So in the recent past, one of the listed companies published an announcement of the resignation of one of its Board Members. While this is required of the Company under the Fifth schedule of the Capital Markets (Securities)(Public Offers Listing and Disclosures) Regulations, it caused a few murmurs in the market. Why you ask? Possibly because the Board Member in question had served the company for 23 years, 12 of these as CEO and stand in #ceo , and then served on the Board and is a Chairman of one of the Company’s Subsidiaries. While the murmurs were expected as the Company has recently gone through various and leadership changes, it was admirable to see the pivot of a C-Suite executive who ideally has hit their ‘ceiling’ in management, get the opportunity to scale up to the Board and later as a #chairman .
There is a great article by the Harvard Law School Forum of Governance which states that ‘…Directors should not serve as long as they want to, but serve as long as they are needed’. While the self awareness may be lacking for a director to relinquish their seat in order for another candidate to serve the organisation better, like in the case of the director mentioned, there are principles and processes that can be put in place to ensure that the membership of the Board is predicated on suitability, guarded by performance and exited with dignity.
To digress, the three common methods to exiting a Board seat include retirement (a director’s term has come to an end by virtue of age or term limit), removal (usually when there has been some impropriety) and resignation (voluntary exit from the Board). There is another path that the Harvard Article introduced – director off-boarding. This is a process that every director consents to, upon on-boarding and under their service contract, which in summary states that should there be an occurence that concerns a director personally and which may impact the company negatively, the matter can be discussed through a special committee (most likely the #Nominations Committee) to deliberate on the matter and if agreed that the matter would impact the organisation negatively, the director would be given the option to resign with their dignity and professional respect intact. It helps that such a resignation would also be handled carefully and the director subsequently honored for their service.
Back to the discussion of how long would be too long- Director term limits are normally provided for in the #Board Charters and in the #Directors Service contracts and this is done for several reasons:
1. To allow for the rotation of #independent non-executive officers who after some time lose their independence and allow the company to recruit and maintain independence on the Board.
2. Term limits pave the way for new members to be on-boarded to satisfy required skillset needs on the Board and allow for fresh thinking.
3. With pre-planned on boarding and term limits, there is continued induction mentorship for new members and retention of organisation memory. This is ideal for succession planning.
In terms of what is provided for actual legal term limits, the Company’s Act 17 of 2015 in Kenya is silent and leaves it to be a contractual matter. For the Listed Companies in Kenya, the only mention on specific time is for the loss of independence for Independent Non Executive Board Members and which is 9years. Interesting to note that in the current King IV code of governance, 9years may not necessarily mean a loss of independence, but would be subject to an evaluation on whether the particular director possesses the state of mind to remain independent.
In the Banking and Sacco sectors, their Corporate Governance guidelines leaves it to the Board Charter, while in State Corporations and under the Mwongozo Code of Governance, the provision is 2 terms of 3years each, where the second term is dependent on the outcome on their #performancereview .
Looking at the Pension Industry, the regulations concerning Pension schemes state that #Trustees should serve for one term for 3years with a possibility of extension for a final term.
So what is the thinking behind the maximum 3term (of 3years each) preference some institutions propose? Apparently, the first term is to allow the director to settle in, term 2 is the year to add value and possibly take on a leadership role and term 3 is the year to exit as they assist induct an incoming Board Member. That said, most Board Members serve a minimum two terms as that would also help the Board to transition matters, including the strategic plan.
At Akira Consult, we look forward to assist you set up the right Board, with the right membership and onboarding and off boarding structures, and ensure that the board remains functional with the right membership. Speak to us today!