Is overboarding (being on too many Boards or holding too many Chair positions) an issue?
Everyone seems to be joining the debate about Board Directors lately. Journalists, analysts, shareholders, as well as the corporate governance industry, are all jumping on the NED (Non-Executive Director) bandwagon. What are the hotspots causing excitement? Well, it’s tenure, independence, diversity, disclosure, remuneration or even the number of Board positions held. Undoubtedly all of those concerns carry weight in the search and selection process, which simply underlines the need for those of us called upon to source independent directors to get the right people onboard.
Companies such as Crown, Telstra, and PBL have all been under scrutiny recently for the tenure of their Chairs. Ramsay Health, Sonic Healthcare and QBE have long serving directors – all over 20 years. It goes to the heart of the independence question and many commentators argue that a director on a Board for over 10 years may no longer be sufficiently removed from the performance of the company to be independent and therefore, offer unbiased advice. Remember OneTel and HIH? Directors must be able to identify irregularities and/or poor governance.
While this debate continues to rage, I prefer to focus on the value a director brings to the business, which should not be limited by their tenure. A director who brings high level expertise, judgement and dedication to the table allows a CEO to make good decisions and steer the business in a positive direction, which in turn benefits the company and therefore its shareholders. That’s bringing value.
Amongst the questions NEDs should ask themselves when committing to a Board position is: Will I have time to prepare for as well as attend meetings, factoring in the likelihood of dealing with a takeover, acquisition, shareholder revolt or the like?
The plus side of multiple or simultaneous board roles is the experience and exposure to a myriad of issues that positively contributes to a director’s performance.
The word cosy is used in the pejorative with reference to boards. Board directors need to hold each other accountable for each other’s performance and that requires experienced, objective decision-making. Again it’s not a question of the number of Board positions a director holds, rather a focus on performance.
Here’s a tricky one. Some directors hold a minimum number of shares to ensure ‘skin in the game’. Therefore, they too feel the pain (or gain) of the shareholder when making decisions at Board level for the company they have invested in. The problem with that is too great a shareholding means you end up thinking about your back pocket.
Similarly, can directors be genuinely independent (and therefore offer sage advice to a company) when the information on which they rely to make independent decisions is provided by the CEO and executive team. Paradoxical don’t you think?
I’ll examine disclosure, reference checking and remuneration in my next article, so let’s finish with some good news.
Diversity on Boards is up. Rising from 18% to 20% (female representation) as of December 2014 for the ASX Top 100 and lifting another one percent from 16% to 17% for all listed companies. This modest improvement in gender diversity on Australian Boards supports better performance, as evidence shows that gender equity on Boards makes for better performing companies. Good governance results in prudent decision making and investments.
Have you held or are you currently in an NED role? What’s your Point of View on Australian Boards?
