As NACD works with corporate directors of public, private, and nonprofit boards to oversee and ensure the long-term sustainability of the enterprise and bolster investor confidence, I am frequently asked: “What companies have the most significant challenges?” While unique challenges certainly exist across boards of all company types, many view the roles of small-cap public company boards to be quite challenging.
These unique challenges span time and effort (workload) requirements, compensation, talent, financing, regulation, risk, strategy, competition, and internal resources, just to name a few. Small-cap directors and governance professionals may identify and prioritize the unique challenges of these companies differently, however, but one thing remains constant and that is that small-cap companies represent the majority of companies listed on U.S. exchanges, and the long-term prosperity of these small-cap companies is essential to a growing, thriving economy.
So where can small-cap company directors turn to reinforce their strategic agility?
Second, I highly recommend that all directors read NACD’s Board Building white paper, another high-impact, quick read. Most important in this resource is the skill set matrix enclosed in the appendix. Many companies are now using the skill set matrix to both determine and articulate the experiences and talents required for their future strategies.
Lastly, I suggest that current and aspiring small-cap directors attend NACD’s Small-Cap Forum on April 10 in San Antonio or on July 17 in San Francisco. Both sessions will focus on current and emerging issues facing small-cap boards, and these interactive events will include a range of interactive, peer-to-peer networking opportunities for robust dialogue.
Contact me at hstoever@NACDonline.org if you have specific questions or suggestions on how NACD can assist you, your board, and other small-cap directors advance exemplary board leadership.
Know your audience–it’s often the first lesson in Public Speaking 101, but it’s also an important mantra for senior executives looking to improve the quality of their interaction with the board of directors. An issue my team often identifies when working with boards is a disconnect between the information the board needs and what the management team actually presents. We’ve seen this gap occur at companies of all sizes, industries, and levels of sophistication.
How management provides information to the board makes or breaks directors’ oversight role. Providing directors with the information they need to execute their duties is essential to fostering an environment where directors can succeed and be of most value to the company.
Through all my years of serving as general counsel, I have never received formal training on what directors require for their oversight role. Some questions that may arise are: What are their expectations for management? What perspectives do they bring to the table? What keeps them up at night? How much information is enough?
To help executive teams answer these questions, NACD recently introduced Executive Professionalism: Understanding Board Expectations, an innovative program that allows the executive team to step into the boardroom in order better understand the fiduciary and strategic responsibilities that influence the questions directors ask. Led by seasoned directors, this in-boardroom program is specifically designed to help the senior management team better understand the role of the board, deliver the information directors need, and understand how to best engage with their board to meet and exceed expectations on both sides of the table.
In addition to my team’s direct experience with our clients, the issue of gaps in expectations between the board and management is raised by NACD’s members much more frequently. NACD has developed two tools to help companies address this gap:
Late last year NACD released a white paper with McGladrey, Bridging Effectiveness Gaps: A Candid Look at Board Practices, which quickly became one of NACD’s most downloaded resources of 2012 and continues to be the most downloaded in 2013. The paper, based on four gatherings of directors and executives, notes that because directorship is a part-time role, the board must inherently rely on management for information. This can lead to a disconnect in communication, as the information the board needs is not necessarily the information management provides.
In an effort to accurately reflect the thinking of those “on the front lines,” boards often hear from voices outside of the typical four-officer lineup (CEO, CFO, COO, and general counsel). Nearly unheard of a decade ago, the chief risk officer (CRO) provides an example of a non-traditional C-suite officer uniquely positioned to fill an information gap. According to 2012-2013 NACD Governance Surveys, in public companies without a CRO, 64 percent of directors state that the level of information they receive on risk management is good or excellent. On the other hand, among the 28 percent of companies with a CRO, this level of satisfaction among directors increases by more than one-third to 87 percent. The difference is even clearer among private companies–48 percent of directors at companies without a CRO report high levels of satisfaction with received risk management information, and this increases by more than half to 76 percent of directors reporting similar high satisfaction levels at companies with a CRO.
These new and influential voices in the boardroom provide directors with the knowledge and experiences of those working day-to-day in various operational fields. Directors can draw on these diverse sources to ensure they have the breadth and depth of information needed for effective oversight. This solution, however, may present another issue; directors, while comfortable interacting with the typical four-officer lineup, may not have the same level of experience with non-traditional C-suite officers. In the same vein, these officers may not be as adept at providing the board with precise and relevant information.
The report includes position descriptions for, information the board can expect to receive in reports from, and deeper questions directors can ask of, these C-suite officers. A complimentary copy of this white paper is available to all NACD members, and is available to non-members for $15.