Why investors are concerned about ‘overboarding’ in Financial Services

In Europe’s largest financial services firms, board directors hold an average of 3 board seats each, and over a quarter hold 4 or more.

In brief:

• The EY Boardroom Monitor charts the profile, experience, training and skillsets of board directors across the MSCI European Financials Index.
• It is supplemented with a sentiment polling survey of 300 European financial services investors.
• The results show that investors are concerned about board directors holding too many positions.

Board directors serving Europe’s largest financial services firms currently hold an average of three board seats each, and over a quarter (26%) hold four or more, with this percentage rising to 41% in Belgium, according to the latest EY European Financial Services Boardroom Monitor. This comes as new sentiment polling data finds 82% of European investors surveyed believe that holding board positions at three or more firms – rising to 85% if one is at executive level - could present challenge to board directors’ abilities to fulfil their duty of governing a company.

Amongst the most senior board members – chairs and executive directors – the average number of positions held is two. Across all board members, sitting on more than one major financial services board is less common: only 3% of directors tracked hold two or more board roles at the largest European financial services firms.

When asked to identify the primary driver behind directors assuming multiple board positions, just over a quarter (26%) of investors cited board members’ desires to gain broader experience and over a fifth (22%) cited remuneration. Separately 19% of investors believe it relates to a shortage of female candidates with sufficient experience; however, current EY Boardroom Monitor data does not support this, finding that the proportion of both men and women sitting on three or more boards correlates with the gender split of the total director population tracked.

From a sector perspective, directors holding multiple board positions are most common within the asset management sector, where 49% of board members hold more than two board positions. It is least common in the banking sector, where 39% of board members hold more than two board positions.

From a regulatory perspective, while there are local market limitations to some director roles, there is no blanket regulation applied across European financial services markets to restrict or mandate the number of board roles that can be held by an individual.

Omar Ali, EY EMEIA Financial Services Managing Partner, comments: “Concerns about ‘overboarding’ and the knock-on effects it could have on governance are increasingly topical. 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.

A ‘changing of the guard’ across Europe’s financial boardrooms?

In H1 2023 data from the EY Boardroom Monitor shows that boardroom exits constituted 10% of total boardroom members, with new appointments marginally lagging departures within the six-month snapshot**, at 6% of the total director population. In Belgium, directors who left their position in H1 2023 were three times as numerous as new appointees.

The banking sector had the greatest proportion of boardroom exits: 11% of board members at banks left their roles in H1 2023. In comparison, 9% of board members at asset management and insurance firms departed in the same period. The situation is entirely different in our country with asset management firms coming in first as 29% of their board members exited in H1 2023, followed by insurance companies at 21% and banks at 13%.

The average tenure of members departing financial services boardrooms during H1 2023 was 87 months, relative to 85 months across all boardroom members. This figure rises to a staggering 122 months in Belgium.

Against a backdrop of high recent board turnover, almost three quarter of investors (74%) anticipate an increase in investor action during AGMs – whether voting against board members or proposing new board members – over the next five years to rectify any perceived lack of experience or diversity in specific areas.
 

Incoming board members increase c-suite, sustainability, and tech expertise

When assessing the collective skills, expertise, and experience of board members in the context of investing in a European financial services firm, 87% of investors state that experience in both digital/tech and ESG/sustainability is valuable, and 83% state that c-suite experience is valuable. Professional experience indicates official qualifications or roles previously or currently held in the related field.

Of board members appointed in H1 2023, 25% have professional experience in sustainability/ESG, while 36% bring experience in tech. This is a comprehensive year-on-year rise: of board members appointed in H1 2022, 20% had professional experience in sustainability and 22% had professional experience in tech. In Belgium however, none of the H1 2023 appointees have experience in sustainability or tech.

28% of Europe’s financial boards are yet to reach 40% female representation

Eighty-two per cent of European financial services investors state that the gender diversity of the boardroom has a significant influence on their decision to invest, compared to just 6% who say it does not influence their decision at all.

Of board appointments made over the past year in Belgium (July 2022 – June 2023), 25% were female candidates, against 100% in the year to June 2022. Overall, the current gender split of European financial services board members stands at 43% female and 57% male. Belgium is still lagging behind, with a 61-39% split.

Twenty-eight per-cent of listed European financial services firms have under 40% female representation in their boardroom, which is the level required by June 2026 to comply with the European Commission’s European Women on Boards Directive. The Directive requires all companies in EU member states to meet a 40% female target for non-executive boards or 33% for all board members. In our country, while asset managers are beyond the 40% threshold (at 41.7%) and insurance companies have achieved parity, banks only count 25% of female directors.

The EY Boardroom Monitor also provides clear evidence that women on boards continue to be less likely to have worked in c-suite roles. Across Europe’s financial boardrooms, just 53% of female board members hold or have held a c-suite position, relative to 65% of their male counterparts. The figures in Belgium are similar, with 66.7% of male directors having c-suite experience, against 52.4% of female directors.
 

Age of board directors remains around 60 years old

Eighty-four per cent of European financial services investors state that the age diversity of the boardroom has a significant influence on their decision to invest, compared to just 6% who say it does not influence their decision at all.

The average age across Belgian financial services boardrooms is 57, slightly under the European average (59). However, only 2% of board members are under the age of 40.

Yannick Grécourt, Country Leader EY Belgium Financial Services concludes: “Financial services boardrooms have changed over the last few years, and chairs and executive teams have actively replaced departures with appointees who bring new and needed expertise – namely in sustainability and tech. 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. In this context, it becomes clear that if we aspire to limit individuals' multiple board roles, a greater number of people are required. However, in the pursuit of acquiring enhanced skill sets, the pool of potential candidates may dwindle. This underscores the importance of making Belgium an attractive destination for professionals, so that we can continue to attract the right talent and further develop Belgium as a thriving financial centre at the heart of Europe.”