Slow pace of board renewal frustrates directors

A recent survey reveals that Australian directors are frustrated by the pace of board renewal in the face of changing demographics and business conditions.

The survey, conducted by Heidrick & Struggles and Women Corporate Directors and entitled The board’s hardest task: How to tell under-performing directors “it’s time to go”,  shows that Australia’s male-dominated boards have recognised a need for renewal which could, in turn, open up opportunities for increasing diversity in a range of areas.

However, it notes that some directors may be reluctant to leave for many reasons, including strong relationships with other board members, financial considerations and prestige.

While many of the 145 Australian directors surveyed believed that the competencies of some of their colleagues were no longer relevant to the business or its long-term strategy, 81.3 per cent described their board’s approach to exiting unwanted members as “less than effective”.

The directors also reported that changes in board leadership – board and committee chairmen – occurred infrequently, with 54 per cent of board chairmen rotating “rarely”. And, while 70 per cent of committee chairmen rotated “every few years”, around a third rarely do so.

Most directors (66.2 per cent) liked the idea of imposing term limits for directors. And while a majority (69.1 per cent) were opposed to a mandatory retirement age, almost 65 per cent of those who were in favour felt that the ideal age was somewhere in the range of 70 to 74.

In interviews following the survey, the researchers found the favoured approach to board renewal was a third party review, followed by independent counsel for individual board members.

“An ‘outside’ view allows the chairman to maintain relationships and friendships. The feedback is also an effective development tool, helping boards to become aware of blind spots and improve their overall performance,” the report notes.

More than half of Australian directors surveyed said they were making good progress in terms of increasing gender and ethnic diversity on their boards. The remainder said it could take up to two years to achieve a minimum of 25 per cent diversity.

The report notes that one of the most promising ways to ensure a full pipeline of diverse, board ready candidates lies in companies grooming their outstanding executives for external board service and helping them secure it.

Nearly 70 per cent of Australian companies surveyed say they allow senior executives to serve on outside boards, with most (62.1 per cent) limiting them to one board, 19.5 per cent to two boards and 27.4 per cent imposing no limit on the number of boards.

“Helping top executives find a seat on an outside board can also increase the likelihood of retaining them in their current roles,” the report notes. However, it also stresses the importance of finding fresh talent.

“In this regard, we suggest the nominating committee, or those responsible for director search, identify slates of diverse candidates. A critical role of the board is to determine multiple criteria required of current and new board members, considering not only diversity of gender and ethnicity, but also of geography, skillset, industry background and other experiences. This process should allow them to look beyond CEOs and ‘well-rounded’ directors to candidates with skillsets and mindsets which speak directly to the strategic needs of the business.”

“Such skills might include digital innovation, strategic talent management, supply chain management, knowledge of emerging markets, experience in global branding and consumer behaviour. In addition, boards can consider how younger candidates can bring fresh thinking to the boardroom.”