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70 is the New 50: Aging CEOs Provide Both Opportunities and Challenges for Businesses

Posted by Jane Johnson on Wed, Jun, 12, 2019 @ 11:30 AM

ceo-4202652_960_720Over the last 15 years, the person occupying the corner office is greyer and staying longer, according to numerous studies. The average age of hire for C-Suite positions has risen 15% since 2005, from an average age of 45 to 54, at the time of hire, according to the Crist|Kolder Associates Volatility Report for 2018.

About 10% oCSuiteGettingOlderf the CEOs in the S&P 500 are 65 years old or older, working well past the traditional retirement age. Warren Buffett is the oldest, at 88. Additionally, the average tenure of CEOs is up to more than 10 years, the most since 2002. Sixteen S&P 500 CEOs have been running the same companies for at least 25 years, including Leslie Wexner, who’s led L Brands Inc. for 55 years, making him the longest-serving executive in the S&P 500.

In the small business market, 57% of small business owners surveyed by Guidant Financial were over the age of 50, a small increase year over year. “The aging of the C-suite is driven by complementary factors,” according to a recent Bloomberg article. “Executives aren’t eager to retire, and directors are increasingly comfortable keeping them around.”

Let’s look at some of the opportunities and challenges presented by the trend of older CEOs at the helm.  

The Benefits of an Older CEO

mentor-2494673_960_720If an older CEO is physically healthy and mentally sharp, he or she possesses a lifetime of experience and knowledge that can be invaluable to any business.

  • Less hot-headed: “Older CEOs are unlikely to get into the kind of high-profile tiffsthat have dogged some of Silicon Valley’s younger leaders.” ‘Silverback’ CEOs may be better able to withstand and deal with any unexpected crises. Past failures can drive future success for CEOs according to the CEO Genome Project study conducted by researchers at the consulting firm ghSmart.
  • Sage mentor: Older leaders can become role models and coaches for their employees.
  • Not afraid to take calculated risks: Past experience may allow CEOs to act more quickly and with confidence — another quality correlated with success in business management. “The older CEOs tend to have established a platform for being courageous,” Mattone said. “They’re not afraid of making tough calls.”

The Challenges of an Older CEO

  • Being seen as weak: Being old as a CEO has other age-related challenges and may be regarded as a vulnerability by employees, competitors or corporate predators. Companies with CEOs who work past typical retirement age (between 64 and 66) are 32% more likely to field takeover and merger offers, according to a 2015 study from researchers at the London School of Economics and Dartmouth College.
  • Uncompromising: Potentially more rigid or inflexible, older CEOs may be unable to adapt quickly to rapid market or industry changes.
  • Health: Physical and mental health may be diminished.

“Performance does deteriorate with age,” says Brandon Cline, an associate professor of finance at Mississippi State University who has researched the impact of CEOs’ ages on their firms’ performance. However, he says, if a CEO has acquired significant firm or industry-specific capital, that deterioration effect is mitigated.”

Lessons Learned from Working with Business Owners Planning Their Exit Strategies

maze-1804499_960_720Some owners wait far too long to name and mentor a successor. This may be due to the CEO not having a plan for their own life and how they will fill their time when they no longer have to work as much.

There are a number of negative consequences if owners wait too long:

    • Successors may be impatient and become resentful about not being able to run the company. This may lead them to move on to a competitor or set up their own shop – potentially taking valuable employees and customers from the company.
    • Successors will have more leverage in the negotiation (i.e., threatening to leave if you expect to get paid too much for your shares and/or a mutiny can take place).
    • Deterioration of morale – Other key employees will begin to question the future of the business and may leave if they perceive risk to the business (leave a sinking ship early).
    • Nobody will be ready to run the company in the event the owner has an accident or other unplanned event that keeps them from being able to run the company.
    • Decreased business value – External buyers will perceive too much business dependence on the owner and they will move on to other more valuable targets.

Remember, it can take years to mentor your successor to operate the company effectively, which will give you time to get paid out and time to figure out what you are going to do next. There is no reason NOT to plan for this very important transition, even if you’re not ready to leave your business. There are also ways that you can remain involved after leaving your role as CEO, such as becoming “Chairman and Founder” or maintaining a small amount of ownership and a board seat until you’re fully paid out.

Knowing When It’s Time to Plan for Succession 

As this trend continues across public and private companies, we will need to reconsider how long a CEO should remain in place and at what point plans should be made for his/her successors. Roger Raber, head of the National Association of Corporate Directors, and Nell Minow, head of the Corporate Library suggests that companies should focus on performance instead of age. He believes that the true test of when a CEO should retire is whether or not he or she is still effective. 

Some questions to consider include:

    • Is the CEO:
      • still fully engaged?
      • open to new ideas and willing to learn?
      • serving the best interests of the company and in line with its vision?
      • able to adapt to the evolving needs of the organization and the changing business climate?

This is equally important for privately held and family owned businesses, and in these companies, the decision may lie with the owner, which can make things a little more complicated. Working with objective, third-party advisors can help in this situation.

Even for the most brilliant and active business leader, no matter what the age, there will come a time for him or her to step down. The important thing is to have a plan in place that will identify when and how that chapter will come to a close, with every contingency planned for. Otherwise, the future of the company is at risk. Keep in mind that your shareholders, employees, and family members are all depending on the long-term success of your business. Communicating your plan will put them at ease.

As we discussed in Warren Buffet, Mortality, and the Importance of Succession Planning, Buffett started working on succession planning at least as far back as June 2006, if not before, when he filed papers with the SEC to show a plan was under way (including the announcement that he would give 85% of his Berkshire stock to five charitable foundations). In 2007, the Heritage Institute reported Buffett’s succession plan has two primary goals: “One, leaving behind a legacy, and second, ensuring that the governance structure of Berkshire will continue to champion a unique style of leadership and investment growth.” What do you want your legacy to be?  

 

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Topics: exit planning, succession planning, when should i retire, benefits of older CEO, when should I start my exit plan, Aging CEOS, 70 is the new 50, when should I start succession planning