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From Disney to Target to Boeing, CEO retirements are a thing of the past


SUN VALLEY, ID – JULY 13: (L-R) Bob Iger, chairman and CEO of The Walt Disney Company, Dick Costolo, former CEO of Twitter, Lachlan Murdoch, co-chairman of Twenty-First Century Fox, Sundar Pichai, chief Google CEO Randall Stephenson and AT&T CEO Randall Stephenson mingle during the Allen & Company Sun Valley Annual Conference July 13, 2018 in Sun Valley, Idaho.

Drew Anger | Getty Images News | Getty Images

Many eyebrows and questions were raised in November when Disney surprisingly rehired Bob Iger as CEO, just 11 months after handing over the reins to Bob Chapek, who in June had signed a three-year contract extension. Still, the shoulders were mostly shrugged when it came to Iger’s age, 71, an indication that in the Magic Kingdom and beyond, there’s no magic number when it comes to retirement — or of non-retirement – ​​and that succession planning for key executives is increasingly crucial.

Target hit the headlines in September when the big box giant announced that 63-year-old CEO Brian Cornell had agreed to stay on the job for another three years and that the mandatory retirement age of 65 was , well, retired. A month later, caterpillarThe board waived its policy requiring chairman and chief executive Jim Umpleby, 64, to retire on his next birthday. This followed previous expirations of predefined CEO expiration dates by MetLife (in 2016), 3M (2017) and Merck (2018).

Last year, Boeing in fact raised its mandatory aging age from 65 to 70 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 well-known bosses range from 71 – Stanley Bergman of Henry Schein – to 92 – Warren Buffett of Berkshire Hathaway, whose vice- Chairman of the Board, Charlie Munger, is 98 years old.

No more retirement at 65, the average age of business leaders is rising

Among S&P 500 companies (all publicly held versus Fortune 500 public and private companies), the average age of a CEO at the end of his term was 64.2 in 2021 and 62.8 years to date in 2022, while in 2019 it was 59.7, said Cathy Anterasian, who leads CEO succession services in North America for leadership consultancy Spencer Stuart, citing updated research update of its 2021 report on CEO transitions.

The average tenure of incumbent CEOs over the same period was around 11 years, compared to nine years in 2020. “So they stay longer and therefore leave at a later age. This is not surprising, due to the impact of the pandemic and [other] crises, where boards suspend CEO succession,” Anterasian said.

Once upon a time in America, business leaders and most other workers retired at age 65, the age designated in 1935 to receive benefits from the new Social Security administration – with perhaps a gold watch and brochures for condo communities in Florida. At the time, however, life expectancy at birth was 58 for males and 62 for females.

Of course, in the 1930s, people generally performed more strenuous physical labor than today’s workers, who also benefit from the exponential advances in health care and medical technology that occurred in subsequent decades. .

In 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 79.1 years. Yet those numbers were also lower due to the pandemic, by a full year for men and 0.8 years for women.

Congress, C-Suite and Age Discrimination

In 1978, when Congress extended protections under the Employment Age Discrimination Act to private sector employees up to age 70, it made an exception for CEOs. and other senior executives, who could be asked to retire as soon as they turned 65. This allowed companies to legally fire CEOs at age 65, giving boards and shareholders a governance tool to weed out executives who were underperforming, misbehaving, or showing signs of mental incompetence and /or physical.

CEO turnover has always been a part of corporate life, but in the past turbulent years, succession planning has been disrupted. “In our research, corporate boards suspend CEO succession during crises,” Anterasian said. Indeed, during the last three global recessions, estates have fallen by 30%, she said. “The reason for this 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 said there would only be two years left before a successor took over.

If what happened is only a prologue, today’s rough seas will ease and the pace of CEO transitions is expected to accelerate over the next year, although the severity of any recession will be a postman. In the meantime, however, the debate over the merits of having a mandatory retirement policy (MRP) or not has gained ground.

Brandon Cline, professor of finance at Mississippi State University, and Adam Yore, assistant professor of finance at the University of Missouri, co-authored an article 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 haven’t updated their database since then.

Either way, the pros and cons of MRPs persist. Most of them aren’t made 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 it because it gives them an easy way to get rid of someone who is underperforming or has governance issues.” Conversely, as we have 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 kinds of concerns, that’s when they’re especially helpful.

“The crux of the matter is that shareholders should get to know their executives better,” Yore said. “If they’re starting to see their leader slipping due to aging issues, that’s a viable reason to use an MRP. On the other hand, we have countless examples of people who ran businesses into old age, where such profitability would presumably have been lost had they not done this. [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 optimistic about MRPs. His findings were documented in an article 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 wielded great influence over the nomination and election of board members, and boards were often made up of executive directors – by definition more prone to just ratifying the decisions of the CEO,” he said. . “At that time, MRPs functioned as a substitute for CEO succession planning.”

Over the past two decades, however, the corporate governance environment has changed dramatically, Tonello said, driven by statutory and regulatory reforms, rising shareholder activism and evolving case law refining fiduciary responsibilities. “In this very different context, and if the company has a well-functioning board doing its job, MRPs have generally become useless,” he said.

Martin Whittaker, founding CEO of ESG research association Just Capital, said in an email that this was not an issue the company had formally investigated as part of its methodology and policies. ESG rankings, and that ESG is a lens for assessing risk and good business management. and leadership is not about setting rules or dictating how a company should act. Diversity goals and governance are weight factors for CEOs to stay on the job longer, he said, but so is the loss of real corporate leadership experience, “which is indispensable today,” said Whittaker.

After FTX CEO Sam Bankman-Fried, 30, went up in flames, 63-year-old turnaround specialist John Ray was named to replace him and oversee the company’s Chapter 11 bankruptcy proceedings. cryptocurrency, which could take years, with Ray commenting that he has never seen “such a complete failure” of corporate controls.

MRPs aside, the issue of CEO succession planning remains paramount, exemplified by the uproar at Disney, which forced Iger to take over from his successor. This incident also confirmed that the performance of the CEO remains the main factor for boards to consider. However, performance evaluation becomes more complex. CEOs are assessed by a wider network of stakeholders to achieve not only financial goals, but also a range of environmental, social and governance (ESG) goals. If a board concludes the CEO is underperforming on these various criteria, Tonello said, new leadership may be needed.

But there’s also no reason to conclude that today’s successful CEOs aren’t the right leaders to achieve a wider range of performance metrics. “Age does not necessarily equate to conservatism and a lack of innovation. Older white male directors can be strong proponents of advanced ESG strategy and performance. ‘ESG needs more rigor, stronger links to financial and investor performance, better integration into governance and oversight practices, so I guess I’m on the side of older, resilient CEOs that could be good or bad…it depends on the CEO,” Whittaker said.

And then there’s the traditional adage of succession, that maybe it’s just time for the old guard to step down for the younger generation. “It’s a super valid reason for someone to quit,” said Jim Schleckser, founder and head of The CEO Project, which supports middle-market CEOs.

“It’s deeply selfish to stay past your sell-by date,” he said, especially if there are succession candidates in place and you’re old enough to think about a next one. deed. “At this point, you have 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.”

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