SEC rules, stock exchange listing requirements, and increased regulatory and judicial scrutiny continue to add to the workload of public company directors. At the 2015 AICPA conference held in early December, SEC Chair White delivered a keynote address which focused, in part, on the responsibilities and composition of audit committees. In her remarks, Chair White noted growing concerns about the amount of work required of public company directors in general and audit committee members in particular, warning that when directors serve on multiple boards, including multiple audit committees, “we must question whether they can do the job effectively.”
Determining whether an individual board member is doing his or her job effectively is challenging and multifaceted. One objective factor sometimes taken into account is the number of boards and committees on which a director serves. While NYSE listing standards require that boards make and disclose determinations with respect to audit committee members who serve on multiple public company audit committees, limits on board seats are not currently required and a board may reasonably determine that such limits are not necessary, as directors can balance their own personal workloads.
However, “overboarding” continues to be a subject of debate. Potentially bringing greater attention to the issue, Glass Lewis and ISS recently tightened their criteria for overboarding for the 2016 proxy season. During 2016, both proxy advisory firms will note if a director serves on more than five public company boards, but will continue to recommend against only those directors who sit on more than six boards. Beginning in 2017, both ISS and Glass Lewis will recommend against directors who sit on more than five public company boards. In addition, beginning in 2017, Glass Lewis will change its voting recommendations with respect to directors who are CEOs and will recommend against CEO directors who sit on more than two public company boards, including their own. ISS and Glass Lewis currently recommend against CEO directors sitting on the board of more than three public companies, including their own. ISS has retained this policy but has indicated that it will continue to monitor the issue.