Too many directorships and Governance.

Some directors still think they’re doing a favour by lending their name to be on the board of a friend or a business associate’s venture. Being a director of a company takes time and effort and the time commitment of a directorship should not be underestimated. However, some people just accept directorships in many companies and consequently do not have the time to do a proper job. It gets worse if the director is holding an executive position in one of the companies.

In addition to having time to read all the information provided to make informed decisions, directors should be able to contribute to strategy. The board’s role in strategy is considered the biggest issue worldwide. Despite this, research shows that public company boards are too focused on compliance and are spending less time on strategy. May be there’s just enough time to spend on the easy stuff like compliance as opposed to strategizing. Let’s understand the pros and cons of persons serving on too many boards.

# A director on multiple boards is a rich source of privileged information. Access to confidential and useful information first gives a strategic advantage.
# Multiple directorships provides beneficial networking opportunities to the director, personally. Consequently, such connections may create a positive impact on the boards giving an impression that well connected boards have a better future.
# Similar to the above benefit it can be a powerful tool for unlocking doors for a company and moving its strategy forward, whether with government officials or with other business partners.
# Directors can use their multiple positions to spread good governance practices, provided they have the will.
# Lack of time and reduction of director effort which leads to inadequate oversight is one of the worst setbacks of multiple directorships. Holding additional responsibilities in board sub committees could make it unwieldy.
# Serving on multiple boards can lead to the establishment of bad business practices. It can lead directors to join the bandwagon of cronyism. Arrogance of connections sometimes results in convincing other boards also that “if everybody does the wrong thing then it must be right”.
# It promotes collusion and conflicts of interests among companies that have interlocking directorates to dominate and influence business direction in an industry or even in the stock market.
# The more serious minded independent directors are forced out of companies by unscrupulous major shareholders, in favour of others who love collecting number of boards like medals on the chest of an army general and will never challenge any decisions.

….and……The cure?
# The more directorships one holds the greater the risk of some kind of conflict. However, if directorships are selected carefully after considering your skills and the relevance to the industry, there’s a good chance of reducing conflicts and bias. As commonly referred to in law, “Not only must Justice be done; it must also be seen to be done.”
# It is now common for executives who retire or in the latter stages of their career to step down from their regular job to become more of a professional director. If this your full time career choice, limit the number of such board seats to a manageable number, based on the number of meetings and sub committees you may be called upon to serve.
# If you’re an Executive director you’re definitely not a part-time team member. Therefore, accepting additional board seats (unless in your own subsidiaries) is not advisable. Even if you have the capacity, as you would like to think, consider the time commitment. Of course, we’ve heard that a drunk will always think that he can drink more!
# Somebody needs to wake up the nomination committees in companies. They just hold their perfunctory one meeting for the year at a fine dining restaurant and report compliance with the code in the annual report. Pressure on the committee members should be exerted to take some serious responsibility to bringing proper directors to serve the company.

In conclusion, being a director is a major responsibility that has increased significantly over the past decade. Don’t compare yourselves to doctors and lawyers who have no restriction on the number of customers they serve, by themselves. Because they are educated in the relevant subject and professions are governed by rules and codes and well regulated. Directors are NOT.

Who will bell the cat?

About surenraj

“Views expressed are my own”
This entry was posted in Governance and tagged . Bookmark the permalink.

Leave a Reply

Fill in your details below or click an icon to log in: Logo

You are commenting using your account. Log Out / Change )

Twitter picture

You are commenting using your Twitter account. Log Out / Change )

Facebook photo

You are commenting using your Facebook account. Log Out / Change )

Google+ photo

You are commenting using your Google+ account. Log Out / Change )

Connecting to %s