Depth of experience is one of the key benefits companies expect to derive from their board directors, and board recruitment naturally tends towards appointing individuals who can contribute significant talent and expertise when discharging their duties. Such individuals are highly sought after and, as a result, frequently sit on multiple boards. An undoubted advantage of a director who sits on a number of different boards is the cross-fertilisation of ideas and the exposure to varying markets and organisations that they can bring to bear on their contribution. However, with the past decade seeing an inexorable increase in the amount of time board directors are expected to commit to fulfilling their board responsibilities, are organisations still getting the best value from board members with multiple directorships?
In February, advisory firm ISS counselled shareholders in Elegant Hotels to reject the re-election of entrepreneur Luke Johnson to the Board of Directors on the grounds that, as a director on two other listed company boards and three additional private company boards, he would not have sufficient time to devote to the position. In the event, shareholders rejected the advice, but the concern from ISS is part of a growing conversation around multiple board directorships and the point at which excessive calls on a director’s time or “busyness” outweigh the benefits of dynamic and varied experience. Research released by Harvard Law School found that 70% of firms in its global research had what it terms “busy” boards, with directors holding multiple appointments, and that the corporate world tends to see busy directors as ineffective directors. The study also found that firms with busy boards demonstrated lower profitability.
Board directorships – an increasing commitment
The UK Corporate Governance Code does not restrict the number of directorships a board member can hold, but advises that: “all directors should be able to allocate sufficient time to the company to discharge their responsibilities effectively.” The code also states that full-time executive directors should not be permitted to take on more than one non-executive directorship of a FTSE 100 company.
To understand the drivers for concern over multiple board directorships, it’s useful to examine the changes in expectations of board commitment that have taken place in the last decade. Since the 2008 financial crisis, there has been increasing scrutiny of board activities and the level of engagement of board members. The impact of this scrutiny has seen the number of hours that directors typically devote to serving individual boards increase by 18%, from 210 prior to the crisis in 2008 to almost 250 in 2016. High-performing boards demand an even greater time commitment, with a McKinsey study suggesting that members of the most effective boards contribute, on average, 300 hours per year.
Spencer Stuart’s annual review of UK board performance finds evidence for this increasing commitment, noting that, “The average number of scheduled meetings is 8.8 per year, up from 7.7 in 2016. … One quarter of boards met more than 10 times during the year, a dramatic increase on the two previous years.”
Boards are now typically devoting more time to corporate strategy, in addition to fulfilling their governance role. Engagement and the focus on value creation is deepening as directors move from simply signing off on strategic programmes to contributing to their development. This typically requires greater commitment outside of the standard meeting cycle, involving research and market study to ensure members are cognisant of the firm’s operating environment.
Clearly, this evolution has an effect on directors who sit on multiple boards and who also occupy high-profile positions in their own companies; even for the most efficient performer, there simply aren’t enough hours in the day to adequately discharge all of their duties without some degree of compromise. When making board appointments, companies must ensure that they are clear about the commitment that they expect from the appointee and certain that they are aware of the other calls the prospective director has on their time.
Leveraging digital transformation to support time-poor directors
While concerns about multiple directorships are undoubtedly valid, it’s also worth considering the other side of the equation: the changing work environment that is seeing increased mobility and flexibility unlocking more usable time for directors. Digital transformation is occurring at all levels and should be leveraged around board activities in order to maximise the value that companies derive from their board. The fact is that, whether directors sit on multiple boards or not – in the UK, the average number of additional board positions held is 1.8 – their experience and profile are likely to mean that they are very busy people. Digitisation can lift the burden of time-consuming activities, such as questionnaire completion and reporting, by making information securely available 24/7, meaning the director is not restricted in when and where they access information for review.
See how Diligent’s Board Portal delivers 24/7 information for busy directors.
By leveraging the time-saving attributes of digital board solutions, organisations can allow their boards to make better use of their time by focusing on the strategic insight and strong corporate governance that promotes high performance.
Clearing the path to the boardroom for a new generation
As the expectation of increased time commitment and engagement by UK boards continues to grow, we are likely to see more organisations and shareholders scrutinising and challenging their directors’ external obligations in a bid to ensure that they get the best value. There is also a diversity factor in play here: with individuals taking on multiple board appointments and the average age of board directors topping 60, is this stifling the opportunity for a new generation of directors to enter the boardroom? If so, how can companies minimise their dependence on a shrinking pool of directors to break out and find new board talent? With growing momentum behind promoting board diversity and a drive to gain maximum value from directors’ contributions, it seems that the days of “overboarding” may be numbered.
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