Diversity matters. More diverse companies are more likely to have financial returns above their national industry medians. Investors continue to encourage boards to recruit directors who can bring a diversity of thought to the company. However, when we talk about diversity we usually talk about gender, racial, and ethnic diversity - the issue of age doesn’t come up very often.
Bloomberg Tax interviewed PwC principal, Paul DeNicola, on board room age diversity issues, why having an age-diverse board is important, and how companies can attract and sustain a diverse board with all age groups.
Why Age Diversity is Important.
Why does age diversity matter? According to DeNicola, boards are adding “Younger Directors” and finding they bring new skills and perspectives. Younger Directors are those aged 50 and below. They are “more likely to have a background in finance, investing, or technology. They are more likely to be current,” DeNicola said. “They are also in better positions to understand millennials,” he added. That’s an advantage because according to a 2019 Pew Research Center report, millennials will replace baby boomers as the largest living adult generation this year.
DeNicola also explained that an increase in age diversity can increase the perspectives they bring to a company. “It is especially important for most companies today that are either going through some changes or digital transformations," he added.
Current State of Boardroom Age Diversity.
How are Younger Directors represented now? According to a PwC report, 46 percent of S&P 500 companies have at least one Younger Director today--up three percent from 2017. In 2018, 54 new independent Younger Directors were elected to S&P 500 company boards. Among the newly elected Younger Directors in 2018, 61 percent are women.
The report also pointed out that companies in information technology, consumer staples, and consumer discretionary industries are most likely to have Younger Directors.
However, only 21 percent of directors consider age diversity to be very important to have on their board--compared to 46 percent saying the same about gender diversity. Therefore, companies still need to make more of an effort to recruit Younger Directors.
How to Improve Age Diversity in the Boardroom.
DeNicola said that in order to recruit Younger Directors, companies should include “the age factor” as a key attribute when they look to recruit new board members. Companies need to have an action plan and be open to those who might be considered non-traditional candidates.
However, DeNicola added that companies should begin by identifying the type of talent that they really need and not just consider age diversity alone. He also stated that in order to be able to recruit Younger Directors, companies need to expand their networks, “because their professional networks usually are demographically similar to themselves.”
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