Recently academic research from the University of New South Wales highlighted the value added by longer serving directors.
The Study suggested:
- that longer serving directors were more likely to attend board meetings;
- firms with longer serving directors had lower CEO pay, higher CEO turnover performance sensitivity, smaller likelihood of intentionally misreported earnings and they made higher quality acquisition decisions.
However, there are still concerns in the investor community in regards to the relationship between board tenure and director independence. Institutional investors, proxy advisory firms and large pension funds have raised their concerns on the basis that director independence may become compromised over time.
Another recent study on the average total shareholder returns over a five-year period (2010 – 2015) found that global firms with longer serving directors (i.e. directors with tenure greater than 15 years or directors over 70 years of age) found that firms delivered 18% more shareholder return than firms with no longer serving director.
In Australia a study found that only 7% of independent non-executive directors had been on a board for more than 12 years, and only 3% had served for more than 15 years. This highlights that companies with long tenures in Australian companies is a rarity.
The ASX Corporate Governance Council’s Corporate Governance Principles and Recommendations do not specify a maximum length of board tenure. Furthermore, the principles state that the fact a director has served for a substantial period does not mean they have become too close to management be considered independent.
It remains to be seen whether Australia will change in the future. However, the above indicates reasons for Australian firms to have longer serving directors.
If you require any further information in regards to the above, contact The Quinn Group on (02) 9223 9166 or submit an online enquiry.