What is overboarding?

There isn’t an absolute number of how many boards a person should sit on, but typically this is between four and six in developed nations. Some investment companies are setting the upper limit at four. Recently, commentators such as the big investment firm Blackrock have complained about executives sitting on too many boards and stretching themselves too thin.

• The ability of directors to serve effectively may be connected to how many boards they are serving on
• Increasingly complex responsibilities require a greater time commitment
• Board diversity and refreshment means this topic will attract more attention in the future
• The employment status of directors can also be considered to assess how much time they have available

To serve companies properly, board members should narrow their corporate responsibilities to have more time to fulfil their duties.

The idea of overboarding has been around for some time, and the concern is that directors may need more time to fulfil their duties due to excessive time commitments.

Since the responsibilities of directors are increasingly complex and committee members require more time, companies have increasingly adopted policies that limit the number of boards on which their directors can serve.

For directors who are also CEOs, the number of boards they can sit on besides their own may be less than regular directors at two or three other boards.

Several large asset management firms, such as Blackrock, Vanguard, and LGIM, have changed their voting policies to apply stricter rules to directors serving on multiple boards. More work could be done defining what an overextended director looks like in practice, but this is likely to become more apparent as investment standards evolve.

Other drivers of concern toward this issue are that the responsibilities of directors are increasing. This has created more pressure on company directors’ time. There are more requirements around shareholder engagement and regulatory requirements, and there is an increasing need to keep up to date with cybersecurity threats, cultural changes, and the effects of climate change, to name just a few.

With the growth in investor stewardship, this issue will likely garner more attention in the future, along with board diversity and refreshment. There is also more information available to investors today than ever before, with such investors having a more remarkable ability to understand the roles and responsibilities of individual directors.

Watch Warren Buffet (below) discuss the reality of boardroom life in corporate America and the three most important things a board should do.

There is no standard definition of overboarding and the ones that can be found chiefly concern public companies. Norms and rules vary by jurisdiction, and several criteria can be considered to determine whether directors are overstretched.

The employment status of individual directors can be considered when making such decisions, so if a director already works full time, they may have less capacity to serve on other boards than someone who doesn’t have full-time employment. It can also depend on what their role is within the board.

For example, the board chair has more responsibilities than regular board members. In that sense, it would be recommended that the chair serves on fewer boards. Separate limits can be used for board chairs and audit committee members.

However, more general limitations can also be applied besides such specific criteria. There can be standards of best practice which apply in different markets, which can differ between developed and developing markets.

Directors themselves may want to scale back on commitments due to heavier time constraints and greater expectations.

The number of directors who serve on many boards is decreasing due to increasing scrutiny. While five or six directorships have been acceptable over the years, recently, investors have shifted to a new standard of four. This trend will continue to rise.

There has been increasing focus on the risks posed to boards through lack of oversight and entrenchment regarding major corporate scandals. So, the focus has been on board renewal and diversity to mitigate this.

The focus on overboarding can be seen as a part of this process and an attempt to improve board quality, reducing the chance of what might be described as a “rubber stamp culture” occurring among directors.

There is expected to be a decrease in the number of boards on which directors serve globally. It is anticipated that regulatory bodies will roll out more guidelines which discourage the practice of overboarding. Directors themselves may want to scale back on commitments due to heavier time constraints and greater expectations.

However, there is still some debate about the issue, with some arguing that whether directors are on too many boards should be considered on a case-by-case basis instead of generalising.