With the recent passing of Stephen Covey, it seemed appropriate to see if his framework for The Seven Habits of Highly Effective People could be applied to the people we work with at Corporate Focus – those looking to handle their equity administration, accounting, and reporting challenges in a more effective way. Could they be applied to help finance and legal professionals get their equity reporting tasks done in less time, with greater accuracy, and in a more transparent manner?
So, let’s take a look at what the Seven Habits would look like when applied to equity reporting.
Habit 1: Be Proactive. Too often, equity administration and reporting are done at the last minute – as a knee-jerk reaction to a request for the information or an upcoming meeting or transaction. Instead, what if equity administration was done proactively? At the end of each month and quarter, equity records would be updated and missing information and documents would be organized. Then, you would be better prepared to handle the new changes for the next period without any backlog.
Habit 2: Begin With the End in Mind. At times, equity administration is done without much focus on the end result. When you step back and think about it, there are three primary goals: a) identify who owns the company (typically shown in a capitalization table); b) determine how much non-cash equity compensation needs to be reported in the financial statements; and c) ensure that at the end of each period, you have complied with all legal, financial, and business requirements. If you keep each of those in mind at the beginning and write down your goals, you will do a much better job with the day-to-day work.
Habit 3: Put First Things First. You need to know what’s most important in order to achieve the goals referred to in Habit 2 above – cap tables, financial reporting, and compliance. The simple answer is to first make sure you’re using 100% accurate data. If you make data integrity a top priority, you’ll decrease the risk of inaccurate reporting. Specifically, make sure you have an accurate list of grants (names, addresses, dates, amounts, dollars, vesting schedules), that your variables in equity expense reporting have been determined properly (expected term, volatility, forfeiture rate), and that you know the key compliance requirements (board and stockholder approvals, common stock reserves, $100K limitation, S elections, 6039 reporting, securities filings).
Habit 4: Think Win-Win. Keep in mind that the work you’re doing is for the benefit of your stakeholders and everyone else that works on equity administration, accounting, and compliance: senior management, finance, HR, tax, board of directors, investors, employees, your legal counsel and auditors. Your work enables them to succeed as well.
Habit 5: Seek First to Understand. Then to be Understood. This can be thought of in two ways. First, make sure you understand the goals of each of the people you are providing information to or and those who are providing information to you. Second, make sure you understand the information that has been provided to you, in terms of what it is, how accurate it is, and whether or not it’s up-to-date.
Habit 6. Synergize. While Habit 4 recognizes the large team that benefits from your work, Habit 6 helps us recognize that the work in question requires a “teamwork” approach. From new employees, board actions, and outside investors to data tracking, equity accounting, and ownership and financial reporting, everyone must work together to create a great result. If any one person is not delivering, it will impact the outcome or create extra work for others.
Habit 7. Sharpen the Saw. It’s important to stay up-to-date, since equity administration, accounting, and compliance are all areas that change on a regular basis. Best practices change. Accounting rules change. Legal requirements change. Ongoing education is important as well as continuing to brush up on your skills. Attend seminars, conferences, and read articles and try to continue to improve your knowledge and your business practices.
The framework provided by the late Stephen Covey in his book, The Seven Habits of Highly Effective People, is a great model for evaluating ways to be more successful in your equity reporting work. If you have any suggestions that would help others be more successful in this area, please pass them along in the comments below.