The fundamental shift in global economic and strategic influence from west to east, means that the ability of executives to impact across cultural boundaries and lead and work within multicultural teams is becoming critical to business success.
The white paper says: “The Asian century is an Australian opportunity. As the global centre of gravity shifts to our region, the tyranny of distance is being replaced by the prospects of proximity.
“But Australia’s success will be based on choice, not chance. In order to succeed, we must sustain the policy settings and pathways that have served us well.
“We need to reinforce our strong social foundations, including our national institutions, our cultural diversity and our outward-looking society.”
To indicate the importance that Asia will play in the prosperity of Australia in the next 100 years, the white paper recommended that one-third of board members of the top 200 public companies in Australia must have deep experience in and knowledge of the Asian continent by 2025.
This confirms what we already know, that the economic driver to take advantage of cultural diversity becomes ever more critical in today’s global economy, in which Australian companies are progressively focusing overseas to access new markets, business opportunities and skilled staff.
The Diversity Council of Australia (DCA), in its Capitalising on Culture Report, noted that “recent events, both here and abroad, have brought into sharp relief the importance of Australian organisations effectively ‘capitalising on culture’ and adopting a culturally responsive approach to sourcing, organising and managing their human capital.”
DCA suggests that, “cultural diversity, international experience and inter-cultural capability in senior executive ranks represent invaluable assets that can generate the market insight, connections and innovation organisations need to thrive and grow in complex, local, regional and international operating environments.”
“Organisations that are successful in the Asian century will need staff who have specific knowledge of the products and markets of Asia, along with the cultural and language capabilities needed to be active in the region,” the white paper said.
Some business representatives expressed concern about the push for increased Asian representation on boards, saying it could be turned into a requirement that would impede business freedom and performance.
The Australian Institute of Company Directors argues that “any particular target can often be counterproductive”.
QBE chair Belinda Hutchinson added that she has never been in favour of quotas, and said companies should remain free to recruit directors based on the skills and expertise most relevant to each board.
It is also a bold move given that the current level of Asian engagement in Australia is very low, according to a study by an Asialink taskforce.
Asialink’s chief executive, Jenny McGregor, said the goal was too modest and not enough. ”At least half of Australia’s top board members should have this sort of experience and exposure to Asia,” she said.
A McKinsey study focused on international businesses between 2008-2010, and found that international experience and understanding of foreign markets was critical. Yet, over 60% of companies had less than 15% of their executives working in foreign markets, staffed by foreign nationals.
Companies with more diverse top teams were also top financial performers. That’s probably no coincidence. For companies ranking in the top quartile of executive-board diversity, return on equity was 53 per cent higher, on average, than they were for those in the bottom quartile. At the same time, earnings before interest and taxes at the most diverse companies were 14 per cent higher, on average, than those of the least diverse companies.
To score a company’s diversity, McKinsey focused on two groups that can be measured objectively from company data: Women and foreign nationals on senior teams (the latter being a proxy for cultural diversity). This explicit link between performance and diversity was confirmed for both gender and cultural diversity.
The study suggested that “there are many reasons companies with more diverse executive teams should outperform their peers: fielding a team of top executives with varied cultural backgrounds and life experiences can broaden a company’s strategic perspective . . . and relentless competition for the best people should reward organizations that cast their nets beyond traditional talent pools for leadership.”
Thus, companies need to be proactive in developing foreign and diverse leadership, so that boardroom discussions better reflect an understanding of individual markets and disparate customer bases. Such an approach will also help to avoid the “groupthink” that obscures other perspectives and encourage diversity of thought.
HSBC Australia’s chief executive, Paulo Maia, agreed: ”Strengthening Asia-relevant capabilities within Australia is critical. Doing so will unlock the potential opportunities at our doorstep for our people.”
Engaging with this cultural imperative will ensure that strategies and initiatives are sustainable and produce constructive outcomes for organisations, work teams and individuals.