CASE STUDY: Electro Rent gets most trustworthy award.

The first time Electro Rent Corp. was named a trustworthy company by Forbes magazine, executives weren’t even aware of the honor. The second time the Van Nuys-based company landed on the Forbes list, it was a customer who made management aware of it. Not that CEO Daniel Greenberg or Chief Financial Officer Craig Jones disagree with the assessment of Forbes and Audit Integrity, the Los Angeles firm that came up with the metrics used to determine which companies made that list. In Jones’s opinion, Forbes got it right by including Electro Rent on the Most Trustworthy list for two years in a row. It is a testament to a management group that has worked together for decades and the small-company culture that the measurement and test equipment supplier embraces. “Everyone knows one another,” Jones said. “We try to be as transparent as possible in what we do to the outside world.” Fewer than 5 percent of U.S. public companies are eligible to make the Most Trustworthy list putting Electro Rent in good company. Joining the company on the list were The Cheesecake Factory, the Calabasas-based restaurant chain, and Semtech Corp., a semiconductor supplier in Camarillo. Cheesecake Factory spokesperson Wendi Shapiro refused to make a representative of the company available for comment. Attempts to reach a representative of Semtech were not successful. By relying on financial documents and other public filings, Audit Integrity said it uses an objective measurement to create the list. The company looks at more than 100 metrics, including bankruptcy risk, U.S. Securities and Exchange Commission enforcement, restatements of earnings reports, and executive compensation. Electro Rent was categorized as conservative in its accounting practices and never having regulatory problems or cited by the SEC. “We have never lost money,” Greenberg said. “Even in the worst days we figure out a way to have some profit.” For the last three quarters, Electro Rent has reported net income ranging from $2.1 million to $5.2 million. The company took the step earlier this year of moving away from solely renting equipment to becoming the outsourced sales team for Agilent Technologies Inc. becoming a preferred provider for that company’s products. With acquisitions and other deals, Electro Rent is making good headway and its pricing will improve as demand and utilization of its equipment picks up, said David Gold, an analyst with Sidoti & Co. LLC in New York. The Agilent deal will be an important business driver in the foreseeable future, Gold said. “The company is well positioned to benefit from continued demand improvement via higher utilization and pricing, which will lead to profitability improvement near term,” Gold said. Partnership The Agilent partnership, said Jones, is critical to the company’s future. Electro Rent’s future was the subject of a strategic planning retreat that took place over the summer between senior management and the board of directors. This was the first time such a retreat had been done, with Greenberg and Jones believing it was important to get the board’s input on making the company’s mission clearer and focused. Working together in that way makes the directors more active participants in new initiatives that management came up with and opened those ideas up to alternatives, Greenberg said. An alternative approach benefitted Electro Rent when it came to its monthly meetings of Greenberg, Jones and President and COO Steven Markheim to discuss detection of fraud. These meetings were quick and boring, according to Greenberg. Then he decided to add more management, bringing in vice president of Administration and Information Services Meryl Evans, and the company’s controller and head of the product purchasing department. Meaningful meetings By having more meaningful meetings, the executives can closely examine areas vulnerable to fraud and check that every purchase made is documented and that the company bought what it said it was buying. “This makes the meetings something that is alive rather than a dead subject,” Greenberg said. Evans also played a significant role in how Electro Rent met the requirements of Sarbanes-Oxley, the federal legislation passed in response to the corporate and accounting scandals surrounding Enron, Arthur Andersen, and other large companies. Electro Rent got a jump on the new rules with a new computer system that it had spent three years designing. All the key financial controls the new law required when calculating the numbers eventually seen by investors and others were already in place by the time the law was being enforced. “These are the numbers the public sees,” Evans said. “We must make sure the numbers feeding into the general ledger are right.”