Leadership by Geoff Colvin

Big boards need to act global

December 3, 2008: 4:50 PM ET

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).

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Patricia Sellers
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Fortune senior editor at large Pattie Sellers has written some of Fortune's most talked-about cover stories, including "Marissa Mayer: Ready to Rumble at Yahoo," "Oprah's Next Act," "Can Meg Whitman Save California?" "The $100 Billion Woman" (Melinda Gates), and "Remodeling Martha" (Martha Stewart). She has helped oversee Fortune's "Most Powerful Women in Business" package every year since its launch in 1998. Pattie is Executive Director of the Fortune Most Powerful Women Summit, the preeminent gathering of women leaders in business and beyond. She oversees MPW programs that enable women leaders to extend their influence and empower the next generation—such as Fortune MPW Entrepreneurs and the Fortune-U.S. State Department Global Women Leaders Mentoring Partnership. Beyond her Fortune duties, she is also developing Live Content across Time Inc. Pattie grew up in Allentown, PA, graduated from the University of Virginia, and started at Fortune in 1984. Her blog, Postcards, is about how power players lead, manage others, and navigate their careers.

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