Daily Management Review

Eight hundred of US companies may be advised to renew their board of directors


Google’s parent company Alphabet and Warren Buffett’s Berkshire Hathaway may be the first among more than 800 US companies to renew their board of directors, taking into account new recommendations on voting for shareholders.

Samuel Zeller
Samuel Zeller
ISS consulting company gave recommendations to companies, which boards of directors has stayed the same for years. Last annual survey of ISS asked clients whether their board of directors has had changes in composition for the past five years, or not. Then, the respondents were asked to tell whether average tenure of Director in their company exceed 10 or 15 years, and if 75% of a company’s board of directors have been the same during 10 years or longer. The survey’s results should form a basis for ISS’s annual recommendations on voting for investors.

Financial Times has analyzed data obtained by ISS Analytics. It turned out that at least one of three abovementioned groups includes more than a quarter out of the 2,900 US companies surveyed by ISS.

Alphabet and Berkshire are the largest companies, boards of which correspond to two criteria. In addition to them, the list includes retailer Bed Bath & Beyond and Intercontinental Exchange, owner of the NYSE.

One of the latest appointments in Berkshire was designation of Bill Gates 11 years ago. Four directors have worked for the Berkshire Council over 20 years. As for Alphabet, five directors, including Google founders Larry Page and Sergey Brin, have ruled the company for more than 15 years. More than 75% of directors in both companies have been working there more than 10 years, and the average tenure exceeds 12 years. Alphabet and Berkshire declined to comment.

Shareholders and investors are increasingly often questioning effectiveness of current principles of formation of boards of directors. Most of them demand to see new blood to be sure that companies are still viable. ISS, for example, proposes to vote against approval of the Chair of the Nominating Committee. If ISS proposals are approved by the investment community, changes to recommendation for investors may take a few more years.

A study conducted by BlueSteps.com revealed some interesting facts. 40% of 1,000 interviewed top managers of European companies have worked at their companies during 2 to 5 years. More than half of them changed just 4-7 companies during their entire career. 55% tops believe that 2 years is a minimum time record for one company. More than a quarter believe the minimum possible experience should not be less than 3 years. 

Thus, despite the general tendency to frequently change jobs, senior managers demonstrate traditional corporate values. Apparently, it is connected with ability of successful people to focus on long-term prospects. In addition, the greater responsibility of a person is, the more time is required to assess his results. 

What can make a top manager think about changing the current job? More than 75% of respondents said that lack of growth opportunities is the main factor. Two-thirds said they would change the company if decisions taken by owners or their motives (of values) disappointed them. 60% would go away to a company, where their role would be more entrepreneurial, would imply more responsibility and authority. And only 42% - less than half - were ready to be seduced by a biggest salary.

source: ft.com