When should an executive retire?
The question is gaining urgency in Europe where, for years, companies and governments have pushed people to retire earlier than their American counterparts. The mindset in Europe was that this cleared room for younger executives and brought in fresh ideas.
Now, in a shift, some European companies are pushing to keep people working longer. When senior executives step down at age 60, companies are burdened with the cost of paying for lengthy retirements and may squander valuable experience.
The result: Retirement age for successful chief executive officers in Europe is climbing steadily toward 70 years old. And corporate boards across Britain, France and Germany are breaking with practice and extending CEO contracts beyond specified retirement ages, typically between 60 and 65.
Two catalysts for the soul-searching are the forced retirements, at age 60, of well-regarded CEOs at European titans BP PLC and BMW AG. BP’s John Browne and BMW’s Helmut Panke each has signaled a desire to keep working.
Mandatory-retirement ages are “an issue of prejudice against individual men and women whose active useful lives are brought to a premature, and wholly unnecessary, end by a rigid adherence to the belief that at 61 they are worth less than they were at 59,” Lord Browne said in speech.
He plans to retire Dec. 31, 2008, after turning 60. Despite his criticism of the mandatory-retirement policy, he said in an interview that in his case, this date will be a good time to move on, both for himself and the company. The date will be a convenient “punctuation mark on the year,” he said.
At BMW, Mr. Panke, 60, was succeeded Sept. 1 by 50-year-old Norbert Reithofer, a member of the car maker’s management board. Mr. Reithofer is BMW’s fourth chief executive in eight years. Mr. Panke has said he was in no rush to relinquish his post. BMW’s world-wide vehicle sales climbed 23% during his five-year tenure.
In France, Jean-Martin Folz, chairman of the managing board at car maker PSA Peugeot Citroen SA, last month announced plans to retire by February, a month after he turns 60.
In the U.S., CEOs typically work until they are 65, an age not set by law but by employment contracts. Some stay much longer. Citigroup Inc.’s Sandy Weill retired at 70. Maurice “Hank” Greenberg at American International Group Inc. was 78 when he was ousted. Warren Buffett, CEO of Berkshire Hathaway Inc., is still active at 76.
European CEOs tend to have shorter tenures than their American peers, according to Booz Allen Hamilton, the New York management consulting firm. In Europe, average job tenure hovers between seven and eight years; the U.S. average is nine to 10 years.
As in other parts of the world, CEOs in Europe also face an increasingly volatile market. In 2005, 15% of CEOs at European firms among the world’s 2,500 largest by market capitalization left office, down slightly from the high of 17% in 2004, Booz Allen says.
A British law that took effect last week bans workplace age discrimination and bars companies from setting retirement ages below 65. (As in the U.S., the law excludes some professions.) British employers will also be required to consider employee requests to stay on past 65 and must provide them with six months’ notice of their retirement date. (The law won’t affect Lord Browne.)
In France, CEO retirement age falls to corporate bylaws. Both state and private employees are eligible to retire at 60, but must have worked 40 years to receive a pension from the state. Germany’s corporate-governance code recommends boards have a retirement policy but doesn’t prescribe the age. The government plans to gradually raise the retirement age for typical workers to 67 from 65.
CEO tenure has ripple effects throughout a company, and often an industry. A long-serving CEO risks losing lieutenants, who may seek advancement opportunities elsewhere.
Some European chief executives are moving to nonexecutive chairman roles. In France, Henri Lachmann, 68, stepped down as CEO of Schneider Electric SA in May, but remained as nonexecutive chairman of the company’s supervisory board. Schneider had raised its retirement age to 68 for Mr. Lachmann’s predecessor in the 1990s. Lindsay Owen-Jones, 60, chairman of L’Oreal SA, and Thierry Desmarest, 60, CEO of Total SA, have also successfully pushed for changes to remain in nonexecutive roles after their retirement as CEOs.
Other companies make exceptions or leave wiggle room in retirement policies. DaimlerChrysler AG, for example, says executives older than 60 should “generally” be appointed to its management board for only one year at a time, and executives 65 or older should be appointed to the management board only “in special circumstances.” In 2004, the company’s supervisory board — the German equivalent of a U.S. board of directors — granted then-CEO Jurgen Schrempp, who was 59, a four-year contract extension. Mr. Schrempp retired last year amid criticism from unhappy investors.
At French phone titan Alcatel SA, 68-year-old CEO Serge Tchuruk won permission from the board last month to stay on through the expected completion early next year of Alcatel’s merger with Lucent Technologies Inc. “We’re moving away from an environment of stereotypical prejudices about the capabilities of older executives, and the irrational belief that younger executives are more likely to have fresh ideas,” says James Davies, joint head of employment and incentives at London law firm Lewis Silkin. “We’re losing huge amounts of experience of these people being forced out for no reason other than age.”
— Susan Warren in Dallas contributed to this article.