Earlier this month, Robert Pozen, senior lecturer at Harvard
Business School contended that a simple reliance on board term
limits as an evaluation tool of corporate performance is based on
Concerns around extended tenure of directors typically include
anxieties over compromised director independence and the
development of a friendliness with management.
According to Spencer Stuart, the average tenure of
directors in Canada rose from eight years in 2009 to nine years in
Mr. Pozen, however, highlights the disconnect in assuming that
"lengthy director service means cozy relationships with
management". He notes the high rate of turnover amongst
executive ranks as a mitigating factor against the establishment of
cozy relations. He also points to a study conducted by the
University of New South Wales which defines an "experienced
director" as one with more than fifteen years of service on a
board. The study concludes that experienced directors add
value and are more likely to attend board meetings and contribute
as members of board committees.
Along a similar vein, Canada's Institute of Corporate
Directors (the ICD) identifies board composition
and renewal as vital to understanding board performance, but moves
beyond a simple calculation of term limits to a framework aimed at building a renewal process
that increases accountability and achieves the right mix of skills
and experience for long-term effectiveness.
In its publication, Beyond Term Limits: Using Performance
Management to Guide Board Renewal, the ICD states that
"voluntary term limits have their place and can act as a
backstop against excessive tenure lengths, which can lead to the
perception of eroding independence. They may also provide some
predictability around director position openings. However,
mandatory limits could also be counter-productive to the good
governance of Canadian organizations."
Both the ICD and Mr. Pozen suggest that an active evaluation of
board and individual director performance based on skills, company
needs and industry norms should be the primary factors in assessing
board composition, rather than a reliance on mechanistic term
limits. As summarized by the ICD, "[w]hile term limits
can be a supporting mechanism, relying solely on them to renew the
board is insufficient and may be counterproductive to good
Pozen's post was based on an article by Mr. Pozen and Theresa
Hamacher originally published in the Financial Times.
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