A ‘golden skirt’ (or its male equivalent, the ‘golden suit’) doesn’t necessarily refer to a glamorous item of clothing. In business management, it’s a metaphor for an individual director who holds a large number of board positions. The term came into existence after Norway passed a law in 2006 that required 40% of board positions to go to women. As an unintended consequence of this quota, some female Norwegian directors took on between 25 and 35 board seats each. One of them, Mai-Lill Ibsen, went even further and at one point held more than 185 board positions, becoming what the Guardian newspaper called ‘undisputed queen of the so-called “golden skirts”’. This staggering number is an extreme case of a director over-extending themselves – being ‘overboarded’ – as there are simply not enough days in a month to properly fulfil 185 board duties simultaneously.

When a director has too many other commitments, there’s a risk that corporate governance suffers. Research in the US has also shown that overboarding negatively affects the financial performance of a company.

‘Overboarding is concerning, like any other factor that prevents non-executive directors from exercising their oversight role effectively, such as lack of competence, preparation or objectivity,’ says Ansie Ramalho, chair of the King Committee on Corporate Governance for SA. ‘The challenge is that it’s difficult to put a maximum to the number of boards a director should be allowed to serve on because of the variables; for example, the size and complexity of the companies where the director serves; whether the director is an ordinary board member or the chair; whether the director has working commitments other than the directorships; and so on.’

As the scope of a director’s role continues to expand, along with the growing focus on corporate governance and sustainability, the time and effort that is required for each board position is also increasing. Parmi Natesan, CEO of the Institute of Directors in South Africa (IoDSA), quotes the National Association of Corporate Directors in the US, which estimates board directors spend on average around 250 hours per year on each company board they serve. ‘A board member who has a day job could really only take on one or two board positions at most, one would imagine, while a professional director could perhaps manage four,’ she says. ‘In the UK and US, institutional investors now oppose the appointment of directors with more than five board seats. In India, by contrast, the legal limit of directorships is 20.’

While there is currently no legal or regulatory limit in SA, research undertaken globally and locally suggests that the optimal number of boards that someone should serve on is four, according to Advaita Naidoo, Africa MD at global executive search firm Jack Hammer. ‘However, some judgement should be applied, based on experience, stage of maturity of the companies being served, number of other directors, number of sub-committees and so on,’ she says. ‘Rather than talking about “number” of boards, we ask potential directors about their capacity to serve and about what commitment they can realistically make to a new board role.’

Importantly, directors must be aware that being overboarded could lead to legal action if it means neglecting their duties or making serious mistakes. ‘Section 77 of the Company Act provides that a director who breaches their fiduciary duties may be held personally liable for any “loss, damage or cost sustained by the company” as a consequence of his or her actions,’ says Naqeeba Hassan, partner at law firm Bowmans SA. She explains that a breach of fiduciary duties could, for example, include ‘increased conflict situations, poor performance, inefficiency and/or compromised judgement’.

Sometimes a board member becomes personnally liable for making bad decisions because of failing to gather sufficient information. ‘Boards can no longer rely simply on board packs, they need to develop their own sources of information to correct the information imbalance that always exists between board members and management,’ says Natesan. ‘When non-executive directors are spread across too many boards, their ability to stay up to date may be compromised.’ In addition, they may find it difficult to devote sufficient time and attention to fulfilling their duties and struggle to be available for crucial unplanned meetings. ‘Each company operates within its unique industry and context, requiring non-executive directors to possess or obtain relevant industry knowledge and expertise,’ she says.

A major concern is that the more board roles a director holds, the greater the chance becomes of a conflict of interest, according to Naidoo. ‘This is especially relevant in smaller economies, where there is more potential for overlap in terms of people or company partnerships, bringing into question a director’s ability to serve each entity’s best interests fairly.’

To minimise such conflicts of interest, board members in SA need to ensure compliance with the Competition Act. From a competition law perspective, says Bowmans’ Hassan, ‘Section 4 of the Competition Act 89 of 1998 prohibits restrictive horizontal practices, through an agreement or concerted practice, that lessen or prevent competition in a market. It’s arguable that while “cross directorships” are not automatically anti-competitive, the Competition Authority is often concerned with the occurrence of prohibited horizontal practices, such as price fixing, market dividing and collusive tendering between parties in a horizontal relationship. Where there are common directors, there is a presumption that an agreement to engage in a restrictive horizontal practice exists. In instances of cross directorship, there is higher scrutiny and assumption of concerted practices’. So, in order to mitigate these conflict situations, Hassan adds, directors often recuse themselves from decision-making.

Yet the solution isn’t always that simple. In a scenario where a director has clear conflicting interests, Hassan says that simply recusing themselves may lead to a breach of the director’s duty to diligently contribute to the business of the board. And if directors cause the firm to engage in practices prohibited by the Competition Act, they may incur criminal liability.

All this complexity indicates why SA’s legal framework does not expressly regulate director overboarding. But, Hassan points out, ‘nothing in law prevents a company’s memorandum of incorporation or shareholders’ agreement from incorporating specific requirements for its directors, such as limiting the number of boards of which a director can be a member’.

The King Committee’s Ramalho also says the absence of legal limits regarding the number of board positions doesn’t mean that guidance can’t be provided within certain parameters. ‘This is something that will probably be under consideration by the King Committee,’ she says. ‘It’s my view, however, that boards and shareholders should also take responsibility for taking into account how many other boards a candidate director serves on before nominating and electing that director. This is in fact already one of the recommendations in King IV.’

To safeguard against director overboarding, Principle 1 of King IV requires that ‘members of the board should attend meetings of the governing body and its committees and devote sufficient time and effort to prepare for those meetings’, says Natesan. ‘In addition, under Principle 7 on nominating new candidates to the board, “a candidate for election as a non-executive member of the governing body should be requested to provide the governing body with details of professional commitments and a statement that confirms that the candidate has sufficient time available to fulfil the responsibilities as member of the governing body”.

‘A further recommendation under the same principle requires disclosure of “other governing body and professional positions held by each member”, presumably in order for stakeholders to assess whether each director has sufficient capacity to serve the company adequately. While capacity constraints of existing board members should be considered throughout their tenure, this is particularly important when directors are up for re-election.’

Asked what type of director the executive search firm Jack Hammer sees in high demand in SA (and hence most at risk of being overboarded), Naidoo says that ‘by far, the highest number of client mandates we receive for board roles is for qualified female chartered accountants of colour, specifically to serve on audit and remuneration committees. When you consider that female representation on listed boards locally is still hovering around 30%, with only incremental improvements year-on-year, it’s not surprising that companies would want to improve on their diversity metrics by intentionally onboarding women’.

Instead of following Norway in appointing the same directors to numerous boards, this is an opportunity to bring in a new cohort of younger and more diverse candidates. The IoDSA advocates board diversity regarding gender, race and socio-economic background, as well as skills and experience, to build the most effective boards. Naidoo explains that prospective board members need to fulfil the practical requirements, such as having undergone the right board training and, depending on geography, being a member of a professional association that regulates boards. ‘In addition, there are also questions to be asked about capacity to serve, conflicts of interest and board style, to judge an individual’s ability to cohere with existing board members,’ she says.

It’s clear that even without explicit legislation limiting the number of board seats per director, ‘golden skirts’ and ‘golden suits’ have no place in SA’s boardrooms.

By Silke Colquhoun
Image: Gallo/Getty Images