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Youthful chief executives may have groundbreaking ideas, but they also lack experience of hard times. For this reason, many headhunters and boards around the world have chosen older directors to lead companies, because they have survived economic turbulence or turned failure into triumph.
The number of chief executives of FTSE 100 companies who are over 60 has doubled over the past 20 years. At the end of 2018, there were 19 chief executives of FTSE 100 companies in their sixties, and the age of all board members is also increasing.
It is an encouraging sign for older workers who are not planning on hanging up their hats — but this news has been greeted by many in the City as a worrying sign. The changing age profile means analysts fear almost a fifth of company bosses will soon be retiring and need replacing.
For example, Nicandro Durante, the 62-year-old chief executive of British American Tobacco, has announced he will retire in April. Ross McEwan, 61, chief executive of Royal Bank of Scotland, is expected to end his tenure in 2020.
However, senior investors are beginning to value the stability that older and wiser heads bring to companies in uncertain times.
Older and wiser
The Institute of Population Ageing recently warned that the UK will be short of productive workers if people continue to retire in their fifties. Its report, the Future of an Ageing Population, said: “The productivity and economic success of the UK will be increasingly tied to that of older workers.”
Yet even if they want to carry on working, many professional workers in their fifties will struggle against ageism in the jobs market. Older middle managers are more vulnerable because their skills are relatively commonplace and their high salaries make them targets for cost-cutting HR departments. By contrast, the qualities needed to be an effective chief executive are rare enough to be in short supply, especially in times of economic volatility.
Steve Wilkie, the managing director of Responsible Life, the financial adviser behind the age profile research, said: “The financial system is so complex no one really has any idea where the next crisis will come from.
“Plenty of talent spotters pick younger hands to lead companies, and that’s fine if what the board is expecting is just more of the same. What has happened twice in the past 20 years, however, is that two giant financial shocks have swept rapidly around the globe.
“The resulting trend is that companies are tending to pick people who have accumulated more experience and might prove to be a safer pair of hands, capable of reacting well in situations where there is no precedent and no rule book.”
Given the uncertain political situation in the UK, this trend is unlikely to reverse. The 2018 study found that on average, FTSE 100 chief executives have been in post for 5.1 years, and are aged 54.3 years.
“Age alone doesn’t automatically qualify a chief executive to be a better leader, but boards clearly value these industry titans’ experience in tough times,” Mr Wilkie says. “Since the financial crash, the research shows companies have been taking stock and hiring those with more battle scars in greater numbers. Experience and with it a nose for how to steer our biggest companies through choppy waters, is prized now more than ever.”
The UK Spencer Stuart Board Index for 2018 and the company’s analysis of S&P 500 companies showed ageing across all board positions. In the US, many boards use mandatory retirement policies to facilitate board turnover, but 43.5 per cent of companies have set this retirement age at 75 or older, compared with 42 per cent of companies in 2017. Three S&P boards had a retirement age of 80.
Of the 406 independent directors to leave the US companies, 56 per cent were 70 or older.
UK boards may be ageing but they are not in the same league. Spencer Stuart said the average of non-executive directors in the UK was 60.6 years, with men averaging 61.3 and women 58. The US average was 63.
The average age for chief executives was 55.5 for men and 52.9 for women with Fresnillo, the mining company having the oldest board with an average age of 68.1.
Older executives often have deeper knowledge and greater empathy to nurture younger workers compared with their more youthful boardroom colleagues. Yet a balance needs to be struck between learning new tricks that can help growth and knowing the old tricks of survival.
The oldest new FTSE boss last year was German-born Rico Back, who was made chief executive of Royal Mail in April 2018 at the age of 64. His long record in business made him the board’s choice to turn the business around — profits at Royal Mail are falling with the decline in letter post.
In times of difficulty, experience is vital. David Sole, co-founder and managing partner of the School for Chief Executives, said leaders who have never had any setbacks were likely to be ill-equipped to deal with difficult markets.
The school, founded in 2011, helps individuals to get ready for the top job by allowing them to learn from the experiences of its faculty members who have been through difficult situations.
“They have been through at least one downturn at the top of an organisation and have managed their way out of it,” he says, adding: “They are very generous at sharing their experiences.”
Russ Mould, investment director at AJ Bell, said that the increase in the average age of chief executives came at the end of a year when 16 FTSE bosses resigned or stepped down. They included Sir Martin Sorrell who left WPP, the world’s largest advertising and PR agency last April at the age of 73. This turnover is the highest since 2007-8.
Investors and shareholders also value the experience of older leaders, and Mr Mould said companies benefited from longer-term stability and the planning that older chief executives could offer.
“One of the things we look at is does the board have the right mix of experience among the non-execs as well. In the report and accounts, we want to see a range of experience. After the Deepwater Horizon disaster in 2010, it was evident that no one on the BP board had experience of dealing with a crisis that involved loss of life. They appointed the admiral who had formerly run the US navy’s nuclear programme.” Admiral Frank Bowman is still on the board, now aged 73.
However, Mr Mould added that age alone was not a guarantee of success, and that depth of experience was vital: “It is no good being 75 if you bring nothing to the table.”