Today’s corporate board directors are expected to weigh in on an ever-expanding array of issues, from artificial intelligence and cybersecurity to climate risk, political pressures, and shifting consumer expectations. Just as the job of a board director has become more demanding, so has the scrutiny. With investors, analysts, and other external evaluators paying greater attention to what the board does, directors are no longer passive bystanders, but increasingly active decision-makers.
At the same time, many directors don’t just serve on one board. In many cases, they serve on two, three, or even more. This raises a natural concern: Are board members serving on too many boards to do their jobs well?
Many studies have sought to address this issue of “overboarded” directors by trying to determine the optimum number of board memberships. In fact, numerous best governance practices have set a hard limit for the number of boards directors are allowed to join. While the general consensus seems to have settled on three boards as the magic number, the science underlying this is less established.
What We Find
In our research, published in the Journal of Management Studies, we offer a different approach. Discussions about director overboarding typically focus on the number of boards on which a director serves, effectively treating board service as a uniform role that looks roughly the same from company to company. In reality, that’s far from true. Similar to how employees have different roles and responsibilities within the same firm—we wouldn’t expect a summer intern to have the same workload as the CEO, for example—we risk underestimating or even overestimating the demands on board directors by only acknowledging their presence on the board rather than accounting for their specific responsibilities.
Instead, we explore what directors actually do on boards. In particular, we examine whether they hold board leadership roles (such as board chair or lead independent directors), how many board committees they serve on, and the types of committees they are involved in. We find that these roles can have both positive and negative effects. When directors take on more leadership positions and/or sit on the same committees across different boards, governance outcomes tend to be weaker. However, when directors serve on a broader mix of different types of committees, governance outcomes tend to be stronger. In other words, it’s not just how many boards a director serves on that matters – it is how their responsibilities are structured. Next, we discuss the reasons behind these patterns.
A Closer Look at the Work in the Boardroom
Even within a single board, directors can have vastly different responsibilities. Some roles and responsibilities are especially demanding. For example, one director might chair the board or serve as lead director, which involves not only overseeing the rest of the board, but also requiring a deeper understanding of the firm itself. Another might focus heavily on specific board tasks such as financial accounting, executive compensation, or finding new directors through service on the audit, compensation, or nomination committees. By contrast, other directors without these additional roles and responsibilities might be more limited in their board involvement, attending meetings and contributing occasionally.
As these examples illustrate, while two directors might both serve on the same number of boards, their actual workloads can look very different. This is why we think focusing solely on the number of boards may provide an incomplete picture of board effectiveness. Instead of simply asking “how many boards do they serve on?” perhaps we should also be asking, “how do their roles and responsibilities fit together?”
Too Many Roles Drowning Director Attention
By adopting this approach, we can better identify the factors that make directors less—or more—effective. One key factor is director attention. Because individuals can only pay attention to a limited number of tasks, having too many board roles may make it difficult to fully engage with prevailing issues when shifting between their board responsibilities. Since additional board roles, namely, board leadership positions and committees service, are complex and time-consuming, we find that directors who hold these roles are more likely to be stretched thin in a way that negatively affects the quality of board oversight.
But Balance Changes Everything
Interestingly, being busy isn’t always a bad thing. In fact, we find that when directors serve on a diverse range of committees, they tend to achieve better board monitoring outcomes than when directors specialize in a single type of committee and maintain a more uniform portfolio. This diversity in committee responsibilities appears to help directors allocate and sequence their attention more effectively, ultimately enhancing board oversight.
Practical Implications: Rethinking How Boards Are Designed
These findings have important implications for how companies think about designing their boards. We recommend a portfolio approach where directors strategically choose their board roles to help enhance their effectiveness across their boards. When considering a director’s overall set of responsibilities, someone with several well-balanced roles may be more effective than one with fewer, but heavier, responsibilities.
As our work highlights, there is certainly a risk of having too much of a good thing. So, even though someone may appear especially qualified to be the next board chair because they currently serve as the chair of another board, concentrating too many leadership roles in the same individual may place too many demands on their attention. Similarly, having someone specialize as the “audit expert” across all their boards may be attach too many anchors and weigh them down. We recommend boards focus on giving directors exposure to different types of committee work, rather than limiting them to a single area. Allowing directors the chance to switch things up between boards allows them a chance to refresh and refocus – anchors aweigh!
As the expectations of corporate boards continue to expand, so does the need to think more carefully about how their numerous responsibilities are assigned. In a world where attention is a scarce resource, allocating it effectively may be one of the most important decisions a board can make.
