Cultural diversity in the boardroom is seen as a boon for businesses looking to transact and operate overseas. Christopher Niesche outlines the opportunities and challenges currently facing Australian companies.

When the board of shopping centre owner Vicinity Centres was contemplating ways to improve the store mix and address the growing Asian customer market at their retail centres, they turned to Wai Tang GAICD.

Tang grew up and went to school in Malaysia, studied pre-medicine for a year in India, then came to Australia to pursue her Bachelor of Science degree in computer science and accounting, and later an MBA at Melbourne Business School. She began her career in the fast ‑ moving consumer goods (FMCG) sector, then joined the Just Group as chief operating officer and became CEO for Peter Alexander Sleepwear.

In 2010 she embarked on a career as a non-executive director.

Vicinity Centres had not only gained a board member with deep experience in the retail and FMCG sectors; Tang’s cultural background gave her insight into what Asian customers were looking for.

“In Australia, consumers, especially Australian consumers, are pretty value conscious, whereas the Chinese are very focused on brands, especially famous luxury brands. They have a huge appetite for that,” says Tang. “So the type of tenancy mix in that centre of the various luxury brands is something that we have discussed in the boardroom.”

Tang’s anecdote is an example of one of the ways in which having cultural diversity on a board can pay off for a company.

Widen the diversity lens

Joshua Smith of 3 Degrees Consulting, a specialist independent board advisory and corporate governance practice, says that cultural diversity is not really a focus for many Australian boards currently.

“In the US and UK they are far more conscious of cultural diversity in that it’s a topic of discussion when, for example, they do their board succession planning, whereas it’s not often a discussion point in the work that I do,” says Smith.

“And if it is, it’s a topic of discussion for the future and not something that’s seen as being a hot issue now.”

Smith says that as a general rule it is common sense that the managerial ranks of companies and their boards ought to be broadly representative of the society and of the markets in which they operate.

“If a company has significant operations in particular countries and regions then you would think it would be desirable to appoint certain individuals who have operating experience in those areas and who are of relevant nationalities,” he says.

But there is a catch – until corporate Australia drives cultural diversity through its executive ranks, it’s very difficult to make it sustainable at a non-executive or board level.

“The anecdotal evidence is that it is very much beginning to happen in the large corporates in the executive ranks, and it is natural to conclude the same thing will happen at a non-executive level, which is not to say that cultural diversity at board level is necessarily good enough or happening quickly enough,” he says.

Indeed, National Australia Bank director Peeyush Gupta says the “primary battle” to get more diversity in companies is not at board level, but in the c-suite where many directors are drawn from, and where they also gain industry-specific expertise. Just as more female representation on boards will become easier when more women have c-suite experience, more cultural diversity among directors will be aided when the c-suite itself is more culturally diverse.

“There is not enough representation on the c-suite,” he says. Gupta grew up in different countries around the world because his father was in the Indian diplomatic service. He moved to Canberra at 16 for school and university before pursuing a career in finance.

He says directors of different backgrounds can bring particular benefits in terms of their network connections. “It’s about the networks you bring; the ability to build trust into your customer or partner communities. It’s about helping navigate and guide familiar terrain – it might be regulatory, political or cultural terrain. It’s those aspects of experience that come from the cultural background.”

Gupta says that along with targeting overseas markets, having a board with diverse cultural knowledge can help companies operate in the Australia of today.

“If you’re a retailer wishing to sell into a particular community, ethnicity, or background, there’d be strong grounds for board representation of people who could bring those networks and all the insights and connectivity that would be helpful to the company selling more to its customers,” he says.

Another benefit that directors of different backgrounds can bring to a board is the ability to be more “articulate about politically correct issues”, says Gupta, who is also a member of the SBS board.

Board struggles

Foreign directors who aren’t familiar with Australian culture can often struggle to fit into a board. There might be language difficulties and different ways of communicating, and behaving around a board table. “The Nordic cultures are very much around consensus building and everyone having the right to a say. The French and Italian are a bit more hierarchical and autocratic,” says Gupta.

Helping a foreign director fit into a board begins with a good induction process, he says. Foreign directors won’t be aware of, or understand, the nuances of occupational health and safety, gender equality issues, pay equality issues. “If you come from a very hierarchical setting or culture, then making clear what the protocols are in an Australian context, as well as board protocols about speaking up, would be helpful in the induction.”

Director Jingmin Qian FAICD, says good communication, sound cultural awareness and strong governance principles need to be adhered to in order to help foreign directors operate effectively on a company board.

Qian was chair of Golden Cross Resources until last December when the company was under takeover by China’s HQ Mining Resources.

Qian says HQ initially offered a 20 per cent premium on the Golden Cross share price, but thanks to her knowledge of Chinese culture and business, she was able to have that bumped up to a 42 per cent premium to match the expectations of other major and minority shareholders. The takeover bid was successful.

“The benefit of it is that you understand where they came from, you’re more patient with them and you’ve generally built up trust over time,” she says. “I understand the Australian side well, so when there was a problem, I could facilitate.”

Along with providing advice on overseas markets, and sometimes on tapping into segments of local markets, directors from different backgrounds can bring fresh perspectives to the board table. “It helps you to look at a blind spot and think about how to see things slightly different, because people of different cultural backgrounds will ask questions that other people won’t ask normally,” says Qian, who runs her own advisory business, Jing Meridian Advisory, and is a director of the Australia China Business Council.

“It’s because people from different backgrounds make an initial judgement differently, so we will ask fundamental questions to clarify and align interests.”

Julie Garland McLellan FAICD makes a similar point, saying boards in Australia have “a certain homogeneity” and there is a risk that they can be blindsided by a change in community values that hasn’t been reflected in a change in the values or composition of the boardroom.

Garland McLellan, a director of Bounty Mining and a board adviser, says there are different stages of diversity that an organisation goes through.

The first stage, she says, is a “if they want to get on our board, they have to be qualified, they have to look like us, they have to act like us, they have to behave like us” approach.

An example was the hiring of the so-called “Wall Street Wendys” by banks and brokerage houses in the 1980s – they wore pinstriped suits, didn’t have children and generally behaved like men, says Garland McLellan.

Board appointments like these miss the reason for diversity, because they are not actually tapping into the wider range of views and experiences which diversity can bring.

The next stage is when boards appoint members from diverse backgrounds so those directors can advise on the communities they come from. The final stage is where the contributions and perspectives of culturally diverse directors are valued in their own right, not just as a way of tapping into other groups.

At the other end of the spectrum are boards with too much diversity and too many different perspectives and opinions. These boards risk not being able to make truly good, solid, robust decisions if they don’t have a true meeting of minds or alignment of interests, says Garland McLellan.

“It’s trying to get that optimal level of diversity where everybody agrees about what the company stands for strategically, the role of the board, how the board is going to act, and then within those decisions, make some of the other decisions they have to make in a way that allows them to bring their diverse perspectives and insights,” she says.

“Getting people whose values are aligned, even though their thinking and their experience is very different, seems to me to be the trait of a good board composition.”

Different perspectives

Tang, who along with her role at Vicinity Centres is also a director of JB HiFi, says she is initially cautious when she approaches a board, until she is sure that the company isn’t just going through the motions to ensure it has diverse representation.

     “It’s really a mutual interview as to whether the board or nomination committee is genuine about bringing a different perspective to a board or whether they’re just ticking the boxes,” she says, adding that she’s never been asked to join a board just to help its diversity quota.

Companies that want to expand into Asia need someone on the board who understands Asia and has deep insights and perspectives on how to do business in the region.

“Being able to read the body language and being able to read the situation is something that we, being Asians who grew up in Asia, understand. We understand the society, and understanding how people behave and react will probably be the greatest asset of any director,” she says.

Albert Wong, a director at Boomerang Capital and deputy chair of Prima Biomed, outlines some of the misunderstandings that can occur between directors from different cultures.

If an Australian says something like “Great to meet you, let’s catch up for a coffee next time I’m in town,” they probably mean it. But Wong says that if a Chinese person says this, it’s usually their way of saying goodbye.

Likewise, Australians can leave a meeting with Japanese contacts thinking it went very well because the Japanese nodded and said ‘yes’ a lot – but in reality they weren’t interested and were just being polite.

 “If they kept saying ‘no’ but they keep asking questions, it means they are interested. They want to find out more,” he says.

But cultural knowledge about Asia doesn’t necessarily have to come from a director of Asian background. Tang says an expat who has spent 10 or 15 years living and working in Hong Kong or Shanghai, for instance, will also be able to bring cultural diversity to a board because of their knowledge about the Asian way of doing business.

Some directors noted that a particular governance issue that foreign directors can struggle with is the idea that in Australia directors legally owe their duty to all of the company’s shareholders.

This can be difficult to understand for directors from jurisdictions where governance standards are different. If these directors have been appointed by a major shareholder they often struggle with the idea that they are not on the board to specifically represent the shareholder’s interests, she says.