Big boards need to act global

Think global. Act local. That’s a rule of doing business globally. But when it comes to who resides in the boardroom, a lot of U.S. corporations seem to apply that rule to a fault: they have pathetically few international directors.

Board effectiveness was a hot topic on this last day of the Fortune 500 Forum in Washington D.C., and this finding, from a just released study by search firm Egon Zehnder, was front and center. Egon Zehnder looked at 5,444 directors of S&P 500 companies and found that just 6.6% are foreign nationals. This despite the fact that the S&P 500 companies derive 37% of their revenues outside the U.S. And those international revenues have grown at nearly twice the rate of domestic sales over the past three years. Can you believe that three-quarters of S&P 500 directors have no international work experience?

What gives? Foreign nationals are “outside the zone of comfort” of many boards, says C.K. Prahalad, a University of Michigan Business School professor and expert on emerging markets. Prahalad, who along with McKinsey Americas head Michael Paesalos-Fox was on a panel called “Boards and the Value Creation Process” that I moderated this morning, explains that boards typically invite new directors who are just like them — meaning more Americans.

Prahalad is on the boards of Hindustan Unilever, British-based Pearson, and NCR. Among the S&P 500, Mastercard (MA), General Electric (GE), and UPS (UPS) have above average international representation. And the companies that have zero foreign nationals? Yahoo (YHOO), Target (TGT), and Pfizer (PFE).