Earlier this month, Microsoft adopted a board tenure policy that avoids the potential adverse effects of an arbitrary bright-line standard, yet is responsive to investor concerns about board refreshment. The new policy, which is included in its Corporate Governance Guidelines, targets an average tenure of ten years or fewer for its independent directors:
7. Term and Tenure. The Board believes that directors should not expect to be re-nominated annually. In determining whether to recommend a director for re-election, the Governance and Nominating Committee considers the director’s participation in and contributions to the activities of the Board, the results of the annual Board evaluation, and past meeting attendance.
The Board does not believe in a specific limit for the overall length of time an independent director may serve. Directors who have served on the Board for an extended period can provide valuable insight into the operations and future of the Company based on their experience with, and understanding of, the Company’s history, policies, and objectives. As an alternative to term limits, the Board will seek to maintain an average tenure of ten years or less for its independent directors.
In his associated "Microsoft on the Issues" post, VP, Deputy General Counsel & Corporate Secretary and Society member John Seethoff discusses the impetus for the new policy - namely, diverse investor input from the company's shareholder engagement activities, along with the board's judgment as to the most appropriate approach - which promotes a balance of seasoned, fresh, and strategically targeted perspectives on the board.
Note that board tenure policies remain rare. In our recently-released Deloitte/Society 2016 Board Practices Report, 5% of respondent companies overall reported having director term limit policies - compared to 6% reported in 2014, which is generally consistent with other board practice surveys.