CalPERS Principles CII Policies TIAA-CREF Policy Statement AFL-CIO Voting Guidelines ISS
Generally, a company’s retiring CEO should not con- tinue to serve as a director on the board and at the very least be prohibited from sitting on any of the board committees. (III.B.1.6)
With each director nomination recommendation, the board should consider the issue of continuing direc- tor tenure, as well as board diversity, and take steps as necessary to ensure that the board maintains open- ness to new ideas and a willingness to critically re- examine the status quo. (III.B.2.2.c)
Not covered. Although TIAA-CREF does not support arbitrary lim-
its on the length of director service, we believe boards should establish a formal director retirement policy. A director retirement policy can contribute to board sta- bility, vitality and renewal. (p. 16)
The voting fiduciary should vote against proposals to limit terms of directors because they may result in prohibiting the service of directors who signifi- cantly contribute to the company’s success and rep- resent shareholders’ interests effectively. (Guide- line IV.A.11)
Proxy Voting Guidelines
[D]irectors should not be constrained by arbitrary limits such as age or term limits. (p. 10)
Vote AGAINST . . . proposals to limit the tenure of out- side directors through mandatory retirement ages. (p. 17)
Vote AGAINST . . . proposals to limit the tenure of out- side directors through term limits. However, scrutinize boards where the average tenure of all directors exceeds 15 years for independence from management and for sufficient turnover to ensure that new perspectives are being added to the board. (p. 17)
QuickScore
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VIII.B. Evaluating Board Performance46
ALI Principles/Recommendations BRT Principles NACD Report Conference Board Recommendations OECD Principles/Millstein Report The board of directors has five primary functions,
[one of which is to] evaluate board processes and performance. (§ 3.02, Comment a.4)
The board should have an effective mechanism for evaluating performance on a continuing basis. Mean- ingful board evaluation requires an assessment of the effectiveness of the full board, the operations of board committees and the contributions of individual direc- tors. There are a variety of ways to conduct board and committee evaluations [including] written question- naires, group discussions led by a designated director, employee or outside facilitator (often with the aid of written questions) and individual interviews. . . . Boards and committees should consider periodically varying the methods they use to keep the evaluation process fresh.
[T]he performance of the full board should be evaluated annually, as should the performance of its committees. The board should use the an- nual evaluation to assess whether it is function- ing effectively and to discuss areas for im- provement. Each committee should conduct an annual evaluation to assess its effectiveness, and to review the committee’s charter to determine whether any changes are appropriate. The results of these evaluations should be reported to the full board.
Boards take a variety of approaches to assessing the contributions of individual directors. In this regard, board positions should not be regarded as permanent, and directors should serve only so long as they add value to the board. . . . Some boards also conduct individual director evalua- tions through a more formalized process that in- volves self or peer evaluations. (pp. 28-29)
There are three separate aspects to effective evalua- tion at the board level, each of which constitutes a critical component of board professionalism and ef- fectiveness: CEO evaluation, board evaluation, and individual director evaluation. All three types of evaluation should be assessed vis-à-vis pre-
established criteria to provide the CEO, the board as a whole, and each director with critical information per- taining to their collective and individual performance and suggested areas for improvement. Boards should regularly and formally evaluate the CEO, the board as a whole, and individual directors. Boards should en- sure that independent directors create and control the methods and criteria for evaluating the CEO, the board, and individual directors. Such an evaluation practice will enable boards to identify and address problems before they reach crisis proportions. (p. 5)
See Ch. 4, Evaluation: How Boards and Directors
Should Be Judged, pp. 14-18; and Summary and Con- clusion, pp. 20-21.
See also Appendix E, Board Evaluation Practicalities:
Creating a Board Self-Assessment Methodology.
See also REPORT OF THE NACDBLUE RIBBON
COMMISSION ON BOARD EVALUATION (2001) and REPORT OF THE NACDBLUE RIBBON COMMISSION ON PERFORMANCE EVALUATION OF CHIEF
EXECUTIVE OFFICERS,BOARDS, AND DIRECTORS
(1994).
Each board should develop a three-tier director evaluation process which includes evaluation of the performance of the board as a whole, the perfor- mance of each committee and the performance of each individual director, as necessary. The board should also adopt a process for review and evalua- tion of the Chief Executive Officer. (Part 2, Princi- ple V)
Depending on the corporate governance model adopted, boards should consider having the non- CEO Chairman, the Lead Independent Director (or equivalent designation) or the Presiding Director take a lead role, in conjunction with the Chairman, in the board evaluation process. (Part 2, Principle V, Best Practice 3)
[E]valuation of directors should ensure that each di- rector meets the board’s qualifications for member- ship when the director is nominated or renominated to the board. . . . Beyond meeting baseline stand- ards, evaluation can be a powerful tool for directors to improve their performance by understanding are- as which require further development or training. (Part 2, Introduction at 21)
See Part 3, Principle I, Best Practice 4 (Audit com-
mittees should conduct an annual assessment of the performance of the committee and its members, in- cluding in such review a comparison of the commit- tee and its members to legal and stock exchange re- quirements and to prevailing best practices for audit committees.).
Independent board members . . . can bring an objective view to the evaluation of the performance of the board and management. (Annotation to Principle VI.E) In order to improve board practices and the performance of its members, an increasing number of jurisdictions are now encouraging companies to engage in board training and voluntary self-evaluation that meets the needs of the individual company. (Annotation to Prin- ciple VI.E.3)
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Under NYSE listing rules, domestic listed companies’ boards are required to address annual performance evaluation in their corporate governance guidelines and the charters of the audit, compensation and nominating/corporate governance committees are required to provide for annual performance evaluations of these committees. There are no comparable requirements for Nasdaq-listed companies. See Appendix. See 2011 ABA Guidebook at 54-55 (“Board and board committee self-evaluations are most effective when planned in advance, with participants having a clear idea of the purpose of the self-evaluation and the issues to be addressed…. The nominating/corporate governance committee generally conducts or supervises individual director evaluations. . . . ”); 1994 NACD Report at 13-14 (“Directors should evaluate board performance as a whole. Each board should consider developing goals for the board as a whole and for each of its committees . . . The board can then measure board, chairmen, and committee performance against these goals, position descriptions, and responsibilities, making any appropriate recommenda- tions for improvement . . . The board should evaluate not just its process for nominating director candidates, but also its process for educating and renominating new directors. It should evaluate the evaluation process itself. The focus of the evaluation should also include some evaluation of individual director performance.”); 2013 NACD Survey at 22 (87.3% of survey respondents conduct full board evaluations, 73.6% conduct committee evaluations, and 37.8% conduct individual director evaluations.); 2013 Spencer Stuart Board Index at 29 (2% of S&P 500 boards (versus 10% in 2008) do not conduct some kind of annual performance evaluation. 53% of those that undertake annual evaluations examine both the full board and individual committees, 9% evaluate only the full board (compared with 26% in 2008), and 33% evaluate individual di- rectors as well as the board as a whole and its committees (compared with 17% in 2008).).
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