Annalisa Barrett is a clinical professor of finance in the University of San Diego School of Business and the founder and CEO of Board Governance Research LLC; and Jon Lukomnik is Executive Director of the Investor Responsibility Center Institute (IRRCi). This post is based on an IRRCi publication authored by Professor Barrett.
As investors seek returns in non-traditional asset classes, some have turned to microcap public equity (defined here as companies with less than $300 million in market capitalization). Most of these companies are not included in major indices and many do not have analysts following them. Therefore, their governance practices have not received the same level of scrutiny as larger capitalization companies.
Despite microcap public companies’ importance in our capital markets, there is a paucity of studies examining their board composition and governance practices. This post provides insights into the current governance landscape in this asset class. Where available, comparisons are made to the boards of the companies included in the Russell 3000 Index.
Additionally, as calls increase for companies to have more diverse boards, a broader pool of director candidates must be considered. Larger capitalization companies’ boards often desire director candidates to have prior public company board experience in order to be considered for an open board seat. Directors serving on microcap company boards have boardroom experience, but may not have previously come to the attention of larger companies’ nominations and governance committees via traditional board searches. The complete publication provides an examination of the pool of these experienced directors from which larger company boards can draw.