The JGM BitBlog: The Cultural Novelty of CEO Experience and its Effect on Firm Performance
Meredith Downes, Illinois State University, Normal, United States.
Alex J. Barelka, Illinois State University, Normal, United States.
Do large multinational firms perform better when their CEO's have international experience? With the growing need to satisfy internationally diverse stakeholders, many scholars suggest that international experience is the cornerstone to global leadership. However, findings are mixed, perhaps because some address the timing of overseas exposure (early or late career), while others address the depth (one or two intense overseas assignments versus several shorter ones), or breadth (number of experiences abroad). But what about location of experiences? Since work experiences are undoubtedly embedded in their environments, we questioned whether experiences in locations with certain cultural characteristics were more important to organizational performance than were experiences in others.
Two theories formed the backdrop for ultimately expecting more culturally novel experiences to facilitate performance. The first is Human Capital Theory. Just as factors of production (e.g. raw materials, equipment) have the potential to increase productivity, so do knowledge, skills, and other qualities possessed by individuals. In this regard, human capital, although an intangible asset, can be thought of as yet another factor of production. Presumptions often underlying human capital theory are that knowledge and skills can be derived through experiences (that organizations and/or individuals invest in), that experience equates to competence, and that the market value of organizations depends more on intangible assets such as human capital than on tangible assets. The second theory underlying our expectations was the Cultural Distance Paradox, which is the counter-intuitive assertion that greater differences between home and host cultures will be associated with more desirable outcomes (in this case, greater human capital). The distance paradox challenges the assumption of similarity, as it is often false and prevents managers from learning in preparation for assignments in seemingly familiar cultures. This false sense of similarity can mask cultural nuances that might otherwise have been observed, leading individuals to believe that success in some host locations requires minimal if any extra effort.
For a sample of CEOs from Fortune's list of Global 500 companies, results show that overall distance between their organization's home country culture and that of the CEO's most culturally distant experience did not have a significant effect on firm performance. However, the home-host distance on some cultural dimensions did in fact impact performance. These included in-group collectiveness (IGC) and performance orientation (PO), whereby greater distances were associated with higher performance, and power distance (PD) and assertiveness (AS), which were associated with lower performance.
But what if home and host country cultural scores were reversed? Would the findings for a German firm's CEO with Brazilian experience be the same as the findings for a Brazilian firm's CEO with German experience? This question of symmetry was tested as well, and an asymmetric pattern between international experience and performance emerged for performance orientation. Specifically, when scores on performance orientation were greater for the home than host country, organizational performance was significantly enhanced.
Based on our support of the cultural distance paradox, firms may want to exploit the human capital from CEOs who have experienced very different PO and IGC cultures. Even better, firms should provide their high-potential talents with the opportunity to work in culturally novel environments as a way to develop their international experience. Applying the same logic to findings that lesser differences on assertiveness and power distance facilitate performance (the theory of cultural distance), firms should perhaps avoid the expensive option of expatriating would-be CEOs to countries where assertiveness and power distance are vastly different from the home country, as CEO experiences in those countries is shown to have a negative impact on performance. Therefore, filling positions in these locations with host-country nationals may be a more prudent choice.
To read the full article, please see the Journal of Global Mobility publication:
Downes, M. and Barelka, A.J. (2023), "CEO international experience and firm performance revisited: What's culture got to do with it?", Journal of Global Mobility, Vol. 11 No. 4, pp. 554-573. https://doi.org/10.1108/JGM-01-2023-0005" target="_blank" rel="noopener">https://doi.org/10.1108/JGM-01-2023-0005
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Professor Jan Selmer, Ph.D.
Founding Editor-in-Chief
Journal of Global Mobility (JGM)
Department of Management, Aarhus University
E-mail:
selmer@mgmt.au.dkTwitter: @JanSelmer_JGM
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