Microsoft’s board of directors has adopted a policy that aims to limit the average tenure of independent directors to 10 years or less, a bid to keep injecting new opinions into the company’s governing council.
The revised language in Microsoft’s corporate-governance guidelines formalizes moves the board has made in recent years to make it more responsive to change. In 2015, the company added provisions to its bylaws that give large shareholders more of a voice in nominating board members
Big Wall Street investors and shareholder advocates in recent years have criticized corporate boards for being too insular and deferent to management, occasionally to the detriment of shareholders.
That phenomenon hit Microsoft in 2013, when San Francisco hedge fund ValueAct Capital scooped up about 1 percent of the company’s shares, seeking to meet with executives and push for changes that might benefit long-term shareholders.
Microsoft averted a proxy fight by offering ValueAct a board seat — subsequently occupied by G. Mason Morfit — and reshaped its board. Founder Bill Gates stepped down as chairman in favor of independent director John Thompson, and the company expanded its total of independent directors from seven to 10 after the appointment of LinkedIn founder Reid Hoffman in March.
The company’s present slate of independent directors have an average tenure of about five years, down from an average of more than nine years in 2013.
“There is a presumption that, after so many years on the board, a director is no longer independent,” said Marc Goldstein, director of U.S. research with Institutional Shareholder Services, which advises large investors.
Still, it’s a balancing act, he said. “As Microsoft points out, directors who have been on the board for a longer period might have the context, the institutional memory to effectively challenge management.”
In a blog post announcing the tenure changes, Microsoft corporate secretary John Seethoff said the company wanted to avoid a bright-line policy that forced retirements. The goal is to balance the board among “directors with extensive knowledge about Microsoft, those who can provide a fresh perspective and those with business experience relevant to our strategic ambitions,” he said.
Microsoft-affiliated directors Gates and Chief Executive Satya Nadella are exempt from the 10-year average-tenure guidance.