Wanted: Younger Directors: A Q&A With PwC’s Paula Loop

The average age of board members in the U.S. is going up. With the corporate environment changing in significant ways, PwC’s recent report provides a snapshot of the S&P 500 directors aged 50 and under.


Directors aged 50 or under (“younger directors”) make up only 6 percent of the seats on S&P 500 boards. That is despite the fact that post-Boomer generations make up 67 percent of the US population. FEI Daily spoke with Paula Loop, leader of PwC's Governance Insights Center, on why U.S. boards skew older than their global peers and what younger directors bring to the table. 

FEI Daily: 21 percent of directors in U.S. public companies are 70 or older compared to only 10 percent in other countries – what do you think accounts for that?

Paula Loop: In a lot of other countries around the world, boards have term limits in place so that you can only be on a board for a certain number of years.

That is much more common outside of the U.S. In the U.S., we tend to rely on refreshment of boards more on retirement age, being somewhere between 72 and 75 years old. Very few companies, 5 percent or less of the S&P 500 have a term limit in the U.S., and outside the U.S. it's much more common.

FEI Daily: Why is it? Is that just a cultural difference?

Loop: Yeah, I think probably some of it started there, but I think investors internationally have really pushed this with boards. So, a lot of boards and even regulatory groups have taken this up as a key element of corporate governance. 

There are investors in the U.S. that are interested in thinking more about term limits. And in fact, we've seen a couple of companies look at average tenure of their board members, and say, ‘We have an average, and we've got some folks that are 20 years on the board. We've got some folks that are five. We've got people in the middle, but we're going to keep an average of 10 years.’ They put a term limit in place for them, but it's an average term limit for all the board members. It's not an individual term limit. So, we're seeing U.S. boards think a little bit more creatively about it, but it is not something that has had full sail adoption. 

A really interesting data point that comes out of the survey. For 62% of the board seats held by independent Younger directors, the companies reported that they increased the board size to accommodate them—instead of cutting a more experienced director. So, they didn't even wait until somebody termed out or until somebody retired. They said, ‘That could be a long time from now, and we really want to do this today, so we're just going to add a board seat.’ That shows the different refreshment mentality in the U.S. versus globally.

FEI Daily: Close to half of the independent younger directors have finance or investing backgrounds. Why is that? 

Loop: I think a significant portion of them were directors that have been nominated by significant shareholders, so if you're nominated by a private equity investor, an activist, or someone in that ilk, in many cases, you'll credit yourself with a finance background. That's the way you would describe your skill set because you've been in a private equity or a hedge fund investing environment, so that's where your skill sets lie. And we do see a significant number of the directors have that kind of a background.

FEI Daily: What’s notable about younger directors besides the fact that very few are retired?

Loop: One of the most notable things that we uncovered in this review is that there is a high proportion of female younger directors - once you removed the ones that have been hand-picked by a significant shareholder- 45 percent were female. I think that boards who decided they were looking for a younger director or a particular skill set, were very thoughtful in their search and they said to themselves, ‘We have other things in our board composition that we're looking for, so why don't we see if we can't hit a couple of these at the same time?’ And they purposefully went and looked for somebody with a certain skill set, and it might have been technology in this case because there's a lot of technology skill sets. But then I think they also said, "Let's try to get some diversity as well on the board."

The other really interesting data point is the one we just talked about, the fact that the mix of where these individuals are coming from, with the finance, financial services background and IT, that data point is really spot on with companies. Their strategy of focusing on technology and digital transformations, and trying to get those new technology or innovation type skills on the board. I think we see that as a big draw. 

I think another interesting point the significant gap between the number of younger directors that get assigned to the compensation committee. That demonstrates that boards are comfortable with younger directors joining the board itself, but potentially not yet comfortable with them making significant decisions about executive compensation. 

One of the younger directors mentioned that when they got on a board, all of a sudden, anything youthful, the other directors turned to the younger director saying, ‘What do you think about that?’ In the comment that was mentioned, the younger director focuses on sustainability and environmental issues, even though that's not their strength. I think having a younger voice in the room just might provide a different dimension, and certainly make the resident directors think to ask some different questions of different individuals. 

Then, another thing I thought was interesting were the industries that are most likely to have a younger director being information technology and consumer. What I was really surprised about is when you look on the other side at the least likely, it’s telecom, utilities, financial services, real estate, maybe some of our least disrupted industries at this point, and maybe that's why they're not seeing the need to put a disruptive voice in the room or change the voice in the room.

FEI Daily: Great point. Most younger directors avoid serving on multiple boards – is that because they’re still holding big jobs or is there another reason?

Loop: I think it's multiple things. When I talk to these individuals, it's a lot to try to hold down a big job, be in a different place maybe in your personal life, as well, to be with a young family or what have you, and then try to layer onto that the role of being an independent director. That’s a challenge. But the other thing to think about is institutional investors are very keen on sitting executives only holding one other board position. I think these younger directors are aware of that, and certainly boards are aware of that, that there's a potential that an institutional investor might vote against a director who's a sitting executive and sits on multiple boards because of that time concern.

When you see the ones that are on more than one board, in many cases those are sitting executives who have an exemption. They're allowed to be a sitting exemption on their own board, CEO on their own board, and then sit on another board. That's considered to be quite acceptable by most institutional investors.