Skilling up for the Asian century

  • Date:01 Nov 2012
  • Type:Company Director Magazine
Christopher Niesche investigates how boards can gain the diversity of skills and experience to better tackle growing Asian markets.

Asia is the world’s largest and most populous continent, making up almost a third of the global land mass and with a population nearing four billion.

Its scale and diversity present huge opportunities for Australian businesses, but they also present challenges. Where Europe and North America are familiar and well understood, corporate boards can struggle to navigate their way through the varied cultures, languages and religions of Asia without local knowledge and experience.

As Jamie Spence MAICD points out, Asia has 17 major economies, each with its independent regulator and separate currency.

"Understanding the cultural and regulatory landscapes across Asia, with its unique challenges and opportunities, is key to setting up appropriate platforms and accessing the right partners in each country," says Spence, principal of Asian Link in Hong Kong, an advisory firm engaged in regional business development opportunities.

"Moving from more mature, robust and regulated markets to developing and often more opaque investment environments requires a transformational change in business mindset. This can only be done with the right mix of cultural and regulatory understanding at board level."

While there are well-known exceptions – for instance, former ambassador to China Geoff Raby sits on the board of Fortescue Metals Group and Indian-raised Jeet Bindra sits on the Transfield Services board – many Australian companies lack significant Asian experience and expertise at board level.

"We don’t actively go looking for people who have spent time in Asia or have been with companies that have strong Asian footprints," says Diane Smith-Gander FAICD, a director of Wesfarmers, Transfield Services, CBH Group and of the National Broadband Network Company.

Smith-Gander notes that in terms of diversity on boards, "the boardroom battle from a gender point of view has been pretty much won", but the focus on recruiting directors from different backgrounds and cultures has only just begun.

"It’s not just about going: ‘Oh, well, if we get an Asian face on the board or if we get someone that spent a few years in Hong Kong some time or other, that’s going to nail our needs’," she says.

"The board needs to understand what the strategy is and how to make the company fit to grow, and if you’re thinking about expanding into Asia, it would be good to have someone who has got the direct experience and who is therefore going to see the risks in a different way to you."

Direct and high-level experience in Asia, and in many cases across Asia, is considered a minimum requirement for board members who are recruited to help a company move into the region. It is generally regarded as more important than whether the director is an Asian national or an Australian who has lived and worked in Asia for several years.

Directors can ideally bring some technical or market expertise to the boardroom table as well as experience. "Certainly, if the firm has a big concentration in a particular market in Asia, then having at least some representation on the board with strong market knowledge is very helpful," says Geoff Raby MAICD. "It also helps the board oversee the marketing effort, not in a managerial sense, but to make sense of the marketing reports to the board. Marketing in Asia requires a mix of skills that might be different in a Western market or in Australia."

However, Raby and others point out that directors should have more to contribute than local industry knowledge. Australian boards, he says, have a blind spot in terms of not engaging directors with broad geopolitical and strategic perspectives. "For those that really commit to Asia, corporates do need to mix the skills on their board with strategic geopolitical relationship-building skills as well," he says.

"Given that nearly all business in Asia – particularly in China but just about everywhere else as well – is relationship-based, there needs to be a strong understanding of those relationships, how to build those relationships and hopefully board members can bring to the board their own personal relationships for the benefit of the company as well."

It is a point taken up by Felix Wong GAICD, a director at private investment house SovranCapital Investments, who notes there are fundamental differences between the way business is done in Asia and in much of the Western world, which is very task-focused.

Business in Asia is more about forming a strong relationship first. Whereas Australian and similar Westerners can start working on a deal sometimes within minutes of meeting each other, it takes longer in Asia to get to that point.

"The time to get to what I call the tipping point is a lot longer. Relationships are typically formed through mutual introductions, personal reputations, several planned social interactions and even background checks! The focus in the early stages is basically on whether this is someone I can trust and can build a sustainable working relationship with," says Wong, who has worked for US corporations operating in Asia and for Asian companies in Western economies, and is a Victorian state councillor of the Australian Institute of Company Directors.

"There’s a lot of time investment upfront on the business relationship in Asian economies, but once you’ve reached a certain level of trust, things can happen very quickly and business can be very productive."

Wong also notes that Asians are mostly high-context communicators and leave many things unsaid, which can put Australians, with their direct approach and difficulty in reading between the lines, at a disadvantage.

Asian nationals with a high level of corporate experience will already have their own networks and contacts they can draw on for the benefit of the company they are representing. ASX 100 firms loom large in this country, but in many cases they will be unknown in Asia, and the right person on the board can bring stature to a company and help open doors.

But Peter Church, FAICD, a Singapore-based Australian lawyer who has spent 40 years working and travelling in Asia, stresses that potential directors have to be members of the right networks.

"You have to be very careful because many Asian countries are quite cliquey in terms of their business groups, so you’ll have people who respect them and those who don’t," he says.

"For example, someone may have been a very prominent mining figure in India, but he may have his detractors, so that if you brought that person onto the board you could suddenly find that local companies who you thought would be positively disposed are not."

Westerners are usually not members of cliques and so can more easily cut across them.

Another possible advantage to having Asian-based directors from Australia is that they have a better understanding of Australia and the company they are representing. "Asian-based and run companies with a focus on doing business with Australian firms prefer to engage executives familiar with the business landscape in Australia," says Spence.

Nick Varigos MAICD, managing director of executive search firm Oppeus International, says there are three key attributes his firm looks for when seeking an Asian-based director, in addition to any specific skills that might be required for a particular board.

First, the potential director needs to be someone who is interested in what he or she can contribute to an Australian-based business. "The propensity to add value and the personal capacity culturally, commercially and intellectually to be engaged in a business in our part of the world that is wanting to be successful in Asia is probably first and foremost," says Varigos.

Next, he or she needs to go to the trouble of understanding the different governance requirements in Australia and, in particular, to be comfortable with the additional disclosure required here, including of his or her own board remuneration. According to Varigos, this is the most important thing foreign directors need to learn when they join a local board.

Finally, the director needs to be available and physically able to travel to Australia and elsewhere for board meetings. That Australia is several hours travel from Asia and local companies generally hold six to eight board meetings plus subcommittee meetings a year – more than most US and European counterparts – can prove a significant deterrent to potential directors.

Sometimes a personal connection to Australia – a child or grandchild at school or university here for instance – can make a difference.

Varigos says directors with the right experience, contacts and outlook are highly sought after, not only by Australian companies, but also by European and North American firms, and they are unlikely to be attracted to a board role if they are to be a token Asian specialist rather than making a broader contribution to the overall business.

"Not many people want to be thought of as being bought for their Rolodex," he says. "You need someone who is going to understand your business and your strategic direction."

It can be easier to entice directors onto an Asian advisory board, where their own personal brand is not so closely tied to an Australian company that they might not be overly familiar with and which might involve less long-haul travel.

Such an advisory board might typically meet in Asia and then come to Australia a couple of times a year as well, and will provide advice as needed to the main company board and its management.

"There are likely to be issues that come up now and then that an advisory board can play a critical part in – for example, in complex negotiations, market strategy or assessing key business relationships. This doesn’t have to involve a main board member," says Wong.

The board can have a range of members with a broader spread of experience and expertise than a single Asian expert could bring to the boardroom table. For instance, a company building a university in Bali would need people who could navigate their way around Balinese culture and Hinduism as well as others with an understanding of how business is done in Jakarta and with national government contacts, and potentially high-level contacts to Indonesia’s Muslim community.

An advisory board also leaves the main board to get on with its core business of setting the overall company strategy.

This is the approach taken by AustralianSuper, which has identified Asia as a future growth area for the fund. It has established an Asia advisory committee "to really help form our views and ensure we are well prepared if and when we make investments in the region", says chairman Elana Rubin FAICD.

"We wanted to be able to access people in the region who had a mix of regulatory, investment and business knowledge and be able to learn from their experiences, to have them help us meet people and get an understanding of how business operates."

The committee is chaired by former Reserve Bank Governor Bernie Fraser and has a mix of Hong Kong and Singaporean nationals and an expatriate Englishman, all of whom have wide experience across Asia.

Rubin, who is also a member of the committee, says the fund elected to establish the advisory committee as a separate entity rather than placing a director with Asian expertise on the AustralianSuper board because the two boards have different purposes.

The core business of the AustralianSuper board is to oversee the management of Australia’s largest pool of superannuation savings. The advisory committee was established to ensure "that when the board chooses a particular direction in Asia, we’ve done all the necessary due diligence and work to make the right decision".

"We’ve got the best of both worlds," says Rubin.