Cross-cultural diversity on boards is becoming a bigger issue as companies recognise the importance of directors with global experience. But are antiquated traditions stifling progress? Domini Stuart reports.
There are strong arguments for recruiting a director from a country with which you are doing business. He or she could provide valuable contacts and information about local markets, manufacturers and customer preferences, as well as an insight into a particular way of doing business.
“Knowing why the people you are dealing with think this way, write this way and negotiate this way can be a significant advantage when you are discussing a contract or servicing an ongoing relationship,” says Francis Wong OAM, chairman of the Council for International Trade & Commerce, president of the Australia Brunei-Darussalam Business Council and director of Adelaide United Football Club. “Your overseas counterparts are also likely to take comfort in the fact that you have made an effort to understand the way they operate. There is a lot of kudos in that.”
But there are also strong arguments against — the most obvious being geography. “I know a lot of people who travel around Asia for monthly meetings, but flying between Hong Kong, Singapore and China is very different to flying in and out of Australia,” says Wong. “Travelling that far just for a meeting can be difficult logistically and also very tiring so, when you actually get into the boardroom, your concentration level might not be very high.”
In theory, new technology has obviated the need for everyone to be physically present at a meeting. But a teleconference or video conference creates an entirely different dynamic when compared to a group of people sitting round a table together, reading each other’s body language and judging whether it is time to keep quiet or appropriate to interrupt. These days, most directors are also expected to be on at least one committee, and the job does not start and end at the boardroom door.
“The boardroom is a very alien environment for most of us,” says Emeritus Professor Geoff Kiel FAICD, chairman of consultancy firm Strategic Governance. “It is very structured and formalised, which is not how we work naturally as human beings. Social interactions before and after a meeting, as well as during the various functions directors are expected to attend, all support both the collegiality and the overall contribution of the board.”
A director who does have time to travel may well be retired or semi-retired and, as a result, less in touch with an evolving market.
“People move, organisations change and contacts wither fairly quickly,” says Kiel.
Language is also an important consideration. “I work with a number of boards where there are multiple languages around the table and there is no doubt, it’s challenging,” says Dr Vince Murdoch, board advisor at Egan Associates. “Doing board business can be very difficult when you do not understand each other perfectly.”
Kiel cites an example where a Japanese director’s English was so poor that he inadvertently approved something close to fraudulent behaviour. And Wong points out that, however good their English, directors who remain steeped in their own culture and do not understand the Australian business environment are likely to feel frustrated and create disharmony on the board.
“We have found that many overseas directors have no idea of Australian law or governance practices,” says Kiel. “That introduces a very serious risk.”
Exploring other alternatives
An easier and more efficient alternative might be to recruit a director who is based in Australia but travels frequently to countries of interest.
“This can give you the best of both worlds; someone who understands the culture, is in touch with the local market and has up-to-date contacts but can also attend regular meetings and take part in other activities,” says Wong.
Another option is an Australian director with extensive business experience overseas. Tony Cull, for example, had worked for many years in Asia and sat on a number of Asian boards when he was recruited by Geraldton Fisherman’s Co Op, Australia’s leading exporter of live seafood and the world’s largest exporter of rock lobster to China.
“I believe that an experienced overseas director can help bring a range of expertise and experience to the board that will help them to navigate cultures outside of Australia,” he says. “Directors who have lived and worked overseas, and particularly those with the underlying philosophy that to be a director is to be part of a team, will have developed a close alignment with board members from different cultural backgrounds. This enables them to read between the lines, and that means they are very well positioned to assess risks and opportunities associated with implementing strategies or expanding into a new country. They should also be able to provide useful insight into enforcing corporate governance across borders.”
A crowded boardroom
However, some experts argue that the boardroom may not be the best place for international expertise. “With upward of 20 skills needed on a contemporary board and just eight or nine directors to cover them, you need to think very carefully about how board positions are allocated,” says Kiel.
“You need to be very clear about what you are hoping to gain from an overseas director,” says Murdoch. “Is it insight into an Asian country’s marketing channels? Is it information about the logistics of supply and distribution across Eastern Europe? Is it help with managing manufacturing operations in a low-cost labour market? If this is the case, it seems to me that presuming you need to appoint a director from Thailand, Hungary or China is flawed thinking because there could be far more efficient ways of acquiring that information.
“For example, it might be enough to have the whole board make regular visits to the various countries with which you do business. You could establish advisory groups of consumers, marketers or even politicians to report back to you. You could conduct research and feed that back to the board. You could engage an expert – an experienced consultant with relevant insights and well-established relationships and connections. Or, probably the most useful of all, you could recruit those skills at an executive level so you can draw on them as required.”
A misleading trend
There may be a growing number of foreign directors on Australian boards but not all are technically directors. “Companies with large shareholdings in an Australian company often demand to be represented on the board and recruit high-profile business leaders to represent their interests,” says Wong. “The job of this director is to provide feedback and to keep an eye on the partners here. Governance is a different issue altogether.”
Nor do they represent a trend towards more multicultural boards. Research into the cultural origins of S&P/ASX 200 business leaders conducted by the Diversity Council Australia (DCA) shows that more than 88 per cent of directors have an Anglo-Saxon, Anglo-Celtic or north-west European background – in other words, a very similar physical appearance. A little over 4 per cent of directors have Asian cultural origins, which leaves just 8 per cent for everyone else; African, Middle Eastern, Pacific Islander and indigenous.
Lisa Annese, CEO of the DCA, says that directors who provided feedback professed to be shocked by the findings.
“They must be able to see that there is no cultural diversity on their own boards yet they are still surprised when they see the figures in black and white,” she says.
Wong suggests that such a homogenous environment could be selling shareholders short. “Forget whether a company has interests overseas, we are a multicultural community with clients from many different countries so we should be very culturally sensitive in terms of the way we deliver our services,” he says. “How well the strategy developed at board level embraces new migrants and different cultural groups as well as mainstream Australia will be a significant factor in the success of the company and shareholder returns. The more diverse the board, in terms of gender and age as well as culture, the better able it will be to understand and respond to its clients.”
Robert Gordon GAICD, director of programs at consulting firm Board Accord, agrees that there is a strong imperative to move beyond parochial thinking. “Globalisation is moving relentlessly at a rate of knots,” he says. “Directors, executives, consultants, and the professional associations that serve them must increasingly embrace a global perspective if they are to maintain competitiveness.”
Wong also believes that diversity at board level could help to drive a culture of loyalty throughout the organisation.“These days, most organisations have a workforce from a wide range of different backgrounds,” he says.
“They are more likely to feel aligned with an organisation which has a clear commitment to cultural sensitivity that starts at the top.”
It is conventional wisdom that a range of experiences and opinions drives richer, more rigorous and more rewarding debate. But, when it comes to recruiting new directors, Wong describes boards in Australia as “quite old- fashioned”.
“In my personal experience of sitting on state and national boards, it is still very much the case that you need to know someone or have some kind of connection in order to be appointed. Many businesses from government agencies to bigger corporations do not have any directors from a multicultural background and I find it very surprising that, given the strong focus on doing business with Asia, that there are so few Asians on boards.”
Most of the cultural diversity we hear about is still limited to multicultural community groups. Gordon, who is currently completing a review for a big indigenous organisation, is telling boards that it is time to think beyond that.
“For example, we need to have comprehensive 10-year programs in place that can develop the emerging generation of professional indigenous adults so that they can make a contribution in the mainstream board space.”
It is still true, particularly in smaller companies, the directors will already have someone in mind for the job when a seat on the board becomes available.
“But it is also true that, if you rely on an old boys’ network you end up with old boys,” says Kiel. “Whatever the size of the organisation, it is very important that boards combine personal connections with proper, professional search activity, whether that is within Australia or overseas.”
Annese believes that organisations need to broaden their definition of leadership, create more inclusive leadership and take deliberate steps to make leadership look very different from the model we have today.
“If you don’t name it and don’t call it, nothing’s going to change. Research tells us that diverse teams deliver better outcomes, but we are never going to get diverse teams if we retain the same narrow view of what constitutes a leader.”
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