Governance practitioners and investors continue to pay close attention to board refreshment. Their primary concern is that a stale board – one that has not added new members for many years – may become complacent and pose risks to long-term performance.
The argument that board renewal practices help companies better manage risk and performance is validated by the data.
In this article, we find that companies with a balanced board composition may gain significant benefits by maintaining a balance of experience and new capacity on the board. Companies whose directors’ tenure is heavily concentrated (whether mostly short-tenured or mostly long-tenured) exhibit poorer performance and have a higher risk profile.