DIRECTOR AGE AND TENURE: HOW OLD IS TOO OLD?

 

Boardroom

The issue of director age is pitting some shareholders against corporate boards.

Shareholders recently filed several lawsuits in Delaware alleging that the board of Viacom Inc. breached its fiduciary duty by not accounting for the “chaos that would ensue” at the company when 93-year-old Sumner Redstone becomes incapacitated or passes away.

According to the complaints, Redstone—who owns about 80 percent of Viacom voting stock through a holding company—hasn’t attended a board meeting in person since 2014, yet routinely is renominated to the Viacom board.

Some may argue that the Viacom case is an extreme one, sparked in part by Redstone’s fight for control of the company. In another recent example, the Securities and Exchange Commission recently declined to allow Medizone International Inc. to exclude from its proxy materials a shareholder proposal that would cap the age of the company’s officers and directors at 75.

In the Medizone case, shareholder proponent Peter Gaide said that the company’s chief executive officer and board chairman is 74, while one board member is 77. If Medizone doesn’t go to court over the proposal or come to an agreement with the proponent, the resolution may reach other Medizone shareholders for a vote.

These shareholders are not alone in suggesting that U.S. boards are getting too gray. The average age of an S&P director is 62. But that’s well below the age limit that many large U.S. companies have set for their own boards. Of those in the S&P 500 that do have a mandatory retirement age in place, 88 percent set that age at 72 or older and 33 percent set it at 75 or older, according to Bloomberg ESG Data.

Some shareholders are framing the issue in terms of board tenure and refreshment. The average tenure of an S&P 500 director is nine years. The California Public Employees' Retirement System in March adopted a new governance policy setting 12 years as the limit for how long an independent director should serve. After that time, the company should “carry out rigorous evaluations to either classify the director as non-independent or provide a detailed explanation as to why the director continues to be independent,” CalPERS’s policy states.

It is important to note that not all shareholders agree on this issue. The New York City pension funds, for example, are against both term limits and age caps for directors, finding them overly rigid.

In the meantime, the issue of director age likely will crop up during the next proxy season. Institutional Shareholder Services Inc., in its annual survey seeking feedback for its 2017 benchmark policy guidelines, states, in a question regarding board refreshment: “Lengthy director tenure has been identified by commentators as a potential obstacle to adding new skill sets and diversity to boards.” The survey, which closes at 5 pm ET on Aug. 30, asked respondents to indicate which board tenure factors may raise concerns.