Board Succession: is your Board Prepared?

Boards in top Australian companies will have to turn their minds to Board succession and continuity, according to Egan Associates analysis.

While much attention has been given in the media to gender diversity with the consistent conclusion that “we have a long way to go”, other aspects of diversity have received less attention, including age diversity.

Egan Associates analysed data covering over 4000 Non-Executive Directors (NEDs) serving on the Boards of the top 1000 companies. For these NEDs, there was age data available for approximately 60% of the population1.

According to this data, the age of the average director for the top 1000 Australian companies is approximately 61, with a trend to older directors on major company Boards.

Table 1: Average Director Age of the Top 1000 Australian companies

Top 1000

501
-1000

301
-500

201
-300

101
-200

51
-100

21
-50

1
-20

60.6

59.3

60.7

60.8

61.5

61.6

62.6

61.6

Chairmen are, unsurprisingly, senior to the average Director and also become older on average as the scale of the company and Board increases.

Table 2: Average Chairman Age of the Top 1000 Australian Companies

Top 1000

501
-1000

301
-500

201
-300

101
-200

51
-100

21
-50

1
-20

62.7

61.3

62.7

63.3

64.4

63.3

66.7

64.9

Around 25% of the Directors in the top companies are at or older than 67. Interestingly, the greatest concentration of older NEDs occurs in companies ranked 21 to 50: this group of companies has almost a third of Directors at age 67 or over.

The Harvard University’s 2013 Director Compensation and Board Practices Report stated that although the Director nomination policy of large companies say diversity matters as much as business skills, corporate Boards remain remarkably uniform. Part of this might be hiring practices, with the Harvard report also revealing that smaller companies are likely to hire through networks rather than using search firms.

Boards with uniformly older Directors face the risk of having a number of Directors retire in close proximity. If the Board does not have a staggered succession plan where some experienced Directors will hold the fort and impart knowledge to the next generation, it will struggle to maintain diversity and retain corporate knowledge.

It appears, however, that the next generation of Directors will not necessarily be coming from Non-Executive Director ranks. The percentage of NEDs in the top 1000 companies under 50 is only 13%. Under 40, it is just over 1%.  As might be expected, smaller companies have a larger share of younger NEDs than larger companies.

In the top 1000, the youngest NED is 33 and oldest is 87, an age range of 54 years. If we exclude companies for whom we have age information for less than two Non-Executive Directors and provide an average age range per company, it shows that on average the difference in ages on companies in the top 1000 Australian companies is around 14 years.

Table 3: Average Age Range per Company

Top 1000

501
-1000

301
-500

201
-300

101
-200

51
-100

21
-50

1
-20

13.6

12.7

12.4

12.4

15.5

15.5

15.4

19.1

For an average Director age of 61, this means Directors on the average top 1000 company Board will range from 54 to 68.

This data shows the average age range to be larger for larger companies, however, this trend will be affected by the lower numbers of Directors in smaller companies for whom we have age information.

Age diversity is important for more than just succession, including:

Viewpoint – A broad range of ages will enable a Board to remain “in touch” and see issues from different perspectives, as each Director can view challenges through the lens of his or her era.

Innovation – Some parts of every business benefit from a younger perspective, for example technology. Studies have proclaimed the importance of having technology-savvy and inspired directors on the Board for the introduction of innovative technology strategies.

Mentors – On the other side of the coin, older Directors bring experience and perspective to Board discussion and debate, which enable the Board to consider problems in the light of how other issues have been handled in the past.

How do Boards introduce Age Diversity?

The number of women on the Boards of Australia’s top 200 companies is the highest it has ever been, according to the Australian Institute of Company Directors’ appointments to ASX 200 Boards statistics, currently sitting at around 15%. Including Executive Directors, this matches our data for the top 200 companies. Our analysis shows the percentage to be slightly higher considering just Non-Executive Directors, which is the subject of this article.

Female Directors are considerably younger on average than the average Director, according to our analysis, so it seems those companies who have made the effort to introduce gender diversity have also, perhaps without knowing it, introduced age diversity into their Boards.

Table 5: Female Director Average Age of Australia’s top 1000 companies

Top 1000

501
-1000

301
-500

201
-300

101
-200

51
-100

21
-50

1
-20

56.3

56.4

56.2

54.6

56.2

57.2

57.2

55.8

Another source of youth will be Executive Directors, who we have excluded from our analysis until this point. The average age of Executive Directors is, like the Female Directors, much younger than the average age of Non-Executive Directors.

Table 6: Executive Director Average Age of Australia’s top 1000 companies

Top 1000

501
-1000

301
-500

201
-300

101
-200

51
-100

21
-50

1
-20

55.0

55.4

52.6

55.7

57.1

55.2

55.9

53.6

This could mean having a formal process for Board retention of departing CEOs, although the Harvard report notes this is uncommon. The Harvard report also highlighted that former CFOs are underrepresented on Boards, which along with survey results from the Australian Government’s Financial Reporting Council raising questions on how well Directors are able to maintain their financial literacy, could also represent an avenue of recruitment of younger Directors.

Of course, achieving the right mix, regardless of age, will be crucial for Board dynamics with multiple competencies needing to be considered. One way to make sure the balance is right is to analyse the Board’s current composition and develop a diversity and succession strategy. Board reviews enable Chairmen and Directors to gain insights into how the Board can meet its diversity agenda to add value to the organisation.

This is the first in an Egan Associates series exploring various aspects of Director diversity across the ASX 1000. In future articles in this series, we propose to investigate these issues further.

Dr Vincent Murdoch leads the Egan Associates Board Review practice. He brings a thorough and discreet approach to Boards that explores Board performance issues and how to address them successfully. He will be presenting on the topic of Dysfunction in the Boardroom at the Chartered Secretaries Australia Governance Masterclass in April.


[1] Data on the top 1000 companies is as reported at 30 June 2012. Director age data and sex data has been sourced from Egan Associates and Thomson Reuters. More complete age data exists for large companies: age is known for 90% of the NEDs in the ASX 20, while only 48% for the ASX 501-1000.

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