The magic director number
A directors’ fees report raises interesting questions, writes Hamish McNicol.
Company directors might appear to be on a good wicket: a board meeting one day a month, nine times a year. Sounds like a pretty good part-time job, especially when you are typically paid about $44,000 to do so.
But as shareholder activism gains momentum, duties to stakeholders broaden, and compliance expands, some have suggested there might be a limit on how many directorships anybody should hold.
EY partner Una Diver said it was not any harder to have too many directorships than it had been, but people were absolutely thinking about the issue more.
‘‘The challenge is, what’s the right number?’’
Diver said recent suggestions, such as Joan Withers’ view of a four or five maximum, had to be considered in context.
There was a danger in proclaiming nobody should have any more than ‘‘x’’ number of directorships.
‘‘What are the entities that are likely to suffer if we start making quite a rigid framework around how many are too many? ‘‘Realistically, it’s likely to be the not-for-profits.
‘‘They contribute a huge amount to not only the fabric of New Zealand society but also to the economy in general.’’
Institute of Directors chief executive Kirsten Patterson said another factor to consider was the value directors brought because of broad experience. ‘‘To have a director who has multiple boards across different industries is incredibly valuable from my perspective as a CEO because they are bringing insights from different industries I’m not connected to, and have experience working with different management teams. You don’t want to lose that either.’’
‘‘The directors who I really enjoy working with are the best collectors and curators.’’
The institute’s latest Directors’ Fees Report found the average director attended nine board meetings a year, and served on a board for an average of five years.
Diver said this length of service had been the average for some time, and it was worth noting this was for individual directors.
Most companies had a rotation policy, which could mean a sevenmember board might have one or
'The challenge is, what's the right number?' EY partner Una Diver
two people leaving every year.
Patterson said it took time for directors to build up knowledge about a business in order to add value, because they were not there every day.
It was overly simplistic to say there should be a certain length of tenure on a board, because directors brought different skills valuable at different times of an organisation’s life.
For some companies, the best thing might be for a director to be there for only two years, for others, it could be nine or 10.
‘‘If you’ve ever been in a sports team, you know that any change to your sports team, if a third of your team changes every year, that’s a new team.’’
Diver said organisations were good at refreshing their boards as well and were moving to increase the diversity of people they looked at for directorships.
But companies were finding that hard across the country, she said.
‘‘The pool is there, it’s just how deep do we fish and what’s our definition of the pond.’’