Study Underscores Urgency to “Globalize” U.S. Boards of Directors
2008 Egon Zehnder International Global Board Index™ Reveals Lack of Alignment Between Strategy and Board Resources
Boston, MA (12-01-08) - Companies where foreign nationals represent one-third (30%) or more of the board outperform the rest of the S&P 500, according to the first Egon Zehnder International Global Board Index™, released today by Egon Zehnder International, the global executive recruiting firm.
The 2008 Egon Zehnder International Global Board Index™ research, which examined all S&P 500 companies and a total of 5,444 directors, demonstrates positive correlations between the “globalness” of these boards and metrics such as return on assets and annual average stock price growth. The study does not claim causality for outperformance, and acknowledges the need for further analysis to determine such links.
Among the companies in the 2008 Egon Zehnder International Global Board Index™, three-quarters (76%) disclose international revenues in their latest fiscal year, with an average of more than one-third (36.9%) of total revenues coming from sources outside the U.S. International revenues have grown at nearly twice the rate of overall revenues in the past three years (24.6% international vs. 13.5% overall). Despite the importance of current and projected international revenues, however, more than half (56%) of these companies still have no foreign nationals serving on their boards.
“Particularly given the current global economic situation, our study findings serve as a warning to the vast majority of large companies pursuing global strategies,” observes George Davis, Co-manager of Egon Zehnder’s National Board Practice Group. “One lesson of the past couple of months has been that business today is inescapably interconnected and global. Companies that don’t apply that lesson to the composition of their boards will be increasingly at a competitive disadvantage.”
capabilities to metrics such as company size, industry sector, and percentage of international revenue, and to contrast U.S. directors with foreign national directors in terms of differences in education, employment titles, age, and gender. In addition to being the first board study to link greater representation of foreign nationals on the board with better performance, the study is the first to provide a multi-dimensional view of international directors, examining three indicators of global capabilities: foreign nationalism, international education, and international work experience. It is also the first to compare these global
Additional findings from the study underscore the lack of international board capabilities, as well as their relationship to international revenues:
International board capabilities
Foreign national representation – Only 359 of the total 5,444 directors (6.6%) on S&P 500 boards are foreign nationals.
International education – Fewer than one in ten (9.1%) directors have an undergraduate or graduate degree from a non-U.S. educational institution.
International work experience – Nearly three-fourths (73%) of board members have no international work experience.
International board capabilities and international revenues
Fully 60% of companies do not have international board capabilities that reflect the importance of their international revenues; in fact, those with the fastest growing international revenues have the lowest percentage of international directors.
Generally, the greater the proportion that a company’s international revenues bear to its total revenues, the greater the likelihood that its board will comprise a higher percentage of international directors.
“There is currently a large gap between companies’ global aspirations and the international directors they need to guide them,” concludes George Davis. “Once boards are aware of this deficit, they can and should work toward ameliorating it if they are to be poised for ongoing success in the international markets they are investing in.”
About the methodology
Board and company profiles in the 2008 Egon Zehnder International Global Board Index™ are based on information drawn primarily from publicly available Internet sources. The research, covering all S&P 500 companies and a total of 5,444 directors, was conducted between April and September 2008, with all data confirmed and current as of September 15, 2008. 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.
About Egon Zehnder and our Board Consulting Practice
Founded in 1964, Egon Zehnder International is one of the world’s largest privately held executive search firms, with 370 consultants in 63 wholly owned offices in 37 countries. We maintain a dedicated global practice specializing in Board Consulting. By recruiting directors whose independence, intellect, integrity, and courage strengthen the board, we create sustained competitive advantage for client companies. Focusing on the highest level of the organization, we work in collaboration with the chairman and board members, both to review overall board performance and to appraise individual board members’ contributions. Our clients range in size from start-ups, to privately held family firms, to the largest international corporations.
2008 EGON ZEHNDER INTERNATIONAL GLOBAL BOARD INDEX™ Data by company size and sector
Differences in international director representation by company size:
There are pronounced differences in the level of foreign national representation on boards depending on company size:
The largest 20% of S&P 500 companies (as measured by overall revenue) have, on average, twice as many foreign nationals serving as directors compared to the smallest 20% of companies.
Differences in international director representation by industry sector:
International board capabilities also manifest clear sector-based differences:
Overall takeaway - In eight out of ten sectors, international board capabilities have failed to keep pace with the growing importance of international revenues. Three sample sectors from high to low include:
Consumer staples sector: these companies have the highest overall global board capabilities;
Materials and industrials sectors: these companies also score comparatively highly on global board capabilities;
Utilities and telecommunications sectors: these companies are at the other end of the spectrum with low levels of board internationalization.
NB: Additional, more detailed data are presented in the complete report of the 2008 Egon Zehnder International Global Board IndexTM, available at: http://www.egonzehnder.com/global-board-index .
