How Global Is Your C-Suite?
Despite globalization, the vast majority of the world’s largest corporations are run by CEOs native to the country in which the company is headquartered. But more executive diversity at the top is sorely needed — and will require sweeping changes in how companies are organized.
Satya Nadella, who was born in India, became CEO of Microsoft in 2014. However, most of the world’s largest companies have CEOs who were born in the country where the company is headquartered.
Image courtesy of Microsoft.
The globalization of companies can be — and frequently has been — looked at in different ways: in terms of the internationalization of sales or assets, cross-border supply chains or shared services, organizational structures, functional policies (marketing standardization versus customization) and so on. In this article, we look at much less studied individual measures of globalization: the extent to which the managers who head the world’s largest corporations — at the CEO level and at the level of the managers listed as reporting directly to him or her (henceforth, the top management team) — are native or not to the country where the corporation is headquartered.
The Positive Consequences of National Diversity
Are the national origins of those who run the world’s largest corporations even worth considering? Despite all the research on “upper echelons theory,” at least some people think not. Some rely on author Thomas Friedman’s memorable characterization of the world as “flat” to aver that everybody, everywhere, is subject to the same forces of globalization, irrespective of nationality.1 However, the data suggest that most international interactions are, in fact, semiglobalized, and closer to the “zero-integration” extreme than to the “complete-integration” extreme — usually by a wide margin.2 And in terms of changes, a globalization index that one of us (Ghemawat) compiles annually indicates that current levels of globalization are still below those reached before the global financial crisis.3
A second, related argument about the irrelevance of nationality focuses on giant corporations that can seem to be “floating above a flat earth” (another phrase of Friedman’s),4 detached from all national contexts. To be more specific, consider one example Friedman cites: Lenovo Group, the Chinese company that bought IBM’s PC business in 2005. Lenovo does have roots in the United States — especially on the technology side — as well as in China, but having roots in two countries is very different from rootless cosmopolitanism. And the company’s Chinese roots arguably run deeper than its U.S. roots; as a result, the U.S. government publicly scrutinized Lenovo’s 2014 acquisition of IBM’s low-end server business.
References
1. T.L. Friedman, “The World Is Flat: A Brief History of the Twenty-First Century” (New York: Farrar, Straus and Giroux, 2005).
2. P. Ghemawat, “World 3.0: Global Prosperity and How to Achieve It” (Boston, Massachusetts: Harvard Business Review Press, 2011).
3. P. Ghemawat and S.A. Altman, “DHL Global Connectedness Index 2014: Analyzing Global Flows and Their Power to Increase Prosperity,” October 2014, www.dhl.com.
4. Friedman, “The World Is Flat,” 210.
5. See, for instance, K.Y. Williams and C.A. O’Reilly III, “Demography and Diversity in Organizations: A Review of 40 Years of Research,” in “Research in Organizational Behavior,” ed. B.M. Staw and L.L. Cummings (Greenwich, Connecticut: JAI Press, 1998), 77-140.
6. S. Kaczmarek and W. Ruigrok, “In at the Deep End of Firm Internationalization” [in English], Management International Review 53, no. 4 (August 2013): 513-534.
7. B.B. Nielsen and S. Nielsen, “Top Management Team Nationality Diversity and Firm Performance: A Multilevel Study,” Strategic Management Journal 34, no. 3 (March 2013): 373-382.
8. T. Barta, M. Kleiner and T. Neumann, “Is There a Payoff From Top-Team Diversity?,” McKinsey Quarterly (April 2012).
9. T.-Y. Hsieh, J. Lavoie and R.A.P. Samek, “Think Global, Hire Local,” McKinsey Quarterly 4 (1999): 92-101; and S. Shankar and V. Vishwanath, “Winning in Emerging Markets,” June 17, 2008, www.bain.com.
10. C. Bouquet, J.-L. Barsoux and O. Levy, “The Perils of Attention From Headquarters,” MIT Sloan Management Review 56, no. 2 (winter 2015): 16-18.
11. C. Dreifus, “In Professor’s Model, Diversity = Productivity: A Conversation With Scott E. Page,” New York Times, Jan. 8, 2008, sec. F, p. 2.
12. C. Schmidt, “The Battle for China’s Talent,” Harvard Business Review 89, no. 3 (March 2011): 25-27.
13. See, for instance, P. Ghosh, “Microsoft’s (MSFT) New CEO Satya Nadella Underscores Rise of Indians in U.S. High Tech,” International Business Times, Feb. 1, 2014.
14. H. Vantrappen and P. Kilefors, “Grooming CEO Talent at the Truly Global Firm of the Future,” Prism 2 (2009): 90-105.
15. United Nations Conference on Trade and Development, “Annex Table 28: The World’s Top 100 Non-Financial TNCs, Ranked by Foreign Assets, 2013,” June 25, 2014, http://unctad.org.
16. “Europeans and Their Languages,” Special Eurobarometer 386, June 2012, http://ec.europa.eu.
17. F.-X. Dudouet and H. Joly, “Les dirigeants français du CAC 40: entre élitisme scolaire et passage par l’État,” Sociologies Pratiques 2, no. 21 (2010): 35-47.
18. P. Ghemawat and H. Vantrappen, “Japan Slow to Attract Foreign Executive Talent,” Nikkei Asian Review, April 24, 2014; N. Oishi, “The Limits of Immigration Policies: The Challenges of Highly Skilled Migration in Japan,” American Behavioral Scientist 56, no. 8 (August 2012): 1080-1100; and the Hofstede Centre, http://geert-hofstede.com.
19. Ghemawat and Altman, “DHL Global Connectedness Index 2014.”
20. Note that the likelihood of having a nonnative top management team member does also vary across different sectors. In our analysis, we found that the correlation coefficient between sectors’ ranks on CEO and top management team nonnativity is 0.72.
21. For this analysis, we compared the following regions of the globe: East Asia and the Pacific; Europe; the Middle East and Africa; North America; South and Central America; and South and Central Asia.
22. In 36 companies, the same person is chairman and CEO.
23. For a description of some of the turmoil at ABB before Hogan’s arrival in 2008, see P. Ghemawat, “Aggregation,” chap. 5 in “Redefining Global Strategy: Crossing Borders in a World Where Differences Still Matter” (Boston, Massachusetts: Harvard Business School Press, 2007); and “How Asbestos Burned ABB,” March 3, 2001, www.bloomberg.com.
24. M. Hamori and B. Koyuncu, “Career Advancement in Large Organizations in Europe and the United States: Do International Assignments Add Value?” International Journal of Human Resource Management 22, no. 4 (February 2011): 843-862.
25. Talent Management Summit 2011, “Leading with Purpose” (Economist Conferences, London, June 9, 2011).
26. W.J. Holstein, “The Decline of the Expat Executive,” July 2008, www.strategy-business.com.
27. B.S. Reiche, “The Inpatriate Experience in Multinational Corporations: An Exploratory Case Study in Germany,” International Journal of Human Resource Management 17, no. 9 (2006): 1572-1590.
28. For evidence on the benefits of having senior leaders located in key emerging markets, see A. Mall, D.C. Michael, L. Spivey, A. Tratz, B. Waltermann and J. Walters, “Playing to Win in Emerging Markets,” September 13, 2013, www.bcgperspectives.com.
29. H. de Barbeyrac and R. Verhoeven, “Tilting the Global Balance: An Interview with the CEO of Solvay,” McKinsey Quarterly 4 (2013): 69-75.
30. P. Ghemawat, “Developing Global Leaders,” McKinsey Quarterly 3 (2012): 100-109.
31. P. Ghemawat, “The ABCDs of Leadership 3.0,” in “Leadership Development in a Global World: The Role of Companies and Business Schools,” ed. J. Canals (Basingstoke, U.K.: Palgrave Macmillan, 2012), 62-89.
i. Transnationality Index data are from the authors’ analysis of United Nations Conference on Trade and Development, “Annex Table 28: The World’s Top 100 Non-Financial TNCs, Ranked by Foreign Assets, 2013,” in “World Investment Report 2013: Global Value Chains — Investment and Trade for Development” (Geneva: United Nations, 2013).
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Samiran Ghosh
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