How to Find Out Anything
8 Company and Business Research
Factual data about companies, and the industries in which they operate, has never been easier to come by, thanks to the generosity of government agencies, commercial publishers, and the companies themselves. It is a golden age for anyone who needs to track down data on companies.
When we talk about company research, we’re talking about a wide variety of disparate information. Company research is a generic phrase that encompasses locating financial information about a business, finding biographical information on the honchos who either run or are advisers to the operation, digging up stock market information, compiling news, and gathering together all the other discrete pieces of information that provide a vivid picture of how a company operates.
Entire books could be written on corporate research, so in the interest of brevity, we will cut a few corners here. But even if we won’t cover the entire waterfront, by bookmarking a handful of sites and mastering a few corporate research techniques, you’ll be ready to scale the corporate ladder of information with something more reliable than just a smile and a shoeshine.
Even if you’re not a reporter for the Wall Street Journal, knowing how to dig up company information is often valuable for nonbusiness research projects. You may harbor no particular interest in the details of the software business, but knowing the salaries of the executives of the major companies is exceedingly useful if you are a real estate agent with a house to sell in Silicon Valley. If you want to convince a large oil company to stop drilling in the middle of dolphin breeding grounds, it would be helpful to have a source for the company’s legal name, state of incorporation, mailing address, and the correct spelling of the CEO’s name. And what if you were writing your long dreamed-of book about classic kids toys? Wouldn’t it be a big help to be able to locate the spokespeople from Poof-Slinky Inc. (makers of the Slinky) or Wham-O (the Frisbee) or Atari Incorporated (Pong)? Answers to many nonbusiness questions can be found in the documents, reports, and legal filings that businesses of all sizes must produce.
The first step in all company research is to determine the type of company you are looking at.
The first step in all company research is to determine the type of company you are looking at. Companies fall into four broad categories: publicly held (Microsoft Corporation, Walmart), privately held (Vinny’s Pizza, Cargill), nonprofit (American Cancer Society, United Way), and non-U.S. companies (Nokia, Toyota Motors, China Mobile). Each category offers its own resources and limitations, and the quantity and quality of information available for each one ranges from overwhelming to paltry. On the generous side of the spectrum is information about publicly held U.S. companies. It’s easy to obtain and so plentiful that the hard part is making sense of it all (but we shall). On the other end of the research continuum, where the information resources turn rarefied, pinning down even the merest shreds of data about certain privately held foreign companies is close to impossible. Because the sources and techniques of corporate research depend very much on which type of company you’re researching, be clear about what you need to find out from the beginning. Remember, the first rule of research is to know what it is you’re looking for.
Congress reacted to the stock market crash of 1929 by passing the Securities Act of 1933 to regulate the issuance and sale of securities. Then a year later, Congress created the Securities and Exchange Commission (SEC) with the passage of the Securities Exchange Act of 1934, giving it the enforcement muscle to regulate the market in securities and power to enforce the Securities Act. Ever since the 1930s, the SEC has been the overseer of Wall Street, charged with keeping the stocks-and-bonds racket on the level.
Just how does the SEC keep the moneyed mobs in line? The main way it enforces fairness in the marketplace is by guaranteeing equal access to information, through a very elaborate disclosure system. This system requires companies that sell stocks or bonds to the public to file intricately detailed information about themselves and the securities they peddle to investors. The theory makes sense: By making information about a company, good or bad, as accessible to Mary Main Street as to the sharks of Wall Street, the SEC keeps U.S. markets transparent.
This policy of disclosure is as simple as it sounds. Companies that raise money by selling stocks or bonds to the public need to follow the SEC rules and regulations dictating what companies must tell the world about themselves. In practice, as you might imagine, the process is not so simple. The rules and regulations governing the disclosure system that the SEC promulgates are extremely complex. Many a Harvard Law School graduate has paid off his house in the Hamptons by advising corporations on the intricacies of the disclosure rules and then drafting the documents that are ultimately made available to the public to satisfy the disclosure requirements.
Three hard copies of these filings were once sent to the SEC’s headquarters in Washington, DC, where the public could look at them in the Public Reference Room. This disclosure system has since evolved into EDGAR (Electronic Data Gathering and Retrieval), which went online in 1995, to both collect filings from companies and to then make those documents available to the public. And here is where the bounty of free information can be harvested: With only a few exceptions, all the information that companies must provide to the SEC is available now, for free, directly from the SEC. Once you open the EDGAR database, you’ll have at your disposal a collection of tens of millions of documents filed by the approximately 20,000 publicly held companies, American and foreign, that are subject to the disclosure laws.
And just what will you find in these documents? Loads. The alert researcher can unearth an immense array of interesting data about a company from these filings, including:
· The names and salaries of the five highest-paid executives
· How much the company pays (or doesn’t pay) in income taxes
· Where the company has factories or offices
· Subsidiaries and percentage of ownership of those subsidiaries
· Financial data—revenues, liabilities, earnings currently and in the past
· Legal documents—the company’s articles of incorporation, by-laws, indentures, and employment contracts with key executives
· Industry risks
· Basic directory-style information—names, addresses, and phone numbers of the senior management
· Pending or current lawsuits
Even if your research doesn’t require looking at business information per se, familiarizing yourself with EDGAR and learning how to comb through its documents are critically important. A fortune of factual information about companies and the people who run them lies within this stodgy website of seemingly arcane and dry-as-dust documents. Let’s lay some groundwork and then take a tour of documents that can yield a stunning amount of information to anyone willing to brave the legalese to help themselves to the facts that the SEC is just giving away.
Familiarizing yourself with EDGAR and learning how to comb through its documents are critically important.
For all of EDGAR’s complexity and the sheer size of the database, searching it is actually straightforward. With a little practice you’ll be filling up your hard drive with all the annual reports and proxy statements it can hold.
Access EDGAR from the home page of the SEC by clicking on “Search for Company Filings.” Select “Company or fund name, ticker symbol, CIK (Central Index Key), file number, state, country, or SIC (Standard Industrial Classification).” From there, the searching is fairly intuitive.
What intimidates newcomers is the breathtaking volume of form types, most of which make zero intuitive sense whatsoever. But don’t fret. To keep things simple, we’ll ignore the really specialized filings and focus on the most helpful (10-K, 10-Q, 8-K, and proxy) as well as filings for stock and bond issuances. The first thing to understand is that the filings are organized by company name; the SEC calls companies “issuers” because they issue securities.
COMMERCIAL EDGAR SERVICES
If you, or the company you work for, need to look at EDGAR documents regularly, I recommend getting a subscription to a commercial EDGAR service. These services do a better job of delivering the goods than the SEC does. The companies that repackage EDGAR filings for easier search and retrieval are KnowledgeMosaic, Intelligize, and Accelus (formerly Westlaw Business). Contact them for pricing and details about their services.
Search by company name or ticker symbol, and be sure to exclude Ownership Forms 3, 4, and 5. These are forms that the company’s officers, directors, and other affiliated parties must file with the SEC every time they buy or sell shares of the company stock. When Bill Gates sells 1,000 shares of Microsoft, for example, he has to tell the SEC about it. The numbers of these forms are legion and are of interest mostly to serious investors who want to be the first to know what the inside money is doing and then divine their intention by reading the tea leaves of insider filings. With these pesky filings eliminated from your search, the results will be a nifty table, sorted in reverse chronological order with the most recent filing on top.
Before we look at specific types of documents, it’s helpful to understand a few things about the filings themselves. Most filings are divided into two parts, base documents and exhibits. Base documents contain whatever information the law requires. In most instances, when a company is required to make certain types of documents—such as contracts, press releases, and transcripts of analyst calls—available, this additional material is appended as an exhibit. To make for easy reference, each base document contains an exhibit index to indicate what precisely is being filed as an attachment. Companies that have been around for a while, dutifully filing their documents, can incorporate by reference, meaning that rather than provide a required exhibit, they can instead merely refer to a previously filed document so they don’t have to file the same items more than once. Typically, an older established company like General Electric doesn’t have to file its by-laws every time it delivers its annual report on Form 10-K. It can, instead, simply say, “3(ii) The By-Laws, as amended, of General Electric Company (Incorporated by reference to Exhibit 3(ii) of General Electric’s Current Report on Form 8-K dated February 14, 2011 (Commission file number 001-00035)).” The prose is not in contention for a Pulitzer Prize, but it gets the job done.
EDGAR filings are broadly grouped into two distinct categories: documents that must be filed according to a set schedule and those that need to be filed when something out of the ordinary happens, such as when a company issues stock or is the subject of a takeover attempt. Generally speaking, the regularly scheduled periodic reports are called ’34 Act filings, after the Securities Exchange Act of 1934, which mandates them. When a company chooses to sell a security such as a stock or bond to the public, the requisite filings are known as ’33 Act filings, after the Securities Act of 1933, which prescribes those. Think of the ’34 Act filings as the routine, dependable annual and quarterly reports and the ’33 Act filings as the documents filed when the company does something interesting.
Another category of documents, known as Williams Act filings, are chiefly of interest to investors and are concerned with mergers, going private transactions, takeover attempts, and proxy fights for control of a company. For the general researcher, the greatest value is found in the fact-packed ’34 Act filings. The diligent business researcher who needs to dive deeply into the financial arcana of public companies shouldn’t just stop with the major filings discussed here but should become acquainted with the entire bestiary of SEC forms. That’s a monumental task given the vast array of forms that public companies large and small must file. Refer to the SEC’s site for details on the more exotic filings.
Think of the ’34 Act filings as the routine, dependable annual and quarterly reports and the ’33 Act filings as the documents filed when the company does something interesting.
To open the door to the millions of documents filed on the SEC’s EDGAR server, select “Search for Company Filings” from the home page. Once the page opens, click on “Company or fund name, ticker symbol CIK (Central Index Key), file number, state, country or SIC (Standard Industrial Classification).”
Normally, you’ll get accurate results by searching for company name. For a more precise search, use the company’s ticker symbol. (A link is provided on the site to look up symbols.)
More advanced researchers use the CIK, which is helpful when an issuer has many filings made by subsidiaries with similar names. The CIK is a unique identifier.
Use the SIC search to generate a list of companies that operate in a specific industry.
Important Company Filings
For the disclosure system to work effectively, the SEC needs to think up lots of different forms for lots of different reporting requirements. At first glance, the list of forms looks overwhelming. (At second glance, it looks just as overwhelming.) Nevertheless, the vast majority of filings hold zero interest to anyone except the company, its lawyers, and some investment analysts on Wall Street. You should do just fine by searching for the important filings discussed in this section. For an overview of what the different EDGAR forms do, see “Descriptions of SEC Forms” on the SEC website.
What is it? The annual report, pursuant to Section 13 and 15(d) of the Securities Exchange Act of 1934.
When is it filed? The 10-K is due ninety days after the end of the company’s fiscal year.
What can you find in it? If you had to pick one single EDGAR document to provide the best portrait of a company, you’d choose Form 10-K. This is the annual report—a decidedly nonglossy look at what the company is and does.
If you had to pick one single EDGAR document to provide the best portrait of a company, you’d choose Form 10-K.
The form itself is broken down into four parts, which, in turn, offer information in a standardized format, item by item. For any researcher who needs to check up on a company, learning what’s in the 10-K is a key skill. Reading through the contents of a 10-K, and most EDGAR documents, is a way to gather useful facts about a company.
The cover page of the 10-K provides a wealth of information. At the top are the company’s formal legal name, its primary business address and phone number, and the jurisdiction in which it is incorporated. Read more closely, and you’ll find its number of outstanding shares of common stock. Multiply that number by the price of the stock at today’s close, and—voilà!—you’ve got the company’s all-important market cap(italization). There is also some legal mumbo jumbo with checkboxes that everyone but the company’s lawyers can ignore without prejudice.
PART I: BUSINESS INFORMATION
In Part I, Form 10-K requires a company to tell the world what it does for a living and disclose the major risks to its business. Properties the company owns are detailed, as are pending lawsuits and any little quibbles that the company might have with the SEC over its EDGAR documents. “Item 1. Business” is the elevator pitch that summarizes the company’s entire reason for existing and describes what it produces in its attempt to chase a profit.
Whatever might prevent a company from making a profit or even staying in business or, as the lawyers say, might cause “actual results to differ materially” from the expected ones are set out in “Item 1A. Risk Factors.” Companies must identify hurdles, such as change in demand, dependence on a single customer, and difficulties obtaining raw materials. These risks will vary from one industry to another, but the risk-factor text does offer a bracingly honest assessment of the troubles every company needs to overcome.
When companies dispatch their EDGAR filings to the commission, the SEC staff reviews them to make sure that the disclosure documents have complied with the extremely complex disclosure laws. Should the SEC, in its capacity as advocate for the securities owner, not appreciate the way a company has disclosed certain information, it can send a document back with a request for clarification. If the company and the SEC can’t hash out the differences, the company needs to let the public know about it in “Item 1B. Unresolved Staff Comments.”
Got land? Got a factory? Got lots of leases? “Item 2. Properties” parcels out the real estate.
In “Item 3. Legal Proceedings,” companies need to disclose any big-time lawsuits in which they are involved (but not the ordinary run-of-the-mill disputes that every company faces). This is where the company needs to let the world know if the shareholders are suing or if there is some other legal action that may create a substantial liability for the company, which could mean a costly payout or settlement. Think asbestos, oil spills, class action lawsuits, and the like.
Stockholders get their due in “Item 4. Submission of Matters to a Vote of Security Holders.” Stockholders, remember, are the owners of a company. As owners, they have a right to vote on certain matters that affect the corporation. If the corporation faces an issue that requires the vote of a shareholder—approval of a merger, say—this is where such information needs to be reported to the public.
PART II: FINANCIAL INFORMATION
For anyone interested in assessing a company’s fiscal health, Part II is the place to hear the news from Mahogany Row. As you might be able to discern from the items contained within this part of Form 10-K—“Selected Financial Data,” “Quantitative and Qualitative Disclosure About Market Risk”—this is where the corporation accounts for its previous fiscal year in the language of business: syncopated balance sheets and iambic accounting, all of the financial reporting lyrically telling its shareholders just how well the company did (in good years) or explaining why the A for effort balances out the F for results during the lean ones. Because I’m not an accountant, I will not proffer any more advice other than to recommend reading through the various items reported in Part II to get a complete picture of the company’s financial status. Remember Enron? Remember WorldCom? Closer reading of Part II might have held clues about the big busts.
If you’re not a certified public accountant, your eyes may droop when the dinner table talk turns to FASB statements and the latest news about generally accepted accounting procedures, but the alert researcher who knows the basics of business accounting can find some insight on the interesting ways that companies can tell the world about their incomes, outflows, and prospects for the future. Items 5 to 9B are where the company bean counters have their chance to shine.
PART III: CORPORATE GOVERNANCE
After the money part comes the people part. Part III is like the program at a baseball game: It tells you who the players are, in this case the officers, the senior executives running the operation, and the directors, the outsiders who oversee the company’s operation and provide big-picture advice to the officers. In this section you’ll be able to locate the names of the insiders, a little professional biography of each one, and, in the case of the five most highly compensated individuals, how much salary, stock, and other compensation they were paid. Directors are also compensated for their services, labor that consists of attending a few meetings per year and delivering advice. Although this compensation must be disclosed in Form 10-K, in practice most companies will incorporate this by reference to their current proxy statement.
Go to town on Part III if you want the juiciest gossip. Sort out the interlocking directorates to see who is supposed to be fully independent but who is actually related to whom, corporately speaking. Find out who in the company is getting big stock options and how big they can cash in if the stock price goes up. Certain salaries are set out here, and you can see what fees the company paid to its accountants. You may have to dig through some previously filed documents to get all the information you want on company insiders, but the scavenger hunt can pay off in learning about how the company is actually run.
PART IV: EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
For the business researcher, the plum information lives in the documents appended as exhibits to the main documents of Form 10-K. These exhibits are like a corporation’s legal filing cabinet of important documents; it’s where you can locate the fundamental papers of corporate existence, such as the articles of incorporation and the by-laws. You can also indulge in some interesting reading by browsing the employment contracts between the senior executives and the company to see what kind of deal the two parties have made. In the exhibits, you’ll also find financial agreements, such as indentures, merger agreements, and amendments to existing agreements. Business researchers, financial pros, and investors are the main audience for these items; for complete scrutiny of a company’s operation, diligent researchers know to look through the documents included as exhibits because so much detail is provided in them that doesn’t fit neatly in the base Form 10-K.
Exhibits are like a corporation’s legal filing cabinet of important documents.
What is it? A quarterly report, pursuant to Sections 13 or 15(d).
When is it filed? Forty-five days after the end of the company’s fiscal quarter. Fourth quarter results are filed on Form 10-K with the annual wrap-up so only three quarterly reports come out each year.
What is it? The quarterly report tots up the results from the prior thirteen weeks of work. Should something interesting happen that requires additional notice but doesn’t warrant inclusion on a Form 8-K, the filing can be appended on Form 10-Q.
Public corporations take their pulses every thirteen weeks to monitor how the business is doing and share that information with the wider world. Every quarter, companies publish the profits and losses for the preceding season, as well as any important documents and agreements the company might have signed during that time. Turn to the 10-Q for the freshest report on a company’s financial status.
What is it? The current report form that’s filed whenever anything out of the ordinary happens that the public needs to know about and that can’t wait until the next scheduled filing.
When does it come out? Within four business days after a specific event occurs.
What can you find in it? The information on Form 8-K is a hodgepodge of reportable events, so you’ll never know exactly what you’ll be getting until you look.
The SEC has identified dozens of events that trigger the obligation to file the form. By filing a Form 8-K, a company formally notifies the world that the company filed for bankruptcy or changed the way it accounts for its business or—under the catch-all Item 8.01—reports on any odd occurrence that might affect the company, its share price, or its competitive position. Look to the 8-K for press releases on urgent subjects, announcements of takeover attempts, or public acknowledgment that the SEC is investigating the company. Some of the items requiring disclosure on 8-K are very technical, but these disclosures shed light on the way a company operates and will inform you of interesting and perhaps unexpected events as they occur.
Look to the 8-K for press releases on urgent subjects, announcements of takeover attempts, or public acknowledgment that the SEC is investigating the company.
What is it? Definitive proxy statements are documents sent to shareholders to solicit votes for any corporate action requiring shareholder approval.
When does it come out? The routine proxy invitation to the annual meeting comes out, not surprisingly, once a year.
What can you find in it? In addition to routine voting matters, such as for or against a slate of directors, proxy statements are useful for finding executive compensation and information about business relationships.
The proxy statement is routinely sent once a year to all shareholders to invite them to the annual meeting, a standard procedure for corporations throughout the nation. Proxies also are sent during a battle for control of a company, known as a proxy fight. In EDGAR, proxy statements are referred to as DEF 14A or DEFA 14A (for definitive proxies) or PRE 14A (for preliminary proxies). The numbers refer to the sections of the Securities Exchange Act that mandated their use.
During a proxy fight, proxy statements are regularly filed with the SEC and sent to shareholders over the course of the contest. Anytime something comes up that requires shareholder action, a proxy statement is sent to the holders. Proxy statements tend to be written in fairly plain English, unlike the other filed forms, which trend toward legalese, and so offer a clearer picture of a company’s financial status that’s easier to understand than the financial reports in Form 10-K.
When you or I need money, we might call on friends, relatives, or the nearest friendly bank. When a large corporation needs money, it either sells its shares on the stock market or tries to borrow interesting sums from the capital markets in the form of bonds or debentures or notes, which are all fundamental evidence that someone has lent the corporation money at a certain interest rate for a certain amount of time.
So you know exactly what it is that you are getting when you buy an equity security (a share of common stock, a preferred share, or some hybrid, like an interest certificate) or a debt security (bond, note, debenture, or some other interest-bearing security), the issuing company must provide anyone who asks with a prospectus. This is the legal document that describes the rights of the purchaser and the obligations of the issuer. When you buy a share of Microsoft, you obviously don’t actually put a piece of the company in your pocket. Instead you get documented evidence of your purchase.
Before a company can start selling stocks or bonds, it first has to register with the SEC. The registration statement is an exhaustive collection of information, with an emphasis on the company’s history.
A company that is selling securities to the public for the first time, known as the initial public offering (IPO), must complete a lengthy form (Form S-1 for a U.S. company, Form F-1 for a company domiciled outside the United States) containing the company’s legal documents and years of financial data. Legal documents include the articles of incorporation, bylaws, and any material contracts that could affect the company by requiring it to do certain things (like pay the CEO remarkable amounts of money). The statement itself is a thorough review of the company, its management, and the industry in which the company operates, presented in exquisite detail. The text is dense legalese, but plow through, and you’ll be treated to a complete and fact-filled tour through the inner workings of the soon-to-be public company.
The registration statement is first reviewed by examiners from the SEC to make sure that it is accurate and complies with all the required disclosure laws. Once the SEC has pronounced the registration to be in compliance with its regulations, the agency gives the company the thumbs up to sell its stock or bonds by issuing an effectiveness order. The effectiveness order tells the world that the registration has passed legal muster and that the company can legally sell the security to whoever wants to pay for it (with certain rare exceptions).
Once the company has its initial offering under its belt and has satisfactorily complied with all of the SEC’s requirements, filings for subsequent issuances of stocks or bonds can be made on considerably shorter forms. Issuers of long standing who are responsible corporate citizens (from the SEC’s point of view) are permitted to use Form S-2 or F-2 (which allows for some incorporation by reference) or Form S-3 or F-3 (which allows for maximum incorporation by reference).
Once the registration statement has been finalized, the issuer can begin to sell the securities on the open markets. The offspring of the registration statement is the prospectus and is referred to variously by EDGAR as 424B1, 424B2, 424B3, and so on. This is what a securities holder receives to describe her rights.
Other Interesting Documents
Say what you will about the Securities and Exchange Commission, they do love their forms on F Street. (The document describing the forms themselves and how to properly file them clocks in at 125 pages!) In addition to the forms we reviewed here, an aggressive researcher intent on mastering business and corporate research at a professional level should learn some of the other popular forms, each of which is prescribed for a specific event in a corporation’s life. See the complete rundown at the SEC’s site by clicking on “Descriptions of SEC Forms.” Listed here are some of the more interesting ones and what they do.
Reports when an organization or individual acquires 5 percent of the company’s outstanding shares
Annual report to shareholder, the fancy version of Form 10-K
Employee benefit plans
Tender offer statement; a third-party is offering to buy large numbers of shares, not from the company but from current shareholders
Going private transactions
Tender offer solicitation
Registration of American depositary receipts
Private placement; a sale of securities not to the public but to recognized institutional buyers like big Wall Street banks
Rifling through EDGAR documents is the best way to see the nittiest and grittiest details of a company’s operations. But you need not ask forgiveness for taking shortcuts if, in the press of time or in the interest of expedience, you turn to some predigested resources from publishers who have done the digging for you. In truth, professional researchers use these sources all the time and refer to the SEC documents only when very specific questions come up or exact disclosure language needs to be found.
By scooping up news, data from the stock exchanges, stories from blogs, and disclosure from the websites of public companies, Google Finance offers at-a-glance information about public companies from around the globe. Search by company name or ticker symbol to see current and historical stock prices, links to public filings, and an interesting stock price graph that correlates news reports to stock movements. Google Finance combines as much publicly available information about a public company as a web page can hold.
Google Finance offers at-a-glance information about public companies from around the globe.
For primary source materials, sift through a company’s EDGAR documents to find the legally binding information that a company must disclose. If you want to know about a company but have no appetite to read through a company’s filings, try consulting analytical sources, where the filings have been digested by trained professionals and explanations persuasively drafted by Wall Street analysts. Most well-stocked libraries keep up a subscription to Value Line, where you’ll find one-page profiles of companies and predictions for its prospects in the stock market.
There are far fewer Wall Street brokerages now than there were before the Great Recession. Nevertheless, many of the remaining brokers still maintain a staff of stock analysts who publish lengthy reports that aim for objective analysis of a company’s operations. The reports are sold for substantial subscription fees to investors first, but do make their way eventually to business information resellers like OneSource. Check with your library for analyst reports from OneSource, Freedonia, or Thomson Financial Investext. Subscription services from Moody’s Investor Services, Fitch, and Standard & Poor’s also can provide ratings and reports on companies and their debt securities. These are not services you’re going to get for yourself for $1.99 on an iPad app. They are pricey services designed for consumption by institutions. Put them on your wish list for when you next chat with your librarian.
Public companies are the glamorous ones. Their comings and goings monopolize the press. They command headlines when they are involved in big-money mergers or bankruptcies or when they develop some blockbuster new product or service. But public companies aren’t the only game in town. Throughout the United States, in fact, thousands of companies operate perfectly profitable and useful operations without ever having to disclose to the public the details of their operations the way publicly traded companies do. Because these companies do not sell securities to the public, they do not fall under the SEC’s disclosure rules and so are aptly referred to as private companies.
Remember that private does not necessarily equal small.
Remember that private does not necessarily equal small. Multibillion-dollar companies like Facebook, agribusiness titan Cargill, oil and gas giant Koch Industries, and accounting and advisory conglomerate PricewaterhouseCoopers were still privately owned as of November 2011.Forbes magazine happily lists the 400 and 500 largest private companies in their special annual issue, and the companies that rise to the top of the list are heavyweights indeed, with revenues in the hundreds of millions to the multibillions in sales per year. Private companies well outnumber public ones, since private companies include the local pizzeria and the mom-and-pop stationery store at the nearest strip mall as well as small- to medium-size companies that employ 15 to 5,000 people.
Unfortunately, digging up information on private companies presents challenges that don’t happen when researching public entities. The main problem is the lack of any equivalent to the SEC’s EDGAR system for private companies. In a nutshell, private companies don’t have to disclose much information about their operations, so they don’t. That doesn’t mean you can’t find out anything about them, but it takes more work than public company research, and what you can find is limited. The laborious part of private company research is cobbling together information from a variety of sources to get a clear portrait of the company. There is no one-stop shopping for private companies.
The laborious part of private company research is cobbling together information from a variety of sources to get a clear portrait of the company.
For private companies, the obvious first task is to see if the company maintains a website. If so, see what information you can glean from it: where the company operates, who owns the operation, what products the company makes, where it is located, and other tidbits that a company would voluntarily reveal about itself to the public.
The heavy lifting on private company research is best left to the professionals. A number of resources can offer the fruits of their own research (for a fee). Dun & Bradstreet and Hoovers are the two commercial publishers that provide information on privately held companies. Both of them sell their information to subscribers. For business researchers, Hoovers offers two plans: a subscription for researchers who do large-volume research and an on-demand type of account for the occasional researcher. Contact the companies for details on their prices. However, any well-equipped business library should provide access to these services, and the oft-repeated advice still holds: Check with the reference desk to see if they can run reports for you.
Every state secretary of state maintains a searchable database of companies that have registered to do business within the state.
Locate additional basic information by searching through the public records. Every state secretary of state maintains a searchable database of companies that have registered to do business within the state, which will provide at least the name of the company’s owner, a headquarters address, and the name of the person who receives the legal papers for the company. Private companies operating in heavily regulated industries such as banking, insurance, or the energy sector will also be required to file reports with state and federal regulators; these reports are excellent sources for detailed information about these entities. Turn to the state departments that oversee these industries for annual reports or to the federal overseers, such as the National Information Center from the Federal Reserve (bank information), the National Association of Insurance Commissioners (insurance), or the Federal Energy Regulatory Commission (energy).
Your local library should also stock a few reference titles that won’t overwhelm your information gathering senses but that will prove helpful in a pinch. Ward’s Business Directory of U.S. Private and Public Companies and Standard & Poor’s Register both list private companies, with some minimal indication of location and estimated gross annual sales. These lists are useful in finding businesses from a particular industry or to see who operates in a given location.
As with research into private companies, international company searches hinge on services that harvest this information for a living. Again, a good business library should be able to provide you with access to these services or at least have them available to the research staff to consult on your behalf, since the subscription prices to them are designed for institutions, not individuals. OneSource is an excellent company profile service that offers snapshots of corporations worldwide. The service is not cheap, so check with your library and see if they subscribe. Other big players in the international company information hustle are Mergent Online (which restricts its coverage to publicly traded companies from around the globe) and Bureau van Dijk. Check your library too for services from Thomson Reuters, an immense business news operation. Best of all is a Bloomberg terminal. The Bloomberg, as most researchers call the dedicated computer, serves up an unending stream of business news and analysis and contains an information universe for virtually any company on planet Earth.
Some countries and their stock exchanges maintain disclosure systems similar to, but not as robust as, EDGAR. In Canada, SEDAR makes public annual reports and the like from Canadian issuers. For UK companies, the Financial Services Authority has a searchable database of company filings; you may also check the subscription-based Companies House or Perfect Information if you need in-depth access to UK filings. On the European continent, the bourses of Luxembourg, Paris, Frankfurt, and Rome offer limited information about companies listed on their exchanges, though you would do better to try OneSource or Perfect Information first. The same advice applies to Asian, Latin American, and emerging market companies. Secondary sources are better to consult than trying to get information from either the bourses or the local regulators.
The vast majority of business organizations in the United States are created for the explicit purpose of making a profit. Charitable organizations, religious charities, secular do-gooders, and private foundations that dole out money to worthy causes, on the other hand, exist to provide a service, with no profit motive in mind. Most nonprofit organizations are known as 501(c)(3) corporations, from the section of the federal tax law that exempts their income from taxation. Because of that special status, they are collectively known as “exempts.”
As part of their tax-exempt status, nonprofits are required by federal law to make their tax returns public. The annual Form 990 (Return of Organization Exempt from Income Tax) is the only tax return that is, as the IRS puts it, “open to public inspection.” A Form 990 is the best source of information about a charitable organization. It looks like a standard tax form, with the expected “Subtract Line 42 from Line 36” instructions, but take a closer look: Inside, you’ll find out how much money an organization took in and where it got it. Just as important, you’ll learn what the charity actually does with the money: who got paid what to manage the operation and how much of the donated money was actually spent delivering whatever social good the 501(c)(3) said it provides. In short, Form 990 is the window into the operation of tax-exempt organizations. To get your hands on the form, check with the organization itself or, better, get it from GuideStar.
In short, Form 990 is the window into the operation of tax-exempt organizations.
IRS PUBLICATION OF 501(C)(3) CORPORATIONS
To find out if an organization qualifies as a 501(c)(3) company, check the IRS’s database “Search for Charities.” It’s the online version of the venerable Publication 78, better known in print as Cumulative List of Organizations Described in Section 170(c) of the Internal Revenue Code of 1986. The database is quicker, easier, and better for your back muscles than trying to leaf through the heavyweight print volume.
The fittingly named GuideStar is the marquee name for charities research. If you don’t want to spend your afternoons plucking factual tidbits from tax forms, turn instead to this website where the GuideStar analysts have done a lot of the hunting, gathering, and analysis for you. This site not only provides the 990s from nonprofits but digests them into searchable reports on thousands of charities. The basic services are free, but if your research finds you sailing into the deeper waters of doing good, it could be worthwhile to invest in a premium account. The paid version of GuideStar expands on the basic information and allows for searching of very detailed data that are likely of greatest interest to charity professionals, lawyers, and curious reporters.
Research into a charity or its wealthier counterpart, the foundation, should also include a quick spin through the Foundation Center. It’s a comprehensive database matching grant-making foundations with causes needing funding. The services of the center also include information on philanthropy in general and ideas about how to operate nonprofit activities most effectively. It’s a good source for information on the world of charitable giving.
While it’s unfortunate that some crooks run fraudulent charities, most states keep an eye on nonprofit organizations through their attorneys general’s offices. They empower their head prosecutor to regulate charities within their state borders. Any research into suspect operations should include a call to the attorney general’s office in the state where the charity operates. Precisely what information is made public varies from state to state, but most will make available whatever state filing is analogous to federal Form 990. In New York, for example, the attorney general’s Charities Bureau publishes the annual registration statement for charities on a publicly available database, so it’s easy to find information on tax-exempt operations within the state. These databases help the public make sure that charities do the good things they say they are doing.
This chapter’s basic resources and search techniques will get you started, but as you discover that deeper digging into your subject is required, you’ll need guidance on where else to look. Since researchers of all stripes, not just businesspeople, use corporate information, skill at looking up company info should be a basic tool in your reference repertoire. Luckily, many librarians worked overtime to publish guides just to help bewildered researchers find a path through the jungle of information. You can put your hands on most of the best research guides by consulting the meta-collection guides hosted by the University of North Texas. The UNT researchers looked at the major business libraries in the United States and linked to the research they found there.
Skill at looking up company info should be a basic tool in your reference repertoire.
I also recommend the online guide Searching for Company Information from the New York Public Library’s Science, Industry, and Business Library. It’s a gem of concise and thrifty advice for both novice and experienced business researchers alike. On a single web page, the librarians explain exactly which books you ought to be consulting for a variety of typical research requests into companies and industries: how to find minority-owned businesses or how to find companies active in a specific industry, for instance. If you’re really interested in the subject, take the library’s online class “Prospecting for Business Information.” And, of course, always check in with your local library or nearest business library to see what they can offer. Chances are they will own the reference titles the NYPL recommends or can access them on your behalf.
Corporate research doesn’t always begin with a search into the particulars of a given company but rather with a specific product. Asking “Who makes this?” or “Who provides this type of service?” can lead directly to companies operating within a given industry. A couple of very fine and totally free services will help with the detective work needed to locate the companies behind certain products.
The Thomas Register began life as a set of very large and very green books. In its web incarnation, these books are available through ThomasNet (discussed in Chapter 5). Another service is the Household Products Database from the National Library of Medicine, which makes it easy to find out who manufactures such standard consumer products as Comet, Windex, Formula 401, and 3-In-One multipurpose oil. To find makers of industrial products, turn to the “Industrial Quick Search Manufacturers Directory.”
Companies operate within specific industries. Many a business research project begins not at the company level but higher up on the economic food chain, by gathering information about a specific industry. Industry research is a good way to get a handle on the environment in which a specific type of company operates. Whether you’re tracking down trends in retailing, comparing the earning of steel manufacturing, or getting your arms around the latest trends in the cosmetics racket, industry research is good place to start.
Standard Industrial Classification Codes
Before setting out on any industry research, though, make sure you have a good grasp of the industrial classification codes. These codes are used to precisely describe a specific industry and to sort online databases by industry.
The two classifications systems that are most widely used are the Standard Industrial Classification Code (SIC) and the North American Industry Classification System (NAICS). The NAICS was developed to harmonize the classification systems of the United States with those of Mexico and Canada after the adoption of the North American Free Trade Agreement (NAFTA). You’ll do just fine with the old-fashioned SIC code, which it is still widely used.
Because so many government agencies and commercial data services rely on these numbers to index information, you’ll do yourself a great favor by understanding them. For example, if you want to gather a list of companies that manufacture aircraft, look up the SIC code for “aircraft,” which is 3721. Now take that number and plug it in to the SEC’s EDGAR company search database to generate a list of publicly traded companies in the airplane business. When I ran the SIC search, the result was a list of forty companies in the industry, including Boeing, Gulfstream Aerospace, and Embraer Brazilian Aviation Co. Other common uses of the SIC might be to see injuries reported to the Occupational Health and Safety Administration for this particular industry. Search the “Fatality and Catastrophe Investigation Summaries” and sort the data report by SIC. (Be forewarned that the injuries described in the report can be gruesome.) Or if you want to determine what pollutants various industries emit in selected locations, then the SIC is the number to use to pinpoint your data. Most industry reference books and many analytical reports use the number as well. It’s well worth the time to look over the SIC system simply because it is a basic tool for filtering online information systems with precision and accuracy.
It’s well worth the time to look over the SIC system simply because it is a basic tool for filtering online information systems with precision and accuracy.
The value of associations as information sources was reviewed in detail in Chapter 6, so there is not much more add to the discussion other than to reinforce the idea that every industry has a professional association that will be glad to help you with research. They’ll provide you with plenty of interesting data, or they’ll point to you someone who can compile said pile of interesting data.
Even the most rudimentary search in your local library catalog should unearth a selection of directories, phone book-like listings of companies and industry sources from which to pick. The information contained in most of them is fairly bare bones and won’t provide much more than a rundown of which companies operate in a selected industry. Use the lists as a starting point for research into the individual companies. As I mentioned before, the business directories most frequently found in the library are Ward’s Business Directory of U.S. Private and Public Companiesand the Standard & Poor’s Register Corporate. In fact, for any type of industry directory, you should try one of the many titles available from Gale Cengage Learning, publishers of the venerable Ward’s Directory. Gale has an impressive roster of directories for many leading industries, such as:
· American Wholesalers and Distributors Directory
· Major Financial Institutions of the World
· Major Food and Drink Companies of the World
· Major Telecommunications Companies of the World
From the same source that lists all of the directory titles, the tireless librarians at the New York Public’s Science, Industry, and Business Library offer a list of directories for dozens of industries at a page quite naturally titled Industry Specific Directories. This is an excellent resource for locating reference materials, most of which should be available locally to you or by requesting it from a reference librarian.
Every industry has one or two periodicals covering the news. For a comprehensive listing of titles in specific sectors, the standard reference works are Ulrich’s Periodicals Directory and Directory of Business Information Resources. It might also help to find a relevant association and then call them to ask what magazines or newspapers cover their business.
Industry-Specific Surveys and Rankings
The Fortune 500 is a household name. Each year, Fortune magazine ranks the top 500 American public companies. This list has become a badge of honor for any self-respecting corporation. In fact, it’s become a shorthand way of referring to big, successful companies. Since the list first appeared, the Fortune 500 ranking has made the magazine a must-read and put the name of the magazine on the tongue of every business executive. Other publications have aped Fortune’s formula and produce their own annual rankings. AmLaw100 is the ranking of the top U.S. law firms, from American Lawyer magazine. Other industry-specific lists are available, such as the Top 200 Catalog Companies, Top 100 Retreaders, and 20 Largest Electronic Recyclers. Many industry-specific magazines rank companies they cover. To find out what rankings are available and from which magazines, consult the Special Issues site, a list of lists, originally compiled by indefatigable librarian Gary Price. The free public database is out of date, but the lists can still serve as a handy guide to the names of rankings you might be interested in. And I’m sure that you won’t be surprised to hear that the researchers from the NYPL’s Science, Industry, and Business Library offer a lengthy list of industry surveys for your delectation.
SITES AND SOURCES MENTIONED IN THIS CHAPTER
Bureau van Dijk
Census Bureau NAIC/SIC Industrial Codes
Dun & Bradstreet
Federal Energy Regulatory Commission
Federal Reserve System, National Information Center
Financial Services Authority
Household Products Database
Industrial Quick Search Manufacturers Directory
Industry Specific Directories
Internal Revenue Service, Exempt Organizations Select Check
Moody’s Investor Services
National Association of Insurance Commissioners (NAIC)
New York Attorney General’s Charities Bureau Registry Search
New York Public Library, Science, Industry, and Business Library, Industry Surveys
New York Public Library, Science, Industry, and Business Library, Specific Industry Directories
Searching for Company Information (SIBL)
Securities and Exchange Commission Descriptions of SEC Forms
Securities and Exchange Commission, EDGAR
Standard & Poor’s
Thomson Financial Investext
University of North Texas Libraries, Company and Industry Research
U.S. Department of Labor, Occupational Safety and Health Administration, Fatality and Catastrophe Investigation Summaries
Wall Street Journal