Tuesday, April 19, 2011

Wall Street Increasing Retirement Age for Board Members

Last month, the Wall Street Journal published an article documenting a phenomenon that should cause pause for those concerned about effective corporate governance: the graying of corporate boards. Many publicly traded companies, citing a shrinking pool of experience and unproven and risky newcomers, have raised mandatory retirement ages to hang on to board members, typically male, typically white, who are well into their 70’s and beyond.

When German luxury automaker BMW showed its 60 year-old director the door in 2006, wary that a company that desired to anticipate “tomorrow’s auto technology today” would have a hard time doing that with “an elder statesman,” the forced out executive complained because “he liked being the captain of the ship.” In the United States, it appears that this BMW executive may have had the mandatory retirement age elevated in order to allow him to remain as “captain of the ship” despite bylaws and corporate statements that call for mandatory retirement at a certain age.

Critics of elevating retirement ages to keep older executives around longer note that longtime directors are more susceptible to losing their outside perspective. Further, critics note that restricting the “up and out” of mandatory retirement makes it harder to bring in fresh corporate oversight amongst entrenched executives, suggesting that the entrenched are less responsive to shareholder concerns, Finally, increasing the retirement age just pushes back the difficult day when leadership must tell these old, proud executives that they have outgrown their usefulness.

In light of the recent financial market crisis, logic would seem to dictate that new blood is needed on Wall Street, enabling fresher vision and less reckless leadership. It appears that Wall Street has not received this message, as many companies are manipulating their own retirement rules to keep oldtimers around to fill their board seats.


  1. I have to agree with the critics on this one. What little work experience I have has shown me that businesses need new, fresh ideas and different perspectives to prevail and stay alive (not just on Wall Street, but also in small town USA). Though I do not per se agree with a mandatory retirement age if someone is still on their game, increasing the retirement age to keep the older guys around longer does not seem like the way to go. If a company needs someone to stay around, it should find a way to give him/her incentives to stay around instead of enjoying his/her retirement. If he/she does not want to stay around, the compnay should embrace the young-guns and see what they have to offer.

    -Shana O.
    Bus. Orgs.

  2. I believe this trend may be an attempt by companies to hold on to old ways of doing business instead of embracing the new. We all know that there needs to be more diversity of minorities and women in corporate America, and I believe these companies know this as well. But as a feeble attempt to combat diversity companies simply want to retain their old executives so that they can delay the results. There could also be an assumption that these older executives see the direction in which corporate America is heading, and thus want to keep it like the "old days" as long as possible.

  3. I don't think that there necessarily should be a mandatory retirement age at all for corporate boards. Little weight should be placed on a person's age in determining his or her status on a board. Boards should be established based on other criteria. My suggestion is to base veteran board member status on whether, over a period of time, the member has made votes and suggestions that were favorable to the corporation's success and profit maximization.

    Youth does not necessarily guarantee ideas that will revolutionize a corporation, a country, or even the world. John F. Kennedy was considered to be extremely young when he was elected President of the United States, and he is regarded as one of our country's great leaders. Then again, Adolf Hitler was a young man when he took control of Germany...

    Ben Franklin once said, "An old man in a house is a good sign." Also see "Lord of the Flies." Ronald Reagan was our oldest President, and during his presidency we experienced one of the great economic upturns in our country's history. Then again, Don Quixote attacked windmills.

    All I know is when God passed out brains, a lot of people - young and old alike - thought he said trains and went chuggin' by. I rest my case.

    Rachel K
    Bus. Org.

  4. I honestly do not know how to attack this issue because I really can see it from both sides of the aisle. There is obviously the concern that these BOD members will simply continue to up the retirement age for themselves to a point where they are on the BOD, but not capable of performing their duties. Additionally, it does have a tendancy to keep fresh blood off these Boards. Next, there is the fear that these "oldies" are simply occupying the seat to entertain themselves and collect the massive compensation that oftentimes comes with these types of positions.

    But for a moment, let me play devils advocate. My grandfather is 85 years old and as sharp as a whip. I am absolutely convinced that he could be thrown into law school or any other competitive business environment, and perform well even at his seniored status. Thus, I believe this narrows the issue that we are looking at. It is not that age is a determinitive factor as to who is capable or able to sit on these BOD's, otherwise young blood would have to wait for a certain minimum age to obtain a seat. Personally, I have no problem with the age threshold being pushed upward. I preface this on the assumption that these elder statesman are working diligently and to the best interest of the corporation.

    Lets assume this: There is a white, female board member who is not performing her duties to the best of her ability, or in a way that maximizes the potential for the corporation. Heck, let's throw in that she is acting fraudulently.
    On the same board, there is a african american male who is performing all duties, has superior vision for the corporation, and is has expert abilities with respect to how to finance a corporations future.
    Now if the first board member is 50, but the second board member is 75, which member would you rather have? Now this is an extreme hypo to make an obvious point. Age shouldn't determine ones status on a BOD.

    It is the job of the Executive Management, other BOD, and the shareholders to weed out the poor BOD's. That is the capitalist system and the structure for which this country is built. It is the assumption that those Corp's that weed out properly will be successful, and those that do not will fail. Thus, the BOD (regardless of age) should be judged based on work product, and if the Corp does not remove poor BOD members, that Corp deserves to watch its demise.

    Michael M.
    Bus. Org.

  5. I think it is important to note that by 2015 45% of the United States population will be over 50 years old. With numbers like these the amount of wealth and power necessarily rests with an older generation of people. Also, these numbers show that the markets in which many companies conduct business will have customers made up of an aging population. The idea that older board members can lose perspective is valid but at the same time I have found that experience, in life and business, is priceless. If I have an important case, and I need advice, I am going to go to an experienced attorney for advice because the younger lawyer will lacks experience. The young lawyer may get the job done and have some innovative ideas, but the old lawyer can show you how to get the job done with less effort and some assurance that you take the right action.
    It is difficult to push out a lifelong executive who continues to make contributions to shareholders. I think that fresher oversight is important as some executive lose perspective, but they do not necessarily lose their knowledge, connections, and insight that all help companies succeed. I don't think extending the age should make it harder to force someone out and that someone should be removed when their performance no longer meets the criteria of high quality leadership. Also, some jobs, like President of the United States, have age minimums, which tends to show that age and experience are important assets. That is not to say that a young person could not handle the job, but in some cases experience will win against fresh new talent because they have been their before.

    John S

  6. I tend to agree with Rachel K on this topic. I don't think there should be a necessary retirement age for corporate boards either. At the end of the day, the goal of the corporation is profit maximization for the shareholders. Old or young, board directors should be judged on the value they bring to their corporation. If a director has been a valuable member of the board of a corporation, helping that corporation maximize profit, there is no reason why he should be forced out simply because he has reached his 60th birthday. Often, the older directors have been around the corporation the longest, know the corporation the best, and know what is necessary for the corporation to succeed. Also, if a loyal officer of a corporation has worked his whole life up the corporate ladder, is it right to force him to retire shortly after he has reached the pinnacle of that corporate ladder?

    - Ryan K.
    Bus. Org.

  7. While I’m all for new and innovative (read: young), as well as diverse, thinking on corporate boards (especially in light of the lightening-quick changes taking place in our technology-based society), I think that there is something to be said for the retention of institutional knowledge on a board. The intimate and first-hand knowledge of the past operations and decisions of a company can be useful in the management of a company.

    Also, I wonder how the mandatory retirement ages discussed in the post do not run afoul of the EEOC and the Age Discrimination in Employment Act (ADEA). Do corporate executives fall into one of the exceptions? If it does in fact apply, however, I ruefully appreciate the irony of a law intended to protect the powerless little guy from discrimination being used to shield corporate fat cats…

    - Greg

  8. I think you bring up a lot of good points, Greg. Diversity on boards includes the young as well as the old, and it would be disappointing to loose sight of that in our quest to bring more varied thinking onto the Boards of Wall Street.

    However, it was interesting to note that BMW director forced out in 2006 was only 60. I can understand the fear of entrenched directors getting to their mid to late 70s, but 60 years doesn't seem that old to me....

    -Angela N. UC

  9. My thought to this article is that most businesses out there are potentially holding on to their old Board of directors as long as possible because they might be in fear that they won’t be able to find equally experience directors. Most people might argue that great experience, maturity, and wisdom come with age; however, Wall Street and any other company for that matter are in need of dynamic younger people with potentially greater outside perspective.

    Furthermore, I am sure there is a diverse pool of the younger generation ready to take over; I only wish the corporate world would give the diverse younger generation a chance.

    Marianne Monkam
    Bus. Org

  10. When a long time board member retires, that board member takes invaluable information with them. This information is otherwise known as intellectual capital. BusinessDictionary.com gives a great definition of this idea. It defines intellectual capital as "[c]ollective knowledge (whether or not documented) of the individuals in an organization...." This knowledge can be used for many gains but specifically applicable to this topic, can be used to gain "competitive advantage."

    Because of the “investment in (and replacement of) people is equivalent to investment in machines and plants” and “expenses incurred in education and training (to maintain the shelf life of intellectual assets) are equivalent to depreciation costs of physical assets,” many businesses are referring intellectual capital as a "true capital cost.”

    Several different industries that rely heavily on intellectual capital (See Florida’s Bar Announcement for increasing the retirement age of judges) have been increasing the retirement age. In many cases, the general retirement age has been increased to help combat the “graying” of America. The increase in retirement age for Board members is not necessarily a bad thing.

    However, maintaining the same Board of Directors is not necessarily a good thing either. These businesses, in order to stay fresh, current, and most importantly, competitive, in the global market, must enact proper transition policies that foster maintaining intellectual capital but also foster the injection of fresh and new ideas. Therefore, combining new and old board members to facilitate a proper transition is not only necessary but paramount for successful competition in the global market.

    Business should be the survival of the fittest, sans corporate bailouts. The businesses best suited for the 21st Century will be able to thrive while those who are fully reliant on the past should, and ought to, fade to black.

    Courtney R.
    Bis Org

  11. Dear Angela N. –

    I was also surprised by BMW’s forced retirement at 60. At first I thought that this might be a reflection of Germany’s strong social welfare programs, but nope – in fact, Germany recently voted to raise its retirement age from 65 to 67, apparently in response to (1) the fact that citizens are living longer, leading to (2) a strain on their social security equivalent. It’s been suggested it should be as high as 70.

    If that sounds crazy, don’t laugh just yet – House Speaker John Boehner (R-OH) suggested last summer (in his pre-Speaker days…) that the U.S. do the same
    (http://www.cbsnews.com/8301-503544_162-20009192-503544.html). However, now that his party controls the House, I haven’t heard it come up again, despite his calls to lower government spending.

    Perhaps there’s a lesson here: in order to bring greater accountability to the governance of Corporate America, let’s get shareholders to vote as reliably as America’s seniors…

    - Greg E. / UC

  12. I also agree that there should not be a mandatory age for retirement. Many people remain fully competent in their "old" age. I also agree that just because someone is young does not mean that they will provide "less wreckless leadership." I would hope that when I reach an "old" age that I would not be forced out if I were still on top of my game.

  13. The previous comment was by Marjorie M. - WVU Bus. Org.
    I appologize for not identifying myself.

  14. Diversity amongst a board of directors accomplishes an array of initiatives, but so does experience and wisdom (attributes usually acquired over time). I can see both sides to this debate; and, as I have argued previously, it seems that some sort of mutual understanding or compromise should present itself in order for boards of directors to most appropriately traverse modern corporate dilemmas.

    --Andrew F.
    Bus. Org.

    Wisdom and experience (or the "gray boards") offer insight into problems that only years of experience can teach; thus, where do we expect to refine the skills of our younger generation without the ones who have "done it all before?"

    This being said, I by no means intend to submit that diversity and youth are not wanting in many board of directors' settings. Of course, a young ("fresh") view of a situation or problem promotes creativity and ingenuity, which are admirable corporate goals. But, consideration should still be accorded to the cost-benefit analysis of losing experience (when these graying members are still viable sources of information, as Marjorie notes) while supplanting them with diverse youths having lesser practical knowledge and understanding. Again, a synthesis of ideals and operational style should be aspired to.

  15. Greg, building off of your point, while I think that there is a good argument to be made for bringing in a fresh perspective and not allowing board members to get too entrenched, a lot of societies, ours included, are highly likely to raise the retirement age for pensions/social security for a variety of reasons in the coming decades. Naturally there would be a tension between our society telling workers generally that they need to work longer on the one hand, but that their services are no longer needed in corporate leadership in the other. I think this speaks against a blanket policy of ousting board members above a certain age. Rather this should be a matter of internal corporate governance.

    - Matt W. / UC

  16. Matt W.

    I fully agree that a determination of retirement age should be a matter of internal corporate governance. There has been a long tradition of allowing corporations to independently make decisions regarding management and the direction of the corporation. A blanket mandatory retirement age would unduly restrict corporations.

    For example, a mandatory retirment age of 65 would exclude individuals that are completely capable of carrying out the best interests of the company, and might place corporations at risk for hostile takeovers due to lack of experience of new directors. One specific example would be Warren Buffet, who arguably has contributed a great deal to the corporations on which he sits as a board member, even after reaching the age of 65.

    Patrick B. UC

  17. While there are certainly many issues with a blanket mandatory retirement age, I think there is something to be said for a concern of the lack of diversity in corporate thinking.

    It is very easy for an individual who has been a member of a board for 10+ years to ignore/discount the important contributions of younger and less entrenched numbers. Corporate governance should not simply be about getting the largest profit short term for the company and its shareholders, but about the best interests of the corporation, particularly in its connections and interactions with the world as a whole. These ideals are more likely to be found among a younger generation. Of course, there's no easy solution; certainly a mandatory forced retirement age would cause numerous problems. That's why I believe shareholders must become more active and engaged in who exactly is running these boards. Stronger shareholder involvement may help alleviate some of these issues.

    Angela N. - UC

  18. I tend to agree with many of those who have taken the stand for not having a mandatory retirement age. Many Directors have built their lives working for a company and have done a great job for them. It seems unnecessary to force a Director to retire if they are still working hard, making the company profitable, and continuing to keep the shareholders' interests in mind.

    I also agree that if I were in such a position, especially as young as 60, I would not want to be pushed out if I had more to give. Age does not determine sharpness or knowledge.

    Lastly, I think keeping good Directors in place to train the upcoming executives on corporate policy, law, and respectability is important to the success of good business. Not all Directors of advanced age were fraudulent or deceptive; it is those Directors you want bringing up the next heads of companies.

    Samantha B.- UC

  19. I agree with the majority of comments that Boards should not have a mandatory retirement age. The purpose of a corporation is to maximize shareholder profits, and if a director is still successful - regardless of age - he or she should not be forced out of the position. Allowing experienced, long-time directors to continue will help instill a corporation's
    values in the yonger or newer directors.

    Rebecca S.
    Bus. Org.

  20. Im a little torn between the mandatory retirement age. There are people who are very capable of working competently well into their 70s. However, there are those that at 40 I don't want running a practice let alone a company. Many above comments have focused on whether raising the age is to protect the pockets of the corporate board, but I wonder is it to provide less diversity. As the article illustrates the corporate boards are mostly white middle/old aged males.
    Is it possible that by raising the mandatory retirement age the boards are trying to keep minorities, women, or minority women away from corporate boards. If no one retires there aren't spots to fill. Without spots to fill the boards that are "segregated" remain that way.

    WVU Bus Org

  21. Like many other business decisions it seems that corporations will tend to make the 'safe choice,' expecially in a poor economy. Younger directors may bring a variety of positives. But, the experienced directors have strengths as well. When there are arguments to be made on both sides it seems normal to me for a business to make what it deems to be the 'safer' choice and just keep things the way they are.

  22. There are obviously positives and negatives to both sides of this issue. While years of experience in the business are important, so is getting folks that are more "experienced" in what is current. I think that what ultimately sways my opinion in favor of having a mandatory age of retirement for corporate board members is that in order for the young people (and by "young", we all know that we are not really talking about young people) to become more experienced, they have to start somewhere. Why not have them start when they can learn from some of the older members before they're all gone? If years of experience are so important then others must be allowed to get those years in.

    Moreover, Board members get substantial rewards for their service. This only encourages a member to stay as long as he can, which is possibly not in the best interest of the company.

    Spread the knowledge, and the wealth.

    Lindsey Mc. Bus Org.

  23. I tend to agree with the critics in this case, not because of experience versus new ideas but because of the problem that is mentioned in the post that the longer a board member is a director the less they are able to act as an outside director rather than an inside director.

  24. I would like to avoid debating the value of experience v. new talent. In a strict sense, raising the age ceiling or not is an issue best left to internal corporate governance.

    That being said...since many directors sit on multiple boards, know each other, and are hitting their late 60s early 70s, this is a troubling trend that will likely increase.

    An important question for shareholders, younger generations, and the general public to ask is whether having a large class of directors nearing the end of their lives will lead to more directors choosing short term corporate profits/goals at the expense of significant long term investments and creating sustainable business strategies?

    J. Hess

  25. New and innovative ideas do not necessarily resonate from young leadership. Young leadership may provide such ideas, but these ideas may also be an attempt to create a sense of identity in an arena that often fails to embrace new ideas, instead relying on proven mechanisms to maximize short term gains. Increasing retirement age for board members may be new to wall street, but many older leaders are willingly embracing such action due to the economic climate.
    I tend to favor diversity on the board. Ultimately, a mixture of young and old board members is necessary to persevere. A strong sense of leadership is obtained by embracing wisdom and innovation. Too much of one or the other, and decisions are biased toward old or new ways. A good balance between the two is necessary to preserve the proven methods while innovating for the future.
    With that, retirement age should be a matter of internal corporate governance. This decision is a critical aspect in preserving internal integrity and allowing the corporation to decide the best policy in moving forward. A blanket retirement age may assist the younger workers in moving up the ladder at a faster pace, but possibly at the cost of decreased profits and corporate stability.