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THE ETHNOCENTRIC OR GEOCENTRIC GLOBAL CORPORATION: THE PERFORMANCE QUESTION 1

The Ethnocentric or the Geocentric Global Corporation: The performance question

Mike Minor

University Canada West: MBA 522


ABSTRACT

This study sought to determine if nationally diverse, geocentric global corporations where

non-nationals are well represented on boards and in global top management teams (GTMT)

perform better financially than homogeneous, ethnocentric multinational corporations having

little foreign representations in their upper echelons. It did so by examining national cultural

diversity on boards and in GTMTs of 46 global corporations. The idea that geocentric global

corporations perform better than ethnocentric multinational firms was not completely born out in

the study. However, a positive relation between national cultural diversity in the very largest

global corporations and some financial performance measures was found. Nonetheless, while

ethnocentricity may hurt the financial performance of the largest global corporations, there may

also be a non-linear relation and an optimal level of geo-centricity that if exceeded impacts

negatively the financial performance of global corporations.

THE ETHNOCENTRIC OR GLOBAL CORPORATION: THE PERFORMANCE QUESTION 3

TABLE OF CONTENTS

INTRODUCTION………………………………………..……………………..…………………………7

GENESIS OF STUDY........................................................................................................................................7

INTRODUCTION..............................................................................................................................................9

LITERATURE REVIEW…………………………………………………………….......……..……….16

THE NEW ECONOMIC ORDER.......................................................................................................................16

CORPORATE CULTURAL MINDSETS.............................................................................................................19

NATIONAL CHARACTER AND CULTURAL THEORY......................................................................................23

SYNERGY AND CULTURAL SYNERGY..........................................................................................................25

THE POTENTIAL BENEFITS OF CULTURAL DIVERSITY AND SYNERGY........................................................30

General Benefits..............................................................................................................................30

Enhanced Problem Solving and Decision Making.........................................................................31

Acquiring and Retaining Global Talent..........................................................................................33

Understanding Global Customers..................................................................................................35

Creativity and Innovation...............................................................................................................36

Competitive Advantage...................................................................................................................37

NATIONAL CULTURAL DIVERSITY AND FINANCIAL PERFORMANCE...........................................................38

The Ethnocentric-Geocentric Continuum.......................................................................................38

Corporate Culture, National Cultural Diversity, and Performance...............................................39

National Cultural Diversity on Boards of Directors and Performance.........................................45

National Cultural Diversity in Global Top Management Teams (GTMTs) and Performance…...52

National Cultural Diversity in Global Business Leaders and Performance..................................55

Business Leaders in Regional Headquarters and National Subsidiaries.......................................59

A Final Measure – The Ratio of Foreign Employees to Total Employees.....................................60


CONCLUSION OF LITERATURE REVIEW........................................................................................................61

RESEARCH METHODOLOGY………………………………………………………………..………62

GENERAL......................................................................................................................................................62

SAMPLE PLAN...............................................................................................................................................66

DATA SETS...................................................................................................................................................68

FINANCIAL DATA – DEPENDANT VARIABLES..............................................................................................69

ETHNOCENTRIC-GEOCENTRIC CONTINUUM – INDEPENDENT VARIABLES..................................................69

General..............................................................................................................................................69

Foreign Employee/Management Variance Score (FEMVS).............................................................70

Corporate Governance and Leadership............................................................................................71

Nationality of Regional Headquarters Leader's Quotient (NRHLQ)................................................73

Corporate Culture and Philosophy Score (CCPS)............................................................................73

VALIDATION AND SIGNIFICANCE TESTING..................................................................................................74

METHODOLOGY AND DATA ANALYSIS........................................................................................................75

FINDINGS AND DISCUSSION .....….…………………………………………………………….……75

GENERAL......................................................................................................................................................75

THE SAMPLE.................................................................................................................................................76

FINANCIAL PERFORMANCE – DEPENDANT VARIABLES...............................................................................78

Global 2000 Rankings.......................................................................................................................78

Return on Assets (ROA)....................................................................................................................80

Return on Equity (ROE)....................................................................................................................81

Overall Performance Measurements.................................................................................................82

GLOBAL/NATIONAL CULTURAL DIVERSITY MEASUREMENTS – INDEPENDENT VARIABLES…….............82


General Findings...............................................................................................................................83

Foreign Employee/Management Variance Score (FEMVS).............................................................84

Board Cultural Diversity Quotients A (BCDQs a) (National Cultural Diversity)............................87

Board Cultural Diversity Quotients B (BCDQs b) (Psychic Zone Representation)..........................88

GTMT Cultural Diversity Quotient A (GTMT CDQ a) (National Cultural Diversity) ...................90

GTMT Cultural Diversity Quotient B (GTMT CDQ b) (Psychic Zone Representation) ................91

Nationality of Key Leaders Quotient (NKLQ)..................................................................................92

Nationality of Regional Headquarters Leader's Quotients (NRHLQ)...............................................93

Corporate Cultural and Philosophy Score (CCPS)...........................................................................94

DOG SCORE AND THE ETHNOCENTRIC-GEOCENTRIC CONTINUUM – TESTING THE MODEL…..............97

DOG SCORE FINDINGS...............................................................................................................................101

FINDINGS ON RELATION BETWEEN ETHNOCENTRIC AND GEOCENTRIC FIRMS AND FINANCIAL

PERFORMANCE.................................................................................................................................105

Determining Statistical Relevance...................................................................................................105

Relation between Forbes' Ranking and DOG Score.......................................................................106

Relation between ROA and ROE, and DOG Score.........................................................................107

Relation between ROA/ROE and ROA/ROE/Forbes' Ranking, and DOG Score……….…...…....108

Relation between Number of Psychic Zones and Countries Where Firms Operate, and DOG

Score......................................................................................................................................108

Relation between Number of Employees and DOG Score...............................................................109

Relation between Population of Country and DOG Score..............................................................109

Relation between Dependant Financial Variables and Each Independent DOG Variable – A

Deeper Exploration...............................................................................................................111

What is Unique about Sampled Companies in Forbes' Top 100......................................................112

Why National Cultural Diversity May Not Translate into Performance.........................................114


LIMITATIONS OF THE STUDY………………………………….………………………….....……………115

CONCLUSIONS……………………………………………….……………………………………….118

RECOMMENDATIONS – FUTURE RESEARCH.............................................................................126

REFERENCES.........................................................................................................................................128

APPENDICES………………………………………………………………………...………….……..138

APPENDIX 1 – A SUMMARY OF JOKINEN'S GLOBAL LEADERSHIP COMPETENCIES...................................138

APPENDIX 2 – CORPORATE PERFORMANCE MEASUREMENTS AND CULTURAL DIVERSITY METRICS…...141

APPENDIX 3 – FINDINGS……………………………………………………………………………...…..148

FOOTNOTES….......................................................................................................................................192


THE ETHNOCENTRIC OR GEOCENTRIC GLOBAL CORPORATION: THE

PERFORMANCE QUESTION

INTRODUCTION

GENESIS OF STUDY

―The ongoing success of any enterprise ultimately rests with the diversity of its human capital.‖ (Coffey & Tombari, 2005)

During an MBA course on global leadership the author wrote a paper on the 2010 crisis at

Toyota. In so doing it was discovered that Toyota, by all accounts a successful global

corporation, was ethnocentric at its core. Its board of directors in 2009 consisted of a

homogeneous group of 26 elderly Japanese gentlemen with an average age of 62, less than a

handful of non-Japanese had ever served as global executives for the firm, and its corporate

culture and business philosophy, the ‗Toyota Way‘, was clearly Japanese-centric—strongly

influenced by Confucianism. When Toyota‘s international production began in earnest in 1998,

they already had a solid global reputation for quality vehicles they exported worldwide,

principally ‗made in Japan‘ using the Toyota Way. The Toyota Way was then dispensed by

Toyota to factories around the world with very little allowances for it to be culturally adapted in

host nations (Fackler, 2007). Takaki Nakanishi of JP Morgan securities in Tokyo said it best—

Toyota is attempting ―to transplant its culture to foreign markets‖ (Fackler, 2007). R. Moran,

Harris & S. Moran (2007) state that the expectation of full assimilation and the creation of a uni-

corporate culture reflects an ethnocentric philosophy where cultural diversity is seen as a

problem rather than a resource to be harnessed (p. 233).


Almost immediately after they globalized, Toyota began to experience quality control

problems. Nonetheless, Toyota‘s reputation for excellence shielded it even as quality

deteriorated (Welch, 2008). By 2009 Toyota realized the Toyota Way was not being fully

accepted by its global workforce and consequently serious quality issues where appearing, which

they tried to keep under wraps. Mr. Toyoda, grandson of Toyota‘s founder, was brought in to fix

the problems, but he could not avert the 2010 quality crisis. Even so, Mr. Toyoda‘s reaction in

the build-up to the crisis was to reinvigorate the Japanese-centric Toyota Way rather than re-

evaluate based on its failures (Soble & Reed, 2010). Drucker (2008) states ―every big,

successful company throughout history, when confronted with… a surprise—[in Toyota‘s case a

problem with quality]—has failed to accept it‖ (p. 86) and the first reaction of those companies

when their business theory falters is to adopt a defensive posture (p. 91). Toyota was no

different, but recently they have begun to acknowledge serious performance problems. In fact,

in 2009 Mr. Toyoda stated the company was ―grasping for salvation‖ and near ―irrelevance or

death‖ (Van Praet, 2009). If Toyota is in danger of failure—Toyota slipped from third to 360 in

the Forbes Global 2000 ranking of leading global companies in 2010—it may be the company‘s

ethnocentricity will have played a role.

This ethnocentricity at Toyota contrasts the culturally diverse, synergistic geocentric

global corporation advocated by many prominent researchers (Moran et al., 2007; DiStefano &

Mazenevski, 2000; Alder, 2002) and global business leaders (Koppel & Sandner, 2008; Taylor,

1991). They contend that true global corporations integrate cultural diversity and leverage

cultural synergy throughout the organization. And Toyota, seemingly now realizing the

consequences of ethnocentricity, is making changes to become more geocentric to improve their

global performance. In June 2010 Frenchman Didier Leroy was appointed as chief of its


European operations, the first non-Japanese executive to take the post. When his appointment

was announced, Toyota conveyed a tentative move towards geo-centricity stating their ―aim was

to put in place management structures [around the world] in order to understand the local

scenario with greater speed and accuracy [and identify] local needs‖ (RFI, 2010).

At the other end of the spectrum of national cultural diversity are companies like Asea

Brown Boveri (ABB), Nokia, and Unilever. Peter Drucker (2008) in his seminal book

Management states Anglo-Dutch Unilever has ―designed what may be... the most advanced

structure for the multinational corporation.‖ Geocentric Unilever differs significantly from

Toyota in its approach to cultural diversity insofar as it boasts 20 nationalities amongst its top

tier managers (Unilever, n. d.a), has a third-country Swedish Chairman (Sirkin, Hemerling, &

Bhattacharya, 2008, p. 109), and states clearly that national and cultural diversity is a strategic

goal (Unilever, n. d.a). Unilever is purported to be a truly global company, with integrated

worldwide operations, that leverages national cultural diversity and talent wherever it is found—

it is the antithesis of Toyota. But does Toyota‘s ethnocentricity or Unilever‘s geo-centricity

affect their financial performance in today‘s complex global marketplace?

INTRODUCTION

―Ethnocentricity has no role anywhere in this world—especially not in global organizations.‖ (Kets de Vries, 2006, p. 239)

As corporations globalize they encounter enormous diversity in perspectives, structures,

systems, and behaviours of suppliers, customers, subsidiaries, and competitors, (Albrecht, 2001)

as well as unparalleled cultural and technical complexity (Schmidt, Conaway, Easton, &

Wardrope, 2007). It is vital for global firms to expand into new cultural domains ―to increase

markets, gain access to resources, leverage economies of scale,‖ uncover global technology, and


recruit latent global talent (Caliguiri, Lazarova, & Zehetbauer, 2004, p. 848). To survive in a

diverse global marketplace, Ashby‘s (1963) law of requisite variety suggests companies should

reflect the national cultural complexity of their external environment to effectively confront

challenges and unforeseen contingencies—and identify opportunities—or the environment will

ultimately control the company and the firm will fail (as cited in Thompson, 2007). Caliguiri et

al. (2004) suggested future longitudinal studies seek to determine if increased diversity and

international experience at the top of organizations improves global business success due to the

diverse culture perspectives represented; this is ―something rarely examined in the relevant past‖

(p. 855, 849). This study will do just that.

The number of different nationalities represented on a company‘s board and amongst its

executives is a strong indicator of how global and culturally diverse it really is (Kets De Vries,

2006; Perlmutter; 1969). But this is only true when a corporation seeks genuine nationally and

culturally diverse directors and executives to leverage their unique cultural perspectives, and not

imposters who look different but have the same mores and values as everyone else in the firm.

An increase in national diversity among senior officials in a corporation may signal a shift of

corporate attitudes from ethnocentric to geocentric (Perlmutter, 1969), but advantage can only be

realized if foreign board members or TMT executives truly represent their culture and different

cultural knowledge domains. Literature has very clearly shown values, attitudes, and behaviours

tend to vary with nationality (Hofstede, 1994) and this cultural diversity provides top

management teams (TMTs) with more resources, skill sets, and ―cultural capital‖ (Caligiuri et

al., 2004, p. 851). A nationally diverse TMT of experienced international executives may

provide many diverse knowledge domains and much more synergy potential, which is required

to make effective decisions in a complex global business environment (Zehnder, 1991, p. 48;


Koppel et al., 2008). While it is not axiomatic that an individual from a certain culture will in

fact be fully representative of that culture‘s mores and values, it is difficult to argue that a North

American or European—someone raised and educated there— on the board of a Japanese

company brings with him a diverse cultural background and unique perspective.

It is also likely that global corporations making more than a token, politically correct effort

to allow foreigners to advance to the highest levels of management, or recruiting foreign

directors while their peers remain homogeneous, do so not because they are compelled but

because they perceive an advantage, perhaps one not recognized by their competitors. As the

research will show, companies make a choice to move beyond ethnocentricity and to become

geocentric. While ethnocentric companies like Toyota attempt to address, at least marginally,

their ethnocentric orientation, purported geocentric corporations like ABB and Unilever remain

resilient performers and absolute leaders in their industries (DeCarlo, 2010).

The purpose of this study is to determine if nationally diverse, geocentric global

corporations, where cultural diversity is considered a precious resource used to create synergy at

all levels of the organization, have a competitive advantage that results in improved financial

performance over ethnocentric global corporations, where barriers and ineffective corporate

cultures and processes prevent cultural diversity from being fully leveraged.

With the increasing presence of competitors from emerging markets and the effort of more

multinational corporations to adopt a geocentric orientation to retain market share by effectively

operating in culturally diverse markets, the author believes the cost to firms mired in

ethnocentricity are finally being felt in ways that should not be ignored. The author supports the

contemporary notion that cultural synergy can be created in culturally diverse organizations to

provide competitive advantage and improve global performance. In addition, he supports the


theory that distinct national cultures do exist (Hofstede, 1994; Ronen & Shenkar), and the extent

of national cultural diversity at the top of global corporations is an indicator of the degree to

which they are ethnocentric or geocentric.

Moreover, the author posits that in today‘s culturally complex global business

environment, national cultural diversity in governance and executive bodies of geocentric

corporations provides a competitive advantage resulting in better financial performance over

ethnocentric corporations with homogeneous boards and TMTs.

The reason for this improved performance is that increased cultural diversity and cross

cultural competency in geocentric organizations results in increased cultural synergy potential.

If this is cultivated in an appropriate corporate culture and well managed, global talent is

attracted and retained, strategic problem solving and decisions making is enhanced, global

customers are better understood, and creativity and innovation are enhanced. This cultural

competency, hard to emulate, then provides competitive advantage to the global enterprise and

results in better financial performance. With a breadth of global operations sometimes spanning

over 100 countries, all incredibly rich in diverse in talent, ‗cultural capital‘, and professional

experience, it makes no sense for global corporations to remain ethnocentric and not tap into this

significant resource (Plakhotnik, Landorf & Rocco, 2010).

A fundamental question remains unanswered when successful ethnocentric companies like

Toyota are compared to more global ones such as Nokiai and Unilever. Do culturally diverse,

geocentric global firms, signified by cultural diversity at the top of the organization, perform

better than ethnocentric ones? If so, why are not all global companies geocentric? Perhaps

cultural synergy is too hard for some companies to create given linguistic challenges, cultural

differences, political, governmental and legal restraints, and the complexity of creating a


cohesive, diverse organization, and managing an integrated global system? Or perhaps the

benefits of national cultural diversity are not well understood by global executives who have

known nothing but ethnocentricity; or are under domestic pressure to remain that way?

Literature shows many global firms focus on developing cross-cultural competency within

global leaders to ‗manage‘ and contain rather than ‗leverage‘ cultural diversity, whilst remaining

ethnocentric at the top and ignoring the potential benefits of cultural synergy. To these

companies, globalization is a new form of ethnocentric exploitation based on an inexpensive

global workforce, and an imperial national headquarters whose executives—and shareholders—

reap the benefits cheap labour brings. This has happened, however, at a time when emerging

nations have regained geographic autonomy and now want their markets back—and part of the

markets of developed nations. Global completion from new quarters is growing rapidly. As

well, there is swelling pride in one‘s own culture and more companies are increasingly

specializing products to meet cultural expectations. These expectations are difficult to meet

without substantial cross-cultural acumen throughout the organization. The literature review has

found compelling reasons to systematically diversify at all levels of global organizations, not to

diversify for its own sake, but rather to access the global talent pool beyond ones borders and

generate cultural synergy potential.

To harness this potential there are at least two macro steps global organizations must take.

First, global corporations should not view cultural diversity, today unavoidable, as a problem to

be managed but as a valuable resource to be made an intrinsic part of the organization and

leveraged. This requires a change in cultural mindset and ―culturally fluent managers‖ (Rees &

McBain, 2005) who are aware, knowledgeable, and skilled to effectively integrate cultural

diversity throughout the organization. Clearly this is a necessary first step and cross-cultural


know-how is vital for global leaders and managers; but if these global managers and leaders

come exclusively from the nation where the corporation is headquartered, this is an ethnocentric

and exploitative approach in the grand tradition. A geocentric corporation goes much further by

ensuring people from diverse cultures are not only effectively managed, but completely

integrated throughout the firm and allowed to reach their full potential within the corporation

(Thomas & Ely, 1996).

Although the subject of managing cultural diversity will be reviewed in the context of high

ranking company executives and directors, the focus of this paper is not on how they go about

managing cultural diversity— a plethora of literature exists on this subject alone. The focus

rather is on the potential cultural diversity affords a global corporation if it is effectively

integrated and allowed to reach the highest levels of the organization, and how this impacts

performance. It is evident that for this to occur, cultural diversity within the organization needs

to be well managed. The scope is also limited in other ways, because the subject of

ethnocentricity and cultural diversity is broad, touching on domestic and international

governmental, non-governmental, and private and public business organizations of all types.

Therefore, while the theories explored in the literature apply to all types of global organizations,

the paper focuses on the highest levels of global corporations rather than other types of global

organizations. This is done to attempt to establish a relation between cultural diversity and

financial performance, which can be empirically measured; such performance measurements

would be more subjective and difficult to acquire in non-business organizations.

As well, national cultural diversity is the focus rather than other prominent areas of

diversity research. This concentration is particularly relevant today because in the realm of

global corporations, of which there are more each day, national cultural diversity is unavoidable,


at least in the lower and mid levels of companies. In this global context, other kinds of diversity,

such as gender, ethnic, and age diversity may be seen as complex subsets of the assorted national

cultures around the table. Moreover, as will be explained, national cultural diversity offers the

most potential to create synergy, generate value and competitive advantage, and improve global

performance (DiStefano et al., 2000, pp. 45-46).

To ‗tackle‘ the research question, a broad review of literature is conducted, the

methodology used to study global corporations is explained, detailed findings are outlined and

discussed, conclusions are drawn, and recommendations for future research are made.

To begin, the literature review first examines the new global economic order compelling an

increasing number of companies to become more culturally diverse to improve global

performance. It next considers modalities global firms tend to use to manage cultural diversity,

or what is called their cultural orientation or mindset. Cultural diversity and national character

theory, the framework for cultural interaction, is then examined. The review looks next at

cultural synergy theory and the difficulty in achieving it, and the potential benefits to business

performance if cultural synergy is attained. Finally, the core element of the review considers

cultural diversity at the top of global firms—as it relates to business performance—and explores

factors that might be used to determine the degree to which a company is ethnocentric or

geocentric. These include corporate culture, the composition of boards of directors and global

TMTs (GTMT), the nationality of global chairman, presidents, and chief executive officers

(CEOs) or their equivalents, and the nationality of regional and national subsidiary leaders.


LITERATURE REVIEW

THE NEW ECONOMIC ORDER

―Once social change begins, it cannot be reversed. You cannot un-educate the person who has learned to read. You cannot

humiliate the person who feels pride. You cannot oppress the people who are not afraid anymore. We have seen the future, and

the future is ours.‖ Cesar Chavez (Thinkexist, n. d.)

Much has been written about globalization and the new emerging economic order.

Friedman (2007) stated the ‗world is flat‘ as a metaphor to describe the levelling of the playing

field where flattening technological, geopolitical, and social forces have changed the global

financial and economic landscape and empowered emerging countries to compete with

developed nations as greater equals. The number of multinational corporations doubled and their

foreign affiliates quadrupled during the 1990s (Plakhotnik et al., 2010, p. 274) and meanwhile

the number of North American companies listed on the Forbes Global 2000 list of largest

companies has fallen by 25 % since 2005 (Decarlo, 2010). American business dominance is

waning with a loss of market share in many industries driving up unemployment at home

(Schmidt et al., 2007, p. 42); and the competition will grow much fiercer. Friedman (2007)

emphasises that young Chinese, Indians, and Poles are not racing us to the bottom, but rather to

the top. ―They do not want to work for us...They want to dominate us... and... be creating the

companies of the future‖ (p. 365). Successful business leaders ―recognize that an organization

that seeks to maintain the status quo is already in decline‖ (Drucker, 2008). The backrooms of

corporate America should take notice. This is a threat to ethnocentric Western corporations set

on ―corporate colonialism‖—and an opportunity to become more geocentric, regain lost market

share, and effectively compete in unimagined markets. Schumpeter‘s process of ‗creative

http://thinkexist.com/quotation/once-social-change-begins-it-cannot-be-reversed/761489.html




destruction‘ has never been stronger. So what should be done in light of this global onslaught?

Some believe a cultural convergence is occurring, particularly among the global ―net

generation‖; and due to the global reach of the Internet, ―young people around the world are

becoming very much alike‖ in their values, norms, and attitudes (Tapscott, 2009, p. 23). Some

global firms thus believe the flat world is a plain of economic sameness. These firms have

developed ethnocentric strategies, products, and business cultures to serve the uniform global

marketplace they perceive (Sirkin et al., 2008, p. 233). They have taken an ethnocentric path.

This ethnocentric mindset is erroneous, however, as cultural identity is stronger than ever

and becoming more so as people see even more clearly the global diversity about them and recoil

to what they know. One result of globalization and an ‗open window‘ on the culturally diverse

world is pluralism. The dissolution of the Soviet Union and Yugoslavia provide examples of

common cultures reuniting autonomously with renewed pride and confidence. The

Balkanization of portions of Canada and in particular the large, homogeneous Asian

communities in Vancouver, as well as prevalent African culturally-based boarder conflict are

others. Within the workforce, as cultures become more visible and society more pluralistic,

people recognize their own uniqueness (Moran et al., 2007, p. 217). Ghandi said ―I want the

cultures of all the lands to be blown about my house as freely as possible. But I refuse to be

blown off my feet by any‖ (Thinkexist, n. d.).

This pride in one‘s own culture means globalization will not likely create a homogeneous

marketplace. In fact, companies are increasingly specializing products to target different

cultures, both domestically and globally. To be successful, they need to understand these

cultures at more than a superficial level, and this comes from having culturally diverse

leadership, managers, and workers (Koppel et al., 2008, p. 36). This allows companies to think


globally and act locally (Bartlett & Ghoshal, 2003). The flat world is not a desert of sameness

but a highly diverse quilt—a potpourri—of cultures with enormous local and regional variety

and much fewer global trade barriers to cross (Sirkin et al., 2008). This provides endless

opportunity for culturally diverse Western businesses as well as new competitors from emerging

economies. Individuals from emerging economies now have the ability to fulfill their dreams

much as did immigrants arriving in the new world, a land of endless opportunity. Their ‗land of

opportunity‘ is the world and they are eager to seize its riches. Today‘s Rockefellers and Eatons

are Mexico‘s Carlos Slim and China‘s Wang families. Sirkin et al. (2008) describes this

evolving reality as ‗globality‘, a world where companies compete ―with everyone, everywhere

for everything‖ in a horizontal landscape where empires and superpowers no longer sit on vital,

dominating ground.

Konosuke Matsushita of Matsushita Electric Industrial Company of Japan stated:

We are going to win and the... West is going to loose...there is nothing you can do...

because the failure is within yourselves... you are convinced it is the right way to run a

business—getting the ideas out of the heads of bosses and into the hands of labour...for us

management is the art of pulling together the intellectual resources of all employees in

the service of the firm (Black, Morrison, and Gregersen, 1999).

These words were written before ‗globality‘ had taken hold, but no country has been exempt

from the impact of globalization. Japan is no exception and it has had an ethnocentric

comeuppance. ―Cultivating‖ uni-cultural ideas is not enough today and globalization has

humbled equally the ethnocentric West and Japan (Black et al., 1999). What sort of corporation

is best suited to thrive in this culturally competitive chaos?


CORPORATE CULTURAL MINDSETS

―The more one penetrates into the living reality of an international firm, the more one finds it necessary to give serious weight to

the way executives think about doing business around the world.‖ (Perlmutter, 1969, p. 11)

The preceding section outlines how authentic globalization involving more than European,

Japanese, and American companies has finally arrived, which is causing a paradigm shift in the

international business environment. This section looks at the cultural mindset corporations have

adopted in the past to deal with diversity and globalization; some are likely more appropriate

today than others.

Building somewhat on the work of Perlmutter (1969), Moran, Harris and Stripp (1993)

suggested a typology of four corporate cultural orientations—or mindsets—used by companies

involved in international business. These philosophies have an impact on corporate culture,

structure, governance, and the way the company does business. The first is the ethnocentric

corporation, with a homogeneous GTMT made up of people from the ‗home country‘. In this

type of corporation, parent company nationals dominate operations both at home and overseas.

Running operations from domestic (global) headquarters, these companies have centralized

strategy, policies, and procedures and believe they are ethnically superior in some way to people

from other cultures. Consequently, they promote their way of doing things; ―if it works at home,

it must work overseas.‖ These firms, like Toyota, do not trust local-nationals and tend to

dispatch executives around the world to oversee or prop-up local operations (Moran et al., 1993,

pp. 128-129).

The second philosophy is the decentralized, polycentric organization. This sort of

multinational corporation maintains a domestic global headquarters, but it lets host-nation

national executive teams manage local overseas operations. They believe only local managers


can understand the cultural and political complexity of a market and, viewed as profit centres,

these relatively independent subsidiaries are allowed to operate with little centralized direction as

long as they are profitable. There is no attempt to understand and leverage cultural differences

and host-nation executive team members have little opportunity to advance to more senior

positions in the corporation. As such, this sort of corporation can be viewed, as well, as

ethnocentric. Pfizer is such a company, with many foreign nationals leading its international

subsidiaries, but no foreign nationals represented on its board or GTMT.

The third organization is the regio-centric multinational corporation. It is essentially a

polycentric entity at the regional level. Regional headquarters are established, often led by

corporate home-country nationals, to manage regional operations. They create synergy by

having common regional functions, where it makes sense, and operations are regionally

autonomous. The corporate headquarters establishes strategy and corporate culture, amongst

other things, so there is more centralization than in the polycentric organization, but no real

integration of global operations and limited opportunity for foreign nationals to advance to the

executive suite.

Finally, there is the authentic global concern, the geocentric global corporation, which has

integrated worldwide operations along the length of its value chain. Its functions and product

lines are interdependent on a global rather than a regional or national level. Their modus

operandi is to work together to solve worldwide problems, leveraging diversity to create cultural

synergy. Their focus is both worldwide and local, with careful collaboration between the global

headquarters and subsidiaries to leverage the best universal practises, while allowing local

freedom where control would add no value (Albrecht, 2001, p. 51). Geocentric also means there

are no real or perceived barriers for personnel advancement within the corporation and to attract


the best future global leaders, there is ―a clear and viable path to leadership‖ (Sirkin et al., 2008,

p. 106). Kets de Vries (2006) notes that in geocentric corporations, ―the best people everywhere

in the world are developed for leadership positions anywhere in the world...and the culture is

global‖ (p. 22). Nestlé and Unilever are purported in the literature to be such companies.

There are endless departures from these four general cultural orientations that in practise

result in myriad organizational structures, corporate philosophies, and ways of doing business.

For example, Sirkin et al. (2008) suggest the polycentric organization is well suited for a ‗flat

world‘ where the barriers that prevented emerging economies from competing are gone (p. 232-

234). Nonetheless, their view of the ‗polycentric‘ organization differs markedly from Moran‘s et

al. (1993). Theirs leverages cultural diversity in the leadership of the organization and is more

like Moran‘s geocentric corporation, with functional parts of the corporation‘s value chain

‗pinpointed‘ in optimal locations and integrated globally.ii The conglomerate ABB better

reflects Moran‘s polycentric organization with its federation of over 1200 national companies

and 4500 profit centres, yet they take pains to maintain a geocentric mindset, with an

international board of directors, priority on developing sufficient global leaders, and the creation

of mixed nationality teams to bring diverse cultural backgrounds to bear on complex global

problems (Taylor, 1991). And then there are companies like Toyota—and Ford— regio-centric

with an ethnocentric albeit evolving cultural philosophy. The aim of this paper, however, is not

to focus on how companies organize and operate; it is to examine the cultural orientation that

transcends the organization through the national cultural diversity of top level personnel to

determine if a company has an ethnocentric or geocentric bent, or something in between, and

determine how this relates to performance.


In reality, there is today good evidence beyond the example of Toyota that the geocentric

corporation is still the exception rather than the rule. Hanson, Ibarra, & Peyer (2010) in

examining the best performing CEOs in the world state ―it is still not a global labour market for

CEOs‖ with only 15 % of the top 100 CEOs being foriegners (p. 2). Doremus, Keller, Pauly, &

Reich (1999) suggested the global corporation is an American myth. Their work examines

American, German, and Japanese corporations. They conclude that globalization has been

prematurely announced several times and that corporate structural convergence that would allow

real globalization is not occurring. They contend corporations fundamentally retain national

corporate governance, financial, and innovation modalities, as well as politicized business

strategies. In particular, they state Germany and Japan will resist a diminishment of national

values and institutions, retaining a clear sense of national identity and expecting the world to

adapt to their approaches (p. 143). They may do so at their peril; clearly these ideas are

ethnocentric in their very nature. Globalization then, to many German, Japanese, and American

companies is all about keeping foreign markets open and adapting corporations at the ―edges‖ as

necessary to cater to local markets (Doremus et al., 1999, p. 144).

Toyota is an example of a relatively successful ethnocentric company and of the ‗global‘

corporate myth. They are not alone. Palmer and Varner (n. d.) contend Asian companies have

globalized by exporting goods and consequently subsidiaries are viewed as extensions of

―national‖ corporations used to open new markets and increase market share. As a result, Asian

companies tend to ―stick to deeply engrained cultural practices and [do not]… look for diverse

points of views,‖ and foreign managers face the preverbal glass ceiling (p. 20). The current

research supports this belief. This does not mean however that ethnocentric firms like Toyota,

amongst others, are not benevolent with their share of culturally fluid leaders. But at their core,


they are insular and not yet leveraging to the largest extent possible what the rest of the world

has to offer by way of talent and ideas. Kets de Vries and Florent-Treacy (2003) state that ―it

would be foolish to deny... the global organization is the paradigm‖ for future organizations (p.

19). So with ethnocentric companies like Toyota operating in the same global business

environment as more authentically global companies such as ABB or even Nissan, with

Brazilian-French Carlos Ghosn as CEO, which cultural orientation—ethnocentric or

geocentric—is best suited to the new global business environment? Is there really a competitive

advantage in nationally culturally diverse global corporations with geocentric orientations or are

these advantages also myths? Before answering this question, one need understand why there

might be advantages in geo-centricity and culturally diverse organizations.

NATIONAL CHARACTER AND CULTURAL THEORY

―A Hungarian manager and an American one may have a different set of beliefs, but that difference may pale beside the

difference between a production manager and a marketing manager in the same organization.‖ (Markoczy, n.d)

Markoczy (n. d.) claims ―national cultural differences are overrated‖ and cautions us not to

exaggerate national dissimilarities in our minds. This section will briefly examine national

culture to better understand why cultural differences do matter. Literature on culture abounds.

For the purposes of this study, it is not necessary to go into significant detail. Rather, it is

important to establish simply that people from different national cultures provide unique

perspectives, which by creating cultural synergy can be leveraged. Culture is said to exist at

many levels, the more obvious being: regional; national; ethnic, religious or linguistic affiliation;

and organizational (Hofstede, 1994). Culture is learned, not inherited, and can be considered

therefore ―the collective programming of the mind‖ shaped by circumstances—the social


environment—within which people find themselves (Hofstede, 1994). It touches the whole of

social behaviours, values, attitudes, and beliefs transmitted from one generation to the next

(Moran et al., 2007, pp. 6-7). It is the ideas, customs, and social behaviour of a particular people

or society (Oxford Dictionaries, n.d.). Culture ―is considered the driving force behind human

behaviour‖ (Moran, et al., 2007, p. 6).

These differences in behaviour are reflected in myriad ways and include things like sense

of self, communication, costumes, feeding habits, time consciousness, relationships, values,

beliefs and altitudes, work habits, mental processes, and the way people learn (Moran et al.,

2007, pp. 9-10). Some cultural differences are easily identifiable, such as costumes, whereas

others, such as mental processes, are hidden. Hamayan and Damico (1990) developed the

analogy of culture as an iceberg, with some parts seen and most hidden. Cultural variations can

lead to conflict or, if cultivated in a healthy corporate culture, can be sought out as valuable

resources. Hamayan et al. (1990) place most key differences that might provide an opportunity

for synergy out of sight, ‗below the waterline‘. These include approaches to problem solving,

decision making, notions of logic and validity, and myriad other culturally specific insights.

Since this study considers cultural diversity through the nationality of senior executives

and directors, the link between nationality and culture must be reputable. This link has been

established by many researchers, most notably Hofstede (1994), who found the work attitudes of

people in different countries are dissimilar due to the cultural environment—geography, religion,

and language—within which they work. Since countries are normally associated with a

particular core cultural group, the country becomes a proxy for a national culture. These

countries can also be grouped in regional clusters of similar cultures (Ronen et al., 1985).


Although this research fails to acknowledge that most countries are in fact heterogeneous,

the concept of national culture has been accepted, and it has been found to be reflected in a

nation‘s citizens at work. And this is justified; one can assume immigrants and their children

working in a particular country take on aspects of the character and culture of the nation. This

does not mean, however, that national culture becomes homogeneous per se, as first generation

immigrants retain profound cultural differences while subsequent generations maintain a

diminishing thread of their culture. Nonetheless, like theories suggesting a global culture is

emerging based on global communication and modernization (Tapscott, 2009; Ronen et al.,

1985), one can assume new cultures within nations fuse to some extent over time with national

culture; thus national culture is changed by them and them by it. Current literature shows

however that the fusion of cultural differences should not necessarily be the goal of progressive

global corporations. The focus rather should be to retain cultural identify and take advantage of

national cultural differences that exist (Sirkin et al., 2008; Koppel et al., 2008).

SYNERGY AND CULTURAL SYNERGY

―Culture is more often a source of conflict than of synergy. Cultural differences are a nuisance at best and often a disaster.‖

—Geert Hofstede (Hofstede, n. d.)

Previous sections examined the culturally complex global business environment where

cultural diversity, at least at the lower levels of global corporations, is unavoidable. The

literature also suggests global corporations have a choice of mindsets to deal with cultural

diversity by being ethnocentric, geocentric, or somewhere in between and confirmed that various

national cultures found within global corporations are significantly dissimilar. This section

examines the complex subject of synergy, and specifically national cultural synergy, and


confirms that cultural diversity can result in conflict and inefficiency, be contained and

‗managed‘, or be integrated and leveraged to create synergy and competitive advantage.

Many writers suggest cultural synergy provides competitive advantage to global

corporations, the idea being that two heads are better than one; and two culturally diverse heads

seeing global problems through different lenses are even better (Alder & Gundersen, 2008;

Moran et al., 2007). But what is synergy? Definitions abound. The Oxford Dictionaries (n.d.)

states synergy ―is the interaction or cooperation of two or more organizations, substances, or

other agents to produce a combined effect greater than the sum of their separate effects.‖

Whereas ethnocentrism is the tendency for a group to see everything through the same

cultural lenses, cultural synergy is defined as cooperative and combined action amongst

individuals and groups from disparate cultures collaborating for a common cause (Moran et al.,

2007, p. 229). For cultural synergy to occur there must be congruence throughout the breadth

and depth of the organization in its cultural diversity philosophy and values, which need to be

intrinsic in the corporate culture, policies, and processes (Cultural Synergy, 2007).

Heterogeneous groups see things through multiple cultural lenses. Marquardt & Horvath

(2001) found that culturally diverse groups outperform homogeneous ones and generate more

creative solutions due to dissimilar viewpoints. Schmidt et al. (2007) contend global

organizations have ―the potential for exponential growth and financial success if the integration

of cultures can be harnessed and aligned with the strategic goals of the corporation‖ (p. 48).

BP‘s Michael Schmidt believes distinct cultures provide different insights into problems, and

their complex factors, that one‘s own culture might not see (Koppel et al., 2008, p. 34). Synergy,

however, is not automatically created when culturally diverse groups are formed and the

literature suggests two broadly conflicting relationships between diversity and performance.


Studies have found diversity leads to innovation, creativity, improved decision making, and

competitive advantage, while others suggest it leads to slower decision making, negatively

impacts group cohesion, leads to conflict, and consequently negatively impacts performance

(Erhardt, Werbel, & Shrader, 2003, pp. 103-104). As Hofstede (n. d.) contends, and other

literature attests, the result of diversity is often conflict and the creation of dysfunctional,

destructive groups (DiStefano et al., 2000, pp. 46-47). Thomas et al. (1996) found that

increasing diversity for diversity‘s sake, under the assimilation paradigm—to be fair because

discrimination is bad—often backfires and hurts company performance. Many companies hire a

diverse workforce and then ‗sit-back‘ and wait for ‗the payoff‘ without enabling differences to

transform how the work is accomplished. These firms can subvert differences by their

employment equity policies (pp. 2-4). Often, culturally diverse groups perform worse than

individuals working to the same end when intercultural differences are a focus for conflict rather

than viewed as an asset to strengthen the organization (Moran et al., 2007, p. 246).

There are other challenges. For example, cultural diversity is highly correlated with

language diversity. Cross-cultural communication is much more difficult due to hidden cultural

and obvious linguistic differences, and misunderstandings leading to conflict occur frequently

(Albrecht, 2001,pp. 46-47). But these difficulties can be offset by potential advantages;

language diversity is a potential benefit as increasingly a multi-lingual workforce is a major

resource that can provide competitive advantage (Koppel et al., 2008, pp. 22-23). Stahl,

Maznevski, Voigt, & Jonsen (2007) agree and suggest that while cultural diversity leads to

process loss by creating barriers to communication, thereby increasing the potential for conflict,

this may be compensated by process gains in creativity and increased team satisfaction. They

conducted a meta-analysis of 80 studies that examined over 9000 culturally diverse teams. At


the end of this extensive research, they determined ―cultural diversity in teams is both an asset

and a liability‖ (Stahl et al., 2007, pp. 27-28).

Dr. Suzanne Justesen refers to differences in culture, profession, and demographics as

―knowledge domains‖ with unique sets of skills and perspectives (Koppel et al., 2008, p. 56).

Borrowing this terminology, all differences being equal—professions, gender, age, etc...—in a

global business environment, different culturally diverse knowledge domains offer an

unparalleled potential source of synergy to global firms. An expert in innovation, Justesen has

found that some diverse groups with up to 40 different knowledge domains make use of as few

as two or three. The consequences are results similar to those expected from a homogeneous

group. Yet smaller groups with much fewer knowledge domains that synergistically use a larger

ratio of these domains, truly leverage diversity and perform much better. She contends three

things can happen in diverse groups. First, groups do not innovate or learn, but become very

homogeneous by allowing one or two knowledge domains to dominate at the expense of

leveraging cultural synergy and achieving innovation. Expatriate management teams at the head

of foreign national subsidiaries often act this way (Koppel et al., 2008, p. 56). Second, groups do

not innovative but learn. Here less prominent knowledge domains learn from more prominent

ones, resulting in a homogeneous group over time. This is akin to diverse groups adopting a

rigid corporate culture, and enormous diversity potential being lost. Third, groups maintain their

diversity and are innovative; they cherish and integrate diverse knowledge domains, which

through effective processes are used to create synergy.

Other research suggests proper training, processes, culture, and climate can mitigate the

risk of conflict. It has been found that culturally diverse teams that are untrained perform worse

on problem solving tasks than homogeneous ones, but when trained, they outperform them by a


significant margin (Koppel et al., 2008, p. 23). It is also necessary to establish innovative

approaches and processes to overcome the organizational challenge of creating effective cross-

cultural teams, which, although having more potential, tend to be mediocre or perform worse

than homogenous ones unless they are adequately prepared for and guided through the challenge

(DiStefano et al., 2000).

Leadership and corporate cultural mindset are also extremely important—cultural diversity

must be valued by leaders and promoted overtly in corporate culture to create the healthy

operating climate necessary to develop synergy and help reduce conflict (Tsui & Gutek (1999) as

cited in Stahl et al., 2007, p. 30). Thomas et al. (1996) suggests a fundamental change is

required in the attitudes and behaviours of leaders—they must abandon ―underlying and flawed

assumptions about diversity,‖ recognizing its potential and creating a climate to enable

differences to be leveraged at all levels of the firm. This highlights an important point.

Nationally diverse boards and GTMTs may have superior cultural synergy that in theory might

result in improved firm performance, but this potential may never be realized. In fact, poorly

managed diversity has been shown to hurt performance, and if not well directed would likely

impair financial performance in diverse global corporations.

Ultimately, cultural diversity cannot be avoided in global business today, at least at the

lower levels of the corporation, so the options are to try simply to manage it, or use it to its

fullest potential. Moreover, without diversity, cultural synergy cannot occur. The amount of

potential synergy within a system or organization—as well as conflict—is directly proportional

to the amount of diversity (Centre for Human Systems, n. d.). Viewed as such, a firm has a

quotient of cross-cultural synergy based on its cultural diversity; the more varied, the greater the

synergy potential.


THE POTENTIAL BENEFITS OF CULTURAL DIVERSITY AND SYNERGY

―I can‘t think of one area – from accounting to marketing – that doesn‘t benefit from diversity.‖ —Michael Schmidt, BP (Koppel

et al., 2008)

General Benefits

―They bring different, important, and competitively relevant knowledge and perspectives about how to actually do work—how to

design processes, reach goals, frame tasks, create effective teams, communicate ideas, and lead.‖ (Thomas et al, 1996, p. 4)

The previous section explained the concept of cultural synergy and challenges in

realizing it. This section identifies the potential benefits to global corporations if cultural

diversity can permeate the entire organization and be leveraged to create synergy. A

Bertelsmann Stiftung study reviewed cultural diversity in global corporations operating in

Germany and interviewed prominent academic and business experts (Koppel et al., 2008). A

striking finding was how little multinational companies operating in Germany understood about

the potential benefits of cultural diversity, so Koppel et al. (2008) compiled case studies of 12

exemplary companies generating and harnessing cultural synergy; a tabulation of the most

prominent benefits they perceived as a result of their diversity efforts is shown below ( p. 12)

(figure 1).

Perceived Benefits Number of Companies

Customer focus and satisfaction (creativity and innovation) 11

Opening new markets (marketing) 10

Employee satisfaction and motivation (acquisition and retention of talent) 10

Target group-specific products (creativity, innovation, and marketing) 9

Increasing sales (performance) 2

Larger pool of applicants (resource acquisition – talent) 1

Figure 1 – Perceived Benefits of Cultural Diversity

The study suggests global corporations striving for innovation, moving into new global markets,

aiming to appeal to local cultural groups at home, or trying to retain talented people to ensure


future success should embrace cultural diversity (Koppel et al., 2008, pp. 10-11). It seems

German companies today have a growing awareness that cultural diversity is unavoidable; ―the

next step is to recognize it as a valuable resource and put it to good use‖ (Koppel et al., 2008, p.

52). But is national cultural diversity really valuable and if so, why? Or, as Thomas and Ely

describe, is it all just ―diversity rhetoric? (Legace, 2004).

Almost 20 years earlier than Koppel et al. (2008), Cox and Blake (1991) surveyed

literature and found evidence to support the ―value-in-diversity‖ hypothesise—that there was a

relation between competitive advantage and effectively managed cultural diversity. Specifically,

Cox et al. (1991) confirmed that if cultural diversity was valued as an asset, it could provide

competitive advantage by lowering turnover costs, allowing firms to acquire the best available

talent, providing insight to perceptively market to distinct cultures, improving creativity with

diverse perspectives, improving decision making and problem solving, and creating flexible

systems. Most of these benefits are supported in the current literature described below.

Enhanced Problem Solving and Decision Making

―When making a decision of minor importance, I have always found it advantageous to consider all the pros and cons. In vital

matters, however, such as the choice of a mate or a profession, the decision should come from the unconscious, from somewhere

within ourselves. In the important decisions of personal life, we should be governed, I think, by...our nature.‖—Sigmund Freud

(Quotes.net, n. d.)

Strategic business decisions are extremely important; tremendous opportunities are seized

or lost, and abundant resources wasted or put to good use in their wake (Drucker, 2008). The

profound insight of which Freud speaks, also found deep within each culture, could be valuable

to global business. Harnessing cultural insights will become more important in strategic decision

making as global business becomes even more multifarious. More often global corporations will


compete fiercely in culturally complex corners of the world with emerging global competitors

for a share of budding markets. In this environment, global corporations face much more

cultural and technological complexity, which can confound decision makers (Schmidt et al.,

2007, p. 49, 53). Given the importance of strategic decision making, cultural synergy is perhaps

more relevant at the highest levels of global business as it is on a factory floor or in design

rooms, and better decisions ought to be made by culturally diverse GTMTs (Caligiuri et al.,

2004, p. 851). The principle of requisite variety previously discussed proposes that a system‘s

survival depends on cultivating differences within the organization to enable it to survive

changes in the external environment; an organization therefore ―must be as diverse as the

environment in which it exists‖ (Schmidt et al., 2007, p. 51).

The more varied the perspectives, the clearer problems will be defined and the more

informed decisions will be. Cultural synergy involves sharing diverse cultural perceptions—one

cultural perspective does not give the whole picture of the problem and therefore limits perceived

solutions—to enhance learning, problem solving, and decision making (Moran et al., 2007, p.

189, 229). Citing several studies, Cox et al. (1991) reported that the ―broader and richer base‖ of

a culturally diverse group improves problem solving and decision making, in part, by minimizing

‗group think‘ present in homogeneous groups, which tend to try to maintain cohesion rather than

challenge existing notions (p. 50). Esser (2001), from the Global Corporate Governance

Research Center, supports this notion, and reports wide consensus of the view that an

―international perspective,... special knowledge of a particular market, [and] ‗different‘ ways to

ask questions and… deal with issues‖ is an tremendously valuable addition.


Acquiring and Retaining Global Talent

―Talent is the largest challenge we face. When you see businesses faltering, going stale, I attribute that to gaps in talent.‖

—Roger Farah, Polo Ralph Lauren Corporation (Thinkexist, n. d.)

The coming ―battle for talent‖ will get much more intense as everyone competes

everywhere for everything (Sirkin et al., 2008, p. 4; Michaels, Handfield-Jones, & Axelrod,

2001). Global corporations are beginning to realize that ―no matter how talented your own

people are, the majority of talent will always be outside your company‘s borders‖ (Sirkin et al.,

2008, pp. 228-229). With diminishing human capital in developed countries and a growing

supply in undeveloped ones, embracing cultural diversity offers significantly more opportunity to

acquire new talent. In the developing world there is a shortage of skill and education, but no

shortage of talent (Sirkin et al., 2008, p. 92, 104). Talent in a knowledge economy is the most

important factor in a company‘s success and the prime source of competitive advantage

(Michaels et al., 2001). A company can double their pool of prospective executive talent simply

by including women, which has been shown to improve performance (Shrader, Blackburn, &

Iles, 1997). The same benefit can be gained by searching for talent everywhere. Ethnocentric

corporations have historically tended to limit their search to within their country‘s borders,

thereby limiting considerably their potential to find global talent—especially top executive

talent—let alone take advantage of the cultural synergy potential it offers (Moore, 2006, p. 1).

These companies tend to deal with global business complexity by sending potential global

leaders abroad to gain international experience. This is vital to develop global leaders, but if the

pool of potential global executives is limited to domestic middle management rather than the

gambit of managers from all nations where operations occur, a firm will have stopped short.


Esser (2001) suggests that by embracing national cultural diversity, geocentric companies

can find talent, such as directors for boards, not only abroad but at home through the wealth of

cosmopolitan non-nationals living and working domestically. In fact, looking at home and

abroad for nationally diverse directors significantly ―widens to pool of potential candidates‖,

which has never been more necessary as domestic CEOs and senior management are increasing

unavailable for board membership due to increased demand (Esser, 2011). Moore (2006) found

other reasons to look abroad. Middle power countries like Canada, Switzerland, Belgium,

Singapore, Norway, Sweden, The Netherlands, Denmark, Australia, and Finland proportionally

produce more exceptional top global executives. He posits that this is because middle economic

power leaders are caught between their own and a regionally dominant culture, and therefore

develop a cultural duality and more global view, which is outstanding preparation to become

global managers. More directly, Kets de Vries (2006) states ―people from smaller countries—for

reasons of survival—don‘t have the luxury of ethnocentrism‖ (p. 174). Whereas companies

from economic powers grow very large without ever leaving home, business leaders in Canada

and Finland must work across cultures just to survive. As discussed, more ‗Canadas‘ and

‗Finlands‘ are emerging in global business and it would be wise to search for talent there as well.

Geocentric corporations also realize that to be seen as attractive employers to potential

global talent, they must demonstrate they value and are willing to integrate other cultures into

their workforce by making cultural diversity a ―cornerstone of… corporate culture‖ (Koppel et

al., 2008, p. 28). Moore (2006) states more companies are recognizing that looking within

one‘s own borders for talent produces too narrow an pool of candidates and can have a de-

motivating impact on high potential foreign employees who view their careers as limited by their

nationality. ―Why bother striving to become an executive at Toyota if one is gaijin and not


Japanese‖ (p. 1). The right corporate culture and climate can improve a company‘s talent

prospects immeasurably, but it is important that this talent be retained. Acting geocentrically

ensures not only the best talent available is acquired but also retained so a culturally diverse pool

of talent exists within the organization to help solve culturally complex global business

problems, and recognize and seize fleeting opportunities; this talent can also become a firm‘s

global leaders of the future. It is important also to not restrain diverse talent to niche areas of

the company (Koppel et al., 2008, p. 85), but fully integrated it throughout the formal and

informal structure of the organization to transform how work is done, using differences to ―shape

new goals, processes, leadership approaches, and teams [so employees] bring more of

themselves to work‖ (Thomas et al., 1996, p. 2).

Understanding Global Customers

―European business competes for the favour of an increasingly multicultural customer base.‖ (Enterprise for Health, 2008, p.

65)

Schneider (2010) suggests:

Ethnocentric management can substantially weaken companies and undermine their long-

term global aspirations. Closely knit national groups simply do not have the cultural

breadth and outside-in perspective required to keep the company relevant to its customers,

employees, and other constituents around the world.

The result is ―global-average‖ products and services that do not address local needs (Schneider,

2010). Being able to empathize with the culture of global customers is increasingly vital

(Moore, 2006, p. 2). A growing body of work that speaks to the idea of ―being local world-

wide‖ (Sullivan, 1996; Bélanger, Berggren, & Bjorkman, 2001). It assumes cultures are


diverging rather than converging. These companies try ―to think global while acting local‖, but

they will fail without an appropriately deep cultural understanding of markets where they operate

(Schmidt et al., 2007, p. 49). This understanding can only come ―from country- and culture-

specific insights‖; comprehensive cultural knowledge and technical expertise are vital (Koppel et

al., 2008, p. 52, 68). After failing in an initiative to reach a specific national sub-culture in

Germany because the initiative was designed by ethnic-Germans, IKEA realized that if they

lacked a culturally diverse workforce, they would not have the necessary cultural background

and sensitivity to effectively reach different cultures (Koppel et al., 2008, p. 59). Emerging-

market firms that embrace cultural diversity could soon have a significant and profound impact

on global business as they begin to compete against developed nations at home and in

unexpected places; ethnocentric firms that emerge to become geocentric may also have the same

benefits. Emerging competitors will compete successfully, at least domestically and regionally,

because they have in many cases armed themselves with: Western experience and the best

business education money can buy; culturally diverse GTMTs; knowledge, intelligence,

ingenuity, and resourcefulness; and a profound knowledge of what locals want (Sirkin et al.,

2008, p. 6, 17).

Creativity and Innovation

―Create a marketplace of ideas.‖—Rosabeth Moss-Kanter (Moss-Kanter, 1983, p. 167)

―Diversity is a critical source of ideas‖ and some of the most innovative research today is

happening at the intersection of various fields of science (Ramaswami & Mackiewicz, 2010, p.

2). There is no reason why this synergy should not occur at the intersections of cultures.

Cultural synergy offers enormous potential for innovation and organizations that fail to harness


―the potent weapon of diversity‖ limit their ―creative potential‖ (Ramaswami et al., 2010, p. 2).

Drucker states that a lack of innovation is the largest reason corporations decline (2008, p. 22).

Moss-Kanter (1983) noted that innovative companies tend to be more egalitarian, progressive,

and have more cultural and gender diversity (p. 32). The most innovative she reports ―create

marketplaces for ideas, recognizing that a multiplicity of points of view needs to be brought to

bear on a problem‖ (p. 167). The connection between innovation and economic growth is well

established and there is a positive correlation between the two (Ramaswami et al., 2010, p. 8,

11). Doz, Santos, and Williamson (2002) after six years of research on cutting edge global

corporations such as Nokia conclude geographically diverse knowledge must be harnessed from

global customers, research and development centres, and national subsidiaries where it is

―imprisoned‖. Ernst &Young‘s 2010 report on innovation through diversity speaks about a

―new global mindset‖ and makes a compelling case for cultural diversity, which creates

―diversity of thinking‖. This then drives innovation by leveraging diverse perspectives at all

levels of global organizations (Ramaswami et al., 2010). The highly cited scholar Nancy Alder

states ―cultural diversity provides the biggest potential benefit to teams with challenging tasks

that require creativity and innovation‖ (Alder et al., 2008, p. 142)—in theory this should apply

to global boards and GTMTs.

Competitive Advantage

―What worked for us and made us successful in the past, will not be what works for us or makes us successful in the future‖.

Penny de Valk (Enterprise for Health, n.d., p. 5)

We have just examined the potential benefits of geo-centricity in global corporations.

Organizations that know how to integrate and leverage cultural diversity systemically will have a


real source of competitive advantage in the 21st century (Enterprise for Health, n.d, p. 5). All

the companies in the Bertelsmann Stiftung study believe synergy through cultural diversity offers

competitive advantage in the paradigm shift that real globalization has brought (Koppel et al.,

2008, p. 84). The literature shows a theoretical foundation for how competitive advantage might

be acquired by geocentric companies that achieve a high measure of cultural competency. The

right corporate culture and climate is a key enabler, which brings diverse talent to and retains it

in the company, thereby increasing its cultural synergy potential. Culturally diverse and

competent governance, leadership, and management then enable and unleash synergy to increase

and enhance global business competencies and provide the benefits just discussed, resulting in

competitive advantage. How do we recognize this geocentric corporation? The literature

suggests it will have a geocentric corporate culture, be overseen by a culturally diverse board, be

led by a global CEO, and have nationally culturally diverse GTMT drawn from a worldwide

talent base; the result will be better global performance.

NATIONAL CULTURAL DIVERSITY AND FINANCIAL PERFORMANCE

―Diversity – the art of thinking independently together.‖—Malcolm Forbes (ThinkExist, n. d.)

The Ethnocentric-Geocentric Continuum

―The desired transformation requires a fundamental change in the attitudes and behaviours of an organization‘s leadership.‖

(Thomas et al., 1996, p. 4)

The previous section outlines the theoretical benefits of national cultural diversity to

geocentric corporations. In this section we examine how the extent of geo-centricity might be

measured. This differs from previous research, such as Sullivan (1994), which sought to

determine the degree of corporate internationalization based mostly on what activities companies


did abroad rather than on human aspects, such as cultural diversity. Alder (2002) contends that

management researchers have ignored perhaps more than corporate executives the impact

cultural diversity has on a corporation. The author postulates that there is an ethnocentric-

geocentric continuum upon which global corporations rest, much as Perlmutter (1969) contended

that there are degrees of ethnocentric, polycentric, and geocentric mindsets in every firm (p. 11).

Perlmutter (1969) suggests ―no single yardstick...is sufficient to establish a firms multi-

nationality‖ (p. 18). A scan of literature suggests many factors can be measured to determine a

company‘s place on the continuum, including corporate culture and climate; the composition of

boards and GTMTs; the mindset and nationality of corporate leaders and their international

experiences; the nationality of leadership in regional headquarters and subsidiaries; and the

proportional composition of the global workforce compared with diversity at the top of the firm.

These themes and how they relate to performance are explored below.

Corporate Culture, National Cultural Diversity, and Performance

―Strengthening diversity is...essential [in] future orientated corporate culture[s].‖—Deutsche Bank (Koppel, 2008, p. 26)

Global organizations operate in a culturally diverse environment; they can take action to

simply survive in that environment, or they can try to harness diversity and thrive. Kotter and

Heskett (1992) state corporate culture is ―stable over time, but never static‖ and crisis and

challenges can provide impetus for cultural change (p. 7). The challenge and impetus today

comes from globalization that has finally arrived. Cultural diversity should be intrinsic in a

global corporation‘s strategy and culture, permeating the entire organization holistically, from

the boardroom to the factory floor (Koppel et al., 2008, p. 86). Thomas et al. (1996) contend

there are two paradigms used by companies to manage diversity. The first is the assimilation


paradigm, promoting the idea that everyone is the same. This subverts differences and

employees become detached from the firm and under perform. The second is the differentiation

paradigm, where the firm celebrates diversity without equality, and under represented employees

are pigeonholed into positions that require their cultural perspective. These employees do not

advance into mainstream business and feel exploited. Thomas et al. (1996) propose the two

paradigms be integrated so equal opportunity exists for all workers to advance while diversity is

celebrated and integrated into all aspects of business. This allows their ―different, important, and

competitively relevant knowledge and perspectives‖ about how things should be done to be fully

integrated in all work at all levels of the corporation (p. 4).

Leveraging cultural diversity to create ‗perceptual synergy‘ to improve problem solving,

enhance creativity and innovation, better understand global customers and constituents, and

improve effectiveness and efficiency is as relevant to a polycentric or regio-centric corporation

as it would be to a fully integrated geocentric one. Literature shows successful teams do not

simply tap into the expertise of individuals, but create synergy by developing a new common

culture (Palmer et al. n. d., p. 2). The first step is to genuinely value cultural diversity and

clearly understand the benefits. Creating a global corporate culture is both extremely important

and difficult ( Marquardt ,1999, p. 47). Marquardt (1999) states employee mindsets, values,

thought patterns, beliefs, and behaviours must transform so they become ―world citizen[s]‖

while retaining their national identity (p. 47). Valuing diversity and formally entrenching it in

corporate strategy and culture invites culturally diverse talent through the doors. The goal of

many companies is a workforce demographic mirroring their domestic and global customer base,

and as previously mentioned, the principle of requisite variety suggests this is sensible at all


levels of the firm. A geocentric corporate culture permeating the organization from top to

bottom allows this to happen (Koppel et al., 2008, p.11, 19).

With national diversity in place, synergy potential is increased. Key to harnessing cultural

diversity to create synergy is creating the right corporate climate to transform how differences

are seen—not as threats, but as opportunities to learn and improve outcomes. Conditions must

be created that enable rather than hinder diversity and enhance creativity and innovation rather

than conflict and friction (Koppel et al., 2008, p. 22, 50). A focus on exchanging diverse ideas

and learning is important. Differences need to be valued not feared to create conditions for

synergy to occur (Centre for Human Systems, n. d.). An open and healthy environment founded

in mutual trust, where diverse opinions are sought and valued, is required; it cannot be a climate

of fear, or far flung ideas that result in ingenuity and innovation will never be uttered. Moran et

al. (2007) write that ―differences are not deficits to be changed and corrected but gifts to be

cherished and enjoyed‖—people want to be valued, not simply tolerated (p. 182, 199). The

culture must therefore prize diversity and allow employees to maximize their potential (Moran et

al., 2007, p. 195). This does not mean abandoning corporate cultural roots, but rather

―intertwining them‖ with other cultures, celebrating diversity (Sirkin, 2008, p. 214) to create ―a

third culture‖, which will then be better able to compete in a culturally complex global

marketplace (Schmidt et al., 2007, pp. 48-49).

By accepting cultural diversity, cultural differences amongst the global workforce and

executive team should be viewed as important intrinsic assets (Moran et al., 2007, p. 144). The

aim of diversifying to create cultural synergy that leads to innovation and other positive

outcomes should be an overt component of corporate strategy and entwined in corporate culture

(Moran, 2007, p. 239). The pursuit of cultural diversity should not be for reasons of corporate


self-interest, which might be revealed by ‗glass ceilings‘ that prevents cultural diversity from

penetrating into GTMTs or the boardroom (Koppel et al., 2008, p. 74). Diversity cannot be

token; it needs to be about more than respect, tolerance, political correctness, and employment

equity. Without substance, empty diversity initiatives are indicative of an organization simply

trying to conform to legal requirements and ‗manage‘ cultural diversity rather than leverage it for

all it is worth. Significantly, Alder (2002) suggests that cultural differences should not be

ignored or underplayed, but seen as a valuable resource to be highlighted and emphasised; equity

programs can sometimes blur the important cultural differences that exist (p. 107, 111).

Moran et al. (2007) suggest there needs to be a fit between corporate culture and people if

synergy is to occur (p. 134). A lack of strategic and cultural fit is the main reason mergers fail,

often because the major partner seeks to impose its corporate culture rather than develop a new

and shared culture (Cultural Synergy, 2007). Corporate centralization tends to impose ―values,

means and ways on other cultures that may not be appreciated‖—much as Toyota has done with

the Toyota Way (Schmidt et al., 2007, p. 44). This does not to work. Outlining the work of

Andre Laurent, Alder (2002) stresses that corporate culture tends not to temper or eliminate

national culture but amplify it, with Germans becoming more German, and Americans more

American (pp. 68-69). The challenge then is to ensure these deep and magnified differences do

not lead to conflict but are cherished and sought out, and that cultural synergy potential at all

levels of the global firm is released in ways that add value.

Global corporate culture must be inclusive and somewhat malleable. ―New and more

elastic corporate cultural models‖ are being developed to cater to ‗globality‘ and increasingly

these models will try to harness cultural diversity within organizations (Schmidt et al., 2007, p.

59). Dr. Milton Bennett states that when the dominant cultures make an effort to adapt to non-


dominant ones, a third culture emerges, not a hybrid but a unique one, which is more likely to

generate ―third solutions‖ (Ramaswami et al. , 2010, p. 21). This is echoed by Schmidt et al.

(2007) who state ―the ultimate success for these organizations is when they transform themselves

and essentially metamorphose into a ―third culture‖ in which they mutually share decision

making and capitalize on the synergistic output‖ (p. 49). One can envision large corporations

with a core corporate culture as the underpinning for ‗third cultures‘ around the globe.

Kets de Vries et al. (2003) found a main priority for global leaders was to ―establish and

maintain a corporate culture that transcends cultural differences and establishes beacons—values

and attitudes—that are comprehensible and compelling for employees with diverse backgrounds

and cultural differences.‖ Clearly more than a superficial understanding of national culture is

required for this to occur. Global leaders understand that all human beings have some universal

values and needs, including meta-values for attachment, pleasure, and meaning. Fulfilling these

desires through a corporate culture and climate appealing to cultures everywhere fosters ―loyalty,

motivation, and exceptional performance‖ (p. 30). Workers are more satisfied, have a greater

sense of self determination, competence, belonging and enjoyment, and feel they have an impact

and are valued. In this climate ―cultural barriers fall, and people are more motivated to put their

imagination and creativity to work‖ (p. 30).

Even if the corporate culture and philosophy are right, however, time, resources, and

effective ways must exist to ensure cultural diversity synergy potential is released. Justesen

suggests a process where: cultural knowledge domains available are identified; the group is made

aware of the domains available; and processes ensure knowledge is exchanged (as cited in

Koppel et al., 2008, p. 57). She warns against conventional workplace wisdom promoting

harmony, finding disciplined, culturally diverse groups where everyone is treated nicely, people


listened quietly, and only one person talks at once, rarely challenge espoused ideas; more often

than not there is widespread agreement leading to far less innovation (Koppel, 2008, p. 57). If

global corporations can develop the appropriate global business culture and cross-cultural

competencies to fully leverage cultural synergy potential, the aforementioned values might be

realized, resulting in improved performance.

There have been two important studies into culture and performance. First, Kotter et al.

(1992) found four types of corporate culture: strong, weak, low performance, and adaptive.

Strong culture is built on durable common values, a commitment to operating by certain

principles, and concern for employees, customers, and suppliers; these cultures are normally well

aligned with corporate strategies. In weak cultures, employees do not relate to corporate goals

and feel distant from its values; consequently there is weaker alignment with corporate strategy.

Low performance culture is unhealthy, and can be harmful to corporate strategy. It is insular

with a lack of trust, fiefdoms, turf wars, careerism, a lack of initiative and innovation, and

myopia. Finally, adaptive cultures adjust to the changing business environment, facing

challenges and seizing opportunities when they occur. The adaptive culture best supports

strategy implementation (Ross, 2000). Nonetheless, at the end of the extensive research, Kotter

et al. (1992) found firms with strong corporate culture can perform poorly, and those with weak

ones can perform well; their conclusion was corporate culture does not improve performance.

More recently, however, Burt, Guilarte, Raider, and Yasuda (1999), found no relation

between culture and performance only when there was little competition; nonetheless, they

exposed strong empirical evidence that a robust corporate culture can be a decided asset in

highly competitive markets, improving considerably performance under these conditions. With


increased global competition today, a strong, adaptive corporate culture tailored to the culturally

complex global business environment should improve global corporate performance.

In sum, corporate culture creates the climate necessary to attract the best global talent

available and sets conditions for cultural synergy to occur. Since there is general agreement that

corporate culture should be aligned with business strategy, a strong geocentric corporate culture

may indicate a geocentric corporation. Therefore, corporate culture might be subjectively

measured and used as an indicator of the degree to which a company is geocentric, by

determining if it ignores diversity and differences, tolerates them as obligations, or integrates

diversity system wide and seeks to leverage differences to improve global performance. The next

sections examine the extent to which culturally diverse human capital is represented at the top of

global firms and how this impacts performance. One would expect a larger proportion of foreign

nationals in the upper echelons of corporations with geocentric corporate cultures.

National Cultural Diversity on Boards of Directors and Performance

―One of the indicators that an organization is truly global is the number of nationalities represented on its board.‖ (Kets de

Vries, 2006, p. 191)

Cultural diversity extending to the top of an organization indicates a systemic approach to

it and a business strategy, supported by a corporate culture, attempting to harness cultural

differences throughout the organization. It is national cultural diversity at the top of global

corporations that will be examined next and used in the research as a means to help determine a

company‘s place on the ethnocentric-geocentric continuum.

Echoing Kets de Vries, Schneider (2010) contends a measure of success in becoming a

geocentric corporation is the share of senior executives who joined the company in foreign


subsidiaries at the national level and have been promoted to the global executive suite; the path

should be wide open to attract the best talent, otherwise talent will rest at home. Conversely, the

mark of an ethnocentric corporation is low international representation at the top of the

organization. In such organizations, barriers exist, both systemic and invisible, that prevent other

nationalities from benefiting from and sharing in power at the top of the organization. For

example, Japanese companies often only allow native Japanese to rise to global executive

positions. This is a considerable disincentive for talented foreign managers to join such

ethnocentric companies. It also inhibits Japanese firms from sources of unique ideas, achieving a

strategic understanding of foreign markets, developing a heterogenic talent pool of human

capital, and benefiting from accompanying cultural synergy potential (Moore, 2006, p. 3).

Moran et al. (2007) contend that ―if diversity...is managed in a system-wide, culturally

synergistic manner...it is...likely...overall employee performance, retention, and morale will show

a significant improvement‖ (p. 232). Thus, diversity should extend to the top of the

organization—system wide. Fundamental change in culture begins at the top of an organization,

so it is evident that to be authentically global, a company‘s board and GTMT should be

multinational (Zehnder, 1991, p. 48). Business leaders from different societies bring different

contributions to the table that should be seen as precious resources; ―skilled global leaders...

recognize the contribution made by managers of other nationalities‖ (Moran et al., 2007, p. 151).

Examining first the boardroom, effective corporate governance depends on board diversity,

and there is wide consensus it is a necessary means to improving shareholder value (Brancato,

1999, p. 14). A culturally diverse group of experienced international executives provides many

diverse knowledge domains and much more synergy potential, which is required to make

effective decisions in a complex global business environment (Zehnder, 1991, p. 48). And the


globalization of boards is increasing. Esser (2001) reports that cultural diversity at the board

level trails management diversity, but an effort to internationalize boards began in earnest in

1995. Between 1993 and 1995, boards with at least one foreign director rose from 38 to 39 %,

but between 1995 and 1998 this had increased to 60 %; 23 % of these companies had three or

more foreign directors. Foreign directors accounted for 10 % of board composition by 1998

(Esser, 2001). The Esser (2001) study also found European and North American boards are

more diverse than Asian boards. Palmer et al. ( n. d.) confirmed this but found American

boards to be less culturally diverse than European ones, with Asian firms having very little

diversity; they also questioned how homogeneous ethnocentric corporations who derive a major

portion of their revenues from global operations can expect to effectively monitor and direct

global corporate activity (p. 9). They suggest that American corporations ―do not take sufficient

advantage of the potential synergies of cultural diversity on boards of directors‖ (p. 21).

Hansen (2007) found that cultural diversity on American boards ―no longer reflects the global

nature of business and the geographic distribution of the workforce‖ and that when American

boards do have foreign directors, they tend to come from Canada, the United Kingdom, or

Germany.

Palmer et al. (n. d.) also found that although European boards at first glance appear more

culturally diverse, often these boards are filled with other Europeans, habitually from

neighbouring countries, in the case of several Scandinavian countries (p. 22). In other words,

although European and North American companies do have some foreign nationals on their

boards, these members are customarily not that different and do not represent the true global

nature of their operations.


Ronen et al. (1985) examined eight empirical studies regarding general employee attitudes

towards work, including the research of Hofstede, to cluster countries into what they call psychic

zones. They assumed, as did the studies they examined, that cultures are distinct and that

countries can be used as proxies for culture (p.435). Although their study was meant to help

firms better understand and manage differences between countries, and their global workforce

and worldwide operations, they suggested the research is useful for academicians to generalize

country specific research to other similar countries (p. 435). Based on their synthesis of the

analysis of the eight studies, they divided the world into the following psychological zones

representing culturally similar groups of countries: Anglo, Germanic, Nordic, Near East, Arab,

Far East, Latin America, Latin Independent, and Others. Although the studies examined

excluded African and former communist countries, and they concluded that Far and Middle

Eastern countries have not been studies sufficiently to completely understand their attitudinal

differences towards work, they determined countries can be grouped by similarities on certain

cultural dimensions and the psychic zones described above have strong statistically relevant

clusters ( Ronen et Al., p. 452). Given this and the fact this fusion of studies considered cultural

differences in employee attitudes towards work, it is considered by the author a relevant way to

group cultures for this study. This is because a general grouping of culture in this way is

sufficient to identify different cultural knowledge domains that may be used to create cultural

synergy potential that can be leveraged for competitive advantage; this is a general study of the

influence of diverse cultures on the upper echelons of business and not a micro study of specific

mores and attitudes of business leaders, directors, and global executives.

It is therefore fair to suggest a board containing members from several different psychic

zones would be more culturally diverse than a board with members from the same zone.


Therefore, when considering cultural diversity, an examination of psychic or regional diversity

may provide insight into the true cultural synergy potential of a corporation. Although Caligiuri

et al. (2004) and others argue against Sullivan‘s use of psychic zones to measure

internationalization, preferring simply to use ―a straight forward count of the number of countries

where a company operates,‖ the current author believes that because Ronen et al.‘s (1985)

psychic zones are directly related to cultural fissures, they may be useful in examining the

breadth of national cultural diversity within GTMTs and boards.

And this is especially relevant to this study given swelling globalization. More recently in

Europe, there is a genuine trend toward national cultural diversity on boards. Rather than simple

national diversification with familiar neighbouring countries, companies are beginning to seek

more directors from outside their regions, in different psychic zones ―with very different cultural

backgrounds and business knowledge‖ (Esser, 2001). For example, 48 % of European firms

sought directors from North America or Asia rather than from fellow European Union countries

(Esser, 2001).

Geo-centricity for its own sake is of no practical use, however, and while legislation or

voluntary charters have contributed to an increase in gender diversity in Norway, Spain,

Germany, and The Netherlands, there is no legislation compelling global boards to

internationalize; companies obviously recognize some benefit in increasing cultural and national

diversity on their boards. What are the potential performance advantages?

Boards have several key functions, principle amongst them to represent shareholders by

monitoring the corporation‘s activities and determine sound policy and strategy by making

effective decisions (Erhardt et al., 2003, p. 104; Palmer et al., n. d., p. 22). The former function

suggests that, with increasing international capitalization, boards, as fiduciaries, should diversify


to better reflect global shareholders (Brancato, 1999, p. 14). Agency theory suggests outsiders,

like foreign directors, will effectively monitor the company and better represent shareholders,

thereby improving financial performance. Resource dependency theory considers insiders more

valuable because they provide more resources to the board and fulfill many important functions

(Jaskiewicz and Uhlenbruck, n. d., p. 1). Other literature finds that directors with different

knowledge domains also provide important resources that can be tapped (Jaskiewicz et al., n. d.,

p. 5). Resources that culturally diverse boards provide are many. Esser (2001) found the

reasons boards internationalize are to: widen the pool of candidates; be able to effectively

monitor their companies, which have become as culturally diverse as the markets within which

they operate; have more access to foreign capital by gaining the trust of foreign investors; attain

expertise to help deal with complex issues, such as mergers and foreign acquisitions; provide

cultural sensitive advice; and professionalize the board with culturally acumen ―strategic know-

how and specific areas of expertise.‖ Foreign board members may also provide a varied, broader

perspective to shape strategy; assist in acquiring resources such as finances and materials;

provide intangible resources like culturally dynamic professional expertise and knowledge,

which may be used to create new knowledge; provide market intelligence and access into new

markets; and offer relational resources such as information, support, advise, legitimacy, mental

capital, and status (Palmer et al., n. d., pp. 3-4; Hansen, 2007).

Most research into board diversity and performance has examined differences in gender,

national ethnicity, the tenure of board members, functional background, and age (Palmer et al., n.

d., p. 5). The results are mixed. Dalton, Johnson, and Ellstrand (1999) found no significant

relationship between performance and board composition. Wang and Clift (2009) found no

relationship but noted that more diversity did not lead to poor performance. They also believe


that there are so few diverse members on boards that they likely acculturate to the board. They

contend that a critical mass of diversity may result in a positive association with performance;

this idea is supported by Carpenter, Sanders, and Gregersen (2001). Other studies have found

board diversity increases creativity, improves decision making, causes more conflict, and

decreases commitment and communication (Palmer et al., n. d., p. 6). A positive correlation

between board of director demographic diversity and the firm financial performance has been

shown by Erhardt et al. (2003). They note a positive association, although not necessarily

causal, between gender and ethnic diversity and the financial return on assets and investment;

thus they contend that diversity within a board seems to impact positively corporate performance

(pp. 107-109). They conclude the oversight function of a board may be positively affected by

diversity due to the more conflict and a broader range of opinions (p. 108). They also highlight

that Enron‘s fall and the well publicised failure of its board to effectively oversee the company‘s

balance sheet activities. Enron‘s diversity consisted of one female on the 17 member board, or a

6 % diversity quotient compared to the 25 % mean for companies considered in their study. This

typifies the problems presented by a lack of diversity, ―namely a lack of [healthy] conflict and

breadth of perspectives‖ (Erhardt et al., 2003, p. 108). Does their study of gender and ethnic

diversity within 112 American companies also apply to national cultural diversity within global

corporations? Cultural synergy theory suggests it would.

Caligiuri et al. (2004) built on Sullivan‘s (1994) previous research into firm

internationalization and added the ratio of national diversity amongst board members as a

potential indicator of internationalization. This ratio might also be used to determine the degree

to which a corporation is geocentric or ethnocentric. Having found a positive relation, however,

they concluded that this simple ratio does not measure the true extent of national diversity


because a board of six, with three Canadians and three Americans from the same psychic zone,

would have the same ratio as a board with one Indian, Swede, and Singaporean and three

Americans, representing four psychic zones (Caligiuri et al., 2004, p. 855). Therefore, the ratio

of the number of psychic zones represented on a board might be a better indicator than the

simple ratio described above.

In sum, theory suggests national cultural diversity on boards should be beneficial. Indeed

there is some evidence in the literature that this may be so. Based on the current literature

review, the author postulates as well that the extent other nationalities and psychic zones are

represented at the top of a global corporation—in the boardroom—as a proportion of corporate

domestic nationals can be measured and might also a useful indicator of the degree of geo-

centricity in a corporation. The next section will review diversity amongst the GTMT and how

this relates to performance.

National Cultural Diversity in Global Top Management Teams (GTMT) and Performance

―Global managers are made, not born. This is not a natural process. We are like herd animals. We like people who are like us.‖

Percy Barnvek, ABB (Taylor, 1991)

Carpenter et al. (2001) asked the question, ―shouldn‘t every multinational corporation have

a global top management team?‖ Considering the postmodern global-market cultural

complexity, it will become increasingly difficult for companies to direct global business from a

centralized ethnocentric corporate headquarters isolated from the cultures they serve. Maznevski

and Peterson (1997) state ―the days are passing when...corporations...[can] operate complex,

dynamic industries from the unambiguous cultural base of a home country (p. 61).


The literature intimates that competitors from emerging markets understand this as they

look beyond their own borders to other emerging and more developed markets in their search for

talent. They ―have tapped into the global talent pools far more aggressively... bringing people

with knowledge and expertise into their companies.‖ In India there are currently 50,000 expats

working in their global corporations, 1000 of whom hold executive positions (Sirkin et al., 2008,

p. 30). Sirkin et al. (2008) writes about Indian company Suzlon Energy, with senior executives

from Denmark, Germany, The Netherlands, North America, and Australia making up its GTMT

(p. 225). Before continuing, GTMT should be defined. It consists of global corporate leaders

and managers having global responsibility for any business function (Jokinen, 2004, p. 201).

For the purposes of this paper, it does not include regional leadership and managers because their

responsibilities are not global.

Recently, there is a growing expectation in global American corporations that GTMTs

have international experience to at least have some cultural insight to better manage global

complexity and understand their international operations (Carpenter et al., 2001, p. 277, 279).

While this trend falls far short of forming a culturally diverse GTMT, it demonstrates recognition

that the global business environment is culturally complex, and an attempt to effectively manage

it. Gregersen, Morrison, and Black (1998) report that executives with international experience

found it to be singularly important in their own leadership development. Nevertheless, a

corporation with an internationally experienced yet culturally homogeneous GTMT is still

ethnocentric.

Literature suggests, however, that Unilever and companies like it embody geo-centricity.

Chairman Michael Treschow, from Sweden, has ―integrated... local leadership teams into their

global succession planning... to effectively bubble-up top talent from around the world‖ (Sirkin


et al., 2008, p. 109). They have made recruiting, developing, and training global executives a

priority and they draw them from throughout the organization. Gregersen et al. (1998) found

global leaders and executives are in short supply with 29 % of companies reporting they had

―nowhere near enough‖ and 56 % responding they had ―fewer than they needed‖ (p. 22). But

Unilever increases their talent pool and ensures better quality and more quantity by broadening

the search to include the ―worldwide pool of executives in their organization‖ (Bartlett et al.,

2003, p. 9). Bartlett et al. (2003) state as well that ―a company‘s ability to identify individuals

with potential, legitimize their diversity, and integrate them into the organizations corporate

decisions is the single clearest indicator that... the company is a true transnational‖ (p. 9). To

attract top foreign executives, there needs to be ―a clear and viable path to leadership. There

cannot be a real or perceived glass ceiling..., or they will look elsewhere for a career that will

allow them to realize their potential‖ (Sirkin et al., 2008, p. 106).

In addition, literature suggests a critical mass of national diversity is required in the GTMT

for it to be effective—parachuting a lone foreign national is not enough. Carpenter et al. (2001)

found that a CEO‘s international experience had an even more significant impact on company

performance if his GTMT has similar international experience. This shared experience results in

mutual trust and provides an underpinning for communication, essentially creating cohesion that

allows strategy to be effectively executed (Carpenter et al., 2001, p. 280). Similarly, it is

reasonable to expect that a critical mass of executives of several nationalities would improve a

GTMT, and ultimately competitive advantage.

Not all literature supports the idea that national cultural diversity is important in the GTMT

and critics highlight successful ethnocentric companies with CEOs and GTMTs lacking

international experience as proof, suggesting ―international complexity can be managed through


middle management, expatriates, locals, or consultants (Carpenter et al., 2001, p. 278).

Unfortunately, there is little research today into the impact of national cultural diversity on the

performance of GTMTs—most research has explored middle managers, teams, and employee

diversity (Palmer et al., n. d., p. 2). One might suppose however the advantages and difficulties

associated with diverse boards will apply equally to GTMTs.

Finally, Caligiuri et al. (2004) used the ratio of national diversity in GTMTs as a measure

of diversity and recognized as well that it could be used to measure the degree of geo-centricity.

It seems therefore from the current literature review that national composition and span of

national diversity of GTMTs might also be an indicator of a corporations place on the

ethnocentric-geocentric continuum.

The next section overlaps somewhat with previous two insofar as it examines global

business leaders, who are also members of boards and GTMTs. Nevertheless, given the

importance chairmen, presidents, and CEOs play in shaping strategy and corporate culture,

which in turn decides whether a corporation tends to be ethnocentric or geocentric, the concept

of global leadership and its relation to performance should be considered.

National Cultural Diversity in Global Business Leaders and Performance

―Global leaders are born and then made... they are highly competent and interested... push the frontiers of their own knowledge

and understanding... thrive in a chaotic and ambiguous environment... love people [and] global business... In reality, precious

few... competent global leaders exist.‖ (Black et al., 1999)

There is wide agreement that global leaders are made (Moran et al., 2007, pp. 27-28;

Taylor, 1991, p. 95). But what is the global business leader? Literature suggests the global

leader is a rare and valuable resource for corporations that want to compete globally (Carpenter

et al., 2001; Gregersen et al, 1998). Dr. Taylor Cox contends senior corporate leadership is the


single most important factor in promoting cultural diversity; these leaders must be diversity

champions and communicate this widely through words and deeds, integrating diversity

management with corporate strategy, and holding people accountable where necessary (Koppel,

2008, p. 24). Little happens if things are left to chance and diversity needs to be effectively

managed throughout the organization (Koppel et al., 2008, p. 70). Chairmen, presidents, and

CEOs or their equivalents must have the intellectual and cross-cultural capacity and ability to

work effectively in a multifaceted global environment of different cultures, languages, politics,

regulations, and culturally complex markets, with ambiguous lines of authority, unorthodox

competitors, myriad suppliers, shifting technology, and global-local tensions (Gregersen et al.,

1998). ―A lack of diversity of thinking as well as senior management global experience [can]

significantly impact global performance‖ (Ramaswami et al., 2010). The international

experience of top executives is important in leveraging what cultural diversity has to offer.

There was a time when a foreign assignment was considered a ―one-way ticket to oblivion,‖ but

increasingly for global corporations it is a requirement to become a senior global executive

(Zehnder, 1991, p. 49).

Jokinen (2004) did a painstaking literature review of global leadership competencies to

provide a foundation for academics to conduct further research (p. 199). He noted a ―scarcity‖

of authentic global leadership literature and that the vast majority of research on global

leadership examined expatriates (expats) operating in foreign countries, or simply put, global

leadership in an ethnocentric context (p. 200). He found almost no consistent longitudinal

research has been conducted, and consequently when the literature is reviewed, there is a long

list of competencies—a mélange of ―traits, behaviours, skills, values and knowledge‖—and little

agreement amongst the autonomous work of researchers (p. 211, 201, 204).


Jokinen (2004) attempted to identify qualities that enable leaders ―to work across cultures

globally‖ and provide an integrated competency framework that synthesized the work of other

researchers (p. 201). The framework consists of core competencies, mental characterises, and

behavioural competencies and is outlined at appendix 1. A quick scan of these details reveals

that many competencies apply equally to any exceptional leader of a large organization working

in a complex environment; however, Kets de Vries et al. (2003) found that exceptional

leadership qualities are not enough to be an effective global leader. Buried in the myriad

competencies at appendix 1 are several, some mentioned above, that seem specifically relevant

to global leadership in a complex cultural environment. These have been highlighted at

appendix 1, and include the ability to lead culturally diverse teams, acquire and use cultural

knowledge, retain leadership qualities in unfamiliar circumstances, accurately profile other

cultures, and understand global interdependencies, to name just a few (Jokinen, 2004).

Unfortunately, although much effort has gone into identifying these competencies, research

has not directly related these aptitudes to the performance global leaders (Jokinen, 2004, p. 204).

One aspect however has been used to predict the performance of a global leader, and that is

international experience. International experience and participation in global taskforces and

multi-cultural teams with people of diverse cultural backgrounds has been shown to be beneficial

to global corporations and to provide competitive advantage (Jokinen, 2004, pp. 210-211).

Gregersen et al. (1998) contend travel, teams, training and transfers are all important in

developing global leaders, but transfers that resulted in executives living and working in foreign

cultures were the most important. Training and preparation are vital as well. Kets de Vries et al.

(2003) report that international MBA programs and other training and cultural professional

development help develop a cross-cultural mindset and minimize ethnocentricity (p. 26). It is


also critical that participants in global leader training come from the breadth of the company‘s

global talent pool, not only to ensure a culturally diverse training climate, but to tap into global

talent (Gregersen, 1998). Training and key experiences beget international curiosity and interest,

which foster the development of global competencies (Black et al. 1999).

Carpenter et al. (2001) found international experience was ―surprisingly rare‖ with only 22

% of CEOs and 11 % of the GTMT executives having international experience. Leaning on

resource theory, which suggests resources that are valuable, rare, and inimitable provide

competitive advantages, they developed the hypothesis that the international experience of the

CEO is positively associated with corporate performance. The study examined previously

untested human capital resource theory, finding international experience did predict return on

assets and financial performance. They discovered as well that financial performance improved

when an international CEO was ―bundled‖ with a GTMT having international experience, as

previously mentioned—in other words, global CEOs do better in geocentric, global corporations.

Black et al. (1999) also found a positive relationship between a leader‘s international experience

and a firm‘s return on net assets (as cited by Jokinen, 2004, p. 211).

But having a CEO with international experience does not make a corporation geo-centric.

It only makes sense today for global senior executives to have this sort of international

experience. However, if American managers, for example, are sent abroad to gain international

experience and the best of these return to manage and lead a homogeneous GTMT, to be sure,

they will have a wider range of knowledge and be more effective than they otherwise would have

been if they had all remained at home, but the whole endeavour would still be ethnocentric and

the corporation would not have leveraged the synergy potential of a culturally diverse,

internationally experienced group of senior executives.


Carpenter et al. (2001) found only four % of CEOs were foreign nationals, who notably

performed at the same level as American CEOs. This highlights that American corporations are

still not tapping into the best available global talent, which can perform equally well. The study

suggests an ethnocentric bent in American global corporations, referring to research that report

American CEOs are a homogeneous bunch, typically white males, long tenured, graduates of

prestigious universities, with financial or law backgrounds. An internationally experienced

global leader, the best available from a nationally diverse international pool of talent, might

afford even more competitive advantage in stark contrast to the norm (p. 494). To realize the

true potential and possible competitive advantage international experience can bring, companies

must attract and retain global talent in national subsidiaries by offering them attractive global

career paths and allowing stars to rise to the top (Zehnder, 1991, p. 49). So, not only is varied

international CEO experience an indicator of a geocentric global firm, so is their nationality. A

true indicator of a geocentric corporation, in addition to an international leader‘s experience,

might be whether a CEO or chairman is a foreign national, particularly if he or she comes from

another psychic zone. Supporting this, Caligiuri et al. (2004) advise that research into the

psychic distance between the corporate leaders and parent country might be a more appropriate

indicator of diversity of attitudes (p. 856).

Business Leaders in Regional Headquarters and National Subsidiaries

―With some exceptions, the wrong people are running U.S. companies. It's been that way for years, and it hasn't gotten much

better.‖ — Carl Icahn (woopidoo, n. d.)

The end of the thread in the national cultural diversity fabric emanating from the top of

geocentric corporations hangs in global national subsidiaries. As previously mentioned,


ethnocentric companies often reserve top managerial positions in subsidiaries for nationals from

the corporation‘s home country. Although this might be done for other than ethnocentric

reasons—for example, the managerial expertise may not exist in a particular country when a

multi-national corporation enters a new market, or the executive appointed may be bi-cultural

and have the requisite language and cultural knowledge—this can nonetheless severely damage

productivity, morale, and the retention of talent if their appears to be an impenetrable barrier that

prevents qualified and available host-country managers from advancing higher in the corporation

and competing for these jobs (Zeira, 1976, p. 34; Moran et al., 2007). Polycentric companies

also allow and even prefer foreign nationals to fill these top positions, but their subsidiary leaders

will not be permitted to advance higher in the firm. In either case top talent, seeing barriers to

advancement, tend to use ethnocentric or polycentric companies to gain experience before

looking for similar jobs in a geocentric global corporations or an ethnocentric firms from their

own nation (Schneider, 2010; Zeira, 1976, p. 35). Ethnocentric policies like this are ultimately

damaging. A geocentric corporation will use national subsidiaries as ‗breeding grounds‘ for

future global leaders from around the world. The leadership of subsidiaries or regional

headquarters—whether leaders comes from the company‘s parent-country, or the host nation, or

a third country—may therefore be an indicator of a company‘s ethnocentricity or geo-centricity

(Moran et al., 1993).

A Final Measure – The Ratio of Foreign Employees to Total Employees

―Business…only has one true resource: people.‖—Peter Drucker (Drucker, 2008, p. 28)

The ratio of foreign employees to total employees is one of three measures used by the

United Nations Conference of Trade and Development to determine the degree of firm


internationalization ( Caligiuri et al., 2004, p. 848). This ratio, measuring overall firm national

diversity, can be compared against the ratio of national diversity at the top of global companies

to determine if foreign nationals permeate proportionately to the top of the firm, or if there are

barriers preventing them from being in GTMTs and boards. The literature suggests this is a

good indicator to ascertain if a corporation is ethnocentric or geocentric; in geocentric

corporations the variances between these two ratios will likely be less than in ethnocentric ones.

CONCLUSION OF LITERATURE REVIEW

―Only when managers explicitly recognize the concept of culture can the response to cultural diversity be synergy.‖ (Alder,

2002, p. 113).

The literature suggests a great deal more research should be done to better understand the

impact of national cultural diversity at the macro level—in global corporations within boards and

GTMTs—to complement the substantial research into lower level team diversity. Past macro-

level research has focused on determining the degree of internationalization (DOI) of firms, the

theory being that the more international a company is, the more competitive it will be (Sullivan,

1994; Legace, 2004; Perlmutter, 1969). This research ignores almost completely the human

aspect of cultural diversity within the corporation itself, particularly at the higher levels, and

focuses almost completely on how globally widespread are the various functions of its

operations. This focus on internationalization has conceivably led some firms to internationalize

in an ethnocentric manner, by sending domestic parochial managers around the world to gain

global experience. These managers and those at corporate headquarters have typically employed

strategies to minimize cultural diversity by socializing employees into the dominant national and

corporate culture (Alder, 2002, p. 115). The paradigm shift resulting in widespread


globalization and tougher global competition means the cost of ethnocentricity is today being felt

and that the ―value-in-diversity‖ notion may no longer be rhetoric. Literature suggests there are

many potential benefits to bringing national cultural diversity into all levels of a global company,

managing it effectively, and synergistically leveraging it to create competitive advantage and

improve financial performance. It also identifies potential qualitative and quantitative ways that

the degree of geo-centricity of global corporations might be measured. Based on this, the next

section outlines the research methodology used to determine if national cultural diversity in the

governance and executive bodies of geocentric corporations provides a competitive advantage

resulting in better financial performance over ethnocentric corporations with homogeneous

boards and GTMTs.

RESEARCH METHODOLOGY

GENERAL

Contemporary business and social science literature posits that national cultural diversity

can be used to create synergy and improve global financial business performance, yet there is

much conjecture and little empirical research to support this premise. Substantial research has

attempted to determine a corporation‘s DOI—how global it is—as it relates to performance.

Sullivan (1994) used nine variables—reduced to six after factor analysis—to measure the DOI of

74 American manufacturers. His model included a mix of quantitative and qualitative variables

as follows: performance, based on what functions companies execute abroad (foreign sales,

R&D, profits, and advertising intensity, and export sales); structural by considering what

company resources are based abroad (foreign assets and the number of subsidiaries); and


attitudinal by determining the international experience of corporate leaders (leader‘s international

experience and psychic global dispersion) variables. This type of research postulates that global

expansion is good and leads to better financial performance. It seeks to establish a linear

correlation between DOI and financial performance; the results have been ―inconsistent and

inconclusive‖, although there is some evidence there may be a non linear relation (Ruigrok &

Wagner, 2003, p. 64).

With inconsistent results, difficulty in demonstrating cause and effect—it may be that high

performing firms globalize and continue to perform to a high level (Hejazi & Santor, 2005)—

and ever increasing globalization anyway, the question of the DOI-financial performance

relationship may be moot, particularly concerning the largest global corporations. The question

today for an increasing number of corporations is not if or to what extent to globalize—they have

done that over the past thirty years, often out of necessity to spur continued growth—but how

can financial performance be improved in a complex, culturally diverse, global marketplace.

The current study did not intend to determine the extent of internationalization of firms as

it was assumed companies sampled in this study were global given their ranking amongst the

2000 largest corporations in the world; it did however seek to discover the extent to which

companies already internationalized to a significant degree were geocentric or ethnocentric and

how this impacts performance.

In addition to studies on DOI, a superfluity of studies have examined the effects of

diversity on team performance in myriad low to mid-level settings, but little research has been

undertaken to determine the relation between the ethnocentric or geocentric orientation of

corporations as measured by national diversity at the top of the firm and overall corporate

financial performance (Palmer & Varner, n.d., pp. 1-2). This is an emerging field. Between


1993 and 1998, for example, it was found companies with at least one foreign director had

increased from 39 to 60% (Esser, 2001), yet there was no attempt to establish a relation with

performance. Lublin (2005) found that European corporate boards are internationalizing, with

90 % of the largest companies having a least one foreign director; but the question of the effect

this diversity has on boards and corporate financial performance remains unanswered. Palmer et

al. (n. d.) show that senior executive groups are more diverse than boards of directors, and that

European corporations are more diverse than American and Japanese firms, but again, diversity

is not considered in relation to performance. The current study will do just that.

A central theory in the literature is that national cultural diversity mounts to the highest

levels of geocentric global corporations, but is contained at lower levels by overt policy or

artificial barriers in ethnocentric companies, which prevent foreign nationals from advancing to

the top of corporations. Therefore, a high level of national cultural diversity at the head of a

corporation is likely a strong indicator of geo-centricity within a firm. The literature review

suggests several indicators—taken together—may be used to determine the degree of geo-

centricity by measuring national cultural diversity at the highest levels of a corporation, amongst

other seemingly important factors. Perlmutter (1969) suggests ―no single yardstick...is sufficient

to establish a firm‘s multi-nationality‖ (p. 18). The methodology described below, therefore,

rather than examining a singular aspect of cultural diversity within a corporation, such as board

of director diversity, attempts to measure all main factors the literature suggests are important

indicators of whether a firm is ethnocentric or geocentric in its prevailing corporate attitudes and

orientation; most factors identified in the literature would measure cultural diversity at the top of

an organization. The current study uses Sullivan‘s (1994) methodology, where he examines

quantitative and qualitative factors to determine a company‘s DOI and relates this to


performance. His results improved upon previous single-variable research to determine DOI.

His approach supports the notion that a single-item estimator of a construct—rather than a

multiple variable approach—risks distorting the validity of results. Moreover, the use of single

variables does not allow for estimations of reliability, thereby creating further risk of ―biased

data, flawed analysis, and... misleading results‖ (Sullivan, 1994, discussion).iii

The current study therefore examined multiple quantitative and qualitative factors together,

as well as each factor individually, to determine the general extent of geo-centricity in a firm,

and relates this to performance. As it turns out, due to variables that were dropped from the

model after testing, only quantitative measures were used to make what might be considered by

some a qualitative assessment of the degree of geo-centricity of each company studied. Some

have argued that using quantitative measures to determine a qualitative outcome, the degree to

which a firm is ethnocentric or geocentric, is disingenuous. But to be clear, the degree of geo-

centricity of companies studied is a quantitative and not a qualitative measure based principally

on the amount of national diversity found at the higher levels of a firm. However, accepting the

findings of Hofstede (1994) and Ronen et al. (1985) that qualitative differences exist amongst

people from different cultures and psychic zones, the current study‘s quantitative determination

of the extent to which a firm is geocentric and culturally diverse is a potent link to its qualitative

geocentric corporate orientation, which ensures foreigners with varied national mores and values

are represented at the top. As previously noted, the extent to which a firm opens its leadership

positions, executive suite, and boardroom to foreign nationals—those born and educated, and

with work experience in another country—is indicative of geocentric behaviour and a global

view on the part of a firm. It is accepted that there will be foreign nationals in these positions

that may appear just like home country nationals despite coming from another country, and that


many likely come from the same psychic zone. Nonetheless, for this reason, executives and

directors from different psychic zones are also considered in determining the degree of geo-

centricity. Finally, rather than actually measure the mores and values of each director or

executive studied, which is beyond the scope of this paper, the degree of geo-centricity in a firm

is believed to translate directly to diverse more and values, and knowledge domains, of the

leaders, directors, and executives in question based again on the research of Hofstede (1994) and

Ronen et al. (1985), which found there are distinct cultural differences amongst workers from

different nations; this notion is accepted as a foundation of this macro-level research. In theory,

these differences could if well managed lead to competitive advantage.

The current study at last is unique not in its methodology but in its holistic, multivariable

approach to measuring cultural diversity to determine quantitatively the degree to which a

company is geocentric; literature suggests, nonetheless, that the factors to be considered and the

multivariable methodology are both valid. The current research therefore builds on past research

into specific aspects of cultural diversity within corporations, such as board and global senior

executive group cultural diversity (Erhardt et al., 2003), to establish a concrete construct that

measures the extent of cultural diversity in an organization as it relates to financial performance.

Important, the paper also provides a springboard for future research.

SAMPLING PLAN

Forbes publishes the Forbes Global 2000 annually; Forbes data is considered reliable and

is cited frequently by researchers. The Global 2000 is a list of the largest and most powerful

companies in the world ranked in four equally weighted criteria: sales, profits, and asset and

market value. It is accepted by the author that these are reasonable measures of macro global


performance, particularly recognizing that growth, expected by stockholders, is the ultimate

strategic goal of most companies. The Forbes Global 2000 list for 2010 was used in this study.

Only one year‘s data was used because, as Forbes points out, changes in global ranking tend to

move slowly from year to year, although there are exceptions, such as Toyota‘s dramatic fall in

the 2010 ranking (DeCarlo, 2010).

The list also has a sub-list of 130 Global High Performers, an elite group of companies

with strong fundamentals. This list ranks companies on long-term and short-term sales and

profit growth; return on capital; debt-to-capital; and total return over five years.

A sample of three companies, a top performer, bottom performer, and Global High

Performer, from each of 27 industries in the Forbes Global 2000 ranking was taken. The result

was to be a study sample of approximately 81 global corporations across 27 industries. If there

was difficulty in obtaining data to determine a company‘s place on the ethnocentric-geocentric

continuum, the next company in the ranking, one down for top performers and one up for bottom

performers, was to be studied. In addition, three control companies, Toyota, Nokia, and

Unilever, which were cited in the research as examples of ethnocentric or geocentric companies,

were added.

Although it was assumed sampled corporations would be global because they are amongst

the 2000 largest companies in the world, two of Sullivan (1994) DOI criteria were used to screen

corporations during the analysis. First, a sample corporation needed to have operations

(excluding sales) in at least two psychic zones and, second, subsidiaries or other types of major

operations (such as R&D) in at least five countries. If a company did not meet these criteria, it

was dropped from the sample. This ensured sample companies had global reach that enabled


them to be geocentric and attempt to leverage the cultural diversity of their global workforce,

should they chose to do so.

Finally, one key aspect of the study was to determine the nationality of directors and

GTMT executives. Secondary sources, Internet websites, were used to do so. Often the place of

birth and/or nationality was available on the company website or other sources, such as

www.nndb.com, www.freebase.com, www.silobreaker.com, and Wikipedia—particularly for

Europeans—which all proved particularly useful at various times. When the information was not

easily obtainable, the full body of available information, given the constraint of time, was used to

make a determination. This principally included their early employment history and education,

as well as the origins of their family name. With this method, there were obviously some errors.

DATA SETS

Two sets of data were collected to support this research. The first set was secondary

financial data collected from Forbes Global 2000 sample companies that measured relative

global performance. Forbes collects their data from: Capital IQ, a Standard & Poor's business;

Interactive Data; LionShares; Thomson Reuters Fundamentals and Worldscope via FactSet

Research Systems; Bloomberg; and Forbes. In addition, Forbes, Standard & Poor‘s, and

Bloomberg where exploited to collect Return on Assets (ROA) and Return on Equity (ROE)

data.

The second set was primary and secondary source data used to determine a company‘s

cultural orientation on the ethnocentric-geocentric continuum. This data was obtained from

corporation websites, official company reports, and direct contact, if required.

http://www.freebase.com/


FINANCIAL DATA – DEPENDENT VARIABLES

Five separate dependent financial variables were used during the study. The first was the

Forbes Global 2000 ranking. As mentioned, Forbes uses four financial variables to measure

global competitiveness: sales, profits, and assets and market value. These variables were added

together with equal weight by Forbes to determine a firm‘s Global 2000 ranking. In addition to

this variable, company ROA and ROE were two other dependant variables used to measure

performance. Finally, two total overall performance measures were calculated, as two other

dependent financial performance variables. The first added the relative ranking of each company

amongst the sample group in the three aforementioned performance criteria: Global 2000

ranking, ROA, and ROE. This variable, because it included the Global 2000 measurements

meant the size of the company, as well as ROA and ROE performance, were important in the

outcome to establish a relative numeric ranking amongst the sample. The second variable added

the ROA and ROE real values together. In this case, the size of the company did not matter. See

appendix 2 for the dependent variable financial performance data.

ETHNOCENTRIC-GEOCENTRIC CONTINUUM—INDEPENDENT VARIABLES

General

Combing the literature, eight independent variables were identified and used in the study to

determine a corporations place on the ethnocentric-geocentric scale. Expressed as ratios or

ordinal scores between 0 and 1, the intent was to add these together to determine a corporation‘s

degree of geo-centricity (DOG) score, with 8.0 being geocentric and 0.0 being ethnocentric on


the continuum. Nunnally (1978) argued that ―validity depends on a rational appeal to an

adequate coverage of important content‖ (As cited by Sullivan, 1994, under research methods).

Therefore details of how independent variables were selected, supported by research, is justified.

Literature suggests the geocentric corporation that uses cultural diversity to create cultural

synergy should be more successful than ethnocentric corporations in the post-American business

environment (Moran et al., 2007; DiStefano et al., 2000; Shirkin et al., 2008; Marquardt et al.,

2001; Schmidt et al., 2007; Maznevski et al., 1997; and Bartlett et al., 2003). It also suggests

there are a number of attributes that indicate whether a company is inherently ethnocentric or

geocentric. The following eight variables expounded upon in the literature review were thought

relevant indicators and used to determine each sample company‘s DOG score.

Foreign Employee/Management Variance Score (FEMVS)

The variance between national cultural diversity within a company‘s workforce compared

to relative national cultural diversity in the firm‘s upper echelons was first examined. This ratio

measured overall firm national diversity compared against the ratio of national diversity at the

top of global companies—on boards and GTMTs—to determine if ethnocentricity or geo-

centricity permeates to the top of the firm or if there were barriers. In geocentric corporations,

the variances between these two ratios will likely be less than in ethnocentric corporations. First,

the Foreign Employees to Total Employees Quotient (FETEQ) was taken; it is one of three

measures used by the United Nations Conference of Trade and Development to determine the

degree of firm internationalization (Caligiuri et al., 2004, p. 848). Second, the Foreign

Management Quotient (FMQ), the number of foreign directors and GTMT members divided by

the total number of board and GTMT members, was determined. Finally, the FEMVS, which


measured the variance and determined a score with the equation FEMVS= (–( FETEQ – FMQ)

+ 1), was determined.

Corporate Governance and Leadership

Research suggests foreign representation on boards of directors and amongst global senior

executives is a key indicator of a company‘s cultural philosophical bent, which drives it to be

ethnocentric or culturally multi-centric (Moran et al., 2007; Schneider, 2010; Sirkin et al., 2008;

Bartlett et al., 2003). Admittedly this but one general factor, but when a company is examined

holistically and non-nationals, particularly if they come from different psychic zones, are evident

in vital areas like company leadership, the boardroom, and GTMTs, then something different and

noteworthy is going on, particularly when these companies are compared to homogeneous

counterparts in the same industry. Geo-centricity at the top of a company that emanates from

more nationally homogeneous global subsidiaries, or from global talent that is brought into the

executive suite, is evidence of a profound geocentric mindset among corporate leaders, and a

philosophy and business culture that accepts cultural differences and seeks to leverage them.

ABB‘s former CEO, Percy Barnevik considered the development of the best global leaders from

wherever they came as vital to the company‘s success and sought to leverage their varied

national perspectives to solve tough global business problems (Taylor, 1991). The diverse

national composition of ABB‘s board and GTMT is evidence of this philosophy. This differs

considerably for a company like Honda with no foreign members on its board or GTMT to

leverage. Ethnocentric global corporations are dissimilar. They generally do not believe foreign

nationals can perform as well and have barriers restricting leadership within the corporation and

membership on the board and amongst global senior executives to people from the country

where the corporation is headquartered. Five metrics discussed below were used to measure the


various aspects of national cultural diversity on boards within GTMTs, and amongst their global

leaders (presidents, CEOs, and chairman).

Board Cultural Diversity Quotients (BCDQs a & b). Quotient a. measures the number of

different nationalities on a board divided by the number of board members. The higher the

quotient, the more likely the company is geocentric and attempting to leverage national cultural

diversity. Having leaders from separate countries tells only part of the diversity tale, however.

If all the executives come from the Anglo psychic zone, for example, the cultural synergy

potential of the group is far less than a company with executives from two or more different

psychic zones. Therefore, quotient b. measures the number of different psychic zones

represented on a board divided by the number board members.

GTMT Cultural Diversity Quotient (GTMT CDQs a & b). Quotient a. measures the number

different nationalities on the GTMT divided by the number of executives in the GTMT. The

higher the quotient, the more likely the company is geocentric and attempting to leverage

national cultural diversity. Quotient b. measures the number of different psychic zones

represented in a GTMT divided by the number of GTMT members.

Nationality of Key Leaders (Chairman, President, CEO) Quotient (NKLQ). Having a

foreign national as chairman, president, or CEO is an indicator that the company is global rather

than ethnocentric. This quotient was determined by dividing the number of foreign nationals in

these key positions by the number of positions considered. Sometimes one executive fills two or

even all three of these positions, so between one and three positions/executives are considered in

this measure.


Nationality of Regional Headquarters Leader’s Quotient (NRHLQ)

Research suggests that ethnocentric corporations dispatch executives around the world to

be presidents of the company‘s various national and regional subsidiaries—for example, a

Japanese President of Toyota India—rather than one from India (Moran et al, 1993; Schneider,

2010; Zeira, 1976). A company leveraging local talent to lead national subsidiaries may be more

geocentric than one using its own nationals. Therefore, the nationality of leaders of a global

corporation‘s regional headquarters and subsidiaries was a metric. This quotient measures the

number of national leaders of regional headquarters or subsidiaries that did not come from the

firm‘s home country, divided by the total number of leaders surveyed; a sample of five leaders

was taken for each corporation.

Corporate Culture and Philosophy Score (CCPS)

Research clearly demonstrates the appropriate corporate culture and philosophy are

necessary if a company is to create a geocentric climate open and accepting of new ideas so

cultural diversity is leveraged and synergy potential is effectively brought to fruition (Moran et

al, 2007; Schmidt et al., 2007; Koppel et al, 2008). Based on this idea, formal corporate

literature—annual reports for 2009 and websites—were reviewed to assess the company‘s

ethnocentricity or geo-centricity based on answering the following three questions, which seem

germane based on the literature review:

Is national cultural diversity a strategic goal (0.0 or 0.25)?


Does the company ignore national cultural diversity, accept cultural differences and seek to

manage them, or specifically seek to integrate and leverage national cultural diversity (0.0,

0.25, 0.50)?

Does the Chairman, President, or CEO speak about leveraging national cultural diversity in

official company documents (0.0 for no; 0.25 for yes)?

The responses will be added up for a score between from 0.0 (ethnocentric) and 1.0 (geocentric).

VALIDATION AND SIGNIFICANCE TESTING

Prior to the research, a pilot test was done to determine the preliminary DOG scores of

Toyota, presumed to be more ethnocentric like many Japanese companies, and Unilever and

Nokia, both widely acknowledged as a geocentric corporations. The results indicated that

Toyota had a DOG score of 1.22 whilst Unilever‘s and Nokia‘s were 4.04 and 4.75, respectively

(appendix 2). This showed that the DOG score may be a good indicator of a company‘s placed

on the ethnocentric-geocentric continuum. Nonetheless, statistical factor validity by analyses of

variance, total-item correlation tests, and other appropriate factor testing was conducted to

determine the statistical significance of each variable and validate the DOG model. Variables

were not retained if they failed various validity tests. As will be discussed in the findings, this

resulted in a DOG model that had six rather than eight variables that explained one factor—

national cultural diversity at the higher levels of a corporation.

It was hoped this study would demonstrate that several variables, each with a unit weight

of one rather than differential weighting, could be combined into a one-dimensional construct

and be reliably used to measure the place of a corporation on the ethnocentric-geocentric


continuum, and further show a relation between the extent of geo-centricity and financial

performance (Sullivan, 1994).

The detailed testing that was done on the model and variables, and the statistical

significance of the relation between x and y variables is discussed in the findings.

METHODOLOGY AND DATA ANALYSE

X and y variables from the two data sets were finally analyzed to determine association

between the DOG score and each dependent financial variable using the Pearson linear

correlation and polynomial non-linear relations. After this, each independent variable used to

calculate the DOG score was compared independently with each dependent financial variable

using the Pearson linear and polynomial non-linear relations correlation methods.

FINDINGS AND DISCUSSION

GENERAL

―Our workforce spans approximately 25 countries and includes some 41,000 employees working in more than 100 operations

worldwide. This represents a rich assortment of countries and cultures. We believe that the wide-ranging experiences and

perspectives of our varied employees is ... necessity for our success... We want to continue to deliver value to...shareholders as a

global company and to do this we need the broad range of ideas and experiences...this means harnessing the unique differences

of each BHP Billiton individual around the globe. We strive to provide opportunities to all our people who have the talent,

passion, integrity and desire to work within an international organisation that values...them.‖ (BHP Billiton, n. d.)

BHP Billiton with its ―rich assortment of countries and cultures‖ had the sixth highest

DOG score in the study and their message above reflects the thinking of a geocentric

corporation, one that seeks differences to create value. At least half their board and over half of

their GTMT were non-Australians. The literature suggests the number of different nationalities


represented on a company‘s board and amongst its executives is a strong indicator of how global

and culturally diverse it really is (Kets De Vries, 2006; Perlmutter, 1969). A central idea in the

literature is that national cultural diversity ascends to the highest levels of geocentric global

corporations, but is enclosed in lower levels in ethnocentric companies; this prevents foreign

nationals from advancing to the highest level of these corporations. Therefore, a high level of

national cultural diversity at the head of a corporation is likely a strong indicator of geo-

centricity and more cultural synergy potential not available in parochial, ethnocentric ones. The

author posited that in today‘s culturally complex global business environment, national cultural

diversity in governance and global executive bodies of geocentric corporations provides a

competitive advantage resulting in better financial performance over ethnocentric corporations

with homogeneous boards and GTMTs. The findings and a discussion of the research into this

hypothesis follows.

THE SAMPLE

―Sorry, your search for diversity did not find any results. No documents were found containing "diversity".‖ —Swire Pacific

Website search conducted by the author (Swire Pacific, n. d.)

Only forty-six of 84 companies identified to be sampled were studied. These companies

were all listed in the top 1000 companies in the Forbes Global 2000 ranking. The author found,

for companies listed in the lower 1000 of the Forbes Global 2000 ranking, there was often

insufficient company information available on their websites to determine their DOG score; this

was particularly true of smaller Asian companies. As well, many corporations in the lower 1000

ranking, for which sufficient data could be obtained, were not was ‗global‘ as one would expect;

after a preliminary examination, most of these companies did not meet the aforementioned


screening criteria of having operations in more than two psychic zones and five countries. After

wasting time trying to analyze several of these firms, it was decided to limit the study to those

companies ranked in the top 1000 firms.

Swire Pacific, ranked 672nd

in the Forbes Global 2000 list, was one of those firms. There

was sufficient data on its website to determine where it stood on the ethnocentric-geocentric

continuum, but the findings were not encouraging. It is ostensibly a global company; however,

the word diversity is not in its lexicon. It is the antithesis of companies like BHP Billiton.

Nonetheless, there were also several firms in the top 1000, like Tim Horton‘s and Canadian

National of Canada, and others from Asia, that had operations in very few countries, and quite

often in only one psychic zone. Accordingly, several other companies in the top 1000 were also

dropped from the study due to insufficient information available to complete the analysis or

because they did not meet the aforementioned selection criteria. Therefore, although the author

previously contended that Sullivan (1994) and others attempts to determine the DOI of firms

might today be moot because all large firms are global, this is not the case and DOI measures are

still relevant. A complete record of the companies identified to be sampled, listing those

excluded and studied, is at appendix 3, Figure 3.1.

Examining the sample demographics of the 46 firms studied, seventeen different countries

were represented (Figure 3.2). There were 19 North American, 19 European, five Asian, one

South American, one Middle Eastern, and one South Pacific firm studied (Figure 3.3). Ten of 14

psychic zones were represented. They included six pan-country zones, the Far East, Nordic,

Germanic, Anglo, Latin European, and Latin America, as well as four independent zones, Brazil,

Israel, India, and Japan (Figure 3.3). No Near East, Arab, African, or Eastern European firms


where studied, although all these psychic zones were represented by other companies in the

Forbes 2000 Global ranking.

The national populations of firms studied ranged from 1,342 million for China to 5.4

million for Finland. On average, sample companies had 195,345 employees; 51 %, or 99,415, on

average were foreign workers. The company with the fewest employees was Canada‘s Research

in Motion, with 12,000. The largest was Wal-Mart, with 2.1 million employees concentrated in

only 15 countries. The next largest company was United Parcel Service with 408,000

employees. When Walmart is excluded as an ‗outlier‘, the average number of employees was

153,020, with 86,068, or 56 %, being foreign workers. Due to difficulty in obtaining data, only

twenty-four of 27 Industries were sampled. The industry sample plan compared to those

industries studied is at Figure 3.4.

FINANCIAL PERFORMANCE – DEPENDENT VARIABLES

―I always find it very interesting when someone asks me, "What is the business case for diversity?" Successful companies are

ones that satisfy their customer's wants, needs and desires. The data clearly show that if your customer base is global and diverse

and you reflect their perspectives and their knowledge, you're going to have a better chance for success. The closer you get to

their emotional and intellectual roots, the better you're going to communicate with them. So what's the business case for

diversity? ...the only way to satisfy diverse customers is to include their perspectives inside the company.‖ —Alan Mulally, Ford

Motor Company (Ford, n. d.)

Global 2000 Rankings

―I want Infosys to be a place where people of different genders, nationalities, races and religious beliefs work together in an

environment of intense competition but utmost harmony, courtesy and dignity to add more and more value to our customers day

after day.‖ —Narayana Murthy, Infosys Technologies (Wikipedia)


General. Five financial dependent variables, as described earlier, were used during the

study and each was compared to the DOG scores of sampled firms. The first financial variable

was the company‘s Global 2000 Ranking. The number one company, JP Morgan, was studied.

Infosys from India was the lowest ranked company in the study, at 807th

. The Global 2000

ranking of companies in the sample is at Figure 3.5. As mentioned, sample companies ranged

significantly in size, when comparing the four variables—sales, profit, and asset and market

value—used to determine the Forbes 2000 ranking.

Firm Sales. Firm sales ranged between $3.18 at Swire Pacific to $408.21 billion at Wal-

mart. The median and mean sales were $51 and $74 billion, respectively. Goldman and Sachs

was near the median and Procter and Gamble was near the mean (Figure 3.6).

Profit. Profits ranged from a loss of $4.49 billion for Toyota to a profit of $19.8 billion for

Exxon. The median and mean profits were $3.4 and $5.3 billion respectively. Zurich Financial

Group and Rolls Royce were near the median and America Movil was near the mean (Figure

3.7).

Asset Value. Asset values ranged from $4.34 billion at India‘s Infosys Technologies to

$2952.22 billion at France‘s BNP Paribus. The median was $68.8 while the mean was $263.1

billion. Tesco and BASF were near the median while GDF Suez was near the mean (Figure 3.8).

Market Value. Market values ranged from $4.75 billion at Germany‘s Hochtef to

$308.77 billion at Exxon/Mobile. The median was $57.3 and the mean was $84.1 billion.

United Parcel Service was near the median and Goldman and Sachs was near the mean (Figure

3.9).

Because of such a wide variance in the size of companies studied, the author decided to

analyse, when determining the relation between DOG score and financial performance, different


segments of the total population as follows: the total sample, and the top 500, 250, and 100

companies. This was done to reveal if company size, clearly influential in the Forbes ranking,

also affects how national cultural diversity represented by the DOG score relates to performance.

Return on Assets (ROA)

―Our business accomplishments are a direct result of our diverse employees around the globe—our differences are our strength,

and we will continue to hire and retain the best talent from an increasingly global and diverse labour pool. We believe this... will

ultimately advance Intel's global leadership position...Our strategy is focused on hiring and retaining top talent to ensure

continuous improvement toward our aggressive goal of industry leadership...By doing better with each individual, we do better

as a company. And in the end, we will make our already great company an even better one.‖ (Intel, n. d.)

The second dependent variable considered was ROA. ROA ranged from a low of .31% for

BNP Paribus to a high of 32.37% for Sweden‘s Hennes & Mauritz (H&M). The best performing

companies based on ROA were H&M, Research in Motion, Texas Instruments, Infosystem

Technologies, and Intel, quoted above for their global diversity strategy meant to ameliorate their

global performance. These firms were principally in high tech sectors, the exception being the

retail company H&M. The worst corporations in this financial measure were BNP Paribus,

Credit Swiss, JP Morgan, Allianz SE, and Zurich Financial, all in financial and insurance sectors.

Based on this, it is clear industry differences in ROA can impact overall financial results and

therefore the relation between DOG score and financial performance. Perhaps because of this,

the author found, as will discussed, no relation between ROA and DOG score. Future studies

can correct for these industry differences during the analysis or focus on one or several related

industries at a time. The median ROA was 6.9% and the mean was 7.4%. Hewlett-Packard was

near the median and Teva Pharmaceutical Industries near the mean (Figure 3.10).


Return on Equity (ROE)

By the time firms adopt global strategies, the impact of cultural diversity becomes extremely important. Global firms must

understand cultural dynamics to formulate their business strategies, to locate [facilities] worldwide, and... design and market

culturally appropriate products...while managing cross-cultural interaction...from the most senior executives to...the shop floor.‖

(Alder, 2002)

Alder (2002) asserts cultural diversity is extremely important to the truly global

corporations (p. 135). But how important is it? The third dependent variable considered was

ROE, which ranged from -1.58% for Ford and to 76.92% for IBM. IBM‘s ROE was 13% higher

than the next highest firm, Boeing, which was found to be a relatively ethnocentric company. It

is noteworthy that Alder (2002) also states multiculturalism is less important for multinational

corporations than integrated global companies; is Boeing a multinational company rather than a

global firm, and does this help explain its strong financial performance even though, as will be

shown, it is relatively ethnocentric? The structure of the companies was not considered in this

study, and perhaps should be in the future. H&M, British American Tobacco, and UPS, a real

mix of industries, rounded up the top five firms with the best ROE. The worst performing

companies, besides Ford, were Rolls-Royce Group, ethnocentric Toyota, geocentric Nokia, and

GDF Suez, again a mix of industries and psychic zones (Figure 3.11). The median ROE was

18.4 % and the mean was 21.1 %; Credit Swiss was near the median and Hewlett-Packard near

the mean. Significant, Toyota whose DOG score ranked it 40 of 46 and Nokia, ranked 5 of 46,

both had a low ROE. Clearly DOG score is not a panacea, but with these exceptions to the

theory, the questioned of a relation between and financial performance remained.


Overall Performance Measurements

―Ford is a global business. We have a lot of talented people working together, and our performance will be determined

by the breadth and the depth of our inclusion of all of our people. The more we embrace our differences within

Ford...the better we can deliver what the customers want and the more successful Ford will be.‖ —Alan Mulally,

Ford (Ford, n. d.)

As previously described, two overall performance measures were calculated. The first

considered the size of the firm as well as financial performance by adding the relative ranking of

each company in the sample group in the three aforementioned performance criteria: Global

2000 ranking, ROA, and ROE. The top performing companies were IBM, Wal-Mart, BHP

Billiton, Exxon Mobil, and Petrobras-Petroleo Brasil. The bottom five performers were Nokia,

Delhaize Group, Rolls-Royce Group, Hochtef, and Toyota.

The second variable added the ROA and ROE real values together, thereby grouping the

two variables to consider broader financial performance. In this case, the size of the company

did not matter. Here, the top five performers were IBM, H&M, Boeing, Research in Motion, and

McDonalds. The worst performers were BNP Paribus, JP Morgan, Toyota, Rolls-Royce Group,

and Ford, quoted above. A summary of the relative ranking of all five independent financial

variables is at figure 3.12.

GLOBAL / NATIONAL CULTURAL DIVERSITY MEASUREMENTS – INDEPENDENT VARIABLES

―No company can afford not to move forward. It may be at the top of the heap today but at the bottom of the heap tomorrow, if it

doesn't.‖ —James Cash Penny (BrainyQuote, n. d.)


General Findings

―Creating a diverse, inclusive environment has been an ongoing journey of continuous action for many years. It has been a

journey guided by deeply held values. Today, our diversity vision is one of global proportions. One that requires courageous,

bold actions from many people throughout the world.‖ (Hewlett-Packard, n. d.)

James Cash Penny, founder of J.C. Penny, said companies must move forward. But

today, how many multinational corporations leverage the global talent available to them to

remain ―at the top of the heap?‖ How many are stuck in ethnocentricity? How many are

―moving forward‖ to become geocentric? Examining national cultural diversity, the author

found a wide variety of global companies doing business in as few as three and as many as 14

psychic zones, the mean being 10.27. The corporations operated on average in 56 countries,

with a high of approximately 170 and a low of five. All companies examined can be considered

global corporations, from Research and Motion with only 12,000 employees, 3424 of who were

employed outside Canada and with operations excluding sales in 14 countries, to IBM with

almost 400,000 employees, approximately 284,000 outside the U.S. and with operations in over

170 countries. Nonetheless, the degree to which they are global varied, as did the degree to

which they were geocentric. In some cases the differences were considerable. To determine the

extent of national diversity of each of these firms and find their place on the ethnocentric-

geocentric continuum, the following dependant variables were used to calculate DOG scores.

Two of these variables, as outlined below, were dropped as a result of model testing.


Foreign Employee/Management Variance Score (FEMVS)

―A global company must reflect the diversity of the world it serves. Infosys' employees represent the widest possible variety of

nationalities, cultures…We recruit employees from global talent pools and provide paths for professional growth to all members

of the society. Within such a diverse company, people bring to the workplace contrasting opinions and worldviews. As these

people interact, they develop new ideas, methods and perspectives. Infosys recognizes and promotes this power of diversity to

drive innovation…Today, we have employees from 83 countries.‖ (Infosys)

General. As planned, two quotients were used to calculate the FEMVS and determine if

appropriate proportions of worldwide employees, managers, and business leaders, arise to the

GTMT or are sought as board directors. This measure determines if the boards and GTMTs of a

firm reflects the diversity of their global employees and management. The first factor considered

was the number of foreign employees compared to total employees.

Foreign Employees to Total Employees Quotient (FETEQ). As previously discussed,

the ratio of foreign employees to total employees is sometimes used to determine the degree of

firm internationalization (Caligiuri et al., 2004, p. 848). European firms and those from small

countries stood out as being the most internationalized, based on this measure, with ABB, H&M,

Compass Group, Delhaize Group, Hochtef, and Unilever rounding out the top six. This is not

surprising—companies from smaller countries internationalize their workforce out of necessity

whereas corporations from larger countries have plenty of nationally homogenous domestic

talent to choose from.

Ninety-four % of employees from ABB, ranked first in this measure, were based outside

Switzerland. Hewlett-Packard and IBM, the top U.S. firms at nine and 10, had 78 and 71 %

foreign based employees, respectively. Other countries in the study were far less globalized.

Brazil‘s Petrobras-Petroleo, the least international by this measure, had only 10 % of its

employees based outside the country. Other countries with less than twenty % of their workforce


outside their borders included India‘s Infosys, United Parcel Services, Boeing, JP Morgan, and

Frances JDF Suez. The mean FETEQ for the study group was 56 %. The FETEQs for each firm

are at Figure 3.13; companies are ordered by the preliminary—eight variables model—DOG

scores.

Foreign Management Quotient (FMQ ). The second measure used to determine the

FEMVS was FMQ. This quotient was the sum of foreign national board and GTMT members

divided by the total number of board and GTMT members. It measured the ratio of national

cultural diversity at the top of the global corporation. Figure 3.14 shows the FMQ distribution of

firms, ordered by preliminary DOG scores. The most diverse firm by far was ABB, with 83 %

of top executives and board members being foreign nationals. Three other Swiss firms were in

the top five, including Zurich Financial Services Groups, Nestlé, and Credit Swiss Group. There

were no US firms in the top 10, although Procter & Gamble was ranked 11th

, at 36 %. Fourteen

companies, or approximately 30 % of companies studied, had no more than 10 % foreigners

among directors and top executives; five of these companies had no foreign nationals on their

board or among their GTMT. These include Honda, JP Morgan, Petrobras-Petroleo Brasil,

Texas Instruments, and Boeing; all European firms studied had at least one foreign national on

their board or as part of its GTMT. The mean for the study group was 22 %, indicating that 22

% of directors and GTMT executives in the average global corporation sampled were foreign

nationals. Comparisons of FMQ distribution by country, continent, and psychic zone, Figure

3.15, indicate: Swiss firms have the largest proportion of foreign management; European firms

have the largest range and tend to have more foreign management than American companies; the

majority of US firms fall below the mean for the study group; and Asian firms have the least

number of foreign managers and directors.


FEMVS Results. The two aforementioned ratios, measuring overall firm national

diversity and the ratio of national diversity at the top of global companies, were compared as an

indicator to determine whether or not a firm was ethnocentric or geocentric. This was done by

examining globally diverse companies with an abundance of foreign employees to determine if

they also had diverse boards and GTMTs, or whether there were barriers preventing foreigners

from advancing within the company. Kets de Vries (2006) contends that an indicator of a truly

global corporation is the number of nationalities represented on its board. And Schneider (2010)

argues that geocentric corporations can be measured by the number of foreign nationals that

began their careers in foreign subsidiaries and subsequently advanced to the global headquarters

senior executive ranks. In theory, in an ethnocentric corporation, the variances between these

two ratios will be less than in geocentric corporations. A variance score of one, using the

aforementioned equation, indicates a corporation where the national diversity of boards and

GTMTs is directly proportional to the national diversity of its global workforce. The FEMVS

are indicated at Figure 3.16. Two companies, Swiss Credit and the French firm GDF Suez, had

a higher ratio of foreign directors and executives to foreign based employees. Nestlé had a

FEMVS of 1.0 with a proportional ratio of 1:1, foreign leaders to foreign employees. BHP

Billiton and Research in Motion rounded out the top five as companies whose management and

board national diversity most closely reflected their global employee composition. The mean for

the study group was .65:1 foreign leaders to foreign employees. The best US companies in this

measure were United Postal Services ranked nine and Wal-Mart at 10, with ratios of .88:1 and

.84:1, respectively. The three most ethnocentric firms under this single variable, surprisingly,

were all European firms; they were Sweden‘s H&M, the UK‘s Compass Group, and Germany‘s


Hochtef, followed by IBM, McDonalds‘, and Honda. The FEMVS was the first variable used to

determine a company‘s preliminary DOG score.

Board Cultural Diversity Quotient A (BCDQa) (National Cultural Diversity)

"It strikes me as foreign to not have foreigners on a major U.S. corporation's board." —Paul Anderson, Duke Energy Corp

(Lublin, 2005)

Paul Anderson would be happy to know that foreign membership on boards continue to

increase, but perhaps be disappointed that U.S. companies still lag far behind their European

counterparts. He would be further distressed to find many American global companies still do

not have even one foreign director. In examining this variable, there was a mean of 12.96 board

members per firm, 2.39—or 18 %—of who were foreigners. Significantly, this is eight % more

than Esser (2001) found in his 1998 research, which shows a continued trend to internationalize

boards. Nine of ten companies with the most foreign members on their boards were European

companies. Seventy-four % of sampled companies had at least one foreign board member, up

13% from Esser`s (2001) findings. IBM was the top American company, ranked 12th

.

BQDQa measures the national diversity of boards of directors. Results are shown at

figures 3.17 and 3.18 and again, companies are ordered by preliminary DOG score rankings.

European companies tended to have more foreigners on their boards; ABB, Zurich Financial

Services Group, Credit Swiss Group, Nokia, and an exception, Australia‘s BHP Billiton, had the

most nationally diverse boards. Eight-eight % of ABB‘s board were foreign nationals, while

54% of BHP Billiton‘s board came from outside Australia. Twelve companies, including six

American and all three Japanese firms, had no foreign nationals on their boards. North

American companies had an average of 1.34 foreign board members, constituting on average 11


% of their boards; European companies had on average 3.92 foreign board members, constituting

33 % of their boards; and Asian firms had a mean of .4 foreign board members, constituting on

average only 3 % of their boards. This reflects Esser`s (2001) findings that European and

American boards are more diverse than Asian boards, and confirms Hanson`s (2007) assertion

that American boards tend not reflect the global nature of their business. European boards

standout as being significantly more diverse than their American counterparts, thereby having

more cultural synergy potential due to different national perspectives, but also possibly facing

much larger challenges that come with diversity in creating cohesion, and realizing the synergy

potential that exists. It is reasonable to ask why there is such a difference. Do European boards

internationalize in an overt attempt to diversify because it is good for business, or is it done out

of necessity due to more limited talent pools in smaller countries, or even due to ease given the

close proximity of European counties to one another? The next section examines the extent to

which firms that diversify their boards do so by inviting board members from different psychic

zones, thereby creating still more cultural synergy potential.

Board Cultural Diversity Quotient B (BCDQb) (Psychic Zone Representation)

―These days, many U.S. companies are seeking board expertise on China, as they try to tap that huge market. But not all insist on

giving seats to Chinese nationals who live in China. Some are willing to settle for Chinese expatriates in the U.S. or executives of

any nationality who have worked in China. Yet they still often come up empty-handed.‖ (Lublin, 2005)

Palmer et al. (n. d.) found that European boards that diversified often did so with

culturally homogeneous neighbours, as might be the case if a Swedish board had members from

Norway and Finland. Global corporations should seek to find the most qualified directors from

around the globe, but also find members who offer different cultural insight into the various

markets where they operate. This is not always easy and there is now a scramble as many


American corporations try to tap a ―small [but growing] pool‖ of foreign candidates (Lublin,

2005). BCDQb measured the percentage of different physic zones represented on a board. On

average, 2.11 psychic zones where represented on boards, which is significant given that on

average there were only 2.39 foreign board members. This means almost one in every two

foreign board members comes from a different psychic zone than that of the parent country,

although this figure is heavily influenced by European rather than American boards. Some

companies are making important strides at ensuring their boards better reflect their global

workforce and operations. For example, ABB and Nokia each had five psychic zones

represented on their boards, and several others, including the American firm Hewett Packard,

had four (Figure 3.17, 3.18). Although European companies ABB, Nokia, and British American

Tobacco held the top three spots, two U.S. firms—Hewlett-Packard and Procter and Gamble—

were fourth and fifth. Japanese and U.S. firms, with the odd European company, had the lowest

psychic zone representation. Eleven companies, or 23 %, had no foreign board members and

thus only one psychic zone represented on their boards. Eighteen companies, including four

European, three Asian, and 11 American firms had only one psychic zone represented on their

board—eight of which had one or two foreign members from the same psychic zone.

Consequently, 39% of firms were culturally homogeneous from a psychic zone perspective.

Several companies had high BDCQa, such as Zurich Financial Group and BHP Billiton, but had

BDCQb numbers close to the mean, indicating that while they had many foreign nationals on

their boards, they normally came from the same psychic zones. Finally, North American,

European, and Asian firms had an average of 1.68, 2.79 and 1.4 psychic zones represented on

their boards, respectively.


GTMT Cultural Diversity Quotient A (GTMT CDQ a) (National Cultural Diversity)

―We strive to reap the rewards of diversity, drawing from the range of perspectives and cultures represented throughout our

Group. After all, synthesizing different views is the principal means by which we will expand and improve...We value our diverse,

talented workforce... and support them so that they can contribute to their full potential.‖ (Zurich Financial, n. d.)

The GTMT CDQs were examined next. Zurich Financial, mentioned above, ensures

diverse perspectives are inherent not only in their workforce but also in their GTMT. It was one

of the strongest companies in this measure. How did other companies fair? There was a mean

of 15.9 GTMT members per sampled company. These personnel were listed as global

executives on the company websites, although some had responsibilities that were also regional.

There was an average of 3.26 foreigners on GTMTs, almost one more than on boards of

directors, which reflects previous study finding that GTMTs were generally more diverse than

boards (Palmer et al., n. d.). American companies did better here, with five US and four Swiss

companies among the top ten regarding the total number of foreigners that were on their GTMTs.

There were four American firms, however, among 13, who had no foreigners on their GTMTs.

GTMT CDQa measured the proportion of foreign nationals to nationals on GTMTs. Considering

proportional representation rather than actual numbers, again European companies dominated,

holding eight of the top ten positions. Eighty-nine % of Nestlé‘s GTMT were foreign nationals;

ABB, Zurich Financial Group, BHP Billiton, and Credit Swiss Group had 80, 75, 71, and 61 %

foreign nationals, respectively (Figures 3.19, 3.20). The top American firm was Procter &

Gamble and Hewlett-Packard at 41 and 33%, respectively. At first glance, there appeared to be a

strong correlation between GTMT CDQa and a firm‘s DOG score.

As mentioned, 13 companies from North America, Europe, Latin America, and the Far

East had no foreign nationals on their GTMTs (Figure 3.20). This included well known

companies like Honda, Boeing, UPS, Texas Instruments, JP Morgan, and Tesco. Ethnocentric


companies like these reflect the idea that the complexity of global business can by managed by

proxy—by middle management, locals, and consultants (Carpenter et al., 2001, p. 278).

Nevertheless, American, European, and Asian firms had an average of 3.53, 3.60, and 1.8 foreign

GTMT members, respectively. This represented 16, 31, and 4 % of their total GTMTs.

GTMT Cultural Diversity Quotient B (GTMT CDQb) (Psychic Zone Representation)

―Our commitment to diversity is set right at the top of our business with our Global Diversity Board, chaired by Chief Executive

Officer Paul Polman. We work to embed diversity firmly into our day-to-day business decisions...We have 20 different

nationalities among our top-level group of leaders worldwide. Our Global Diversity Board comprises leaders from all business

functions and is chaired by our CEO, driving our efforts in this area.‖ (Unilever, n. d.)

GTMT CDQb divides the number of psychic zones represented by the number of GTMT

members to give a quotient of psychic zone representation on a GTMT. On average, 2.3 psychic

zones were represented on GTMTs, slightly higher than the 2.11 average for boards. These

numbers, however, can be deceptive. Procter & Gamble, for example, had 17 foreign GTMT

members representing 8.5 psychic zones, although because they had 42 GTMT members, their

GTMT CDQb was not as high as some other firms; nonetheless, these cultural knowledge

domains were available to the company. In hindsight, therefore, it might have been better to

score based on the number of psychic zones represented per company rather than use a quotient

of proportional representation. Seven other companies had four or five psychic zones

represented on their GTMTs. In pure numbers of psychic zones represented, three of the top ten

firms including the top two—Procter & Gamble and Hewlett Packard—where American and the

rest were European, with the exception of the Australian firm BHP. Yet twelve companies, a

real mix from the U.S., Japan, Europe and a number of other regions, had no foreign members on

their GTMTs, indicating quite an ethnocentric bent for these global companies. Another seven


firms had between one to four foreign GTMT members, all coming for the same psychic zones.

There were therefore a total of 19 firms without one executive from a different psychic zone,

including seven American, eight European, one Chinese, one Japanese, one Brazilian, and one

Mexican company. Considering the proportional representation of GTMT CDQb, with only

seven GTMT members, three of which were foreign nationals from different psychic zones,

Delhaize Group had the highest GTMT CDQ at .43. They were followed by the well know

geocentric companies ABB (.4), Unilever (.4)—quoted above as committed to diversity—Nestlé

(.35), Hewlett-Packard (.33), and E.ON (.33%) (Figure 3.19, 3.20). These companies all had

solid proportional foreign national representation on their GTMTs. Texas Instruments had the

lowest GTMT CDQb, followed by Honda, Infosys, GDF Suez, and JP Morgan.

Nationality of Key Leaders Quotient (NKLQ)

―P&G leaders at the Vice President level and above come from 35 different countries, with more than half of them originating

from outside the United States...We create opportunities for careers at P&G, not just jobs. One way we do this is by managing

P&G talent globally—starting at mid-levels of management and higher—to enable career development and growth across

businesses and geographies. We identify talent early and groom people through a series of varied and enriching assignments that

will prepare them for future roles.‖ (Proctor & Gamble, 2009, p. 19)

This variable examined foreign nationals that were chairman, presidents, or CEOs of firms.

Often one person filled two or even all three of these functions. The theory previously discussed

is that only geocentric global corporation consider having a foreign national fill these roles.

Surprisingly, 12 companies—26 % of companies surveyed—had at least one foreign national in

one of these positions. Of the top 10 of these companies, all but one had a top 10 DOG score,

evidence that having foreign nationals in these key positions is a strong indicator of a high DOG

score and geo-centricity (Figure 3.21). Carpenter et al. (2001) found that only four % of CEOs


in American firms were foreign nationals. Amongst the 17 global American companies studied,

two, or 12%, had at least one foreign chairman, CEO or president; this likely reflects a similar

result to Carpenter‘s from ten years ago. Eight of 19 European firms, or 42 %, had a foreigner

filling one of these three positions, which is dramatically higher than the U.S. companies

sampled. Three companies, ABB, Nestlé, and the American company Monsanto, all had NKLQs

of 1.0, meaning foreign nationals filled all the aforementioned top positions. In Monsanto,

however, one person filled all three positions—he was from the UK and therefore from the same

psychic zone. ABB had a German and an American filling the top positions, representing two

psychic zones. Nestlé also had two foreign nationals at the top of the corporation, one from

Belgium and one from Austria. They represented two psychic zones, but both of these—German

and French—are part of the tri-national character of Switzerland, in addition to Italian. Nokia,

Hewlett-Packard, Unilever, Credit Swiss Group, and Tesco all had at least one top company

official from a different psychic zone. NKLQ was another variable used to determine the DOG

score of a company; it appeared initially to have a strong correlation to the overall DOG score.

Nationality of Regional Headquarters Leader’s Quotient (NRHLQ)

―Our employer proposition, known as ‗Bring Your Difference‘, was launched to existing employees in 2009 before being used as

part of our recruitment campaigns. Our employees come from very diverse cultures and backgrounds, and we benefit from the

breadth of new ideas and experiences they bring. We aim to have a 70/30 ratio of local to expatriate senior management team

members at business unit level, not as a ‗quota‘ but because we place a high value on local experience and diversity in our

workplace.‖ (British American Tobacco, 2009)

The NRHLQ also contributed to determining the overall DOG score. Seeking diversity at

the business or subsidiary level, three of five British American Tobacco foreign subsidiary

leaders sampled, 60 %, were foreign nationals. But having a high NRHLQ is not necessarily


indicative of a geocentric company and might suggest a polycentric organization, unless leaders

in subsidiaries are permitted to advance to higher levels within the corporation.

Ranked 7th

in DOG score, British American Tobacco does seem to nurture their global

talent and allow it to ascend to higher levels of the company. Fourteen firms with varying DOG

scores had NRHLQs of 1.0, indicating that all their subsidiaries sampled were led by nationals

from where the subsidiary was located; on average three of five subsidiaries were lead by

nationals from where the subsidiary was located. Nonetheless, there were five firms that had no

foreign nationals leading their sampled subsidiaries, including Ford, BNP Paribus, and Honda.

This clearly indicated strong ethnocentricity, based on the subsidiary/regional headquarters

sample taken. Further, companies with the ten lowest NRHLQs all had DOG scores in the

bottom 50 % of companies ranked (Figure 3.22).

Corporate Culture and Philosophy Score (CCPS)

―What you do speaks so loud that I can‘t hear what you say.‖—Ralph Waldo Emerson (Goodreads, n. d.)

Four companies, three of which were American, were given a top CCPS of 1.0 based on

the subjective score awarded for whether or not the corporate leadership, strategy, and culture

and philosophy ignored national cultural diversity and differences, tolerated it as an obligation,

or integrated it system wide, seeking to leverage differences to improve global performance. The

data obtained to measure CCPS were from secondary sources, principally literature found on

company websites. Interesting, of these four companies—Intel, Goldman and Sachs, BNP

Paribas, and Ford—not one had a DOG score that placed them in the top ten preliminary DOG

scores, and Ford was in the bottom half of companies ranked (Figure 3.23). To borrow the

words of Emerson, what these companies do speaks so loud we cannot hear what they say;


although they have the right geocentric business culture and philosophy on paper, they remain

more ethnocentric than multicultural at the pinnacle of their organizations. Why is there this

disconnect? In some of these companies, although they stated they sought national cultural

diversity, their focus seemed more on domestic rather than national cultural diversity. It may be,

as well, that recent MBAs graduates are writing the latest policies reflecting the stated academic

benefits of global diversity without real commitment from leaders. There did appear to be in

many corporations an ethnocentric ―glass ceiling‖ that prevented foreign nationals from

advancing through the ranks of the company; their national cultural diversity philosophy seemed

only to extend to the workforce and not the boardroom or GTMT.

To illustrate this point, both Ford and Intel had a CCPS score of 1.0, yet neither company

had a foreign board member and Ford had no foreign GTMT members. Pfizer had abundant

domestic diversity amongst its executives and directors, but had a below average DOG score,

ranked at 33, with no foreign board and only two foreign GTMT members. AT&T, which

earned DiversityInc's 2009 number two spot on their Top 50 Companies for Diversity list, is an

interesting case that may illustrate pressures that conspire against national cultural diversity;

although the company would have likely had a top 15 DOG score rating, it seems to attempt to

conceal the number of actual global employees it has—and their documentation is U.S. centric,

‗playing down‘ their relatively diverse global management (AT&T, n. d.). It was subsequently

one of the largest companies to be eliminated from the study due to insufficient data. With

growing US unemployment and the economies of emerging nations taking off, it may be there is

pressure for national homogeneity in companies like AT&T to keep their workforce at home and

Americans employed. Is Adler‘s (2002) prophecy coming true; are companies from countries


normally considered victims now being ―viewed as villains, stealing capital and jobs

and...creating inequities by destroying wealth in developed economies‖ (p. 5)?

DiversityInc ranked IBM number one for global diversity in 2010, but the IBM DOG score

was below both the mean and medium for the sample, meaning foreign nationals are not well

represented in the higher levels of the corporation (IBM, n. d.); they are perhaps an example of a

polycentric company. Finally, Boeing had a low CCPS at 0.25, and acted accordingly, having no

foreign directors, executives, or leaders. Yet with a low ratio of foreign to domestic employees,

it cannot be stated unequivocally that Boeing is ethnocentric; it can be said, however, that

companies like Boeing may not be taking full advantage of accessible global talent. Comparing

Boeing to H&M, however, is enlightening. Like Boeing, H&M‘s CCPS is .25, not very

geocentric. Like Boeing, they act accordingly. Nonetheless, H&M has a very large global

workforce yet no foreign board members and only one—or possibly two—foreign GTMT

members, from the same psychic zone; this company seems to be very ethnocentric. The

ethnocentric glass ceiling exists.

The mean CCPS score for the study group was .45. Six companies received a score of

zero, including Japan‘s Canon, China‘s Swire Pacific, Hochtef from Germany, Canada‘s

Research in Motion, Mexico‘s America Movil, and Israel‘s Teva Pharmaceuticals Industry—all

these firms were ranked in the bottom quarter of the preliminary DOG scores, partially based on

these low scores. All companies with top 10 DOG scores, except ABB (ranked first) and Nestlé

(ranked second), had CCPSs of .75 or 1.0; these were strong scores.


DOG SCORE AND THE ETHNOCENTRIC-GEOCENTRIC CONTINUUM – TESTING THE MODEL

―Any major American company with significant sales abroad needs at least one individual on the board who represents the

views of the rest of the world." —Paul Anderson, Duke Energy Corp (Lublin, 2005)

The eight independent variables just discussed in detail were identified during the research

as potentially indicative of a firm‘s place of the ethnocentric-geocentric continuum. These

included the Foreign Employee to Management Variance Score (FEMVS), Board Cultural

Diversity Quotients a. and b. (BCDQa and b), GTMT Cultural Diversity Quotients a. and b.

(GTMT CDQ a. and b.), National Key Leader Quotient (NKLQ), Nationality of Regional

Headquarters Leaders Quotients (NRHLQ), and Corporate Culture and Philosophy Score

(CCPS). Nunnally (1978) stresses there are many models that may be used to measure

dependent variables against independent ones, but none is better than the linear model for its

ability to reduce measurement error and improve estimating reliability (As cited by Sullivan,

1994). A standard item analysis was conducted to measure the internal consistency of each

variable—or indicator—within the model used to determine the DOG score. Cronbach's α

(alpha) coefficient of reliability, which examines the reliability of variables used to measure the

―same thing‖, was used. Nunnally (1978) states a Cronbach α of 7.0 is sufficient in early stages

of research (as cited by Sullivan, 1994). The Cronbach α for the eight variables combined was

0.7638 (Figure 3.24). Of note, this was significantly higher than Sullivan‘s (1994) outcome of

0.58 for his nine variable model, which he used to measure a firms DOI.

Although a value of 0.7638 was an acceptable outcome, testing was conducted to refine the

DOG model. Individual variables were excluded one at a time and a reliability analysis was re-

launched for each one to determine the effect on the Cronbach's α value. ―If α increases when

you exclude a variable, that variable is not highly correlated with the other variables. If the α


decreases, you can conclude that the variable is correlated with the other items in the scale (JMP,

2008).‖ Figure 3.25 shows the Cronbach α when two variables, NRHLQ and CCPS, are

eliminated. It shows these two variables may not contribute positively to the greater DOG

model, because when they are eliminated, the model Cronbach‘s α increases to 0.7996 and .7922,

respectively. When both of these variables are removed, Cronbach‘s α for the new model

increases further to 0.8474 (Figure 3.26), and it was found that by eliminating the FEMVS, the α

could be improved again, somewhat, to 0.8680.

Why these variables may not contribute meaningfully to the DOG model, and why they

were removed or retained by the author, is explored hereunder. For several reasons, the author

decided to remove from the model the NRHLQ, which measures the ratio of domestic to foreign

national leaders at the head of foreign subsidiaries. First, a high number of leaders from the

nation where a national subsidiary is located could indicate either a geocentric or a polycentric

corporation. Therefore, this could skew the DOG score by adding geo-centricity points, even

though the motivation of a company to employ host-nation nationals in its foreign subsidiaries

may have been for polycentric reasons. Second, in collecting data for this variable, a sample of

only five regional headquarters, or foreign subsidiaries, were studied from an overall population

that varied significantly based on the size of the various firms and the breadth of their global

operations. This coupled with the difficultly collecting specific data on subsidiary leadership—

often data for only Western subsidiaries could be collected from company websites, likely

causing a sampling bias—perhaps explained the unreliability of this variable. The variable was

therefore tentatively dropped from the model at this stage.


The CCPS, which measures corporate culture and philosophy and how it promotes and

sustains national cultural diversity, was also tentatively removed from the model at this stage.

This was the only subjective variable in the model and as previously explained, a cursory review

of the raw data found that several companies that scored well on the CCPS had very poor

national cultural diversity ratios in all the other variables—they did not ‗practice what they

preached,‘ or perhaps their focus was more on domestic rather than national diversity.

Finally, although dropping the FEMVS variable, which measured the variance between

national diversity of the entire workforce compared to the top management, also improved

slightly the model‘s reliability, it was retained for further model testing, because dropping the

variable did not improve significantly the Cronbach α. Factor analysis was conducted next to

determine how many factors explained DOG scores.

A review of eiginvalues was conducted as a first step in factor analysis. Eigenvalues

―partition of the total variation in the multivariate sample‖ (Hill & Lewicki, 2006). Eight

eiginvalues, the same as the number of variables, measured the percent of total variance

explained by each of the eight factors. They are expressed from largest to smallest at Figure

3.27. Using the Kaiser criterion, which recommends only keeping factors with eiginvalues of

one or more to determine the number of factors, it was determined that two principle factors

impacted on the eight variable model, one factor accounting for 50% of the total variance of the

eight factors (Hill et al., 2006). Scree plot examination confirmed this. When factor analysis

was conducted on the six variable model, and a five variable model that excluded FEMVS

variable, both the Kaiser criterion and scree plot indicated a single factor was significant,

accounting for 72 % and 63% variance, respectively (Figure 3.28).


The author also found through factor loading that there were two principle components that

impacted the single factor (Figure 3.29); FEMVS stood out as one whereas all the other variables

were generally grouped together.

Finally, it was found by common factor analyse that the communality for each variable as

they related to the single factor was significant and explained a high portion of the variance

found (Figure 3.30). Thus it was determined that the DOG score in the six variable model was

based on a single factor, national cultural diversity within the highest echelons of a corporation,

comprised of two components—one of five variables measuring national diversity at the top of a

corporation, and a second of one variable measuring the variance between national corporate

diversity at the top of the company compared to its overall employee internationalization.

Although ready at this stage to commit to the six variable model, the author decided to do

one last test with both the six and eight variable models – the goodness of fit test. The JMP

program was used to do the test. The eight variable model R Squared was found to explain 95%

of the variation in the DOG score while the six variable model explained 99 % (Figures 3.31 and

3.32). JMP indicates significant F-values and T-values by placing an asterisk beside the

variable. The Probability>F of .0001 for all variables in the six variable model indicates all six

model variables explain a significant proportion of total variation (JMP, 2008). However, in the

eight variable model, only five of eight variables were significant. Accordingly, with testing

done, author proceeded with the six variable model.


DOG SCORE FINDINGS

―Our shared Purpose attracts and unites an extraordinary group of people, P&Gers, around the world—the most diverse

workforce in P&G history. Together, we represent around 145 nationalities...Our diversity, our shared culture and our unified

Purpose are the defining elements...We value differences. When P&Gers come together, we create a rich tapestry...Each of us is

truly unique. Beyond the visible differences, we come from diverse traditions, with a wide array of personal experiences and

points of view...P&G brings together individuals from different backgrounds, cultures, and thinking styles providing remarkably

different...perspectives...That‘s why, in our increasingly interconnected world, it is only appropriate that we celebrate everyone‘s

uniqueness, every day...‖ (Proctor & Gamble, 2009)

The results of the preliminary eight variable and the final six variable models are at Figure

3.33.

Henceforth examining solely the six variable DOG scores, at first glance, the scores appear

to reflect well the purported ethnocentricity or geo-centricity of companies. Toyota, considered

in some literature to be an ethnocentric company, was ranked 40 of 46 companies and two other

Japanese companies, Honda and Canon, were ranked 45 and 42 respectively. Companies often

cited in the research as being global and geocentric, such as ABB, Unilever, Nokia, and Nestlé,

all ranked in the top eight DOG scores. These findings, coupled with the analysis of the DOG

score model, seem to lend credence to the DOG score as a measure of a company‘s place on the

ethnocentric-geocentric continuum. Seven of the top ten companies with the highest DOG

scores were European, with Swiss companies in the top four positions; Australia‘s BHP Billiton,

and the United States‘ Hewlett-Packard and Monsanto were ranked sixth, ninth, and tenth,

respectively. Sweden‘s H&M was the worst company, followed by Honda, Texas Instruments,

the UK‘s Compass Group, and Japan‘s Canon. The mean DOG score was 1.56, with 15

companies above the mean score and the rest below, demonstrating results skewed towards


ethnocentricity—nationally diverse companies like 15th

ranked Procter & Gamble, quoted above,

are the exception rather than the rule. The median DOG score was 1.21.

It is worth examining the entire sample population in relation to DOG score, to see where

the hypothetical division between ethnocentric and geocentric companies might be found.

Starting with the 15 companies with DOG scores above the mean, all these firms have a least one

foreign board member, and the majority have more than five. All these companies but one—

Monsanto—have at least two psychic zones represented on their boards, and the majority have

five or more (Appendix 2). These companies also have diverse GTMTs. Each of these

corporations has at least one foreign GTMT member, and the majority have more than five. In

addition, these firms, with Monsanto as the exception, have executives from at least two psychic

zones on their GTMTs, and the majority have over three. All but four of these companies have

at least one foreign chairman, president, or CEO, clearly indicating geocentric leanings. Finally,

all but one firm has a FEMVS of over .5 indicating a ratio of least 1:2 foreign top managers and

directors to foreign based employees. The majority of these companies‘ FEMVS scores were

over .70. Thus the profile of what might be termed a truly geocentric corporation is a firm: that

has at least one foreign chairman, CEO or president; whose directors and top management

represent the composition of their global work force; and that have numerous foreign directors

and GTMT members, many coming from different psychic zones.

Examining next the 15 firms with the lowest DOG scores, these companies have an

ethnocentric profile. All but two of these companies had a DOG score of less than 1.0. All but

two had one or no foreign board members and the majority, 10 firms, had none. With the

exception of two firms, these companies tended to have only one psychic zones represented on


their boards. All but five of these companies had one or less foreign GTMT members and the

majority had zero. Nonetheless, three of these companies had a significant number of foreign

national on their GTMTs; Wal-Mart had six, Ford had nine, and Toyota—due to their

aforementioned effort to become more geocentric—had four. These relatively strong numbers

however were somewhat offset by the large size of their overall GTMTs, 32, 33, and 49,

respectively. Nonetheless, these different perspectives are, in theory, a move towards more geo-

centricity providing potential access to culturally distinct knowledge domains and if well

managed, competitive advantage. All but two of these 15 companies had two or less psychic

zones represented in their GTMTs, the majority having only one. Not one of these companies

had a foreign leader in one of the three top positions. Finally, the majority of these companies

had FEMVS scores of less than .60, the bottom five having scores of less than .50. Considering

this, the ethnocentric firm is lead by its own nationals. They have relatively few foreign

directors and GTMT members from different countries, and those present tend to come from the

same few psychic zones. These firms tend to have glass ceilings that prevent foreign nationals

from advancing to higher levels; when this is not the case, proportionally fewer advance higher.

Accordingly, these corporations‘ boards and GTMTs do not proportionally represent the

diversity of their workforce.

In an attempt then to categorize companies based on DOG scores, geocentric firms tend to

have DOG scores of over 1.75 and ethnocentric firms tend to have scores of less than 1.0.

Companies with DOG scores between 1.0 and 1.75 generally have the ‗look and feel‘ of

ethnocentric corporations, normally with at least some redeeming geocentric qualities, such as

nationally diverse GTMTs or a strong FEMVS. These companies like ethnocentric firms also

rarely had a foreign leader as chairman, CEO, or president and tended to have few foreign board


members. Because of their redeeming qualities, and apparent steps towards becoming more

geocentric, the author called these firms ‗emerging‘ corporations, and for good reason, as will be

explained by briefly discussing the corporations from emerging nations.

So how did companies from emerging markets fair? There was one country each from

India, Brazil, Mexico, and China in the study. Interestingly, all these companies had DOG

scores between 1.0 and 1.50 indicating they leaned towards ethnocentricity; this was certainly

the case for Petrobras-Petroleo Brasil, which had no foreign board or GTMT members and was

ranked as high as it was simply by virtue of its FEMVS.iv

Viewed another way, some of these companies may be beginning to bend away from

ethnocentricity, or emerging from it towards geo-centricity, as seemed to be the case with

China‘s Swire Pacific, India‘s Infosys, and Mexico‘s America Movil. Their DOG scores show

these firms are ‗home grown‘ and managed corporations with principally domestic executives

that have perhaps received remarkable educations and experience in Western corporations.

Nevertheless these firms do have some foreigners on their GTMTs and boards. They are skewed

towards ethnocentricity, but this may indicate a lack of appreciation of the purported benefits of

the geo-centricity in global corporations, or show that they are in the early stages of emerging to

become true global corporations rather than multinational ones.v Finally, it should be noted,

however, that many potential companies from these emerging nations were not studied due to a

lack of data on their company websites, or because they had operations in fewer than two

psychic zones and five countries—many are still not truly global, even although ranked in the

Forbes Global 2000.


With the analysis of the dependant and independent variables complete, the final stage of

the research was to determine the relation, if any, between these DOG scores and financial

performance.

FINDINGS ON THE RELATIONSHIP BETWEEN ETHNOCENTRIC AND GEOCENTRIC FIRMS AND

FINANCIAL PERFORMANCE

―At TI, we are committed to building a great company customers can count on – one where employees aspire to achieve the

highest possible standards with regard to financial performance, ethical behaviour, business execution and innovation. An

inclusive environment is essential to that, where diversity thrives and every employee, no matter where they are and what job

they hold, is fully engaged in TI‘s business success. I‘m challenging myself and every TI employee to help make an inclusive

environment a global reality at TI.‖ —Rich Templeton, Texas Instruments (Texas Instruments, n. d.)

Determining Statistical Relevance

We are operating in more markets than ever before, which has impacted the cultural fabric of our workforce and ways of

working....We believe that diversity and inclusion in the workplace brings competitive advantage.... Employees from diverse

cultures and backgrounds bring insights into our customer base around the world, adding value to our business. (Nokia, n. d.)

Texas Instruments‘ contention that diversity is ―essential‖ to financial performance and

Nokia‘s, that it provides ―competitive advantage‖, are supported today in a growing body of

literature. In the present global context, both domestic and international diversity are said to be

both directly and indirectly good for the ‗bottom line‘, but what does today‘s research show? In

reviewing the relation between each independent financial measure and a firm‘s position on the

ethnocentric-geocentric continuum, or DOG score, the author first examined the Person

correlation coefficient to determine the correlation. The closer the coefficient to 1.0, the greater

the correlation between x and y. The value of Rsquare was examined next. This was used to

―measures the proportion of the variation around the mean explained by the linear or polynomial


model. The remaining variation is not explained by the model and attributed to random error.

Rsquare is 1 if the model fits perfectly. An Rsquare of 0 indicates that the fit is no better than

the simple mean model (JMP, 2008).‖ The Prob > F was also reviewed. It ―is the observed

significance probability (p-value) of obtaining a greater F-value by chance alone if the specified

model fits no better than the overall response mean. Observed significance probabilities of 0.05

or less are often considered evidence of a regression effect (JMP, 2008).‖ Finally, the author

looked at t Ratio and the Prob>|t|. ― t Ratio lists the test statistics for the hypothesis that each

parameter is zero. It is the ratio of the parameter estimate to its standard error...Looking for a t-

ratio greater than 2 in absolute value is a common rule of thumb for judging significance,

because it approximates the 0.05 significance level (JMP, 2008).‖ ―Prob>|t| lists the observed

significance probability calculated from each t-ratio. It is the probability of getting, by chance

alone, a t-ratio greater (in absolute value) than the computed value, given a true null hypothesis.

Often, a value below 0.05...is interpreted as evidence that the parameter is significantly different

from zero (JMP, 2008).‖ Using these tests, the analysis was completed.

Relation between Forbes Ranking and DOG Score

―Diversity & Inclusion is a sustained competitive advantage for the continued growth of P&G. It is implicit in the company‘s

Purpose and Values and explicit in the company‘s business strategy for success...It enables P&G to be the ―employer of choice‖

that hires, engages, and retains the best talent from around the world, reflecting the markets and consumers we serve.‖ (Proctor

& Gamble, 2009)

The author found a positive linear correlation between sample companies in the top 500

companies in the Forbes ranking in relation to their DOG score, with companies higher in the

Forbes ranking generally having a higher DOG score. Nonetheless, these finding were just shy

of being statistically relevant, based on F and t ratio tests. Although a cause and effect relation


was not established, in general terms, this finding might imply that firms having higher sales,

profit, and asset and market value, the Forbes measures, have more nationally diverse boards

and GTMTs. Significantly, the polynomial nonlinear fit for this sample, however, was

statistically meaningful with a Prob>|t| of .03 and a t Ratio of -2.24. This suggests there is a

positive correlation between Forbes ranking and DOG score up to an optimal level after which

the relation becomes negative resulting in a diminished place in the Forbes ranking. Thus, both

ethnocentricity and too much geo-centricity may not be good (figure 3.35).

Relation between ROA and ROE, and DOG Score

―Fred Turner developed the diversity framework and in 1980 the company hired our first head of diversity. Back then, it was the

right thing to do. Today, it is a business imperative. Any company that hopes to serve a diverse customer base across the United

States, and around the world, must reflect same diversity in restaurants and throughout our organization, where we design our

products and services with the distinct wants and needs of our customers in mind. And our business results reflect the validity of

mirroring our customers throughout our System.‖ (McDonalds, n. d.)

Despite McDonalds‘ ―correct‖ words, the diversity they seek ―throughout the organization‖

is not reflected in their boardroom or on their GTMT. But does this really matter when it comes

to financial performance? There was no statistically relevant relation between ROA and DOG

score for the total sample population, nor for companies segmented into the top 500, top 250, and

top 100 companies (Figure 3.36). The author obtained similar results when ROE and DOG

score were compared. Nonetheless, when sample companies that were listed in the top 100 of

the Forbes list where examined, the results were very close the being statistically meaningful,

and showed a linear correlation between ROE and DOG score (Figure 3.37). More important, a

polynomial non-linear relationship was found that was statistically relevant. This again indicated


there may be an optimal DOG score, which if exceeded, may result in a diminished ROE. More

research is required.

Relation between ROA/ROE and ROA/ROE/Forbes Ranking Sums, and DOG Score

―Never before has Nokia been as diverse of a community [with] 55,000 employees from 115 nationalities...Half of the senior

managers at Nokia are non-Finnish.‖ (Nokia, n. d.)

There was no statistically relevant relation between the two overall general financial

measures and DOG score for the total sample population, nor for companies segmented into the

top 500, top 250, and top 100 companies (Figures 3.38 and 3.39).

Relation between Number of Psychic Zones and Countries Where Firms Operate, and DOG

Score

―It‘s true that global citizenship is one of the best ways to create a culture that employees care about. Remember that employees

come from a certain place and they don‘t want to have to check their values at the door when they go to work.‖—Rosabeth

Kanter (Kurtzman, 1999)

Turning away from comparisons of financial measures and DOG score, the author looked

at the relation between DOG score and the number of countries and psychic zones where firms

had operations. Although there appeared to be no statistically significant relation between DOG

score and the number of countries where a firm operates, a more meaningful relation may exist

between DOG score and the number of psychic zones where a firm operates. Although just shy

of having meaningful F and t Ratios, it appears there may be a linear correlation, where firms

operating in more psychic zones have higher DOG scores (Figure 3.40).


Relation between Number of Employees and DOG Score

―We make diversity part of our business plan, ensuring we can continue to be a global leader in all aspects of Diversity and

Inclusion. Dedication to Diversity and Inclusion touches every part of our business. Diversity and Inclusion are enduring values

embedded into our culture. From our board of directors to our associates and customers, these values are fundamental to both

our business and mission of saving people money so they can live better.‖ (Wal-Mart, n. d.)

Wal-Mart had the most employees of all companies sampled, but only had operations in 15

countries. Ranked 23rd

, with a DOG score of 1.29, it was considered to be a firm emerging from

ethnocentricity to become geocentric. Nonetheless, the relation between the number of

employees and a firm‘s DOG score was found to be statistically meaningful, although the

relation was surprisingly negative. This appeared to show that many large global US companies

were more ethnocentric than smaller but more geocentrically progressive European companies

(Figure 3.41). Interestingly, there appeared to be no significant relation between DOG score and

the number of foreign employees (Figure 3.42); this indicates that both large and small

companies can be ethnocentric or geocentric. In addition, it may mean that a company

remaining ethnocentric or becoming more geocentric is based more on choice than on

circumstances, such as the number of employees it has or where it has its global operations.

Relation between Population of Country and DOG Score

―We are proud to share what we have learned along the way and the aspirations we are actively working to achieve. At HP we

have recognized that creating a diverse, inclusive work environment is a journey of continuous renewal. Each step in the process

has an important significance to remember as we move forward into the 21st century. Together the steps create a diversity value

chain upon which we are building our winning global workforce and workplace.‖ (Hewlett-Packard, n. d.)

It was evident, when firms from small countries like Switzerland appeared to have the

highest DOG scores, that there might be a relation between the population of a country where a

firm is based and its DOG score. In fact, the author found that a strong statistically relevant


relation exists (figure 3.43). This is understandable, because with such a preponderance of

global companies, American firms with their enormous population base can find lots of talent at

home; small countries like Switzerland, or those of a moderate size like the Canada and France,

do not have that luxury so they are more likely to search abroad for global talent. In so doing,

however, if the goal of these companies from smaller countries is simply a quest for the closest

available talent —likely from the same psychic zone—rather than an attempt to bring diverging

national perspectives to the fore by becoming more geocentric, they run the danger of not

leveraging the cultural synergy potential they have gained, or not having as much as they should.

There were exceptions to the relation of national population to DOG score; Sweden‘s

H&M, who had the lowest DOG score, appeared to have only one foreign executive, who was

from another Nordic country. With a population of just over nine million, this firm stood-out.

Hewlett-Packard with the ninth highest DOG score stood-out at the other end of the scale. Only

six years ago, it was considered ethnocentric with no non-American directors. Today,

remarkably, it was the U.S. company with the highest DOG score, with three foreign national

directors and five non-U.S. GTMT members. This likely began as a conscientious effort in

2005, when the company is known to have hired a search firm ―to find [its first] non-U.S.

director (Lublin, 2005). Procter & Gamble had the 15th

best DOG score with to two board and

17 GTMTs members from outside the U.S.; it is another example of a geocentric American

company.

Relation between Dependant Financial Variables and Each Independent DOG Variable – A


Deeper Exploration

―Advocates say the broadened geographic reach brings new perspectives to the boardroom. Yet many U.S. companies haven't

gotten the message... That may put U.S. companies at a disadvantage in the global marketplace.‖ (Lublin, 2005)

Having determined that the closest relation that existed in the findings was between the

Forbes ranking and ROE, and DOG score, each variable that constituted the DOG model was

examined first against ROE and second against the Forbes ranking. Three variables—BCDQa

and b, and GTMTb— were found to be the most relevant. In particular, for the 23 companies

sampled that were within the Forbes top 100 ranking, there was a strong, positive, and

statistically relevant correlation between ROE and the ratio of foreign nationals from different

psychic zones on the GTMT(GTMTb) (Figure 3.44). This finding may be important in that it

might highlight the significance in large global corporations of having executives with different

global points of view on GTMTs, and perhaps boards, and that these different perceptions,

providing more cultural synergy potential, may have a positive impact on a company‘s ROE.

This is supported by Alder (2002) who contends cultural diversity at all levels of a firm is less

important for multinational firms but vitally important for large globally integrated companies

(pp. 134-136).

Two variables that measured board composition were the next most relevant. There was a

polynomial nonlinear relation between the ratio of foreign nationals on a board and DOG score,

again suggesting that national diversity on boards is beneficial, but that there may be an optimal

level of internationalization on a board which if exceeded may negatively impact ROE. As well,

it seems that representation of foreign nationals from different psychic zones may have a positive

impact on ROE for companies in the Forbes top 100 ranking, although this was just shy of being

statistically meaningful.


When the relation of dependent DOG score variables were individually compared to the

Forbes ranking of companies, one interesting relation appeared. For firms ranked in the top 500

companies, there was a strong relation between Forbes ranking and FEMVS—the Foreign

Employee to Management Variance Score. Corporations that best reflected their diverse

workforce in their boards and GTMTs generally placed higher in the Forbes ranking, although

cause and effect has not been determined in this study (Figure 3.45).

What is Unique about Sampled Companies in Forbes Top 100

―"I would rather have a director who ran a business in France who may be American, than someone who just happened to be

born in Paris and has a French surname," says Dennis Carey, a Philadelphia partner at Spencer Stuart. But global-minded

governance advocates disagree.‖ (Lublin, 2005)

Carey‘s pragmatic comment speaks more to the desire to hire competent people and is not

on the face necessarily ethnocentric. It does however show a lack of appreciation for the

potential benefits deep seeded cultural differences—new knowledge domains—can afford to a

global firm; these different perceptions cannot be gained simply by ―running‖ a business as an

expatriate in a foreign land. Nonetheless, it appears a growing number of very large global

corporations have a legitimate appreciation for the benefits of different national perspectives at

the head of their organizations. Throughout the analysis of the data, it appeared that results for

the 23 sampled companies in the Forbes top 100 were much more statistically meaningful than

the results for the total sample. The author examined the differences between companies in this

group and other companies rated lower in the Forbes Ranking. Besides the obvious differences

in the Forbes financial measures—sales, profits, and asset and market value—the findings

indicated that firms in the top 100 were overwhelmingly American and European (21 of 24)

compared to the much broader country and less European/American representation of the lower


ranked companies (17 of 22). As well, the top 100 companies came from six psychic zones

whereas the lower ranked firms represented nine psychic zones. Therefore, the top 100 firms

were a more homogeneous sample. The top 100 firms on average did business in 10.7 psychic

zones while the lower ranked firms did business in 9.7 psychic zones. The medians were 12.5

and 10.0 psychic zones, respectively (Figure 3.46).

More interestingly, there were stark differences in the number of countries where these

firms operate and the number of employees they had. The top 100 firms conducted operations in

59 countries whereas other firms did business in only 46. Most significant, however, firms in the

top 100 had an average of 246,000 employees, compared with 140,000 for other firms. Relating

this with the previous discussion on the relation between DOG score and the number of

employees in a firm, and the contention that becoming geocentric was a choice firms made, the

findings may show that this choice is an important one the larger and more global a corporation

becomes. In sum, firms in the Forbes top 100 had more employees and a larger global footprint

than other firms and not only performed better by the Forbes financial measures, but geo-

centricity measured by DOG score was related to their success—although perhaps not with cause

and effect.

Why National Cultural Diversity May not Translate into Performance

―Multiculturalism adds to the complexity of global firms by increasing the number of perspectives, approaches, and business

methods represented within the organization.‖ (Alder, 2002, p. 15)


Besides the uniqueness of companies in the Forbes top 100, what else might contribute to

the weaker than expected relation between DOG scores and financial performance in the general

population of sampled companies? Wang et al. (2009) found no relation between diverse boards

and performance, but noted that more diversity did not lead to poor performance. This study

found some positive relation between board and GTMT national diversity, but more important,

virtually all results tended towards a positive rather than a negative relation to financial

performance. Although these findings were statistically relevant in only a few occasions, the

positive trend was evident. There was some evidence, however, that there may be an optimal

level of diversity measured by DOG score, which if exceeded, results in a negative relation with

some financial performance measures.

In addition, it could be that the national cultural diversity existing at the top of some global

corporations might not translate into improved financial performance because it is poorly

managed—because synergy potential is not realized and disparate cultural knowledge domains

are not harnessed, but rather are assimilated or marginalized. It is true that with more

nationalities represented, managing complex diversity would be appreciably more difficult.

Thomas et al. (1996) found that increasing diversity for diversity‘s sake often backfires and hurts

company performance; this likely happens as well when national diversity is introduced to

corporate boards and GTMTs. As mentioned, often, culturally diverse groups perform worse

(Moran et al., 2007, p. 246). For diversity and cultural synergy potential to ‗pay-off‘, it must be

well managed. It has been found that culturally diverse teams untrained and prepared for

diversity perform worse on problem solving tasks than homogeneous ones; but when trained,

they outperform them by a significant margin (Koppel et al., 2008, p. 23).


Wang et al. (2009) also believe that there are so few diverse members on boards that they

likely acculturate to the board. They contend that a critical mass of diversity may result in a

positive association with performance; this idea is supported by Carpenter et al. (2001). During

this study, this critical mass existed in the most geocentric companies, but perhaps not all boards

and GTMTs were cohesive enough due to the complexity of managing diversity, as described

above, to fully leverage the synergy potential that existed.

As well, an appropriate corporate culture creating an open and healthy climate that

promotes differences and has processes to leverage them is necessary to set conditions for

cultural synergy to occur. Without this, culturally diverse management teams will tend to be

mediocre or perform worse than ethnocentric ones (DiStefano et al., 2000). With increased

global competition today, a strong, adaptive corporate culture tailored to the culturally complex

global business environment should improve global corporate performance. Corporations

without this sort of adaptive and inclusive culture will be challenged by increased global

competition and may not be able to harness the national cultural diversity that exists ( Kotter,

1992).

LIMITATIONS OF THE STUDY

―We recruit people with unique experiences and diverse backgrounds because we believe that is a fundamental part of

strengthening our global business capabilities.‖ (JP Morgan, n. d.)

There are of course limitations to this study. One can question the validity of examining

only boards, GTMTs, and a company‘s leadership to determine if a corporation is ethnocentric or

geocentric. Yet many researchers believe national diversity within the board room and executive

suite is a strong indicator of the degree to which a company is geocentric. It has also been


suggested that the extent to which a company conducts R&D in other countries might be a

measure of a geocentric corporation—off shoring R&D, which is tied to innovation and competitive

advantage, is counterintuitive to an ethnocentric corporation (Doremus, 1999, p. 89; Ramaswami et al.,

2010, p.10). Nonetheless, beyond also examining the corporate culture and climate of a

corporation, which this study attempted to do using secondary data, few other alternatives come

to mind. Actions speak louder than words, and concrete action to form a nationally diverse

corporate hierarchy that leverages its global human resources is indisputably a strong indicator of

geo-centricity.

It can however be claimed that this analysis did not examine the actual attitudes of the

directors and executives in question to determine if they really embody the culture they are

purported to represent. This micro-level research is left for future studies, but it is clear from

examining the data available that the majority of directors studied were born, educated, and

worked in identifiable nations and as such likely represent at some level the cultures from where

they came. Relying then on the work of Hofstede (1994), and Ronan et al (1985) and

contemporaries referenced by them, these cultures can be grouped in psychic zones and the

extent of national cultural diversity present can be measured. Therefore, as a macro examination

of 46 global corporations to determine the existence of varied national cultural knowledge

domains on boards and in GTMTs to determine the degree of geo-centricity, this approach is

valid. Future research might look at whether the attitudes and mores of executives and directors

actually fit the cultural profile to which they belong, but this was outside the scope of this more

general study.

It is acknowledge that how effectively these cultural differences are leveraged or ignored,

are also beyond the scope of the paper. This is left to future research that should, due to increase


globalization, move beyond the examination of gender and cultural differences in a domestic

scenario, to examine in more detail national cultural diversity in increasingly global boards and

executive suites, with perhaps gender as an important subset.

Another key area not explored in sufficient detail is the impact of national legislation that

impedes national cultural diversity at the top of global corporations. Although legislation exists

that restricts foreign nationals from serving on boards of directors, and there is national policy

that mandates domestic diversity, there is no legislation that implores companies to be national

diverse; this is driven from within. Although there is a trend towards increased national diversity

on boards and GTMTs, in certain countries this growth is likely inhibited by legislation.

Another limitation involves the use of ROA and ROE as financial measures to compare

firms across disparate industries. It is generally acknowledge these measures are best used

amongst comparable firms, particularly those in the same industry. Although previous studies

have corrected ROA, ROE and other dependant variables to account for different industries, this

was not done during this study.

Besides national cultural differences among companies studied, the other dissimilarities—

principally between industry, their DOI, and their size (measured by sales, profit, and asset and

market value)—were in many cases profound; perhaps the study was somewhat limited by

comparing apples to lemons. These differences likely had some influence on the findings

observed in the relation between DOG score and financial performance, accounting perhaps for

the weaker association than expected. For example, a high DOG score could be less important

for a smaller company, one less global than larger firms.

Based on this, there is some merit in repeating the study using more homogeneous

samples from the same industries, or with global corporations of similar size and DOI. For


example, the author found a more statistically relevant association between the DOG scores of

large companies, those in the top 100 of the Forbes Global 2000 ranking—rather than the total

sample—and financial performance.

Large corporations from emerging markets such as China, India, and Brazil were also not

well represented in the study and a larger sample would have been interesting. Nonetheless, the

study was somewhat limited by the data available for these companies, who were generally

ranked lower in the Forbes Global 2000 ranking.

The study also did not differentiate between the structures of corporations. For example, it

is suggested by Alder (2002) that diversity is less important in multinational corporations than it

is for firms with globally integrated operations. This might explain why many large yet

ethnocentric firms, perhaps multinational rather than global, performed well financially.

CONCLUSION

―The basis for human resource development is putting the Toyota Way into practice...The focus for respect for diversity varies in

different countries and regions; nevertheless, Toyota strives to be a company with a working environment that promotes self-

realization while respecting diversity of values and ideas among its employees.‖ (Toyota, n. d.)

Toyota appears to be a neophyte when it comes to diversity. They impose their Japanese-

centric values on global employees while apparently justify divergent global levels of respect for

diversity. They appear to go out on the limb by ―respecting‖ diversity, but this falls far short of

fostering and leveraging it. They are typical of ‗politically correct‘ companies seeking to contain

and manage cultural differences in others while promoting their own parochial ways. Much of

the current literature suggests their ethnocentric approach is inappropriate today and will hurt

their global financial performance. Alder (2002) wrote ―people rarely believe cultural diversity


benefits organizations (p. 108)‖; this appears to be in-line with the thinking of Toyota and other

ethnocentric companies indentified in this study.

The literature espouses the corporation that allows their best global talent to rise to the

boardroom and executive suite and attracts other worldwide talent as geocentric firms and a

reflection of the global cultural diversity of the company itself. By being geocentric, these firms

have created national cultural synergy potential, and if they effectively leverage these diverse

knowledge domains, they can create competitive advantage leading to better global financial

performance. This theory however is not fully born out in this study. Nonetheless, some of the

key findings are set out below.

First, the Forbes Global 2000 ranking is misleading. Many companies in this ranking,

particularly those ranked lower, between 1000 and 2000, are not as global as might be thought,

often with operations in only one psychic zone and in less than five countries. The DOI measure

used by Sullivan (1994) to determine the ‗globalness‘ of firms is therefore still relevant. In

addition, while companies from emerging markets continue to increase their representation in

and push U.S. and European firms from the Global 2000 ranking, they are still significantly less

global than many firms from the U.S. and Europe.

There also seemed to be a stronger statistical relation between the DOG scores and

financial performance of companies in the Forbes‘ top 100, rather than the greater sample.

These corporations not only performed better by the Forbes financial measures, but geo-

centricity measured by DOG score was positively related to their standing in the Forbes

ranking—although perhaps not with cause and effect. It appears from the research that national

cultural diversity at the higher levels of companies becomes more important to financial

performance as firms grow and move higher in the Forbes Global 2000 ranking. A high DOG


score may be essential for large globally integrated companies but less so for smaller less global

firms—or those more multinational than global in their corporate structure—who conceivably

can capitalize on domestic diversity without the need for international diversity in the boardroom

and GTMTs.

The research also shows there is a glass ceiling in ethnocentric companies that prevents

foreigners from advancing to the GTMT or being represented on the board. Very few companies

had a ratio of foreign employees to foreign directors and GTMTs members that was aligned.

Three companies had a ratio of 1:1 or better, but the average was .65 foreign directors and top

executives to foreign employees. Surprisingly, three of the most ethnocentric companies under

this measure were European.

Global corporations continue to increase the national cultural diversity of their boards and

GTMTs. There must today—with once ethnocentric companies like Toyota and Hewlett-

Packard taking concrete steps to become more geocentric—be a perceived advantage in so doing

as these changes are not legislated; far from it, in some countries there is pressure due to

increased global completion from emerging markets to maintain relative national cultural

homogeneity. European boards continue to be more divers than U.S. ones, almost three times so,

with an average of almost four foreigners. European boards have more synergy potential due to

different national perspectives, but may face considerably greater challenges to manage this

diversity. Asian boards are three times less nationally diverse than American ones, with an

average of less than one foreigner represented. There are nonetheless, a significant number of

non-European boards, 26 % of firms sampled, with no foreign presence. For every two foreign

board members, on average one came from a different psychic zone, which may indicate a trend

away from culturally homogeneous boards from the same psychic zones, to genuinely diverse


boards better reflecting the global operations of corporations. Many companies with very high

DOG scores, including American companies Hewlett-Packard and Procter & Gamble, had more

than four psychic zones represented on their boards. Nonetheless, almost 40% of companies

sampled had only one psychic zone represented; almost half of those companies had foreign

board members, but they all came from same psychic zone.

The trend to internationalize is also reflected in GTMTs, and they continue to be more

diverse than the boards that govern them. American companies did better here, with five

companies ranked in the top ten of companies sampled, when looking at actual numbers of

foreigners represented. Nonetheless, when the proportion of foreigners to nationals was

considered, there were only two U.S. companies in the top ten, and Americans again clearly

lagged behind European companies. Again, ethnocentric companies were quite apparent; 28

firms had no foreign GTMT members. Some companies, such as Procter & Gamble nevertheless

stood out. They had 17 foreign GTMT members from 8.5 different psychic zones, providing

access to an astonishing number of cultural knowledge domains, although proportionally, with

42 GTMT members, they did not score perhaps as high as they should have. Similar to boards,

41% of companies sampled had only one psychic zone represented on their GTMTs.

Surprisingly, 26 % of the sampled corporations had at least one foreign chairman,

president, or CEO. It appears having a foreigner in one of these positions is a very strong

indicator or geo-centricity; of these 12 companies, all but two had a top 10 DOG score.

European firms were four time more likely to have a foreign chairman, president, or CEO as an

American company.

A corporation‘s corporate culture and philosophy were not necessarily good indicators of

how geocentric a firm might be. Several companies said the right things on their websites, but


did not extend diversity beyond their own borders by bringing in foreigners to their boards or

GTMTs. It may be that corporate websites simply reflect the latest MBA theories. Conversely,

these global companies may be more focused on domestic diversity and have not yet begun in

earnest to diversify in a meaningful way internationally, or they may not have the support of

corporate leadership to realize stated objectives.

The DOG score model reduced to six variables that measured one factor seemed to

genuinely reflect purported geocentric and ethnocentric companies. All three Japanese

companies studied were in the bottom seven companies rated by DOG score. ABB, Nestlé,

Nokia, and Unilever were all in the top eight. Seven of the top 10 firms were European; two

were American. Sweden‘s H&M was the most ethnocentric. There seemed to be three types of

companies: geocentric, ethnocentric, and emerging. The geocentric company seems to be a firm

that has at least one foreign chairman, CEO or president; whose directors and top management

represent the composition of their global work force; and that have many foreign directors and

GTMT members, some of which come from different psychic zones.

The profile of the ethnocentric firm differs significantly. It is lead by one or a group of its

own nationals. They have relatively few foreign directors and GTMT members from different

countries, and those present tend to come from the same psychic zones. Ethnocentric firms tend

to have glass ceilings that prevent foreign nationals from advancing to higher levels; when this is

not the case, proportionally fewer advance to higher ranks. Accordingly, these corporations‘

boards and GTMTs do not proportionally represent the diversity of their workforce.

Finally, there are emerging firms that tend to be ethnocentric, but have at least one or more

redeeming qualities. These formerly ethnocentric firms have taken modest steps towards geo-


centricity, generally by globalizing their GTMTs with some foreign nationals. Interesting, the

four firms from emerging nations all fell into this category. It may be these rising companies,

whose senior personnel have leveraged the best educations and experience the West have to

offer, return home to conquer their domestic markets. As they globalize, they reach out for some

international expertise, but they have not taken firm final steps to become geocentric.

The relation between the number of employees a company had and its DOG score was

negative, perhaps skewed by large ethnocentric American companies compared to smaller more

progressive European companies. There appeared to be no relation between the number of

foreign employees and DOG score. This finding indicates that both small and large companies

can be ethnocentric or geocentric—it is likely based more on choice than circumstances.

Nevertheless, a very strong relation was found between the population of the country were the

corporation was based and its DOG score. Companies from smaller countries tend to seek out

foreign GTMT members and directors. Some companies from large countries, such as Hewlett-

Packard from the U.S., are beginning to realize they cannot find the desired cultural knowledge

domains within their own borders and a now looking abroad for nascent foreign talent.

Finally, although there does not appear to be a strong relation between geo-centricity and

ethnocentricity, and financial performance for the overall sample population, there were a

number of promising findings. There was, for example, a polynomial nonlinear relation between

companies in the top 500 of the Forbes ranking and their DOG score. It suggests there is a

positive relation between DOG score and Forbes ranking up to an optimal DOG score after

which there were diminishing returns—in other words, geo-centricity may have helped propel


companies higher in the Forbes ranking, but too much geo-centricity may harm performance as

measured by Forbes.

Although there appeared to be absolutely no relation between DOG score and ROA, there

was much better linear as well as a statistically relevant non-linear relation between the DOG

scores of sampled firms in the top 100 Forbes ranked companies and ROE. Again, this finding

shows there is a positive relation between geo-centricity as measured by DOG score and

financial performance measured by ROE, but there may be an optimal level of geo-centricity at

the top of global companies.

An exhaustive look at the independent DOG score variables as they related to ROE

revealed an interesting finding; amongst the 23 companies that were ranked within the top 100

Forbes firms, there was a positive relation between the proportion of foreign nationals from

different psychic zones represented on GTMTs and ROE. Moreover, there was a positive but

nonlinear correlation between the ratio of foreigners on boards of directors and ROE. Finally,

there was also a promising result for the number of psychic zones represented on boards, but

these were not statistically proven. For firms ranked in the top 500 companies, there was also a

strong relation between Forbes ranking and FEMVS—the Foreign Employee to Management

Variance Score—and the firms ranking. Corporations that best reflected their diverse workforce

in the upper echelons of boards and GTMTs were generally ranked higher in the Forbes ranking,

although cause and effect was not determined in this study.

It is fair to question why the relation between DOG score and financial performance was

not stronger than anticipated. It could be that the national cultural diversity existing at the top of

some global corporations might not translate into improved financial performance because it is


poorly managed—because synergy potential is not realized and disparate cultural knowledge

domains are not harnessed, but rather are assimilated or marginalized. It is true that managing

this complex diversity would be more difficult the greater the international representation. As

well, although Wang et al. (2009) noted that more diversity on boards did not lead to poor

performance, there may be an optimal level of diversity at the top of a company, before cultural

diversity is too complex to mange. The key may be to seek out top performing executives or

directors from strategically important psychic zones, and carefully leverage their knowledge to

create synergy.

This study has shown that the majority of global companies are still ethnocentric, weighted

heavily by American and other non-European companies. Nonetheless, the balance may be

tipping. Only five years ago, Hewlett-Packard was considered an ethnocentric corporation.

Today it is on its way to being geocentric, and ranked ninth in the Forbes‘ ranking and 17th

for

ROE, it is a strong performer. Toyota is slowly increasing foreign representation on its GTMT,

although this may be a band-aid solution based on its enduring ethnocentric corporate

philosophy.

Companies like BHP Billiton and Unilever stand out as geocentric firms whose financial

performance, unlike Nokia‘s, is superior. Global corporations need to develop and internalize the

appropriate global business culture and cross-cultural competencies to fully leverage cultural

synergy potential and improve financial performance. Unilever in particular was highlighted in

the literature and this study as a company who has done just that. With the eighth best DOG

score, Unilever is a geocentric. It has a foreign CEO and Chairman and a strong culture that

seeks to benefit from rather than simply mange diversity. Almost half its board are foreign


nationals from three psychic zones and half of its GTMT are non-British/Netherlands nationals

from four psychic zones. The leaders and senior managers of the company are nationally

diverse, but not overly so. Their ratio of foreign managers to foreign based employees is a

respectable .63:1. With increased global completion from companies from emerging markets,

perhaps they are a model for the future.

Companies who remain ethnocentric may be confronted with the same sort of surprise that

Toyota faced in 2009. The surprise will likely come from an emerging geocentric corporation

that has drawn together diverse talent from around the globe and fostered it in a climate that not

only manages diversity, but takes the synergy potential available and effectively leverages it at

all levels of the corporation. Faced with this threat, will ethnocentric companies like Honda,

Ford, Boeing or Compass Group adopt a defensive posture as Drucker (2008) suggested they

will (p. 91). Or will they begin to emerge from the stifling confines of ethnocentricity in to the

multicultural world round them?

RECOMMENDATIONS – FUTURE RESEARCH

Sullivan (1994) wrote that the scholarly validity and refinement of his construct to measure

DOI depends on future research from an accumulation of studies that builds upon it (future

research); the same hold true for the current research, which begins to address the gap identified

by Caligiuri et al. (2004), who suggested future longitudinal studies seek to determine if

increased diversity and international experience at the top of organizations improves global

business success due to the diverse culture perspectives represented. The current research into

the relation between DOG score and financial performance was broad in scope. Perhaps because


of this, the relation between DOG and various financial variables, although somewhat apparent,

was not as strong as the literature suggested it should be.

It is recommend future research build on the DOG score construct but confine the sample

to one industry or several related industries. Future research might also look at a broad range of

global companies, but limit it to firms that are roughly the same size, or have the same global

exposure and competition, or organizational structure (e.g. globally integrated or multinational).

More research should be done into the impact executives and directors from different psychic

zones have on GTMTs and boards, as the findings of the current research suggest a relation with

financial performance; national cultural diversity may be one things, but perhaps it is better to

focus the search for culturally different executives and board members in different psychic zones

in order to significantly increase the cultural knowledge domains available as well as synergy

potential. Subsequent research should also expound on the finding that there may be an optimal

level of national cultural diversity, which if surpassed negatively influences financial

performance. Are companies like ABB, who had the highest DOG score, simply too nationally

diverse? Anyone who has worked in an international organization knows the frustrations and

challenges that arise due to the profound cultural differences that exist amongst the human

animal, but also appreciates those happy moments when cultural synergy creates something of

value that might otherwise never been realized.


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APPENDICES

APPENDIX 1 – A SUMMARY OF JOKINEN’S GLOBAL LEADERSHIP COMPETENCIES

Global Leadership

Competencies

Subsets Sub-subsets

Core Global

Leadership

Competencies

Self awareness

Engagement in

personal

transformation

Inquisitiveness

Self insight, listen to others, assess the value of what is said, personal mastery, openness, value diversity,

well developed ego, confidence and courage, understanding one‘s own values and assumptions and strengths

and weaknesses, openness to change

Entrepreneurial spirit, commitment to personal development and continual improvement, creative

dissatisfaction, drive to keep up-to-date, desire to experience new things, reflective and proactive approach

to learning, open to criticism, sense of adventure, positive attitude, open to change, ability to learn from

experience

Curiosity, seek knowledge and expertise beyond boundaries, acquire cultural knowledge, willingness to

take risk and enter unfamiliar situations

Desired Mental

Characteristics of

Global Leaders

Optimism

Self-regulation

Social

judgement

skills

Empathy

Motivation to

work in

international

Positive attitude, proactive approach, can-do attitude, ability to manage uncertainty, seeking opportunity, risk

taking, learning from mistakes

Control disruptive impulses and moods, suspend judgement, think before acting, emotional stability, cope

with distractions, integrity, character, accountability, adaptive capacity, behavioural flexibility,

responding to dynamic social settings, tolerance for ambiguity, ability to handle stress, perseverance,

resilience, hardy personality, ability to retain capabilities even in unfamiliar circumstances, open

minded, avoiding ethnocentricity, self-efficacy, good timing, knowing when to act and when to gather more

information

See the big picture, accurately profile other cultures, understanding that things happen in a social

context, understanding/monitoring social systems, social perspective, wisdom, self-objectivity, self-

reflection, systems perception, awareness of solution fit, judgement under uncertainty, awareness of different


environment

Cognitive skills

Acceptance of

complexity and

contradictions

constituencies, understanding of restrictions, analysis of downstream consequences, coordinate multiple

activities, ability to shift perspectives and understand global interdependencies, political awareness,

social and organizational awareness, long term orientation, understanding of cause and effect

Ability to interact with others, sensitive to others needs and assumptions, genuine concern for others,

warn-heartedness, respectful, open and flexible approach, goodwill, service orientation, ability to cope with

people in different situations, emotionally connected to people from different backgrounds, listening

skills, ability to understand different points of views, understand people, cross cultural sensitivity, expertise

in hiring, building and motivating and retaining talent in different cultures

Commitment, motivated to exercise different global leadership competencies, motivate others

Properly interpret the environment, learn from experience, cognitive complexity competency, divergent

thinking skills, ability to switch focus, pattern recognition, identify key facts, evaluate performance and

strategic options, ability to plan and strategize, ability to make sound decisions, ability to learn and

acquirement skills

See opportunity in adversity, use diversity to stimulate creativity, an appreciation of cultural diversity,

create opportunities to broaden perspective, manage tension between global and local needs

Desired Behavioural

Competencies of

Global Leaders

Social skills

Networking

skills

Knowledge

Manages personal relationships, leads changes, takes charge and inspires with vision, visionary leadership,

develops others, manages conflict, builds and leads teams, fosters collaboration, good communication and

listening skills, persuasive, finds common ground and build bonds, moderately extrovert, manages first

impressions, multicultural communicative competence, lead multicultural teams, negotiates conflict,

brings out the best in people, fosters cooperation and team building, attract and develop talent, aligns

people to one vision, emotional intelligence, logical intelligence

Builds and maintains networks, pursue partnerships, build connections, establish internal networks, build

communities

Language skills, computer skills, balance global verses local tensions, global knowledge, technical

expertise, professional expertise, understands marketing financial concepts, total organization astuteness,


understanding of business systems, sees worldwide opportunities, understands global competition and

market trends, understanding of cultural factors on behaviour and communication, establish a

corporate culture that transcends cultural differences and established beacons of values and attitudes,

understands needs and goals different constituents, appreciates cultural differences, manages diversity

and cross cultural ethics, recognizes skills in others; finds, hires and motivates staffs of diverse cultural

backgrounds, creates a safe an positive environment, award systems that are in line with norms and

values of different cultures


APPENDIX 2

CORPORATE PERFORMANCE MEASUREMENTS

Co

rpo

ration

Co

un

try

Co

ntin

ent

Psy

chic Z

on

e

Ind

ustry

Sales ($

BIL

)

Pro

fits ($ B

IL)

Assets ($

BIL

)

Mark

et Valu

e ($ B

IL)

Fo

rbes G

lob

al 20

00

rank

Sam

ple ran

k

Retu

rn o

n A

ssets (RO

A)

RO

A S

R

Retu

rn o

n E

qu

ity (R

OE

)

RO

E S

R

To

tal Ran

kin

g R

elative to

Sam

ple R

ank

ing

(sum

of t,v

,x)

Ov

erall Sam

ple P

erform

ance

Ran

k

To

tal Ran

kin

g R

elative to

real

RO

A/R

OE

date (su

m o

f U,W

)

Ov

erall Sam

ple P

erform

ance

Ran

k

Desig

nated

A to

p (T

), bo

ttom

(B), o

r Glo

bal H

igh

Perfo

rmer

(GH

P)

Nu

mb

er of P

sych

ic Zo

nes

Nu

mb

er of C

ou

ntries W

here

they

Op

erate

Nu

mb

er of B

oard

Mem

bers

Nu

mb

er of F

oreig

n N

ation

al on

Bo

ard

Nu

mb

er of P

sych

ic Zo

nes

Rep

resented

on

Bo

ard

Nu

mb

er of G

TM

T M

emb

ers

Nu

mb

er of F

oreig

n N

ation

als on

GT

MT

Nu

mb

er of P

sych

ic Zo

nes

Rep

resented

on

GT

MT

Nu

mb

er of E

mp

loy

ees

Nu

mb

er of F

oreig

n E

mp

loy

ees

ABB Switzerland Europe GE CG 31.8 2.9 33.68 46.46 143 32 7.21% 22 19.91% 20 74 24 27.12% 19 T &

GHP 14 87 8 7 5 10 8 4 117,000 110,000

Nestlé Switzerland Europe GE FD 97.08 10.07 105.16 173.67 36 15 7.65% 17 18.25% 25 57 17 25.90% 21 T 14 140 12 5 3 13 12 4.5 280,000 184,800

Credit Swiss

Group Switzerland Europe GE DF 50.26 6.11 988.91 53.93 44 17 0.59% 46 18.41% 23 86 30 19.00% 30 T 14 55 15 9 4 14 8.5 4 47,600 26,700

Zurich Fin

Services Switzerland Europe GE IN 70.27 3.22 366.66 34.71 63 20 0.89% 43 10.77% 36 99 38 11.66% 39 GHP 14 49 11 7 2.5 12 9 3.5 60,000 54,000

Nokia Finland Europe NO TE 58.72 1.28 49.11 49.18 135 30 4.77% 28 7.33% 44 102 43 12.10% 38 control 9 13 9 5 5 10 3 3 123,553 77,867

BHP Billiton Australia/ Australia AN MA 50.21 5.88 74.86 192.45 62 19 14.64% 7 28.76% 10 36 3 43.40% 11 T 5 25 12 6.5 2 7 5 5 40,990 25,293

British Amer

Tabacco UK Europe AN FD 22.95 4.38 42.41 68.27 133 29 11.43% 10 37.05% 4 43 6 48.48% 6 GHP 10 41 13 8 4.5 11 4.5 3 61,053 48,147

Unilever NL & UK Europe GE & AN FD 57.05 4.83 52.05 91.33 85 22 8.35% 15 34.79% 8 45 7 43.14% 12 control 12 97 12 5 3 10 5 4 163,000 135,000

Hewlett-

Packard US

North

America AN TE 116.92 8.13 113.62 121.33 35 14 6.80% 24 20.54% 17 55 14 27.34% 18 T 14 170 12 3 4 15 5 5 304,000 236,000

Monsanto US North

America AN CH 10.77 1.53 17.61 38.87 342 38 7.36% 21 9.50% 39 98 39 16.86% 33 GHP 14 82 11 2 1 12 2 1 22,900 12,600

Allianz SE Germany Europe GE IN 130.06 6.16 834.04 52.74 23 8 0.76% 44 12.69% 31 83 29 13.45% 37 T 13 70 12 4 3 10 5 3 153,503 104,152

Teva Pharm

Inds Israel

Middle

East IN- Israel DB 14.36 2.07 33.21 56.19 209 36 7.42% 20 13.67% 30 86 33 21.09% 27 GHP 8 16 15 3 3 12 5 3 35,089 28,788

Delhaize

Group Belgium Europe LE FM 26.5 0.65 13.47 7.81 520 44 5.70% 26 10.78% 35 105 44 16.48% 34 GHP 5 5 12 4 2 7 3 3 141,000 117952

Research in

Motion Canada

North

America AN TE 14.34 2.27 9.7 39.09 384 40 23.99% 2 36.46% 6 48 13 60.45% 4 GHP 6 14 9 1 2 9 1 2 12,000 3424

Procter &

Gamble US

North

America AN HP 76.78 13.05 135.29 187.47 29 12 7.61% 19 17.62% 26 57 18 25.23% 22 T 14 80 10 2 3 42 17 8.5 135,000 95,000


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Co

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Co

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Psy

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GDF Suez France Europe LE UT 114.65 6.42 245.95 83.36 24 9 3.04% 34 7.79% 43 86 32 10.83% 42 T 9 30 17 2 1 18 4 1 200,650 21,350

Goldman

Sachs Group US

North

America AN DF 51.67 13.39 849 84.95 25 10 1.40% 40 18.30% 24 74 25 19.70% 28 GHP 12 33 11 2 3 9 1 1 31,701 13,631

Infosys

Technologies India Asia IN-India SS 4.22 1.17 4.34 32.2 807 47 17.21% 4 28.12% 11 62 19 45.33% 10 GHP 11 28 13 2 2 38 4 2 122,486 23550

Tesco UK Europe AN FM 77.94 3.1 65.61 51.43 84 21 4.14% 30 16.96% 27 78 26 21.10% 26 T 6 14 16 2 3 8 0 1 364,015 175,341

E.ON Germany Europe GE UT 117.38 12.05 214.58 68.26 25 11 3.69% 31 22.69% 14 56 16 26.38% 20 GHP 5 14 20 3 3 6 1 2 88,000 52,951

Intel US North

America AN SC 35.13 4.37 53.1 115.29 100 25 16.80% 5 22.30% 16 46 10 39.10% 13 4 6 10 0 1 32 10 4 78,800 35,460

BNP Paribas France Europe LE BK 101.06 8.37 2952.22 86.67 11 4 0.31% 47 10.27% 37 88 34 10.58% 43 GHP 13 84 17 6 4 12 1 1 201,100 136,500

Walmart US North

America AN RE 408.21 14.34 170.71 205.37 14 6 9.15% 11 22.53% 15 32 2 31.68% 14 T 6 15 15 2 1 32 6 2 2,100,000 700,000

General

Electric US

North

America AN CG 156.78 11.03 781.82 169.65 2 2 1.06% 42 9.84% 38 82 28 10.90% 41 T 14 63 17 2.5 1 21 4.5 3 288,000 154,000

Petrobras-

Petroleo Brasil Brazil

South

America IN-Brazil OG 104.81 16.63 198.26 190.34 18 7 8.72% 13 18.70% 22 42 5 27.42% 17 GHP 9 28 9 0 1.5 7 0 1 76,739 7,605

Rolls-Royce

Group UK Europe AN AD 16.82 3.59 24.32 15.57 283 37 4.15% 29 0.82% 46 112 45 4.97% 46 GHP 9 21 14 1 1 18 4 2 38,500 16,500

Caterpiller US North

America AN CG 32.4 0.9 60.04 36.14 165 35 2.08% 37 19.15% 21 93 37 21.23% 25 T 10 23 16 2.5 2 35 6 3 112,887 59,378

Swire Pacific China Asia FE CG 3.18 0.76 25.52 16.76 672 45 2.02% 38 20.41% 18 101 41 22.43% 24 GHP 7 21 16 1 2 8 1 2 75,000 32,000

BASF Germany Europe GE CH 72.63 2.02 72.06 52.12 97 24 8.03% 16 16.45% 28 68 22 24.48% 23 T 14 86 12 2.5 3 8 0 1 104,779 56,193

America

Movil Mexico

North

America LA TS 30.22 5.4 34.7 72.09 131 28 12.60% 8 34.33% 9 45 8 46.93% 8 GHP 3 18 9 2 2 4 0 1 52,879 36,353

United Parcel

Service US

North

America AN TN 45.3 2.15 31.88 58.43 139 31 9.11% 12 36.62% 5 48 12 45.73% 9 T 14 215 11 1 1 12 0 1 408,000 68,000

IBM US North

America AN SS 95.76 13.43 109.02 167.01 33 13 11.62% 9 76.92% 1 23 1 88.54% 1 T 14 170 13 3.5 3 18 1 1.5 399,409 284,409

Exxon/Mobil US North

America AN OG 275.56 19.28 233.32 308.77 4 3 8.49% 14 19.97% 19 36 4 28.46% 16 T 13 38 10 1 2 5 0.5 1 80,700 50,800

Hochtef Germany Europe GE CN 26.61 0.24 16.53 4.75 786 46 2.51% 36 9.12% 41 123 46 11.63% 40 GHP 12 31 8 2 2 5 0 1 66,000 55,000

Pfizer US North

America AN DB 50.01 8.64 212.95 143.23 40 16 7.63% 18 10.88% 34 68 23 18.51% 31 T 13 44 15 0 1 13 2 2 116,500 50,000


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Boeing US North

America AN AD 68.28 1.31 62.05 48.45 120 26 1.84% 39 63.31% 2 67 21 65.15% 3 T 9 14 13 0 1 11 0 1 159,000 26,877

Ford US North

America AN CD 118.31 2.72 194.85 41.8 58 18 2.82% 35 -1.58% 47 100 40 1.24% 47 T 10 23 14 0 1 33 9 3 198,000 129,000

JP Morgan US North

America AN BK 115.63 11.65 2031.99 166.19 1 1 0.74% 45 9.15% 40 86 31 9.89% 44 T 4 60 11 0 1 17 0 1 220,000 40,000

McDonalds US North

America AN HR 22.74 4.55 30.07 69.05 153 34 15.12% 6 36.35% 7 47 11 51.47% 5 T / GHP 13 117 13 1 1 16 2 2 400,000 264,000

Vinci France Europe LE CN 44.52 2.23 75.23 28.11 124 27 3.59% 32 15.63% 29 88 35 19.22% 29 T 13 103 13 1 2 14 0 1 145,000 72,000

Toyota Japan Asia IN-Japan CD 210.84 -4.49 292.73 127.1 360 39 1.17% 41 4.72% 45 125 47 5.89% 45 control 10 26 27 0 1 49 4 3 320,590 148,520

Canon Japan Asia IN-Japan BS 34.53 1.46 41.33 55.8 147 33 5.92% 25 8.28% 42 100 42 14.20% 36 T 6 15 17 0 1 13 1 2 168,879 96,261

Compass

Group UK Europe AN BS 21.51 0.94 11.74 13.94 441 43 7.11% 23 22.95% 13 79 27 30.06% 15 GHP 11 50 10 1 1 6 0 1 386,000 323,359

Texas

Instraments US

North

America AN SC 10.43 1.47 12.12 30.59 417 41 19.77% 3 27.63% 12 56 15 47.40% 7 GHP 9 30 11 0 1 30 0 1 27,700 14,800

Honda Japan Asia IN-Japan CD 102.82 1.41 117.24 63.22 86 23 3.08% 33 12.59% 33 89 36 15.67% 35 GHP 11 23 21 0 1 29 0 1 181,876 98403

H&M Hennes

& Mauritz Sweden Europe NO RE 14.54 2.35 7.6 50.24 427 42 32.37% 1 54.84% 3 46 9 87.21% 2 GHP 10 38 8 0 1 16 1 1 76,000 71,126


CORPORATE CULTURAL DIVERSITY METRICS – DOG SCORE DATA

Co

rpo

ration

Co

un

try

Fo

reign

Em

plo

yees to

To

tal

Em

plo

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Bo

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qu

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t

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Bo

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qu

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GT

MT

cultu

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qu

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GT

MT

cultu

ral div

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qu

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Natio

nality

key

leader q

uo

tient

(NK

LQ

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Natio

nality

of reg

ion

al

head

qu

arters leader‘s q

uo

tient

(NR

HL

Q)

Co

rpo

rate cultu

re and

ph

iloso

ph

y sco

re (CC

PS

)

Prelim

inary

DO

G S

core (W

ith

all Eig

ht V

ariables)

Prelim

inary

DO

G R

ank

ing

New

DO

G S

core (W

itho

ut

NR

HL

Q an

d C

CP

S)

New

DO

G R

ank

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justed

DO

G S

core

ABB Switzerland 0.940171 0.8333 0.893162393 0.875 0.625 0.8 0.4 1 0.8 0.5 5.8931624 1 4.5931624 1 4.5931624

GE

OC

EN

TR

IC

Nestlé Switzerland 0.66 0.66 1 0.417 0.25 0.885 0.346 1 1 0.25 5.1474359 2 3.8974359 2 3.8974359

Credit Swiss

Group Switzerland 0.561 0.6034 1 0.6 0.267 0.607 0.286 0.5 0.6 0.75 4.6095238 5 3.2595238 3 3.2595238

Zurich Fin

Services Switzerland 0.695652 0.6957 0.795652174 0.636 0.227 0.75 0.292 0.5 1 0.75 4.9509552 3 3.2009552 4 3.2009552

Nokia Finland 0.63 0.4211 0.790821071 0.556 0.556 0.3 0.3 0.5 1 0.75 4.7519322 4 3.0019322 5 3.0019322

BHP Billiton Australia/ 0.617053 0.6053 0.988210218 0.542 0.167 0.714 0.286 0.25 0.25 0.5 4.1965436 7 2.9465436 6 2.9465436

British Amer

Tobacco UK 0.789 0.5208 0.732223437 0.615 0.346 0.409 0.273 0.5 0.6 0.75 4.2255801 6 2.8755801 7 2.8755801

Unilever NL & UK 0.828 0.4545 0.626324596 0.417 0.25 0.5 0.4 0.5 0.6 0.75 4.0429913 8 2.6929913 8 2.6929913

Hewlett-

Packard US 0.776316 0.2963 0.519980507 0.25 0.333 0.333 0.333 0.5 1 0.75 4.0199805 9 2.2699805 9 2.2699805

Monsanto US 0.550218 0.1739 0.623694703 0.182 0.091 0.167 0.083 1 0.6 0.5 3.246422 12 2.146422 10 2.146422

Allianz SE Germany 0.68 0.4091 0.72926088 0.333 0.25 0.5 0.3 0 1 0.5 3.6125942 10 2.1125942 11 2.1125942

Teva Pharm

Inds Israel 0.82 0.2963 0.475868242 0.2 0.2 0.417 0.25 0.5 1 0 3.0425349 15 2.0425349 12 2.0425349

Delhaize

Group Belgium 0.836539 0.3684 0.531882046 0.333 0.167 0.429 0.429 0 1 0.25 3.1390249 13 1.8890249 13 1.8890249

Research in

Motion Canada 0.285333 0.2222 0.936888889 0.111 0.222 0.333 0.222 0 0 0 1.8257778 36 1.8257778 14 1.8257778

Procter &

Gamble US 0.703704 0.3654 0.661680912 0.2 0.3 0.405 0.202 0 0.6 0.75

3.1188238

14 1.7688 15 1.7688

GDF Suez France 0.106 0.1714 1 0.118 0.059 0.222 0.056 0 1 0.25 2.7042484 19 1.4542484 16 1.4542484


Co

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Co

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Foreig

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Board

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Board

cultu

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qu

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Prelim

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DO

G S

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Prelim

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DO

G R

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DO

G S

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NR

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DO

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Goldman

Sachs Group US 0.43 0.15 0.720013564 0.182 0.273 0.111 0.111 0 0.4 1 2.7967812 17 1.3967812 17 1.3967812

EM

ER

GIN

G

Infosys India 0.192267 0.1176 0.925380188 0.154 0.154 0.105 0.053 0 0.667 0.75 2.8076339 16 1.3909672 18 1.3909672

Tesco UK 0.482 0.0833 0.601647139 0.125 0.188 0 0.125 0.333 0.2 0.25 1.8224805 37 1.3724805 19 1.2474804

E.ON Germany 0.602 0.1538 0.552130245 0.15 0.15 0.167 0.333 0 0.8 0.25 2.4021302 23 1.3521302 20 1.3521302

Intel US 0.45 0.2381 0.788095238 0 0.1 0.313 0.125 0 1 1 3.3255952 11 1.3255952 21 1.22559523

BNP Paribas France 0.679 0.2414 0.562612528 0.353 0.235 0.083 0.083 0 0 1 2.3175145 26 1.3175145 22 1.3175145

Wal-Mart US 0.333 0.1702 0.836879433 0.133 0.067 0.188 0.063 0 0.9 0.25 2.4368794 22 1.28688 23 1.28688

Swire Pacific China 0.427 0

0.615

.0625 0.125 .125 0.25 0 0.5 0 1.5525 40 1.2191666 28 1.2191666

General

Electric US 0.535 0.1842 0.649488304 0.147 0.059 0.214 0.143 0 0.8 0.25 2.2625135 28 1.2125135 24 1.2125135

Petrobras-

Petroleo

Brasil

Brazil 0.099 0 0.900897849 0 0.167 0 0.143 0 0 0.25 1.4604217 41 1.2104217 25 0.90089784

Rolls-Royce

Group UK 0.429 0.1563 0.727678571 0.071 0.071 0.222 0.111 0 0.8 0.75 2.753869 18 1.203869 26 1.203869

Caterpillar US 0.526 0.1667 0.640671645 0.156 0.125 0.171 0.086 0 0.6 0.25 2.0290645 30 1.1790645 27 1.1790645

BASF Germany 0.536 0.125 0.588699787 0.208 0.25 0 0.125 0 0.2 0.75 2.1220331 29 1.1720331 29 1.04703312

America

Movil Mexico 0.687 0.1538 0.466370975 0.222 0.222 0 0.25 0 0.75 0 1.9108154 34 1.1608154 30 1.1608154

United Parcel

Service US 0.167 0.0435 0.876811594 0.091 0.091 0 0.083 0 1 0.5 2.6419631 20 1.1419631 31 1.058629

IBM US 0.712075 0.1452 0.4330867 0.269 0.231 0.056 0.083 0 1 0.5 2.5719756 21 1.0719756 32 1.0719756

Exxon/Mobil US 0.629 0.1 0.470508055 0.1 0.2 0.1 0.2 0 0.6 0.25 1.9205081 33 1.0705081 33 1.0705081

Hochtef Germany 0.833 0.1538 0.320512821 0.25 0.25 0 0.2 0 0.8 0 1.8205128 38 1.0205128 34 0.8205128

Pfizer US 0.429185 0.0714 0.642244022 0 0.067 0.154 0.154 0 1 0.25 2.266603 27 1.016603 35 0.949936

Boeing US 0.169 0 0.830899371 0 0.077 0 0.091 0 0.6 0.25 1.8487315 35 0.9987315 36 0.8308993

Ford US 0.652 0.1915 0.53997421 0 0.071 0.273 0.091 0 0 1 1.9750391 31 0.9750391 37 0.90361057


Co

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Co

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Foreig

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Prelim

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DO

G S

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all Eig

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Prelim

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DO

G R

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DO

G S

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NR

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S)

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DO

G R

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justed

DO

G S

core

JP Morgan US 0.181818 0 0.818181818 0 0.091 0 0.059 0 0.333 0.5 1.8012478 39 0.9679144 38 0.8181818181

Eth

no

cen

tric

McDonalds US 0.66 0.1034 0.443448276 0.077 0.077 0.125 0.125 0 1 0.5 2.3472944 24 0.8472944 39 0.8472944

Vinci France 0.497 0.037 0.540485313 0.077 0.154 0 0.071 0 0.6 0.5 1.9426831 32 0.8426831 40 0.771254543

Toyota Japan 0.463271 0.0526 0.589360735 0 0.037 0.082 0.061 0 0.2 0.25 1.2192549 43 0.7692549 41 0.73221787

Canon Japan 0.57 0.0333 0.463333511 0 0.059 0.077 0.154 0 0.2 0 0.9529263 44 0.7529263 42 0.694102741

Compass

Group UK 0.837718 0.0625 0.224782383 0.1 0.1 0 0.167 0 0.6 0.25 1.4414491 42 0.5914491 43 0.4247823

Texas

Instruments US 0.534 0 0.465703971 0 0.091 0 0.033 0 1 0.75 2.3399464 25 0.5899464 44 0.465703971

Honda Japan 0.541044 0 0.458955552 0 0.048 0 0.034 0 0 0.25 0.7910574 46 0.5410574 45 0.45895555

H&M Hennes

& Mauritz Sweden 0.936 0.0417 0.105798246 0 0.125 0.063 0.063 0 0.2 0.25 0.8057982 45 0.3557982 46 0.2307982

* Ronan (1985) highlighted in his synthesis of country cultural clusters that African countries, South Africa being the only exception, have not been studied adequately to determine where they fit

amongst the established clusters, if at all. For the purposes of this study, African countries will be classified as ―Africa‖, and Eastern European countries were also added as a cluster.

INDUSTRIES ( ABVN)

Aerospace and Defence (AD)

Banking (BK)

Business Services and Supplies (BS)

Capital Goods (CG)

Chemicals (CH)

Conglomerates (CG)

Construction (CN)

Consumer Durables (CD)

Diversified Financials (DF)

Drugs and Biotechnology (DB)

Food Markets (FM)

Food, Drink and Tobacco (FD)

Hotels, Restaurants, and Leisure (HR)

Household and Personal Products (HP)

Insurance (IN)

Materials (MA)

Media (ME)

Oil and Gas Operations (OG)

Retailing (RE)

Semiconductors (SC)

Software and Services (SS)

Technology Hardware and Equipment (TE)

Telecommunication Services (TS)

Trading Companies (TC)

14 PSYCHIC ZONES

Anglo (AN)

Germanic (GE)

Nordic (NO)

Near east (NE)

Arab (AB)

Far East (FE)

Latin America (LA)

Latin European (LE)

Independent ((IN) -Japan, Brazil, Israel, India)

Africa (AF)*

Eastern European (EE) *


CORPORATE CULTURAL DIVERSITY METRICS – DOG SCORE CALCULATIONS

Serial 1 2 3

Company Toyota Nokia Unilever

In what country(ies) is the company incorporated? Japan Finland NL & UK

In how many psychic zones does it have operations? (must be more than two) 10 - AN, NE, FE, LA, LI, EE, IN x 4

9 - FE,NO, GE, LA, AN, EU, IN x 3

12 - NO, LE, GE, NE, AR, FE, AN, LE, IN x 4

(A) In how many countries does the company conduct operations? (excluding sales and marketing; must be more than five)

26 13 97

(B) How many board members are there? 27 9 12

What are their nationalities? JP

Finn (4), IN, GE, SWE, FR, US

NL(5); SWE, US (3), UK (2), SA

(C) How many foreign nationals are on the board 0 5 5

(D) How many psychic zones are represented on the board? 1 5 3

(E) How many GTMT members are there? 49 10 10

What are their nationalities? JP (45); US (1); CA (1); SA (1); FR (1)

CA , Fin (7), US, Venezuala

NL (2); UK (3); FR, IT, US (2), IN

(F) How many foreign nationals are on the GTMT? 4 3 5

(G) How many psychic zones are represented on the GTMT? 3 3 4

(H) How many key leaders (chairman, presidents and CEO) are considered? 3 2 2

What are key leader nationalities? Jp Fin, CA SWE, NL

(I) How many key leaders come from a country other than the corporation's home country? 0 1 1

(J) sample of five regional leaders or national subsidiaries? 5 5 5

(K) How many regional leaders are not from the corporation’s home country? 1 5 3

(L) How many employees are there? 320,590 123,553 163,000

(M) How many foreign employees are there? 148,520 77,867 135,000

Foreign Employees to Total Employees Quotient (FETEQ) = M/L 0.463270844 0.630231561 0.82822086

Foreign Management quotient (FMQ ) = (C+F) / (B+E) 0.052631579 0.421052632 0.45454545

Foreign Employees Management Variance score (FEMVS) =-(FETEQ - FMQ) + 1 0.589360735 0.790821071 0.6263246

Board cultural diversity quotient a. (Board CDQa) = C/B 0 0.555555556 0.41666667

Board cultural diversity quotient b. (Board CDQb) = D/B 0.037037037 0.555555556 0.25

GTMT cultural diversity quotient a. (GTMT CDQa) = F/E 0.081632653 0.3 0.5

GTMT cultural diversity quotient b. (GTMT CDQb) = G/E 0.06122449 0.3 0.4

Nationality key leader quotient (NKLQ) (Chairman, President, CEO) = I/H 0 0.5 0.5

Nationality of regional headquarters leader’s quotient (NRHLQ) = K/J 0.2 1 0.6

Corporate culture and philosophy score (CCPS)? Sum of: • Is national cultural diversity a strategic goal (0.0 or 0.25)? • Does the company ignore national cultural diversity, accept and value cultural differences and seek to manage them, or specifically seek to integrate and leverage global cultural diversity as a strategy as inherent part of its culture (0.0, 0.25, 0.50)? • Does the Chairman, President, or CEO speak about leveraging national cultural diversity in official company documents (0.0 for no; 0.25 for yes)?

0.25 0.75 0.75

DEGREE OF GEOCENTRICITY (DOG) score out of eight 1.219254914 4.751932182 4.04299126

DOG Score Out of six (Less NRHLQ and CCPS) 0.769254914 3.001932182 2.69299126


APPENDIX 3 – FINDINGS

Figure 3.1 – Corporations Identified to be Studied

Corporations Studied Corporations Dropped from Study Toyota Japan Miyazaki Bank Japan

Nokia Finland ITT Educational Services US

Unilever The Netherlands & UK Aggreko UK

Boeing US Kingboard Chemicals China

Rolls-Royce Group UK DCC Ireland

JP Morgan US Vulcan Materials US

BNP Paribas France Embraer Brazil

Canon Japan Acom Japan

Compass Group UK Toho Holdings Japan

ABB Switzerland Metcash Austrailia

Caterpillar US First Pacific China

BASF Germany United Health Group US

Monsanto US Smith & Nephew UK

General Electric US Getinge Sweden

Swire Pacific China Tim Hortons Canada

Vinci France Autogrill Italy

Hochtef Germany Kimberly Clark de Mexico Mexico

Ford US Younger Group China

Honda Japan Mercury General US

Goldman Sachs Group US Cameco Canada

Credit Swiss Group Switzerland PT Bukit Asam Indonesia

Pfizer US Comcast US

Teva Pharm Inds Israel Grupo Televisa Mexico

Tesco UK Singapore Press Singapore

Delhaize Group Belgium Petronus Dagangan Malaysia

Nestlé Switzerland Inchcape UK

British American Tabacco UK Infineon Technologies Germany

McDonalds US Autonomy UK

Procter & Gamble US Foxconn Technology Taiwan

Allianz SE Germany Hutcheson Telecom (Australia) Australia

Zurich Financial Services Switzerland Canadian National Canada

BHP Billiton Austrailia/UK Groupe Eurotunnel France

Exxon/Mobil US OGE Energy US

Petrobras-Petroleo Brasil Brazil

Walmart US

Hennes & Mauritz (H&M) Sweden

Intel US

Texas Instruments US

IBM US

Infosys Technologies India

Hewlett-Packard US

Research in Motion Canada

America Movil Mexico

United Parcel Service US

GDF Suez France

E.ON Germany


Figure 3.2 – Number of Companies by Country with Continent Indicated

Figure 3.3 – Countries by Continent and Psychic Zone


Figure 3.4 – Industries Actually Studied Compared to Sample Plan

·Aerospace and Defence (AD) (3 of 21)

·Banking (BK) (3 of 308)

·Business Services and Supplies (BS) (3 of 46)

·Capital Goods (CG) (3 of 68)

·Chemicals (CH) (3 of 62)

·Conglomerates (CG) (3 of 42)

·Construction (CN) (3 of 84)

·Consumer Durables (CD) (3 of 49)

·Diversified Financials (DF) (3 of 153)

·Drugs and Biotechnology (DB) (3 of 44)

·Food Markets (FM) (3 of 32)

·Food, Drink and Tobacco (FD) (3 of 86)

·Healthcare Equipment and Services (HE) (3 of 46)

·Hotels, Restaurants, and Leisure (HR) ( 3 of 20)

·Household and Personal Products (HP) ( 3 of 39)

·Insurance (IN) (3 of 111)

·Materials (MA) (3 of 134)

·Media (ME) (3 of 50)

·Oil and Gas Operations (OG) (3 of 115)

·Retailing (RE) (3 of 72)

·Semiconductors (SC) (3 of 22)

·Software and Services (SS) (3 of 35)

·Technology Hardware and Equipment (TE) (3 of 66)

·Telecommunication Services (TS) (3 of 73)

·Trading Companies (TC) (3 of 22)

·Transportation (TN) (3 of 82)

·Utilities (UT) (3 of 117)

Note: There were no companies studied from the

industries marked in red.


Figure 3.5 – Global 2000 Ranking of Companies Studied


Figure 3.6 – Sales of Companies Studied

Sales ($BIL)

Quantiles

100.0% maximum 408.21 99.5% 408.21 97.5% 385.00 90.0% 138.08 75.0% quartile 103.32 50.0% median 50.97 25.0% quartile 25.61 10.0% 13.27 2.5% 3.36 0.5% 3.18 0.0% minimum 3.18

Moments

Mean 74.186087 Std Dev 74.677778 Std Err Mean 11.010638 Upper 95% Mean 96.36265 Lower 95% Mean 52.009524 N 46

Figure 3.7 – Profits of Companies Studied

Profits ($ BIL)

Quantiles 100.0% maximum 19.28 99.5% 19.28 97.5% 18.82 90.0% 13.40 75.0% quartile 8.44 50.0% median 3.41 25.0% quartile 1.47 10.0% 0.86 2.5% -3.66 0.5% -4.49 0.0% minimum -4.49

Moments



Figure 3.8 – Asset Value of Companies Studied

Asset Value ($ BIL)

Quantiles


Moments


Figure 3.9 – Market Value of Companies Studied

Market Value ($ BIL)

Quantiles Moments



Figure 3.10 – Return on Assets of Companies Studied

Return on Assets (ROA)

Quantiles


Moments


Figure 3.11 – Return on Equity of Companies Studied

Return on Equity (ROE)

Quantiles

100.0% maximum 0.7692 99.5% 0.7692 97.5% 0.7454 90.0% 0.3675 75.0% quartile 0.2775 50.0% median 0.1836 25.0% quartile 0.1065 10.0% 0.0765 2.5% -0.0116 0.5% -0.0158 0.0% minimum -0.0158

Moments



Figure 3.12 – Sample Ranking of Financial Performance Variables from Best to Worst


Figure 3.13 – Foreign Employee to Total Employee Quotient (FETEQ) (Mean indicated)


Figure 3.14 – Foreign Management Quotient (FMQ) (Mean indicated)


Figure 3.15 – Foreign Management Quotient (FMQ) by Country, Continent, and Psychic Zone


Figure 3.16 – Foreign Employee/Management Variance Score (FEMVS) by Corporation and Continent


Figure 3.17 – Board Cultural Diversity Quotients BCDQs a and b, and BCDQa by Continent

Note: There is an error in Swire Pacific‘s

BCDQa and b in this table.


Figure 3.18 – Board Cultural Diversity Quotients BCDQs a and b


BCDQa and b in this table.


Figure 3.19 – GTMT Cultural Diversity Quotients (CDQs) a and b


GTMT CDQa in this table.


Figure 3.20 – GTMT Cultural Diversity Quotients (CDQs) a and b Comparison


BCDQa in this table.


Figure 3.21– National Key Leader Quotient (NKLQ)

Figure 3.22 – Nationality of Regional HQs Leader Quotient (NRHLQ)


Figure 3.23 – Corporate Culture and Philosophy Score (CCPS)


Figure 3.24– Reliability Test with All Variables

Figure 3.25 – Reliability Test with NRHLQ and CCPS Variables Eliminated

α

Entire set 0.7638 Excluded Col α

FEMVS 0.7524 BCDQa 0.6873 BCDQb 0.7355 GTMT CDQa 0.6800 GTMT CDQb 0.7416 NKLQ 0.7034 NRHLQ 0.7996 CCPS 0.7922

α


FEMVS 0.7953 BCDQa 0.7222 BCDQb 0.7722 GTMT CDQa 0.7213 GTMT CDQb 0.7845 NKLQ 0.7515 CCPS 0.8474

α


FEMVS 0.7941 BCDQa 0.7194 BCDQb 0.7695 GTMT CDQa 0.7083 GTMT CDQb 0.7670 NKLQ 0.7367 NRHLQ 0.8474


Figure 3.26 – Reliability Test with Both NRHLQ and CCPS Variables Eliminated

Figure 3.27 – Factor Analysis – Eigenvalues and Scree Plots for Eight Variable Model

\

α


FEMVS 0.8680 BCDQa 0.7816 BCDQb 0.8315 GTMT CDQa 0.7788 GTMT CDQb 0.8337 NKLQ 0.8207

Number Eigenvalue Percent

1 3.9554 49.443 2 1.1610 14.512 3 0.9132 11.415 4 0.8387 10.483 5 0.4577 5.721 6 0.3993 4.991 7 0.1835 2.293 8 0.0913 1.141

Cum Percent

49.443 63.955 75.370 85.853 91.575 96.566 98.859

100.000


Figure 3.28 – Factor Analysis – Eigenvalues and Scree Plots for Six and Five Variable Models

Cum Percent

63.071 79.025 87.201 94.820 98.357

100.000


1 3.7842 63.071 2 0.9573 15.954 3 0.4906 8.176 4 0.4571 7.618 5 0.2122 3.537 6 0.0986 1.643

Cum Percent

72.462 83.251 92.699 97.897

100.000


1 3.6231 72.462 2 0.5395 10.790 3 0.4724 9.448 4 0.2599 5.197 5 0.1052 2.103


Figure 3.29 – Factor Analysis – Two Factor Loading Pattern and Pair-wise Correlation

Figure 3.30 – Factor Analysis – Communality Five and Six Variable Models

Rotated Factor Pattern

FEMVS

0.095659

0.9627379 BCDQa 0.8850155 0.2748429 BCDQb 0.8611378 0.0098781 GTMT CDQa 0.7351011 0.524905 GTMT CDQb 0.8559481 0.0512962 NKLQ 0.7510236 0.2997265

Final Communality Estimates

BCDQa

0.87249 BCDQb 0.96014 GTMT CDQa 0.91286 GTMT CDQb 0.69606 NKLQ 0.72101

Final Communality Estimates

FEMVS

0.93601

BCDQa 0.85879

BCDQb 0.74166

GTMT CDQa 0.81590

GTMT CDQb 0.73528 NKLQ 0.65387


Figure 3.31 – Whole Model Fits for Eight Variable Model

Figure 3.3

Six Variable Model

RSquare 0.949611 RSquare Adj 0.938716 Root Mean Square Error 3.322847 Mean of Response 23.5 Observations (or Sum Wgts) 46

Source DF Sum of Squares Mean Square F Ratio

Model 8 7698.9715 962.371 87.1610 Error 37 408.5285 11.041 Prob > F

C. Total 45 8107.5000 <.0001*

Term Estimate Std Error t Ratio Prob>|t|

Intercept 55.27082 2.389468 23.13 <.0001* FEMVS -11.36693 2.893261 -3.93 0.0004* BCDQa -10.83263 5.447767 -1.99 0.0542 BCDQb 3.9070709 7.939379 0.49 0.6255 GTMT CDQa -11.69576 4.76538 -2.45 0.0189* GTMT CDQb -13.05012 8.544719 -1.53 0.1352 NKLQ -7.814759 2.583309 -3.03 0.0045* NRHLQ -14.60648 1.522479 -9.59 <.0001* CCPS -16.69527 1.948514 -8.57 <.0001*

Source Nparm DF Sum of Squares F Ratio Prob > F

FEMVS 1 1 170.4246 15.4352 0.0004* BCDQa 1 1 43.6567 3.9539 0.0542 BCDQb 1 1 2.6739 0.2422 0.6255 GTMT CDQa 1 1 66.5093 6.0237 0.0189* GTMT CDQb 1 1 25.7546 2.3326 0.1352 NKLQ 1 1 101.0413 9.1512 0.0045* NRHLQ 1 1 1016.2700 92.0425 <.0001* CCPS 1 1 810.5882 73.4141 <.0001*


Figure 3.32 – Whole Model Fits for Six Variable Model

RSquare 0.993887 RSquare Adj 0.992946 Root Mean Square Error 0.079344 Mean of Response 1.585717 Observations (or Sum Wgts) 46

Source DF Sum of Squares Mean Square F Ratio

Model 6 39.916555 6.65276 1056.764 Error 39 0.245521 0.00630 Prob > F

C. Total 45 40.162076 <.0001*

Term Estimate Std Error t Ratio Prob>|t|

Intercept -0.008733 0.049924 -0.17 0.8620 FEMVS 0.951942 0.069068 13.78 <.0001* BCDQa 0.9265533 0.129519 7.15 <.0001* BCDQb 1.1127192 0.181862 6.12 <.0001* GTMT CDQa 0.989748 0.109623 9.03 <.0001* GTMT CDQb 1.125968 0.180711 6.23 <.0001* NKLQ 1.0205902 0.060995 16.73 <.0001*

Source Nparm DF Sum of Squares F Ratio Prob > F

FEMVS 1 1 1.1958814 189.9610 <.0001* BCDQa 1 1 0.3221782 51.1767 <.0001* BCDQb 1 1 0.2356735 37.4358 <.0001* GTMT CDQa 1 1 0.5131781 81.5163 <.0001* GTMT CDQb 1 1 0.2444032 38.8225 <.0001* NKLQ 1 1 1.7625269 279.9704 <.0001*


Figure 3.33 – Eight and Six Variable DOG Scores


Figure 3.34 – Six Variable DOG Score Variables

0.3557982 46

0.5410574 45

0.5899464 44

0.5914491 43

0.7529263 42

0.7692549 41

0.8426831 40

0.8472944 39

0.9679144 38

0.9750391 37

0.9987315 36

1.016603 35

1.0205128 34

1.0705081 33

1.0719756 32

1.1419631 31

1.1608154 30

1.1720331 29

1.1790645 28

1.203869 27

1.2104217 26

1.2125135 25

1.2191667 24

1.28688 23

1.3175145 22

1.3255952 21

1.3521302 20

1.3724805 19

1.3909672 18

1.3967812 17

1.4542484 16

1.7688238 15

1.8257778 14

1.8890249 13

2.0425349 12

2.1125942 11

2.146422 10

2.2699805 9

2.6929913 8

2.8755801 7

2.9465436 6

3.0019322 5

3.2009552 4

3.2595238 3

3.8974359 2

4.5931624 1


Figure 3.35 – Correlation between Forbes Ranking and DOG Score


Correlation Variable Mean Std Dev Correlation Signif. Prob Number Final DOG Score (six variable model) 1.541915 0.855852 -0.27069 0.0869 41 Forbes Global 2000 rank 124.6098 129.3773 Linear Fit Forbes Global 2000 rank = 187.70395 - 40.919375*Final DOG Score (six variable model) Summary of Fit RSquare 0.073272 RSquare Adj 0.04951 Root Mean Square Error 126.1339 Mean of Response 124.6098 Observations (or Sum Wgts) 41 Analysis of Variance Source DF Sum of Squares Mean Square F Ratio Model 1 49058.61 49058.6 3.0836 Error 39 620481.14 15909.8 Prob > F C. Total 40 669539.76 0.0869 Parameter Estimates Term Estimate Std Error t Ratio Prob>|t| Intercept 187.70395 40.97617 4.58 <.0001* Final DOG Score (six variable model) -40.91937 23.30254 -1.76 0.0869

Polynomial Fit Degree=2 Forbes Global 2000 rank = 216.68407 - 80.020285*Final DOG Score (six variable model) + 43.813874*(Final DOG Score (six variable model)-1.54191)^2 Summary of Fit RSquare 0.139735 RSquare Adj 0.094457 Root Mean Square Error 123.1155 Mean of Response 124.6098 Observations (or Sum Wgts) 41 Analysis of Variance Source DF Sum of Squares Mean Square F Ratio Model 2 93557.81 46778.9 3.0862 Error 38 575981.94 15157.4 Prob > F C. Total 40 669539.76 0.0573 Parameter Estimates Term Estimate Std Error t Ratio Prob>|t| Intercept 216.68407 43.42485 4.99 <.0001* Final DOG Score (six variable model) -80.02029 32.21958 -2.48 0.0175* (Final DOG Score (six variable model)-1.54191)^2 43.813874 25.57103 1.71 0.0948 NOTE: Most statistically relevant result was for run of sample companies in top 500. Polynomial Nonlinear Fit was statistically relevant, possibly

indicating an optimal DOG score or that too much national diversity impacts negatively on Forbes 500 Ranking


Figure 3.36 – Correlation between Return on Assets and DOG Score

Correlation Variable Mean Std Dev Correlation Signif. Prob Number Final DOG Score (six variable model) 1.538796 0.837405 -0.02403 0.8785 43 Return on Assets (ROA) 0.064858 0.050244 Linear Fit Return on Assets (ROA) = 0.0670763 - 0.0014415*Final DOG Score (six variable model) Summary of Fit RSquare 0.000577 RSquare Adj -0.0238 Root Mean Square Error 0.050838 Mean of Response 0.064858 Observations (or Sum Wgts) 43 Analysis of Variance Source DF Sum of Squares Mean Square F Ratio Model 1 0.00006120 0.000061 0.0237 Error 41 0.10596583 0.002585 Prob > F C. Total 42 0.10602702 0.8785 Parameter Estimates Term Estimate Std Error t Ratio Prob>|t| Intercept 0.0670763 0.016368 4.10 0.0002* Final DOG Score (six variable model) -0.001441 0.009368 -0.15 0.8785

NOTE: No statistically relevant results for runs of total sample population, top 500, top 250, top 100 NOTE: A slight error in calculating the DOG scores of Wal-Mart, P&G, and Swire Pacific was found after this table was created. Subsequent

testing showed these errors did not affect the statistical relevance of the calculations


Figure 3.37 – Correlation between Return on Equity and DOG Score


Correlation Variable Mean Std Dev Correlation Signif. Prob Number Final DOG Score (six variable model) 1.593254 0.93138 -0.08686 0.5660 46 Return on Equity (ROE) 0.211428 0.153081 Linear Fit Return on Equity (ROE) = 0.1900596 - 0.0007244*Final DOG Score (six variable model) Summary of Fit RSquare 2.831e-5 RSquare Adj -0.02436 Root Mean Square Error 0.115155 Mean of Response 0.188937 Observations (or Sum Wgts) 43 Analysis of Variance Source DF Sum of Squares Mean Square F Ratio Model 1 0.00001539 0.000015 0.0012 Error 41 0.54368503 0.013261 Prob > F C. Total 42 0.54370042 0.9730 Parameter Estimates Term Estimate Std Error t Ratio Prob>|t| Intercept 0.1900596 0.037334 5.09 <.0001* Final DOG Score (six variable model) -0.000724 0.021263 -0.03 0.9730

Correlation Variable Mean Std Dev Correlation Signif. Prob Number Final DOG Score (six variable model) 1.593254 0.93138 -0.08686 0.5660 46 Return on Equity (ROE) 0.211428 0.153081 Linear Fit Return on Equity (ROE) = 0.1085125 + 0.0324183*Final DOG Score (six variable model) Summary of Fit

RSquare 0.143713 RSquare Adj 0.102937 Root Mean Square Error 0.072016 Mean of Response 0.164639 Observations (or Sum Wgts) 23 Analysis of Variance Source DF Sum of Squares Mean Square F Ratio Model 1 0.01827887 0.018279 3.5245 Error 21 0.10891146 0.005186 Prob > F C. Total 22 0.12719033 0.0744 Parameter Estimates Term Estimate Std Error t Ratio Prob>|t| Intercept 0.1085125 0.033456 3.24 0.0039* Final DOG Score (six variable model) 0.0324183 0.017268 1.88 0.0744

Polynomial Fit Degree=2 Return on Equity (ROE) = 0.0687744 + 0.0693818*Final DOG Score (six variable model) - 0.0312894*(Final DOG Score (six variable model)-1.59325)^2 Summary of Fit RSquare 0.231402 RSquare Adj 0.154542 Root Mean Square Error 0.069914 Mean of Response 0.164639 Observations (or Sum Wgts) 23 Analysis of Variance Source DF Sum of Squares Mean Square F Ratio Model 2 0.02943212 0.014716 3.0107 Error 20 0.09775821 0.004888 Prob > F C. Total 22 0.12719033 0.0719 Parameter Estimates Term Estimate Std Error t Ratio Prob>|t| Intercept 0.0687744 0.041797 1.65 0.1155 Final DOG Score (six variable model) 0.0693818 0.029662 2.34 0.0298*

(Final DOG Score (six variable model)-1.59325)^2 -0.031289 0.020714 -1.51 0.1465


Figure 3.38 – Correlation between ROA/ROE Sum and DOG Score

NOTE: A slight error in calculating the DOG scores of Wal-Mart, P&G, and Swire

Pacific was found after this table was created. Subsequent testing showed these errors did not affect the statistical relevance of the calculations


Correlation of Total Sample Variable Mean Std Dev Correlation Signif. Prob Number Final DOG Score (six variable model) 1.585717 0.944717 -0.10398 0.4916 46 Total Ranking Relative to real ROA/ROE date (sum of U,W) 0.285876 0.197687 Linear Fit Total Ranking Relative to real ROA/ROE date (sum of U,W) = 0.2498879 + 0.0056247*Final DOG Score (six variable model) Summary of Fit RSquare 0.000906 RSquare Adj -0.02346 Root Mean Square Error 0.157919 Mean of Response 0.258642 Observations (or Sum Wgts) 43 Lack Of Fit Source DF Sum of Squares Mean Square F Ratio Lack Of Fit 40 0.9892250 0.024731 0.7436 Pure Error 1 0.0332562 0.033256 Prob > F Total Error 41 1.0224812 0.7469 Max RSq 0.9675 Analysis of Variance Source DF Sum of Squares Mean Square F Ratio Model 1 0.0009271 0.000927 0.0372 Error 41 1.0224812 0.024939 Prob > F C. Total 42 1.0234083 0.8481 Parameter Estimates Term Estimate Std Error t Ratio Prob>|t| Intercept 0.2498879 0.051394 4.86 <.0001* Final DOG Score (six variable model) 0.0056247 0.029173 0.19 0.8481

Correlation Variable Mean Std Dev Correlation Signif. Prob Number Final DOG Score (six variable model) 1.726215 0.912293 0.269386 0.2139 23 Total Ranking Relative to real ROA/ROE date (sum of U,W) 0.219591 0.109647 Linear Fit Total Ranking Relative to real ROA/ROE date (sum of U,W) = 0.1637017 + 0.0323769*Final DOG Score (six variable model) Summary of Fit RSquare 0.072569 RSquare Adj 0.028405 Root Mean Square Error 0.108078 Mean of Response 0.219591 Observations (or Sum Wgts) 23 Analysis of Variance Source DF Sum of Squares Mean Square F Ratio Model 1 0.01919389 0.019194 1.6432 Error 21 0.24529881 0.011681 Prob > F C. Total 22 0.26449270 0.2139

Parameter Estimates Term Estimate Std Error t Ratio Prob>|t| Intercept 0.1637017 0.04908 3.34 0.0031* Final DOG Score (six variable model) 0.0323769 0.025258 1.28 0.2139 Polynomial Fit Degree=2 Total Ranking Relative to real ROA/ROE date (sum of U,W) = 0.1505749 + 0.04934*Final DOG Score (six variable model) - 0.0202928*(Final DOG Score (six variable model)-1.72621)^2 Summary of Fit RSquare 0.09217 RSquare Adj 0.001387 Root Mean Square Error 0.109571 Mean of Response 0.219591 Observations (or Sum Wgts) 23 Analysis of Variance Source DF Sum of Squares Mean Square F Ratio Model 2 0.02437826 0.012189 1.0153 Error 20 0.24011444 0.012006 Prob > F C. Total 22 0.26449270 0.3802 Parameter Estimates Term Estimate Std Error t Ratio Prob>|t| Intercept 0.1505749 0.053618 2.81 0.0109* Final DOG Score (six variable model) 0.04934 0.03636 1.36 0.1899 (Final DOG Score (six variable model)-1.72621)^2 -0.020293 0.030881 -0.66 0.5186


Figure 3.39 – Correlation between Total Financial Performance ROA/ROE/Forbes Ranking

Sum and DOG Score

Correlation Variable Mean Std Dev Correlation Signif. Prob Number Final DOG Score (six variable model) 1.585717 0.944717 -0.03761 0.8040 46 Total Ranking Relative to Sample Ranking (sum of t,v,x) 72.17391 25.5954 Linear Fit Total Ranking Relative to Sample Ranking (sum of t,v,x) = 74.419933 - 1.505447*Final DOG Score (six variable model) Summary of Fit RSquare 0.002377 RSquare Adj -0.02082 Root Mean Square Error 26.15123 Mean of Response 72.13333 Observations (or Sum Wgts) 45 Lack Of Fit Source DF Sum of Squares Mean Square F Ratio Lack Of Fit 42 25082.632 597.21 0.1381 Pure Error 1 4324.500 4324.50 Prob > F Total Error 43 29407.132 0.9898 Max RSq 0.8533 Analysis of Variance Source DF Sum of Squares Mean Square F Ratio Model 1 70.068 70.068 0.1025 Error 43 29407.132 683.887 Prob > F C. Total 44 29477.200 0.7505 Parameter Estimates Term Estimate Std Error t Ratio Prob>|t| Intercept 74.419933 8.138171 9.14 <.0001* Final DOG Score (six variable model) -1.505447 4.703249 -0.32 0.7505 NOTE: No statistically relevant results for runs of total sample population, top 500, top 250, top 100

NOTE: A slight error in calculating the DOG scores of Wal-Mart, P&G, and Swire Pacific was found after this table was created. Subsequent


THE ETHNOCENTRIC OR THE GLOBAL CORPORATION: THE PERFORMANCE QUESTION 182

Figure 3.40 – Number of Psychic Zones and Countries Where the Firm Operates by DOG Scores

Linear Fit Number of Psychic Zones = 8.9309742 + 0.8074151*Final DOG Score (six variable model) Summary of Fit RSquare 0.048768 RSquare Adj 0.027149 Root Mean Square Error 3.358766 Mean of Response 10.21739 Observations (or Sum Wgts) 46 Analysis of Variance Source DF Sum of Squares Mean Square F Ratio Model 1 25.44838 25.4484 2.2558 Error 44 496.37771 11.2813 Prob > F C. Total 45 521.82609 0.1403 Parameter Estimates Term Estimate Std Error t Ratio Prob>|t| Intercept 8.9309742 0.98937 9.03 <.0001* Final DOG Score (six variable model) 0.8074151 0.537584 1.50 0.1403


Correlation Variable Mean Std Dev Correlation Signif. Prob Number Final DOG Score (six variable model) 1.593254 0.93138 0.185775 0.2164 46 Number of Countries Where they Operate 52.71739 47.78873 Linear Fit Number of Countries Where they Operate = 37.530404 + 9.5320578*Final DOG Score (six variable model) Summary of Fit RSquare 0.034512 RSquare Adj 0.01257 Root Mean Square Error 47.48744 Mean of Response 52.71739 Observations (or Sum Wgts) 46 Analysis of Variance Source DF Sum of Squares Mean Square F Ratio Model 1 3546.83 3546.83 1.5728 Error 44 99222.50 2255.06 Prob > F C. Total 45 102769.33 0.2164 Parameter Estimates Term Estimate Std Error t Ratio Prob>|t| Intercept 37.530404 13.98806 2.68 0.0102* Final DOG Score (six variable model) 9.5320578 7.600559 1.25 0.2164


Figure 3.41 – Number of Employees by DOG Scores (Grouped by Continent)

Correlation Variable Mean Std Dev Correlation Signif. Prob Number Final DOG Score (six variable model) 1.502182 0.762298 -0.28568 0.0667 42 Number of Employees 143854.4 112304.4 Linear Fit Number of Employees = 222716.98 - 49447.084*Final DOG Score (six variable model) Summary of Fit RSquare 0.104868 RSquare Adj 0.083035 Root Mean Square Error 111982.3 Mean of Response 149485.7 Observations (or Sum Wgts) 43 Analysis of Variance Source DF Sum of Squares Mean Square F Ratio Model 1 6.0233e+10 6.023e+10 4.8033 Error 41 5.1414e+11 1.254e+10 Prob > F C. Total 42 5.7437e+11 0.0341* Parameter Estimates Term Estimate Std Error t Ratio Prob>|t| Intercept 222716.98 37524.88 5.94 <.0001* Final DOG Score (six variable model) -49447.08 22561.67 -2.19 0.0341*

NOTE: A slight error in calculating the DOG scores of Wal-Mart, P&G, and Swire Pacific was found after this table was created. Subsequent testing showed these errors did not affect the statistical relevance of the calculations


Figure 3.42 – Number of Foreign Employees by DOG Scores

Correlation Variable Mean Std Dev Correlation Signif. Prob Number Final DOG Score (six variable model) 1.535921 0.840012 -0.06474 0.6763 44 Number of Foreign Employees 85524.77 77712.41 Linear Fit Number of Foreign Employees = 90291.94 - 8516.6643*Final DOG Score (six variable model) Summary of Fit RSquare 0.009069 RSquare Adj -0.0157 Root Mean Square Error 68708.04 Mean of Response 77498.36 Observations (or Sum Wgts) 42 Analysis of Variance Source DF Sum of Squares Mean Square F Ratio Model 1 1728115794 1.7281e+9 0.3661 Error 40 1.8883e+11 4.7208e+9 Prob > F C. Total 41 1.9056e+11 0.5486 Parameter Estimates Term Estimate Std Error t Ratio Prob>|t| Intercept 90291.94 23654.23 3.82 0.0005* Final DOG Score (six variable model) -8516.664 14076.37 -0.61 0.5486

NOTE: A slight error in calculating the DOG scores of Wal-Mart, P&G, and Swire Pacific was found after this table was created. Subsequent



Figure 3.43 – Relation between the Population of the Country and DOG Score

Correlation Variable Mean Std Dev Correlation Signif. Prob Number Final DOG Score (six variable model) 1.593254 0.93138 -0.27763 0.0617 46 population 2.064e+8 2.616e+8 Linear Fit population = 259205342 - 63426966*Final DOG Score (six variable model) Summary of Fit RSquare 0.172776 RSquare Adj 0.1526 Root Mean Square Error 1.181e+8 Mean of Response 1.617e+8 Observations (or Sum Wgts) 43 Analysis of Variance Source DF Sum of Squares Mean Square F Ratio Model 1 1.1945e+17 1.194e+17 8.5634 Error 41 5.7189e+17 1.395e+16 Prob > F C. Total 42 6.9134e+17 0.0056* Parameter Estimates Term Estimate Std Error t Ratio Prob>|t| Intercept 259205342 37887286 6.84 <.0001* Final DOG Score (six variable model) -63426966 21674645 -2.93 0.0056*


Figure 3.44 – The Correlation of Various Dependent DOG Variables to ROE in Forbes‘ Top 100 Firms

Bivariate Fit of Return on Equity (ROE) By BCDQb

Linear Fit Return on Equity (ROE) = 0.1073074 + 0.3240675* BCDQb Summary of Fit RSquare 0.147625 RSquare Adj 0.107036 Root Mean Square Error 0.071851 Mean of Response 0.164639 Observations (or Sum Wgts) 23 Analysis of Variance Source DF Sum of Squares Mean Square F Ratio Model 1 0.01877647 0.018776 3.6370 Error 21 0.10841387 0.005163 Prob > F C. Total 22 0.12719033 0.0703 Parameter Estimates Term Estimate Std Error t Ratio Prob>|t| Intercept 0.1073074 0.033589 3.19 0.0044* BCDQb 0.3240675 0.169927 1.91 0.0703

Bivariate Fit of Return on Equity (ROE) By BCDQa

Correlation Variable Mean Std Dev Correlation Signif.

Prob Number

BCDQa 0.213522 0.199222 0.326838 0.1280 23 Return on Equity (ROE) 0.164639 0.076035 Polynomial Fit Degree=2 Return on Equity (ROE) = 0.1413882 + 0.1970909*BCDQa - 0.4960608*(BCDQa-0.21352)^2 Summary of Fit RSquare 0.166725 RSquare Adj 0.083397 Root Mean Square Error 0.072796 Mean of Response 0.164639 Observations (or Sum Wgts) 23 Analysis of Variance Source DF Sum of Squares Mean Square F Ratio Model 2 0.02120575 0.010603 2.0008 Error 20 0.10598459 0.005299 Prob > F C. Total 22 0.12719033 0.1614 Parameter Estimates Term Estimate Std Error t Ratio Prob>|t| Intercept 0.1413882 0.022695 6.23 <.0001* BCDQa 0.1970909 0.098538 2.00 0.0592 (BCDQa-0.21352)^2 -0.496061 0.41371 -1.20 0.2445

Bivariate Fit of Return on Equity (ROE) By GTMT CDQb

Correlation Variable Mean Std Dev Correlation Signif.

Prob Number

GTMT CDQb 0.186522 0.11113 0.552759 0.0062* 23 Return on Equity (ROE) 0.164639 0.076035 Linear Fit Return on Equity (ROE) = 0.0940969 + 0.3781983*GTMT CDQb Summary of Fit RSquare 0.305542 RSquare Adj 0.272473 Root Mean Square Error 0.064855 Mean of Response 0.164639 Observations (or Sum Wgts) 23 Analysis of Variance Source DF Sum of Squares Mean Square F Ratio Model 1 0.03886201 0.038862 9.2394 Error 21 0.08832833 0.004206 Prob > F C. Total 22 0.12719033 0.0062* Parameter Estimates Term Estimate Std Error t Ratio Prob>|t| Intercept 0.0940969 0.02686 3.50 0.0021* GTMT CDQb 0.3781983 0.124422 3.04 0.0062*

NOTE: A slight error in calculating the DOG scores of Wal-Mart, P&G, and

Swire Pacific was found after this table was created. Subsequent testing showed

these errors did not affect the statistical relevance of the calculations

NOTE: Excludes IBM as an outlier


Figure 3.45 – The Correlation of Various Dependant Variables to the Forbes Top 500 Firms

Bivariate Fit of Forbes Global 2000 rank by FEMVS

Linear Fit Forbes Global 2000 rank = 284.43184 - 241.55636*FEMVS Summary of Fit RSquare 0.152562 RSquare Adj 0.131377 Root Mean Square Error 119.1294 Mean of Response 125.0476 Observations (or Sum Wgts) 42 Analysis of Variance Source DF Sum of Squares Mean Square F Ratio Model 1 102197.00 102197 7.2011 Error 40 567672.91 14192 Prob > F C. Total 41 669869.90 0.0105* Parameter Estimates Term Estimate Std Error t Ratio Prob>|t| Intercept 284.43184 62.17389 4.57 <.0001* FEMVS -241.5564 90.01575 -2.68 0.0105*

Bivariate Fit of Forbes Global 2000 rank by BCDQa

Polynomial Fit Degree=2 Forbes Global 2000 rank = 156.71603 - 269.87022*BCDQa + 504.90762*(BCDQa-0.20269)^2 Summary of Fit RSquare 0.094453 RSquare Adj 0.048014 Root Mean Square Error 124.715 Mean of Response 125.0476 Observations (or Sum Wgts) 42 Analysis of Variance Source DF Sum of

Squares Mean Square F Ratio

Model 2 63270.91 31635.5 2.0339 Error 39 606599.00 15553.8 Prob > F C. Total 41 669869.90 0.1445 Parameter Estimates Term Estimate Std Error t Ratio Prob>|t| Intercept 156.71603 26.76505 5.86 <.0001* BCDQa -269.8702 134.2078 -2.01 0.0513 (BCDQa-0.20269)^2 504.90762 364.4451 1.39 0.1738

Note: A similar result was obtained for BCDQb.


Figure 3.46 – Comparison of Sample Companies in Forbes Top 100 to Other Firms

Country

Frequencies Level Count Prob US 11 0.45833 Switzerland 3 0.12500 UK 1 0.04167 Germany 3 0.12500 France 2 0.08333 Japan 1 0.04167 NL & UK 1 0.04167 Brazil 1 0.04167 Australia 1 0.04167 Total 24 1.00000 Continent

Frequencies Level Count Prob North America 11 0.45833 Europe 10 0.41667 Asia 1 0.04167 Australia 1 0.04167 South America 1 0.04167 Total 24 1.00000

Psychic Zone

Frequencies Level Count Prob Anglo 13 0.54167 Germanic 6 0.25000 Latin Europe 2 0.08333 IN-Japan 1 0.04167 Germanic & Anglo 1 0.04167 IN-Brazil 1 0.04167 Total 24 1.00000

Country

Frequencies Level Count Prob US 6 0.27273 Switzerland 1 0.04545 UK 3 0.13636 Germany 1 0.04545 France 1 0.04545 Japan 2 0.09091 Sweden 1 0.04545 Mexico 1 0.04545 Israel 1 0.04545 India 1 0.04545 Finland 1 0.04545 China 1 0.04545 Canada 1 0.04545 Belgium 1 0.04545 Total 22 1.00000 Continent

Frequencies Level Count Prob North America 8 0.36364 Europe 9 0.40909 Asia 4 0.18182 Middle East 1 0.04545 Total 22 1.00000

Psychic Zone

Frequencies Level Count Prob Anglo 10 0.45455 Germanic 2 0.09091 Latin Europe 2 0.09091 IN-Japan 2 0.09091 Nordic 2 0.09091 Far East 1 0.04545 Latin America 1 0.04545 IN- Israel 1 0.04545 IN-India 1 0.04545 Total 22 1.00000


Number of Psychic Zones

maximum 14.000 median 12.500 minimum 4.000

Mean 10.708333

Number of Countries Where they Operate

maximum 170.00 median 46.50 minimum 6.00 Mean 59.041667

Number of Employees

maximum 2100000 median 158251.5 minimum 31701 Mean 246431.75

Number of Foreign Employees

maximum 700000 median 75597 minimum 7605 Mean 119441.17

Number of Psychic Zones


Number of Countries Where they Operate


Number of Employees


Number of Foreign Employees



NOTES ON STATISTICAL TESTS (JMP, 2005)

―Prob > F is the observed significance probability (p-value) of obtaining a greater F-value by chance

alone if the specified model fits no better than the overall response mean. Observed significance

probabilities of 0.05 or less are often considered evidence of a regression effect.‖

―t Ratio lists the test statistics for the hypothesis that each parameter is zero. It is the ratio of the

parameter estimate to its standard error. If the hypothesis is true, then this statistic has a Student's t-

distribution. Looking for a t-ratio greater than 2 in absolute value is a common rule of thumb for judging

significance because it approximates the 0.05 significance level.‖

―Prob>|t| lists the observed significance probability calculated from each t-ratio. It is the probability of

getting, by chance alone, a t-ratio greater (in absolute value) than the computed value, given a true null

hypothesis. Often, a value below 0.05 (or sometimes 0.01) is interpreted as evidence that the parameter is

significantly different from zero.

The density ellipsoid is a good graphical indicator of the correlation between two variables. The ellipsoid

collapses diagonally as the correlation between the two variables approaches either 1 or -1. The ellipsoid

is more circular (less diagonally oriented) if the two variables are uncorrelated.‖

―Correlation is the Pearson correlation coefficient, denoted r , is either the weight of the ith observation

if a weight column is specified, or 1 if no weight column is assigned. If there is an exact linear

relationship between two variables, the correlation is 1 or -1 depending on whether the variables are

positively or negatively related. If there is no relationship, the correlation tends toward zero.‖


FOOTNOTES

i Nokia is widely acclaimed to be a global corporation

ii Sirkin et al. (2008) describes pinpointing as thoroughly understanding the advantages and disadvantages of

local areas and siting modularized components of the value chain in optimal locations around the world to take

advantage of cost, talent, labour, etc... ―in a way that makes distance and location seem almost irrelevant‖ (p. 15).

iii As Ramaswamy, Kroeck, and Renforth (1996) question Sullivan‘s multi-variable construct that he uses to

calculate a uni-dimensional measure of DOI. Sullivan (1996) effectively rebuts criticisms and is supported to that

end by Maritan and Reuer (1995) (as cited by Sullivan (1996) and Kennelly (2000)).

iv This showed a flaw in DOG model in regards to calculating points for BCDQb and GTMT CDQb. A

company could have only one psychic zone represented on its board and GTMT, all coming from the home country

and in the calculation ―one‖ would be divided by the number of GTMT or board members, thereby giving some

points even though a company had no diversity at all.

v Alder (2002) writes about the greater import of cultural diversity in global firms, compared to multinational

firms and domestic/multi-domestic ones.

the ethnocentric or the geocentric global corporation: · pdf filethe ethnocentric or the...

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