How thorough is the supervision over the company in which your money is invested if a director serves on up to 10 boards? In a report on practices and remuneration of non-executive directors, the auditing firm PwC mentions a case where a single person holds 10 directorships.
The phenomenon is called “over-boarding” and, according to experts, is a problem also in South Africa. Directors must have enough time to attend meetings and to prepare themselves adequately so that they can fulfil their supervisory role properly.
Now there is a possibility that this phenomenon will be partially regulated, also in South Africa, where a shortage of competent directors is one of the reasons why the same people serve on too many boards.
This kind of thing exposes companies, employees, shareholders, clients and the directors themselves to risk.
After the worldwide financial crisis in 2008, the European Union introduced regulations concerning the number of permissable directorships, but not America.
Jeremy Kress of the University of Michigan elaborates on this subject on the website of the Harvard Law School Forum in an article entitled “Board to Death”.
According to Frik Landman, CEO of USB-ED, the private executive development company of Stellenbosch University, overextended directors simply have too much work.
Parmi Natesan, director of the Centre for Corporate Governance of the Institute of Directors in Southern Africa (IoDSA), says there is no set rule, but the guideline is that one person ought not to hold more than five posts as non-executive director. This does depend upon the capability of the person, other responsibilities (like full-time work) and the size and complexity of the organisations that they serve.
“Too many directorships per person is a matter that should receive attention, but there are just a few directors with more than five directorships, compared with those with fewer than five,” says Natesan.
Landman contends that there are definitely directors that overdo things. Practically, five directorships mean 20 meetings per year, because every board holds at least four meetings per year. A director is also a member of at least one sub-committee of each of the five boards, which requires at least another 20 meetings per year.
“It’s a full programme, with a high-level meeting almost every week of the year, which demands a lot of time and proper preparation. And this is when there are no drawn-out crises that the directors must deal with.”
Directorships look good on a CV and you get paid.
According to Landman, a board meeting is a good networking opportunity and gives directors exposure to good management practices and other approaches to problem solving.
Based on information from JSE-listed companies, a chairperson of the board earned an average of R520 000 per year in 2016 and a non-executive director an average of R345 000 per year, according to the PwC report.
More surprising still is that certain non-executive directors are also the chairperson of the board for more than one company.
This is a tremendously demanding role.
In the King IV report on ethical corporate management, recommendations are made on how a chairperson and the board must decide together on how many other professional posts the chairperson can fill and still fulfil the chairperson’s duties effectively.
Although Landman warns against over-regulation, he supports an interim limit on the number of directorships that one person can hold till the pool of potential directors has expanded sufficiently.
Natesan says IoDSA has a programme to increase the talent pool and to offer experienced directors the opportunity finally to be recognised as a chartered director. The institute also admits associate members, so that young aspirant directors can hone their skills.
Natesan says many people have no income besides their directorship remuneration. Since there are no minimum standards for serving as a director, the title of chartered director offers these people a way of presenting their qualifications objectively and to extend themselves further via a formal development programme.
Professional directors also subscribe to a code of professional ethical values and their title can be removed.
By the end of May, there were 70 chartered directors on the IoDSA register. Among them are Drs Prieur du Plessis, Reuel Khoza, Tito Mboweni, Venete Klein, Mark Lamberti, Gloria Serobe, Louis von Zeuner, and Profs Linda de Beer and Deon Rossouw.
Well-known South African directors
- Tito Mboweni, former president of the Reserve Bank, is a non-executive director of Discovery, independent non-executive chairperson of SacOil, chairperson of Nampak, and non-executive chairperson of Accelerate Property Fund.
- Reuel Khoza, former chairperson of Nedbank, serves on nine boards, according to information from Bloomberg, among which are Aka Capital, Nampak, Corobrik and Protea Hospitality Corporation.
- Gloria Serobe, executive chairperson of Wipcapital, is also a director of Old Mutual Emerging Markets and Hans Merensky Holdings.
Original article published in Rapport Sake24 on 3 September 2017 (author Riana de Lange ). Read it on the netwerk24 website. USB-ED presents an African Directors Programme, for more information visit the programme page.