But there may finally be good news on the turnover front. An Ernst and Young report notes that the slow pace of board turnover may be “poised to accelerate,” and then goes on to point out that 20% of board seats at S&P 1500 companies “are held by directors nearing or exceeding the common retirement age of 72.” Even more promising, the 2014 Stuart Spender Index reports that women account for 30% of new directors—the “highest level we’ve seen.” That same index also reports that the number of independent directors added to S&P 500 boards increased in 2013 and 2014. These statistics suggest that boards are poised to turnover and that they are poised to use the turnover to enhance diversity.
Unfortunately, other trends suggest that optimism in this area may not be warranted. Indeed, the 2104 Stuart Spencer Index reveals that despite the recent increases in board vacancies at S&P 500 companies, “the number of directors added to S&P 500 boards remains considerably less than a decade ago.” The Index also reveals that despite growing pressure for term limits and mandatory retirements, (1) only 3% of S&P 500 boards specify a term limit, (2) the average age of directors has increased, and (3) many boards have increased their mandatory retirement age. Indeed, in contrast to the more optimistic outlook of the Ernst and Young report, the Index indicates that 30% of S&P 500 boards have set their retirement age at 75 or older—a stark contrast to 5% with such a retirement age a decade ago. This suggests that the growing pressure for term limits and mandatory retirements has not proved successful. It also suggests that turnover will continue to be glacial and hence continue to act as a roadblock for greater board diversity.
Some have suggested that the answer may be a simple one: pressure companies to increase their board size. And it sounds like a good idea—evidence reveals that almost half of companies increased board diversity by increasing board size. Except for this: a PWC survey reveals that the second biggest impediment to board diversity is that directors do not want to change their board composition to create a position for a diverse candidate. So if we are hoping that the turnover game is going to dramatically change, the answer may not be so simple and the future not so bright.
The “What’s The Return On Equality?” Mini-Symposium: