A recent article published by Heidrick & Struggles titled ‘Board Monitor US 2026,’ presented an interesting view of the contribution of board members in a survey of Fortune 500 companies. Among the many incites in the report, one that stood out was how the tenure of board members relates to their effectiveness. In the public sector, the average tenure is approximately seven years, and the companies add new members only every two-and-a-half years. The paper points out that many board members were appointed before the Covid pandemic, and certainly before the rise of AI. The businesses have undergone radical changes as a result of these events, so the question is how has the board evolved and is it still effective?
I have long written about the concept of curating the board of directors to be a competitive weapon. This can take many forms based on the specific needs of the business. In some cases, it means aligning board member expertise with areas of operations that need help such as finance, or go-to-market, or technology, or services. In other cases, it may relate to adding board members with specific industry sector knowledge or contacts. The important concept is that curating the board is an ongoing process. As the business grows and matures, its needs change. Perhaps the original CFO was relatively inexperienced, so we added a strong finance participant to the board. In time, when the company replaces the original CFO with an experienced veteran, the need for that strength on the board may diminish. It may be time to bolster the company in a different way with a different board member. This scenario will play out for every curated area of the board as the company evolves.
Boards are quick to point out weak players on the executive team and coach the CEO to replace them, but rarely do boards demonstrate similar introspection regarding board participants. In the institutionally backed private sector, institutional funds typically demand one or more board seats as a requirement for making their investment. If a company has grown through several rounds of investment with an expanding list of institutional investors, it is not uncommon for the board to be dominated by ‘suits’ representing the investors. Often, these are highly talented individuals with lots of portfolio experience and strong pattern recognition, but they also often lack relevant operational experience and specific market insights. Early stage investors may have early stage experiences that are not be as effective as the company grows, but by contract they stay on the board. The early-stage investors may still be playing ‘small ball.,” which can become a problem as the company strives to make bigger and bolder decisions that require bigger thinkers. The The board needs to grow up as the company grows up.
This is where the role of the independent non-executive director (NED) comes into play. Investor board seats are contractually controlled by the investor funds, so there is little the CEO can do to curate these seats, although it is always worth a try. However, the NED seat(s) are where real curation can occur. The focus for the CEO should be to fill NED seats with individuals that can best help the company. Recognizing that the company’s needs will evolve over time, a best practice is to set a term for the NED up front — often two years. It does not mean you have to replace the NED at the two year mark, but it will force a conversation and if the decision is to part ways, it removes the drama from asking the director to go.
Looking back to the findings in the Heidrick survey, in the public space the average board tenure is seven years. In the private sector, institutional investors typically hold their positions for a similar five to seven years, so it is quite possible that the investor board members will have a similar long tenure with the company. In the public sector, Heidrick found that new board members are added approximately every two-and-a-half years, which aligns with my suggestion to set two year terms for NEDs. In other words, the Heidrick findings are aligned with the private sector, so we have to ask if that makes sense given that smaller private companies grow and change much more rapidly than large publics?
In my experience, private company boards become stale over time, and their contribution as a competitive weapon diminishes if it is not refreshed. This is particularly true when the business is a steady average performer. Steady can be boring, and bored board members can fall into pattern behaviors that fail to recognize threats and opportunities. At the other end of the spectrum, many private companies grow and morph much faster than publics. They are much more sensitive to market changes and competitive winds, and they require much more from their board in terms of operational guidance and the ability to see around corners strategically to plot a course forward. Both of these extremes and everything in between demands an active process to curate the board. It is incumbent on the CEO and the board to avoid board complacency. Remember, a board member that joined the company seven years ago, joined before Covid and before AI. We should ask if they have remained current enough to guide the company through these radical transitions and be a part of plotting a course for the future, or does the board need new blood? Is it time to go?