Surprisingly, Director Tenure Remains Long at Most Companies

Despite the frenzied rise in shareholder activism that challenges the decisions of long-sitting board members individually and collectively, a new study of tenures shows most large companies increasingly are governed by long-sitting board members.

At 24% of the biggest U.S. companies, a majority of the board has been in place for at least a decade, according to a new Wall Street Journal analysis of director tenure using 2015 data. That’s a marked changed from 2005, when long-term directors made up a board majority at only 11% of companies.

“One director in every six has held a seat for at least 15 years.”

Overall, one-third of individuals who served on the boards of S&P 500 companies in 2005 still held seats last year, the publication found. One director in every six has held a seat for at least 15 years. And just 7% of board seats turn over each year at large companies, according to a recent analysis by recruiting firm Spencer Stuart.

Despite working in an era in which investor rabble-rousers such as Carl Icahn and Bill Ackman have pressed CEOs and boards to resign useless board members, split companies up, dump certain operations, slash costs more dramatically or veer toward any number of other new objectives, it would seem that directors have a more tenuous hold on their jobs than ever before.

Also, the strong move within corporate America to diversify boards, with women, minority members and others, by definition is creating pressures for more turnover on boards. In fact, companies are seeing more shareholder proposals to limit directors’ tenure similar to how politicians have seen the rise of term limits. “The tenure issue is one that is bubbling beneath the surface,” Douglas K. Chia, head of the corporate governance center at The Conference Board, told the Journal.

So what’s really going on here?
Deep-seated institutional factors are keeping longest-tenured board members in their seats despite all of these new dynamics. One reason is that long-tenured directors can offer companies experienced insight into company operations across a variety of economic and competitive environments as well as, potentially, the experience to question even long-time managers, the Journal noted.

Another reason tenure doesn’t reflect factors that would tend to reduce their reigns is that,  dynamics such as shareholder activism and agitation for more women on boards only has grown rapidly over the last couple of years. And like many other things at America’s largest companies, change can take time.


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