The California General Corporation Law has imposes a single qualification to serve as a director – the person must be a “natural person”. Cal. Corp. Code § 164. Nevada’s for-profit corporation law adds the additional requirement that a director must be at least 18 years of age. NRS 78.115. The GCL does permit bylaws to specify the qualifications of directors. Cal. Corp. Code § 212(b)(4).
In sharp contrast to this laissez-faire approach to director qualifications, corporate governance mavens tend to adopt prescriptive standards. For example, the Council of Institutional Investors has adopted a policy that “directors with full-time jobs should not serve on more than two other boards”. While it seems logical that directors should be able to devote sufficient time, one wonders about the arbitrariness of the number of permitted boards. ISS’ 2013 guidelines, for example, provide for a vote against or “withhold” if a director sits on more than six public company boards or is a CEO of a public company and sits on two public company boards in addition to their own. CalPERS’s governance principles are just a bit more strict, a director may not sit on more than five for-profit boards. A CEO, according to CalPERS, may sit on only one other company’s board and then “only if the CEO’s own company is in the top half of its peer group.”
Given this diversity of standards, one wonders whether any of them are based on anything other than someone’s “gut feel” of when a director becomes overextended. Is the right number no more than 2, or 5 or 6? On what basis is the right number determined?
The idea of limiting the number of directors is not new, however. In Vichy France, Robert O. Paxton writes that the Third Republic minister Georges Bonnet advocated for limits on the number of directorships an individual could hold. After the fall of France in June 1940, the Vichy regime enacted legislation doing just that – prohibiting an individual from holding more than two directorships.