Corporate Governance

Shearman & Sterling Board Refreshment | 41 MECHANISMS TO ENCOURAGE BOARD REFRESHMENT Refreshing the board is often accomplished by adopting a mandatory retirement age for non-employee directors or, less frequently, by imposing mandatory term limits on service. Bright-line standards can eliminate the need to make difficult decisions about the continued service of an individual director, but they often do not take into account whether the directors are functioning effectively and can prolong the tenure of under-performing directors or cut short the tenure of directors who continue to make a contribution. The NYSE mandates board self-evaluations and many companies are increasingly relying on them as a more effective means for ensuring board composition is appropriate and the board is functioning effectively. The board self-evaluation process is discussed further in the article "Director Self-Evaluation Process: How Fast Are You Running?" on page 10. RETIREMENT AGE Although not required by either the NYSE or NASDAQ listing standards, 74 of the Top 100 Companies have disclosed a mandatory retirement age for their non-management directors. Of these, 40 companies expressly permit the board or a committee of the board to make exceptions to the retirement age policy. Age 72 continues to be the most commonly selected age for mandatory retirement of non-management directors. Common practice requires management directors (other than chairs in certain instances) to retire from the board when they retire from employment with the company. 40 6 4 24 26 Age 70-71 Age 72 Age 73-74 Age 75 or older Topic Not Addressed Top 100 Companies specifically state that term limits should not be adopted Top 100 Companies do not address the topic of term limits Top 100 Companies have term limits ranging from 10 to 20 years TERM LIMITS Only nine of the Top 100 Companies have adopted mandatory term limits for their directors. The mandatory term limits apply only to non-management directors at three of these companies. Fifty-nine of the Top 100 Companies specifically state that term limits have not been adopted, most citing the value of the insight and knowledge that directors who have served for an extended period of time can provide about the company's business. Many of these companies also state that periodic reviews by the board or a board committee of each director's performance serve as an appropriate alternative to mandatory term limits. One company has a 20-year term limit. 59 32 9

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