Governance, Risk Management, and Compliance: It Can't Happen to Us—Avoiding Corporate Disaster While Driving Success

Looking Objectively

Boards have long been considering their own composition, and the disclosure rules have provided somewhat further impetus for doing so, looking particularly at whether their current composition is what's needed for today's challenges. In considering who should occupy the seats at the table going forward, nominating and governance committees also are focusing on whether any directors may not be pulling their weight, and if so, how best to make necessary changes.

Many boards—74 percent of the S&P 500, according to a Spencer Stuart study—have term or age limits, forcing turnover over time. This approach is understandable, as it refreshes board composition and provides a stream of new thinking. But experience shows that this approach might not be best for a couple of reasons. First, we've seen some of the best directors cast aside simply because they've been doing the job for a long time or have reached an arbitrary age. And second, there's a tendency for board leadership not to remove directors who aren't cutting it, preferring to suffer with the inadequacy until term or age limits take hold.

Annual board assessments are more effective, with straightforward process that's readily implemented. Importantly, assessments are most beneficial when aimed at turning weaker directors into strong ones, enabling them to add more value at the board table. There may, however, be circumstances where a director needs to be thanked for past performance and moved off the board. ...