Director overboarding continues to be a key factor that shareholders — and those who advise them — look at when evaluating nominees at the annual shareholder vote. This brief overview of “director overboarding” will look at what it is, why it matters, and how it is evaluated.
What is Director Overboarding?
The quality and commitment of a public company’s board is of critical importance to shareholders. As the top-level stewards of the company, they play a critical role in ensuring the company is delivering returns for its shareholders.
Board service, whether the chair or simply a member, is time consuming and requires focused effort. As such, directors that have a significant number of outside commitments risk not being able to devote enough time, thought, and effort into their board work.
Directors with too many outside commitments in the form of other board service or named executive officer service are considered to be “overboarded.”
Why does Director Overboarding Matter?
When board members have too many outside responsibilities they may not be able to effectively steward the companies where they are serving. In cases where directors are overboarded, shareholders will certainly question whether they are able to deliver the returns they desire.
Who Sets the Standards for Director Overboarding?
There is no objective standard for what qualifies as a director being “overboarded.” However, the most influential large institutional investors (e.g. Blackrock, State Street, Vanguard, etc) as well as advisory firms (i.e. Glass Lewis, ISS) will set their own standards.
Typically the standards are generally well aligned, but the specifics may vary some. There may be a different level of emphasis on factors or more subjective views taken on a case-by-case basis.
When is a Director “overboarded”?
As mentioned above, the standards for overboarding vary based on whose standard is being used. As a rule of thumb, this is a safe, “down the middle” view:
- The person is a director at 2 or more other companies AND CEO at one or more other companies OR
- The person is a director at 4 or more other companies
For updated specifics by standard setter, you are encouraged to see the additional resources below.
What Happens when a Director is Overboarded?
Often times when a director is considered overboarded, large institutional shareholders will vote against that director at the next shareholder meeting. And, the proxy advisors will similarly recommend voting against (or at times withholding) votes for the director.
For example, in its 2020-2021 investment stewardship report, BlackRock reported that it voted against 163 directors at 149 companies in the Americas on the basis of overboarding from July 1, 2020 to June 30, 2021. (source: Sidley)
How is Director Overboarding Identified?
The Boardroom Alpha platform enables users to evaluate all companies and directors for potential director overboarding. Learn more about the Governance Analytics Platform here.
Additional References on Director Overboarding
- Via Sidley: Roundup of Director Overboarding Policies
- Via Glass Lewis: 2022 Policy Guidelines
- Via State Street: 2022 Proxy Voting and Engagement Guidelines
- Via Cooley: Director Overboarding Policies Summary
- Via Harvard: Director Overboarding: Global Trends, Definitions, and Impact