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How Many Boards Is Too Many?

Jul 24, 2022

 

Once you’ve established yourself as a director on one board, you may very well find that you’re being approached to serve on one or more additional boards.

Is saying “yes” a good idea? What should you think about before deciding? And what is the ideal number of boards to serve on?

As so often with the topics we explore in The Savvy Director, the answer is, “It depends.” In this case, it depends on some very personal considerations, such as the stage of your career, your family situation, and how board work fits into your life.

 

Two Issues to Consider

In general, there are two main factors to take into consideration - time commitments and conflict of interest.

Time Commitments. Research tells us that, these days, directors spend from 200 to 300 hours per year on each board they serve. That figure includes regular board and committee meetings and preparation time. Add to that the occasional need for special board or committee meetings to deal with crises or unusual events, and directors serving on multiple boards may find they’re squeezed for time to adequately prepare, or they have scheduling conflicts that cause them to miss meetings.

Conflict of Interest. Conflicts of interest at the board level can affect ethics by distorting decision making and undermining credibility. Directors bear a fiduciary duty of loyalty to the organization they serve. The duty requires directors and officers to avoid conflicts between the interests of the corporation and any opposing interests - not just the director’s personal interests, but those of any other organization whose board the director might be sitting on.

 

Overboarding

The terms “overboarding” or “overboarded” refer to directors who sit on an excessive number of boards. What’s excessive? Basically, the number of boards is excessive if it could result in directors being unable to adequately fulfill their duties.

Director overboarding didn't arouse much interest until the financial crisis of 2008 – an event that upended the corporate landscape. As investors, regulators, and stakeholders in general tried to pinpoint the root causes of the crisis, all sorts of issues came under scrutiny, including the role of the board of directors. In many cases, fingers were pointed at the board’s failure to exercise its basic duty of oversight.

From there, it was a small step to determine that one of the causes of board failure was the lack of time and attention that directors had given to their board role.

This just led to more questions – questions such as: Are directors stretched too thin? Do their work and home demands conflict with their board commitments? How much time do they spend on their board work? Are they sitting on too many boards?

And from there, the idea arose that perhaps a limit should be placed on how many boards a director could serve on.

The questions haven’t really gone away since then. They’ve even intensified, for a few reasons.

Increasing director responsibilities. The scope of board responsibilities has been increasing for some time, driven by factors such as regulatory requirements, expectations for stakeholder engagement, cybersecurity, disruptive technologies, human capital management, company culture, ESG, and Diversity, Equity and Inclusion. The expanded scope often results in extra meetings, additional committees, more PREP time, and more need for learning and development. All of that means that directors are expected to dedicate more and more time to their board and committee duties.

Investor concerns. For the most part, publicly-traded organizations are driving the focus on director overboarding. Shareholders emphasize how effectively directors serve companies, rather than how masterfully one director can manage the responsibilities of multiple boards.

Investor stewardship efforts have grown more sophisticated and intense. Proxy advisors, institutional investors, and asset managers serve the interests of shareholders by dedicating resources to monitoring governance risks and board quality issues like diversity, director qualifications, and board refreshment. The focus on overboarding is part of that trend.

Proxy advisors and institutional investors address overboarding in their annual voting guidelines, with four or five directorships typically being the threshold. That threshold often varies by role – it’s lower for board chairs, CEOs, and audit committee members.

Refer to the Resources section below for examples of some of these guidelines and requirements. (Please note that these can vary significantly from one jurisdiction to another.)

Directors in demand. In certain industries, the need for directors with specific skillsets has created an overboarding situation. For instance, technology and media companies tend to require the talents of younger directors with relevant insights and expertise – and these directors are in short supply.

In addition, the desire for equity in board composition has tended to increase the demand for director candidates that have traditionally been under-represented in the boardroom – women, BIPOC, persons with disabilities, etc. – as well as next generation directors.

This demand has given rise to organizations, such as Women Get on Board and the Future Directors Institute, that focus on expanding the pool of diverse qualified candidates. (Check out DirectorPrep’s Resource Hub for more examples of these organizations dedicated to aspiring directors and boardroom equity.)

 

Non-Profits and Private Companies

The focus of voting guidelines is on public company directorships. There doesn’t appear to be much research or guidance on the issue in the non-profit and private company sectors.

My own experience with non-profit and private company boards confirms that – while there is a great deal of variation in the time commitment required – sometimes they can take just as much time as serving on a public company board. This is especially true for organizations such as start-ups, or in situations that require extra work, such as CEO search or strategic planning.

Add to this the fact that many directors who serve on non-profit and private company boards also work full-time, and the potential for overboarding is very real.

 

How Can Boards Deal with Overboarding?

Organizations – regardless of which sector they operate in – can take a proactive stance on overboarding by creating a policy that establishes parameters for when a director is considered overboarded, and then tracking compliance. For instance, the nominating or governance committee could review each director’s outside commitment levels annually.

This kind of policy can address not just a general threshold for all directors, but can apply tighter limits for directors with greater responsibilities, such as the board chair, committee chairs, or members of the audit committee. The tightest limit of all is usually reserved for the CEO, who is often limited to serving on only one outside board, and only with board approval.

If there is such a policy in place, directors should be informed about it when they are recruited, and then periodically reminded what the limits are.

Many boards choose not to have a formal policy on overboarding, instead relying on a proactive director recruitment process to ensure that potential directors have adequate time to meet expectations. To avoid possible overboarding situations, the board should be open and transparent when interviewing candidates, informing them about time commitments and asking each one pointed questions about their availability.

 

Is There an Upside to Serving on Multiple Boards?

So far, we’ve focused on the negative impact of overboarding. But, in fact, there are many advantages – both to the individual director and to the boards they serve on – to serving on multiple boards, as long as directors have the time to do so properly.

Some of the advantages include:

  • Sharing effective governance practices learned from one board with another board.
  • Applying industry and economic knowledge learned from one board to another.
  • Spotting trends that affect more than one board.
  • Receiving education on specialized topics, such as cybersecurity, that can be applied to other boards.
  • Being able to contribute a broader perspective to board discussions.
  • Being exposed to different board dynamics and culture that can be shared with other boards.

Remember that it’s vital for directors who serve on multiple boards to keep in mind the need for confidentiality, and the potential for conflict of interest, with respect to each board they serve.

Many people serve on more than one board at the same time without a problem. It’s unlikely to be an actual conflict if the organizations are not operating in the same space. Boards have strict conflict of interest provisions that should be considered seriously at the time a director is recruited, and conflict on specific issues can usually be worked out by disclosing it.

 

What’s the Right Number for a Savvy Director?

Taking on too much, and then doing a less than adequate job, would be a risk to your personal reputation as an effective board director. So, if your board is not subject to voting guidelines, and doesn’t have a formal policy in place, what’s the ideal number of boards you should consider serving on?

Experts say that that one board is all some directors can handle, but that some talented, well-organized individuals might be able to manage four or even five boards effectively if that is their full-time career. For directors who are also employed at a full time job, more than two boards would be very difficult to manage well.

That’s fine for the experts to say. But in my view, the best person to answer the question is you. Here are a few questions to think about to help you decide:

  • How much time do you currently spend on your board work? Factor in board meetings, committee meetings, preparation time, and time spent researching or educating yourself. Are you able to consistently dedicate the required time?
  • What are the peak times for your current board work, and do they conflict with the schedule for the board you are considering?
  • If your board is faced with a crisis or unusual situation that requires extra board or committee meetings, will you still be able to meet all your commitments?
  • How much time do you really want to spend on all your board work, in total? (Be honest!)
  • What other time commitments do you have? Factor in work, family, and school. Don’t forget time for yourself – activities, leisure, health and wellness. Do you find yourself sacrificing these commitments so you can complete your board work?
  • How much of a priority is board work compared to your other time commitments? What trade-offs, if any, are you prepared to make?
  • Would serving on the board you’re considering place you in a conflict of interest with your current board duties?

 

Your takeaways:

  • Directors who serve on too many boards have limited time available to focus properly on their board work.
  • Serving on more than one board could create conflicting loyalties, but it can usually be dealt with through conflict of interest disclosures.
  • Public companies are increasingly subject to voting guidelines that strive to limit the number of boards a director can serve on.
  • Boards can deal with the issue of overboarding with formal policies, or they can rely on a thorough director screening process.
  • There are advantages to serving on multiple boards, including the broader perspective that directors bring to the boards they serve.
  • The best person to decide the ideal number of boards to serve on is you.

 

Resources:

 

Thank you.

Scott

Scott Baldwin is a certified corporate director (ICD.D) and co-founder of DirectorPrep.com – an online hub with hundreds of guideline questions and resources to help directors prepare for their board role.

 

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