The benefits of experience: Why some grey hair on your board is important

Age doesn’t necessarily equal wisdom, but bringing an experienced director on board can offer you an alternative perspective, open doors and impress clients and investors. Growing Business finds out whether grey really is good for business


Having a youthful management team can be a bit like driving a high performance car without any brakes.

It can run at incredible speed, but risks spinning out of control. However, put an experienced, more cautious driver behind the wheel and you’re arguably more likely to finish the race.

Older people tend to have more relevant management experience, but the point remains while this feature looks at what grey hair can offer your business, it needs to carry a warning note. Ultimately, it’s about hiring the ‘right’ person, irrespective of age. There are just as many poor quality managers among those who have been around a while as there are among the younger generation.

If you hire a new director, it’s got to be about how they will complement the existing team. Inevitably though, older people are generally more experienced, so there’s a better chance of you getting what you need.

It’s striking that the stereotype of the young, thrusting entrepreneur happens to be true. According to the Small Business Service, the average age of a UK entrepreneur is only 36. Although it’s younger people who are behind the majority of start-ups, their businesses are also more likely to fail.

Perhaps it’s because young entrepreneurs have a bad habit of hiring other young managers, similar to themselves, who won’t threaten their leadership. “They recruit people who do what they’re told rather than those who will challenge their thinking and take the business forward,” says Mike Snapes, chairman of Hilary’s Blinds and European Golf Brands. He believes this can easily lead to ‘group think’ and over-optimism – the downfall of many a young dot com company.

Why is maturity a useful addition to a young management team?

Mature managers can help a young team to make better decisions, assuming they have a wide variety of business experience and have learned from their mistakes. Whereas a young team may be encountering a problem for the first time, an experienced manager has probably seen it all before and knows what to do. “You don’t have to think through decisions from first principles. You can make these based on whether it worked, or didn’t work, last time,” says Terry Radford, a 57-year-old serial entrepreneur who has worked with several young management teams.

John Webster of the Chief Executives’ Office agrees. “Horror stories are always based on young people having no experience of what can go wrong, dreaming and hoping it will all be okay,” he says. “But an older guy has seen this 10 times before – you can’t substitute hope for experience.”

For good decision making is at the heart of good management. “The successful manager may make five decisions a day. If you make three right and two wrong, you survive. But if you make two right and three wrong, you don’t – it’s a narrow margin,” says Stephen Goschalk, director of corporate finance house Insinger de Beaufort. He believes young managers are more likely to make mistakes, simply because they don’t have as much data from their past experience to help them.

The voice of experience can also help a young team to avoid major pitfalls and reduce risk, which might otherwise destroy their business. Mark Mills, 33-year-old CEO of AIM-listed Cardpoint admits that, like a lot of young CEOs, he tends to be over-optimistic, going for high growth, high risk strategies. He uses his older-but-wiser chairman to help him see the downside. “He’s very good at asking questions. We go through a process of making sure it will work. Then hopefully we make the right decision between us,” he says. “It’s useful to have somebody cautious if you’re not…it’s a healthy counterbalance,” Mills adds.

Of course, too much caution is just as bad as not enough – a valid criticism of some grey hairs. And Mills emphasises anyone working with an entrepreneur must be willing to accept some degree of risk.

Maybe it’s the eternal optimism of youthful managers, but Mark Freer, senior advisor with Lloyds Development Capital, believes they do tend to have a rose-tinted view of life. “Grey hairs will tell you things won’t necessarily be so good next month. They will get you to plan for when things go wrong,” he says.

So it’s often useful to have a mature manager who can suggest a less risky alternative. Webster has done this many times. He once worked with the 35-year-old MD of an office furniture company who was about to introduce a radical, high cost strategy, even though the business was losing money. Webster suggested a more cautious, test market approach to prove the strategy first, while limiting the cost. To Webster, it seemed an obvious idea that had never occurred to the young MD.

A more cautious approach can also keep a company from overtrading, which is where most fast growing businesses go wrong, according to Simon Wildig, of Close Brothers Private Equity. “People with experience can see what’s necessary to support the front end – the sales machine. They’re more likely to put in the infrastructure – the people, equipment or services – needed to cope with growth,” he believes.

Mike Snapes has a similar view. “Younger people are more likely to be tempted to grow the sales line. But maturity, borne of experience, knows that owning your IP and protecting your core competencies, quality and reputation, are a valuation multiple,” he says.

There are always exceptions to this rule, however. And what worked in the past won’t necessarily work for you. So it goes without saying it’s up to you to remain vigilant about bad advice and probe more deeply into why they think it’ll work for you.

If a mature manager has been once bitten, they’ll be twice shy when dealing with others (as Gerald Ratner alludes to on page 36) – whereas naïveté can get a young management team into a whole lot of trouble. Webster remembers one young team who’d been taken to the cleaners because they hadn’t got a US import agreement in writing before approaching a UK distributor, who then went straight to the US company and cut them out of the deal. “All they lacked was someone telling them to get it in writing,” he says.

Another important bonus is that an older, ex-corporate manager can bring big business disciplines into a small company, which would otherwise take years to develop – such as better IT systems or customer service programmes, what to outsource, or how to deal with a disciplinary or HR-related matter. As your company grows and departments expand, this experience could prove valuable in terms of keeping communication and teamwork levels high, as well as maintaining that culture you’ve worked hard to generate in the early days.

They can also bring very useful contacts. “Getting the right grey hair in place, with the right black book, can be a huge advantage,” says Goschalk. “They are able to pick up the phone, ring up their ex-colleague now running a big business in the US and get their company through the door.” It’s also likely that aside from friends in high places they’ll also know a few techniques for fixing a meeting or how to approach a particular type of client and how they expect to be presented to.

In which senior management roles is maturity most important?

From an investor’s perspective, it’s the chairman’s role where maturity and experience are most highly valued. “They should act as a counterbalance to the enthusiasm of the team, to moderate and guide them,” says Goschalk. He also looks for an experienced finance director, who needs to be able to say no to the CEO. “Unless they’ve got some gravitas, that’s quite difficult to do,” he suggests.

That said, younger managers often possess the confidence or even arrogance of youth and will be prepared to stand up to the strong-willed CEO. It comes down to personality. But then, who are you more likely to listen to – the person who has experience to back their opinion, or someone who simply expresses their view with passion and conviction? That’s where you make the call.

According to our serial entrepreneurs too, it’s the strategic roles where maturity matters most: chairman, CEO and FD. Snapes believes his main contribution as chairman has been to inject new vision into the companies he’s worked for, taking them into new markets. “Most young entrepreneurs develop their business day-to-day – a ‘do or die’ approach.” Many evolve incrementally, but an experienced chairman or CEO doesn’t just rein a company back – or sanity check board decisions – they can give a business entirely new perspectives.

Maturity for an MD is considered to be less important because it’s more focused on operational performance. The same holds true for HR. And youth can be a positive advantage in a sales director, where boundless energy and enthusiasm are needed.

You can bring maturity onto your team as a permanent board member or in a non-executive capacity. But if you expect them to contribute to the funding, thinking and planning of the business, then having a once-a-month non-exec isn’t going to be much help. You’re better off having permanent maturity on the board – or a non-exec who has invested in the business.

According to Snapes, young management teams should ideally go the permanent rather than non-executive route as their CEO is unlikely to have sufficient experience. But if you’ve got a strong CEO, then you can afford to have a less involved non-executive presence. “A good choice might be someone with sector-specific knowledge, who can open doors, knows everybody and knows what drives the market,” Snapes suggests.

If you want a mature non-exec, you’re spoilt for choice. According to Webster, there are currently 65,000 high calibre directors looking for work as non-execs, who have been made redundant or taken early retirement. Most are financially independent and are now hoping to put something back into the business community. They enjoy coaching and mentoring young management teams. And they don’t have to cost much, he insists. “They’re not working for money, they’re working for the intellectual challenge.”

Just as the saying “old head on young shoulders” suggests, the ideal for any board is to aim for a mix of ages, so that youth and maturity can complement each other. They bring different characteristics, skills and experience to strengthen company leadership.

Maturity can also bring benefits further down the line. According to Andy Harrop of Age Concern, older workers can be better at dealing with customers. They’re good at listening and encouraging, so make effective managers. And they often possess the practical, or trade skills, that aren’t taught anymore.

Paradoxically, ageism is widespread in the workplace, despite the fact the UK has an ageing population – which is expected to work longer than ever before. New legislation is due out in 2006, which will make it illegal for employers to discriminate on the basis of age. This will help to combat the problem. But, perversely, it might also make it more difficult to implement a ‘grey is good’ strategy.

Having grey hair on your board is viewed positively by investors if you’re planning to raise private equity. When appraising a management team, the first thing investors look for is in-depth, relevant experience, which is usually associated with maturity. And if you don’t have it, they’ll put it in. “VCs want grey hairs to come onto a board where there’s a young management team – usually as non-executive directors or chairman. It’s quite frequent and normal for them to do that,” says Webster of the Chief Executives’ Office, who works with VCs to place mature non-execs into management teams.

How important is grey hair to investors?

Investors like to back older managers who’ve lived through more than one economic cycle. Although a few internet CEOs may have come through boom and bust before the age of 35, most will be in their 40’s or older to have had this experience.

“What we don’t want are fair weather managers – we look for people who understand the importance of strategic planning and cash management in both good and bad times,” explains Lloyd’s Development Capital’s Freer. Close Brothers’ Simon Wildig, agrees with this view. “A mature person will be less likely to be shaken by choppy waters,” he says.

It’s all down to PLU: People Like Us. According to David Beer of Beer & Partners, business angels, who tend to be older, like dealing with their own kind – in age and outlook. “A management team may have a good idea, but an angel won’t invest unless the chemistry’s right – which is more likely if the investor is talking to equals,” he believes.

And if you want to float your business, having maturity on the board is an absolute pre-requisite. Most companies who approach Stephen Goschalk, an AIM advisor, already have their management team in place so he doesn’t like to make changes. Even so, “the market would look negatively towards businesses where management is made up entirely of those under 40,” he warns. And if the board doesn’t already have a non-executive chairman, Goschalk will strongly recommend one. This way, they get an outside view and help in the running of the company.

Cardpoint’s Mills was aware of this requirement. When he decided to go for an AIM listing, he knew he would need to add maturity to his management team in order to get market approval – even though he has 15 years of business experience. “We knew from talking to people that grey hairs are what investors are looking for,” he says. In addition to appointing a chief operating officer and finance director in their 40s, Mills brought in an older non-executive chairman, “to get the look and feel of a PLC.” Above all, it was his non-exec’s previous experience of running a public company that paved the way to Cardpoint’s successful flotation.

Of course, it’s ability rather than age that really matters, but successful experience should produce strong ability. As David Beer says, “Age does not equal wisdom. It does, however, equal experience – but it’s what you do with experience that’s important.”

AGE OLD MYTHS

Older workers are paid more: Not necessarily ? and only if they have more experience in a particular job. Studies show older workers will accept a 10% to 20% drop in salary once they move to a different job.

They?re less productive: Only in a small minority of occupations requiring very fast cognitive or information processing skills. Otherwise there?s no productivity difference between young and older workers.

They get sick more often: A small minority bump up the figures. But, overall, older workers have 40% less absenteeism. Employers have to pay more for their healthcare: Age-based variations in healthcare coverage will become illegal in 2006.

Pension costs are higher: As most SMEs use defined contribution schemes based on percentage of salary, rather than defined benefit schemes that reward length of service, there?s no extra cost for the same salary.

They won?t stay long: The average 50-year-old will stay 10 to 15 years in a job; a 20-year-old will stay 2 to 3 years.

THE EUROPEAN EMPLOYMENT DIRECTIVE: WHAT TO KNOW

New legislation to implement the age strand of this directive will make age discrimination in employment and vocational training unlawful from 1 October 2006. The DTI has published a consultation document (available on www.dti.gov. uk/er/equality/age), which proposes:

? The abolition of employers? mandatory retirement ages, unless these can be justified

? The possibility of a default retirement age of 70

? Changes to the legislation regarding unfair dismissal and redundancy

? A definition of legitimate age-related practices

? These new regulations will be in place, but not in force, by the end of 2004

To make sure your company complies with the new legislation, you should:

? Ensure training programmes are open to all, regardless of age

? Remove age limits from recruitment advertisements and avoid using words like ?young? or ?mature?

? Agree a fair and consistent retirement policy with employees

? Base redundancy decisions on objective, job-related criteria

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