Board Composition

The dangers in sitting on too many boards

There has been a strong reaction against “overboarding” – the practice in which a company director sits on a number of boards of directors. According to Institutional Shareholder Services’ statistics, close to 11 per cent of Australian directors are on four boards or more. Given the heavy demand on board member time that a single company’s board requires, working on so many different boards means spreading oneself very thin, according to the shareholder organisation.

There is also a growing recognition that overboarding leads to poor performance: “We call it ‘trophy collecting,’” writes the Christchurch-based Gryphon Management Consultants in a recent blog. Gryphon points to one New Zealand director who was on 11 boards. Given that a director spends on average about 250 hours a year acting as board member for a single organisation, it’s difficult to see how that person can find the time

On too many boards?  An “unpopular discussion”

“Over-boarding is a serious issue and one that is not a popular topic of discussion at the board table. Why, because it means having a difficult conversation with directors who in some cases, clearly have too many governance roles,” Gryphon points out.

But the chairman and directors need to have this conversation, one that includes the executive team, to discuss how over-boarded directors impact the performance of the board. “If your board is brave enough to have that conversation, here are some suggested questions to start with, according to Gryphon;

  1. How many is too many boards?
  2. What standard of performance do we want from our directors?
  3. How will we measure that?
  4. What process do we have to keep track of the number of boards our directors sit on?
  5. Is there a formal process of request that a director must use before considering or accepting another role?

How many is too many boards? ISS has guidelines

ISS policy today is to make explicit reference to a recommended maximum number of board positions, and indicate that ISS may recommend against directors considered overboarding. This approach is consistent with ISS European policy, and the proposed policy limits for other countries are as follows:

  • Executive directors are not expected to hold other executive or chairmanship positions. They may, however, hold up to two other non-executive directorships.
  • A board chairman is not expected to hold an executive position elsewhere, or more than one other chairmanship position. The chairman may, however, hold up to three other non-executive directorships.
  • A non-executive director who does not hold executive or chairmanship positions may hold up to four other non-executive directorships.
  • In assessing outside directorships and board positions, only publicly-listed companies will be counted.
  • The proposed policy also states that a stricter view may apply (case by case) for directors who serve on the boards of complex companies, or those in highly regulated sectors.

Dutch use points system for overboarding

This has been a fraught subject of discussion for many years. The Australian Institute of Company Directors (AICD) thinks that it’s too simplistic to just declare that two boards or three boards or x boards is the limit.

They propose a system like that used in the Netherlands, in which a points system is used to evaluate directors’ time commitment to a given board, and how much would be to spare for another one.

Deborah Page, an AICD fellow, is used to juggling a busy board portfolio, according to a note. Over a long governance career, she has typically served on four corporate boards and a not-for-profit at once. Page says these multiple directorships have expanded her board skills and experience by exposing her to diverse issues. It has also built her director intuition, she says.

“As the chair of audit and risk-management committees, I get exposure to different audit firms and consultants, different management and financial reporting, and different approaches to risk-management frameworks and risk-appetite statements,” she says. “What I glean from one corporate’s issues or emerging trends puts me on notice for others. My work with a technology company, for example, assists my input into tech developments and challenges across other roles.”

Preventing overboarding helps boards to refresh

Nonetheless, directors are stepping down from boards to avoid being seen as overboarding. As board directors are asked to step down from their positions or choose to do so of their own accord, it gives boards an opportunity to recruit fresh talent. This creates a prime opportunity to take a hard look at the board’s diversity and round out the board with more women and members with useful skill sets who offer a great variety of perspectives in the interest of decision-making.

More rapid change is clearly coming to boards of directors and the related governance – this simply reflects the trends in a more rapidly evolving society. The social environment has grown infinitely more complex, and the economy much more volatile – trends for boards thus require Modern Governance tools to react to changes around them.

In light of that, boards need a software solution provider that takes modern governance into account. Diligent Corporation is an industry leader in Modern Governance board management software. Forward-thinking, progressive companies know that they can rely on Diligent Corporation to provide them with digital products that will serve them now and well into the future.

Effective succession planning with Diligent Nominations

With the spotlight on issues surrounding boardroom diversity and composition, access to data and analytics to spot opportunities to diversify your board is now a requirement. Whether or not you are already supported by consultants, enabling your Nomination and Governance committee with the right applications will lead to more effective board recruitment.

But Diligent Boards is much more: the base program for agendas and board meeting planning. The platform offers state-of-the-art security so there’s no worry over cybercriminal activity. Diligent Boards integrates fully with all the software solutions that comprise Governance Cloud, a complete ecosystem of digital governance solutions. With fully integrated software solutions for meeting minutes, secure messaging tools, board self-assessments, voting, nominations, virtual data rooms and entity management, board directors can manage issues like conflict of interests using one, highly secure platform.

Diligent knows how important convenience is to board directors, so the software designers developed applications where board directors can access all the tools using their tablets and cell phones, in addition to their laptops. Diligent also offers top-notch customer service 24/7.

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