Get Asian excutives on board or risk falling behind in region

Businesses entering southeast Asia need to employ people who know the region.

Orica director Chee Onn Lim.

An increasing number of Australian companies are orienting themselves towards Asian markets as free trade agreements come into force, whether relating to agricultural exports, health or fin­ancial services.

But experts warn that companies that fail to hire executives or board members with extensive experience in Asia or with an Asian background risk falling behind.

There are fewer than 30 Asian-born directors on ASX 100 boards, out of more than 1000 positions. Of those, 10 were born in Singapore, 10 were born in China or Hong Kong, and others were born in The Philippines, Pakistan, ­­­­ ­­­­­­­­Mal­aysia, Taiwan and Vietnam.

CTPartners’ Asia-Pacific managing partner Jason Johnson says it is critical for businesses to have Asian experience on boards.

“When you look at the current composition of Australian boards, very few directors have had material experience of operating within Asia and there’s an inherent risk that they don’t understand the markets,” Johnson says.

“They may not have the quality of relationships that may be valuable with regulators, with other operating entities.”

Johnson says a failure to enhance boards with people from diverse Asian backgrounds could be economically detrimental to a company because they could lose trading opportunities as markets are opening. “Organisations that lose money and have sub-optimal experiences in Asia will be held to account (by their shareholders) and that’s the real risk,” he says.

“Some companies with dreadful outcomes in Asia face director duties and responsibilities and, more importantly, they risk a reputation for being naive and ­losing their market.”

Johnson says more than three-quarters of Australia’s exports are to Asia, with China, Japan and South Korea among the top five trading partners.

Economists have predicted Asia will represent close to 40 per cent of the world’s gross domestic product by 2030.

Orica Singapore-based board member Chee Onn Lim, who is on several boards, including the Monetary Authority of Singapore and Business China, and consults to the People’s Government of Yunan Province, says being born in Asia is not essential but it can have significant international business benefits. One of those is recognising business constraints, hidden regulations and understanding intricate legislation in different countries.

“All of these need to be unravelled before business is done,” Lim says, adding that companies need to be aware of how legislation can change from country to country, in different regions, and between neighbouring cities. It can help having a board member who understands local business conditions, including exit regulations when closing offices.

Other benefits include local networking, rather than having board members taking years to develop contacts if they arrive in a country without knowing anyone.

Lim says while learning a ­language helps, culture can run much deeper than words.

“I have some Australian friends who understand Asia quite well, who have spent time in different countries,” he says.

“On the other hand you can spend 20 years in Japan and not understand the culture. But knowing the language offers an intimate environment.

“Talking to people over lunch where no person is necessary to interpret, that helps to foster a closer relationship.”

While having Asian connections helps as trade increases throughout Southeast Asia, Lim warns companies not to rush to recruit board members. While there is a risk they may fall behind, he says many already have development strategies in place.

“We shouldn’t judge them so harshly; for all we know they have a strong management team,” he says. “Board directorship is only one aspect but it does help with policymaking.”

While most Asian-born directors still live in their birth country or a Southeast Asian hub, Johnson says they bring a wealth of international experience when they ­attend board meetings.

The Australian Institute of Company Directors has indicated that 21 per cent of boards are seeking to increase ethnic diversity, and Johnson says organisations need to recognise that having more Asian directors will facilitate relationship building and trade opportunities.

“A critical piece is getting a chair of a company to recognise the issue and they are increasingly seeing the opportunity and upside of greater Asian expertise,” ­Johnson says. “And you don’t have to have an Asian to have that experience. Former ambassador to China Geoff Raby and Ken Henry, who wrote the Asian Century white paper, have extensive experience, along with others.”

In 2008 there was a similar lack of women on boards, and Johnson says ASX 200 companies responded rapidly to diversity calls. He says it is time for organisations to follow suit with Asian experience and set an example of the benefits it can bring to the economic table.

Randstad employment market analyst Steve Shepherd says along with board membership, companies need to promote executives with Asian experience and appreciate the benefits they can bring to operations.

Shepherd says leadership teams often reflect the background of the chairman or chief executive instead of the strategic direction a business should take.

With three million people born in Asia living in Australia and FTAs taking effect, Shepherd says it is essential for companies to recruit wisely. “It’s a different culture in Asia, and there’s a difference between doing business in Japan and Singapore,” he says. “It’s a lot about building relationships and trust.”

Shepherd says former prime minister Kevin Rudd’s ability to speak Mandarin helped build relationships between Australia and China, and executives such as ANZ Bank’s Mike Smith recognises Asia as the “next frontier”.

“There is a strong argument for companies who want to maximise the opportunities the Asian century creates and you’ve got to look at diversity on boards and senior roles,” he says.

Shepherd, who works extensively in Southeast Asia, has begun learning Mandarin and says while his basic skills would not allow him to formalise a business contract, it makes a difference with communication.

“It creates a commonality and I’m trying to understand, even if I make mistakes. It almost makes for a bonding experience,” he says.