Board directors should serve shorter terms says former CBA chair

Former Commonwealth Bank and Telstra chair Catherine Livingstone has suggested directors should not serve on boards for more than nine years, warning that rigidity at the top level of companies is hurting the talent pool.

Livingstone said it was time to reconsider what is deemed an appropriate tenure for directors, suggesting six-year stints could be more appropriate to balance experience with attracting fresh faces.

Catherine Livingstone wants shorter tenures for board directors. Credit: Dominic Lorrimer

There are no hard limits on how long a director can serve on a company’s board in Australia, but listed company directors are usually re-elected every three years by shareholders, and a cycle of nine years is seen as typical.

Livingstone highlighted that director tenures had been declining in the long term.

“Two generations, or 40 years ago, it was not uncommon for directors to be on a board for 15 or 20 years,” Livingstone said in an address to an Australian Institute of Company Directors event on Wednesday morning.

“One generation, or 20 years ago, tenure limits of nine to 12 years had become widespread. Directors generally do and expect to serve their full tenure. But perhaps it’s now time to evolve our thinking again.”

Governance advisory firm Ownership Matters in 2020 analysed a pool of more than 5000 directors who served on ASX 300 boards since 2005. It found the tenure of non-executive directors was lengthy, and board turnover was not dependent on company performance.

The research also showed the number of male directors serving for more than 10 years greatly outnumbered women in a ratio of 9:1.

Livingstone suggested that current arrangements could deter staff who would make “great directors” but who did not want to commit to nine years or let the company down by leaving after three or four.

“It’s not to suggest that six years should be a new tenure limit, but rather that the fixed-tenure limits being a lower bar and an upper bar results in an unhelpful rigidity,” she said.

Livingstone is currently the chair of rail freight business Pacific National. She has also chaired CSIRO and served as president of the Business Council of Australia.

She said the board directors’ time at the top had gradually reduced over the past 40 years due to the changing nature of the role.

Livingstone told the event while gender diversity on boards was important, it was not a “sufficient condition” and organisations should prioritise diversity of thinking.

“You may have a range of experience around the table but not enough ability of those directors to contribute to the specific needs of the organisation,” she said.

“I think there’s just too much ticking of the box and not enough thought around the question of diversity on boards.”

However, Woolworths chair Scott Perkins said he saw the performance of directors as a greater issue than their tenure.

“There should be no expectation that a director is appointed for 10 years,” Perkins said. “There should be an expectation that a director is appointed for as long as he or she is performing.”

Perkins spoke of the importance of having experienced directors with long corporate memories sitting on boards.

He said it was critical for Woolworths, for example, to have directors who were on the board in 2016 when “the wheels just about fell off the trolley” – in reference to the retailer slumping to its first-ever loss as a listed company – to help turn around its balance sheet.

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