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Assessing how many corporate board seats is too many

Apr 7, 2022

Illustration: Aïda Amer/Axios

Corporate governance and deals go hand in hand. Board directors play a critical role in moving forward (or not) with strategic initiatives, which is why the topic of "overboarding" is a wonky but important policy to ponder when it pops up.

Why it matters: When a director sits on too many boards, she's considered to be overboarded. It's possible that a key (read: influential) director can be pressured to step down in that case.

Driving the news: The retailer Dollar Tree, which recently settled with activist investor Mantle Ridge, announced corporate governance enhancements yesterday. The news laid out the following policy:

  • Director candidates should not serve on more than four public company boards (other than the company's). In other words, five max.
  • Kudos to the company for laying out this policy and its governance approach in a press release, which is above and beyond compared to most public companies.

Yes, and: If the director candidate is a CEO, then Dollar Tree says she/he should not serve on more than two boards, other than the company's (three max).

Of note: Independent research firm Gordon Haskett, which has a knack for finding this kind of stuff, points out that Dollar Tree's new executive chairman, Rick Dreiling, currently sits on three public boards.

  • That's one short of the four threshold but as the research firm points out, Dreiling is widely seen as Dollar Tree's next CEO.
  • Now, of course, when/if that move occurs, one could argue that Dreiling would then step down from certain boards to meet the two-seat threshold.

Details: CalPERs, the largest U.S. pension fund, says you're overboarded if you served as a non-exec director on more than four public boards (two if executive director).

  • ISS, the proxy adviser, says you're overboarded if you sit on more than 5 — two (other than your own) if you're a CEO. Glass Lewis, the other major proxy adviser, has a similar policy.

The bottom line: Overboarding is deep in the weeds of corporate governance. But in a crisis or a transaction or a proxy fight, investors/hostile bidders can use the policy against the board and create a distraction when the leadership team is trying to steer the ship.

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