How Many Boards Is Too Many?
There are risks to overboarding, both for the company and the director.
The past decade has seen a trend toward directors rightsizing their board portfolios to better align with the increased demands of the job.
According to the National Association of Corporate Directors’ annual public company governance survey, the amount of time directors spend on board service has steadily increased, up from an average of 210 hours in 2008 to 245 hours in 2017. Investors have taken notice. In 2019, Vanguard revised its proxy voting guidelines and signaled it would generally vote against directors who serve on more than one outside public company board, over and above a board they may serve as part of an executive role. This mirrored similar changes in the guidance issued by Institution Shareholder Services. While the rules are less prescribed for private company board service, the overall theme is the same. It’s in large part a response to shifting expectations of boards amid a more complex business environment.
So how many boards is too many for a director? As any good lawyer will tell you, the answer is “It depends.” What it means to balance the demands of a given board portfolio can vary widely based on a host of factors, including company size, structure, industry and stage in the company’s life cycle.
“I've been on three public, one family and numerous private company boards. Each has their different chemistries, agendas and modus operandi,” says Mike Lorelli, who currently serves on the board of iControl Data Solutions.
For example, given the failure rate of start-ups, early-stage companies face more existential risk and are focused on raising capital and scaling quickly. ESOPs have unique compensation structures, cultures and legal issues at play, which can mirror the complexity of a public company. The considerations are different but can be equally time-consuming if, say, the company could consider an IPO in the next 12 to 24 months and will face greater scrutiny around a host of matters, including everything from the financials to ESG issues to company culture.
Even nonprofit service, which is often seen as a way to give back and get more connected to the community, can be deceptively demanding, says Joy Randels, founder and CEO of The Prowess Group and board member of Metro Tech and Say Allo. “The commitment on a large nonprofit board can be greater than it is on a public board because you're typically a fundraiser as well.”
Given the diverse landscape of board service, how should a director evaluate a prospective role to ensure they won’t be overcommitted? Start with a careful analysis that includes interviews with the board chair, the lead director and other board members, says Larry King, who has served on nearly 25 boards throughout his career, including current boards nDivision, Kwivik Medical Group Limited and BlockQAI LLC. “Find out how they see the time commitment. Look at the culture of the company. Do a deeper dive on the financial status. Different companies have different exposures from a risk standpoint, so try to get a better handle on what those risks are and how they might change. Are they meeting quarterly or monthly? Do they have monthly phone calls in between their quarterly meetings?”
In addition, Lorelli suggests factoring in things like travel time. “I live in Connecticut, so I won’t consider a West Coast board because I'll kill a day going there and another whole day coming back.”
Another aspect of the time commitment that often gets overlooked is how much time directors are expected to dedicate outside of formal board meetings. This is especially relevant as boards increasingly look to recruit directors with specific skill sets and expertise that align with company needs. For example, if a director has been placed on a board because they bring expertise as a current or former chief marketing officer or chief technology officer and the company is going through a significant digital transformation, the executive team will likely want the benefit of that person’s time outside of regular board meetings. Spending this extra time with management is also an important part of fulfilling one of the board’s most important roles: CEO and executive team succession planning.
“When you spend time with management and the next level down, you get beyond just what you're being told in the boardroom, and you have visibility into depth and quality of the bench,” says Kim Letch, U.S.-West region private equity leader for EY, who serves on both nonprofit and advisory boards, including OCTANe OC, CEO Leadership Alliance Orange County and Sage Hill School. “So, for example, if the CFO got hit by a bus, what would be the plan? Could the controller step up, or would we be looking elsewhere?”
Directors should also consider what it takes to keep up to speed, even at a high level, on emerging trends impacting the industries of the companies they serve. “It’s important to understand what customers are saying. Do we as a board understand how we are serving them and what opportunities there are?” says Letch. “It’s that whole broader perspective and understanding the business. It’s critically important for the board, but that all takes time.”
The bottom line is that each director must decide what “balance” looks like. Extra travel time or taking weekend calls from a founder seeking advice may well be worth it for the right board role, but having a clear sense of those parameters up front is critical. King says the biggest mistake he sees newer directors make is getting so caught up in the ego boost of being asked to serve that they don’t always do enough due diligence.
“It’s sort of like your first job: you don’t ask a lot of questions. You’re just so happy to get the job and a paycheck. I think part of that maturing process is being more realistic about what to expect.”
Randels agrees and suggests having the discussion about time commitment and expectations up front, as well as getting it in writing. “It’s not unlike creating an operating agreement for a company. I let them know I want to be sure that we are both on the same page because if I’m coming in to take this role, I want to make sure that I can allocate the time and that I can serve effectively.”
Still, even with all the due diligence, the demands of the position can be more than a director expected. Stepping down midterm can be a reputational black eye, so what’s an overwhelmed director to do? Randels says it comes down to proactive communication with the CEO and board leadership. “When I found myself in that situation, I went back to the CEO and I said, ‘This is a little different than what we agreed to. I’m not going to walk away, but we need to rethink this. Let’s talk about the most important things you want me to focus on. Let’s pick out the things that only I can do, or that I’m the best person to do,’ and then I asked, ‘Are there other people inside the organization, or is there a consultant available, that could assist with this other part? Let’s talk about what that looks like.’”
The role of nominating and governance
Randels’ advice underscores another key point: Ensuring directors have enough bandwidth is not solely the onus of the individual. Board and nominating and governance chairs can also play a proactive role in setting new board members up for success. “I really like the idea of having a more senior board member be responsible for mentoring first-year board members,” says Letch. “Before every meeting, let’s have a 30-minute conversation. Did you read the materials? What questions do you have? Then afterward, ask, ‘What do you want to talk about? What didn’t you understand?’” This can both minimize the overwhelming feeling of learning a new company, industry and culture, and help new directors better prioritize their time by more quickly identifying what questions and issues require the most focus.
Still, even the best-laid plans can go awry. Directors should ensure the flexibility to allow for the unexpected. An unforeseen CEO transition, or a crisis that impacts company operations and reputation, can easily turn a 20-hour-per-month commitment into a 20-hour-per-week commitment overnight. This reality was brought home for nearly every director regardless of company type or industry as boards stepped up to help their companies navigate the once-in-a-generation COVID-19 pandemic.
“The last two years have really shown that the amount of time it takes to do the job can increase overnight,” says King. “The amount of time the board was expected to devote grew dramatically with COVID, and there was an increase in cyber incidents and supply chain issues. If you’re fully booked, that can be a real challenge, especially if more than one or two of your boards has an issue at the same time.”
This makes it particularly important for prospective directors who also have a demanding day job to gauge the level of support and flexibility they have internally before accepting a board role. “Ask yourself: Do I have sufficient support in place that I could step away for that additional time if I needed to?” suggests Randels.
Directors who are more selective about what they take on are better positioned as candidates when the right board role comes along.
“If I’m evaluating two candidates who are equally matched, but one serves on two boards and the other serves on four, I’ll choose the one who serves on two boards every time,” says Randels.
Lorelli agrees. “If your instincts are that the person is overcommitted, I’d back off from the candidate. It’s too much of a risk.”
Perhaps most importantly, when directors are intentional about choosing board roles that truly align with their interests, passions and skills, board service is less likely to feel like work, even when things get hectic.
“Passion is so important,” says Letch. “For me, the question of overboarding comes back to purpose. What are you there for? Because being on a board for the name recognition and just keeping the seat warm does nothing for anybody.”
Erin Essenmacher is a board director and strategic advisor. She spent nearly 10 years in executive leadership at the National Association of Corporate Directors, most recently as president and chief strategy officer.