Are Small Businesses Losing Effective Board Leadership Because of Ageism?

Guest post by Clarence E. Pearson, International Federation of Ageing

The small business community is losing an important resource:  As greater longevity increases the population of those aged 65 and over, increasing numbers of skilled and seasoned senior executives leave the business world and join the pool of retirees.  But the business sector is not making efforts to reclaim this critical resource of experienced executives.  Institutional practices and policies that perpetuate stereotypes about older people are one form of ageism. According to the United Nations Population Division, the proportion of older persons has been rising steadily–from 8 per cent in 1950 to 11 percent in 2009–and is expected to reach 22 percent by 2050.   Seasoned professionals are of particular importance to small and mid-size companies, especially start-ups.

In the past several years, several age-related educational advocacy organizations began recognizing companies whose record of hiring employees age 50+ has been outstanding. These company policies regarding employment of individuals age 50+ are exemplary, but their board of director’s policies indicates that most have age limits of 65, 70 and 75 for board service.

Some Progress

A Korn Ferry study in December 2008 showed an optimistic shift in North America in the number of companies that have a mandatory retirement age for their directors. In 1998, almost 80 percent of respondents reported that their boards had age limits. By 2000, 77 percent, and by 2007, down to 67 percent. Some say that this was a reluctance to let any good directors go, regardless of age, in the early years of 2000 when new directors were unsure of their post-Sarbanes-Oxley obligations. Also, the Korn Ferry study suggested that company rules might have been changed to accommodate exceptional cases.

The Phenomenon of Longevity

All indications are that there will be a shortage of trained personnel in the workforce in the coming years. The marketplace of consumers will be growing older, with evolving needs that the business sector will have to address.  This will expand the pool of experienced executives available to serve on boards of directors for companies of all sizes, creating a greater need for changes in existing policies dealing with age limitations. In the nineteenth century, Prussian Chancellor Otto von Bismarck initiated 65 as the retirement age when few lived longer.  “Being 65 today is very different than being 65 in the 1930s when Social Security was set up and declared to be the retirement age,” said Linda Martin, president of the Population Council.  “Even in the mid-1980s, age 65 was a lot older than it is now.  Part of what employers have to think about is that these ages that are assigned to all of us are just numbers, and the meaning of those numbers is changing.”

The Global Situation

In looking at global experiences, Korn Ferry reported in 2007 quite significant differences in the mandatory retirement ages among countries. In Japan, 50% of those surveyed stated their companies had a mandatory retirement age. From the report, “In the United Kingdom, where one-third of respondents said that their company had a mandatory retirement age for directors, that age is reportedly 67, and in the rest of Europe it is 69. In North America, however, respondents in 2007 stated that the average mandated retirement was age 72. At a time when companies have continuing difficulty recruiting high-quality board members, their boards may do well to extend mandatory retirement ages.”

The Graying of Corporate Boards

It is imperative that companies view increasing longevity statistics in light of the effect on their boards. There are various perspectives surrounding the raising or not raising of board age limits. Those favoring a higher age limit (or none) see it as a way to retain a valuable board member.  Actively engaged retired executives add wisdom, maturity, and their own well-developed business and personal networks to enhance their board service.

However, there are concerns about raising board age limits as well.  This can encourage the tenure of long-term directors who may no longer be effective. A higher age limit could inhibit the ease of turnover to make room for new board members, and it would be harder and uncomfortable to communicate to old, proud executives that they are no longer useful.

According to the Wall Street Journal [February 28, 2011], there is a growing phenomenon that should give pause to those concerned about corporate governance–the “graying” of corporate boards. “While most boards today force members to retire at 72, 19% of the biggest businesses with board age limits now set them at 75 or older—up from 8% in 2005 and 1% in 2000.”

Experience Needs of Small Businesses

Seasoned professionals could be an untapped resource for small and medium-sized businesses and start-ups. In the U.S., a small business is defined as an independent business having fewer than 500 employees. There are now approximately 1.2 million US companies with 500 to 1,000 employees and over seven million companies with 1,000 employees or less.  New and innovative companies–many created by bright, young, aggressive but inexperienced businesspeople–could use the talents, patience, and long experience of the pool of retired senior executives that become available in larger numbers every year.

Some Recommendations for Decision-making

The time has come to eliminate age as a criterion for service on America’s boards of directors—and globally as well. Here are some possible next steps today’s CEO and/the Board Chair, who are continually seeking ways to improve the quality of their boards, can take:

• Evaluate the contributions of those former directors of your corporation or organization who retired because of retirement age policies.

•  Communicate with some of your CEO/board colleagues that have changed their by-laws and ask their opinion about the results.

• If you are convinced of your decision to change your company’s current retirement age policies, make a strong case, using research and experience across sectors, e.g. recruiters’ research, UN data, and the positive experiences of organizations with older board members to counteract any ageist responses.

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Written by Clarence E. Pearson

Member, Board of Directors, IFA

Clarence E. Pearson is a global health leadership and management consultant and member of the Board of Directors of the International Federation on Ageing, former member of the Board of Directors of AARP and Executive Editor of the book, Global Health and Global Aging(Jossey Bass/John Wiley & Sons, Inc.).

July 2013