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Published: January 6, 2009

 
 

It’s Getting Diverse at the Top

To take advantage of market growth in developing countries, U.S. multinationals are turning to non-Americans to head their operations.

Despite the deep economic fissures throughout the world, top management of major U.S. companies are more compelled than ever to go global. For one thing, many large companies, such as Alcoa, Colgate-Palmolive, Coca-Cola, and United Technologies, generate 60 to 80 percent of their sales outside the United States, and that trend seems certain to accelerate. Indeed, as Western economies contract, countries like India and China will see some slowdown in growth but are still projected to expand by at least 6 percent annually. Moreover, when the recession wanes, developing markets will have pent-up demand from a vast, product-thirsty would-be middle class, and thus will be the richest vein of new consumer enthusiasm for companies to mine. Consequently, CEOs and other top executives will need an ever deeper understanding of customers in developing countries. And that, in turn, will intensify multinationals’ desire to place executives from around the world in critical corporate positions. U.S. companies will need leaders with the cultural and language skills that many American executives, even those who have traveled extensively, lack.

The logic may be simple, but it’s not easy for U.S. companies to groom talent from other countries. It takes years to identify talented people working in a multinational’s offshore operations and develop them for positions that carry more authority and responsibility by transferring them to other postings. In some cases, companies have to modify their cultural norms to adequately assess these executives, and the culture at headquarters may have to become more welcoming to different nationalities. “American companies started the process a decade ago, but it only gathered steam three years ago,” says Umesh Ramakrishnan, vice chairman of search firm CTPartners and author of a new book, There's No Elevator to the Top: A Leading Headhunter Shares the Advancement Strategies of the Worlds Most Successful Executives. “We’re only about a quarter of the way to where we need to be.”

One of the clear leaders is Colgate, where Ian Cook, a British national, last year succeeded Reuben Mark as CEO. The company has a “process that encourages, rewards, moves around, provides incentives, and closely manages the careers of the best performers worldwide, no matter their national origin,” says John Wood, a partner at SpencerStuart who has conducted more than 70 CEO search assignments.

Aside from having an Englishman as CEO, Colgate (with 75 percent of its sales outside the U.S.) has eight non-native Americans in its brain trust of nine top operating executives — including people from India and Colombia. More than half of the 200 people in its senior management ranks, including those in staff and support roles, are not originally from the U.S., says Daniel Marsili, vice president for global human resources. These managers may have green cards or U.S. passports, but they were born outside the U.S. “They are citizens of the world,” Marsili says.

Marsili says that Colgate’s strategy has three elements. One is that the goal of developing executives of diverse nationalities was articulated from the top during Mark’s tenure and continues to be during Cook’s. The second is that the consumer products company has established accountability at senior levels in the organization for identifying and nurturing high-potential employees from around the world. “It’s not just HR’s responsibility,” Marsili says. Linking it to dollars and cents is key: Part of the long-term incentive compensation of the top 200 executives is tied to the company’s ability to attract and retain the most talented people. They get paid more if the company keeps 90 percent of its high-potential staff over a certain period of time.

Third, Colgate has an enterprise-wide information system linking its operations in 200 countries and it uses this to create a talent-tracking program. Colgate managers around the world are provided with relatively simple yet sufficiently detailed forms on the network to supply data about the capabilities and potential of key employees. The quality of an executive’s performance in a variety of tasks is logged into the system over time. “It gives us a global warehouse of data about our people systems,” Marsili says. “It’s important to us to understand equally the leadership pipeline in Vietnam and in Venezuela.”

Local Manager to Global Executive
One reason it’s important to identify employees with global talent early in their careers is that it takes time to develop people for worldwide postings. Once a French manager has been successful in Paris or an Indian executive in Mumbai, what should a multinational company do with that person? “The issue is turning somebody from a very good senior executive in a particular market into someone who’s capable of being a very senior executive in a global role,” says Ashley Stephenson, an Australian who has recently moved to New York to co-lead Egon Zehnder International’s global practice, which conducts 6,000 executive assessments a year.

There are right ways and wrong ways to develop executives who aren’t native to a company’s headquarters country. Some multinationals make the mistake of, for example, transferring an Indian manager from Mumbai to Geneva without providing assistance in adapting to the dramatically different culture. Even the most accomplished executives need help in making such significant transitions.

In addition, top management and their human resources departments must be sensitive to the cultural needs of their high-potential transfers, Marsili says. Many executives from outside of the U.S. find it difficult to leave aging parents or to move with children in school. So for them, Colgate devises short-term assignments of up to six months to give them exposure with minimal disruption to their personal lives. “It gives us some comfort that their eyes are being opened by being in a different environment,” he adds.

Another important ingredient of a successful posting to a new market, Ramakrishnan says, is not squeezing the executive into an unfamiliar area of responsibility right away. “The thing a company should not do is change a person’s function and geography at the same time by, say, transferring a marketing talent from India to run a profit-and-loss unit in Europe,” he says. “That would be a mistake.”

When the executive has been seasoned and is ready to move into a top job at headquarters, he or she almost certainly needs some form of mentoring or coaching. “Somebody needs to be there to help them maneuver their way through corporate headquarters,” says Ramakrishnan. “They need someone to say, ‘Here’s how you get things done.’ ”

CEOs also need to make sure that the culture at the companies’ headquarters is not too parochial. United Technologies Chairman George David says his U.S.-based company’s culture is based on performance metrics that strip out any subtle bias against foreign nationals whose language or cultural skills may not be on a par with American peers. It appears the metrics are working: David was recently succeeded as CEO by Louis R. Chênevert, who is French Canadian.

Thus far, nationals from Australia, the U.K., Canada, Latin America, and Europe seem to have an edge over other nationalities in moving up the ranks to the CEO’s spot at American companies. The CEOs of Dow Chemical and Kellogg are both from Australia. Muhtar Kent, who holds dual Turkish and U.S. citizenship, has taken over the top job at Coca-Cola. Alain Belda, a native of Morocco who was educated in Brazil, has recently stepped aside as CEO at Alcoa to make way for German-born Klaus Kleinfeld, most recently CEO of Siemens in Germany.

However, Indian executives are starting to make headway on the U.S. corporate ladder as well, as evidenced by Indra Nooyi’s ascension to the CEO’s job at PepsiCo, replacing Steve Reinemund. Wood, of SpencerStuart, recently placed Dinesh Paliwal from ABB as chief executive officer of Harman International.

According to Ramakrishnan, executives from India have a few advantages at U.S. companies over talent from other global markets. One simple issue is language: “Growing up, most of the Indians who come to the United States have learned to speak English fluently,” he says. Also, the education system in India is focused on math and science, which are skills much in demand in the U.S. as its own science and math programs trail worldwide benchmarks. Finally, the preponderance of cultural, linguistic, and religious groups within India demands that the country’s citizens be able to function in a diverse society, which is good training for a career in a multinational corporation.

Almost completely absent from the senior management ranks of top American companies are Japanese and Korean nationals. One reason may be that the Japanese market, although huge, is in recession and U.S. companies have not made it a priority to assimilate Japanese executives at headquarters, allowing their Japanese operations to be run by managers residing in the home country. Korean executives tend to be overlooked even more than Japanese, because their market is much smaller while just as culturally and linguistically complex.

U.S. companies want to assimilate more Chinese nationals in their executive ranks, because the Chinese economy is still growing at 8 to 9 percent a year and most U.S. multinationals have extensive operations in China. However, with such a robust economy at home, Chinese nationals often are loath to undergo the cultural and familial upheaval of taking a long-term assignment outside of China. In addition, deep cultural gaps separate Chinese and Americans; few Chinese speak English as fluently as their Indian counterparts, and business practices and governance standards in the two countries are quite different.

Given these issues, it may turn out that drawing in the most talented Chinese executives will be a critical challenge for America’s top companies as they seek growth abroad. But U.S. companies that can nurture any talented staffer, regardless of background, will be the ones that find themselves ahead of their peers.

Author Profile:


William J. Holstein is a contributing editor of strategy+business. A veteran business journalist and author, he is based in New York. For more of his work, visit www.williamholstein.com.

 
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Resources

  1. Frank Birkel, Jonathan Harper, and Edward Speed, “The Changing Role of the Country General Manager in CPG Multinationals” (PDF), (SpencerStuart, July 2008): Details why local general managers are a logical pool of eventual CEO candidates in consumer products firms.
  2. William J. Holstein, “The Decline of the Expat Exec,” s+b Leading Ideas Online, 07/29/2008: Peter Felix, president of the Association of Executive Search Consultants, on the effort by U.S. multinationals to hire local executives in foreign locales.
  3. Umesh Ramakrishnan, There's No Elevator to the Top: A Leading Headhunter Shares the Advancement Strategies of the World's Most Successful Executives (Portfolio, 2008): Examines what it takes to rise to the top of major companies.