Most directors can cope with serving on multiple boards
Many stakeholders have raised concerns about the adverse consequences of director overboardedness globally and locally. This phenomenon occurs when a director serves on several boards concurrently.
International studies have shown that corporate governance and financial performance is typically weaker in companies where the board consists of many "busy" directors.
Researchers have classified a director as overboarded if he or she serves on three or more boards concurrently.
Two contrasting hypotheses have emerged to explain the consequences of director overboardedness. The "busyness" hypothesis suggests that directors who serve on multiple boards at the same time face significant time constraints that might impede their ability to discharge their duties effectively. In contrast, the "experience" hypothesis postulates that directors can gain considerable know-how and social capital by serving on multiple boards at the same time.
The King III report emphasised that boards should consider whether their size, diversity and demographics make them effective. Hence some boards experience pressure to appoint (more) diverse candidates.
Given limited research on the topic, we tested both of these hypotheses in the South African context over the period 2011 to 2016 (the King III regime). Our analysis centred on the directorships held by 1,610 individuals who served on the boards of the JSE Top 100 companies.
A broad measure of director overboardedness was computed to include these directorships as well as board seats held at unlisted companies and other entities such as industry associations and state-owned enterprises.
The latter positions, which could involve substantial commitments, are often overlooked by academics and business practitioners.
The King III report emphasised that boards should consider whether their size, diversity and demographics make them effective. Hence some boards experience pressure to appoint (more) diverse candidates. Given the limited size of the local talent pool, eligible diverse board candidates often receive several board invitations and might become overboarded.
So we included board diversity in our analysis. Whereas most prior studies only measured board diversity in terms of race and gender, we also accounted for directors’ age, education and occupational background.
Busyness was evaluated in terms of board meeting attendance, whereas experience was evaluated in terms of age, board tenure and industry connectedness.
We found that just under a third of the considered directors held three or more board seats concurrently. Such overboarded directors were mostly black independent nonexecutive females over the age of 60.
Compared to their non-overboarded counterparts, overboarded directors were better educated, had more specialised occupational backgrounds (typically legal and accounting professionals) and served longer on the boards to which they were appointed. Contrary to expectation, no difference was observed in the board meeting attendance of busy directors compared to their non-overboarded counterparts. The vast majority of directors were present at 90% or more of scheduled board meetings.
All directors, irrespective of status, race, gender, age, background, experience or tenure, should keep in mind that they could be held personally liable for the actions of their companies.
Nomination committees and shareholder activists should therefore not automatically assume that a multiboarded director will neglect his or her duties.
As our results show that overboarded directors are often repositories of experience, they could be valuable corporate monitors and advisers. We are therefore not in favour of legislating the maximum number of board positions that directors of JSE-listed companies are allowed to hold simultaneously.
Instead of being limited by a set number, nomination committees are encouraged to consider overboardedness on a case-by-case basis.
A director’s eligibility for election or re-election should be determined by evaluating their capabilities, experience, past performance and access to external networks and resources. In line with the King IV Report (2016), we recommend that time constraints and potential conflicts of interest should be balanced against development opportunities related to more board positions.
All directors, irrespective of status, race, gender, age, background, experience or tenure, should keep in mind that they could be held personally liable for the actions of their companies. Given the board race and gender diversity targets suggested in King IV, eligible diverse board candidates are likely to receive even more board invitations.
In light of our empirical findings, we suggest the debate on director overboardedness in SA should be approached from a more balanced perspective.
• Mans-Kemp and Viviers are academics in the Department of Business Management at Stellenbosch University.