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Critiquing Stability in the Boardroom

April 15, 2019

“Corporate boards are very stable. That’s not necessarily a good thing.” So begins an article published late last year in The Wall Street Journal, discussing the findings of the 2018 U.S. Spencer Stuart Board Index. Companies in the S&P 500 added 428 new directors during the 2018 proxy year, the most since 2004, but newcomers still represent only 8 percent of all S&P 500 directorships. The study notes that, while half of the incoming directors were women and minorities, the “chronic low rate of director turnover” makes “moving the needle on boardroom diversity [difficult].” “Boards are a little more static than they should be in a world that’s so dynamic,” said Julie Daum, head of Spencer Stuart’s North American board practice. One reason for the low turnover: a widespread increase in mandatory retirement ages for directors. “That shift emerged during the financial crisis in 2008, when companies wanted to maximize stability and retain directors who knew their business well.”

More controversially, a publication from Deloitte’s Center for Board Effectiveness argues that companies and boards must actively eschew stability in order to be successful. According to Geoff Tuff, author of “Detonate—Why and How Corporations Must Blow Up Best Practices (And Bring A Beginner’s Mind) To Survive,” “in a world that is exponentially changing, doing the things that were successful in times of linear change can create significant exposure to risk and disruption. This suggests that best practices are merely mediocre. And doing things in a mediocre way is a good recipe for becoming irrelevant in any highly competitive market.”

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