Building Essential Infrastructure for Public Companies

What do we mean by publicly fit companies?

Whether contemplating a future public offering, already underway with a SPAC merger, or newly public, such companies must have the right infrastructure in place to meet more rigorous reporting requirements and expectations. In today’s environment, many businesses need to enhance their operations and compliance standards—to become Publicly Fit—to increase opportunities and enhance overall enterprise value. The benefits include:

• Facilitating financial transactions: Many lenders or other financial partners expect companies poised for growth to already demonstrate rigorous reporting standards and internal controls.
• Securing key partnerships or joint venture opportunities: Organizations that demonstrate voluntary compliance with elements of public-company standards are more attractive potential business partners.
• Increasing current value: In the event of a SPAC merger or IPO, growth-oriented companies with documented, standardized business operations can close a deal more efficiently and at a greater enterprise value.
• Securing top board members: Many of the most experienced, talented business people insist on well-defined corporate governance policies and strong financial oversights before they will accept a board appointment.
• Hiring top talent: Likewise, many potential senior management hires also expect companies, to have governance and oversight polices that comply with public standards.
• Protection from accusations of wrongdoing: Organizations that voluntarily operate under the same standards as a public company can more readily establish that they are applying acceptable and appropriate standards in the event of a lawsuit or other legal action.

We encourage our clients to think differently about building a more coordinated accounting structure capable of withstanding external scrutiny. There are simply too many transactionbased opportunities beyond an initial public offering (IPO) that require this higher level of transparency and sophistication.

We strive to help our clients build a Publicly Fit infrastructure as soon as their company’s growth has reached an appropriate level, which varies from company to company. Although properly preparing for external accounting scrutiny is a process that can take one, two or even three years, Weaver can partner with you to move your company in the direction of a Publicly Fit infrastructure in incremental steps based on your needs – even if your business is newly public and you need post-public assistance.

What’s different about Weaver’s approach to building a publicly fit company?

Financial accountability is every company’s responsibility—and it’s just good business.

The Sarbanes–Oxley Act of 2002 (SOX) changed the governance landscape for all companies—not just public companies.

Why? While the law specifically applies to public companies (those filing a Form 10-K), the rigorous reporting, accounting and internal control principles ushered in by SOX have become the accepted yardstick for measuring a company’s level of sophistication. As a result, companies that ignore SOX requirements may miss market opportunities.

At Weaver, we begin with the end in mind—and we adapt our approach to fit your company’s needs and timeline.

For example, we work with companies that need to become Publicly Fit but have limited resources and short timelines. Beginning with their most pressing needs, we advise these companies through the process at a pace that fits their resources.

We create an overall plan with a solid foundation that builds on itself. We begin with the company’s most pervasive infrastructure issues (those processes touched by the most people) and create scalable processes that address those issues first. Once this foundation is firmly in place, we move incrementally, using our exclusive building-block approach, through more discrete systems and processes (those touched by fewer people and exposed to a higher degree of subjectivity).

This proprietary, systematic approach allows us to create an overall solution with the least disruption.

Depending on a company’s ongoing level of financial-reporting sophistication, Weaver can shorten the process of becoming Publicly Fit to just a few months, but costs increase as the timeframe shortens, and the strain on the company can be significant. That is why we much prefer phased-in implementation. This allows a company to put new processes in place and bring them to full functionality before moving forward to the next phases of this transforming experience. This type of effective change management helps ensure a smoother transition and keeps costs under control.

The road to becoming Publicly Fit involves several incremental steps, including:

• Enhancing financial reporting capabilities
• Implementing risk assessment processes
• Developing corporate governance practices
• Enhancing and strengthening internal controls and information technology systems
• Creating procedures compliant with Securities and Exchange Commission (SEC) reporting rules

Enhancing Financial Reporting

Understanding and valuing the importance of accurate and timely financial reporting is part of the cultural shift needed to move your company to the next level. At Weaver, we help your team make this cultural shift.

Improving financial reporting begins with assessing your current internal resources, both personnel and technology. For example, does your company already have the experience and expertise required to meet public-company standards? If not, you will need to augment your financial team. This may require a shift in thinking for the leadership team, who may not be accustomed to hiring a Chief Financial Officer, particularly one who is positioned to face the public markets, financial analysts and shareholders. Adding this new level of expertise requires a commitment to turn over important decision-making and financial authority to a person who has not yet earned the management team’s confidence. Additionally, these skills come at a high cost and may include some form of company ownership, such as stock options or other equity incentives, in addition to cash compensation.

At Weaver, we understand how difficult embracing this type of shift in thinking can be. We spend time proving the value of this change; helping the management team to fully understand how this more costly infrastructure is a necessary part of the building blocks for the company’s future.

Additionally, from a process and technology perspective, your company’s current reporting capabilities may be too limiting and significant changes may be required. Pre-public and newly-public companies are often accomplishing current reporting tasks through inefficient processes, which will no longer suffice once your organization is in the public capital markets. Not only are they too onerous, but they do not allow flexibility to analyze data in different ways and gain much needed business intelligence.

In a mature internal infrastructure, a financial team typically includes several members, each with a different purpose within the accounting and reporting function. These members work with consistently applied accounting policies and procedures and, based on the accounting system configuration, are able to dissect and analyze data from their different perspectives. This allows the company to configure reports for multiple purposes, such as for internal decision-making or external reporting requirements.

Implementing Risk Assessment Processes

While daily business risks are the similar for public and private entities, the way risk assessment is used and measured can be significantly different. The purpose of risk assessment is to make informed decisions within your company’s risk-tolerance levels. Established public companies, with their mature internal infrastructure, focus on understanding and fully mitigating the company’s risk. However, many pre-public companies, even those considered high-growth, spend too little time assessing risk and evaluating adequate mitigation, often preferring a more noncommittal and ad hoc approach.

Implementing strong risk-assessment strategies within a corporate-governance structure not only makes good business sense, but it’s often expected by outside investors and potential acquirers. Management is accountable to the board of directors for the documentation of the company’s risk appetite/tolerance and how it is used and communicated to the company’s various audiences.

At Weaver, we work with companies to develop a risk-assessment process that will pass scrutiny and inspire confidence with all target audiences, such as shareholders or private investors, as well as regulators.

Developing Corporate Governance Practices

Another significant cultural shift when a company goes public is developing appropriate corporate-governance practices. This structure, which includes a reliance on outside independent directors and the division of power and responsibilities to different members of the management team, is not typically found in a privately-held company, even those considered high-growth.

In a public company, the board of directors, representing shareholders’ interests, is the authority. Company management is accountable to the board, which should be an independent entity but not disconnected from the management structure.

In turn, the CEO and executive leadership team need to have clearly delegated authority to carry out the board’s direction. They are responsible for establishing and maintaining appropriate entity-level controls to reinforce an empowered and ethical environment.

Privately-held companies, as well as those who are newly-public, often have informal structures that lack the formalization of entitylevel control processes. These set the tone at the top with expectations for individual performance and behavior across the organization, including a code of ethics, delegation of authority, human resources policies and core values.

At Weaver, we help to implement a more accountable governance structure through hands-on work with current company management and the careful development of appropriate screening processes for hiring individual board members and establishing the board’s overall executive structure. We understand the importance of proper recruitment and of establishing a robust board structure with suitable entity-level controls.

Enhancing Internal Infrastructure

Developing the level of scalable technology-reliant procedures, personnel processes or business processes needed to meet the minimum requirement of a public company is a challenge for many pre-public companies as well as those who are newly-public. Effective business process control design along with supporting information technology, as well as specifically defined roles for personnel, is the foundational element of a mature internal infrastructure. Additionally, it must be scalable to support growth and it must be reliable.

This cultural change may represent a significant expense for companies operating with slim information technology support, open security and inconsistent backup procedures. The companies may not adequately identify and implement internal controls and evaluation processes for the majority of their financial transactions, such as sales to cash, purchase to pay, inventory control, personnel payroll reporting and financial reporting.

By implementing, proving out and communicating a strong and effective environment of corporate governance through entity- and process-level internal controls, companies of all sizes can realize significant benefits. These benefits do not require full compliance with SOX legislation.

We identify your critical technology-related applications and associated controls and put entity-specific policies and procedures in place to ensure the continuity of those procedures. These initial steps can provide numerous benefits associated with strong corporate governance and improved operational effectiveness.

Accommodating Compliance Requirements

If a company has explicit plans for a future capital markets transaction, it must be prepared with financial reporting that is compliant with SEC rules and regulations. These requirements can be onerous for companies on the path to going public. For example, the SEC requires compensation disclosure for certain highly compensated personnel. Companies seeking to go public can generally insulate top management pay, but doing so may not fully represent the company’s most highly compensated staff. More robust reporting capabilities, including the ability to view data from different perspectives, are required.

For publicly registered entities, financial reporting also requires timely filing of a multitude of required SEC disclosures, such as press releases (8K) for timely disclosure of material events. In companies seeking to go public, the members of a management team may routinely finalize handshake deals that materially impact the company’s future but are not disclosed externally. As a public company, or one held to a public-company standard, those deals must be quickly disclosed to the shareholders and the public. This represents another huge cultural shift for many organizations.

Additionally, pre-public companies often rely on their auditors to accumulate appropriate data and prepare required disclosures. However, as a public company or a sophisticated private entity, your company cannot depend on your outside external auditors for fundamental management functions—and financial reporting is fundamental. Such reliance would not be acceptable to regulatory agencies or be in compliance with independence rules.

At Weaver, we regularly work with businesses faced with revamping inadequate financial reporting and accounting structures that might have been adequate in the past but will not overcome the regulatory hurdles facing a more mature company with public reporting responsibilities. Our team expertly evaluates current systems and recommend the most appropriate way to restructure them.