Investigating the extent and impact of director overboardedness using a comprehensive measure

• DOI: https://doi.org/10.1108/CG-07-2019-0234
• Pages: 821-836
• Date: 19 May 2020
• Published date: 19 May 2020
• Author: Nadia Mans-Kemp,Suzette Viviers,Jenna Weir
• Subject Matter: Corporate governance,Strategy

Investigating the extent and impact of

director overboardedness using a

comprehensive measure

Nadia Mans-Kemp, Suzette Viviers and Jenna Weir

Abstract

Purpose –Directors can become overextended when they serve on multiple boards simultaneously.

Previous scholars mostly considereddirectorships held at listed companies. This study aims to investigate the

extent and impact of director overboardedness in an emerging market by using a comprehensive measure.

Design/methodology/approach –The analysis covered 1,600 directorswho served on the boards of

the 100 largest companieslisted in South Africa over the period 2011–2016. In additionto directorships

held at listed companies,board positions at unlisted companies and otherentities such as state-owned

enterpriseswere considered. Board committeememberships at the sample companieswere furthermore

included. Random effects ANOVA was conducted to test for significant differences in board and

committeemeeting attendance.

Findings –Two-thirds of the considered directors were overboarded when accounting for all their

positions. Board committee memberships increased notably over the research period. There was no

significant difference in the percentage of board meetings attended between overboarded and non-

overboarded directors. However, those directors who held three or more positions simultaneously

attended significantlymore board committee meetings than their counterpartswho held fewer positions.

Of the considered committees, the remuneration committee typically had the highest proportion of

overboardeddirectors.

Originality/value –Eligible board candidatesare in high demand given the limited talent pool in South

Africa. The findings contradict the busyness hypothesis and suggest that director overboardedness

shouldbe evaluated on a case-by-case basis.

Keywords Overboardedness, Busyness hypothesis, Board committees, South Africa

Paper type Research paper

Introduction

“Beware the barrenness of a busy life.” Directors need to heed this warning by Socrates

(McKeown, 2014) when deliberating offers to serve on multiple boards simultaneously.

Corporate leaders have a substantial impact on the fortunes of the companies and, by

extension, the shareholders whom they serve (Kumar and Zattoni, 2014). When “busy”

directors hold multiple positions, their ability to commit to a specific task or committee, can

be compromised (Ferris et al.,2003). Time commitments should be the main consideration

when accepting another directorship (Deloitte Development LLC, 2014), as the time

required to effectively fulfil board duties is escalating (Institutional Shareholder Services,

2016). Busy directors are a global phenomenon (Ferris et al., 2018). On average, directors

in the USA, for instance, spent approximately 29% more time in executing their duties

during 2016 than in 2005, i.e. 245h versus190 h (Institutional Shareholder Services, 2016).

In this study, the terms “overboardedness” and “busy directors” are used interchangeably.

Director overboardedness refers to a situation where a director serves on what is regarded

Nadia Mans-Kemp,

Suzette Viviers and

Jenna Weir are all based at

the Department of Business

Management, Stellenbosch

University, Stellenbosch,

South Africa.

Received 31 July 2019

Revised 18 January 2020

31 March 2020

Accepted 21 April 2020

This work is based on the

research supported in part by

the National Research

Foundation of South Africa

(Grant number: 121880).

DOI 10.1108/CG-07-2019-0234 VOL. 20 NO. 5 2020, pp. 821-836, ©Emerald Publishing Limited, ISSN 1472-0701 jCORPORATE GOVERNANCE jPAGE 821

as “too many” boards concurrently (Harris and Shimizu, 2004). Fich and Shivdasani (2006)

classified a director as being busy when he/she serves on three or more boards

simultaneously. There are contrasting views on the outcomes of overboardedness. The

busyness hypothesis postulates that overboarded directors are inclined to attend fewer

board meetings and offer less constructive advice at board meetings compared to their

less busy counterparts (Clements et al.,2015). Authors who reported a negativeassociation

between overboardedness and financial performance ascribed their findings to director

busyness (Clements et al.,2015;Fich and Shivdasani, 2006).

In contrast, other scholars found support for the experience hypothesis (Sarkar and Sarkar,

2009;Harris and Shimizu, 2004). This overboardedness hypothesis states that multi-

boarded, or interlocked, directors offer a wealth of experience and access to resources by

building networks with various entities and individuals (Clements et al., 2015). Given their

experience, directors holding multiple positions arguably have a positive impact on

strategic decision-making, and ultimately a company’s performance (Sarkar and Sarkar,

2009;Harris and Shimizu, 2004).

As there is an enhanced focus on board diversity, board invitations for eligible, diverse

candidates are escalating. Board diversity is an important factor influencing corporate

decisions (Bhat et al., 2019) and could be deemed a moderator when assessing the link

between director interlocking and corporate financial performance (Kaczmarek et al.,

2014). In line with the board gender diversitytargets introduced in the UK, South Africa has

introduced voluntary targets to enhance not only gender diversity, but also race diversity at

board level (Institute of Directors in Southern Africa [IoDSA], 2016). Given the injustices of

the Apartheid regime, there is considerable regulatory and societal pressure to empower

diverse individuals throughout the corporate spectrum. As South Africa has a limited talent

pool (Natesan and Du Plessis, 2018), partly becauseof its history, some diverse candidates

receive multiple invitationsto serve on boards concurrently. South Africa hence provides an

interesting emerging market research context in which to investigate director

overboardedness.

Some scholars reported instances of director overboardedness in South Africa (Viviers and

Mans-Kemp, 2019;Williams et al.,2016). These authors, however, only took the directors’

board responsibilities into account.Chiranga and Chiwira (2014) reported that overboarded

South African directors tend to serve on fewer board committees than their less busy

counterparts. Their finding coincides with the busyness hypothesis. They accounted for

internal committee involvement but did not consider committee meeting attendance.

Jackling and Johl (2009) argued that the number of directorships held simultaneously

should be restricted when busyness has a negative impact on financial performance.

Despite concerns raised about instances of overboardedness in South Africa (Mans-Kemp

et al.,2018

), there is no such restriction in the local context, as is the case in several other

countries.

Board meeting attendance can be used as a proxy for a director’s commitment (Min and

Chizema, 2018). Viviers and Mans-Kemp (2019) found no statistically significant difference

in the board meeting attendance of both overboarded and non-overboarded directors in

South Africa over a six-year period. Ignoring the time commitments associated with board

committee memberships can resultin a severe underestimation of director busyness. Board

committee membership was thus included in this study to assess the extent and impact of

director overboardedness in the South African emerging market context. In addition to

serving on the boards and committees of listed companies, South African directors also

receive invitations to serve on the leadership structures of more than 130 state-owned

enterprises (Government of South Africa, 2020). A growing number of private companies

are furthermore inviting independent directors to serve on their boards (Deloitte, 2016).

There is hence a research gap to investigate director overboardedness in this emerging

market by accounting for positions held at various listed and unlisted entities. The measure

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