In May, the majority of Twitter shareholders fired the chief executive of Silver Lake Egon Durban, who made bets on companies such as Alibaba and Airbnb, juggling too many directors on top of his day job and voted against reappointment.
This is a sign of how “overboarding”, as it is referred to in corporate governance, is a growing problem for companies. But how many board seats are too many? The answer depends on who is asking.
Even the mention of overboarding causes discomfort. One British business leader I spoke to was shocked when I used the word, wondering if I would name and shame him as a serial director. Others turned down offers of board seats for fear of angering investors, even though they believed they had the capacity. The seat also rejected high-caliber candidates to avoid an investor battle.
The UK Corporate Governance Code says that if you are the top executive of a company, you must only take one non-executive director of the FTSE 100. For other non-executive directorships, there is no limit but the individual must “dedicate sufficient time to companies to fulfill their responsibilities”.
Investors and proxy voting advisors have taken a harder line, using a points-based system to assess whether individuals have overcommitted. In the US, Institutional Shareholder Services said it generally recommends voting against or withholding votes from directors who sit on more than five boards of public companies; or a CEO of a public company who sits on the board of more than two public companies in addition to himself. In the UK, there is a limit of five mandates where a non-executive director counts as one mandate, a non-executive seat counts as two, and a position as an executive director counts as three.
Most directors say that the numerical limit is not arbitrary. They do not take into account the individual’s ability to manage time, the different requirements of each board and the demands of individual directors – for example, whether the person is on the committee or not. Those who serve in many places say that often overlooked is the ability to share experience and expertise.
“There are a million shades of gray here that are not being recognised,” says Kit Bingham, head of the UK councils practice at Heidrick & Struggles. “The need to have enough time to do all the tasks is sensible. But if you make rules about it, it becomes difficult. It needs a more detailed debate. But proxy advisors cannot talk to each director in importance so they use a formulaic approach.
Even critics of those who collect the seats of the Board believe that the mechanism is too narrow. The calculation tends to establish the position of the board in public companies and not in private companies, charities or public institutions.
But the business world needs to deal with overboarding. Not least because the workload is increasing and board meetings are more frequent. The pandemic, the war in Ukraine and the global energy crisis are just some of the factors that have destroyed companies. The heightened regulatory environment also means that the oversight role of boards has evolved and companies need more support from directors in navigating issues, such as shaping the company’s response to political issues.
“When a company goes through a crisis, it can be phone calls and meetings every day,” says Patricia Lenkov, a board recruitment expert.
While board positions can be lucrative, reputational risk also increases. A series of scandals in recent years – from Boeing to Theranos – have made it clear how dysfunctional space can lead to corporate disaster. “The expectations and demands of the role have increased even as social credit is probably less,” said Patrick Dunne, who advises the global board.
So what’s next? There is no simple math when it comes to overboarding. Ideally, there should be more conversation about roles rather than strict limitations. Keeping tabs on the arrival and acceptance of the new board chair – which requires more work for the director – is also key.
As for Twitter, Durban offered to resign but was put on hold despite a shareholder vote. Just a few months later, Elon Musk dissolved the entire board after he took over the company. Durban will not find themselves on the loose end, however. His Silver Lake profile page still lists 10 board roles outside the company.
anjli.raval@ft.com