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Britt Harris is retiring from the largest university endowment in the US at the age of 65. There is nothing unusual about that, except for his message on the way out. The outgoing head of Utimco told the Financial Times his generation should “move out of the way” so successors are not waiting until their seventies for a shot at the top job.
It is a curiosity of the US’s dynamic economy that many of its best known business leaders keep going long past the normal retirement age. This is true not just of Rupert Murdoch, Warren Buffett and Stephen Schwarzman (92, 92 and 76 respectively) who built the companies they lead. There are plenty of hired hands defying Harris’s view, like Disney’s Bob Iger (72) and Jamie Dimon at JPMorgan Chase — 67 and recently offered a $50mn incentive to stay until 2026.
There are obvious dangers to letting leaders hang around too long. Younger executives may bring perspectives more relevant to today’s challenges; potential successors kept waiting too long may leave; and the less turnover there is at the top, the fewer opportunities there are for women and minority executives who remain under-represented in CEO roles.
A survey by Spencer Stuart, the headhunter, found that even the average director thinks CEOs should leave six months before their 10-year anniversary. Coincidentally, that was roughly the average tenure of a departing S&P 500 chief executive in 2020, according to the Conference Board. Their average age was 62, little changed over two decades.
Imposing an age or tenure cut-off may be tempting but there is little evidence that it would lead to better results.
One Harvard Business Review ranking of the world’s best-performing CEOs noted that they averaged 15 years in the job, while Spencer Stuart concluded that CEOs who survived the “complacency trap” in years six to 10 typically went on to experience some of their most value-creating years.
Investors have been claiming for years that they want executives to manage for the long term, rather than just the next quarter. Fixed retirement dates, implying that CEOs will be hustled out regardless of how they perform, send the wrong message.
We should assess CEOs, like anybody else, by their abilities, not by how many candles were on their last birthday cake. But the longer they stay, the more important it is to ask whether they are still the best person for the job.
That means ensuring they are answerable to directors able to tell them when it is time to go. Separating the roles of chief executive and chair lessens the chances of a CEO hand-picking directors who owe their board position to the person whose future they must decide.
Boards need the flexibility to keep a high-performing CEO past his or her 65th birthday or 10-year anniversary in the job. But succession should become a routine question in board and investor meetings once a CEO approaches either of these milestones.
Those discussions should pay particular attention to whether the CEO’s longevity is chasing away internal contenders for their job: high turnover among potential successors is a red flag. Boards wanting to maintain experience at the top without creating a vacuum underneath should consider giving more of the CEO’s responsibilities to potential successors as time goes on.
Those like Harris who leave willingly at 65, meanwhile, should enjoy their retirement, having first made sure that their organisations’ pension plans will let employees do the same.