Should directors of boards own shares in their companies ?

Investors and credit lenders have often raised concerns about the level of commitment and decision-making acumen when members of  company boards do not have any personal investment in the companies they are collectively directing. Often referred to as 'skin-in-the-game', there is now a stronger focus on directors own shareholdings in their companies. The Australian Shareholders Association (ASA) believe that non-executive directors and key management personnel should have sufficient 'skin-in-the game' to ensure greater alignment with shareholders' interests. While noting that more companies in recent years have been introducing minimum shareholding  guidelines, there are many who refuse to place a requirement in writing. The Australian Council of Superannuation Investors (ACSI) has a similar perspective to the ASA and believes that any well governed board requires their directors to hold equity in the company.  Yet ACSI's research has found that 11 per cent of the ASX 200 directors own no shares in the the companies they govern and many of these directors have been on their boards for over 10 years.  

Not surprisingly perhaps, the Australian Institute of Company Directors (AICD) while professing to have no set policy position cites all the reasons not to require directors to own shares - including discouraging potential candidates from accepting board positions; causing more caution and a short term focus for directors who do own shares; or potentially compromising a director's independence if they own more 5 per cent or more. These are weak arguments and not surprising given AICD's protective view which often seeks to minimise the level of guidance and compliance on directors from outside parties. It does not however resolve the question and the ASA and ASCI positions sit in stark contrast to AICD.