The 40-Year Club: America’s Longest-Serving Directors; Board Colleagues Say They Provide Useful Context, While Activist Investors Question Independence

July 16, 2013, 7:45 p.m. ET

The 40-Year Club: America’s Longest-Serving Directors

Board Colleagues Say They Provide Useful Context, While Activist Investors Question Independence

JOANN S. LUBLIN

Corporate governance has changed dramatically in 40 years. Just ask Robert Ted Enloe III. He’s been on the board of Leggett & Platt Inc LEG +0.69% . that whole time. “Governance is far better today,” says Mr. Enloe. The 74-year-old former attorney has served on the board of the maker of bedding and commercial fixtures since 1969. Mr. Enloe belongs to an unusual elite: He’s one of 28 outside directors with at least 40 years’ tenure at a company in the Russell 3000 stock index. Aged 67 to 87 years old, these senior statesmen—and they are all men—hold board seats at big businesses such asNike Inc., NKE +1.00% Level 3 Communications Inc. LVLT -0.05% andCenturyLink Inc., CTL -0.44% according to an analysis by governance researchers GMI Ratings for The Wall Street Journal.Board colleagues say long-serving members often provide useful context about a company, its industry and its past. But activist investors contend the growing ranks of long-serving board members occupy spots that otherwise might go to younger and fresher talent. “Over-tenured directors also frustrate the goal of race and gender diversity,” adds Brandon Rees, acting head of the AFL-CIO’s Office of Investment.

Staying Power

Twenty-eight outside directors have at least 40 years’ tenure on a U.S. public company board.

Source: Analysis by GMI Ratings for The Wall Street Journal. Note: Ages given here are from each company’s latest proxy statement.

While 40-year directors are rare, companies appear increasingly reluctant to shake up their boardrooms. Among Russell 3000 companies, 6,457 independent directors—nearly 34% of the total—have served a decade or longer, GMI found. That’s up from 3,216 or about 18% in 2008.

Companies in Standard & Poor’s 500 stock index elected the smallest number of new directors last year in 10 years, according to a study by recruiters Spencer Stuart.

Some activist investors believe long-tenured board members can become too cozy with management.

The Council of Institutional Investors, a governance advocate, may soon urge shareholders and boards to look more skeptically at the independence of long-serving directors, says Ann Yerger, its executive director.

“Board members may not be able to fully exercise independent judgment after several years of service,” she adds. The council represents 125 pension funds with more than $3 trillion of assets.

Certain less-tenured directors favor term limits to hasten turnover. But just 17 major corporations impose such limits, Spencer Stuart’s study showed. A 12-year term makes sense because “board members become very stale after a while,” says Fred Hassan, a Time Warner Inc. TWX +0.55% director since 2009 and former Schering-Plough Corp. MRK -0.21% chief executive. He hopes to propose that limit for new board members of the media giant.

Not surprisingly, long-serving board members frequently oppose such rules. Instead, they support replacing poor performers through periodic evaluations of individual members. Richard T. Fisher, a Leggett director since 1972, says he and David S. Haffner, the firm’s CEO, sold the idea to its board last year.

If as long-serving directors “we are not carrying our load, we should step down,” suggests Mr. Fisher, a managing director of Oppenheimer & Co. who turns 75 in August.

Based on the peer appraisals, Leggett already has replaced one ineffective board member. Strong skills count more than “how long they [directors] have been there,” Mr. Haffner says.

Because of the wave of business scandals and greater investor outcry, corporate governance bears little resemblance to what Mr. Fisher found upon joining Leggett’s board. Boards no longer rubber-stamp management decisions. And outside directors make far more than the $6,000 annual fee they used to receive. The CEO, typically the sole inside member, now holds little sway over director selection, and is often subject to grilling by independent members.

The biggest companies paid their outside directors a median of $244,637 last year, the National Association of Corporate Directors says.

Some highly experienced board members believe their long-term ties with a company make them tougher monitors of management—partly because they understand its prior missteps better than newer directors do. Consider Mr. Enloe, a business leader after he stopped practicing law. Chairman of Leggett board’s compensation committee since its 1975 creation, he insists he never has “cut the CEO any slack.”

For example, Mr. Enloe says he and his friend Harry Cornell Jr., the then CEO who tapped him for the board while an external attorney for Leggett, locked horns over compensation during the 1970s. The director favored higher pay for division heads so the Carthage, Mo.,-based company could compete nationwide for executives. The pay boosts helped Leggett attract and keep key people from outside Missouri, says Mr. Haffner. (Mr. Cornell, who retired as CEO in 1999, declined to comment.)

On the other hand, Mr. Enloe says he is now giving senior executives the benefit of the doubt while they struggle to revive an underperforming unit.

Other long-tenured outside board members worry they’re less savvy about contemporary business practices because they no longer work full time. Among them is biologist Richard E. McDowell, a director of Northwest Bancshares Inc.NWBI +0.28% since 1972 and former president of University of Pittsburgh at Bradford who retired in 2002.

As a 69-year-old retiree, “you’re not as sharp as you once were,” says Dr. McDowell, the son and grandson of prior Northwest presidents. When the bank-holding company recently put board briefing materials on iPads, Dr. McDowell says younger members took to the tablets faster than he did.

Leaving the board when he hits the mandatory retirement age of 72 will be “a good time to get off,” adds Dr. McDowell, who turns 70 in September.

Similarly, William Lawson was chief operating officer of Skyline Corp. SKY +2.10%when he landed a board seat in 1973. He left the producer of recreational vehicles and manufactured housing in 1985 to run Franklin Electric Co. FELE -1.32% His once deep knowledge about Skyline “dissipated somewhat over time,” the 76-year-old retired executive says.

Mr. Lawson believes he’s smarter than he was 40 years ago, and says he stays relevant by reading industry reports and visiting manufactured-housing parks near his home in Sarasota, Fla. As a result, he poses “the questions that should be asked” during Skyline board meetings, he says. “But I don’t remember as much.”