Paper Cites Benefits of Long-Tenured Independent Directors of Corporate Boards

Authors of a recent academic paper posit that corporate boards that retain a single director with a very long tenure “exhibit superior performance, a lower risk of outside litigation, and higher disclosure and information acquisition.” The authors acknowledge the growing concern over independent directors’ tenure both among proxy voting services and global regulators. For instance, Institutional Shareholders Services, Inc. now includes independent directors’ tenure as a factor in its governance scores and global regulators, including France and Singapore, have issued tenure-related guidelines or restrictions for independent directors. The authors also acknowledge that long tenures can engender a board culture that leads to leniency on management and inertia on the part of the board. However, the authors posit that some firms may benefit from keeping one member on their board for an extended period mainly because extending tenure allows the director to accumulate information about past events in the firm and the firm’s responses to events and market shocks that can help firms weather future crises. The authors also concluded that:

• Board-wide term limits may be detrimental to the board, the company, and shareholders, in particular if such limits force valuable directors off the board.
• Long-tenured directors are disproportionately more likely to be nominated as lead independent directors, and an unconditional tenure limit would negatively affect the effectiveness of the lead independent director function and ultimately weaken the governance of companies.