An independent reading for the board.

• An audit committee wants an outside reading of a filing before it goes out.

• A question has been raised about a reported figure, by the auditors, a whistleblower, a short seller, or a regulator.

• A special committee is weighing a transaction in which management or a controlling shareholder has an interest.

• A shareholder campaign is underway or expected, and the board wants to know what the record will show.

• The board is reviewing its own composition, its committees, or the oversight it can demonstrate.

• Pre-filing review.

  A reading of the annual or quarterly report, the earnings release, and the proxy statement against the accounting standards and disclosure rules, with the questions an outside reader would ask.

• Support during an internal review.

  Working with the committee and its counsel to rebuild the figures in question from the underlying records.

• Analysis for special committees.

  An examination of the counterparty’s record and the transaction’s terms, independent of management and the company’s other advisers.

• Activist readiness.

  The company reviewed as an activist would review it, with the board seeing the findings first and a plan for addressing them.

• Governance review.

  Board composition, committee structure, and the record of oversight the board can show its shareholders.

• Background review from the public record.

  Of director candidates and counterparties, as part of a governance or transaction engagement.

• Interim leadership in a crisis.

  Where a company is in genuine crisis and its shareholders need to see at once that someone independent has taken charge, the board can appoint a member of the firm as an interim director or as interim chief executive, chief financial officer, or chief restructuring officer, once the conflict check is clear.  The appointment places the firm’s name, built on independent scrutiny of public companies on shareholders’ behalf, behind the board’s account of where the company stands and what it will do.  The appointee’s duties run to the company and all of its shareholders, and for as long as the role is held and for twelve months after it ends, no fund or account the firm manages trades in the company’s securities and the firm does not publish on it.

1. 01

   Step 1: A confidential call.

   You describe the matter; the firm says whether it can help.

2. 02

   Step 2: A conflict check.

   Before it hears anything confidential, the firm confirms that no fund or account it manages holds a position in the company, that it has published no research on it, and that it is not engaged with it as an investor.

3. 03

   Step 3: An engagement letter.

   Scope, fees (fixed or hourly, never contingent on a transaction closing), and confidentiality terms are set in writing.

4. 04

   Step 4: The examination.

   The firm works from the company’s record and the documents the engagement gives it access to.

5. 05

   Step 5: Findings.

   A written account of what the record shows, the questions an outside reader would ask, and what would answer them.

6. 06

   Step 6: Putting it right.

   Where the engagement covers it, the firm works with the client to carry the findings through.

The firm reports to the committee that retains it, not to management.  Where the committee’s counsel retains the firm, the work can be directed by counsel; whether privilege or work-product protection applies is a question for counsel.  In a shareholder campaign, the firm acts for a board only where its own reading of the record supports the board’s position.

Hypothetical.  These describe the kinds of matters the firm takes on, not any actual client or engagement.

1. A goodwill question before the annual report.

   A building products company’s audit committee is two weeks from filing.  Its largest segment has missed plan for three years, but it has recorded no impairment.  The firm tests the impairment analysis against ASC 350, compares the assumptions with what the company has told investors about the segment, and gives the committee the questions an outside reader would ask, together with what the record does and does not support.

2. A conflicted buyout.

   A special committee is considering an offer from the company’s founder and largest shareholder.  The firm examines the projections management prepared for the transaction against the company’s past forecasting record and its filings, so the committee can see where the projections depart from what the company has reported.

3. Before an activist arrives.

   A software company’s stock has lagged its peers for two years.  The board asks the firm to examine the company as an activist would.  The review finds a capital allocation record the board can explain well and a segment disclosure that obscures it.  The board changes the disclosure before its next annual report.