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.
As a delegate to NACD’s Advisory Council on Risk Oversight recently said: “Directors don’t know what they don’t know.” This Fortune 500 director was referencing one of the challenges facing corporate boards today: asymmetric information risk.
Asymmetric information risk refers to the risk inherent in the imbalance in the information flow between management and the board. Directors serve in a part-time capacity while the management team operates full time. Naturally, senior-level executives have a much deeper knowledge about the organization’s operational processes and risks than the board. As such, directors rely on senior management for the information necessary to carry out their oversight duties.
In our experience working with boards, we’ve found an effective solution for mitigating asymmetric information risk is to develop a systematic process in which the board is given access to the executive team – beyond the CEO. Examples of senior staff with whom the board should regularly meet include the chief risk officer, chief compliance officer, head of internal audit, chief ethics officer, general counsel, CFO, and chief information officer. NACD’s C-Suite Expectations: Understanding C-Suite Roles Beyond the Core helps directors understand the types of information they should provide.
One way to ensure that this systematic reporting occurs is to include a recurring slot for key executives and functional leaders to present – perhaps during the board and or committee executive sessions. The goal here is to help the board understand what keeps these executives up at night and anticipate issues in advance.
The board is responsible for providing oversight on the appraisal of strategic and enterprise risk. The inherent nature of a director’s role, however, results in a reliance on the information presented in the boardroom and between meetings, by select members of the management team. For the board to mitigate this natural imbalance in information flow, directors should have in place a systematic process for engaging with key executives, in addition to those limited few who traditionally participate in board meetings.
For more on leading practices in risk oversight, read the latest Summary of Proceedings from the NACD Advisory Council on Risk Oversight.
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: