Fifty-one S&P 500 CEOs serve on the boards of two or more other firms.
It is a widely held opinion that service on the board of another public company can greatly enhance the skills and experience of a senior executive. The reasons for this view are clear: gaining an understanding of how another company functions, what its strategy is and how its board interacts with management, among other factors, can contribute to creating a more effective manager. But what about when service on other companies’ boards begins to interfere with the effective practice of an executive’s primary position? What about when the executive is a CEO?
Service on one other board of directors is, arguably, well within the capabilities of most CEOs. But data analyzed by GMI Ratings show there are 145 CEOs within the Russell 3000 who serve on the boards of two or more other Russell 3000 companies. This includes 51 CEOs of S&P 500 firms, and three S&P 500 CEOs who are on the boards of not two but three other public companies.
There are several other ‘overboarded’ CEOs in the S&P 500. They include Kenneth Chenault, CEO of American Express, who is also on the boards of Procter & Gamble (P&G) and IBM; Andrea Jung, CEO of Avon Products, who sits on the boards of Apple and GE; Harold McGraw, CEO of McGraw-Hill, who is on the boards of ConocoPhilips and United Technologies; and James McNerney, CEO of Boeing and a board member of P&G and IBM. It is difficult to imagine how any of these CEOs can perform effectively in all three of these roles.
This is a question not of conflict of interest, but of simply having the time to attend meetings, to read and understand complex materials, and to generally engage in the business of the other companies enough to be able to represent their shareholders’ interests effectively. There is no doubt that the job of a director has become more onerous since the passage of Sarbanes-Oxley in 2002. What is arguable is whether the CEOs of some of the largest companies in the world have the time to meet their increased duties.
This is of particular concern when directors sit on key bodies such as compensation and audit committees. Even among the CEOs previously mentioned, Chenault sits on the audit and compensation committees at P&G, while McNerney also sits on the compensation committee at P&G and the audit committee at IBM. In fact, P&G presents a special problem for shareholders concerned about board members, as it has yet another CEO – Mary Agnes Wilderotter, CEO of Frontier Communications – who is also on the boards of two other companies. With three potentially overboarded directors, P&G’s board is likely to find keeping up with its essential work somewhat challenging, particularly since all three of these CEOs sit on key committees (Wilderotter is also on the compensation committee).
While there is no conflict of interest in the majority of these instances, the case of Gregory Maffei, CEO of Liberty Interactive, likely deserves a different type of scrutiny. Maffei is also the CEO of Liberty Capital and Liberty Starz. Furthermore, he is on the boards of Electronic Arts, SiriusXM, Barnes & Noble and Live
Nation Entertainment. Many of these companies are interlocked through a series of complex ownership arrangements, making Maffei’s presence on their boards a real potential conflict of interest even before the consideration that one individual must find it challenging to perform so many roles effectively.
In the UK service on other boards is often encouraged for senior executives, including the CEO, though in many cases any fees earned are actually paid to the executive’s employer rather than to the executive. Such service is generally limited to a single other board, however, and this is specified by several governance charters.
While the figure of 51 S&P 500 CEOs represents only 10 percent of the total, it is still a substantial number. It’s far from a widespread issue, but such practices warrant at the very least a review by the relevant nominating committee of the board. If it finds that the requirements of the position are easily being met by the relevant executive, a disclosure to this effect would be warranted in the proxy statement. In some cases, however, boards may want to institute a requirement that senior executives’ board service be limited to a single outside directorship. Finally, as companies refine their disclosures surrounding directors’ experience and fitness for office in line with SEC regulations, such issues should be addressed within those disclosures
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