Author: Farkas, Jeremy M.

R. Gabrielle Swab
Assistant Professor, Department of Management, Towson University

The coronavirus disease 2019 (COVID-19) initiated economic disruptions in both large and small businesses, with a June 2020 study finding 94% of downtown Baltimore businesses were adversely affected by COVID-
19.¹ A broader analysis of 5,800 small businesses in the United States finds patterns in mass layoffs, the risk of closure, and financially fragility.² This is concerning for Maryland, as small businesses in the state employ approximately 50% of our private workforce and are increasingly contributing to economic growth, such as providing over 10,000 net new jobs to our communities in 2016 alone.³

The COVID-19 Emergency Relief $50M Grant Fund provided assistance to small businesses and nonprofits in Maryland,⁴ but some have still been unable to survive. Maryland businesses have also had to consider updates to both their internal and external processes and operations. This article focuses on those considerations in a local family business in Baltimore County, Kelly & Associates Insurance Group and Kelly Payroll (KELLY).

The KELLY Values

KELLY began in the home of husband and wife, Frank and Janet Kelly in 1976 to help local small businesses acquire affordable health care benefits for their employees. Through an innovative association relationship model, they brought these small businesses together through common industry, trade, and profession to form larger groups, allowing for access to better rates and benefits. Since, KELLY has grown into an enterprise integrating solutions for employers of all sizes in insurance, benefits, payroll, and various human resource solutions, and it continues to operate as a family business.

Like other local organizations, the pandemic has forced KELLY to consider changes to their business practices quickly and efficiently. Frank Kelly III, the eldest son of Frank and Janet, and Chief Executive Officer, said the business has continued to focus on adhering to their core values when making decisions and deciding how to move forward. This focus is on their people, both internally on employees and externally on their clients.

External Considerations

Though KELLY supports a variety of companies and industries nation-wide, the majority of their core clients are located in the mid-Atlantic. By mid-April and continuing into May, the company started to see a decrease in revenue. Since June, KELLY has remained stable. Though not near back to normal, with many clients still struggling, others, such as those in the trucking industry, have seen an increase in business. Restaurants and retailers were KELLY’s largest customer segments to take a hit, with one client going from 8,000 to only seven employees in a matter of months. This particular client has grown back to over 3,000 employees, so they are hopeful these businesses will continue to recover. Accordingly, though mid-Atlantic businesses, such as those they support are still struggling, those which survived are beginning to see an uptick in business.

CEO Frank Kelly III affirms the struggles are not just with current clients, but in obtaining new business. “Our sales team and their current and target clients are having to adjust to new ways of networking and developing relationships”, he mentions. Like other companies, they have been relying more on virtual meetings.

Internal Considerations

In a matter of one week in March, KELLY transitioned their staff from approximately 95% of their nearly 500 employees being in office, to 95% working remotely. The Vice President of Human Resources, Trish Backer- Miceli, attributes this quick transition to their emergency preparedness program, which included tabletop exercises that proactively prepped and tested equipment. Though they previously believed a disruption of in-office operations would likely be due to a weather emergency, this frequently practiced and discussed plan allowed remote work to begin more smoothly than it would have been otherwise.

Chief Operating Officer, Wes Mace, described the internal operational changes in three phases. During Phase 1, the primary focus of the organization was the health and safety of the employees both physically and emotionally. Mace used this phase as an opportunity to get to know his approximately 200 employees working under him on a deeper level. While in the office, most engagement was done in group meetings, with the manager and employee ratio at approximately 1:8. Since going virtual, Mace and his management team have sought to have more one-on-one time with employees. Though remote, the practice ensures their employees are given a voice into how they are being affected personally and professionally. Though he sees no particular pattern in employee apprehensions and adjustment pains, they have continued to be concerned with those employees with young families at home during their work hours. As an additional layer of support, KELLY provides access to confidential emotional and spiritual services through their corporate chaplain, who is affiliated with Corporate Chaplains of America. The partnership provides employees with the ability to speak with a well-trained resource for encouragement, prayer, conversation or for general assistance in dealing with personal situations such as stress or crisis management.

Phase 2 focused on adjusting and reinforcing those disrupted business operations, though it became an ongoing process in evaluating what was working and not working. Phase 3, also an ongoing process, includes evaluating how the business will change going forward. Mace points out that although approximately 20% of their employees are back at the office, the plan is to have more return in the future though they are unsure of exactly how this will permanently change operations, along with the unknown timeline in which COVID-19 will be affecting the Baltimore area.

Moving Forward

In focusing on their employees and clients, despite drops in revenue, KELLY was able to maintain strong customer service and relationships, without a slip in service-focused Key Performance Indicators. They attribute this to their strong culture. The Senior Management Team (SMT) is utilizing Phase 3 to consider the success rate of what they have stopped and started doing as well as what they plan to continue. In answering their questions, businesses may wish to consider some of the following practices now and when moving forward.

Adhere to your values: Though organizational changes may occur during this time of uncertainty, it should not deter from the organization’s mission and value statements, which should drive its culture if aligned properly. The KELLY culture is driven by the founders’ and owners’ values and vision. Organizational culture is further ingrained based on how top managers respond to critical incidents and organizational crises. Accordingly, when faced with issues, management responding in a way that matches the organization’s mission and values sends a clear cultural message.⁵ Therefore, when KELLY stuck to considering people first, their SMT showed their resilience towards their core values when reacting to a crisis or tough situation(s).

Communicate often: Employees of all levels wish to be heard and valued, and organizations sometimes exacerbate the impact of a crisis due to poor communications.⁶

Overall, employees may be the biggest determinant in how fast and how well an organization recovers from a crisis. They are not only the first contact with customers both during and after, but employees themselves take note of how the organization communicates during the crisis. A lack of communication during a hardship can come at a high cost, but those leaders who communicate well determine the faith their employees and other business partners will have in them.⁷ While the KELLY SMT agrees that communication and engagement have been a struggle, they have encouraged middle level management to keep their team(s) engaged and supported.

Set expectations: According to Mace, “Frustration is unmet expectations”, so he has sought to specifically address these with employees. This has presented a challenge, as the timeline for the pandemic is still unknown. However, employee expectations are important and have a variety of accompanying considerations such as motivation levels and job satisfaction.⁸ Employee’ expectations have changed in light of the pandemic, and leaders should be cautious in expecting business to return to normal, but rather should find a new normal to reshape or reinvent the organization.⁹ Therefore, though the KELLY team is unsure of the future, they have set expectations that while the day-to-day aspects of life at KELLY might look different, they do have a plan for coming back into the office eventually. However, employee health and safety are concerns, along with the need to be flexible to the personal circumstances of employees and the new work-life balance the pandemic has caused.

Consider new opportunities: While the pandemic has produced much stress, “Necessity is the mother of invention”, as described by Mace. This change in business operations has forced them to consider opportunities and challenges in a way they were unable to before. One such opportunity is in how they recruit new employees. While KELLY had previously focused on recruiting those within the Baltimore area to work within their physical office space, they recognize they are able to successfully conduct remote operations when needed. As they are still trying to find their new normal, they are not currently or specifically looking outside the area for hiring, but acknowledge they are able to widen their recruitment pool if needed.

Though CEO Frank Kelly III misses the ‘synergy and energy’ of being connected in person, the KELLY employees rose to the challenge of remote work. This has allowed the KELLY SMT to see that team meetings or other activities may not be as effective as they once believed, and they are continually searching for ways to keep employees engaged, while eliminating those activities that have proven to be not as productive or necessary.

Final Thoughts

Despite KELLY and other organizations in our community finding best practices that are working for them, this is not without struggles, stress, and a bit of trial and error. Unfortunately, many businesses in our community are still struggling and will likely continue to do so. Support your local businesses and community in ways in which you are able. Small or local businesses may find also resources and information on COVID-19 Assistance at the federal and state level through the Maryland Small Business Development Center.¹⁰

References

¹https://www.bizjournals.com/baltimore/news/2020/06/30/down-
town-partnership-survey-coronavirus-effects.html

²https://www.pnas.org/content/117/30/17656

³https://cdn.advocacy.sba.gov/wp-content/
uploads/2019/04/23142650/2019-Small-Business-Profiles-MD.pdf

⁴https://commerce.maryland.gov/fund/maryland-small-business-
covid-19-emergency-relief-grant-fund

⁵Kinicki, A., & Williams, B. K. (2016). Management: A practical approach. McGraw-Hill Education.

⁶Goodman, M. B., & Hirsch, P. B. (2010). Corporate communication: Strategic adaptation for global practice. Peter Lang.

⁷https://www.shrm.org/hr-today/news/hr-magazine/1116/pages/
communicating-with-employees-during-a-crisis.aspx

⁸Irving, P. G., & Montes, S. D. (2009). Met expectations: The effects of expected and delivered inducements on employee satisfaction. Journal of Occupational and Organizational Psychology, 82(2), 431-451.

⁹https://www.forbes.com/sites/kathycaprino/2020/04/30/
how-employees-expectations-have-changed-through-the-pandemic- what-leaders-and-hr-officers-need-to-know/#a8107204f898

¹⁰http://www.mdsbdc.umd.edu/covid-19-assistance

Dave Donahoo, CFA
Board Member & Vice President, CFA Society Baltimore

We must start teaching financial literacy to children at young ages. This could make a big difference in the financial wellness of future generations.

Data shows that 59% to 78% of Americans are living paycheck to paycheck. That’s consistent with another scary statistic: Only about 41% of Americans have enough savings to handle a $1,000 emergency. In other words, essential but unexpected car or home repairs could push more than half of our fellow citizens into debt.

While many factors contribute to starkly different finan- cial situations for Americans, the purpose of this article is to focus on financial literacy. Financial literacy can be a potentially powerful remedy for the lack of finan- cial wellness reflected in the troubling statistics noted above. If Americans are not taught personal finance best practices, they are more likely to make poor financial choices. This can have long-run, generational effects.

Academic research, such as Divya Sridhar’s “Financial Literacy Is More Important Now than Ever,” tells us that to have the greatest impact, we should focus more on financial literacy than we have in the past. It also shows that children learn (or do not learn) about money and personal finance from their parents, which means that every parent has a responsibility to help their children learn about personal finance. Unfortu- nately, not all parents are adequately prepared to take on this responsibility.

This article highlights the ages—which are younger than you think—at which different forms of financial education becomes appropriate, how our financial education needs to evolve with technology (for example, my children may never balance a checkbook), the status of financial education in K-12 schools, the role of non- profits, and, most importantly, what we can all do to improve financial education outcomes.

How Young Is Too Young?

You may have personal experience with financial educa- tion for children in the form of an allowance. Children are monetarily incentivized to do household chores. For example, if they take the trash out and help wash dishes,
$10/week goes into their piggy bank. While research is mixed on whether money should be tied to contribut- ing to family chores—to be sure, many children must step up in their households out of necessity, without a monetary reward—the research unequivocally says that we need to teach general financial education at a younger age than we think we should.

But children’s financial education shouldn’t start and end with an allowance. Experts suggest that as early as second grade, parents can introduce the concept of “need” versus “want.” (My three-year-old argues she “needs” M&Ms … we are working on that.) Need versus want—or spending now versus saving for later—is at the heart of financial education. It’s also a foundation for concepts like “emergency savings.”

In sixth to eighth grades, children learn about what Albert Einstein called the “eighth wonder of the world”: compounding interest. In the asset management industry, we often talk about the positive power of compound- ing returns. However, it also works in reverse. Proper debt management is key for American households to avoid the negative power of compounding. Debt can grow rapidly—much more rapidly than many Americans grasp.

High schoolers, armed with an understanding of the positives and negatives behind compounding, are then forced to grapple with their first big-ticket life choices: the three Cs of cars, colleges, and credit cards. A greater focus on such “real world” challenges could yield results.

If we accept that teaching our children financial educa- tion at a young age is essential, should we teach them what we learned?

Technology Has Changed Personal Finance

I walked into my home office this autumn on a mission to find my checkbook. After finding it, I was embar- rassed to explain to our contractor that I had run out of checks. A Venmo transaction later, I went online and ordered a sleeve of checks from my banking institution. Checks were offered in groups of 10, 25, or 50. I opted for 25 checks, knowing they will last me a few years.

Technology has changed personal finance profoundly over the last 30 years, but we have not changed the way we teach personal finance. The rise of credit cards in the 1990s, combined with online shopping in the 2000s, has made it difficult for everyday Americans to truly understand their spending habits. The ability to buy by clicking an online “buy now” button on Amazon makes it tougher and tougher—even for adults—to see the difference between a “need” and a “want.” And, without the example of mom and dad balancing a paper checkbook, kids have even less insight into personal finances today. Today, online budgeting services such as Mint serve as a virtual checkbook or ledger. The way that we teach personal finance needs to change to reflect these changes.

Lack of Preparedness at the K-12 Level

K-12 schools have long struggled with how to address financial education, although they recognize its impor- tance. The lack of financial education for K-12 students isn’t malicious. Rather, it’s because many teachers lack the confidence to provide financial education—either because they grew up in families where it was taboo to talk about money or because they felt inadequately prepared to position themselves as experts.

Luckily, with greater awareness of the need to teach financial literacy at the K-12 level has come efforts to bring about change. We are seeing more and more school districts adopt some form of financial education training for their students. In the past decade, legislative efforts to improve financial literacy have accelerated. As of the 2018 legislative session, thirty states have passed legislation addressing K-12 financial literacy education.

However, the efforts to introduce financial education have had mixed results. Teachers historically have not received strong financial education training. Only one in five (20%) teachers felt competent to teach personal finance, according to Teachers’ Background and Capacity to Teach Personal Finance: Results of a National Study. In contrast, almost 90% of teachers believed there should be some form of required financial education course.

If we all agree that personal finance is an important topic, but K-12 teachers aren’t prepared to teach, where do we turn?

Role of Nonprofits

Over the past 30 years, many mission-oriented nonprof- its have focused on partnering—not competing—with our public schools to provide financial education to children. The CFA Society of Baltimore, of which I’m a member, has worked with several. To ensure the next generation of adults is better prepared for a $1,000 financial emergency than our current generation, we must find more ways to assist nonprofits in providing financial education to K-12 schools.

Some examples of successful programs include Junior Achievement, a national nonprofit focused on K-12 education that develops and administers in-classroom financial education through a network of volunteers. The United Way has a similar program. John Hopkins School of Education has developed Stocks in The Future, a financial literacy program that reinforces math, lan- guage arts, and social studies here in Baltimore.

While financial education is needed across all races and genders, research shows young girls suffer from significantly higher confidence gaps related to finances. The Invest In Girls financial literacy program, which says only 12% of girls feel financially confident, has as its mission to change that statistic.

Like nonprofits, many corporations, especially in the financial services sector, have begun to develop financial wellness programs for their employees, including pro- grams around the topic of how parents can talk with their children about money. My firm, T. Rowe Price, is one of many that have developed content around this subject, partnering with Junior Achievement to deliver the Money Confident Kids financial literacy program.

How Can You Make A Difference?

Financial education is a lifelong journey, but the journey must start early. If you want to get involved, the orga- nizations I’ve mentioned are great places t lend your time and resources (find their websites in the “Refer- ences” section below).

The CFA Society of Baltimore recognizes the role we can, and must, play as financial services professionals beholden to the broader Baltimore community. In addition to our longstanding practice of engaging with college students who are pursuing careers in finance, we have begun to partner with many organizations, includ- ing those listed above, to put our collective financial expertise to use.

I hope this article serves as a starting point for all of us to better explore the importance of financial education and to think about ways to pass along our knowledge to future generations.

References

Invest in Girls, a financial literacy program. https://www.investgirls. org

Money Confident Kids, a financial literacy program. https://www. moneyconfidentkids.com

Morton, Heather, Ongoing Effort for Financial Literacy: National Conference of State Legislatures https://www.ncsl.org/ blog/2018/03/28/ongoing-efforts-for-financial-literacy.aspx

Sridhar, Divya, “Financial Literacy is More Important Now than Ever,” Medium.com https://medium.com/inspired-ideas-prek-12/ financial-literacy-is-more-important-now-than-ever-ad771fe450ae

Stocks in the Future, a financial literacy program. https://www. sifonline.org

Way, Wendy L., and Holden, Karen (2010). Teachers’ Background & Capacity to Teach Personal Finance: Results of a National Study, National Endowment for Financial Education. https://www.fdic. gov/about/comein/Mar3.pdf