Consistent with ASX Corporate Governance Council Principles and Recommendations (see HERE), public company boards are recommended to comprise a majority of independent directors.

As an assurance that NEDs may not identify too much with management, the tenure of directors is a key factor in determining whether directors remain independent. It is routinely scrutinised investors and proxy advisors.

While there is no tenure standard for directors to be considered no longer independent, the consensus is that a tenure between 9-12 years is grounds for a reassessment of director independence.

Table 1 shows the length of service before the classification of directors are flagged for review, as obtained from the ASX Corporate Governance Council Principles and Recommendations and proxy voting guidelines.

Table 1: NED tenure limits for independence

 

Not only is director tenure tied to independence, but prior research has shown that there is a positive correlation between tenure and market value until about 9 years, at which the relationship tends to reverse (see HERE).

Given these factors, it is expected that NED tenure will be no longer than 9 years to maximise value.

Guerdon Associates investigated the proportion of director resignations across the ASX300 before their term of office reached more than 9 years. Data was taken from FY24 annual disclosures sourced from GuerdonData^® at the time of analysis.

Across 108 companies in the ASX300, there were 148 director resignations during the financial year disclosed to date. Of the sample, the longest NED tenure found was 26.8 years and the shortest 0.2 years.

To examine how NED tenure changes across company size, the ASX 300 sample was divided by taking the quartiles for market capitalisation. As shown in table 2, companies with a market capitalisation between $1,274 million and $2,433 million tend to have the lowest proportion of directors serving more than 9 years while companies between $2,443 million and $7,839 million have the largest.

Table 2: Tenure of retiring ASX 300 NEDs sorted by company size

 

The companies with a market capitalisation greater than $7,839 million were most closely aligned with the overall median tenure for directors at 8.2 years and averaging at 8.1 years.

In general, a majority of directors resign before board tenure reaches 9 years and their independence is questioned. While this follows the optimal levels as proposed, this does not mean that all long serving directors lose their value. Too much turnover would result in a loss of experience and corporate memory. In the end, what is important is probably an appropriate mix of less tenured NEDs with fresh skills and perspectives, 4 to 6 year NEDs with sound knowledge of company operations and its markets, and longer serving NEDs who carry useful corporate history and memory.

© Guerdon Associates 2025 Back to all articles