Podcasts  •  July 11, 2022

Transforming from a Private to Public Company with Andrew Smith, Diligent's VP of Strategic Partnerships and Alliances

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"The Insider by DFIN" is a series of video interviews featuring the latest trends, topics and key perspectives on the global capital markets.

Join DFIN’s partner at Diligent, Andrew Smith, VP of Strategic Partnerships and Alliances, as he shares his insights on transforming from a private to public company in this special podcast edition of The Insider by DFIN.

Andrew Smith

VP of Strategic Partnerships and Alliances, Diligent

Dana Barrett - Welcome to The Insider by DFIN. I'm Dana Barrett. And joining me today is Andrew Smith. He is the VP of Strategic Partnerships and Alliances for Diligent. And you guys are partners with DFIN, correct?

Andrew Smith - Yeah, we've had a partnership with DFIN for just over two years now.

Dana Barrett - Okay. Well, I want to get into all of that and understand more about what Diligent does, but before we do all that, I have to understand who you are. So give me a little bit of your background and how you got into this field and what you do for Diligent.

Andrew Smith - Sure. I've been working in technology sales for over 20 years. I sort of fell into it like a lot of people do. It's one of those jobs where you can get into without a professional designation and make a good career. And I've been working at Diligent for just over eight years, working with DFIN as a partner for two of those years.

Dana Barrett - Okay. And so for me to sort of understand that relationship, tell me specifically, what does Diligent do? What are the products? What are the tool sets? Give me the whole spiel.

Andrew Smith - Sure. So at Diligent we provide our customers with modern governance solutions, enabling them to address risks and better serve their customers, their stakeholders, and more importantly now, their communities.

Dana Barrett - So is it a set of software tools that you're providing? Is that sort of the gist and those, that's what it's about? That's what those software tools do?

Andrew Smith - Yes.

Dana Barrett - Okay.

Andrew Smith - So it's a software platform that covers everything across the governance risk and compliance landscape from IT risk, third party risk, audit, financial compliance, and also providing the board of directors with the tools that they need to manage their board meetings, to manage their directorships effectively.

Dana Barrett - Okay. So now I'm starting to get how this picture comes together. So now share with me sort of how does that fit in with DFIN? What does that partnership look like? How does that complement the DFIN suite of products, or how do your customers sort of make use of both?

Andrew Smith - It's really a great partnership in that our customers are coming to DFIN prior to their conversations with us. So DFIN works with a lot of customers who are looking to prepare for an initial public offering,

Dana Barrett - Right.

Andrew Smith - or need to bolster their financial disclosure practices.

Dana Barrett - Mm.

Andrew Smith - And that usually happens before the customer needs to have a modern board portal, or needs to have Sarbanes-Oxley compliant software. So we work with DFIN through that process and they're providing us with leads that we turn into customers.

Dana Barrett - So we were wanting to sit down with you today in particular to talk about companies making that, or getting prepared, if you will, from going from where they are as private companies to public companies and doing their IPO or going through a SPAC or whatever it is they're doing. , when a company is preparing for this, getting ready to do this, are they focused already on governance and mitigating compliance risks? Are they even thinking about this stuff?

Andrew Smith - Generally, they're not. They're focusing on top line revenue, top line revenue growth. They're focusing on market share. They're focusing on proving to the investor community that there's a market for their products and that they can compete and they can sell the services. And often they overlook the importance of financial compliance.

Dana Barrett - So like, I'm imagining, I've done a lot of work with tech startups, and so I'm imagining these tech startups who have been go, go, go, go, go, and they've started to build, and they've grown and they've built and they've grown, but they've really only been focusing on their product, their investors, you know growth in the market, publicity, all the things you going to focus on when you're growing a company. And now all of a sudden they're in this mode of having to make all their systems, collect all the right data, have it all in the right way to be ready for this very regulated way of being a company. And I just feel like, they're not geared to think that way.

Andrew Smith - No, they're not. Because often these companies are, they're led by the founder,

Dana Barrett - Right.

Andrew Smith - Which is not what investors want. They want to have less risk rather than be taking more risk, or be taking calculated risks. So it can be a huge change in culture to go from the pre-IPO to the post-IPO, because to get a clean bill of financial health after the IPO, the list of requirements is much, much longer.

Dana Barrett - Right. Right. I think it's like we can all picture sort of the big flashy, young hip founders, kind of moving into these worlds, and a lot of times they get replaced for these exact reasons because they're the risk takers, and the investors, the public market want something different, right?

Andrew Smith - Exactly. There are enough examples in the last few years of high flying tech companies where the boards have been embarrassed and have had to change the executives.

Dana Barrett - Exactly.

Andrew Smith - Because the controls, the financial controls, the internal controls, were just not in place.

Dana Barrett - Right. So one of the things you mentioned was the Sarbanes-Oxley, the SOX compliance. Give me a little bit more on that, because you have only a limited time, right? To become SOX compliant.

Dana Barrett - You have to prove it within 12 months of your initial public offerings.

Dana Barrett - Okay.

Andrew Smith - So it's not a lot of time, and it is it can be an expensive process if you do it manually, and the requirements are continually expanding. So if you don't have a way to automate a lot of those processes, it can easily cost more than $1 million per year just to remain SOX compliant.

Dana Barrett - Right. So obviously the tool set makes a difference. How much difference does it make to use a tool set, to do it versus doing it manually?

Andrew Smith - So typically we see a customer spending $500,000 to a million on manual processes.

Dana Barrett - Okay.

Andrew Smith - And that can be reduced by almost 50%.

Dana Barrett - Oh wow.

Andrew Smith - When you begin to automate the processes.

Dana Barrett - So it seems like everybody should be doing that. Are a lot of people still doing it manually?

Andrew Smith - You find younger companies that do that, less mature companies that have IPO-ed. It's rare to find a mature, large multi-billion dollar organization that's still relying on spreadsheets to do their compliance.

Dana Barrett - Wow. I can't even imagine.

Andrew Smith - It does happen though, yeah.

Dana Barrett - So I mean, I understand that these companies know they have to do it, and they know they're going to do it eventually, but do you feel like they are just sort of like, “oOh, we'll get to it later. We're just going to put it off. We'll just do it. We'll just do it like, oh, when's the deadline, you know?”

Andrew Smith - Yeah.

Dana Barrett - We'll stay up late and get pizza and get it done.

Andrew Smith - That is quite common, and is quite common to throw as much human power as possible to go through these manual processes.

Dana Barrett - Right.

Andrew Smith - The reality is few people would do it if it were not the law.

Dana Barrett - Right. Right.

Andrew Smith - So it's either do it or you go to prison.

Dana Barrett - Well, that's a pretty good motivator.

Andrew Smith - Yeah.

Dana Barrett - No one really wants to go to prison. So when companies are getting ready to start doing this, whether it's last minute or not, what do they need to be thinking about?

Andrew Smith - So what they need to think about is, how can they trust the back office systems, the accounting, the financing, a financial platform, because what they'll be judged on after the IPO is, how quickly can you close the books? How confident are you that the financial statements are accurate? So without the systems and processes in place before the IPO, it will be a scramble.

This has been the Insider by DFIN. We'll see you next time.

Andrew Smith

VP of Strategic Partnerships and Alliances, Diligent