Investors Continue to Strengthen and Refine Overboarding Policies for Directors

04/14/2020

Over the past several years, large institutional investors have addressed their growing concerns about the demands of board service by adopting or strengthening policies on a director’s total number of board commitments. This trend has resulted in significant declines in vote support for some directors considered ‘overboarded’ according to these new or tightened guidelines. In many instances, these investor policies are stricter than those of the major proxy advisors.

Heading into the 2020 proxy season, three institutional investors, State Street Global Advisors (SSGA), T. Rowe Price and AllianceBernstein, have tightened their director commitment policies. This follows similar actions by BlackRock in 2018 and Vanguard which adopted its first overboarding policy in April 2019. Vanguard subsequently modified its policy in early 2020 to allow some flexibility to consider company-specific facts and circumstances. As a result of these strengthened investor policies, non-executive directors who serve on more than four boards and CEOs (as well as NEOs for certain investors) who sit on more than one outside board can expect to see a decrease in support as compared to prior years.

The COVID-19 pandemic has focused investor attention on a range of governance and board oversight topics, including risk management, business continuity and human capital management. In the past few weeks, a number of investors, including BlackRock and SSGA, have reiterated their commitment to holding companies accountable for their long-term ESG practices during this challenging time, making it unlikely that investors will significantly deviate from guidelines on existing practices, inclusive of board commitments. The current COVID-19 crisis, which is placing additional demands on directors’ time, will likely further solidify investor views on the importance of directors having the capacity to fully engage across all of their board commitments in times of crisis.

Below is a summary of recent updates to investor and proxy advisor policies on director overboarding. The table lists the number of boards at which a director will generally receive a vote or recommendation against. Generally, investors and proxy advisors oppose executive directors only at their outside boards, i.e. not where they serve as CEO or a NEO.

Year Investor/
Proxy Advisor
Number of Boards that May Trigger an Against Vote (CEOs) Number of Boards that May Trigger an Against Vote (Other Directors) Policy Language¹
2020 AllianceBernstein 3 4 Votes against the appointment of directors who sit on four or more board seats for non-CEOs, three or more board seats for the sitting CEO of the company in question and two or more board seats for sitting CEOs of companies other than the company under consideration.
AllianceBernstein may also exercise flexibility on occasions where the “over-boarded” director nominee’s presence on the board is critical, based on company-specific contexts in absence of any notable accountability concerns.
New York State Common
Retirement Fund
3 5 Withholds support for director nominees who serve on more than a total of four public company boards and public company CEOs who serve on more than one board other than where the individual is CEO.
  State Street
Global Advisors
3
(applies
to NEOs)
5 May withhold from NEOs of a public company who sit on more than two public company boards, board chairs or lead independent directors who sit on more than three public company boards and director nominees who sit on more than four public company boards.
  T. Rowe Price 3 6 Votes against any director who serves on more than five public company boards or any director who is CEO of a publicly traded company and serves on more than one additional public board.
2019 Boston Partners 4 5 Instituted a policy in 2019 to vote against executive and non-executive nominees sitting on more than three total public company boards.
In 2020, Boston Partners modified its policy to vote against non-CEO nominees sitting on more than four total public company boards and vote against or withhold votes from CEOs sitting on more than three total public company boards.
  Legal & General 3
5 Though Legal & General has had a policy dating back several years to vote against public company CEOs who serve on more than one other public company board and non-executive directors who serve on more than four boards, the investor added language to its policy in 2019 to consider an independent board chair position in the United States as two roles due to the extra complexity, oversight and time commitment that it involves.
Vanguard 3
(applies 

to NEOs)
5
Votes against directors serving on five or more boards (except generally at a board where he/she serves as Chair or lead independent director, if applicable) and executive officers serving on more than one board beyond that of the company where he/she serves as an NEO.
Vanguard updated its policy in 2020 to allow flexibility for considering company-specific facts and circumstances that indicate the director has sufficient capacity to fulfill his/her responsibilities. 
2018 BlackRock 3 5 Considers voting against non-executive directors who serve on more than four boards and CEOs who serve on more than two boards.
2017 Glass Lewis 3
(applies
to NEOs)
6 Generally recommends that shareholders vote against a director who serves as an executive officer of any public company while serving on more than two public company boards and any other director who serves on more than five public company boards.
ISS 4 6 Generally recommends that shareholders vote against CEOs of public companies who sit on the boards of more than two public companies besides their own and directors who sit on more than five public company boards. ISS noted that it will adjust the application of its overboarding policy where board or management changes become necessary in 2020 due to the COVID-19 pandemic.
¹Information regarding investor and proxy advisory policies is obtained from published U.S. or North American policies which can be found on their respective websites.