Playing the corporate board game

Companies seem to be willing to financially reciprocate the value non-executive board directors bring to the table.

In the US, a survey by Spencer Stuart found the average non-executive director (NED) can earn up to US$249,168 (S$313,796) annually. In Singapore, Hay Group recently reported compensation for local NEDs rose 9.8% to S$56,000.

But with the average age of local directors, according to NUS Business School’s Singapore Board Diversity Report 2013, being 56.6 for men and 50.7 for women, how long should these directors stay on the board before they’ve over stayed their welcome?

Singapore’s Code of Corporate Governance states companies have to review and justify why directors who have remained on the board for more than nine years “should be considered important”.

However, a new report in the Harvard Business Review suggests companies should not even wait that long before refreshing their board.

A study of the S&P 500 companies from 2003 to 2013 found the organisations with the best market returns were the ones who saw a moderate turnover, or replaced three or four directors over the course of three years.

Those companies experienced 0.37% total shareholder returns, compared to 0.08% loss in companies with low turnover (one to two directors replaced in the same period of time) or 0.75% loss in companies with high turnover (five directors or more).

“We’re not suggesting that boards manage turnover to achieve a specific target, or that simply replacing directors will somehow produce an increase in shareholder returns,” the reports authors, George M. Anderson and David Chun, wrote.

“Rather, our analysis indicates that a modest amount of turnover tends to be a characteristic of the leadership and governance behaviours that drive shareholder value over time.”

They added this may be so as new directors can bring “fresh perspectives and new skills” to the table, and “may be more likely than established members to challenge orthodoxy and raise previously unasked questions”.

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