Ever feel there just isn’t enough time in the day? While for mere mortals that may stem from juggling the demands of doing the school run, a day job and keeping house, shareholders are increasingly concerned that non-executives, and in particular boardroom chairs, are simply taking on too much.
This week Gary Watts, chairman of BTG, a drugs maker, stepped down following shareholder protests prompted by “overboarding”—the prosaic term given to board members who take on too many jobs.
Watts’s departure is not a lone example. Earlier in the year Peter Long, then chairman of Royal Mail, also said goodbye after complaints about his numerous outside commitments. Elsewhere, Rick Haythornthwaite parted company with Centrica, owners of British Gas, over similar protests about his workload.
Haythornthwaite, at the time he waved goodbye, was chair at Mastercard International, QIO Technologies and Arc International, a French manufacturer. Peter Long also chaired at Countrywide, the national estate agency. Gary Watts was chairing an estate agency, Foxtons, as well as Spire International, a private hospital group in addition to BTG.
Rising shareholder concerns
Signals that shareholders have been concerned about overboarding have been clear to see for some time. The Investment Association, a professional body for fund managers, this year collected figures showing that shareholder revolts against director reappointments (those where 20%+ of investors vote in opposition) rose 30% from 2017 to 2018.
Watts saw a 22.9% vote against remaining as chair, while Peter Long faced opposition of 34.4%, with almost 9% of shareholders withholding support by abstaining.
Overboarding has been on the radar of other institutions too. When a revised UK Corporate Governance Code was published earlier this year the authors, the Financial Reporting Council, made a point of saying overboarding was one of the issues the new document would confront.
The code now states: “All directors should be able to allocate sufficient time to the company to discharge their responsibilities effectively.” Provisions in the code additionally ask non-executives to disclose their outside commitments at the time of their appointment and update boards with any changes. However, it stops short of advising portfolio limits for either chairs or non-executives.
Proxy advisors, however, do provide guidance on workload expectations. ISS advises voting against a director’s reappointment if the individual concerned has more than five non-exec roles. They also class an executive in one company with a chairmanship in another as “overboarded”. ISS shareholders to vote against the chairmanship role. Glass Lewis has similar criteria.
KPMG, a professional advisory firm, told clients in a note earlier this year: “Be cognizant that boards and nomination committees are now in the firing line with investors, proxy advisors and the media looking to hold directors to account for a wide range of issues including board diversity, succession planning, independence, tenure, overboarding and disclosure.”
Warning flags have been conspicuously waved. Lorraine Young, a partner at Shakespeare Matineau, a law firm, writes for Mondaq that NEDs are under pressure because of overboarding, and could face the “embarrassment’ of being voted off a board. The Investment Association’s Public Register also presents the potential for non-execs to be “named and shamed” which, due to its online presence, could be “prolonged”.
However, Young is concerned that the fervent opposition to overboarding could lead to unnecessary outcomes. “There is a real risk boards could lose talented directors for no good reasons,” she adds.
That said, boards could hardly claim they have not been warned.