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byline: Richard Foster

Law firm CFOs

The Great Recession of 2008 challenged many industries, but it proved to be an unexpected wakeup call for the legal profession.  Many law partners learned they needed to run their firms more like businesses.

Before the recession, law firms were in an enviable position — for some, demand for their services was so high that there wasn’t much need to think about cutting expenses.

“Law firms are becoming more businesslike. They’re trying to catch up to the rest of the business world in how they manage the firms,” says Mike Griffin, CFO of the Charlottesville-based law firm Tucker Griffin Barnes, which has 10 attorneys. “Prior to the recession, I would say, most [law] firms just managed revenue. You could raise rates, demand was good, and plenty of cash covers up a lot of business sins.”

After the recession hit, however, demand for legal services plummeted. With their profit margins narrowing, businesses were under intense pressure to cut costs. Finding themselves in a stronger negotiating position with law firms, many companies took a much harder line with legal expenses.

As the business of law took on crucial importance, so too did the role of CFOs in managing the finances, operations and profitability of law firms, says Madhav Srinivasan, CFO of Hunton & Williams, a firm founded in Richmond that now has 750 lawyers in 19 offices in the U.S., Europe, Latin America and Asia.

“Before the Great Recession, the service model of a diversified law firm was quite recession-proof,” he says. “However, after 2007, law firms have come under severe pressure from cost-conscious customers, leading to zero growth in demand. In this context, managing the business of law for a law firm is absolutely critical.”

A different skill set
In decades past, the person in control of a law firm’s books often had some training in accounting but more than likely did not have a background in finance. At some small firms, it is still the case, with the business or operations manager being a staff member who came up through the ranks.

During the last decade, however,  midsize and large law firms increasingly have been hiring CFOs as they have come to appreciate the need for financial controls and strategy.

A good CFO “has the whole basket of skills beyond just accounting and doing the taxes,” says Paul Julius, executive director and CFO of the Norfolk-based firm Vandeventer Black, which has more than 50 lawyers. The CFO’s skill set will include being well versed in cash management, financial controls, the regulatory environment, technology and cybersecurity as well as negotiating with banks, vendors and clients.

“I have to make sure that everything is as secure here as when I used to work in a bank and … 15 to 20 years ago the chief accounting officer at a law firm may not have had all those skills,” says Julius, who has worked as a finance executive for Morgan Stanley Investment Management, Credit Suisse and Merrill Lynch.

Possibly the largest focus of the law firm CFO’s job is on profitability, says Griffin, who was a U.S. Army finance officer before joining Tucker Griffin Barnes, where his wife is a senior partner. During his tenure at the firm, he has introduced the concept of financial metrics and data collection as well as employing the use of dashboards so that the senior partners can have numbers at a glance, making business decisions easier.

New measurements
Firms used to measure attorneys by the gross revenue they generated from their clients, but this approach neglected to take expenses into account. So CFOs utilize profit-loss measurement software to track and evaluate how much attorneys are spending on resources, such as staff time. This allows the law firm CFO to analyze the profitability of practice areas, individual attorneys, clients and even client meetings to make recommendations for improving processes and increasing profitability.

“The CFO’s role is becoming more central to the firm, more strategic, more front-end driven in terms of revenue generation and it’s becoming more profits-oriented,” says Srinivasan, an adjunct professor at Columbia Law School who also is a frequent speaker at industry conferences. “We are more engaged now in expense management than we were before. We also are very focused on the use of financial technology to both manage the business better but also to inform our lawyers, giving them the tools so they can be smarter in making good decisions for the firm.”

Another area of increasing importance for CFOs and law firms is alternative fee arrangements — negotiating clients’ fees that are not in the traditional billable-hours mold. This may include fixed rates, flat fees, pricing caps or contingent fees. Large firms such as Hunton & Williams have finance staffers dedicated to drafting funding models aimed at keeping it competitive with the marketplace while also being profitable for the firm.

Unlike many of their predecessors who balanced the books and cut checks, law firm CFOs also are senior corporate officers who are making major leadership decisions about the future of their firms.

Because of this input from CFOs, Griffin says, “You’re starting to see law firms get more serious about developing a strategic business plan, really focusing on where the law firm wants to play as far as geography and core practice areas and client base.”

“Finance has become more central and strategic to the firm achieving its profits,” Srinivasan says. “The profits are no longer guaranteed. You have to work for them, and you have to know where to put your efforts in order to get the maximum profit. And that’s where finance comes in.”

A retail evolution

When developer Rob Hargett was a teenager in Henrico County in the 1970s and early 1980s, Regency Square mall was the place to shop and socialize. If Hargett’s plans succeed, it will become a major Richmond area attraction again, just not in the same way.

America’s retail industry is in the midst of a major restructuring. By the end of the year, industry experts expect a record number of store closings — anywhere from 7,000 to 8,000 — as brick-and-mortar stores struggle to compete against a rising tide of online shopping.

Yet don’t write the obituary for retail yet. Behind the closings and bankruptcies is a story of evolution as store and mall owners look to innovation and technology to transform retail into experiential gathering places that will draw people and sales. 

Take the case of 42-year-old Regency Square. Like many malls around the country, it’s been steadily declining over the past 15 years. Hargett’s company, The Rebkee Co. in Midlothian, and Richmond-based Thalhimer Realty Partners Inc., bought a majority interest in the aging indoor mall for $13.1 million in 2015. Since then, Regency has lost key anchors Macy’s and Sears.

Still, Hargett sees a brighter future. The new owners are investing $30 million in a redevelopment plan designed to transform the mall into a 21st-century community draw.

Regal Cinemas plans to open a new theater complex in one of Regency Square’s former Macy’s spaces by spring 2019. “That’s a great restaurant supporter,” observes Hargett. He expects the theatre to draw thousands of visitors a year, which should put extra eyes on the center’s retail offerings. 

Hargett hopes to attract other experiential retailers, such as an indoor go-kart track or a children’s gymnastics center, into spaces vacated by anchors. The addition of off-parcel restaurants such Starbucks, as well as developing office and possible multifamily residential components, are other ways developers hope to increase daily mall traffic.

Besides creating experiences, keeping costs and rents down is key, says Hargett. That way tenants can afford to be competitive with online retailers, and online retailers who want to expand into physical spaces can do so with low overhead.

“The retail landscape is changing, and we know it’s going to be more and more challenging,” says Hargett.“We have to cultivate the winners and, in the meantime, we have to have other reasons for folks to come here.”

Brett McNamee, a commercial real estate broker who has specialized in retail development for years, also believes brick-and-mortar retail has a future. “You’re not going to get any death knells from me. I love my industry. We’re not declining; we’re changing,” says McNamee, a senior vice president with Divaris Real Estate in Richmond.

Retailers who will weather the storm best, McNamee predicts, are those who can provide a multichannel approach — marrying e-commerce with bricks and mortar and embracing technology to create a more convenient shopping experience for consumers. “Those are the guys who are going to be here with us and doing better and better for the long run,” she says.

Closings
In the meantime, though, many big-name players in retail are struggling to stay afloat while others are drowning or are already dead.

Annual retail store closures are estimated to reach a 20-year high in 2017, with as many as 7,000 stores closing, according to a report released in May by Silicon Valley-based venture capital firm Kleiner Perkins Caufield & Byers.

Anchor department stores such as Macy’s, Sears and J.C. Penney are collectively shuttering hundreds of stores. More than 60,000 retail jobs were eliminated in just the first quarter. American Apparel filed for bankruptcy and laid off thousands of workers while women’s apparel retailer Bebe closed all of its 168 stores, shifting its remaining business entirely online. Signet Jewelers is closing 170 stores, mainly in malls, while office supply retailer Staples is shutting down 70 stores.

At Berkshire Hathaway’s annual meeting this spring Warren Buffett said that “the department store is online now,” stating his belief that the retail industry will be completely changed within a decade. Meanwhile, retail analysts at Credit Suisse have said that as many as 25 percent of U.S. shopping malls will close by 2022, due to competition from e-commerce. Credit Suisse also estimates that online apparel sales will more than double by 2030, climbing to 35 percent of all e-commerce transactions.

Nevertheless, Nancy Thomas, CEO of the Virginia Retail Federation, points out that e-commerce sales still account for less than 10 percent of all retail sales in the nation. “That’s the perception that people need to wipe away from their minds,” Thomas says. “[E-commerce] is gaining ground, but it’s still not what people want to do. They want to come into a brick-and-mortar store. But the brick-and-mortar stores and of course our malls just need to look different.”

The latest U.S. Department of Commerce data puts e-commerce sales at about 8.5 percent of all retail sales, a number that’s been climbing steadily for the last 10 years.

“A lot of those we’re seeing [closing] were struggling retailers to begin with,” says Connie Jordan Nielsen, senior vice president with Richmond-based commercial real estate firm Cushman & Wakefield|Thalhimer. “They weren’t strong enough to survive and then on top of that some retailers just haven’t adjusted well to [technology changes].”

Perhaps the biggest testament to the survival of bricks and mortar is the fact that Amazon is aggressively moving into the space. In addition to opening a handful of stores across the nation this year, Amazon announced in June its largest-ever acquisition — the $13.7 billion cash purchase of Whole Foods grocery stores. Shares in Kroger and other large grocery retailers (a necessity retail sector considered largely immune to e-commerce disruption), took significant share-price hits on the news.

Envisioning the future
So what does the future of physical retail look like?

“Saving customers money but also saving customers time … is becoming increasingly important,” says Bob Davis, vice president and regional general manager in Virginia for Wal-Mart Stores. One of the new innovations the national retailer will be unveiling in stores this year is an 18-foot-tall, self-service pickup tower for online orders. That way customers “can literally be in and out of the store in moments,” says Davis.

Wal-Mart also is testing a new delivery option, paying store employees at some stores a little extra to drop off online orders to customers on their way home from work. “The most expensive part of any online transaction is what’s known as the last mile, and everybody’s trying to solve for that,” Davis says. “With over 4,200 physical locations nationwide, it gives us a pretty good competitive advantage if we can scale that.”

Other retailers are experimenting with new models, too. Best Buy is launching an initiative to allow customers to rent expensive gadgets before they commit to purchase.

The biggest buzzword in retail right now, however, is “experiential.” That’s evident at Virginia’s newest mall, Norfolk Premium Outlets in Norfolk. Opened in late June by Indiana-based Simon Property Group, the mall offers more than discounted clothes from name-brand stores. Located alongside a lake, its amenities include a gazebo and pier, lakeside dining and a one-mile walking path along the lake. The $75 million, 332,000-square-foot mall, located off Interstate 64 at Northampton Boulevard, was designed as a retail destination, where people and tourists could shop, eat at one of its many restaurants, or relax with a stroll around the lake.   

“Retailing works when people gather. The mall has been [a place] where retailing is the draw that brings people in, but that’s no longer the case. You’ve got to find other draws,” says Jeff Tanner, dean of Old Dominion University’s Strome College of Business. “The ability to [showcase] a variety of goods, that’s not going to be sufficient; people can get that from the Internet.”

From the smallest retailers to the biggest mall developers, everyone is focusing on the experience of combining shopping, dining and social media. In 2016, McNamee notes, consumer spending at restaurants outpaced spending at grocery stores for the first time. Grocers are also seeing increased demand for prepared foods.

Customers, particularly millennials, are seeking convenience and experiences. “They’re taking pictures of their food plates. They’re spending more money on travel and restaurants than they’ve spent in forever,” says McNamee.

That’s the sort of customer Hargett is hoping to attract to Regency.

Its redevelopment includes an exterior makeover and the demolition of a parking deck as well as roadway improvements to improve visibility to the mall. Rebkee already has added an office component.  He also hopes to acquire the Sears parcel for a possible multifamily residential development that could merge with the surrounding neighborhood and generate more daily traffic, while also revitalizing neighboring businesses.

“A lot of people are [already] gathering here,” ranging from food hall patrons to mall walkers, notes Hargett. As experiential retail helps grow the mall’s community, he hopes Regency will experience a comeback.

Rebkee’s plan for Regency is for it to “become more of the fabric of the way we live, like [malls] used to be.”

 

Taking aim at short-term rentals

On many weekends, a Richmond couple and their seven children squeeze into their eldest son’s small, two-bedroom house in the city’s North Side so the family can rent their spacious five-bedroom home in the nearby Fan District to guests from the lodging website Airbnb.

Last year, the family says it grossed about $60,000 (before Airbnb fees, taxes and related costs) renting their home to groups such as book clubs and wedding parties for $650 to $840 per night. The couple has used the money to make home improvements, fund extracurricular activities for their children and pay college expenses for their eldest daughter, who will start at William & Mary in the fall.

“There’s a high demand for our home,” says the wife, who asked that the family’s name not be used in this story.  “We’re right near a lot of the running races, and we’re in walking distance to Carytown, which is a great strip for shops and restaurants. … It’s a win-win for our local economy and us as a family and the guests who get to see our beautiful city.”

However, there is one problem: It’s still not legal to rent one’s residence for short-term stays in the city of Richmond. Despite that, on any given day there are more than 700 Airbnb listings in the city. In fact, it’s the third-most popular Airbnb destination in Virginia, according to Airdna, a site that collects data and analytics on Airbnb.

As of late March, there were nearly 10,000 active Airbnb listings statewide. According to a survey by Airbnb, Virginia’s host community earned $41.4 million in supplemental income by welcoming 280,000 guests in 2016, with Charlottesville seeing the highest number of guests at 35,100.  

Virginia, along with other states, is looking at short-term rentals in residential areas. While few localities outright ban such rentals — Richmond’s law was on the books long before Airbnb came along —  concern is growing now that online sites make it easier for people to rent out their homes. Some states are passing new rules in an attempt to ease tensions between homeowners who want to earn money in the sharing economy and the hospitality industry.

During this year’s session, the Virginia General Assembly passed a bill that gives localities the option of requiring residents who offer short-term rentals to register with them. The law, which takes effect July 1, defines short-term rentals as lodging for less than 30 consecutive days in exchange for a fee.  It also authorizes local governments to impose penalties not to exceed $500 per incident on hosts who violate the registry ordinance.

The bill doesn’t ban anything, and it doesn’t alter local taxing and zoning regulations, which vary among jurisdictions. “It allows for a locality to require a form of regulation should they choose to regulate Airbnb-type rentals … It’s reaffirming that the localities have the authority to regulate real estate,” says Julia Ciarlo Hammond, a lawyer with Eckert Seamans in Richmond and the lead lobbyist for the legislation.  One benefit, she added, could be that “by registering with your localities, localities may provide the homeowner with information they need to be in compliance with local taxing and zoning regulations so they can operate legally from day one.”

The bill received bipartisan support from the Virginia Association of Counties, the Virginia Restaurant, Lodging and Travel Association, the Virginia Association of Realtors and other groups.
Like Uber and other industry “disruptors,” Airbnb is encountering resistance from competitors who point out that some Airbnb hosts don’t pay state or local taxes or comply with the same safety and business regulations that apply to lodging businesses.

The Richmond couple is aware that Airbnb hosting is not legal in Richmond. They have lived in their home for 16 years and have been renting it out since September 2015 when Richmond hosted the UCI international bicycle race. The wife says the couple pays federal taxes on their income as a host, but not state or local taxes. She doesn’t have a business license, collect lodging fees or comply with local regulations applying to lodging facilities.

“I am not a business. I am a person using my private property to benefit others, my neighborhood and myself,” she says, adding that she would welcome common sense regulation from city government that recognizes the value Airbnb brings to local tourism. Many short-term rental hosts feel frustrated, she adds. “We want to be legitimized and have some form or ability to pay our fair share of taxes … I don’t want to be overregulated to the point where I have to shut down, but I want to be in a safe place, so I know that I’m abiding by all laws and paying my fair share.”

If her family was forced to meet the same regulatory standards and pay the same taxes and fees as a lodging facility, she says, “We would shut down, or we would figure out whether we move into a smaller home and rent this out long term as a residential real estate rental, which would be … a very worst-case scenario.”

Will Burns, an Airbnb senior adviser and public policy director for the mid-Atlantic, says it’s “incumbent upon the hosts to follow the laws and regulations of their jurisdiction, and that’s stated very clearly on our website and our terms of service.”

That being said, he adds, “short-term rentals on platforms [like Airbnb] have really taken off in the last few years, and there are laws on the books from earlier eras that don’t quite track with the new reality. So we’re eager to work with places like Richmond to figure out solutions to help our [hosting] community not be in a gray area but to operate legitimately and legally.”

Certainly not all hosts are operating illegally. Barb Pemberton, a retired Albemarle County schoolteacher, rents her four-bedroom, two-story Colonial once or twice a month, usually for $225 to $275 per night, to earn supplemental income. After learning from a neighbor that she needed a business license, she went to the county government and ended up spending about $1,200 for permits and bringing her house up to code so she could get an accessory tourist lodging license. It allows private homeowners in residential-zoned neighborhoods to rent rooms within their primary dwelling places. Pemberton also collects a 5 percent local occupancy tax from her guests that she pays to the county each month.

Airbnb offered an alternative proposal in Virginia that would have had the online platform directly collecting and paying taxes to the state and localities on behalf of its hosts and guests. Yet local governments and the lodging industry opposed this move, saying localities still wouldn’t have the ability to regulate Airbnb host properties because of the company’s practice of not publicly disclosing the street addresses of hosts.

Airbnb points out that it has made similar deals with other localities, including Washington, D.C., and San Francisco, and has remitted more than $170 million in taxes to 220 jurisdictions worldwide under such agreements since 2014.

Arlington County legalized Airbnb-style, short-term rentals in residential dwellings last year, subject to restrictions. The county requires that the home be the Airbnb host’s primary dwelling and that hosts get a permit from the county and comply with county building codes. Also, there can be no more than six lodgers, or two lodgers per bedroom, in a unit per night.

Eric Terry, president of the Virginia Restaurant, Lodging and Travel Association, says that it isn’t opposed to Airbnb but wants to make sure that hosts don’t have any unfair advantage over traditional lodging facilities that pay and collect taxes and comply with state and local health regulations and other laws. Additionally, he says, localities lose tax revenue from tourism because the vast majority of Airbnb hosts are not collecting lodging taxes from their guests.

“We recognize that Airbnb is … kind of a tourism draw and people do want to utilize it,” Terry says. “We just think that they should pay the same taxes and be subject to the same transparency and all the things that traditional hotels do. We’d all love to do business without having to disclose anything or pay taxes, but that’s not the reality.”

Airbnb guests learn the street address of a host property only when a financial transaction has been completed, making it very difficult for localities — and neighbors — to learn who is renting their home or rooms on Airbnb.

Denver-based Apartment Investment & Management Co. (Aimco), one of the largest apartment community management companies in the nation, has filed suit against Airbnb in Florida and California, alleging it is aiding tenants in breaking the terms of their leases to illegally sublet rooms and apartments.

Keith Kimmel, executive vice president of property operations for Aimco, says the company has evicted tenants who have leased their apartments through Airbnb, and it has had troubles with Airbnb guests partying in vacation mode at their properties. In some cases, Kimmel says, Airbnb hosts will lease multiple apartments from Aimco without living in them, solely to offer the apartments as short-term rentals on Airbnb.

“Our No. 1 objective is to create a safe living environment for our residents, one that is predictable,” Kimmel says. “When they rented with us, it was with the expectation that they’re moving into a community,” not living next door to a hotel-like operation with a “turnstile” of people.

While he wouldn’t comment on the Aimco lawsuits, Airbnb’s Burns describes such situations as a conflict between the tenant and the landlord, saying, “It is not our responsibility as a third party to enforce that [lease agreement].”

At the stately Mayhurst Inn bed and breakfast in Orange, Jack North says he pays his taxes and complies with state and local lodging, health, restaurant and ABC regulations and fees. As a result of a Virginia Department of Transportation requirement, he once had to pay about $50,000 to put in a semi-circular driveway.

A board member of the Professional Association of Innkeepers International, North also lists the Mayhurst on Airbnb. “I’d be crazy not to,” he says, explaining that Airbnb’s marketing and site traffic are so good, the site brings him new customers. Its fees for lodging providers are far less than those charged by sites like Expedia and Priceline, he adds, with Airbnb charging hosts about 3 percent in fees.
What North’s not happy about are Airbnb hosts who operate illegally and don’t pay taxes or comply with the same regulations.  His restored 1859 Italianate Victorian plantation manor with eight guest rooms and 37 acres of landscaped lawns and gardens can beat any residential home for amenities, he says, but he can’t compete on cost with people who don’t pay taxes and have little overhead.

Flight leader

Photos courtesy NASA Langley Research Center

During the last hundred years, NASA’s Langley Research Center has been at the forefront of aviation and space exploration, from its World War I infancy through the sound barrier-breaking jet age to the Apollo moon missions. Heading into its second century, the center is blazing a trail that it hopes will lead within 20 or 30 years to humans landing on Mars and traversing deep space.

The facility traces its roots to a time when the United States was not an aviation leader despite the fact that the Wright Brothers had pioneered powered flight. By the dawn of World War I, “It was very clear that the United States was behind in aircraft construction and development,” explains Gail Langevin, history liaison with NASA Langley’s protocol and events team. France, Germany and Great Britain were quicker to see the military and industrial applications for aircraft.

Therefore, in 1915 the U.S. government established the National Advisory Committee for Aeronautics (NACA), which would eventually become the National Aeronautics and Space Administration (NASA). In 1917, NACA established its national headquarters building, Langley Research Center, in Hampton to conduct research to promote advances in civilian and military aviation.

These days NASA Langley Research Center generates more than $1 billion per year for the Hampton Roads economy and supports about 7,000 jobs. The facility will celebrate its 100th anniversary this year with a series of events, including: a NASA art exhibit at the Peninsula Fine Arts Center in Newport News from April 8 to June 25; a centennial symposium at the Hampton Roads Convention Center July 12-14; and an Oct. 21 open house at Langley Research Center featuring tours and exhibits.

Breakthrough innovations
In its early years, the Hampton facility and its pioneering wind-tunnel laboratories were visited by aviation legends like Howard Hughes and Amelia Earhart. NACA board members included Orville Wright and Charles Lindbergh. Langley researchers are responsible for numerous breakthrough innovations in aviation design and theory over the years, including development of the area rule, which reduced drag on aircraft flying at transonic and supersonic speeds.

“Langley has led the way in thinking about advanced lighter-weight materials, and a lot of these things are now used on almost every commercial aircraft you see,” says Charles E. Cockrell Jr., deputy director of the Space Technology and Exploration Directorate at Langley.

When the Russians launched Sputnik in 1957, it set off the space race and led directly to NACA becoming NASA in 1958. The space program was housed at Langley for its first four years.

When the Mercury Seven were selected in 1959, they were based at Langley and trained there until the Johnson Space Center in Houston opened in 1963. There are numerous photos in NASA’s archives of Alan Shepard, John Glenn and the other Mercury astronauts training in space-capsule simulators at Langley.

The Academy Award-nominated film “Hidden Figures,” starring Taraji P. Henson and Octavia Spencer, tells the story of African-American mathematician Katherine Johnson and her colleagues Dorothy Vaughan and Mary Jackson. While working in a racially segregated division at Langley, they made the critical calculations that allowed Glenn to make the first manned Earth orbit in the Friendship 7 capsule.

Apollo and Viking
The Apollo flight landing crew members trained at Langley’s Lunar Landing Research Facility in a mockup designed to simulate low-gravity conditions. “Neil Armstrong is reported as saying that it was very accurate, and the dust that had collected in the little fake craters actually kicked up similar to the way it did when he was landing on the moon,” Langevin says.

In the 1970s, Langley Research Center was in charge of the 1976 Viking Mars lander missions, which transmitted the first photos and chemical data taken from the surface of the Red Planet.

Now, in addition to its ongoing aeronautics work, which includes studying climate patterns and how to integrate drones into national airspace, Langley Research Center is once again focused on Mars.

“I’ve been with the agency 26-and-a-half years,” Cockrell says, “and I think we are as close to going to Mars as we ever have been in my career.”

Langley’s work on NASA’s Journey to Mars initiative includes splashdown modeling and safety tests of the Orion crew capsule that could take humans from near-Earth orbit to Mars and back as soon as the 2030s. NASA will work with private industry to get into near-Earth orbit. Researchers at Langley and other NASA facilities are developing technologies and procedures aimed at allowing humans to take the next step, traveling faster, longer and farther in space than ever before.

“We’ve been in Earth orbit a long time, and we know how to do that, and now we think we’re ready to move beyond that and talk about humans in deep space,” Cockrell says. “Right now it’s all about building up that capability for that Journey to Mars.”

Born in the 19th century

Photos by Jay Paul.

In Washington, D.C., in 1842, Virginian John Tyler was serving his second year as the “accidental” president of the United States after the death of William Henry Harrison.

In London that year, Queen Victoria became the first British ruler to travel by train.

In Richmond, 14-year-old Alexander Hamilton Sands went to work in his brother’s Richmond law office, leaving his Latin studies at the College of William & Mary’s grammar school after the unexpected death of his father. That event laid the foundation for the Richmond-based law firm that would evolve into Sands Anderson, which celebrates its 175th anniversary this year.

“We’re very proud of how long we’ve been around. [We’re] proud of our history but focused on our future,” says Margaret F. Hardy, who was elected as the firm’s first female president in January.

“I think our history says a lot about our firm and its resiliency and the commitment of those who practice here, our ability to change and adapt as the environment has changed and adapted,” Hardy adds.

The firm has offices in Richmond, McLean, Christiansburg, Fredericksburg and Raleigh, N.C.

During its history, Sands Anderson has produced a state attorney general (Jerry Kilgore, now a partner at McGuireWoods), a Richmond mayor (the late A. Scott Anderson) and a number of judges, including the late U.S. District Court Judge J. Calvitt Clarke and the late Henrico County Circuit Court Judge Edmund W. Hening Jr. (who also was a former Henrico commonwealth’s attorney).  In fact, the last of the Sands family to practice with the firm was Richmond Law and Equity Court Judge Alexander Hamilton Sands Jr., who died in 1996 at age 88.

Judge Sands, the grandson of the firm’s founder, was instrumental in preserving its long history. “Judge Sands came here … several decades ago, and sat down with anybody who wanted to come, and he talked about the firm and his family and gave an oral history of where we had been, which I thought was awesome, so we didn’t lose all of that,” recalls Douglas P. Rucker Jr., the firm’s senior partner and one of several Sands Anderson attorneys to have served as president of the Virginia Bar Association.

While Sands, the firm’s founder, began his legal career in 1842, he didn’t formally obtain his license to practice law until age 21 in 1849. A prolific author of legal tomes, he also edited a Richmond newspaper, the Evening Bulletin, and briefly served as a substitute editor of the Southern Literary Messenger, a magazine best known for having employed Edgar Allan Poe as a staff writer and editor.

In addition to working as a lawyer and newspaper editor, Sands, the father of 13, was also a Baptist minister who founded churches in Ashland and Glen Allen. He died at age 59 in 1887.

The firm’s name has changed over the years. During the Civil War, it was known as Howard and Sands. Much of the firm’s early historical records were lost in the April 1865 evacuation fire when Richmond fell to Union forces. It became Sands and Sands in the late 19th century as the founder’s sons joined the firm and guided it on into the 20th century.

As the firm grew after World War II, it became known as Sands, Marks, Sands, Hening & Sydnor. In the 1960s, the name was Sands, Anderson, Marks & Clarke. It was known as Sands, Anderson, Marks & Miller from 1978 to 2010.

Over the years, the firm has been known for its strong civil litigation and business and governmental law practices. In the 1970s and 1980s, it represented clients in many asbestos lawsuits in Virginia. With more than 50 attorneys, the firm isn’t small but it also isn’t large, which helps create a close-knit, familial culture, says L. Lee Byrd, the firm’s immediate past president.

Sands Anderson has many attorneys who are involved in community volunteerism and pro-bono work. The firm itself is undertaking a statewide volunteer initiative to promote childhood literacy in cooperation with groups such as the Central Virginia Children’s Book Bank, a program of the Children’s Museum of Richmond.

As the firm moves toward its 200th anniversary in 2042, it is focused on strategic planning and cultivating its next generation of attorneys as well as updating its technology to improve client services.

The firm is seeking to expand its client base along the mid-Atlantic region, particularly focusing on “private business concerns and growing that [clientele] because that’s where a lot of the action is, so to speak, in the new types of law that are coming along,” Byrd says.
“We really are excited about our firm and our future and what we have built and what we have yet to build,” he adds.

Looking for relief

As far as community bankers are concerned, the road to Dodd-Frank was paved with good intentions, but it wound up in the same place as every other highway built from those materials.

In its zeal to respond to the 2008 financial crisis, the bankers say, Congress didn’t consider the onerous regulatory burden that parts of the Dodd–Frank Wall Street Reform and Consumer Protection Act would place on smaller banks.

After the election of Donald Trump as president and the GOP-dominated 115th Congress, however, community bankers and industry officials are optimistic about the chances for meaningful change.

“We’re really anxious for regulatory reform,” says Steven C. Yeakel, president and CEO of the Virginia Association of Community Banks. “Our bankers are spending an awful lot more on compliance and an awful lot more on staff and financial resources for compliance issues, and when [regulations] protect the consumer, that’s a good thing, but we’re quite confident that the pendulum has swung too far.”

Bruce T. Whitehurst, president and CEO of the Virginia Bankers Association, echoes that sentiment. “I think there is a more realistic chance in the [new] Congress than we’ve ever had since Dodd-Frank was signed into law in 2010 to make substantial revisions and improvements to Dodd-Frank and correct or rebalance the regulatory framework, particularly in terms of the burdens on community banks.”

Wayne Abernathy, executive vice president for financial institutions policy for the Washington, D.C.-based American Bankers Association, expects a different emphasis from the Trump administration.  “We think growth and economic development is going to be the big theme going forward, frankly, from now and throughout the administration,” he says.      

The Obama administration had “an almost exclusive focus on safety, making sure the bank has lots of capital, making sure their loans are ironclad,” Abernathy says, but it failed to take into account how those regulations impacted banks’ bottom line. Now that banking safety is stronger, it’s time to look at measures to increase growth, he says.

‘It’s overkill’
“I’m encouraged. I think it’s obviously a positive sign because now at least Trump says that he wants to roll back regulations,” says Susan Still, president and CEO of Roanoke-based HomeTown Bank. Under the Obama administration, she says, there was “a shotgun approach to regulation that puts community banks under the similar regulation as the largest banks. … [Dodd-Frank] was written in haste. It was kind of one-size-fits-all … It seems like it’s just been layers and layers of regulation on top of existing laws and more without seeing any clear benefit to it. It’s just expensive, it’s time-consuming, and it’s overkill.”

For instance, HomeTown Bank has five full-time staff members solely devoted to compliance and regulations. “They do no business with our customers. It’s all internal, dealing with regulatory matters,” Still says. “These are senior vice president-type positions. They’re all experienced bankers that we’ve taken away from working with customers to [oversee] regulatory issues.”

That’s a common complaint among smaller local banks. Having to devote staff and costly resources to compliance has in some cases driven mergers and acquisitions among community banks because “you need a certain scale to have the right sophistication level and asset bases to spread your [compliance] costs,” says John Depman, national leader for regional and community banking for the financial tax, auditing and advisory firm KPMG.

“I talk to banks of all sizes and no matter what size bank I talk to, they feel that their regulatory burden is unfair … The banking industry is confident things are going to get better on the regulatory front” under Trump, Depman says. “Hopefully, they don’t have unrealistic expectations in terms of how far it can go and how much relief they can get.”

For instance, he explains, much of the increased regulatory burden on community banks during the past 15 years was related less to Dodd-Frank and more to post-9/11 security measures intended to prevent terrorists from money laundering, and “I don’t think that’s going to go away.”
In KPMG’s 2016 annual survey of community bankers, the majority of respondents estimated that compliance costs accounted for 5 to 20 percent of their budgets. While that’s a sizeable cost, Depman says, it also may reflect a new normal for banks.

What will change look like?
What regulatory relief could look like and when it could arrive is a topic of debate.

In its simplest form, reforms could be included in an amendment to Dodd-Frank that would exempt community banks below a certain level of assets from many compliance rules, says Raymond P.H. “Pat” Fishe, a finance professor at the University of Richmond’s Robins School of Business. “That’s a pretty straightforward fix.”

Repealing the entire Dodd-Frank law, however, would be virtually impossible because of its scope and complexity, Fishe says.

Yeakel with the Virginia Association of Community Banks sees some core regulatory reforms that are needed first, including exemption from regulations governing capital requirements and lessening restrictions on mortgage qualifications.

Additionally, Yeakel and others say that reform is needed to create a level playing field with credit unions, which unlike community banks, don’t pay federal taxes. Regulators have allowed the credit unions to expand their customer base and services to the point they have become real competitors for community banks, he says.

There are pieces of legislation already in the pipeline such as the Financial CHOICE Act or the TAILOR Act of 2016 that could provide necessary, common-sense regulatory reforms for community banks, says Jeffrey M. Szyperski, president and CEO of Chesapeake Bank. A lot, however, still depends on bipartisan cooperation.  Senate Republicans don’t have the 60 votes necessary to end debate on a bill they want to pass. Additionally, some lawmakers on both sides of the aisle view Dodd-Frank as “sacrosanct,” he says.

Nevertheless, Szyperski says, “I definitely think we’ll get some relief” under the new Congress and administration, “which is really badly needed right now.”

Fewer pages in reports
In fact, some relief already arrived before the end of 2016. The length of quarterly call reports that banks have to file was reduced from about 90 to 60 pages.

That development occurred as part of a regulatory review process conducted every 10 years by the FDIC, the Federal Reserve and the Comptroller of the Currency in compliance with the Economic Growth and Regulatory Paperwork Reduction Act. The most recent review ended in 2015, and regulators began implementing and recommending reforms in late 2016.

Adding to the momentum for reform is the fact that Trump this year likely will appoint a new FDIC chairman as well as a new comptroller of the currency and “there’s going to be a different mindset for the people who are going to be leading these agencies,” says Abernathy with the American Bankers Association.

Additionally, groups such as the American Bankers Association will push for changes such as giving community banks more leeway in making mortgage loans to customers who are good credit risks but may not qualify under the current regulatory environment.
“The key,” Abernathy says, “is banks are in the growth business, and we haven’t seen much growth in the last few years. The economy has been held back. We think if the banks can grow faster, the economy is going to grow faster.”

Cardless ATMs

If you’ve ever spent time digging through your purse, wallet or coat pockets for your debit card while an impatient crowd lines up behind you, Bank of America’s cardless ATM machines might be for you.

Using smartphones, customers can upload their Bank of America debit card information to digital wallet apps such as Apple Pay, Android Pay, Samsung Pay and Microsoft Wallet. At cardless ATMs, customers open their digital wallet and hold their phones above a wireless symbol on the machine. They enter their PINs on their phones and can then conduct transactions, including withdrawing cash, transferring funds or checking their account balances. (Deposits are not yet available via Bank of America’s cardless transactions.)

Bank of America, Wells Fargo and JPMorgan Chase all debuted cardless ATM technology in early 2016.

So, far more than half of Charlotte, N.C.-based Bank of America’s network of roughly 16,000 ATMs has been upgraded to conduct cardless transactions, says Victor K. Branch, Bank of America’s Richmond region market president.

“It’s the wave of the future, but at the same time traditional brick-and-mortar banking will be there as well, to give customers options and alternatives to interface with our banks,” says Branch, noting that other innovations on the way include a Spanish-language version of the bank’s mobile banking app.

Digital wallet apps are enabled by a technology known as near-field communication, or NFC. It enables wireless, secure data transfers without an internet connection between compatible devices that are in close proximity to each other. Equipped with NFC microchips, the devices communicate by high-frequency radio waves.

Cardless ATM technology is billed as a more secure way of conducting transactions because it defeats card readers and other methods of stealing debit card numbers and PINs.

And there’s also this fact that in our selfie-crazed society: “I think people are more guarded about their phone than some of their debit cards and credit cards,” Branch says.

Building and buzzing

Amid its ongoing $500 million construction and campus renovation campaign, Liberty University will build a 78,000-square-foot home for its School of Business, to open by fall 2018.

Designed by Richmond firm Glavé & Holmes Architecture, the new business school building will house an auditorium, its Center for Entrepreneurship, a trading room, the university’s information technology program and “gathering spaces not only for our students but for the business community in the region,” says Liberty School of Business Dean

Scott Hicks. “We want this to be a destination spot for them to come in and take advantage of using the facility and work with our students.”

The building will stand where Religion Hall now is located on Liberty’s Lynchburg campus. Its cost has not been finalized.

Liberty’s business school isn’t alone in making ambitious plans. The business of teaching business is booming these days at Virginia’s major universities, which are erecting buildings, starting new endeavors to encourage entrepreneurship and expanding degree programs.

New campus at Tech
For example, Virginia Tech’s Pamplin College of Business is building a new $225 million campus, to be called the Global Business and Analytics Complex. It will include two 100,000-square-foot academic buildings and two residence halls. Construction will begin in 2020 (on a site now occupied by parking lots) and is expected to be complete by 2023.

Tech’s business school enrollment has outgrown its old space at Pamplin Hall, which was built in 1957 and renovated in 1988, says Dean Robert Sumichrast. The new academic buildings will be conducive to active learning and teamwork, he says, while the residential halls will house U.S. and foreign students and include an apartment for an international faculty member in residence. “This is a terrific asset for the university,” Sumichrast says. “Complementary causes came together that will give us resources to attract faculty and students interested in business and all forms of analytics.”

James Madison University’s College of Business also is expanding to meet the demands of growing enrollment. It is building a College of Business Learning Complex, a $15 million, 166,000-square-foot expansion and renovation project.

The school’s current home, JMU’s Showker Hall, was built in 1991 for 2,400 students. It now is packed with more than 5,000.  The Business Learning Complex is designed by New York-based Robert A.M. Stern Architects (RAMSA) and Richmond-based Moseley Architects. So far the university has raised $7 million toward the project, which will break ground in late 2018 and should be completed by fall 2020.

Aside from creating some much-needed elbow room, though, the new complex also will better reflect changing business school philosophy.

“Our current building doesn’t fit our values as a college of business,” says Dean Mary Gowan. “We are really known for preparing students to be collaborative business partners when they go out into their jobs. They understand how to work in teams, they’ve got great interpersonal skills, a strong work ethic, and we don’t have space for them to practice those skills in the College of Business. We have maybe four [or] five very small breakout rooms for students, but that’s it. We encourage them to work in teams so they are sitting in a hallway, any little spot they can find, to work on their teams.”

Collaboration and innovation “will be at the heart and soul of the design,” she says.

EPIC effort at VCU
Entrepreneurship and creativity are hot topics at many universities. Take Virginia Commonwealth University’s School of Business, which this year launched a strategic plan aimed at promoting creative thinking among business students. Called EPIC (Experiential learning, Problem-solving curricula, Impactful research and Creative culture), the initiative capitalizes on VCU’s reputation as the No. 1 public arts and design school in the nation.

The initiative has included the ongoing “Shark Tank”-like EPIC Challenge, a competition to pitch ideas to support the EPIC ethos. Open to teams comprised of faculty, students, staff and/or alumni, a handful of teams have so far received $30,000 to $70,000 to develop their ideas. Winning concepts include a new education model that would have students accessing some lecture content online and devoting more class time to team activities and homework.

The VCU School of Business also hired Richmond artist Noah Scalin as the business school’s first artist-in-residence. In addition to talking to students about creativity, Scalin crafted a portrait of Maggie L. Walker, a historic African-American businesswoman, from piles of donated clothing. “Our vision statement is driving the future of business through the power of creativity,” explains Senior Associate Dean Kenneth Kahn. “There is a vibe at the [VCU] School of Business around creativity that you don’t pick up when you go to other business schools.”

Also cultivating creativity and entrepreneurship is the University of Richmond’s Robins School of Business, which converted one of its classrooms into an innovation lab featuring open space and several writable surfaces to encourage student startup businesses, collaborations and entrepreneurship studies. Students participating in the university’s summer Richmond Guarantee program, which provides $4,000 to students for fellowships or faculty-sponsored research projects, will be able to apply that funding toward startups that they work on in the lab, says Dean Nancy Bagranoff.

Expanding programs
Business schools also are expanding degree programs.

The University of Virginia’s Darden School of Business has added a Washington, D.C.-area location for its Executive MBA and Global Executive MBA programs. Its home is on the 25th floor of the Waterview Tower in Rosslyn, overlooking the Potomac River and the Jefferson and Lincoln memorials.

“It’s probably got the best view in Washington,” says Ronald T. Wilcox, senior associate dean for degree programs. “It probably makes our Charlottes­ville students jealous.”
Brett Twitty, director of admissions for executive formats, says, “This August we enrolled 120 executive format students, up from 92 in the previous year, 61 of whom selected our

Washington, D.C.-area location. It is clear that offering two world-class locations — Charlottesville and the Washington, D.C. area — and two executive formats of the Darden MBA …  adds an attractive option to working professionals seeking a world-class executive MBA experience. The recruitment process for our Class of 2019 is underway, and, while it is still early, we are very excited by the strong interest we have seen from prospective students in the D.C. metro area as well as throughout the country and world.”

Meanwhile George Mason University’s School of Business is building on Northern Virginia’s prominence as a mecca for federal contractors by raising $1 million toward its new GovCon initiative, which is focused on preparing students to work in government contracting. GMU has hired John Hillen, former president and CEO of Sotera Defense Solutions, to chair the initiative.

“We will be the first [business school] in the nation to take a look at this industry as a vertical. … It’s never been seen as an independent sector of its own,” says GMU School of Business Dean Sarah E. Nutter. “It’s a fascinating industry that has this intersection of business policy and regulatory issues. The biggest players are all in and around this area … and we should be the school that’s taking the lead.”

In addition to building a new home for its business school, Liberty University is developing a new automotive dealership management curriculum in partnership with Charlotte, N.C.-based Hendrick Automotive Group, the nation’s largest privately held car dealership group. Hicks, the school’s dean, notes only two other colleges in the nation offer similar programs, despite the fact that the United States has the second-largest auto industry in the world. The U.S. has about 118,000 dealerships, employing a variety of workers in positions ranging from administration and sales to back-office financial workers, information technology to mechanics.

The new curriculum also will address topics such as how dealerships can successfully adapt to a rapidly changing marketplace, which now includes driverless cars as well as on-demand transportation services such as Uber.

Discussing the changes coming to the bustling school, Hicks remarks, “We’re constantly moving. It’s nonstop.”

Liberty to build business school building

Amid its ongoing $500 million construction and campus renovation campaign, Liberty University will be building a new dedicated home for its School of Business, to open on its Lynchburg campus by fall 2018.

The cost of the building, which will be around 78,000 square feet, has not been finalized.

Liberty also has announced a new partnership between the school and Charlotte, N.C.-based Hendrick Automotive Group, the nation’s largest privately held car dealership group, to establish an auto dealership management curriculum.

“Our president [Jerry Falwell Jr.] is making a huge investment back into the campus, which we know impacts the region, impacts our students and builds more value for everyone. … It’s something that’s been a long time coming and … we know our students will certainly take pride in that,” says Liberty School of Business Dean Scott Hicks. “We have some outstanding programs, some of them are second to none, and the facility we’re looking at will certainly be that way too.”

The new Liberty School of Business building is being designed by Richmond firm Glavé & Holmes Architecture, known for projects such as Christopher Newport University’s Jeffersonian Christopher Newport Hall and Pope Chapel, as well as the Fredericksburg Courthouse and buildings at the University of Virginia, the University of Richmond and Washington & Lee University. It will be built by Lynchburg-based English Construction, which also built Liberty University’s Center for Medical and Health Science.

The new Liberty business school will stand where Religion Hall is currently located on its Lynchburg campus.

The largest university in Virginia and the fifth-largest in the nation, Liberty serves 15,000 residential students and 90,000 online students. The School of Business, which has been housed in Green Hall, the university’s main academic building, accounts for about 24,000 of those students, including 2,150 residential students.

Its new building will house an auditorium, the school’s Center for Entrepreneurship, a trading room, the university’s information technology program and “gathering spaces not only for our students but for the business community in the region,” Hicks says. “We want this to be a destination spot for them to come in and take advantage of using the facility and work with our students. That creates opportunities for our students.”

In addition to helping forge new partnerships with state and local business, the new building will also reflect the school’s perspective on technology. Liberty’s School of Business is preparing students for the business world of the 2020s and 2030s, Hicks says, and is focusing on digital marketing technologies such as virtual-reality, augmented-reality and mixed-reality experiences. Data analytics and health-care informatics will also be increasingly important areas of study.

This spring, the school will launch a pilot class for its automotive dealership curriculum, created in partnership with Hendrick Automotive Group. The full program will launch in fall 2017.

“We’re excited about the opportunity of entering into a partnership where we can have the ability of reaching more quality people [to hire],” says Daniel Dehass, executive general manager of Hendrick Automotive Group. “We want to do a better job educating young people that this is a viable business and a good career option. … We’re not just looking for salespeople; we’re looking for people who have the ability to step in and grow and not just grow but grow quickly — our industry has a very high ceiling.”

There are only two other colleges in the nation with similar programs, Hick says, despite the fact that the United States has the second-largest auto industry in the world. The nation has about 118,000 dealerships, employing workers in positions ranging from administration and sales to finance, information technology and mechanics.

The new curriculum will address topics such as how dealerships can successfully adapt to a rapidly changing marketplace that will include driverless cars and on-demand transportation services such as Uber.

Discussing the changes coming to the bustling school, Hicks remarks, “We’re constantly moving. It’s nonstop.”

This story has been updated with more details on the business school building's size and location.

Fighting back

If you were keeping up with the news in recent months, you probably heard that hackers working for Russian intelligence were suspected of infiltrating state election databases in Arizona and Illinois as well as breaching computer networks at the Democratic National Committee and The New York Times.

But you may have missed the story about the small dermatology practice in Reston that also was hacked.

It didn’t make national news in June when an unknown hacker from outside the United States attacked Professional Dermatology Care PC, compromising 13,000 patient records. It was a ransomware attack, a software raid in which a hacker shuts down or limits access to a computer network or website in an attempt to extort money from the owner. Unavailable for comment, the dermatology practice posted a statement on its website about the breach, stating that it had increased its cybersecurity measures, would be sending written notice to all affected patients and that it had reported the attack to authorities, including the FBI.

The practice said it believed “the criminals’ motive was to extract money from the company in order to de-encrypt data, rather than for the misuse of patient data.”

Though state-sponsored cyberattacks garner headlines, attacks on businesses of all sizes are an everyday occurrence, driving the increased need for more cybersecurity professionals — and endangering the existence of small businesses.

“Companies are under daily attack from cybercriminals,” says Collin Hite, an attorney with Richmond-based law firm Hirschler Fleischer who specializes in cybersecurity and data privacy. “This is happening to small medical practices all the way up to the Fortune 500 companies. And my view is … other than the Fortune 1000 larger companies, many companies are woefully underprepared.”

Virginia’s government and companies are positioning the state as a leader in the sector, preparing to take advantage of the economic opportunities created by the challenges of securing the ever-evolving host of technological systems and gadgets upon which 21st-century life depends. To meet the demand, Virginia is trying to grow its pipeline of cybersecurity professionals, an industry that so far has been unpopular with millennials.
Growing risks

“Every kind of organization is realizing the difficulty that cybersecurity risks pose to their organization and mission, and we’re helping to mitigate those risks,” says Charles Onstott, a senior vice president with McLean-based defense contractor SAIC who is responsible for the technology company’s cyber, cloud and data science services. “The cyber threat landscape has changed dramatically in the last 10 years — the persistence of attacks, the frequency of them and the alarming rate at which vulnerabilities are discovered and exploited.”

A lot of companies think they’re too small to be a target, but there’s no such thing. “Credit-card data makes somebody a high-value target,” Hite says.

By some estimates, the cost of remediating a stolen data record can be around $270 per file. This includes providing credit monitoring and identity theft protection for customers whose data was stolen. For smaller companies, costs associated with data breaches could be the tipping point in shutting down operations. That’s why Hite recommends that companies not only plan ahead for breaches but that they take out cyber insurance policies.

Health-care records in particular are a prime target, he notes, “because you can truly steal somebody’s entire identity with medical records because you have so much information: their address, their family members, dates of birth.” (About 39 percent of all data breaches were directed against health-care industry targets last year, according to a study by Symantec, a California-based cybersecurity firm.)

And while cyberattacks against large corporations might be coordinated by organized crime outfits in Eastern Europe and Russia, ransomware attacks like the one launched against the Reston dermatology practice are more likely to be the work of lone actors seeking a quick score, Hite says.

Ransomware attacks have “become so prevalent,” he says. “It’s allowing anyone to become a cybercriminal. So you don’t have to be all that sophisticated or have monetary backing to do ransomware. You can pretty much get [the hacking tools] off the internet and become a cybercriminal overnight. The bar to entry into the criminal element is lowering every day.”

Adds Hite: “2016 is going to be the year of ransomware. Because a lot of this stuff is on a smaller scale, you never hear about it. Nobody wants to admit it, so they just pay the ransom and try to go on. You don’t have the time or the resources to fix the system. You just pay the $10,000.”

Opportunity for Virginia
Virginia is likely one of the best places to produce a pipeline of workers to fight these threats.

There are more than 650 cyber-related companies in Virginia, according to state Secretary of Technology Karen Jackson. And due to its proximity to the federal government, the Northern Virginia area in particular is dense with cybersecurity firms and professionals.

Fairfax County is home to 10 of the world’s 500 “hottest and most innovative” cybersecurity firms, according to the Cybersecurity 500 list by Cybersecurity Ventures, a leading industry research and market analysis firm. (The top Fairfax-based firms include IKANOW, Booz Allen Hamilton, Northrop Grumman and L-3.)

“Most people in the industry recognize that the national capital region has more cybersecurity talent than any other place on Earth, and that’s a great place to seek innovation,” says Rick Gordon, managing partner of the Mach37 cybersecurity business accelerator in Herndon, an initiative of the Center for Innovative Technology.

Since 2013,  Mach37 has helped launch 35 cybersecurity companies that collectively employ more than 100 workers. Companies participating in the accelerator, which helps them with education, seed money and venture capital contacts, agree to establish a significant presence in Virginia within two years of graduating from the 14-week program. Mach37 also announced last summer a new partnership with the University of Virginia’s College at Wise that will work to strengthen the cyber industry in Southwest Virginia.

Despite the number of cybersecurity firms in the state — or perhaps because of it — Virginia has an immediate need for about 17,000 more cybersecurity professionals, with each job paying an average of $88,000 per year, according to a Virginia government-sponsored study by Burning Glass Technologies.

“This is a complex issue, and it’s not going to go away. We need to harness all of the workforce and all of the capabilities we can to make sure we can defend against those who would do us ill through cyber, and that need is only going to grow,” says Jackson, the secretary of technology.
In addition to business development, Virginia companies and the state government are focused on education and early outreach efforts to build the commonwealth’s cybersecurity workforce.

“Education and the workforce is a big deal,” Jackson says. “When it comes to feeding the workforce pipeline, cybersecurity firms by and large are based on talent, and they are pretty much as good as the talent they are able to find. And so the states that have the best people and have the most talented workers are going to be the ones that garner the most amount of [cybersecurity] companies over the long term.”

The state government’s efforts aren’t purely selfless — it needs cybersecurity professionals, too. “We have 300,000 attacks on our network every day,” Jackson says. The attacks range from email phishing to more serious hacking attempts.

The state government can’t compete with private industry on salaries and perks, Jackson says, so Gov. Terry McAuliffe’s administration has established a $1 million scholarships-for-service program to augment its workforce. The program offers up to two years of paid college tuition for students pursuing cyber-related degrees in exchange for working in cybersecurity for the state government for the same number of years after graduation.

Virginia Tech has a similar program offering scholarships for three years of federal government service in cybersecurity. The federal government is launching its own initiative to hire 3,500 more cybersecurity professionals by 2017. In September, President Obama named retired Air Force Brigadier Gen. Gregory Touhill the nation’s first cybersecurity chief.

But there also are plenty of efforts to help private cybersecurity companies ensure they have a workforce they need.

In June McAuliffe announced that the state government was establishing a registered cybersecurity apprenticeship program to help students in community colleges and technical centers get on-the-job experience while earning degrees and certificates in cybersecurity fields. McAuliffe has made cybersecurity the central focus of his tenure as chair of the National Governors Association, encouraging states to share information and strengthen the nation’s collective cybersecurity profile.

In August, U.S. Sens. Mark Warner and Tim Kaine announced Virginia Tech would receive a $19.4 million National Science Foundation grant that largely will be used for cyber workforce development.

Virginia has been particularly focused on “middle-skills” workers — those who need more education than a high school diploma but less than a four-year college degree to enter the workforce. The state’s New Economy Workforce Credential Grant Program funds two-thirds of the cost of workforce credentials programs for students who successfully complete vocational certification programs and earn industry-recognized credentials and certifications in high-demand professions, including information technology and cybersecurity.

Margaret Leary, cybersecurity program head for Northern Virginia Community College and director of curriculum for the National CyberWatch Center, is a self-described “huge supporter” of the workforce credentials initiative. “The problem is the workforce needs people who can hit the ground running. They don’t want to spend 18 months to train someone on the hard skills needed to defend a network.”

However, in Northern Virginia, she says, the majority of the cybersecurity employers tend to be federal contractors, and federal government contracts require most cybersecurity contractors’ employees to hold bachelor’s degrees. To this end, Northern Virginia Community College is working with schools such as George Washington University to help students get four-year cyber-related degrees. They also have a pathway program to help military personnel receive earned credits for their previous military experience in cyber fields.

Attracting millennials
One key problem is persuading younger professionals to enter the field.

At her community college, Leary says, most students pursuing cybersecurity degrees tend to be between ages 30 and 60 and are entering the field as a second career. Millennials, she says, aren’t really aware of cybersecurity career options.

“A lot of these students, if you ask them what might a cybersecurity specialist do, they don’t know,” she says. “There needs to be more career prep done at the high school level, even at the middle school level, so that people understand the range of opportunities within cybersecurity … Millennials are very attracted by worthwhile causes. If it could be represented as a worthwhile cause to them — protecting assets, protecting national security — then there would be more interest.”

William Eggers, managing director of Deloitte Services, agrees that there’s a problem in getting more teens and twentysomethings interested in cybersecurity careers. Millennials are expected to save the day when it comes to the cybersecurity talent shortage, he says, but surveys done in recent years show that they aren’t as interested in or even aware of cybersecurity as a career. Many say their guidance counselors never mentioned it as an option.

The McAuliffe administration is trying to change that.

Although Virginia public schools have no cybersecurity curriculum, this year the state Department of Education sponsored a one-time pilot program of 32 cybersecurity summer camps for high school students across Virginia.

In addition, McAuliffe signed a bill into law this summer requiring that computer science be integrated into the state Standards of Learning for K-12 Virginia public schools, likely beginning no sooner than fall 2017. (AP computer science classes, however, have been available to Virginia high school students for decades.) And while computer science classes aren’t a requirement for graduation in any of the 50 states, they provide a foundation necessary for cybersecurity jobs.

Private-sector efforts
The private sector also is taking measures to grow its workforce.

Deloitte sponsors a national Cyber Threat Competition to increase awareness of cybersecurity careers among college students. (Virginia Tech placed second in the contest last year.) What’s different about Deloitte’s contest is that it’s open to any student, not just the technically minded. It’s more of a business competition and involves risk management, presenting reports to clients and creating communications statements about breaches for employees and the media. That’s because there’s a need for more than just tech people in cybersecurity.

Falls Church-based Northrop Grumman sponsors a national after-school CyberPatriot competition, giving high school and middle school students the chance to compete in timed contests to eliminate vulnerabilities in virtual computer networks. Last year, more than 3,400 teams competed, each with about four to six students on a team. Fairfax County Public Schools have done particularly well in the competition — once sweeping the top three spots.

“It’s not only measuring their expertise in finding the vulnerabilities, but also it’s against the clock, so they have to work well as a team, so they’re building their collaboration and communications skills,” says Diane G. Miller, Operations Cybersecurity Group program director.

Surprisingly, perhaps, cybersecurity companies in Virginia say they don’t have a problem finding talented techies. “We get unsolicited contacts from recruiters almost daily, and they’re not just from Virginia. From a talent acquisition standpoint, that’s one of the last things we worry about,” says Rob Hegedus, CEO of Suffolk-based cybersecurity firm Sera-Brynn, which was ranked the No. 1 firm in Virginia and 10th in the world on the Cybersecurity Ventures list of the top 500 hottest cybersecurity companies to watch in 2016.

What they do have more trouble finding, Jackson says, are support personnel with technical knowledge, as well as tech workers who have business and communications skills.

“It is very important to have the research and the technical people because they’re the ones who have to do what has to get done, but there also has to be a level of people involved who can translate the technical into what the C-suite or the board of directors or the general public can understand,” such as marketing and communications professionals, she adds. “That’s imperative. It’s very difficult to walk into a C-suite to get money for R&D if the C-suite can’t understand what you’re pitching.”

Excelling in the field
It takes more than a degree, however, to make a successful cybersecurity professional.

Among longtime cybersecurity professionals, it’s less important to them what kind of a degree you hold than what you’ve accomplished and what sort of mindset you possess. (And one might take note here that Microsoft founder Bill Gates was a self-taught computer programmer who didn’t earn a college degree.)

“The industry is snapping up anybody that’s got the word ‘cybersecurity’ in a degree and that’s good … but just because they have that in their degree name doesn’t mean it necessarily translates into real-world skills,” says Darren Manners, who heads up the offense security operations division of Richmond-based SyCom Technologies. His unit conducts penetration testing, emulating what hackers would do to locate and eliminate system vulnerabilities. “A degree is nice, but what have you done? Have you made your own applications? Have you built different systems?”

The cybersecurity sector also has been largely dominated by white males and hasn’t done as good a job at reaching out to women and minorities, say Manners and others, resulting in a huge loss of potential talent.

Furthermore, cybersecurity pros “don’t suffer newbies very well. You’re paid for what you know. Knowledge is everything in our industry … People can be overly critical, and there’s a reason for that. Mistakes cost a lot of money. Sometimes they can cost lives. It’s one of those industries where you can really make an impact, but you can also really mess up, and I don’t think some people take to that.”

Some companies, like Northrop Grumman and SyCom, recruit students as paid interns while they’re still in high school in hopes of bringing them on as full-time employees after college. “It’s almost like we end up doing what the basketball recruiters do,” says Manners. “We’re in it for the long haul, so we understand the particular skills set that we’re after. It’s very hard to find.”

And while cybersecurity salaries in Virginia are very competitive and can range from around $70,000 to $180,000, the best cybersecurity pros aren’t in it for the money, says Northern Virginia-based cybersecurity consultant William Lumpkin, known in the cybersecurity world by his hacker handle, InfoJanitor. “A successful person in computer security is not actually pursuing the money. He’s pursuing a puzzle or some nuance he’s never seen before, and he wants to be the person to solve that … You can’t make a geek happy with money.”

When Lumpkin was a kid, he wrote an electronic Rolodex program for his mom’s insurance agent in exchange for a Commodore 128 computer. He brags about the time he defeated a client’s motion sensor security system with a paper airplane.

Problem solvers and curious minds are the types of personalities that thrive in cybersecurity, say Lumpkin and others.  Take for example, Mach37 grad Tiffany Rad. Her company, Anatrope, located in the AOL Verizon incubator in Sterling, specializes in cybersecurity for vehicular systems. She holds a law degree, previously worked in cybersecurity for Cisco and Kaspersky and teaches as an adjunct professor at the University of Southern Maine. Like Lumpkin, she has presented at the DEF CON hacking conference.

Raised by her CIA agent father (who himself was a consultant for the Robert Redford film “Sneakers” about security consultants battling hackers) to learn how to pick locks and administer polygraphs, Rad possesses what may be some of the coolest cred in cybersecurity at the moment. An episode of the Golden Globe-winning cyber-thriller TV series “Mr. Robot” was based on an experiment she led in 2011 that proved that jail doors could be hacked and opened remotely. Her white paper on the topic is visible in the episode.

“We were able to make it look like all the jail doors were closed when in fact they had been open,” says Rad, noting that she also discovered that at least one prison back then had multiple vulnerabilities via internet-connected devices. “It was our worst nightmare that ‘Mr. Robot’ put [on TV] in a dramatic fashion. At the time we were worried about someone trying to coerce us into using our exploit.”

The McAuliffe administration hosted a Cyber-Physical Systems Summit in September, focused on securing autonomous systems and infrastructure, particularly in light of the growing number of connected devices being brought online with the Internet of Things.

“That’s why a lot of us have insomnia,” Lumpkin says, speaking about working in cybersecurity. “Because if you knew how vulnerable things are all the time, it would make you a little nervous too.”