The issue of boardroom diversity has been prodded and probed, but there has been little discussion of the age of board members. Until now.
A team of European researchers has concluded that age diversity is a healthy aspect of boardroom life because it helps stop “misconduct”. In fact they find that age-diverse boards are associated with significantly less corporate misconduct—both in terms of the number of violations and the fines paid.
The researchers, from Germany, looked at S&P 150 firms from 2007 to 2020 using data on misconduct on a special “violations” database, and cross-checked age profiles.
Age diversity, attitudes and thinking
Governance specialists have been discussing diversity, particularly gender and ethnic diversity, in boardrooms for some time now. Major campaign projects, many international, have been launched to improve representation in these areas, some meeting with success.
But the research underlines the fact that little is written or investigated when it comes to boardroom ages. That may come as a surprise to many, especially younger business professionals looking at boardroom roles and wondering why they struggle to get through the door.
Age figures heavily as a personal trait affecting attitudes and thinking. More age diversity, the writers postulate, should reduce “groupthink” and lead to “more critical judgment of management’s decisions and actions and, eventually, to less corporate misconduct”.
The researchers didn’t just leave it there. They also examined whether age diversity could, in particular, counter the effect of CEOs being enticed into poor behaviour. The researchers find CEOs with elements of equity compensation engage in “significantly more corporate misconduct”. However, where such CEOs are presented with more boardroom diversity in their boardrooms there is less illegitimate behaviour.
High-ability managers
A further statistical study looked at how high-ability managers react to age diversity. Once again, poor behaviour misconduct does increase around highly able corporate leaders, but age diversity appears to cut the incidence.
A last observation comes on board size. Large boards tend to be less effective as monitoring bodies. However, age diversity appears to have a mitigating effect on expanded boards.
Last year’s Annual Corporate Directors Survey from PwC, a professional services firm, found only 21% of directors consider age diversity as “very important”. Some see that as problematic, especially those concerned about the ingrained idea that experience plus age equals wisdom.
Academics elsewhere have positive news about age diversity finding that it “positively” affects board “performance”.
In a 2018 report, PwC concluded: “Boards can truly benefit from younger directors… To be clear, we’re not saying that you necessarily need a millennial on your board to understand millennial spending habits. But if your board doesn’t have single director who was born after the Baby Boom ended, it may be time to give age a second thought.”
The latest research on misconduct and boardroom age diversity may help amplify that plea.