SUN VALLEY, ID – JULY 13: (L-R) Bob Iger, chairman and chief executive officer of The Walt Disney Company, Dick Costolo, former chief executive officer of Twitter, Lachlan Murdoch, co-chairman of Twenty-First Century Fox, Sundar Pichai , chief executive officer of Google, and Randall Stephenson, chief executive officer of AT&T, mingle during the annual Allen & Company Sun Valley Conference, July 13, 2018 in Sun Valley, Idaho.
Drew Anger | Getty Images News | Getty Images
Lots of eyebrows, and questions, were raised in November when Disney surprisingly rehired Bob Iger as its CEO, just 11 months after he turned the reins over to Bob Chapek, who in June had signed a three-year contract extension. Yet shoulders mostly shrugged regarding Iger’s age, 71, an indication that at the Magic Kingdom and beyond, there is no magic number when it comes to retirement — or unretirement — and that succession planning for key executives is increasingly crucial.
Target made headlines in September when the big-box behemoth announced that 63-year-old CEO, Brian Cornell, agreed to stay on the job for another three years and the company’s mandatory retirement age of 65 was being, well, retired. A month later, Caterpillar‘s board waived its policy requiring chairman and CEO Jim Umpleby, 64, to retire when his next birthday rolled around. That followed previous expirations of preset CEO expiration dates by MetLife (in 2016), 3M (2017) and Merck (2018).
Last year, Boeing actually raised its compulsory aging-out age, to 70 from 65, as a way to keep CEO David Calhoun, then 64, in the pilot’s seat.
Although the average age of Fortune 500 CEOs is 57, a number of bosses on the well-known leaderboard range from 71 — Henry Schein’s Stanley Bergman — to 92 — Warren Buffett of Berkshire Hathaway, whose board’s vice chairman, Charlie Munger, is 98.
Retiring at 65 is out, average chief executive age is up
Among S&P 500 companies (all publicly held vs. the Fortune 500’s public and private businesses), the average age of a CEO at the end of his or her tenure was 64.2 in 2021 and 62.8 year to date in 2022, whereas in 2019 it was 59.7, said Cathy Anterasian, who leads CEO succession services in North America for leadership consulting firm Spencer Stuart, citing updated research from its 2021 CEO Transitions report.
The average tenure for departing CEOs during that same time period was about 11 years, up from nine years in 2020. “So they’re staying longer and therefore leaving at an older age. That’s not surprising, because of the impact of the pandemic and [other] crises, where boards put CEO succession on hold,” Anterasian said.
Once upon a time in America, chief executives and most other workers retired by 65, the age designated in 1935 for receiving benefits from the newly formed Social Security Administration — along with perhaps a gold watch and brochures for condo communities in Florida. Back then, however, life expectancy at birth was 58 for men and 62 for women.
Of course, in the 1930s, people generally performed more exhausting physical labor than today’s workers, who are also benefitting from exponential advances in health care and medical technology that have occurred over the ensuing decades.
By 2021, according to the latest data from the Centers for Disease Control and Prevention, at birth men were expected to live 73.2 years, women to 79.1 years. Yet those numbers were lower due to the pandemic, too, by a full year for men and 0.8 years for women.
Congress, the C-Suite, and age discrimination
In 1978, when Congress extended the protection under the Age Discrimination in Employment Act to private-sector employees up to the age of 70, it made an exception for CEOs and other senior executives, who could be asked to retire as soon as they turned 65 That allowed companies to legally sunset CEOs at 65, giving boards and shareholders a governance tool for getting rid of leaders who were underperforming, behaving badly or showing signs of mental and/or physical incompetence.
CEO turnover has always been a fact of corporate life, but during the last few topsy-turvy years, succession planning has been disrupted. “In our research, boards put CEO succession on hold during crises,” Anterasian said. Indeed, over the past three global recessions, successions declined by as much as 30%, she said. “The reason is that in turbulent times boards seek stability. Why change the captain of the ship when the waves are getting rougher and rougher?”
At Disney, Iger has said he will only stay on for two years before a successor takes over.
If what’s past is prologue, today’s rough seas will subside and the pace of CEO transitions should pick up over the next year or so, although the severity of any recession will be a factor. In the meantime, though, the debate over the merits of having a mandatory retirement policy (MRP) or not has gained traction.
Brandon Cline, a professor of finance at Mississippi State University, and Adam Yore, an assistant professor of finance at the University of Missouri, co-authored a paper in the Journal of Empirical Finance, investigating MRPs for CEOs. When it was published, in 2016, about 19% of S&P 1500 companies had such policies, although they have not updated their database since then.
Regardless, the pros and cons of MRPs persist. Most of them aren’t done specifically because boards and shareholders think there’s a certain age at which their CEO is too old to be productive, Cline said. “They do this because it gives them an easy way to get rid of someone who is underperforming or there are governance issues.” Conversely, as seen at Target, Caterpillar and Boeing, “boards will be quick to repeal [MRPs] if the opposite is true,” Cline said. “So when you have those types of concerns, that’s when they’re particularly useful.”
“The heart of the matter is, shareholders should know their executives best,” Yore said. “If they start seeing their executive slip because of aging issues, that’s one viable reason to use a MRP. On the other hand, we have countless examples of people who have managed firms well into their later ages, where so much profitability would presumably have been lost had they not done that. From that perspective, [MRPs] are good.”
ESG considerations in leadership
Matteo Tonello, managing director of ESG research at The Conference Board, has also studied CEO succession, but is less sanguine about MRPs. His findings were documented in a paper published in September by the Harvard Law School Forum on Corporate Governance.
“MRPs are a thing of the past,” Tonello said in an email. “They were a valuable tool at a time when CEOs and senior management used to exert extensive influence on the nomination and election of board members, and boards were often composed of executive directors — by definition more prone to merely ratify CEO decisions,” he said . “At that time, MRPs functioned as a substitute for CEO succession planning.”
Over the last two decades, though, the corporate governance environment has changed dramatically, Tonello said, prompted by statutory and regulatory reforms, the rise of shareholder activism and case law developments refining fiduciary responsibilities. “In this very different context, and if the company has a well-functioning board that does its job, MRPs have generally become unnecessary,” he said.
Martin Whittaker, founding CEO at ESG research nonprofit Just Capital, said in an email that this is not an issue which the firm has studied formally as part of its ESG methodology and rankings, and while ESG is a lens for assessing risk and good company management and leadership, it’s not about setting rules, or dictating how a company should act. Diversity goals and governance are factors to weigh in CEOs staying on the job longer, he said, but so is losing genuine experience from corporate leadership, “which is much needed today,” Whittaker said.
After FTX CEO Sam Bankman-Fried, 30, went down in flames, 63-year-old turnaround specialist John Ray was appointed to replace him and oversee the cryptocurrency company’s Chapter 11 bankruptcy proceedings, which could take years, with Ray commenting he has never seen “such a complete failure” of corporate controls.
MRPs aside, the matter of CEO succession planning remains paramount, exemplified by the tumult at Disney, which resulted in Iger having to succeed his successor. That incident also confirmed that CEO performance remains the key driver for boards to consider. Assessing performance is becoming more complex, though. CEOs are being measured by a wider network of stakeholders for hitting not only financial targets, but an array of environmental, social and governance (ESG) goals. If a board concludes that the CEO is underperforming on those various criteria, Tonello said, new leadership may be required.
But there is also no reason to conclude that current successful CEOs are not the right leaders to hit a broader array of performance metrics. “Age doesn’t necessarily equate to conservatism and lack of innovation. Older white male directors can be avid proponents of advanced ESG strategy and performance. Indeed, you could say that ESG needs more rigor, stronger connections to financial and investor performance, better integration into governance and oversight practices. So, I guess I come down on the side of resilient older CEOs could be good or could be bad … it depends on the CEO,” Whittaker said.
And then there’s the traditional succession adage, that it may simply be time for the old guard to step aside for the younger generation. “That’s a super valid reason for somebody to call it a day,” said Jim Schleckser, founder and head of The CEO Project, which nurtures middle-market CEOs.
“It is profoundly selfish to stick around past your sell-by date,” he said, particularly if there are succession candidates in place and you’re of an age to think about a next act. “At that point, you’ve got lots of money, lots of time and lots of network,” Schleckser said. “You can go do something else and really make a contribution to the world.”