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U.S. Department of Labor Provides Additional Guidance on Employers’ OSHA Recordkeeping Responsibilities During COVID-19

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During the COVID-19 pandemic, employers have been forced to address the application of virtually every legal labor and employment obligation in the context of the pandemic.  One of these obligations includes an employer’s responsibilities under the federal Occupational Safety and Health Act (OSHA), which is administered by the U.S. Department of Labor (DOL).  The DOL previously published its Guidance on Preparing Workplaces for COVID-19, in which it outlined steps for employers to protect their employees.

On April 10, 2020, the DOL issued additional guidance addressing the agency’s enforcement of OSHA’s recordkeeping requirements amid the COVID-19 pandemic.  Generally, OSHA recordkeeping requirements command “covered employers” to record certain work-related injuries and illnesses on their OSHA 300 log. However, since the on-set of this pandemic, employers have wrestled with whether they are required to record an employee’s COVID-19 illness—and if so, when.

According to the DOL, COVID-19 is “recordable” and must be included on an employer’s OSHA 300 log, if:

  • The case is a confirmed case of COVID-19, as defined by Centers for Disease Control and Prevention (CDC);
  • The case is “work-related,” (as defined by 29 CFR § 1904.5); and
  • The case involves one or more of the general recording criteria, (as outlined by OSHA and set forth in 29 CFR §1904.7). Per OSHA, cases meet this recording criteria if it results in death, days away from work, restricted work or transfer to another job, medical treatment beyond “first aid,” or loss of consciousness.

In the same guidance, the DOL expressly stated that it will not require covered employers to make a determination regarding “work-relatedness” (Step # 2 above), except where:

  • There is objective evidence that a COVID-19 case may be work-related; and
  • The evidence was reasonably available to the employers.

The DOL expressly states that this limited recordkeeping waiver does not apply to employers in the healthcare industry, emergency response organizations (e.g., emergency medical, firefighting and law enforcement services), and correctional institutions.

The DOL’s stated goal of this limited enforcement is to “help employers focus their response efforts on implementing good hygiene practices in their workplaces, and otherwise mitigating COVID-19’s effects, rather than on making difficult work-relatedness decisions in circumstances where there is community transmission.”

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Paid Leave & COVID-19: House Passes Temporary, Sweeping Expansion of FMLA

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On Saturday (March 15, 2020), the U.S. House of Representatives passed H.R. 6201—the Families First Coronavirus Response Act  (“the Act”)—a sweeping economic stimulus plan aimed at addressing the on-going COVID-19 coronavirus outbreak and its continued impact on American workers and their families. The Act includes a variety of provisions, including:

  • Free COVID-19 testing
  • Multiple types of paid emergency leave (to be paid for by employers)
  • Enhanced unemployment insurance
  • Additional funding for nutritional programs
  • Protections for health care workers and employees responsible for cleaning at-risk places.
  • Additional federal funds for Medicaid

Among these provisions, the Act sets out several key mandates that impacts employers: (1) new, enhanced leave entitlements under the federal Family Medical Leave Act (“FMLA”), including paid leave under FMLA; and (2) new, separate paid sick leave rights for employees impacted by COVID-19 and those serving as caregivers for individuals with COVID-19.  Both of these emergency provisions would apply to all employers with less than 500 employees and would cover employees who have worked for the employer for at least 30 days.

At this point, the Act has not passed Congress.  While we expect the Senate to take quick action, key provisions could change, including those concerning employer coverage.  Brunini’s Labor & Employment Group is providing this report to let its clients know the current status of the legislation, as well as its potential effects.  However, we encourage readers to keep alert to further developments.

New FMLA Entitlements

Under the Act’s temporary expansion of FMLA, any individual employed by the employer for at least 30 days (before the first day of leave) may take up to 12 weeks of job-protected leave to allow the employee to:

  • Comply with a requirement or recommendation to quarantine due to exposure to, or symptoms of, coronavirus;
  • Care for an at-risk family member who is adhering to requirement or recommendation to quarantine due to exposure to, or symptoms of, coronavirus; or
  • Care for the employee’s child if the child’s school or place of care (including if the childcare provider is unavailable) has been closed due to a public emergency.

The first two weeks of this leave can be unpaid, although employees may elect to use other paid benefits to cover (including vacation or sick leave) some or all of the unpaid period.  After the initial two week period, the employer must pay full-time employees at two-thirds the employee’s regular rate for the number of hours the employee would otherwise be normally scheduled. (Part-time employees would be paid based on the average number of hours the employee worked for the 6 months prior to taking the leave, or the average number of hours the employee would normally be scheduled to work.) Employers with bargaining unit employees would apply the new FMLA provisions consistent with the bargaining agreement.

Of note, the Act also expands the definition of who is eligible as a “parent” under FMLA, to include a parent-in-law of the employee, a parent of a domestic partner of the employee, and a legal guardian or other person who served as the employee’s parent (also known as in loco parentis) when the employee was a child.

If enacted as written, thousands of employers not previously subject to the FMLA must provide job-protected leave to employees for a COVID-19 coronavirus-designated reason.  The Act allows subsequent regulations (to be crafted by the Secretary of Labor) to exclude certain healthcare providers and emergency responders from the definition of “eligible employee” and to exempt small businesses with less than 50 employees when it would jeopardize the viability of the business as a going concern.

New Paid Sick Leave Entitlement

In addition to the pay required under the expanded FMLA, covered employers (those with less than 500 employees) will be required to immediately provide employees (regardless of length of employment) with paid sick leave for use under the following circumstances:

  • To comply with a requirement/recommendation to quarantine due to exposure to, or symptoms of, COVID-19;
  • To self-isolate because the employee is diagnosed with COVID-19;
  • To obtain a diagnosis or care because the employee is exhibiting symptoms;
  • To care for or assist an at-risk family member who is self-isolating due to a diagnosis, who is exhibiting symptoms of COVID-19 and needs to obtain medical care, or who is adhering to the requirement or recommendation to quarantine due to a exposure to, or symptoms of, COVID-19; or
  • To take care of the employee’s child if the child’s school or place of care has been closed due to COVID-19 (including if the childcare provider is unavailable).

Under the Act, full-time employees would receive up to eighty (80) hours of paid sick leave at the employee’s regular rate of pay for reasons 1, 2 and 3.  For reasons 4 and 5, paid sick leave will be provided at 2/3 the employee’s regular rate of pay.  (Part-time employees would be paid based on the average number of hours the employee worked for the 6 months prior to taking the leave, or the average number of hours the employee would normally be scheduled to work.)

Importantly, this paid sick leave must be provided IN ADDITION to whatever the employer already provides.  An employer may not change its current paid leave policy after enactment of the Act to avoid the obligations of the additional mandated leave. At his/her request, an employee can seek this new paid sick leave in place of the initial 14 days of unpaid leave required by the new FMLA paid leave entitlements.

Tax Credits for Paid Sick Leave & Paid Family and Medical Leave

In order to mitigate the cost of the Paid Sick Leave mandate, the Act grants to employers a credit against their federal payroll tax obligations of up to 10 days of Paid Sick Leave pay each quarter, at a maximum rate of $511 per day for each employee that is directly impacted by the COVID-19 or up to $200 per day for each employee that is caring for a family member impacted by COVID-19 or a child whose school is closed or for whom childcare is unavailable due to COVID-19.  If the amount of the allowable credit exceeds the employer’s payroll tax liability, the excess will be refunded.   Employers are also entitled to a payroll tax credit for Paid Family & Medical Leave of up to $200 per day per employee, up to $10,000 in the aggregate for all calendar quarters.

Self-employed individuals are granted a similar refundable credit against their federal income tax liability based upon their average daily self-employment income, subject to the same $511 and $200 daily limits.

Based on its plain language, the Act does not provide paid leave coverage to employees who are not able to report to work solely due to business determinations or closures.  Under the Act, to qualify for paid sick leave pay or family and medical leave, employees must fall into one of the above leave situations. If an employer prohibits employees from reporting to work on-site due to Coronavirus/COVID-19 concerns, and employees are unable to work remotely and do not otherwise fall within the leave reasons discussed above, it appears they would not be eligible for benefits under the Act. In such circumstances, leave will be governed by state or local statutory sources and the company’s policies or collective bargaining agreements.

As mentioned above, the Senate is expected to pass the legislation, in some form or fashion, and the President is expected to sign it shortly thereafter.  However, commentators expect that there may be changes made by the Senate before the legislation is finalized. In addition, many states are proposing similar emergency legislation to enact or expand their own paid sick leave or family and medical leave laws to cover Coronavirus-related issues—in addition to any new requirements at the federal level.

Both the new FMLA entitlement and the new Paid Sick Leave entitlement will take effect 15 days after enacted.  As written, the Act is slated to remain in place until the end of 2020.  We will continue to monitor this rapidly evolving situation and provide updates as appropriate.

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Employment and HR Law Brunch & Learn Presented by Chris Fontan and Lauren Lawhorn

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Chris Fontan and Lauren Lawhorn spoke at the Employment and HR Law Brunch & Learn Workshop given by Rankin County Chamber and TempStaff in Flowood on July 17, 2019.   Their presentations provided to attendees may be viewed in the links below.

Rankin County Chamber 2019 – Employment Verification Then and Now

Rankin County Chamber 2019 – Mississippi Employment Laws

Rankin County Chamber 2019 – FLSA New OT Rule

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Chambers List Brunini Attorneys

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The 2019 edition of Chambers USA, which lists leading law firms and individual lawyers in an extensive range of practice areas, jointly awarded high rankings to nine Brunini attorneys and six of the firm’s practice areas.

Chambers USA ranked six of Brunini’s practices, with the firm’s Energy & Natural Resources practice receiving the highest ranking possible in the state. The firm’s Commercial Litigation, Corporate/Commercial and Environmental practices were also highly ranked as well as Labor & Employment and Real Estate.

A collective list of the nine Brunini attorneys recognized as among the best in their fields in Mississippi by Chambers USA include:

Corporate/Commercial

Walter Weems

Energy & Natural Resources

James L. Halford

Watts C. Ueltschey

Gene Wasson

Environment

John E. Milner

Gene Wasson

Litigation: Construction

Samuel C. Kelly

Ron A. Yarbrough

Litigation: General Commercial

David Kaufman

Real Estate

David Andress

BREAKING: Take 2 – U.S. Department of Labor Unveils Updated Attempt to Expand Employee Overtime Eligibility

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On Thursday, March 7, 2019, the United States Department of Labor (the DOL) released its newest Proposed Rule that, if implemented, would broaden federal overtime pay regulations to cover millions of additional workers who are currently exempt from overtime eligibility.  Under the Proposed Rule, the DOL seeks to update the regulations governing which executive, administrative, and professional employees (the so-called “white collar” workers) are entitled to minimum wage and overtime pay protections under the Fair Labor Standards Act (the FLSA).

The FLSA requires employers to pay its “non-exempt employees” overtime (1 ½ the workers’ “regular rate of pay”) for all hours worked in excess of forty (40) per week.  See 29 U.S.C. § 207.  The DOL’s regulations implementing the FLSA sets forth a variety of employment classifications that are “exempt” from the FLSA’s overtime requirement—including employees performing executive, administrative, and/or professional job duties.  Since the 1940’s, in order for an employee to qualify as an exempt “white collar” employee, he/she had to meet three “tests”:  (1) the employee must be paid a predetermined and fixed salary that is not subject to reduction because of variations in the quality or quantity of work performed; (2) the amount of salary paid must meet a minimum specified amount; and (3) the employee’s job duties must primarily involve executive, administrative, or professional duties (as defined by the regulations).  The DOL last fully updated these regulations in 2004, setting the current minimum salary threshold at $455 per week (or $23,660 per year).

In May 2016, the Obama-era DOL attempted change to the overtime rule that would have doubled the minimum salary level for the so-called “white collar” exemption from $23,660 to nearly $48,000 per year.  This proposal would have also increased the total annual compensation requirement needed to exempt “highly compensated employees” to $134,004 annually (previously set at $100,000), established a mechanism for automatically updating the minimum salary level every three years and allowed employers to use nondiscretionary bonuses and incentive payments to satisfy up to 10% of the new standard salary level.

Ultimately, the May 2016 proposal was challenged in court. On November 22, 2016, the U.S. District Court for the Eastern District of Texas enjoined the DOL from implementing and enforcing the proposal. On August 31, 2017, the court granted summary judgment against the DOL, invalidating the May 2016 proposal.  Currently, the Department is enforcing the regulations that have been in place since 2004, including the $455 per week standard salary level.

While an appeal of that decision to the United States Court of Appeals for the Fifth Circuit is pending, the current DOL seeks to formally rescind the Obama-era DOL’s 2016 proposal with this Proposed Rule.  In its place, the new Proposed Rule would raise the minimum salary level for exempt employees to only $679 per week, or $35,308 annually.  The Proposed Rule does have many similarities to the 2016 proposal, including:

  • Allowing employers to count nondiscretionary bonuses and incentive payments (including commissions) to satisfy up to 10 percent of the standard salary level test (provided such bonuses are paid annually or more frequently);
  • Increasing the total annual compensation requirement needed to exempt “highly compensated employees” to $147,414 annually (currently set at $100,000 annually); and
  • Not proposing any changes to the standard duties test for the white collar exemptions.

If the Proposed Rule is adopted, the DOL estimates that over 1.3 million workers who are currently classified as “salaried exempt”—and thus, not eligible for overtime—will become eligible for overtime pay.  While an increase, this figure is lower than the estimated 5 million workers who would have become eligible for overtime under the 2016 proposal.  As with the prior proposal, observers feel the number could rise well above the projected increase.  If implemented, the Proposed Rules will undoubtedly result in greater expense or operational change for many employers as they struggle to deal with a shrinking pool of workers who are eligible for an exemption from the overtime pay.

The Proposed Rule is still subject to a lengthy comment period before implementation.  The DOL encourages any interested members of the public to submit comments about the proposed rule electronically at www.regulations.gov (Rulemaking docket RIN 1235-AA20).

Though the Proposed Rule has not yet been finalized, employers are encouraged to be proactive and engage their legal counsel to begin planning for the change now.  Preparations should include auditing current practices and projecting the cost of change and FLSA compliance under the anticipated new framework. This includes evaluating the possibility and effects of significantly higher operating costs.

EPA Administrator Scott Pruitt Blocks Unfair “Sue and Settle” Tactics

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By: John E. Milner, Brunini, Grantham, Grower & Hewes PLLC

On October 16, EPA Administrator Scott Pruitt signed a directive stating that he is ending “sue and settle” agreements through which Pruitt asserts that environmental organizations have forced EPA  into legal agreements that impose binding deadlines for issuing discretionary regulations.  The directive, together with an explanatory memorandum, prohibits EPA from entering into consent decrees with terms that courts would have lacked the power to impose if the parties involved had not resolved litigation through a legal agreement.  Pruitt’s directive states: “EPA shall also not enter in a consent decree or settlement agreement that converts an otherwise discretionary duty of the Agency into a mandatory duty to issue, revise, or amend regulations.”
The directive also makes it more difficult for environmental organizations to recover attorney’s fees: “If EPA agrees to resolve litigation through a consent decree or settlement agreement, and therefore there is no ‘prevailing party,’ then the Agency shall seek to exclude the payment of attorney’s fees and costs to any plaintiff or petitioner in the litigation.”  EPA shall not seek to resolve the question of attorney’s fees and costs “informally,” the directive states. (Read more…)

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EPA Signals Denial of Proposed Changes to Point of Obligation under the Renewable Fuel Standard

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By: L. Kyle Williams

Over the past year, several petroleum distributors, and other entities, have advocated for moving the point of obligation under the Renewable Fuel Standard (“RFS”), seeking to remove this responsibility from refiners and importers, and place it on “position holders” or those parties that blend renewable fuel into transportation fuel.

The RFS promotes increased blending of ethanol, biodiesel and other renewable fuels. Obligated parties—currently, refiners and importers—bear the responsibility of complying with annual renewable fuel volume obligations (“RVOs”) established by the U.S. Environmental Protection Agency (“EPA”). These parties ensure the requisite amount of renewable fuels gets blended into the fuel pool, to offset petroleum fuel production and, in turn, they receive Renewable Identification Numbers (“RINs”) for blending, which are credited toward fulfilling their RVO. Obligated parties can either blend the fuels, earning the corresponding RINs, or they can purchase them.

Valero Energy Corp. filed a petition for reconsideration with the EPA, asking it to change the definition of “obligated party”, as provided by the RFS to no longer include refiners or importers, but rather, “the entity that holds title to the gasoline or diesel fuel, immediately prior to transfer from the truck loading terminal or bulk terminal to a retail outlet, wholesale purchaser-consumer or ultimate consumer.” In addition, CVR Energy and the American Fuel and Petrochemical Manufacturers filed separate but similar requests with the EPA. Proponents of moving the point of obligation argue the current system is fraught with inefficiencies, and larger retailers have a competitive advantage by benefitting from profitable RIN sales. In addition, Valero claimed changing the point of obligation will incentivize the growth of renewable fuels, while the current system has the effect of limiting renewable fuel use. In its petition to the EPA, Valero further claimed the existing point of obligation “harm[s] renewable fuel producers, independent refiners, retailers and U.S. consumers.”

On November 10, 2016, the EPA announced that it proposed to deny all requests to change the point of obligation but will take public comment on such proposals to ensure it will “receive input from the wide variety of stakeholders that could be affected.” In its Proposed Denial, the EPA stated, “We are therefore opening a docket to formally receive comments on the petitions submitted to EPA to change the point of obligation in the RFS program from the refiners and importers of gasoline and diesel fuel to other parties, such as blenders or position holders of these fuels.” The comment period will last sixty days, beginning November 10, 2016. The EPA’s announcement comes after many trade associations, retailers and other entities discouraged any changes to the point of obligation, instead, advocating for the continuation of the current system. These parties include the National Association of Truckstop Operators, the American Petroleum Institute, and the National Association of Convenience Stores. According to these organizations, any changes in the point of obligation would harm consumers by negatively impacting the U.S. fuel market and would raise fuel prices.

The EPA has put forth a comprehensive report detailing its rationale for proposing to deny the requests. Its main arguments in favor of maintaining the current regime include: (1) the current program structure appears to be working to achieve the goals of the RFS program; (2) changing the point of obligation is not expected to result in the increased production, distribution and use of renewable fuels; (3) changing the point of obligation would significantly increase the complexity of the RFS program; and (4) changing the point of obligation could cause significant market disruption. While it is not readily known how the effects of the comment period or the recent U.S. Presidential election will impact this requested change, the EPA’s decision is of great importance to the industry and should be closely watched by industry professionals.

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Three Takeaways from the Recent Settlement in CFPB v. BancorpSouth

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There were many things from the recent settlement of Fair Lending and Fair Housing Claims against BancorpSouth that didn’t surprised me (see United States of American and Consumer Financial Protection Bureau v. BancorpSouth Bank, Case No. 1:16cv118-GHD-DAS, U.S. District Court for the Northern District of Mississippi, Aberdeen Division).  I was not surprised that BancorpSouth settled a Fair Lending investigation since it had been fairly well known that the bank was undergoing an investigation that had put on hold its regulatory applications for two planned bank acquisitions.  I also was not surprised that a Mississippi bank was the subject of such an investigation since Federal regulators have long utilized Mississippi’s tortuous and inescapable past as a reason to plow its fertile ground and harvest a rich political yield in the form Fair Lending investigations.  This regulatory tendency has existed at least a decade, going back to when the FDIC started sending Mississippi banks nasty letters about their HMDA data.  There were three big points worth noting, though, some of which were concepts I already knew but had reinforced by the settlement.  Others, however, were eye-opening revelations.  Below is a description of each.

  1. HMDA Data Matters

I have never represented BancorpSouth on this or any other matter so I don’t have any knowledge of how this investigation began or what exactly triggered it.  However, by reading through the lines in the complaint, there are too many references to “regression analysis,” “statistically significant” rate differentials, and the Memphis MSA to not think that it may have begun as a review of the bank’s HMDA data from Memphis.  That is just a guess, but based on prior experience, it seems to be a good one.  The way these things typically play out, the Feds, after sticking their statistics geeks in the corner with a bank’s HMDA data, find that there are statically significant differentials as to interest rates charged or denial rates for minority borrowers relative to non-minority borrowers.

Their questions start out benign at first, asking whether these differentials can be explained by business non-discriminatory reasons.  What they are looking for is for you to provide them a rate sheet, loan policy, or some other objective measure that shows why the mortgage borrowers were charged a certain rate on a certain loan or why a minority borrower was denied credit.  If they select a sample of loans and find that the rates charged followed closely a standard rate sheet used to price mortgage loans, or if denials of minority applications were the result of the applicant clearly not meeting objective credit standards stipulated in their loan policies, and those factors were carefully documented in the file as the reason for the decision made by the loan officer, the regulators will conclude (hopefully) that the “statistically significant” differences were caused by other non-discriminatory factors and move on to their next prey, I mean bank.  However, if they take a sample to test, and in the process cannot find any objective reason for why minority borrowers would be treated differently, the bank that is the object of the investigation had better hold on; it is going to be a bumpy ride!  This leads me to my second point . . .

  1. Underwriting Discretion is the Fair Lending Death Nail

I am the son of a community banker.  Like all of us, I remember asking my dad one time when I was small why he decided to pick his career.  His dad became a banker later in life, and both of my dad’s older brothers are bankers, so his choice was not a novel one.  Family influence, though, was not the reason he gave.  Instead, my dad believed that, as a community banker, he had the opportunity to help people meet the needs of their businesses and families.  Of course, one of the greatest tools a community banker has in his or her toolbox to pursue this divine calling is good common sense to exercise reasonable discretion when warranted.  Not only does it assist the community banker in pulling that customer out of a tough financial place in life, it also allows the community banker to compete with larger, less flexible institutions that have a tremendous advantage when it comes to economies of scale, especially in today’s compliance environment.

That tool now, though, has become the regulator’s number one enemy.  When it comes to Fair Lending, discretion is a four letter word, especially as to HMDA reportable loans.  If your bank’s LAR reveals that rates paid by minority borrowers or women are slightly higher on average than the control group, and they discover that your loan officers have the discretion to assign to borrowers whatever rates they, in their professional opinion, deem appropriate, your bank is presumed to be guilty of discriminating against minority borrowers until you somehow prove yourself innocent.  This all but forces banks to standardize their pricing and credit decisions, turning consumer credit into a commodity and erasing any competitive advantage community banks may have on such loans over their larger brethren that see the borrower as another number.  Unfortunately, what regulators don’t realize is that the one who really suffers is the borrower, black or white, who just needs a break to get over that next financial hurdle.  After all, you don’t receive any compassion from a loan policy or a rate sheet.

  1. The CFPB is Taking No Prisoners

I’m sure no one was shocked that the CFPB would aggressively pursue fair lending enforcement, especially among those banks that are larger than $10 billion in assets and within the wheelhouse of their examination authority.  There is a reason why that threshold was a big deal during the Dodd-Frank negotiations.  I was flabbergasted, though, by the lengths they went to in order to satisfy their appetite for a trophy kill.  Secret recordings of lower level management meetings and spies sent into branches in markets totally unrelated to where the original problems were found are just two examples of that.  This was not a regulatory investigation; it was a James Bond novel.  Apparently, the CFPB has inherited the playbook of the KGB.

Not only that, but in a settlement that was supposedly negotiated, they felt compelled to include in the complaint unnecessary and embarrassing quotes from their secret recordings just to rub salt in the wound.  I can only hope that waterboarding was not used to convince the bank to accept the complaint’s content.

Make no mistake, the CFPB is on a war path, and it is scalps, not justice, that it is after.  As an agency that is still trying to prove its worth and fend off political and judicial challenges to its constitutionality and unfettered administrative authority, the CFPB is more worried about justifying its existence than protecting its charge, the American consumer.  What will happen to American consumers, though, much less our financial system, when the CFPB scares half of our community banks into ending consumer lending all together and assaults the reputation of the other half until their safety and soundness is compromised?  They will be forced into the arms of industries much less regulated and unconcerned about their wellbeing, I’m sure.  This case may be the best illustration yet of what happens when you separate the consumer regulator from the prudential one.

 

 

 

Five Things I Learned Coaching Little League Baseball

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This spring, I returned to the wondrous fields of little league baseball and was fortunate enough to relive some of my happiest memories as a child through the eyes of my oldest son, whom I had the pleasure to coach. If you know me at all, you know that I love baseball, but I can’t think of any time in my life when I enjoyed it more than between the ages of 10 through 14. Those were the times when it was all consuming, but still just a game. When my every thought could be dedicated to it, but my stress levels were rarely raised by it. Baseball was still fun when I was older, but some of the wonder is taken out of it when your coach’s livelihood depends on it and your mistakes can mean much more than losing your rights to a dairy queen milkshake after the game.

This being said, I hate what we as a society are doing to little league baseball. We have removed it from the joyous goat ranches of recreational, Babe Ruth leagues and transferred it almost completely to the exclusive realm of “tournament baseball,” where 7 year olds have to worry about losing their spot on their team when they go 0 for 4, 9 year old pitchers have to worry about holding a runner on base and throwing 150 pitches a weekend, games are played until well after midnight, 40 year old coaches with three days growth of facial hair and a belly that betrays the fact that they are 20 years past their athletic prime berate a right fielder for missing a cut-off man, and the real goal of the organizations running it is to make as much money as possible off of parental conceit and paranoia of falling behind. The shame of it is, in today’s world of “specialization,” coaches and parents have guided little league baseball down a path where many kids who experience it either hate it by the time they get to high school or have had two Tommy John’s surgeries before the age of 18. For many years I avoided it out of principle, with the eventual realization that it is slowly becoming the only game in town. Therefore, in order to allow my son the chance to continue to experience the game that has given so much to me, I decided to coach his tournament baseball team with the hopes that I could control the experience enough to protect him from its ills.

The result, to no surprise, has been a losing baseball team. When your benefits are player development and enjoyment for a greater baseball future tomorrow, your cost is going to be long innings today at the hands of better teams who have carefully culled their talent pool and have played 100 games since this time last year. With my apologies to Thomas Paine, there is nothing that tries a man’s soul like willing 9 ten year olds to get 3 outs. However, because tournament baseball has become so cutthroat, it is also a pretty good microcosm of what it is like to manage a bank today in an ever increasingly hostile environment. Below I will discuss the top five things I learned about guiding an organization through challenging times that hopefully can speak to community bankers as well.

1. No One is Going to Feel Sorry for You

When top seeds in the bracket are decided by how bad you beat your competition, and 10 year old catchers are behind the plate, expect every baserunner to take second base, even when you are getting beat 20 – 5. When your team hasn’t won a game yet this season, but the better teams need an easier path to the finals, expect to always play the top seeds in your pool so that they can be certain to get a higher seed in the bracket. When your winless team gets the third out in the bottom of an inning up 8 – 5 with 30 seconds left, expect to have to start the next inning to finish the game (which you lose 10 – 9). This is just how it is. No freebees are given, and everything has to be earned. No one feels sorry for you when you are struggling in tournament baseball. There may be the occasional “good luck” from the opposing team during the coin flip, or possibly even a stray comment about how they appreciate the fact your team keeps fighting, but in the end, you literally only eat what you can kill. Feeling sorry for yourself is worthless.

Such is also the case in community banking these days. Growing regulation and a hostile regulatory and political environment is choking the life out of our banks on Main Street, and despite the occasional “focus group” or “community banking conferences” where regulators feign empathy for those problems, no one really cares. Politician’s will wax eloquently about how community banks are the life blood of their communities and the only hope for small businesses, but when the vote comes up to really do something about it through legislation, they cave to other special interests every time. As net interest margins continue to shrink, members of the Federal Reserve may act concerned about the affect their interest rate policies are having on community banks, but in the end they will act in a way that is politically expedient to help keep stock values afloat at the cost of an uncertain economic future. This is just the way the world is, and it is forcing community banks to shift from their traditional business model, which typically prioritized community growth and development over profits, to a meaner, leaner model focused on economies of scale and efficiency that causes banks to out-grow their communities in an effort to just survive. Unfortunately, community banks can’t afford to hold on to principles and continue to lose capital like I can choose to hold on to baseball ideals and lose games. Their existence is dependent upon “winning” games today. However, as I fear the current baseball environment is drying up the joy and future of that great game, I also fear that the current banking environment is drying up the future of our community banks, and even worse, our rural communities. Don’t expect sympathy for that dilemma, though, because in the end, no one seems to care.

2. You Have to Eliminate Unforced Errors

When the other team is much better than you, you do yourself absolutely no favors when you have to get 5 outs every inning and they only have to get 3. If there is a fly ball to center, or a grounder to second base, you have to make that play to have a chance, because your competition certainly will. I can’t even count how many times this season the difference in our runs scored and the runs scored by the other team consists almost exclusively of runs that we allowed after what should have been our third out. The other problem is that unforced errors seem to snowball. One error leads to pitcher frustration and a walk or another error, which only compounds the problem. We are still trying to implement this strategy, but I think we have learned that our ability to compete will be directly tied to our ability to just “pitch and catch” and make routine plays.

In community banking, the best analogy to unforced errors is poor loan quality. When margins are tight and overhead is growing, a failure to monitor the credit quality in your portfolio can hurt more than an overthrow to first base. One or two years of relaxed credit standards or a rogue loan officer can lead to loan losses that might be more manageable in better times but can quickly eat into precious capital in the current environment. Therefore, it is important that, during these difficult days, community banks keep their eye on the ball and avoid extending beyond their comfort zone with loan quality. Like a first baseman that stretches before he knows which direction the throw is going, compromising credit standards in an attempt to increase earnings during these difficult times will leave you unable to maneuver when the next recession hits.

3. People May Not Remember What You Do, But They Are Sure To Remember How You Make Them Feel

As someone who coached through our local league this year, I was required to attend a pre-season coach’s clinic that I was convinced would be useless. Why I needed to waste three hours of my time listening to a coach give me information I already knew to pass down to 10 year olds who wouldn’t listen half of the time was beyond me. Needless to say, I did not approach it with the best attitude.

To my surprise, though, the instructor did provide some helpful tips, and it was what he said at the end of the session that stuck with me the most. He began by asking each of us to raise our hands if we remembered what the record of our 10 year old baseball team was. Somewhat surprisingly, not one of us responded by raising our hands. He then asked us to raise our hands if we remembered who our 10 year old baseball coach was. At that point, everyone in the room raised their hands. He closed his point by stating that, no matter how bad each one of us wants to make the little league coaches Hall of Fame, no such institution exists, and no amount of wins will get us there; however, every player we coach will remember us, and wouldn’t we much rather them remember us as the one that engendered in them a love for this great game that they never lost than as a mean SOB that they avoid when they see us in the grocery store 20 years from now. The choice was completely up to us.
Like my players, your customers and employees are not likely to remember that super-low interest rate you gave them on the last loan or whether their raise five years ago was 2% or 2.5%; however, how you treat them is certain to make an impression, and they will always remember whether you made them feel like a valuable part of your bank or as another reason your day has not gone the way you wanted it to. How we treat people matters, not only in little league and banking, but also in life, and those of us who forget that are doomed to dirty looks in the grocery store, no matter how well we perform.

4. Invest in People With Character and Their Growth Will Surprise You

One of our many challenges on the team this year has been that we have several kids who have just not played a whole lot of baseball; however, to their credit, they have all worked hard and become better players. One of my players sticks out, though, because I never thought he had a chance. He was one of our later additions to the team, and when I put him on the roster I wasn’t even sure what he looked like. I knew we needed another player, though, and his mom said he wanted to play, so he was our man. George, as we will call him, came to the first practice in January incredibly rough, looking as if he had never played a game of catch in his life. My initial hope for George was that he would eventually become either bored or discouraged so that I would never have to deal with the dilemma of sitting him on the bench every game for fear that he would embarrass himself and the team.

What I underestimated, though, was George’s determination and growing love for this great game. George quickly fell in love with baseball, and this spring he claimed any free moment or dollar his dad had by begging him for trips to the batting cage or for weeklong baseball camps held in the area. I also underestimated George’s intelligence and attention span, which soaked up every helpful tip he was given and maximized every opportunity he had to grow as a baseball player. George still may not be my most talented player, and he has a long way to go before I consider him one of my best, but he is no longer my worst, and he has made some serious contributions to the team. Just this past weekend, he caught a fly ball in right field to mercifully end a long inning, becoming a savior I never would have suspected in January. While there have been many challenges and heartaches this season, George has certainly been one of the bright spots, and his experience epitomizes why I wanted to do this in the first place: to generate a love for this great game in the hearts of kids who had been excluded from it and watch them grow into players I never thought they could be.

Banks, like 10 year old baseball tournament teams, and all other organizations for that matter, tend to focus much more acquiring talented personnel with impressive resumes to do the job immediately than on developing some of their current employees who may have much less talent or experience today but with encouragement and inspiration have the character and work ethic to become a critical contributor in the future. Their path to success may not be as certain and their learning curve will definitely be steeper, but if they are motivated and willing to work hard, their upside is possibly greater and the initial overhead that must be invested to get them is sure to be much less painful. When they do develop into the banker you never thought they could be, you can take pride in knowing that you were the one who helped them get there.

5. Hope Changes Everything

While it is incredibly easy to focus only on the challenges when you are losing baseball games or dealing with bank examiners, the ability to maintain hope and project it to others around you is not only important, it is critical to survival. My son is a pretty good athlete that chose (possibly with his father’s prompting) to play for his dad instead of on some other more competitive teams with different goals; however, he has had a pretty tough year with all of the losing. Much like his father, he hates to lose more than he likes to win, and despite the fact that he and I both acknowledged at the outset that we might not win a game this year, he has gone through some valleys when his faith in our decision and his abilities has been hanging by a thread. Self-confidence can be a challenge for any pre-pubescent 10 year old, but it is especially challenging when you lose 15 baseball games in a row.

The low-point came late one night after he and I were driving back home following a game he pitched pretty well in but lost nonetheless by 10 runs. He was distraught at the fact that he continued to lose ball games, one of which he was on the mound when the winning run crossed the plate. He claimed that he wanted to quit altogether, one of his father’s greatest fears. The next morning at 9 AM, we had to be back on the baseball field, and as fate would have it, my son was on the mound in the bottom of the last inning with the score tied 5-5. He came in to pitch when we were down 5-3, and our team rallied to score two runs in the top of the inning to tie it. Two errors later, we lost the game 6-5, and there was not a dry eye in the dugout, including mine. After 10 minutes of silence on the ride home, to my surprise, my son was the first to speak when he said “Daddy, I think we are going to win a game.” At the time I was certain his spirit was crushed and all hope was lost, he found hope in the fact that we had come so close to our first win. I wish I could give you the story book ending and tell you that we won our next game, but unfortunately we are still waiting on that. The moral of the story, though, is since that morning, other than the occasional 10 year old tantrum, my son’s attitude has completely changed thanks to hope, and it has made him and our baseball team better.

We have to remember this lesson in banking. It is so easy for us to get caught up in the latest CFPB threat, or the next regulation, or the terrible yields earned on assets, or the current political environment, but the leaders of our banks have to find some way to give hope to their shareholders, employees, and customers. Community banking, after all, is a calling, and the blessings it provides our society are much greater than the sum of the profits generated by its institutions. We must find hope in the differences made in communities each day by caring bankers and cling to the faith that the hard work will one day be rewarded, if not in this life, than certainly in the next.

 

 

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Five Things I Learned at Disney World

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Last week, during my kids’ spring break, we finally took our epic family trip to Disney World (yes, I am the tightwad father that refused to take them until they were old enough to remember it because I didn’t want to “waste” the trip). We did it right, too. Instead of fooling with airports and all the unnecessary convenience they bring, we drove the whole way, 20 hours round trip, Clark Griswold style. It is sufficient to say that between that and the lines at Disney, we all received adequate practice in the development of that most wonderful virtue of patience.

I didn’t just take the week off, though. From the moment we passed under those storied gates to the tortuous wait for the final monorail with 100,000 of my closest friends at 11:30 pm on our final night, I observed several interesting facts and trends that will be tremendously useful in providing advice to my banking clients. Below are five of those lessons that I thought may be worth your time to consider.

1. The Debit Card is Dead (or At Least Will Be Soon)

Nobody who is anybody at Disney pays for anything with a debit card. For those that are staying at the resort, stylish wrist bands are the preferred form of payment. These wrist bands, which apparently come in an array of colors and styles, store all kinds of information about the Disney patron they belong to. This includes payment information, which means that paying $50 for a $10 meal can be as easy as waiving your wrist in front of pay terminal, but it also includes your reservation to ride Space Mountain at 9:15 pm without having to wait in line for an hour and a half, as well as your ticket into the park. It is your all in one golden ticket for everything Disney (as well as Disney’s golden ticket to all of your valuable personal information and preferences).

Of course, my children had the Dad that decided to use points for a hotel stay “off resort” instead of springing for five nights at the Polynesian, so they did not get to sport one of these trendy “Magic Bands.” However, their prevalence could not be avoided, along with the obvious enthusiasm with which they were embraced. A few times I pulled out a debit card to pay for light sabers or food and the attendant looked at me like I had just pulled out a check book. Obviously, Disney is still an isolated environment and the infrastructure it has in place has not yet been replicated throughout our broader economy, but the outcome to me appears inevitable. As trusting as we now seem to be of technology and as much as we welcome its convenience, the days of the uni-purpose debit card that merely allows access to your checking account are numbered. The alternative form of payment device, whether it be a pretty wrist band or an iPhone, that not only allows access to your checking account but also stores all of your personal information so that retailers can cater to your every stored preference is fast approaching, whether the law is ready for it or not.

2. Branding Success Does Not Mean Branding Complacency

This was the first time I visited Disney World since I was twelve, and while I do not remember everything about that trip, I remember enough to recognize that this experience was very different. Unlike a quarter of a century ago, I did not spend my time waiting in line to see Mickey Mouse or Donald Duck; instead I waited an hour to see Chewbacca and Kylo Ren. Whereas my last trip I rode “Mr. Toad’s Wild Ride,” this time my eight year old made me ride Buzz Lightyear’s shooting gallery numerous times.
There is no question that Disney is the king of branding, which has helped them develop and maintain a tremendously loyal following that still brings untold millions to their parks every year in what can only be called an American cultural pilgrimage. Let’s be honest, no one above 25 goes to Disney World because it is “fun;” they go because it has become such a rite of passage for children that those who do not take their kids are subject to a visit from DHS for mistreating their offspring. It is that irresistible brand which lead me to spend St. Patrick ’s Day walking untold miles while being run over by numerous mothers wearing green and pushing strollers (one of which who wore a shirt that proudly said “I’ll Shamrock Your World”).

That being said, the brand Walt Disney made famous 80 years ago is not the same brand that continues to make $100 a head off of those obnoxious green crowds today. While you still see Mickey Mouse and Donald from time to time, you come in contact possibly more frequently with talking toys and Jedi Knights. Disney’s brand has evolved. Instead of resting on the laurels that brought them incredible success, they continue to look for ways to make their brand relevant to new generations, and it is working. If you doubt their success, just ask movie attendants about the costumed crowds they had to manage this past Christmas and the millions of dollars they paid to get a glimpse at an aging Harrison Ford. However, Disney has not forgotten its original charm, and it still uses that legacy brand as well, which was evidenced by the way my eight year old’s eyes lit up both times he rode “It’s a Small World.” Their ability to improve a brand without destroying it is one to be envied and modeled.

3. Expectation and Perception are the Keys to Customer Service

While Disney’s branding is second to none, its crowd management is still a work in progress. Waiting an hour and a half for a minute and a half ride can really take it out of you. However, I noticed that my level of patience varied dramatically depending on how long they estimated the wait to be. When the estimated waiting time for the “standby” entrance to a ride was 90 minutes, I was thrilled when I only had to wait 60; however, when another ride estimated a waiting time of 35 minutes, I was fighting mad when that same 60 minute wait became a reality. I have always heard that you should under-promise and over-deliver when it comes to customer service and not the other way around. Disney is a very tangible expression of that truism.

In order to better manage crowds, Disney has developed something called the “Fastpass” which allows patrons to reserve preferred treatment in waiting lines for three separate rides at one park each day. The rules for the application of the concept are somewhat cumbersome and confusing, but the idea makes sense: spread out crowds at different times during the day in order to shorten wait times for everyone. The biggest problem is that everyone usually wants to ride the same three rides, so the bums who did not get their “Fastpass” reserved in time have to sit in line and watch the chosen ones pass easily to the front of the line. In theory, we all had the same opportunity to secure those reservations, but that didn’t help my feelings a bit when my child had been hanging on me and whining for the last 45 minutes and I had to watch a 19 year old and his girlfriend walk by me just by waiving their pretty wrist bands in front of a terminal until the Mickey Mouse outline turned green. Therefore, my suggestion for Disney, or any other customer service representative, is this: always over-estimate the amount of time that I am going to have to wait for your service, and if someone is jumping ahead of me, you had better not let me know about it, even if I had the same chance earlier and chose not to take it.

4. Sometimes You Just Have to Start Over

As Daddy’s reward for waiting in those long lines, we also decided to take in some Spring Training baseball while we were there. For those of you who don’t know, the Atlanta Braves Spring Training home is at Disney World, and this provided a much needed reprieve from the exhausting hustle and bustle of the Magic Kingdom. I and my youngest son are Braves fans, and we had an opportunity to watch them tie (unfortunately no free baseball in Spring Training) my oldest son’s favorite team, the St. Louis Cardinals. Incidentally, my oldest son was raised a Braves fan but unfortunately jumped ship (somewhat understandably) when the Braves decided to trade or run off every player he had ever known. He instead decided to proudly wear Cardinal colors and bask in the glory of 100 wins instead of hide from the shame of 95 losses.

However, while I constantly had my nose in the program looking up names of Braves players I have never heard of, I did notice that there was a lot of good, young talent on the field wearing navy blue. Not only that, but there seemed to be an energy and enthusiasm generated from so many optimistic minor leaguers looking for a job that you couldn’t help but feel that better days are ahead for the Braves. If you have followed the Braves like I have, you know that they spent at least a decade just above mediocrity holding onto the idea that what they had been doing for several years would ultimately bring them back to where they were in the 90s. To their credit, their management finally said enough, and they have decided to blow up a moderately successful model in hopes of achieving even greater success with unproven but incredibly talented prospects. Their ultimate destination is still unknown, but I don’t think there is any doubt that this was probably their only chance to again build lasting success. Baseball teams are no different from any other organization, including banks. Those who are happy with mediocrity can plod along with an outdated model, but to truly reach new heights in a changing environment, sometimes it is necessary to start all over.

5. We Must Continue to Dream

The dramatic success of Disney and everything it stands for is not an accident. It is directly related to the vision of its amazing creator, Walt Disney, who foresaw much more than a mouse on a piece of paper when he began the organization that has now become a cultural phenomenon, much less an American corporate giant. That vision lead to a corporate culture that fostered dreaming and dreamers and pushed the company to greater heights than its creator could have even imagined. Had Walt Disney, or his corporate heirs, ever allowed themselves to be motivated only by short time pursuits or quarterly earnings goals, the company would have never become what it is today. Dreamers may not be profitable every quarter, but their potential for greatness is much higher than pragmatists. Obviously both are needed, but they must balance each other, and one cannot be allowed to push the other to the side.

One aspect of Disney World that made an impression on me as a kid was the optimistic focus on the future and the possibilities it could bring. From Spaceship Earth at Epcot to Tomorrowland in the Magic Kingdom, my twelve year old sensibilities were fascinated by not only the amazing future the park imagined, but just how inevitable that future seemed to be. Maybe it was a difference in age and perspective, or the fact that my first visit was in the eternally optimistic 1980s while my most recent visit was during a much more pessimistic period of time, but for some reason, when I visited the park last week, those exciting views into the future seemed to be a retrospective window into past dreams rather than a thrilling prediction of future progress. It made me sad to feel that we, our companies and much worse our country, are losing the capacity to dream. When I was a kid, I spoke of becoming an astronaut often, but I rarely hear space discussed in my house these days unless it is in the context of “a long time ago in a galaxy far, far away.” Heck, our country doesn’t even have a space program anymore. I know that dreams and imagination are difficult to nurture in this age of Great Recessions / Terrorism / unbearable regulation / (insert current fear hear), but we can never allow our urge to defend against our worst fears impair our courage to pursue our wildest dreams. To do so would lead our lives, our families, our country, and our world to a fate worse than death.