The idea behind having independent outside directors on a company's Board is primarily the expert third party advice that they can potentially provide. Ofcourse, 'potentially' is a key word here. Just nominating a few senior executives from other companies to your board is not enough. The 'potential' needs to evolve into an active and interested director. This transformation from 'potential' to 'actual' happens when these directors are regulars at Board meetings and devote time that is needed to provide advisory services to these public companies.
Unfortunately, another by-product of the financial crisis has been the spate of director resignations at financially troubled companies.
The WSJ recently reported on the growing number of such Board resignations at public companies. This should come as no surprise when you consider the number of boards that each of these "outside experts" are sitting on.
As an example consider the number of public company boards that some Citigroup directors are sitting on: As per the company's proxy statement issued in 2008, the final tally of directors who sat on more than 2 public company boards looked like this:
(The numbers in brackets show the total number of public company boards that these directors sit on.)
Sir Winfried Bischoff (4),Kenneth T. Derr(3),John M. Deutch(4), Anne M. Mulcahy (3),Dr. Judith Rodin (3), Robert L. Ryan(5- He retired from one in June'08)
Goldman Sachs looks like this:
William W.George (3), James A Johnson (3), Lois Juliber (3), Rajat Gupta (4) Laxmi Mittal (4)
Besides this, 3 out 13 board members at CITI are CEO's of other public companies. At Bank of America 2 board members are CEO's of public companies.
With directors sitting on multiple Boards, how can shareholders expect a focused and attentive Board? For those that sit on 3 or more Boards, they could even be getting mixed up in the issues and concerns at different companies. It wouldn't be a stretch to imagine getting mixed up while juggling meeting dates, agendas and decisions when you are managing compensation, audit, risk review etc at multiple public companies, not to mention the non profits that also vie for your attention.