Strategic Governance for Small and Mid Cap Companies
Pragmatic discussion involving:
How to simultaneously govern for growth, survival, acquisition or sale
Strategy Development and Risk Management go hand in hand
Information Technology Strategy
Thought diversity & corporate culture and board composition issues
When CEO is founder & company has exceeded their skill set, what to do?
Communication with shareholders before activists comes to visit.
Bob Dennerlein - Executive Vice President and Chief Financial Officer - Dialogic
Alex Katz - Partner and Chief Financial Officer - ff Venture Capital
William Kraut - Lead Independent Director and Chair of the Audit Committee - InTest Corp.; Director - NACD NJ
Richard Lufkin - Director and CFO - Anima Cell Metrology; Director - NACD NJ
STRATEGIC GOVERNANCE FOR SMALL AND MID CAP COMPANIES
On March 24, 2016, the membership participated in an interactive panel on the issues faced by boards of small and mid cap companies in managing company strategy. The meeting was hosted by the Rothman Institute of Entrepreneurship, a division of the Silberman College of Business of Fairleigh Dickinson University. The distinguished panel of experts included Bob Dennerlein, EVP of Dialogic who has had extensive experience in private company buyout transactions; Alex Katz, CFO of ff Venture Capital who has worked with early stage and growth companies for over thirty years; and Bill Kraut, board director of several private companies and published author on the subject. The panel was moderated by Rick Lufkin, a self described “serial entrepreneur” and experienced board member of several small science based companies. Bill and Rick are also board members of the NACD New Jersey Chapter.
Board dynamics in a small or mid size company are different than they are in a larger company. Driving factors include the complexity of the ownership structure, who controls, and cultural differences that make a board member’s people skills very important. All major board actions can have life threatening consequences for the company. But often a board is de facto more a board of advisors than a decision maker.
Company dynamics that involve constant interaction with management and shortened time horizons often make it difficult for the board to focus on strategy, as opposed to day to day tactics. Development of good strategy may require intentionally holding meetings outside company offices and one and one informal interaction between board members. The board must challenge management strategy assumptions and set out a roadmap for achieving strategic objectives, along with an appropriate budget. Be proactive, not reactive. Strategic planning is not a “one and done” process. It must be constantly updated as circumstances quickly evolve. Strategy and risk management for such companies go hand in hand.
Optimal board composition for such companies is also frequently different, calling for operations and marketing experience in addition to financial skills. Functional diversity is paramount. The key is to be sure that different thought processes are represented on the board. Board structure can also have a substantial impact on the strategy process. Is the board staggered? Does it have an independent chair? Is there an investor representative on the board? The line between board governance and strategy can often be blurred.
It is very important for a board to act if it becomes apparent that the CEO or an ineffective director should go. Such a CEO may also be a major or controlling stockholder which complicates things. Small and mid size public companies whose stock can easily be manipulated by activist investors are especially exposed to potential negative consequences. “Persuasion techniques” for such individuals can include a reduction in compensation or even, in an egregious case, a gentle reminder about federal sentencing guidelines. But if an ineffective CEO refuses to resign, a board member must be prepared to resign as a last resort.
Board members of such companies in need of new capital are wise to keep in mind the mindset of investors. Venture capitalists feel that the “east coast” approach of managing a growing company is often too pedantic. On the other hand, they tend to feel that the “west coast” approach is too lax, especially at pre-revenue companies. Most venture capitalists will not write checks more than twice, although it is recognized that time horizons for bioscience companies are very long (10 to 12 years).
Location and Time
Fairleigh Dickinson University - Orangerie Room in Monniger Center
285 Madison Avenue
Madison, NJ 07940
Breakfast: 7:30 a.m. - 9:30 a.m.