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The Risks of Overboarding

Excessive boardroom remuneration and gender pay gaps are likely to dominate the headlines as AGM and voting season gets into full swing. However, these are not the only issues on shareholders’ agendas. One less conspicuous trend that is increasingly becoming the subject of investor ire is ‘overboarding’ – when corporate directors are deemed to sit on too many boards.

The term ‘overboarding’ has been a topical issue not just for the companies in the Evenlode portfolios but for companies across the FTSE spectrum. The 2018 AGM season saw an increasing trend of shareholders voting against non-executives for sitting on too many outside boards. It is safe to say the issue is becoming progressively prevalent and the role of non-executives is becoming increasingly complex.

Growing concerns

A recent KPMG report highlighted that the 2018 AGM season saw a clear trend of shareholders voting against the re-election of a director ‘because of concerns over the number of roles they were undertaking’.

The report expected ‘even greater investor scrutiny of the time commitments of directors, with more instances of directors receiving less than 80% support for their re-election’ in 2019. As the report pointed out, under the revised UK Corporate Governance Code, when 20% or more of votes have been cast against a resolution, the company should detail what action it will take and give further updates on the subject within six months and in the subsequent annual report.

We do understand that having several non-executives serving on many different outside boards can be helpful in providing a stronger level of knowledge and expertise, however, it does bring into question the principle of effectiveness and the ability of these non-executives to allocate sufficient time to each company.

Complex issue

We take a long-term approach to investing and portfolio construction. Hence, we don’t necessarily have a hard number in terms of how many positions would be deemed inappropriate – and would prompt a vote against a re-election – but we are initiating engagement to further understand how directors add value to the business and the board.

It’s important to understand overboarding is not just based on how many outside directorships the non-executive has, but also on the size and the complexity of the businesses these positions are related to.

Ultimately, directors have a fiduciary duty to shareholders and the companies they are associated with. Therefore, we would encourage boards to take into account each non-executive’s commitments, to ensure boards are made up of directors who are not overburdened and can perform each of their given duties effectively. We will continue to address this issue with boards through our engagement framework, as and when we feel necessary.

Bethan Rose 

Investment Analyst

This article was also featured in Investment Week. 

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