| NEW YORK/BOSTON
NEW YORK/BOSTON Nov 14 American boardrooms are
looking grayer than ever. More retired executives are being
offered directorships, mandatory retirement ages are rising, and
directors are staying on longer.
It is a trend that has some investors, particularly state
pension funds, increasingly concerned. They say directors who
stay on a board a long time can get too cozy with management and
lose their independence. It also means that the clubby
domination of boardrooms by older, mainly white, men can
continue, with fewer opportunities for women and minorities to
Shareholders should "make the case for director refreshment,
and vote against the reappointment of directors at stagnant
boards," said Anne Simpson, corporate governance director of the
California Public Employees Retirement System - the largest U.S.
public pension fund with $275 billion in assets.
Many U.S. boards, Simpson said, now resemble a description
given by the British governance pioneer Sir Derek Higgs who said
the boardroom was the domain of the "male, pale and stale."
The Council of Institutional Investors (CII), whose members
include many state pension funds, endowments and some other
large asset managers, in September adopted a new policy that
could make it harder for longer-serving directors to be
considered "independent." That is an important definition as
boards need independent members to lead committees that decide
on executive compensation, monitor auditing, and set board
policy in other critical areas. The policy could prompt more
votes against longer-serving directors who are up for
re-election in the 2014 proxy season.
Boards are doing too little to bring in fresh voices, says
Michael Garland, head of corporate governance for New York
City's public pension funds. "It's a board responsibility to
refresh itself," Garland said.
CII though is not setting strict guidelines on director
tenure or mandatory retirement ages. Past attempts by some
activist shareholders to adopt formal term limits for directors
have failed to get much support from shareholders.
This is not surprising given that some of the world's most
legendary business leaders are still running massive companies
into their 80s - in many cases they are not only active on their
boards but often chair them. Among them are investor Warren
Buffett, 83, Hong Kong's most famous businessman Li Ka-shing,
85, and media tycoon Rupert Murdoch, 82.
Instead, some funds are going to use the CII framework to
vote against long-serving directors provided they are not
perceived to be adding value, said Simpson. Garland and Simpson
declined to cite specific boards they plan to target.
Institutional investors and pension funds are holding
behind-the-scenes discussions with companies about the issue of
board tenure, said Stephen Brown, senior director of corporate
governance at fund group TIAA-CREF.
Diversity and director tenure are "a focus of the pension
funds this year. There happens to be support coalescing around
the issue," said Chris Young, a managing director and head of
contested situations at Credit Suisse.
They may well face an uphill battle. At a National
Association of Corporate Directors' conference in Washington,
D.C. last month, an audience of predominately older men almost
all raised their hands when asked if they had been nominated as
directors because they knew someone already on the board. They
were then asked who was appointed to their boards due to a
recruiter. "Only 5 people out of 300 put their hands up,"
recounted chief executive and chairman of Frontier
Communications Corp, Maggie Wilderotter, also a director
at Xerox and Procter & Gamble.
Executive and director search firm Spencer Stuart said in
its recent annual study of boards, that the average age of
directors on the boards of S&P 500 companies has gone up to
nearly 63 in 2013 from 60 in 2003 because of rising retirement
ages and the increased recruitment of retired executives for
board openings. For the first time, nearly half of the 339 newly
elected directors this year had retired from their main
It said that 88 percent of the boards that have a mandatory
retirement age for directors have set it at 72 or older, against
46 percent 10 years ago. Twelve boards have an average age of 70
or more - including media company CBS Corp (average age
72) and cable company Cablevision Systems Corp (average
Also, only 16 S&P 500 boards, or 3 percent of the total,
specify a term limit for directors in their guidelines, while 20
percent of boards have an average director tenure of 11 or more
years. "Investor pressure for board refreshment is growing, most
notably in the form of calls to reconsider director independence
as it relates to tenure," said the report from Spencer Stuart,
which recruits directors.
The lack of term limits means that companies are making slow
progress in getting more women and minorities on their boards -
the number of women has gone up to 18 percent of all directors
in 2013 from 16 percent in 2008, with 7 percent of boards still
without a woman director.
"You still see boards that are all male and if seats don't
turn over faster, that is going to take longer," said Lee
Hanson, a vice chairman for executive recruitment firm Heidrick
Currently, big fund firms typically do not suggest director
term limits in their proxy voting guidelines. Executives at
several asset managers including T. Rowe Price and
Vanguard Group said it is too soon to say if their stances on
director tenure might change.
One reason for the aging of boards is that rising
obligations for directors put a premium on experience.
Restrictions on current top executives outside board commitments
also mean that companies are more likely to turn to retired
Still, the push for change is more selective and subtle than
in the past. A set of proxy resolutions calling for term limits
at big companies like Pfizer Inc and United Technologies
Corp failed to get more than 10 percent support in 2006
and 2007. A similar measure at General Electric Co this
year also made little headway.
Aware of those flops, shareholder activists have avoided
calling for term limits and found other ways to make director
tenure an issue in proxy contests.
At JPMorgan Chase & Co, for instance, the labor
pension adviser CtW Investment Group campaigned against several
long-serving directors over oversight failures such as the
bank's massive "London Whale" trading losses, citing in part
their long lengths of service. Two directors eventually stepped
down after getting low vote totals. A third who won only narrow
support, James Crown, has been a director of JPMorgan since 2004
and before that was a director of Bank One Corp since 1991.
JPMorgan bought Bank One in 2004.
The U.S. approach, though, has been much more timid than the
corporate governance practices in some European countries where
policies suggest directors be tied to management after a certain
number of years - nine years at U.K companies, for instance. CII
decided that such policies could force out too many qualified
"We're not saying that tenure is a limiting factor for
effectiveness, we're saying this is a consideration that needs
to be made," said Glenn Davis, the council's director of
Some worry the CII policy could bring in too many new
directors. Experience has its place, said Greg Lau, former head
of corporate governance for General Motors Co and now a
consultant with executive search firm RSR Partners. Many new
directors "come in not knowing the company nor the industry and
it takes them a longer tenure to get to know everything," he
(Reporting By Ross Kerber and Nadia Damouni; Editing by Martin
Howell and Tim Dobbyn)