The Shrinking Shelf Life of a Director

The contracting tenure of CEOs —our recent survey showed between four and six years—and other C-suite executives is cause for worry among proponents of the long-term view. Now directors are also increasingly leaving, or being forced out, after shorter stays.

Disgruntled shareholders and a continued attempt to redefine what constitutes an independent director have forced boards to reevaluate their term-limit and retirement-age policies. Recent trends indicate that term limits are being adopted—or shortened—by more boards. Yet as in most professions, the average retirement age for directors has actually increased.

Requirements for boards listed on the New York Stock Exchange to conduct board evaluations are also spurring some boards to use the tool to begin a discussion about term limits and age policies. Peter Gleason, CFO and managing director of research for the National Association of Corporate Directors, says director evaluations are often the impetus for a review of term limits and a discussion of retirement age policies.

 

Median Term Length (Years)

Small co. 3Y

Large 3Y

Top 200 1Y

 

% with 1Y Term

Small co. 44%

Large 47%

Top 200 67%

 

Prevalence of Retirement Age Disclosure

Small co. 32%

Large 68%

Top 200 81%

 

Median Retirement Age (all companies) 72

“Evaluations allow boards to see where improvements are needed,” he says. “They also help indicate when a board member can no longer provide necessary services to the company.”

Companies are also recognizing that meeting certain requirements for specific expertise could mean waiving board retirement rules for experienced board members. According to the “2007- 2008 Director Compensation Report,” released in June by the NACD and comp consultant Pearl Meyer & Partners, some companies have opted to retain directors with valuable experience by permitting service beyond previously mandated age limits. According to the report, 67 percent of companies that limit board service require members to step down at age 72—up from just 35 percent in 2002. Eleven percent of companies allowed board members to serve at age 75 or older, a jump from just 1 percent of firms that allowed it five years earlier.