An Investor Perspective on Age Diversity

Tracy Stewart of Florida SBA

Tracy is a Senior Corporate Governance Analyst for the Florida State Board of Administration (SBA). In this Q&A, she shares her philosophy on age diversity and explains why current refreshment practices must continue to evolve. This interview is part of our Next Gen Q&A Series.

Is diversity of age an important issue to investors? Do you want to see boards with “next generation” or younger directors and why?

Diversity (on any dimension) that can impact the performance of the company is important to us. Some industries do tend to have performance and values that are dependent on an understanding of technology or the preferences and habits of younger people. Diversity of age is an interesting angle because age tends to be correlated with experience, and, of course, experience is so important when selecting director candidates.

I do think it is important to have some diversity of age on the board, and exactly how far to go with that will be influenced by the industry and the individual company’s needs and culture. We really look for (1) diversity of thought, and that comes from having directors with varied physical characteristics, such as race, gender, and age (which are easy to measure and categorize), and (2) diversity of experiences, such as culture, education, nationality, and work experience (which are more abstract and harder to quantify/categorize).

According to the 2017 Spencer Stuart Board Index, a record number of first-time directors joined S&P 500 boards last year (i.e., 397 directors or 46% of all new directors in 2017). Yet, the average age of board members continues to rise (i.e., 63.1 years old). What do you make of these trends?

It definitely seems to reflect caution and a continued tilt toward valuing experience as a primary criteria . That makes it even more difficult for women and minorities since the demographics of older executives are still so skewed toward Caucasian race and male gender. Honestly, I find it troubling that first-time directors are actually dragging the average age upward. That concern is tempered a little bit by the record number of first-time directors, which is good, and an acknowledgment that people are simply living and working longer.

Since there’s a pretty distinct trend toward lowering the average number of directorships per person, it’s easy to see why we have more first-time directors. But I’d like to see the new members be more reflective with respect to diversity characteristics. I think we are getting there, and it takes a little patience.

A Next Gen director in their early 40’s could serve 30+ years until they hit mandatory retirement. How would you like to see tenure and refreshment happen with respect to younger board members?

I’m not a fan of mandatory retirement ages. I think it is a lazy way for the board to set limits that should be made on a case-by-case basis. I think it’s a form of age discrimination, and I’m very against it. That said, I’m also against a board with an average tenure of 15, 20, or 25 years. The board needs some members with longevity and institutional knowledge and some members with fresh perspective.

I’m okay with some 40 year-old members coming and staying quite a while. I’m not okay if the entire board does that. Refreshment and skill assessment should be an ongoing process for the board. They need to step up and make tough decisions with respect to the joint value of their colleagues. If they can’t do that with other board members, how can we trust them to make tough calls with company oversight and strategy?
— Tracy Stewart, Sr. Corporate Governance Analyst, Florida SBA

It’s one of the reasons that board composition and diversity are so important—in many ways, they are signals of whether the board you have is contemplative and proactive. It’s a harbinger of the quality of board management.

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