Unless you are fundraising for a prestigious business school, you probably don't come across a whole lot of private company insiders as prospects. Maybe you wonder what all the excitement is about. Securities and Exchange Commission (SEC) filings are complex. Why bother understanding that world if you have those prospects so infrequently?
Apart from the noble pursuit of continual learning, following are five reasons public company insiders make such good prospects.
1. The wealthy get and keep great wealth through capital, not income.
Have you heard about technology companies like Yahoo! or Oracle paying their CEOs a symbolic salary of $1? It's true! Earned income - the salary or cash paychecks you and I take home - is taxed at a much higher rate than capital gains.
Capital gain is the "income" or value received when you sell capital, such as stock, at a profit. If I am awarded stock at the market price of $10 and it is $25 when I sell it, I have made a capital gain of $15 on that share of stock.
Any self-respecting public company CEO would much prefer to have the bulk of their compensation subject to lower capital gain tax rates AND have it grow in value. Wouldn't you choose to lower your taxes and watch your paycheck rise in value? Especially if your million+ cash income covered your living expenses?
If you have been reading about rising income equality, this article in The Economist magazine helps to put the rise of capital into historical perspective: To those that have shall be given.
2. There are so few public company insiders, and they keep good company.
In 2015 there were
3,700 public companies traded on a major stock exchange in the U.S. Compare that to nearly six million private U.S. companies in 2012 according to the
U.S. Census Bureau. Publicly traded companies are an exclusive club. To be listed on the NYSE or the NASDAQ you need revenue in the multi-millions. This means there are fewer top executive and board positions. Not just anyone gets asked to serve on a public company board!
And if your prospect does sit on a public company board, who else might s/he introduce you to?
3. You can find out if they have gifted stock in the past.
What a wonderful philanthropic indicator this is! You might not know who was the beneficiary of your prospect's goodwill, but when you view your prospect's insider transactions in MarketWatch, it clearly indicates when stock was gifted.
4. All compensation is public, which can help with strategy.
When you have a well-trained prospect research professional on staff, she will know how to tease out all of the important bits of an insider's compensation. Ask your researcher for her suggestions on gift timing and she can tell you when the prospect is likely to receive stock awards, have stock options in the money, or receive cash awards from derivatives (such as performance stock units (PSUs) based on the stock price, but which are not actual shares of stock).
Combined with the rest of the prospect's wealth and philanthropy picture, this information goes a long way toward informing your cultivation and solicitation strategy.
5. Even retired public company executives are public.
Whether your prospect retires, gets merged out of a job, or gets fired, if it is a public company you can know everything about the financial and other benefits the prospect received from any separation package - even many years later. It can often be difficult to assess a retired prospect's capacity to give, but with public company data you have some actual numbers from which to begin estimating.
Success is Preparation Meeting Opportunity
Those words of wisdom have been spoken many times by many people and I couldn't agree more. If you ever doubted the value of a well-educated and well-trained prospect research professional, find yourself a public company prospect and you will doubt no more!
The Wall Street world of high finance is complex and opaque. It is also an extremely exclusive club of individuals capable of making transformative gifts to your organization. Whether you are hiring a prospect research consultant or considering continuing education for your in-house professional, make sure an understanding of the world of public companies is on the skill list.
