How long should someone be a member of your board? Until recently conventional thinking was to cap someone’s tenure at 9 years. It was felt that any longer and the member would become “captive” to management and no longer be considered independent. Some national regulators already impose such restrictions on corporate board membership tenure.
Research from the University of New South Wales in late 2015 (read it here) has challenged this tradition. After looking into 1500 firms, the UNSW researchers found that there are actually a number of very clear advantages of keeping board members for longer. These advantages include:
- More likely to have a higher level of commitment
- More likely to attend meetings
- Generally less CEO turnover in firms with longer serving members
- Less likelihood of CEO ‘empire-building’
- More innovation
In investigating the potential reasons why this might be the case, the researchers postulate it is because the directors value their reputation, and the longer they are associated with the firm the more their reputation is at risk. This, coupled with their deeper knowledge of the firm and its operations means that long serving directors are better able and more likely to stand up to management.
Not reported in the research itself, but commented on by the researchers is that in their view, the optimal term for a director is 21 years. Is it time for you to review your board appointment policies and consider whether it is time to give directors the change for a longer stay?
The Avondale Business School can assist your board to become a high performing board – find out how by contacting Warrick Long at the Avondale Business School
P: 02 4980 2168