Board of Directors - How Many Days a Year?

An outside director for a company larger than $100MM usually spends at least nine-eleven days per year on his or her responsibilities. Four days per year are spent for quarterly meetings, a day of preparation for each meeting, a day for another meeting to cope with an unanticipated issue, plus up to a day or more for various phone calls. Directors are reimbursed for expenses preparing and attending meetings. Whether public or private, it requires a lot more director involvement for companies with sales of less than $10MM than for those over $25-$50MM. The impact can go from 9 days to over 60 or more days per year.

There is a major distinction for board members if the company is public or private. While private the board still falls under the applicable Federal and state laws but as a private company, Sarbanes-Oxley does not apply. Most private companies, while not fully compliant, keep an eye on Sarbanes-Oxley in anticipation of various exit strategies where a transition to public ownership will require full compliance.

The primary job of the board is to vote to approve financial and shares authorizations and other major company decisions. The officers of the company are elected, usually annually, including the CEO, by the board to develop and implement those policies and plans approved by the board with the focus on immediate and measurable results. Votes are typically determined by a majority with a minimum number to establish a quorum present.

Under Sarbanes-Oxley directors can be held responsible and personally liable for their actions and those of its officers. In many localities there exists a climate of litigation where suits are filed first rather than discuss or get clarifications first.

Even for a private company, with the precedents set by Sarbanes-Oxley in the public world, directors now face more liabilities. For example, some specific grounds for personal liability of a director in public companies have included voting a dividend that renders the corporation insolvent, voting to authorize a loan out of corporate assets to a director or officer who ultimately defaults, and signing a false corporation document or report. This also includes director and officer personal liability if Federal employee taxes were not reserved and paid, even if the company goes bankrupt, private or public.

Thus especailly for public companies, but even private ones, Sarbanes-Oxley compliance and control items are increasingly on the agenda and many boards are now extending meetings from one day to another half day or with 2-3 day retreats and/or on-site visits to avoid forcing all the discussions to short term rather than strategic issues. This increased effort is reflected in increased director compensation.

One source of additional director effort is with unhappy or interested stockholders who may pester officers and board members over current actions and business conditions (best referred to investor relations).

The duties of the board members culminate in votes. Significant extra time may be spent in preparing for these votes and in negotiating with the officers or other board members to reach consensus on major issues. The time consuming effects of Sarbanes-Oxley reaches into private corporations due to liability precedents and eventual compliance if the exit strategy includes going public. All of which increase the minimal time of nine-eleven days required for board participation to a greater number. Companies is early stage development or in crises situations can extend that time commitment to as many as 30 days or more per year.

Copyright 2008 Donald C. Mann. All rights reserved

Don Mann advises CEOs and business leaders across the globe. In organizations ranging from start-ups to Fortune 100 he has delivered level-raising results of improved innovation, sales, profits and cash flow in good and hard times. His results include developing and improving highly productive and lean organizations with more rapid responsiveness, reduced stress and profitable customer delight. Sitting on a number of boards, he helps CEOs grow their companies and shareholder value. For more information, contact him at: www.RiteMann.com

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