ECONOMY

Buffett Stands Alone, but Companies Should Open Door to Older CEOs


Happy birthday. Now pack up your stuff and go.

That might constitute a harsh goodbye for most employees, but unless your name is

Warren Buffett,

it is a possible ending for corporate executives and directors. As the chief executive officer of

Berkshire Hathaway


BRK.B -0.68%

prepares to lead yet another annual meeting, succession plans for the conglomerate will be on investors’ minds. After all, Mr. Buffett is 90 and has been running Berkshire for five decades. His business partner

Charlie Munger

is 97.

Whether or not Berkshire has a succession announcement Saturday, the reality is that most CEOs will never be able to approach that tenure. Some 70% of S&P 500 companies had a mandatory retirement age policy in place for corporate directors as of December, according to executive search firm Spencer Stuart. Other research suggests such policies are in place for perhaps a third of S&P 500 chief executives. Not even Berkshire is immune to the pressure: the pension fund Calpers cited the board’s long tenure and the lack of board “refreshment” as one reason it plans to withhold its vote to re-elect some Berkshire directors this weekend.

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While many won’t last in a top job nearly long enough to see such a policy invoked—the average S&P 500 chief executive retires at 60.1 years old after a tenure of about 8.4 years—perhaps the practice needs a rethink in an era where once-unthinkably long lifespans are commonplace.

Companies are willing to be flexible.

Boeing

lifted CEO

Dave Calhoun’s

mandatory retirement age to 70 from 65 last week, which means he can stay in the top job until 2028. Boeing cited his leadership through the recent 737 MAX crisis and the jet engine maker’s long product cycle when it announced the decision.

And boards in general are relaxing the age requirement as time goes on. According to Spencer Stuart, nearly half of those boards have a retirement age of 75 or higher. That is up from about 20% a decade ago.

Mandatory retirement shouldn’t be necessary in an ideal corporate governance situation, explained Cathy Anterasian, who leads Spencer Stuart’s succession planning business in North America. But the rule does give boards an extra option to change CEOs if needed without creating a stir.

“You want the board to be able to call it as they see it,” she told me. In other words, mandatory retirement should be a tool, not a rule.

Even at companies where there are no mandatory retirement ages, multidecade tenures are the exceptions to the rule. And some exceptions feel quite strongly about it.

“The mandatory retirement concept is ridiculous and it should not exist anywhere in this country,”

Leonard Schleifer,

who founded

Regeneron Pharmaceuticals

in 1988 and has been CEO ever since, told me this week. Dr. Schleifer, 68, said evaluating whether an executive is up for the job is a tough task, and an age-based retirement system “is a crutch for boards so they don’t have to have that hard conversation.”

Dr. Schleifer doesn’t like the concept, but Regeneron has undeniably benefited from the practice. Roy Vagelos stepped down as CEO of Merck & Co. to join Regeneron in 1994 after reaching Merck’s mandatory retirement age. He became Regeneron’s chairman in January 1995 and remains in the role today at age 91. “No different today from when I met him,” said Dr. Schleifer, who told me the two men speak daily about the state of Regeneron’s business.

Since Dr. Vagelos joined the board, Regeneron shareholders have made about 75 times their initial investment, dramatically outperforming the market over that stretch. Of course Regeneron also wasn’t some overnight success: The company went public in 1991 and the Food and Drug Administration didn’t approve a Regeneron drug until 2008. Score one for patient boomers.

Regeneron’s success is supported by some research: Spencer Stuart found that CEOs often have their best performance, as measured by shareholder return, in years 11 to 15 of their tenures.

Ultimately, the traits that companies should be looking for in their CEOs and board members, such as a high energy level, willingness to learn, and ability to adapt to changing business conditions, aren’t necessarily defined by age—Dr. Schleifer points to his father passing a driver’s test at age 99 to illustrate his point. Regeneron showed how it was able to adapt to a changing world when it developed its monoclonal antibody treatment quickly as the Covid-19 pandemic raged; the drug has been used to treat hundreds of thousands of patients, including former President

Donald Trump.

There is additional value in having older executives in the mix, notes Dr. Anterasian. “At this particular point in time, there is a lot of focus on diversity, equity and inclusion. Age diversity is a factor, and we shouldn’t forget that.”

It might just be time to put mandatory retirement out to pasture.

Write to Charley Grant at [email protected]

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