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BERKSHIRE HATHAWAY INC.

(BRK.A)
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Buffett Stands Alone, but Companies Should Open Door to Older CEOs

04/30/2021 | 09:14am EDT

By Charley Grant

Happy birthday. Now pack up your stuff and go.

That might constitute a harsh goodbye for most employees, but unless your name is Warren Buffett, it is a possible ending for corporate executives and directors. As the chief executive officer of Berkshire Hathaway prepares to lead yet another annual meeting, succession plans for the conglomerate will be on investors' minds. After all, Mr. Buffett is 90 and has been running Berkshire for five decades. His business partner Charlie Munger is 97.

Whether or not Berkshire has a succession announcement Saturday, the reality is that most CEOs will never be able to approach that tenure. Some 70% of S&P 500 companies had a mandatory retirement age policy in place for corporate directors as of December, according to executive search firm Spencer Stuart. Other research suggests such policies are in place for perhaps a third of S&P 500 chief executives. Not even Berkshire is immune to the pressure: the pension fund Calpers cited the board's long tenure and the lack of board "refreshment" as one reason it plans to withhold its vote to re-elect some Berkshire directors this weekend.

While many won't last in a top job nearly long enough to see such a policy invoked -- the average S&P 500 chief executive retires at 60.1 years old after a tenure of about 8.4 years -- perhaps the practice needs a rethink in an era where once-unthinkably long lifespans are commonplace.

Companies are willing to be flexible. Boeing lifted CEO Dave Calhoun's mandatory retirement age to 70 from 65 last week, which means he can stay in the top job until 2028. Boeing cited his leadership through the recent 737 MAX crisis and the jet engine maker's long product cycle when it announced the decision.

And boards in general are relaxing the age requirement as time goes on. According to Spencer Stuart, nearly half of those boards have a retirement age of 75 or higher. That is up from about 20% a decade ago.

Mandatory retirement shouldn't be necessary in an ideal corporate governance situation, explained Cathy Anterasian, who leads Spencer Stuart's succession planning business in North America. But the rule does give boards an extra option to change CEOs if needed without creating a stir.

"You want the board to be able to call it as they see it," she told me. In other words, mandatory retirement should be a tool, not a rule.

Even at companies where there are no mandatory retirement ages, multidecade tenures are the exceptions to the rule. And some exceptions feel quite strongly about it.

"The mandatory retirement concept is ridiculous and it should not exist anywhere in this country," Leonard Schleifer, who founded Regeneron Pharmaceuticals in 1988 and has been CEO ever since, told me this week. Dr. Schleifer, 68, said evaluating whether an executive is up for the job is a tough task, and an age-based retirement system "is a crutch for boards so they don't have to have that hard conversation."

Dr. Schleifer doesn't like the concept, but Regeneron has undeniably benefited from the practice. Roy Vagelos stepped down as CEO of Merck & Co. to join Regeneron in 1994 after reaching Merck's mandatory retirement age. He became Regeneron's chairman in January 1995 and remains in the role today at age 91. "No different today from when I met him," said Dr. Schleifer, who told me the two men speak daily about the state of Regeneron's business.

Since Dr. Vagelos joined the board, Regeneron shareholders have made about 75 times their initial investment, dramatically outperforming the market over that stretch. Of course Regeneron also wasn't some overnight success: The company went public in 1991 and the Food and Drug Administration didn't approve a Regeneron drug until 2008. Score one for patient boomers.

Regeneron's success is supported by some research: Spencer Stuart found that CEOs often have their best performance, as measured by shareholder return, in years 11 to 15 of their tenures.

Ultimately, the traits that companies should be looking for in their CEOs and board members, such as a high energy level, willingness to learn, and ability to adapt to changing business conditions, aren't necessarily defined by age -- Dr. Schleifer points to his father passing a driver's test at age 99 to illustrate his point. Regeneron showed how it was able to adapt to a changing world when it developed its monoclonal antibody treatment quickly as the Covid-19 pandemic raged; the drug has been used to treat hundreds of thousands of patients, including former President Donald Trump.

There is additional value in having older executives in the mix, notes Dr. Anterasian. "At this particular point in time, there is a lot of focus on diversity, equity and inclusion. Age diversity is a factor, and we shouldn't forget that."

It might just be time to put mandatory retirement out to pasture.

Write to Charley Grant at charles.grant@wsj.com

(END) Dow Jones Newswires

04-30-21 1114ET

Stocks mentioned in the article
ChangeLast1st jan.
BERKSHIRE HATHAWAY INC. 1.54% 437259.98 Delayed Quote.25.72%
DJ INDUSTRIAL 1.06% 34382.13 Delayed Quote.11.16%
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Financials (USD)
Sales 2021 264 B - -
Net income 2021 30 386 M - -
Net cash 2021 10 500 M - -
P/E ratio 2021 21,7x
Yield 2021 -
Capitalization 665 B 665 B -
EV / Sales 2021 2,48x
EV / Sales 2022 2,35x
Nbr of Employees 360 000
Free-Float 75,4%
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Mean consensus OUTPERFORM
Number of Analysts 3
Average target price 455 166,67 $
Last Close Price 437 259,98 $
Spread / Highest target 6,34%
Spread / Average Target 4,10%
Spread / Lowest Target 0,63%
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Managers and Directors
NameTitle
Warren Edward Buffett Chairman & Chief Executive Officer
Marc D. Hamburg Chief Financial Officer, Secretary & Senior VP
David Sanford Gottesman Independent Director
Walter Scott Independent Director
Charlotte M. Guyman Independent Director
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