Directors: Older and Wiser, or Too Old to Govern?

Abstract

An unintended consequence of recent board governance reforms is that U.S firms are increasingly tapping into pools of older independent directors (OIDs), causing their boards to become substantially older. We document that OIDs display monitoring deficiencies and weaken board oversight. Firms with more OIDs exhibit worse performance, which is not driven by poorly performing firms subsequently appointing more OIDs. Investors appear to recognize this and react negatively to OID appointments and to raising directors’ mandatory retirement ages. The negative performance effect can sometimes be mitigated or reversed when firms have stronger advisory needs or OIDs provide particularly valuable experience.

Keywords: boardroom aging, older directors, board monitoring, board advising, agency problems

JEL Classification: G34, G32, G35, G41