Two Step's Private Company Equity Management Blog

I'd like to share with our Corporate Focus and Equity Focus users three great resources that I recommend for equity planning, equity transactions, and understanding equity instruments. Our customers have used all of these, and I want to make sure the Two Step community is aware of them. This is Part 1 of a three-part series.

Want to know how much equity compensation to award a founder or senior executive? Look no further than "the startup executive compensation resource": www.compstudy.com. Now in its 10th year, the CompStudy survey is put out by J. Robert Scott, Ernst & Young, and academics from the Harvard Business School. It covers China, India, Israel, the UK and the U.S. According to the CompStudy website:

"CompStudy is the longest-running, most comprehensive survey of equity and cash compensation for top management positions and boards of directors at private companies in the technology and life sciences industries. The study results provide essential information for businesses and investors who want to stay abreast of current trends in senior executive compensation and organizational structures."

CompStudy offers an irresistible deal: if you complete the 2010 survey and send along your information (which will be kept anonymous), you'll get a free copy of the survey - much better than paying $999! If you need this type of information as you're planning your equity compensation awards, take the survey and get your free copy of the 2010 results when they come out. Or if you can't wait, you can purchase the 2009 survey today.

I was impressed with last year's survey and consider CompStudy to be a great resource for our law firm users, who have clients that need knowledgeable advice on what to award key employees. It's also helpful for our CFO customers, who need to ensure that their total compensation packages compare favorably to the market.

If you have questions or remarks regarding CompStudy, feel free to add them to the Comments section. And when you're ready to simplify your ownership administration or equity compensation reporting, contact us at Two Step Software to check out our system.

I recently read an article in Mass High Tech magazine called, "From Know-How to Know-Who." It posed the question of whether knowledge management (KM) is really about the knowledge that resides in a document or file - or if it's more about the knowledge had by the people within an organization who are familiar with a specific matter or transaction.

The article then goes on to consider why so many organizations have not yet implemented knowledge management systems. It cites the opinion of Tom Shoemaker, a Vice President at Parametric Technology Corp., who contends that the main reason a company doesn't have a KM system in place is because it talked itself out of one. Shoemaker says, "I would suggest that sometimes companies have sized themselves out of the market. They may have said, 'We are a small business and the amount of files we are creating doesn't really lend itself to needing some sort of management system.'" But, he insists, "There is no reason not to have knowledge management in place, no matter your size."

The Mass High Tech piece also quotes Brian Hill, a senior analyst with Forrester Research, Inc., who agrees that size shouldn't matter when it comes to knowledge management: "Most organizations should have a system in place, not only to mitigate legal risk ... but most importantly, to capture real business benefit." Hill says that if more information can be made available at a moment's notice to an employee, the better the chance that a truly informed decision can be made, or even a serendipitous connection discovered.

A similar point is made by one of our Corporate Focus customers, Christopher Howard, head of the business practice group at Pierce Atwood, LLP, when he talks about the "art of practicing good corporate hygiene." He says, "I call it 'corporate hygiene' because it's like brushing your teeth or having an annual physical. The reason you keep corporate records to begin with is that every entity is going to need to access them at some point. At the end of the day, if you accept the responsibility of keeping client records, then why wouldn't you keep them in the best, most efficient manner possible? It's a function of good corporate hygiene and it's a function of risk management."

Howard explains that the compelling benefits are not just for the firm, but extend to the firm's clients as well: "It's worked out really well for a number of our clients who have direct, self-service access to the information on a read-only basis. The return to them is it increases their internal productivity and gives them a sense of confidence that they have record-keeping under control. For our clients, ultimately, their costs are lower and the efficiency with which they can close transactions is higher. A) They get it done, which is most important. B) They get it done less expensively. That's real value."

In the end, I've drawn my own conclusion: it doesn't really matter whether knowledge is based on documents and information or the people who understand the documents and information. The key is making this knowledge readily available to those who need it, when they need it. Regardless of its size, a business and its clients can draw significant benefits from a centralized, online knowledge management system - not the least of which are greater productivity, better decision-making, and improved risk management.

Imagine having a single source for fast, accurate answers to your entity management, ownership administration, and corporate compliance questions, 24/7. Then take a look at Corporate Focus to learn more about this and other benefits an entity life-cycle knowledge management system could bring to your organization.

Recently a Corporate Focus customer posted an interesting comment on our LinkedIn Discussion Group. In her opinion, there should be a special "Twelve Step" program for people looking to break their years-long addiction to paper documents and go electronic with their minute books. This poster shared that she herself wants to "go paperless," but is finding it difficult to make the switch.

Although I don't actually have 12 steps to offer you, these 10 steps will help anyone looking to take their corporate records and minute book documents online. If you can think of any steps I've missed, I welcome you to add them to the comments.

1. Take a deep breath and admit that you are powerless over your paper documents and, as a result, your work has become somewhat unmanageable.
2. Write down exactly why you want to go paperless.
   • To help you get started, here are some reasons I've heard from our customers:
     • They want easy access to their documents from home and at work.
     • They want to provide access to their clients.
     • They want attorneys to have easy access to critical documents.
3. Determine which minute book-related documents you want to scan.
   • I recommend scanning a company's articles of incorporation/organization, the ongoing minutes for the company, and stock certificates and option agreements.
   • Depending on your situation you might want to scan more or fewer items than this.
4. Buy a high-quality scanner.
   • If you don't have a simple way to scan documents as you receive them, you will find it too easy to skip the scanning process.
   • I recommend the ScanSnap S1300, which is small and easy to use. We use it here at Two Step and are very impressed by it.
   • Ignore this step if you have someone who will do the scanning for you (and if you do, consider yourself lucky!).
5. Find yourself a consolidated online system that allows you to easily store and view your scanned documents.
   • There are many systems available that may fit your needs.
   • If you need to scan minute books and other entity and ownership records, check out this short slide show featuring Corporate Focus sample screens.
6. Start with a reasonable goal.
   • After you've found the right system, begin by scanning only new documents that come across your desk, or initially select only certain key clients.
   • The trick is to not let the work overwhelm you; that will prevent you from scanning documents consistently.
7. Expand to more documents.
   • Once you've achieved your initial goal, such as scanning all new corporate documents, start going back and scanning historical minute book documents.
   • Schedule at least one hour every week to scan your historical documents. Put it on your calendar as a recurring event so that you don't forget. In no time, all of your minute book documents will be online.
8. Show off and share your work.
   • If you are taking the time to make your minute book documents paperless, be sure to show your boss and let her know where she can access the documents.
   • When others are able to open a document electronically in seconds for the first time (compared to hours of searching for physical documents), the time you spent scanning in all of the documents will have paid off.
9. Review, review, review.
   • Every 3 months, review your scanning process. During this review, check to see if there are any additional document types you want to scan.
   • You might also want to see if your system has any upgrades that make the process even easier for you.
10. Help others.
    • Going paperless takes a lot of work and commitment. As soon as you've achieved success, why not share your experiences by posting your thoughts to our discussion group or writing your own blog post? I'm certain others will appreciate your help.

If you have not yet started moving toward paperless corporate records and minute book documents, the time is now. Our Corporate Focus customers have done it for thousands of entities and, without a doubt, they are all glad they did. Want to hear some real feedback from lawyers who have already gone paperless--and are reaping the benefits every time a client calls? Just read one of our user stories.