The question of ensuring non-executive directors (NEDs) have enough time to carry out their role is an important one. Broadly the methodology used by proxy voting advisers is that a NED, or executive director, can have a maximum of five points, after which they are deemed to be over-boarded I.E., there’s a concern they are spreading themselves too thinly and cannot devote sufficient time to the positions they hold. A points system is a helpful calculator, although it can be a blunt tool and assigning ‘points’ based on the positions held is not a fool-proof approach.
An example of a points system used to assess over-boarding in the UK is:
NED position = 1 point
Non-executive chair = 2 points
Executive position = 3 points
Executive position + non-executive chair at another company = over-boarded
However, in reality it is not this straightforward.
Firstly, often not enough thought is given to differing workloads depending on the type of position. There is often a difference between the workload for an investment company versus an operational company; and within investment companies there will also tend to be variations. For example, being a NED on an equity investment trust usually has a less intense workload than the same role for an infrastructure focused investment trust – this is reflected in the number of meetings as well as the fees paid to NEDs.
Within operational companies there are differences as well – being a NED on the board of a global bank will bring higher level complexity compared to the same position for a more UK focused bank – indeed the former pays the chair double the salary of the former.
Secondly, NEDs are usually not just on the board, but also members of committees. Being a member is usually less onerous than being the chair of a committee, and not all committees are equal. The number of meetings, and the workload associated with the committees will vary.
Thirdly, usually only positions in publicly-listed companies count towards the points system that proxy voting advisers and some investors use. ‘Day jobs’ are not counted unless they are an executive position. Positions on private companies, not-for-profit boards and pension scheme trusteeships are not calculated. The responsibilities at a private company will mimic elements of a listed company and may even require a NED to be more hands on. The Pensions Regulator states that ‘boards should meet often enough to maintain effective oversight and control. In most cases this will be at least quarterly’.
Turning to the not-for-profit sector, if we think about a typical meeting schedule for a large charity, this usually involves around four board meetings a year (for half a day each), plus an away day. On top of this trustees usually have committee responsibilities, which might mean an additional four, or more, meetings a year which, for instance, could take three hours per committee. Being the chair of the board or one of the committees adds to the responsibilities and workload. Having said this I came across an advert for a pro bono charity position which would take up 2-3 days a month…
