72. Tenure Limit (definition)
NOTE: if you’re new to Ground-Up Governance, or are finding anything a bit strange or confusing, you might want to START HERE.
There’s a popular way to help boards to get rid of the directors they don’t want without needing to go through the unpleasant process of telling them you don’t want them anymore. It’s called a tenure limit.
Before describing what tenure limits are, it is worth acknowledging that there are other, less cynical reasons for having tenure limits. Most importantly, tenure limits can be a useful mechanism to ensure regular board renewal.
Tenure limits basically set a cap on how long a director can serve on a particular board. The most common tenure limit is called a “term limit” which, as you might have guessed, means there is a limit to how many terms a director can serve. If your board’s terms are one year long, you might set a term limit at 9 years, for example. If your board’s terms are three years long, you might set a term limit at three three-year terms (9 years). At the end of the term limit, that director is no longer eligible to serve on that board. Hitting your term limit as a director is sometimes called “terming out”.
Some boards let directors who have termed out stand for election/appointment again after some time has passed – usually one year. It is not clear to Ground-Up Governance why those boards have term limits in the first place.
Another common type of tenure limit is called an age limit. An age limit is when a board chooses an arbitrary number and says, “no director may serve on this board after they reach the age of [insert arbitrary number here].” Like term limits, age limits can be a tool to force board renewal, which can be a very good thing. Unlike term limits, age limits don’t apply equally to all directors unless they’re all the same age.
For example, if you look back at the skills matrix from a few weeks ago you’ll see four directors. If all four of them are exactly 45 years old and we implement an age limit of 55 years, then all of them will be eligible to serve for up to 10 years. If, on the other hand, they all have different ages (randomly made up because, of course, they are all ageless), it might look something like this:
Mr. Bananaman – 54 years old
Ora the Orange – 26 years old
That really wide person you saw forming the body in the corporate director post a few months ago – 37 years old
A happy person in a top hat – 18 years old
Now, with an age limit of 55 years old it would mean that Mr. Bananaman would have to leave the board next year even if he’s only been serving for 6 months to this point. More importantly, you might be stuck with a happy person in a top hat on the board for the next 37 years even if and when top hats go out of style, come back in style, and go out of style again. Not ideal.