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Boards are stepping up efforts to hasten director turnover and make room for the “next generation of directors.” The pros and cons of the new direction

Age limits. Term limits. Overall board and individual director assessments.

In the two years since the start of the pandemic and the onset of the purpose movement, corporate boards have instituted or stepped up efforts to hasten change for a new generation of directors. A new Korn Ferry study has found that six in ten boards in top firms are now more directly assessing director performance. Meanwhile, nearly three-quarters of S&P 500 companies have instituted a mandatory retirement age for board directors—typically around 70 years old—a 50 percent increase over seven years ago. A small but growing number of boards are also imposing term limits on directors.

Conventional wisdom holds that the measures are a way to increase diversity, but that’s only one part of it, says Mark Nevins, who advises public and private company boards through his firm, Nevins Consulting. Boards are scrambling, he says, to find ways to stay fresh and relevant amid constantly changing business conditions. Directors in the past could enjoy long tenures because business didn’t change much. Now, however, boards view age—along with race, ethnicity, gender, and skill diversity—as critical to keeping up with the fast pace of business. Nearly 20 percent of new directors appointed this year are age 50 or younger, one study shows. “It used to be that businesses needed a 30-year plan,” says Nevins. “Now a 30-month one might even be too long.”

The irony is that mandatory age limits for retirement could be perceived as a form of prejudice against older directors. Ayana Parsons, Korn Ferry’s leader of board and CEO inclusion, says that mandatory retirement can raise concerns around ageism, if only optically (board directors aren’t afforded the same legal protections as employees). “Older board members have to deal with feeling like, and being seen as, yesterday’s news,” Parsons says.

Some experts say that there is no correlation between age and the ability to contribute to a board, and that older directors can provide valuable guidance to company leaders. Experts say younger companies navigating inflation could benefit from the insights of older directors who experienced inflation as managers during the 80s. Though the number is growing, only 6 percent of the S&P 500 boards have term limits of between ten and 20 years, preserving some of this expertise.

Still, with business moving so fast, boards need to create more balance in their perspectives—in terms of age as well as of gender, race, and skills, says Parsons. She says the rise in the imposition of age limits is motivated in part by the rapid transition to digital during the pandemic. “That drove home the fact that boards need younger voices with relevant, timely experience,” says Parsons. In the world of corporate boards, directors in their forties and fifties are often disparagingly regarded as newbies. “But they are the ones driving change in their organizations,” she says. “Boards need that critical day-to-day insight.”

Some older directors seem to realize they might not be able to keep up anymore, at least from a skills perspective. Or they have decided that they don’t want to. New data from Bloomberg ESG data found that the average age for directors of Russell 1000 companies is 61.8 years, down from a high of 62.5 in 2019. It’s the third straight annual decrease. The average tenure of board directors has fallen as well—to 7.9 years, the lowest rate since 2015. Data shows the decline is driven in part by retirements and resignations among older directors in the wake of the pandemic.

Focusing on younger directors can also benefit other forms of diversity: new directors from underrepresented groups are two years younger than their peers, on average. Andrés Tapia, a senior client partner at Korn Ferry and a ESG and DE&I strategist for the firm, says the debate around age limits is really no debate at all. “Do you want the future or the past?” he asks.

Tapia says firms need to continue to find ways to accelerate diversity. In fact, he says, companies risk damaging their reputations if all they do is fill board vacancies related to mandatory retirement with more older white males. He notes that the average age of directors is still 61. “If you say you are making room for the next generation of underrepresented groups, then it can’t be performative or window dressing,” says Tapia.

The article was first published here.

Photo by Glenn Carstens-Peters on Unsplash.

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