U.S. Is a Free Market When It Comes to CEOs

So what do McKinsey & Co., Apple Computer Inc., Salomon Bros. Inc., Ford Motor Co., 3M and Compaq Computer Corp. have in common?

To be sure, they enjoy success as multibillion-dollar global organizations with reputations for innovation. They are also uniquely American institutions whose roots reach deep into the spirit of risk taking and entrepreneurship. More intriguingly, the managing directors and chief executives of these companies today are all foreign-born and -bred and earned their reputations overseas.

Toss in industry leaders like Coca-Cola’s Robert Goizueta and Intel’s Andrew Grove and it becomes clear we’re at a unique moment in American business history. There has never been a time this century when so many leading U.S. companies have been run by chief executives who were not born and raised in this country. This is not an aberration; it’s a trend.

The globalization of the American executive suite will have an effect on industry at least as significant--although not, perhaps, as traumatic--as the globalization of the American work force.

The truly cynical might argue that the rising number of international CEOs is a signal that native-born Americans are no longer as competitive for the top spot as they once were, that native-born Americans are losing share in the hotly contested CEO marketplace.

In economic terms, the United States is running a huge balance of trade deficit in its import and export of global CEOs. Is now the time for CEO protectionism? Maybe Congress should pass laws requiring a domestic content provision for America’s Fortune 500 CEOs. Or perhaps this should be referred to the Global Agreement on Tariffs and Trade for possible sanctions?

Perhaps a more useful interpretation of this surge of foreign-born CEOs in American corporate ranks is that it’s really a testament to the relative openness and flexibility of the United States’ human capital markets. For all the criticism that American companies are too narrow in managerial scope and global vision, it is an empirical fact that leading U.S. companies employ disproportionately greater numbers of foreign nationals in their top ranks than do their counterparts in Europe, Asia and Latin America.

Apparently, many top U.S. companies care more about what you can do than where you are from. This may not make them unalloyed meritocracies, but it is clear that--ironically? appropriately? paradoxically?--the American notion of a global corporation does not disqualify non-Americans from the very top.

That’s far more than can be said for the global companies of Asia and Europe. You won’t find large European firms or a Japanese multinational led by an American. Indeed, you won’t find a European company run by a Japanese or a Japanese company run by a European.

While it is certainly true that there are global companies like Royal Dutch Shell and Unilever that have uniquely multinational top management (albeit more European than global), for the most part these companies have intensely nationalistic notions of globalism. Their models of multinationalism are much more rigid and exclusionary along national boundaries.

It is easy to imagine the all-American but undeniably global Coca-Cola run by someone who wasn’t born in the U.S.A.; it is almost impossible to imagine a set of circumstances where Nestle is run by someone other than a Swiss.

Drop down a management level or two and you still find the most extraordinary examples of nationalism uber alles. Few Americans can be found on German management boards or at the top levels of French corporate management. There are companies like Asea Brown Boveri that have invested in harvesting talent from all over the world, but they are defined as the exceptions.

Similarly, it stretches cultural credulity that a Mitsubishi, a Nomura, a Sumitomo, a Sony or a Daewoo will see a foreign CEO any time this generation. Yes, these companies are emphatically global, but their internal management marketplace is not. Only a handful of Japanese companies have foreigners on their management committees. Sony has an American, but NEC, Matsushita, Toyota and dozens of other Japanese companies that depend on the U.S. marketplace make it excruciatingly clear to their foreign nationals that “only this high and no higher” is their human capital philosophy.

While issues of equity and opportunity are nice, the bottom-line issue is whether a free market in top management talent has an effect on profitability, market share and innovation. This is an easy hypothesis to test: Do organizations with more globally representative managements outperform those firms that define their management along nationalistic criteria?

The answer, increasingly, will be yes--and this will put increasing pressure on “foreign” companies to reconsider their own promotion philosophies. It may well be that human capital issues--not the trans-border flow of goods and services--will become the hot trade issue of the next decade. Is the stage being set for a management migration to companies that respect talent regardless of national origin?

Of course, a good case could be made that once a bright young mind is pummeled and molded by the Harvard Business School or Stanford’s Graduate School of Business, it doesn’t much matter whether it originally hailed from Toledo or Tokyo.

Then again, the issue of whether we are now breeding managers and CEOs who hold greater loyalty to their corporations than to their countries may well be one of the most provocative that policy-makers and regulators in Europe, Asia and the Americas will have to struggle with for the next generation.