Board turnover: low ... and getting lower: the math is daunting, with directors holding fast to their positions and companies doing limited cycling of their boards. Result: aging boards, constrained opportunities for women, and a frustrating recruiting environment.

• Author: Dalton, Dan R.
• Position: COVER STORY

BOARD TURNOVER has declined substantially in recent years. The number of new appointees decreased by 12% over the past five years and by 27% over the past 10 years. In 2012, the number of new independent directors had fallen to 291, the lowest number of incoming directors since 2001. Consider another perspective. In 2012, the average S&P 500 company hired approximately six-tenths (.6) of an independent director. This is an illuminating statistic. At that rate (.6 independent director a year), it would take 15 years to fully cycle the average board. Obviously, such a cycle rate would facilitate the aging of the board.

Are boards of directors aging?

It would seem that, if boards are in fact aging, they must on average be retaining their body of board members. Given the apparent reticence of directors to vacate their boards, the average age of board members would be expected to increase. The data support such a trend.

The average age of independent directors has, in fact, increased. In 2002, average age was 60.1; in 2007, average age was 61; by 2012, average was 62.6. More consequentially, 39% of boards were characterized by an average age of 59 or younger a decade ago, compared to only 16% of the boards in 2012.

In addition, many firms maintain guidelines that clearly facilitate the aging of boards. While it is true that approximately 71% of S&P 500 boards specify a mandatory retirement age, many such boards retain the discretion to make exceptions to those guidelines. Interestingly, now 22% of boards set a retirement age at 75 or older. By contrast, only 2% of boards set mandatory retirement at 75 years of age or older 10 years ago.

It is also notable that any tendency facilitating the aging of directors is not a result of recruiting older directors. The average age of newly recruited independent directors has remained essentially stable. For newly appointed independent directors in 2012, the average age is 56.7, approximately a year older, on average, than a decade ago (55.4).

In summary, we know that the number of board members who are 64 and older has substantially increased from 14% a decade ago to over 38% (a 270% increase) in 2012. These apparent tendencies are exacerbated since the number of new independent directors has fallen to 291, the lowest number seen since 2001. This trend, and its potential consequences, has been subject to pronounced criticism.

An example involves an apparent tendency for long-tenured directors to insulate themselves from constituents. A summary provided by PWC Insights from the Boardroom 2012 underscores that point: "... the longer a director has been on a board, the less concerned he or she is with negative shareholder votes when considering the renomination of a...