Obstacles real for Pasifika leaders
Unconscious bias and ignorance could be blocking diversity on boards. Find out more about the obstacles faced by directors.
OPINION: You have been asked to join a board – congratulations! But you already sit on several – so, how many is too many?
"Overboarding" refers to situations where directors take on too many governance positions. This matters because directors provide governance and if there are too many commitments this could compromise their ability to fulfil their duties.
There is more scrutiny regarding overboarding overseas as shareholders are increasingly worried about it. In mid-2022 Twitter shareholders even voted to remove a director because of fears of overboarding. The board refused to remove him as the director committed to reduce his public company board directorships to five and due to his “invaluable skill set”. Then Elon Musk arrived and removed them all – another governance story, for another day.
The Harvard Law School Forum on Corporate Governance provides a roundup of director overboarding policies in the United States. There are some emerging trends – for example, institutional investors regard the situation differently for those who are involved in publicly listed companies as CEOs compared to those who don’t have such high demand roles.
These large investors – like Blackrock, the world’s largest institutional investor – may have policies in place which specify limits. That could result in a director who holds say 3, 4 or 5 high profile positions having a large shareholder block decide that they are over-committed, and actively vote against their reappointment.
All this is really pointing to an important issue – the need for proactive succession planning. Last year I enjoyed recording “Board Matters”, a podcast series for the IoD on leadership and governance with short conversations with leading directors. One of the 13 conversations was with Giselle McLachlan CFInstD titled “Fast Forward” where we discussed succession planning. We concluded that this actually needs to be a vital role for any board, which too often gets neglected, which in turn can lead to individuals accumulating a large number of directorships.
As a practising lawyer I am always interested in the boundaries that exist from a legal perspective. There are no limits set out in the Companies Act on the number of directorships you can have – in theory then you could sit on dozens of boards. However, there are penalties for directors who breach the duties set out in sections 131 to 137.
Directors can also be held liable for their performance in other ways by shareholders or liquidators. So practically speaking, if a person takes on too many roles it may compromise their ability to comply with the requirements in the Companies Act.
How about in the NZX Listing Rules? Well, they do have a corporate governance code which sets out 8 principles that deal with such issues as the appointment, rotation, remuneration and independence of directors. They do not currently include limits on the number of directorships a person should have. Similarly, the Financial Markets Authority Corporate Governance Handbook provides useful guidelines for directors but does not suggest directorship limits. Perhaps these guidance documents could benefit from shining a light on this issue.
So what about the IoD and the Four Pillars of Governance Best Practice? The closest that guidance gets is a discussion on due diligence before joining a board, and “…if a prospective director does not have the time to do the job properly and effectively then the appointment should not be accepted”.
To fulfil director duties is a significant time commitment. Can we come to a conclusion on what number of directorships is the right figure? Probably not - the answer is likely to be “it depends”. Being on an NZX-listed board is going to be very different to a company with five employees.
Yet we have to acknowledge that directors need to grapple with a large number of issues and covid taught us that there can be intense periods where every board you are on may require more time, all at once. So it is worth taking stock of your own situation, work commitments, energy levels and unique factors to ask – what is the right number for you?
Graeme Nahkies from Boardworks notes in a recent article that in New Zealand “our relatively small population means that established directors are almost guaranteed to be regularly approached to serve on more than one board”. Also, the reality is that remuneration is often low for board positions so people may be tempted to “overboard” to top up their fees.
Nick Carter, who specialises in placing people in high level roles at recruitment specialists Brannigans, offers this observation:
"The number of board positions a director currently holds is a growing consideration when appointing a candidate to a board, which is aligned to growing international trends, investor expectation and organisational complexity.
"It is not a one-size-fits-all approach to what is considered board capacity. Key considerations include:
"Often the commitment of a fast-growing start-up, or a struggling not for profit, can be the equivalent of a large publicly listed company, so it is important to invest time with prospective director candidates to understand their time constraints while having a realistic understanding of the time required to effectively deliver upon shareholder or stakeholder expectation for any new opportunity.”
What might all this mean for the future? I think there are some trends emerging and some things we may see change, such as:
What might the most practical point be? Perhaps boards themselves need to build in a regular review and frank conversations with those on the board about their roles, to ensure everyone can really contribute. Better an awkward conversation dealt with constructively than the alternative of a board which is not getting the right level of input from its members.
Ultimately considering this issue should lead to improved corporate governance. After all, we want to ensure our directors are not going “overboard”, and instead they can focus the charting of the course of the companies they are on into the future.
Steven Moe MInstD is a partner at Parry Field Lawyers based in Christchurch and works in corporate law providing advice to companies, not-for-profits and social enterprises. He is on five boards and for one is chair - Community Finance which has raised $93 million for social housing. He is a member of the Edmund Hillary Fellowship, the XRB Advisory Panel and hosts Seeds - a podcast with 300+ long form conversations on governance, leadership and entrepreneurship. Steven is also a facilitator on the Company Directors Course.
The views expressed in this article do not reflect the position of the IoD unless explicitly stated.
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