Should Aging CEOs Retire? The Data Can Be Misleading

Not long ago, a Wall Street Journal article debated the pros and cons of a required retirement age for CEOs. Here in this blog post, we discuss something of utmost importance in assessing when CEOs should retire. And, paying attention to this is crucial, not only for CEO retirement, but for many other business decisions as well.

The Wall Street Journal article’s online title was “Should There Be a Mandatory Retirement Age for Senior Executives?” The article presents both sides of the issue, making a case for each side.

In light of this article, however, as I see it, whether deciding if aging CEOs must retire, or whether making any major business decision, taking the right approach is crucial. Thus, it is important to identify what factors really impact the decision. This isn’t always easy. Data to guide business decisions sometimes can be misleading. For example, correlation is not causation, yet when two items are correlated, people often assume causation. But, causation is not necessarily there. Nonetheless, this can lead to confusion when trying to identify what factors really do matter for the decision.

Likewise, if a survey finds that most people with a certain characteristic do whatever the survey is studying, it is easy to assume that the characteristic drives what is being done. But, that is not necessarily the case.  Like any situation regarding correlation and causation, a characteristic associated with a certain behavior is not necessarily a primary driver of that behavior. So, whether making decisions about CEO retirement, or about something else, it is important to evaluate if the variable you are looking at (such as age) is or is not likely to be a primary driver of what you want to happen (such as improved performance).

Along these lines, an example I blogged about previously is the issue of how tenure relates to CEO performance. A study back then found that CEOs with more than five years tenure in their jobs performed more poorly. As a result of this study, some people started saying that perhaps CEOs need to be replaced after five years. At the time, however, Steve Jobs, who had been Apple’s CEO for much longer than five years, was achieving spectacular results. So, back then, I blogged about how this study’s finding did not mean that CEOs with more than five years on the job should be replaced. Years on the job was not the primary driver of CEO performance. Something else was far more important. That something else is most likely related to individual capabilities of the CEO.  And, sure enough, several years later, another study muddled the tenure issue and found that CEO performance was best when job tenure was eleven to fourteen years, a finding more consistent with Steve Jobs’ spectacular success at Apple.

Similar thinking applies to CEO retirement age. Just as CEO performance is affected by something other than years on the job, that performance is also affected by something other than a CEO’s age. Factors like the CEO’s ability to set a doable strategy, to garner support for that strategy, and to steer the company forward can be far more important than a CEO’s age. There are patterns of success that, if applied to the company’s strategy, can bring about impressive performance.  So, regardless of age and tenure, a CEO is likely to achieve superior performance if patterns of success are adhered to.  Thus, assessing a CEO’s ability along these lines–in other words, evaluating a CEO’s individual capabilities–is generally far more important than age or tenure. Some CEOs might be star performers despite their advancing age, while others who are younger might perform poorly.

So, in conclusion, it is important to evaluate CEOs on a case by case basis, and to avoid overgeneralizing about the impact of age on performance.


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