THERE ARE NUMEROUS dimensions on which boards of directors have been criticized in recent years. Boards have been charged with being too "cozy" with firm management, compromising their independence. CEOs serving simultaneously as chairperson of the board of directors have been characterized as power mongers more interested in serving their own interests than those of shareholders. Boards have been criticized as being simultaneously too small and too large to be effective. Directors have been criticized for being too "old" to effectively serve their firms. Interestingly, available research has been largely unsupportive of these charges.
Then there is another dimension on which directors have been criticized of late (not an unsurprising fallout from the Enron debacle): Shareholder activists are concerned that directors who serve on multiple boards of directors will become what is colloquially termed "overboarded." Implicit in this charge is that directors serving on multiple boards will lack the time necessary to effectively attend to their duties.
One of the more prominent institutional investor funds, CalPERS, has as an example developed a set of International Corporate Governance Practices that includes a statement regarding limiting the number of boards on which directors serve. Central to this guideline is that directors must have sufficient time to prepare for and attend board meetings. With the average board now meeting six times a year and the average directorship requiring 173 hours per year, it is not difficult to imagine multiple directorships becoming an overwhelming responsibility, especially for individuals with primary employment. Even where an individual director can effectively juggle the time constraints, there is still the issue of board or committee meetings being simultaneously scheduled.
Unlike other governance reform initiatives, critics of multiple boarding are not relegated to the shareholder activist ranks. Chief executive officers have also expressed some skepticism about directors' abilities to effectively serve on multiple boards. Larry Stambaugh, CEO of Maxim Pharmaceuticals, for example, has noted: "These people on several boards are just networkers and names. I don't see how even a retired CEO can serve on more than four boards."
Mr. Stambaugh's sentiment may seem ironic to some observers given that holding multiple directorships is not uncommon for high-profile CEOs. The number of CEOs serving on multiple outside boards, however, has slightly declined in recent years. Still, CEOs believe they can effectively serve on at least two boards in addition to their...