We recently reported that Institutional Shareholder Services (ISS) released its 2018 Americas Proxy Voting Guidelines Updates (the Policy Update), which, among other things, establishes modified guidelines for determining whether a director serving on the board of multiple public companies is “overboarded”.

Starting in 2019, ISS will recommend a withhold vote for (1) directors of TSX-listed companies who are CEOs and serve on two or more public boards and (2) any non-CEO director who serves on the board of five or more public companies.

Overboarding is a hot button topic in the realm of corporate governance. Questions arise surrounding whether a director serving on too many boards can adequately discharge his or her duties. When overstretched, the effectiveness of directors at overseeing management may be undermined. However, a counter-argument arises when considering the relative benefits to companies with boards comprised of experienced and robust directors that hold significant diversity of experience.

The Role of the Corporate Director

Directors are the leaders who approve and oversee corporate strategy and approve major capital spending decisions. They are charged with the long term stewardship of Canada’s organizations.

– Institute of Corporate Directors, “Director Lens – Fall 2017 Survey”

A 2014 Korn Ferry report found that in Canada, the average time spent by a director on his or her board responsibilities was 304 hours per year, per board. Chief among the many important roles played by directors of public companies is oversight of management. Additional duties and responsibilities include: determining executive compensation, attending functions on behalf of the company, preparing for board meetings and keeping current with industry trends, attending board meetings, training-related responsibilities, and various tasks pertaining to committee work. All things told, the responsibilities of directors can be onerous and time-consuming.

The Risks of Overboarding

In light of the broad duties and responsibilities outlined above, overboarded directors may not be able to dedicate the requisite amount of resources and energy needed to effectively serve. A recent article appearing in the Harvard Law School Forum on Corporate Governance and Financial Regulation considered directors’ professional commitments and offered three examples of how multiple competing commitments may impair risk oversight. This analysis holds true for overboarded directors:

1) Competing commitments may disincline directors from actively engaging in the corporate decision-making process, which can manifest as missed board meetings or infrequent participation;

2) External commitments may disincentivize directors from challenging management, thereby undermining the board’s oversight function; and

3) Directors spread over multiple commitments may be confronted with a disproportionately severe event requiring particular attention, thereby pushing other commitments to the back-burner.

Presumably, the negative effects of overboarding will ultimately be felt by shareholders, who may suffer as a result of directors failing to adequately discharge their responsibilities. The Policy Update may therefore have the effect of protecting shareholders by curtailing instances of directors serving on too many boards and thusly being unable to carry out their responsibilities properly.

The Case for Directors on Multiple Boards

There are certain arguments that run contrary to the change in the Policy Update. Benefits can flow to shareholders through boards stacked with directors diverse in experience. By limiting the number of boards that any given director can serve on, particularly robust directors may be gate-kept from sitting on boards where they can create value-adding opportunities. Effectively shrinking the pool of candidates, by implementing policies geared towards curtailing candidates from board seats, may be problematic in some cases (such as in cases where a board is seeking a particular skill set). Further, benefits may flow to shareholders of companies where the board is comprised of directors serving on many boards, to the extent that interconnectivity and access to various market segments manifests as sound decision-making at the corporate level.


On the one hand, companies comprised of directors serving on too many boards has the potential to detract from company performance and shareholder interests. On the other hand, having robust directors with varied experience and professional expertise underpins properly functioning companies. As is so often the case in corporate law, a balancing of interests is required to achieve optimal results. Adequate checks and balances are critical. In the difficult business of drawing a bright line, ISS has set the standard for non-CEO directors warranting a withhold vote at five. The implications and consequences of this policy remain unclear, but the impact is sure to be felt in every corner of the market.

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The author would like to thank Peter Valente, articling student, for his assistance in preparing this legal update.