Below is an excerpt from ISS-Corporate’s recently released paper “Experience or Independence? Director Tenure and Potential Tradeoffs: A Global Comparison”. The full paper is available for download from the ISS-Corporate online library.
Introduction
Director tenure has long been a subject of debate, with some fearing that a long tenure may compromise a director’s independence while others contending that with tenure comes experience and knowledge and alone should not be a measure of independence. Boards and investors also often view director tenure from a board refreshment perspective, where a preponderance of long-tenured directors may signal that the board is becoming too stale.
ISS-Corporate analyzed global director tenure data and potential implications for corporate governance, highlighting the diverse approaches across different markets.
KEY TAKEAWAYS
- Long director tenure offers benefits such as institutional knowledge and stability but also raises concerns about entrenchment and resistance to change.
- Independent director tenure varies across regions, with some markets affected by regulatory limits (e.g., 6 years in South Korea and 9 in the U.K.). Other markets such as the U.S. favor longer terms, while European companies seek a more balanced approach. Most developing markets are affected by limited talent pools and evolving governance practices, resulting in shorter tenures.
- Factors beyond geography, such as complexity of the business model and ownership structures, play a crucial role regarding tenure length and should be considered when benchmarking or formulating governance policies.
- Companies demonstrating a proactive approach to board refreshment and succession planning, ensuring a healthy balance of experienced and newer directors with diverse perspectives, can benefit from global institutional investor support.
By:
Ingo Tietboehl, Associate Vice President, Senior ESG Advisor, APAC, ISS-Corporate
Jun Frank, Managing Director, Global Head of Compensation & Governance Advisory, ISS-Corporate
