Gray power

Aged 90, Appel is younger than former US President Gerald Ford, but he is due to retire from Citigroup in April. In fact, a recent BoardEx study found 12 percent of directors are over 70, which is past the usual US worker retirement age. 

While gray heads have never been a rare sight in corporate boardrooms, experts anticipate more senior citizens will be tapped for this role. As the quest for independent directors intensifies, boards are increasingly considering retired CEOs and other individuals who might not have fulfilled their selection parameters before. 

The BoardEx study evaluated 12,229 board members at listed companies in the US, and found the average age of directors is 60. What’s more, 75 percent of directors fall between the ages of 50 and 70, with 40 percent in their 60s. 

Does age matter?

While no-one advocates age as the main criterion for selecting directors, maturity certainly has its advantages. Many corporate secretaries see assembling a board that combines younger with more seasoned directors as a worthy goal. ‘Older directors have a different perspective from younger, acting CEOs,’ notes Joan Lenahan, corporate secretary at Humana. ‘We value both perspectives.’ 

Most corporate secretaries probably do consider age when choosing qualified nominees. Lynn Williams, corporate secretary at Scana Corporation, recognizes the unique contributions made by the older directors on her board. ‘They bring sound business acumen and mature judgment to the corporation while protecting the interests of our shareholders,’ she says. ‘And there’s no doubt that they bring wisdom and experience.’ 

For some companies, finding a director with a long history of past accomplishments trumps other concerns. Theodore Dysart, principal of the global board of directors practice at Heidrick & Struggles, says conversations about age are common when searching for a new director. He recently helped a client that ultimately chose a 76-year-old to join its board. ‘The client was particularly attracted to this person’s depth of experience,’ explains Dysart.

Looking beyond typical age parameters makes sense given the shortage of qualified independent directors. ‘As active CEOs become tougher and tougher to acquire, boards are picking up people who are 65 and retired, where previously they might have taken a pass,’ adds Dysart. 

Julie Daum, US board services practice leader at Spencer Stuart, raises a similar point. ‘Going forward, I think you’ll see both younger and older directors,’ she observes. Some companies are even seeking shareholder approval to allow older board members to serve. Noble, for example, will vote later this month to increase the director retirement age from 70 to 72. 

Broadening your horizons on the age issue has practical advantages, too. ‘No matter what, companies don’t want a room full of people the same age,’ says Daum. ‘They want people with different experiences. In general, they think about having some age dispersion. And they don’t want the whole board to retire at the same time.’ 

But corporate secretaries are quick to emphasize that while age is one consideration, it’s rarely a make-or-break factor. ‘Age is secondary,’ stresses Lenahan. ‘It wouldn’t be the first thing we’d look at.’ 

As corporate governance experts begin to rate boards on their effectiveness, the age of directors may be something that comes under the microscope. Nell Minow, editor at the Corporate Library, uses several different criteria, including age, to gauge the effectiveness of boards. 

‘If the directors are making good decisions about compensation, strategy and financial disclosure, we won’t go to the next step and try to figure out whether they’ve been sitting on the board for too long,’ she points out. ‘It’s only when we have a problem with the decisions they make that we look into whether there’s some obvious reason.’ And one potential red flag is a board consisting of individuals who are all the same age. 

Performance is still key

Minow makes judgments on a case-by-case basis because individuals and their abilities vary so widely. ‘As we all know, there are some people who are not particularly good at age 30 and others who are terrific at age 80,’ she says. ‘That’s why we judge boards on the decisions they make.’ 

Youth, too, can be suspect in a director but again the rigid distinctions are breaking down. ‘It used to be that people would say they’d take someone ‘young’, meaning someone in his or her mid-to-late 50s,’ says Dysart. ‘That’s moving into the early 50s and late 40s now.’ 

Ironically, as public companies are extending invitations to older board members, more are also putting in place mandatory retirement ages. The 2004 Spencer Stuart Board Index finds 79 percent of boards have a mandatory retirement age, up from 66 percent the previous year. What’s more, 88 percent of boards with a mandatory retirement age use 70 or 72 as the cut-off age. Practically speaking, this forces companies to consider the age of candidates if they want directors to have ample time to serve before they have to retire. ‘I’d think you’d want at least a five-year tenure,’ says Lenahan. ‘That seems to be a good period to get people experienced with the company.’ 

The trend, says Daum, is clearly for more companies to establish retirement ages. ‘Mandatory retirement ages help with retirement from the board,’ she explains. ‘It makes sure that at some point there’s a natural turnover of directors.’ 

Mandatory retirement ages have their critics, too, though. Often, adopting a retirement age is a way of avoiding ‘the tough call of deciding whether someone’s good enough or not,’ says Minow. 

Dysart points out another drawback: ‘Companies put this in by knee-jerk but it can mean throwing out the baby with the bath water. Sometimes someone who’s 72 is swifter than anybody you could go out and recruit and you end up losing a great director.’ Better than a retirement deadline, he maintains, is a disciplined director evaluation and assessment program that’s conducted every year or two. 

Although the director shortage is spurring some companies to consider older candidates, it’s a double-edged sword. For some corporate secretaries, knowing how difficult it is to find the right candidate means they’re wary of individuals whose tenure may be brief. ‘It’s so hard to get good directors now that it would be odd to pick someone who would be leaving again right away,’ says Lenahan. 

In the final analysis, corporate secretaries and board composition experts say age is an issue that defies easy categorization. Whether or not a board member in his or her late 60s or early 70s will prove successful depends on the individual in question. Ultimately you’ve got to go with how well directors actually perform in their jobs.