One of the unsung heroes of successful micro-cap companies is their board of directors. While management is tasked with running day-to-day operations, a well-structured and incentivized board will allow a company to flourish. Whether board members are experts in public accounting, seasoned industry insiders or capital markets experts, each of these individuals should be counted on to lend a hand – or two.
When forming their board or expanding the ranks of its members, small and micro-cap companies should consider a number of important factors:
1. Determine qualifications and appropriateness. Confirm that each board member possesses the appropriate skills the company requires. For example, good micro-cap board members are often called upon to mentor less-mature management teams, many of which are led by first-time CEOs who lack the experience or insight to effectively manage large organizations or navigate the capital markets. Determine the requirements of a specific board member before filling the position; you’ll be surprised at the size of the pool of highly qualified candidates
2. Check references. Most board candidates come from referrals and, while that’s a great starting point, it is imperative to properly vet prospects. In addition to speaking with referees, companies should consider using outside organizations to complete a thorough background check
3. Confirm commitment. Make sure board candidates are able to commit the time necessary to be additive to the company. Management is encouraged to be upfront in describing the time commitment required of its board members. Potential red flags include candidates who continue to maintain an active work schedule, sit on multiple boards or spend an inordinate amount of time pursing leisure activities. While none of the aforementioned issues are deal-breakers, they should be considered part of the vetting process
4. Properly incentivize. The best way to ensure management gets the most out of its board is to ensure the board is properly incentivized. For some board members, it’s the compensation (cash and stock) package; for others, it’s gaining access to like-minded professionals or the intellectual stimulation the position offers that drives their desire to work hard for the company. Whatever makes your board members tick, try to build a compensation package that reflects that.
Finally, one of the most important factors to ensure success is management’s willingness to check its ego at the door and lean on its board. While there is little doubt the CEO is the face of the company and the target of any potential shareholder ire, it is imperative for senior management and its board of directors to work in tandem toward a common goal – and in the best interest of all stakeholders. Similar to how the British speak of the Royal Family, the board has been assembled to serve at the pleasure of its shareholders.
These individuals have been successful in their own right and bring to bear tremendous value-add; they’ve been named board members for a reason! Their sole purpose is to support and guide management, open doors and, when necessary, provide a swift kick in the proverbial ass.
Jeffrey Goldberger is managing partner at consultancy KCSA Strategic Communications
