An age gap in the C-suite makes companies more innovative

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In order to innovate, companies have to play the long game. Cycles of R&D experimentation, iteration and market-testing require patience and a certain amount of risk-tolerance. For boards attempting to push an innovation imperative, this is a serious governance challenge, given the short-term mindset most CEOs are prone to—or forced into by the incentives of the role.

reduced." This incentive structure inherently promotes short-termism, as opposed to the sustained focus required for big-picture innovation.

This study looks at S&P 1500 firms for the period 1992-2016. The researchers gathered C-suite execs' age, compensation and otherfrom the S&P ExecuComp database. Gao surmises that this effect stems not from the subordinate executives' relative youth itself but the longer-term mindset with which youth is associated.

Compared to the external governance or monitoring performed by regulators, financial analysts and other third parties, internal governance is about reducing costly conflicts of interest between shareholders and management. Theis chiefly responsible for this, but the quality of its governance may suffer when directors are remote from the everyday activities of management.

However, certain contexts and relationships were more conducive to internal monitoring than others, as Gao and his co-authors discovered upon taking a closer look at their results. For example, the horizon difference between the CEO and the highest-paid non-CEO executive plays an especially significant role for innovation.

 

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