New attention is brewing on director tenure.

• Position: BOARD COMPOSITION

Finding the right mix of people to serve on a company's board of directors is undoubtedly a difficult task. With increasing globalization, changing marketplace dynamics and shareholder expectations, it is essential that boards have the right mix of experience and expertise to oversee the opportunities and challenges that their companies face. Finding directors with the right skills, however, is not the only thing boards should be considering. To achieve optimal board composition, consideration should also be given to the diversity of the board, director tenure, and board size, all of which have been making headlines as of late.

While many U.S. companies have some form of mandatory retirement age policy for directors, according to the latest Spencer Stuart Board Index only 3% of S&P 500 companies have term limits for directors, none of which is less than 10 years. Term limit policies may facilitate board refreshment, but they do so at the risk of losing directors with highly valued firm knowledge, expertise or perspectives. Long-tenured directors are often among the savviest and most skilled directors, highly valued for their deep understanding of the company and the industry and their ability to provide historical perspective on strategic decisions and company specific issues.

In the past few years, however, shareholder groups have argued that long-tenured directors are more likely to align with management, thereby compromising the directors' independence, and make it difficult for companies to refresh their boards with new skill sets and address diversity among their board members. A new shareholder proposal is brewing for the 2015 proxy season that would require at least 67% of a company's board to have less than 15 years of tenure. This resolution has been submitted at Costco Wholesale and other submissions are expected at companies where more than two-thirds of the directors have served for 10 years or more, and the board shows other signs of stagnation or entrenchment.

Also, ISS updated its Governance Quickscore scoring system by adding several new governance factors, one of which is director tenure. ISS will now consider, when determining a company's Governance Quickscore, the percentage of non-management directors who have served on the board for more than nine years. ISS has indicated that a tenure of more than nine years can potentially compromise a director's independence. Some investors also view long tenure as problematic. The...