A business school professor battled a corporate governance expert on the topic of whether CEOs should be allowed to work beyond retirement age in an unusual
Wall Street Journal article this week. Mississippi State University’s Brandon Cline argued that mandatory retirement policies prevent CEOs from wielding undue influence over the board or exposing the company to age-related declines in performance, while The Conference Board’s Matteo Tonello retorted that these policies “solve a problem that doesn’t exist.”
Cline
cited research showing that powerful CEOs take advantage of weak boards and warned that entrenched executives might unduly influence directors – without taking into account that CEO turnover is down to an average of 7 years, making this point moot. Cline also
cited his own research finding that CEOs over the age of 68 have a negative correlation to firm value for every year they age (but this correlation mysteriously disappears for companies that have a mandatory retirement policy in place).
In counterpoint to this, and in line with current practice in which CEO mandatory retirement policies are rare (around 10%), Tonello offers up a robust succession plan as an alternative to the blunt instrument of age-based retirement requirements. In addition, he notes, since the average age of CEOs in the S&P 500 is only 58, and CEO turnover is around 10%, it does not seem that companies have any difficulty keeping the role refreshed.
Interestingly, mandatory retirement policies for board directors are still common, with about 60% of companies implementing them. This makes sense for a number of reasons, including the importance of board refreshment, opportunities to diversify the board, and the much higher average age of board directors.
