3 ways to boost global expertise on boards
More and more directors serving on boards of Standard & Poor’s 500 companies have meaningful international experience, but their numbers remain far from adequate to properly guide and advise company leaders on global matters, according to research by executive search firm Egon Zehnder.
Egon Zehnder collected data on more than 5,000 directors and 488 boards from company websites, annual reports, and filings with the US Securities and Exchange Commission. It found that 7.2% of S&P 500 directors were foreign nationals and 14.1% had international work experience in 2014. In 2008, when Egon Zehnder started collecting the data, 6.6% of directors were foreign nationals, and 8% had international work experience.
Despite the increase, the global capability of S&P companies’ boards continues to lag the companies’ global footprint, a disparity Egon Zehnder calls the Board Global Capability Gap.
Nearly three-fourths (72%) of S&P 500 companies report some international revenue, according to Egon Zehnder’s research. Almost two out of every five dollars these companies earn come from overseas.
George L. Davis Jr., co-leader of Zehnder’s global board practice, said in the introduction to the report that the firm’s analysis reveals that there is still room for improvement, “even among those companies that have improved their global capability.”
Egon Zehnder launched its global board index in 2008 because international revenue at S&P 500 companies had been increasing nearly twice as fast as overall revenue in the preceding three years. Also, companies whose boards included 30% or more foreign nationals generated better key financial metrics than the S&P 500 overall.
In 2008, 27.4% of S&P 500 companies had at least one foreign national on their boards, and 17% had two or more. Six years later, 44% of S&P 500 companies had at least one foreign national on the board, but the number of companies with two or more was still at 17%.
In 2014, the gap between a company’s global footprint and international expertise on the board is particularly pronounced in information technology, an industry with the highest percentage of global revenue (55%) and one of the lowest levels of global expertise on the board (11% are foreign nationals and/or have meaningful international work experience).
Industries with the highest global expertise on the board are utilities (17% are foreign nationals and/or have meaningful international work experience), followed by consumer staples and materials (16% each). The percentage of international revenue is about 40% for S&P 500 companies in these three industries, which represents a gap of about 20 percentage points.
To figure out how the global talent stacks up on the company level, Egon Zehnder suggested companies ask three questions:
- Am I addressing the gap at the company or industry level?
- How big is the Board Global Capability Gap as it relates to my interests?
- What lens am I looking through – functional, strategic, financial, or other?
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“Nine Steps for Effective Risk Oversight by Corporate Boards”: Corporate boards can better prepare for their role in enterprise risk management oversight with a framework aimed specifically at them. A framework produced by the Canadian Institute of Chartered Accountants describes a nine-step process for effective board oversight.
—Sabine Vollmer (firstname.lastname@example.org) is a CGMA Magazine senior editor.