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Analysis Week 15

Term Limits Can Open Up Opportunities for Under-Represented Groups. Could They Work for You?

Term limits can create more opportunities to bring in people from diverse groups, but there are limitations. But if we re-imagine term limits as an extreme form of job rotation, the possibilities open up...

We often talk about the power of changing the process. It’s hard to change people’s minds, or unconscious patterns of behavior. But altering the rules? That’s an often-overlooked lever for creating change.

The National Institute of Health has just changed the rules by imposing 12-year term limits on its lab and branch chiefs. Leadership positions in science tend to turn over infrequently: 20% of the NIH leaders affected by the change have been in their roles for at least 20 years. By shaking up the system, the NIH hopes to show that the path to leadership is open to more people. The NIH also explicitly hopes this will create more leadership opportunities for women and people of color.

Should companies be following suit? How might term limits play out in a corporate setting?

Boards Are Choosing to Expand Rather Than Implement Term Limits

One obvious opportunity is on boards of directors. Board diversity has been a hot topic for both public and private companies over the past decade. 74% of nominating/governance committee members surveyed by Spencer Stuart said that board diversity is on their agendas to address. And as we have reported, both activist shareholders and employees continue to press for gender and, increasingly, racial and ethnic board diversity.

However, according to that same Spencer Stuart survey, only 5% of S&P 500 boards have explicit term limits for non-executive directors. In fact, 65% outright state that they have no term limits. This is in contrast to many European and Asian countries, which  have taken a stronger role in limiting director service, often legislating term limits. Rather than impose term limits, U.S. boards have mostly chosen to increase diversity by adding directors.

Adding more seats at the table can work at the board of directors level. But that solution doesn’t scale.  A company can’t simply add 30% more managers, directors or VPs in order to increase diversity. A company also can’t (and shouldn’t) push people out of a job in order to make room for more diversity. That's morally problematic as well as illegal.

But if we think about term limits as an extreme form of job rotation, then maybe there is a general principle here that companies can broadly apply. 

It's About Who Gets Formative Experiences

We know that on-the-job experience is the most valuable way to learn. In fact, as Herminia Ibarra of INSEAD describes on her blog, the rule of thumb is: “70% of a manager’s learning and development should come from on-the-job learning through stretch assignments, with only 20% and 10% coming from mentoring and classroom learning, respectively.:” As Ibarra goes on to point out, this means that getting access to strategic assignments—the ones that will give people the visibility, experience and credibility to advance—is critical to a person’s advancement.

But there are only so many strategic assignments (not to mention jobs) in a company, and they only come around so often. Is there a way to make sure those opportunities are allocated equitably, so that the maximum number of qualified people have a shot? Here are some ideas:

  • Know what roles lead to advancement. The most desirable roles will vary by company or industry, but they often are connected with revenue generation (sales, product management), business unit leadership or new market development. Then track how people are selected for those key roles and see if there is a way to make the opportunity accessible for more people. Can the role be performed by a team rather than one person? Could the role be a two-year fixed term rather than an indefinite assignment? 

  • Most roles do require a baseline set of skills.  As Joan Williams and Marina Multhaup suggest in their HBR article about fair work assignments, managers can figure out what skills are actually required for a job or assignment and “formalize the pool of employees with the requisite skills by writing it down." When an opportunity comes up at short notice, a list of qualified people is already available. WIlliams and Multhaup also suggest having junior employees shadow more senior ones, in order to develop the skills to be in the pool.

  • Consider setting a formal rotation in and out of those key roles, to maximize the number of people who get these key experiences. There is, of course, some risk in moving a successful person out of an assignment or job, in favor of an unknown quantity. But in today's tight talent market, it's arguably a risk worth taking. Job rotation develops redundancy, reducing your vulnerability if a top performer leaves. It also keeps junior employees motivated; they might be more willing to put up with a mundane assignment for now if they know they'll get an opportunity for something more interesting within a defined timeframe.

  • Finally, if you do want to rotate assignments and/or jobs, set out the rationale, plan and policy in advance. Setting clear rules will let everyone know what to expect; it can also protect you from claims of favoritism and discrimination.

To come back to the NIH, term limits are an extreme measure, which make sense in some circumstances. But the core idea is really sharing the wealth: figuring out a way to get more people into the roles and assignments that will prepare them to advance. By being creative, companies can achieve that result in many different ways...and build stronger, more resilient organizations in the process.

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