- Former Twitter director Egon Durban almost lost his seat because he was sitting on seven boards.
- In the US, institutional investors have opposed the election of directors with more than five boards.
- In the UK, institutional investors consider a director holding more than five seats as overboarded. Board chair counts as two seats, and Executive Director counts as three seats.
How many boards can a director sit on with minimal risk?
Directors of companies with experience are in high demand and this may see many hold the position in multiple structures. How does this affect their work, if it affects it at all.
Through their occupation in different organisations, they are able to get more knowledge, experience and access to resources and networks. This increases their value to the companies they work for.
However, sitting on too many company boards might make them 'overboarded'. The directors may not be able to spread their time and capacity evenly to do a great job on each board.
Twitter only agreed to keep former Director Egon Durban when he accepted to decrease his board seats to five.
"Overboardedness should be assessed on a case-by-case basis. This is because directors’ experience, capabilities, knowledge and commitment varies from one individual to another. But there should be some limits to the number of boards a director serves because if they are overextended they put themselves and the companies they serve at risk," says Rehana Cassim, Professor in Company Law, University of South Africa.
Problems that may arise from overboarding
- Puts directors at risk of personal interest conflicting with their duties to a company. These duties include acting in good faith, loyalty and honesty towards the company's best interest.
- Increased responsibility means directors need to be up to date with each company by attending meetings and efficiently oversee boards. New responsibilities include shareholder activism, increased need for cybersecurity, global energy issues and corporate governance. Any mishap in any of these responsibilities could spell doom for the director and the company.
- Breach could result in disqualification from the position and a ban.
- Neglecting duties could result in dismissal by the board or shareholders.
- Serving competing companies could introduce complicated conflicts of interest.
How many boards is too many?
It depends on "the type of company, its size, and the complexity of the industry. It is difficult to place a hard limit on the number of board seats that directors may hold," says Cassim.
"For example, an executive director (a full-time director and employee of the company) with two additional directorships of listed companies may be overboarded, but an experienced non-executive director (a part-time director who is not an employee of the company) of two listed companies, a private company and a non-profit company, may be able to properly fulfil his or her board duties easily," she adds.
How boards can prevent overboarding
- The board or the nomination committee should consider the number of boards the director sits on, both listed and unlisted companies.
- Experience and background of director in managing his/her duties.
- Boards should consider competiting companies in director's experience and conflicts that may arise.
- Transparency from directors, about their experience and other boards they serve. They should also present new directorships they accept while serving a board.
- Evaluations should give indicators that a director is overboarded or not. This way, steps can be taken to manage the conditions.
- Companies should have policies and regulations about overboarding.
- Directors should avoid taking on directorships they cannot handle or more than they are equipped to handle.
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