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January 22, 2025

Breakingviews: Age is the wrong number by which to judge a CEO

by Breakingviews.

The United States is having a senior moment. As the country’s oldest president, at age 82, is followed by the second-oldest, an octogenarian chief executive’s fate will also be decided at the ballot box this week. Dissident investors seeking to oust Air Products and Chemicals boss Seifi Ghasemi are harping on his age to make their case, but it’s the wrong number on which to focus.

Ghasemi has helmed the $70 billion supplier of industrial gases since July 2014. He was installed following a push by hedge fund manager Bill Ackman, alongside his Pershing Square Capital Management partner Paul Hilal. Now running his own firm, Mantle Ridge, Hilal has returned to urge shareholders to replace Ghasemi and three other board members. A 170-page presentation opens with a mention of the CEO being 80, referencing it a dozen more times throughout.

Mantle Ridge does link this to salient problems. Ghasemi’s five-year contract automatically renews annually and effectively entrenches him as board chairman. The departure of deputies such as Chief Operating Officer Samir Serhan leaves no clear candidate to succeed him. Age raises the stakes, but this would be poor corporate governance anywhere. Air Products belatedly said last week it expects to split the top jobs and has vowed to find a new president by the end of March who would then step up to be CEO within three months of joining.

A lot can be forgiven if investors are seeing good returns. They are not at Air Products. The company has failed to keep pace with rivals Air Liquide and Linde, as well as the S&P 500 Index over the last five years. Its 42% total return, including reinvested dividends, is less than half of the benchmarks, per LSEG.

Booting the boss would fit a growing trend. Keeping a senior CEO often reflects a board seeking stability, but more than 40% of S&P 500 and Russell 3000 index members that replaced theirs last year had been generating subpar returns, an increase from 30% in 2017, the Conference Board and other firms found.

The irony here is that Ghasemi bucked conventional wisdom about older CEOs. Instead of being stuck in his ways, he pledged some $15 billion to clean hydrogen projects by 2027, accounting for nearly half the company’s capital expenditure in some years. He defied industry norms, however, by backing the unproven green energy source without lining up enough agreed long-term buyers. The old dog learned some new tricks, but neglected to heed the job’s basic commands.

Context News

Proxy advisory firm Institutional Shareholder Services on Jan. 13 recommended that Air Products and Chemicals shareholders back three of the four board candidates nominated by hedge fund Mantle Ridge and urged them to withhold their votes from Chief Executive Seifi Ghasemi and two other directors. ISS expressed concerns with the board’s oversight of the company’s strategy and succession planning for Ghasemi. Air Products sent a letter to shareholders on Jan. 13 saying it strongly disagrees with the opinion and warned that following ISS’ advice “could have a serious negative impact” on the company. Glass Lewis, another proxy advisory firm, said on Jan. 10 that investors should support all four Mantle Ridge nominees. The vote is scheduled to take place at the company’s annual meeting on Jan. 23.

Breakingviews

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