At Merck, the retirement age isn't what it used to be. For the CEO, at least.
On Wednesday, the pharmaceutical giant said it was rescinding its policy requiring its chief executive to retire at age 65, announcing that its chairman and chief executive, Kenneth Frazier, had agreed to stay on beyond December 2019, when he will turn 65.
In doing so, Merck joins a declining trend in companies that have mandatory retirement ages for their top executives, said experts on executive succession. Fueled by stronger corporate governance standards, overall strength in corporate performance in recent years and a possible shift in public perception of what an appropriate retirement age should be, fewer companies today have a default age requirement.
Matteo Tonello, a managing director at the Conference Board, said that in the early 2000s, about a third of companies had a mandatory retirement age for their chief executives. Yet in its 2017 report of CEO succession practices, just 19 percent of manufacturing companies, 23 percent of financial services companies, and only 7 percent of the nonfinancial, nonmanufacturing public companies that were surveyed required their CEOs to retire at a certain age.
Sometimes, a mandatory retirement age is lifted to give the current CEO a little more time in the job, potentially clearing the way for a successor to prepare. In June 2017, manufacturing giant 3M said its board of directors was waiving the mandatory retirement age of 65 years for its then-CEO, Inge Thulin, and then named a successor, chief operating officer Michael Roman, earlier this year.
"These bylaws were primarily introduced in the '90s in response to some empirical evidence of declining performance of CEOs" who stayed in the job for a long time, Tonello said. "Over the past 20 years, corporate governance has been strengthened and completely transformed. The need for these policies has clearly declined."
Experts on corporate succession say CEOs are also staying in the job longer as a good economy and strong market returns gives boards less of a reason to pull the trigger.
Among the more notable older chief executives are Berkshire Hathaway's Warren Buffett, who is now 88, L Brands' Les Wexner at 81 and FedEx's Fred Smith at 74, all of whom remain active and on the job.