- The truth is that modern medicine and lifestyle changes have ensured that a person at the age of 70 is still in a good mental and physical state to perform the rigours of board membership.
- This was considered in the revamped Companies Act 2015 where the age limit of 70 for directors of companies was removed.
- Previously, under the 1948 Companies Act, a director of a company who had reached the age of 70 was required to be approved at every subsequent annual general meeting to continue to serve on the board.
Robert Winship Woodruff was born in 1889 and at the age of 33 years became the CEO of the Coca Cola Company in 1923. According to a Harvard Business School (HBS) case study by Lorsch, Khurana and Sanchez titled the Board of Directors at The Coca Cola Company, it was Woodruff who began shaping the fledgling soft drink enterprise and its franchise system into what was to become the world’s most widely recognised brand.
Like any visionary entrepreneur, Woodruff set about his business as the new CEO with a ruthless focus on market share growth and standardisation of the product.
However, in order to undertake this gargantuan task, Woodruff needed to have full control of the board. On his board were representatives from the company’s main sugar suppliers as well as the company’s leading advertising agency.
The HBS paper outlined Woodruff’s leadership style: “His board meetings were brief; he didn’t want to hear from anybody. They were there to serve his agenda. From Woodruff’s perspective, there was no one to sweet talk because all of the owners of large institutional chunks of Coca Cola stock were under Woodruff’s thumb. Woodruff not only controlled the board of Coca Cola, but in effect he really controlled the boards of the institutions that controlled the Coca Cola stock.”
In 1955, at the age of 66, Woodruff retired as CEO but created the powerful finance committee of the board, which he chaired. As chairman, he controlled the budget of the company and held a veto over all decisions of the company’s CEOs. The chief financial officers of the company were required to report directly to him, rather than the CEO, and he would approve any expenses above $5,000.
He eventually retired from the finance committee in 1981 and retired from the board in 1984 at the age of 95, when the company was in the safe pair of hands of Roberto Goizueta, who by this time was the chairman and CEO. One of Goizueta’s first tasks was to create a maximum retirement age of 71 for directors of the Coca Cola board, which he described to someone as looking very close to a geriatric ward. According to the HBS paper, Goizueta felt that “Directors over 71 had to retire not just to save embarrassment on Wall Street, but because of the very real threat of legal liability in the event the company’s directors were shown to be incapable of hearing and understanding the matters they were voting on.”
Now the truth is that modern medicine and lifestyle changes have ensured that a person at the age of 70 is still in a good mental and physical state to perform the rigours of board membership.
This was considered in the revamped Companies Act 2015 where the age limit of 70 for directors of companies was removed. Previously, under the 1948 Companies Act, a director of a company who had reached the age of 70 was required to be approved at every subsequent annual general meeting to continue to serve on the board.
The Capital Markets Authority in the same year 2015, issued the Code of Corporate Governance Practices for Issuers of Securities to the Public (the Code), which was quite a thorough update of governance laws for Kenya.
In what was a clear example of the left hand not knowing what the right hand was doing, the Code maintained the age limit for directors of issuers, by recommending an age limit of 70 years for board members, which limit had been removed in the Companies Act 2015. However, according to the Code, shareholders at an annual general meeting may vote to retain a board member who has attained the age of 70. The recommendation in the Code is more loosely worded than the old Companies Act which required re-election at every AGM by special notice, following attainment of 70 years.
The loose wording of the Code can be interpreted to mean that once shareholders approve of the director’s continued service after the age of 70, he or she does not need to keep coming back every year for subsequent approval. And the director can serve and serve and serve, just like Woodruff, to the grand old age of 94.
But before you panic, there are checks and balances that boards of listed companies put in place to ensure this doesn’t happen. Defined terms for directors which provide for a set number of years ensures that the director’s capacity to serve again can be interrogated when that term ends.
In addition, maximum number of terms is a standard board protocol. The difficult part though, is when the said director is a key shareholder such that director terms of service do not apply to them. At that point, all Woodruff-esque bets are off!
E-mail: [email protected], Twitter: @carolmusyoka