It surprises me how many boards have not established term limits. They are consistently utilized on Fortune 500 company boards. They are also becoming more and more common on not-for-profit boards. In my experience, it is the boards for mid-sized companies that are typically negligent in this regard.

Why do I feel so strongly about this? Fundamentally, I think a lack of term limits waters down the board’s ability to govern effectively. Directors lose sight of what they do not know. I attended a board meeting for a successful company in the resources sector. Some of the directors, for whom I have a great deal of respect, had been on the board for a decade or more. The directors enjoy working together, have a good relationship with the CEO, and are able to reach consensus quickly. All of them have experience in the resource sector, and while there is gender diversity, all are between 58 and 70 years old. There is insufficient debate at the board table, and simply too few opposing views. Term limits would necessitate director recruitment and refresh. This would provide an opportunity to review the director skills and experience matrix and consider new skills.

One of the boards I worked with has three-year terms with a maximum of three terms. As a B2C provider, the CEO identified an aging customer base, with little attraction of millennial or Gen Y customers. While they continue to increase market share year over year, this growth remains in the same demographic segment. The board decided to require a millennial to fill an upcoming director vacancy. This new director had no prior board experience, but this was offset with considerable governance and business experience around the table. The millennial has provided many valuable insights and the governance committee has already decided to add one more millennial to the board in the future. Without term limits triggering new candidates, they may have missed this opportunity until such time as the company experienced an erosion in sales through a declining customer base.

Conflict is healthy. When a governance chair told me, “We don’t have any disagreements. The CEO is a visionary and is brilliant. The board chair sits on half a dozen boards and knows what he is doing,” I saw this as a board with an opportunity to be much more effective. I also saw them at risk of not attracting change agent directors who would be motivated by challenging the status quo and perhaps creating breakthrough opportunities for the company.

Term limits force a refresh, and with effective director recruitment, contribute to better outcomes for the board and management.

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© 2019 Lorraine A. Moore. All rights reserved. Permission granted to excerpt or reprint with attribution.