If your company's management team isn't as global as its target markets, you aren't alone. Some 30% of U.S. companies admit that they have failed to fully exploit their international business opportunities because of insufficient internationally competent personnel. Could the problem start all the way at the top?
In my 2011 HBR article, The Cosmopolitan Corporation, I argued that a cosmopolitan leadership team just might be the critical organizational ingredient for firms to succeed in a world that is neither global nor local but rather a complex combination of the two (what I call World 3.0).
And now there's new data to support that.
Only 14% of the world´s 500 largest corporations by revenue, the Fortune Global 500, are led by a CEO who hails from a country other than the one where the corporation is headquartered, as Herman Vantrappen and I reported this June in Fortune. The percentage of non-native CEOs is significantly lower for smaller, less international companies — and the share of foreign CEOs and board members rises only to ~30% among the world's 100 corporations with the largest foreign assets (excluding financial sector firms). Among corporations in the U.S. S&P 500, a 2008 report from Egon Zehnder indicated that only 7% of board members were foreign nationals, 9% had degrees from non-U.S. institutions, and 73% had no international work experience at all!
Dig a few layers deeper into firms' management teams and the situation doesn't look much better. According to a recent survey, 76% of senior executives reported that their organizations needed to develop global leadership capabilities, but a mere 7% felt they were doing so effectively. A 2005 survey by the Boston Consulting Group found that only 7.5% of the top 200 managers in the firms sampled came from a set of 16 emerging markets where the firms intended to generate 35% of their growth over the next 5 years.
For Western MNCs, unglobalization at the top hurts most in the struggle to tap growth in emerging markets, where foreign MNCs are falling behind as local competitors grow their sales and profits almost twice as fast. Asking high-potentials in emerging markets to trust against visible evidence that their career progress will be unconstrained by home-country or home-region bias is becoming an increasingly tough sell. In 2010, Chinese professionals expressed only half as strong a preference for working in a foreign multinational over a local firm than in 2007.
Firms based in emerging markets are starting from even farther behind at cultivating cosmopolitanism. Only 1 of the 96 Fortune Global 500 companies from the BRIC countries has a foreign CEO. As they seek to differentiate and build brands in advanced economies rather than competing mainly based on low home-country cost bases, this will become an increasingly important problem. (The U.S. sits right at the global average with 14% non-native CEOs. Leading the list are small countries mainly in Europe, with Switzerland on top with 73%.)
Cosmopolitanism, of course, isn't only about top management diversity. Firms have implemented a variety of other techniques to try to become more cosmopolitan:
- Recruiting, developing, and assigning bridging roles to bicultural individuals.
- Broadening the current management team's mindsets. Rooted maps can help them see how the world looks different depending on where they're coming from and what they're trying to accomplish.
- Educating managers to understand cross-country differences using concepts such as my CAGE (cultural, administrative, geographic, and economic) distance framework and tools like the CAGE Comparator™
- Rotating country managers between countries (as opposed to only exporting managers from company headquarters), and allowing managers from other countries to spend time at HQ.
- Rethinking cutbacks on expatriation. Yes, expats are expensive (on average 2-3x home salary), but it takes at least 3 months to become immersed in a new location and appreciate how business works there.
- Broadening executives without relocating them by involving them in multinational tasks forces and cross border work, or even bringing the HQ experience to them by locating business unit headquarters outside of the firm's home country.
- Managing career development to make sure non-natives and even returning expats don't systematically end up on the slow track.
- Utilizing assessment tools such as my GAP Survey to track and manage your progress.
The Cosmopolitan Corporation, like cosmopolitanism in individuals, is something that requires continuous cultivation and nurturing. And like the personal journey of opening up to those who are different from ourselves, it's a deeply individual path, but one that can be eased and inspired by stories from others. The first step is to share them.