More work – but fees treading water

When the Institute of Directors and EY first collaborated to produce the annual Directors’ Fees Report in 2015, the median number of hours directors spent on governance was 124 per organisation per year. Ten years later, that stat is 178 hours.

What are we to make of this 54-hour change? For me, it shows how the expectations on boards had shifted in a relatively short time.

Just a few years ago boards were expected to set strategy and hold management to account at regular meetings. Today they can find themselves involved more – and more often – as organisations operate in what has been called the state of ‘permacrisis’.

‘Permacrisis’ was the Collins Dictionary word of the year in 2022. It encapsulates the idea that economic disruption, geopolitical tensions, fallout from the pandemic and other factors mean we are operating in semi-permanent crisis mode.  

While that might be overstating the case a little, it is certainly true that governance today is more complex than ever before. Issues such as inflation, new work cultures, heightened regulator activity, legal risk, AI disruption and the requirement to incorporate climate governance into strategic thinking have changed the game, permanently.

It may not be a ‘permacrisis’, or even a crisis in the traditional sense of the word, but it is certainly a complex and difficult environment.

The feeling in the governance community is that organisations need more support from their boards than they once did, and the rise in hours devoted to governance suggests today’s boards are leaning into this challenge. 

This is not just a local phenomenon. The Harvard Law School Forum on Corporate Governance in August noted US boards are experiencing a significantly heavier workload. Many US boards have abandoned the traditional quarterly meeting schedule in favour of more frequent meetings, and meeting agendas are more tightly packed with issues. 

Back in Aotearoa New Zealand, the 2024 Directors’ Fees Report shows the median number of formal meetings held is nine, with committees meeting an additional four times. When you add in preparation, ad hoc meetings, travel, and attendance at events and functions, it is perhaps no surprise that 45.5 per cent of directors have turned down a governance role due to the time commitment. This is likely to be the result of concern about being able to dedicate enough focus to the boards they sit on (the median is three).

Fees have not changed as fast as hours over the past decade. The median fee for a non-executive directors was $41,610 in 2015, and is currently $50,000. Nevertheless, 65 per cent of directors are happy with their fees in 2024, while just 51 per cent were satisfied in 2015.

The past 10 years have also seen the legal risks around governance expand. For example, the Workplace Health and Safety Act 2015 introduced potential personal liability for directors if they breach their duties, even if their organisation had not been convicted of breaching the Act. It wasn’t until the Whakaari White Island case was decided in 2023 that the legal contours of those duties began to emerge.

The Mainzeal case again put a spotlight on directors’ duties (this time in regard to insolvency) and saw significant personal fines levied against former directors in the company. So perhaps it should not be surprising that we have seen a 20 per cent jump in the number of directors covered by Directors and Officers Insurance – from 79 per cent in 2015 to 95 per cent in 2024.

Cultural shifts have also been underway in the governance community. Women made up 22 per cent of survey respondents in 2015, but this has risen to 34 per cent in 2024. In the public sector, women now hold 53.9 per cent of board roles.

But this leads into a less pleasant stat. In the 2024 Directors Fees Report the gap between the median fee paid to men and women grew. In part, this is because women in governance predominantly serve on the boards of smaller organisations, or public sector organisations, which pay less. Just 26 per cent of the directors on NZX50 companies are women. 

While the median fee for a non-executive director was little changed in 2024 from 2023, with small rises for some offset by a 3.8 per cent fall overall, it was disappointing to women earning 10 per cent less than their male counterparts, $45,000 vs $50,000, largely driven by the types of roles held.

It is worth noting, at this point, that not all governance roles are paid. For example, 60.6 per cent of trustees are unpaid, and one in five (20.7 per cent) of directors surveyed for the 2024 Report were in at least one pro-bono role.

Governance is often thought of as people in suits leading powerful corporations. That is part of it, but at the IoD we have a broader conception. Sports clubs, school boards, not-for profit organisations and charities are all examples of where people in governance make an important contribution to the wellbeing of, not just those organisations, but society in general.

With more than 115,000 NFP organisations in New Zealand, (as a membership body, the IoD is among them) it is not surprising that 42.9 per cent of directors surveyed for the 2024 Fees Report served on one or more trusts and/or were on the governing body of one or more NFP organisations (39.9 per cent).

As previously mentioned, many of those roles receive no payment, but most people take them on to support a cause (37 per cent) or give back to the community (36.7 per cent).

And that, for me, shows the true value of good governance. Yes, it can deliver financial success to large corporations and small businesses alike. As a country we need that to ensure a prosperous, sustainable future. But it can also deliver community health services, recreational activities, educational opportunities and many other things that make life better for many communities.

So, to all those directors who are putting more time and energy into governance than ever before, thank you, and keep up the good work.