Kennedy: Company directors can take on too much


Here’s a new word for your dictionary: overboarding.

It’s used to describe directors of public companies who may be spread too thin by serving on too many boards.

Concern over the issue grew following the 2008 financial crisis as new attention was paid to corporate governance — the system of rules and practices by which companies run.

Directors play a big role in governance, naming CEOs, setting executive pay, deciding on social and environmental priorities. But by some estimates, the average time commitment for board duty now stands at 245 hours annually — about six 40-hour work weeks.

Add more board seats, and the time commitment explodes for directors who already may have high-powered, full-time jobs of their own — the kind that made them appealing to tap.

(Consider that Shirley Ann Jackson, president of Rensselaer Polytechnic Institute in Troy, at one point in 2002 sat on nine public company boards — a testament to her background in science, government and academia. She now serves as a director at three, including New Jersey energy company Public Service Enterprise Group, which last week named her lead director.)

Firms that offer advice on corporate governance contend limits are needed to avoid overboarding. The two most prominent, Glass Lewis and Institutional Shareholder Services, recommended last year that shareholders vote against directors who serve on more than five public company boards.

Institutional investors BlackRock and Vanguard Group, which hold big stakes in major public companies, went farther, setting a limit of four.

BlackRock’s “2019 Proxy Voting Guidelines for U.S. Securities” says the company will consider voting against individual board members “where a director serves on an excess number of boards, which may limit his/her capacity to focus on each board’s requirements.”

Christine Chung, a professor at Albany Law School with teaching and research interests in corporate governance and investor protection, sees the limits as an imperfect “one size fits all,” but necessary nonetheless.

“Directors owe fiduciary duties of care and loyalty to the corporation and its shareholders,” she told me. “The fiduciary standard is no joke — it’s the highest, most exacting standard the law has to offer.

“The duty of care requires directors to be well-informed and to exercise appropriate diligence when making corporate decisions. The duty of loyalty requires directors to place the interests of the corporation before personal interests,” she said in an email. “At some point, a director who sits on too many boards will find it difficult (if not impossible) — even as a practical matter —  to meet his/her obligations as a fiduciary.”

Some directors may be able to juggle multiple boards, Chung said, but being a director “is a big job.”
“Directors who scatter their attention across many different organizations risk missing things,” she added. “Better to forego a board seat than to neglect duties of loyalty or care.”

Marlene Kennedy is a freelance columnist. Opinions expressed in her column are her own and not necessarily the newspaper’s. Reach her at [email protected]

Categories: Business

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