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Term Limits for Directors in Alberta

Has the Implementation of Term Limits Produced the Desired Effect?

A recent conversation surrounding a proposed amendment to an organization’s by-laws intended to address with greater precision and clarity the issue of “Term Limit for Directors” caused me to reflect on my own Board experience over the years and to relive for the moment, the considerable debate which occurred when this topic first surfaced around the Boardroom table. It prompted me to make some observations and offer some thoughts on the subject from someone who might be described as a “wily” veteran.

In the mid 90’s, the long-standing practices of many non-profit boards and even profit orientated corporate boards were receiving considerable scrutiny both internally and externally, particularly by government. The main focus was on “governance” and with it came a renewed concentration on identifying and implementing the new found governance model (or some variation of the model) developed by John Carver, which became known as the Policy Governance Model or more simply, the “Carver” model.

Many have suggested that the Policy Governance Model (Carver), which is now, the most well known modern theory of Board Governance in the world is still, in many cases, the least understood. It is touted nonetheless, as being the most robust governance tool available, which can be applied to governing boards of all types, whether they are non-profit, governmental boards, agencies and commissions (Public sector) or Corporate Boards in the private sector.

It is suggested that the model can be effectively used in all governing Board settings as a result of having a set of universal principles.

Back then, everyone seemed to want to “jump” on the bandwagon, and numerous “experts” emerged offering their own interpretation of the Carver model and their own blueprint for effective Board governance in the form of books or instructional handbooks and manuals. Professional consultants became the vogue, all having their unique perspective on Governance issues and offering their services for a fee at annual strategic planning sessions.

Both Non-profit Boards and Corporate Boards were quick to take note and Boards began rethinking and reviewing past board practices in order to ensure that their organization was making progress and developing a clear strategic focus.

Governance “consultants” were engaged to lead in strategic planning discussion around the proper governance model to be adopted including whether or not the Carver model with all of its nuances was best suited for their particular entity or organization.

Many instinctively adopted the Carver Policy Governance model or some variation of the same to bring clarity to the Board and CEO relationship and to develop more refined strategic thinking and to create more clarity and accountability in relation to the various operational and business units within the organization.

One of the key areas of focus in a proffered Policy Governance model was the creation of a Governance Committee and one of the first assigned tasks of the Committee was to determine whether or not “term limits” should form part of the criteria of the Governance framework relating to Board recruitment and tenure.

Much debate took place among academics and pragmatics about the pros and cons of “Term limits for Directors” and whether this as a Governance policy fell into the realm of “best” practices.

The Debate:

Term Limits –The Pros

The suggestion to impose term limits in relation to an existing Board was often met with palpable resistance, as long-term board members often perceived it as simply a matter of “signing” their own death warrant. This approach was often seen as being very short sighted and gave rise to a myriad of reasons as to why the imposition of term limits was not only necessary but also required for progressive Boards to adopt.

The proponents of term limits argued that the practice allowed Boards to reestablish itself regularly with renewed vigor and enthusiasm or “fresh blood” which was perceived as a good thing. With the knowledge that there was a limit on their tenure, it was thought that Board members would be able to focus their energy, knowing that their role was limited and not a “life” sentence.

Having a regular turnover of Board members was considered necessary in order to bring new fresh ideas and particularly for non-profit organizations, a new crop of volunteers anxious to answer the call, particularly, where exhaustive fund raising was a key component. A constant influx of new Board members would generate a different and often unique network of contacts and created greater exposure of the organization within the community.

The creation of a revolving door by staggered terms was perceived to create a greater balance between young and old and many suggested that this mixture would inspire a new way of thinking and as more and more Board members were encouraged Board in their strategic planning process to think “outside the box”. This new balance, it was thought, would create an atmosphere that encouraged new, often, younger Board members to speak up and have their voices heard on a wide range of topics. Inherently, a form of succession planning would become a natural by-product of term limits.

It was also suggested that term limits provided an effective mechanism or a unique opportunity to force out non-productive or challenging Board members whose attendance or performance was lacking.

As part of the strategic planning process, many progressive Boards encouraged Board members to attend educational forums and seminars in order to improve their knowledge and skill sets. This often led to the creation of structured Director self-assessment and peer-to-peer reviews. Knowing that there was a review process in place encouraged Board members to bring added value to the Board meetings and that this would “weed out” those whose participation was marginal.

The establishment of term limits was also perceived to provide a greater opportunity for creating diversity and inclusiveness within the Board, particularly when “gender” bias and the “old boys club” mentality was seen as a prevailing attitude among many Corporate Boards and other similar types of organizations.

Finally, it was suggested that the old saying that “familiarity breeds contempt” often applied to the Boardroom. Indefinite Board service, in some cases, it was argued can lead to Directors becoming too comfortable with one another and with senior management including the CEO. Directors must not be afraid to challenge organizational assumptions and feel comfortable or empowered to ask the difficult or hard questions. A constant and consistent renewal of Board positions, it was suggested, created an opportunity for Board members to challenge the “status quo” and developed an atmosphere for innovation and creativity. In some cases, this approach was deemed absolutely necessary in order to avoid this potentially dangerous situation and to better insure the long-term survival of the organization.

Term Limits- The Cons

The greatest argument against term limits on existing Boards was the age-old axiom, “why fix it if it ain’t broke”. A familiar refrain was, “if the Board was functioning well without term limits why force a change and upset the Board dynamics”. Many new Board members were hesitant to broach the subject for fear of “rocking” the boat and were concerned that by raising the subject, they may not be readily accepted into the fold.

Those arguing against the implementation of Board term limits suggested that seasoned Board members who served the organization well should not be ousted and their valuable experience lost by the arbitrary imposition of term limits. Term limits would result in otherwise competent and capable Board members no longer being able to bring their expertise, knowledge and experience to the Boardroom, which was considered a valuable asset. The loss of this “asset” included the loss of

To counter the argument about non-productive Board members, many suggested that having a robust nomination and evaluation process would avoid those rare situations and that the democratic process, where Board members were elected from the membership, was more acceptable method of dealing with the unproductive Board member rather than the imposition of harsh and arbitrary term limits, which cast too wide a net.

Government Intervention

Not willing to simply allow “good governance” practices to unfold naturally, both the federal and provincial governments (Alberta) in relation to Non-profit organizations and their own internal agencies, boards and commissions (ABC’s) simply and matter of factly imposed term limits by legislation and regulation and forced existing organizations to adopt by-laws and policies to reflect this change.

In Alberta, term limits became almost an overnight “sensation” with the rationale best reflected by the following statement found on the current Alberta Government website:

“All public agencies have fixed term lengths for directors, with reappointment conditional on performance. For public trust, corporate enterprise, service delivery and advisory agencies, the maximum consecutive years of service for directors is 10 or fewer years. For adjudicative agencies, the maximum consecutive years of service is 12 or fewer years. In cases where new term lengths are being established, staggered appointment termination dates are used to support succession planning and continuity.

Fixed terms are a tool to promote balance between renewal and experience on public agency boards. Leading practice suggests that setting a term of a reasonable number of years (three or four), renewable once, is an effective approach for most public agencies. Regulatory/adjudicative public agencies may benefit from the experience of longer maximum years.

The precise length of term and the number of renewals allowed will be set by legislation or the public agency and their minister, as long as the total length of consecutive years of service does not exceed 10 years (12 years for regulatory/adjudicative public agencies). Reappointment is to be based on the member's performance and approval of the minister. Best practice indicates terms be staggered so that no more than one-third of the director's appointment terms expire at one time.

Most existing fixed term practices in use in public agencies meet the requirements of this policy. In all cases, reappointment for a second or third term is conditional on performance, and at the discretion of the minister.”

In my own case, I was a member of the Medicine Hat Police Commission, having been appointed by the City Council for a third consecutive 3 year term, with every expectation that I would be re-appointed for a Fourth term. I had been elected as Chairman of the Commission 2 years earlier at the start of my third term. With the introduction of term limits under the Municipal Government Act (Alberta) for ABC’S including Municipal Police Commissions, my eligibility for reappointment for a further term quickly evaporated.

Best Practice: A Case for Term Limits

There was no doubt that at the time I was disappointed in not being able to continue in my role as Chairman of the Medicine Hat Police Commission as I felt I was still competent and capable of bringing valuable experience to the position. In reality, I was just getting comfortable in that role. But that was not to be.

I was subsequently appointed to the Alberta Gaming and Liquor Commission, where length of term and the number of renewals was also fixed by legislation. At the same time and overlapping was my position of Chairman and a Board member of an Alberta credit union, where despite a heated exchange and debate term limits were NOT (and to this day have not been) established as a part of the Governance policy.

From this unique vantage point, I believe I can make some relevant observations and hopefully answer the penultimate question:

Has the Implementation of Term Limits Produced the Desired Effect?

The stark reality from my experience is that despite their best intentions, without term limits, far too many Board members just simply stay on too long and otherwise impede the growth of the Board and impede the development of the organization.

For those organizations, which have mandated term limits, or for those who have had the fortitude to establish term limits on their own accord, there have been many positive results, which far outweigh, in my opinion, any negativity.

However, simply setting term limits does not in itself equate to a “best” practice but rather “term limits” should form part of an overarching Governance policy that incorporates generally accepted organizational best practices, which among other things, should addresses the broader issue of succession planning and the replacement of Board members. “Term Limits for Directors” should not be a stand-alone issue or policy but simply a part of a more robust Governance discussion about how best to meet the mission and vision of the organization, going forward. This approach should resonate with most Boards.

That having been said, based upon my experience, I can make hopefully some valuable observations. (In relation to organizations, which have incorporated “term limits” into policy, I will refer to as  a “Progressive Board”.)

Knowing that there was a continuing process of renewal, the Progressive Board has placed greater emphasis on Board recruitment and have developed strategies to improve and enhance the quality of Board members. As a natural by-product, Board recruitment policies and matrixes have, in many cases, been established which focuses board recruitment not only on the quality of a candidate but the type of skill set that was required to complement the remaining Board members. Diversity and inclusiveness including gender diversity have been established. Succession planning at the Board level has become a reality.

It has given the Progressive Board the opportunity to assess and evaluate the type of Board members it needs and the talent it requires, in order to create a well-rounded, effective and efficient Board. A further byproduct has been the development of regular self-evaluation and peer-to-peer assessments to monitor Board participation, contribution and value. This in itself has been a significant motivator for greater Board participation and involvement while at the same time promoting the “early” retirement of those non-contributing or non-performing Board members and in some cases provided an opportunity for a graceful exit.

The creation of a Governance committee which focuses on recruitment as a year round activity and one that is visible, open and continuous will serve the organization far better in the long term than an ad hoc nominating committee which meets out of necessity once or twice a year.

Furthermore, Board members who leave upon the expiration of the mandated term limit, often do so on good terms and then became “goodwill” ambassadors for the organization, more so than the disgruntled Board member who fell into disfavor and overstayed his welcome and who may have been “dumped” unceremoniously. This is never a good thing!

For those organizations, which have not been mandated by government regulation, term limits should be an annual topic of discussion at every strategic planning discussion to insure that the current process of Board selection and recruitment continues to properly address the values, mission and vision of the organization.

Some final thoughts from Wily Veteran

The typical legislative requirement does not necessarily address all of the issues that must be considered. See for example and compare two Alberta government statutes or regulations, which purportedly deal with the issue. First is an example of the legislative requirement under the Alberta Gaming Liquor and Cannabis Act:

Maximum years of service

9.1(1) No person shall serve as a member of the board for more

than 10 years.

And then compare that to a similar provision under the Municipal Government Act( Alberta):

7) The term of office of a person appointed to a policing

committee is

 (a) 3 years, or

 (b) a term of less than 3 years, but not less than 2 years, as may

be fixed by bylaw.

(8) Notwithstanding subsection (7), a majority of the members

appointed to a newly established policing committee shall be

appointed for 3 years, and the remaining members shall be

appointed for 2 years.

(9) The members of a policing committee shall, at the first meeting

of the policing committee in each year, elect from among their

members a chair and one or more vice-chairs.

(10) A member who is a member of the council or an employee of

the municipality is not eligible to be elected as chair or vice-chair

of the committee.

(11) A member of a policing committee is eligible for

reappointment if the reappointment does not result in more than 10

consecutive years of service by that member.

Unless specifically prescribed by statute or regulation, it is incumbent by a governing body to create or establish through a by-law or policy some key components, if they wish to implement “Term Limits for Directors”.

Firstly, in my opinion, there are there are THREE key components of a proper policy governing term limits.

First, having determined the proper size of the Board (which is typically 7 to 9 members), the length of the initial term and subsequent term renewals must be fixed, otherwise the term will deemed to have expired at the next annual meeting. Preferably, the terms should be staggered so that the potential for a full-scale replacement of Board on an annual basis is eliminated. This ensures much needed continuity for the Board. (2 or 3-year terms are typical)

Secondly, the overall consecutive length of service must be identified in the by-law or by policy. This aspect in reality is the “term limit” component. Hence, the typical provision, which from the two case example I have identified, place “limits” on the eligibility for reappointment or re-election by prescribing that, in the first instance “no person shall serve as a member for more than 10 years” or and in the second case, the “reappointment does not result in more than 10 consecutive years of service by that member.”

Both examples from a legal standpoint create an interesting issue.

Does a Board member who has reached the maximum number of consecutive years of service stipulated in the policy, eligible for appointment or election, upon being absent or away from the Board for a period of time?

Or in the first case example, Did the stipulation that “no person shall serve as a member for more than 10 years”, contemplate an absolute prohibition, irrespective of whether or not the person has been absent from the position for a period of time? This is an interesting question.

If not, what is the appropriate amount of time or  “break” (or hiatus) that is required?

This leads me to the third component, which from my experience is lacking in most Board Governance policies.

A properly crafted “Term Limits” policy should clearly address the “hiatus” question and specifically state whether a person is eligible for re-election or appointment following a hiatus and what that time period should be.

Here is a sample of a transitional Board policy, which incorporates and addresses the issue:

The Board hereby resolves to amend the Bylaws to extend term lengths and establish term limits for Board members with the following direction and amendments as set out below:

1. The goal of this amendment to the Bylaws is to implement the following parameters:

It is not uncommon for appointments to the Board to be made to fill vacancies mid year. It is also important to address, how “in-year” appointments are calculated in relation to the term and maximum allowable years of service. Normally, they should be excluded but it should be addressed in policy for clarity.

Finally, there may be a need for some flexibility and the ability to grant exceptions for unusual circumstances. As a matter of practice, this should require a special resolution the Board, with either a 2/3 majority or a unanimous consent provision, otherwise it may lead to a regular deviation or abuse of the policy.

Conclusion: Has the Implementation of Term Limits Produced the Desired Effect?

Although there may be a place for experienced tenured Board members, conventional wisdom would suggest that those organizations that have implemented  “Term Limits for Directors” have experienced many positive benefits and accomplished many good things. This leads me to conclude from my standpoint that the imposition of term limits in Alberta has had the desired effect and that as a result there has been an overall improvement in Board effectiveness and efficiency.

Those are the thoughts of a wily veteran.

William J Anhorn QC ICD.D