Sitting on Another Company’s Board

Abstract

With CEOs now spending up to a quarter of their time working with their boards individually and collectively,¹ gaining a better understanding of how boards work through actually serving as a director seems an almost obvious step in any CEO’s career path. Yet not every CEO takes this step. A 2009 study by Spencer Stuart² found that only half of the CEOs of S&P 500 companies serve on other public companies’ boards. In fact, some companies actually forbid their CEOs and senior executives from serving on outside boards, citing three main reasons for this position:

• Time commitment: On average, directors of public companies spend more than 200 hours a year on board-related business,³ including preparing for board and committee meetings, attendance at the meetings (including travel to and from them), and participation in a variety of activities outside of meetings, including director education and site visits. This equates to more than two days per month—days that some board members would rather see their CEO and corporate officers devoting to their own company’s business.

• Reputational risk: An executive’s reputation can be severely damaged if the company whose board he chooses to serve on becomes the next Enron or Lehman Brothers. Many directors would prefer not to open up their executive ranks to these types of reputational risks—or risk the reputation of the company itself, which may become similarly impugned through an executive’s problematic board association.

• Executive poaching: Some directors fear that company officers who serve on other boards may be recruited to those companies either as CEO or in another senior executive role.