The debate over what makes an effective board member remains heated across the globe. However, there is one area of consensus – boards do not refresh themselves often enough. Directors often hold their seats for too long, entrenching themselves in power, much like political leaders. By doing so, they allow management to capture and perpetuate stale perspectives, thereby widening the gap with shareholders. What are boards doing to ensure shorter tenures and meaningful ‘board refreshment’?
The best step is to fix the retirement age that forces turnover and fixed tenure. But the global evidence shows waning enthusiasm for this. A study by The Conference Board in the US revealed that mandatory retirement policies among S&P 500 companies have fallen from 70 per cent to 67 per cent. Within the broader Russell 3000, the numbers were even weaker, dipping from 40 per cent to 36 per cent. Covid-19 may have been a factor, and sentimentality another. Boards hesitate to retire long-serving directors who have become part of the company’s identity, especially when the age barrier of 70 looms. Tellingly, more companies began inserting ‘exception’ clauses, which rose from 34 per cent to 41 per cent in the S&P 500.
While the Indian Companies Act prescribes that independent directors can hold office for up to two consecutive terms of five years each (a maximum of 10 years), in practice, boards find ways to retain familiar faces. Data from Prime Database shows that over 65 per cent of Nifty 500 companies had independent directors, who had already served more than one term, and many were reappointed after the mandatory cooling-off period. Are companies proclaiming independence, or are they perpetuating familiarity?
In recent years, companies globally have leaned more heavily on in-depth performance reviews. The Conference Board noted that evaluations among Russell 3000 companies rose from 18 per cent to 34 per cent, while the use of external facilitators doubled in the same period. In India, the SEBI has mandated that listed companies must disclose whether they conduct board evaluations and, in some cases, the broad results of those assessments. Infosys has institutionalised a structured evaluation process involving external consultants, peer reviews, and feedback loops. This has helped the company identify skills gaps and recruit directors who bring fresh expertise. Similarly, Tata Steel has disclosed how board evaluations influenced the redesign of its committee structures.
Here’s the paradox. Even as evaluations are increasing, turnover rates remain stubbornly low. According to TCB data, turnover in S&P 500 boards has barely shifted, while the Russell 3000 only inched from 8 per cent to 11 per cent over four years. The same inertia exists in India, where the average tenure of independent directors in NSE-listed companies still exceeds seven years. Evaluations may be conducted with fanfare, but boards hesitate to act on underperformance.
The health of governance depends on the willingness of boards to balance continuity with renewal
That said, some subtle progress deserves attention. Boards are increasingly recognising the dangers of ‘over-boarding’ – when directors spread themselves too thin across multiple companies. Regulations now restrict independent directors from serving on more than seven listed company boards, or three if they are whole-time directors elsewhere. This has forced a pruning of commitments, compelling directors to focus more deeply on the boards they do serve. SEBI has also required companies to disclose the matrix of skills and competencies represented on the board, giving shareholders a clearer view of whether the composition reflects business realities.
So, what should India Inc take away from this global and domestic tug of war? First, refreshment is not about arbitrary numbers but about mindset. Boards must cultivate a culture where constructive exits are not seen as insults but as natural transitions for organisational renewal. Second, evaluation must evolve from polite self-assessment to tough, data-backed scrutiny that measures directors against forward-looking strategic needs. Third, understand that transparency is non-negotiable. Enterprises must disclose that they do board evaluations and how these evaluations have shaped board decisions.
Here are a few examples to plan forward. The Financial Reporting Council in the UK recommends external evaluations of boards every three years. Many FTSE companies publicly share the key themes of such reviews. SEBI could mandate such a disclosure-led approach to bring more accountability.
The health of governance depends on the willingness of boards to balance continuity with renewal. To borrow an old saying, ‘stagnant water breeds decay’. For boards, clinging to directors past their prime breed governance risk. India Inc is still maturing in global governance stature and has a rare opportunity – to set an example, not of entrenchment, but of refreshment. The path forward lies not in ticking regulatory boxes, but in cultivating the courage to let go when renewal is due.