The sharpened focus on board member engagement reflects an evolving governance landscape where the effectiveness of directors is paramount. The recent guidance from Glass Lewis on “Director Commitment Policies, Overboarding and Board Refreshment” underscores a shift towards more stringent oversight of director commitments. This approach aims to balance director duties to outside boards and company shareholders more effectively.

The Need for Formal Director Commitment Policies

Glass Lewis’s Perspective on Director Engagement Glass Lewis advocates for director commitment policies that go beyond mere recommendations to enforceable requirements. Such policies are designed to ensure directors do not serve on too many boards, thereby potentially compromising their effectiveness. The rationale is to reinforce positive relationships among directors, boards, and shareholders by showing a proactive stance on addressing overcommitment concerns.

Components of a Strong Commitment Policy A robust director commitment policy would include:

• A mandatory limit on the number of outside board positions a director can hold.
• An annual process for verifying compliance.
• Consideration of the nature of outside roles, distinguishing between executive and non-executive positions.
• Possible waivers under specific circumstances, although these can be contentious.

These measures are intended to allow directors sufficient time to fulfill their responsibilities effectively and reduce personal risks associated with overcommitment.

Implementing Director Commitment Policies

Monitoring and Compliance Effective implementation of director commitment policies requires a structured monitoring process, typically overseen by the nominating committee. This process includes regular reviews of director commitments and evaluations of their capacity to manage multiple roles effectively. The goal is to ensure directors are not only compliant but also fully engaged and capable of contributing value to the board’s operations.

Addressing Overboarding Risks Historically, governance dialogues have emphasized the need for directors to focus adequately on their board duties without distractions from excessive outside commitments. The post-pandemic increase in oversight expectations has only heightened the risks associated with director overboarding. Thus, adopting a formal policy with specific monitoring and compliance procedures is increasingly seen as necessary to mitigate these risks.

The Broader Impact of Director Commitment Policies

Supporting Board Refreshment Practices In addition to reducing risks from overcommitted directors, these policies also support broader board refreshment practices such as mandatory retirement, term limits, and regular director evaluations. Such practices help enhance board dynamics and ensure a continual infusion of fresh perspectives, which is critical for effective governance.

Applicability Beyond Public Companies While the focus often lies on public companies, the principles underlying director commitment policies are equally applicable to large private and non-profit organizations. These entities also benefit from rigorous governance practices that enhance decision-making and stakeholder confidence.

IBG Insights

As we move forward, it is clear that soft or advisory board policies may no longer suffice in managing the complexities of director commitments. The adoption of formal director commitment policies, as recommended by Glass Lewis, offers a proactive approach to governance that aligns with modern expectations of director diligence and board effectiveness.

Boards that embrace these policies will likely see not only enhanced compliance and reduced risks but also improved overall governance quality. While implementing such policies may be challenging, especially for directors with extensive commitments, the long-term benefits to corporate governance make them a worthwhile endeavor for any forward-thinking board.