Just 11 months after handing the helm over to Bob Chapek, who had signed a three-year term extension in June, many eyebrows and suspicions were raised when Disney unexpectedly rehired Bob Iger as its CEO. However, when asked about Iger’s age, 71, most people shrugged, indicating that there is no magic age for retirement or unretirement at the Magic Kingdom and elsewhere and that key executive succession planning for family businesses is becoming more and more important.
When Target announced that its 63-year-old CEO, Brian Cornell, would continue on the job for an additional three years and that the company’s mandated retirement age of 65 would be, well, retired, the big-box titan made headlines. A month later, the board of Caterpillar decided to disregard the company’s rule mandating that 64-year-old Jim Umpleby, the company’s chairman and CEO, resign on his next birthday. That came after the predetermined CEO expiration dates imposed by MetLife (in 2016), 3M (2017), and Merck (in 2018). (2018).
Boeing actually increased its mandatory retirement age from 65 to 70 last year in an effort to keep CEO David Calhoun, who was 64 at the time, in his position.
Although the average age of Fortune 500 CEOs is 57, several of the leaders on the illustrious scoreboard are in their 80s and 90s, including Warren Buffett of Berkshire Hathaway, whose vice chairman of the board is Charlie Munger, who is 98.
Retiring at 65 is no longer an option, and the average age of chief executives is rising.
According to Cathy Anterasian, who oversees CEO succession services in North America for leadership consulting firm Spencer Stuart, the average age of a CEO at the end of their tenure among S&P 500 companies (all publicly held vs. the Fortune 500′s public and private businesses) was 64.2 in 2021 and 62.8 year to date in 2022, whereas it was 59.7 in 2019. She was citing updated data from the firm’s 2021 CEO Transitions report.
In that same time frame, retiring CEOs had an average tenure of around 11 years, up from nine years in 2020. “As a result, they are departing at an older age because they are staying longer. Given the effects of the pandemic and [other] crises, when boards delayed CEO succession, that is not surprising, according to Anterasian.
When the Social Security Administration first began offering benefits in 1935, senior executives and the majority of other workers in America retired at age 65. They might also have received a gold watch and pamphlets for Florida condo developments. The life expectancy at birth at that time, however, was 62 for women and 58 for males.
Undoubtedly, people in the 1930s engaged in more strenuous physical labor than do workers today, who also profit from the rapid advancements in medical technology and health care that have taken place during the intervening decades.
At birth, men were anticipated to live 73.2 years and women to 79.1 years, respectively, according to the most recent data from the Centers for Disease Control and Prevention. However, those figures were also reduced by a full year for males and 0.8 years for women as a result of the epidemic.
Ageism in the C-Suite, Congress, and Congress
Congress provided an exception for CEOs and other senior executives, who might be requested to retire as soon as they aged 65, when it expanded the protection under the Age Discrimination in Employment Act to private-sector workers up to the age of 70 in 1978. That made it possible for businesses to formally retire their CEOs at age 65, offering boards and shareholders a governance tool for ousting executives who were performing poorly, acting inappropriately, or exhibiting signs of physical or mental incapacity.
Although CEO churn has long been an aspect of business life, the previous few upheaval-filled years have upset succession planning. According to our research, boards postpone CEO succession amid emergencies, Anterasian stated. According to her, successions really decreased by as much as 30% during the previous three global recessions. “The explanation is that boards look for stability during tumultuous times. When the waves are getting progressively harsher, why would you want to change the ship’s captain?
Iger has stated he will only remain in his position at Disney for two years before a replacement takes onboard.
According to James Stewart of the NYT, Disney is facing pretty serious challenges.
WATCH VIDEO NOW 05:53
According to James Stewart of the NYT, Disney is facing pretty serious challenges.
The severity of any recession will be a factor, but if the past is any indication, today’s choppy seas will calm down and the pace of CEO transfers should speed up over the next year or two. However, the argument over whether or not to have a mandatory retirement policy (MRP) has gained traction in the interim.
In an article published in the Journal of Empirical Finance, Adam Yore, an assistant professor of finance at the University of Missouri, and Brandon Cline, a professor of finance at Mississippi State University, looked into MRPs for CEOs. About 19% of S&P 1500 corporations had such policies at the time it was released, in 2016, though they have not subsequently updated their database.
The benefits and drawbacks of MRPs still exist, though. According to Cline, the majority of them aren’t carried through because boards and shareholders believe their CEO is past the point of no return. They do this because it is a simple approach for them to get rid of someone who is performing poorly or who has governance problems. If the contrary is true, however, “boards will be fast to repeal [MRPs],” according to Cline, as was the case at Target, Caterpillar, and Boeing. So they are really helpful when you have such kinds of worries.
The crux of the issue, according to Yore, is that shareholders ought to know their CEOs best. “If people start to notice executive deterioration due to aging problems, that’s one good reason to employ an MRP. On the other hand, there are innumerable examples of people who have managed businesses long into their senior years, presumably saving the company a great deal of profitability. In that regard, [MRPs] are favorable.
ESG factors for leadership
Although he has looked into CEO succession, Matteo Tonello, managing director of ESG research at The Conference Board, is less optimistic about MRPs. His findings were presented in a paper that the Harvard Law School Forum on Corporate Governance released in September.
MRPs are obsolete, according to Tonello’s email. As he put it, “They were a crucial tool at a period when CEOs and senior management used to exert significant influence on the nomination and election of board members, and boards were frequently formed of executive directors – by definition more prone to merely confirm CEO decisions.” MRPs were used in place of CEO succession planning at the time.
However, Tonello said that during the past two decades, the corporate governance environment has undergone a significant change as a result of statutory and regulatory reforms, the increase of shareholder activism, and case law developments that have clarified fiduciary obligations. “MRPs have generally become obsolete in this very different setting, and if the company has a well-functioning board that does its job,” he said.
Martin Whittaker, founding CEO of ESG research nonprofit Just Capital, stated in an email that 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. The firm has not formally studied this issue as part of its ESG methodology and rankings. He added that diversity objectives and corporate governance should be taken into consideration, but that losing real business leadership experience—”which is greatly needed today”—should also be considered.
After 30-year-old FTX CEO Sam Bankman-Fried went up in smoke, 63-year-old turnaround expert John Ray was chosen to take over and manage the cryptocurrency company’s protracted Chapter 11 bankruptcy procedures. Ray said he had never witnessed “such a complete collapse” of corporate controls.
Putting MRPs aside, it is still crucial to plan for the CEO’s succession, as demonstrated by the turmoil at Disney that forced Iger to replace his successor. That episode further demonstrated that CEO performance continues to be the main factor that boards take into account. But performance evaluation is getting trickier. A larger group of stakeholders hold CEOs to a higher standard for meeting a variety of environmental, social, and governance (ESG) objectives in addition to financial aims. Tonello added that fresh leadership might be necessary if a board determines that the CEO is performing poorly based on those many metrics.
However, there is also no justification for claiming that present, prosperous CEOs are ineffective at achieving a wider range of performance criteria. “Age need not imply conservatism and a lack of innovation. Directors who are older and white men with jobs can be ardent supporters of enhanced ESG performance. In fact, one could argue that ESG requires more rigor, closer ties to investor and financial performance, and better incorporation into governance and monitoring procedures. So, I believe I lean toward the notion that strong elder CEOs can be either beneficial or detrimental, depending on the CEO, said Whittaker.
The old proverb about succession also states that the older generation may need to step down in order for the younger one to take their place. Jim Schleckser, founder and executive director of The CEO Project, which develops middle-market CEOs, said: “That’s a totally valid cause for somebody to call it a day.”