“Parting is such sweet sorrow” (Shakespeare)
One of the predicted negatives from the Companies Act (the Act) and the King Codes was it would be difficult to find directors. The Act and King Codes put extensive liabilities on directors, encouraged annual appraisal of directors, term limits for directors and recommended strong codes of conduct to ensure directors fulfilled their fiduciary roles.
Non-executive directors seemed particularly vulnerable as they are not part of day-to-day operations, have to wade through extensive board packs before each meeting and attract the same liabilities as executive directors.
It thus seems intuitive that directors would be reluctant to serve with the introduction of all these governance measures.
The predictions were wrong – directors are staying put
Research done in the United States contradicts this and shows that directors are keen to remain in office for as long as possible. It seems the prestige and access to high-power networks outweighs the negatives.
Directors in America feel more than one in three directors should be replaced but the research shows that only 15% of directors were appointed in the last two years.
Which directors should you replace?
You have to question just how effective the governance is in these organisations. Correctly applied, appraisals, strict enforcement of term limits and codes of conduct should weed these categories out.
It would appear that directors agree that weaker members should be replaced, but they do not see themselves as being a weak link – it is always the other director who should go.
It is important that governance is not just a box-ticking exercise. There is a strong argument that new blood brings new energy and ideas to a board of directors. Jack Welch, the long time CEO of General Electric, maintained that getting rid of non-performers greatly enhanced the organisation.