Putting a Global Lens on Diversity in the BoardroomDirector of Marsh & McLennan Insights Director of Strategic Content Development for the National Association of Corporate Directors
A recent review of U.S. boardrooms found that directors of large and midsize companies are typically male, over the age of 65 and four years older than their European counterparts. Female directors account for just 15 percent of U.S. board seats, compared to 25 percent in Europe. Findings such as these add to calls to refresh and diversify boardrooms.
Efforts to diversify the boardroom often focus on gender, racial and technical factors; however, another element that is becoming increasingly important for many companies is geographic diversity.
As countries and economies become bound together, companies of all sizes have been taking advantage of these opportunities. International markets accounted for 33 percent of all S&P 500 revenues in 2014. Small and medium enterprises make up 26 percent of all U.S. multinationals. As a result, global risks and opportunities are present in the boardroom of every company, regardless of whether they operate internationally or not, and emerging risks accelerate at a greater pace.
Even so, globalization has been slow to permeate the boardroom. Geographic diversity on boards remains low and most companies, both within the U.S. and elsewhere, have boards that are primarily populated with individuals from the company’s country of origin. As boards strive to improve board effectiveness in a global marketplace and in order to understand and manage both risks and opportunities effectively, geographic diversity in the boardroom will need to increase.
The importance of a global board was highlighted in interviews and comments with 30 directors from around the world who serve on the boards of global companies as part of the research for the report, Governing the Global Company: the Oversight of Complexity. As one director noted, “The board has to give itself a composition that enables it to function at a high level of performance outside [the company’s] home country.”
Adding a Global Lens to the Boardroom
Experienced directors agreed that as the oversight role stretches beyond borders, the director’s role becomes increasingly complicated, incorporating considerations of social and cultural issues, variances in governance frameworks and the necessity for director engagement on a broader range of key issues. Geographic diversity adjusts the lens through which risks and strategy are examined and provides insights into factors that can be quite nuanced, such as the role of the government, regulators or other stakeholders in the marketplace.
Creating and sustaining an effective global board must include a focus on three key areas: board composition, board processes and director skill sets.
Board composition: Developing a board with directors from a range of countries and with deep in-market global experience makes the job of the nominating and governance committee for a global board especially challenging. One key question: How does a board prioritize and accommodate geographic, cognitive, experiential and demographic diversity without significantly increasing the number of directors?
While increasing the search for global board members, there is a limited pool of talent for qualified directors with global experience and growing global competition for these candidates. For example, on a practical matter, English tends to be the boardroom language for a large number of global boards. This language requirement may consciously or unconsciously be a limiting factor for otherwise well-qualified director candidates.
Some qualified individuals may decline to pursue global board opportunities due to the expanded demands, including time commitment and travel associated with the role.
Board processes: Board meetings of all organizations require thoughtful preparations, and these requirements are even greater for the global company. The processes to support a board with broad geographic diversity are expansive. Global board meetings, agendas and locations are often set two to three years in advance, and meetings can last up to one week when factoring in extensive site visits and meetings. Directors noted: “You cannot assess risk and opportunity by just sitting in Houston or New York.”
Technology (video- and/or teleconferencing) and the potential need for translation of written materials, as well as meeting discussions, are additional considerations. Efficient board support is critical to managing a diverse, international flow of information on current trends and developments.
One important factor to consider is that diversity can increase the challenges in managing group dynamics and coming to a consensus. An effective chair is essential to capture the value of board diversity, capitalizing on different perspectives while creating an environment of collaborative decision-making.
Cultural sensitivity to processes and language is important. Even when all board members speak English, confusion can occur due to differences in business language, jargon, culture context or analogies that simply do not translate cross-culturally.
Director skill sets: Serving on the board of a global company requires two core capabilities: the commitment of time and a true sensitivity to cultural differences. As one director said, “If you join a global board, don’t expect to be able to put guardrails on your time or level of involvement.” Time zones, travel and a wider span of activities result in a greater time commitment to effectively participate on a global board.
Global directors must have the ability to transcend their regional views. They also must be open to dialogue and willing to listen to contrasting views and perspectives. Although these qualities are important for all directors, they are especially critical for those who serve on global company boards.
Accelerating globalization presents new challenges for corporate governance and oversight. As businesses expand their international operations, boards must be shaped to support their global mission and mirror their companies’ geographic diversity and knowledge.