'Active' Directors:
Better, or Too Active?
Selecting a director who is currently employed must be done case by case.
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The text message arrived on the executive’s phone in all caps: URGENT MEETING OF THE BOARD. A major business publication was about to break some damaging news, and the company was going into full crisis mode. There was only one problem: The board meeting conflicted with the annual shareholder meeting for what happened to be the executive’s day job, as the sitting CEO of another company.
In a bid to catch up with the new realities of business and work, boards are moving in a new direction in appointing directors, leaning less on retired executives and more on those currently steeped in leadership positions. But experts worry that this new trend could lead to the reemergence of an old problem that governance experts, regulators, and investors worked hard to eliminate: overboarding, or serving on too many boards at once, often to the detriment of them all. David Larcker, an accounting professor emeritus at Stanford University’s Graduate School of Business, says that while actively employed directors bring new expertise and real-time experience, they come with risks, too. “Are they going to have the bandwidth to deal with a sudden succession issue or financial restatement while running their own companies?” he asks.
Data shows that 52 percent of new directors appointed in the last year are actively employed, versus 48 percent who are retired. A decade ago, those figures were reversed. And while the numbers fluctuate from year to year—the split was 50/50 in 2023—the trend line has been consistent over the last few years. In 2019, for instance, actively employed directors outnumbered retired ones, 54 percent to 44 percent. “Boards are prioritizing recency and relevancy,” says Jane Edison Stevenson, global leader of board and CEO succession at Korn Ferry.
No formal laws or regulations limit the number of boards a person can serve on simultaneously, but regulatory bodies like the US Securities and Exchange Commission do mandate that companies disclose information about director commitments, qualifications, and conflicts. Proxy advisory firms frown on working directors serving on more than two outside boards, and activist investors often seek to replace those who do. Companies, particularly in highly regulated industries like finance or healthcare, also have their own policies to guard against overboarding.
Experts say that boards considering appointing active directors must keep time-commitment issues in mind as they make their selections. Those commitments have increased exponentially—at last count, to around 320 hours per year for the average board member. Above all, experts say boards have to consider how much value an individual who is actively employed can provide, as some may be uncomfortable sharing their current experience. “How much are these directors going to be sharing about what they are experiencing in their business?” asks Michelle Lowry, a professor of finance and corporate-governance expert at Drexel University’s LeBow College of Business. “And how much do you want to share with them?”
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