In May, the majority of Twitter shareholders decided Silver Lake’s chief executive Egon Durban, who made bets on companies such as Alibaba and Airbnb, was juggling too many directorships on top of the day job and voted against his reappointment.
It was a sign of how “overboarding”, as it is put in corporate governance speak, is a growing issue for companies. But how many board seats are too many? The answer depends on who you ask.
Even the mention of overboarding causes unease. One UK business leader I spoke to quivered at the use of the word, wondering if I was going to name and shame him as a serial director. Others are pre-emptively declining offers of board seats for fear of investor wrath, even if they believe they have the capacity. Chairs are also turning away high-calibre candidates to avoid investor battles.
The UK Corporate Governance Code says if you are a top executive at a company, you should only take on one FTSE 100 non-executive directorship. For chairs or other non-executive directors, there is no limit but the individual must “allocate sufficient time to the company to discharge their responsibilities”.
Investors and proxy voting advisers have taken a harder line, adopting a points-based system to assess whether an individual is overcommitted. In the US, Institutional Shareholder Services says it largely recommends voting against or withholding votes from directors who sit on more than five public company boards; or are CEOs of public companies who sit on the boards of more than two public companies besides their own. In the UK, it has a five-mandate limit where a non-executive directorship counts as one mandate, a non-executive chair counts as two, and a position as executive director is counted as three.
Most directors say numerical limits are arbitrary. They do not account for an individual’s own ability to manage their time, the different requirements of each board and the demands on individual directors — for example, whether that person is on a committee or not. Those who serve on multiple boards say frequently overlooked is their ability to share experiences and expertise.
“There are a million shades of grey here that are not being recognised,” said Kit Bingham, head of the UK board practice at Heidrick & Struggles. “The need to have sufficient time to perform all your duties is sensible. But when you put rules around this, that’s where it gets tricky. It requires a more detailed debate. But proxy advisers can’t have a meaningful conversation with every director so they go for a formulaic approach.”
Even critics of those who collect board seats believe the existing mechanism is too narrow. Calculations tend to assess board positions at publicly listed companies and not those at private firms, charities or public institutions.
But the business world needs to get to grips with 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 destabilising corporations. A heightened regulatory environment has also meant the oversight role of a board has grown and companies need greater support from their directors in navigating issues, such as shaping a corporate response to political matters.
“When the company has a crisis, then it can be daily calls and meetings,” said Patricia Lenkov, an expert on board recruitment.
While board positions can be lucrative, the reputational risk has also risen. A string of scandals in recent years — from Boeing to Theranos — has brought to light how a poorly functioning board can lead to corporate disasters. “The expectations and demands of the role have increased even as the social credit is probably less,” said Patrick Dunne, who advises boards globally.
So what next? There is no easy maths on overboarding. Ideally, there should be a more nuanced conversation on roles rather than strict limits. Keeping tabs on attendance and the acceptance of new board seats — which requires more work for a director — is also key.
As for Twitter, Durban offered to resign but was retained despite the shareholder vote. Just months later, Elon Musk dissolved the entire board after he took over the company. Durban will not find himself at a loose end, however. His Silver Lake profile page still lists 10 board roles outside the company.