ISRI 2000 Convention Coverage—Into the New Millennium

May/June 2000 

Las Vegas may be a city of fortunes won and lost, but it certainly brought good luck to ISRI’s 13th annual convention—held at the Bellagio in March—which set a record attendance of almost 3,290.

The event was a great beginning to the new millennium, and it marked a new beginning for ISRI, as the board of directors approved a new governance structure for the association. Among the changes, the size of ISRI’s board has been cut from more than 60 members to 43. The number of committees has likewise been trimmed, and a new Paper Division has been created.

Also, ISRI’s top officers now have new titles—Robin Wiener has replaced her executive director title with president, and the new slate of national officers elected at the convention have the following new designations: Sam Hummelstein of Hummelstein Iron & Metal Inc., chairperson; Charles “Cricket” Williams of Charles Williams & Son Inc., chairperson-elect; Joel Denbo of Tennessee Valley Recycling L.L.C., vice chairperson; and Frank Cozzi of Cozzi Iron & Metal Inc., secretary/treasurer.

Change was definitely in the air at the convention. Change, in fact, was a central theme of the keynote address of outgoing ReMA President Shelley Padnos of Louis Padnos Iron & Metal Co. “More than ever, today’s marketplace is a win/lose environment, and those open to change will be the winners,” she said.

One important change has been passage of the Superfund Recycling Equity Act. As Padnos asserted, “the passage of this legislation doesn’t constitute the end of anything. It is, rather, the beginning of everything and will definitely mean changes in how we operate our businesses.”

ISRI itself has been changing to stay useful and relevant to its members, Padnos said. For instance, the association reorganized its staff. It formed a relationship with ECS Underwriting Inc. to offer environmental liability insurance to members, and it will begin on Oct. 1 to offer a new property/casualty insurance program. Also, the ReMA Web site has been redesigned, and the association has launched a contest to develop a new organizational slogan.

One thing that didn’t change at the 2000 convention was the winning assortment of workshops, general sessions, commodity spotlights, spouse programs, and social events, not to mention the invaluable scrap recycling industry exposition. Here’s a summary of what happened at the sessions, which are grouped by their color-coded tracks.

Black Track: “Keeping Your Company in the Black”

Pizza or Retirement—It’s Your Choice. If you invested the money you spend on a weekly pizza outing for the family, you could set aside another $250,000 for your retirement, said financial adviser Allyson Lewis in the “Estate and Succession Planning” session. 

And by investing roughly $340 a month—an average car payment, Lewis noted—well, let’s just say you wouldn’t have to appear on a certain TV game show hosted by Regis Philbin.

Lewis, author of The Million Dollar Car and the $250,000 Pizza, was joined by several financial advisers from Morgan Stanley Dean Witter for a discussion of how to make sure more of your wealth goes to your heirs instead of the taxman.

Stocks are the best way to build wealth, Lewis said, noting that they traditionally outperform bank interest rates and bond rates. But too many investors aren’t willing to stay in for the long haul. In fact, the average mutual fund owner only holds onto a particular fund for three years. What you need to do is keep that fund your entire lifetime, Lewis argued.

Jane Webb and Daniel Vacca from Morgan Stanley Dean Witter then discussed ways to reduce estate taxes and issues to be aware of in estate planning.

For instance, Webb emphasized the need to estimate both the potential size of your estate and the amount of estate taxes involved at some designated point in the future—say, 10 years out. That’s because your estate needs to have some means in place to pay those taxes, which are due in cash nine months after your death.

Next, Webb and Vacca presented a fictional case study of a couple with an estate worth nearly $3.6 million that would face estate taxes of almost $1.4 million. By using a credit shelter trust—which gives a surviving spouse access to the interest generated by and potentially even the principal of assets shielded in this way—the taxes were reduced by approximately $370,000. Another simple change—replacing a regular life insurance policy with an irrevocable life insurance trust—saved an additional $185,000.

In both cases, the assets shielded by such trusts then pass entirely to the estate’s beneficiaries (usually the couple’s children) upon the death of the second spouse, Vacca and Webb noted.

Diversifying for Success. Sometimes the best way to counteract the fluctuations in your primary business is to diversify.

Some firms diversify for practical reasons, such as when the Snyder Group purchased a waste hauling company. “We had so many customers who had containers, and one day I looked into our scrap container and it was filled with garbage,” James Snyder said. “Next to it was the garbage container, and it was filled with scrap. And I thought, ‘He’s getting our scrap, we’re paying for his garbage.’ I always felt that there was something backward about that.”

The Snyder Group diversified again when it bought a local foundry that was going out of business. Though the company has since sold the waste hauling and foundry businesses, its broad interests still include a company that rebuilds tanks for the U.S. government, an operation that designs and builds coal mining equipment and machinery, a fast food chain in San Diego, real estate concerns, and a golf course.

According to Snyder, a company can diversify in three ways: It can enter a business in its current business niche, it can go into a business that’s tangential, or it can go into a completely unrelated business.

Offering a tangential example, John Ockenfels of City Carton Co. Inc., a paper recycler, said his firm started as a trucking company. One customer asked if he’d take its scrap boxes, and all of a sudden he was in the business of selling OCC. Now, City Carton’s corporate umbrella covers the original trucking company, an equipment division, a firm that converts scrap paper into fuel pellets, and a document destruction company.

Charles Medico of Louis Cohen & Son Inc. is also no stranger to diversification. His father and uncle worked hard to find a business that would work and help them and their family lead a better life. They founded a trucking business, a coal hauling company, a service station, a restaurant, an appliance store, and electrical motor repair and sales, among others.

For companies seeking to diversify, Snyder suggested buying into other niches in a low business cycle because the price is bound to be right. Also, he noted, “We don’t look for pie-in-the-sky, and we don’t look for making a big score. Once you’ve decided to buy a company, make an acquisition, or diversify, you need to formulate a simple plan. Simplicity is the key to everything we’ve done.” Reinvesting profits in the company is also essential for diversification to work, said Snyder.

One of the main benefits of diversification is that it spreads out risk, said Ockenfels. “I can’t tell you how important that is to us, to our family, to spread out the liability issue that’s out there,” he said. “Changes that allow a corporation to own a limited liability company give a lot of flexibility.”

Training for Success. Training employees in the scrap industry is no easy feat given language barriers, diverse education levels, and scheduling problems.

To overcome such obstacles, it’s helpful to understand that there are four styles of learners: activists (who are open-minded and enthusiastic about new experiences); reflectors (who gather data, ponder, and take their time reaching conclusions); pragmatists (who are practical and test new ideas to see if they work); and theorists (who are perfectionists and think through problems), noted Richard Lerner of Cycle Systems Inc. “People learn differently, so you have to design programs that are relevant for everybody in order for them to have a chance to be successful,” he said.
One way to ensure relevancy is to ask employees to assist in developing your training programs, Lerner suggested. Jim Lawrence of ELG Metals Inc. also recommended, “If you don’t have any training programs in place, ReMA is certainly the best place to start.”

 Other strategies for training success include:

• making the training program a structured part of your company’s activities. Grossman Iron & Steel Co., for instance, established a training program named GISCO University. “We decided to approach it as professionally as we could,” said Harry Garber. Beginning with its maintenance employees, the firm scheduled training every Tuesday and Thursday at 3 p.m. “It wasn’t optional—it was mandatory,” Garber said. “If they weren’t there at 3 p.m., it was like being late to work. That structure finally gave us the results we were looking for”;
• using different delivery methods, such as lectures, videos, question-and-answer sessions, and hands-on experience;
  
• being repetitive with the instruction;
  
• scheduling the training before or after work, keeping it short, and compensating employees for their time;
  
• ensuring that the training is accessible to all employees, such as providing information in every employee’s native language. Also, you may have to give some employees oral tests if they’re uncomfortable or unable to take written or reading tests, Lerner said;
  
• offering other incentives for employees to improve their education, such as paying their tuition for courses relevant to their job. Lerner’s firm also gives employees a $100 savings bond for advancing their education; and
  
• ensuring support from management for the training program. “The attitude of management is critical to the success of any training program,” Lawrence said.
  

The benefits of good training include greater productivity, reduced operating costs, and improved safety, noted Lawrence. “Safety is the most important priority in our facilities,” he said. “The lives of our men and women are more important than anything that goes on in our plants.”

Safety training has become even more critical given the tight labor market and the number of new hires who know nothing about scrap operations, Lawrence said.

Safety training topics to cover include hazard communication, lockout/tagout, confined spaces, personal protective equipment, hearing conservation, respirator protection, machine guarding, radiation, hazardous wastes, and emergency response procedures, Lawrence explained.

Breaking the Illiteracy Barrier. Whether you’re teaching employees about safety or other topics, “illiteracy is a tremendous barrier to training,” said Mike Mattia, ISRI’s director of risk management. “It’s a wall between getting the information from you to the people who need to receive it.”

 How can you address illiteracy?

• Assume that every one of your employees is illiterate. “If you assume that, you’ll design your program to get to the average individual,” Mattia said. “You may talk below some, but it’s better to talk below some than to talk above many.”
  
• Don’t base your training on written information, and tell employees at the outset that they won’t have to read anything too difficult. The goal is to make everyone feel comfortable and able to participate. And when training non-English-speaking employees, don’t assume that translating information solves the problem. After all, he noted, the employees could be illiterate in their native language.
  
• Have employees create their own “priority messages” related to the training topic, Mattia advised. A priority message is like an ad—short and easy to understand. If employees create the messages, they’ll be more likely to remember them.
  
• Use illiteracy-based signs around the plant to communicate information, Mattia said. Such signs should rely on pictures and have few words. For instance, in working areas you could have a sign showing a hard hat and safety glasses with the words “Wear These.” For lockout/tagout, you could post a picture showing the way the equipment should look when it’s properly prepared. Be careful, however, not to rely on colors in such signs because some employees might be color-blind.
  
• Have employees draw hazard maps of your operation, using symbols or icons to denote danger spots. Or you could ask employees to take photos of the plant’s operations, then review the photos for safety concerns, Mattia said.
  
• Ask questions, but avoid “why” questions because they sound confrontational. It’s better to ask “what” questions, which are less intimidating, Mattia said.
  

Red Track: “Cutting Through The Red Tape”

After Superfund Reform. Though the Superfund Recycling Equity Act passed last year, the work is just beginning for scrap processors, who must now follow prescribed rules to obtain the act’s liability protection.

Every scrap recycling transaction must meet three conditions to be afforded liability relief, noted Tracy Mattson, ISRI’s director of environmental compliance:

• the material must meet the definition of a “recyclable material.” While EPA has an exacting definition of scrap metal, other materials are fairly self-defined. Also, the act recognizes that recyclable material may contain incidental amounts of oil, though material that has free-flowing oil may not meet the definition and thus wouldn’t be covered by the law. Some materials, including whole tires, shipping containers between 30 and 3,000 liters that hold or held hazardous substances, and PCB-contaminated materials are excluded from the act’s protection. While materials not included in the definition of recyclable material aren’t covered by the law, facilities arranging for recycling of these materials aren’t precluded from using other defenses such as the “useful product defense” to demonstrate that they weren’t arranging for disposal.
  
• the transaction must meet the conditions of “arranging for recycling.” To do so, a recycler must demonstrate four points: 
  

1. The material met a commercial specification. The test is to prove—through purchase orders, sales agreements, or invoices—that the material was “a commodity the consumer wanted,” said Mattson;
   
2. A market existed for the material. This can be shown through price quotations in trade journals and other market sources;
   
3. A substantial portion of the material was used as feedstock in the manufacture of a salable product; and
   
4. The material could replace a virgin resource or a product made, in whole or in part, from virgin material.
   

There are specific conditions for two commodities: Scrap metal can’t have been melted, and scrap batteries must not have been broken by the processor prior to arranging for recycling.

• for transactions after Feb. 27, 2000, the processor must have shown reasonable care to determine the environmental compliance status, as it applies to the recyclable material, of the facility to which the material was sent. ReMA has developed a checklist that you can provide to a consumer that asks for the relevant environmental information about its plant’s management of scrap. You must also check on a consumer’s compliance status by contacting regulatory agencies or using electronic databases.
  

Processors don’t qualify for the act’s liability protection if they knew that their material wouldn’t be recycled or would be burned as fuel, if they intentionally added a hazardous substance, or if they failed to exercise reasonable care in managing and handling the material, Mattson noted.

Managing Risk. “Risk management is a dynamic process of planning, organizing, controlling, or directing the uncertainty that’s associated with loss exposure in your business,” said Monica McNally of RecycleGuard Insurance Program at the session on “How to Make Money and Manage Risk.”

The goal of risk management is to “minimize the effect of a loss on your company by making a loss less likely, less severe, and more predictable,” she said, noting that the three basic rules of risk management are: don’t risk a lot for a little; don’t risk more than you can afford to lose; and consider the odds.

For scrap companies, there are various types of loss exposures, including property, net income, liability, and personnel. You can identify your firm’s loss exposures by reviewing financial statements, filling out checklists (available from your insurance carrier), making flow charts of your operation and noting potential trouble spots, inspecting your facility, and hiring consultants, McNally said.

As for dealing with risk, you can control it (by avoiding the risk, pursuing loss reduction, or using loss prevention), assume the risk (through funded or unfunded self-insurance, taking larger deductibles, or establishing a captive insurer), or transfer the risk (by purchasing insurance or transferring it contractually to another party through a lease, contract of sale, or hold-harmless agreement).

Cutting Your Losses. Adding to McNally’s remarks, Brian Janke of CNA Commercial Insurance offered advice on reducing risk in specific insurance categories.

In the workers’ comp area, you can minimize risk by maintaining insurance for all of your employees, including “key” individuals such as officers; implementing a safety program that promotes a safe workplace; and actively managing workers’ comp claims, including having a return-to-work plan for injured employees, Janke suggested.

When it comes to property risks, fire is the most serious danger in scrap operations, though recyclers must also protect themselves from inclement weather (such as tornados and hurricanes), criminal activity (such as theft), and business interruption. You can prevent some property losses by ensuring that your electrical system is updated and by having emergency and fire prevention plans, Janke advised.

Within the workplace, require all employees and visitors to wear protective equipment and have signs posted and rules in place to enforce this requirement, he said.

To prevent automotive losses, screen prospective drivers by conducting thorough background checks and implement a vehicle maintenance program, he said. If an accident occurs, drivers shouldn’t discuss liability with the other party and should have an accident kit on board, including a camera, spill containment products, and writing materials to record facts and make diagrams, Janke said.

The Environmental Insurance Angle. Environmental insurance is designed to protect your firm from pollution conditions, which could include “a discharge, release, migration, or escape of toxic chemicals, liquids, gases, hazardous materials, waste materials, or other irritants into or upon the land, the atmosphere, or body of water, including groundwater,” noted Joe Hollingsworth of ECS Underwriting Inc.

In general, environmental insurance covers bodily injury and property damage, usually for third parties; remediation expenses, including first- and third-party cleanups; and legal defense expenses.

There are also five common environmental coverage enhancements, Hollingsworth noted:

• products coverage, which addresses pollution caused by scrap that’s distributed or sold by the insured;
  
• disposal site coverage, which covers insurance liability for waste sent from the insured to a third-party disposal site such as a landfill;
  
• contingent transportation coverage, which protects against pollution caused by the insured’s product or waste while it’s being transported by a third-party carrier from the insured’s site to a customer or from a customer to the insured;
  
• radioactive contamination coverage, which encompasses low-level radioactive waste or material on, at, under, or emanating from the insured’s facility; and
  
• divested property coverage. Following the sale of a property, this coverage addresses pollution conditions for which the insured could be held liable during the time he or she operated the facility.
  

The benefits of environmental insurance include enabling you to transfer the cost of environmental losses and litigation. Also, if you don’t have an environmental expert on staff, you can consult the insurer’s risk-control specialists, Hollingsworth noted. Further, environmental coverage gives you “sleep insurance”—that is, peace of mind.

Identifying Radioactive Sources. So you’ve got a stationary radiation detector at your plant, scanning incoming and outgoing loads. That’s great. But you could protect your company even more if your employees knew how to visually identify potential radioactive sources.

“Your staff is another line of defense along with your mechanical detectors,” said Mike Mattia, ISRI’s director of risk management. The following are all clues that the material in question could contain radiation:

• the -ium suffix (as in cesium, radium, and thorium);
  
• identifiers like 60Co or Co-60 (which denote specific radioactive isotopes, in this case cobalt-60);
  
• the symbols for alpha, beta, and gamma rays, or the term neutrons;
  
• the terms disintegrations or counts per second or per minute;
  
• the terms curie or becquerel or fractions of those terms designated with the prefixes milli-, micro-, nano-, pica-, and so on, or with multipliers such as kilo-, mega-, and giga-; and
  
• the terms electron volts (or related abbreviations MeV or KeV), roentgen, and REM/or Sievert (Sv) or RAD/or Gray (Gy).
  

All employees should be familiar with the international symbol for radiation, Mattia advised. They should also be trained to be wary of products such as gauges and medical devices, whose radioactive source is often encased in a bulbous head. Many large-scale radioactive sources often have a C shape, he noted.

Green Track: “Running an Environmentally Sound Operation”

Recycling White Goods. Though regulations have made recycling white goods more complicated, they can be handled without white knuckles.Part of the problem is that the Clean Air Act is exacting and doesn’t distinguish between disposal and the sale of a commodity, said Tom Tyler, ISRI’s associate counsel/director of state and local programs. “We let EPA know that we have nothing to do with disposal, we’re recyclers, but it didn’t matter,” Tyler noted. “So, when it refers to disposal under the rules, it includes the recycling of appliances.” 

ISRI will explore reforming the Clean Air Act because the act assumes that, when a supplier brings an appliance to a scrap processor, the refrigerants are already removed—though that’s not always the case. 

As a result, scrap recyclers can take one of three approaches:

• refuse to accept white goods altogether;
  
• rely on documentation from suppliers that they have removed refrigerants from their white goods. Recyclers have two options in this case: They can get certification per appliance or per load, or they can have an established contract with an industrial account that states specifically that the generator will be responsible for removal, Tyler noted; or
  
• purchase and use equipment or a subcontractor on-site that meets EPA standards for the removal of CFCs and other refrigerants. Recyclers who pursue this option must fill out a form if they procure such CFC-removal equipment—or risk a violation. “You have to send a form to the EPA that says you own this piece of equipment, it’s at this address, and you’ll use it in compliance with the law,” Tyler noted. Though not required by EPA, many recycling companies train and certify employees who will operate CFC-removal equipment, he noted. 
  

Also, recyclers must keep records of companies to whom they sell recovered CFCs. All records pertaining to refrigerants must be kept at least three years, Tyler said.

Putting Your Best Face Forward. Imagine a scrap facility that has small gardens of blooming plants amidst piles of metal and displays signs that promote positive messages about work and family, and you get some idea of what it’s like to work at J.L. Proler Iron & Steel Co.

Elyse Rosenberg discussed her company’s unique appearance in the session “Better Yards and Gardens.”

Proler wanted its facility “to be an enhancement rather than a detriment to the neighborhood,” Rosenberg explained. With residential houses located next to its plant, “we had to do what we could to make our yard something that we wouldn’t get complaints about as people drove by.”

Instead, Rosenberg cited letters the company has received extolling its use of greenery—often planted in old hoppers repainted with bright colors—and prominent signs bearing messages such as “Gratitude for our customers ... honor for our neighborhood ... respect for our planet.”

The local civic association also praised Proler as a “good neighbor,” especially for its regular street sweeping, which has reduced complaints about punctured tires, Rosenberg added.

Attendees also discussed their own beautification efforts that ranged from chopping up pallets for homemade wood chip mulch and erecting brightly painted highway-style sound barriers around a new shredder.

Managing Regulatory Nightmares. Million-dollar fines from EPA and county officials who showed up with search warrants and police escorts highlighted the environmental management session.

Fred Cornell of Camden Iron & Metal Inc. discussed how his firm was hit by a seven-figure fine from EPA after inspectors found five refrigerators at its site that had not been properly cleansed of CFCs. Though Camden Iron & Metal thought it had a good certification system in place to make sure used appliance suppliers had followed all environmental regulations, EPA found that many certification forms were incomplete.

Camden Iron & Metal managed to negotiate its fine down to six figures, Cornell noted, but the scariest part was: “The company didn’t know it was out of compliance,” and it thought its certification program was working.

As a result, Camden Iron & Metal adopted a new environmental management system (EMS). The system’s elements include a written compliance program, checklists, regular reviews of progress, clearly defined responsibilities, and a switch from corporate-level accountability to plant-level authority.

All documents were kept as short as possible—one-page checklists, for instance—to avoid making the system too bureaucratic, Cornell explained. And the checklists were piggybacked onto the normal operator production checklists to better integrate environmental concerns into normal work procedures. Plus, realistic goals were established—for instance, each supervisor is charged with making only one improvement each month.

The benefits of focusing on environmental management have included eliminating unnecessary permits, gaining a competitive edge, and reducing workers’ comp costs, Cornell noted.

The police-and-search-warrant scenario began in the Minneapolis region last summer and still isn’t fully resolved, explained Larry Berndt of Wenck Associates Inc.

It started last July when county regulators showed up unexpectedly at one of several scrap processing facilities for which Wenck provides environmental consulting. The county wanted to take environmental samples, Berndt said, and the processors involved agreed to cooperate—but first they wanted the county to spell out in a letter what kind of samples they wanted to collect and why, what sampling procedures they would use, how they would ensure quality control, and other such issues.

Though the county regulators initially agreed to send such a letter, the processors never received it, Berndt said. Instead, the county returned last October, armed with search warrants and police escorts.

It turned out that the county had once been stuck with a multimillion-dollar environmental cleanup involving a defunct auto salvage yard. Making no distinction between scrap processors and other “junk” dealers, Berndt explained, the county was determined not to get stuck again.

But when Berndt told county regulators that the scrap processors he represented were considering an EMS, they backed off a bit. And when the results from the sampling came back, the processors were shown to be in compliance with all state standards for industrial sites.

Currently, the county is reviewing a draft EMS for about a half-dozen processors who are sharing the costs of developing the plan.

Though there are potential downsides to establishing an EMS—for instance, you may uncover other expensive problems that also need addressing—the positives far outweigh the negatives, Berndt said. Just having an EMS in place can improve your relationship with local regulators, protect your organization from third-party lawsuits, and even convince law enforcement officials to take only civil actions against your company, rather than criminal proceedings, if a serious accident occurs despite your having an EMS in place.

Blue Track: “The Blue Sky Is the Limit”

Catching the E-Commerce Train. The crowd was standing-room-only at the workshop on e-commerce, which suggests that the scrap industry is ready to jump aboard the Internet bandwagon in a big way.

“We recognize that this medium is going to change the forces of our daily lives to the extent that inevitably we’ll be doing most of our banking on the Net, we’ll do our shopping there, and the way that we operate our business is no different,” said Alex Heath of MG Ltd. “To borrow a famous saying, there’s only one thing sure in business—over time, your business will change. Unless you change with it, you may no longer have a business.” In particular, he asserted, “we have to embrace the way technology is changing.”

Robert O’Brien of the U.S. Defense National Stockpile said any electronic trading vehicle should have three qualities:

• Liquidity. “When you go into a site and you want to buy copper, you want the transaction to happen,” he said. “You don’t want to go in there and find out you can’t get your business done”;
  
• Accessibility. This means making it easy to find, navigate, and conduct business on your site; and
  
• Transparency. This pertains to pricing. Specifically, “the issue is how do you know that the prices you see are the right prices?” O’Brien asked.
  

One site in development—www.metalrate.com—will enable traders to take advantage of forward spreads, technical analysis, and online accounting, O’Brien noted. The site will provide real-time valuations of open trading positions and live rate commentaries. With a function called “Market Maker,” prices will be live in real time and can be converted from dollars to other currencies, he said.

Real-time transactions are also offered on the other Web sites discussed in the workshop. Coppernet (www.coppernet.com) includes information available to all visitors—such as conversion tables and general market news—as well as trading features for registered users only, noted Umash Khaitan.

 Aluminium.com (www.aluminium.com) is designed to be an international site for the aluminum market, said Alan Kestenbaum. “Our goal is to be involved in as many elements of the supply chain as possible in order to provide efficiencies to the market in the entire supply process. That means we’re going to be involved from the most basic raw materials of aluminum down to the finished and final products.”

MG Ltd. formed its Web site (www.mgltd.co.uk) as a way to improve customer service, Heath said. Given that the company has about 500 active accounts, it’s virtually impossible to provide customers with constant service by phone. “We found that essentially the top 50 or so active accounts were gaining the lion’s share of the service,” he said. MG’s Web site “allows them to trade in real time, and they get confirmation back.”

Everything Going Higher and Higher? Inflation is practically zero, according to the consumer price index (CPI) and producer price index (PPI). But can you trust those government numbers?

No, warned James Smith of the Princeton Economics Institute in the industry forecast session. Why? Because the government allegedly reduces or even eliminates the rising cost of oil when calculating the CPI.

The government has “a huge incentive to understate inflation,” Smith stressed, noting that the CPI is used to determine spending on programs such as Social Security. “If you can understate CPI,” he said, “you can save the government hundreds of billions of dollars.”

Likewise, Smith argued that the government has artificially inverted the yield curve on Treasury bills so that two-year notes are paying a higher percentage than 30-year notes—roughly 6.5 percent as opposed to 6.1 percent during the convention. Again, there’s a strong incentive for the government to do this because the result is lower mortgage

But such policies can’t be maintained in the long haul, Smith argued. Oil prices have tripled in the past year, and that inverted yield curve won’t stay inverted—it’ll snap back, he predicted. The results will include higher inflation and higher 
interest rates.

Even so, Smith also forecast a continuing boom in the stock market—in fact, a bull market for commodities lasting until 2007. However, that market run won’t start until a fairly substantial correction takes place, with the Dow falling as much as 23 percent and the NASDAQ declining nearly in half, Smith said.

The combination of higher prices and higher interest rates with a rising stock market goes against traditional economic theories, Smith conceded. But he also linked inflationary pressures to productivity gains, noting that the greater productivity U.S. companies have been enjoying eventually leads to better returns for investors and more money for employees in terms of higher wages or stock options. With more money in their pockets, employees and investors then spend more—creating demand that ultimately raises prices.

Commodity Spotlight Track

Aluminum’s Automotive Future. The new Cadillac DeVille uses 492 pounds of aluminum, far more than the 290-pound average in most cars. That’s one indication of the automotive industry’s growing interest in aluminum, said Kevin Moore of General Motors Corp.

Aluminum’s volatility, however, remains a big concern for automakers, he stated, noting that aluminum’s value can fluctuate from 42 cents to $1 a pound. Such volatility raises concerns over supply and makes retooling for aluminum a big risk.

“Our sourcing strategies and our objectives are to secure a sufficient physical supply and to stabilize the cost structure,” Moore noted. “We have some long-term physical deals that cover 10-plus years, which have become more common but are still unusual.”

Scrap considerations could, however, influence automakers’ material choices. If car engineers and cost analysts look only at a material’s cost, they logically ask, “Why would you ever make a car out of aluminum?” But as Moore explained, that view doesn’t take into account “the value of the scrap after you stamp the metal. At a 50-percent yield in both cases, the steel scrap is virtually 4 cents a pound, but the aluminum still has all its value. That should be considered in the analysis because you can send the scrap back and you can get another part, a very cheap one.”

Automakers are also looking at total recycling management of their products, said Moore, who noted that government regulations may eventually require them to be responsible for their products anyway. “We’re always looking further down that value chain to include the dismantlers, the shredders, the smelters,” he said. “We’re looking at using the total swap/resale method to reprocess scrap into our new parts.”The aluminum spotlight also featured Todd Stevens of McCook Metals L.L.C., who talked about the role of independents in the aluminum industry.

Conflicting Copper Futures. The bulls and bears offered different odds on the red metal at the copper spotlight. Betting on the bulls was Arthur Miele of Phelps Dodge Sales Co. He explained how copper demand during the 1990s had grown faster than gross domestic product, faster than industrial production, and faster than demand for all other base metals including aluminum. But production also grew in the 1990s—about 4 percent a year—creating a substantial surplus that sent prices as low as 61 cents a pound.

As a result, more than 750,000 mt of capacity was shut down in the past two years, leaving a present surplus of roughly seven weeks of inventory, Miele noted.

Long-term, he predicted “very good” prospects for copper demand, especially in construction—where “smart” houses are boosting copper usage about 30 percent—and automotive applications. New hybrid cars require about twice as much copper as conventional vehicles, he said, while more energy-efficient motors require from 25 to 40 percent more copper.

So what lies ahead? Miele forecast that the dramatic production increases of the 1990s will level off. The surplus will reach about 135,000 mt this year, but then shift to a 121,000-mt deficit in 2001 and 355,000-mt in 2002.

Taking a more bearish view of copper was Victor Lazarovici of BMO Nesbitt Burns. Despite “excellent” demand growth for copper recently, he stressed that supply has consistently exceeded demand. Thus, he forecast a 311,000-mt surplus this year—up from 235,000 mt in 1999—and a continuing surplus in 2001 of roughly 230,000 mt.

In Lazarovici’s view, the copper market won’t shift to a deficit until at least 2002. And before that deficit comes, he warned, the market will record its highest inventories.

Describing the unfolding scenario as a “supply-side recession,” Lazarovici also noted that copper demand should suffer from an anticipated falloff in housing starts, motor vehicle purchases, and industrial production.

Regarding copper prices, Lazarovici predicted lower prices and higher volatility in the short term—a 75-cent average in both 2000 and 2001, down from roughly 81 cents during the convention. But eventually, these numbers will discourage new capacity and set the stage for a “substantial upturn in prices,” he concluded.

An Emphasis on the ‘e.’ Though consolidation was the intended topic of the ferrous spotlight, e-commerce evoked just as much debate. The issue was sparked by the announcement that Metal Management Inc. and Philip Services Corp. were teaming up with MetalSite to create a new Internet marketplace for scrap called ScrapSite.Net.

Al Cozzi of Metal Management said his company helped launch ScrapSite for the value of owning Internet equity and to use electronic trading to “squeeze out inefficiencies in the way we do business” and “add transparency to pricing.”

By better linking the right supplier with the right consumer, Cozzi predicted that each side will get a better price, which means increased prices for the seller and reduced costs for the buyer.

But Robert Philip of Schnitzer Steel Industries Inc. was unconvinced. The transparency of Internet trading could be “the death knell of our industry,” he warned, especially for privately held companies that want to maintain their privacy. He expressed concern over the Internet’s “margin squeeze,” particularly in the fees that will be attached to every order bought and sold online. Such fees could make scrap processors “a cash cow for middleman transactions,” he worried.

Danny Rifkin of OmniSource Corp. staked out a middle ground on the Internet issue. While agreeing with Cozzi that scrap processors must try to influence how the Internet marketplace develops, he noted that the “urgent push to participate [in e-commerce] is somewhat reminiscent of the consolidation rush a few years ago.”

He questioned whether scrap can trade on a business-to-business site like steel or whether it “should trade on more of an exchange like stocks?” And he wondered how the Internet will reconcile the “variations in product quality and inconsistent buyer specifications.”

Concerning future consolidations, Rifkin predicted that “buyers will be more selective and employ a more cautious approach.” Valuations will reflect “real earnings potential,” and cash will be “the only practical currency,” even if this makes deals more difficult to reach, he said.

Rifkin also expected steel companies to continue investing in or acquiring scrap processors to guarantee their supplies of raw materials and eliminate costs from their supply chain. But Cozzi argued that the scrap industry has been more successful investing in the steel industry than vice versa. Moreover, he predicted that steel companies will back away from further investments in scrap complements such as direct-reduced iron and hot-briquetted iron.

For Metal Management, a strategy of regional consolidation has paid off by benchmarking the best practices among various acquired firms and centralizing functions such as purchasing and accounting in its Chicago headquarters to reduce administrative costs, Cozzi said. 

Consolidation hasn’t failed, he stressed, even though certain consolidators did. In fact, the next wave of acquisitions could find the consolidators consolidating themselves. “We’ve just begun to see the amount of consolidation we’re going to see,” he said.

Fred Smith of Philip Services’ metals group described his company as “the poster child for how not to consolidate.” The company overpaid for some properties, failed to achieve the necessary synergies to make consolidation worthwhile, and both timed and executed its consolidations poorly, he conceded.

Philip Services, which emerged from bankruptcy protection in early April, has dedicated nearly $20 million for capital improvements at its scrap facilities, installed a new computer system to track scrap inventories, and planned a “significant” training program, Smith noted.

A Lead Deficit by 2003? Despite setbacks in some markets and persistently low prices, lead has a “decent future,” said Michael Deelo of Doe Run Co. at the lead/zinc spotlight. Looking first at demand, Deelo noted that U.S. lead consumption dropped 22 percent to 1.2 million tons in 1986, only returning to 1977 levels in 1995. Western Europe’s share of global lead demand has slipped from 45 percent in 1970 to 33 percent. In contrast, Asian lead demand has tripled from 432,000 mt in 1970 to about 1.3 million mt in 1999. In terms of uses, lead is “almost down to a one-market industry”—batteries, Deelo said, noting that “today, batteries account for almost 90 percent of the U.S. market and 74 percent worldwide.”

Of the two major battery markets—starting, lighting, and ignition (or SLI) and industrial—the replacement SLI market is healthy, with predicted growth of 1.5 to 2 percent a year, Deelo reported.

The industrial lead-acid battery market is also growing, nearly tripling since 1985 and forecast to grow 7 to 10 percent a year for the next few years, Deelo said.

Other lead markets—such as cable sheathing, solder, and litharge—have seen “considerable decline” due, in part, to environmental pressures, he pointed out.

Changes in both primary and secondary smelting continue to reshape the lead market, Deelo said. In the past 25 years, secondary smelters account for more than 70 percent of lead supply, and the same trend is occurring worldwide. In 1985, for example, primaries provided 55 percent of lead supply worldwide, but that figure is expected to be 47 percent this year, slipping further to 40 percent by 2010, he said.

The biggest change in the lead industry in the 1990s was the emergence of China as the world’s largest producer of primary lead. As China’s lead production has increased, so have its lead exports, reaching 450,000 mt in 1999.

 As for prices, lead’s value has been on a downward trend since 1996, and “low prices for lead will continue for the next few years,” Deelo said. Part of lead’s price problem is that it’s a byproduct of zinc and silver production, which means that “lead concentrates will be produced if zinc and silver prices remain high,” he explained.

The good news, however, is that several mines in which lead is a byproduct will run out of ore in the next four years, eliminating about 500,000 mt of lead production by 2004 and helping push lead from surplus to deficit “sometime in 2003,” Deelo forecast.

Plus or Minus for Zinc. Depending on what happens with Chinese zinc exports and new production projects around the world, the zinc market could face sizable deficits or slight surpluses through 2002, noted Edward Schmidt of Big River Zinc Corp.

Until 1993, Western World zinc production and consumption were in relative balance, he said. Since 1993, the market has consistently had a production-to-consumption deficit of 864,000 mt a year. At the same time, Western World zinc consumption has been growing about 3 percent a year, creating demand for an additional 160,000 mt of zinc yearly. Zinc exports from such countries as China, Russia, North Korea, and others, however, pushed the market into a 1-million-mt surplus from 1990 through 1994, Schmidt noted. From 1995 onward, though, the market has been in deficit.

In the United States, consumption in the past 10 years has grown 3.4 percent, or 35,600 mt, a year to reach a record 1.4 million mt in 1999 against U.S. production of 364,000 mt, Schmidt said. From 1995 through 1999, the United States had an average production-to-consumption deficit of 914,000 mt a year, making up the supply shortfall through imports, which totaled about 1.2 million mt in 1999.

Projecting through 2002, “we see potentially large deficits in terms of zinc supply and demand in the Western World,” Schmidt said. From a deficit of about 103,000 mt in 1999, there could be a deficit of 666,000 mt by 2002.

That’s making one big assumption, however: No change in production but an increase in consumption from about 6.8 million mt in 1999 to 7.4 million mt in 2002.

If new Western World production does come online, zinc could post surpluses of 106,000 mt in 2000, 69,000 mt in 2001, 106,000 mt in 2002, and 16,000 mt in 2003, Schmidt said.

Turning to prices, LME zinc values in the past five, 10, and 15 years suggest that “probably zinc is going to be somewhere between 49 and 60 cents a pound,” Schmidt said. “When it gets below 49 cents, you’re at low prices. And above 60, it’s really high and it shouldn’t stay there very long.”

This year, price forecasts point to an average three-month price of $1,193 per mt, or about 54 cents a pound, he said.

Nickel’s Bullish Prospects. The short-term outlook for nickel and stainless steel is “very good,” thanks in large part to the international economic situation, which is “closer to a global boom than for many years,” said Peter Cranfield of QNI Ltd. at the nickel/stainless steel spotlight.

Western World primary nickel consumption could grow from 995,000 mt last year to about 1.1 million mt in 2000, while Western World primary nickel production could expand from 720,000 mt to 800,000 mt, he reported. The net effect, taking into account East-West trade, could be a 15,000-mt nickel deficit this year and 5,000-mt deficit in 2001.

Stainless steel production, meanwhile, is projected to increase 7 percent this year to a record 18.4 million mt, he reported. Stainless steel accounts for more than 60 percent of global primary nickel demand, and that share is growing. Also, stainless is continuing to penetrate new applications in building and construction, transportation, process plant, and consumer products.

In the production of stainless steel, Cranfield maintained that “good quality stainless scrap will generally be preferred to primary raw materials for the reasons of ideal chemical spec, competitive price, and lower melting point.” Currently, revert, new, and obsolete scrap account for about 45 to 50 percent of stainless mills’ raw material needs, with primary nickel and chrome making up the balance. Given the finite supply of scrap and “remarkable growth performance” of stainless steel, however, primary raw materials could gain a larger share of the melting mix. “I think we may be entering such a period at the present time,” Cranfield stated.

Unfortunately, some health and environmental issues are threatening nickel demand, Cranfield said, pointing to the substitution of nickel and cupro-nickel with Nordic Gold, an aluminum bronze, in euro coinage and a European Union ban on the use of austenitic stainless steel in jewelry. Nickel is also under fire in applications where it comes into contact with food and beverages.

“If we successfully manage those issues, we believe prospects for Western World nickel demand are good,” Cranfield stated. How good? Western World primary nickel demand could grow 3.5 percent a year, he said. This growth could boost nickel demand 225,000 mt higher by 2005, creating room for 150,000 mt of new capacity.

The U.S. Stainless Picture. Though the total U.S. stainless steel market reached 2.6 million tons in 1999—same as in 1998—apparent domestic consumption is expected to grow 5 percent in 2000 and 4 percent in 2001, said Edward Blot of Ed Blot & Associates Inc.

By market, sheet and strip accounted for 1.9 million tons, or 73 percent, of the U.S. stainless market last year, with that niche growing about 6 percent a year in the 1990s, he noted. In 2000, domestic shipments of sheet and strip are forecast to grow 3.6 percent to about 1.97 million tons and 3 percent in 2001 to 2.03 million tons. Imports accounted for about 20 percent of the U.S. sheet and strip market in 1999, he said.

The stainless plate market, which accounted for 250,000 tons, or 10 percent, of the overall U.S. stainless market in 1999, has been growing about 3 percent a year, Blot reported. Domestic shipments of plate declined about 6 percent in 1999 compared with 1998, while imports were steady at about 60,000 tons, or 24 percent of the market. Domestic shipments are expected to rebound about 10 percent this year and 4 percent in 2001 thanks to inventory drawdowns and improved demand in the capital goods market, he said. 

Imports of plate, meanwhile, will likely decline due to successful trade cases.
Stainless bar accounted for 235,000 tons, or 9 percent, of the U.S. stainless market last year, growing about 4 percent a year in the 1990s. Even so, domestic shipments and consumption of stainless bar products declined in 1998 and 1999, though they’re expected to rebound this year and next, Blot said. Consumption should reach about 255,000 tons in 2000 and 265,000 tons in 2001, he added. And while import penetration in this niche exceeded 40 percent in 1999, it’s expected to decline slightly in 2000 and 2001.

The rod/wire market accounted for 130,000 tons, or 5 percent, of the U.S. stainless market in 1999, growing about 6 percent in the past decade, Blot observed. Notably, imports—which were around 65 percent in 1999—exceeded domestic shipments throughout most of the 1990s. After declining in 1997 and 1998, this market is growing again, thanks especially to new demand in the consumer sector.

Turning to market trends, stainless steel could displace carbon steel brackets in automotive tailpipe applications and find greater use in air bags, fasteners, and fuel-injection systems, Blot said. Stainless will also see growth in electronics, appliances, architectural uses, and construction in highways, bridges, and parking garages.

All About UBCs. The workshop on “Aluminum UBC Recycling—What’s Hot With America’s Most-Recycled Container” could just as easily have been called “Everything You Always Wanted to Know About UBCs.”

This almost three-hour session, led by Dennis Crooker of Alcoa Recycling Co. Inc., kicked off with a video that touted the aluminum can’s winning qualities, including its ability to chill beverages, its stackability, and—of course—its recyclability.

Developed in 1964, the aluminum can is one of the great business success stories, said Dick Kerr of IMCO Recycling Inc. Since 1972, aluminum can shipments have grown from 7.5 billion to about 100 billion cans. The aluminum can has become the world’s most-recycled beverage container—with about a 64-percent recycling rate—and has a higher percentage of recycled content than any other packaging material, he said.

All is not rosy in aluminum can land, however. Its recycling rate hasn’t grown significantly in the past six years, and PET and glass bottles have been eroding its market share. To fight this challenge, the aluminum industry has spent more than $25 million on a national ad campaign to promote the can. It has also supported aluminum can recycling projects such as Aluminum Cans Build Habitat for Humanity Homes.

Adding to Kerr’s remarks, Craig Covert of Alcoa Rigid Packaging Division asserted, “We think it’s time to support the aluminum can like never before and to find meaningful, high-profile, easy-to-sustain, serious ways to make this can the shining star that it has been throughout its career.” These ways include:

• enhancing current aluminum can designs through such new features as holographic images laser-etched on cans, thermochromatic inks that change color to indicate temperature, and ink-jet printing of contests or logos on the bottom;
  
• creating new aluminum can designs, such as new shapes and different sizes;
  
• entering new markets, such as the still water niche; and
  
• marketing new can-delivery systems, such as packages designed to fit into specific areas of the refrigerator.
  

Beyond the aluminum can’s market challenges, the workshop addressed recycling issues such as contaminants and how they affect UBC consuming mills.

According to Peter Jacobs of Wise Recycling L.L.C., the main contaminants and their repercussions are:

• dirt, which creates dust in a mill’s shredder and generates dross during the melting process;
  
• steel cans, which prematurely wear down the blades and screens of a mill’s shredder and boost the iron content in the melt;
  
• paper/plastics, which gum up a mill’s shredder and act as combustibles in the delacquering kiln. They raise the temperature in the kiln to the point where it starts melting the aluminum rather than delacquering it, which can mean “major” recovery losses, Jacobs said;
  
• glass, which presents an employee safety hazard, gums up the shredder, and raises the silicon content in the melt;
  
• wood, which can break the shredder and slow production;
  
• non-UBC aluminum and other base metals, which skew the chemistry of the melt;
  
• syringes, which pose safety hazards for employees; and
  
• moisture, which slows the delacquering process, cools the kiln, and produces steam, possibly causing explosions.
  

The key to eliminating such contaminants is “education, education, education,” said Laffette Jordan of Alcan Aluminum Corp. Part of this education must be between scrap processors and UBC consumers, who should visit each other’s facilities to better understand how the other operates, he noted.

Offering a few quality and safety tips, Jordan suggested, “When you bring a truck into your facility to load, it’s very important that you clean that truck out.” In particular, processors should remove all cardboard and any unknown substances from trailers.

When baling UBCs, six to eight wires are sufficient to hold each bale as that minimizes the number of “unpredictable wires” that a mill’s employees must cut and handle, Jordan noted.

As for syringes, the solution “goes back to education,” he said, suggesting that processors and the aluminum industry must promote the use of approved sharps-disposal containers, not UBCs, for discarding syringes.

Also, the public as well as processors must learn not to include aerosol cans in loads of UBCs because they’re under pressure and can become projectiles, Jordan said.

The UBC session also included presentations about UBC processing equipment by John Willis of CP Manufacturing Inc.; the Aluminum Cans Build Habitat for Humanity Homes program by Steve Thompson of Thompson & Harris; quality supplier recognition awards by Bryan Steverson of Alcoa Rigid Packaging Division; and UBC supplier audits by Steve Campbell of Anheuser-Busch Recycling Corp.

Expanding Into Paper. It’s time for scrap processors who don’t currently recycle paper to consider entering that niche, said Edward Sparks of Cedar River Paper Co. (Cedar Rapids, Iowa) at the paper spotlight.

Focusing on OCC—a grade familiar to many non-paper recyclers—Sparks explained that the North American OCC market remains extremely fragmented, with almost 300 mills buying the material in quantities ranging from single digits to nearly 750,000 tons a year. “Three hundred mills is a lot of opportunity to market OCC in any quantity,” he stressed.

Plus, Asia and Latin America offer a growing export market for at least the next 10 years, Sparks said.

And since processing paper uses essentially the same equipment and procedures as handling scrap metals, just about anyone in recycling can make money with OCC if they can process the material for less than $30 a ton, Sparks said.

He warned, though, that current levels of paper recovery would require newcomers to deal with material that’s dirtier and thus more expensive to process. Overall, some 23 million tons of OCC is collected each year in North America, which equals a 75-percent recovery rate, he noted.

Metals recyclers are good candidates for collecting additional OCC tonnage because their “scavenger and door-trade business is much more refined than most paper recyclers,” Sparks said.

A Fond—and Funny—Farewell

Herschel Cutler began working for the Institute of Scrap Iron and Steel (ISIS) in 1967 as a transportation consultant. From that humble start, he ascended to executive director in 1972, a position he held—first for ISIS, then for ISRI—until 1997 when he became ISRI’s senior adviser.

To honor Cutler’s 33 years of service to ISIS and ISRI, the association held a gala tribute and roast March 15 at its annual convention.

Serving as master of ceremonies was former Rep. Al Swift, who called Cutler “one of the most decent men I’ve ever met,” adding that he “taught me that scrap is not waste.”

Mark Reiter, ISRI’s manager of legislative and international affairs, told how he left his job working for a Senate committee to come to ReMA specifically to work for Cutler. “To this day, he hasn’t disappointed me,” Reiter said.

Calling Cutler “my mentor and my friend,” ReMA President Robin Wiener reviewed the top-four lessons he taught her—humility, decisiveness, customer service, and the true meaning of leadership and respect.

Former ReMA presidents Shelley Padnos of Louis Padnos Iron & Metal Co. and Richard Abrams of Consolidated Scrap Resources Inc. also offered words of praise. “In the end, our successes were the result of your influence,” Abrams stated.
The evening wasn’t all seriousness, however, though the consensus was that Cutler was a difficult man to roast. As Swift deadpanned, “There’s nothing funny about Herschel Cutler.”

Mike Mattia, ISRI’s director of risk management, presented a comedic slide show—“Herschel Cutler: An American Journey”—which took a fictional journey through Cutler’s life, from his small-town rural origins to his Forrest Gump-like participation in key moments in history. Through computer magic, Cutler’s head was superimposed on bodies in historic photos to give the appearance that he was fraternizing with such figures as Patton, Churchill, Kennedy, and Johnson.

Adding more levity to the evening, Jack Beck of Miller Compressing Co. transformed himself into Rabbi Izzy Schiff and performed an impromptu comedy routine with a heavy Yiddish accent. And Bob Lewon, formerly with LMC Metals, told the fabricated story of how Cutler once led a double life as a California beach bum named Hersch the Surf, giving Cutler a blond wig and sunglasses to create the proper look.

Sen. Blanche Lincoln (D-Ark.), the evening’s final tributarian, recalled her discussions on Superfund with Cutler, noting that “he spoke so competently and with so much political knowledge” that it “became obvious why people say, ‘When Herschel Cutler speaks, everyone listens.’”

Then Lincoln read letters from two of Cutler’s friends in Washington—President Bill Clinton and Secretary of Agriculture Dan Glickman. In closing, she concluded that “the most important thing that we’re here to pay tribute to is the blessing of your friendship. Thank you for that, Herschel.”

Then it was time for Cutler to respond. Calling his 33-year career “a hell of a run,” he stated, “While the walk today may be a little slower, the hair—what remains of it—a bit grayer, the pace a bit more relaxed, the responses a bit slower, there’s a lot of fire left in this engine. I have a very good idea what I’ll be doing in the future. I look forward to sharing some of those adventures with you.”

Great Unexpectations

In a rapidly changing world, it’s vital to understand “how one political event impacts on another, and how if we treat them in isolation we create problems for ourselves and many other people,” said former British Prime Minister John Major at the keynote general session March 14. 

For instance, many in the West cheered when the Berlin Wall fell and the Soviet Union collapsed. “But did we expect what followed?” Major asked. Did the West expect that the end of Soviet influence would allow long-suppressed ethnic hatreds to explode in the former Yugoslavia? Or that the costs of German reunification would help worsen a recession across Western Europe? 

No, Major concluded. Nor did people expect that the “unification of Germany, and hence the drawing together of Western Europe, would accelerate the demand for European union and help give birth to a new currency—the euro—a good deal earlier than it probably otherwise would have,” he noted.

That new currency, though currently embattled, will eventually strengthen and when it does, “Europe will never be the same again,” Major said. For a single European currency will also bring greater pressure across the continent for more harmonized taxes, more communal laws and regulations, and greater standardization, all of which will make Europe more powerful economically but the individual countries less diverse politically, he said.

The former Conservative Party leader also predicted the eventual formation of pan-European companies large enough to compete with the biggest American firms, as well as a pan-European defense industry—unless Europe simply wants to be “a client of the United States defense industry.”

Moving beyond Europe, Major noted that China’s gross domestic product will likely surpass Europe’s and America’s sometime this century. It may not be for 50 or 60 years, but eventually 1.2 billion Chinese with investments around the world will have greater economic clout than roughly 370 million Europeans or about 280 million Americans, he said.

Likewise, nations such as Russia, India, Indonesia, and Brazil are likely to double their share of world trade in the next 25 years, Major said. 

Achieving Family Business Success

A family business can be a well-run, profitable enterprise—with a little careful planning, said Russell Allred of Allred & Associates Inc.

Every family business needs four plans to be successful, he said:

Family Ownership Plan. This plan, which can be simple, establishes your basic purpose and goals in running a family business, outlines the rules for hiring children and other family members, and includes a system of communication.

Strategic Plan. This plan focuses on your company’s future direction and should be shared with your employees because “they’re going to help you get to your objectives,” Allred said. This plan should include a simple mission statement as well as short- and long-term objectives. As part of this plan, give specific assignments to people, give them the freedom to work, and then require accountability, he advised.

Succession Plan. The succession plan should specifically name your successor in running the business and prepare the person or group for that transition.

Exit Plan. You must have an exit plan, if for no other reason than tax purposes, Allred noted. If a business owner doesn’t plan for his or her death, estate taxes will cost the business and family dearly.

These four plans and a company based on hard work, values, and love will make a family business more successful and happier, Allred asserted. “If you’re building, you need a firm foundation, and that foundation is love,” he said.

Economic Keys to the Future 

Though the U.S. economy has been on an unprecedented roll, “we have not repealed the business cycle,” warned Robert Reich, former Secretary of Labor in the Clinton administration, speaking at the March 15 general session.

He pointed to four economic storm clouds that could rain on the U.S. economic parade:

• Japan—the number-two economy in the world—is still in recession, which will drag down the global economy and continue to tip the U.S. trade balance on the import side;
  
• U.S. consumers are “buying like mad” because they assume the stock market and housing values will continue to rise, a mentality that has helped boost consumer debt to record levels;
  
• the stock market is in the process of correcting itself; and
  
• the Federal Reserve Board’s fears about inflation will prompt it to raise short-term interest rates. And “if it raises interest rates too much, it could create the conditions for a recession,” Reich said.
  

Aside from these storm clouds, the U.S. economy has been undergoing significant structural changes, most notably in terms of the globalization of products and markets and the rapid growth in technology, Reich said.

Globalization. In today’s global economy, U.S. companies are no longer simply competing against foreign companies. Increasingly, companies and products are what Reich called “global composites,” pointing to DaimlerChrysler (a merger of German and American firms) and Boeing planes (which are U.S.-made but include many foreign components) as examples.

Technology. “Technology is dramatically affecting every single business in multiple ways,” Reich said. It’s changing normal business patterns—take business-to-business Web-based auctions—as well as the work force. Technology, though, has been a boon to some employees and a disaster for others. “If you have a four-year college degree, you’ve never had it so good,” he said. But for employees in the service sector, technology, globalization, and the “wonderful U.S. economy” haven’t done much for them.

In today’s economy, “human capital—people—have become the most important, central business strategy of all,” Reich asserted. The key to success is innovation, “which depends on the people you have,” he said. “That’s your entry barrier. That’s what defines your business. So you have got to find ways at both attracting and keeping talented people. It’s much more than just paying them more than you did before. You’ve got to also give them more responsibility. You’ve got to give them a feeling of mission and pride.”

Even beyond the employee challenges, the biggest danger for businesses today is complacency, Reich said, asserting that “the biggest enemy of positive, progressive change in a business is past success.” To succeed in the long term, companies must be flexible and willing to change.

—Kent Kiser, Aaron B. Pryor, and Robert L. Reid

Las Vegas may be a city of fortunes won and lost, but it certainly brought good luck to ISRI’s 13th annual convention—held at the Bellagio in March—which set a record attendance of almost 3,290.