Column : Grey hairs back in fashion

Written by KRISHNAMURTHY V SUBRAMANIAN | Krishnamurthy V Subramanian | Updated: Sep 22 2011, 18:19pm hrs
What is the ideal age group for CEOs in Indian firms The days of managers in their 40s taking over the CEO positions are getting shorter and shareholders and corporate boards are increasingly looking at hiring more CEOs in the 50- to 55-year age group. Grey hair, wisdom and experience seem to be back in fashion. Of the big new appointments, Wipros CEO TK Kurien is 50 as is Tiger Tyagarajan of Genpact. In fact, the increase in CEO age reflects a global trend towards hiring older CEOs. For example, among the S&P 500 firms, while the typical CEO was about 52 years in 1992, in recent years, the typical CEO is about 55 year old. Furthermore, the percentage of new CEOs over 50 has been increasing every year.

Since optimism is a valued trait in a leader, CEOs at all ages have to be willing to hear the bad news over and over and still see a silver lining. But good leaders dont turn a blind eye to the data without good reason, and the data about corporate leaders indicate that age matters a lot more than CEOs and CEO experts think. There is a leadership sweet spot that falls in the 50s and early 60s.

While CEOs almost never get the job at 72, there are those who are effective at that age and beyond. Warren Buffett, CEO of Berkshire Hathaway, has crossed 80. Walter Zable, CEO of electronics manufacturer Cubic, is 95. Marriott International CEO Bill Marriott is 79. Kirk Kerkorian, CEO of Tracinda, is 93. Financier Carl Icahn waded into the fight between Microsoft and Yahoo! at 72. T Boone Pickens is weighing in on the energy quandary at 80. Late Sidney Harman, who died recently, retired at 88 as CEO of audio equipment giant Harman International, where he had long been the dean of S&P 500 CEOs. Dinesh Paliwal, 51, replaced Harman as CEO four years ago. Under such youthful leadership, stock in Harman International has fallen 63%. The oldest five S&P 500 CEOs left are 77 to 79, practically wet behind the ears.

However, as a group, the S&P 500 companies run by the youngest CEOs have been outperforming those run by the oldest. Of the 27 CEOs of S&P 500 who are 47 and younger, 23 have been CEO since the start of 2007. Those 23 stocks are down an average 2.8% over 19 months versus a 9% decline in the S&P 500 index. The six companies with CEOs who are 72 and older are down an average of 21%. Thus, it seems that indeed leadership sweet spot falls in the 50s and early 60s. There is a reason for this: Good leaders are crafted from tough times, especially failure. The necessary experience rarely comes before 50. Research finds that such traits as perseverance, integrity and trust have nothing to do with age, but that conflict management and negotiating skills improve over time.

In the Indian context, the increase in CEO age stems from the fact that with globalisation, CEOs essential challenge is to manage vastness since greater business complexities and greater firm size require sound judgement and foresight. With an increase in complexities, efficiency and innovation come into play more than ever before. In particular, globalisation as well as the concomitant increase in the size of Indian firms has increased manifold the complexities involved in managing a typical Indian firm. While globalisation has considerably increased the number of factors that influence a CEOs decision making, the increase in firm size has meant that a lot more is at stake for every decision that the CEO makes.

Research in the US shows that selecting a wrong CEO can damage the organisation as a whole and can cause depletion of talent at the top of the firm. As a consequence, we find that in the US now, 62% of all S&P 500 CEOs have earned an advanced degree beyond their undergraduate degree (this includes MBAs, other master degrees, PhDs, etc), when compared to less than 50% in the 1990s. Similarly, since 2000, the percentage of top 100 CEOs who followed one functional path (general management) throughout their career has decreased from 25% to 8%.

With the increasing complexities in Indian firms, it is safe to assume that these findings extend to the Indian context as well. The ability to manage complexities may be a function of age since complexities lead to potential team conflicts. When compared to a relatively simple situation, a complex situation is more likely to be interpreted in very different ways by different people. As a result, team members are more likely to differ in their interpretations of and solutions to todays problems than those a decade ago. As a result, the conflict management abilities conferred by age may matter more today than a decade ago.

The author is a PhD in finance from the University of Chicago and is currently faculty in finance at the Indian School of Business