By Sarah Krouse and Joann S. Lublin
Giant money managers voted against the re-election of Ronald
Havner, Jr. in May to the board of a real-estate company. Their
reason: He runs a different company and sits on two other
boards.
After about 56% of voting shares were cast against Mr. Havner
remaining an AvalonBay Communities Inc. director, he said he would
resign, an offer rejected by the rest of the AvalonBay board.
BlackRock Inc. and State Street Corp.'s money-management unit were
among the large investors that voted against his re-election.
Mr. Havner, who is chief executive of Public Storage, also
decided not to stand for re-election at California Resources
Corp.'s 2018 annual meeting "due to concerns raised by investors
relating to the time commitment required" for those roles, the
company said in a regulatory filing.
Mr. Havner "has taken steps to reduce the number of boards upon
which he serves," said a lawyer for Public Storage and PS Business
Parks Inc., a related company.
Major institutional investors, governance advisers and boards
themselves are cracking down on so-called overboarding, trying to
ensure that directors don't spread themselves too thin.
Overstretched directors lack time to adequately monitor management,
these critics contend.
"There is no good reason for having an overboarded director,"
said Charles Elson, head of the Weinberg Center for Corporate
Governance at University of Delaware. He expects
institutional-investor pressure will make S&P 500 board members
with at least five seats a dying breed.
Many directors who serve multiple boards contend that they
adequately manage their time and can handle their board
responsibilities.
A new analysis of S&P 500 chief executives for The Wall
Street Journal by Equilar, a research firm, suggests that leaders
with multiple outside corporate board seats and their employers
make more money, but their shareholders see lower returns than
those with one or zero outside directorships.
Money managers such as BlackRock and State Street with large
index-tracking fund businesses are gaining more power over
shareholder votes because they own growing stakes in so many
publicly held corporations. Both voted against Mr. Havner's
AvalonBay re-election in each of the last two years.
BlackRock, the world's largest asset manager, cast 168 votes
against directors this year due to overboarding concerns. It fought
the reelection of directors at companies such as Charter
Communications Inc., Pfizer Inc. and PayPal Holdings, Inc.,
according to filings and a spokesman for the money manager.
"The directors that serve on many boards tend to be very strong
directors," said Zach Oleksiuk, head of BlackRock's Americas
corporate governance and responsible investment team. "The issue is
not necessarily their performance, but rather the time that it
takes to serve."
Being a director is lucrative, time-consuming and often comes
with a high profile. Median total compensation for U.S. public
board members was $191,440 last year, according to the National
Association of Corporate Directors and pay consultants Pearl Meyer
& Partners, LLC, up about 3% from the prior year.
Board members at public companies spend an average of 245 hours
a year for each position, up from 191 hours in 2005, according to
surveys by the National Association of Corporate Directors.
Influential proxy advisers Institutional Shareholder Services
Inc. and Glass, Lewis & Co. now recommend investors vote
against or withhold support from directors who sit on more than
five public-company boards. ISS lowered that threshold to five in
February from six. Each firm also favors limits on the number of
outside directorships chief executives can hold.
American corporations increasingly have imposed their own
restrictions. About 77% of S&P 500 companies now curb board
members' outside directorships in some fashion, up from 71% in
2010, according to Spencer Stuart, an executive-search firm. Among
those with limits for all directors, 36% now impose a cap of three
seats -- up from 29% in 2010.
Overall, 63 S&P 500 directors now serve on five or more
public boards, as of Sept. 10, down from 83 in 2012, according to
ISS Analytics, the data arm of Institutional Shareholder
Services.
Some directors were re-elected this year despite opposition from
some large shareholders. For example, BlackRock withheld support
for the re-election of Ann Mather at Shutterfly, Inc. and Alphabet
Inc., but she was re-elected at both companies.
Ms. Mather also serves on the board of three other West Coast
public
companies: Arista Networks Inc.; Netflix Inc.; and Glu Mobile Inc. She deliberately chose businesses in the same or related industries with headquarters near each other, one person familiar with the matter said.
The person said this week that the businesses are "all connected
and relevant," which means Ms. Mather "can easily add value and
(has) a strategic understanding of what's going on."
Another big index-fund manager, Vanguard Group, doesn't
explicitly put a limit on the number of boards on which someone can
serve but looks at factors such as board members' "attendance,
engagement, and effectiveness," a spokeswoman said.
Rival State Street Global Advisors in 2016 cast votes against 69
chief executives who served on more than three boards and against
22 non-CEO directors who each sat on more than six public boards.
Despite setting overboarding limits it wants firms to "do more than
manage to a number," Rakhi Kumar, head of environmental, social and
governance and asset stewardship at the firm said in an email.
Write to Sarah Krouse at sarah.krouse@wsj.com and Joann S.
Lublin at joann.lublin@wsj.com
(END) Dow Jones Newswires
September 26, 2017 05:44 ET (09:44 GMT)
Copyright (c) 2017 Dow Jones & Company, Inc.
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