A pair of articles appearing in this week's Wall Street Journal argue against overboarding - defined in the article as a director serving on five or more boards or a current CEO sitting on two or more boards. The articles note that investors are closely watching the practice and that the companies where current CEOs sit on more than one external board delivered lower one-year total shareholder return than those on one or fewer boards.. The data supporting this claim is derived from a study by Equilar which shows that the one-year total shareholder return of S&P 500 companies with a CEO who also serves on at least two boards lags behind the general S&P 500 averages -- 8.2% vs 14.4%. However, the companies where CEOs sat on more than one board had higher median net profit, revenue and market capitalization, and there is a reasonable question whether one year is the correct timeframe for measuring performance. It notes that the differences in three-year returns are much smaller -- 10.2% and 10.4%, respectively.
The article cites growing investor resistance to overboarding which is being driven in part by the larger stakes that index funds such as BlackRock, Vanguard and State Street own over companies and they are paying closer attention in proxy voting. Despite decrying the practice of overboarding and making it out to be a significant issue, how the article also notes that overboarding as a practice has decreased significantly. According to the article, 77% of S&P 500 companies now have some type of curb on the number of boards an individual can serve on with 36% imposing a three-seat limit. Further, only 63 S&P 500 directors serve on five boards or more while companies commonly impose a two-board maximum for currently seated CEOs. The data on the actual frequency of the practice which clearly shows a decline in overboarding seemingly contradicts the implied notion of the article that the practice is much more commonplace. The article also notes that Vanguard and State Street tends to look at the issues more contextually, quoting a Vanguard spokesperson as saying that the investor looks at factors such as "“attendance, engagement, and effectiveness.”
As the responsibilities of Board members increase, the ability of individuals to serve on multiple boards is becoming more difficult. Companies and board candidates appear to be realizing this and are proactively taking steps to achieve the right balance. Regardless, it appears that scrutiny over time spent by active CEOs on outside boards will continue.