Corporate boards need to abolish mandatory retirement — Bob Pozen

MIT Sloan Senior Lecturer Robert Pozen

MIT Sloan Senior Lecturer Robert Pozen

From Real Clear Markets

The resignation under duress of the CEO of Wells Fargo, after being pummeled in a Congressional hearing, raises a fundamental question: how can corporate boards hold management accountable for performance problems? One trendy answer from several governance mavens — limit the terms of independent directors so they do not become unduly deferential to the CEO.

The most typical limit on independent directors is mandatory retirement at age 72. This is the tenure limit for the Wells Fargo board. It is a significant limit because most directors do not join large company boards until age 60.

The tenure limit for independent directors is even stricter in UK. After serving for 9 years, a director of a UK public company will not be considered independent unless the company makes a special disclosure justifying longer service for that director.

However, I believe that these uniform limits on director tenure are counter-productive. By relying on these automatic rules, boards may get stuck with a relatively young director who is not making a significant contribution to managerial oversight. Meanwhile, these many directors with valuable expertise and real independence are forced to leave boards at age 72 or after 9 years.

It doesn’t have to be this way. Since we want boards of the highest quality, we should do away with these hard and fast rules. Board must acknowledge the reality that people are leading longer, healthier lives. And they must be willing to do serious individual evaluations of board members and remove individuals who are not pulling their weight.

Read the full article at Real Clear Markets

Leave a Reply

Your email address will not be published. Required fields are marked *