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Questioning Corporate Board Tenure

A recent Wall Street Journal article examined tenure of corporate boards, finding that at least 24% of the largest US companies had the majority of their boards in place for at least 10 years, a significant rise in long-tenured directors since 2005.  The article acknowledges some advantages of long tenure, including institutional memory and better insight into the corporations they oversee.  However, it questions whether the long-tenured directors have compromised their independence or lack a fresh perspective.  Long tenure can also frustrate efforts at increasing board diversity.

According to the article, one third of directors who held seats in 2005 remained on their boards last year, and one director out of every six has held his or her seat for at least 15 years.  Among S&P 500 companies, only 13 had tenure limits last year – while two-thirds have affirmatively disavowed them.  Partly as a result of the lack of term limits, the age of corporate directors has risen over the years to a median age of 63, and one out of five of directors at S&P 500 companies is over 70.

Some institutional investors are beginning to focus on board tenure.  For example, State Street Global Advisors voted against 339 directors as a result of tenure concerns.  BlackRock recently revised its voting guidelines, indicating that it might oppose directors due to tenure concerns.  Outside of the US, some jurisdictions have moved to address board tenure.  For example, in France, directors lose their independence status after 12 years, and in Hong Kong, directors who have served over 9 years must be re-elected by a separate vote.

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