Director Overboarding

by | Dec 8, 2022

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:

  1. The person is a director at 2 or more other companies AND CEO at one or more other companies OR
  2. 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

Recent Analysis

Disclaimer

The opinions and information contained herein have been obtained or derived from sources believed to be reliable, but Boardroom Alpha cannot guarantee its accuracy and completeness, and that of the opinions based thereon. 

This report contains opinions and is provided for informational purposes only – it does not constitute investment, legal or tax advice. You should not rely solely upon the research herein for purposes of transacting securities or other investments, and you are encouraged to conduct your own research and due diligence, and to seek the advice of a qualified securities professional before you make any investment.  

None of the information contained in this report constitutes, or is intended to constitute a recommendation by Boardroom Alpha of any particular security or trading strategy or a determination by BA that any security or trading strategy is suitable for any specific person. To the extent any of the information contained herein may be deemed to be investment advice, such information is impersonal and not tailored to the investment needs of any specific person.  

No representation or warranty, expressed or implied, is made on behalf of Boardroom Alpha as to the accuracy or completeness of the information contained herein. Boardroom Alpha does not accept any liability for any direct, indirect or consequential loss or damage suffered by any person as a result of relying on all or any part of this research and any liability is expressly disclaimed.