One of Silicon Valley’s biggest names in venture capital learned the hard way last year about the limit of investor acceptance on how corporate directors can stretch their time.
In May, a majority of Twitter shareholders decided that Silver Lake chief executive Egon Durban, who had bet on companies such as Alibaba and Airbnb, was juggling too many directorships on top of his day job and voted against his renewal.
It was a sign of how “overboarding,” as we say in corporate governance parlance, is a growing problem for businesses. But how many board seats are too many? The answer depends on who you ask.
Even the mention of the overboard causes discomfort. A British business leader I spoke to shuddered at the use of the word, wondering if I was going to name him and shame him as a serial manager. Others preemptively decline offers of board seats for fear of investor anger, even though they think they have the capacity. Presidents also turn down high-caliber candidates to avoid investor battles.
The UK corporate governance code states that if you are a senior executive of a company, you should only hold one non-executive director position on the FTSE 100. For chairmen or other non-executive directors, there is no There is no limit but the individual must “allocate sufficient time to the company to fulfill its responsibilities”.
Investors and proxy advisors have taken a harder line, adopting a points-based system to assess whether an individual is overcommitted. In the United States, Institutional Shareholder Services says it broadly recommends voting against or abstaining from voting for directors who serve on more than five public company boards; or are CEOs of public companies who serve on the board of directors of more than two public companies in addition to their own. In the UK it has a five term limit where a non-executive director post counts as one term, a non-executive chairman counts as two and an executive director post counts as three.
Most administrators say the numerical limits are arbitrary. They don’t take into account an individual’s ability to manage their time, the different demands of each board, and the demands placed on individual directors — for example, whether that person sits on a committee or not. Those who sit on multiple boards say their ability to share their experiences and expertise is often overlooked.
“There are a million shades of gray here that are not recognized,” said Kit Bingham, head of UK board practice at Heidrick & Struggles. “The need to have enough time to complete all your tasks is reasonable. But when you put rules around it, that’s where it gets tricky. This requires further discussion. But proxy advisors can’t have a meaningful conversation with every director, so they opt for a stereotypical approach.
Even critics of those who collect board seats think the existing mechanism is too narrow. The calculations tend to assess positions on the boards of publicly traded companies and not those of private companies, charities or public institutions.
But the business world needs to tackle overboarding. Not least because the workload is increasing and board meetings are more frequent. The pandemic, the war in Ukraine and a global energy crisis are just a few factors that are destabilizing businesses. A strengthened regulatory environment also means that the oversight role of a board of directors has increased and companies need more support from their directors to manage issues, such as the development of a corporate response to political questions.
“When the business is in crisis, it can be daily calls and meetings,” said onboard recruitment expert Patricia Lenkov.
While board positions can be lucrative, reputational risk has also increased. A series of scandals in recent years – from Boeing to Theranos – have shed light on how a poorly functioning board can lead to corporate disasters. “Expectations and demands of the role have increased even though social credit is probably less,” said Patrick Dunne, who advises boards globally.
What next? There is no easy math on the overboard. Ideally, there should be a more nuanced conversation about roles rather than hard boundaries. Keeping an eye on the presence and acceptance of new board seats – which requires more work for a director – is also essential.
As for Twitter, Durban offered to step down but was retained despite a shareholder vote. A few months later, Elon Musk disbanded the entire board after taking over the company. Durban will not be outdone, however. His silver lake profile page lists another 10 board roles outside of the company.