Our Opinions

25
Jan

Less is more for NEDs

Company directors are finding themselves under more varied and brighter stakeholder spotlights.  Adequately performing their duties logically limits the number of boards that NEDs can serve on. The US seems to be placing absolute numbers to the maximum board positions.

Interesting facts from the quoted Joann Lublin (@JoannLublinWall Street Journal article include:

–  77% of S&P 500 companies place a limit on NED outside directorships;

–  Proxy advisory firms will soon advise against NEDs with more than 5 board positions; and

–  US directors spend approximately 2 days in every three weeks per directorship.

 

In contrast, an Inoxico study, published in October 2013, indicated that the average JSE company director held 7.4 directorships.

 

The duty to evaluate directors’ capacity normally falls within the chairperson’s ambit of responsibility.  For larger companies, a Nomination Committee could assist the board chairperson.

 

Does your company have a suggested limit on outside directorships?  How is this limit manifested in your company’s governance procedures?

 

Candor Governance’s advice is as follows:

  • Delegate the responsibility to evaluate director capacity to a board committee or an appropriate function;
  • Determine a company policy to guide nomination, tenure and voluntary resignation to include a suggested maximum number of other board positions.  Consider board committee as well as chairperson responsibilities too;
  • Include the maximum number of outside directorships in the director’s formal letter of appointment;
  • Place director capacity on a rolling agenda to coincide with the rolling retirement and possible re-election of NEDs;
  • Review the operation of the policy at least on an annual basis.

 

bdlive.co.za – WSJ “Too many board seats”


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