Articles & Resources
Five Reasons Why CEOs Don’t Care About the Aging Workforce
By Dr. David DeLong
Every executive today knows the workforce is aging fast. But most CEOs don’t seem particularly concerned that in the next five years the number of workers age 50-64 will grow about 40 percent. Here are five reasons why top executives aren’t responding to this startling demographic trend and what that means for the organization.
- Leaders don’t see a clear link between the aging workforce and performance impacts. CEOs care about factors that directly influence profitability and strategic outcomes. In fact, few executives – in either the public or private sector – see a clear negative relationship between losing more older workers and organizational performance. If anything, a significant number of CEOs believe their firms will be better off when more of their veteran workers leave. But the fact is losing key R&D scientists can slow product development efforts and undermine innovation. Similarly, the loss of high performing sales executives who control key client relationships will directly effect sales revenues and undermine growth objectives. And the departure of too many veteran operators in highly-efficient production settings increases the time to diagnose and fix costly problems. Just because these costs are invisible to the board of directors and never show up on any P&L statement doesn’t make them less real.
- Chief executives are primarily concerned with building future capabilities of the firm. The growing number of older workers and the decline in the mid-career pool of talent isn’t the strategic issue. The strategic objective for leaders is building future workforce – and leadership – capabilities. Aging workers are just part of the larger human capital system that needs attention. CEOs must be equally concerned with the organization’s ability to recruit young talent and retain high performing mid-careers. In truth, the aging workforce should be a concern to chief executives only to the extent that it threatens future organizational capabilities. The problem is many leaders are underestimating how the loss of so many highly-skilled employees at once is going to impact performance. They also may fail to recognize how the sudden acceleration of baby boomer retirements will increase the importance of older workers as a source of labor. Unfortunately, too many executives are focused only on recruiting and developing young talent, while ignoring opportunities to retain and leverage high performing employees approaching retirement.
- Senior executives are influenced by overly conservative human resources and legal departments. There is tremendous uncertainty in organizations today about how pension regulations and tax laws actually limit the ways organizations can use older workers, as well as the risks posed by increased worker’s compensation claims and age discrimination law suits. Uncertainty, such as that created by the Pension Protection Act and the IRS, often fuels risk aversion. In fact, too many firms today are driven by HR and legal departments who are unwilling to tackle the complex issues – and opportunities – created by the changing demographic landscape. In some cases, the lack of clear legal definitions around concepts such as “phased retirement” becomes an excuse for inaction, while competitors may be taking a much more proactive approach. CEOs must make sure their human resource and legal experts are helping the organization leverage older worker potential, instead of passively encouraging mediocrity, while waiting for uncertainties to be resolved. If Congress and government agencies are unwilling to clarify the law in these areas, employers must take on the challenge themselves.
- Wall Street doesn’t hold CEOs accountable for effective succession planning in less visible, but strategically critical roles. Young investment analysts don’t care about the future capabilities of a firm as reflected in its aging human capital. Nor does Wall Street worry about what organizations are doing to prepare their next generation of experts and leaders. Many companies today have roles requiring unique and hard-to-find expertise that will be critical to sustaining competitive advantage. It might be a group of senior project managers, R&D engineers, or world-class cardiologists. The need to identify replacements in these complex roles is overlooked in many traditional succession planning processes. Wall Street isn’t paying attention to how the future capabilities of many firms are being eaten away through cost cutting and attrition, which knocks this issue off the CEO’s list of top priorities. Firms that don’t invest today in succession planning for strategically critical and hard-to-fill roles will pay a heavy price in the future.
- Most CEOs won’t be around when the talent crisis really hits, so why tackle the problem now? No one talks about this, but chief executives intuitively recognize that confronting the new workforce dynamics is very hard work, often demanding significant culture change. Building workforce and leadership capabilities for the future requires multiple long-term initiatives, and most CEOs know they won’t be around to see the benefits of these efforts. So when the choice is focusing on issues that effect the organization’s market position today or investing in capabilities needed for the future, the decision is easy. The urgent always trumps the important when it comes to future workforce development.
Many senior executives are surprisingly out of touch with the strategic knowledge assets at risk in their organization. To ensure that your firm will have the capabilities it needs to sustain future performance you should be doing these three things today:
- Learn from those who are already developing detailed age profiles of all employees in strategically critical business units. Average age means nothing in a department! You need good detailed data on which “irreplaceable” employees and managers are fast approaching retirement.
- Challenge your HR and legal departments to explore all possible options to maximize your flexibility in retaining highly-skilled older workers. For example, do they know what leading edge firms are doing to maximize the value of flexible work options, phased retirement, and programs for rehiring retirees?
- Push strategic business units to demonstrate evidence of a detailed succession planning process for all critical roles. Don’t let succession planning be a process that gets only lip service.
You may not be worried about the aging workforce. But you definitely
need to care about the future capabilities of your organization’s
workforce. The firm’s survival – and your legacy –
depends on it.
David W. DeLong is president of David DeLong & Associates, Inc, a firm specializing in workforce development, knowledge transfer, and change management solutions that improve business performance. He is also a research fellow at the MIT AgeLab and an adjunct professor at Babson College. For more information please call us at (978) 369-5083 or contact us.