The Conference Board On Why Companies Have Difficulty Recruiting Directors From Outside Its Base Country.
The Globalization of Corporate Boards; Companies are Increasingly Recruiting Directors from Outside Their Base Countries
NEW YORK, Aug. 12 /PRNewswire/ -- The number of corporations with members of boards of directors from outside the firm's base country is rising sharply, according to a 16-nation report issued today by The Conference Board. Research by The Conference Board's Global Corporate Governance Research Center says that the percentage of companies with "non-national" directors increased from 39% in 1995 to 60% in 1998. The findings are based on an international survey, interviews and the proceedings of Working Groups convened by The Conference Board's Global Corporate Governance Research Center, in conjunction with Heidrick & Struggles. Working group meetings were held in Paris, Sao Paulo and San Francisco. The survey covers the practices of leading corporations from 16 countries (Argentina, Australia, Brazil, Canada, Chile, France, Germany, Japan, Korea, Mexico, Singapore, South Africa, Spain, Sweden, the United Kingdom, and the United States). "High levels of cross-border direct investment and the accelerating trend to raise capital from foreign investors have forced companies to disclose vastly improved financial and corporate information, open their communications, and redefine their corporate culture, role and structure," say the report authors, Lucy Alexander, a London-based research associate in The Conference Board's Global Corporate Governance Research Center, and Sigrid Esser, associate director of the Center.
OUTSIDERS CAN ADD CREDIBILITY
The Conference Board survey says company boards are adding "non-national" members to help gain credibility in new markets. "Non-nationals" add specific expertise to help deal with the opportunities and risks of untried markets. Other factors in recruiting non-national directors, particularly in Latin America where corporate governance is in more of a developmental stage, include helping to professionalize the board by providing a global, independent focus. BP has found having directors with global experience on board is invaluable in creating a framework for executives to develop strategy, including foreign acquisitions and expansions. Reasons for the recent emphasis on globalizing boards include: changes in the business environment (end of Cold War; technological advances) changes in the business culture (reduced governmental interference; global agreements) and increases in cross-border long-term investment. Cross-border M&A transactions increased from $85 billion in 1991 to $342 billion in 1997, accounting for 58% of total foreign direct investment flows. The Conference Board also says that approximately 14% of total pre-tax profits of U.S. corporations is generated by direct investments abroad. From 1994 to 1997, the stock of U.S. direct investment abroad increased by 40% to $350 billion. That was 4.7 percent of U.S. Gross Domestic Product. Corporations around the world increasingly tap into international debt and equity markets and communicate with a wide range of international creditors and shareholders. According to the International Monetary Fund, international issues of equities have risen almost six-fold during the '90s for firms in industrialized countries. In early 1998, the outstanding amount of international bonds was $3.7 trillion, or more than six times larger than in 1985.
TWO STAGES OF RECRUITMENT
Conference Board Working Group members identified two stages that companies go through when recruiting "non-national" board directors. In the first stage, they look for someone culturally similar to existing board members, but with an international perspective. This can sensitize the board to the next stage, which is to recruit someone with deep cultural and business experience of a different part of the world in which the company is also active. Even then, the majority of appointments are made among those with experience working or living in the country in which the company is based. Although increasing numbers of companies are using executive search firms to find new directors, most still handle the process on their own. A growing number of companies, particularly in the U.S., have set up nominating committees consisting entirely of non-executive directors, who have complete control over the recruitment process. This is moving away from the central role the CEO has traditionally played in director recruitment.
WHY IT'S NOT EASY RECRUITING
Two major obstacles to recruiting "non-national" directors include time constraints and language and cultural differences. Conference Board Working Group members propose four reforms that could be made to accommodate "non-national" directors without disrupting the functioning of the board: reduce the number of board meetings each year because of "non-national" directors' travel concerns; lengthen meetings to maximize "non-national" director participation; move the locations of meetings around the world; and establish more intensive orientation programs for global board members.
Source: Globalizing the Board of Directors: Trends and Strategies Research Report #1242-99-RR The Conference Board >>
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