at Calfee, Halter & Griswold LLP. Contact her at mpavicic@calfee. com.
VARY
PAVICIC
Helping Clients Solve Complex Estate and Succession Planning Needs The attorneys in Calfee, Halter & Griswold LLP’s Estate and Succession Planning group can help you make some of the most important decisions of your life. With deep knowledge and experience in finance and the law, our professionals provide exceptional value to clients seeking: • • • • •
Sophisticated estate, gift and generation-skipping planning Comprehensive estate and trust administration Business succession planning Asset protection planning Complex probate and trust litigation
Calfee’s Estate and Succession Planning Attorneys Joseph M. Mentrek, Practice Group Chair Amy K. Friedmann | Jean M. Hillman | Maureen T. Pavicic | Zachary J. Stackhouse | Jaclyn M. Vary CALFEE.COM | 888-CALFEE1 | INFO@CALFEE.COM ©2021 Calfee, Halter & Griswold LLP. All Rights Reserved. 1405 East Sixth Street, Cleveland, OH 44114
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Investing in innovation can supercharge your portfolio By JIM ELIOS & RYAN DOBROKA Elios Financial Group Inc.
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ver the past few years, disruptive ideas, innovations and economic forces have reshaped the way we invest. Accelerating these forces is the COVID-19 pandemic and its immense effects on the economy, technology, government and society. An important focus in today’s investing industry has emerged as a powerful way to not only keep up with the change, but to benefit and profit from it: investing in innovation or “thematic” investing. Broadly speaking, thematic investing is the approach of taking advantage of future trends while avoiding fads. Thematic investments take a top-down approach, providing investors an opportunity to generate alpha (excess returns) by looking at global trends and innovation. Its forward-looking approach stands in contrast to an investing strategy that relies heavily on market capitalization to determine weights in a portfolio found in popular index funds and ETF’s. Fundamentally, the objective of thematic investing is to not only generate superior returns but to evolve
from traditional index investing that sometimes misses opportunities in emerging technologies and companies. According to research by Ark Investment Management LLC, focusing on the top technology platforms and themes should generate more than $50 trillion in business value and wealth creation over the next 10 to 15 years, giving today’s investors an opportunity to significantly capitalize and reap future gains investing in innovation and global themes. CLEAN AND GREEN: The structural shift in global energy production and usage is accelerating. Clean and sustainable energy is here to stay, and companies involved in renewable energy production, storage and smart grid implementation stand to benefit. Adding more tailwinds to this growth area, many developed countries and governments have subsidized their success, with billions being invested to continue the transformation away from carbon fossil fuels. Think electric vehicles, battery technology, solar, wind and lithium mining as examples. HEALTH TECH, GENOMICS, AND THE FUTURE OF HEALTH CARE:
Science and technology are enabling profound and transformative changes in health care. While “genomics,” “enhanced longevity” and “telemedicine” are the current buzzwords, we think that, more broadly, emphasis should be placed on the “care economy.” People are living longer, and quality of life expectations are rising. Instead of narrowly thinking about traditional health care, we also look for high-growth candidates from the broader “well-being” sector. Think telemedicine, gene sequencing and immunotherapy.
ARTIFICIAL INTELLIGENCE AND BIG DATA: Artificial Intelligence touches us daily, from simple Internet searching to mobile directions and streaming TV. Companies focused on acquiring and interpreting as much data as possible have proven to be more adept at enhancing their offerings and improving their targeting. We expect significant growth in enterprises focused on creating efficiencies in data mining, analysis and storage. Think autonomous vehicles, smart homes and Internet of Things.
REMOTE WORKING, E-COMMERCE AND CLOUD COMPUTING: The lockdowns required to contain the COVID-19 virus moved our work lives to our homes. It is not clear whether the work-from-home trend will continue. The physical world will cede some ground to the digital world or “metaverse.” Areas of opportunity are wide-ranging, from cloud computing, virtual networking, e-commerce, social media, video games and cybersecurity. From Zoom to Minecraft to TikTok, how wide swaths of people spend their time (and money) has changed and will continue to evolve, which present significant investment opportunities.
BLOCKCHAIN, CRYPTOCURRENCY, AND FINANCIAL TECHNOLOGY: The emerging financial technology sector has transformed staid businesses like lending, insurance and banking into exciting and innovative places to invest. Mobile payments, digital wallets and peer-to-peer lending should revolutionize the financial sector, which impacts every sector of the global economy. With blockchain technology, the rise of cryptocurrency has upended the view of currencies and stores of value. The idea of a “decentralized” financial system has immense potential as well as risks. We
think cryptocurrency is here to stay and should be part of a well-diversified portfolio. BE A TREND FOLLOWER: ADD INNOVATION AND THEMATIC TO YOUR PORTFOLIO: Investing in exciting trends and innovation is becoming far easier for the average investor. Many firms and thought leaders are happy to share their most up-to-date ideas. Whether it is Cathie Wood of Ark Investments who shares her trades daily, or Global X creating a new ETF any time they feel a catalyst to merit it, there is no shortage of good investment trends to follow. Investment advice has never been more readily available and transparent. Adding thematic and innovation investment ideas to your portfolio should always be within the context of a good financial plan, proper risk tolerance assessment and your tax bracket. Work with your financial planner and wealth manager to structure a forward-thinking portfolio that makes sense for you. Done properly, a well-diversified portfolio that includes future thought leadership
(continued on page S6)
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ENVISION | ENLIGHTEN | ENRICH Contact us for a complimentary consultation today 30700 Center Ridge Road Westlake, OH 44145 440.617.9100 | www.eliosfinancial.com Advisory services offered through Elios Financial Group, Inc. a Securities Exchange Commission Registered Investment Advisor (RIA). Securities offered through Private Client Services, Member FINRA/
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James T. Elios, MBA, CHFC, CLU, is a wealth adviser, president and CEO at Elios Financial Group Inc. Contact him at 440-617-9100 or jim@eliosfinancial. com. Ryan Dobroka, CFP, CHFC, is a wealth adviser at Elios Financial Group Inc. Contact him at 440617-9100 or ryan@ eliosfinancial.com.
The gifts that give rise to breakthrough treatments ELIOS By MAUREEN KATANIC Akron Children’s Hospital
DOBROKA
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t times, Laci Guidry had wondered if her 10-yearold son, Reese, would be
able to do all the things other kids could. Diagnosed at a young age with nystagmus, a genetic condition characterized by constant, involuntary eye movements, Reese couldn’t see well at school or participate in some sports. And the care that he received in
More moments like this. That’s what a donor can do. More steps. More joy. More birthdays. Your gift of 100% kid-dedicated care provides the therapies, treatments and breakthroughs that make more childhood possible. Make a moment like this possible. Give today at akronchildrens.org/donate.
their Louisiana hometown – using prescription eyeglasses and visual assistance technology – wouldn’t improve his vision or stop the eye fatigue and headaches he experienced. What could potentially improve Reese’s vision was an innovative procedure by the specialists at the Vision Center at Akron Children’s Hospital. Laci heard about it via social media and decided to make the trip to Akron to have Reese seen there. How did the Vision Center at Akron Children’s Hospital, along with other specialties, earn accolades as an advanced center of excellence? A major factor in raising the level of care at Akron Children’s Hospital has been the philanthropic giving earmarked for specific initiatives and specialties. The gifts make it possible for the hospital to continue to invest in breakthrough technologies, research and premier expertise. As senior director of planned giving, I’m honored to work with donors who invest in the hospital with philanthropic funds. Time and again, benefactors express their intentions to give children the ability to grow up healthy through their gifts. Akron Children’s is incredibly grateful for the support, and we make sure our benefactors know this appreciation. The late David Horn, a colleague and mentor, explained the most meaningful conversation we can ever have with a donor isn’t about the type of gift, but about its purpose. GIFTS THAT CHANGE LIVES A fitting example relates to a 2020 gift from the Cynthia Miller Estate. When attorney Nicole Hawks contacted me about the bequest, I asked what Mrs.
Time and again, benefactors express their intentions to give children the ability to grow up healthy through their gifts. Miller hoped her gift would accomplish. It was then that the story of a real American war hero began to unfold. Cynthia and Jack Miller willed more than $500,000 to the hospital to help children with blinding and visually disabling disorders, in honor of Cynthia’s husband, Jack, who had died in December 2019. A Vietnam War veteran, Jack had sustained serious injuries in 1969, when, during a firefight, a grenade exploded in his face. The explosion occurred just a week before Jack’s 21st birthday, sending shrapnel throughout his body and leaving him blind. Jack never allowed his injury to stop him from enjoying life or from losing his positive outlook. Instead, it inspired him to take action that would benefit children struggling with visual impairments, since he himself was blinded at a young age. The gift has allowed the hospital to
More childhood, please.
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establish a fellowship in their names: The Jack and Cynthia Miller Fellow in Pediatric Ophthalmology and Strabismus provides clinical training in ocular and visual system disorders in infants, children and teens, and eye movement disorders and strabismus in adults. The fellow also instructs students and residents and participates in research. The significance of the gift is best expressed by Dr. Richard Hertle, director of pediatric ophthalmology at Akron Children’s: “The naming of the pediatric ophthalmology fellowship is especially meaningful given Jack Miller’s personal experience with blindness while serving in Vietnam. We are grateful for his and his wife Cynthia’s commitment to providing the resources to help children regain or improve their eyesight. The support from the Millers’ estate advances this
vital fellowship program and honors their legacy.” Thanks to the gift, Dr. Heidy Martinez, the first to hold the fellowship, is studying the use of a MicroPulse laser to treat pediatric glaucoma, instead of incisional surgery. If the research proves promising, then it may alter how glaucoma is treated in children, changing their lives for the better. The gift also has bolstered the Vision Center’s ability to invest in medical advancements for those diagnosed with nystagmus, like Reese. Post-treatment, Reese’s eyesight has improved. And with continued progress, Reese could gain the ability to do more of the things other teens do, such as learning how to drive. To that end, Reese’s mom says the care has given her and her son an infusion of hope when no one else could. It’s precisely the reason that Cynthia and Jack Miller – and so many others – are helping patients and families every day through their philanthropy. By elevating the standards of pediatric care, the gifts are changing lives for the better. Do you have a personally inspired mission or desire to advance pediatric care? Learn more about planned giving with Akron Children’s and how you could contribute to breakthrough care by visiting akronchildrens.planmygift.org. Maureen Katanic is senior director for planned giving at Akron Children’s Hospital. Contact her at 330-5438343 or mkatanic@ akronchildrens.org.
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Help UA students rise to their highest potential with a gift to The University of Akron Foundation. To give, text UA to 41444. Lia Jones
Center for Gift and Estate Planning LiaJones@uakron.edu n 330-972-2819 uakron.edu/RiseTogether The University of Akron is an Equal Education and Employment Institution. ©2021 by The University of Akron – uakron.edu/eeo
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Estate planning in the current environment
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hroughout much of 2021, we have been monitoring the impact of the evolving post-pandemic reopening, the administration’s economic agenda and, most of all, various proposed tax law changes that call into question traditional estate planning techniques.
By LINDA M. OLEJKO Glenmede
From a monetary policy perspective, we continue to operate in a period of historically low interest rates, a scenario that presents an opportunity for individuals to use various tax planning techniques to efficiently transfer wealth from one generation to another. However, many of these
planning techniques were highlighted in proposed legislation earlier this year. The release of the Biden administration’s budget, the House Ways and Means Committee’s proposed legislation and the Treasury Department’s explanation of various revenue provisions give us some insight into the timing of proposed
tax law changes. With the exception of a change to the capital gains and dividends tax rate, all proposed tax law changes are, for now, prospective in nature. Even more encouraging from a tax planning perspective is that many of the tax planning techniques mentioned in earlier suggested legislation are
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not included in the House’s proposed legislation. Given the prospective focus of legislation and the current low interest rate environment, what steps should we consider taking now? Here are some low interest rate planning techniques.
You deserve a wealth management partner who goes beyond the numbers. As a trusted partner and advisor to individuals and families for more than 65 years, Glenmede Private Wealth empowers our clients to confidently pursue their purpose, passion and legacy through personalized, integrated wealth and investment management. Our team of specialists tailors strategies intended to help you reach your lifestyle, legacy and philanthropic goals. What are your wealth objectives? We welcome the opportunity to learn more about your passions and your goals.
To begin the conversation today, kindly contact: Linda Olejko
216.514.7876 go.glenmede.com/cleveland
© 2021 Glenmede. All rights reserved.
INTRAFAMILY LOANS This technique can be a convenient, low-cost way to assist family members with purchasing a home, starting a business or affording living costs. However, loans can also be used by the borrower to invest in the market.
Given the prospective focus of legislation and the current low interest rate environment, what steps should we consider taking now? Loans exceeding the $15,000 annual gift-tax exemption ($30,000 for couples) should be documented with a formal loan agreement specifying repayment terms to avoid being characterized as a gift. Family lenders should consider the potential impact on family relations if loans are perceived as unfair. They must be prepared to consider the loan a gift — with potential tax consequences — if the borrower is unable to pay interest or return principal in the future. Loans between family members may be worth considering in this low interest rate environment, and loans conforming to IRS rules can avoid gift and inheritance tax consequences. Annual interest rates for loans made in July 2021, for example, ranged from 0.18% for loans up to three years, 0.45% for loans three to nine years and 1.17% for loans greater than nine years — a fraction of commercial rates. What’s more, rates are fixed for the loan term, so interest costs won’t increase if rates rise. GRANTOR RETAINED ANNUITY TRUST The GRAT is another efficient technique used to transfer asset appreciation to beneficiaries with minimal gift or estate tax consequences. GRATs often are designed to last two to three years to leverage historically low interest rates and market volatility. GRATs can be effective during periods of market
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Estate planning for cryptocurrency volatility. If asset values within the GRAT spike, the grantor is permitted to “swap in” more stable assets to lock in gains for future beneficiaries. Since varying asset classes often move out of step, GRATs can be created with a single asset class or even a single concentrated stock position. Creating several GRATs at the same time can diversify exposure and increase the odds of overall success. Success is increased by employing a cascading or rolling GRAT strategy, which moves each annuity from an existing GRAT into a newly established GRAT. By doing this, the grantor increases the odds of capturing asset appreciation for intended beneficiaries. CHARITABLE LEAD ANNUITY TRUST A CLAT functions much in the same way as a GRAT, except for one key difference: The annuity payments are made to charity rather than the grantor. For individuals who have philanthropic as well as family legacy goals, a CLAT may be a desirable planning technique. CLATs can be an effective way to balance an individual’s desire to benefit charity and family in a tax-efficient manner. When deployed in a low interest rate environment, the results can be significantly rewarding. CONCLUSION Now that we have a sense of Congress’s tax focus and potential timing for tax law changes, we should be making plans that involve taking advantage of the currently low interest rate environment and some tried-and-true estate planning techniques. Some planning techniques, particularly GRATs and CLATs, may be very limited or even eliminated by the proposed legislation within a very short timeframe. Therefore, this fall you should consult your estate planning attorney before creating any new trusts or completing any transfers. Linda M. Olejko, CFP, CEP, is managing director of business development at Glenmede. Contact her at 216-514-7876 or Linda.Olejko@ glenmede.com. OLEJKO
This presentation is intended to provide a review of issues or topics of possible interest to Glenmede Trust Company clients and friends and is not intended as investment, tax or legal advice. It contains Glenmede’s opinions, which may change after the date of publication. Information gathered from third-party sources is assumed reliable but is not guaranteed. No outcome, including performance or tax consequences, is guaranteed, due to various risks and uncertainties. Clients are encouraged to discuss anything they see here of interest with their tax advisor, attorney or Glenmede Relationship Manager.
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state planning increasingly is becoming challenging and uncertain. In addition to the unpredictable federal tax laws, we can add cryptocurrency to the list of estate planning nightmares. What exactly is cryptocurrency? It’s not intuitive. In the IRS’ eyes, cryptocurrency is not “currency,” but a capital asset (like a stock.) Therefore, capital gain income and losses are recognized any time cryptocurrency is used in a transaction. Despite the IRS’ view, cryptocurrency actually can be used to purchase goods and services. When a cryptocurrency unit is purchased, a private key is issued. A private key is a long string of letters and numbers, similar to Apple’s
Careful planning for cryptocurrency may help clients and their advisers sleep (a little) better at night. strong password suggestions. Like cash, the private key is stored in a “wallet.” There are two types of wallets: hot and cold. A cold wallet is tangible and disconnected from the Internet — a hard drive, USB drive or simply written on a piece of paper. A hot wallet is connected to the Internet and is accessible with a username and password. Cryptocurrency ownership is completely decentralized, and transactions are verified and recorded in a blockchain. Put simply, a blockchain is an encrypted checkbook ledger, accessible online to other cryptocurrency owners. Cryptocurrency is showing up in estate planners’ nightmares for three main reasons. The first reason is volatility. If a client’s net worth is over or close to the current/proposed federal estate tax exemption, their cryptocurrency should be monitored closely. Cryptocurrency’s rollercoaster values can send a client over the federal estate tax exemption and cause federal estate tax liability. Also, despite public exchanges, valuing cryptocurrency still requires an appraisal. The second reason is accessibility. However private keys are stored, a fiduciary must know of a client’s cryptocurrency and how to access it. Remember cryptocurrency is decentralized — there isn’t a 1-800 number for a fiduciary to contact. For a cold wallet, any related passwords or private keys should be stored with important documents (for example, in a fireproof box.) For a hot wallet, a client should create a list of online account usernames and passwords for use by a fiduciary. The last reason is probate avoidance. Currently, there isn’t an easy solution to this issue, although clients may purchase and title the cryptocurrency in their trust, or it may be included in an assignment of personal property to
By Ashton E. M. Bizzarri Schneider Smeltz Spieth Bell LLP
their trusts. Careful planning for cryptocurrency may help clients and their advisers sleep (a little) better at night.
BIZZARRI
Ashton E. M. Bizzarri is an attorney at Schneider Smeltz Spieth Bell LLP. Contact her at 216-696-4200 or abizzarri@sssb-law.com.
HELPING CLIENTS PROTECT THEIR LEGACY Protecting what you have built for the next generation takes careful planning and an experienced partner who understands your goals and objectives and can tailor a plan to help you achieve them. At Hahn Loeser, we work with our clients to navigate the evolving tax laws, minimize tax exposure and create a strategy that will help them preserve their legacy.
LET US KNOW HOW OUR ESTATE PLANNING TEAM CAN HELP
Dana M. DeCapite Partner 216.274.2465
Stephen H. Gariepy Partner 216.274.2224
Christina D. Evans Partner 216.274.2442
M. Patricia Culler Partner 216.274.2534
Douglas C. Carlson Partner 216.274.2313
Joan M. Gross Senior Of Counsel 216.274.2277
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Retirement, investments afford an ideal philanthropic opportunity
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By LIA JONES, The University of Akron
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ecause a great deal of wealth is held in retirement and investment assets, there are substantial opportunities for individuals to make a meaningful impact on organizations they care about by utilizing these assets to accomplish philanthropic goals. A Qualified Charitable Distribution from an Individual Retirement Account – also known as an IRA Charitable Rollover – provides an opportunity for those ages 70½ or older to make charitable gifts and reduce their taxable income. This strategy permits donors to direct all or part of their annual required minimum distribution to a qualified charitable organization for up to $100,000 per year. This is true even if the required minimum distribution is less than $100,000. The required minimum distribution is simply the minimum amount one must withdraw. The donor’s taxable income is reduced by the gift amount, regardless of whether that individual itemizes or takes the standard deduction. These gifts are easy to facilitate and can be accomplished by instructing the IRA custodian to transfer funds directly to
the donor’s charity. Retirement accounts can also be earmarked for charitable purposes through a beneficiary designation. Using retirement assets to accomplish philanthropic objectives as a part of an estate plan has the benefit of offsetting
Using retirement assets to accomplish philanthropic objectives as a part of an estate plan has the benefit of offsetting potential estate taxes and maximizing the gift’s impact. potential estate taxes and maximizing the gift’s impact. Individual beneficiaries are taxed on the gifted amount at their ordinary income tax rate of up to 37%, while charitable beneficiaries are not taxed and receive 100% of the gift. Gifts of long-term appreciated stock are also advantageous assets for charitable giving purposes. Donors will receive a charitable tax deduction for the fair market value of the stock transferred and avoid capital gains
taxes. A stock portfolio can also be directed to a charitable beneficiary by completing a transfer on death form. By considering a gift from retirement or investment assets – looking beyond checking or savings accounts – donors can bolster the impact of their philanthropy while also maximizing tax savings. Doing so may enable them to make a larger gift with greater impact than they previously thought possible. The important work of charitable organizations is strengthened through philanthropic generosity. We are all better because of this community’s philanthropic spirit. As we say at The University of Akron: We rise together.
Lia Jones, JD, is director of the Center for Gift and Estate Planning at The University of Akron. Contact her at 330-972-2819 or LiaJones@uakron. edu.
A JONES
YOUR TEAM FOR TRUSTS & ESTATES Charles F. Adler
Ashton E. M. Bizzarri
James R. Bright
J. Paul Fidler
Veronica T. Garofoli
Joseph P. Gibbons
Kenneth J. Laino
David M. Lenz
Jamie E. McHenry
M. Elizabeth Monihan Brittany M. Payne
Aanchal Sharma
Justin L. Stark
Kimberly E. Stein
1375 E. Ninth Street, Suite 900 Cleveland, OH 44114 216.696.4200 | www.SSSB-Law.com
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Charitable gifts: balancing donor intent and institutional flexibility By ELLEN E. HALFON, Case Western Reserve University
lthough tax planning is often suggested as an incentive for charitable giving, the primary reason individuals make charitable gifts is their emotional connection and passion for a specific mission or charitable need. While unrestricted gifts provide optimum flexibility for charities, many donors desire restrictions of purpose, spending/timing of a gift and/or name recognition in perpetuity. Aligning a donor’s philanthropic passion with a charity’s mission can best be accomplished with a gift agreement that thoughtfully reflects the parties’ mutual understanding of how a gift will further both the donor’s and charity’s goals— something Case Western Reserve University strives to accomplish with our philanthropic partners. For example: CONFIRM THAT THE DONOR’S GOALS ARE CONSISTENT WITH THE CHARITY’S MISSION/ OPERATION AND WILL STAND THE TEST OF TIME : For both lifetime and estate gifts, donor restrictions as to use, timing, etc., should be vetted to ensure they are consistent with the charity’s mission, governance and applicable law. Overly restrictive conditions without flexibility might not be feasible, create complications for future use or become obsolete. ANTICIPATE POSSIBLE CHANGES IN CIRCUMSTANCES/ NEEDS: Many charities include a “variance” clause in their gift instruments and/or governance to allow for modification when a purpose becomes impossible or impractical. Gift agreements can also provide for an alternate contingent use or a method for modification that includes consultation with the donor or other designees. Such provisions can help avoid the need to
seek approval for changes from the attorney general and/or court. CONSIDER DONOR RECOGNITION AND NAMING RIGHTS: How and whether a gift is publicized should be mutually agreed on by the parties. Some donors prefer anonymity or require approval of any publicity. Where naming rights (as in a building or space) are included, the gift agreement should contemplate a change in purpose or physical nature of the space named. Some organizations may even want the right to remove the name of a donor associated with criminal or moral impropriety. PROVIDE FOR POST-GIFT STEWARDSHIP: Regular communication/reports to and with donors and their families furthers both donor oversight and institutional accountability and can also cultivate future giving by the donor’s family. Legal claims by a donor’s family that a charity failed to honor the donor’s intent are financially and emotionally costly, can face challenges of “legal standing” and risk damaging donor confidence and institutional reputation. Thoughtful communication and carefully drafted gift agreements help provide a mutually beneficial balance between a donor’s intent and the need for institutional flexibility. At Case Western Reserve University, we are committed to working with donors to ensure their passion and our mission for education are aligned and can benefit generations to come. Ellen E. Halfon, JD, is senior philanthropic advisor at Case Western Reserve University. Contact her at 216-368-2630 or Ellen.Halfon@case. edu.
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The benefits of supporting organizations By MATTHEW A. KALIFF Jewish Federation of Cleveland
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ndividuals and families who aim to deepen their philanthropic activity often think first of a private foundation. Family engagement, hands-on grantmaking, name recognition and legacy make private foundations an attractive solution. However, donors often do not realize that private foundations have their costs: administration, tax consequences, minimum distribution requirements and tax returns. One popular alternative to a private foundation is the donor-advised fund, given its simplicity. However, less well-known is the supporting organization. It offers some of the best features of the private foundation with less cost and hassle.
WHAT IS A SUPPORTING ORGANIZATION?: A supporting organization (sometimes referred to as a “supporting foundation”) is a separate nonprofit corporation with its own identity, board of trustees/directors and grantmaking mission. What distinguishes a supporting organization from a private foundation is its status as a public
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charity. This status derives from its close affiliation with and “support” of the mission of another public charity such as a university, hospital or local community foundation. The supporting relationship and public charity status enable the supporting organization to provide maximum benefits to a donor under federal tax law and avoid many of the burdens of private foundations. Federal law recognizes three types of supporting organizations. The model donors will most likely encounter at local community foundations is analogous to a parent-subsidiary relationship. In this arrangement, a donor or donors make a contribution to fund the supporting organization. The community foundation (the supported public charity) elects a majority of the supporting organization’s board of directors or trustees. The donor or his/her representatives (usually family members) in turn elect the balance of the board. The minority status of the donor trustees is necessary to qualify the supporting organization as a “public charity” rather than a “private foundation.” Despite their minority status, the donor-elected trustees may actively participate in the governance of the supporting organization. They may
serve as officers, recommend and vote on charitable grants, craft a mission statement and participate in setting investment and spending policies. In short, the donor/family trustees of a supporting organization can experience all the same kinds of activities as they would in a private foundation. This includes using the supporting organization as a platform for engaging multiple generations of a family in a charitable mission and legacy. It is vital to note that demonstrated adherence to corporate formalities is essential to maintaining the supporting organization’s public charity status and accompanying advantages. A supporting organization may have broad latitude in charitable grantmaking provided that grants are consistent with the affiliated public charity’s mission. Grants must be made for charitable, educational or religious purposes; they cannot benefit a donor or other private individuals. Unlike private foundations, supporting organization grants may not reimburse donors or family for personal expenses incurred on supporting organization business (e.g., travel expenses). ADMINISTRATION: Running a supporting organization is the
responsibility of the affiliated public charity rather than the donor. The public charity handles grant payments, maintains records, invests assets and prepares the supporting organization’s annual IRS and state filings. In addition, supporting organizations affiliated with local community foundations assign dedicated professional staff who serve as consultants on grantmaking and philanthropy. The staff can manage annual grant meetings, act as liaisons to grantees and generally carry out the work of the supporting organization. The supported public charity may charge fees to cover back office and professional services, but these should be significantly lower than the cost to a private foundation to accomplish the same tasks through paid staff or outside professionals. The potential tax and cost efficiencies of a supporting organization leave more assets available for charitable grantmaking. CONTRIBUTIONS AND TAXES: The public charity status of a supporting organization presents significant tax advantages over a private foundation. Most notably, unlike private foundations, supporting organizations have no minimum annual grant requirements and
do not pay tax on investment income. Cash gifts to a supporting organization are deductible up to 60% of a donor’s adjusted gross income. The limit for private foundations is 30% of AGI. Deductions for gifts of long-term capital gain property receive more generous deduction treatment than similar gifts to private foundations. The supporting organization may be the ideal solution for individuals and families who like the idea of taking their philanthropy to the next level. It offers many of the most appealing traits of the private foundation, favorable tax treatment and fewer costs. The ultimate decision is unique to each donor’s situation and priorities. Of course, you should always consult with legal and tax advisers to carefully evaluate the different charitable vehicles to chart the path that best aligns with your goals and expectations. Matthew A. Kaliff is assistant director of endowment development at Jewish Federation of Cleveland. Contact him at 216593-2831 or mkaliff@ jcfcleve.org.
KALIFF
Support the causes and organizations you care about most by creating a lasting legacy for the Jewish future. It’s easier than you might think!
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To learn more about charitable gift and estate planning strategies that can benefit you and your community, please contact Carol F. Wolf at cwolf@jcfcleve.org or 216-593-2805.
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Life settlements may harness value from insurance By JEFFREY WASSERMAN Oswald Specialty Life Insurance Cos.
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or more than 20 years, life settlements have been a little known, yet powerful tool that provided individuals over age of 70 a way to unlock value in their existing life insurance policy. In its basic form, a life settlement transaction involves a policy owner, the seller of the life insurance policy and an institutional investor, the buyer. The benefit to the seller is that the buyer purchases the policy for an amount greater than the policy’s cash value. This yields the seller more value than they would otherwise have received if they cashed in the policy. WHY SELL A LIFE INSURANCE POLICY?: There are many types of policy owners who are interested in selling a life insurance policy. Some are individuals who no longer need the policy or do not want to continue paying premiums. Another ownership type is a trust/trustee who finds a policy no longer meets the original estate planning needs of the insured. Finally, corporations once had a buy-sell or key person need that no longer exists.
In any of these cases, sellers have the potential to realize up to four to five times more than the policy cash value through a life settlement transaction. Even those who own term insurance have the potential to sell a policy that otherwise has no value. CURRENT STATE OF LIFE SETTLEMENTS: The industry has dramatically evolved since the early 2000s. Many state insurance departments have heavily regulated the industry, and new laws have been put into place to protect the best interest of the policy owner/seller. Also, the market for sellable policies has expanded. A life settlement is no longer a transaction for someone over the age of 70 who has health impairments. We are now seeing healthy individuals in their mid-60s cash in on their unwanted policies. Even with market advancement, studies have shown that, on average, $200 billion of life settlementeligible policies are lapsing or being surrendered each year. Furthermore, the data show that nearly 90% of all universal life insurance policies issued are either lapsed or surrendered. These are staggering numbers considering
there could potentially be a more lucrative alternative. MANAGING YOUR LIFE INSURANCE: Life Insurance is an asset, and as such, should be reviewed by a professional on a regular basis. The prolonged low interest rate environment has caused many policies to underperform, resulting in policies lapsing prematurely. Insurance carriers’ have begun increasing the cost of insurance in response to low interest rates and increased longevity in the population. As a result, the carriers are
The most important step in reviewing your life insurance portfolio is to determine if you need the coverage. increasing the cost of insurance, which in-turn, increases the policy owner’s premiums. Finally, higher estate tax exemptions may negate or reduce the need for life insurance for estate planning purposes. In any of these circumstances, regular reviews with your advisers could uncover potential problems and/
or opportunities within your existing life insurance portfolio. For people who are relatively healthy and want to maintain coverage, there may also be an opportunity to sell your current policy and use the proceeds to purchase new lower cost life insurance with more favorable contractual guarantees. WHAT TO KNOW WHEN CONSIDERING A LIFE SETTLEMENT: When contacting a life settlement professional, it is important to note there are buyers and there are brokers. Many buyers advertise nationally and offer to work directly with the policy owner to purchase the policy. When working with a buyer, it is important to know that they are an institutional buyer with hundreds of policies in their portfolio and that they are registered with your specific state’s insurance department. Small unregistered or individual buyers should be avoided. Working with a broker provides the owner access to an entire market of state-registered institutional buyers. A broker is an unbiased third party who works on behalf of the policy owner and conducts an auction that maximizes the value of the policy being
sold. Often, the final sales price is more than double the initial offer. When working with a broker, it is important to know how long they have been in the life settlement business, how many buyers they work with and their annual volume of policies sold. Engaging a life settlement professional and going through the bidding process is non-binding, even after the sales proceeds are delivered. The seller still has a period of time during which they can return the funds and retain their life insurance policy. The most important step in reviewing your life insurance portfolio is to determine if you need the coverage. If someone needs their life insurance, can afford it and the policy is competitively priced, they shouldn’t sell it. However, if one or more of those qualifications does not exist, exploring a life settlement transaction may be a prudent exercise. Jeffrey Wasserman is executive vice president and managing director of Oswald Specialty Life Insurance Cos. Contact him at jwasserman@ oswaldcompanies.com WASSERMAN
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Estate planning, life insurance and business solutions
Jeffrey Wasserman 216-367-5990 jwasserman@oswaldcompanies.com
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WEALTH MANAGEMENT
Pandemic reinforces need for thoughtful planning By DOUGLAS MCCREERY CM Wealth Advisors
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t seems that almost every commentator has their own opinion on the extent of permanent change brought about by the pandemic. While no one has a crystal ball, it seems certain that we may never go back to exactly how things were before COVID-19. Some trends that were noticeable before the crisis have accelerated during the past year and likely signal permanent changes in our behavior. Online purchases expanded markedly and have converted many traditional in-store shoppers to the convenience offered by the Internet. All levels of education, from elementary to advanced postgraduate programs, have been compelled to do much more with online learning. The avoidance of traditional business meetings has made Zoom, Teams and similar Internet meeting platforms flourish, demonstrating that in a wide range of situations, in-person business meetings can be a waste of time and resources. Also, the surge in popularity of Internet meetings may usher in a permanent reduction in business travel. The pre-crisis bias against working remotely has eroded and may cause a
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significant long-term reduction in the need for simultaneously basing all of a company’s employees in commercial offices. Another developing trend is a heightened awareness of interdependence of family members across multiple generations. With the sad exception of loss of life among the elderly from COVID, expanding life expectancy is increasing the population of individuals in their nineties and past the age of 100 years. The result is that the children of these elders are commonly into their retirement years, while their own children are enjoying mid-life with young adult children of their own and may often have their own grandchildren. So, an increasing number of the eldest generation has the experience of knowing their great-grandchildren and can even enjoy gatherings with five living generations of the same family. This trend accentuates the need for thoughtful financial planning. As an example, for families with significant wealth, longer planning horizons brought about by increasing life expectancy has made the trustee selection decision much like a game of chance. The decision maker must wager that the person selected (or the bank’s
personnel) will be both competent and caring about the family’s circumstances, potentially for great-grandchildren and even more remote generations. Wealth advisers are evolving a number of strategies to address these issues, but each family is different, and no single approach has universal application. Less clear is the extent that the pandemic will permanently impact our individual view of the world, our sense of well-being and personal objectives.
We may find that the pandemic has changed our perspective on how we live our lives and the positive impact we can have on our family and others that are important to us. While the polio epidemic caused widespread death and disabilities, after the Salk vaccine was introduced in 1953 and was widely administered, there was little evidence that polio had a permanent psychological impact on our society. However, health crises such as the current pandemic offer a significant
opportunity to consider changes we can make in our lives to focus on matters that are most important to us individually and for our families, rather than just returning to the way things were pre-COVID-19. But a renewed focus on the important things in life invokes the question: what brings you joy? How can you increase the amount of your time, energy and money you invest in your family, friends, work and other experiences that bring you happiness? What did you truly miss the most during the shutdowns? How can you make changes to spend more time on these activities? On the other side of this equation, are there things or activities that you thought were essential to your happiness that you now realize you can easily do without, so perhaps you can change your priorities and focus on more important aspects of your life in the future? We may find that the pandemic has changed our perspective on how we live our lives and the positive impact we can have on our family and others that are important to us. While wealth advisers typically focus on financial aspects of our
client’s lives, the COVID-19 crisis has reminded us that our ultimate purpose as advisers is to help our clients live the life they wish for themselves and their family. The core objective of financial planning is to identify and manage issues to help clients think through not only asset management matters, but also human concerns and challenges that individuals and families face throughout their lives. Financial decisions inevitably represent choices and tradeoffs that are part of life, so it is vital to identify and make choices in ways that are consistent with long-term objectives. While there are so many things beyond our control as demonstrated by the past year, by concentrating our efforts on matters we can influence, we will improve our own and our families’ lives.
Douglas McCreery is CEO and managing partner at CM Wealth Advisors.
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Maximize charitable giving impact through life insurance By BENJAMIN MCKELVEY Cleveland Clinic
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ife insurance is a significant, but often overlooked, financial resource for donors who want to leverage their assets for greater charitable impact. There are two types of life insurance policies: term life insurance and permanent life insurance. A
donation of a permanent life insurance policy is ideal since a term life insurance policy is only in force for a fixed number of years. Permanent life insurance is paid out to a beneficiary or beneficiaries after the policyholder’s lifetime, provided that the premium payments were maintained. Life insurance offers flexibility as a gift planning tool. The assets a donor would typically use for a gift can be
leveraged as funding for the premium payments on a policy to produce a much larger donation for charity than the donor may have originally thought possible. For example, a donor who intends to make a donation of $10,000 gift of cash or stock to charity could instead obtain a universal life insurance policy with a $100,000 death benefit at a total cost of $12,500 in policy premiums. This cost would be spread across
five years of annual $2,500 premium payments. For an additional cost of just $2,500, this donor could increase their impact by a factor of ten, instead of making the outright gift of cash. And as with the original $10,000 cash donation, this donor’s cash gifts for policy premiums would be deductible against income taxes. Life insurance gifts are also versatile, which is appealing to donors
The Power of Every
Legacy
who would like to make either an immediate or a future impact on charity. When a person donates an existing life insurance policy to the charity of their choice, the actual ownership of the policy is transferred to the charity. The charity can then choose to surrender the policy for its cash value or keep the donated policy in force. The donor can fund the remaining policy premiums with annual cash donations. Donors who make a gift of life insurance can take advantage of several tax benefits. For instance, when an existing policy is donated and then surrendered for its cash value, the donor receives an immediate income tax deduction for the lesser of either the policy’s fair market value or the net premiums that have already been paid. If the donated policy is kept in force by the charity, the donor’s ongoing cash donations for support of the premium payments are deductible against the donor’s income taxes. Another way donors can use life insurance for charitable giving is by taking advantage of their personal insurability, which is an oftenoverlooked asset. Many donors can establish a new life insurance policy
Donors who make a gift of life insurance can take advantage of several tax benefits.
For 100 years, we have been at the forefront of discoveries and innovations that have changed healthcare in Cleveland and around the world. The generosity of our donors is an integral part of our history. Whether you’re an estate planner, attorney or financial advisor, you can help your clients create a lasting legacy, and enable Cleveland Clinic to improve the lives of our patients and our communities to make the greatest impact. We look forward to transforming the next 100 years of healthcare together. Visit PowerOfEveryOne.org Call 216.444.1245 Or email giftplanning@ccf.org
and donate it to a charity. The charity takes control of the policy from the start, including its cash value and future policy benefit, while the donor makes a pledge to cover the necessary premium payments to fund the policy. The process for making a gift of life insurance is usually simple to implement and maintain. The easiest option is to change the beneficiary of an existing life insurance policy to a charity. Most insurance carriers can accommodate this process through a basic changeof-beneficiary form. While this option does not provide for an immediate income tax deduction, it does allow donors to maintain control of the policy during their lifetime, enabling them to make a charitable gift while retaining a sense of security against future risk and uncertainty. Cleveland Clinic’s Gift Planning Team is dedicated to working with donors to help Cleveland Clinic transform health care for our patients and shape the future of medicine. Our experienced team of professionals with backgrounds in law, finance and charitable planning is ready to maximize your charitable impact and leave a lasting legacy. If you are interested in making a gift of life insurance to Cleveland Clinic, or in discussing your overall charitable giving strategy, please contact the gift planning team.
Benjamin B. McKelvey, Esq, is associate director of gift planning at the Philanthropy Institute at Cleveland Clinic. 211317_CC_Power of every legacy_ad_8.125x10.indd 1
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WEALTH MANAGEMENT
Lifecycle events that create legacy opportunities By KATIE SHAMES The Cleveland Orchestra
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he late, great composer and playwright Jonathan Larson wrote, “How do you measure the life of a woman or a man?” As a planned giving gift officer, I am privileged to mark the seasons of life through planned gifts that benefit valued donors and their most cherished institutions. Finding and marking these life events is both a responsibility and an opportunity. This article will expand the traditional ideas of what these lifecycle events look like, taking advantage of them to benefit you, your loved ones and the organizations you care about. Most people think of legacy and lifecycle events as traditional rites of passage: graduations, marriages, births and deaths. These are deeply important events in many of our lives, but there are additional creative ways to think about rites of passage that look increasingly different today than even one generation ago. Single people are now buying real estate on their own rather than waiting for marriage. Entrepreneurship is flourishing among young people, who
are more frequently creating startups and foregoing traditional forms of employment. We are living longer and looking for new opportunities to create meaning in our own life and others’ as well. For those of us who work directly with donors looking for deep and meaningful legacy opportunities, this is truly a wonderful time. Let’s consider these modern situations: INCOME BENEFITS FOR YOU OR YOUR LOVED ONES: We all know the traditional ways charitable gift annuities work: gift over cash or appreciated securities to a charity and receive lifetime income and tax benefits based on age and current percentages. But consider these additional life events that can inspire such a gift: • Provide a jumpstart for a young adult in your life: Investing in a charitable gift annuity, with its attendant tax benefits, can provide helpful income to a child or grandchild who has just bought a first home or started a business. • Plan for extra income in your later years: A desire to travel during retirement can be the impetus to create a deferred gift annuity. Younger adults
can donate appreciated stock (now is an ideal time since the market has been doing so well), get an immediate tax benefit and collect income after the age of 65. • Provide income support for a loved one: Perhaps a relative or loved
We are living longer and looking for new opportunities to create meaning in our own life and others’ as well. one needs a fixed amount over his or her lifetime. Assuming certain thresholds are met, one can simply buy an annuity for another. • Celebrate your 70 ½ birthday: Utilize a required minimum distribution (RMD) from an IRA. • If it’s time to downsize: Donate appreciated real and/or personal property, intellectual property or even mineral rights. FROM GENERATION TO GENERATION: It is no longer a given that children will continue to live in the same city as their parents – which has long-term effects for the bonds between
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“We make a living by what we get, but we make a life by what we give.” —Winston Churchill When you give to The Cleveland Orchestra, you make music a way of life in Northeast Ohio – for you and your loved ones today, and for generations to come. Contact us to learn how you can use your assets to plan a thoughtful gift that benefits you and those you love – and leave an enduring legacy with America’s finest orchestra. Katie Shames 216-231-8006 legacy@clevelandorchestra.com
local institutions and families. Good planning, however, can keep these civic bonds alive and strong. For example, an endowment gift to an arts organization can carry annual recognition and engagement through supported performances. This allows future generations to be involved with the institutions that are most meaningful to you. GET CREATIVE WITH YOUR PLANNED GIVING: The current financial atmosphere makes charitable lead trusts an especially attractive option. The intangible benefit, in addition to the advantageous rates, is the opportunity to celebrate the donor’s impact during his or her lifetime. A charitable lead trust allows life income to go to a benefitting institution, with the remainder to a specified beneficiary upon the donor’s death. In addition to allowing the donor to enjoy the impact of their giving during his or her lifetime, a charitable lead trust also provides the opportunity to continue the conversation about additional gifts. Charitable lead trusts can be funded during both traditional lifecycle events – say the birth of a grandchild – but
also through other situations such as selling a business or downsizing a home and directing the profit toward a gift. In “Leaving a Legacy: A New Look at Planned Gift Donors” commissioned by Giving USA, respondents to the survey indicated that they changed their will two to three times during their life as their own personal circumstances changed. Thus, the answer to the question “When is a good time to have a discussion about a planned gift?” is right now! So, what is the measure of a woman or a man? Jonathan Larson’s “Seasons of Love” describes the perfect impetus for both donor and planner to have “the story never end” by using estate vehicles to improve the lives of future generations while ensuring the future of the institutions we cherish and want to preserve.
Katie Shames, J.D., is the planned giving and major gift officer at The Cleveland Orchestra. Contact her at 216231-8006 or kshames@ clevelandorchestra.com.
SHAMES
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November 1, 2021
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The case for a durable general power of attorney By MARGARET M. METZINGER Frantz Ward LLP
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Durable General Power of Attorney (DGPOA or POA) is a legal document which allows you (the Principal) to designate another person (your Agent) to manage certain financial, health care, lifestyle and other matters on your behalf. A DGPOA is a written expression of your intent and should be drafted to include broad powers for your agent to conduct your business as you would were you able. A valid POA will eliminate any disputes among your family members, friends or business associates about who has the authority to act on your behalf. A power of attorney is effective once it is signed. Most states will accept and enforce an out-of-state POA. However, if you move to another state, you should consult with a local attorney to ensure your POA is still valid and enforceable. The person you designate as your agent does not have to reside in the same state as you but should be someone who has knowledge of your assets, property and business interests. A POA is only valid during your lifetime; therefore, an agent may not make decisions or transact business for you after your death.
A primary benefit of a DGPOA is that it remains in effect if you become incapacitated and cannot make decisions for yourself. However, a DGPOA also gives your agent broad authority to manage your financial and personal affairs while you are fully competent. Under these circumstances, you may want to execute a “limited” POA to be used for specific transactions. For instance, you could use a limited POA to allow your agent to engage in real estate transactions on your behalf, but you may also need a separate limited POA to authorize an agent to act for you when you do not have sufficient knowledge to manage certain financial or legal matters. If your agent is going to handle real estate transactions, the POA must be recorded with the county recorder’s office where you reside. Your POA should permit your agent to access your financial accounts to pay for your support, health care, housing needs and other expenses. Your agent can also be authorized to file your taxes, buy or sell real estate, obtain a mortgage, receive bank statements, access your safety deposit box, collect debts owed to you, operate your business, make gifts,
engage in litigation on your behalf and make investment decisions. If properly articulated in the document, your agent can apply for governmental benefits such as veteran’s and Medicaid benefits and social security. A general DGPOA may contain language that allows your agent to authorize and consent to medical or
A valid POA will eliminate any disputes among your family members, friends or business associates about who has the authority to act on your behalf. dental procedures and to arrange for the services of a companion, convalescent care, extended care or nursing home care. Designating an agent can be tricky because you need to appoint someone you trust who also understands the nature of your business and assets. Common options include designating your spouse, a relative or a close friend. Keep in mind that giving your agent the POA makes it easy for the agent to misuse his or her authority, especially if
you are incapacitated, so it is important to designate a trusted confidant. Creating a POA while you are healthy and fully able to manage your finances and property provides you with the security that if you become incapacitated or if you are overseas or otherwise unable to transact business, your designated agent (as opposed to a court-appointed guardian) can immediately step in to assist you. The guardianship process can be complicated and take several weeks to complete and may not be finalized in time to make important decisions on your behalf. While an agent has broad authority under a general POA, you can carve out transactions which you do not want your agent to handle. For example, your documents can be drafted to prevent your agent from creating a trust and modifying or terminating your existing will or trust. To the contrary, your POA should include language that requires your agent to preserve your existing estate plan. Likewise, you may want to prevent your agent from changing beneficiary designations on life insurance, retirement accounts or other assets. The document can be drafted with such exclusions.
Your agent is generally prohibited from changing your POA or transferring it to another person unless you have already identified a successor or alternative agent in the POA. Finally, your agent is bound to uphold his or her fiduciary duty to act in your best interest and is prevented from self-dealing or acting in his or her own interests. There is generally no court supervision over your agent, so if your agent breaches these duties, you or your next of kin may have to initiate litigation to recover any misappropriated assets.
Margaret M. Metzinger is a partner at Frantz Ward LLP. Contact her at 216-515-1075 or mmetzinger@ frantzward.com.
METZINGER
An estate needs a plan like a house needs a foundation. We help families and businesses create a solid base for achieving their long-term goals.
David Weibel
Matthew Kadish Margaret Metzinger
For families, our estate plans are tailored to their specific needs, including the special needs of beneficiaries, asset protection, and tax planning. We also provide advice on family goals and governance, and establish and represent charitable trusts, private foundations, and donor advised funds within public charities. For business owners, we advise on business succession matters, including transitioning a business, recruiting, developing and retaining managerial talent, and owner exit strategies, including the formation of ESOPs and the sale of stock to ESPOPs. Contact one of our Estate Planning attorneys today. David Weibel – (216) 515-1072 – dweibel@frantzward.com Margaret Metzinger – (216) 515-1075 – mmetzinger@frantzward.com Matthew Kadish – (216) 515-1078 – mkadish@frantzward.com
Ralph Higgins
Ralph Higgins – (216) 515-1617 – rhiggins@frantzward.com William Duncan
William Duncan – (216) 515-1073 – wduncan@frantzward.com
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WEALTH MANAGEMENT
Defining current wealth management themes
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robust periodic review of your finances and tax liabilities is standard practice. But this fall, we recommend starting your review a little earlier. There is so much uncharted territory to cover: the evolving global pandemic, possible changes to U.S. tax law and the all-time highs of the U.S. equity markets. Give yourself the gift of more time to connect with advisers, make thoughtful decisions — and act. Consider the following themes as a path toward making those discussions as effective and efficient as possible. 1. REVIEW YOUR PORTFOLIO: Equities kept soaring in 2021, and our market outlook remains positive. Even so, make sure you understand how you’re currently positioned and check that your overall strategy is still aligned with your goals. Pay particular attention to any holdings that have become a “concentrated position,” which might disrupt your financial future if markets were to turn. We’re now focused on three pillars that help with portfolio diversification:
• Traditional sources: Traditional diversifiers, such as core fixed income and dynamic asset managers who target low correlation to risk assets, can help dampen volatility. • Alternative sources: Hedge funds with less correlated return streams can serve as a valuable complement to traditional portfolio buffers. • High-quality growth exposure: Companies with strong balance sheets and participation in lower-beta strategies can help protect capital on the downside while allowing participation on the upside. 2. REMEMBER THE IMPORTANCE OF CYBER AND FRAUD PROTECTION: Losses due to fraud reported in 2020 totaled over $1.5 billion, according to the Federal Trade Commission (FTC), as fraudsters grew in sophistication and their targets failed to keep pace. Take a multi-layered approach to preventing cybercrime and fraud by creating a fraud prevention plan, and find a financial partner who can provide constantly evolving defenses that detect and prevent potential threats. In addition to finding a financial partner to help protect
your wealth, contemplate a few key questions; for example: Has your business engaged partners to review your current threat detection? Are you getting cyber guidance, education and timely content? 3. REVIEW YOUR TAX AND ESTATE PLAN: In a low interest rate environment, U.S. investors may be able to take advantage of certain lending techniques, and trusts that leverage those rates, to transfer wealth with little to no gift tax consequence. However, recently proposed policy changes could mean that the environment will change, and soon. For business owners, this may be particularly important to consider in terms of succession planning. The new economic dynamic of a post-pandemic world has spurred corporate merger and acquisition activity, and we see that demand lingering well into 2022. Beyond the tax implications of selling a business, consider factors like executive compensation as it relates to your longterm wealth goals or an earnings analysis as you prepare your business for a sale. 4. CONSIDER YOUR WEALTH’S IMPACT AND PURPOSE : Today,
many of us are more interested in utilizing investments and charitable donations to make an impact than ever before. For the investor, Environmental, Social and Governance (ESG) investing may be of interest. From renewable energy to social equity and equality, the momentum to shift toward a more sustainable economy continues to accelerate. We’ve identified many investment opportunities that align with these trends and investing sustainably does not require a performance tradeoff. If interested in impactful giving, there are ways to make the most of your charitable dollars. For example, if you give to a large number of charities and want to simplify your tax reporting, two options to consider include giving to a donor-advised fund (DAF) or a private foundation. Both strategies allow you to make a single irrevocable contribution to “front-load” multiple years of gifts (or, if you prefer, you can make multiple gifts over a period of years). You generally will receive a charitable income tax deduction in the year of the gift equal to the fair-market value of your contribution. Similar to previous market shocks,
the post-COVID 19 environment has made clear that a comprehensive wealth management strategy is crucial. Take the time to sit down with a financial professional to outline a plan that works for you and your family. Consider using the current themes identified above as a basis for that discussion. Creating a plan and sticking to it is the first step to securing a brighter future. David Allen is executive director at J.P. Morgan Private Bank Cleveland. Contact him at 216-781-2597. ALLEN J.P. Morgan Private Bank provides customized financial advice to help wealthy clients and their families achieve their goals. Clients of the Private Bank work with dedicated teams of specialists that bring their investments and financial assets together into one comprehensive strategy, leveraging the global resources of J.P. Morgan across planning, investing, lending, banking, philanthropy, family office management, fiduciary services, special advisory services and more. More information about J.P. Morgan Private Bank in Cleveland is available at privatebank.jpmorgan.com/Cleveland.
STUDENTS
From Page 1
“Students want to have those connections,” she said. “They want to understand the culture of the company, if you have flexibility — they want to know what the perks are. So it’s important to put your best foot out there and talk to candidates about what that ‘best and final’ (offer) might look like, because things are moving so rapidly.” Campus career fairs, many of which moved online amid the pandemic, have long been one of the most common currencies when it comes to connecting students and potential employers. That’s changing, though. “Because Gen Z is native to digital interactions, the shift from the old ways of recruiting (e.g., in-person interviews, career fairs, campus and employer networking events) is not something today’s job seekers dwell on,” read a line in a recent trend report from Handshake, a popular digital recruiting platform. Most young people want to meet representatives more than once and in different ways. Kent State recently held a “networking for good” event where employers worked on a service project with students. Sending company reps to campus for lunch or as class speakers are other ways companies are looking to make inroads. Fall traditionally is a busy time for recruiting as businesses look to secure talent to start post-graduation in the spring. That timeline can be tough, said Julie Gutheil, an associate director at Case Western Reserve University’s post-graduate planning and experiential education office. Some CWRU students, especially those in engineering, already report receiving multiple offers. Gutheil is noticing an uptick in students booking appointments to talk about offer negotiations. She said the biggest challenge they face is when those come early. “For some of them, it’s, ‘I kind of want to see what’s still out there, and I’m still applying for different oppor-
MOVIE
From Page 1
Before joining the film commission last month, Garvey worked as a location manager, on both “Judas” and “Wheat Germ.” A location manager scouts for locations for film shooting and coordinates logistics for the production at film sites. Last month, Garvey’s work on “Judas” won him and his partner an award from the Location Managers Guild International for Outstanding Locations in a Period Film. “I like making movies here, because you have a city that was built with an infrastructure for a million population and now you don’t have that population, so there’s a lot of room to spread out. On top of that, you have architecture that is a chameleon; we can make this city into anything,” he said. “When I bring a director here, they’re always amazed at the variety of different looks.” “Wheat Germ,” which will be shown on the Netflix streaming network, is based on the 1985 novel “White Noise” by Don DeLillo. It’s the story of a professor of Hitler studies at an unnamed college in an unnamed college town that is transformed after a train accident. The film stars Adam Driver as Jack Gladney, the college professor, and Greta
Officials at universities across the region, including here at Kent State, are reporting a flurry of activity around recruiting students for jobs. | KENT STATE UNIVERSITY
tunities, but I have to potentially give an answer,’ ” she said. She advises companies to give students until November or December to make a decision. But the school can’t mandate that. It’s typical for Case students to be in this situation when employers want students to turn an internship into a full-time role. Gutheil helps students reflect on their experience: Does the time you spent there over the summer align with your long-term goals? Were there things you didn’t enjoy? What are you looking for in an organization? “Over time, your brand as an organization is going to impact your value proposition for new team members,” said Jim Livingston, chief people offi-
cer of Rock Central, a business that supports the growth within the Detroit-based Rock Family of Companies, including Rocket Mortgage. The pandemic reinforced the importance of offering empathy and listening to those they recruit, Livingston said. The company scouts for its family of companies at several universities in the area, including Cleveland State University and the University of Akron. Outreach ranges from partnering with student organizations to offer professional development sessions to sponsoring sales competitions to find new talent. About 20% of the company’s events this semester remain virtual. Online events allow recruiters to
reach far wider talent pools. Women, people of color and neurodiverse students said they found online events and interviews to be “less anxiety-inducing, easier to balance, and more accessible,” per additional findings from Handshake —and nearly 90% of student respondents said they want some level of virtual recruiting to continue in the future. All of insurance giant Progressive Corp.’s collegiate recruiting efforts are online this semester. Gabe De León, a recruiting manager overseeing collegiate and MBA programs, noted engagement for available fulltime positions has dipped slightly. He gets it. “I know students are tired of getting emails or another Zoom meeting or
Gerwig, who plays his wife. It’s directed by Noah Baumbach, whose most recent movie, “Marriage Story,” earned multiple Academy Award nominations. The attraction to makers of big movies is the Ohio Motion Picture Tax Credit. It was created in 2009 following similar programs in other states. It gives film companies a 30% tax credit on money spent on productions in the state. Based on its $23.8 million tax credit, “Wheat Germ” is expected to spend nearly $79 million in Northeast Ohio on everything from heating and cooling equipment, tents, cleaning, food service and portable toilets, as well as the salaries of several hundred people hired to help with the production. “ ‘Wheat Germ’ has been a nice boost for us,” said Glenn Jarus, who handles power systems rentals for Ohio CAT of Broadview Heights, which brought in cooling, heating and temperature control equipment to the former Walmart and has provided power generators and small air conditioners to other film productions in the past. “The trickle down effect is real,” he said. “It’s been good for this company, it’s been good for our fuel vendors, it’s been a really nice gig for us.” The film also was hiring people to work in front of the cameras. The
website for Project Casting , a film casting service, showed a long list of casting calls for actors, featured extras, background actors, stand-ins and photo doubles. The pay: $10 an hour with a guarantee of eight hours per filming day, as well as a $20 flat rate for costume fitting. Although the jobs may be short term, these large film productions provide jobs for film professionals who build careers going from production to production — some even making their own films. They also provide internships for students from the film programs at Cleveland State University and Cuyahoga Community College. Both programs have had students and alumni working on “Wheat Germ” doing a variety of jobs. Cigdem Slankard, interim director of the CSU School of Film & Media Arts, said an earlier film, “Cherry,” used the school’s facilities for post-production work. “Cherry,” released early in 2021, was directed by Anthony and Joe Russo, former Clevelanders who have used the city to shoot a number of their films. Slankard said the goal of the CSU program is to build connections to the film industry and to create pathways for students to move into the industry. Partly because of “Wheat Germ,” business has been strong for at least a
couple of local film professionals. “Since the summer, I’ve been like crazy busy. Everyone I know in the business is busy,” said Jay B. Johnson, who operates Faze Films. “‘Wheat Germ’ is such a big production, it used up a lot of local people so any local productions were struggling to find people.” Johnson, a cinematographer whose work takes him beyond Cleveland, wrote and directed “Will Work for Food,” a 2005 feature that was filmed in Cleveland. Although he doesn’t see the local industry exploding, he believes it will keep people like him consistently busy. Eric Swinderman, a writer, producer and director, believes the cost of filming makes the area attractive. He recently released “The Enormity of Life,” a feature starring Breckin Meyer, who plays a middle-aged man who after a suicide attempt meets a young woman who helps him get his life back on course. The film was shot in Cleveland in 2018 and is available on Amazon Prime, Apple TV and other streaming services. “I can make a movie with Breckin Meyer for under $1 million in Cleveland, whereas in Los Angeles or New York or Atlanta, we’d be spending three to 10 times what we spent here,” he said. One thing that keeps a lid on the
Teams meeting (invitation),” he said. They’re working to make more consumable messaging. Job descriptions are getting drilled down. Videos are embedded into some postings. “It is difficult to show them what’s inside at Progressive when we’re obviously still working from home, so it’s kind of bringing the Progressive culture to them,” he said. The company added more PTO days to its benefits package and upped incentives like virtual fitness class offerings. Students are interested in more than just their salaries, according to college career services professionals. Educational benefits, like student loan repayment, are appealing, as are flexible work options. Paid parking, wellness incentives and child care assistance are big, too. KeyBank officials tailored specific virtual events for students this year. These highlighted the company’s benefit offerings, its culture and team members who have grown within the organization, said Megan Lallo, Key’s campus and diversity recruiting manager. “The feedback that we got from candidates is they felt way more connected to Key as a result of those events,” she said. “And then ultimately what we did was create a pool of talent that just generally better fits for our organization.” This year, the company moved up its college recruiting cycle by three months in order to stay competitive. Jobs for 2022 got posted in May 2021. Interviews started in September. Officials came to this decision, Lallo said, by doubling down on market research. That insight is a huge part of how the company crafts its collegiate recruitment efforts. “Removing COVID from the game altogether, the campus recruiting industry is not one that you can copy and paste year over year,” she said. “We’re always needing to evolve our strategy and grow and change the way that we show up in the market and differentiate ourselves in different ways.” Amy Morona: amy.morona@crain. com, (216) 771-5229, @AmyMorona film industry in Northeast Ohio — and all of Ohio — is the small size of its tax credit. While tax credits are controversial, Garvey believes increasing it what give the state’s film industry a boost. State law caps the maximum amount of incentive awarded at $40 million a year. More than 30 states have similar credits, some with a larger cap than Ohio’s. “We need to grow the tax incentive to a higher level than it is now; we are at a competitive disadvantage to other states that do this work,” Garvey said. “Kentucky just increased its tax incentive to $100 million and Pennsylvania just introduced a bill to increase its tax incentive to $125 million.” Opponents, though, believe the tax credit diverts money needed for schools and other basic public services. “Each state tax break adds up,” Wendy Patton, senior project director with Policy Matters Ohio, said in 2019 when the progressive think tank released its most recent report on the tax incentive. “Ohio spends more than $9 billion a year in tax breaks. Some of them make sense, but the break for motion pictures is not one of them.” Jay Miller: jmiller@crain.com, (216) 771-5362, @millerjh
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DRONE
From Page 1
That’s a potential nightmare for UAS operators ranging from big players like Amazon, which hopes to use drones for package delivery, to individual pilots who take photos for real estate clients or help farmers map and analyze their fields. “I primarily do agriculture. That could be anywhere in the northern half of Ohio for me,” said Tom Taconet, owner of Avon UAS in Lorain County. “So, if every (local government) is doing their own thing, trying to figure out where I can fly and what I can fly, it’s just going to be impossible. It’s going to impact my drone business, but it’s also going to affect the farmers, because they’re calling me for a reason.” The issue is becoming a bigger blip on the radar of UAS pilots locally, because drone laws are being passed by local governments in Northeast Ohio. Currently, the city of Brook Park is considering legislation that has some in the industry concerned. “Last (month) social media started sparking up with comments about Brook Park kind of going off the rails and making an anti-drone ordinance that was very heavy handed,” said Chad Hankins, who operates Tamarack Aerial Services in Brook Park, a company that does inspections and modeling of cell-phone towers and other vertical structures. “It’s comprised of things that are not in the realm of cities to control, such as the airspace,” Hankins said of the proposed Brook Park law. Hankins knows his stuff. In addition to running a UAS business that must keep 35 pilots across the U.S. from running afoul of the law, he teaches pilots how to stay legal via classes at Cuyahoga Community College and offered by the Ohio Aerospace Institute. Hankins is going by the reasoning — followed by many, perhaps even the majority of those in the UAS in-
CRAIN’S CLEVELAND BUSINESS
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Tom Taconet, owner of Avon UAS, says his business doing drone work for farmers who want to better monitor their fields could be threatened if a patchwork of local drone regulations becomes prevalent. | CONTRIBUTED PHOTO
dustry — that the regulation of airspace for drones is the sole purview of the FAA. So, they reckon, if a pilot is in compliance with FAA rules and the FAA says that pilot can fly in airspace that’s public domain, no local or state government can enforce a law that says otherwise. Brook Park’s legislation is not unique. It’s patterned after a law put in place by Aurora in 2020, said Ward 1 Councilman Tom Troyer, who introduced the Brook Park measure. That Aurora law states no one shall operate a drone within the city limits if the craft is within 1,000 feet of any school property, city-owned buildings, cell towers, utility sub stations or active crime and fire scenes. It also prohibits photography of anyone on private property, without the property owner’s permission, unless the person photographed could also be seen without a drone. Troyer said he’s not trying to hurt anyone’s business or the industry as a whole, but that the city needs to pro-
Drones can be used for recreation, photography, to make agriculture more productive, and for inspections that would be more costly or dangerous with other equipment. But they also must safely share the skies with other aircraft and their pilots want uniform rules on how to do that without running afoul of the law. | DRONE SERVICE PROVIDERS ALLIANCE
tect its assets and people’s privacy. “I’m just trying to get something going because I think we’re going to see more and more of them,” Troyer said, adding that he’d been asking for some sort of legislation for five years before he submitted his own. “It’s just basic legislation, basically stolen from Aurora. It’s the same legislation they have. ... It will probably be amended a little bit, depending upon what council wants to use.” While the law seems reasonable to Troyer, that’s not how UAS advocates see it. “This is very disheartening,” said Jason Lorenzon, a commercial pilot and aviation law attorney who teaches at Kent State University, of the proposed legislation. Lorenzon says such laws not only make it more difficult for commercial UAS operators to work here, but also make Ohio appear to be unfriendly to drone-based businesses. “What Aurora is doing and what Brook Park is trying to do is going to chill some of those bigger companies away,” Lorenzon said. “Companies like Amazon, FedEx, the big players, even Google, they all have their people looking for legislation like this, so it really makes our area unattractive to business.” But while Lorenzon thinks the Aurora law and Brook Park’s legislation likely overstep the cities’ authority to regulate drone flights, he differs from Moss, Hankins and others in the industry when it comes to what cities or other local governments can do. Lorenzon disagrees with the FAA and many other in the drone industry when it comes to how much of the airspace is the FAA’s sole authority “The FAA thinks they regulate airspace from the blade of grass up and that’s not true,” Lorenzon said. He also asserts that private citizens have the right to say who can fly over their property, at least at the altitudes below 400 feet at which drones are allowed to fly. “That’s 100% incorrect,” said Moss, of the Drone Service Providers Alliance. “If I couldn’t fly over private property, I couldn’t do my job.” For its part, the FAA seems to side with Moss. “Federal law gives the FAA sole jurisdiction over the nation’s airspace,” FAA spokeswoman Emma Duncan said via email. “A local law that bans people from taking off or landing drones on public property may not conflict with the FAA’s jurisdiction. ... However, a local law that bans people from flying drones in certain airspace likely would conflict with the FAA’s jurisdiction.”
A chief issue that UAS advocates would like to see addressed at the federal level is the concept of “navigable airspace,” which is what the FAA is legally authorized to regulate. According to the FAA, navigable airspace is “the airspace at or above the minimum altitudes of flight” that an aircraft requires to operate safely. But what aircraft? The court case that defines much of the matter is from 1946, when a North Carolina chicken farmer named Thomas Causby successfully sued the federal government for flying military aircraft below 100 feet over his farm and killing his chickens. The U.S. Supreme Court ruled that Causby had a right to the air space immediately above his property, but also affirmed that navigable airspace was public domain. The government, via the FAA, ended up regulating airspace beginning in 1958 and settled on 500 feet as the lowest altitude for navigable airspace in most cases. But UAS advocates point out that there were no compact drones in 1958 — and today’s drones certainly don’t need to be 500 feet in the air to maneuver. (Not to mention that drones are only allowed to fly to an
altitude of 400 feet.) What the UAS industry would like to see happen is for the FAA’s sole authority over navigable space made clear, and for that to include the airspace in which drones fly. That would mean they could fly pretty much anywhere but would be subject to the same laws regarding privacy and other matters as anyone else at the same time. But until that happens, drone pilots are left not knowing who has jurisdiction, the FAA or cities like Aurora, Book Park or countless others that have passed local drone laws. The problem, says Jonathan Rupprecht, a drone-law specialist in Florida who is well known in the industry, is that if pilots are arrested by the local police or sheriff, they’re on their own. They’ll probably win if they can afford to fight the matter long enough Sin E Pcourt, T E M B Ehe R 3said, - 9 , but 2 018 PA G E 2 9 they| shouldn’t count on any help from the FAA, which has not come to the aid of pilots in such circumstances so far. “I’ve never seen the FAA jump in once to defend someone, or the Department of Transportation. You’re on your own,” Rupprecht said. He’s busy with federal cases involving the rights of drone pilots, but Rupprecht said he plans to later go after states and local governments. If he wins, he gets his attorney fees paid by the defendant, he said, but the point is to defend what he says are rights to the sky. “It’s a federal right to fly in the navigable airways, so where do you as a city, state or county get off denying me my federal rights?” Rupprecht asks. All well and good, but UAS operators aren’t looking for court fights or to be legal guinea pigs. They say they just want clear, uniform rules. While they wait for progress nationally, they say they hope cities will consult them before they write legislation affecting their industry, as happens with most other industries. “We’d be glad to work with them if they’d ask,” Hankins said, noting that he was set to meet soon with Brook Park City Council on its legislation. Dan Shingler: dshingler@crain.com, (216) 771-5290, @DanShingler
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BANKING
THE WEEK ON THE MOVE: Kichler Lighting, a major employer in Independence, plans to empty out its mammoth headquarters next year — moving its corporate offices to Solon and relocating its distribution hub to Pennsylvania. The homegrown maker of light fixtures and ceiling fans confirmed Wednesday, Oct. 27, that it plans to vacate its longtime home, a 631,000-square-foot warehouse and office complex at 7711 E. Pleasant Valley Road. In a news release, Kichler characterized the decision as part of its “strategic plans to reposition its business for a dynamic future.” The company announced the moves one day after Kichler’s out-ofstate landlord said it had hired the Newmark brokerage to market the Independence complex to potential tenants. A Kichler spokeswoman said about 85 warehouse workers will lose their jobs in the transition. BID IS IN: A Connecticut-based hospitality company has agreed to pay $40.2 million for the Westin Cleveland Downtown hotel, after outlasting other potential suitors for the property. A court filing shows that HEI Hospitality Management LLC, the stalking-horse bidder that laid the groundwork for a sale in August, has emerged as the victor. The company, an affiliate of HEI Hotels and Resorts, has a portfolio of upscale hotels scattered across the country and describes itself as the largest independent operator of Westins. Adding the 484-room Cleveland property to that collection won’t be easy. Court records indicate that the hotel’s current owner, Florida-based Optima Ventures, plans to put up a fight. The Westin, located at St. Clair Avenue and East Sixth Street, is the subject of a year-old foreclosure lawsuit and has been in receivership since March. On Tuesday, Oct. 26, receiver Tim Collins filed a motion seeking approval of the sale in Cuyahoga County Common Pleas Court.
From Page 14
A Connecticut-based hospitality company has agreed to pay $40.2 million for the 484-room Westin Cleveland Downtown hotel. | MICHELLE JARBOE/CRAIN’S CLEVELAND BUSINESS
NEW HQ: Nexen Tire America Inc. is relocating its North American headquarters to its technical center in Richfield from Diamond Bar, California, where it has been for the past 16 years. Yangsan, South Korea-based Nexen Tire Corp. joins several tire companies that have a presence in the Akron area in the form of technical centers, such as Bridgestone Americas; Goodyear; Kumho Tire U.S.A.; Kenda Tire U.S.A. Inc.; Triangle Tyre Group Co. Ltd.; and Hankook Tire America Corp. Nexen will integrate its corporate and sales staffs into its North American technical center, a $5.2 million, 35,540-squarefoot facility that opened in 2019. The U.S. tech center is one of three that Nexen operates around the world. Nexen — considered the No. 20 tiremaker worldwide, with 2020 sales of $1.4 billion — said it considered several locations before opting to move to the Ohio technical center.
MANAGEMENT CHANGE: The Millennia Cos. has converted the Cleveland Marriott Downtown to a franchise, in a move that heralds the first management change since the property opened in 1991. As of Dec. 14, 2021, Marriott International Inc. will no longer run the 400-room hotel at Key Center. Pyramid Hotel Group, a Boston-based hospitality company that oversees a rapidly growing portfolio, is preparing to step in as the new manager. Marriott and Millennia signed their franchise agreement in mid-October, and Marriott followed up by notifying the Ohio Department of Job and Family Services that it will no longer employ 109 people at the hotel. But that doesn’t mean workers are losing their jobs. Every one of those employees will receive an offer from Pyramid, said Cheryl Wearsch, Millennia’s asset manager for the Key Center complex.
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In making a case for public banking in Cleveland, Walt McRee, a senior adviser and chair emeritus at PIB, notes that the city of Cleveland spent $102 million in interest alone in 2018 that, with a city-owned bank, would simply be reinvested. “That’s money leaving the economy and the state,” McRee said. “But the reason this idea hasn’t taken off is because the banking industry is mostly a private enterprise in the United States. The desire to create new public banks is consistently running up against the industry.” Lawmakers bristled at the idea of public banking in the wake of the financial crisis, which is what spurred the creation of the PIB by folks like McRee. In more recent years, McRee said that there are multiple efforts underway to explore public banking in markets like California, Maryland, New Jersey, Pennsylvania and New Mexico, among others. Some of this is fueled by a populous more engaged in matters of social equity, he said, as public banks have inherently more control over where to spend their money. Under what model they function would be up to the stakeholders creating it. In Cleveland, a city-owned bank
sions based on political purposes, rather than sound underwriting criteria.” A public bank would also require significant startup capital. Some of that could seemingly come from deposits the city parks with KeyCorp, due to a Cuyahoga County banking services contract. That contract, valued at $3.2 million when it was signed in 2020, runs through March 2024 and came with the privilege of managing approximately $600 million in county deposits and an investment portfolio of some $850 million. There would also be steep investments required to shore up compliance and cybersecurity. It would likely take a few years before a meaningful return on assets is realized. It bears noting, however, that the Bank of North Dakota has generated a cumulative profit of $2.1 billion and returned $1.2 billion to the state since its inception. How a public bank would be set up and funded is something the exploratory committee Minocha wants formed would work on figuring out. No matter how it would function, the commercial banking industry remains vehemently against the idea. “Access to capital is not an issue for most small businesses at this time,” Kleymeyer said. “Loan to deposit ratios are the lowest they have been in decades. If someone
“WITH THESE BANKS, THERE IS GREAT POTENTIAL TO BANK THE UNBANKED AT SCALE, YES. BUT THEIR PRIMARY GOAL, WHICH SETS THEM APART FROM OTHER INSTITUTIONS, IS TO ACT AS A DEPOSITORY FOR GOVERNMENT DOLLARS AND KEEP COMMUNITY DOLLARS WITHIN THE COMMUNITY.” — Geeta Minocha
could have greater control over lending — which can include co-lending with commercial banks — targeting specific initiatives or communities for investment. It wouldn’t necessarily crowd out any of the dozens of banks in the market. The fact Cleveland is such a highly fragmented banking market, yet still one of the poorest in the nation, is a sign that the commercial banking sector isn’t addressing the city’s issues of poverty on its own, Minocha said.
‘Once-in-a-generation opportunity’ Nonetheless, the banking industry says it is better equipped to manage a bank than a government system. Creating a municipal bank isn’t “as simple as it may sound,” said Evan Kleymeyer, a spokesman for the Ohio Bankers League. The OBL also argues the bank might not be as effective as is hoped. “There is no evidence that a municipal owned bank will have a different impact or experience than the current banking marketplace,” Kleymeyer said. “Federal and state regulatory agencies have created underwriting standards that are the guideposts for all lending in the U.S. If those standards are relaxed then the lending is riskier and put taxpayer funds at risk. A municipal bank could be susceptible to political pressure to make lending deci-
is looking for capital, they have many safe and sound options in the current marketplace.” But the impact of a public bank potentially goes beyond access to cheaper capital alone. “Public banking fills an entirely different need than what existing institutions have to offer,” Minocha said. “With these banks, there is great potential to bank the unbanked at scale, yes. But their primary goal, which sets them apart from other institutions, is to act as a depository for government dollars and keep community dollars within the community. This helps cheaply finance community projects to get that ‘bang for buck’ with taxes and leads to lower taxes in the long term.” Minocha’s letter remains open for signatures through the end of the year. She’s hopeful more interested parties will sign on, increasing the odds a group will form to explore the idea in earnest. “This is a once-in-a-generation opportunity,” Minocha said, referring to the $541 million in ARPA funds coming to Cleveland that she said might be able to be used to support a municipal bank. “It’s very clear that what we have now is not working. And if (a public bank) does work, we’d be doing something incredible for the poorest among us, people at the top and the private sector as well.” Jeremy Nobile: jnobile@crain.com, (216) 771-5362, @JeremyNobile
34 | CRAIN’S CLEVELAND BUSINESS | NOVEMBER 1, 2021
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