As companies are seeking to refresh the composition of their boards, they are moving away from policies that mandate turnover of their directors based on age or tenure. They are instead pursuing other avenues that provide for a tailored approach to opening up board seats for directors who will bring fresh perspectives, skills, experiences, and diversity to the board room.

The Conference Board report, using data provided by ESGAUGE, reveals that, in the S&P 500 the percentage of companies with mandatory retirement policies based on age dropped from 70 percent in 2018 to 67 percent as of July 2022. The policies also dropped in the Russell 3000, from 40 percent to 36 percent. Moreover, mandatory retirement policies based on tenure remain unchanged and uncommon, used by just six percent of the S&P 500 and four percent of the Russell 3000. 

While mandatory turnover policies have been on the decline, the analysis reveals that substantially more companies are now conducting comprehensive board evaluations—a combination of board, committee, and individual director assessments. In the S&P 500, the share of firms that evaluate all three areas rose from 37 percent in 2018 to 52 percent in 2022, and from 18 percent to 34 percent in the Russell 3000.

This has been accompanied by a marked rise in the share of companies using an independent facilitator to conduct board evaluations. While most companies still do not disclose using an independent facilitator, from 2018 to 2022 the share that have done so has more than doubled in both indices. These in-depth and independent evaluations can open fruitful discussions about many challenging topics, such as identifying areas where the current board's composition does not meet the needs of the board and the company, and thereby facilitate appropriate board turnover.

There has also been an increase in the percentage of companies with overboarding policies that limit the number of other public company boards on which a director can serve. The share of S&P 500 firms with an overboarding policy grew from 64 percent in 2018 to 72 percent in 2022, and in the Russell 3000, from 45 percent in 2018 to 50 percent in 2022. These policies trigger discussions with directors about those boards on which they may no longer serve.

Even with the steps companies are taking to refresh their boards, the share of newly elected directors at larger companies remains relatively unchanged: Since 2018, the percentage of newly elected directors in the S&P 500 has held steady at nine percent. This equates to approximately one new director joining an S&P 500 company board each year, which have an average of 11 directors. The appropriate level of turnover at each company will vary, reflecting a balance between adjusting the mix of skills and backgrounds on the board to serve the company's strategic priorities, while also maintaining board cohesion and successfully onboarding each new director.

The report includes insights and data—as recent as July 2022—relating to board refreshment policies and director evaluations at S&P 500 and Russell 3000 companies. It is the final installment in a three-part series, with the first report examining board composition and the second report examining board leadership, meetings, and committees.