When a business goes from being a privately held entity to being a public company, there are some changes in what employees, including those at the very top, can do and say. Employees at public companies must be careful not to do anything that could unfairly affect stock prices or shareholder interests. For example, local executives were tight-lipped last fall when Complete Business Solutions Inc., an information technology company with an office here in Providence, acquired Providence-based Sudbury River Consulting Group. Even public relations staff from CBSI’s headquarters in Farmington Hills, Mich., declined to comment on talk that it was buying the much smaller, privately owned software consulting group.
That’s because CBSI is publicly traded on the NASDAQ and its employees must follow tough Securities and Exchange Commission rules.
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Brad Waugh, who is now a regional vice president with CBSI, said it was a little difficult to get used to the restrictions on what he could do and say; but in the long-run he said it improved the company. Waugh previously held the same position with c.w. Costello Inc., which was itself a privately held corporation until it merged with CBSI in January 1998.
“It adds a lot more structure a lot more rules and regulations,” Waugh said. “The SEC rules are by far the biggest change you have to deal with.”
Luckily, he added, CBSI had already gone through the arduous process of converting itself from private corporation to a stock company.
“We were acquired, as opposed to the original CBSI, which went public in March 1997,” Waugh said. “That was a long process it can take from two to five years.”
Accounting practices must conform to SEC regulations, as well as other business practices, he explained. “That’s something Costello didn’t have to go through, being acquired, we were put right into the mix.”
As part of the plan to put Costello’s executives “into the mix,” Waugh said CBSI’s chief financial officer instructed them on the rules of being a public company. “The CFO essentially sat down and instructed us.”
For starters, they learned the rules about revealing “forward looking information,” which could impact a company’s stock price. “You cannot disclose that to the public; that’s to protect shareholders and employees,” he said.
Because of these rules, when public companies issue press releases on recent activities they will often include safe harbor statements, which explain that some information “may be considered forward-looking” has been used. Those statements often explain other factors that could impact those statements.
“It can be (intimidating), especially when you constantly see what’s happening to people who don’t follow those rules,” Waugh said. “Actually I found a lot of those rules make the company a better firm overall, because you do tend to keep a stronger eye on the bottom line.”
And in Rhode Island there are other benefits to becoming a public company as well, he added. Under the so-called American Power Conversion law, employees of a company that expands its workforce in Rhode Island don’t have to pay a state capital gains tax if they sell the stock.
“It’s a great incentive here in Rhode Island,” Waugh said. “There’s a lot of controversy right now. But that is one nice piece of silver lining.”
Washington Trust Bancorp in Westerly has been a stock company since 1800 and is actually the 15th oldest publicly traded company in the United States, as well as being the oldest community bank, according to executives there.
So Washington Trust officials have a lot of practice teaching employees about the significance of working for a public company. The training, however, depends somewhat on what job the employee holds, according to Michael Rauh, Washington Trust’s senior vice president of retail banking. But the bank’s insider trading policy and rules about revealing forward looking information are printed right in Washington Trust’s human resources policy book, Rauh said.
Insider information refers to corporate information that has not yet been made public, such as mergers and significant changes in a company’s earnings report. The officers of a company might be privy to such information, but under SEC rules they are considered insiders and are not allowed to trade stock on the basis of such information.
“Everybody receives training on those things,” Rauh said.
“In the kind of business we are in, the financial services business, confidentiality of information of any kind is of the utmost importance. So our ethics policy speaks to confidentiality,” he added. “In addition to that we train front-line employees how to deal with inquiries. Inquiries from the press are to be directed to certain people, inquiries from shareholders go to certain people.
“You can’t possibly train 400 employees on the ins and outs of everything. We try to make sure if employees don’t know the answer to a question they know who to send a person to,” Rauh added.
“We have three core values we live our life by: Quality, community, integrity…. integrity is really at the heart of what we do,” he said.
Since Washington Trust is a bank, however, it is also subject to other government regulations. So it is subject to even further regulatory scrutiny than a company like CBSI, which is publicly owned but not in a regulated industry.
“I guess for the most part the differences are in the quantity of regulations. For us it’s not just being a publicly held company, it’s being a regulated company. You put those together and you’ve got lots of people dealing with regulatory (issues),” Rauh said. “Rightfully so; you’re dealing with lots of people’s money.”
