The average age of non-executive directors (NEDs) serving on the top 150 FTSE boards was 60.6 in 2018, up from 59 in 2013 and 58.5 in 2008. This represents a 3.6% increase over a ten-year period according to the 2018 UK Spencer Stuart Board Index. NEDonBoard believes that there is a risk that having an older NED pool might mean businesses are out of touch with contemporary practices and make boards unprepared to address emerging issues, such as cybersecurity, climate change and digital transformation.
NEDonBoard is an advocate of increasing the representation of younger NEDs on boards. Although some sectors are at the forefront of cross-generational representation on boards, notably technology, most boards continue to value broad business experience above all else.
What barriers do younger NEDs face?
Boards value broad business experience when they recruit new NEDs. This inevitably results in appointing NEDs who have been through multiple economic cycles and have had extensive executive experience. These individuals tend to be white men in their sixties, which negatively impacts on both gender and ethnic diversity on boards.
Being a NED on a board requires a significant time commitment. Leaders in their forties will typically have a full-time executive role and be focusing on expanding their executive responsibilities. There is little time left to take on NED responsibilities.
Compensation of NEDs varies widely but is typically lower than executive compensation. Young leaders are at a time in their personal life when they build assets and save for their children’s education and their own retirement. NED roles are generally taken up by already financially secure individuals for whom compensation is not the primary driver.
Potential conflicts of interest
Young leaders face restrictions from their employers due to potential conflicts of interest. Although it is necessary for employees to clear conflicts if they are appointed as NEDs, employers should consider the skills that their executives will develop as NEDs. They should adopt a flexible and supportive approach when employees express an interest in becoming NED.
The compelling case for younger NEDs
NEDonBoard believes that boards should incorporate age diversity into their succession planning discussions. Effective succession planning will identify the right mix of skills that companies require to successfully implement their long-term strategy. It should also ensure that prospective NEDs are aligned with the company’s core values, culture and corporate mission.
Boards need a broad mix of skills and experience, and should look to achieve a balance between seasoned executives and non-executives and younger professionals. Key drivers for increasing age diversity on boards include:
- Fresh perspective and thinking.
- Operational proximity, as younger NEDs often remain executives while taking on a NED role.
- Improved customer understanding and representation.
- Specific expertise or knowledge, which is typically technology related.
- A contemporary approach to issues.
The NEDonBoard view
NEDonBoard has been advocating for younger professionals to enter the boardroom in its response to the FRC consultation on the UK Corporate Governance Code. We recommended a shorter period than the nine-year tenure to:
“better reflect the fast-evolving technology and operating environments in which today’s businesses operate, the shorter duration of employees’ years of services (including at C-suite level) and the need for refreshed skills and more diverse boards, i.e. broader access to the boardroom by a younger generation of leaders.”
More generally, NEDonBoard promotes the increased representation of under-represented group in UK boardrooms to achieve gender, ethnicity and age balance for the sustainable performance of organisations.
If you are a young professional looking to start a NED career, we have designed the NED Accelerator Programme for you. Visit the course page to find out what you will gain and what alumni and NEDs say about the programme, which is eligible for four CPD credits.
If you are a company looking to transition selected senior executives to NED roles and want to receive information about the NEDonBoard 12-month programme, please contact Elise Perraud.
We look forward to hearing from you.