2013

Issue 15

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BoardWorks International
Issue 15, 2013

How to Avoid an 'Overstayer' Problem

Long serving board members are often well respected and well liked people acknowledged for past contributions. However, there are many reasons why they become perceived as 'overstayers' who are increasingly problematic.

Often it is because they live in the past, referring, often tediously, to past glories, defending the way things have always been done. Anxious to protect their legacy they may be reluctant or oblivious to the need to set new directions. They treat their board position as a personal entitlement or worse think the organisation cannot do without them. They feel they have an obligation to 'hang in there'. Their lives and their identity may have come to revolve around the organisation and their role in it. Perhaps retired from other roles that gave them status, connections and, perhaps, income, retaining their position has become even more important to them.

Overstayers increasingly become characterised by their colleagues as under-performers who are selfish and self-centred and who no longer act as true fiduciaries in the best interests of the organisation and its stakeholders. Sadly, like former sports stars who have failed to retire at the top of their game overstayer board members are at risk of tarnishing their reputation and getting 'dropped'. They risk feeling rejected and even humiliated.

It is not only the overstayer who is at fault. The board itself having failed to undertake any succession planning may have become unduly reliant on a long serving chair or director. It is comforting to continue to have him or her at the table. A common rationale is that the overstayer has built up instrumental relationships with key stakeholders which might be disrupted if he/she left the board. Weak boards find it hard, in particular, to challenge a dominant founder and 'founders disease' is a well documented phenomenon.

Common also is the board that is almost completely populated by long-serving members. Over time the board has become a cosy group of like-minded people who have confidence in each other and enjoy each other's company. There is a definite esprit des corps. No-one wants to leave and individuals certainly don't want to do anything that would break up the group.

An overstayer problem compromises board performance and makes the recruitment and retention of capable new directors difficult.  This is particularly true if the overstayer is also the chair of the board. External stakeholders seeing a board that is ossifying and becoming out of touch easily lose confidence in it.

Moving (over) long serving directors off the board is something most boards find difficult. Suggesting gently to an overstayer that it is time to go seldom has much impact. Overstayers can easily rationalise why the board needs them for another few years.  If, however, their colleagues take their responsibilities seriously they know that that they will have to take action eventually. The need to maintain the competence and credibility of the board is self evident. At the same time, they are understandably reluctant to hurt a colleague - particularly one who has been a vital contributor in the past.

If this is always going to be a difficult problem to fix, how might a board protect itself against this situation arising in the first place?

  1. Build an explicit performance culture

    Some boards are able to create a culture that puts board and organisational performance above the needs and sensitivities of individual board members. From the outset it is made clear that no one is entitled to a board seat; each member of the board has to add value. This is reinforced by letters of expectation on appointment, clear job descriptions and regular and rigorous, externally facilitated, board and director evaluations. By these actions a board defines its performance culture and directs attention to any signs of either diminishing relevance or performance. Both are important. New challenges often mean an existing board member will need to stand aside for a replacement with more applicable experience and skill sets. Declining performance is usually quite evident but regular performance evaluations create an evidential basis for a conversation which results in either improved performance or a vacancy.

  2. Undertake active succession planning

    An adjunct to a performance culture is the conduct of an active succession planning process. This works particularly well when coupled to an annual board and director performance evaluation process. Central to succession planning is active attention to the changing challenges facing the board and an analysis of the extent of any gap between the boards' current capabilities and the experience and skills it increasingly needs around the table. When succession planning is an integral part of 'business as usual' it raises awareness around the board table and makes the conversation about changing the composition of the board far easier. It makes it more likely individuals will sense when their time is up and they should make room for someone else to join the board.

  3. Adopt maximum term limits

    A common and generally effective technique is setting a limit to the total length of time that a board member can serve continuously on the board.  This is usually expressed as a multiple of the initial appointment term (e.g. an initial term of three years extendable twice to a maximum of 9 years continuous service).  Time based tenure limits have become more important now that it is illegal in many jurisdictions to discriminate on the basis of age.  Whereas once a compulsory retirement age ensured there was at least a modicum of board turnover a different approach is now required.

    There are good justifications for limiting tenure.  One is that it is natural for a board member to become 'institutionalised' and their performance to diminish over time. Studies have tried to identify when this becomes problematic but there are many (often highly personalised) variables involved.  Generalisations are therefore difficult but it is interesting that, in Canada, after nine years on a board an independent company director is considered to have become too close to the business and can no longer be considered 'independent'.

    The second, and possibly more important, reason is that it is important for a board's membership to be replenished periodically and, in a sense, 'stirred up'.  Boards with an unchanged membership easily become inward looking and entrenched in their views. It is vital to keep the board responsive and relevant and this can be achieved by the regular infusion of new ideas and new energy. The challenge when setting a term limit is to ensure that it strikes a balance. A board needs a core of longer serving members who offer stability and continuity, who maintain the board's 'institutional memory', and who provide balance in the relationship between the board and chief executive. It also needs new members who bring new and perhaps more currently relevant skill sets, fresh perspectives and new energy.

    A term limit should be set to allow sufficient time for each board member to become sufficiently familiar with the organisation and the way it operates and to make the best contribution they are capable of.  Most directors typically concede that it takes upwards of two years to become a fully confident contributor to a board.  It makes sense to allow enough time for board members who are performing satisfactorily in other respects to build on that initial learning curve.

    We often hear the argument that person X is such an outstanding contributor that it would be wrong to limit his or her tenure.  There is fundamental truth, however, in the old cliché that 'no one is irreplaceable'.  Who is to know that a long serving board member is not blocking someone who will prove to be an even better contributor to the board?

    If more flexibility is desired it is worth considering setting a maximum average length of service for the board.  This allows a particularly valued long serving member to be retained provided there are regular new appointments to maintain or even reduce the average time served across the whole board.  A maximum average length of service of five years accommodates a reasonably wide spread of tenures across the whole board.

    If term limits remain applied solely to individuals this should not be a substitute for active performance review. A board member appointed for, say, a 3 year term should not be permitted to serve out that term if it is apparent by the end of their first year that they are not an effective contributor.

    For the same reason, reappointment at the end of each term should not be automatic. An increasing number of boards we know that have term limits ensure that reappointment is contestable.

  4. Give recognition to departing board members

    The reluctance to conclude the tenure of long serving board members may reflect sensitivity to terminating their association with the organisation.  It is worthwhile, therefore, identifying other opportunities short of full-time board membership which would ease the transition.  Some organisations establish emeritus positions but, ideally, these should be more than just titular appointments.  One option is to engage a long serving board member in an advisory role post-retirement.  Further thoughts on the transition process are described in a separate article in this issue (1).

Conclusion

In conclusion it must be stated that boards themselves are frequently the architects of their overstayer problems. As has been pointed out here there are a variety of ways in which a board might mitigate the overstayer risk. Whichever course, or combination of courses, is followed, it is important to manage expectations and make succession planning routine and serious.  It should be business as usual to plan ahead for board turnover, and to be thinking continuously about how to fill board seats with the skill sets that will enhance the board's value to the organisation. 

 

Notes

(1) See 'When Directors Retire - Addressing the Challenge of Transition and Continuity.'

 

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