In recent years, "board refreshment" has gained considerable attention in corporate governance dialogue--not surprisingly, given the increased frequency of board composition and tenure changes sought and wrought by institutional and activist shareholders.
In 2015, corporate governance activists submitted a record number of proxy access proposals to directly nominate director candidates. Simultaneously, hedge fund activists successfully gained board representation at a growing number of companies.
In response, boards are increasingly more likely to adopt long-term refreshment-related policies. For instance, in the last two years, McDonald's added three new directors well outside of the company's traditional Chicago-area geographical base for board members. General Electric recently instituted a 15-year term limit for directors as a board refreshment tool.
Just as boards need to regularly ask if they have the right mix of directors to meet current and long-term strategies, so too should individual directors determine and decide if their contributions add continuing value. As the bar for director excellence and performance rises, far better for directors to ascertain for themselves whether they should remain with a board than to be nudged or voted off by others.
We suggest directors adopt a two-part approach to their self-assessment. First, consider what your board needs from its members, individually and in aggregate--an "outside-in" perspective. Then, candidly evaluate the degree of your engagement and satisfaction as a director--an "inside-out" view. We explain these two steps further below.
Step 1: What does your board need?
As evidenced by increased shareholder interest in proxy access, shareholders aren't necessarily waiting on boards' own director assessments and nominations to take action. You don't need to wait, either. Don your own shareholder activist hat and ask yourself: "If I were to objectively look at our board from the outside in, would I be impressed? And if not, what does our board need to get to a higher level, including from me?"
No matter your formal role on the board, it's fair for you to ask what it requires, now and in the future, relative to your own skills, talents and contributions. Ever-changing market forces, technologies, issues and risks related to strategic goals mean directors must regularly and vigilantly assess themselves relative to these factors. Questions to ask include:
Does our board (and do I) have...