The directors’ dilemma: skin in the game or independence

The dilemma of Directors balancing the need to have stake in the company’s success, yet also the independence to make unbiased decisions. Read this concise summary of this AFR article which discusses the directors’ dilemma and the trends of directors moving forward.

The directors’ dilemma: skin in the game or independence

View the 9 Current Ways the Directors’ Dilemma is Being Shaped

1. Independence vs. Alignment

There’s a longstanding debate in governance circles: Can directors with sizeable shares make unbiased, long-term beneficial decisions? On the flip side, if they lack shares, can they truly understand their decision’s impact?

2. Increasing Independence

ASX boards lean more towards independence nowadays. Specifically, 93.1% of top 100 ASX company directors and 82.4% of those ranked in the 101-200 range hold this trend.

3. Options & Incentives

“Ownership Matters’ Dean Paatsch says the practice of non-executive directors being granted options or other leveraged incentives has largely been eliminated from the top 200 pool.” This is helping reduce the short term decision making of the board and an increasing focus on long term value creation.

4. Lack of Personal Shareholdings

It’s revealing that numerous directors lack personal shareholdings in their respective companies, leading to questions about their genuine vested interests.

5. Remuneration Trends

While there’s been a steady salary increase for non-executive directors over time, the article specifically spotlights some of the highest earners.

“The average pay of an ASX 100 non-executive chairperson increased from $510,444 in 2021 to $511,746, and has been relatively steady over five years.”

6. Gender Diversity

Significant strides have been made in gender diversity on boards. However, top-paying roles and CEO positions still have a male-dominated presence.

7. Professional Directorship

The notion of directors serving on multiple boards isn’t as widespread as some assume, with only 20% of ASX-listed directors occupying board seats in another company.

Governance Costs: Beyond the $355.7 million in director fees across 290 companies, there are other related governance expenses to consider.

8. Value vs. Cost

The main point is figuring out if shareholders are getting good value for the money they spend on governing the company. This is complex, as board effectiveness is often judged externally.

“Here it’s tough to tell from the outside how much value a director is adding, or how effective the board is in acting for shareholders. A dopey board that knocks back a value-destructive deal is worth its weight in gold, while a hyper-engaged one that presides over poor decisions is clearly not.”

9. Competence Over Independence

While independence is a prised quality, the true essence of a director lies in their competence.


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