VideoWhen the decision was made several months ago to move Keane Inc.'s shares to the New York Stock Exchange, CFO John Leahy wasn't anticipating the tumultuous events that have engulfed the Big Board. First, former NYSE chairman and CEO Dick Grasso stepped down from his post amid an uproar over his $140 million pay package. Then, other board members' generous compensation, as well as their insider status, came under scrutiny. And most recently, the specialist firms, the firms whose staffers trade shares on the floor, have faced accusations of illegal trading.
All in all, says Leahy with a wry smile, "it's an interesting time to be going down and ringing the bell."
Still, for Keane, an information-technology service provider with headquarters overlooking Boston Harbor, listing on the NYSE is "another step in our evolution," says Leahy. Although the company has traded on the American Stock Exchange (Amex) since 1989, its new address will provide greater liquidity as well as increased visibility, he explains. And while "the Exchange probably has to revamp itself," he says, "what's important to us is to be traded in that marketplace, with its prestige and its strength."
Despite the Exchange's recent troubles, that sentiment still prevails. "For the right companies, the NYSE continues to have the cachet of being the premiere market in which to be listed," says Michael Claes, managing director of the U.S. corporate-financial practice at public-relations firm Burson-Marsteller in New York. In fact, nine other companies joined Keane in listing on the NYSE in October, bringing the number of initial public offerings there to 52 in the first 11 months of 2003. Among them was Carter's Inc., an Atlanta-based maker of children's clothing and accessories that went public on October 24. "Most certainly we were aware of what was going on, but based on our needs and expectations, we felt that the NYSE was still the best place to be," says Eric Martin, director of investor relations at Carter's. Because the company was floating a relatively small number of shares, says Martin, the executive team thought Carter's would benefit from the NYSE specialist system, which is designed to facilitate liquidity and smooth out volatility, as the specialists buy or sell shares of their clients' stocks themselves to counteract any imbalance in supply and demand. Moreover, he echoes Leahy's comment that the Exchange is important "in terms of visibility" to the media and the investor community.
But Louis Thompson, president and CEO of the National Investor Relations Institute, says that although the bad press around the Exchange's governance issues hasn't affected listed companies thus far, the controversy is far from over. "All of this has opened up the question of whether you get the best execution through the specialist system," he says. "The whole future of the auction system is now open for discussion."
Laying the Groundwork
For Keane, listing on the NYSE wasn't part of the plan when the firm was founded in 1965 above a doughnut shop in Hingham, Massachusetts. The family business grew slowly, to $50 million in revenues by the early 1990s. But by the time Leahy arrived in 1999, technology consulting was in vogue. The firm was billing close to $1 billion. "When you go through that sort of frantic growth, you outgrow yourself as a company," says Leahy, who was surprised to find a business of Keane's size still trading on the Amex.
Initial plans to move to the Big Board, however, were put on hold when the IT sector began to struggle. But Leahy, a 17-year veteran of PepsiCo, began laying the groundwork for the eventual move, backed by a push from the board to dramatically improve Keane's financial planning and controls. He brought in the rigorous reporting, forecasting, and budgeting procedures more typical of a large multinational company like Pepsi than a family business, and restructured the finance group to create separate accounting and financial-analysis teams. "There was a recognition that they had grown beyond the processes and systems they had," says Leahy. "And I had a general mandate to help the company become more sophisticated and better managed down the road." These buttoned-down procedures would ultimately help the company better withstand the increased scrutiny that would come with listing in New York.
In the past year, those preparations have been accelerated by the need to comply with the Sarbanes-Oxley Act of 2002. For example, Keane has increased the size of the board to 10 members, adding three new independent directors in the past two years. The company has revamped its board committees as well, staffing the audit and compensation panels with outsiders, including a banking-industry veteran and a former Deloitte & Touche partner who has been designated the "financial expert" on the audit committee.
"We needed to do those things because they were the right things to do, and because we knew they had set a high bar at the Exchange," says Leahy. (In response to Sarbox, the Exchange revamped its governance standards for listed companies, calling for them to maintain a majority of independent board members and outlining the definition of that role, as well as mandating that compensation committees consist solely of such independents. The Securities and Exchange Commission approved the new requirements this past November.)
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