...And So is Prep Time
from What Directors Think 2003
by James Burnett
This summer, while Harry Potter fans plowed through the latest installment in the series and Oprah resurrected the dusty Steinbeck epic East of Eden, a director of a Midwestern financial institution stood up at a conference at Dartmouth University’s Tuck School of Business and told about the page-turner he was lugging around during the season of the doorstop bestseller. It was a binder as thick as a phone book, stuffed with 471 pages of balance sheets, financial data, and disclosure forms—all of which he was expected to digest before the next board meeting.
The director does not want to be identified in this magazine, but he’s among friends. His counterparts on other boards have also been getting more homework lately. According to a Corporate Board Member survey, three-quarters of directors devoted more time to their duties in 2003 than in 2002—an average of 19.2 hours a month, up from 14.1. And that’s not necessarily good, says Paul Lapides, who directs the Corporate Governance Center at Kennesaw State University’s Coles College of Business. “If the average director actually spends 19 hours a month on board service, that adds up to two and a half days out of the 22 business days in a given month,” he says. “So they’re spending 10% of their work hours on their duties to a single board. If that’s true, how can they sit on two or three boards and still be doing their primary jobs?”
Lapides says that the minimum amount of time a director should put in ranges from 80 to 120 hours a year, depending on the complexity of the company and the issues it is facing. “That’s assuming there are no unexpected, unusual events,” he says. “I’d bet the directors at WorldCom are spending that much time each month right now.” (It’s not quite that bad at the company, in fact, but it’s still bad. Director Dennis R. Beresford puts his workload at about 400 hours a year.)
Working too much doesn’t do your company a favor, adds Lapides. “I once heard a former partner at an accounting firm say he would spend 365 days a year on board matters if he could,” he says. “I thought, ‘There’s a person you do not want on your board.’ It’s not your job as a director to run the company, and it’s not your job to know every detail. Your job is to govern.”
More than 95% of the directors who took part in the Corporate Board Member survey report that their meetings last three hours or more. For a third of those directors, the length regularly stretches to six—at least two hours too long, according to one governance expert. “If a board meeting goes more than three or four hours, it gets unproductive,” says Roger Raber, president and CEO of the National Association of Corporate Directors. “I’ve sat in on a lot of board meetings, and I’ve watched people fade, get up, walk out, and take their own 15-minute breaks. You can see their level of engagement dropping.”
Because attention can wear thin, Raber says, the most pressing business should always be discussed first: “90% of the agenda is usually devoted to pretty routine stuff, so if you have an issue that could take down the company—a new product or division, a potential merger—bring it up at the beginning.” As for committee sessions, which can consume as much time as meetings involving the entire board, Raber advises against scheduling them back-to-back with the main gathering.
For the most part, the longer hours directors are logging before and during meetings reflect the challenge of fulfilling both the letter and the spirit of the Sarbanes-Oxley legislation. “Once you move up the learning curve, you might take less time to comply with the new rules,” says consultant Max Hopper, a director of Digex, the Gartner Group, Perficient, and United Stationers. “Most directors, if they’re smart, however, are still going to want to know a lot more about the company and its operations, including things they used to take for granted. You tend to want to turn over a few more rocks.”
Corporations have largely indulged that inquisitiveness—sometimes to a fault. “Sarbanes-Oxley has increased the information flow from senior management to directors, and that’s good,” says Aubrey B. Harwell Jr., an attorney who sits on the board of Piedmont Natural Gas. “But it shouldn’t be extreme. I find that if directors are given too much to read, they have a tendency to get too far into the minutiae and want to micromanage.”
In Raber’s view, every company has a responsibility to assign its general counsel or corporate secretary, or a similarly qualified executive, the job of summarizing data in a corporate CliffsNotes for the board. That frees up directors to devote more energy to other, often overlooked chores. Says Lapides: “One thing directors rarely do is spend significant time with members of management who don’t sit on the board, so that those people will feel comfortable picking up the phone and calling a director if there’s a problem.” Lapides also believes directors would function more effectively if they were required to complete continuing education courses. “You have to study the business,” says Charles Elson, director of the John L. Weinberg Center for Corporate Governance at the University of Delaware. “You have to be aware of industry trends, what others are saying about the company, and how well management is responding.”
Invariably, the growing difficulties of a director’s job summon memories of earlier times. “You don’t just read the materials on the plane ride there anymore,” says Hopper. “For 20 years I was in board meetings as a senior member of management at Bank of America and American Airlines. As I reflect on it, I realize we didn’t devote as much time as we do to the much smaller companies I serve on now. At American Airlines, we might meet six or eight times a year. You might’ve had a committee meeting in the afternoon, then a dinner meeting—three or four hours, and that was it.
“There’s no way,” he concludes, “you could spend so little time today.”
