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

Abstract

An unintended consequence of recent board governance reforms in the U.S. is that firms increasingly tap into the pool of older director candidates, causing their boards to become substantially older. We investigate the board aging phenomenon and its implications for corporate governance. We find evidence of both monitoring deficiencies and advisory benefits associated with older independent directors. Specifically, older directors weaken board oversight in acquisition decisions, payout policies, CEO turnover, executive compensation, and financial reporting. However, they provide valuable advisory services when they have specialized experience and when managers have a greater need for board advice.

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

JEL Classification: G34, G32, G35, G41