Over the last decade, U.S. boardrooms have seen a concerning trend: the rise of "zombie directors". These directors continue to hold their board positions despite losing majority shareholder support due to outdated governance frameworks. The persistence of zombie directors can erode accountability, stifle innovation, and even diminish companies' competitiveness in critical areas like ESG (Environmental, Social, and Governance) initiatives.

What Are Zombie Directors?

Zombie directors are board members who, despite losing the backing of shareholders, manage to stay on the board. This occurs in companies with “staggered” or “classified” board structures, where only a portion of directors are up for re-election each year. This system can make it difficult for shareholders to remove ineffective board members swiftly. As a result, these directors persist even when they no longer have the confidence of the shareholders they represent, potentially stalling board effectiveness.

Part of the problem stems from governance loopholes. For instance, in 2020 a minority of U.S. companies—around 15%—had binding policies that mandate the resignation of directors who lose majority votes. In many cases, directors can stay in their roles even if they win only a handful of votes or run unopposed. Such lenient rules are uncommon outside of the U.S., as most developed markets have stricter accountability standards for corporate boards.

Netflix offers a notable example of how this issue plays out in practice. Unlike most U.S. companies, Netflix still has a classified board structure where not all directors are subject to annual elections. While this setup once served as a defense mechanism against activist shareholders, its popularity waned, and only about 10% of S&P 500 companies still maintain classified boards. Shareholders overwhelmingly voted in 2012 to overhaul Netflix's classified board structure, as it hinders shareholders’ ability to refresh board leadership quickly. According to communications in 2022, the company is supposed to declassify its board by 2025.

The Rise of Zombie Directors in the Last Decade

Ten years ago, shareholder activism was only starting to take root, and companies were slowly moving toward more transparent governance practices. Between 2014 and 2024, the issue of director tenure has moved up the agenda for many investors. Yet, despite efforts to refresh boards, the number of zombie directors has increased, with an estimated 15-20% more instances of directors being re-elected despite majority opposition compared to 10 years ago. Several factors have contributed to the growing issue of zombie directors in US boardrooms. One key factor is the persistence of classified board structures, which prevent shareholders from voting on all directors annually. The COVID-19 pandemic also played a role in exacerbating the problem. During the pandemic, many boards opted to retain directors longer than originally planned to ensure stability. As companies now emerge from the pandemic, many are still dealing with a backlog of board renewal, leading to an increase in zombie directors who have outstayed their welcome.

Why Zombie Directors Are a Problem

A report on board composition notes that tenure often leads to complacency. Directors who have served for over a decade may lose their edge, becoming too close to management to offer unbiased oversight. The increasing prevalence of zombie directors poses several risks to companies:

1. Weakened Accountability: When directors remain despite losing shareholder support, the board’s accountability to its shareholders is undermined. Zombie directors can create a disconnect between leadership and the interests of those who hold ownership stakes in the company.
2. Stalled Innovation: Directors who have served on the board for long periods may be more resistant to change, especially when it comes to adopting new strategies, technologies, or business models. Their reluctance to challenge the status quo can slow a company's adaptability, especially in fast-evolving industries like technology and finance.
3. Impacts on ESG Competitiveness: The persistence of zombie directors can hinder a company’s ability to remain competitive, particularly in the area of ESG initiatives. Data suggests that companies with outdated governance structures may struggle to implement forward-thinking ESG strategies, which are increasingly demanded by both regulators and investors. Boards that fail to prioritize sustainability, diversity, and good governance due to ineffective leadership could find themselves at a disadvantage in the market.
4. Frustrated Shareholders: Shareholders are becoming more engaged with corporate governance issues. Zombie directors who linger despite opposition are causing mounting frustration among investors, particularly as they seek greater transparency and dynamic boardroom leadership. This has led to a surge in shareholder activism, where investors push for governance changes and demand new board candidates.

Addressing the Zombie Director Problem

To combat the issue of zombie directors, one of the most significant changes would be to move towards declassified boards, where all directors are elected annually. This gives shareholders the ability to refresh the board more frequently and remove ineffective members as needed. Companies that have adopted this model often report higher levels of accountability and a more dynamic board culture.

Additionally, improving shareholder engagement through mechanisms like proxy access—which allows certain shareholders to nominate their own board candidates—can help bring fresh perspectives to the boardroom. By making it easier for shareholders to influence board composition, companies can ensure that their leadership remains aligned with shareholder interests.

The rise of zombie directors is a growing concern in U.S. boardrooms, with significant implications for corporate governance, innovation, and ESG competitiveness. Companies like Netflix have shown that even industry leaders can suffer from outdated governance practices. To remain competitive and ensure effective leadership, U.S. corporations should evaluate their board structures with a focus on increased accountability and alignment with the expectations of today’s engaged shareholders.

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