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BoardMatters Quarterly, April 2011 - Boards without borders - EY - United States

BoardMatters Quarterly, April 2011Boards without borders

Questions for the audit committee to consider

  • Does the board have members from countries outside of the company’s home market?
  • When filling board positions, how does the board determine it has identified and evaluated a diverse slate of qualified candidates?
  • Has the board discussed the long-term cultural implications for the business of the diversification of markets, operations and sources of talent?
  • How do the board and management work to achieve diversity of thought and innovation in the company’s operations?
  • Does management believe it is ahead of or behind its peer companies in terms of creating an inclusive work environment? Has management shared with the board its evaluation of whether the company is behind or ahead of others in leading inclusively?
  • What investments are needed for the company to be a leader in diversity/inclusiveness?
  • Has the audit committee considered the benefits to the company’s internal control structure of having a diverse management team, particularly as it relates to understanding how different cultures view the company’s values, ethics policies, code of conduct, whistleblower hot line and other related internal control practices?
  • Has management shared with the board its strategy to develop cross-cultural skills in its workforce and management team? Does the corporation incorporate cross-cultural skills as a prerequisite for management appointments?
  • Does the company leverage its global network of employees? Does it arrange for new executives to spend time with people from different backgrounds whenever possible? Does the company have an easily accessible database that lists managers who are based overseas or foreign employees who have worked abroad and then returned to help employees learn about doing business in a particular geography?

“Today’s leaders must be able to quickly adapt to an increasingly chaotic — yet opportunity filled — global business environment.”Jim Turley, Chairman and CEO, Ernst & Young

Changes to the global business world are occurring at warp speed. Shifts in purchasing power, consumer preferences and market characteristics demand a shift in leadership skills and styles. The imperative to “lead inclusively” is pervasive. But what do these issues mean in practice, and how should leaders be leading differently?

EY interviewed leading thinkers to help answer these questions. The result is Leading across borders: inclusive thinking in an interconnected world, the latest report in our 21st Century Workforce series.

Through interviews with business, political and academic thought leaders, the report explores practical strategies that leaders can employ to develop their own global mindset and that of their organization.

Additionally, the report highlights the findings of a 2010 EY survey of more than 1,000 global business executives.

Considering diversity

When asked about the importance of diversity, 53% of survey respondents said that diversity of teams and experiences improves reputation and financial performance. However, the survey also shows that companies struggle with these issues — 30% of global business executives report that they don’t have any executives from outside their home country on their board.

What proportion of your global management board originates from countries outside of your home market?

What proportion of your global management board originates from countries outside of your home market?

Source: EY/Economist Intelligence Unit globalization survey, 2010

Women also are significantly underrepresented on boards and leadership teams.

Leading across borders identifies action areas for leaders — board members and executives — to use as they evolve into inclusive leaders. Some companies have a long way to go when it comes to incorporating diversity of experience, skills, cultures and education — characteristics of a flexible, open-minded and inclusive leadership team.

Diverse and inclusive leadership is essential to capitalizing on the growing global talent pool and propelling the organization to success in a volatile world.

 Questions for the audit committee to consider

Questions for the audit committee to consider

  • Does the board have members from countries outside of the company’s home market?
  • When filling board positions, how does the board determine it has identified and evaluated a diverse slate of qualified candidates?
  • Has the board discussed the long-term cultural implications for the business of the diversification of markets, operations and sources of talent?
  • How do the board and management work to achieve diversity of thought and innovation in the company’s operations?
  • Does management believe it is ahead of or behind its peer companies in terms of creating an inclusive work environment? Has management shared with the board its evaluation of whether the company is behind or ahead of others in leading inclusively?
  • What investments are needed for the company to be a leader in diversity/inclusiveness?
  • Has the audit committee considered the benefits to the company’s internal control structure of having a diverse management team, particularly as it relates to understanding how different cultures view the company’s values, ethics policies, code of conduct, whistleblower hot line and other related internal control practices?
  • Has management shared with the board its strategy to develop cross-cultural skills in its workforce and management team? Does the corporation incorporate cross-cultural skills as a prerequisite for management appointments?
  • Does the company leverage its global network of employees? Does it arrange for new executives to spend time with people from different backgrounds whenever possible? Does the company have an easily accessible database that lists managers who are based overseas or foreign employees who have worked abroad and then returned to help employees learn about doing business in a particular geography?

The leadership model is changing

In this era of uncertainty — globalization, stunning emerging market growth, rapid technology breakthroughs — new leadership skills are critical to addressing future situations.

Bob Johansen, a Distinguished Fellow at the Institute for the Future in Palo Alto and author of the book Leaders Make the Future, notes that “most of our current leadership models are based on the present and past, not the futureā€¦in the years ahead, there will be fewer problems that can be solved. Instead, we’ll have dilemmas, which are basically unsolvable problems, and these will require a different set of leadership skills.”

Companies that ignore the trend towards greater diversity and inclusiveness will lack the skills to overcome these dilemmas.

Increasingly, homogenous leadership teams with a limited breadth of experience may not be fit for the job.

Companies will likely need boards and management teams that consist of individuals from diverse backgrounds and different ages, races and genders, who have a broad range of experiences with both fast- and slow-growth markets.

The Leading across borders report highlights the following three action-oriented approaches to fostering diversity and inclusive leadership.

  1. Think differently — collaborate in the face of uncertainty

    Inclusive leaders must think differently and collaborate imaginatively to tackle the challenges of our increasingly global, uncertain, complex and ambiguous world.

    Thinking differently means encouraging divergence of thought, rather than seeking convergence, while at the same time remaining focused on the objective.

    This means bringing people together with different backgrounds or capabilities and letting healthy conflict happen. The results are fresh ideas and, ultimately, innovation.


  2. Learn differently — seek out different viewpoints and experiences

    Immersion in a variety of perspectives and cultures is critical for the leaders and employees of tomorrow to compete globally.

    Tomorrow’s board members need to invest more time in understanding the business risks and opportunities of social, political, cultural and environmental trends and how those trends could affect an organization. This investment will enable boards to react more quickly to challenges as they arise with a deeper understanding and appreciation of the larger scale effect.

    Boards should be asking themselves whether the people assisting them are helping them to see everything they need to see and whether the board should be interacting with more people who bring broader experiences and views.


  3. Act differently — sponsor people with different opinions

    People tend to sponsor people they like, or people that remind them of themselves. Leaders should not only challenge themselves but also their peers in how to recognize and overcome this behavior. Leaders need to be aware of their unconscious biases and actively support people who think and behave differently.

    More active and dynamic than mentorship, sponsorship requires real engagement on the part of the sponsor. Acting differently requires leaders to embrace an active role as sponsors to younger board members and management executives.

    To serve effectively as an advocate, a supporter and a defender of a young or newer board member or executive, leaders need to step outside of their comfort zone. They need to embrace those who think and behave differently as well as the belief that new ways of thinking and acting are important and beneficial in a diverse global market.

Diversity helps lead in a polycentric world

It’s only been six years since Thomas Friedman wrote about the “flattening” of the world because of globalization in The World is Flat. But already, there’s some evidence that the world may not be so flat after all. Instead, it is turning out to be polycentric, with multiple centers of influence, purchasing power, consumer preferences and market characteristics.

Inclusive leadership is probably the most effective and creative approach to dealing with the ambiguous environment that global leaders face today. The lesson for companies is to develop the capacity to operate at multiple speeds and be comfortable with multiple perspectives.

Tackling these challenges involves long-term issues that may take many years to address. It will be a complex juggling task but, for those that master the challenges, a world of considerable opportunity awaits.

Organizations with a diverse board and leadership team stand the best chance of responding positively and creating success for their businesses in a dynamic world.


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