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Spencer Stuart recently published its 2024 Board Index – which always includes valuable data points about board composition and governance practices in the S&P 500. The Index also spotlights trends over the 1-, 5-, and 10-year periods.

One thing that jumped out, which Meredith also discussed in a recent podcast with ESGAUGE’s Paul Hodgson, is the small but noticeable shift away from mandatory director retirement policies. According to Spencer Stuart’s data, 67% of S&P 500 boards still have a retirement policy – but that’s a decrease from 69% last year and 73% in 2014. Moreover, at companies that do have policies in place, the mandatory retirement age has been creeping up (from approximately 72 to approximately 75, with the average being 74). This A&O Shearman memo from late last year articulates why some companies are reconsidering mandatory retirement policies:

Given the challenges described above and the focus on individual directors, it seems certain that boards will feel a sense that the pace of the need for refreshment is accelerating. Traditional models for ensuring reasonable turnover on the board, such as mandatory retirement age and term limits are blunt tools that may not result in the optimum outcomes in terms of board configuration and deliberation, especially at crucial moments in a company’s evolution. Also, these approaches may lead to a loss of experience, leadership or critical skills at an inopportune time.

Boards need to consider whether these methods operate as crutches to avoid difficult interactions about continued service or hobble their plans for refreshment. A flexible approach, where length of service and other factors are considered in the renomination process, may prove more effective, especially if coupled with a board culture that is more accepting of director departures when tenure, skills or other factors call for it, fostered by strong leadership and constant communication about the board’s needs.

Spencer Stuart’s 2024 Board Index shows that the move away from mandatory retirement policies isn’t happening in a vacuum. 28% of boards work with a third party to facilitate the evaluation process (up from 25% last year), and 47% conduct individual director evaluations as part of their process. Additionally, in just 4 years, the percentage of boards that include a director skills matrix in their proxies has almost doubled (from 38% in 2020 to 73% in 2024).

The result of all this work on refreshment? In 2024, boards across the S&P 500 added a total of 406 new independent directors, which is up from last year but down from the 432 directors added in 2019. Average tenure is unchanged from last year – but it’s dropped by 3% over the past 5 years and 7% over the past 10 years. I’m cautious about drawing too many conclusions from high-level stats, when boardroom dynamics are so company specific. But it appears that *maybe* third-party evaluations, investor voting policies, and a shareholder activism environment where “nobody is safe” may be spurring the types of hard conversations that actually affect the refreshment rate.

– Liz Dunshee