Nearly 90 percent of U.S. companies that have gone public since the Jumpstart Our Business Startups (JOBS) Act was passed have taken advantage of the Act’s reduced disclosure provisions. These “training wheels” for new public companies have resulted in a palpable impact on board-level decisions and corporate governance, especially in regard to how boards tell the company’s story to investors, enhance financial reporting and controls, and fine-tune compensation practices and disclosures. These elements are critical in the transition from a private company to a public company and can take years to perfect (if ever).
To explore how these JOBS Act provisions have helped companies as they go public, the KPMG Private Markets Group recently interviewed three directors of Trupanion: Chair Murray Low, Audit Committee Chair Chad Cohen, and Compensation Committee Chair Robin Ferracone. Founded in 2000, Trupanion provides medical insurance for pets and went public in 2014. According to these directors, listing as an emerging growth company under the JOBS Act has allowed Trupanion to grow into its position as a public reporting company.
Telling the company’s story
“Now that we’re public, we’re learning how to tell our story and the JOBS Act has helped us to achieve that in a cost-effective manner,” Low said. “The discipline that comes with being a public company enables us to attract high-quality investors, create a shared vision, and pursue growth.
“The questions we’re receiving from investors are more about the fundamentals of the business than governance. They understand our compensation program and our governance framework.
“Each JOBS Act company is required to disclose its emerging growth company status in its prospectus, but some of the more time-consuming and costly disclosures can be avoided.” Low believes, however, that it might be advantageous to indicate which JOBS Act provisions the company is complying with as opposed to expecting investors to read the tea leaves.
“Before I joined the board, I wanted to ensure that Trupanion was serious in building out its Sarbanes– Oxley compliance program over time,” Cohen said. “The JOBS Act offers some flexibility, but there’s no free pass. “The board is focused on ensuring that we have the right financial and disclosure controls in place by year five.
“On the implementation of financial accounting standards, we chose to forego the JOBS Act’s allowance to adopt new standards on a private company schedule because we wanted to keep our reporting on par with our peers in the market. As a director of a public company, you have to put yourself in the shareholder’s shoes and place the company’s financial integrity up front in order to ensure comparability.”
Cohen went on to explain that there’s no gray area around financial controls. “You either have a robust financial control environment where you internally benchmark yourself against other companies, and where investors demand that robustness, or you don’t.”
“Since going public, compensation committee discussions have focused on what we want the compensation program to do, how we’re going to administer it on a scalable basis, and how we ensure that we stay within dilution guidelines,” Ferracone said.
“One of our next steps is to get a sense from investors about what disclosures or governance structures matter to them,” she said. “We’re going to go out and have those conversations and the JOBS Act gives us the runway to have those conversations as opposed to guessing before going public with our disclosures or doing everything all at once. And that flexibility is what's most valuable.