As the role of boards has evolved over the past couple of decades, their composition has changed accordingly. In times past, when serving on a board was akin to being a member of an exclusive club, boards had few defined responsibilities, and fewer demands and expectations were placed upon them.

Fast forward to a few high-profile corporate crises in the mid-‘90s and the heated questions: Where was the Board? Why did they not see this coming and take action to protect the shareholders? In addition to the outside pressure exerted on boards, which resulted in greater regulations and overall scrutiny, an epiphany came from within: assembling the right assortment of skills and experience in directors around the boardroom table — one geared to complementing a company’s strategy — could prove a valuable resource.

Particularly in companies where international business plays a significant and growing role, international directors are an important part of this director recruitment equation. This wider view of the input required for board conversations and deliberations, including input from a range of customers and markets — diversity writ large — is not just good politics, it is good business. In fact, our survey of S&P 500 companies makes a clear business case for the importance of international directors on boards.

Consider the following data from our top-line findings:

• Among the S&P 500 companies in our Global Board Index, 76% disclosed international revenues in their latest fiscal year.
• International revenues represent an average of 36.9% of total revenues and are growing at almost twice the rate of overall revenue in the past three years (24.6% vs. 13.5%).
• Less than half of these companies comprising the S&P 500 index have foreign nationals serving on their boards.
• Increased international representation on boards seems to correlate positively with increased international revenues: over the past three years, S&P 500 companies where foreign nationals represent 30% or more of the board performed better, on average, than the overall S&P 500 on key financial metrics. While we are still exploring the causal links, this finding is intriguing.

Today, most large companies have significant global businesses and even larger global aspirations. Companies that established a foothold in non-U.S. markets a generation or more ago have made greater investments in what are increasingly local operations, rather than those run from afar by the CEO and a few senior executives. Moreover, these newer markets are key to steady long-term growth.

It appears, however, that the boards of these companies are not keeping pace with global expansion. This is a problem when it comes to avoiding pitfalls in foreign markets as well as leveraging opportunities. Directors with deep, insider knowledge of these markets can act as a source of key intelligence and guidance, enhancing the odds of success.

There is a compelling argument to be made for greater international representation on boards. But, if that is the case, why aren’t boards doing more to close the gap between their global aspirations and the international directors who represent such an apparent advantage? The answer is that while these directors can provide great value to boards and their companies, identifying and attracting them is a difficult and daunting process. It can be done, but success requires a global mindset and a proven process.

Based on anecdotal evidence from our client work and broader observations about global companies and their boards, we have long believed that global boards can be a valuable resource to companies pursuing a global strategy. We set out to quantify the current state of the “globalness” of boards of large companies, beyond what we experience day-to-day with our clients, and to determine if and how board composition links to business success. 

The results of the study confirmed our belief that there is a gap between companies’ global activity and longer-term plans, on the one hand, and the board resources that help to shape and guide that strategy, on the other. The troubling news is that this gap is large. The good news is that once companies are aware of the extent of the gap between their global strategy and their director resources, they can work toward closing it. In light of the positive correlation we are seeing between companies that perform better on key business metrics and those with international representation on their boards, we suspect many companies will take steps to ameliorate this deficit on their boards.

It is important to note that this survey represents a snapshot in time, specifically the summer of 2008. There have undoubtedly been changes since then that are not reflected in the data. We adhered to a rigorous methodology, where data on the S&P 500 companies included in the survey were gathered from publicly available sources. Data were then sent to individual companies for sign-off to ensure the accuracy of what we had collected. Despite the best practices we followed and our best efforts, we recognize that errors may occur. We are determined to produce work of the utmost quality, and we welcome any feedback that will contribute to our next Global Board Index report.

We hope you find the results of the Egon Zehnder International Global Board Index report thought provoking and of relevance to your company.