Industrial Companies Need to 'Globalize' U.S. Boards of Directors

More than half of the industrial companies in a recent survey report having no foreign nationals serving on their boards.

Despite the fact that 90% of industrial companies have revenues coming from sources outside the U.S., more than half (55%) of the 56 S&P 500 industrial companies have no foreign nationals serving on their boards.

In the Egon Zehnder International 2008 Global Board Index companies in which foreign nationals represent more than one third (33%) or more of the board outperform the rest of the S&P 500. While the study indicates positive correlation between the "globalness" of these boards and metrics such as return on assets and annual average stock price growth, it does not claim causality for outperformance and acknowledges the need for further analysis to determine such links.

"Particularly given the current global economic situation, our study findings serve as a warning to the vast majority of large companies pursuing global strategies," observes George Davis, Co-manager of Egon Zehnders National Board Practice Group. "One lesson of the past couple of months has been that business today is inescapably interconnected and global. Companies that don't apply that lesson to the composition of their boards will increasingly be at a competitive disadvantage."

Similarly to all S&P 500 companies, industrial company board members have limited international experience. Approximately 70% of industrial company board members have no international work experience and only 8% of directors have an undergraduate or graduate degree from a non-U.S. educational institution. Overall nearly three-fourths (73%) of S&P 500 board members have no international work experience and fewer than one in 10 (9.1%) directors have a degree from a non-U.S. educational institution.

On average, companies in the S&P 500 industrial sectors have virtually the same percentage of foreign nationals on their boards as the average of all S&P 500 companies (6.7% vs. 6.6%). This measurement is in stark contrast to companies in the S&P 500 consumer staples industry where foreign nationals comprise nearly 11% of board members.

The company with the most foreign nationals is ITT Corp. with foreign nationals comprising 30% of its board members. Additionally, 40% of its board members have an international degree and 70% have international work experience. Tied for second are United Technologies and Textron, each of which has a board composed of 25% foreign nationals.

The complete 2008 Egon Zehnder International Global Board Index can be viewed at http://www.egonzehnder.com/global-board-index.

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