The Activist Investor Blog
The Activist Investor Blog
Mandatory BoD Retirement or Say-on-Directors?
Mandatory BoD retirement comes up around this time each year, as shareholders consider BoD votes. This year, it has a higher profile, as huge institutions like State Street and BlackRock evidently started to vote against long-tenured directors.
We know of three different versions of BoD retirement policies:
❖mandatory retirement age
❖vote against long-tenured directors
❖mandatory term limits.
Most US companies have some sort of stated retirement age for directors, usually from age 70-75. Few enforce it.
In recent years, and more in 2015, institutional investors claim to vote against long-tenured directors, or at least consider tenure in voting decisions. Policies and practices vary, of course, with many investors having no specific stated policy or number of years. Practices suggest that directors serving more than ten years attract more scrutiny.
We’ve started to see the idea of mandatory term limits at a few companies. Only 16 companies in the S&P 500 impose some sort of limit, ranging from 10-20 years. Each year shareholders propose a formal limit at a small number of companies. Each year these resolutions win few shareholder votes.
What to make of these ideas? We confront a dilemma.
On the one hand, we dislike that a capable, diligent director that serves investors well would need to leave a BoD just because of age or length of service. Sure, many directors serve way too long, and deserve to retire. But, we’d like to make that decision for ourself.
Which leads to the other side of the dilemma. Most of the time, we can’t make that decision for ourself. The well-established problems with BoD elections mean that short of the expensive hassle of a proxy contest, we can’t replace directors that deserve to go, regardless of age or tenure.
We noted this problem with say-on-pay or shareholder empowerment, too. We don’t really care for either, but we investors take each because it’s all we can get.
Mandatory retirement and term limits work like that, too. Mechanical formulae for turning out directors make little sense to us, but neither do current BoD election structures and practices. So, we’ll vote for term limits where possible, until a better option comes along.
Tuesday, March 24, 2015