The 80-plus directorships that some board members in South Africa reportedly hold are a "physical impossibility" without cutting legal corners and doing the basic principles of good corporate governance injustice.
"Even when working off the assumption that these board members do not have full time employment elsewhere, it is in my opinion physically impossible to serve on more than 60 companies’ boards," says Larey van der Westhuizen, director at Statucor, one of the largest independent company secretarial and corporate governance advisory practices in South Africa. "And if they do have a day job, they could manage no more than 10 to 12 non-executive directorships at a time."
His assessment is based on how many hours a year a person can physically work and how much time is required to do justice to a non-executive directorship.
"At the bare minimum, a single directorship at a company would probably take at least 40 hours a year just to prepare for and attend board meetings – never mind serving on board committees," he says. "In practice, meetings tend to overrun and travelling needs to be considered, and clashing schedules are also an issue. So 40 hours a year for one directorship of a company is more than likely the very best-case scenario."
All work and no play
Looking at the other side the equation – the time a person has available per year – van der Westhuizen says even the most energetic businessperson would struggle to work more than 2 880 hours per year. "That would work out at 60 hours a week for 48 weeks. By anyone’s standards, that is demanding."
Effectively, then, a board member without a day job and minimal director’s duties could manage a maximum of 72 board memberships of companies.
"If reports that some businesspeople hold 80 to 90 directorships are true, it begs the question of whether justice is being done to the boards they serve on," he says.
"A non-executive director is supposed to be the conscience of a company, an outsider with an understanding of the business who asks the executive directors probing and piercing questions. If a person has so many directorships, I can’t help wondering if enough tough questions are being asked and whether sufficient preparation is being done."
No shortage of good directors in SA
Van der Westhuizen says he disagrees that South Africa has a shortage of good non-executive directors and that this shortage is the reason why many directorships tend to be concentrated in few hands.
"I don’t think there is a skills shortage. A good non-executive director needs an understanding of the industry the company is operating in, together with a broad understanding of the company itself," he says. "That kind of insight is not necessarily limited to a few select individuals."
Instead, he attributes the overconcentration of directorships to the rise of the serial non-executive director – people whose names alone are seen to add value to the boards they serve on.
"All over the world, a name carries value," say van der Westhuizen. "If I have Bill Gates on my board, it would certainly open doors for the company. The problem is that often it is more about the name on the letterhead than having someone to look after the interests of the shareholders."
Business as usual... for now
While it seemed at one point that South Africans with multiple directorships would be forced to scale down, this has not materialised. "The advent of the new Companies Act and the expectations laid out in King III created the expectation that companies would have to look at factors other than a name when choosing non-executive directors. My perception, though, is that it is largely business as usual and that companies have sunk back into complacency."
They could be jolted out of that in the very near future. "If a court finds a non-executive director did not apply the solvency and liquidity test when required to do so, for instance, the shareholders could go after the person’s personal wealth in certain instances," van der Westhuizen says.
He believes it is only a matter of time before the first such court case hits South Africa, or until shareholders start demanding to know what value they are receiving from the fees paid to serial directors.
"Maybe when we see the first court case, people will think twice about spreading themselves so thin."