- Age diversity is an important aspect of board diversity that is often overlooked in favor of gender and race diversity.
- Age diversity can reduce groupthink and encourage a greater examination of management choices and actions.
- Age diversity can lead to fewer instances of corporate misconduct and initiate the development of a more inclusive workplace, as well as provide unique skills, knowledge, and experiences to a board of directors.
‘’Diversity” is one word that has been reiterated severally, in relation to corporate governance and the board. Despite this, not all aspects regarding diversity on the board have received the same amount of attention.
When discussing diversity, gender, and race, have been at the forefront of the discussion on board diversity; thus leaving other aspects of diversity such as age, neuro-diversity, physical ability, and education on the back burner.
This article will focus on age diversity and how it helps to improve board performance. With the constant development of new technology in this jet-set age. It is glaring that, in order for companies to perform well, maintain relevance and attain sustainability the board must be dynamic, diverse, and adapt to the times.
Why should there be a focus on age, what are the advantages of having a board that is diverse in age?
According to a survey carried out by PWC, (PWC’s 2017 annual Corporate Directors Survey) directors opined that age diversity was the most crucial form of diversity. Neukirchen, Posch, and Betzer submitted through their study titled ‘Board Age Diversity and Corporate Misconduct’ that regardless of the gender, race, or ethnicity directors who are similar in age are most likely to share comparable ways of thinking and acting.
Thus, these commonalities in viewpoints and behaviors of directors would eventually result in ‘groupthink’, which undermines the goal of having a diverse board. On the other hand, Mcpherson et al asserted that there may be less cognitive cohesiveness and groupthink on the board if the directors are diverse in age or even come from various generations.
This assertion was supported by Neukirchen et al. They opined that a board that is diverse in terms of age encourages greater examination of management’s choices and actions, which eventually results in fewer wrongdoings by the company. In a survey conducted between 2007 and 2020 that looked at S&P 1500 businesses and combined data on corporate misconduct; age-diverse boards were shown to be connected to much less corporate misbehavior.
It was found that boards with a varied range of ages have much lower rates of corporate malfeasance, both in terms of the number of breaches and the fines paid.
Additionally, it has been submitted based on research carried out that larger boards seem to monitor management less successfully, this mismanagement is, however, lessened when larger boards are diverse in age.
Moreover, age diversity can be essential when it comes to the preparation for succession. Organizations can ensure a more seamless leadership transition when senior members retire or leave the board by including people from various age groups.
The culture of mentoring and information sharing that allows younger directors to benefit from the experience and wisdom of more seasoned directors can also be encouraged as a result.
Furthermore, stakeholders of an organization are usually from a variety of age groups; a company is bound to have customers, employees, and other stakeholders from a variety of age groups; making decisions that are optimal for all of the organization’s stakeholders can be guaranteed by having a board that reflects this diversity.
For instance, in Nigeria’s telecommunication industry most of those who consume high data are millennials and Generation Z; data purchase accounts for a high percentage of general sales, having a board that represents this consumer group would be beneficial to the company. It might help them to better understand this age demographic and optimize sales.
Age diversity on the board can also initiate the development of a more inclusive workplace. It communicates that the company values and respects people of all ages and is dedicated to fostering a diverse and inclusive workplace.
As of 2020, it was asserted that millennials made up over 50% of the workforce in Africa, as such it is only ideal for boards to reflect the work population structure. According to Studies carried out age-diverse boards were associated with improved Corporate Social responsibility (CSR) related outcomes.
It has been argued that age diversity on the board enhances CSR performance through better CSR investment and strategy decisions. Directors who are older are valuable because of their expertise, which can help them monitor and advise management successfully, younger directors may have a different skill set, which may be helpful in a setting where things are always changing thanks to the digital era.
According to Gardazi et al younger boards may be less traditional and more aware of environmental and sustainability issues (See Board of Directors Attributes and Sustainability Performance in the Energy industry).
A varied age range on a board supports a culture that is imaginative and creative. A diverse group provides unique skills, knowledge, and experiences to groups of people of similar ages. The emergence of fresh ideas that align with what is trendy might not be conceivable with a more age-homogeneous board.
Does age diversity have a significant effect on the financial performance of the board?
According to studies carried out by Gardiner which covers empirical literature from 1996 to 2022; it is opined that there are inconsistencies regarding whether age-diverse boards outperformed other boards that were not diverse in age. Notwithstanding, Gardiner argued that while an age-diverse board did not necessarily outperform their counterparts that were not age-diverse; age-diverse boards were less likely to be involved in mismanagement scandals than their counterparts.
Thus it can be argued that the long-term effect of mismanagement will eventually lead to financial losses, therefore since age-diverse boards have been shown to be better at managing the company the long-term effect of this will be financial stability.
Despite the numerous advantages of an age-diverse board, it’s not going to always be peaches and roses; directors are not going to sit in a circle singing ‘Kumbaya’ while holding hands and smiling at each other.
Due to the board being made of people from different age groups, there is bound to be some conflict arising from generational and age differences. Age-diverse boards are bound to have people with diverse communication preferences, work ethics, and expectations.
Thus, it is imperative to encourage honest and efficient communication, respect for individual differences, and strategies to make the most of one another’s abilities. Age diversity can benefit the board and the organization as a whole by developing a culture of honesty, respect, and teamwork.
How do companies create a more age-diverse board?
Generally, directors are nominated by a Nomination Committee, the Nomination Committee is tasked with the responsibility of selecting potential candidates for the board. This method is known as the internal process of nomination.
Aperte submitted based on studies that in organisations where the nomination of directors is done internally, boards may tend to be less age-diverse. It was further stated that the reason for this is, current board members may choose candidates who are similar to them and whose traits they feel they are familiar with when looking for new board members.
Also, it was opined that typically directors would rather nominate people with whom they were less likely to have a conflict with and those whom they can relate to; in order to save time during decision-making processes and to gain from group loyalty. It has been asserted that this process is self-serving (See Aperte A.L ‘Nomination Committee and the Choice of a Diverse Board’).
This is due to the fact that instead of selecting people based on how well their qualifications or interests align with the needs of the company, directors may do so out of personal or career interests.
An alternative nomination process will be one which has been employed by certain Nordic countries whereby companies have nomination committees comprised of external experts. It could be argued that an external nomination team will be more willing to explore all aspects of diversity when selecting any potential board member.
On the other hand, it has been submitted that internal nomination committees are more than capable of selecting members who will truly make the board diverse provided there are clear guidelines as to selection.
Therefore, it is imperative that companies have a standard selection guideline that will incorporate all aspects of diversity including age if they are truly to reap all the advantages of age diversity.
Nomination committees, which have set functioning procedures and clear operating norms can get around the drawbacks of the board selection procedure and improve new director selection decisions.
They can do this by creating board member profiles, formulating selection criteria, possibly enlisting the help of search firms, and conducting interviews with candidates to ensure the board is truly diverse. Additionally, it has been submitted that the committee should depart
from the traditional practice of looking for members with board experience as a prerequisite and instead explore other avenues for talent in order to have an age-diverse board.
In summary, age diversity can improve board effectiveness in a variety of ways. It can bring diverse viewpoints, more accurately represent the organization’s stakeholders, prevent groupthink, encourage innovation and creativity, and foster an inclusive workplace.
Organizations can develop more successful and effective boards by embracing age diversity and adding members from a variety of age groups. It is crucial to remember, though, that age diversity alone does not ensure a board’s performance.
Having people with the requisite knowledge, experience, and abilities to make wise decisions and lead the firm to success is still imperative.
Age diversity should be seen as only one of many elements that go into forming a successful and well-rounded board. It’s crucial to keep in mind that diversity in terms of age is simply one type of diversity that might affect a board’s efficacy.
Other aspects of diversity such as neuro-diversity, physical ability, and education should also be looked at. By embracing diversity in all of its manifestations, businesses may develop a creative and inclusive culture that can improve decision-making and performance.
Oluwaseun Modupe Ogungbe is the Lead on (Research and Publications) at the Society for Corporate Governance Nigeria
About The Society for Corporate Governance Nigeria
SCGN is a registered not-for-profit organization committed to the development of corporate governance best practices in Nigeria. Today, the Society is the foremost institution committed to the development and promotion of corporate governance best practices in Nigeria.