Board refreshment is taking on greater significance as directors face calls for more accountability due to poor business decisions, inappropriate behavior and failure to meet stakeholder expectations.
With this new emphasis on turnover, boards may need to have very frank discussions about which circumstances regarding personal behavior might result in a director being asked to leave his or her seat. Companies would also be wise to re-emphasize their policies regarding board refreshment, making sure the directives align with initiatives to add women and minorities, as well as address the need to add directors with critical skill sets that will help the company sustain future growth.
Many companies have already relented to pressure to have at least one woman on the board of directors. This is largely being accepted as best practice now. The recently enacted California law requiring all public companies based in the state to have at least one woman on their board has moved companies to act, both in California and elsewhere. Those boards that have not made the adjustment risk directors being targeted for removal by ISS, Glass Lewis and other large institutional investors.
The emphasis on refreshment may also signal that companies should find ways to revisit their policies on board tenure and retirement. As we enter a new decade, the question of how long may be too long to serve on a board is relevant and can be used to nudge long-tenured board members into retirement.
Last month, CentryLink publicly thanked one of its directors for distinguished board service covering 34 years as he announced he would not stand for re-election. The company also announced that its non-executive chairman would be retiring in May 2020 under the company’s director retirement policy. This was a way for CenturyLink to acknowledge valued long-term board service while signaling to investors that it is staying current regarding refreshment of board members and board leadership. Other companies should consider how they will handle how many years their directors should serve before being asked to step down and at what age they may want to ask directors to retire.
The emphasis on refreshment is also tied to investor concerns about the competitiveness and future growth of each company. Boards are being asked to anticipate how disruption of their industry and others might affect their bottom line. The key question for each board is, “Do we have the right brain trust to lead us into the next decade?” Once directors take a hard look at their board composition, a refreshment strategy might be in order.
Some boards will hold meetings to determine which skills and attributes members think are most in need. Other boards may focus on identifying and eliminating directors who are considered “less productive” than desired. However, the current emphasis on refreshment offers each individual director an opportunity to reevaluate themselves and make certain that the director seat or seats that they hold inspire them enough to bring a “refreshed” attitude, insight and perspective to the board they serve. That will help their company grow and advance in the next decade. If a director is not excited and thoroughly committed to board service, it would be better to retire from that entity and seek a director’s seat that refreshes their spirit as well as the new board that they join—before they are asked to leave.