As boards navigate an increasingly complex business landscape, ensuring the right mix of skills and perspectives in the boardroom has never been more critical. However, a persistent challenge remains: while boards recognize the need for fresh expertise and strategic oversight, turnover remains low and outdated skills persist. What’s preventing boards from evolving at the pace of business, and how can they foster a culture of continuous renewal?
To explore these pressing issues, we turned to Julie Daum, North American Board and CEO Practice Co-Leader, and George Anderson, North American Board Effectiveness Leader. In the following conversation, they unpack the key findings from their latest report, which highlights a significant gap between executive confidence in board members and the reality of boardroom composition. They discuss why board refreshment is often slow, the cultural and structural barriers that hinder change, and best practices for boards looking to stay aligned with their company’s evolving strategic needs.
Your report highlights a significant gap between executive confidence in board members and boardroom composition. Why do you think many boards struggle to optimize their composition to meet current and future needs?
Julie Daum: Boards know that bold leadership and the right skills are vital to steer the company toward long-term success. In our annual poll of nominating/governance committee chairs, board composition and succession planning ranked as the number-one priority for nominating/governance committees, and adding new skills is the top motivation for refreshing the board. About a quarter say they have one or more directors who should no longer be on the board. The most common reason: the director’s skills and expertise are out of date.
Despite this clear need for and focus on new skills and perspectives, board turnover has shown little variation over the past 25 years, with rates consistently around 7% or 8% a year. Only 58% of S&P 500 boards appointed a new director in the 2024 proxy year, translating to an overall turnover of less than one (0.83) new director per board.
In our experience, the top barriers to boardroom change stem largely from board culture. Boards strive for collegiality. And boardroom collegiality is important to ensure all directors feel comfortable sharing their experiences, asking questions and performing their oversight duties. However, this collegiality reflected by personal relationships, frequently developed and deepened over time, can result in boards being reluctant to remove directors whose skills are no longer relevant or who are underperforming or who have become friends. In addition, some boards may be overconfident, viewing their performance as strong and not warranting urgent change to the boardroom.
You emphasize that tenure limits and retirement ages shouldn’t be the sole drivers of board refreshment. What practical steps can nominating/governance committees take to proactively evaluate and evolve board composition?
George Anderson: While most companies have a mandatory retirement age, few U.S. companies have tenure policies stipulating the maximum number of years a director can serve on a board. Mandatory retirement age, tenure limits and policies requiring directors to submit their resignation once they have been retired from their primary corporate job for an expressed period have a place—they help promote regular renewal of skills and perspectives—but they should not be the sole mechanism for turnover. We recommend boards consider these steps to maintain a board that aligns with the evolving needs of the business.
• Cultivate a dynamic board culture. Board leaders should set the tone for an open and courageous approach to board renewal. The goal is to foster a culture where the board is viewed not as a lifetime appointment but as a dynamic group structured to best oversee the company’s forward-looking challenges and risks.
• Conduct robust board assessments. Boards should avoid a check-the-box, compliance attitude toward annual board evaluations. Instead, the board’s annual evaluation process should be a meaningful evaluation of how the board is performing. Boards should consider periodically engaging an independent third party to lead the board evaluation.
• Implement individual director reviews. Peer reviews should become a standard part of the board evaluation mindset and process. These reviews help individual directors perform better and support decisions about board composition.
• Undertake a regular, objective review of board skill matrices. Annually update the board’s skills matrix to ensure it aligns with the company’s strategic needs. Directors should evaluate their expertise honestly, avoiding the tendency to overestimate their skills. Formally defining each skill and limiting each director to his/her top few skills may make the matrix a more powerful tool for identifying gaps and overcapacity in the boardroom.
• Think ahead on board succession planning. Boards should develop a robust succession plan that looks ahead to the skills, perspectives and backgrounds needed on the board. This should include active monitoring of directors’ experiences and contributions.
What best practices have you seen from boards that successfully integrate forward-looking boardroom succession planning?
Julie Daum: Successful boards view succession planning not as a one-time event but as an ongoing process, always with an eye toward the company’s future. Best practices include:
• Make board refreshment and succession planning priorities on the agenda. Boards are unlikely to tackle these topics in a rigorous way unless it is explicitly part of their agenda. So, it is critical to regularly carve out time on the nominating/governance committee and board agendas.
• Assess skills and attributes and incorporate results from performance assessments. The nominating/governance committee should use board composition matrices or a similar tool to help them evaluate their skills and attributes and include these items as part of their multi-year board succession plan.
• Encourage a “Fit for Purpose” board: Ensure that the succession pipeline is inclusive, seeking candidates who will bring a range of perspectives and experiences most relevant to the company’s future.
• Set directors’ expectations around tenure. Board leadership ideally sets the tone about the length of director service at the outset. They ensure directors understand that re-nominations are not simply assumed — they are based on the evolution of the company and board and sustained high-performance at the individual director level.
• Educate: Provide ongoing training and development opportunities for current directors, enhancing their understanding of the future environment facing the company.
• Foster open dialogue: Maintain a culture that encourages open discussions around succession.
• Take a multi-year view toward departures and address upcoming leadership changes. The most effective boards take a longer-term view—focusing three to five years out—to effectively address anticipated departures. They create a waterfall chart that identifies all directors, their skill sets and expertise, their board roles (including leadership and committee membership), board tenure, the year they would likely be leaving the board based on expected retirement and other factors.
• Agree on a succession plan that prioritizes needs and build a talent pipeline. Nominating/governance committees will want to collectively debate, prioritize and settle on the board’s future composition needs and a timeline for changes. The key is to be agile and allow the board to make changes as situations or needs arise. Ultimately, the board succession plan and priorities should be reviewed and agreed to by the full board.
The report notes that board turnover remains low, with only 58% of S&P 500 boards appointing a new director in 2024. Given today’s fast-changing business landscape, do you believe this level of turnover is sustainable? Why or why not?
George Anderson: It’s fair to ask if this level of turnover is suited to a highly dynamic business environment. The ability to navigate uncertainty with agility sets the most successful boards apart, and this attribute is critical as organizations face increasingly complex challenges. Boards should continually assess themselves against the question: Are we adapting quickly enough?
Low turnover can contribute to stability, continuity, and institutional memory – all traits that are valued by both companies and board. However, it can also lead to stagnant perspectives and outdated capabilities. Without a fresh influx of ideas and experiences, boards may overlook risks and opportunities, potentially leading to inadequate oversight, less informed decision-making, and a reluctance to embrace necessary change. Additionally, a mismatch between board expertise and the evolving risks and opportunities can diminish investor confidence.
What strategies can nominating/governance committees use to encourage directors to step down when their skills are (1) no longer aligned with the company’s evolving needs or (2) outdated or no longer recent?
Julie Daum: As we already mentioned, it’s essential to cultivate a dynamic board culture where leadership sets the tone for open and courageous discussions around board refreshment. As part of this culture, directors should have the confidence and self-awareness to recognize when it’s time to transition off the board.
In addition to fostering this culture, nominating/governance committees should implement a variety of strategies to create an environment that encourages a voluntary approach to board succession:
• Establish succession plans: Adopt succession strategies that set expectations for directors to self-evaluate the relevance of director skills, including encouraging voluntary resignation.
• Promote self-assessment: Encourage a culture of self-reflection where directors regularly assess their contributions against the company’s strategic goals and evolving needs. Integrating self-assessment into the performance evaluation process can help directors recognize when their skills may no longer align with organizational needs.
• Enhance transparency: Foster open communication about evolving skills gaps and organizational requirements. By clearly articulating the link between the company’s success and the need for relevant skills, committees can create an environment where directors feel motivated to assess their fit with the future needs of the board.
• Incorporate external perspectives: Periodically utilize third-party evaluations or feedback from outside experts, which can present an unbiased view of each director’s performance and relevance, prompting necessary thoughts about their future role.
The report mentions that collegiality can sometimes prevent tough conversations about the need for change in the boardroom. What steps can boards take to foster a culture where necessary changes are embraced rather than avoided?
George Anderson: Boards can foster a culture where necessary changes are embraced rather than avoided. They can supplement the routine practices to review board composition by doing things like:
• Set clear expectations: Clearly define and communicate performance and contribution expectations for all directors. Emphasize that director tenure is linked to director performance and board and company needs.
• Encourage open dialogue: Create an environment that promotes candid conversations.
• Ensure the independent board leader is comfortable leading the tough conversations: Change can’t be made absent a leader willing to talk with a director and discuss the need for change.
• Acknowledge and act: Address the need for change promptly and professionally rather than avoiding it. When a director is not meeting expectations or no longer an optimal fit in the boardroom, the board should approach the situation directly and respectfully.
Peer evaluations are becoming more common, with 47% of S&P 500 boards now disclosing their use. What are some effective ways to structure peer evaluations so they provide meaningful feedback while maintaining board cohesion?
George Anderson: Boards can set up peer evaluations that yield meaningful feedback and maintain board cohesion, by doing the following:
• Facilitate discussions: Many boards find it helpful to engage an independent third-party facilitator to guide discussions around the feedback. Outside facilitators can manage sensitivities and remove some of the emotion from the process, helping the board stay focused on the big-picture objective of strengthening individual and board performance.
• Emphasize a continuous improvement mindset: Frame feedback sessions as opportunities for development. Encourage directors to view peer evaluations as a chance for both personal and collective growth, promoting a culture of continuous improvement.
• Establish follow-up actions: After the evaluations, develop action plans that outline specific steps the board and individual directors can take to enhance their performance. Regularly review these plans during board meetings to foster accountability and track progress.
Looking ahead to 2025 and beyond, what key governance trends do you expect to shape how boards approach composition, evaluations, and director performance?
Julie Daum: As we look toward 2025 and beyond, a number of emerging governance trends are set to redefine how boards approach composition, evaluations, and director performance. We expect to see an even greater emphasis on skills-based diversity. Boards are expanding beyond traditional criteria and actively seeking directors with expertise in areas like AI, cybersecurity, and technology-fields that are becoming critical to long-term corporate strategy.
Increasingly, board evaluations will shift from being a routine compliance exercise to a real driver of board effectiveness. We are seeing boards adopt more rigorous assessment processes that go beyond annual surveys to include peer reviews and individual director assessments. There’s also a stronger focus on board dynamics, how well directors provide oversight, the level of psychological safety in discussions, and whether the board has a robust decision-making process.
Companies are facing a range of external pressures that are reshaping business in meaningful ways. AI and technology are becoming ever more urgent priorities for many companies, and boards need to understand the opportunities as well as the ethical risks, regulatory implications and potential disruptions of these forces.
And of course, shareholder activism is playing a major role in board composition trends. Investors are increasingly scrutinizing board decisions and holding directors accountable in ways we haven’t seen before.
This all means that boards need to be more engaged, more informed and more proactive than ever to meet the evolving expectations of their stakeholders.
