Even though Sumner Redstone isn't heading Viacom Inc. and CBS Corp. any more, you can still find him in a corporate club that's as elite as it is elderly: on the board of directors at Standard & Poor's 500 companies. Redstone, 92, will remain on the boards of both companies. A fellow 92-year-old, Charlie Munger, also holds seats on two boards. That fits with the pattern on U.S. corporate boards, a rarefied realm where directors are getting older and staying put longer.
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Institutional investors increasingly see the nearly nine-year average tenure of S&P 500 directors as a sign of a problem. As well, the average age of independent directors is now just over 63, up from 61 a decade ago. “It’s become a hot issue partly because boards haven’t changed very much,” said Amy Borrus, interim executive director at the Council of Institutional Investors. ”While CEO tenure in the U.S. has been declining, director tenure has not.”
Few boards have term limits for directors. Just 3 percent of S&P 500 companies had explicit limits for nonexecutive directors in 2015, according to a Spencer Stuart report. That was down from 5 percent in 2010. The report found that the majority of boards have an average tenure of between six and 10 years, and 21 percent of boards have an average tenure that exceeds 11 years.
It's not that serving on a board for a long time is automatically bad, but it can raise questions about oversight. "It's a genuine concern for investors when they see a board with five directors and they've all been there 20 years," said Dan Marcec, director of content at Equilar, which put out a recent report on board tenure. "There are questions about whether these directors can really be independent and whether they are fulfilling their fiduciary duties." It's also, in part, a diversity issue, said Carol Bowie, an executive director with Institutional Shareholder Services. You can't increase diversity if board members aren't leaving.
California's big public pension fund, Calpers, has been taking aim at board tenure. The fund issued a set of principles last fall stating that directors' independence can be compromised after 10 years, and that after that, directors should be classified as nonindependent or companies should give an annual explanation of why the director continues to be labeled independent. Thirty-four percent of boards do set a mandatory retirement age of 75 or older for directors, according to Spencer Stuart. Mandatory may be a misnomer:. "One of the phenomenon we found with mandatory retirement ages is that boards have a tendency to waive them or raise them when necessary," said Bowie.
While directors' service should be measured by merit, Redstone's departure and the succession issues at Viacom and CBS underscore that retirement policies and term limits may help boards. "They provide a framework that isn't personal," Bowie said, "so it can be helpful with the difficulty of easing out a board member."