Australia’s population might be aging, but not the boards of ASX 200 companies. Our analysis of Directors on Australia’s top ASX 200 companies shows the average age is falling and Directors under 40 years are becoming a more popular choice for Boards.
It seems that the Board’s of Australia’s top companies have taken a deliberate decision to introduce younger directors.
Five years ago almost three quarters of directors on ASX 200 Boards were 60 years of over. But this has dropped to just over half (57 per cent).
Younger directors are replacing older directors as they retire. Our research into 200 ASX-leading Boards found that while the majority of Directors are still aged 50 and over, the surprising statistic is that the proportion of Directors under 50 years has doubled since 2009.
Information technology, healthcare, financials and utilities companies have the youngest boards while at the other end of the scale energy, industrials and real estate companies have the most directors aged 60 and over.
The changing industry make-up of the ASX 200 has played a part in this new Board demographic.
Fifty-one new companies have entered the index in the last five years with a strong bias to consumer discretionary businesses. The boards of these companies generally have a younger profile than existing ASX 200 companies.
The proportion of women on boards is also increasing. Female directors are on average six years younger than their male colleagues among the ASX 100 and nine years younger in the ASX 101-200.
Investors also play a part. In 2012, the UK and other parts of Europe saw the ‘shareholder spring’ which focused on executive remuneration, but this activism has now expanded to board composition and diversity.
The changes we’re seeing are also being driven in part by the dominance of the world’s largest demographic, 18-35 year olds, who with social media at their finger tips will by 2018 have the biggest spending power. Younger directors are arguably better placed to understand this younger demographic – their wants, desires and importantly how they make purchase decisions.
Younger directors bring more diversity to boardrooms and add value by thinking differently around new business challenges including constant change, increasingly sophisticated retail channels, data collection and storage, and potential threats of cybercrime.
This is valuable for Boards that are looking to involve new viewpoints. Technology is changing how businesses and customers connect and younger directors can bring fresh ideas and insights into a new age of opportunities.
On the flip side, more experienced (and often older) Directors have the skills and capability to cope under pressure when the company is facing reputational risk, financial stress or undergoing large changes such as merging with another company.
It takes time to develop an astute ability to judge risk and a deep understanding of corporate governance – so critical in crisis situations. Experienced Directors are more likely to have the balance of technical skills, market knowledge and behaviours they need to respond quickly and effectively.
WHAT DOES THIS MEAN FOR AUSTRALIAN BOARDS?
Boards that have taken a deliberate decision to introduce younger directors can support them through mentoring and training to ensure they comply with their legal duties and help them deal with unexpected, adverse events, without comprising their creativity and innovation.
Director training programmes can help new directors understand their duties and prepare them for potential ‘crisis events’.
And, while some lessons can only be learned in the burning intensity of a crisis, less experienced Directors need experienced members of the board to support and mentor them. It’s the right mix of innovative thinking, skills and boardroom experience that is most effective in driving shareholder value.
In a 24/7 media cycle, every decision is capable of being intensely scrutinised, and unpredictable decisions or signs of weakness even if the result of inexperience, can wipe away shareholder value.
Despite these risks, boards can support younger directors to ensure they have wisdom beyond their years if for some reason they find themselves having to manage a difficult situation on their own.
- In just five years, the number of Directors on ASX 200 Boards aged 60 years or over has dropped to just over half (57%) from almost three quarters (75%).
- Information technology, healthcare, financials and utilities companies have the youngest boards while at the other end of the scale energy, industrials and real estate companies have the most directors aged 60 and over.
- Fifty-one new companies entered the index in the last five years with a strong bias to consumer discretionary businesses. The boards of these companies generally have a younger profile than existing ASX 200 companies.
- The growing youthfulness of Boards could also be explained by several factors including the increased proportion of women on boards, changing demographics and investor activism