Global business

Is there really such thing as a 'global CEO'?

April 16, 2013: 5:00 AM ET

If you look at the people who have become CEOs at the world's largest 2,500 public companies in 2012, most are natives, both to their company and their firm's home country.

By Ken Favaro

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FORTUNE -- Plenty of well-known CEOs have been brought in to run large companies based in countries outside their native lands. Carlos Ghosn at Nissan and Renault, Muhtar Kent at Coca-Cola (KO), Indra Nooyi at PepsiCo (PEP), and Howard Stringer at Sony (SNE) come to mind.

Meanwhile, globalization continues to gain momentum following a slowdown after the 2008-09 worldwide economic downturn. The globetrotting corporate leader jetting from continent to continent to oversee vast business empires has become the expectation.

The idea of the "global CEO" -- usually understood as chief executives who either come from a country other than where their company is headquartered, or have spent a considerable amount of their careers working "overseas" -- makes sense. Companies require a level of expertise outside their home territories that goes beyond what they have needed in the past.

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But if you look at the people who have become CEOs at the world's largest 2,500 public companies in 2012, the conventional notion of the global CEO is a myth. Among the incoming class of 300 new CEOs in 2012, just 19% were nationals of a country outside their company's headquarters. Even at the 250 largest companies in our study -- those most likely to be truly global -- only 25% of incoming CEOs came from another country.

Last year's numbers on new-CEO nationality closely resemble the average over the past four years, suggesting that the overall percentage of "global chief executives" isn't on the rise. And these new, native CEOs are not necessarily globetrotters. Last year, just 45% of incoming CEOs had experience working in a region other than their companies' own; at the largest 250 companies in our study, the figure rose only to 52%.

U.S. companies hire foreign CEOs far less often than European companies. Over the past four years, for instance, 14% of U.S.-based companies hired a foreigner, while fully 30% of Western European companies have done so. (Granted, European companies hired "foreigners" most often from other European countries.) In Japan, just 1% of new CEOs were foreign.

CEO nationality differs among individual industries. Over the past four years, more than a quarter of new CEOs brought into companies in the telecom and consumer staples sectors globally were foreign-born, compared to just 12% of utilities CEOs and 9% of those in the IT industry. Most utilities are regionally focused, so the industry's low rate is understandable. As for IT companies, employees at these firms tend to be younger, and have had fewer opportunities for international experience.

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Most CEOs are natives of their companies' home countries, and they have not spent, for the most part, considerable lengths of time abroad. With all the talk about globalization and the worldly CEO, this may come as a surprise. But should it? I don't think so -- for several reasons.

For starters, boards at most large corporations are not especially global, despite the likely presence of a few token foreigners. At its most extreme, this can lead to what might be called "familiarity corruption," a kind of cronyism where directors turn to people like themselves to fill critical positions. Today, companies are more global than their boardrooms, and this may explain why they are more global than their CEOs.

The length of time it takes to create a CEO also plays a part. The median age of the incoming CEO in 2012 was 53. These executives probably began their careers in the mid-1980s, when the business world was considerably less global than it is today. Many companies simply didn't feel the need to give promising young executives the wide range of geographical experience their counterparts would likely get today.

It's possible that future chief executives will have gained considerable international experience, but will it matter? Already, a common business language has taken hold throughout the world. Market share, customer segmentation, new-product development, return on invested capital, risk management -- doing business at the largest companies has become an extremely sophisticated endeavor, and the issues are understood in every geography. Corporate leaders may no longer need to spend significant portions of their careers living in different markets around the world to learn this language and be an effective CEO of a global company.

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Living abroad is a great way to gain a deep understanding of a particular market. I know this from personal experience, having spent 13 years working and raising a family outside my home country, the U.S. This proved invaluable experience when I became CEO of the firm I worked for. Yet executives now spend so much time traveling the world in the ordinary course of business that the career value of the expat experience is simply not as great as it used to be.

Perhaps in the future, what makes a "global CEO" will not have anything to do with an executive's place of birth or time spent outside home markets, but rather by his or her understanding of how business is now conducted around the world, no matter where one lives.

Ken Favaro is a senior partner with Booz & Company. He is one of the authors of the firm's annual Chief Executive Study.

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