Board Refreshment Trends at S&P 1500 Firms

Jon Lukomnik is the Executive Director of the Investor Responsibility Research Center Institute (IRRC). This post is based on a co-publication from IRRC and Institutional Shareholder Services, Inc. Related research from the Program on Corporate Governance includes The “New Insiders”: Rethinking Independent Directors’ Tenure by Yaron Nili (discussed on the Forum here).

“Refreshment” is among the most hotly-debated topics across U.S. boardrooms and within the broader corporate governance community. While shareholders, directors, and other market constituents vary as to the reasons for their refreshment concerns, they typically include snail-paced board turnover, sky-rocketing tenures, stagnant skillsets and deficient diversity.

Investor respondents to ISS’ 2016-2017 Global Policy Survey (conducted between Aug. 2, 2016 and Aug. 30, 2016) were asked which tenure-related factors—with multiple answers allowed—would give rise to concern about a board’s nominating and refreshment processes. Among the 120 institutional investors (one-third of whom each own or manage assets in excess of $100 billion) who responded, 68 percent pointed to a high proportion of directors with long tenure as cause for concern, 53 percent identified an absence of newly-appointed independent directors in recent years as a potential problem, and 51 percent flagged lengthy average tenure as problematic. Just 11 percent of the investor respondents said that tenure is not a concern, although even several of those respondents indicated that an absence of newly-appointed directors is a concern. In their comments, several investors identified other factors of concern, such as directors’ ages, a high overlap between the tenure of the CEO and the tenure of the non-executive directors, and lengthy average tenure coupled with underperformance.

Suggested remedies vary as well. Some investors and board members urge wider use of “forced exit” mechanisms such as mandatory retirement ages or term limits. Other boardroom observers seek process improvements such as board/director evaluations, continuous boardroom succession planning and enhanced disclosure of these procedures.

A growing number of investors have begun to take refreshment matters into their own hands. Some shareholders routinely oppose the reelection of long-tenured directors to encourage turnover and fresh blood. Importing a practice from the U.K. and other global markets, other investors threaten to slap “affiliated” (non-independent) labels on long-tenured board members in hopes of spurring boardroom succession. While long tenure, by itself, is typically not enough to sway an election result, it can create a tipping point in contested elections. Notably, hedge funds increasingly seek to tap into investors’ angst over refreshment by targeting long-serving board members.

Diversity has become a lightning rod with respect to refreshment. Activists target low-diversity boards with shareholder resolutions and letter-writing campaigns. Disenchanted with the slow pace of progress, some players even urge market regulators to follow the lead of some of their global counterparts by using quotas and other best practice rules (including enhanced disclosure of nominating procedures) to speed up changes in boardroom composition.

Largely missing from this debate is hard data on: (1) the scope of the perceived problem, (2) the most effective methods for promoting board refreshment and (3) the benefits and possible side-effects of adopting them.

This study examines the aforementioned boardroom attributes for firms in the S&P 1500 Composite Index as of January 1, 2016, and includes director data for index constituents with annual general meeting (AGM) dates through to October 12, 2016.1 When relevant, the data is stratified into three market cap segments: S&P 500 (large-cap), S&P 400 (middle market) and S&P 600 (small-cap).

Board Tenure

Tenure Trends Reversing… And May Reverse Again: Investors’ concern—warranted or not—over rising director/board tenure is based in reality. Average boardroom tenure steadily rose from 8.4 years in 2008 to a peak of nine years in 2013 before slowly reversing course from 2014 to 2016 (YTD). As a result, average director tenure at S&P 1500 firms now stands at a level—8.7 years—last recorded in 2010. Moving in a similar pattern, median board tenure across all S&P 1500 directorships rose from six years to seven years in 2009, but has remained steady from 2010 to 2016. Absent intervention by boards, however, structural issues—especially rising mandatory retirement ages—could cause average and median tenures to climb again in a few years.

Gender Tenure Gap Opens: An influx of new female board members in recent years has created a sizable gender tenure gap—relative to both male directors and minority directors (regardless of gender). Male directors currently have average tenures (9.2 years, down from a high of 9.3 years during the 2013-2015 time period) that run nearly three years longer than the average service period (6.4 years) for women directors. Notably, the average tenure for women directors in 2016 is identical to the level recorded in 2008. The median tenure for male directors at study companies jumped by two years—from six years to eight years—over the study period, although it has remained constant since 2013. Meanwhile, the median tenure for female directors initially moved up by one year (from five years in 2008 to six years in 2010), but fell back to its starting point by 2015 and hit a study-period low of four years in 2016.

Director Age

Greying of Boards Has Slowed: The typical director serving on the board at an S&P 1500 firm is 62.5 years old, which is the age high watermark for the 2008-2016 (YTD) study period. While the average age jumped by two years (from 60.5 years in 2008) over the study period, it held steady from 2015 to 2016. Meanwhile, the median age of directors on boards at S&P 1500 firms is 63 years. Between 2008 and 2012, the median age jumped by two years (from 61 years in 2008). The median age has held steady since that time. This slowdown in the board aging process, which is consistent with leveling off of average and median board tenure in recent years, appears to reflect the recent surge in refreshment.

Gender Age Gap Widens: An average three year-plus age gender gap separates the typical male director (63.1 years old) on S&P 1500 boards from his female boardroom peers (59.8 years old). The median gender gap is four years—64 years for male directors versus 60 years for female board members.

Distribution of Ages

Older Directors Claim More Board Seats: Directors who are in their seventies and eighties were the only age groups to claim bigger slices of the S&P 1500 boardroom seat pie over the 2008-2016 (YTD) time period. The share of all S&P 1500 directorships held by 70-something board members rose from 11.7 percent in 2008 to 18.6 percent in 2016 (YTD). The board seat tally for directors aged 80 or older steadily inched upward, though admittedly from a small base—from 1.2 percent in 2008 to 1.8 percent in 2016. These two age classes combine to fill 20.4 percent of all S&P 1500 board seats in 2016, the highest level recorded over the entire study period. Meanwhile, the total board seats held by individuals who are under 50 years old steadily dropped from 10.8 percent in 2008 to 6.1 percent in 2016.

Bulk of Board Seats Occupied by Directors in Their 50s and 60s: Despite the shifts at both ends of the boardroom age brackets, individuals in their 50s and 60s continue to fill the lion’s share (73.6 percent) of board seats at S&P 1500 companies. While both groups have ceded some space around the typical boardroom table to older directors over the study period, they remain the two biggest age group constituents in boardrooms.

Generational Shift Occurs in Boardrooms: The 2008-2016 study period coincides with a demographic boardroom shift from directors who are members of the so-called “silent generation” (born from roughly 1925 to 1945) to “baby boomer” board members (born from 1946 to 1964). At the beginning of the survey period in 2008, the oldest boomer directors were 62 years old and their sixty- and seventy-something silent generation boardroom peers still held the lion’s share of board seats. While silent generation directors (aged 71 to 91 in 2016) have not gone quietly into the boardroom night thanks to rising retirement ages and U.S. investors tacit acceptance of double-digit tenures, they now hold fewer than 20 percent of total board seats at index firms. By 2016, the oldest boomers had hit 70 years of age and the youngest of them, at 52, will soon reach their professional primes in the corporate and investment realms. As most remaining silent generation directors leave boards over the next few years, boomers will establish virtual demographic hegemony over boardrooms at S&P 1500 firms. Notably, the oldest Generation X nominees (born between roughly 1965 and 1979) turned 51 years old in 2016 and their fellow baby busters will not hit their boardroom prime until after 2025. Absent revolutionary changes in nominating practices, millennials (born from roughly 1980 to 1995) will continue to have little more than token status in corporate boardrooms over the next two decades.

Renewal and Retention Rates

Bumper Crops of “New” Directors in Recent Years: Contrary to common wisdom, no shortage of “fresh blood” exists in the overall S&P 1500 directorship pool. The pace of adding “new” directors (defined as individuals with “0 years” of board service) to S&P 1500 boards accelerated in the latter half of the 2008-2016 (YTD) time period as the external focus—from investors and the media—on “refreshment” grew. The “renewal rate” nearly doubled over the 2008-2016 study period. “New” nominees claimed less than six percent of total directorships prior to 2012, but their prevalence steadily rose over the remainder of the study period. By 2016, almost one out of every ten directors (9.5 percent) serving on S&P 1500 boards is “new.”

Fewer Boards Stand Pat: In 2015, for the first time since 2008 (and perhaps ever), more than one-half of the companies in the S&P 1500 added one or more “new” directors to their boards. For the first half of the study period, two-thirds or more of the companies in the index added no new members in any given year. From 2012 to the present, however, the prevalence of such “zero change” boards has steadily dropped.

Power Shifting Towards Newer Board Members: The large, recent incoming classes of “new” directors have (temporarily) tipped the balance of power in S&P 1500 boardrooms towards recent arrivals. The combination of directors who are classified as “new” (0 years) or “recent” (defined as “one to three years” of service) nominees now account for a larger slice of the total directorship pie at S&P 1500 companies than the cohort of “rising” directors (defined as those board members serving for “between four and nine years”), who had constituted the most populous tenure segment over the bulk of the 2008-2016 study period. The prevalence of directors in “rising” tenure category peaked in 2011 at 38.9 percent. Since that time, however, the share of directorships falling into this demographic “sweet spot” (some academic literature suggests that nine years of service may represent “peak” performance in the boardroom) has fallen progressively—dropping below the 30 percent prevalence line for the first time in 2016. Notably, “rising” directors’ share of directorships (29.6 percent) fell below the combined seats (32.4 percent) occupied by “new” and “recent” nominees in 2016.

Double-digit Directors Now Claim Larger Share of Seats: Gains for “new” nominees have not come at the expense of lengthy-tenured directors. While boardrooms at S&P 1500 firms are being rejuvenated by annual infusions of “new” nominees, this refreshment rate is offset by the rising retention rate for directors with ten years or more of service. “Long-tenured” (defined as “ten to 14 years” of service) and “extended-tenure” (defined as “15 or more years” of service) directors were the only sitting director tenure categories to pick up larger shares of S&P 1500 seats over the study period. Thanks to rising retirement ages (and one would assume better health and longevity), directors in the “long-” and “extended-” tenure director camps now combine to claim 38 percent of the total directorships at index companies up from 33.2 percent in 2008.

Women, 50-somethings and Leaders Dominate “New” Director Demographics: Incoming director classes are changing the face of corporate boards. In 2016, women claimed nearly one-quarter (24.4 percent) of the “new” spaces around boardroom tables at S&P 1500 companies, up from a study low-point of 12.2 in 2009. Individuals between 50 and 59 years of age filled the lion’s share (45.3 percent in 2016) of new board seats. Ten director skillsets account for about 73 percent of all the “new” directors profiled by ISS’ data team in 2016, down marginally from three-quarters of all directors in 2015. The five most prevalent skillsets found for “new” nominees at board of firms in the S&P 1500 are: (1) leadership, (2) financial/investment expertise, (3) relevant industry experience, (4) CEO experience and (5) operational experience.


Steady, But Slow Gains on Board Gender Diversity: Diversity shortfalls, especially as they relate to gender, catalyzed the refreshment debate. While nearly all constituents in the U.S. concede the existence of a problem, the slow-to-develop consensus on solutions and self-interest—boosts in diversity, by definition, require expanding board size or boosting attrition rates by sitting directors—clearly favor status quo and inertia over urgency and action. Despite nonstop hand-wringing by many market constituents, the data demonstrates that the pace of change in boardroom diversity in response to current director recruitment practices remains slow in the U.S., especially at middle-market and small-cap companies. Pressure from investors, regulators, the media and other constituencies is driving an increase in gender diversity on boards, but progress remains gradual as the share of S&P 1500 board seats held by women crept up to 17.8 percent in 2016 from 11.9 percent in 2008. While all-male boards (13.8 percent of S&P 1500 boards in 2016, down from 33 percent in 2008) are becoming an endangered species, they still far outnumber boards (just 6.8 percent of the S&P 1500 boards) with four or more women directors.

Multiples Matter: In 2016, the most prevalent headcount of female directors on S&P 1500 boards ticked up—for the first time—from one to two as U.S. boards as a whole started to move beyond gender tokenism. The importance of this milestone should not be underestimated.

Many women directors are quick to note that having multiple female board members changes the boardroom dynamic. The presence of a “token” woman over an extended period of time, for example, may indicate a box-ticking mentality in the boardroom rather than a true desire to include diverse viewpoints. While this progress is encouraging, most boards remain well-below the 30 percent goal set by the 30 Percent Coalition. Notably, the gap between the number of boards with at least 25 percent women directors and those with at or above 30 percent or more is rising. Given the typical nine-seat board at S&P 1500 firms, some observers may ask: Is two women directors the new boardroom glass ceiling?

Boards Make Slow Progress on Adding Minority Representation: Progress in adding more minority directors to boardroom rosters is sluggish, at best. Minority directors now fill slightly more than ten percent of the total directorships at S&P 1500 firms, but these board seats are not evenly spread across the index. Large-cap firms are more likely than not to have one or more minority directors on their rosters. Meanwhile, the typical minority director headcount at small cap firms is zero.

Assessing Board Refreshment Tools

Tool Box

Boards Have Limited Tools to Drive Refreshment: Traditionally, the boardroom toolbox has offered limited options for directors when it comes to promoting refreshment. The three primary refreshment mechanisms in use today focus on an individual director’s age (retirement policies), length of service (term limits) or absolute or relative performance (board evaluations). Notably, some boards use more than one of these tools. Each of the popular refreshment mechanisms has benefits and potential costs. Retirement ages and term limits force periodic refreshment by creating vacancies, but both may cause some directors to leave boards at a time when they are still highly-effective contributors, and reliance on these mechanical devices may allow some less productive directors to remain on boards until they reach the term or age limit. Evaluations aim to assess directors’ contributions and competence in real time, but may be ineffective in fostering the replenishment of directors’ skill sets in the absence of true boardroom succession planning.

Mandatory Retirement Ages

Four of Every Ten Boards Feature Mandatory Retirement Ages: For the purpose of this study, ISS requires that a retirement policy do more than “suggest” an exit age for board members to be considered as a mandatory retirement policy. Even using this strict definition, retirement age policies were identified at more than 40 percent of S&P 1500 firms in 2016. The popularity of these retirement provisions declines in lock step with diminishing market capitalization. More than one-half of large-cap S&P 500 firms have retirement ages in place. In contrast, 39 percent of mid-cap companies and 30 percent of small-cap concerns maintain retirement age policies.

Retirement Ages Move Toward 75: The most common retirement age cited in policies currently in place at S&P 1500 companies is 72. Seventy-five appears to be in the process of becoming the new 72, however, as more boards push back their retirement ages. Seventy-two remains the top choice at large-cap and middle-market firms, but it is the runner-up at small-cap firms where 75 already emerged as the most prevalent cut-off age found in retirement policies. It also is now the second most popular threshold at large- and mid-cap firms.

Age Limits Produce Younger Directors: Companies in the S&P 1500 index with retirement age policies in place generally have slightly lower average director ages than those firms without such limits. The average director age at all companies with such limits in place is 62.4 compared with an average age of 62.7 on boards without age limits. While directors are generally younger at firms with age restrictions compared with boards without such limits, the average director age on boards subject to retirement policies jumped from 60.4 years to 62.4 years over the 2008-2015 timeframe. The median director age at S&P 1500 firms with retirement policies also generally increased over the study period from 61 years in 2008 to 63 years in 2016.

Term Limits

Tenure/Term Limits Remain Rare: Term limits for boardroom service are rare at U.S. companies. Only about five percent of S&P 1500 firms had term limits in place as of their most recent annual meeting. Notably, large-cap firms, which are often first adopters of many governance reforms, actually lag their mid-sized siblings in using such director tenure ceilings. The highest usage (six percent) of term limits is found at S&P 400 mid-cap firms. Tenure guillotines are slightly less popular (5.4 percent) at large-caps and almost nonexistent (3.7 percent) at small-cap S&P 600 firms. The most common term limits currently in place in the S&P 1500 universe of firms are, in order of prevalence, 15 years, 12 years, and ten years.

Term Limits are Effective in Managing Board Tenure: The average board tenure at a company with term limits in place is substantially lower than the typical stay for directors on boards without such measures. The tenure gap is more than a year and one-half—7.1 years for term-limited boards versus 8.8 years for S&P 1500 firms without tenure restrictions. While age is not the direct target of tenure restrictions, term limits lead to lower average board ages. The average director age on S&P 1500 company boards with term limits (61.3) is more than a full year less than that of directors at boards at firms without such policies in place (62.6). Moreover, firms with term limits in place tend to have a higher proportion of board seats filled by younger directors and a lower proportion of directorships occupied by boardroom elders.

Term Limits Promote Turnover: Despite their relatively low usage, term limits appear to be highly effective in spurring boardroom refreshment. If a board’s goal is turnover, tenure limits appear to be the right tool for the job. Firms with term limits in place show a higher proportion (more than 40 percent) of “new” and “recent” directors (with zero to three-year tenures) than those without term limits (slightly above 30 percent).


Board Evaluations Are Widespread: Usage of boardroom evaluations is close to universal (97 percent) at S&P 1500 firms. More than 99 percent of large-cap company boards disclose their use. Assessing the effectiveness of these evaluation programs is difficult, however, since very few boards disclose any details about the outcomes of these assessments.

Annual Board Evaluations Are Most Common Type of Review: Annual cadences for evaluations are the norm with more than 90 percent of evaluations occurring at least once per year. Most annual board evaluations do not include assessments of individual directors, but such deeper dives are growing in popularity, as 43.4 percent of S&P 1500 boards now do combined board process and individual reviews each year. U.S. boards have not followed a growing number of their European counterparts, however, by augmenting their annual reviews with periodic (triennial is typical) use of external third parties to evaluate boards or directors.

Widespread Use of Evaluations Makes It Hard to Assess Impact: While the small group of boards that do not disclose the use of evaluation processes tend to have older and longer serving directors, there is limited evidence that the use of an evaluation process, by itself, has a significant impact on board turnover or succession. S&P 1500 firms without any board evaluation policies—just four percent of firms in 2015 and three percent of firms in 2016 (YTD)—have higher average director tenures and director ages than those at boards with evaluation processes in place. For all S&P 1500 companies, the average board tenure gap between firms without and with board assessments was 2.4 years in 2015 and three years in 2016 YTD. Companies with no board assessment process in place generally have higher average director ages, over the study period, compared with firms that perform such assessments. Similar observations generally hold true with respect to median director age, except that median age largely remained unchanged at both firms with and without board evaluation policies between 2015 and 2016 YTD. The type of review—board-only versus board and director—also appears to make little difference in board tenures, director ages or turnover.

Governance Practices That Impact Board Refreshment

Other Refreshment Influencers

Committee Service, Independence, and Size Changes Impact Refreshment: ISS examined a wide variety of governance structures to determine their impact on refreshment. Many of these factors had little impact—positive or negative—on refreshment. An examination of vote results in director elections, for example, did not yield any significant relationship between significant negative votes and directors’ age or tenure. A trio of governance attributes—service on key board committees, maintaining high levels of boardroom independence and ad hoc changes in board size—all appear to impact refreshment.

Service on Key Board Committees

Service on Key Board Committees May Lead to Longer Tenures: Over the past decades, a significant portion of the overall boardroom workload has shifted to the three key committees—audit, compensation, and nominating/governance. Today, these board panels are generally required (by stock market listing standards or SEC rules) to be populated by “independent” directors. In light of the growing importance of the work of these committees and their role in shareholder engagement, there may be pressure on boards to retain the subject-matter expertise developed by directors who serve on these key panels and to maintain continuity.

Nominating Panels Attract Older Directors: Nominating committees tend to attract the longest-tenured and oldest members (and chairs) compared to their audit and compensation counterparts. Nominating committee members and their chairs also tend to be older and longer-serving than the general boardroom population. Service by older and long tenured directors on nominating committees may have an impact on boardroom succession planning and refreshment since such directors may have a self-interested bias towards longer service and higher exit ages. Notably, nominating committees tend to drive both director evaluations and boardroom recruitment efforts. Nominating panels are also typically responsible for recommending and administering other governance mechanisms such as waivers of mandatory retirement ages and term limits. In contrast, audit panels and their chairs have shorter board tenures than their counterparts on nominating and compensation committees. The wearing workload carried by audit panel members and the need to refresh their “financial expertise” may help to explain this tenure gap. Average director tenures and ages for members of compensation committees (and their chairs) fall between those of their nominating and audit counterparts.

Boards Turn to Older Directors to Serve as Committee Chairs: On average, chairs of each of the key committees tend to be older and longer tenured than their fellow committee members and the overall boardroom population. While it is not surprising that boards turn to more experienced members when filling leadership positions, it may reinforce the subtle bias in favor of extended board service.

Board Independence

Board Independence Levels Continue to Rise: Thanks to stock exchange listing requirements and shareholder pressure, director independence levels at companies in the S&P 1500 continue to rise to new heights. The proportion of S&P 1500 board seats occupied by independent (as defined by ISS) directors has increased by almost five percentage points to 81.5 percent at the study companies over the 2008-2016 study period. Both average and median board independence at S&P 1500 companies show a steady upward rise between 2008 and 2016, increasing by five and six percentage points to 81.1 percent and 83.3 percent, respectively, in 2016.

Boards May Limit Refreshment to Maintain High Levels of Independence: In recent years, a growing number of global markets have adopted tenure-triggered disclosure requirements (or, in rare instances, restrictions) regarding independent directors. These provisions, which are typically based on the “comply or explain” model, set recommended maximum tenure for corporate directors that range from nine to 12 years. The U.S. market is not subject to such a requirement and only a small minority of investors in the market change directors’ independence status based on tenure alone. U.S. boards benefit from investors’ compartmentalization as longer director tenures generally do not appear to have a negative impact on independence levels. Board refreshment generally appears to drive higher boards towards higher independence levels. The addition of one or two new directors on the typical S&P 1500 board appears to have a positive impact on board independence levels. Notably independence levels appear rise even in the absence of board refreshment. Non-refreshed boards at S&P 1500 firms—those with zero “new” directors in a given year—actually experienced gains in the “highest” (i.e., 90 percent-plus independence) category over the study period.

Board Size Changes

Boards Change Size Frequently: While average board size (hovering at nine seats at S&P 1500 firms ranging from 11 at large caps to eight at small caps) remained static over the entire study period, board size limits do not appear to handcuff boards with respect to board refreshment. Over 90 percent of firms in the S&P 1500 composite index changed the size of their boards between 2008 and 2016 (YTD). Slightly more than one-half (51.3 percent) of the firms in the S&P 1500 that altered their board size over the study period increased the size of their boards.

Boosting Board Size Benefits Women and Ethnic/Racial Minority Candidates: Ad hoc changes in board size appear to provide boards with more flexibility to add women and (to a lesser degree) ethnic or racially diverse candidates to their boards. Notably, such board expansions may allow boards to bring more diverse candidates onto their rosters without the necessity of replacing specific skill sets of sitting directors who will soon exit the boardroom. Board size changes do not typically translate to board committee size changes—the average board committee size (of four members) did not change over the study period.

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