Multiple board seats in Zimbabwe: Just how many board seats are too many?

Dairibord Holdings Chief Executive and Board Chair Anthony Mandiwanza. He sits on the boards of several listed companies on the Zimbabwe Stock Exchange

Several names feature prominently on the board of directors of Zimbabwe Stock Exchange (ZSE) listed companies. Famous names like Anthony Mandiwanza, Leonard Tsumba, Canaan Dube, Muchadeyi Masunda just to mention a few, sit on the boards of more than one company. The obvious question that arises is whether these individuals, who hold several board seats, have the time to adequately oversee executive management, especially during periods of economic difficulties such as the one Zimbabwe is currently in. Global trends have seen companies balk at taking on board potential directors who hold more than one seat. The logic behind this thinking is that, companies would want to ensure that they only secure the services of directors who will be hands-on and able to devote the adequate time and skills to lead the corporation.

Corporate boards are mandated with charting a company`s strategic vision and devising a winning game-plan to ensure that executive management consistently deliver shareholder value. However, when companies are performing poorly attention is inevitably focused on them. In the wake of poor performance of Zimbabwean companies, are boards effectively carrying out their duties that they are mandated to? Do they have full oversight of executive management?

In a research paper titled, “Are busy boards effective monitors?” the authors prove that companies with a majority of directors, holding three or more directorships, flaunt inferior market-to-book ratios, poor profitability and lower sensitivity of CEO turnover to firm performance. Studies have shown that company directors of publicly traded companies in developed markets are more likely to spend an average of 248 hours annually for each board seat they hold. This covers tasks such as attending meetings, travel and chats with management. Though Zimbabwean directors will conceivably spend less time than that, they are still questions on whether they will be able to devote sufficient time in monitoring company executives.

Numerous other empirical studies have also shown a negative relationship between a director`s participation in multiple companies and the company`s financial indicators. Board interlocking – multiple board seats by directors – places shareholders at a great disadvantage as the board members may lack the time for an adequate dedication to defend the interests of all the company`s shareholders. In such cases, it is easy for directors to become overcommitted when serving on multiple boards and this renders them incapable of offering proper managerial monitoring. It leaves companies exposed to the vagaries of lax corporate governance practices.

And this problem is not just peculiar to listed companies alone. A 2015 journal article analyzing the Board composition of Zimbabwe`s State Owned Enterprises (SOEs) by a local university, revealed that about 78% of the independent directors in (SOEs) do seat on at least four other boards. These ‘busy’ directors may be too occupied to monitor activities in these SOEs at critical moments due to over commitments and invariably cause poor oversight in the long-term. Compounding the problem would also be the fact that some of the directors seating on the boards of listed and even unlisted companies are fast approaching retirement age and would be more inclined to accepting more board seats at the expense of quality monitoring.

Globally, the corporate governance practices regarding multiple directorships have been shifting radically. According to an MSCI ESG governance report, only 5% of directors at S&P 500 companies held 4 or more board seats in 2015, down from about 27% in 2005. And just 5 people occupied 6 or more board seats, from 308, a decade earlier. This is a trend well worth following in the Zimbabwean market, in keeping with international best practice. Zimbabwe`s market regulations in this area are still lax, without any concrete corporate legislation. But Zimbabwe is not alone in this predicament, in South Africa, there is currently no board membership limit prescribed by the King Code of Corporate Governance. However, some companies now require directors to limit the number of positions they take on. In what could be some of the most extreme instances of multiple board seats, Patrice Motsepe – the mining mogul – serves on no fewer than 10 boards, whilst Vice President Cyril Ramaphosa sat on 15 boards before his return to active politics.

Another issue that could be interesting in the Zimbabwean scenario is that of boards filled with longtime directors. One would argue that their long involvement with corporate strategy makes them less inclined to challenge top executives, thereby compromising their responsibility to shareholders. It would not be uncommon to find five or even ten year board veterans on some of Zimbabwe`s listed companies. In the past, companies have argued that long-serving board members provide invaluable insights as well as institutional memory which can come in handy during difficult patches. Be that as it may, such practices bring into question, the issues of independence, and whether such directors can fully discharge their duties on behalf of investors.

Ultimately, when it comes to directors holding too many board seats, the buck has to stop with institutional shareholders like pension funds.  These shareholders have the power to oppose the re-election of directors with multiple board seats that are too excessive. Nonetheless, this would require full biographical details for these directors seeking re-appointment to be adequately disclosed to enable institutional investors to make informed decisions.

Granted, it would be overly simplistic to ascribe a company`s poor performance solely to that company`s Board of Directors. But what cannot be denied however, is contention that “overboarding”—the notion that individuals on numerous boards lack time to adequately oversee a company’s management, especially during difficult periods is widely gaining traction. Would Zimbabwean companies be faring much better if they had less ‘busy’ and truly independent directors? The jury is still out on this one.