Are there age barriers in the boardroom?

Are there age barriers in the boardroom?

Do boards have sufficiently varied age profiles, particularly among their Non-Executive directors (NEDs), to deliver a broad spectrum of experience and knowledge? The Executive Grapevine Report 2012 found that NEDs are increasingly older as companies grow more risk-averse in the economic climate. They want an experienced, safe pair of hands to deal effectively with short-term risks and challenges, rather than having a more long-term approach.

The report also notes that younger executive directors are getting limited exposure to the most senior roles and companies are often neglecting the development of their talent pipeline.

A range of sources show that the average age of NEDs is now around 62, while data published by the Daily Telegraph in 2010 showed that the average age for a FTSE 350 chief executive was 53. So with this in mind, is there a danger in having an older NED base which might be out of touch with contemporary business issues such as the new markets emerging from the digital age?

Balance of age and experience

At Warren Partners, we are seeing increased demand for ‘wise owl’ NEDs in the boardroom but also NEDs with insight and experience of the contemporary landscape. Nomination committees are looking for individuals with board experience who understand the complexity and risks associated with the large scale development and integration projects that many major companies are embarking on to meet evolving customer and market demands.

This is particularly the case in the consumer sector, where NEDs who understand digital and omni-retail sales channels are being snapped up. They can add considerable value to a business by helping executives to steer the company through challenging times and to capitalise on growth opportunities.

Overall, experienced NEDs with the gravitas to reassure the City, government and regulators are seen as a valuable asset to companies. Banking & financial services is just one area where hugely experienced chairmen are being brought in to radically change the culture and operations of major organisations.

But is there a downside to having plenty of grey hair around the boardroom table? Dr John McAdam, Non-Executive Chairman of United Utilities plc, says that his concern is less around age than the time lapsed from an executive role.

“I am not sold on people who become plural and serial NEDs at 50 and, at 65, are still looking to do it. You can get too distant from operational immediacy and I'd be looking to balance the board up with people who have this.”

This highlights the need for a wide spectrum of experience and also the importance of ongoing board development. The chairman needs to ensure NEDs maintain their sector knowledge and contacts, keep abreast of innovation and continue the executive team challenge and support. Regular board assessment and reviews of individual effectiveness will identify any weak points to be addressed.

End of age ceilings

The phasing out of the UK’s default retirement age was completed on 1st October, so there is now no set age at which NEDs have to retire. In practice, 70 to 72 is the average age at which many NEDs are expected to step down, and chairmen are factoring this into their board’s succession planning.

Age discrimination legislation also came into force last month, so chairmen need to be mindful that they are compliant. Boards must be able to demonstrate that the NEDs they appoint have been selected entirely on the basis of skills, expertise and market knowledge.

In our experience, age should not matter as long as the NED has the skills and expertise to do a good job. There is still a shortage of talented and qualified NEDs, so age should not be a factor in appointing people.

This view is reinforced by Lord Curry of Kirkharle, the crossbench peer, who has held a number of directorships and non-executive roles including Chairman of NFU Mutual and chair of the Government’s Better Regulation Executive. “There is a mood change with regard to age and longevity on boards as it was common yesteryear to have a ceiling of 65 years. Now, with legislation, but moreover because of the complexity and responsibility of the NEDs and chair – particularly in financial services – there is a shortage of new NEDs with the relevant experience. It is therefore more common to have current NEDs serving at least two or three terms.”

He is an advocate for age not being a barrier – either young or old – and says it is the contribution, value and objectivity individuals bring to the board that count.

“It is important for retiring executives to develop their NED experience quickly and diversify their interests in their portfolio in order to maximise their value and contribution as they have fresh insight into markets.”

Developing young NEDs

Lord Curry’s insight raises the issue of ageism at the other end of the spectrum. Younger executives who are in mid-career could be a valuable source of NED expertise. We are very actively identifying and tracking this pipeline of future NED talent across many sectors and industries.

One area where we have identified a particular shortage of NEDs is those from a chief information officer background. This is partly because there are so many stretching CIO executive roles available in IT and technology-driven sectors that individuals who have retired from their full time executive roles are being lured back to, on consultancy or short term contracts with significant packages and without the risks associated with taking a directorship.

The weekly secret diary of an anonymous female director featured in the Daily Telegraph tackled the age issue from the perspective of youth. The self-titled ‘Board Babe’ sits on the executive board of a multinational company with more than 10,000 employees and says:

“In the boardroom, a few days ago, a few comments were whispered which collectively assigned all of us to the same age bracket, at which point I had to interject and correct the group that they are 10 years ahead of me. At this point, I had rapid blinking from my colleagues, checking for the truth and signs of wrinkles that would disprove what I was saying.

“I don’t believe my age has ever been a hindrance. I have been able to converse comfortably on any board when discussing business matters and have always ensured my opinion was heard. I don’t believe that’s anything to do with my age. Yes, I have an air of maturity, but more than that, I know what I’m talking about when I speak and have good insight towards other people.”

It’s a timely reminder that board members need to be judged on results, leadership and their contribution to shareholder value; not on age, gender, ethnicity or other factors. It also reinforces the importance of the chairman’s role in ensuring the board is truly diverse, reflecting the markets, global locations and customer demographics in which a business operates.

Posted by Joëlle Warren on

Joëlle Warren

Joëlle Warren

Executive Chair & Founding Partner

Joëlle is Executive Chair & Founding Partner of Warren Partners and leads chair and non-executive director searches.