A Study Found That Firms Led by Younger CEOs Perform Better. The Conclusion Misses the Mark
There are a variety of additional factors that must be taken into account to understand how the age of a leader affects a company positively or negatively.
I recently read a research article in the Journal of Empirical Finance that got me thinking. The study, published in 2016, focused on over 2,000 public companies and examined their policies regarding mandatory retirement ages for their CEO position. About half of S&P 1500 companies have mandatory retirement ages, which offered a great opportunity for the authors to examine the effects of both CEO experience and CEO age on a company’s performance (defined in the study as share price).
Without going too deep into the weeds of statistical data, the study found that firms with CEOs 42 and under outperformed those with CEOs 68 and over. They did specify that there is a difference between an older CEO who has simply held the position for decades, versus a company outright hiring an older CEO – as you would expect, the one who had been there for many years performed pretty well. But older CEOs were generally less likely to engage in mergers, joint ventures, capital restructurings, and divestitures – all actions that tend to improve shareholder value over the course of time.
The results of the study could lead someone to suggest that younger leaders are better than older leaders, as some news outlets did.1 But I think that’s an irresponsible thought process. Just because data suggests one thing doesn’t mean you can ultimately jump to a conclusion that essentially discriminates against an entire population. For one, tech firms generally outperform other sectors, and tech firms are historically more likely to be led by a younger CEO. And there are a multitude of examples like this that can skew the data.
What the study also doesn’t do is examine anything deeper about these companies’ CEOs. Just taking their age and the firm’s stock price into account doesn’t really tell you much about how those variables may relate to one another. What is more beneficial is taking into account each company’s culture and the team-building policies that the CEO enacted to achieve their goals. Did the older CEO refuse to accept new technology that would help them outperform their competitors? Did the younger CEO act recklessly, but get lucky? Did either CEO surround themselves with a team that balanced out their strengths and weaknesses? We could go on endlessly about what could have caused good or bad performance, but the bottom line is that it’s irresponsible to take this correlation and imply that younger CEOs are simply better at their jobs.
One of the ways you make (or keep) an organization of any size successful is by cultivating a culture of diversity. Now, that’s become a buzzword in the last few years, so let me define how I view it. With regards to business, diversity to me is not about physical attributes, but rather about building a team of people with different ideas, methods, and styles, with everyone coming together to build a stronger company. Those different traits may certainly correlate with physical attributes – someone with vast experience is usually older; someone with fresh, new ideas is usually younger. Someone who grew up fighting for every inch usually comes from a lower socioeconomic background; someone who grew up with a keen knowledge of financials or how the corporate world works usually comes from a higher socioeconomic background. Oftentimes, this diversity of ideas will also intersect with physical diversity, but the point is that you need to look at the former, not the latter. Whatever comes with that is out of your control.
When I first started full-time in our family’s business at age 22, I was the young, brash newcomer with a bunch of big ideas, many of which would not necessarily work. Nonetheless, the value of matching me up with others who had been in the business for a long time, and therefore had the experience and the know-how, led to some really great projects and achievements in the early years. As I took over different parts of the business, I found it extremely valuable to surround myself with people much older than me, to balance out my youth.
As I get older, however, I am now seeing myself slowly morph into someone who, while still very familiar with new ideas and new technologies, clearly takes longer to comprehend them than I did even five years ago. Don’t get me wrong, I’m still quite young by business standards. And statistically I’m not only one of the youngest leaders in our company, but also in the entire industry. Yet I’m at a stage in my life where I now have to surround myself with both older and younger people. I need people younger than me to present ideas, methods, and technologies that I may not be aware of, while I need people older than me to help me utilize the company’s history and experience in coloring strategic decisions. I’ve watched as I went from the youngest person in the company to someone closer to the middle, and therefore I’ve had to evolve my cultural standards along with it. I no longer know all of the hot new trends,2 yet I also don’t have 40 years of experience like some of my staff does.3 Putting both of these types of people beside me is what helps balance the decisions I make so that we can evolve the company and move it forward in a responsible way.
To me, the key to building a successful team is this diversity of ideas. You want people who are all on the same page with regards to your company’s ethics, morals, and ultimate goals, but different enough that they each have their own belief on the correct path to get there. As an owner, there is nothing more rewarding than struggling to make a tough decision because you’ve been brought multiple, excellent ideas. The difficulty in having to choose just one of them means you have surrounded yourself properly with a team that will always get you to where you need to be.
News outlets love to take a single line from a scientific journal article and then extrapolate it into a wildly misleading headline. It’s infuriating to those of us that read journal articles for understanding scientific progress, rather than clickbait potential.
I still don’t know how to use TikTok.
Though I do know what a typewriter is and how to use it.