“Make directors own shares and they’ll think like owners.” It’s the most intuitive idea in governance. The evidence says it’s true - until it isn’t.
Ask almost any investor what fixes a lazy board, and you’ll hear “skin in the game”. Put directors’ own money on the line, the logic runs, and their interests fuse with yours.
It’s compelling. It’s also only half the story - and the half everyone skips is the dangerous one.
The Australian reality – more policy than practice
In Australia eighty-six of the ASX 100 now have a defined minimum shareholding requirement for their chair and non-executive directors, and roughly 76% of the ASX Top 100 impose a shareholding requirement on NEDs, typically a holding worth about a year’s fees built over three to five years.
Then look at what directors actually hold:
- 115 non-executive directors who had served more than a year held no shares at all in the company they govern - drawing fees without buying in.
- Almost half of ASX 100 directors had purchased less than one year’s worth of board fees in stock.
- Ownership is wildly concentrated, aggregate ASX 300 NED shareholdings totalled $1.9bn, but the ten largest stakes alone accounted for 70% of that - $1.4bn.
- The spread runs from nothing to a fortune: individual director shareholdings across the ASX 200 ranged from $0 to $5.29bn.
So “skin in the game” in Australia is real for a few and notional for many. A requirement on the books is not the same as conviction in the register.
Three countries, three philosophies
The deeper disagreement is about what a board is for - and the three big markets answer it differently.
The US maximises alignment. Director ownership guidelines are near-universal - about 95% of the S&P 500 - and demanding: typically five times the annual cash retainer within five years, with CEOs often required to hold six times salary. Equity is the pay, and directors are expected to keep it.
The UK protects independence. The UK Corporate Governance Code says NED pay should not include share options or performance-related elements, on the view that they corrode objectivity. Britain wants directors aligned with the company, not the share price. The line is softening - in late 2025 the FRC relaxed the options prohibition where there’s no meaningful exercise price - but independence, not alignment, remains the lodestar.
Australia sits in the middle. Modest holdings, built over time, bought or fee-funded rather than granted, and explicitly not performance-linked for NEDs.
Does it actually work? Yes - within limits
The alignment case is genuinely strong. One major study found that companies with one standard deviation more non-executive director ownership performed 28.2% better than the mean on Tobin’s Q, and that firms with stock-ownership requirements exhibited better performance the year after adopting them. Berkshire Hathaway philosophy in its purest form, directors buy shares with their own money, take only token fees, and carry no liability insurance, so a disaster on their watch hits their own pockets.
But, the relationship is not a straight line. It’s a hump. Performance improves as ownership rises to a point, then declines as stakes grow large enough to entrench management and insulate it from discipline - an effect especially pronounced in founder- and family-controlled firms, where older firms run by founding families tend to underperform. UK data shows the same non-monotonic pattern: performance rising at low ownership, falling through the moderate range, as the convergence of interests gives way to entrenchment.
Too little skin and the director is a detached fee-taker. Too much and they stop being a check on power and start being the power. Anyone following Australian boardrooms lately - WiseTech, or Mineral Resources - has watched exactly that second failure play out: a founder whose enormous stake makes the board’s formal independence theoretical.
And ownership is no shield against catastrophe. The executives and directors of Bear Stearns and Lehman Brothers held vast equity stakes - the strongest possible “skin in the game” - and presided over the collapse anyway, having banked enormous gains on the way up. Alignment with the share price is not the same as prudence.
It’s also a values question
Strip away the data and two genuine goods are in tension.
Ownership signals partnership - that a director shares the journey, not just the fees. Independence demands distance - the freedom to say no, to act for minority shareholders, to take the long view when the market wants the short one. Push alignment too hard and you erode the objectivity the role exists to provide.
How the shares are acquired carries the values, too:
- Granted shares carry no personal downside and quietly turn a NED into a quasi-executive - which is why the UK resists them and Berkshire refuses them.
- Purchased shares carry real risk and the strongest claim to alignment - but a five-times-fees demand quietly screens out capable directors who can’t tie up that much capital, narrowing boards just as we ask them to broaden. (That 115 directors hold nothing may partly reflect newer, more diverse appointees - not indifference.)
- Fee-funded holdings - the Australian compromise - split the difference: a stake built over time, no upfront wealth required, no performance strings.
The provocation
Skin in the game is worth having. It is not the slam dunk the slogan implies.
The data is clear that some director ownership aligns interests and sharpens monitoring. It is equally clear that too much entrenches founders and blinds boards - and that a full share register prevented neither Lehman’s collapse nor a single Australian founder scandal of the past two years.
So the right question for a board isn’t “do our directors own shares?” It’s a harder one.
Do they own enough to care - but not so much that they’ve stopped being a check on the person they’re meant to oversee?
Written from an Australian board and governance perspective. Where do you think the line sits - and have you seen “skin in the game” tip from alignment into entrenchment?
References & further reading
- Advacta, Governance Impressions Report 2023 — ~76% of ASX Top 100 companies impose NED shareholding requirements; 3–5 year compliance windows.
- Guerdon Associates (2023) — 86 of the ASX 100 have a defined chair/NED minimum shareholding requirement; chairs given ~4.14 years on average; most common chair MSR is 100% of chair fee; three US dual-listed names require 500% of base fee.
- Ownership Matters, Board Composition, Director Pay and ‘Skin in the Game’ in the ASX300 (FY24 study, 2025) — 115 NEDs with >1 year tenure holding no shares; aggregate ASX300 NED holdings of $1.9bn with the top ten stakes at 70%; ~$394m in NED fees in 2024.
- Ownership Matters / ACSI — individual ASX200 director shareholdings ranging from $0 to $5.29bn; share of ASX100 directors holding less than one year’s fees.
- US director stock-ownership guideline prevalence (~95% of the S&P 500) and the 5×-retainer / 6×-salary norms — major compensation-consultancy surveys.
- UK Corporate Governance Code (FRC); Investment Association NED remuneration guidance; FRC 2025 revision relaxing the prohibition on NED options where there is no meaningful exercise price.
- Swan & Honeine, Is Company Performance Dependent on Outside Director ‘Skin in the Game’? (SSRN) — ~28.2% performance uplift per standard deviation of NED ownership (Tobin’s Q).
- Bhagat, Bolton & Romano (2008), on director stock ownership requirements and subsequent firm performance (via ScienceDirect review).
- Morck, Shleifer & Vishny and related work on the non-monotonic ownership–performance relationship and entrenchment in founder/family-controlled firms; UK financial-services evidence on convergence vs entrenchment effects.
- Bebchuk, Cohen & Spamann, The Wages of Failure — equity holdings and realised gains of Bear Stearns and Lehman Brothers executives before the 2008 collapse.
Statistics reflect the most recent figures available at the time of writing (2025–2026) and are indicative where market practice varies.
