While most boards are aware of the need to diversify their ranks, and its related benefits, changing a board’s makeup isn’t so simple. Vacancies do not occur frequently, meaning board leaders must either expand the board or wait for someone to retire or step down before adding someone new.
The role and responsibilities of directors have evolved dramatically in recent years so “it makes sense that you have to think much more broadly about who the people on your board are, and constantly review and make sure you’ve got the right people,” Pamela Marcogliese, a partner who specializes in corporate governance for the law firm Freshfields Bruckhaus Deringer, explains. Age maximums are emerging as a way to operationalize that without forcing directors to leave.
Departure policies such as age or term limits are playing a greater role in board refreshment. According to data compiled by Freshfields, 70% of S&P 500 companies have mandatory retirement age policies, compared to around 50% in 2015. In 2021, 6% had term limits, a figure that has stayed relatively flat over the years.
In 2021, S&P 500 companies appointed 456 new independent directors, the most since 2004, which Marcogliese says is “a function of companies really thinking carefully about all of the ancillary issues that are going on.”
Scrutiny over board composition is driving companies to set departure policies, as well as the rising directorship workload, and a need to diversify the skills brought to the board. Departure policies offer an easier way to regenerate boards.
The challenge companies face when setting these policies is settling on a sensible number for term limits or age maximums, Marcogliese says. About half of boards set their retirement age at 75 or older, according to Freshfields. Term limits range from 10 to 20 years, with 73% of them at 15 years or more. Not much data analysis or science goes into these decisions, however, and they are mostly meant to meet market expectations.
“There are some constituencies out there who think that if you have been on a board for too long— and everybody has their view as to what ‘too long’ means—it decreases independence from management,” Marcogliese says.
Another way boards can shake up their membership is through shareholder activism, which of course is not voluntary on their end. Shareholder proposals that aim to address governance issues are common. And in some cases, they can lead to removal of board members for conduct that’s detrimental to the company, an inability to meet ESG needs or overboarding, per the report.
“It is not uncommon for director profiles to be the subject of an activist demand,” Marcogliese says. “If you’re looking to attract the support of certain investors, having an ESG component or diversity component can be helpful to attract those votes.”
***
Speaking of departures, this is my final newsletter as the lead writer for The Modern Board. It has been an honor and a pleasure to dive into this arena and serve an audience consisting of executives who run some of the largest, most influential businesses in the world. I hope this newsletter was informative, challenged your assumptions, and offered a window into the ways corporate strategy is evolving with the world around us. Starting next Friday, my colleague Lila MacLellan will take over the newsletter. She can be reached at lila.maclellan@fortune.com.
Going forward, I am still a proud member of the Fortune team. I’m going to be covering the future of work and talent strategy for our Leadership section! If you’d like to share your company’s innovative work in this space, send me an email!
Aman Kidwai
aman.kidwai@fortune.com
Headlines
Pay disparities at Twitter. Leaked data reveals salary differences for the same job in different countries at the social media company. In countries like Ghana and Australia, employees in high-level roles are making far less than their American counterparts. Twitter says it is maintaining competitive pay in each of the markets it occupies, but with the increasingly global nature of the workforce, this strategy may need an update. Employees in Ghana were particularly perturbed by their very large pay gap, and the salary leak has been the source of much internal strife at Twitter. Input
Jobless claims rise. The labor market is cooling off, as jobless claims rose last week to their highest point since November. The Philadelphia Fed manufacturing index also declined nine points, indicating a net decrease in industry activity. Its employment index had its lowest reading since May 2021. In response, the Fed is expected to raise interest rates by 0.75% in order to curb inflation. CNBC
Execs divided on remote. When asked about their biggest concerns around flexible work setups, younger executives cited the potential for inequality as their top worry, followed by coordination and culture. Older executives were most concerned about coordination and productivity, followed by learning. “The older generation of executives is missing the fact that their diversity and inclusion goals and their future of work plans are tied together,” Brian Elliot, executive director of the Slack Future Forum said. Bloomberg
Heat waves’ economic impact. Heat waves across the world are causing meltdowns at data centers and crop failures, further driving up the prices of commodities. Higher temperatures are also known to slow economic productivity and even affect students’ test scores. Wildfires and droughts are forcing businesses to close, and higher temperatures are putting pressure on already taxed energy supplies.
BOARD MOVEMENT
Johan Torgeby, president and group CEO at Stockholm-based financial services institution SEB, was appointed to the board of Nasdaq. Carolyn Everson, former president of Instacart, is joining the board of Coca-Cola. Paivi Rekonen, board chair at Seba Bank, has joined the board of Wipro. Nutrabolt has appointed Wendy Unglaub, chief tax officer and principal tax counsel at General Mills, to its board. VSE Corporation has added Anita D. Britt, former CFO at Perry Ellis International, and Lloyd E. Johnson, former managing director at Accenture, to its board. AppHarvest president David Lee is joining the board of beverage company Zevia. Toymaker Funko has added former Nike brand president Trevor Edwards to its board. Four new directors have joined the board of Barnes & Noble: Mario Dell’Aera, former COO of audit operations at KPMG; Kate Eberle Walker, CEO of specialty education company Presence Learnings; Denise Warren, CEO of digital consultancy Netlyst; and Rory Wallace, chief investment officer at Outerbridge Capital Management. Construction company Quanta Services added Scott Rowe, president and CEO of Flowserve Corporation, to its board. Krista Anderson-Copperman, a former Salesforce and Okta executive, is joining the board of Asana.
View from the C-suite
You may not be familiar with VF Corporation, but you are probably familiar with some of its apparel brands: The North Face, Vans, Timberland, Jansport, Dickies, and Supreme, among others. Across all of its portfolio companies, CEO Steve Rendle has been dealing with the pains of the supply chain crisis while trying to boost the popularity of its brand names.
In an interview with Fortune’s Phil Wahba, Rendle outlines how he’s sidestepping supply chain woes, how he’s preparing for a possible recession, and what to do when a brand loses some of its “heat.”
Read the full story here.
This is the web version of The Modern Board, a newsletter focusing on mastering the new rules of corporate leadership. Sign up to get it delivered free to your inbox.
