Choosing the Right Independent Board Members for Your Company

We work with a global small cap client base, but one thing is the same across continents.

When you’re gearing up for an IPO, it’s necessary to meet the listing requirements of the specific stock exchange you are targeting.

For example, Nasdaq and NYSE outline the requirements for the board of directors including independent board members.

While the two exchanges differ slightly in their definitions, an “independent director” essentially means an individual having no material relationship with your company, such as an executive officer or employee. This means you must identify board members  who don’t have a relationship with your company that could cloud their decision making in carrying out their responsibilities.

In the US, independent outsiders make up 66% of all boards and 72% of the S&P 500 company boards (Wall Street Journal).

If you’re searching for independent board members, we recommend the following key qualities to our clients:

  • Interest in and knowledge of your industry sector
  • Knowledge of your company and skills that align with the company’s mission
  • Public company experience
  • Expertise in corporate governance, accounting and / or previous tenure as a board member of a small cap public company
  • Board diversity and a demonstrated commitment to diversity and inclusion

Speaking of diversity, Nasdaq proposed a rule last year – now under consideration by the SEC – which would require companies to have, or explain why they don’t have, at least two diverse directors on their board, as well as report on the diversity of their board of directors. Diversity would include at least having one director “who self-identifies as female” and another “who self-identifies as either an underrepresented minority or part of the LGBTQ+.” Even though the proposal has yet to take effect, many companies have recently increased their female and minority board appointments.

Other qualities to look for in a board candidate are strong communications skills, high ethical standards, willingness to ask difficult questions, and the ability to develop solid working relationships with other board members.

What qualities has your company looked for in independent board members?