Globalization without a Global Rule Book

As enterprises expand globally, they are competing with a wider range of market players and are doing so under a myriad of different rules and customs. This combination of forces is rewriting the expectations and required competencies of key corporate officers. In this issue, consultants at Russell Reynolds Associates examine how globalization is changing the profiles of key functional executives.

Financial Officers: Implementing Innovation

Even without the effects of globalization, the turmoil in the capital markets has placed intense scrutiny on Chief Financial Officers (CFO), who are focused on formalizing processes and reporting lines to ensure that appropriate controls and early warning systems exist for identifying cash flow and treasury risk issues.

As globalization increases the amount of information that flows through the corporate system, Chief Financial Officers are playing a leadership role in making that information actionable by, for example, overseeing the integration of enterprise resource planning systems to create a single, global information platform for company decision makers. Within the financial domain, CFOs are building and implementing single Charts of Accounts supported by one global Finance Manual to ensure that reporting, financial control, risk and compliance activities are transparent, consistent and robust. Working together with their Chief Information Officers (CIO), they are streamlining and standardizing information protocols through the establishment of shared services centers that consolidate processing and free up staff to provide a higher level of support to local operations.

Implementing these strategic initiatives around the world requires a global reach. As a result, a willingness to be posted for a period of time to Asia, Eastern Europe or the Middle East is now a requirement for many financial officers. Identifying, developing and managing such a global team demands a new level of leadership skill from CFOs, whose teams traditionally have been more centralized and homogenous.

Chief Financial Officers are expected to:

• Work across the C-suite to lead strategic initiatives outside the traditional boundaries of the financial function.
• Identify and exploit opportunities for innovation in information management, providing the competitive advantage of more insightful decision making.
• Develop and lead a global team capable of implementing standardization across borders while providing flawless local support.

Global Tax Officers: Greater Scrutiny, Greater Performance Pressure

The globalization of commerce has put the spotlight on global tax officers due to both the complexity of the issues surrounding international tax (such as dividend planning and transfer pricing) and the need to navigate regulations from a wide range of jurisdictions. Furthermore, Global Tax Officers must quantify and manage their function under greater regulatory scrutiny. The Public Company Accounting Oversight Board, for example, is calling for greater detail in work product, and the Financial Accounting Standards Board's adoption of FIN 48 has significantly complicated the compliance environment.

The heightened demands of competing on a global playing field are leading companies to look for every possible advantage, and the tax department is not exempt: In addition to managing a more complex compliance environment, Tax Directors are expected to generate returns through tax arbitrage strategies. And because of the competitive advantage that results from an insightful and well-executed tax strategy, there is greater emphasis on growing the necessary intellectual capability in-house, with companies increasingly reluctant to outsource tax planning and strategy to the Big Four firms.

To succeed in this regulatory environment and meet these expectations, companies are looking for Tax Directors who have:

• The technical skills to manage a global tax strategy that takes advantage of tax arbitrage opportunities across a wide range of jurisdictions.
• The leadership skills and strategic capabilities needed to be a C-level business partner who can develop a comprehensive tax strategy in alignment with the business objectives of the firm.
• The ability to develop and attract talent with the specific expertise to support the global reach of the department.

Legal Officers: Managing a World of Risk

For U.S.-based public companies, the defining legal development of the last decade has been Sarbanes-Oxley and the increased emphasis on regulatory matters. Consequently the most sought-after general counsel have been former officials from the Securities and Exchange Commission (SEC), Treasury, Justice and other high-profile US agencies. In this way, companies have been able to incorporate a regulator's perspective into their compliance functions.

That strategy, however, presupposes a U.S.-centric view of the world that is rapidly becoming outdated. Not only are markets becoming global as a result of the weaker dollar and slowing opportunity in the United States, but other countries are developing and enforcing their own regulatory perspectives rather than simply following the American lead. For example, Brussels now is a major arbiter of antitrust and intellectual property law, and the availability of capital markets in Dubai, London and elsewhere has further eroded America’s traditional role as the world’s commercial and financial epicenter umpire. Indeed, increasing numbers of major corporations are choosing to sidestep large swaths of U.S. regulations by foregoing an initial public offering on a U.S. exchange or by delisting their American Depository Receipts (ADRs).

One consequence of globalization without a global rule book is the rise in importance of the Chief Risk Officer (CRO). No longer is the CRO focused primarily with concerns such as managing insurance coverage. Instead, the CRO is expected to:

• Take a fully strategic role, managing multi-jurisdictional due diligence regarding legal, regulatory and reputational risk and advising the board, the CEO, the CFO and the General Counsel accordingly.
• Have a working knowledge of the rules and regulations across borders and the astuteness and foresight to anticipate how new regulations might evolve in response to the pressure of public opinion and political developments (e.g., the possible risks associated with unfolding environmental legislation).
• Act as the company’s truth teller—the person who provides the needed reality check in the face of overwhelming enthusiasm for enticing but risky opportunities.

The General Counsel, in turn, must hold a truly global perspective both in providing counsel to the CEO and acting as the firm’s primary interface with global regulators, independent directors, stakeholders, business partners and others. The emergence of sovereign wealth funds and other foreign investors highlights the development that the General Counsel’s fiduciary responsibilities extend to owners around the world. The rise of the Middle East as a business hub requires many legal departments to possess at least a basic familiarity with Islamic banking customs. The importance of European courts dictates the need for comfort working in a principles-based framework as well as a rules-based one. Training in Washington, D.C., no longer is considered necessarily sufficient. Increasingly, companies are asking for General Counsels who possess:

• A global perspective that transcends their home countries, derived from international experience and a working knowledge of non-U.S. regulators.
• The ability to act as the moral compass for the firm as companies engage in the global market without a uniform set of business guidelines and expectations.

Information Officers: The CIO as Global IT Ambassador

Digital information is infinitely transportable and can exist and be managed independent of its location. Therefore, the information technology (IT) function—with its responsibility for the complete range of information systems—was one of the first to be outsourced, as data storage and database maintenance tasks migrated to countries with highly trained, less expensive labor. Today, companies have embraced outsourcing to the point that the Chief Information Officer is expected to develop and manage across a truly global operating field, with the accounting function in, say, the Philippines and collections in Romania. This, of course, requires the careful management of a complex set of partner relationships, from trusted third parties to more involved build-operate-transfer scenarios.

In addition to globalizing the back office, the CIO must manage the central nervous system of the enterprise as it expands into emerging markets. The integrity of the IT system and its platforms determines everything from the accuracy of sales forecasts to the fulfillment of compliance obligations. Additionally, this leader needs to consistently scan the horizon for new and interesting technologies that are highly innovative and/or cost effective. The CIO must fulfill this function while navigating local rules on privacy and data handling (such as the requirement in Japan that information on Japanese citizens cannot be stored outside the country) and securing the system from attack from a borderless and sophisticated data underworld.

This move to the global stage requires a new set of CIO competencies that include:

• The ability to develop and execute a global strategy.
• The ability to be a master of influence, guiding frontline managers in far-flung locations so effectively that those managers adopt the CIO’s vision as their own. A command-and-control approach will not work in a global, fluid environment.
• The ability to identify and develop leaders in his or her organization so that influence can be extended and methods and practices institutionalized.
• The need to be strongly results-oriented: delivering global programs, such as a multi-country SAP rollout, requires an ability to manage multiple workstreams across multiple geographies, on time and within budget. You only earn the right to influence the top team if you deliver.
• The stamina and endurance needed to travel 150,000 miles a year and more—while maintaining five nines system reliability.

Marketing Officers: Connecting Brands and Constituencies Around the Globe

The emergence of new markets presents a wealth of growth opportunities for companies in all sectors. It also presents an array of challenges. For while a brand may have global reach, it may not necessarily be a global brand and thus carries a different meaning and occupies a different market niche in Brussels than it does in Buenos Aires. As local markets multiply, it falls to the Chief Marketing Officer (CMO) to have deep insight into those markets, understanding the macroeconomics, demographics and cultural specifics that define the customer (and, when applicable, beyond to the end user). For more mature markets where growth requires true innovation, the CMO is the catalyst for new thinking that redefines and creates categories, spotting opportunities to transmit ideas across markets and borders.

The CMO must be a master not only of multiple external constituencies but internal ones as well, striking a balance between local autonomy and brand consistency and influencing in-country marketing executives and country managers without necessarily having direct authority over either.

All of this must be achieved at a time when companies have less control over their brands than ever before. The extension of the supply chain to new sources requires the CMO to be a vigilant monitor of quality control risks, identifying potential concerns to the rest of the C-suite and reacting swiftly to crises. And the decentralization of media channels means that CMOs must creatively develop opportunities for customers and consumers to define the brand on their own terms but in a way that reinforces chosen positioning.

In this highly complex environment, Chief Marketing Officers are expected to:

• Transcend one’s native culture and inhabit the perspective of multiple markets across a distribution cascade that stretches from raw
  materials sourcing to end users.
• Be a force for innovation across business units while managing resources to maximize the successful delivery of products to market.
• Provide leadership amidst the ambiguities of matrixed organizations, balancing local knowledge with the need to maintain a common foundation.

Human Resources: Global Reach with Local Delivery

In the past several years, human resources (HR) departments have focused considerable and much-needed energy on talent management—the holistic integration of recruiting, evaluation and development against the backdrop of evolving human capital needs. Recently, however, the rise of the global workforce has shifted attention to the total rewards function within human resources, which combines compensation, benefits and performance management.

The rising importance of the total rewards leader is a natural consequence of the development of an international workforce spread across dozens of countries, with each having its own tax and regulatory environments, traditions and expectations regarding rewards delivery, as well as its own history regarding issues like workplace conditions, collective bargaining and job security. Successfully navigating these issues calls for a team with expertise in each local market that can act as an integrated whole. Forward-thinking companies go even further, using the most effective policies from the individual markets to inform global company practices.

In addition, CEOs have significantly raised their expectations regarding their HR team’s intellectual horsepower. Until recently, forecasting workforce trends and benchmarking the company’s rewards programs against competitors were initiatives often outsourced to third parties. More companies now realize that such data can be a source of powerful competitive advantage and have chosen to establish focused, dedicated in-house teams that can more effectively integrate this information with the company’s business objectives.

These developments have had significant impact on the competencies required by today’s total rewards executive, who must:

• Provide strategic leadership, communicate and exert influence at a high level, given that the job now involves reporting directly not just to the company’s board but to the SEC and other regulatory bodies (on, for example, the use of equity incentives).
• Have the financial and analytical acumen to partner with the Chief Financial Officer on human capital costs, tax and expatriate workforce matters.
• Have the cultural sensitivity and adaptability necessary to unite and manage a global team under a single overarching vision.

The Global Functional Executive

While each of these functional roles is facing its own set of challenges and evolution in required competencies, common patterns emerge when they are examined collectively. For each, the impact of globalization on the company’s operations has created the need to tailor the management of each function to the customs and laws of many jurisdictions. Against the backdrop of this complexity, globalization has reduced the tolerance for failure across functional systems, as these functional leaders now play two critical roles: ensuring the necessary level of standardization and compliance at the field level, and providing a robust exchange of information and learning across the network defined by headquarters and field offices. The competitive pressures of globalization have led CEOs and boards to raise their expectations further, asking senior functional leadership to act as business partners who can contribute value and competitive advantage in the form of actionable insight, increased revenue and lower costs, and the early mitigation of traditional and new forms of risk.

This combination of requirements means that functional executives now are expected to be innovators and executors, visionaries and influencers. As a result, it has become far more complicated to identify and recruit top-tier candidates for these roles and heightens the importance of doing so. In addition to technical excellence in their function, these candidates must demonstrate:

• The ability to create and execute a vision for success in a highly complex environment.
• The communication skills to develop and lead geographically distributed teams, by exerting influence in support of a compelling vision.
• The ability to transcend one’s native culture and to strategize and execute across geographic and cultural boundaries.