Market Overview

New Study Identifies Key Corporate Governance Differences between Microcap and Larger Companies


Microcap Boards Smaller, Less Independent and Less Diverse

Microcap Study Stats: 22% of Boards Studied Have Five or Fewer
Directors; 61% Have No Female Directors; and 70% of Companies with
Combined CEO/Chair Have No Lead Director

Webinar to Review Findings on August 22nd at

A new in-depth analysis of micro-capitalization (microcap) public
companies finds that the corporate governance of these companies with
less than $300 million in market capitalization differs materially from
that of their larger brethren.

The new study, Microcap
Board Governance
, conducted by Board
Governance Research LLC
and commissioned by the Investor
Responsibility Research Center Institute
(IRRCi), examines the
governance practices at 160 microcap companies, representing
approximately ten percent of all companies with less than $300 million
in market capitalization traded on a major U.S. stock exchange.

Most of these microcaps are not included in major indices and many do
not have analysts following their performance. Possibly as a result,
microcap governance practices have not received the same level of
scrutiny as larger capitalization companies.

Download the full study here.
for a webinar on Wednesday, August 22nd at 4:00 PM ET to review
the findings.

Among the study's key findings were:

  • Microcaps typically are not young, nor do they feature dual class
    . The vast majority (86 percent) of the study companies have
    been in existence for more than a decade. Also, few (seven percent) of
    the companies studied have multiple classes of stock and even fewer
    (four percent) have one shareholder controlling more than 50 percent
    of the common stock. These findings contradict common misconceptions
    that many microcap companies are early-stage growth companies or are
    controlled by founders or early funders.
  • Microcap boards are less independent than larger corporations'
    boards. Some 61 percent of microcap boards have fewer than 80 percent
    independent board members, compared to 51 percent of large companies.
    Also, while large cap and microcap boards are just as likely to have
    combined the roles of CEO and board chair, microcap companies are
    unlikely to have an independent lead director in such circumstances --
    70 percent of such microcap companies have not named a lead director,
    despite that being considered best practice.
  • Microcap boards are less gender diverse. The majority (61
    percent) of microcap companies have no female directors. By contrast,
    only 21 percent of the Russell 3000 boards have all male boards.
    Additionally, only 12 percent of the microcap companies have more than
    one female director, while nearly half (45 percent) of Russell 3000
    companies have more than one female director.
  • Microcap boards are smaller. The average microcap board has 6.9
    directors, compared to 8.9 at larger companies. Nearly a quarter (22
    percent) of microcaps have boards with five or fewer directors.

"Microcaps are an intriguing and often overlooked corner of the equity
market," said Jon
, IRRCi executive director. "This report is a much-needed
deep dive into the corporate governance of microcaps so investors can
better understand the landscape. The findings contradict a number of
microcap misconceptions. For example, these aren't necessarily young
companies with the founder at the helm. Instead, about one-quarter of
microcaps have been public for less than five years and only 14 percent
of microcap CEOs are the founders."

Lukomnik added, "At the same time, the report suggests some paths
microcap companies should consider moving toward consensus best practice
for corporate governance. For example, there is nothing associated with
size that suggests it is a good idea to have an all-male board or to
fail to establish the position of a lead independent director when there
is a combined chair/CEO structure."

"The smallest U.S. companies play an important role in our economy, so
everyone has an interest in how they are governed," said Annalisa
, report author, chief executive officer and founder of Board
Governance Research and clinical professor at the University of San
Diego School of Business. "Investors, employees, customers and suppliers
of these microcap companies all benefit when they are well-governed and
their boards have the optimal structure and practices in place to
provide effective oversight and guidance to management," Barrett

Other key findings of the report include:

  • Only one in seven (14 percent) of the microcap CEOs studied are the
    founders of the companies they lead
    , contrasting the notion that
    many small companies are founder led start-ups.
  • Only four percent of the microcap companies studied have a majority
    shareholder who owns 50 percent or more of shares.
  • Director election standards differ. While the majority (54
    percent) of Russell 3000 companies have adopted majority voting for
    director elections, only 11 percent of microcap companies have done so.
  • Microcap directors may have less boardroom experience, as only
    17 percent of them currently serve on the boards of other
    publicly-traded companies compared to 35 percent of Russell 3000
  • Microcap boards have more variability in the number of board
    meetings held than do larger companies
    . More microcap boards (24
    percent) held 12 or more meetings as compared to the 17 percent of the
    Russell 3000 boards which did so during the study year. On the other
    hand, microcap boards were also more likely (five percent) than
    Russell 3000 boards (two percent) to have held fewer than four
    meetings that year.
  • The committee structures in place at microcap boards tend to be
    less complex than those of larger company boards
    . While the
    microcap boards studied are just as likely to have the three key
    committees (Audit, Compensation and Nominating/Governance) as the
    Russell 3000 boards, they are less likely to have additional
    committees. Further, many microcap board committees meet only once a
    year and some reported holding no meetings during the study year.

The Investor Responsibility Research Center Institute is a
not-for-profit organization headquartered in New York, NY, that provides
thought leadership at the intersection of corporate responsibility and
the informational needs of investors. More information is available at

Board Governance Research LLC provides independent research on
corporate governance practices, board composition, and director
demographics. For more information and to see the firm's research on
various corporate governance topics, please visit

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