Target this week became the latest major company to axe its policy of mandatory retirement at age 65, keeping chief executive Brian Cornell, 63, at the helm for another three years.
Target axes mandatory retirement age as CEOs stay on the job longer.
The Minnesota-based big box giant joins firms like 3M and Merck in rethinking the convention of ushering corporate executives out of the workforce once they reach a certain age, often 65. The moves are a way to keep high-performing executives in their jobs. Boeing last year raised its mandatory retirement age to 70 to keep CEO Dave Calhoun for another five years.
Older executives are sticking around longer, with the average age of an outgoing chief executive reaching 64 in 2021, up from 61 in 2020, according to research from SpencerStuart, which tracks data on CEO transitions.
“Mandatory retirement policies for CEOs are a thing of the past,” said Matteo Tonello, managing director of Environmental, Social and Governance research at The Conference Board, a think-tank focused on corporate management.
The Conference Board stopped tracking the use of such measures in 2017, Tonello said. By then, the few companies that had such policies in place “were not enforcing it to avoid being accused of age discrimination or avoid finding themselves in a situation where they’d have to force out a well-performing CEO or to force out a CEO at an inconvenient time and without a solid succession plan.”
Cornell, who is 63, has led Target since 2014, having previously worked for Walmart and PepsiCo. The company has added nearly $40 billion in annual revenue since Cornell joined, the executive said in a statement Wednesday.
“It was important to us as a board to assure our stakeholders that Brian intends to stay in his role beyond the traditional retirement age of 65. Monica Lozano, lead independent director of Target’s Board of Directors, said in a statement. “We enthusiastically support his commitment and his continued leadership, especially considering his track record and the company’s strong financial performance during his tenure.”
While executives — among a handful of other occupations such as pilots and air traffic controllers — can be required to retire at 65 under the Age Discrimination Employment Act, Amber Clayton, senior director of knowledge center operations at the Society for Human Resource Management, said most companies no longer have mandatory retirement policies. Millions retired early during the pandemic. Many are now returning to work, new data shows.
“In fact, some companies that have them may be reconsidering their policy since CEOs are staying in their jobs longer and boards are less likely to want to replace a CEO if the business is doing well.”
That seems to be the case for Target. Cornell has overseen a “very positive transformation of Target,” according to Neil Saunders, managing director of GlobalData Retail, with the executive making “bold bets” on brick-and-mortar stores even as Wall Street moved in the opposite direction, spurred by the growing dominance of online retailers like Amazon.
“He was proved right in almost everything he did and has helped reshape some of the conversation around what successful retailing looks like,” Saunders said. “The business will be pleased to have him at the helm for some time to come.”
Given improved health and increased life expectancy, it is not surprising that companies are more readily keeping on top executives even after they turn 65, according to Mo Wang, an Academy of Management scholar and a professor at the University of Florida.
The use of age limits for executives “can also carry some age-related bias that older people are less creative or more conservative in leading companies,” Wang said, adding that older executives “keep important institutional knowledge that may be difficult to replace if there is no clear succession plan.” Caring for aging parents, sick spouses is keeping millions out of work
Brandon Cline of Mississippi State University and Adam Yore of the University of Missouri, who published a paper in the Journal of Empirical Finance looking at mandatory age requirements for executives, said that such policies are a shareholder tool for corporate governance. At the time of the study, in 2015, roughly a third of S&P 500 companies had such policies in place for executives or board members, they said.
These measures are most popular with larger companies as a “clean way” of ousting aging, underperforming executives or directors, Cline said.
“When companies are feeling like they need more governance and monitoring over, they’re going to implement [mandatory retirement ages] because it gives them a free way of doing that,” Cline said. “They don’t really want a mandatory age restriction per se unless they feel it’s helping them get rid of someone who has undue influence over the board.”
Anthony Nyberg, an Academy of Management Scholar and a professor at the University of South Carolina, said the “vast majority” of companies don’t have policies like these. The ones that do, and then move away from them, usually do so because “someone has been doing great or because it’s a particularly turbulent time,” like the coronavirus pandemic, Nyberg said.
“In those situations companies are pretty reticent to remove a CEO because of something that seems antiquated like age,” Nyberg said.
Plenty of famous executives have stayed in their positions well past the age of 65. Warren Buffett is still serving as CEO of Berkshire Hathaway at 92, making him the oldest chief executive in the S&P 500. Viacom founder Sumner Redstone retired at 92. Les Wexner, founder of L Brands, retired at 83.
Per: The Washington Post