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Overboarding–How Many Directorships are Too Many?

    Client Alerts
  • January 26, 2016

Every so often, the issue of “overboarding”—meaning directors serving on too many boards—pops up in the news or in corporate governance circles. On January 21st, a Wall Street Journal article by Joann S. Lublin entitled How Many Board Seats Make Sense? once again highlights that concern.

As Ms. Lublin points out, pressure to reduce the number of seats held by any one director has been applied from multiple directions for a number of years. Perhaps the best known view on this subject comes from ISS, whose voting guidelines will, beginning in 2017, recommend a vote against or withhold for a director sitting on more than five public companies boards, as compared to its current six-board guideline. Other well-known proxy advisors and institutional shareholders (for example, CII, BlackRock, TIAA-CREF and CalPERS, to name a few) have similar, though slightly different, guidelines.

Limits on directorships are now widely accepted as appropriate corporate governance, particularly among large cap public companies. For example, Ms. Lublin cites a Spencer Stuart survey stating that 77% of S&P 500 companies have adopted policies that limit board memberships, up from 71% in 2010. These policies generally take the form of:

  • specific numerical limits on the number of board seats,
  • requirements for directors to obtain approval from the board or the applicable board committee (usually the nominating and corporate governance committee) before joining another board, or sometimes before taking on another key board committee assignment, or
  • some combination of the foregoing.

Though such limitations are not new and are relatively widespread, this statistic from the National Association of Corporate Directors referenced by Ms. Lublin caught my eye:

“Directors at public companies spend an average of 248 hours a year for each board served, up from nearly 191 hours in 2005….[covering] tasks such as attending meetings, travel and chats with management.”

That’s a whopping 30% increase over the last decade, which coincides with the rise of the Sarbanes-Oxley Act, the Dodd-Frank Act and the related increased focus on governance best practices. Simple math indicates that an average director serving on six boards is spending 1,488 hours per year, or 124 hours per month, on his or her aggregate duties as a director. This strikes me as a lot of time, particularly since most of these highly successful individuals are otherwise extremely busy.

And here’s another interesting perspective suggested by Ms. Lublin: companies should consider where they fall in the hierarchy or chronology of the various boards on which their particular directors sit. For example, a mid-cap company whose directors serve on four or five other S&P 50 boards may not be their highest priority, particularly if one of those large cap companies experiences a major event. Also, consider the dynamics of adding a new director who already serves on four or five other boards: will your company be last in line for that director’s additional, harried, marginal hours?

The point is that it may be time to dust off your old policy to be sure it has kept up with the dramatically increased time and focus demanded of modern directors. You may find that evolving parameters of “overboarding” warrant policy revisions in order to match your company’s specific circumstances.