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Corporate Governance
International Intelligence
William J. Holstein | Directorship 01.02.07, 3:50 PM ET






American companies seeking to expand internationally ought to do a better job of placing non-Americans on their boards to help guide them, says J. Frank Brown, newly appointed dean of INSEAD, the international business school, with campuses in France and Singapore.

Directorship's editor in chief, William J. Holstein, recently spoke with Brown about the need for international perspectives and why there are so few Chinese and Indian directors on American corporate boards.

Holstein: Are American companies doing a good job of putting foreigners on their boards?

Brown: I don't think that the statistics would say that, particularly if you look at the 30 Dow Jones industrial companies. As part of research that we've done at INSEAD, we looked at those boards, and nine companies had all-American boards--3M, AT&T;, Boeing, Exxon Mobil, JPMorgan Chase, Merck, Pfizer, Verizon and Wal-Mart (see chart). Alcoa, Citigroup, General Electric, IBM and Walt Disney all have more than 20% international directors. Alcoa has 40%. But if you look at the numbers, there are only 40 international directors at the 30 companies, or just about 11% of the total. The easy nationalities stand out--Britain and Mexico, with eight each.

With so many companies targeting new markets, why aren't they putting more directors from those markets on their boards?

I can think of two reasons. One is lack of focus--just not recognizing it as an issue or an opportunity. The second would be that people perceive that it's difficult to execute on because of distance and the need to get people to meetings. More U.S. regulations have resulted in more meetings. But if you look at Alcoa, there are directors from Morocco, Brazil, Germany and Mexico. If you look at Citigroup, there are directors from Morocco, Germany, Mexico and Belgium. Somehow, they're managing to figure it out. IBM and PepsiCo are also able to do it. They're pretty good at doing remote conferencing and connecting members via sophisticated video links. In addition, the international members make a commitment to travel, and the companies occasionally hold their board meetings outside the U.S., which is one of the best practices.

What are the other best practices in this area?

I think another is having boards that actually get to visit some of the operations and get to understand what's going on first-hand. If you don't hold meetings outside the U.S., you're limiting the opportunity, in some cases, to see 50% of the operations of a company of which you're supposed to be a director.

What kind of non-American director should companies be looking for?

You have to look at the strategy of the organization, at where it is trying to expand. Duke Energy, the utility based in North Carolina, put someone from Brazil on the board, because they have a $2 billion investment there. It seems to me that having someone who knows the country and the culture and the competition and who knows a lot about doing business there would be extremely helpful in managing that investment. It's an independent perspective. A lot of times, when companies do deals in a place, their managers fall in love with the transaction. But if you have an independent director who is experienced, you can get a different perspective.

Which countries are U.S. companies most excited about and least effective in terms of recruiting directors?

According to our research on all the top companies, I'm not aware of any directors from China except for Pepsi. If you look at the emerging so-called BRIC countries--Brazil, Russia, India and China--which everybody thinks are critically important, Alcoa has someone from Brazil, and Pepsi CEO Indira Nooyi also is on their board, along with the director from China. International Paper has someone from Brazil. But that's it. Zero from Russia, but maybe because of the situation there.

But if Brazil, India and China were as important to companies' international development as I think they are, if I were the CEO, I'd want to get some direct input from people who live and work there. It strikes me that governance would dictate that you have people on the ground in those places who have board-level status.

Why are there so few directors from China?

You have to make sure that people are going to be able to get along from a language perspective. Certainly, all the meetings are going to be in English. At INSEAD, I've got a Japanese director who is not fluent in English, so we just arrange for simultaneous translation. It takes a little bit more time and effort, but it's effective. He provides useful input.

But most Indians speak English, so why are there so few Indian directors on American boards?

That's a great question. It's only Indira. One of the obvious answers is that maybe there's a competitive element there. Are American companies worried about getting close to India because of outsourcing and competitive issues? That's just a guess. And again, some of it is the "out of sight, out of mind" issue.

Some major American companies have brought non-Americans into top management. Isn't that enough?

If you say, "I have a diverse management team but I don't need a diverse board," that's not right. The independent perspective and counsel and oversight that a board gives you is critical. I believe more diverse teams make better decisions, because they consider a broader array of risks and opportunities. They wind up with better decisions. The same thing is true of boards.

Who's an example of a foreign director who has helped a U.S. company in some way?

I can tell you for sure that having a Japanese member on IBM's board is useful for IBM's business. It has to be. It's a huge market for them. I've got to believe that having Minoru Makihara, the former chairman of Mitsubishi, has been informative to IBM's strategy in Japan and Asia, the business situation in those markets and how it might relate to the company as a whole. It's just logical.

Is one of the problems that it's difficult to fit a foreigner into a clubby board culture?

I hope not. When you think about it, that statement implies that we've taken several steps back in how we understand diversity and cultural understanding. I hope that's not the reason, that we just want comfortable clubs. That's not good for governance.

How do boards integrate these non-Americans?

I'll bet if you look at the 40 directors, they all speak English, and they all have experience in the U.S. Many have done tours there. Some have raised families there. There is a tremendous population of people who have an experience base in the U.S. I don't think it's that hard to get directors who have that diverse perspective but who also have an appreciation of doing business in the U.S.

What other prominent international directors are on U.S. boards?

Ernesto Zedillo, the former president of Mexico, is on Alcoa's board, and so is Renault-Nissan CEO Carlos Ghosn. Klaus Kleinfeld, the CEO of Siemens, is on both Alcoa and Citigroup, and Novartis CEO Daniel Vasella is on Pepsi's board.

Do European multinationals do a better job with international diversity?

The answer is yes. Very much so. Logitech, for example, has a Swiss CEO and an Italian, a Singaporean, a Taiwanese, a Japanese and a Swiss on the board.

But the Japanese have not done a very good job in internationalizing their boards, right?

That's true. But the Japanese companies I'm close to have begun to move in that direction. If you look at Sony, they have several directors from the U.S. The issue in Japan is that boards have traditionally consisted only of inside managers. Up until the past five years, they didn't really have the concept of independent directors. It's a very recent phenomenon.

Foreigners On U.S. Corporate Boards

Company No. of Non-American Board Members
3M (nyse: MMM - news - people ) 0 of 10
American International Group (nyse: AIG - news - people ) 2 of 14
Alcoa (nyse: AA - news - people ) 4 of 10
Altria Group (nyse: MO - news - people ) 2 of 11
American Express (nyse: AXP - news - people ) 1 of 10
AT&T; (nyse: T - news - people ) 0 of 17
Boeing (nyse: BA - news - people ) 0 of 10
Caterpillar (nyse: CAT - news - people ) 2 of 12
Coca-Cola (nyse: KO - news - people ) 1 of 11
Citigroup (nyse: C - news - people ) 4 of 17
DuPont (nyse: DD - news - people ) 2 of 11
Exxon Mobil (nyse: XOM - news - people ) 0 of 12
General Electric (nyse: GE - news - people ) 3 of 15
General Motors (nyse: GM - news - people ) 2 of 11
Hewlett-Packard (nyse: HPQ - news - people ) 1 of 8
Home Depot (nyse: HD - news - people ) 1 of 12
Honeywell (nyse: HON - news - people ) 1 of 14
Intel (nasdaq: INTC - news - people ) 2 of 11
IBM (nyse: IBM - news - people ) 3 of 13
Johnson & Johnson (nyse: JNJ - news - people ) 1 of 13
JPMorgan Chase (nyse: JPM - news - people ) 0 of 14
McDonald's (nyse: MCD - news - people ) 1 of 13
Merck (nyse: MRK - news - people ) 0 of 12
Microsoft (nasdaq: MSFT - news - people ) 1 of 10
Pfizer (nyse: PFE - news - people ) 0 of 14
Procter & Gamble (nyse: PG - news - people ) 1 of 13
United Technologies (nyse: UTX - news - people ) 2 of 14
Verizon (nyse: VZ - news - people ) 0 of 13
Wal-Mart Stores (nyse: WMT - news - people ) 0 of 13
Walt Disney Co. (nyse: DIS - news - people ) 3 of 13



More On This Topic
Companies: MMM | T | BA | XOM | JPM

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