Companies may want to consider overboarding policies as time demands on directors increase

Photo courtesy of Christian Lambert on Flickr

Photo courtesy of Christian Lambert on Flickr

Rob Swystun, Pristine Advisers

Overboarding is in the news thanks to International Shareholder Services (ISS) including it in the organization’s policy updates for the 2016 proxy season, plus coverage from people like Joann S. Lublin of the Wall Street Journal.

Overboarding, of course, is when board directors sit on too many boards. But, just how many boards is too many?

Well, beginning in 2017, ISS will recommend a vote against or a withhold for a director who sits on more than five public company boards, which is down from the six it used to consider as being ok. Other proxy advisory firms and institutional shareholders have similar guidelines.

Limiting the number of boards directors can sit on is a common corporate governance measure, particularly among large cap public firms, as R. Douglas Harmon with Parker Poe Adams & Bernstein LLP writes in a JD Supra Business Advisor article. According to a Spencer Stuart survey, 77% of S&P 500 companies currently have policies that limit the number of boards a director can sit on. That’s up from 71% in 2010.

These policies often include numerical limits on the number of boards a director can sit on and a requirement for directors to obtain approval from the board or an applicable board committee before joining another board.

When you do the math for how much time board directors spend doing their boardly duties, it’s no surprise these limitations are so common. According to the National Association of Corporate Directors (NACD), directors of public companies spend an average of 248 hours per year for each board they serve on, which is up from about 191 hours per year in 2005. These hours cover tasks like attending meetings, traveling and conferring with management.

That’s a 30% increase over the last decade, coinciding with the rise of the Sarbanes-Oxley Act, the Dodd-Frank Act and the increased focus on corporate governance best practices those acts brought with them.

Using those NACD numbers, an average director serving on six boards spends 1,488 hours per year — which breaks down to 124 hours per month — on directorial duties. This is a lot of time for people who are already busy.

Of concern to companies who have board members that sit on multiple boards is where exactly the company sits in the hierarchy of those multiple boards. A mid-cap company who has directors that serve on S&P 50 boards, for example, may find itself lower on those directors’ priority lists. Also something to consider is the possibility that if a company elects a director who already sits on four other boards, that company may effectively be last in line when it comes to divvying up hours to allocate to each of the boards.

If a company doesn’t already have a policy in place that addresses overboarding, now may be a good time to look into it. Demands on directors’ time are likely only going to increase.

 

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