According to popular wisdom, people tend to get more conservative as they age. But is this actually true? And if so, how does it impact CEOs and the organizations they lead?
If we look to previous research, business leaders indeed show a tendency toward risk aversion as their corporate careers wind down, favoring quick wins over long-term ventures. But top-tier executives are far from a homogeneous group. With this in mind, my colleagues and I decided to dig a bit deeper.
Risk aversion of near-retirement S&P 500 CEOs
We conducted research to analyze the risk-aversion profiles of near-retirement CEOs in 264 of the S&P 500 companies over a 12-year span. Of these firms, roughly 20% were family businesses.
To measure CEOs’ propensity for risk-taking, we used international acquisitions as a proxy, since they typically entail high short-term costs and years-long time horizons before they pay off.
In parallel, we examined CEO performance at different career stages, with career horizons defined by two ages – 65, the standard retirement age in the U.S., and 70, to reflect five more years as a board member – in addition to the transactions’ degree of risk, acquisition size and cultural proximity with the acquired firms.
Family versus non-family CEOs
Our findings confirmed CEOs’ shift toward conservatism as they neared retirement, but with an important distinction: the CEOs of family firms.
In these cases, near-to-retirement CEOs were more concerned about other dimensions like legacy and reputation compared to their counterparts in profit-focused firms. Moreover, they were more likely to engage in acquisitions, regardless of their short-term personal risk.
These results come with an important caveat: family CEOs only displayed this behavior in firms that were both owned and managed by the family. In these instances, the least conservative outgoing CEO was the one who would be replaced by another family member.
Bob de Kuyper, the now-retired CEO of De Kuyper Royal Distilleries explained it this way: “The company began to expand its business in China when I was close to retiring. A colleague asked why I would move forward with this transaction since I would be long-retired before we would see any return. My response was, ‘It will take 20 years but that’s a short-term timeline for a 315-year-old company.’”
Why do family CEOs advocate longer-term horizons compared to their non-family counterparts? Perhaps because they may have more to build for and a more vested interest in the firm’s long-term success.
Family CEOs can envision a future with younger generations taking the helm, whereas the vision of non-family CEOs is far narrower with regard to the organizations they are about to exit.
Prof. Pascual Berrone’s research has led to his distinction as one of the world’s most highly cited scholars for the third consecutive year.