How Small-Cap Directors Can Surmount Challenges, Capitalize on Opportunities

March 12th, 2014 | By

While legislation—such as the Jumpstart Our Business Startups Act (JOBS Act) and Sarbanes-Oxley (SOX)—has eased some of the burdens small companies face when looking to go public, many of these companies now face the challenge of establishing effective governance structures. Limited resources and smaller staffs can lead to blurred lines between operations and oversight. Additionally, recruiting the right talent can also be difficult since small-cap companies may compete against their larger peers for talent.

Though lesser in market cap, these companies are growing in relative number. Small-cap companies compose nearly 80 percent of U.S.-listed public companies—4 out of 10 companies trade on the NYSE, Nasdaq, or NYSE MKT.

Recognizing that small-cap directors have a need for specific corporate governance resources, the National Association of Corporate Directors (NACD) developed the NACD Small-Cap Forums exclusive for small- and micro-cap company directors. The forums—held on April 10 in San Antonio and on July 17 in San Francisco—feature seasoned directors from small-cap companies and subject-matter experts on financing and capital markets and board building.

The keynote speaker is Adam Epstein, founding principal of Third Creek Advisors,  lead director of OCZ Technology Group Inc., and author of  “The Perfect Corporate Board: A Handbook for Mastering the Unique Challenges of Small-Cap Companies.”

Topics to be addressed include strategy and risk, board-shareholder communications, and shareholder activism. To view the full agenda or to register, visit

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Cybersecurity – Improvements Needed in the Boardroom

January 30th, 2014 | By

Cybersecurity is undoubtedly a critical aspect of board oversight, but an overwhelming majority of directors rate their and their board’s knowledge of IT risk as “in need of improvement.” More than three quarters of directors believe their personal IT knowledge could use a boost and nearly 90 percent believe the same of their board’s IT knowledge. A lack of cyber knowledge at the board level can lead to overreliance on C-suite experts and difficulty by directors in judging an appropriate level of involvement.

Recognizing the disconnect between the need for effective cybersecurity oversight and the boardroom’s lack of IT acumen, NACD, supported by Protiviti and Dentons, convened three roundtable discussions, bringing together directors, executives, and experts in the field of cybersecurity. These meetings provided insight into the numerous and significant risks presented by cybersecurity, while experts pinpointed deficiencies in board responses to threats and possible solutions. Key statements from participants prompted NACD, Protiviti, and Dentons to address issues demanding director attention and action:

  • Boardroom cyber literacy: “Cyber literacy can be considered similar to financial literacy. Not everyone on the board is an auditor, but everyone should be able to read a financial statement and understand the financial language of business.”
  • Identifying high-value information targets: “Do not just harden the perimeter, because hackers will get in. Accept that they can get in, and then design the strategy with the assumption they are already ‘inside.’”
  • Formulating detection and response plans: “When your company is hacked, do not start spending money like a drunken sailor.”
  • The human factor: “People are the constant weakness. Cybersecurity is a human issue. Often the biggest problems are caused by an inadvertent actor.”

Cybersecurity: Boardroom Implications contains information on these issues and more, including questions directors can ask when planning for a breach and when a breach is discovered. Click here for your complimentary copy of the report.

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Director-Shareholder Engagement: Limits and Possibilities

October 25th, 2013 | By

Stakeholder communication is clearly a hot-button governance issue today. Some stakeholders— including institutional shareholders, activist shareholders, and regulators—want to have a dialogue with directors. But directors have differing opinions about what—and whether—to communicate. Each board should consider the circumstances where it may or may not be appropriate to engage with shareholders—and why. This panel discussed communication with shareholders, based on the panelists’ collective experiences.

1. Ideally, boards should be proactive in reaching out to engage with shareholders. Shareholders are a great source of information about how the company is perceived, which may differ substantially from management’s views. For example, management may view the company as a high flyer, but the investment community may place it in the moderate growth category. Such dialogue can also alert directors to the magnitude of any investor dissatisfaction, although it’s important to note that investors don’t speak with a unanimous voice.

2. Boards should get regular information about their shareholders, covering the top 15 or 20 investors, as well as who is moving into and out of the stock. It’s also helpful to have the investor relations department talk to former shareholders to understand why they no longer own the stock. If directors are meeting with shareholders, the directors should be briefed on whether the shareholder representatives are on the proxy voting side or the portfolio management side, what the investor’s governance policies are, how the investor uses proxy advisory firm recommendations, and whether the investor has supported activists in the past. This is part of the extensive preparation directors should do before engaging in dialogue. It’s also worth noting that, as well as spending sufficient time to prepare, directors need to devote substantial time—sometimes weeks—to these outreach and dialogue efforts in order to be effective.

3. There are two other concepts to note. The first to consider is how traditional disclosures can be improved so companies can communicate with shareholders more effectively. One recommendation was for a two-page summary of the proxy to provide a plain English overview of the company’s governance. The second is to understand what commentators are saying about the company on social media. The potential problem is that outsiders who comment on the company aren’t obliged to be correct. But whether the company chooses to address incorrect information or not, it’s helpful for investor relations functions to track those messages, as incorrect information may influence investor perception.

Erroll B. Davis Jr.
Director, General Motors, Union Pacific Corp.

C. Kim Goodwin
Director/Trustee, Allianz Global Investors Mutual Funds, Director, Banco Popular Inc; Non-Executive Director, PineBridge Investments LLC

Debra J. Perry
Board Member, Audit Committee Chair, Korn/Ferry International; Board Member, PartnerRe

Robert Schifellite
President, Investor Communication Solutions, Broadridge Financial Solutions

This summary provided by PricewaterhouseCoopers.

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