Executive Search Firm Pushes for More International Flavor on Boards

Bloomberg BNA’s Corporate Law & Accountability Report is available on the Corporate Law Resource Center. This news service keeps corporate practitioners informed of legal developments of...

By Michael Greene

Oct. 31 — Only one in 10 directors at the U.S.'s 100 most global, large publicly traded companies—that earn more than half of their revenues outside the U.S.—is a foreign national, according to Egon Zehnder's 2014 Global Board Index.

Released in October, the report also found that only two in 10 directors at these companies report significant international work experience.

Egon Zehnder International, Inc. a global executive search firm, believes that it is important for boards to have more directors who are foreign nationals or have international work experience.

“Executing strategies at a global level requires an ability to think beyond the confines of the company's ‘home culture'—a notoriously difficult task even for sophisticated business leaders,” said George L. Davis, Jr., Egon Zehnder's co-leader of Global Board Practice, in a statement on behalf of the company e-mailed to Bloomberg BNA.

“Having a board in which some members are from another country or have worked extensively in one or more foreign countries makes it easier for the board to adopt a global perspective,” which allows boards to more effectively manage issues that transcend borders, he added.

Slow Change

Although corporate boards at large publicly traded U.S. companies are becoming more global, Egon Zehnder believes the change is slow. According to the report, only 7.2 percent of the directors at S&P 500 companies are foreign nationals. This represents a slight increase from the 6.6 percent reported in 2008.

The report also found that 14.1 percent of directors at these companies have international work experience, which is up from 8 percent from six years ago.

When asked about the pace of change, Davis said Egon Zehnder believes there are three main barriers to embracing a more globalized board: logistics, the limits of domestic networks and the challenges of director succession planning.

Overcoming Barriers to Change

However, the logistical problems of “having directors scattered in different countries” can be overcome with the technology that makes it easier “to convene ‘digitally,'” Davis said.

With respect to overcoming the limits of domestic networks, Davis said reaching beyond the networks of nominating committees that are “heavily slanted toward domestic candidates” takes “concerted awareness and effort.”

He also said that succession planning is often conducted in “an ad hoc manner” because of the infrequency of board turnover, which makes it “difficult to have the coordinated, sustained planning necessary to strategically shape the board's global capabilities.”

Aspirations vs. Reality

The report also found that almost half (44 percent) of the S&P 500 companies have at least one foreign national director, but only 17 percent have two or more.

When asked whether this represents enough international representation for these companies, Davis said the report points “to a gap between the global aspirations of companies and the ability of their boards to advise and guide the leadership team on global matters.”

Ultimately, “[i]t is up to each company to determine how many global members they need on their board,” he added. But the report shows “even among U.S.-based companies that depend significantly on overseas markets for revenue and revenue growth, very few have truly global boards capable of advising and guiding the leadership team with a global perspective.”

Companies Operating Only in U.S.

Companies that operate only in the U.S. have minimal foreign-born representation (3 percent) on their boards and are less likely to have directors with international work experience (8 percent) than companies that report international revenues (17 percent).

Global competition is making it more important for companies that operate only in the U.S. to have foreign representation on their boards, according to Davis.

“International business is no longer an export game; competition is global. To compete, companies have to make sure their boards have the right global focus because we are seeing increased globalization—and more revenue from international sources—every year,” he said.

To contact the reporter on this story: Michael Greene in Washington at mgreene@bna.com

To contact the editor responsible for this story: Ryan Tuck at rtuck@bna.com

The report is available at http://www.egonzehnder.com/files/global_board_index_2014.pdf.