Appointing US based Directors and Executives
We all speak English, so is it all the same here and in the US? What cultural differences can trip us up?
At 100 Percent Partners, we work with many Australian companies that seek to appoint US based Directors and Executives.
Australia is limited by a market of 26 million people, and the US, with a population of 340 million, represents an attractive market for both customers and raising capital. Some of our clients as listed in Australia; others are dual listed or directly listed with US exchanges such as the NASDAQ.
There are many nuances in the process of selecting, attracting and retaining great leaders. Below are examples of nuances that should give rise to further conversation and its relevance to your specific company and situation.
Remuneration in the US can be relatively high and unpalatable in Australia.
Australian boards are routinely asked to explain the executive pay packages and they can face the wrath of shareholders and proxy advisors who have firm views on remuneration. The challenge comes when trying to attract US based executives that are paid significantly higher remuneration than Australians.
Directors may need to invest more time in educating Australian proxy advisors and shareholders on the need for differences in remuneration, and how these deliver to the growth strategy. One approach is to take into account the cost of living. Another is to create the KMP remuneration rule book, so that everyone, including proxy advisors, are clear on your provisions. Ultimately, the board needs to make the right hiring and remuneration decision that gives the right company outcomes.
There are different orientations to Short Term Incentives (STIs).
In the US, there are some (but not all) expectations that STI’s are earnt on activities (“I met all the key customers”) rather than outcomes (“I increased profit.”). While this is not a universal, it is important to establish early expectations that rewards will be aligned to results and not purely activities. Be aware of this and ensure terms are both contractually clear and culturally understood.
There are different expectations to Long Term Incentives (LTIs)
US based executives may seek significant amounts of equity as a sign on bonus whereas this is generally not the same expectation in Australia. These situations need to be consciously managed both within and external to the entity to ensure key stakeholders see the value in the grants.
The US is moving away from using Restricted Stock Units (RSUs) without attaching a performance metric, which echoes the sentiment of Australian shareholders and proxies who generally prefer to see performance-based incentives rather than time-based retention incentives, unless of course granting of upfront equity is used to attract top talent who may be forfeiting incentives still on foot from their previous employer.
Plan early for good leaver, bad leaver provisions
US laws can be complex and different to Australia.
Australian companies entering the US may not consider adequate leaving provisions at the honeymoon stage of appointing a US based executive. This may lead to expensive and lengthy legal challenges should an employee leave or be terminated, either in their current organisation or due to M&A activity.
The best time to manage for terminations are when things are going well. Engage a good US employment lawyer and ensure leaver provisions are included at the start in the employment contract.
Attracting, and then retaining, great US sales talent may be a challenge
The booming US job market means that some companies find it difficult to attract, and retain, good Sales leaders who can be lured away with lucrative contracts. Remember that an Australian company may have a low or unknown employee brand proposition in the US, compared to well known domestic companies. If sales leaders, or their team members leave, this can have significant impacts on customers and revenue.
Companies could consider a range of strategies, relative to their own situation. These include offering an attractive remuneration package (to ensure the great new hire does not leave), onboarding, ongoing mentoring, and workplace flexibility. It’s worth reflecting that of all the executives, Sales leaders have the greatest skill in selling their resume. Partnering with an experienced Executive Search firm can bring objective assessment and insight to the recruitment process.
Directors Fees
In Australia, Directors fees are set by the Board and voted on as part of the Remuneration report to the shareholders. Australian Director will not typically seek to negotiate Board fees upon joining a Board as they appreciate the context.
In the US, incoming Directors are more inclined to seek to negotiate Board fees which puts an ASX listed company in a difficult position. While there is no universal way to address this potential situation it is important that ASX Boards understand this potential and respond accordingly.
US Directors may approach their role more as advisors than monitors
In the US directors that bring particular industry know-how or networks may have more of an advisor role rather than a monitor role. In Australia, on the other hand, investors value a monitoring role on the board. There is a substantial workload particularly for the Chair of Remuneration and the Chair of Audit & Risk. If you end up with a board dominated by US Directors who see their role as advisors and who are less hands on, the heavy lifting of governance may fall disproportionately to the Australian based Director(s).
It is important to understand how the Australian and US Directors joining your board see their role. Do you like the “divide and conquer” approach or are you concerned with having all the heavy lifting fall to directors in Australia?
There are specific expectations from the Chairs of Audit Committees and Remuneration Committees
There are specific regulatory requirements and investor expectations from the Chairs of Audit, Risk & Remuneration in Australia. These committees are best governed by Directors with knowledge of Australia’s regulatory markets. It may be hard for a director who is based in the US, and is not familiar with the rhythm of the Australian market, to chair these committees.
When appointing a Committee Chair, an ideal unicorn director would have experience in both markets.
It can take some work to make a geographically dispersed board hum
Unlike an Australian based board, dispersed Directors may only see each other once a year. To help the board to operate cohesively, there may be merit in setting targets for how the board will work and what the board will accomplish over the following year (as opposed to business objectives). There may be value in the board having conversations on areas such as “what is a good use of our time” and “where will we focus.”
While our friendship with the US runs deep, and we have a similar heritage around laws and norms, there are nuances in culture, expectations, remuneration, and market context that may impact how successfully companies grow in the US. The wrong hire, poorly constructed contract or weak onboarding process, impacts financial return and flow on team effects.
We have over two decades of experience in Australian-US appointments and our teams across Australia and the US can help with your Australian-US talent strategy.
