Bob Herr| Director of Corporate Governance

Luke Pryor| Portfolio Manager—Security of the Future; Co-Portfolio Manager—Responsible US Equities; Senior Research Analyst—US Large Cap Value

A company’s governance practices can provide valuable insights into its risk management and sustainability—and a company’s board composition is a key factor to consider. Research—our own included—indicates that the age diversity of a company’s board of directors may correlate with operational performance and shareholder returns, making a strong case for multigenerational boards.

Long on Experience, Short on Age Variability

There’s a lot to be said for experience. Directors need the right mix of skills and experience to provide effective guidance and oversight. That often comes with time. But there’s a point at which boards may become too monolithic, in our view.

Consider, for example, that nearly 70% of directors within S&P 500 companies represent a single generation—baby boomers. Moreover, only 5% of directors are under the age of 50.

Why does that matter? A broader range of generational perspectives on corporate boards may improve operating performance, strengthen business durability and smooth succession planning.

Those aren’t just theories. They’re backed up by research.

Age Diversity Linked to Improved Oversight and Financials

Researchers from the University of New Hampshire found that the presence of directors from Generation X (people born between 1965 and 1980) was correlated with improved financial performance, as measured by return on assets and price to book. Notably, the study found that that relationship was especially strong at firms that invest more in research and development (R&D) and engage in patenting activity.

Another recent study focused on more than 7,000 banks. Controlling for various firm and board characteristics, researchers found that greater age diversity on bank boards was correlated with higher-quality earnings reporting, reduced loan charge-offs and fewer nonperforming loans. The authors theorize that multigenerational boards are more likely to challenge entrenched managerial decisions and established protocol, resulting in improved monitoring effectiveness.

Eventually, of course, businesses need a succession plan for their leaders. Here, too, multigenerational boards appear to provide benefits. According to PwC, increased age diversity among corporate board members allows for more gradual leadership changes—reducing loss of experience and knowledge and smoothing inevitable leadership transitions. The study also suggested that multigenerational boards may help expand the pool of future leaders, while increasing teamwork and collaboration within an organization.

So, what does this mean for investors? Quite a bit, it turns out.

The Link Between Multigenerational Boards and Share Prices

We sorted constituents of the Russell 1000 Index into three baskets according to the age range of their directors. The first basket comprised boards with a greater than 30-year difference between the oldest and youngest directors. On the other end of the spectrum were boards with small age variability—20 years or less. A third basket made up the middle, with boards spanning 21 to 30 years in age difference.

After analyzing stock performance from 2017 through 2023, we found that companies with the greatest board age variance produced the strongest annualized returns, while those with the least age variance produced the weakest returns.

This trend was consistent across most sectors but was more pronounced in innovation-oriented sectors—even when controlling for founder-led versus non-founder-led organizations. Board age diversity appeared to be most valuable in R&D-intensive sectors like technology and healthcare, and least valuable in less R&D-intensive sectors like materials and real estate (Display).

Board Age Considerations Warrant a Closer Look

This isn’t to say that youth trumps experience, nor are we suggesting that companies nominate inexperienced younger directors or entrenched older directors to maximize a board’s age range. In our view, a director’s qualifications are still of paramount importance. Nonetheless, multigenerational boards have tended to deliver stronger investment performance than their monogenerational counterparts over the past several years.

Despite a growing body of evidence highlighting the benefits of age diversity on corporate boards, we’ve yet to see any regulation or governance codes that address this issue. That could eventually change. Over time, we hope to better understand whether companies are including age diversity in their board refreshment considerations, and to identify sectors in which this may be most (and least) relevant.

There are many factors to consider when investing; the makeup of a company’s board is just one. But given the correlation between board age diversity and improved operating metrics and returns, we believe age diversity on corporate boards warrants a closer look.

Landon Shea, Investment Stewardship Associate, and Michael Crovetto, Research Analyst, were instrumental in the research supporting this blog.

The views expressed herein do not constitute research, investment advice or trade recommendations and do not necessarily represent the views of all AB portfolio-management teams. Views are subject to change over time.

Learn more about AB’s approach to responsibility here.

AllianceBernstein

AllianceBernstein

AllianceBernstein (AB) is a leading global investment management firm that offers diversified investment services to institutional investors, individuals, and private wealth clients in major world markets.

To be effective stewards of our clients’ assets, we strive to invest responsibly—assessing, engaging on and integrating material issues, including environmental, social and governance (ESG) considerations into most of our actively managed strategies (approximately 79% of AB’s actively managed assets under management as of December 31, 2024).

Our purpose—to pursue insight that unlocks opportunity—describes the ethos of our firm. Because we are an active investment manager, differentiated insights drive our ability to design innovative investment solutions and help our clients achieve their investment goals. We became a signatory to the Principles for Responsible Investment (PRI) in 2011. This began our journey to formalize our approach to identifying responsible ways to unlock opportunities for our clients through integrating material ESG factors throughout most of our actively managed equity and fixed-income client accounts, funds and strategies. Material ESG factors are important elements in forming insights and in presenting potential risks and opportunities that can affect the performance of the companies and issuers that we invest in and the portfolios that we build. AB also engages issuers when it believes the engagement is in the best financial interest of its clients.

Our values illustrate the behaviors and actions that create our strong culture and enable us to meet our clients' needs. Each value inspires us to be better: 

• Invest in One Another: At AB, there’s no “one size fits all” and no mold to break. We celebrate idiosyncrasy and make sure everyone’s voice is heard. We seek and include talented people with diverse skills, abilities and backgrounds, who expand our thinking. A mosaic of perspectives makes us stronger, helping us to nurture enduring relationships and build actionable solutions.
• Strive for Distinctive Knowledge: Intellectual curiosity is in our DNA. We embrace challenging problems and ask tough questions. We don’t settle for easy answers when we seek to understand the world around us—and that’s what makes us better investors and partners to our colleagues and clients. We are independent thinkers who go where the research and data take us. And knowing more isn’t the end of the journey, it’s the start of a deeper conversation.
• Speak with Courage and Conviction: Collegial debate yields conviction, so we challenge one another to think differently. Working together enables us to see all sides of an issue. We stand firmly behind our ideas, and we recognize that the world is dynamic. To keep pace with an ever changing world and industry, we constantly reassess our views and share them with intellectual honesty. Above all, we strive to seek and speak truth to our colleagues, clients and others as a trusted voice of reason.
• Act with Integrity—Always: Although our firm is comprised of multiple businesses, disciplines and individuals, we’re united by our commitment to be strong stewards for our people and our clients. Our fiduciary duty and an ethical mind-set are fundamental to the decisions we make. 

As of December 31, 2024, AB had $792B in assets under management, $555B of which were ESG-integrated. Additional information about AB may be found on our website, www.alliancebernstein.com.

Learn more about AB’s approach to responsibility here.

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