IN-DEPTH: Age diversity in sharper focus as boards examine composition
U.S. boards looking for an edge are increasingly being encouraged to consider combining directors with a diverse set of age groups to improve their performance.
According to Diligent Market Intelligence (DMI) Governance data, while the average age of directors has been largely unchanged in recent years at 63 for the S&P 500 and 62 for the Russell 3000, the age profile is however lowering for new appointees with one in four newly appointed directors joining those boards in the 12-month period to October 1 aged in their 50s.
Examining a subset of Russell 1000 constituents, a recent study released by AllianceBernstein found that companies with the greatest board age variance produced the strongest annualized returns, while those with the least age variance produced the weakest returns. On a sectoral basis, age diversity was shown to be most valuable in R&D-focused sectors like technology and healthcare.
Signs of a shift to more multi-generational boards are already emerging, with the majority of newer entrants aged in their 50s and 12% of new appointees to Russell 3000 aged in their 40s.
Responding to evolving risk
Directors from different generations can improve diversity of thought, as public company board director and strategic advisor Sonita Lontoh told DMI. “This can be influenced by a range of factors including life experience, race and identity. It's more about the experience, both life and professional, that naturally come with the director because of these different age groups. That’s what will set the board apart and best position it for future challenges.”
Such diverse perspectives are seen as becoming increasingly more important with today’s corporate landscape presenting a raft of new challenges around areas including new technology, security and geo-political tensions.
The need to respond to emergent risks such as ESG, cyber security and artificial intelligence may well bring a gradual shift to younger or more age-diverse boards, as Eddie Ramos, independent director, Calvert Funds, told DMI. “The critical issues that are encroaching on the agenda of board meetings involve things that your average 60-plus year-old director has little to no experience in.”
“In certain industries where changes are taking place at the speed of light, your role is critical. When I think of Silicon Valley Bank, this was an organization that existed on a Thursday and by Monday it was out of business,” noted Ramos. “Social media is considered to have played a part in its collapse. Directors need to know the changing innovations in a given industry, the dynamics in the marketplace and get ahead.”
Obstacles to progress
Leslie Campbell, chair of PetMeds, retired from her operating career in her mid-50s and told DMI that more executives are opting to get out of their operating career earlier to consider board work which could in future influence the average age of boards.
However, trying to juggle both remains a blocker for many due to the time commitment involved. "I would never suggest to somebody who has just taken a big promotion in their operating role or is on a learning ramp in their executive role to also add a board role at that point," said Campbell. "You have to be ready to devote significant time to board work. Boards are far more active. Shareholders rightfully have high expectations of the boards and there's far more risk. For someone in the midst of their operating career, time commitment could be a blocker and your enterprise may even prohibit it."
Gradually introducing younger representation must also be balanced with maintaining experience with boards advised to find the right mix of both in order to both provide continuity and address emerging risks and opportunities. “It's great to have a third of the board with a longer tenure because they have the institutional knowledge of that particular company, then maybe a third at middle tenure and also then the fresh directors who are just joining, who can offer new perspectives,” Lontoh told DMI.
Joining, not changing of the guard
As board chairs and nomination committees take stock of succession planning, a diverse set of voices and ages groups is also considered to lay a more solid foundation for a gradual approach to leadership changes. Opening the boardroom door to newer members, all age profiles have an important role to play with the so called “baby-boomer generation” considered crucial in providing the mentoring support to those future leaders.
“I love the idea of having an assigned mentor but it doesn't necessarily mean that that person should be your only mentor. I think younger people and older people should really take the time to connect and learn from one another,” concluded Ramos. “Everyone should have something to bring to the table. Then you will see the most constructive boardroom dynamics.”
