Market Timing

Despite the controversy surrounding the NYSE, Keane Inc. makes the move to the Big Board.

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.)

Traditions and Controversies

Finally, as the stock market began to recover and the company logged a couple of good quarters, Keane’s management team decided in April that the time was finally right to begin the process of applying to the NYSE. And that decision launched a listing process that is both steeped in tradition and suddenly under scrutiny.

While the detailed application was being filled out and approved by Keane’s lawyers, Leahy and vice president of investor relations Larry Vale spent several months studying and meeting with specialist firms to determine the best fit. Ultimately, Keane sent a letter to the Exchange’s Allocation Committee stating the traits and competencies they thought would be most important for its specialist. The committee then produced a list of specialists, from which Keane selected six. “It’s like a bake-off,” says Leahy.

Both the firm and the individual trader (also called a specialist) factored into the decision. But Leahy weighed other issues as well, such as the size and sector of the other companies the specialist represents. “We’ve been very cautious in making sure that as a company with a market cap of $900 million or so, we don’t get lost in the mix,” he says. At the Amex, “we were clearly a big fish,” adds Leahy. Not so on the Big Board. For example, the specialist who trades IBM trades only IBM; the tech behemoth does so much volume that the trader doesn’t have time for anything else. Keane, on the other hand, would share its specialist’s time with a handful of other companies. Another contrast: on the Amex, Vale talked to the trader on the floor almost daily, getting regular updates on the stock’s volume and performance. But in New York, the specialist firms employ liaisons to keep clients updated on floor activities.

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