Directors Are Told: Don't Go 'Overboard' -- WSJ

Big institutional investors like BlackRock and State Street are raising concerns, saying some members are stretched thin

This article is being republished as part of our daily reproduction of WSJ.com articles that also appeared in the U.S. print edition of The Wall Street Journal (September 27, 2017).

Giant money managers voted against the re-election of Ronald Havner, Jr. in May to the board of a real-estate company. Their reason: He runs a different company and sits on two other boards.

After about 56% of voting shares were cast against Mr. Havner remaining an AvalonBay Communities Inc. director, he said he would resign, an offer rejected by the rest of the AvalonBay board. BlackRock Inc. and State Street Corp.'s money-management unit were among the large investors that voted against his re-election.

Mr. Havner, who is chief executive of Public Storage, also decided not to stand for re-election at California Resources Corp.'s 2018 annual meeting "due to concerns raised by investors relating to the time commitment required" for those roles, the company said in a regulatory filing.

Mr. Havner "has taken steps to reduce the number of boards upon which he serves," said a lawyer for Public Storage and PS Business Parks Inc., a related company.

Major institutional investors, governance advisers and boards themselves are cracking down on so-called overboarding, trying to ensure that directors don't spread themselves too thin. Overstretched directors lack time to adequately monitor management, these critics contend.

"There is no good reason for having an overboarded director," said Charles Elson, head of the Weinberg Center for Corporate Governance at University of Delaware. He expects institutional-investor pressure will make S&P 500 board members with at least five seats a dying breed.

Many directors who serve multiple boards contend that they adequately manage their time and can handle their board responsibilities.

A new analysis of S&P 500 chief executives for The Wall Street Journal by Equilar, a research firm, suggests that leaders with multiple outside corporate board seats and their employers make more money, but their shareholders see lower returns than those with one or zero outside directorships.

Money managers such as BlackRock and State Street with large index-tracking fund businesses are gaining more power over shareholder votes because they own growing stakes in so many publicly held corporations. Both voted against Mr. Havner's AvalonBay re-election in each of the last two years.

BlackRock, the world's largest asset manager, cast 168 votes against directors this year due to overboarding concerns. It fought the reelection of directors at companies such as Charter Communications Inc., Pfizer Inc. and PayPal Holdings, Inc., according to filings and a spokesman for the money manager.

"The directors that serve on many boards tend to be very strong directors," said Zach Oleksiuk, head of BlackRock's Americas corporate governance and responsible investment team. "The issue is not necessarily their performance, but rather the time that it takes to serve."

Being a director is lucrative, time-consuming and often comes with a high profile. Median total compensation for U.S. public board members was $191,440 last year, according to the National Association of Corporate Directors and pay consultants Pearl Meyer & Partners, LLC, up about 3% from the prior year.

Board members at public companies spend an average of 245 hours a year for each position, up from 191 hours in 2005, according to surveys by the National Association of Corporate Directors.

Influential proxy advisers Institutional Shareholder Services Inc. and Glass, Lewis & Co. now recommend investors vote against or withhold support from directors who sit on more than five public-company boards. ISS lowered that threshold to five in February from six. Each firm also favors limits on the number of outside directorships chief executives can hold.

American corporations increasingly have imposed their own restrictions. About 77% of S&P 500 companies now curb board members' outside directorships in some fashion, up from 71% in 2010, according to Spencer Stuart, an executive-search firm. Among those with limits for all directors, 36% now impose a cap of three seats -- up from 29% in 2010.

Overall, 63 S&P 500 directors now serve on five or more public boards, as of Sept. 10, down from 83 in 2012, according to ISS Analytics, the data arm of Institutional Shareholder Services.

Some directors were re-elected this year despite opposition from some large shareholders. For example, BlackRock withheld support for the re-election of Ann Mather at Shutterfly, Inc. and Alphabet Inc., but she was re-elected at both companies.

Ms. Mather also serves on the board of three other West Coast public

companies: Arista Networks Inc.; Netflix Inc.; and Glu Mobile Inc. She deliberately chose businesses in the same or related industries with headquarters near each other, one person familiar with the matter said.

The person said this week that the businesses are "all connected and relevant," which means Ms. Mather "can easily add value and (has) a strategic understanding of what's going on."

Another big index-fund manager, Vanguard Group, doesn't explicitly put a limit on the number of boards on which someone can serve but looks at factors such as board members' "attendance, engagement, and effectiveness," a spokeswoman said.

Rival State Street Global Advisors in 2016 cast votes against 69 chief executives who served on more than three boards and against 22 non-CEO directors who each sat on more than six public boards. Despite setting overboarding limits it wants firms to "do more than manage to a number," Rakhi Kumar, head of environmental, social and governance and asset stewardship at the firm said in an email.

Write to Sarah Krouse at sarah.krouse@wsj.com and Joann S. Lublin at joann.lublin@wsj.com

(END) Dow Jones Newswires

September 27, 2017 02:47 ET (06:47 GMT)