ZURICH (Reuters Breakingviews) – American voters will soon choose between the two oldest candidates in the history of presidential elections. If he wins, former Vice President Joe Biden will be 78 years old when he is inaugurated, a full 28 years older than the average age of all newly elected Democratic commanders-in-chief since Franklin D. Roosevelt. He will also be the same age as my father.
Now, my father is enormously capable. He can recite important passages of Hamlet. He fixes storm windows, is a ninja with power tools and builds things made of wood in the workshop of his Cape Cod retirement home. And he can probably still sail a boat across Nantucket Sound with nothing but a sextant. But I love him too much to want him propelled into the world’s most challenging position.
The truth is, at 78 he is not as full of vigour, drive and physical strength as he was at, say, 58. He is also more susceptible to ailments, including Covid-19. Biden is no different. And neither is President Donald Trump, who though four years their junior, has been personally grappling with the pandemic, and acting in ways that appear even more erratic than usual.
All of which raises the question of how old is too old to lead the free world? The signatories of the Constitution only set a minimum age for the president: 35. That was just a decade less than their own average age at the time, and not far off the life expectancy of the time. The implicit assumption is that no-one would make a bid for the role at an age where their faculties were diminishing – a reminder that the founding fathers believed future generations would enforce the Constitution’s provisions with a sense of decency and common sense.
Corporate America, though, doesn’t leave such decisions to chance. Companies are not governments, of course. But they have many similarities, in that they are often highly complex organisations, with multiple constituencies to satisfy. And their leaders are often used as a model for political leaders – Trump rode to the White House on his business credentials in 2016, notwithstanding the fact that his company was of the private, family-owned variety.
Where companies may provide a clear example to governments is on the matter of retirement ages for their chieftains. About three-quarters of S&P 500 Index enterprises have bylaws stipulating a mandatory retirement age, generally around 65. A similar percentage of companies have established maximum ages for directors, albeit at around 72 or older, according to Spencer Stuart, the executive search firm.
Consequently, the average age of an American CEO is quite a bit lower than the current presidential contenders, and a little lower than the average member of the Senate. In 2017, it was just over 58 – albeit two years older than the average CEO age in 2009 according to a study by The Conference Board, a think-tank focused on business leadership. Also, their findings showed about 10% of S&P 500 companies changed CEOs, with only six of their replacements clocking at 60 or older.
None of this is to suggest elderly people cannot be effective chief executives – or politicians. Warren Buffett, who turned 90 this summer, is still leading Berkshire Hathaway and is one of the world’s five richest men. Sheldon Adelson, 87, thunders on as chief executive and chairman of Las Vegas Sands, the $35 billion global casino operator.
But at least one academic study has concluded there is a negative correlation between corporate performance and advanced age. Brandon Cline and Adam Yore, finance professors at Mississippi State University and the University of Missouri, respectively, investigated the merits of mandatory retirement policies for CEOs using a sample of 12,610 observations from 2143 firms.
Their discovery, published in the Journal of Empirical Finance in 2015, was that “CEO age is significantly negatively related to firm value, operating performance, and corporate deal-making activity,” the authors wrote, adding that the negative impact of age exists only for those firms without mandatory retirement policies. Their conclusion: that those policies “represent an effective form of firm governance designed to mitigate the underperformance of older CEOs.”
Cline, in a conversation last week, said he and Yore went into the study believing that boards were mostly inclined to introduce age limits as a corporate governance measure. As leaders “have more tenure, they tend to amass more power,” he said. Mandatory retirement, he believed, might have been a way to create a check on long-serving executives, such as General Electric’s Jack Welch.
But the authors found that was not actually the case. It was more related to firm performance. Companies led by older bosses tended to have lower returns on assets than those led by younger ones: CEOs 42 and under outperform those 68 and over by as much as 155 basis points per year, they found.
One of the reasons, Cline said, is that older leaders appear less likely to engage in activities like mergers, joint ventures, divestitures and capital restructurings. It may also just be down to biology: “Given the prior research in the medical, psychology, and financial economics literature, the CEO age hypothesis predicts that firm value is decreasing in CEO age due to documented neurophysiological changes in cognitive ability as a person ages.” That competes with arguments that put a greater value on experience, which comes with age.
Which brings us back to the U.S. election. Again, companies are different from governments. And the political process by which a president is elected is fundamentally different from the succession of a chief executive, who is handpicked by a relatively small board of directors. But the challenge of running a $6.6 trillion federal budget, with the concomitant complexities of security, defense, education, healthcare, taxation, finance and so on arguably militate for exceptionally vigorous leadership.
Companies have mostly come to a view that younger chiefs are better suited to lead. As Americans choose between two of the oldest men ever running for president, it’s worth asking whether Uncle Sam should also set retirement limits for its bosses. At least I know my dad won’t be one of them, and might even build me a coffee table.
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