Are directors getting younger?

The average age of board members in the US has been dropping since the onset of the pandemic, recent research shows, reversing a decades-long trend of corporate boards growing older.

Researchers are not sure what is driving the demographic shift but suggest baby boomers may be hastening their exit from the workforce, while companies are seeking younger, more diverse directors with expertise in contemporary issues such as cyber security and ESG.

Bloomberg data shows the average age of board members at Russell 1000 companies was 61.8 years in October 2022, down from 62.5 years in 2019. This was the third straight year of average age decline.

In terms of the number of older directors still serving, the data shows the percentage of US companies with an average board age of 65 is down to 19.5 per cent (the lowest it has been since 2011).

The NZX does not collect information on the age of listed company directors, and Statistics New Zealand’s data does not clearly delineate directors in governance from sales directors or film directors, so exactly what is happening in the New Zealand governance community is unclear.

However, data on the IoD’s membership shows little change in the average age of our members (the majority of whom serve on New Zealand boards).

The largest age cohort of IoD members is 50-59 years, with the peak coming near the middle, giving an average age for an IoD member (in 2022) of 53 years.

Younger generation

Where there has been a significant trend is in the age of new members joining the IoD. There is more interest in governance now among younger people, with those in the 18-to-39-year age group making up 32 per cent of new members in 2021, up from 19 per cent in 2014.

Concurrently, the percentage of older people joining the IoD has decreased, with those in the 60-to-69-year bracket making up just 4 per cent of our new members in 2021, down from 11 per cent in 2014.

So it is possible the average age of directors in New Zealand is starting to come down, or is on track towards that.

IoD members appointed to NZX Top 50 company boards between October 2020 and September 2021 had an average age of 61 years.

US data shows the average tenure on boards has also been dropping over the past decade. In 2021, the average tenure of independent directors on S&P 500 boards was 7.7 years, down from 8.7 years in 2011.

Again, data on New Zealand boards is scant, but the IoD’s 2022 Directors’ Fees Report, conducted in association with EY, found the typical length of a directorship was six years. But some stay a little longer. The longest-serving director who responded to the fees survey was elected to their current board in 1985.

Benefits of youth

Younger directors are considered a source of new ideas that could help a company navigate challenging future conditions, says Kelly McGregor, Service Manager, Board Appointments at the IoD.

The service assists boards in finding the right candidates for vacant positions. This includes matching the skills, knowledge and experience of potential candidates with the needs identified by the relevant board.

“There are a number of reasons why younger directors are sought after. It could be around new and quickly evolving technology – younger directors are usually still in executive positions and current with the changing landscape. Sometimes it’s around the organisation’s customer base and wanting to reflect that demographic on the board,” McGregor says.

“I have also had clients of family businesses that, as the founder hands the business down to the younger generations, are wanting more directors on the board who are in that younger age group.”

While unable to confirm that the average age of directors is dropping, McGregor says boards that value diversity of thought are increasingly interested in having a mix of generations.

“We know for sure that directors see better decision making coming from a diversity of views and ideas around the board table. This was noted by 73 per cent of respondents in our 2022 Director Sentiment Survey.

“Historically, the diversity focus was more on gender and ethnicity, but it now includes not just age and stage but also background; whether someone has worked in certain industries, grown up in different countries and/or environments. It’s very broad.”

Refreshing the talent pool

The IoD has a number of programmes that aim to encourage and support a broad range of people into governance. These run independently of our continuing professional development programme.

Our Future Directors’ programme aims to develop the next generation. The programme provides an opportunity for people with governance potential and ambition to participate on a host of boards. These boards include NZX and non-NZX listed companies, state sector boards and not-for-profit organisations.

Through the Emerging Director awards, our branches support the development of directors by providing a mentor, granting money for professional development and bestowing a free one- year membership of the IoD. Prize packages vary across different branches.

Our Tuakana Teina Chair Mentoring Programme, in partnership with Community Governance NZ, connects chairs in the NFP sector with members experienced in chairing a board to help strengthen governance in the community sector.

Experienced directors can take advantage of our Mentoring for Diversity. This helps them step up to a non-executive director role on a large private company or public sector board, an NZX-listed board or a trustee for a large not-for-profit organisation.