The Changing Shape of Board Meetings and their Cost
Covid-19 has transformed the way many Boards operate, introducing Board meetings by Zoom and virtual or hybrid General Meetings globally. While we should probably expect that more meetings will be undertaken this way moving forward, is this a good thing?
In terms of cost savings virtual meetings make a tremendous amount of sense. I’ve always been amazed at how much companies need to spend to maintain a Board operation.
Depending on the country’s rules and regulations, a Board will comprise a few C-Suite executives as well as NEDs (Non-Executive Directors) and INEDs (Independent Non- Executive Directors). Maybe a Board will have 9 or 10 members, with 3 to 4 INEDs and the rest comprising the CEO, representatives of the shareholders, the company secretary and a few C-Suite executives.
Based on the full Board meeting quarterly in person with each meeting lasting a couple of days, plus Board committee meetings taking place more regularly, it soon becomes clear that the cost of a Board can easily exceed US$600,000 a year.
How is this figure derived?
NED remuneration – Korn Ferry European research in 2018 showed total remuneration ranged from US$7,000 to more than US$135,000 per person per year, depending on the company size and the demand of the role. The average cost per NED in 2018 was US$82,000.
Hosting Board meetings – Transportation, accommodation, meeting rooms, entertainment, a/v set-up and supporting staff all contribute to a total that can easily reach US$250,000 per year.
Other costs – the cost of providing secretarial support, preparing Board papers, and providing research budgets for Board members to ensure they are adequately prepared for Board meetings can easily add another US$100,000 annually.
And all of these costs do not take into account the opportunity cost of C-Suite time expended over a year preparing for and attending Board meetings. Studies show that the CEO and C-suite executives spend up to 30% of their time for the Board.
If we just take a mid-level US$600,000 annual cost for Board activities, then with a 6% EBIT, a sales turnover of US$10 mill. is required to just cover this expense.
While a Board is essential for any company to ensure shareholders are represented compliance is met, corporate governance is robust and a growth is sustainable, it may be time for a re-think of the traditional way Boards are formed and how much they cost.
On a cost base alone Virtual Board meetings appear to be a sustainable alternative and as effective as physical Board meetings. They reduce costs, improve meeting efficiency, and help support ESG goals by reducing the carbon footprint.
However, virtual meetings take away from the personal contact that Board members like to have with the companies, employees, shareholders and other stakeholders they oversee. Shareholders also like to be able to enjoy the sparring and questioning that goes on at AGMs and to feel that they are having a direct say in the running of the companies they own.
Virtual meetings also require extra software, appropriate hardware, a stable internet connection and the costs associated with Board portals and platforms. It can also be difficult to find the perfect time to speak online when talking to Board members in different countries or time zones. This is usually why people like to attend meetings in person. And for serious or emotional topics people often feel more comfortable in a one-to-one meeting in the same room.
Are virtual Board meetings appropriate for your Board? It probably comes down to a question of cost and efficiency. I don’t believe we will ever fully go back to only in-person Board meetings. Some form of hybrid or virtual model makes sense, and after the coronavirus pandemic, virtual meetings can still be a useful tool for quick and easy interactions for businesses of any size. AGMs and Board meetings might not be satisfactory when done online only; there has to be a bit of both worlds to make them successful.
The broader question is whether there are other solutions that are less costly than having a comprehensive Board, particularly if you are a SME or non-listed fast growth company that needs support and guidance but can’t take on an expensive outside Board.
This is where the work we are doing at YourBoard is so important. We have brought together a diverse group of partners who want to invest their lifetime of knowledge and experience to help companies be successful. We are the utopian “Board” of knowledge that doesn’t do box-ticking. We bring collective knowledge without the formalities and the experience without the cost. Companies can now have a board with all the knowledge and experience they will need for US$2,500 a month and up. That’s only US$30,000 a year and just a fraction of the US$600,000-plus listed companies may need to spend on their Board.