Low director turnover draws investor scrutiny.

• Position: BOARD COMPOSITION - Excerpt

Ed. Note: In its "Top 10 Topics for Directors in 2014" Corporate Alert, law firm Akin Gump Strauss Hauer & Feld LLP (www.akingump.com) identified what it projected to be the "list of hot topics for the boardroom" this year (see box). Following is an excerpt from the report's observations made on the seventh of the hot topics--ensuring appropriate board composition in light of increasing focus on director tenure and diversity.

The Wall Street Journal highlighted director tenure in an article titled "The 40-Year Club: America's Longest Serving Directors" (July 16, 2013). While the article noted that fewer than 30 public company directors have at least 40 years' tenure, the article also made clear that many public company boards are having difficulty refreshing their ranks. According to the latest Spencer Stuart Board Index, the boards of S&P 500 companies last year elected just 291 new directors, the smallest number in more than a decade.

Atthe same time, the average age of directors continues to climb. The average S&P 500 director is now 62.9 years old, compared to 60.3 ten years ago. In addition, mandatory retirement ages keep rising. Of the 72% of S&P 500 boardsthat have a mandatory retirement policy, 88% now set their retirement age at 72 or older (compared to just 46% a decade ago) and almost a quarter set the retirement age at 75 or older (compared to just 3% ten years ago). At 20% of S&P 500 companies, the average board tenure is 11 years or more, according to the Spencer Stuart survey data.

Low director turnover is drawing the attention of activist investors and governance advocates who question whether aging boards are keeping pace with the rapid technological advances and other new challenges companies face. Critics also charge that the limited availability of new board seats hampers opportunities for achieving greater racial and gender diversity on boards and compromises board oversight since long-serving directors are more likely to align with management.

The Council of Institutional Investors, whose members consist of pension funds with more than $3 trillion of assets under management, recently revised its best-practices corporate governance policies to include tenure as a factor boards should consider when determining whether a director is independent. In addition, while ISS decided not to revise its 2014 proxy voting guidelines to add tenure to the factors it considers when assessing director independence, 74% of institutional...