Limited turnover among directors may inhibit companies from achieving the right mix of experience, skills and diversity that is expected of today’s boards. With new director appointments in S&P 500 companies remaining relatively flat, companies need to consider a variety of flexible policies and tools to accelerate new talent onto the board. The Conference Board, in partnership with ESGAUGE, recently released insights from its Board Refreshment and Evaluations report discussing which practices reinforce healthy turnover.
Policies around retirement help boards achieve refreshment goals but are not always utilized, as companies balance the need to retain experienced directors with the desire to fill skills gaps and bring new perspectives:
- Mandatory retirement ages are common among larger employers but declining in use. Those with an age-based policy are becoming less strict with only 34% reporting no exceptions to the age limit, down from 41% in 2018. The most common retirement age is 75.
- Term limits are uncommon with only 6% of the S&P reporting a policy. Fifteen years of service is the most common cap. The report suggests that long-tenured directors often possess valuable institutional knowledge, particularly useful with newer CEOs, so organizations look for more flexibility when timing the departure of an experienced board member.
While companies may be moving away from age and tenure requirements, these actions help refresh talent and ensure the mix of directors aligns with company needs:
- Establish an overboarding policy. Such policies are growing in popularity, from 64% in 2018 to 72% in 2022, with three additional seats being the most prevalent maximum. As this is an area scrutinized by investors, discussions around over-committing should take place between management and the board.
- Embrace the concept that boards should evolve as the organization’s strategic priorities shift. Begin to create a culture that emphasizes different ways of thinking and reinforces board rotation so that retiring is not perceived negatively.
- Set expectations around average board tenure with new directors during the nomination and recruitment process.
Conduct regular board and individual director evaluations. Openly discuss how current skills align with business needs with an eye on succession.