This "case study" is the latest in a series of articles aimed at helping public companies understand how other organizations are using technology to comply with new regulations and standards. These are not advertisements or marketing vehicles for the companies mentioned; Compliance Week's editorial staff speaks with the public company that has deployed the technology, and the article is written without the input—and in many cases the knowledge—of the vendor.

DETAILS

THE COMPANY

Company

Valeant Pharma.

HQ

Costa Mesa, CA

Employees

4,300

Industry

Anti-viral drugs.

'04 Rev.

$682.5 million

'05 Net

($169.8 million)

THE CHALLENGE

Valeant Pharmaceuticals, a sprawling business with more than 100 companies scattered in 40 nations, had to document all of its legal entities to meet financial reporting requirements both in the United States and abroad.

SOLUTION CHOSEN

California-based Planitax' Global Entity Manager product, which features a Web-based storage capability.

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F

ew compliance obligations today intimidate a corporation more than the Sarbanes-Oxley Act. The tax code, however, is one of them—and by the fall of 2003, Valeant Pharmaceuticals had fallen woefully behind in efforts to obey tax codes both at home and abroad. An acquisition spree in the 1990s had spawned a tangle of legal entities, with little resemblance to the company’s management structure. Tax burdens were misunderstood; deadlines were missed. Valeant even botched a tax filing overseas, leading to a nine-figure tax bill it still fights in court.

Into that fray stepped Jeremy Lipshy, tax manager at Valeant’s five-person tax department, in November 2003. His job was to establish Valeant’s first-ever organizational chart for legal entities, and to create a database that could store all relevant documentation so auditors and lawyers could quickly discern which holding company own what subsidiary, and how much tax was owed to whom.

“We grew through acquisition, and post-acquisition there wasn’t a lot of restructuring done,” Lipshy admits. Valeant should have been tracking items such as inter-company agreements, withholding requirements and dividend requirements, and “historically that was not done … There wasn’t really a process. There was one person doing the best he could trying to devise separate-entity financial statements.”

Process, Lipshy decided, was what Valeant needed. He wanted “a single point of truth” that could track legal entities and marshal supporting documents when auditors needed to see what Valeant’s tax liabilities were. A self-professed computer junkie, Lipshy envisioned a Web-enabled application that could drill through various levels of data on a user’s whim, perhaps to see what the filing requirements were in a specific nation, what intercompany agreements a subsidiary struck last year, or what Valeant’s legal structure looked like eight quarters earlier.

Simplicity The Key

Lipshy, who had previously been with KPMG, was already familiar with many of the software options that could potentially address Valeant's challenges. As a result, he was more prepared than many of his peers to select and implement the required application.

In fact, perhaps most importantly, Lipshy knew what not to do. While at KPMG, he had seen many clients attempt to deploy "bulky" proprietary software applications to create and store documents in a central database. According to Lipshy, none of those clients could ever quite tweak the application to their satisfaction.

Hence his first rule in selecting a software vendor was simplicity. “I wanted something simple to use and to implement.”

And because he was already aware of the vendor landscape, he was able to keep his search narrow and brief. In fact, Lipshy says he began looking for vendors in January 2004, and considered only two firms.

The vendor selected was Planitax, which had approached Lipshy directly to pitch its Global Entity Manager product. Based in Emeryville, Calif., Planitax was founded in 1999 to help companies streamline tax processes and compliance activities, which are typically costly and time-consuming.

Founded by a tax expert who has provided services for numerous Silicon Valley companies such as Sun Microsystems, SGI and PeopleSoft, Planitax emphasized simplicity and efficiency in its solutions—a message that resonated with Lipshy. The company, which is privately held and venture backed, has landed numerous large corporate customers including SBC Communications, $3.8 billion Guidant and Cypress Semiconductor.

The specific Planitix product that was being pitched to Lipshy, Global Entity Manager, was developed to assist companies in keeping complete and accurate records of their legal entity structure and related tax attributes, which was exactly what Valeant Pharmaceuticals was seeking. The product stores entity information in a central repository, and tracks myriad related minutiae—from governance information to tax jurisdictions. Access to the data is provided only to authorized users, and complicated organizational or entity data can be viewed graphically; this feature would provide a powerful tool enabling Lipshy to view Valeant's complicated entity ownership and relationships.

Global Entity Manager also comes with document management capabilities, which enables legal and tax documents—from bylaws and tax filings to board minutes and resolutions—to be stored and linked to the appropriate entities.

“They hit everything we needed," says Lipshy. "Web-based, easy to maneuver, [and] storage capability to put documents in there.”

Better still, Planitax offered a "hosted" solution, saving Lipshy and his IT colleagues the headache of implementing the software on their system.

Valeant signed a contract with Planitax in first quarter of 2004, and the system was running by March.

A Nifty Tool

In some ways, Global Entity Manager forced Valeant to implement more professional and diligent processes across the organization.

For example, before implementing the Planitax solution, Valeant had no processes at all to manage its document storage. Typically, when executives created a document worth saving—for example, profit-and-loss statements, acquisition agreements, or board meeting notes—the executives would simply store the documents on their hard drives, or on local department networks.

Now, Global Entity Manager creates copy of the document as a "PDF" file, and stores it in a database for Valeant. Only executives with the proper access rights can view the document, and all activity is tracked and audited. This required some training of relevant executives, but the improvement in accuracy and controls has been worth the effort.

Currently, only two departments at Valeant use the system so far: tax and legal. Lipshy’s tax department uses Global Entity Manager primarily to store various financial documents, while the legal group uses the system to store its own work: incorporation papers, meeting minutes, and other material necessary for compliance obligations.

The ancillary benefits, however, are immense, specifically as they relate to time savings. Lipshy, for example, no longer needs to spend time developing legal entity charts every quarter when Valeant’s outside auditors ask for them—he merely queries the data and shows them the results. “It’s a nifty tool,” he says. “I see it going to anyone who needs access to global data.”

To those ends, company plans to roll out the system to its treasury department this year, and eventually to managers at regional holding companies around the world.

However, Lipshy is quick to add that Valeant will not give all employees access to the application. That's partially due to the fact that he wants to maintain good internal IT controls, but also due to the fact that most employees simply don't need access. “Day-to-day operations people won’t ever have a use for this,” he says.

At the local level, Global Entity Manager could essentially serve as a content-management system, enabling executives to see which unit owns a piece of intellectual property, or what the terms of a government’s drug approval are. They could also use the application to track data relative to Sarbanes-Oxley compliance. “It’s one of those things that, in the past, historically nobody would care about this stuff,” Lipshy says. “In the day of Sarbanes-Oxley, at every level you have to verify that you have valid agreements in place.”

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