63. Is ”Good” Board Renewal Even a Thing?

What this episode covers

SCRIPT I talked about director independence a bit in season 1 – it’s a concept that I find really fascinating, partly because regulators and stock exchanges have bent over backwards to define it, but in the end they don’t have any way to measure whether it’s actually making things better or worse in any given boardroom. In my opinion, one of the most bizarre rules is in the UK Corporate Governance Code, where it essentially says that a director is no longer independent once they’ve been on the board for nine years. It’s basically a sneaky way of mandating term limits for listed companies. In episode 23, I shared my perspective on term limits, which can be summed up as “they’re not great, but they’re better than nothing.” What I’m getting at with all this is that I think the corporate governance “establishment” tends to look for concrete ways to enforce abstract concepts. We could be talking about the benefits of regular board renewal - like injecting new personalities, updating skill sets, broadening perspectives, and nudging us away from group think. And honestly, I think that’s the fundamental motivation behind the 9-year rule and all the talk about term limits in the first place. But let’s be real for a second. What does “good” board renewal even look like? Are we all good as long as nobody lasts longer than nine years? Is it the same for a board of six directors as it is for a board of sixteen? Is it the same for a small family-owned private company and a huge widely-held bank? I sincerely don’t know the answer, but wonder if maybe it’s the wrong question.