The Not Missing Person Case
I recently wrote a post about a missing person case I handled. It was not about tracking down some missing heiress. Instead, it was something more typical in my line of research, having a company name and needing to learn more about its management. In that post, I talked about how I identified key executives, but I ended up stumped in looking into one of the executives. For this person, there was no definitive benchmark, nothing I could find, an address, date of birth, etc. to use to cross-reference data to the identified executives, so I could not fully determine which public records related to her. A colleague, after reading that post, asked, “how would it be different, if you were researching a public company. Like any good blogger, my answer was, “great idea for a post.” See below.
And if you want to stop reading now, the answer is, very.
Almost all the roadblocks faced in finding the people connected to private companies vanish when the research target sells stock to the public. For one’s company that sells stock, is “publicly traded”, there are many things published.
First, when looking at any company, I want to know who are the key people. As I indicated in my previous post, the first place I go with a private company, is the company’s website. I want to know who they think are their important people. If there is no website or the website is blank when it comes to management, I would go next to the company’s filing in the state they are incorporated or otherwise registered to do business. If that information is lacking, there are other areas to go, that could or should indicate the players, and that my friends will make for another post soon.
On the other hand, “federal securities laws require public companies to disclose information on an ongoing basis. For example, domestic companies must submit annual reports on Form 10-K.” The SEC provides a blank 10-K to guide companies. One can see that Item 10 is “Directors, Officers, and Corporate Governance. Item 10 is a good place to start in identifying who to research. Note, the SEC allows certain information to be filed instead in the company’s annual proxy statement.
Here’s the thing, as much as we’d love to research each and every Director, Officer and person otherwise mentioned in Corporate Governance, scope requirements—budget and turnaround timing—limit the amount of people researched. As I noted in that last blog post, it’s about 3 people per company. Which three? With private companies, it’s a bit of a guess. Who sounds like they matter based on their title. With public companies, we have some very good ways to determine who’s vital.
The very next item on the 10-K is “Executive Compensation.” SEC guidelines state, “a company must disclose information concerning the amount and type of compensation paid to its chief executive officer, chief financial officer and the three other most highly compensated executive officers.” Who the company pays the most is a pretty good indicator of who matters.
Or is it? With closely held or private companies, we are essentially assuming that the important people listed on a website or in corporate filings are also the owners of the company. In most cases, we have no way to know if we are right. Someone can own a company and keep his or her name off all public documents. Not so with public companies.
It’s next, Item 12, “Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters.” The SEC tells you that this information includes, “company's directors and officers, as well as shareholders who own more than 10% of a class of the company's equity securities.” Thus, we can decide that maybe certain people as owners, are as important to look at as the top compensated officers.
Take Walmart, perhaps the largest company in the US. There’s a name that does not appear in its five most compensated officers or in the larger list of ten officers disclosed in Item 10. That name is Walton, but if you find Walmart’s “Holdings of Major Stockholders” filed in their annual proxy you will see S. Robinson, Alice, and Jim Walton as well as the John T. Walton Estate Trust.
Figuring out who to search matters; figuring out about the people who are being searched matters even more. In our previous post, we noted that private companies often did not throw off enough facts to get a good bearing on its executives. This could stymie our research. With public companies we have all sorts of things to use. If you look at the those then executives listed by Walmart, you get each of their ages. In most cases, that fact added to a person’s name, should allow us to pin-point them in our databases. Need more,
The SEC requires all people owning more than 5% of a public company to “file beneficial owner reports on Schedule 13D or 13G ... [with] background information about the shareholders.” There is also “Form 4”, which is a similar document with information of ownership by company insiders (i.e., officers). The information filed will include an address. I looked at the last Form 4 filed by C. Douglass McMillon, the CEO of Walmart. This filing includes an address in Bentonville. Arkansas. A little searching showed me that the provided address was a Walmart facility. Still, armed with the city name, I was able to get Mr. McMillon’s residential addresses from my research tools.
Like I said, very. It very much makes a difference if the company is public. When the company is public, they must disclose their officers, they must tell you who they pay the most, giving you a good idea who matters. A public company must disclose its owners as well as its officers, and as Walmart showed, the key officers and the key owners may not be the same. Finally, when the company is public, us researchers are provided various nuggets like ages and addresses that we can use to move our searches along. It is very unlikely, if they company is public, that we’ll run into a missing person.