Rewriting the book

Despite advances in technology and a host of new regulations, the paperwork associated with company listings and filings has not yet lessened significantly. As a result, even in this post-Gutenberg era, financial printers still have a large role in helping companies gain access to the capital markets.

Sarbanes-Oxley, new and pending rules from the SEC and changes at the major stock exchanges have greatly increased the requirements on companies when filing regulatory documents and, in many cases, affected the timelines for filing. At the same time, companies are searching for ways to reduce spending and increase efficiency. As a result, they are demanding much more from printing companies – faster response times, more transparent billing practices, better pre- and post-printing services and seamless use of the latest technologies.

In addition, many companies feel compelled to submit all printing work to a competitive bid, and this is having a major impact on pricing. As one financial printing executive explains, ‘Companies pay the market rate and that’s what ultimately drives the price. Jobs go out to bid, and the rates come down for all sorts of reasons.’ But he adds that the rates can also go up – for speedy completion or at a peak period like proxy season.

In many cases, the current situation is creating tension between companies and printers as new relationships are forged and a better understanding of each other’s business is developed. The relationship between printer and client has not always been a close one, and a number of ideas are emerging to make the process more efficient on both sides.

Better understanding, better relationship

An efficient market is one with informed buyers and vendors both interested in securing the best deal. Many who have had dealings with financial printers point out that all too often, the buyers have been negligent, ignorant or even absent from the decision-making process, leaving the choice of vendor up to their bankers or securities lawyers.

Company officers assume that their bankers and lawyers have vetted the bills, but that is not usually the case. Corporate attorney Alex Simpson cautions that if an outside lawyer, banker or accountant recommends a financial printer, ‘you should ask them if they have any relationship with the printer, or have accepted anything of value.’

A growing number of law firms are changing their rules in terms of acting as an advisor between printers and companies. Bill Penders, president and COO of Bowne’s financial print business, feels that lawyers have their place in the process, but suggests it is often preferable when companies can deal directly with the printer. ‘Some companies, especially smaller ones and those going through IPOs, contract printers through third parties, typically the outside law firm. This is useful for the companies, because they may not have a complete understanding of the print process. We prefer to deal directly with the company, if possible, because it builds stronger relationships in the long run.’

Even if you’re dealing with a printer directly, someone not versed in the ways of the industry can be in for a surprise regarding billing practices and levels of service. This was the case during the IPO of Zumiez. CFO Brenda Morris recalls, ‘In May 2005, we got our final bill for all the work at the printers. We had contracted with them directly on recommendations from securities attorneys and our underwriters.’ The bill came in at double the estimate, and looking at the thousands of line items, she says she realized ‘this is not my area of expertise. In fact, at most companies, it’s no one’s area of expertise.’

Unsatisfied with the response from her printing company, Morris went looking for help to clarify the bill and negotiate with the printer. Ultimately she called in the Maverick Group, which specializes in auditing printers’ bills. ‘We had a specific quote with specific line items, so we were able to go back and raise questions like Why did you do this as a PDF instead of sending an e-mail?’ she says. ‘Instead of being charged a scanning fee and an e-mail fee and a faxing fee, we could have just e-mailed everybody and not had a single dime charged.’

After working with Maverick and the printer, a ‘substantial reduction in the final bill was achieved,’ she says. Interestingly, Morris says rather than alienating her company from the printer, the whole process actually improved relations: ‘The exercise made for a more fruitful relationship; it was not a win but an equitable agreement. It took a lot of work, but it has made us great partners, which indicates that they still make money on us and are still happy to have us as a customer.’

For one corporate secretary, who wishes to remain anonymous, a bill dispute didn’t end so positively. After his company’s IPO, the bill from the financial printer came to nearly $500,000. The money from the IPO, he says, ‘was working capital, so we needed to conserve every dollar, and we took a more hard-line approach to looking at the bill.’ It was only after some unpleasant legal wrangling and an audit by Maverick that he succeeded in persuading the printer to reduce the bill by $50,000. After switching printers, however, the corporate secretary is a lot happier. ‘I am very happy with our current printer, who keeps us abreast of all charges and billings and ensures that there is nothing in the bill that does not make sense,’ he says.

John Wert, CEO of Maverick, makes the suggestion that the real problem in situations such as this one is a lack of mutual understanding between the company and printing vendor. He explains that better communication, itemized billing and improved transparency can prevent most of these disputes before they even begin. Maverick offers either to handle and negotiate financial printing needs up front – ensuring multiple bids and transparent invoicing – or to perform a ‘forensic’ audit after the fact.

Avoiding unpleasant surprises

Some companies involve a third party to negotiate when a dispute arises, since they may not have the time or expertise to do so themselves. Penders, however, believes a better result can be achieved through direct communication between printer and client. ‘Collaboration and communication are the keys to making sure everyone is happy in terms of response times and prices,’ he says. ‘This is especially true in regards to ensuring the final bill for all printing work is as close to the original estimate as possible.’

Many things can lead to bills being higher than originally quoted. ‘When proofs are sent to clients,’ Penders explains, ‘they nearly always come back with changes, markups and other edits. Making these changes obviously has a cost.’

It is never really possible to estimate what these changes are going to cost up front. ‘Clients nearly always say they will send documents in a ready to go state, but this rarely turns out to be the case,’ he notes. ‘There are just too many people involved in the process to get it right the first time out. What can be done, and what we often do with clients, is to provide guidance on costs per page for certain changes.’ This should give the company a good idea of what the costs will be if they decide to make changes during the process.

Harvey Kesner, managing partner of Haynes and Boone, has been a corporate counsel for internal and external printing businesses for 20 years. ‘These bills are hard to decipher, hard to discern and hard to understand after the fact, and it is only then that most people drill into them,’ he says.

Kesner cautions that big bills do not always imply sharp practice. ‘You have to get copies of these transaction documents printed and in the directors’ hands,’ he warns. ‘You have to get massive distribution, so you have to keep the printing shop open all weekend and pay the overtime, because otherwise it can interfere with a deal. It is just part of the normal ebb and flow of relationships with service providers who are required to do extraordinary tasks in a short amount of time. In hindsight, these tasks can be scrutinized and people can take exception.’

Kesner urges that all companies, even those engaging printers through a third party such as a law firm, should make sure they are fully aware of prices at all stages of the process. If they are getting regular updates, there is far less likely to be a problem or a need to question the end result.

Simpson warns about taking too hardnosed an approach: ‘It’s not just about costs. You can nickel and dime everything but you won’t get the best service. There is a benefit from having a close personal relationship with a printer.’

An executive at a financial printer has this advice for corporate secretaries who want to get more involved: ‘There are a lot of moving parts with lots of variables and outside costs that get reflected in the cost of putting documentation together. One of the largest components is the amount of revisions that take place on documents.’

Penders explains that the two areas that account for most cost increases are scheduling and rekeying of hard-copy documents. Last-minute and rush printing is more expensive, as is printing over the weekend. Sending a hard copy and asking for it to be retyped is also expensive and should be avoided. Basically, companies should work internally to get documents as close to ‘camera ready’ as possible.

David Klaiss, president of CGI North America, explains that most companies ‘provide a Word file to their printer weeks in advance of their filing/printing deadlines, and what occurs are numerous iterations of revisions and redrafting of the documents. The costs are significant for alterations, Edgarizing and re-Edgarizing, black-lining, repagination, PDF creation and e-mailing of proofs. Using a printer that can provide all these services ‘under one roof’ will extend internal deadlines, improve responsiveness and reduce costs.

Corporate secretaries or others charged with managing the process should demand to be kept up to speed at every step of the process. If changes are made, the printer should inform the client not only about what the additional cost will be, but also why the changes were necessary. Many companies often have a tight budget allocated to printing costs, and it is a good idea to establish preset limits and have the printer inform you when these limits are being approached. These precautions will help to inform companies about the process and possibly allow them to highlight areas for improvement in the future.

Klaiss agrees that billing should be clear and transparent. That begins with itemization and a clear definition of all terms used. While it’s not practical for corporate secretaries to become experts in printing, they should expect a clear presentation and explanation of the charges. ‘Have a discussion of the billing process and all potential charges during the planning phase. Ask to see a sample itemized bill so you understand what format you are going to get,’ he explains.

Penders says ‘there is no reason why a fully itemized bill cannot be provided. This is something that corporate secretaries and general counsel should arrange up front.’

Klaiss also explains that companies need to consider all factors involved in producing final documents. In the case of the annual report, it is not just the auditing, executive and finance teams that contribute content. There is a significant art and design element. ‘It is important for designers to have a good understanding of the printing process and the printer’s capabilities,’ Klaiss says. When this is not the case, the corporate secretary is in a difficult position between printer and designer. Most of this difficulty can be eliminated by planning early and including the printer and designer in these planning sessions.

A two-way street

Morris advises that ‘you really have to understand the process in advance and how you can adjust your processes to the point where the fees don’t escalate to be unreasonable. You have to monitor the process carefully, particularly when the momentum gets going and the printers stop talking to you about the costs you are racking up.’

She cautions that unless you understand the process completely, printers ‘may not really help you through the decision-making process to choose the least expensive options. But once you have that conversation with your printer about not paying items unless they are agreed in advance, if they are excessive or don’t make sense, then they are much more diligent.’ She concludes, ‘This is where you want your printer to be a partner – an expert partner.’

Penders highlights that the traditional print base of the business is changing dramatically: ‘There have been a number of technological advances over the past few years. Issues such as XBRL, print on demand, content management, automatic conversion and filing tools, virtual data rooms and advanced documentation templates for most documentation – combined with the SEC’s e-proxy initiative – are significantly changing the relationship between clients and printers.’

Moving forward, according to Klaiss, it will be vital to use a printer that offers more than just print. ‘Document creation, management and workflow as well as conventional composition, Edgar and print, web posting and hosting are all part of the document life cycle. The more depth and capabilities your printer has, the greater and more varied your options and ability to control not only costs, but the entire process.’

The message coming from all sides is engagement. Everyone needs to understand the others’ needs and how they intend to achieve them. Companies’ requirements are changing quickly. Electronic distribution and filing of documents are becoming more common. The print industry is adapting by expanding the range of tools it provides to accommodate new laws and technological advances.

Greater flexibility and improved tools are revolutionizing the way printers do business and companies communicate with shareholders. This is likely to continue as companies become more demanding about what they need and more willing to take action if they are not receiving good service. Printers are offering greater clarity to ensure that clients have a full understanding of what is being done and why. Regular engagement helps shape technologies, reduce costs, improve responsiveness and provide direction in the next phase of the filing and reporting process.