Non-executive directors at UK financial services firms may have a credibility issue. New research finds that investors overwhelmingly believe that holding three or more board positions “could present significant challenge to directors’ abilities to govern effectively”.
In fact, 82% of investors polled in a survey by professional services firm EY revealed concerns about “overboarding”—where a director has three or more boardroom jobs. The figure rises to 85% if one of the jobs is an executive position.
That may not surprise many and might be of little concern, if it weren’t for another statistic found by EY: that a third of UK financial services directors hold at least four roles in their portfolio.
That’s less likely to be a concern when it comes to chairs and chief executives, according to EY’s Boardroom Monitor poll of 300 European financial institutions, because they generally have, on average, only two positions.
According to Anna Anthony, EY’s managing partner for financial services, City firms operate in a difficult environment that is becoming ever more complex and have focused on “building highly skilled, relevant and resilient boardrooms”. But she has a warning.
“There are many valid reasons for board members to hold more than one position, but a careful balance must of course be struck,” she says.
Are NEDs spread too thinly?
Overboarding is a topic of concern for investors and watchdogs alike. Earlier this year, the Financial Reporting Council, the UK’s governance watchdog, launched a review of its corporate governance code. This also included attempts to tackle overboarding by placing directors with multiple roles under a spotlight. The new code, yet to be finalised, asks that annual performance reviews of directors should consider their “commitment to other organisations and their ability to discharge their responsibilities effectively”.
Overboarding remains a big issue for investors. A recent report suggested they take a harder line on directors with many jobs than even proxy advisers, such as Glass Lewis or ISS.
Some market observers have argued the definition of “overboarding” should go beyond considering public company roles and include private company roles, too.
The EY report found that investors believe financial services directors take multiple roles to “gain broader experience” or for the “remuneration”. Around a fifth believe overboarding has been driven by a shortage of female board candidates, though EY says it has evidence this is not the case.
Banking was the sector with most directors (65%) holding more than two positions, while insurance was next on 40% and asset management on 39%.
Overboarding was not the only issue EY looked at. It revealed that the “churn” for financial services directors stands at around 9% in the first half of this year.
Appointments have tilted toward tech expertise. Of the newly appointed directors, 55% are expert in technology—an increase of 33 percentage points on the same period in 2022. Sustainability expertise was brought to the table by 18% of new appointments.
A fifth of financial services boards are yet to reach the Financial Conduct Authority’s 40% target for female board representation.
However, the overboarding figures stand out and will likely give investors and nominations committees pause for thought.