Over a quarter of board directors serving Europe’s largest financial services firms hold four or more board seats each, raising concerns about their ability to effectively govern companies, according to the latest EY European Financial Services Boardroom Monitor.
This discovery comes as new sentiment polling data reveals that 82 per cent of European investors believe that holding three or more board positions, particularly at the executive level, presents a significant challenge to directors in fulfilling their duties.
The EY Boardroom Monitor provides insights into the profiles, experience, training, and skillsets of board directors in the MSCI European Financials Index. In addition to this data, EY conducted a survey of 300 European financial services investors to gather sentiment on the issue.
The study found that among the most senior board members, including chairs and executive directors, the average number of positions held is two. However, holding multiple board positions is less common among all board members, with only three per cent of directors having two or more roles in the largest European financial services firms.
Investors were asked to identify the main driver behind directors taking on multiple board positions. Over a quarter (26 per cent) of respondents cited a desire for broader experience, while 22 per cent mentioned remuneration as a motivation. Interestingly, 19 per cent of investors believed that a lack of experienced female candidates contributed to directors taking on multiple roles.
However, the current data from the EY Boardroom Monitor does not support this belief, as the proportion of both men and women holding multiple board positions correlates with the overall gender split among directors.
The asset management sector has the highest percentage of directors holding multiple board positions, with 49 per cent having more than two roles. In contrast, the banking sector has the lowest percentage, with 39 per cent of directors holding more than two board positions.
From a regulatory standpoint, while some limitations exist for director roles in local markets, there is no universal regulation across European financial services markets that restricts or mandates the number of board roles an individual can hold.
Omar Ali, EY EMEIA financial services managing partner, commented on the issue, stating that concerns about ‘overboarding’ and its impact on governance are increasingly relevant.
“Concerns about ‘overboarding’ and the knock-on effects it could have on governance are increasingly topical,” said Ali. “A careful balance must be struck by companies and chairs to build a board with the requisite skills and breadth of experience to face new and increasingly complex risks while ensuring that all members have the capacity to dedicate the time and resources demanded by the board role.
“This is particularly the case for board directors serving on multiple boards of businesses that are facing into challenges at the same time, and when the talent pool of qualified candidates is small.
“Whilst there are a number of reasons board members hold more than one position, there are associated risks to monitor. Participants in the 2023 EY European Financial Services Chairs’ Interview Series spoke of concerns that the prestige of a board seat could affect willingness to challenge the status quo – an attribute deemed critical by chairs and regulators – and that some board members might be financially dependent on their board positions, which impacts their independence.”
A changing landscape
The EY Boardroom Monitor data for the first half of 2023 reveals that boardroom exits accounted for 10 per cent of the total board members, slightly exceeding the number of new appointments during the same period.
Within the banking sector, 11 per cent of board members left their positions in the first half of 2023, compared to nine per cent in asset management and insurance firms. The average tenure of departing board members was 87 months, consistent with the overall average across all board members.
With a significant board turnover in recent times, 74 per cent of investors anticipate increased action during annual general meetings (AGMs) in the next five years. This could involve voting against board members or proposing new appointments to address perceived gaps in experience or diversity.
Expertise in c-suite, sustainability and tech
In assessing the skills, expertise, and experience of board members in European financial services firms, investors highlight the value of experience in digital/tech and ESG/sustainability, as well as c-suite experience.
Among board members appointed in the first half of 2023, 25 per cent have professional experience in sustainability/ESG, while 36 per cent bring tech expertise. Moreover, 67 per cent of the new board members have executive positions, surpassing the 64 per cent of departing board members with c-suite experience during the same period.
Notably, asset management firms lead in appointing board members with professional experience in sustainability/ESG (21 per cent), while banks excel in recruiting members with tech expertise (24 per cent).
Addressing the need for a mix of skills and c-suite experience, Omar Ali emphasized the importance of covering all aspects of board activity, including the firm’s performance in relation to the economic cycle and operating environment.
Slow progress on gender diversity
European financial services investors recognise the significant influence of gender diversity in boardrooms, with 82 per cent stating it impacts their investment decisions. However, only 44 per cent of board appointments made in the past year were female candidates, representing an eight-percentage point decline compared to the previous year.
The current gender split among European financial services board members stands at 43 per cent female and 57 per cent male. Furthermore, 28 per cent of listed European financial services firms still have less than 40 per cent female representation in their boardrooms, falling short of the European Commission’s European Women on Boards Directive requirements.
Investors also recognise the significance of age diversity in boardrooms, with 84 per cent stating it influences their investment decisions. The average age of board members in European financial services firms is 59, with women averaging 58 and men averaging 61. Board members under the age of 40 constitute only 10 per cent of the total.
Ali concluded that financial services boardrooms have undergone changes in recent years, actively addressing skill and experience gaps through new appointments.
“As the dynamics of global business continue to change, we expect to see international experience and diversity of background rise in importance as boardrooms navigate an increasingly challenging macro backdrop, and the need for more female board members with c-suite experience remains a priority. However, such appointments can only take place if there is a strong talent pool and a growing pipeline offering an ever-wider range of candidates, both of which are crucial to avoid ‘overboarding’.”