Governing a Global Company in AsiaExecutive Director of the Asia Pacific Risk Center and Partner in Oliver Wyman's Finance and Risk practice Director of Marsh & McLennan Insights
Singaporean companies are increasingly going global, reflecting both the limited scope for companies to grow locally in a small island economy, as well as attractive opportunities in the regional and global markets. It is a story playing out in several Asian economies, with local companies looking to expand their geographic footprint.
It is a story playing out through mergers and acquisitions, digital platforms, new business segments and even, in some instances, strong government support. In Singapore, for example, the government has offered strong support for companies to go global through assistance and grants. IE Singapore (now merged with SPRING to form Enterprise Singapore) facilitated over 450 projects globally in 2016 with more than SG$9 billion ($6.58 billion) in overseas sales, for instance. Of this, 75 projects were related to new market entry and new lines of business.
As they expand their activities, Asian companies face many challenges. Externally, companies are exposed to an ever-evolving and complex global risk landscape including terrorist attacks, asset bubbles, large cyberattacks, high unemployment and energy price shocks. Political and economic instability and changes in regulatory and government control are in constant flux globally.
Internally, as companies expand, they face greater operational complexity and have to align their people and processes with a global culture and mindset. Key considerations for rising global companies in Asian economies are:
- Is the board properly geared up for a global mission?
- Does the board reflect the company’s geographic diversity and knowledge?
- Does the company have the right mix of expertise, experience and diversity on the board to meet these transforming needs?
The Global Board
To fully capture opportunities and manage these challenges, strong globally minded leadership is required. Companies need to adapt their board governance to thrive in new global business environments. In particular, the board must set the tone from the top to ensure the company is prepared for its increasing geographic footprint and diversity of its employees, customers and supply chains.
As Asian companies expand globally, the oversight role of the board becomes more complex. In addition to critical business challenges facing all companies, (such as industry disruption by new technology and digital transformation), global board members have to provide risk oversight for multiple countries, regulatory regimes and risk environments. Corporate leadership can adopt global governance strategies customized to the size and reach of their companies.
Larger companies with an active regional or global presence can consider locating their head offices and a major part of their business in their home countries while also having significant business operations in other markets in and outside Asia. Such companies should consider recruiting nonresident board members to provide experienced insights on local markets.
Mid-sized companies with a growing regional and global presence can primarily operate domestically and have a small presence outside their home markets to grow their international business. Such companies should strengthen their local boards with the skill sets and practices that are characteristic of a global board or recruit board members with more international experience, either accumulated by working overseas or from working with multinational companies.
The National Association of Corporate Directors (NACD) noted in its report on diverse boards: “In today’s business landscape, the board cannot properly fulfill this responsibility without having directors who reflect the composition of its stakeholders, particularly its employees and customers.”
Nonresident directors on the board can make a difference, particularly as geographic diversity adjusts the lens through which risks and strategy are examined and provides nuanced insights, such as about the role of government, regulators, or other stakeholders in the marketplace. International directors can bring to boardroom discussions an understanding of complex daily operational and strategic issues faced by the management teams.
In addition, board diversity plays a key role in reinforcing the desired “tone from the top” of a global or globalizing organization. A global board composition can help model the talent strategy for the senior team and the entire organization, as well as enable management to tap into the expertise of individual directors inside and outside of board meetings.
We see differences across different markets in this regard. For instance, companies in Singapore seem to be going against the trend of incorporating more nonnational directors on its corporate boards, even as companies in other markets recognize the importance of an international board.
Exhibit: Percentage of Non-national Members on Boards of Companies in Selected Economies
Also, having a geographically diverse board does not seem to be a current priority, at least in Singapore. In the Singapore Board of Directors Survey 2017 by the Singapore Institute of Directors and Singapore Exchange, only 15 percent of participant companies responded that they took nationality or ethnicity into account while appointing directors. Similarly, only 3 percent of survey respondents in a recent NACD survey of U.S. directors said international experience is a top desirable trait in their company directors.
Among the skill sets and expertise that an international board member can bring is an understanding of the issues involved in running large, sophisticated, matrix organizations and the associated challenge of tracking accountability in such a structure. Familiarity with issues of international trade is also helpful, including how regulations affect business priorities, and the strategic impact of the movement of goods and services across borders, such as foreign exchange flows.
Conversely, the board member must be willing and be able to put in time to attend and effectively participate in global board meetings. The commitment should include the travel time necessary to attend board meetings as well as time for site visits, meetings with local government officials, suppliers, customers and employees.
An openness to dialogue and a willingness to listen to contrasting views and perspectives are critical for all directors, but especially for those who serve on global-company boards. Global directors must have the capability to transcend their regional views and not assume that overseas operations can be run in exactly the same way as they are in the home country.
The expanding remit of the global board requires a high level of back-office support. Asian companies should adopt leading processes and practices in the form of a well-planned board agenda, site visits and the right flow of information into the boardroom, with well-structured and concise advance materials.
A well-planned boardroom agenda is important. Logistics and planning of board meetings is a sophisticated exercise, and global boards need a well-considered program with clearly defined goals. As an example, for global companies, anywhere from 40 to 50 percent of board meetings may happen outside the home country, and thus, more time must be allocated for each individual meeting in order to accommodate director and executive travel.
Spending time “on the ground” in the company’s various locations around the world has become a commonly accepted element of large company governance and is particularly important for global board governance. To optimize the value and opportunities offered by international site visits, business trips by directors may involve a board meeting as well as visits to manufacturing plants or other facilities. Meetings can also be scheduled with government officials, executive leadership, key clients, partners/joint ventures and representatives from legal advisers and accounting companies.
Information overload is an issue for all directors, and it is not uncommon for directors to receive a high volume of preparatory material for each board meeting. It is important that materials from management are structured with a clear narrative, with the use of simple language to minimize confusion created by excessive use of business or technical jargon.
As companies continue to expand their global operations, their boardroom processes and director skill sets must evolve to ensure effective oversight in an increasingly complex operating environment.
A version of this article first appeared in the SID Director’s Conference Book 2018 published by the Singapore Institute of Directors.