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U.S. Corporate Boards More Global, But Not Enough Reflect Companies’ Global Aspirations, According to 2014 Egon Zehnder Global Board Index™
Report highlights continued gap in aligning global board capabilities of S&P 500 companies with their strategic direction.
NEW YORK, October 1, 2014 – Corporate boards of the leading publicly traded U.S. companies are becoming more global, but the companies still face a capability gap to align their boards with their global aspirations, according to the second edition of the Egon Zehnder Global Board Index™, released today by Egon Zehnder, the global executive search firm.
The Egon Zehnder Global Board Index™ tracks and evaluates global capability in the boardrooms of S&P 500 companies and identifies trends relative to board compensation, international work experience and business performance. Even though nearly three-quarters (72 percent) of all S&P 500 companies report some international revenue, corporate boards have achieved minimal progress in globalizing the boardroom over the past five years, according to the report.
International revenue now comprises 37 percent of total revenue for S&P 500 companies, an increase of 5.5 percentage points since 2008, when the first Egon Zehnder Global Board Index™ was released. But the share of directors who are foreign nationals increased only 0.6 percentage points in five years, moving to 7.2 percent in 2013. Also, the share of directors with international work experience was 14.1 percent in 2013, up from eight percent in 2008.
The findings of the Egon Zehnder Global Board Index™ revealed a Global Capability Gap, named by Egon Zehnder to describe the disparity between a company’s global footprint and the global experience of board members. Of America’s 100 most global, publicly traded companies – defined as those that earn more than half of their revenue outside of the United States – only one in 10 directors is a foreign national, and only two out of 10 directors report having significant international work experience.
“Companies with global aspirations need boards with global capabilities,” said George L. Davis, Jr., Co-Leader of the Global Board Practice at Egon Zehnder. “Closing the Global Capability Gap should be a priority for all companies as diversity of ideas and experience in the boardroom will not only benefit their business, but also their shareholders. While companies have made some progress in globalizing the boardroom, there is still significant room for improvement.”
Over time, the major source of improvement in global capability has come from the placement of more directors with international work experience. The study indicates that among the S&P 500 companies, 44 percent have at least one foreign national director, but only 17 percent have two or more. For those companies operating solely in the United States, only three percent have foreign nationals on their boards and only eight percent have directors with meaningful international work experience. Those figures rise for companies that generate at least some revenue from international sources. For those companies, foreign nationals make up nine percent of board directors, and directors with international work experience make up 17 percent.
“The first step to closing the Global Capability Gap is to assess the board and determine whether directors truly possess the skills and experience needed to drive success according to the company’s global strategic direction,” said Kim Van Der Zon, Head of the U.S. Board Practice at Egon Zehnder. “This may sound like common sense, but to effect change and seat directors with meaningful international work experience and global expertise, the board has to be honest with itself.”
The development of globally diverse boards is an imperative, especially for companies in certain industries. In addition, the Egon Zehnder Global Board Index™ found that the highest-velocity growth in overseas revenue for S&P 500 companies is in the financial services and consumer sectors. For the financial services sector, revenue growth rates internationally are more than four times the domestic growth rate; for consumer goods, the ratio is higher than two to one.
About the Egon Zehnder Global Board Index™
The Egon Zehnder Global Board Index™ was created in 2008 to track and evaluate trends among S&P 500 boards relative to board composition, global capability, and business performance. The Egon Zehnder Global Board Index™ is released every five years and provides an assessment and analysis of global capability in the present day S&P 500 boardroom. The current report offers new analyses and ways of interpreting global board capability, strategic resonance and the deficit of global talent in corporate America.
Board and company profiles in the latest Egon Zehnder Global Board Index™ are based on information drawn primarily from publicly available sources. The research, covering all S&P 500 companies and a total of more than 5,000 directors, was conducted between 2012 and 2013. A rigorous company verification process was followed to create the most detailed and complete overview possible of the international capabilities of S&P 500 board members.
To access the complete Egon Zehnder Global Board Index™, please visit www.egonzehnder.com .
About Egon Zehnder
Founded in 1964, Egon Zehnder is the world’s leading privately-owned executive search and talent management consulting firm with more than 420 consultants in 68 offices across 41 countries. The firm provides senior-level executive search, director search, board consulting, management appraisal, executive talent development and executive leadership strategy services, including potential assessments, to many of the world’s most respected organizations. Egon Zehnder’s clients range from the largest corporations to emerging growth companies, government and regulatory bodies, and major educational and cultural organizations.
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