Do Not Let ISS Go Overboard: Limiting board members to four seats is a disservice to companies and the members themselves

Thursday, November 26, 2015 - 16:58

Institutional Shareholder Services, Inc. (ISS) employs a lot of very smart people with great intentions, but sometimes, they just need help. 

On October 26, 2015, ISS proposed three changes to its voting policies for U.S. issuers for the 2016 proxy season, including a proposal to reduce the maximum number of public company boards on which one may sit from six to either four or five, despite my compelling August 2013 blog to the contrary, suggesting there is no need for any hard-line test on the subject matter.

Now, to be fair, ISS’s 2015 survey, which was sent to and completed by investor respondents, showed that 52 percent of those investor respondents believe that four to five is a good number. Query, however, why that survey was not distributed to directors, members of the C suite or board counsel – people who are actually in the boardroom and witness firsthand who adds value – or why not.

I am not alone in my concern that both the survey and the resulting proposal are flawed. In early November in the National Law Review, Keith Paul Bishop, Esq. wrote:

“What is entirely missing from ISS’ proposal is any analysis, much less empirical evidence, that service on multiple boards affects firm value either positively or negatively. This illustrates the fundamental and pervasive flaw in most corporate governance “reforms”: they are all prescription and no diagnosis.” 

Do not get me wrong: Members of boards very much need to spend significant time on board work, including reading and digesting not only the material provided by management but also doing independent homework on the company and continuously educating themselves on relevant governance. That said, not all companies require the same attention, and not all board members are created in the same mold. Each member of the board will have his or her own experience, skills and aptitude to bring to the table. So long as each director is actively participating in constructive discussions, is it anyone’s business what he or she is doing outside of the boardroom?

There are plenty of ways that directors can be more effective, but a hard-line rule that implies no person has the time, or the intellectual capacity, to sit on more than four or five public boards is just nonsensical. 


Kerry E. Berchem, Partner, head of Akin Gump’s corporate practice and chair of the firm’s audit committee.