The foolishness of forcing corporate executives to retire at 65.

Investors reacted with joy yesterday to President Bush’s signal that he would reappoint Federal Reserve Chairman Alan Greenspan to a fifth term when his fourth expires next year.

The reappointment of the 77-year-old Greenspan is another small jab at one of the business world’s silliest customs. While the public is willing to tolerate elder statesmen at the highest levels of government—the median age on the Supreme Court is 68; the Senate only just retired Strom Thurmond—the private sector remains significantly more ageist. Despite advances in life expectancy and medicine, many blue-chip companies (General Electric, Altria, ExxonMobil, Intel, to name a few) maintain a mandatory retirement age of 65 for their CEOs. And even when a company doesn’t force out its senior CEO, investors and analysts act as though a 65-year-old boss ought to be tottering around Shady View Retirement Castle, not barking at underlings.

Of course, not every CEO should aim to spend his (or her) golden years running a large enterprise. It is exhausting. The average 70-year-old doesn’t have the mental agility of the average 50-year-old. If only for reasons of morale, it’s important for rising executives to believe they may have a shot at the top job. Nonetheless, there is something arbitrary about a mandatory CEO retirement age. The fact that the markets took solace in the prospect of Alan Greenspan overseeing the economy into his 80s shows that reputation and performance matter far more than age.

CEOs are getting younger. According to executive search firm Spencer Stuart, the average age of CEOs at the 700 largest U.S. companies dropped from 59 in 1980 to 56 in 2000. But younger isn’t necessarily better. Plenty of companies run by youthful CEOs have been run into the ground recently, even as many firms with geezer CEOs have held up quite well.

Under the direction of Sandy Weill, who turned 70 last month, Citigroup is crushing its competitors. American International Group CEO Maurice R. “Hank” Greenberg—at 77, old enough to have watched the home-run-hitting Hank Greenberg play for the Tigers—has helped his global insurance giant surf the recent industry downturn. Viacom, run by 79-year-old chief executive officer Sumner Redstone (recently married to 40-year-old Paula Fortunato), has outperformed all the major media stocks in the past two years—except 72-year-old Rupert Murdoch’s News Corp.

The mandatory retirement age occasionally has palpably negative effects on companies. Jack Welch, more energetic at 65 than most MBAs are at 25, was forced to step down in 2001 because of GE’s policy. While his fortysomething successor, Geoffrey Immelt, has done a good job, it’s a safe bet GE’s stock would probably be higher today if Welch were still in control.

Nor is age or tenure an indication of engagement. At Enron, fortysomething Jeffrey Skilling was a youthful and buff CEO. But he forswore all knowledge of what was actually happening at the company. By contrast, 69-year-old Irwin Jacobs of Qualcomm is intimately involved with the development of his company’s wireless technology.

What’s more, the mandatory retirement age turns many CEOs into lame ducks. Craig Barrett, the 63-year-old CEO of Intel Corp., is only five years into his tenure, but speculation about his successor is already mounting.

The retirement age of 65 remains strangely standard despite advances in health care and the emphasis on healthy living—developments that particularly benefit CEOs. With their gold-plated executive health-insurance benefits, senior corporate executives have ready access to dietitians and cooks, personal trainers and on-call doctors, and the latest pharmaceuticals and procedures. (Sandy Weill even has an entire medical school—Cornell’s—named after him.)

Of course age does undermine some CEOs, and they may have acquired enough clout to prevent their board from forcing them out. The mandatory retirement age is designed for such cases. But—in theory, at least—the market will notice a blundering, forgetful CEO who is no longer up to the task and punish the company that keeps a superannuated boss for too long (just as the market would notice if Greenspan’s performance at his congressional appearances begins to slip).

Perhaps the best reason to scrap the mandatory retirement age is this: History is a good teacher. As we struggle with the stubborn aftereffects of a mild recession, it may be wise to heed to those business leaders who can actually remember—if only faintly—the Great Depression.