<p>The Accruit Exchange Manager™ was featured in the most recent <em>Trusts &amp; Estates</em> magazine's monthly technology review. The reviewer, Donald H. Kelley of Kelley, Scritsmier &amp; Byrne, P.C., regularly covers technology and related issues for the legal publication, which is devoted to the wealth management sector.</p>

<p>His review considered four key criteria, and awarded the Exchange Manager™ 18 out of a possible 20 stars, concluding that "[t]he Accruit service furnishes an efficient way to handle the details of like-kind exchanges and all the associated document preparation and record keeping."</p>

<p>We've always touted the efficiency and effectiveness of Accruit technology, and it's rewarding to see independent analysts reaching the same conclusions.</p>

<ul>
<li><a href="http://trustsandestates.com/tech_center/management-like-kind-exchanges0…; target="_blank">Read the article at Trusts &amp; Estates.com</a></li>
</ul>

<p>I was recently re-reading a <em>Seattle Times</em> story from a couple years back on how <a href="http://seattletimes.nwsource.com/html/nationworld/2003723064_men26.html…; target="_blank">men in their 30s are earning less than their fathers did</a>. An interesting story top to bottom, but the concluding section drew me back around to something that I really haven't talked about enough lately - the looming generational macro-succession nightmare facing corporate America. It's impossible to say precisely how many businesses are going to feel the bite - or already are - but my best guess is somewhere between "many" and "most."</p>

<p>This part you may have heard before:</p>

<blockquote>Diehard careerist baby boomers also might partly explain the inability of 30-something men to move up the income ladder as quickly as their fathers. From the moment Generation Xers entered the workplace, boomers have been the "ceiling" blocking their way up the income ladder, said Peter Rose, a partner with marketing-research company Yankelovich in Los Angeles.<!--more--> "The boomers stand out in defining themselves in terms of their work and have shown a disinclination to get out of the way," he said.</blockquote>

<p>First, let's make clear that this is purely and simply a <em>math question</em>. There are X number of leadership and management jobs and X+1 Baby Boomers, and a good many of the ones I've worked for (including my current boss, may she <em>never</em> retire) are doing an awfully good job. So the ladder-blocking described above isn't a function of anything negative - it's just that there are so many Boomers that they represent a ceiling that many Xers can't get past.</p>

<p>Further, since Boomers represent perhaps the vastest institutional knowledge base of any generational cohort in the history of the world you can't argue that companies should <em>want</em> them out of the way. As valuable as this collective body of expertise is, though, it does come with a hangover. There's a basic numbers crunch that's about to hit, and it's going to throw a lot of companies into leadership transition crisis. Consider:</p>

<ul>
<li>The Baby Boom was huge - depending on how you slice the numbers, the Boom Gen is around 75 million strong.</li>
<li>The leading edge of the Baby Boom was born in 1943, which means the first wave hit 65 - the traditional retirement age - over a year ago. Over the next five to ten years American companies will lose more than half of their leadership and management personnel, and a good chunk of what they know will be walking out the door with them, never to return.</li>
<li>Boomers dominate American corporate leadership. There are some Xers in power (the front edge of X is currently 48 years old), but not many. And a lot of the ones who are in positions of senior leadership are at the head of organizations forged through their own entrepreneurship - X representation in large legacy corps is smaller than some might hope. Of course, it's natural that 40 year-olds are going to report to 50 year-olds, but when that "grooming" tier is also clotted by the senior cohort, it means fewer opportunities for the next wave to <em>prepare</em> for leadership.</li>
<li>Generation X is a <em>lot</em> smaller - maybe 50 million or so. If we can extrapolate these larger numbers to seats at the management table, it suggests that for every three jobs currently occupied by qualified Boomers, there are only two qualified Xers ready to step in. And that assumes that the number of qualified Xers isn't being suppressed by the dynamic described in the previous bullet point.</li>
<li>For a wide variety of reasons, Generation X is going to bring a dramatically different leadership style to everything it touches. It's going to be more entrepreneurial, probably more cynical, and unfortunately it may not be as instinctively team-oriented as the generations ahead of it or behind it. In any case, the shift from Boomer management to Xer management is going to place a good measure of stress on many organizations.</li>
<li>Then there's the second wave transition: from Xer to Millennial. The oldest Millennials are currently about 29 and are approaching the age when they will be expected to assume a greater mid-management role. Again, the shift from X to Mill is dramatic - far more dramatic than the Boom-to-X transition, in fact. Millennials are committed, they're strong tacticians, they're extremely team-oriented (in stark contrast to my generation - we Xers are often too individualistic for our own good), and they represent a powerful capability for <em>getting things done</em>. On the down side, they're the least savvy of all four generational cycles at critical thinking and problem solving (for a number of reasons, none of which are really their fault). Add to this the fact that this particular cohort has grown up the most affluent in American history, and what emerges is a portrait echoed by <em>every single leader and manager (and professor, for that matter) I have talked to, without exception</em>: Millennials are collectively entitled and self-absorbed, and their managers report having to spend an inordinate amount of time and energy managing egos and emotional drama. Eventually this generation will likely evolve into a powerful force for productivity and change, but for the moment it's unprepared to cover for a sudden rapid promotion of the Xers in lower and middle management roles.</li>
<li>The Millennial Generation, by the way, is potentially larger than the Boom - some demographers say's it's the nation's first 100 million+ cohort, although the more common number is in the 75 million-plus range.</li>
</ul>

<p><strong>What should be emerging is a forecast of a significant management "stretch."</strong> The imminent retirement of a large management generation requires a massive and rapid influx of Xers, but at the same time, a wholesale promotion of Xers places the lower levels of management - the tactical execution level - at risk. And X simply isn't large enough to manage all that is going to be asked of it over the next decade and beyond.</p>

<p>American companies may be working hard on the macro-succession crisis, but if they are they're doing so behind one of the thickest veils of secrecy I've ever encountered. I haven't found <em>any</em> businesses talking about the problem, although my sample is admittedly too small to do too a lot of large-scale generalizing.</p>

<p>What I can do, though, is state with confidence that the dynamics described here are real and that organizations that aren't taking them seriously are in for a rough ride. There are ways of mitigating the crisis, and since it's going to be happening across all industries there are ways of turning this into opportunity.</p>

<p>But companies need to get started yesterday....</p>

<p>The <a href="http://aednet.org&quot; target="_blank">AED</a>- and <a href="http://www.aem.org&quot; target="_blank">AEM</a>-backed <a href="http://www.startusupusa.com&quot; target="_blank">Start Us Up USA campaign</a>, which we noted on the Exchange Blog last week, will stage a massive demonstration on the National Mall in Washington, DC this Wednesday to call lawmakers' attention to the state of the heavy equipment and construction industries, which the organization says are in <a href="/sites/default/files/09-29-2009-campaign-launch.pdf" target="_blank">a full-blown depression</a>. According to a joint AED/AEM/Start Us Up USA release:</p>

<p>To make their point, equipment dealers, manufacturing representatives, labor leaders and others will stage a rally of the Start Us Up USA! campaign on the National Mall against a backdrop of idle construction equipment and surrounded by a sea of 5,500 orange flags - each one representing 100 jobs already lost in this industry. The equipment caravan, displaying Start Us Up USA! banners and waving orange flags, will parade the major streets surrounding the National Mall and Capitol Hill throughout mid-day after cruising past the campaign rally in progress.</p>

<p>WHY: Scarcity of new federal funding for transportation improvements is contributing to a deep depression and significant job loss in the construction equipment industry. In fact, eight percent - or two out of every 25 jobs lost since the start of the recession - can be traced to this ailing industry. The current law that funds the majority of our nation's transportation investments is just days from expiring on October 31, and Congress and the administration have yet to move on a new multi-year reauthorization bill. Leaders in the Start Us Up USA! campaign are calling for enactment of a new transportation bill before the spring construction season begins in early 2010.</p>

<p>For more information contact Charlotte Seigler (202.289.2001 or <a href="mailto:cseigler@stratacomm.net&quot; target="_blank">cseigler@stratacomm.net</a>) or visit the <a href="http://www.startusupusa.com&quot; target="_blank">Start Us Up USA</a> Web site.</p>

<p>IconX Energy* is one of the world's largest energy companies, providing customers around the globe with fuel for their automobiles, electricity for their homes and a wide range of petrochemical products for every phase of their lives. As with any large enterprise, IconX is constantly buying and selling large quantities of assets, and in the process, dealing with the complex tax implications of these activities.</p>

<p><strong>The Problem</strong></p>

<p>IconX had historically employed 1031 like-kind exchanges (LKEs) for real estate and leasehold transactions, but several years ago company executives learned that LKEs could also be used for non-real estate assets - vehicles, production/drilling equipment, even certain types of intangible assets (like mineral rights).</p>

<p>Suspecting that 1031 exchanges might support productive tax and cash flow strategies, the firm contacted Accruit, which it knew had strong roots in the Oil &amp; Gas industry.</p>

<p><strong>The Accruit Solution</strong></p>

<p>Accruit's Sales and Client Service groups immediately realized that IconX was, indeed, an ideal candidate for a robust corporate asset exchange program. The company was moving hundreds of millions of dollars worth of assets and leaving the deferral benefits to which they were legally entitled on the table. In addition to a significant number of real estate exchanges, IconX - like most O&amp;G businesses in its sector - was buying and selling massive numbers of tangible and intangible assets each year.</p>

<p>Accruit worked with IconX's tax, procurement and investment recovery groups to implement an ongoing Master Exchange program that would allow the company to keep its cash at work in the business.</p>

<p><strong>The Results</strong></p>

<p>Since launching, IconX has funneled more than $650 million worth of sales through its Accruit LKE program. The relinquished assets have run the gamut of Oil &amp; Gas industry asset types (see list below).</p>

<p>The average combined tax rates on these sales has been roughly 40%, meaning that <em><strong>Accruit has provided IconX with the opportunity to generate a tax benefit of roughly $260 million. That's better than a quarter of a billion dollars in operating cash flow</strong></em>.</p>

<p>IconX has also derived tremendous asset management value from the Accruit Exchange Manager^TM platform. Asset-level tracking capabilities allow IconX to keep tabs on a huge asset portfolio; audit-ready reporting supports a comprehensive range of internal and external financial requirements; and the combination of advanced, automated technology and one-to-one client service has allowed them to dramatically reduce risk and administrative burden across the entire program. <strong>These results testify to the IconX program's substantial value-added benefits</strong> - even in cases where the client doesn't replace relinquished assets, the Accruit platform (constructed on the only patented 1031 exchange process in the industry) still represents a powerful tool for managing the overall asset portfolio.</p>

<p><strong>Assets in IconX LKE Program</strong></p>

<ul>
<li>Large and small real estate holdings</li>
<li>Leaseholds</li>
<li>Mineral rights</li>
<li>Tubing, piping and casing</li>
<li>Scrap metal</li>
<li>Vehicles (trucks, trailers and SUVs)</li>
<li>Cranes</li>
<li>Valves</li>
<li>Pumping units</li>
<li>Separators</li>
<li>Compressors and skids</li>
<li>Tanks</li>
<li>Sucker rods</li>
<li>Coalescers</li>
<li>Catalytic heaters</li>
<li>Obsolete wellhead materials</li>
<li>Reboilers</li>
<li>Shipping containers</li>
<li>Articulating bridges</li>
<li>Fencing</li>
<li>Generators</li>
<li>Buildings / living quarter materials</li>
<li>Cantilever beams</li>
<li>Transformers</li>
<li>Tools</li>
<li>Flowlines</li>
<li>Satellite VSAT systems</li>
<li>Centrifuges</li>
<li>...and other assorted equipment</li>
</ul>

<p><em>* Based on actual Accruit client</em></p>

<p>In some circles Accruit is known for the value it represents for businesses buying and selling investment property - that is, tangible real estate assets. However, Accruit's patented 1031 process - the only patented like-kind-exchange (LKE) process in the nation* - provides our clients with a level of efficiency that other providers simply cannot match. So when we talk about maximizing your gain and minimizing your risk and administrative burden, we're talking about businesses buying and selling corporate and commercial real estate, too - no matter what industry they're in.</p>
<!--break-->

<p>We've produced a <a href="/sites/default/files/Real%20Estate.pdf" target="_blank">Real Estate 1031 like-kind exchange fact sheet</a> that explains, in greater detail, how the process works, and we also provide a case study that illustrates the cash flow benefit that arises from a typical commercial real estate exchange. Have a look, and if you'd like more information on how an Accruit LKE might benefit your business take a look at our informational&nbsp;Real Estate Exchanges page or <a href="/contact-us" target="_blank">contact us</a>.</p>

<p><em>* U.S. Patent No. 7,379,910, and other patents pending.</em></p>

<blockquote>
<p>Some time back I posted a proposal arguing that <a href="/blog/unleashing-green-stampede-within-americas-energy-industries" target="_blank">Section 1031 of the tax code should be altered to provide oil and gas companies a "one-way swinging door" from fossil to green</a>. In a nutshell, the current tax code allows these companies to sell fossil development assets and defer recognizing the gain on the sale if they then reinvest in a "like-kind" asset. Like-kind, of course, means fossil. The code does not allow O&amp;G companies to use this powerful tool to shift their focus away from fossil and into green technologies.</p>

<p>Since the Obama administration has made the migration to sustainable energy a priority, the proposed modification to Section 1031 not only makes solid intuitive sense, it also sounds like a good idea to literally everyone we've talked to (a list that includes tax professionals, investors, lawyers, senior corporate leaders, oil and gas industry executives, journalists, academics and Congressional staffers).</p>

<p>As we continue seeking to draw more interested parties into this discussion, we thought it might make sense to have a similar look at another industry implicated by this strategy, coal. I charged Lauren McNitt (School of Journalism and Mass Communication, University of Colorado) and Wenting Zhang (Daniels College of Business, University of Denver), who are interning with Accruit for the summer, with taking a look at the coal industry, which is necessarily implicated in any meaningful attempt to green our economy. While there's no evidence that coal companies currently have an appetite for this kind of reinvestment (perhaps because they've never thought of it), it nonetheless makes sense to begin aligning the tax code with our long-term goals today. As the authors suggest, our shift away from coal is a matter of when, not if. - Sam Smith</p>
</blockquote>

<hr />
<h4>Overview</h4>

<p>The U.S. coal mining industry reaps $25 billion in annual revenue and is second in the world in terms of production. The top ten coal companies, such as Peabody Energy, Rio Tinto and Arch Coal control about <a href="http://www.eia.doe.gov/cneaf/coal/page/acr/table10.html&quot; target="_blank">65 percent of the industry</a>. The main customer of the mining companies is the electric utilities industry, which includes 2,200 plants and has a combined revenue of $80 billion. In 2008, coal accounted for <a href="http://www.eia.doe.gov/cneaf/electricity/epm/table1_1.html&quot; target="_blank">48.5 percent of electricity generated in the U.S.</a>. The fate of the U.S. coal mining industry relies on the electric utilities industry's continued use of coal.</p>

<h4>Coal: State of the Industry</h4>

<p>Coal power plants, which account for a <a href="http://www.washingtonpost.com/wp-dyn/content/article/2009/08/10/AR20090…; target="_blank">third of U.S. greenhouse emissions</a>, are facing a series of dilemmas as climate disruption and renewable energy increasingly occupy the attention of lawmakers. Earlier this year, President Obama signed an economic stimulus package focused on "greening" the U.S. economy. The <em><a href="http://greeninc.blogs.nytimes.com/2009/02/17/obama-signs-stimulus-packe…; target="_blank">New York Times</a></em> noted the following provisions in the bill:</p>

<ul>
<li>A large sum for energy efficiency, including $5 billion for low-income weatherization programs; over $6 billion in grants for state and local governments; and several billion to modernize federal buildings, with a particular emphasis on energy efficiency;</li>
<li>$11 billion for "smart grid" investments;</li>
<li>$3.4 billion for carbon capture and sequestration demonstration projects (sometimes referred to as "clean coal");</li>
<li>$2 billion for research into batteries for electric cars;</li>
<li>$500 million to help workers train for "green jobs";</li>
<li>a three-year extension of the "production tax credit" for wind energy (as well as a tax credit extension for biomass, geothermal, landfill gas and some hydropower projects); and</li>
<li>the option, available to many developers, of turning their tax credits into direct cash, with the government underwriting 30 percent of a project's cost.</li>
</ul>

<p>The emphasis on greening our economy continued with the introduction of a climate bill currently under debate in the Senate, <a href="http://energy.senate.gov/public/index.cfm?FuseAction=IssueItems.Detail&…; target="_blank">S. 1464: American Clean Energy Leadership Act</a>. The bill's sponsors hope it will create clean energy jobs, lead to U.S. energy independence, promote clean energy technology, reduce global warming and assist the transition to a clean energy economy. The House already passed its version of the bill (<a href="https://www.congress.gov/bill/111th-congress/house-bill/2454&quot; target="_blank">H.R. 2454: American Clean Energy and Security Act</a>).</p>

<h4>What legislators are ignoring</h4>

<p>The goal of these bills is to facilitate the transition to a clean energy economy, yet the legislation is missing a key provision that would encourage companies in the fossil fuel mining and utilities industries to begin a crossover to the renewable energy sector: a revision of the tax code to allow companies to employ 1031 Like-Kind Exchanges (LKEs) when transitioning from fossil to renewable energy assets.</p>

<p>The bills instead address the negative effects of the fossil fuel industry on the environment (in particular coal fired power plants) by proposing cap-and-trade policies. If passed, cap-and-trade will require carbon-emitting companies to buy permits that allow them to emit a specific amount of carbon. Companies looking to decrease the number of permits they buy may potentially invest in controversial carbon capture technology instead of investing in proven renewable energy technologies.</p>

<h4>CCS technology is not a long-term solution</h4>

<p>This presents a problem since, as reported in the <em><a href="http://www.washingtonpost.com/wp-dyn/content/article/2009/08/10/AR20090…; target="_blank">Washington Post</a></em>, carbon capture and sequestration (CCS) technology is not yet feasible on a large scale. Storage on a large scale is difficult because holding carbon under ground is only possible in the relatively few areas where the earth is not porous. Most coal plants are not located above appropriate geological formations, and transport of carbon dioxide is expensive. Carbon transport and storage also presents legal ramifications. If large amounts of carbon were to escape, the effects could be harmful or lethal to those in the vicinity. We saw an example of what can happen in such a scenario in the 1986 <a href="http://www.time.com/time/magazine/article/0,9171,962228-1,00.html&quot; target="_blank">Lake Nios disaster</a>, where the lake released a concentrated bubble of carbon dioxide and killed approximately 1,700 people.</p>

<p>Additionally, the equipment that captures and stores carbon consumes large amounts of energy, requiring the generation of yet additional carbon. Keith Johnson of the <em><a href="http://blogs.wsj.com/environmentalcapital/2009/06/08/peak-coal-what-do-…; target="_blank">Wall Street Journal</a></em> reports:</p>

<p>A <a href="http://belfercenter.ksg.harvard.edu/publication/19042/making_carbon_cap…; target="_blank">new book </a>by Harvard University's Belfer Center estimates that clean coal plants use 30% more energy than traditional plants - that is, clean coal plants require more coal to produce the same amount of energy as dirty coal plants.</p>

<p>The <em><a href="http://www.economist.com/displaystory.cfm?STORY_ID=13226661&quot; target="_blank">Economist</a></em> further explains the expenses associated with CCS:</p>

<p>The problem with CCS is the cost. The chemical steps in the capture consume energy, as do the compression and transport of the carbon dioxide. That will use up a quarter or more of the output of a power station fitted with CCS, according to most estimates. So plants with CCS will need to be at least a third bigger than normal ones to generate the same net amount of power, and will also consume at least a third more fuel. In addition, there is the extra expense of building the capture plant and the injection pipelines. If the storage site is far from the power plant, yet more energy will be needed to move the carbon dioxide.</p>

<p>Now consider the expense of the initial construction of a CCS coal plant. The FutureGen project is a joint project between the public and private sector to build the first coal-powered, near zero-emissions power plant. The estimated cost of development for the 275 megawatt plant is $1.5 billion. A somewhat smaller <a href="http://www.businessweek.com/magazine/content/08_27/b4091046392398_page_…; target="_blank">150 megawatt wind farm costs about $225 million</a>, meaning wind farms are approximately $1 billion less expensive to build (at least on that scale).</p>

<p>Even if safe, energy-efficient, inexpensive carbon capture and sequestration technology is developed, coal reserves are not unlimited. The government estimates that the U.S. has enough coal in the ground to last 240 years. However, this estimate is misleading. As recently noted in the <em><a href="http://online.wsj.com/article/SB124414770220386457.html&quot; target="_blank">Wall Street Journal</a></em>, last year's U.S. Geological Survey found that only 6% of the coal in the nation's largest and most productive coalfield can be mined profitably. California Institute of Technology professor David Rutledge estimates that coal reserves will last only 120 years, or less than two human life spans.</p>

<h4>The tipping point</h4>

<p>Considering the money available for companies who choose to "go green," the expense of adhering to the increased regulations on the coal industry, and the fact that the profitable coal reserves will eventually run out, it makes sense for policymakers and energy industry executives to begin exploring how they might transition to renewable energy. At present, coal companies aren't clamoring for a way out of the coal business, but it seems evident that time is running out on our coal-fired infrastructure. The question isn't whether or not there's a tipping point, it's how quickly we'll reach it. All signs suggest that moment will arrive sooner rather than later.</p>

<p>If Congress wants to encourage companies involved in our electricity generation cycle to get serious about green technologies, a revision of the tax code allowing wind, hydroelectric, solar and other renewable technologies to be considered "like-kind" with traditional fossil technologies might potentially show fossil companies a path to long-term viability.</p>