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How soon should board members be succeeded? [Nation (Kenya)](Nation (Kenya) Via Acquire Media NewsEdge) Some people criticize boards for leaving the evolution of their composition to chance, allowing director retirements to dictate the pace of change in the organisation's topmost leadership. They would rather the organisations had deliberate strategies for directing changes and succession in the boardroom. The support for annual director elections in many organisations and for increased transparency around director nominations is indicative of such a wish. Some organisation shareholders would like to see more turnover in the boardroom. Might they have a valid argument? Might there be evidence that companies and shareholders actually benefit when boards add fresh blood? If so, how much change makes this a reality? To explore these questions, we studied board turnover and shareholder returns in 500 companies from 2003 to 2013. We tracked when independent directors joined and left each board and counted the turnover across rolling three-year periods, grouping the companies into four categories according to the results. We then examined each company's performance – using total shareholder returns relative to the industry average – in the subsequent three-year period to see how shareholders fared after new directors took seats in the boardroom. Our analysis revealed some intriguing patterns. Companies that replaced three or four directors over a three-year period outperformed their peers, suggesting an optimal amount of turnover.Most boards missed this optimal zone. In the study, board turnover fell outside it about two-thirds of the time. The worst performers tended to be companies with either no director changes at all in three years or five or more changes. The decisions governing board composition are nuanced and complex. This study is therefore not to suggest that boards manage turnover to achieve a specific target, or that by simply replacing directors, companies will somehow produce an increase in shareholder returns. Rather, the analysis indicates that a modest amount of turnover tends to be a characteristic of the leadership and governance behaviours that drive shareholder value over time. The apparent reason is that new directors bring fresh perspectives and new skills. Also, they are more likely to challenge orthodoxy than established members, and raise previously unasked questions. Understanding the relationship between board turnover and company performance can help to inform certain decisions. For example, a company's chairman, CEO and directors should be aware of the board's turnover rate and how it compares with the optimum. They should discuss turnover periodically, and, when the rate falls outside the optimal zone, reflect on why and be prepared to explain the reasons to investors. Boards should also keep the zone in mind when considering actions, such as extending the mandatory retirement age and changing the its size. Over the years, boards have grown more engaged, more independent and more effective. Attending to turnover and how it may affect performance is another step in that direction. George Anderson is both a board member and a CEO of different companies in the US. David Chun is the founder and CEO of Equilar, a US based company that keeps data on executive compensation - NYT (c) 2014 Nation Media Group. All Rights Reserved. Provided by Syndigate.info, an Albawaba.com company |