Actively managing board renewal

Chairmen of leading companies put a great deal of time and thought into renewing and reshaping their boards and, accordingly, are extremely well prepared for any questions put to them by investors or proxy firms.

However, according to Guerdon Associates, in order to move from “good” to “great”, board chairmen must be prepared to actively bring about the replacement of underperforming directors with candidates whose skills are better aligned with the company’s strategy and who can deliver greater value for shareholders.

According to the consultancy firm’s recent newsletter, companies that proactively engage with the external market give their shareholders confidence that the board is responsive to changes in the company’s strategy and direction, and show there is a commitment to making changes that are in the best interests of shareholders.

This is particularly important at a time when indications suggest investors may be more inclined to oppose the election of directors to boards than in prior years, it said.

Signalling a number of “red flags”, it suggests, when it comes to board renewal, chairmen should consider the extent to which a director is:

• “Over-boarded’ with too many other commitments.
• Chairman of a board or remuneration committee that has overseen too many poor remuneration practices.
• Chairman of a board with a poor governance record.
• Chairman of a board with a poor performance record.

In addition, it has created a checklist for board chairmen to complete ahead of board renewal meetings with proxy advisers and investors.