The Transition from Large-Cap to Small-Cap Boardrooms Can Be a Rocky One


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Experienced small-cap investors are often circumspect when large-cap officers and directors join the board of a small-cap company.  Precedent suggests that such trepidation is well-earned.

If serving on the board of a large-cap company is like staying at the Four Seasons, small-cap board­room service is akin to camping. When directors who are more ac­customed to the accoutrements of the former decide to “rough it,” sometimes it’s a great boardroom experience, and sometimes it isn’t.

small-cap board service

Resource Shock

In Silicon Valley, leaders of early-stage companies are known to joke that in addition to being CEO, they are also in charge of arranging office furniture, stocking the re­frigerator, and fixing copier paper jams. Large-cap professionals who might not initially appreciate the start-up CEO’s lament must con­front these realities after joining a small public company board.

The disparity in resources should never be taken lightly by small-cap boards or their large-cap invitees. Large-cap company professionals are often taken aback by diminutive director and officer policies underwritten by sometimes less-heralded carri­ers; smaller professional service providers; no governance staffs; under-resourced finance depart­ments; minimal or nonexistent onboarding procedures; small (or no) budgets for board advisors; and sometimes minimal (or no) cash stipends for board service.

Those from large-cap settings need to be frank with themselves about whether the ability to endure such a “baptism by fire” is really in their DNA, particularly if it’s their first public company directorship. Similarly, small-cap boards need to be realistic about what they might be getting with their large-cap transplant. What small-cap boards define as “hands-on” might mean something different to those from resource-rich companies.

Experience Gulf

Although governance best practic­es apply to companies of all sizes, it’s inescapable that overseeing a company like Chevron is a fun­damentally different undertaking than being on the board of a pre-clinical biotech company with a $50 million market capitalization.

Areas that might require no boardroom oversight at a Fortune 500 company could require rig­orous review at a smaller public company, not to mention unique expertise. For example, Apple’s board probably doesn’t spend appreciable time reviewing Tim Cook’s investor presentations prior to his meetings with institu­tional investors. But for the board of a nascent, cash-starved com­pany where a first-time CEO is about to undertake a “must-have” round of financing, it’s a formi­dable enterprise risk that requires acute monitoring. Moreover, a Fortune 500 CEO under con­sideration for a small-cap com­pany’s board might know a lot about transacting a $3 million private placement with a mixture of small hedge funds and retail in­vestors, but they also might know nothing at all about that.

For directors with considerable experience governing large pub­lic companies, it’s always an ad­justment to oversee management teams that might lack material public company leadership expe­rience. What’s often even less ap­preciated by large-cap directors is what it might be like to serve on a board with directors who lack sub­stantive governance experience. Unfortunately, two director arche­types abound: the “my way or the highway” large-cap veteran, or the easily intimidated neophyte small-cap director who becomes passive when faced with directors with ex­tensive large-cap experience.

Parties regularly fail to approach these relationships from informed perspectives. Large-cap officers, directors, and professional service providers interested in small-cap board service should consider seeking relevant education to get a realistic sense of what awaits. Simi­larly, small-cap nominating and governance committees should be clearer about their “asks” when considering a prospective director from the large-cap world.

Like most relationships, this is one best entered into with both eyes wide open.

This post was originally published in Directorship, September-October 2016.


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A globally recognized small-cap expert, Mr. Epstein has advised, governed, and invested in hundreds of small-cap companies. His capital markets and corporate governance acumen are products of a singular perspective – a former corporate attorney, operating executive, institutional investor, and, now, board advisor. As Bloomberg Businessweek commented regarding Mr. Epstein’s category-defining corporate governance book, “attention, directors of small-cap companies. Help is on the way.” 

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