Arbitrary limits.

• Position: LETTER FROM THE CHAIRMAN

THERE Is increasing concern about long tenure and its possible impairment of director independence. Some corporate governance gurus argue that director independence is compromised after many years on a board. They assert that directors can get too close to management, and to each other, and thereby get cozy and perhaps complacent. Moreover, they may grow too familiar and too comfortable with the status quo and thus be resistant to change. The U.K.'s Combined Code on Corporate Governance presumes that long tenure weakens objectivity and compromises independence, and thus requires companies to specifically justify how a particular director can still be considered independent after nine years of service. In response, some U.K. companies have instituted a policy requiring their directors to retire when they reach that limit.

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On the other hand, one or even several long-tenured directors can bring depth of experiences and breadth of relationships that can provide perspective, context, and wisdom. Currently only 3% of the S&P 500 have term limits for directors, which is slightly down from five years ago. Earlier this year the issue of term limits came before the shareholders of General Electric Co. The shareholder proposal called for a 15-year limit on current directors and 10-years for subsequent ones. In the proxy, GE took the position that "the arbitrary scheme for establishing term limits ... is counterproductive to GE's ability to retain qualified, experienced and effective directors." GE's shareholders overwhelmingly voted down the proposal.

The vast majority of public-company directors are considered "independent" by the standards of the NYSE or Nasdaq. Perhaps true independence may wane with extended tenure, but my...