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Redstone Retires: Reflections on Board Succession and Shareholder Engagement

February 4, 2016

The rise in shareholder engagement and activist attention to board composition has put companies under pressure to evaluate their boards on an ongoing basis. Boards that are unprepared to manage a transition may find themselves in an urgent situation to address how they approach succession planning.

The retirement of Sumner Redstone, the 92-year-old now-former executive chairman of CBS and Viacom, shines a light on the succession issue. On the heels of a report released by activist fund SpringOwl Asset Management in January 2016 raising concerns with Redstone’s ability to lead Viacom, both companies found themselves in a position to address his role immediately. (Note: As of fiscal year end 2014, Redstone was the third-highest paid S&P 500 executive chairman, according to Equilar data, earning more than $23 million in his dual roles.)

As with many long-serving directors, Redstone’s situation is unique, but it puts on display the fact that all companies face board succession challenges on a continual basis. Given an aging population of board directors overall, the data shows that many companies may have to face the question of succession sooner than later. According to Equilar’s BoardEdge, 45% of all S&P 500 board members are between 61 to 70 years old, or nearly 2,500 directors. Moreover, more than 800 S&P 500 directors are over the age of 70.

While far from ubiquitous, mandatory retirement ages are common, and approximately 37% of S&P 500 companies have openly disclosed a retirement age. Of those companies, mandatory retirement ages fall between 70 and 80, and 18.4% of all S&P 500 companies—nearly half of those that disclose a retirement age—have set a mandate at age 72. Another one-third of those companies that disclosed this information set an age of 75—or 11.6% of all S&P 500 companies. In other words, 15% of directors are either at or near the most common mandatory retirement ages, with another 45% within 10 years or less of that age.

Because seniority often dictates leadership roles, tenure has also come into focus in the boardroom succession discussion. Average tenure for S&P 500 directors is 8.9 years and rising, and while most companies have not implemented mandatory term limits, this has become a heated topic as well. Just 14 S&P 500 companies have director term limits, according to a recent study from executive search firm Spencer Stuart, and GE, which recently set such a limit amidst some controversy. If members assume directorship is a lifetime gig, there’s less opportunity to bring in new board members, but because of the controversial aspect of it, term limits that are implemented must have expectations set early and up front, according to panelists of a recent Equilar webinar.

Irrespective of whether a company has a mandatory retirement age, it is increasingly important for companies to have a succession plan ready for when their directors retire—whether it’s in an emergency, a planned retirement or strategically driven.

“Now more than ever boards need to think about their makeup much more strategically,” said Christine Rivers, Vice President, Board Solutions at Hay Group, while participating in a recent webinar with Equilar. “This begs for well-thought out processes and protocols.”

The data in this report is powered by Equilar’s BoardEdge, which not only includes information on 140,000 directors and executives qualified for board service, but also more than a dozen categories about each board member’s background and leadership experience. BoardEdge’s defining feature is a networking tool that clearly displays how board members are connected to each other.

For more information on BoardEdge, or to request a demo, click here.

For more information on Equilar’s research and data analysis, please contact Dan Marcec, Director of Content & Marketing Communications at Shawn Wong, research analyst, contributed to this post.

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