This is a national survey designed to solicit direct knowledge from those currently serving on corporate boards. Our intention is to gather useful and meaningful data around several key issues, including (but not limited to) board dynamics, compensation, process and structure.

If you are currently a corporate director we would appreciate your insight and ask that you complete the survey. Your responses will be kept strictly confidential.

CLICK HERE TO PARTICIPATE IN THE SURVEY!

We want your first reaction so estimated completion time is less than 15 minutes.

Results will be combined with those of other directors and presented only in summary form. If you’d like a copy of the final report please enter your contact information at the end of the survey.

CLICK HERE FOR THE MIDDLE EAST TALENT INDEX

Other notable speakers include U.S. Congressman Barney Frank; former SEC Commissioners Harvey Pitt and William Donaldson; world-renowned economist David Hale; institutional investor and Vanguard founder John Bogle; former Congressman Michael Oxley; Chief Justice Myron Steele; Justice Leo Strine, Jr.; Martin Lipton of Wachtell Lipton; Lucian Bebchuk of the Harvard Law School; Jeffrey Garten, former Undersecretary of Commerce; Charles Elson of the University of Delaware; and Patrick McGurn of RiskMetrics.

For more information and to register, click here or email events@directorship.com. Board Connection readers can use this code VIPHS500 to save 40 percent off regular rates.

With increasing frequency, directors are crossing borders to serve on boards and facing a host of cultural differences. Boardrooms in other countries are forcing American directors to learn more than whether they are presenting their business cards appropriately. While the desire to provide effective oversight and advice tends to be universal, the road there often depends on the region of the world. Conversely, directors in the United States are finding board colleagues from different cultures may not be entirely familiar with American ways in the boardroom, either.

Alignment vs. Consensus

Bromilow’s coffee-break experience demonstrates how such an ordinary practice can differ from region to region. But there are also cultural differences in the way that directors communicate, build consensus, and socialize in and out of the boardroom.

One of the most striking differences in boardrooms is how boards reach consensus, settle disagreements, and how “lively” the discussion can get. For example, those who have been in boardrooms in the United Kingdom say that if there is no arguing going on, something is wrong. In contrast, the decibel level rarely gets high in Asian boardrooms. Stephen Mader, vice chairman and managing director of board services at executive recruitment firm Korn/Ferry International, likens boardroom interaction in countries such as Japan and China to that of a jury. “With enormous patience, the Japanese and Chinese work toward consensus without heated debate,” he adds. “Consensus can take a long time; they can drive at it without losing their minds,” Mader says. Directors tend to work together with a considerable amount of patience and want all members to agree on a given strategy.

“You’ll never land in Munich and beat your suitcase to the baggage claim. In Rome, your bag might get there two days later.” —Stephen Mader, Korn/Ferry

In the United States, where debate is prized, discussion and consensus building resemble the U.K. model: opposing points of view are welcome and discussions can become heated. Often, arriving at a consensus can take much time, effort, and patience, qualities some experts believe Americans lack. Mader says American boardrooms tend to follow a process that often begins as an alignment and results in a majority consensus.

Americans are also adept at not taking disagreements personally. An adversary during one argument may be an ally in another. “An American director can be in the minority about how to best optimize strategy,” says Mader. “However, given that the majority wholeheartedly believes differently, you are more likely to support the less preferable strategy, and will strive to make it work, regardless of whether that would have been your first choice. That’s American consensus.”

Regulatory regimes can also affect the culture of the boardroom. For example, the passage of Sarbanes-Oxley in the United States has led to a regimented, process-oriented mindset in many boardrooms. Due to the litigious climate in the United States, American boards typically are more careful to dot I’s and cross T’s, and that tactical awareness has only been heightened during the financial crisis. Boards outside of the United States are generally more freewheeling in conversation and in their approach to the agenda.

George L. Davis, a consultant at Egon Zehnder International, sees the international arena as less restricted. “Americans usually find the lack of government regulation a breath of fresh air,” he says. “There’s more room for strategic debates that might not occur in a heavily regulated American boardroom setting.”

The way a boardroom is structured reflects how business operates in different countries. According to Bromilow, who has worked extensively in South America, directors are culled from a small percentage of the population. “In Brazil or Venezuela, you can have a much narrower group of people in the boardroom,” she says. “In some cases, relationships are there before you get on a board. Board members went to school together or are related,” she says. “In fact, that relationship might be a predeterminant for getting onto a board.” She adds that even public companies in these countries tend to be owned by one or more families.

“You have the added dynamic of family members on the board, even if they do not wield economic control,” she says. “Family members can add a really interesting dynamic in the boardroom. You’re very conscious of who is and who is not family, and in many instances, family members do not always think or vote alike.”

One reality that doesn’t vary from region to region is how much of the real work of the board gets done outside the boardroom. “There are meetings outside of meetings during social events. During coffee, lunch, or dinner, real work gets done,” says Bromilow.

There are also stark contrasts in the way board meetings are conducted. “In the U.S. culture, it almost seems like you’re supposed to say something, regardless of whether or not you have something to say,” says Bromilow. “In Japan, by comparison, their culture focuses more on appearances and not ‘looking bad’ in front of everyone else.” The result is that directors tend to remain quiet until they have an important point to make.

In Germany, Mader says the conduct of meetings tends to be more structured, as compared to Italy. Mader likens the differences between doing business in Germany and Italy to waiting for your luggage at the airport baggage claim area: “You’ll never land in Munich and beat your suitcase to the baggage claim. In Rome, your bag might get there two days later.”

Entertaining is perceived differently on an international spectrum. After a laborious day of meetings, don’t expect to be offered a drink in Dubai. “If you didn’t know, you’d be surprised to find at the end of the day that you can’t get a drink in most parts of the Middle East,” says Edward S. Knight, who as general counsel at Nasdaq OMX Group travels extensively. “Expect kosher offerings in Israel and a vegetarian menu in India.”

Ernst & Young CEO Jim Turley advises anyone embarking on business abroad to do his or her homework. Turley’s assistant routinely compiles notes on customs for every country he will visit. “In six or seven pages, you get a summary of the do’s and don’ts of that particular country,” he says. “As important as the proverbial business card exchange in Japan, or what hand gestures not to make while in Brazil, understanding the little nuances can make all the difference.” Just learning a few phrases in the local language, for example, can be a sign of respect and well worth the effort.

These days, there are no more “foreign” markets; even medium and small companies are looking to the BRIC nations (Brazil, Russia, India, China) for customers. And those that have not yet made the leap to build their own international infrastructure could not operate without the use of suppliers and service providers on distant shores.

Of course, this is nothing new. As far back as Magellan and as recently as Jack Welch, business leaders have prophesied to the masses and the magistrates the importance of global markets. What is different today is that corporate boards are starting to realize that they need global expertise and a global mindset in the boardroom. We have watched this phenomenon with increasing interest as U.S. boards have added foreign nationals or sought individuals who have run large operations in Europe, Asia, South America, and the Middle East.

This is something that European boards have practiced for years. For instance, Swiss pharmaceutical giant Novartis petitioned for, and won, exemption from a rule that requires a majority of Swiss nationals on the board of directors. This kind of approach will play out on a massive scale in the next several years. We take an extensive look at this trend in “The New Globalists,” starting on page 20.

On another front, these are exceedingly tough times for business leaders and boards are routinely coming under fire as the financial situation worsens (“Boards in the Bull’s-eye,” page 7.) As Bill George, a director at ExxonMobil and Goldman Sachs, says, “We are in a major crisis of corporate leadership.” There is also the concern that an epidemic of caution could infect corporate decision making. The antidote to this ill: leadership that doesn’t shirk responsibility and charts a measured, but also bold, path forward.

Joseph McCafferty

jmccafferty@directorship.com

Under the agreement, TNK-BP’s American CEO Robert Dudley will step down and be replaced by “a Russian-speaking candidate with extensive Russian business experience.” Additionally, the TNK-BP board, which currently consists of four representatives from both BP and AAR, will be augmented with three independent directors, bringing the director count to 11.

BP chairman Peter Sutherland lauded the agreement: “It will create a stable base from which to grow the joint venture to the benefit of everyone involved, including the Russian state for which strong capital investment and continued technical innovation to boost declining oil output are so important.”

The agreement comes on the heels of a prolonged squabble within TNK-BP that threatened to dismantle the partnership. Those on the Russian side were dismayed at the huge profits BP was making at the expense of Russia’s valuable oil reserves. The success of the partnership was threatened by the prospect of nationalization, which would have decreased Russia’s attractiveness as a foreign investment site, and decimated Russia’s image in light of the recent war in Georgia.

TNK-BP posted record profits of $4.7 billion in the first half of 2008, more than double the $2.1 billion achieved in the first half of 2007. The company was founded in 2003.

What are the main challenges in running such a large, global firm?

We face many of the same issues as our global clients—navigating the differing laws, rules, and standards in the multiple countries where we operate. Creating a common, global culture committed to seamless, consistent quality worldwide is incredibly important. Having said that, the most important part of my job is to make sure that every person at Ernst & Young wakes up with a personal sense of right and wrong. Nothing is more important than personal integrity and commitment to quality. It is their personal and professional obligation to speak out when something isn’t right, whether at a client or down the hall.

Another challenge is getting great people in the right quantities in the right places, because local supply and demand don’t always match up. In China, for instance, there is just one licensed accountant for every 10,000 people. By comparison, in India, there is a rich source of skilled talent, probably more than the local market can bear. This makes the mobility of our people important. Longer term, we are also working with local universities in certain markets to encourage more accounting programs.

What do board members need to know about IFRS? How will it change the way they view the audit function, if at all?

The movement toward the adoption of a single global accounting standard worldwide is an important development. IFRS [International Financial Reporting Standards] is becoming the dominant norm as more than 100 countries either require or permit IFRS. The United States can’t afford to be an outlier.

I want to be clear: I’m not calling for convergence. When people talk about convergence they usually mean moving different standards closer together. We need a single standard so that companies are transparent and investors can understand and compare one investment against the other, no matter where the company or investor is located. The trend is clearly heading toward adoption of IFRS, and the United States, along with many other jurisdictions, needs to step on board.

When did the importance of accounting in the corporate governance picture take hold, assuming that pre-Enron there were signals that were not yet felt publicly?

Accounting has always been an important part of the corporate-governance picture, but pre-Enron it wasn’t as publicly apparent. Today, the role of our profession is more deeply appreciated. Within companies, the increased focus on internal controls over financial reporting has cascaded and enhanced responsibilities throughout organizations.

On a deeper level, there’s a greater understanding today that the accounting profession matters a great deal to the global capital markets and to practically everyone. We provide assurance that companies are playing by the rules, whether it’s accounting, financial reporting, or tax rules. We help create confidence in financial data, which is critical for the smooth functioning of the global capital markets.

How has the shift in reporting to the audit committee affected your relationship with clients?

There has been a significant change in the roles, responsibilities, and relationships between management, audit committees, and the auditors. It’s a triangle with audit committees on top, management on one side, and auditors on the other. Audit committees hire and fire us, evaluate our performance, and preapprove every service we provide. In many ways, audit committees act as a surrogate for investors, which is extremely important.

Do you find SOX and its implementation through the PCAOB to have been executed wisely?

We moved to being a regulated profession, and we are much stronger as a result. Independent oversight has enhanced audit quality. A recent survey by the Center for Audit Quality found that more than three-quarters of audit committee members rated overall audit quality “very good” or “excellent,” and 82 percent said it has improved in recent years. SOX has had a positive impact, but sometimes it is used as a euphemism for every new development that arose post-Enron. I don’t believe SOX needs to be changed. Rather, we need to focus on developing common standards and practices across the world’s capital markets.

In the argument over the primacy of a rules-based system like we have, and a principles-based system, which do you think works best and why?

It’s not that easy to suggest that one jurisdiction’s system is better or worse. Rules-based standards like U.S. GAAP are rooted in principles, and principles-based standards like IFRS need definition, so there needs to be some balance. We’ll probably end up somewhere in between, but in either case professional judgment is required and needs to be respected.

What impact has activity in private equity had on your business? Are public companies declining in importance?

Private equity funds continue to be active in the current market, but corporates are actually more active now than they have been in the recent past. Corporate balance sheets are flush with cash, and competition from PE funds, especially on larger deals, is less intense, given constraints in the lending market. Corporates are exercising more rigorous and proactive portfolio management by disposing of non-strategic assets.

Are you worried at all about auditor risk when only four firms audit the majority of public companies?

The risk of losing another major firm, whether at the hand of government or civil litigation, is a genuine public concern with global implications for markets, investors, companies, and the economy. If another firm were to fail, my fear is that the best people —who certainly have choices in life—would leave public company auditing. The business model would be proven unsustainable. There is an ongoing debate in the policy community about whether to deal with such issues proactively or wait until disaster strikes. For the sake of everyone, I would advocate the former.

Quarterly earnings reporting is considered a necessary evil. Based on your experience in countries where quarterly earnings reporting is not required, what do you think?

The issue is really about quarterly earnings forecasts, of which I am not a fan. When expectations aren’t met, it leads to volatility, which isn’t good for anyone. The bigger question, though, is how we handle the fact that investors will soon be able to get a wider range of information on a real-time basis, much of which won’t be subject to auditing. Building trust in the reliability of this information will be a challenge, which underscores the need for rigorous internal controls.

What areas of the world are most dynamic in your business now?

The most dynamic opportunities are coming from such areas as China, the Middle East, the former Soviet Union, India, and Brazil, which are experiencing rapid globalization. Having said that, developed markets such as the United States, the United Kingdom, Germany, France, and Australia are important drivers of our business and look set to continue.

Heidrick & Struggles has, along with the Economist Intelligence Unit, measured the current state of global talent and its future configuration around the planet. Which countries have the strongest pipeline? Where will talent thrive over the next 5 years? What will change, and how will this impact how companies plan strategically for the medium term?

CLICK HERE FOR THE GLOBAL TALENT INDEX INTERACTIVE

A best-in-class board is much more than a roster of prominent names. Truly exemplary boards are well-balanced teams that harness the diverse experiences, skills and intellects of their directors to pursue the strategic objectives of the companies they serve. This Heidrick & Struggles report on how to build better boards.

CLICK HERE FOR THE HEIDRICK & STRUGGLES REPORT, “BUILDING HIGH-PERFORMANCE BOARDS

The national survey, which was developed by Robert HalfLegal, a leading staffing service that specializes in the placement ofattorneys, paralegals, and other legal professionals, showed that while 25 percent of lawyers said they feel e-discovery will have the greatest impact in the coming years, 23 percent said globalization would have more impact.

Lawyer on which areas will have the biggest impact on law in five years, according to the survey: 

The survey was conducted by anindependent research firm, and was based on phone interviews with 300 randomly selected attorneys from the largestlaw firms and corporations in North America.