It wasn’t speaking of avoirdupois when the Financial Times referred to those Cayman Island “Jumbo Directors” who each accept ($5,000 - $30,000) board positions on as many as 50-100 hedge funds, and more.
Such practices fly in the face of the increasing pressures independent board directors confront in the US.
According to the Financial Times, 11/21/11, an estimated 75% of the 8,000 hedge funds extant are listed in the Caymans, something of a cottage industry for the hundreds of board directors who provide “fiduciary services.” Hedge funds, in the main, invest pension funds and public endowments.
This “fiducial” practice of serving on multiple boards contrasts wildly with for-profit company and nonprofit organization service in this country. US public company independent directors are under increasing scrutiny from institutional and other large investor groups which challenge the selection and contributions of outside executives who sit on or are nominated for board service.
The National Association of Corporate Directors, of which I am a member, suggests that independent directors, whose annual director time demand (at public companies) is estimated at 250+ hours a year (Spencer Stuart suggests 300-400 hours/year), should not accept invitations to serve on more than five (5) corporate boards, an acknowledgment of their base duties of loyalty and care. While professional fees for such can range widely, the average director compensation for Fortune 500 companies averages in low six figures (conveyed partly in cash and partly in stock options).
Demand for such board service in the Caymans is booming, according to FT. Fourteen directors there hold more than 70 seats each, some assignments generating $30,000. Four executives hold 100 directorships. One executive is listed on more than 500 entity boards. Fifty-eight percent of directors there, according to a recent Caymans survey, felt that service on 30 boards was acceptable; 33% suggested 40. A UK group, Industry Professionals for Alternative Funds, proposes a maximum of 20 seats.
The president of the 185 member Cayman Islands Directors’ Association, himself head of the fiduciary services firm, IMS, suggests that the test be “does the individual (director) have enough time and logistical support to properly discharge his fiduciary duties?” FT noted that most of the directors sitting in the Caymans have professional degrees/experience in law or accounting.
Comparing these high numbers of “diligence” assignments, which would be shocking in the US, brings to mind reports of the compliant asbestos class-action radiologist some years ago who, purportedly, “qualified” patients for inclusion on reading thousands of x-rays a day. Closer to home we learn (Wall Street Journal, 11/21/11) that many physicians retained by the Social Security Administration to conduct medical case eligibility reviews, thought by some to typically consume 60-90 minutes each, have rebelled and/or resigned from the SSA because of a reduction in pay (from $90.00 a case to $80.00). It is also reported that SSA demanded that they not only work harder but also accept case files outside their specialization (e.g., an eye doctor assigned to review back pain, or a dermatologist to review a probable stroke case). Some physicians allege that SSA forced them to change their findings.
Wouldn’t directors sitting on more than a dozen Cayman boards be subject to similar “let’s move on” pressures?
Estimating time demand is one of an executive’s key considerations when considering an invitation to serve on a public company board. Well respected public company board director Betsy S. Atkins shared with an NACD annual conference some years ago that, when her firm was acquired in 1999 by Lucent Technologies; she joined its board. Her arrival coincided with the retirement/abrupt return of its fabled CEO and other litigation (unrelated to her) which required that her board convene in person and electronically in her first year 56 times. As she confided to the NACD audience, you never know what time burdens you may be taking on.
Service on nonprofit trade association and professional society boards, in the main, do not include cash compensation, though some large professional societies and civic groups (e.g., American Medical Association, Rotary) had extended and may still do extend compensation when their officers/directors’ time demands mean substantial loss of their own billable hours.
The spectrum of effective nonprofit board governance, including director roles and responsibilities, the duties of loyalty and care, and the “bright line” between elected and staff, is presented in “ready-to-be-considered” policy options on my BoardRoom Arsenal website, www.aerg.org; the first publication is complimentary
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