Insight

Strengthening the boards global lens

From strategic growth opportunities and supply chain risks, to managing an extended global organization and ensuring regulatory compliance in far corners of the world, the challenges of globalization increasingly call for international perspective on the board.

From strategic growth opportunities and supply chain risks, to managing an extended global organization and ensuring regulatory compliance in far corners of the world, the challenges of globalization increasingly call for international perspective on the board.

"Whether you have international operations or not, odds are your company is connected or affected by globalization," noted one director at KPMG's 2013 Audit Committee Issues Conference. "Boards clearly need to have greater global awareness today -- if not on-the-ground experience and expertise."

In light of these and other risks, critical areas of focus for boards with international operations include talent management and succession, understanding the local business environment and maintaining a "non-negotiable set of global values while at the same time valuing the local culture."

"Extending the company's culture and ethical standards across the global enterprise -- and communicating it clearly to local partners in different business cultures -- is absolutely critical. You need to put a clear marker down that says, "These are the rules, and we don't compromise." Nearly half of the respondents in ACI's global survey said their audit committee has increased its focus on global compliance in light of stepped-up enforcement of antibribery laws such as the U.K. Bribery Act and FCPA.

The challenges posed by cyber terrorism are also exacerbated in a global environment, exposing companies -- often through vendors, suppliers and other third parties -- to hacking, denial-of-service attacks, and loss of intellectual property by increasingly sophisticated crime syndicates and state-sponsored attacks. "How secure are your suppliers' networks? Are they compromising your own systems?"

Operating globally is also forcing boards to sharpen their focus on talent acquisition and management, particularly since "finding the right local talent can mean the difference between success and failure." As one director of a major global business noted, "We spend a lot of time working a potential local partner or joint venture before getting into any long-term arrangements."

Another key question for every board: "What's your China policy?" As a labor market, a growing consumer class or a source of competition, "China and other developing economies will impact just about everybody at some point, so this needs to be part of the board's risk and strategy discussion," noted one director.

The board can help assess the company's international strategy, operations and risks, by, among other things:

  • Taking time to visit foreign facilities. "Nothing beats traveling, meeting the people, seeing the operations, getting a feel for the culture"
  • Being clear-eyed about foreign acquisitions and market entry. "Number one: don't fall in love with the deal, and number two: have a clear exit strategy. Getting out of a country can be even harder than getting in"
  • Considering the company's use of local talent and/or joint ventures to navigate the local business culture. "Finding the right local talent is critical -- but it's also one of the hardest things to do. Remember, most JVs fail"
  • Convening an "international advisory committee" to supplement the board's knowledge and information with expert views on macro-economic and geopolitical developments in key parts of the world.

Probing management about the company's supply chain. "How are we vetting our suppliers? And what about our suppliers' suppliers?"

 

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