Shareholder Votes as a Mechanism to Prevent Directors’ Excessive Actions in Corporate Governance

Stay up-to-date with Corporate governance updates by subscribing to our newsletter.

Receive a comprehensive email, the myFT Daily Digest, summarizing the latest Corporate governance news every morning.

Pinterest and Nextdoor may not be direct competitors due to their vast differences in value, with Pinterest valued at $17.5 billion and Nextdoor at $830 million. However, both companies operate on digital advertising-driven social media platforms. Consequently, the US Department of Justice has taken measures to prevent board members from serving on both boards simultaneously.

In response to this policy, Leslie Kilgore and Andrea Wishom, who served as directors on Pinterest, resigned from their positions on the board of Nextdoor. This action aims to eliminate conflicts of interest among competing companies and further addresses concerns regarding directors serving on multiple boards.

The number of board seats a director should hold is a subject of debate. Many S&P 500 companies limit directors to three or four additional board positions. Major investment firms like BlackRock and Vanguard advocate for a maximum of four board seats and vote against directors they consider overstretched. State Street votes against nominating committee chairs who fail to define such limits. Surprisingly, research conducted by executive search firm Spencer Stuart reveals that nearly one-fifth of S&P 500 boards do not disclose these limits.

Limiting the number of board seats a director holds is a sensible approach. According to Spencer Stuart, directors typically spend around 240 hours per year on board-related activities, and this time commitment can increase if a company is facing difficulties. Overburdened directors may not have sufficient time to effectively address crucial issues.

However, it is crucial to consider the time commitment required for roles at start-ups, charities, schools, and other organizations. Merely cracking down on directors with excessive board positions fails to address the diverse responsibilities these individuals may hold.

Over-boarding is not the only factor to consider. Boards that are perceived to be too closely aligned with executives can also draw criticism. Tesla, Elon Musk’s electric car company, has faced questions regarding the composition of its board, which includes Musk’s brother Kimbal.

Directors who excel in time management may argue that multiple roles enhance their abilities. However, shareholders should be aware that not all individuals close to the company share this perspective. According to The Conference Board’s survey, only 7% of directors considered over-boarding to be a problem, while over half of the executives disagreed.

Denial of responsibility! VigourTimes is an automatic aggregator of Global media. In each content, the hyperlink to the primary source is specified. All trademarks belong to their rightful owners, and all materials to their authors. For any complaint, please reach us at – [email protected]. We will take necessary action within 24 hours.