Imagine this scenario:
- You are recruited to head up a nonprofit organization as its new CEO.
- After your first few board meetings, you notice that only one-third of theboard members actively participate.
- When you raise the issue with the board chair, she empathizes but says there’s nothing she can do. “We’ve always brought in new board members when someone steps down on their own. We don’t have board term limits.”
This is not a far-fetched scenario. According to BoardSource, nearly one-third of nonprofit boards do not have board term limits. In this post, we’ll define board term limits, examine why they matter, and detail why we recommend establishing term limits for board members.
What Are Board Terms?
Terms are simply a length of board service. Typically, term limits for board members are spelled out in an organization’s bylaws.
- For nonprofit organizations, BoardSource recommends two consecutive three-year terms.
- For for-profit corporate boards, the National Association of Corporate Directors (NACD) recommends board term limits of 10 to 15 years.
Both organizations also recommend a staggered term system that allows for a certain number of new board directors to be chosen each year. This limits the number of terms expiring at the same time. That way, boards can maintain continuity and new members have mentors with institutional experience.
What Do Board of Directors Term Limits Accomplish?
According to Roger Raber of the NACD and Judith O’Connor of the National Center for Nonprofit Boards (NCNB), both for-profit and nonprofit boards face the same fundamental challenges:
- Managing the pace of constant change brought on by technological advancement
- Guiding the organization toward sustainable, long-term growth in a hypercompetitive environment
- Developing board talent with an increased emphasis on core personal and professional competencies
Board term limits provide a mechanism for bringing in new members with fresh ideas to tackle these challenges. This is especially true for boards as they deal with the long-term ramifications of the COVID-19 pandemic.
When the pandemic broke, boards had to grapple with a new level of disruption and uncertainty. In an EY study, only 21% of board members indicated they believe their organizations were “very prepared” to respond to an adverse risk event such as COVID-19.
Planning, communications, recovery, and resilience efforts were all affected by board composition. In that same EY study, 40% of board members indicated they were “satisfied” with managing new and emerging risks. The critical obstacle cited was the lack of board member talent with appropriate skillsets.
Ultimately, board term limits help ensure that a board’s composition reflects its current and forward-looking leadership needs.
Disengaged, Ineffective Board Directors Cause Problems for Boards
Typically, prospective board members go through a thorough vetting process to earn a seat on the board. However, there are still times when an ineffective, disengaged director ends up on the board. These difficult board members can cause big problems for the organization’s they serve.
Here are a few of the signs you may have an ineffective or disengaged board director on your hands:
- They don’t regularly attend board meetings
- They don’t actively participate in board meetings, even when in attendance
- They are rude, disruptive, or argumentative
- They fail to meet their obligations, which could include personal donations or volunteer requirements, among others
- They poorly represent the organization to the public
Not having board term limits in place can make it especially challenging to deal with problematic board members. This is a key reason why boards should consider incorporating term limits for board members.
Key Benefits of Board Term Limits
There are 5 key benefits board term limits provide.
- Making it easier to bring in new ideas and new perspectives to a board and its decision-making process
- Providing a systematic planning timeline and process for replacing needed board skills
- Giving a board member a chance to step down gracefully if they are burned out, have family commitments, or are ready to move on
- Provide a respectful and efficient mechanism for the exit of passive, ineffective, or troublesome board members
- Avoiding the perpetual concentration of power within a small group of people and the intimidation of new members by this dominant group
Board Term Limits Drawbacks
Additionally, there are three primary drawbacks to board of directors term limits that we recommend bearing in mind.
- Potentially losing institutional memory and expertise that has benefited the board over time
- Needing to dedicate additional time to rebuilding the cohesiveness of the board as new members join and old members rotate off
- Needing additional resources to help identify, recruit, and orient new board members
Top Considerations for Setting Board Term Limits
There are several things to consider when determining board term limits. The first is the ideal board of directors term length – in other words, how long a term should be. As we mentioned previously, BoardSource recommends two consecutive three-year terms for nonprofit organizations, while the NACD recommends board term limits of 10 to 15 years for for-profit corporate boards.
While these guidelines are a great starting point, you must determine what is best for your board. A good way to approach this is to consider what term length will set board directors up for maximum productivity. For example, a one-year term may not be enough time for a board member to make a significant impact. Instead, a two or three-year term gives board members enough time to get up to speed — and be productive.
Also, you’ll need to consider whether you will opt for staggered terms. If you don’t have staggered terms, all board members’ terms will expire at the same time, which can be chaotic. On the other hand, staggered terms ensure only a certain number of members are chosen each year.
Of course, it’s also essential to consider how many terms a given board member should be able to serve in their role. Some boards also lay out options for board members who wish to remain involved with the organization, even after they’ve served their maximum number of terms. For example, a nonprofit may allow its board members to serve on their advisory board once they’ve reached their term limits. Or, an organization may transition board members who have reached their term limits to committees to serve as non-directors of the board.
Short-Term and Long-Term Effect of Board Term Limits
In the short term, the lack of board term limits can make it difficult for a board to bring on new leadership equipped with the skills needed to respond to fast-changing events. Over the long term, not having nonprofit board term limits or corporate board term limits can hurt an organization’s ability to expand and reach new audiences, especially in terms of diversity, equity, and inclusion (DEI).
At the WCD’s recent 2020 Virtual Global Institute, Julie Hembrock Daum of Spencer Stuart said low board turnover (8%) helps keep minority candidates from getting onto boards.
While she also predicted “we will see the numbers significantly change” this year, this low turnover rate also uncovered an opportunity where better skills evaluations can help boards bring on new members of different genders and minority groups. After all, if you don’t measure your current directors’ effectiveness, it’s hard to know when fresh blood is needed.
To make board skills evaluation a more systematic process, download the FREE Board Skills Matrix.
Conclusion: Board Term Limits are a Mechanism for Change
As the needs of the organization change over time – or high-risk events such as the pandemic continue to emerge – the board’s composition should also change to ensure it has the necessary skill sets, perspectives, and networks of the future. Board term limits provide the mechanism to enable this change. With the number of boards reporting no term limits trending downward since 1994, more boards are opting for the flexibility and strategic consistency they build into their organizations’ governance structure.
Ready to centralize your board’s experience, roles, and terms into a single, easily accessible resource? Request your free trial of OnBoard to see how we can help.
About The Author
- Josh Palmer serves as OnBoard's Head of Content. An experienced content creator, his previous roles have spanned numerous industries including B2C and B2B home improvement, healthcare, and software-as-a-service (SaaS). An Indianapolis native and graduate of Indiana University, Palmer currently resides in Fishers, Ind.
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