Published in “Directorship” in January, 2011
Many large multinationals see the wisdom of electing directors who represent their global interests and aspirations. Pepsi, IBM, GE and other corporations are among the early adopters and other companies have followed their lead.
One theme heard most often is that these individuals bring on-the-ground insight that is far more valuable than any other analytics. They provide important advice on risk and opportunity, both economic and political, as the board considers and governs its company’s strategy and evaluates global positioning moves, including investments in new or emerging markets, the structuring of partnerships and acquisitions.
Yet, a recent tally suggests that we still have a long way to go in bringing this type of diversity of thought and experience to our corporate boardrooms.
To succeed in globalizing a board requires a change in mindset.
In our experience, boards seek change when faced with critical decisions with which they aren’t truly comfortable or when they are already in a quagmire. Generally, these situations arise when boards are uneasy about making, or have made, major strategic decisions without a full appreciation of risks and impact. Oftentimes today, these decisions tend to involve growth opportunities in non-U.S. or truly emerging theatres.
While it’s true that many leading companies have evolved into efficient global management structures consisting of country-centric accountabilities for their own geographic markets or segments of influence, shareholders benefit when their board performs a deep dive, shaping the perimeters on overarching strategic decisions at critical decision points (i.e., where next steps are not always in focus but yet opportunity clearly exists). Better decisions are made, we suggest, with checks and balances with management, thus preserving the independence and due care for which directors are elected.
Most often, given global aspirations, nominating committees should ask the following two important questions:
How best can we efficiently and effectively identify and recruit qualified individuals and have full comfort about this process?
And, once elected, how can we assure that our global board will operate as seamlessly and efficiently, given the inconveniences of time and distance considerations, and given the increasing demands of governance requirements and guidelines?
Having successfully conducted numerous similar engagements, we suggest boards begin by agreeing on an introspective “road map” of perimeters identifying important challenges or situations with which they, as directors, are not fully experienced. Oftentimes, these conversations are uncomfortable because they require self-reflection and honesty in admitting a board’s collective shortcomings. Once this experience gap is clearly identified and the board has reached consensus, a concise approach to identify leaders who meet the desired competencies and geographic criteria can begin.
It is important, though, that two matters be addressed upfront. A full dossier of all qualified candidates should be considered without prior prejudices (yes, preferences are encouraged) and secondly, given the additional inconveniences of interviewing such candidates, that the board and its nominating committee agree on an efficient process for recommending and vetting such candidates.
A point worth noting is that several of our clients have identified globally experienced and competent director candidates who are based in The United States. So the challenges of decision efficiencies discussed below can often be avoided. For some companies, though, there is a preference for a board member(s) who are not domestically based.
Operating a global board even with members who are based outside the United States comes with challenges that if a board is committed to the tenets of governance easily can offset distance and time zone challenges. Increasingly, we have observed ( and advised) boards with non domestic based members meet periodically outside the US. Even, when they meet domestically, effective use of technology usually suffices for those who govern from a distance. As always, being respectful of time commitments is essential.
Two final points:
Insular and parochially thinking boards are becoming the dinosaurs of governance especially given non-domestic opportunities for growth.
Lastly, global boards are not just for the “big boys.” Increasingly, mid-cap companies are beginning to inure the benefits of global strategic and cultural views around the board table.
Think of it this way: In today’s world, capital, ideas and opportunities have high velocity and few man-made boundaries. Investors are rewarding those companies that capitalize on global markets and technologies. And, therefore, boards that think, act and govern globally have a distinct advantage.
Ask yourself: Shouldn’t my board be in a position to encourage and enhance decisions that drive value on an increasingly global playing field.