Employer Due Diligence, Part 3-Financials

Financial information about a prospective employer is key to deciding whether to accept a job offer. If you contemplated going to work for Sears, JC Penney or a comparable large retail operation in 2019, a glance at their securities filings or even just exposure to the daily news might have prompted you to say “no thank you.” If you discover – and confirm – that your prospective employer is doing famously, you can feel more confident about accepting an offer.

This is not the kind of question that you can comfortably pose to either your interviewer or the individual who offers you the job. You don’t have to do that at all if you are applying to a publicly-traded company, a government agency or most nonprofits because this information is public and readily available. This blog will show you where to find financial information for these organizations.

The problem becomes more difficult if your prospective employer is a law firm or closely-held corporation, both of which are under no legal obligation to publicize their financials. We’ll tackle that challenge later in this blog.

Basic Questions

The fundamental questions you want answered – regardless of employment sector – are:

  1. Is the employer in sound economic condition? Naturally, you want to work for an organization that has a sound balance sheet and strong cash flow.
  • What does the future portend? This is a tricky question that does not lend itself to unsophisticated answers. See below for deeper insight into what you need to examine.
  • Are the financials accurate? For private sector employers, do not necessarily trust annual reports, prospectuses, SEC filings and the like since these are often “forward-looking” documents or documents that contain forward-looking statements that may – to put it kindly – cloud or even invert reality (see, e.g., Lehman Brothers Holdings rosy 8-K SEC filing dated less than a week before the firm imploded).

You need to do what you can to confirm that the information the company filed reflects reality. While legislators and regulators have made highly-publicized attempts to make public more accurate information (see, e.g., the Emergency Economic Stabilization Act of 2008, a.k.a., the financial bailout bill; the Sarbanes-Oxley Act of 2002; the Financial Modernization Act of 1998, a.k.a., Graham-Leach-Bliley), none of these has quite done the job.

Go into the financial online and print media to read whatever you can about your prospective employer. Savvy investors and interested citizens who paid attention to the writings of Yale economics Professor Robert Schiller (originator of the Case-Schiller Housing Index) would have had a much better handle on the bursting of both the dot.com bubble in 2000 and the housing bubble in 2007 in enough time to protect themselves and their investments.

Moreover, consult people likely to be in the know, such as industry officials and employees, industry trade association officers, staff and/or industry analysts and academics who focus on these issues. Caveat: filter what these individuals tell you through your own skepticism meter. They might have a point of view influenced by the position they hold, the organization they represent or whoever is paying them.

Public Companies

Publicly-traded companies are required to make public a wealth of financial information that is readily available through regulatory agencies such as the Securities and Exchange Commission, among others. There is also a large amount of information to be found in articles about these firms.

Closely-Held Corporations

Privately-held company financial information is more difficult to unearth. Nevertheless, there is quite a lot of information available. You just have to know where to look (see below). If the prospective employer is a large company, the Internet is sure to have considerable information about it. Smaller companies are more of a mystery. Here is where you need to scan the local media in the place where the company is headquartered of located for information.

Nonprofits

Companies registered under Section 501(c)(3) of the Internal Revenue Code are required to file a fairly detailed financial report annually with the IRS (Form 990). These are available in a number of online locations. The Foundation Center’s 990 Finder contains the filings of many foundations, public charities and other nonprofits. Websites like Guidestar, Economic Research Institute, and Pro Publica have free search tools to access 990s.

Government Employers

Government agency financials are very easy to search. Information about budgets, authorizations and appropriations are readily available from federal websites. When contemplating a government job offer, some of the questions about financials need to be fine-tuned:

Is the budget adequate to the mission? This may be a difficult question to answer without going into detail about what the mission is…and what it might take to achieve it successfully. It also requires at least a modicum of knowledge and sophistication about the structure of government and how different missions within an agency relate to each other and to the overall legislative program and priorities of the agency and the administration.

For example, the Trump administration’s fiscal year 2020 budget proposal called for a 30 percent cut in funding for the Labor Department’s Office of Disability Employment Policy. A little Internet research reveals that the estimated unemployment rate of disabled Americans of working age is 70 percent. The Office, therefore, is confronted with a Herculean task, one that a review of articles about this subject tells you that the Office is hard-pressed to meet even at what in prior years passed for full funding levels.

Another aspect of a “state-of-the-art” approach to determining if you should accept a job offer from this agency would be to review the two prior fiscal year administration budget proposals and their congressional fate. You would have discovered that similar proposed cuts went down to legislative defeat in Congresses in which both houses were under Republican control. Mindful that in 2019 the House is Democratic, there would be a strong chance that the proposed cut will not occur.

Is the agency’s annual appropriation increasing, decreasing, flat? It is not enough to look only at an agency’s current or proposed budget and be content with your due diligence. You also have to look at trends, both past and future. For example, say you are interested in civil rights and would like to work for one of the federal government’s civil rights agencies, such as the Justice Department’s Civil Rights Division, the Education Department’s Office for Civil Rights, the Equal Employment Opportunity Commission, or the Commission on Civil Rights. You look at each agency’s annual budget and they look strikingly inadequate. You examine past budgets going back several years and observe that agency appropriations have been in steady decline. Your inclination therefore might be to search for employment elsewhere.

It is also easy to be misled by public sector budget information. Funds authorized to federal agencies, for example, are not “real” until they have been appropriated by Congress. If you go by the budget the President submits to Congress each February, or on the authorization bills Congress enacts as part of the budget process, you may still be mired in fantasyland. It’s the appropriations bills that pass Congress and are signed by the President that doles out the real money.

Next: Employer Due Diligence, Part 4-Tracking Employment Trends