Like a lot of people here in Silicon Valley, I am not a big fan of ISS—the company that oversees the scoring of publicly-traded companies for major institutional investors. However, ISS issued guidelines around board tenure last year that strike me as absolutely correct. They insist that a 10-year limit should be placed on sitting public company board directors in order to meet their standards of good governance. ISS argues that directors who serve longer than 10 years become out-of-touch with the markets they once understood, and after ten years they should be considered ‘captive directors’ easily swayed by executive management.
There are three important reasons to refresh your public company board of Directors. They are:
New Ideas from Current Operating Executives. Many long serving directors have long since left the operating roles which once made them a valuable source of up-to-date knowledge of markets and technology. New board members can be used to test assumptions made by senior management based on their current knowledge of the external factors that affect a company.
Diversity of Thought. It’s about more than gender or even race. A diverse set of new directors can look with fresh eyes on the strategic plans of your company, reflecting more closely your markets and your employees.
A New Charter. Companies evolve over time. Plans and markets change dramatically. New board directors can reflect where your company is going, and not where it’s been in the past.
It is a challenge to approach a long serving director and tell him/her it is time to step aside, but the ISS guidelines will make that conversation a bit easier to start.