Board members tend to linger beyond their usefulness, and that affects bottom lines. Organizations that maintain a moderate pace of turnover tend to fare best. Resigning a board position, then, shouldn’t be contingent solely on a member’s schedule.
In a recent article for Harvard Business Review, George M. Anderson and David Chun, of Spencer Stuart’s North American Board Practice and the data platform Equilar, respectively, analyzed the results of a study they conducted on S&P 500 companies. The two tracked board turnover in rolling three-year periods from 2003 to 2013, then measured performance (based on shareholder returns) against the industry average in the three years subsequent to each personnel change.
Companies that replaced three or four directors over a three-year span—about a third of those studied—performed the highest (about 0.37% above the industry average) while those who saw no turnover during the three years fared the worst (1.85% below). Interestingly, boards with a turnover rate of five or more directors also performed below average. (So watch that trigger finger!)
Anderson and Chun are quick to point out that deciding how long someone sits on a board cannot be determined by member’s personal preferences. Rather, they say, “a modest amount of turnover tends to be a characteristic of the leadership and governance behaviors that drive shareholder value over time.” In other words, those in a position to instigate board moves should not be waiting for those moves to be made for them.
The Takeaway: There’s no simple equation for finding and developing a board. As industries evolve and businesses grow, so must caches of insight and expertise. Even when seats are filled, it pays to keep building relationship capital, flagging and following those who might fit your needs in the future.
RelSci is a technology solutions company that helps create competitive advantage for organizations through a crucial yet vastly underutilized asset: relationship capital with influential decision makers.