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Boards are Increasingly Multigenerational – Though They’re Aging

Age. Skills and experience. Tenure and independence … Our boards are a made up of a composite of these factors, so it’s important to look at their impact on the function and effectiveness of a company board.

Are there benefits to having multi-generational boards?

By 2026, more than 22% of Australians will be aged over 65 – that’s up from 16% in 2020. And it’s emerged that directors are getting older, which isn’t so surprising as we are an aging population after all. Research for Watermark Search International’s 2024 Board Diversity Index found the average age of ASX300 directors in 2016 was 59.8 years and now, in 2024, it’s 61 years, placing them at the tail end of the “baby boomer” generation.

While directors have generally aged another year, it has also emerged that there are fewer directors in 2024 under 50. The average male director is still slightly older than his female counterpart: he’s around 62 while she’s around 58. Interestingly, within a decade baby boomers will no longer be the dominant generation on boards. This is expedited by the fact that the average board tenure is less than 10 years (82% of directors).

An argument in favour of later-middle-aged directors is they can bring valuable management and governance experience gained while working through many decades’ worth of socio-economic trends. And wisdom, too.

But some age diversity on boards is common on today’s ASX300 boards, with the average age range hovering around 20 years. The top 100 boards have a slightly broader average age range (19.8 years) than the next 100 (18.5 years) and the remaining third (18.3 years), though it’s clear a nearly-two-decade age is preferred on most ASX300 boards to give them access to multi-generational perspectives.

A positive theory is that board diversity – especially regarding age – makes it more open to arguments and disagreements. While some people might fear this could lead to a lack of cohesion and stalemate, the logic is that a mix of backgrounds, perspectives, experiences and reference points make it less likely that members will settle into groupthink and instead embrace a healthy diversity of thought.

The skills challenge on Australian boards

Board members are educated, with 19.5% of ASX300 directors having an MBA in 2024. But there’s an interesting gender factor at play. Year on year we’ve seen very little change in the percentage of directors who have earned at least an undergraduate degree: generally it sits around 82.

Overall, more women on boards have higher qualifications. PhDs have been earned by almost double the percentage of women – 9% as opposed to 5% of men. MBAs continue to be equally held by women and men (19%); however, more women have earned other Masters degrees (20% in 2024) compared to men (16% in 2024), but that difference hasn’t changed over the years. Finance qualifications are almost evenly spread among women (19%) and men (18%).

While board members seek and achieve higher education and skillsets, there has been an apparent backwards step by ASX300 companies to a default position of what are perceived to be “safe” skillsets.

How different are the skillsets men and women bring to boards?

When directors’ sector backgrounds are viewed by gender representation, we see many sectors continue to be male-dominated, especially general management, engineering/manufacturing, industrial/construction and banking/financial.

There is almost equal representation of women and men with sector experience in marketing/communications/media and legal.

Still, women are much more likely than men to have experience in the people-focused sectors of HR/change management, sometimes (unfairly) considered “softer” industries.

In 2018, 44% of ASX300 directors had governance training, but by 2024, it decreased to 37%.

Governance qualifications are now held by almost twice the percentage of women (58%) as men (28%), though overall the proportion of directors who have earned governance qualifications has dropped since Watermark Search International first measured it in 2018: 58.5% women (keeping in mind there were fewer women on boards) and 39.8% men.

Watermark suggests board skillsets should reflect the changing societal demographics, the external environment and an organisation’s customer base.

Do Australian directors stay for too long?

Over the past five years, 84% of directors stay for 0–10 years and this proportion remains unchanged.

The most common length of board tenure for more than half of all directors continues to be less than five years. A massive majority (84.4%) tend to serve for less than 10 years. Those figures haven’t changed much since we began tracking them.

It is rare that directors aren’t replaced after 10 years. Only 14.3% stay on between 10-14 years, dropping down to 3.1% in the 15-19 year tenure period. Remarkably, 5.3% of directors continue to serve on a board beyond 20 years. Whether directors become “rusted on” after 10 years is debatable.

Can extended board service have negative repercussions?

Yuval Millo, author of a study by the University of Warwick’s Business School, suggests directors serving an excessive period of time leave themselves open to accusations, from investors and other stakeholders, of losing their independence and becoming too close to company management.

The study concludes that limited tenures can be an avenue for companies to appoint younger directors, with fresh perspectives and from diverse backgrounds, who bring a different approach. Again, this can pave a way forward from groupthink to progressive diversity of thought.

Looking through an independent lens

The good news is that board directors are increasingly independent, regardless of company size. In the last four years there has been a gradual growth in the representation of independent directors on boards across the ASX300, from 78.8% in 2020 to 82.1% in 2024.

Watermark Search International found that almost all female directors on ASX300 boards are independent (95%), with no change in this figure from last year. By comparison, many more men are internal appointments, with 25% of board positions held by men who are CEOs or general managers of a company and sitting on their own boards.

Debra McCormack, Global Board Effectiveness and Sustainability Lead with Accenture, believes director independence is important. In an October 2023 interview for Forbes she said: “It’s that healthy board management tension that needs to be out there, having the robust discussions that they have. Independence is important from the advisory and the monitoring function so that [directors] can actually do their oversight and be objective about it. Most importantly, I think board members need to make those decisions that are in the best interests of the shareholders, so it means there’s no conflict of interest.”

Director independence allows board members to take positions that are in opposition to management. Getting away from groupthink, healthy board management tension opens the door to robust discussions and decision making processes. Independence is also important for advisory and the monitoring functions. It means directors can focus their oversight objectively, putting board members in a position of being able to make decisions in the best interests all round.

Watermark Search International has extensive experience here: our board appointments services help companies look outside the box to broaden the diversity of their board, build new skills into the board and conduct successful onboarding for new directors. As always, we are ready to answer any questions or help you in any way. We look forward to sharing our expertise with you. Contact us here.

Download a copy of the 2024 Board Diversity Index here.