SCI Exclusives: Unique Small-Cap Boardroom Challenges with Fund Manager Joseph Manko5 minute read

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This is the third in a new series of live interviews (SCI Exclusives) undertaken by Small-Cap Institute’s (SCI) editorial advisory board member, Amanda Gerut, where SCI will be spending time together with renowned investors, capital markets experts, and seasoned small-cap leaders. Though a larger selection of videos from these interviews are archived and available for members, we will occasionally publish excerpts – together with some commentary – for the benefit of non-members.

It’s one thing to have a great career in investment banking, a standout career in law, or be a long-tenured institutional investor; Joseph Manko, Jr.* has done all three. In his senior role at The Horton Fund, Joe now has a front row seat daily to the unique boardroom challenges faced by small-cap companies. SCI is confident that you’ll learn from his candid, poignant observations.

On governing a public company run by a first-time CEO  

One of the key differentiators of small public companies is that they are often unable to afford experienced public company CEOs.  Unlike their large-cap colleagues, small-cap board members regularly oversee CEOs who are not only operating a public company for the first time, but some may also have never been CEOs before.  As Joe points out, many small-cap CEOs understandably have some experience gaps that they need to be candid about with boards, and boards need to have the requisite expertise and willingness to bridge those divides.

Incentive-based compensation: the devil is in the details

Every small-cap investor is concerned about revenue growth and profitability.  But executive compensation needs to be driven by incentives that are company specific versus one-size-fits-all.  Listen to Joe talk about one of his portfolio companies and how large a portion of executive compensation is focused upon key performance metrics other than EBITDA and revenue.  As Joe adroitly points out, getting executive compensation right is about in-depth company/industry knowledge as much as it is about what’s actually going to motivate a given management team.

On boards comprised of the CEOs friends

You could easily be convinced by reading The Wall Street Journal and listening to CNBC that shareholder activism is a large-cap phenomenon, but in reality the opposite is true.  Most shareholder activism is in small-cap companies, and the lion’s share of campaigns are waged due to improperly comprised boards.  When asked what most requires systemic mending in the small-cap ecosystem, Joe doesn’t hesitate; his primary focus is on boards that are principally comprised of the CEO’s friends, and his example will have every experienced small-cap investor nodding their heads in unison.

Takeaways

Joe has witnessed high-growth companies succeed and fail all around the world from every conceivable angle.  If you’re one of those officers or directors who still is undecided as to whether boards are really that impactful upon corporate performance, you probably won’t be after listening to him.  Count Joe among the countless, hyper-experienced investors who know that better governed companies… perform better.

There are additional clips from our interview with Joe Manko, available exclusively to SCI members. For those who qualify, you may join here, at no cost: https://smallcapinstitute.com/join/

* Joseph Manko, Jr. has over 20 years of investment experience, predominately in the asset management, investment banking, private equity and corporate securities markets. From 2005-2010 Mr. Manko was a Partner and Chief Executive Officer of Switzerland-based BZ Fund Management Limited, where he was responsible for corporate finance, private equity investments, three public equity funds and the firm’s Special Situations and Event-Driven strategies. Prior to that Mr. Manko was a Managing Director with Deutsche Bank in London where he was head of their European and Asian Equity Capital Markets business. He began his investment banking career at Merrill Lynch as a Vice President in Hong Kong.  Before beginning his investment banking career, Mr. Manko was a corporate finance attorney at Skadden, Arps, Slate, Meagher & Flom. Mr. Manko has served on the board of several European companies, participated in numerous successful shareholder value creation strategies, and helped companies raise substantial amounts of growth capital. Mr. Manko earned both his B.A. and Juris Doctorate from the University of Pennsylvania.