Voice of experience or silly old codgers?

Getting the age balance right
United States voters are being asked to choose between two men to run the world’s biggest economy. One of them turned 47 last month, the other is a sprightly 72. What's more, their running mates are similar in age to their adversaries. On the basis of age alone, then, the presidential and vice presidential candidates on both tickets would be widely considered too young or too old to be chief executives of the biggest US corporations.
One of the reasons presented for the Enron meltdown was that some board members were "quite long in the tooth". That remark reflects a general belief that boards become less effective as the average age of their members rises. Research reveals that this is spurious. Age can be an asset, and so can youth.

Effective boards self-regulate and periodically rejuvenate themselves, thereby curbing the onset of institutional inertia. A managed turnover of board members ensures continuity of function and retention of institutional knowledge while avoiding staleness. Listed companies in New Zealand have retirement and rotation polices in place. Exemplary boards comprise members whose combined expertise matches current strategic and industry skills requirements and whose behavioural competencies suit the operating culture. This enables a board to investigate and test what the business is doing, oversee finances and regulatory compliance and guide, encourage and judge the chief executive.

Matching and honing of skills should result from a commitment of board members to rigorous self-assessment. Any director who becomes predisposed to a particular way of thinking and loses the independence of mind and acuity that is essential in a high-performing board member should move on. As a result of increased personal liability for managers and directors, it is in no-one’s best interests for a board to carry deadwood. When evaluation processes are in place, an underperforming director can be identified and encouraged to improve or resign. If this is occurring, shareholders should be happy. Investors are generally content to believe their assets are in safe hands until the shock of failure dawns. Thus, reaching one’s use by date is likely to be a consequence of not maintaining competence or for not paying attention.

But appraisal systems may be defective, poorly applied or worse, non-existent, in which case board competence is compromised and shareholder value threatened.
A board that waits for natural attrition to remove a deficient director is probably a poor performing board in other respects as well.
The likelihood of groupthink emerging where members of the group avoid promoting viewpoints outside the comfort zone of consensus thinking is a danger. Well-managed corporate boards self-perpetuate, reconstituting themselves to synchronise competence with strategy.

Though many companies have a mandatory retirement age to ensure succession, if the company is objectively managed,changes in leadership will happen when appropriate, rendering arbitrary limits redundant. Where supply is constrained, mandatory retirement age may actually compound a skills shortage. In rapidly changing industries it may become increasingly difficult for non-executive directors to know exactly what kind of questions should be asked.

The central resource in governance is the wisdom that board members bring to the boardroom. Eliciting this wisdom on the right issues at the right time and in the right form is not easy but is essential for a board to be effective.
A dynamic board tracks change and modifies itself accordingly, shouldering the responsibility of collectively identifying and addressing risk and assembling a board that is well-suited to the task. It also requires directors to be sufficiently self-aware or informed by their colleagues when it is time to depart, and to do so graciously with the interests of the company at heart.