When directors have too many non-executive roles and stretch themselves too thinly to be able to contribute effectively to the risk management of an organisation it is referred to as “overboarding”. It seems a simple enough task for a professional to challenge and decide his or her own capacity constraints, and for the hiring organisation to acid-test it, but clearly many organisations are lax on this element of corporate governance.
Institutional Shareholder Services (ISS) and Glass Lewis (both powerful corporate governance and shareholder advisory groups) continue to challenge prominent organisations and prompt their shareholders on potential non-executive overboarding and its potentially serious consequences.
Paul Walsh stood down from the board of HSBC earlier this year after ISS and Glass Lewis raised concerns that he was “overboarded”, at a time when he was also of Chairman of three other companies and non-executive director on two further boards. Around the same time Glass Lewis also advised Barclays shareholders to vote against the re-election of Sir Ian Cheshire, because he held too many board positions (Chairman of three companies and non-executive director for a further two boards), prompting Sir Ian to commit to reducing his other directorships by September 2017.
Just last week The Times reported that Manjit Wolstenholme, chairwoman of Provident Financial, could also be overboarded, as she had four separate board commitments at the time when the first profit warnings were issued in June 2017 (one chair position and three non-executive roles), and has since taken on the temporary executive cover role for Peter Crook while his replacement is found. She states she has sufficient time to cover all her roles, although she resigned one of her non-executive roles (CMC) prior to the debacle.
These recent examples should prompt boards to review their hiring policies, to ensure they have factored in the focus and commitment needed from their non- exec members (new and existing) to discharge their duties effectively, including track records in successfully managing complex portfolios. The current and projected future business challenges, whether it be market forces, skill deficits, cash issues, mergers, re-organisations or a start-up scenario, should be obvious key factors in this assessment too – for both the organisation and the candidate.
Executive directors lead very busy lives and their full-time day job will only allow time for one non-executive role in the main. Those who dedicate their working lives to building and managing a non-executive portfolio exclusively, have more factors to consider when it comes to the number of companies to commit to. Statistics show that an average director serving on six boards spends 124 hours per month, on his or her aggregate duties. Busy directors, with packed schedules, are more likely to miss board meetings and limit the amount of preparation time reading and digesting very detailed board documents, in order to challenge the executive team with real insight, both in the boardroom and outside it.
As ISS and Glass Lewis continue to shine a light on the sea of companies for “man overboard”, non-executives should continually review the business waters they charter, to protect the overall safety of their vessel/s from capsize, and check all crew have fully functioning life jackets and rafts, in the event of a critical storm.