Refreshment is new boardroom buzzword

Until recently, the discussion around corporate governance centered largely on board diversity. This appeared to refer mostly to gender balance, although analysts were always careful to say it also referred to ethnic mix and appropriate skillsets.

The argument has moved on with a new buzzword: board refreshment. This does not refer to the quality of coffee and biscuits, but the processes that are in place (or not) to ensure so-called independent directors do not become entrenched and that new faces are brought on board in a timely and effective manner.

For those wondering how to go about assessing board refreshment standards, Howard Sherman, head of corporate governance business development at MSCI, the stock market indices company, and a 25-year veteran of corporate governance analysis, has a succinct to-do list. “You look at how directors are nominated, how directors are evaluated and how directors are rotated off the board,” he says.

GMI Ratings, founded by Sherman and now part of MSCI, has a measure for “entrenchment” of nonexecutive directors that is a function of the director’s age and tenure on the board.

“You want experienced directors on the board by all means, but if they are past retirement age and have been on the board for many, many years, that is not good.”

The average non-executive director of a FTSE 100 company has been on the board almost six years, according to figures from MSCI. Although this appears much better than the nine years the corporate governance code suggests as the limit for maintaining genuine independence, this is the mean, indicating that many directors have been in place much longer.

Many companies look at the nine-year tenure as a de facto term limit, “pensioning off” nonexecs at that point, in the words of one FTSE 100 nonexecutive director due to stand down this year.

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