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How Many Board Committees Are Too Many?



January 20, 2017

Director overboarding has become a hot topic among corporate governance stakeholders. Proxy advisors have set stringent guidelines for the number of boards on which a director should serve, and the time commitments of board members are frequently mentioned in institutional investor voting guidelines. There is a general consensus among these stakeholders that when a director has committed themselves to service on a large number of boards, they are less likely to be able to provide sufficient focus to each company. Basically, if a director’s time is spread too thin, they may struggle to perform to the level they are expected on each of the boards.

This concept can apply to directors serving on multiple committees as well. Now more than ever, the duties and responsibilities of committee members are more aligned to investor priorities and goals. As board-investor relations grow more complex—especially in the age of shareholder engagement and activism—it is important for committee members to represent shareholders with respect to oversight of company management, driving company strategy and focusing on the long-term value of the company. Further, committee membership requires the director to be able to allocate additional time and resources to performing their duties on the board they represent.

According to an Equilar study of nearly 10,000 directors that serve on the “big three” committees for S&P 500 and Russell 3000 boards, the average number of committees on which directors served decreased in 2015 overall. Compensation and audit committee members served an average of 1.19 committees of the same type, compared to 1.17 for nominating/governance committee members.

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Governance analysts note that the average time commitment for board service has exploded over the past few years. For example, a recent National Association of Corporate Directors (NACD) annual survey revealed the average director time commitment increased 46% over a 10-year period, up from 190 hours in 2005 to 278 hours in 2014. This increase in time commitment could make it more difficult for a director to serve on multiple boards and committees.

Among the same group of directors, Equilar data shows that from 2013 to 2015 the percentage of directors serving on two or more compensation or nominating/governance committees has decreased. This potentially reflects the increased responsibilities incurred by these board members—particularly since it does not account for whether these individuals served on any other committees on other boards. Meanwhile, however, the percentage of directors serving on multiple audit committees has increased, reaching 6.1% of all audit committee members. As compliance issues become more stringent and financial experience is at a premium, it’s possible that boards are putting more responsibility in the hands of proven directors who have served on audit committees at other public companies to engender familiarity with rules and regulations.

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In 2015, approximately 150 directors in each category sat on three or more audit, compensation or nominating/governance committees, representing 1.10% of all directors who serve nominating/governance committees, 1.44% of audit committee members and 1.40% of compensation committee members. Similarly to directors on two or more committees, the number of audit committee members was up, while compensation and nom/gov members serving on more than three of the same committee was down over a three-year period.

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With the issue of overboarding becoming front and center in the boardroom, Glass Lewis and ISS have set a threshold for directors serving on five or more board simultaneously, recommending that shareholders vote against or withhold votes for individual directors who exceed this threshold. These numbers show trending towards a lower rate of simultaneous committee service, perhaps precluding the need for recommendations on a limit the total number of committees directors may serve.


To learn more about upcoming board leadership events, please visit http://www.equilar.com/equilar-events.

For more information on Equilar’s research and data analysis, please contact Dan Marcec, Director of Content & Communications at dmarcec@equilar.com.




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