As Demand for Next-Gen Directors Rises, So Do Board Retirement Ages

As boards recruit more young, digital directors, the average age of S&P 500 board members also continues to rise. At first blush, this seems like quite a paradox.

This year, boards have welcomed a record number of first-time directors. According to Spencer Stuart’s 2017 U.S. Board Index, nearly half (45%) of all new S&P 500 board members in 2017 are joining a board for their first time (up from 32% last year). At the same time, we’ve seen the average age of today’s board members rise to 63 (up from 61 a decade ago); and, an increasing number of S&P 500 boards are moving their mandatory retirement age to 75. So what’s powering these two seemingly antithetical trends?

A Growing Demand for Active & Age-Diverse Directors

In a recent episode of Inside America’s Boardrooms, Julie Hembrock Daum, Leader of Spencer Stuart’s North American Board Practice, dives into the numbers and provides some context on age diversity in S&P 500 boardrooms.

Every industry is being disrupted, explains Daum. So when today’s boards get an opening, they’re looking for people who understand “technology or data analytics or digital—or [someone] who’s been in a company that’s been disrupted.” Boards are also specifically looking for candidates who are younger and not retired, added Daum.

Boards are aging in the U.S. So what they want are people who are active and competing in the world today—and who are going to stay competing in this world as it quickly evolves.

However, despite a clear demand for next-gen directors, two key challenges continue to play a role: First, the rate at which S&P 500 board seats turn over is quite slow at only 8% in a given year. Second, some boards today feel torn between recruiting a director who’s highly specialized in one area (e.g., cybersecurity or digital transformation) and a director with a wider range of board or operational experience.

Technology Specialization vs. Wide-Ranging Board Experience

How real is this dichotomy? The spectrum of experiences among today’s board candidates is too often polarized; yet, it also reflects the fact that younger and, in some cases, first-time directors will be joining the board without the traditional buckets of board experience (e.g., finance, executive leadership)—but is that such a bad thing?

In a recent Q&A, we asked PwC’s Leah Malone whether boards should be thinking differently about the ways that next-gen directors can contribute:

…Does every director need to have multiple decades of experience in the industry? No – especially if you already have directors in the room who can bring that experience to bear. What directors really need to be able to do is to ask the right questions. That could mean that they have deep business or operational experience, or it could mean that they bring valuable insight into marketing issues, human capital management, Millennial spending habits, technology or other areas of expertise. The talent and the ability to bring something unique to the boardroom is often there, it just may not look like what the board is used to.

Next-gen directors come with a different set of experiences. Those board members who struggle to see the value often fail to recognize how today’s business landscape has shifted.

Regardless, Daum said, today’s boards are still tasked with how best to approach these new and highly specialized areas of oversight, whether cybersecurity or ecommerce. And the solutions are never as easy as recruiting a single director.

Board Member Age on the Rise

Despite the increase in younger, first-time directors, board member ages and mandatory age limits continue to rise. Why is that?

As stated above, the average age of an S&P 500 board member has climbed to 63. Of all the S&P 500 boards with mandatory retirement ages, 39% have set their limit at 75 or older (up from 20% in 2011).

“Right now, only 4% of boards have a 70-or-under retirement age,” said Daum. “What that means is that boards are older, and they’re retired.”

In her episode, Daum described the chain reaction that occurred following the 2008 financial crisis, as boards have steadily inched up their age limits to retain valuable board talent. There’s nothing wrong with extending the tenure of your best board members—except when the whole board is between the ages of 65 and 75 with a similar set of experiences.

“You need wisdom in the room,” said Daum. “You need people who’ve seen everything—who’ve been on boards for a while. But you really need people who understand this world that we’re competing in.”

As Malone pointed out in her Q&A, the term “age diversity” is largely undefined and relative to each board—and perhaps it should stay that way:

We see boards where the age span between directors is 25 or 30 years, yet every director is over the age of 50. Does that qualify as diversity of age? You could also have a board where every director is between 45 and 55. That would be a young board, but it is not actually diverse in age.

“Where this is all leading,” said Daum, “is that boards need to start thinking about turnover in a different way.”

What seems to be a paradox may not have to be. In theory, both trends (i.e., the demand for next-gen directors and the increasing mandatory age limits) lay the groundwork for more age diversity on boards. We’ll be anxious to see where boards go from here.