Do companies really need multicultural teams?

While many companies are multinational, most of the top management teams in these companies are not. They tend to be dominated by executives with a connection to the home country of the company. There is a lot of attention paid to gender diversity, but cultural diversity often gets ignored.

One must first agree that there are some benefits to having mono-cultural top management teams (all coming from the same nationality and speaking the same language). Since mono-cultural teams share assumptions, world views and language, communication between them is efficient. This speeds up decision making and reduces conflict among team members. Anyone who has participated in culturally diverse teams has encountered problems on these fronts.

Given the challenges that cross-cultural teams face, the question becomes more nuanced and one needs to explore when they are effective. I have been privileged to serve on business school faculties which were rather diverse from a nationality perspective. This is where I spent some time reflecting on this. My insights are through observation over the two decades I spent at these schools, which had very different approaches to top management teams. Of course since these schools were located in the US and Europe, for the most part, the leadership was “male, pale, and stale”, as has been famously observed.

At one of the schools, IMD in Switzerland, it was unimaginable that the top management team would be drawn from a single nationality or language. One dean who fell into this trap lasted only a brief period. At other schools, despite the multicultural faculty, the deans were either English or American. When does having a multicultural top management team make a difference?

Key advantages

The drawbacks that cross-cultural teams suffer are compensated by its benefits only when the organisation has multinational operations. In the context of multinational operations, cross-cultural teams have three crucial advantages:

1. Greater insight into markets: The greater the familiarity with the culture and the more steeped one is in that culture, the greater is the understanding of cultural consumption patterns and deeper are the consumer insights. A culturally diverse team is also more likely to have superior knowledge of the political and social idiosyncrasies of different foreign markets. A diverse management team will also be better able to monitor changes in major markets if it has representatives from those markets, since people, no matter where they live, stay connected to their home country.
2. Enhanced credibility with global stakeholders: Multinational companies have to navigate the heightened expectations that global stakeholders have. They have to negotiate, mediate and communicate with important stakeholders, including government leaders, union bosses, NGOs, big local investors and media representatives. Having a diverse TMT enhances the cultural bandwidth to effectively interact with stakeholders from different countries. Making a connect between the TMT and stakeholders in a particular country is easier if there is a person from that culture on the team. With diversity, the entire TMT has greater credibility when travelling across borders.
3. Improved morale among employees: Multinationals have little choice but to employ locals in every country they operate in. If the TMT is culturally diverse, then it is a powerful symbol for the employees that they are working in a meritocracy. In my experience with over 200 multinationals, I have observed TMT diversity to be powerful in motivating employees.

I recall being the keynote speaker at a global leadership conference held 15 years ago by a Norwegian multinational company. Of the 500 or so leaders gathered, a good quarter were of South Asian origin (the company had a large footprint in the Middle East, South and Southeast Asia). As I descended from the podium after my address, there was a line of about 100 people, all of South Asian heritage, waiting for me. Usually, a few people always come up after a speech to exchange thoughts, but this was an unusually long line. I shook hands one by one as they complimented me. Still puzzled at the outpouring of enthusiasm, I finally got the answer when the 15th person greeted me. He shook my hand and said:

“Professor, I have been with this company for 15 years. For 15 years I have seen the Norwegians on the podium at this annual conference telling us Indians what to do. Now, at long last, there was an Indian telling the Norwegians what to do. Thank you.”

I want to end on a note of caution with respect to culturally diverse management teams. First, as the three reasons expounded above indicate, the benefits only apply if the enterprise is multinational. In a company operating only in a single market, these advantages would become drawbacks. Second, it is critical not to assess cultural diversity by simply counting passports. More important is the international experience of the management team members. For instance, how long have they lived in different countries because that is what delivers some of the advantage. Third, all companies evolve in their journey to be more multinational. It begins with sales and supply chains; culturally diverse management teams are the last stage.

Language is a large obstacle in achieving cultural diversity, which is why Chinese, German, Italian, and Japanese multinationals struggle much more than their American counterparts on this count. It helps to be patient.

Nirmalya Kumar is Member-Group Executive Council at Tata Sons and Visiting Professor of Marketing at London Business School. His Twitter handle is @ProfKumar. This article is written in his personal capacity.