Board Members Aging Out? #NonprofitBoards

The following article raises interesting questions about board member age limits particularly, if enforced, as a way to enable diversification.  

More companies are setting age limits in order to retool their boards July 22, 2022

While most boards are aware of the need to diversify their ranks, and its related benefits, changing a board’s makeup isn’t so simple. Vacancies do not occur frequently, meaning board leaders must either expand the board or wait for someone to retire or step down before adding someone new. The role and responsibilities of directors have evolved dramatically in recent years so “it makes sense that you have to think much more broadly about who the people on your board are, and constantly review and make sure you’ve got the right people,” Pamela Marcogliese, a partner who specializes in corporate governance for the law firm Freshfields Bruckhaus Deringer, explains. Age maximums are emerging as a way to operationalize that without forcing directors to leave. Departure policies such as age or term limits are playing a greater role in board refreshment. According to data compiled by Freshfields, 70% of S&P 500 companies have mandatory retirement age policies, compared to around 50% in 2015. In 2021, 6% had term limits, a figure that has stayed relatively flat over the years. In 2021, S&P 500 companies appointed 456 new independent directors, the most since 2004, which Marcogliese says is “a function of companies really thinking carefully about all of the ancillary issues that are going on.” Scrutiny over board composition is driving companies to set departure policies, as well as the rising directorship workload, and a need to diversify the skills brought to the board. Departure policies offer an easier way to regenerate boards. The challenge companies face when setting these policies is settling on a sensible number for term limits or age maximums, Marcogliese says. About half of boards set their retirement age at 75 or older, according to Freshfields. Term limits range from 10 to 20 years, with 73% of them at 15 years or more. Not much data analysis or science goes into these decisions, however, and they are mostly meant to meet market expectations. “There are some constituencies out there who think that if you have been on a board for too long— and everybody has their view as to what ‘too long’ means—it decreases independence from management,” Marcogliese says. Another way boards can shake up their membership is through shareholder activism, which of course is not voluntary on their end. Shareholder proposals that aim to address governance issues are common. And in some cases, they can lead to removal of board members for conduct that’s detrimental to the company, an inability to meet ESG needs or overboarding, per the report. “It is not uncommon for director profiles to be the subject of an activist demand,” Marcogliese says. “If you’re looking to attract the support of certain investors, having an ESG component or diversity component can be helpful to attract those votes.” *** Speaking of departures, this is my final newsletter as the lead writer for The Modern Board. It has been an honor and a pleasure to dive into this arena and serve an audience consisting of executives who run some of the largest, most influential businesses in the world. I hope this newsletter was informative, challenged your assumptions, and offered a window into the ways corporate strategy is evolving with the world around us. Starting next Friday, my colleague Lila MacLellan will take over the newsletter. She can be reached at [email protected]. Going forward, I am still a proud member of the Fortune team. I’m going to be covering the future of work and talent strategy for our Leadership section! If you’d like to share your company’s innovative work in this space, send me an email! Aman Kidwai [email protected]