Companies shift tactics on keeping boards fresh

Public companies are moving away from mandatory retirement policies for directors and looking for new ways to ensure their boards don’t grow stagnant, according to new research from the Conference Board Inc.

In a new report, the U.S. think tank said that the prevalence of mandatory retirement policies based on age at companies in the S&P 500 and Russell 3000 indexes declined between 2018 and 2022, and that mandatory retirement based on tenure remains unpopular (used by just 6% of S&P 500 companies and 4% of Russell 3000 firms).

Instead, companies are using other methods for refreshing their boards.

“While mandatory turnover policies have been on the decline, the analysis reveals that substantially more companies are now conducting comprehensive board evaluations — a combination of board, committee, and individual director assessments,” the report said.

Additionally, the research found that the share of companies with overboarding policies — policies that limit the number of corporate boards a director can sit on — has increased too.

Even so, the rate of new directors joining public company boards remained unchanged at 9%, the report said, noting that, “This equates to approximately one new director joining an S&P 500 company board each year, which have an average of 11 directors.”

“Regardless of their approach to board refreshment, companies should expect continued investor scrutiny in this area,” said Umesh Chandra Tiwari, executive director of data analytics firm, ESGAUGE, which provided the data for the report.

“Indeed, while institutional investors may defer to the board on whether to adopt mandatory retirement policies, many are keeping a close eye on average board tenure and the balance of tenures among the directors serving on the board,” Tiwari added.

James Langton

James is a senior reporter for Advisor.ca and its sister publication, Investment Executive. He has been reporting on regulation, securities law, industry news and more since 1994.