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This Guidance Note is for the information of UKGI staff. It is not to be circulated outside of UKGI.
Guidance Note 2 ‘Overboarding’ Updated August 2020
This Guidance Note is intended to raise awareness of the concept of ‘overboarding’ and to provide a
framework from which you can assess current and prospective non-executive directors’ capacity in terms of
time commitments and other pressures to perform their role adequately. It also gives some guidance on
how to handle this issue with Departments as shareholders, boards and headhunters, to assist you when
you are advising a board (especially a Nominations Committee) or shareholder, either as a shareholder
team and/or as a NED.
Although the concept of NEDs having sufficient capacity to perform their roles adequately is not new, the
latest guidance for listed companies suggests a more rigid approach to assessing the capacity of any
individual board member, with board appointments becoming contingent on demonstrating sufficient
capacity.
You may have to convince a Chair or serving NED of the need to reduce their external
appointments/commitments to devote sufficient capacity to a UKGI portfolio role and/or advise a Minister
or Perm Sec to act, where a board member is, or is at risk of, becoming ‘overboarded’.
Further reading is included in the links below. Please send any views, experience and documents to Helen
Mitchell or Tim Martin to add to our best practice database on the subject.
What is ‘overboarding’? And why is it important?
UKGI considers it crucial to the governance of any organisation that directors have sufficient time and skill
to perform their roles effectively.
New guidance issued during by FRC (see below), Institutional Shareholders’ Services (ISS), and others
suggests a more rigid approach to assessing the capacity of individual non-executive directors to perform
their role adequately.
Where an individual exceeds the prescribed limits, they should be considered ‘overboarded’ and not
considered for further appointment/reappointment.
FRC Code 2018
Principle H. Non-executive directors should have sufficient time to meet their board responsibilities. They
should provide constructive challenge, strategic guidance, offer specialist advice and hold management to
account.
Paragraph 15. When making new appointments, the board should take into account other demands on the
director’s time. Prior to appointment, significant commitments should be disclosed with an indication of the
time involved. Additional external appointments should not be undertaken without prior approval of the
board, with the reasons for permitting significant appointments explained in the annual report. Full-time
executive directors should not take on more than one non-executive directorship in a FTSE 100 company or
other significant appointment.
Institutional Shareholders Services (ISS)
Where directors have multiple board appointments, ISS may recommend a vote against directors who appear
to hold an excessive number of board roles at publicly-listed companies, defined as follows:
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© Any person who holds more than five mandates at listed companies will be classified as overboarded.
For the purposes of calculating this limit, a non-executive directorship counts as one mandate, a non-
executive chairmanship counts as two mandates, and a position as executive director (or a
comparable role) is counted as three mandates.
© Also, any person who holds the position of executive director (or a comparable role) at one company
and a non-executive chairman at a different company will be classified as overboarded.
Key issues to consider include:
Approach to overboarding analysis
We may not often come up against the Listed company constraint for NEDs, (rather than Chair
appointments) so it is important to be clear that it is not just about this measure but also ‘other significant
commitments’ as referred to in the FRC guidance. This could also be the case where multiple public sector
appointments are concerned.
We should be aware though that external experience can be very valuable in terms of career development
and bringing new ideas and experience to the board room and concerns about overboarding should not
inhibit these benefits.
Who should lead any ‘overboarding’ analysis?
This requires buy in from the shareholder and the directors themselves in the case of existing appointments.
UKGI should lead but will need careful handling. We should also ensure that headhunter or other executive
search functions are aware of the latest guidance and are following it for new appointments as appropriate
in relation to UKGI portfolio businesses.
It should also form part of any external board review.
UKGI internal process
We recommend that an initial assessment (this can start just with the data on other appointments of each
director) is made by teams for each portfolio business. This can form the basis of an assessment of
overboarding as part of the UKGI portfolio review process for all portfolio businesses.
A Worked Example
Applying the new guidance, non-executive board members should hold no more than five mandates (one
mandate is equivalent to a non-executive role on a listed company board, or on an equivalent public sector
organisation):
NED A would be considered
overboarded based only on the
listed company roles
NEDA Chair x 3 Listed Companies 8 mandates
NED x 2 Listed Companies
Chair x Industry Advisory Board
Trustee x 3 small charities
NEDB NED x 3 Listed Companies 3 mandates Both NED B & C could be considered
NEDC Executive position 3 mandates aa Ne
NED D Chair x very large public sector body 6 mandates °
Chair x large public sector body NED D would be considered
NED x 2 Listed Companies overboarded based only both the
listed company roles and public
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Further Reading
Financial Reporting Council — Guidance on Board Effectiveness
https://www.frc.org.uk/getattachment/61232f60-a338-47 1b-ba5a-bfed25219147/2018-Guidance-onBoard-
Effectiveness-FINAL.PDF
Deloitte — 2018 Directors’ remuneration in FTSE250 companies (page 27)
https://www2.deloitte.com/content/dam/Deloitte/uk/Documents/tax/deloitte-uk-tax-your-guidedirectors-
remuneration-in-ftse-250-companies.pdf