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Qualities To Look For When Choosing Board Members For Your Micro- To Mid-Sized Company

Forbes Finance Council

Peter Goldstein is CEO, Exchange Listing, a strategic advisory firm that counsels high growth companies to list on senior stock exchanges. 

The lasting effects of the global pandemic; environmental, social and governance (ESG) considerations; political dynamics — today’s business climate is challenging. As the owner of a micro to mid-capitalized company, these pressures can be magnified, and having board members who are aligned with your company’s goals is critical. If you are considering or are already in the process of taking your company public, the selection of board members requires careful consideration.

In addition to representing shareholders and setting broad goals, board members should embody management’s interest regarding the hiring and firing of senior executives, executing dividend and options policies, and determining executive compensation.

Today’s corporations also need to ensure they are prioritizing the firm’s ESG policies. As sustainability and diversity increasingly impact corporate profits, these are serious considerations when selecting individuals to serve.

Good corporate governance is a strategic differentiator, particularly for smaller companies. While board members of every organization have the same fiduciary responsibility, serving on a small company board has unique challenges that vary significantly from large-cap-centric corporate governance.

It’s particularly important that each board member stays actively engaged. Taking the time to selectively choose substantive members can certainly help shape the board for success.

Some qualities to look for include:

Relevant financing expertise. Experience in a large-cap company doesn’t always translate into smaller company expertise. Having individuals with knowledge of micro to mid-cap financing is vital when the company is looking for new or additional funding. While large-cap board members can add value to a smaller company board, equally experienced smaller company peers bring actual knowledge of running the financing of a comparably sized company to the table. Large-cap companies often have strong balance sheets and liquidity, while small caps may need to frequently raise capital. Not having the proper corporate financing knowledge could lead to serious capital market mistakes. 

Industry track record and experience. What is the board member’s experience working in your industry? It is vital to have board members, especially for micro to mid-cap companies, that can leverage their prior industry experience and provide counsel to emerging-growth firms.

Public company/corporate governance experience. Does the board member have performance history with other public companies, and do they have experience with ESG policies? How many boards do they sit on? Experience is a good thing, but being spread too thin could mean less time for your small-cap company.

• Fully supportive of management. Does your board of directors share a personal belief in your company’s business model and management team? Do they have a financial interest? Board members putting their own interests ahead of shareholder interests is definitely cause for concern.

Your Board Member Dropped The Ball. Now What?

What options are available when a board member doesn’t meet expectations or has conflicting interests?

While the roles and responsibilities of the board chairs and committee members are clearly stated, things can still go awry. Conflicting agendas, insufficient experience, lack of incentive, loss of interest or unforeseen personal circumstances are all reasons that board of director performance is not optimal.

In cases where a board member is causing extensive damage by poaching executives, leaking information or putting their personal interest above that of the organization, how can you remove a board member? Replacing a board member is not a simple task, but it is possible.

If there are growth changes in your company’s future, such as acquisitions, listing or uplisting, this could be an opportune time, as any type of change that requires a different skill set paves the way for a smooth transition to replace a board member.

Rules and procedures for removing and appointing new board members are typically outlined in a company’s articles. If direct communication does not work, a special committee session can be held to discuss the rogue board member and ways to remove the board member or trying to agree to have the board member resign from the board, (the optimal solution). If the director does not resign, then the company will have to call for a special shareholder meeting to remove the board member. Usually at that time, the company’s nominating committee will request and receive recommendations for a new board member from current board members. A full list of candidates will be reviewed by the committee, and potential candidates will be measured based on their prior board experience, evident leadership skills, specialized skill sets and diversity of experience in various roles.

Board Members In The New World 

While smaller companies might not have the same resources as their larger peers, building strong corporate governance is important if not even more critical. Establishing a strong framework can help a company avoid major missteps, develop a resilient structure and increase long-term shareholder value.

The pandemic has impacted many facets of running a company. Liquidity concerns, supply-chain issues and labor shortages can all put a severe financial strain on smaller-cap companies. Boards should have set guidelines on how to communicate with shareholders and how to best guide management.

Along with the pandemic, today’s board should also have a strong beat on risk management and cybersecurity. Being familiar with the higher risk levels of a smaller-cap company is imperative and establishing strategic management policies of cyber risk oversight can help set a precedent.

Whether your company is new and is just starting to search for board members, or already established and looking to change your lineup, what are some traits to steer away from? An individual who is only there to lend “resume credibility” or who doesn’t take on fiduciary responsibility won’t add any value to your business. And board members who approve board resolutions without fully understanding the actions may do more harm than good to a business.

Successful board members have several qualities in common, including being consistently engaged in dialogue with management, making proactive efforts to forward business objectives, and providing expertise and credibility within the company’s industry.


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