On the Board but Aging Out

In a bid to increase diversity, nearly three-quarters of S&P 500 firms have instituted age limits for board directors. But is a mandatory retirement age fair to older directors?

Board directors are getting nudged out, at least if they are in their 70s.

According to new data compiled by a law firm, nearly three-quarters of S&P 500 companies have instituted mandatory-retirement age limits—typically around 70 years old—for board directors. The figures are up 50% from seven years ago, an accelerated pace of change in what has historically been a slow-to-act corner of the corporate world. But experts say it underscores the pressures public companies face from investors, consumers, and employees to diversify their corporate governance.

Still, some experts worry that age limits are themselves a form of prejudice, even if they’re meant to increase gender and racial diversity. Ayana Parsons, leader of Korn Ferry’s Board and CEO Inclusion practice, says that mandatory retirement raises concerns around ageism, if only optically (board directors aren’t afforded the same legal protections as employees). “Older board members have to deal with feeling like, and being seen as, yesterday’s news,” Parsons says. 

In recent years, in fact, several large companies have waived or rescinded mandatory retirement ages for CEOs and other executive officers. Meanwhile, longer life spans, along with labor shortages resulting from the pandemic, are leading more and more people over the age of 65 back into the job market. Over the rest of the decade, for instance, the share of workers 65 and over in the US is expected to increase faster than that of any other age group. By 2030, these workers will account for more than 60% of labor-force growth.

The average age of a board director in the US is 63, a figure that has remained stubbornly steady for years. With age limits for directors at most companies established at between 72 and 75 years old, the time line gives boards a decade to create more balance from a gender, race, generational, and skills and competencies perspective, says Parsons. She says the increase in age limits is motivated not just by the need for racial and gender diversity, but also by a desire for “generational diversity.” She notes that the rapid transition to digital during the pandemic has driven home the fact that boards need younger voices with relevant, timely experience. “Forty- and fifty-year olds are still babies in the boardroom,” she says. “But they are the ones driving change in their organizations, and boards need that critical day-to-day insight.”

Data suggests that change is already happening, albeit slowly. The number of Black directors at Russell 3000 firms grew 10% between 2020 and 2021; over that period, Black executives accounted for 18.5% of all new board appointees. Last year, female representation on corporate boards achieved a milestone, reaching 30% for companies in the S&P 500, up from about 25% in 2020. But there is a still a long way to go, with white males still representing the overwhelming majority of directors, and Black, Latinx, and Asian-Americans woefully underrepresented relative to their numbers in the US population. Research firm Equilar recently found that only 6.2% of directors of Russell 3000 companies are Black, for instance, though Black people account for 13.4% of the US population. People of Latinx descent account for 2.7% of directors and 18.7% of the general population.

Still, some experts prefer term limits to age limits. According to data from law firm Freshfields Bruckhaus Deringer, only 6% of S&P 500 companies have term limits—ranging from 10 to 20 years—for directors. Anthony Goodman, head of the Board Effectiveness practice at Korn Ferry, considers both age and term limits to be blunt tools for ducking difficult conversations with ineffective or underperforming directors.

“There is no correlation between age and ability to contribute to a board,” he says, noting that most boards would jump at the chance to have 91-year-old Warren Buffett as a director. Moreover, he says, with term limits, companies risk losing the wrong directors. “A director could still be adding value when they have to leave,” says Goodman. Older directors who were managers during the run-up in inflation in the 80s, for instance, could provide valuable guidance to boards amid the current, historically high rates. 

Instead of age or term limits, Goodman says, the best practice is a combination of overall evaluations and individual director performance assessments. He says that comprehensive, peer, and third-party annual evaluations are the most effective way for boards to enhance diversity, create balance, and ensure directors have the required skills and competencies. According to a recent study by nonprofit research firm The Conference Board and data analytics firm ESGAUGE, boards are indeed moving in that direction—53% of S&P 500 companies now engage in individual director assessments, up from 37% in 2018. “If boards are serious about refreshment, then committing to rigorous individual director assessments is where the future should be,” says Goodman.