Getting Transaction Ready

Jul 5, 2023

Preparing for a Liquidity Event or IPO in Uncertain Times.

Watch the virtual workshop on Transaction Readiness, where you’ll have the opportunity to learn:


  • Why Transaction Readiness may be core to surviving and eventually thriving in today’s market

  • The four primary pillars of transaction readiness 

  • An example framework to help prepare your cap table and stock plan for whatever comes next

  • Strategies for implementing important leadership guidelines to meet the demands of a rapidly changing market

Transaction Readiness Workshop

Watch to learn strategies and why transaction readiness may be core to thriving in today’s market.

Getting Transaction Ready:

Preparing for a Liquidity Event or IPO in Uncertain Times


Lauren Gardient: If you're a private company that leverages equity for fundraising and or employee compensation, there's inherent complexities in scaling meaningful programs and preparing for future transactions like tender offers and a potential public offering.  This workshop will offer you a framework to have your cap table and stock plans prepared.  It also will help you implement important leadership guidelines to meet the demands of a rapidly changing market environment.  

So, who are we and why do we care about this?  I'm Lauren Gardient.  I am an Assistant Vice President in our Global Private Markets focusing on IPO readiness.  I have been in the industry, in the financial industry for the last decade, with over half of that time spent in equity compensation focusing as a subject matter expert with education and strategy.  I'm here with my two colleagues, Sam Adams and Erin Conolly.

Erin Conolly: Hi, my name is Erin Conolly and I'm an Executive Director in the Global Private Markets Group here at Morgan Stanley at Work.  I have nearly a decade of experience working with pre-IPO companies and the equity compensation space, and I've had the privilege of working with over 100 corporate clients through their private to public transactions.  I'm excited to be here today to share some of my experience with you.

Sam Adams: And I'm Sam Adams.  I lead our team within private markets that's really focused on private market transactions, including public offerings.  And I have had a ton of experience working in-house with companies leading the stock administration function through events like an IPO.  And I'm really excited to be here today with both Erin and Lauren and to be doing this work at Morgan Stanley at Work so we can reach a broader audience. 

So, our clients leverage equity for several reasons.  Most commonly, the ones that we see are to attract investors.  So, a lot of our companies are venture backed, so they're raising money to run and grow their businesses through equity.  They often also use it to recruit and retain talent in their industry.  

And a third reason is it helps people understand the value of their business.  What is each share of stock worth in that company?  It's an - equity is a very powerful tool and it really deserves thoughtfulness and oversight and rigorous management.  And so, part of why we're here today is to help other companies think through what that means.  We often encounter companies who have deployed equity either as a fundraising tool or a compensation tool but haven't really invested in the underlying infrastructure to effectively support the complexities that come along with having a community of stockholders.  

Over the last couple of years, we've really rode the wave of a strong economy and market environment.  Valuations have been at their peak and really in 2021 we saw peak activity around tender offers and IPOs and transactions that you would look at as providing shareholder liquidity.  2022 came in hot and all of that cooled down really, really fast.  And so what we learned is that even best in class businesses are not impermeable to market corrections. And in 2023, we're starting to see the effects of that in the private markets.  

There is a silver lining, though.  Oftentimes, periods of economic downturn breed a lot of innovation because people have to think about what's important, how to keep their businesses alive, and what really drives performance.  And so, during this period, we've been given the gift of time to think about how future transactions may occur and how to thoughtfully prepare for them.  So, eventually we'll shift into a period of recovery.  Nobody has a crystal ball.  We don't know when exactly that is.  But if you take away one message from this workshop, it is getting ready and staying ready helps you to pivot to anything that might come your way.  

So, while many of our companies continue to think about staying default alive in this environment and looking at the next 12 to 24 months is being especially critical.  What do internal operations look like?  Now is the time to really take stock of how your business operates from the things that get overlooked the most, HR, equity comp, payroll.  These are really enormous opportunities to scale, but they also come with a whole host of issues that are complicated for growing companies and especially companies that have a global footprint.  

So, for us, the concept of transaction readiness is something that we focus on day in and day out and think really deeply about.  And all of that means is making sure that you're making the right investments both in your infrastructure, your partner relationships, and how you operate your business so that you can do anything in the face of whatever challenges may come.

Lauren Gardient: So, this series will cover four pillars of transaction readiness, data integrity, systems and processes, global compliance, and shareholder engagement and education.  We'll discuss relatable examples and anecdotes, as well as offer actionable takeaways to start implementing your - in your equity programs.  Much of what we'll discuss doesn't require huge budget asks or headcount because our primary focus is on operational excellence and communication.  There are a few areas, though, especially as transactions like an IPO become inevitable that do require investment which, if executed well, have meaningful ROI for your business.  So, first we're going to talk about data integrity.  So, Erin, I'll hand it over to you.

Erin Conolly: Great.  So, first, let's start with defining what data integrity is.  So, if you've ever heard the phrase garbage in, garbage out, I know it's a cliché.  You can laugh at me later.  But it is really important because your baseline data is going to be what drives the outputs.  So, as you're going through different reporting metrics, maybe you're reporting to leadership or working through possible filings that will be going with the SEC, the data that you're including in there should be accurate in order to be able to show the correct modeling.  Data integrity essentially means that you're defining data management.  So, you're creating diligent practices for data collection and updates and performing consistent audits on that information. 

If you can't rely on your data, you will have persistent issues in your day to day work and unexpected and highly inconvenient surprises.  Nobody wants that, right?  It's your job to minimize data issues and your equity programs as much as possible.  But data might come from different sources that aren't managed by you and might be managed by other teams internally or other external sources.  Data integrity takes a village, and it's an ongoing practice that can require collaboration as well as candid feedback.  So, let's start with a couple of examples.  

So, employee offer letters.  That might seem straightforward.  It's the offer letter you get as you onboard new employees.  But are you capturing all of the correct data that you're offering in those letters?  So, when it comes to equity, salary, and other components, these negotiations can be dynamic.  And so, are we capturing the correct information to be able to actually issue those grants or process that payroll?  Does your HR system reflect that final execution of the offer letter?  If that offer letter had a promise of an equity award, is the actual amount of that award and the type of that equity reflected correctly?  And has it been approved by your board of directors?  After working with startups for many years, it's still pretty surprising how frequently this information isn't being captured and recorded.  So, again, even though it might seem like something that's kind of elementary, we have experience with seeing messes, especially in that startup environment.  

So, another example is the cap table.  So, your cap table is essential to transaction readiness, and it's probably obvious what information goes on the cap table.  But let's take a little bit of a deeper look.  So, for one, a name and contact details for any employee shareholders as well as individual investors and entities.  It's important to keep information about the acquisition details, cost basis.  That's all going to eventually impact taxes, which is nobody's favorite topic, I don't think. 

Every issuance in action that's happened in your cap table has likely required approval from your board of directors.  So, who is managing and recording those approvals?  There's likely a myriad of people.  Everyone from your law firm to your accounting firm, HR, possibly well intentioned founders.  They're doing their best to keep track of the stock issuances in the early days of the company.  But you need to make sure that we have - you should ensure that there's a process in place to scale as your company grows.  You might find that not only is there inconsistencies in the data that's collected, but there's a treasure trove of errors that need to be corrected, including seeking approvals, going back to the board or other internal stakeholders.

Lauren Gardient: So, if - so how do you get on the path to data integrity?

Erin Conolly: So, there's really two main steps.  So, first is centralizing the flow of data surrounding your equity programs and the people who manage them.  And step two is to audit what you have today.  So, do your board minutes align with every new issuance of employee grants?  The only way to find this is to actually comb through the sets of minutes and compare those against reports in your equity system.  Tedious, but important.  This might be easy if you're working with a small data set like a simple entity structure.  But if you have more complex history, maybe there's been more negotiations or changes in the structure of your company as a corporation, you might need some help.  

If vesting was a condition of an equity award, were the terms that were originally agreed to met?  Were there amendments or accelerations, and if so, were they approved correctly and logged in any system that may be required and reflected in your expense?  Check anything that is a nonstandard vesting schedule.  So, maybe you've assigned this to a small group of folks or maybe even just one or two.  Is that documented?  And have you - do you have a documentation of why those vesting schedules are different?  Does everyone that you think should have a certificate or a grant actually have one? 

Again, it might be shocking that - how these things get missed, but depending on how much history your company has, how quickly you've grown and had to scale, those are all things that are going to impact the level of lift that it's going to take at this point to audit that data and to make sure it's accurately reflected moving forward.  Does the history of your 409A valuations reflect correctly on your equity award activity?  This would include things like exercises and vesting.  And does your stock based compensation align with FASB standards?  

That would be, again, another topic where you may consider involving teams like accounting as well as your finance teams.  So, there may be some true ups and miscellaneous journal entries that need to be made in your - with your accounting partners.  So, again, this is another item that's going to take several teams, both internally and possibly externally, to work through.  

Step three is to define what a good data set actually looks like.  So, in a perfect world, who owns the data?  Who updates the data? Who audits it?  Do you have a four eye check on all of the information that's being put into these programs?  Legal names of shareholders and their corresponding contact details are definitely top of mind, along with, again, things like acquisition date, cost basis, all of those data points that are really going to drive reporting.  For employees and consultants receiving equity awards, you might also want to consider collecting some demographic components from them.  

So, that can include things like an employee ID or some way that you're able to assign and record keep on those folks.  Cost centers, live and work location, tax IDs are another big one.  Citizenship.  There's a number of different key points of information you might want to track.  And then outside of specifically equity compensation, there might be other information you want to keep track of to align with any diversity and inclusion initiatives you have.  So, things like gender, ethnicity, those are also data points that you can collect from those shareholders.  

So, once you have that list defined, figure out who manages that day to day and consider meeting with them regularly to understand how this data is collected and where there may be room for improvement.  Consider establishing a regular audit practice to catch errors in real time.  So, of course, if we can catch things before they become a bigger ball down the road, that's always going to be advantageous.  We're big fans of monthly audits and also regular check-in meetings.  

And so, lastly, for step four, get the help you need.  This is where one of the few times we might touch on resourcing and budgets.  So, to properly audit your cap table, you're going to most likely need some help from folks like a paralegal or an external law firm.  And of course, that's going to come with a fee.  And honestly, cleaning up this data will make their jobs easier down the line, especially in the face of a transaction such as a tender offer or an IPO.  In our experience, they will be good partners and offer clear guidance on managing any corrections that need to happen at the board level.  

You may also likely need help from your other internal teams such as HR, accounting, and even payroll.  Ask the leadership from these teams to partner with you on your efforts to clean up data and present a thoughtful plan and timeline if possible.  An estimate of the hours or number of people you need to help complete the project can help you and your team resource internally.  

Asking for people's time may not be an extra cost, like working with your law firm, but it can impact initiatives that other folks are working on.  It may be best to demonstrate that the value time from other teams can be collaborative and flexible.  And to correct shareholder records, it can be a good idea to let your finance and legal teams know you will be reaching out to external shareholders, including anyone on the board, to update their information.  You never know where sensitivities may lie, so don't walk into that blind.  If you need someone else from the company, such as the CFO or the CEO to make an initial outreach, consider giving them a concise list of what you need, why it's important, as well as a timeframe for when you're expecting it to be completed.

Lauren Gardient: So, if you had to prioritize getting started with data integrity, where might you get started with that, and or where would you put the majority of your resources?

Erin Conolly: So, I think some data points that are extremely time sensitive to collect and also fall a bit out of your control is demographic information.  So, as we just discussed, at times, this is going to require actually reaching out to people.  Do we have a way to reach out to them?  Can we be concise in what we're reaching out for and be able to easily explain why we're asking for this and why it's important, of course, while also keeping things confidential?  So, demographics is one that I would consider to be especially time consuming.  And again, you're relying on a lot of different folks to actually reply back to you to get that information.  So, you're losing a little bit of that control that you do have over things that relate more to you as a corporate issuer.

Lauren Gardient: Next, we're going to talk about system and process infrastructure.

Sam Adams: Awesome.  Thanks, Lauren.  So, the key thing to remember about systems and processes is that the goal is scalability.  You don't know what the future is going to hold.  So, let's think about where we are today and what's possible and build for what's possible.  My brain always also immediately goes to volume and transaction volume.  And what I mean by that is, if you think some day you're going to be a public company, you will be dealing with equity transactions every single day.  And so, as a private company, things are fairly sporadic.  You may have stock option exercises from time to time.  Fundraising activity only happens once in a while, and transfers and sales are happening on a somewhat limited basis.   

So, if you had to multiply what you see today, 10 x or 20 x, like what does that look like and what kind of system and process infrastructure do you need to be able to execute?  So, if you're in a company that's also offering RSUs in a private environment, typically RSU releases are not occurring frequently or at all.  And so that's another area where things are changing in the private market ecosystem.  And certainly, once you're a public company, that activity becomes very, very regular.  So, as you're maturing and thinking about your business growing, think that there's also going to be an uptick in the volume of everything that touches your equity programs.

I think it's also worth mentioning that many private companies are starting to explore regular liquidity programs, given market conditions and the fact that many of them have delayed plans to go public.  And so, in the face of changing financial needs and your workforce, how do you expect to deal with some more individual needs in a system environment that may not be set up to handle that?  

So, the one thing I always think about is going into a public company environment, it's kind of a known quantity what you're going to end up dealing with.  It's complicated, but it's mostly known that every day there is an open trading window, there will be transactions and you have to be a key person in helping to settle those transactions and move shares.  It's a totally different animal when you don't know what's on the horizon.  And so, for companies who are staying private, maybe even engaging in M&A activity, like this can be a challenge because you don't know what's coming.  Like you're not really able to see around those corners.  And volume may be high for a short period of time, but it's really impactful if you're not prepared to deal with it.  

So, how do you get ready to deal with impending volume?  I think the first thing is to consider what you have today similar to managing your data.  What systems are you using?  Are they able to scale with your business?  Do they allow you to have connectivity across other teams and in a way that's relatively easy to manage?  And how much data are these systems holding?  Think about if your company is 500 people.  What if you were 5,000 people and spread out across the world?  The environment looks a lot different.  So, time to start evaluating what you have today.

I've actually been at companies of both sizes and I can - the needs are dramatically different.  However, it can feel impossible that you're ever going to be 5,000 or 10,000 people when the market is bad and you're only 500 people.  But you shouldn't underestimate how quickly growth can happen.  So, think about what's possible.  Take stock of what you have today.  

So, if we're - let's put our public company hat on and starting to approach our work from that lens, even if that's not necessarily the outcome.  Think about large volumes of data that you need to access quickly and think very clearly about the audit tracking that is available in those systems.  The ability to implement processes that allow for transparency and visibility about what's changing and when it's changing and why.  Make sure that the reporting capabilities can meet your needs and also connecting into other systems. An equity system is just that.  It's an equity system.  It's set up to manage your cap table, and your awards, and to likely give your participants the ability to see what they have.   It doesn't necessarily hold or is the point of truth for things that would live in your HR system or live in your payroll system.  

Having connectivity across all three of those system, as an example, is really meaningful automation where you can start to create scale.  And we exist in a world where so much can be automated and it should be automated.  Operating on spreadsheets and doing things manually often leaves us in a position where errors occur and aren't really discovered until you're pretty far down the road when it's hard to correct it.  

So, if you're looking to select a new system to manage your equity or anything else, really think a lot about the integration capabilities.  Dig deep and ask for referrals from other current customers to make sure that it can meet your needs.  Also, work with your business partners.  Like this is similar to the data integrity piece.  You need to have good relationships with all of the different individual teams that will touch your equity data or need access to it.  That can be HR, payroll, legal, tax, compensation, right.  So, there's a lot of different players in the space.  And so, you want to be able to set up environments where they are comfortable operating and eventually can self-serve.

So, the aim of this pillar of transaction readiness is really creating an infrastructure and automation environment where you reduce errors and manage risk, but also build more time for yourself and your team to be able to work on solving other problems besides how to run reports. 

So, automation in and of itself is not a replacement for auditing.  It's really important to continue to have regular audit practices and make sure that you're reviewing and checking work.  As Erin said, having four eyeballs on everything.  Again, think about being a public company where you will have to report this information to the public, and it goes up on the SEC website.  You want to make sure it's right.  Automation helps you to move quicker through those audit practices.  

And in addition to focusing on systems that house and report your data, you may also want to think about the processes that underlie those systems.  So, for anyone that's been through SOX compliance before or knows what that is, essentially you're designing procedures that tell everybody how you get from step one to step ten and what the key controls are along the way.  And that gets tested as soon as you become a public company and you have to be ready to operate that way.  It's much easier to start to opt to do that now and to think about it now because - and then it will build that muscle.  So, for when you have to do it, you're ready.  

So, a few processes that come to mind while you're thinking about growing and scaling are how are you making grants today?  Is there governance around that?  Who's performing those checks and where is the data coming from?  Who's responsible for compiling any reporting that goes up to your board or comp committee?  You want to make sure that that is really well defined and scrubbed often.  What disclosures do you need to be thinking about making to people participating in your equity programs?  If you're relying on any number of exemptions for granting equity as a private company, oftentimes disclosures need to be made and they need to be made with regularity, and you have to be able to prove out that you've been doing it.  

There’re also some things like attrition.  Like people come and people go.  And so, what are the steps that you need to follow when someone's off boarding to make sure that their equity is handled appropriately?  And then thinking about the activities that happen over each period, a month or a quarter, and reconciling all of that activity so that you keep your data in good order.  A lot can happen in a short period of time, and you want to make sure that you're capturing it accurately and you have a process to follow so that if someone needs to step into your role and understand what you do, they can very clearly see how you capture that information, audit it, and report it.

So, this is a lot.  And for a company who hasn't thought about doing any of this yet, I'm sure it's a bit overwhelming.  I've certainly been in that position.  Take each of these things one step at a time.  Evaluate your system, look at your current processes, start documenting what you have and thinking about how to improve upon it and put some maturity behind it so that you can behave in an environment that is largely full of known quantities and not constantly feeling like you don't know what's coming or you don't know what data you're looking at or it's not reliable.  And if you have an IPO potentially on the horizon, which I know for many companies is a big maybe at the moment, every business can benefit from having really strong process and system infrastructure with minimal investment.  

The last topic that I'd like to cover around system and processes is around a support framework.  So, one thing that equity is full of is questions and they come from lots of different directions.  You will be getting questions from your leadership team, your board, your external investors, and certainly from your employees.  How do you manage the inbound questions that are coming in?  How do you set up systems that - where people can self-serve?  And like how do you actually keep track of what people are asking so that you can have better programming in the future?  

One thing is a ticketing system.  It sounds simple.  It's probably not a huge lift to set up.  Often companies leverage whatever their IT teams are using is a good place to start and put some ability to track and report what's inbound and what your SLAs are. So, your service level agreements. So that there's transparency around when people can expect to hear from you.  And any time that you can create information that is a self-service model, you should certainly do it, right.  It's something as simple as a page on your company's intranet with a handful of FAQs that describe the different equity types that people have, how grants get made, even some pretty fundamental taxation information so that people can start to navigate what it means to be an equity holder without having to ping you questions every five minutes.   

But when it does come down to it, you want to make sure that you have a system in place to be able to track their questions, make sure everybody gets responses, and again, understand what people are looking to know so that you can set up your education programming, which we'll discuss a little bit later.

Lauren Gardient: So, Sam, do you have any experience with automated systems that may be the easiest to put in place or easiest to execute if somebody is not sure where to get started?

Sam Adams: Absolutely.  So, systems that have APIs tend to be fairly easy to integrate with.  The thing to be cautious about is B2B integration tools can be hard to navigate.  And so, you'll want to make sure that you work with a provider like Morgan Stanley at Work who understands the different systems that often connect into your equity platforms.  So, if it's HR or you're using a smaller system that many start-ups use it, or using like a huge solution that we see often in big businesses.  Your provider should be able to give you some good direction on which systems are easy to integrate with and which aren't.   

Payroll systems are inherently complicated and hard to integrate with, and so it's a really good idea to start to work with your payroll team now and get into your payroll providers queue to start to talk about integrations and what that project plan is.  It can take six months to a year, and that's real.  So, don't wait to start investigating it.  But I would say the HR demographic data is probably the most important integration to lean into first, and then payroll would be something that you would look to do after you have the proper demographic data.

Lauren Gardient: And we talked a lot about different business partners that you need to have a good relationship with.  So, HR, payroll, legal, finance, tax, lots of different folks.  If you don't already have a seat at that table or maybe you're not having regular conversations with those groups, how might you start on that path?

Sam Adams: I think it is up to us as individuals to build connection with people that impact our day to day work.  And so honestly, what that means is figuring out who the right people are that can have some influence on decision making and then who their teams are that actually operate through those decisions.  And introducing yourself, scheduling time on people's calendars, not being afraid to have very open, candid discussions about where you are now and where you want to be.  I have found in my career that people honestly really appreciate that and don't get enough of it.  And it helps you to have transparency because they are also dealing with things that will likely affect your equity program.  

And building that rapport means that they're going to give you information and feedback in real time versus not having you as part of the working group.  And so, it's up to you to make those inroads and get to know people and ask for help.  Go get a coffee with them.  If you work in the same office, maybe grab lunch with them.  Make a personal connection with people so that you become an important part of their daily operations.

Lauren Gardient: All right.  So, next, let's talk about global compliance requirements.  Lots of fun topics there.

Erin Conolly: So, let's start off by talking about US based companies.  So, if you were issuing equity awards under a stock plan as a private company and leveraging an exemption from registration, you may need to disclose to the individuals receiving grants once you hit a certain volume of award issuance.  Rule 701 is a well-known and frequently used exemption, but as soon as you hit a certain threshold, you must disclose financials and risk factors to award recipients.  And in the case of granting RSUs, the disclosure needs to be made before the grant agreement is delivered to the individual.  So, very specific steps.   

The disclosure needs to be refreshed every six months.  And if you find that you're out of compliance, consider working with your legal team to remediate the current population of award holders and set up a go forward plan to manage compliance requirements with each new grant cycle.  

So, beyond the US managing data and finding scalable solutions for your shareholders and employee population is difficult in one location.  But most of our clients actually operate globally, which touch back on Sam's discussion around scalability and processes and automation.  So, some companies have critical mass in multiple countries and offer broad based equity programs, and others may only have one or two people working in different locations outside of the US.  In many instances, even a handful of shareholders or employees in a location can trigger a spider web of compliance requirements, including regulatory filings and tax implications.  Part of your data integrity exercise might include identifying current and historical locations for your employees.

Additionally, you may want to do some internal research about possible new jurisdictions where stock may be offered and where employees might be hired or transferred in the future.  Once you have a solid list of relevant jurisdictions which should include states, provinces, as well as countries, you may want to engage with subject matter experts both in securities and law requirements for offering stock and tax compliance requirements for each jurisdiction.  A sophisticated equity platform like Shareworks will have a global compliance service offering and the ability to set up automated location based tax rules.  You may also want to engage with a law firm that focuses on global compliance requirements and can offer you assistance with making any of the required regulatory filings.   

Finally, it can be important to have a corporate tax advisor to make sure you're up to date on the latest guidance from each taxing authority.  The heyday of companies expanding globally without following local compliance requirements are gone, and many jurisdictions have gotten smarter about enforcing regulatory and compliance tax payments.  If you're out of compliance, fix it now and define a plan to stay in compliance in the future.  Your vendors might be able to help you with this.  This is definitely an area that can have budgetary requirements.  So, consider gathering all relevant pricing information to present to your leadership.  It can be far more cost effective to set up compliant practices early than deal with audits and penalties later on.

Transaction readiness requires having a clean record with every jurisdiction you operate in, and we've seen public offerings held up due to what you think might be a minor compliance issue.  Another piece to consider operating with a global footprint is that employees don't always stay in one place.  In a post-COVID world, working remote, moving between different locations is fairly normal.  If those individuals have equity awards, some jurisdictions require you to tax them based on where they are when they're vesting or where they are when they receive the award.  And when you have a transaction like an option exercise, those calculations are going to be critical.  

Put your system hat back on for a second.  Can your equity system account for that?  Can your payroll system account for that?  If they can't, what do you need to do to get that set up now?  This is a process we refer to as employee mobility and to say it's complicated really doesn't do it justice.  The good news is sophisticated equity platforms usually have a configuration tool to manage most of the tracking and tax calculations required for mobile employees.  Don't be surprised if you end up with a few corner cases where a system might not be able to handle those tax implications perfectly.  

The longer tail often is getting the right information into the payroll reports and reflected in different countries and payroll systems.  Getting this right can take many months and should be tested thoroughly before you're in a post IPO world where transactions are happening every single day.  After you evaluate your current mobile population and system capabilities, you may consider working with leadership team and business partners to establish a mobility policy.  This might contain things like applicable business cases for relocation and transfers, an approval framework to ensure those decisions are transparent and the ancillary support offered to individuals entering a new jurisdiction like tax filing assistance and relocation costs.   

It might also outline the steps required if a relocation or transfer or even a frequent business traveler is going to a new jurisdiction.  So, somewhere that you don't currently have operations.  It's likely local securities filings may need to be made and payroll set up, which can take a few months or several months.  It's also possible that new jurisdictions may require local entity to be established with local representation.  These are considerations that may need to be baked into your mobility policy.  And the aim of this pillar is to have governance around your people and the types of operations being conducted in all locations, as well as a defendable framework for how you approach mobility transactions and taxation.  

We will cover engagement and education a bit later with Sam, but it's worth stating now that most employees will not understand the impact of being mobile and being a mobile employee.  Getting taxed on your equity in more than one location can be very costly, sometimes with little ability to recover the initial outlay of taxes from the individual taxing authority.  Ask a few people who have been transferred to different parts of the world and you're bound to find at least one person who paid 80% in tax on an equity related transaction.  Servicing your customers in this context can mean disclosing this type of information in easy consumable ways so that they can make decisions that are appropriate for themselves and their expectations.  

So, now let's pivot over to talking a bit about insider trading.  So, for companies thinking about an IPO, compliance requirements can also come in the form of managing insiders.  Most public companies will need a policy that defines when people can trade, so when they can buy or sell in the market, their company shares, make donations, gifts, transfers and other activity around transactions.  Consider being thoughtful of when you have high stock plan activity such as an RSU release or an ESPP purchase and try to time those things in an open trading window.  

You may want to develop broad based training for your employees, videos are great, and communicate to anyone who may have recently left the company or is acting in a consulting capacity, whether or not they are subject to this policy.  Training around insider trading is an ongoing compliance requirement for public companies.  So, you may want to think long-term and reusable.  These policies may not change often, so be sure to think about the impacts before you roll them out.

Lauren Gardient: So, Erin, you talked a lot about employee mobility.  If you have a company that maybe has a smaller population where they don't have a lot of resources or budget to put into a software right now, are there other ways to manage that mobility?

Erin Conolly: So, even for small populations of mobile employees, you'll want to consider tracking the history of where those folks are moving, as well as possibly working with a third party provider to make sure you're staying compliant with those local jurisdictions.

Lauren Gardient: And you talked a lot about insider trading policies.  Can you maybe elaborate on some additional considerations when somebody is putting together those policies?

Erin Conolly: Sure.  A topic Sam and I have both discussed today is scalability.  So, as you're thinking of, who are the people that would fall into my insider trading policy?  Who are folks that might need their transactions pre-cleared, and then also who are my Section 16 or reporting insiders, specifically when we're talking about those folks who often have insider information, consider that transactions are happening in the live market.  So, if folks need to pre-clear or complete any other additional information in order to transact on their shares, do you have a team or a process to support that?  That allows these folks to still be able to transact in a way that works for them and in the proper fashion while also applying to your insider trader policies.

Lauren Gardient: All right.  Let's talk next about shareholder and employee engagement.

Sam Adams: This is a topic that's near and dear to my heart.  When I first started in this business, I was honestly someone's assistant.  And the company I went to work for gave me stock options and I had no idea what that meant.  Later on in that role, I ended up managing the equity program and I still didn't know very much.  I had learned some on the job, but not enough.  And so, it has been one of my personal and professional missions to make sure that companies really take it seriously how they engage with their shareholders and their employees, and how do they make sure that people are able to capture opportunities that come along with having equity in meaningful ways?  

So, you have a few different groups that you need to be able to work with.  The first one is your investor community.  And so, anybody who has put money into the business at any stage, like there's a big range of people who invested early on with maybe $10,000 or $50,000 and then people who are writing much bigger checks of millions and millions of dollars later on, they have different needs and you need to be able to talk to them.  The good news is they are really sophisticated.  Your - they're used to making these kinds of investments and they understand what it means to have equity in your business.  And so, more than likely it's administrative things that you need to engage with them on.  

The two biggest things are qualified small business stock, is one of the frequent asks, and then audit requests, especially for venture backed companies.  Your venture investors will have audits just like you will have audits and their auditors will come directly to you to request information.  So, make sure that you have a process around that and that you understand what those requests mean.  A good way to deal with the QSBS request is to just set up a data room or a shared file drive so that you can permission access to people as needed and they can self-serve.  

For the audit requests, those are often sporadic and they come in via email.  If you have a ticketing system, that's great.  You should be able to direct everybody internal and external through that ticketing system.  If you don't have one set up yet, one just really simple trick is to have an auto reply on your email inbox that gives people information that they need to know.  And in this case it would be, we will respond to you within two business days or whatever the right time frame is.  And so, if there's a request that you get from this community that are - that you don't understand, be comfortable asking your leaders how to navigate those requests and make sure that you respond timely, because that's very, very important when you're dealing with the investor community.  

The next group of people is likely your board, and I kind of group board and executive officers into the same bucket.  They, again, are typically more sophisticated than your average employee on what it means to be an equity holder.  That said, there are certainly lots of first timers who it's the first time sitting on a board.  It's their first time being in an executive at a company and they may care less about how you navigate data integrity and systems and process in the early stages of your company.  What they do want to know is that you have a really good - you have really good management practices over everything that you're doing and that you have a way to report up to them what's happening in your equity programs.  

And so for many private companies, this often looks like how to report share burn.  How many grants have we made?  How many people have exercised?  What is our cap table look like today compared to what it looked like last quarter?  So, have like building some reusable tools to do that reporting and have regular communication and also not being afraid to ask about what they care about.  What are the things that are hot topics for them and make sure that you're engaging regularly?  

Lastly, we have our broad based employee group.  So, this is everybody from the person who works at the front desk to your software engineers, to people who run your marketing team are getting equity awards and they do not spend every single day thinking about equity awards the way we do.  And so, they may need a lot of help.  I think a great place to start is just doing fundamentals training, like what is this equity award?  What does an RSU mean?  How is it taxed?  When does my vesting occur?  This can easily be set up with a set of FAQs that you post on your company intranet.  It allows people to self-serve and kind of do things on their own time.   

I highly suggest doing some in-person or webinar engagement with them and you can leverage - certainly leverage your equity provider.  We at Morgan Stanley at Work often tag team with the companies leading this function at our clients so that they can both hear from the equity team or whoever is managing that function and have a different support network through the provider to be able to go deeper and understand maybe how equity relates to their individual needs.  

Some easier - some great wins too, if you can get it done, like doing your own version of microlearning videos.  So, many of our corporate clients leverage microlearning videos for all kinds of things, like equity should definitely be on the roadmap.  People learn a lot in two minute increments and so you can take a lot of work off your plate, especially in an environment that is dynamic.  Like let's say you're on the path to IPO, your equity programs are naturally changing.  Maybe you've done some good education with your participants leading up to that event, but what happens on the other side of it?  Like you're dealing with day to day transactions, more people are being hired on a very regular basis, more grants are getting made.  And you just want people to be able to have a reusable asset library to learn and understand the power of having equity as a compensation tool.  

And lastly, lean into your relationship with your provider.  Like really think about as you're thinking about systems and process, also think about the needs of your individual participants.  And none of us can quantify exactly what that is.  But if you're engaged with a provider like Morgan Stanley at Work, like - that has an enormous resource of financial advisors and financial wellness tools, it's really, really helpful to be able to offload that experience to your provider so that people can get the help they need when they want it.  And, you know, I was a stock administrator for years, definitely not an expert in taxes or financial advice.  And so, having a trusted partner to be able to play that role is really key, especially when you're thinking about going through a transaction.   

And it could be a small transaction like a tender offer, it could be a large transaction like an IPO.  The point is, it's a wealth building opportunity for the people who've helped to build your company and they should be able to have the resources to navigate that appropriately.  It also - building wealth comes with a lot of responsibility, primarily in the form of taxes, and it's something that you don't want people to be surprised about.  So, do what you can internally.  Again, it's a lot.  So, start small, build some FAQs, do a couple of webinars, and over time, make sure you're building an education and engagement infrastructure that makes sense for your population.  And that really speaks to people being able to navigate their own personal needs and responsibilities outside of having to come to this stock admin team and ask a lot of questions.

Lauren Gardient: We talked about populations like board members and executives.  What are some unique factors that they may have around education and knowledge that would be different than a rank and file employee, for example?

Sam Adams: All right.  So, often board members have probably been through this process before, especially if they're sitting on your board because they're one of your large VC investors.  And their needs are going to be a little bit different when you're going through something like a public offering.  Primarily is, they're sitting on the board, so they're restricted from trading without a 10b5-1 trading plan or pre-clearance process that's very rigorous.  Also, all of their trading activity once you're public, is reportable.  And so, you need to make sure that you have a way to navigate that that's simple for them and meets the needs that they have.  

They may also have liquidity needs as a private company, where they have maybe made a long term investment.  And as the company is thinking about liquidity programs for early shareholders and employees, there are people that are on your executive team and your board that might want to participate.  And so, what does that look like for them and how do you think about meeting their needs while also having a program that broadly allows everybody to hit the release valve a little bit and get some liquidity along the path to potentially going public?

Lauren Gardient: So, can you share some common questions that participants tend to have that you as a plan administrator might be able to help mitigate more questions coming into your team?  So, what are some of those?  How would that look?

Sam Adams: They're probably more basic than you go into this role thinking about.  But it's like, where do I see my grant?  How do I exercise my stock options?  How does my award vest?  So, I talked a lot about building FAQs.  Like basic FAQs should address those very basic needs.  Most people are just - want to like to understand what is - what actions are required on their part so that they don't miss anything and then they kind of go back to not paying as close of attention until there's something on the horizon that's meaningful, like a tender offer IPO.  So, fundamentals, I think is the number one.  And it's even more basic than like how do taxes work?  It's like, how do I set up my account?  

So, having really clear guidance on step by step process, like a quick how to video is super helpful and another area where you can lean into your provider and ask for their support because they often have these resources already built and enabled on the platform.  And so, you can link to them, you can include them in auto replies so that as people like send in questions, they're given a bunch of information that might help them self-serve and navigate.

Lauren Gardient: Awesome.  Great.  Thank you, Sam.  So, we talked a lot about different - our different pillars and what's most important.  All of the pillars are important.  But there are some things that maybe we can get started today.  And so, Erin, one question for you is, if we were going for a walk, if I wasn't sitting here with you today and you had to tell me the most important things, what might stick with you and where would you kind of focus my energy?

Erin Conolly: So, first I would tell you, this is not a solo adventure.  It truly takes a village.  And like we've discussed through the different pillars today, it's going to take several internal stakeholders.  So, really communicating with them about the four pillars and what we learned today, as well as how to plan for what's coming in the future.  We talked about a lot of actionable steps that you can start doing today that's going to help this journey be easier for you as you get closer to a possible tender offer or IPO or other type of transaction.  

So, I would say communicating with your internal stakeholders, reaching out to your partners and other resources that you have, to assist you with these plans and then planning for the future.  So, really looking at what does the next six months, 12 months, up to 24 months look like for us as a company and what can we be doing now to prepare us for that event?

Sam Adams: I would also add to that that there are critical items that maybe aren't as important today because we don't live in an environment where we're public - a public reporting company, or we're having transactions constantly.  And so, you think about like what could go wrong if you have volume that you're not expecting happen tomorrow.  Like where are the areas where you know that there are gaps and try to focus on the most critical ones that are often payroll reporting, tax reporting, legal compliance, and then of course, having a really good participant experience, employee experience.

Lauren Gardient: Awesome.  We may have already covered it, but Sam, if we leave this conversation and I need to take an action, what am I doing first?  Where am I going?  What are some things that you can give me to start on my journey?

Sam Adams: I think the very first thing you should do is tackle the data integrity piece.  There are a lot of steps within that one single pillar of transaction readiness that take a long time to get through.  And I would - the next time I have a one on one with my immediate manager or a team meeting, I would describe what data integrity means to you and the different pieces of data that you're looking to have clean all of the time and ask for feedback and ask who in the company can help you start down building a project plan to be successful in that area.  

Lauren Gardient: Awesome.  Well, thank you for sharing this information with us.  I think it was highly valuable.  So, I appreciate it.

Sam Adams: Thanks, Lauren. 

Erin Conolly: Thanks.



Individuals executing a 10b5-1 trading plan should keep the following important considerations in mind:

110b5-1 trading plans should be reviewed and approved by the legal and compliance department of the individual’s company.

2Most companies will permit 10b5-1 trading plans to be entered into only during open window periods.

3Recent rule changes will require a mandatory cooling-off period between the execution of a 10b5-1 trading plan (or a modification) and the first sale pursuant to the plan (or the first sale following such modification).

410b5-1 trading plans do not alter the nature of restricted and/or control stock or regulatory requirements that may otherwise be applicable (e.g., Section 16, Section 13).

510b5-1 trading plans that are terminated early may weaken or cause the individual to lose the benefit of the affirmative defense.

610b5-1 trading plans may require a cessation of trading activities at times when lockups may be required at the company (e.g., secondary offerings).

7Recent rule changes will require companies to publicly disclose material terms of Section 16 director and officer 10b5-1 trading plans, and the early termination of such plans.

Morgan Stanley Smith Barney LLC, its affiliates and Morgan Stanley Financial Advisors or

Private Wealth Advisors do not provide tax or legal advice.


Morgan Stanley at Work and Shareworks services are provided by Morgan Stanley Smith Barney LLC, member SIPC, and its affiliates, all wholly owned subsidiaries of Morgan Stanley.

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