The last time the Yorktown Funds board added a new independent director, "Seinfeld" ruled the airwaves, a jury acquitted O.J. Simpson of murder, and Jeff Bezos had more hair but less money.

Across the industry, nearly 80 fund boards have gone at least a decade without bringing on a new independent member, and eight of them have functioned 20 years or more with their membership essentially trapped in amber, according to a BoardIQ analysis. These boards also, on average, have less than half the gender diversity of all other boards, the analysis found.

Operating a board of mostly men where everyone qualifies for a gold watch upon retirement raises important governance and diversity questions, attorneys and directors said, and highlights the potential benefits of term limits.

Having long-tenured directors is not inherently bad, said Rajib Chanda, a partner at Simpson Thacher.

"That said, the idea that boards wouldn't have new thinking and new blood from time to time ultimately gets to the question of are they as effective as they can be from an oversight perspective," Chanda said. "The numbers you're talking about are less than ideal from a governance perspective."

It's not unheard of to have long-serving directors on fund boards. More than 380 current directors have been on their boards two decades or more, according to a BoardIQ database. And the average director tenure last year was 12 years, according to the Independent Directors Council. Although that figure has held steady since 2012, it's up from nine years in 1998.

These directors can have valuable knowledge about their funds' investment strategies, the portfolio managers and the advisor's organization, Chanda and others said, and their institutional understanding can help in difficult times. Directors who served during the Great Recession of 2008, for example, offered great insights during last year's pandemic-driven volatility into what did and didn't work 12 years ago, he said.

But when every director is long-tenured – falling into what one board counsel called "legacy demographics" – the group can become entrenched.

The board of the $1.3 billion Yorktown Funds is composed of four independent and two interested directors, all men. One of the independent members, Mark Borel, has been on the board since the funds launched in 1985. Lead independent director Wayne Johnson started in 1988, and the two newbie independent members joined in 1995, filings show.

The oldest independent director will be 73 this year; the others are all in their 60s. Johnson did not respond to a message sent via LinkedIn, and David M. Basten, an interested director and managing director and portfolio manager at advisor Yorktown Management & Research Co., did not respond to an email seeking comment. Basten, the son of interested board chair and fund group founder David D. Basten, started on the board in 2008.

Turnover on the board of the $373.5 million Matthew 25 Fund has been almost as stagnant. All four of the independent and two interested directors have been there since 1996, about when the fund launched, disclosures show. All are in their late 50s or early 60s. Independent director Linda Guendelsberger, one of the audit committee's financial experts, did not respond to a phone call or email. Several directors on other boards also did not return messages to talk about their tenure.

In all, eight boards haven't added any new independent directors since at least 2001. Another 69 boards last brought in someone new between 10 and 20 years ago, the analysis found.

"These are – you don't want to say lifetime appointments – but people are on through retirement age," a board counsel who spoke on condition of anonymity said about fund directorships. "The downside is over time they can become too routinized."

In the worst case, long-tenured boards can become entrenched and might not push back against the advisor on certain issues because of the long relationship and familiarity between directors and management, Chanda said. The anonymous attorney, however, said he hasn't encountered long-serving directors becoming too close to management. In fact, some of the most vigorous shareholder advocates he has known have been long-serving board members, he said, while he has witnessed newer directors with an almost puppy-like eagerness to please management.

How long is too long for an entire board? Chanda wasn't sure but noted boards that haven't had any turnover in a decade should ask during the annual self-assessment whether they need to grow or change membership. An independent board chair said subtle things such as whether funds have breakpoints can be a good indicator of whether boards are serving shareholders' interests, their own, or the advisor's.

"You can determine whether a board has been in place too long by the actions they take," said the chair, who spoke on condition of anonymity.

The questions and conversations about tenure can be particularly relevant, as boards of all sizes have been grappling with ways to diversify their makeup. Last year, 41% of new directors were women, and 24% were nonwhite, according to the Independent Directors Council's biennial report on fund governance practices. Overall, 32% of the 1,299 directors in the IDC's survey last year were women.

At boards where no new directors have joined in 10 years or more, 15% are women, the BoardIQ analysis found, and 47 of the 76 boards have no female members. In contrast, 38% of directors are women at the more than 400 boards where the newest member's tenure is less than a decade.

"Of course that's true. It would be shocking if that weren't true," Chanda said, noting that fund boards were much less diverse a decade ago and the pool of candidates back then was also less diverse.

Boards that have had no new members over an extended time period have three options to refresh their makeup, the anonymous attorney said. Wait it out until some directors retire, which could take years; expand the size of the board; or force someone off of it, an unlikely scenario.

"I just don't see boards ready to push people off the ledge to create the vacancy," he said. "Are they going to draw straws?"

That's where policies that lead to turnover, such as mandatory retirement ages and term limits, come into play, attorneys and directors said. As of last year, 73% of fund complexes had mandatory retirement policies for directors, 6% had both age and term limits, and less than 1% had term limits alone, the IDC report said. The average mandatory retirement age in 2020 was 76, up slightly from prior years, when it was 75.

Less than a quarter of the 34 independent directors serving on boards where everyone has been there at least two decades are 75 or older. But a director's value and contribution to a board doesn't have to end once he or she steps down.

The anonymous board chair said he continues to call his predecessor, who left the board four years ago, for perspective and insight at least once a quarter. "He still has institutional knowledge I need from time to time," the chair said.

These Boards Have No Rolling Stones (but Possibly Moss)

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