Hamish McRae: Impose a time limit, not a retirement age

Had Blair retired after two terms of office, his reputation would have been more secure than it is

So 60 may not be the new 50 after all. It may be financially inevitable that if we live longer we will have to retire later but our economic system has still to catch up.

Lord Browne, the celebrated chief executive of BP, seems to be the latest victim of this practice. He confirmed yesterday that he will retire in 2008, when he reaches the age of 60, despite the fact that he is generally perceived to have done the job very well. By contrast Rupert Murdoch, now 75, is still very much at the heart, not just of his commercial business, but at the business of global power. Tony Blair and David Cameron are attending the Murdoch court and hope to impress him enough to maintain (or in the case of Cameron, win) his newspapers' support.

Both are good at their job. Why should one have to retire and the other not? There is a simple but unsatisfactory answer. That is that BP is a quoted company with widely held shareholdings and has to follow good corporate governance practice: since it has a retirement age of 60, it ought to stick to it. News International is also quoted but is, in practice, controlled by the Murdoch family, and hence has greater freedom for manoeuvre.

That is unsatisfactory, though, not just because it means that BP is in effect denied the option of keeping someone who is good, whereas News International is not. It is unsatisfactory because, as we all know, age affects people in different ways. Some people, so to speak, age better than others. Look at UK prime ministers. Harold Wilson retired at the age of 60 because he felt his intellectual powers were waning - sadly he was right, for it was the early stages of Alzheimer's disease. Winston Churchill on the other hand was 65 when he took office in 1940.

So age limits as such are demonstrably absurd. They will have to be dumped and that will progressively happen over the next 20 or so years. They do, however, have their uses in that they enable organisations to promote change: to retire people so that opportunities are created for the next generation of employees. Without that, organisations falter, for when the elderly leader does eventually retire, there is unlikely to be a clutch of high-calibre candidates ready to take over. In fact, the only common exception to that is family controlled companies, which can continue successfully for several generations. But the dynamics in family controlled companies are rather different from ones where that particular glue does not exist.

So if we are not going to age limits we have to develop a system of term limits.

Politics are a wonderful example of the value of term limits. Whatever you feel about the quality of the candidates over the years, the US custom of presidents serving only two terms has become a real rock of its democracy. It creates clarity for the electorate of course but it also benefits the people who do the job.

Had Tony Blair retired last year after two terms of office his reputation would have been much more secure than it is now. Furthermore, had he known back in 1997 that he would have eight years and no more he would have used those years much more effectively. He would have prioritised properly and focussed on the things that had to be fixed. He would also now be involved in a whole new career.

In fact one of the huge challenges that will face our ageing societies will be how to develop and apply term limits not just in politics but generally throughout our societies. There are some types of job where you do need to change the crew periodically and there are some where it is much better not to.

For example, well-managed organisations put a huge amount of effort into developing the skills and experience of their people and that means moving them around. As Lord Browne explained on Desert Island Discs the other day, he had spells all over the world, including one in Alaska, where in those early days of the oil boom he had to stay in a flop house. Big organisations in the public sector are good at career development, or rather they can be. I'm rather troubled by reports that promotion in the Treasury under Gordon Brown has become more to do with loyalty to the cause than competence.

On the other hand, there are types of jobs where it is mad to move people about, particularly when the new job requires a different set of skills or (even more difficult) a different type of personality. Good teachers sometimes make good administrators but sometimes they don't. Some actors are good directors but many are not. And as we know in newspapers, good writers sometimes make good editors but sometimes make totally catastrophic ones.

There is a further dimension. We are moving to an economic society where more and more people work for themselves and more and more people are on temporary job contracts. There are no term limits if you work for yourself, though you do have to find the customers. On the other hand, for people on short-term contracts, there is a huge amount of churning going on. People are moving not because they or their employers want that to happen, or because their career is being developed. It is happening because there is no guaranteed funding of a post or as an unintended consequence of job-protection legislation.

So what is to be done? Well it seems to me that we have to take the end of age limits as an opportunity to figure out something better. That something will be the flexible application of term limits - the idea that there is a right time for people to be in particular jobs and if you are going to diverge from that practice you need to be pretty clear why. This is not going to happen overnight. We need to develop a sort of case law, built on what seems to be effective and what does not.

For example, the argument over Lord Browne should not be about his age but how long he has been doing the job - in his case already 11 years. In the case of prime ministers there should be an overall presumption that they should not serve more than about eight years. In the case of cabinet ministers, on the other hand, there should be a presumption that they serve three or four years at least, just to give continuity - unless they have some serious personal or professional lapse of conduct.

So this is two-way: it is not just a question of people working for too long in a job, for working for too short a time can be just as damaging.

All this matters enormously. We are as a society groping our way towards the end of formal retirement but we need to be sure that we keep movement of talent. We don't want to heave people out of jobs they are doing very well. But we have to trust the young. I cannot see the detail. All I know is that countries that figure out how best to marshal, develop and project their human capital will be the ones that do best. Using your people well is the greatest competitive advantage of all, not just in economic terms, but in human terms too.