Overboarding Still a Problem for Large Public Companies, Says New Study
Boards may want to add or tighten overboarding limits in their governance guidelines in light of new research by Jeremy Kress, Senior Research Fellow at the University of Michigan. In a recent paper summarized in a Harvard Law School blog, Kresson claims that directors’ overcommitment can cause problems for public companies–especially large, complex financial institutions. He cites a 2016 Spencer Stuart study finding that more than half of all new directors in the S&P 500 are active senior executives or professionals and presents cautionary tales of large financial firms. In one high-profile case, nine of 13 independent directors served on three or more public company boards when the firm was faced with a crisis. In another case, the chair of the risk committee had several major outside commitments that may have distracted him from fulfilling his duties during a crisis.
Limiting overboarding is more than just good governance; overboarded directors’ seats may be in jeopardy under the voting guidelines of the leading proxy advisory firms. For example, Institutional Shareholder Services’ voting guidelines recommend voting against 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.” Glass Lewis’ policy on overboarding is similar, but slightly tougher.
For help implementing or updating an overboarding policy, contact a member of Fredrikson & Byron’s Securities Group.