How Long Should a Term Be?
from
September/October 2006
by Lois Gilman
Should it be nine years, as at Accenture and Eastman Chemical; 10 (Fannie Mae and Freddie Mac); 12 (Deluxe Corp. and Whole Foods); or 20 (Centex Corp.)? Even Institutional Shareholder Services, which no longer gives good-governance credits to companies with term limits, draws the line at outfits where every board member has served for more than 15 years. In such cases, says the proxy advisory firm, it will “begin inserting cautionary language” in its analysis of governance standards at various companies.
At Freddie Mac, which adopted term limits in 2004, associate general counsel and assistant secretary Mollie Roy endorses them in principle but questions the 10-year limit imposed on Freddie Mac by the Office of Federal Housing Enterprise Oversight after the company was forced to restate earnings. She thinks the period is too short. “Our business is very complex, and even new directors who have some familiarity with financial services tell us that it takes them a couple of years, although our board meets eight times a year, to really get their hands around it,” she says. “And that’s after a pretty thorough orientation.”
Many others think 10 years is too long—and even six years, in fact. Surveyed about term limits, 43% of ISS’s institutional-investor clients opposed them. But among the 41% that were in favor, five years was most often mentioned as the appropriate term length.
