Why large listed companies use board observers
In this article, Magnus Blomkvist, Associate Professor at EDHEC, presents his latest work (1), the first large-scale research on board observers (censeurs) in French listed companies.
Most people imagine a corporate board as a fixed group of directors who vote, advise the CEO, and carry heavy legal responsibility. In reality, in 25% of large French listed companies, there is an additional person sitting at the table who looks and sounds like a director but officially isn’t one - a board observer (called a censeur in France) (2).
Board observers have the possibility to attend every meeting, receive similar information pack as the real directors, ask questions, challenge management, and often have major influence behind the scenes. The difference is that they have no vote, no fiduciary duty, and no personal legal liability if something goes wrong. Most importantly, they are ignored by every governance rule (including the Afep-MEDEF Code of corporate governance and the French Commercial Code).
As a consequence, they do not count toward the maximum board size, the age limit, the independence ratio, or the mandatory 40% gender quota. In short, companies can keep their desired directors in the board room while the official board looks perfectly compliant on paper. We aimed to answer the question: why have board observers become so popular in French listed firms?
Our study is the first large-scale work to address this issue (1) by collecting data on the practice and explaining why it has become so widespread. After hand-reading and collecting data from hundreds of annual reports from the biggest French listed firms between 2010 and 2022, our analysis identifies three main reasons for companies to appoint board observers.
First, recruiting top talent is genuinely hard for some firms. Smaller or younger public companies struggle to persuade busy, high-quality executives to accept a full directorship because the time commitment is huge and the personal risk is real. The same executive will often happily accept an observer seat: same influence, far less downside. The data clearly show that smaller, younger, and less-well-connected firms are significantly more likely to have board observers.
Second, the board observer role is an excellent tool in manage regulatory constraints. France has strict caps: boards cannot exceed 18 members, no more than one-third of directors can be over 70, directors lose their “independent” label after 12 years, and at least 40% must be women. Our findings suggests that when a valued director hits the age ceiling, loses independence, or the board is already full, or the company needs one more man without breaking the gender quota, the simplest solution is to shift that person (or appoint a new one) as a board observer. The person stays fully involved but no longer counts against any legal restriction.
Third, the board observer seat is an ideal “try-before-you-buy” mechanism. French boards are to a large majority staggered, so each director is locked in for three to six years. Picking the wrong person is expensive and embarrassing. Bringing someone in as an observer first lets the board watch how the candidate prepares, how they think under pressure, and how they interact with management, while the candidate gains real boardroom experience without the liability. Roughly 25% of the board observers later gets promoted to a full director seat, and those who do are typically younger and less proven beforehand, exactly the profile you would expect in a trial run.
Our overall message is that the use of board observers can be viewed from two different angles. On the one side, the role clearly undermines the spirit of gender quotas, independence rules, and age limits, which is why French regulators and proxy advisers such as ISS and Glass-Lewis are pushing to restrict or abolish it. On the other side, killing the observer role completely would hurt smaller firms’ ability to attract talent and make smooth director succession harder. We therefore recommend a balanced reform: count observers in quota calculations to stop the most obvious gaming, require proper shareholder votes for their appointment, add term limits and transparency, but keep the absence of liability so the seat remains attractive to high-quality people.
In the end, this is one of the most creative and effective governance innovations of the last two decades. It shows that when regulators pile on more and more rules, sophisticated companies will always find a way to keep the advice they need in the board room. The board observer is the corporate world’s polite but firm answer to over-regulation.
References
(1) Basnet, Anup and Blomkvist, Magnus and Löflund, Anders and Redor, Etienne, Why do Publicly Listed Companies Appoint Board Observers? (May 21, 2025). Available at SSRN: https://ssrn.com/abstract=5263927 or http://dx.doi.org/10.2139/ssrn.5263927
(2) Les censeurs dans les sociétés anonymes (2025), KPMG - https://kpmg.com/av/fr/avocats/eclairages/2023/06/censeur-et-conseil-d-administration.html
