World Leaders

A special HRE recalibration of Fortune's Most Admired Companies list highlights the strength of time-proven people principles among those scoring highest for global and HR operations.

Friday, December 1, 2006
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In his 2005 best-selling book, The World is Flat, veteran New York Times columnist Thomas L. Friedman predicted what he called a "great sorting out," triggered by the accelerating forces of globalization.

"When the world starts to move from a primarily vertical -- command and control -- value-creation model to an increasingly horizontal -- connect and collaborate -- creation model, it doesn't just affect how business gets done," he wrote.

"It affects everything: how communities and companies define themselves; where companies and communities stop and start; how individuals balance their different identities as consumers, employees, shareholders and citizens; and what role government has to play."

Global U.S.-based corporations -- and, in particular, their HR leaders -- have already been on the front lines of this sorting-out process for years. The observations and experiences of the most successful ones may offer some useful insights for those on the sorting-out threshold who aim to come out on top.

But how do we identify these winners?

As it did last year, Human Resource Executive® has collaborated with analysts at The Hay Group in Philadelphia to construct a customized ranking of qualifying candidates from Fortune's annual hierarchy of Most Admired corporations.

This year, with a focus by HRE on global corporations, the survey data underlying Fortune's "The World's Most Admired Companies" was adapted to generate a rarified ranking of large companies based on two criteria: their reputations based on HR-oriented success criteria, including "people management" and "management quality," and their "effectiveness in conducting business globally." (See sidebar for an explanation of the statistical methodology.)

Although the universe from which ranked companies are drawn is limited to corporate behemoths (minimum revenue: $8 billion; only 351 companies met that criterion), the apparent success factors for those that ranked at or near the top are not size-dependent.

Moreover, the need to grasp and adopt applicable lessons from the successful multinational giants in an increasingly global economy isn't confined to companies with operations in dozens of countries.

Bedrock Principles

So what common characteristics do the global winners possess? For answers, we turned to HR leaders from a representative sampling of companies high on the list, representing different industry sectors. What emerges from their self-assessments is, reassuringly, an affirmation of the vital importance of bedrock principles of progressive business and human resource management:

* Adherence to idealistic values;

* A strong corporate culture;

* Clarity of overriding business goals;

* Business-savvy HR leadership; and

* A non-U.S.-centric perspective.

How do they pull it off?

Consider corporate values: Most companies have them enshrined on plaques and corporate Web sites. But a common characteristic of the high-ranking companies on the recalibrated Most Admired list is that they actually try hard to live by their values.

When asked to explain what makes HR (and, by extension, the entire company) tick at top-ranked Procter & Gamble, Global Human Resources Officer Richard L. Antoine invokes the "V" word. In explaining his concept of values at P&G, Antoine, who joined the Cincinnati-based company nearly four decades ago, in 1969, as a "soap-process supervisor" in Chicago, asks an interviewer to write on paper and arrange in a triangle, these words: "consumers," "P&G brands," and "P&G people."

"We are a very consumer-focused company; everything we do is about how we can make the lives of the world's consumers a little bit better," he says. "But what knits it all together are our values, which are timeless." (Those values -- integrity, leadership, ownership, passion for winning and trust -- are placed in the center of the triangle).

"It's our job in HR," Antoine says, "along with everyone else, to make sure that these values are understood and lived up to."

The company's 169-year history includes evidence of early adherence to such principles, including the company's pioneering implementation of a profit-sharing program for factory workers in 1887.

Along similar lines, DuPont, which had already been in business 35 years at the time of P&G's founding in 1837, hired physicians to care for its employees in 1805. A perpetual focus on workplace safety dates back to "our founder, who built his house just above the [gun powder] mill because he didn't want his workers to have a risk that he and his family weren't willing to take," according to James C. Borel, the senior vice president of human resources for the 60,000-employee Wilmington, Del.-based company.

DuPont's core values -- safety, environmental stewardship, high ethical standards and respect for the dignity of people -- "infiltrate everything we do," Borel says. "They're just part of who we are."

But for global companies, the true test of adherence to values that might appear unremarkable to U.S.-centric companies is how those values are understood and, perhaps more importantly, enforced abroad, particularly in poorer countries. "If you parachuted into China, Chile, South Africa or the Ukraine, you would find the same [employee behavior] everywhere," says Antoine.

He points out that, "in some cases," the prevailing business culture in some countries is at odds with P&G's value system. "We don't criticize the value of that culture, but we've been successful with our values for decades, so we insist on them for our own employees.

"If you get into saying, 'Well, in this culture, this is normal behavior,' it may be true, but if any employee is violating our values, he's going to be disciplined or asked to leave." (In many parts of the world, for example, payments of bribes to government officials to secure or expedite basic regulatory approvals is considered a normal cost of doing business.)

And when local values that fly in the face of P&G's are codified in the nation's laws, the consumer-products giant has, on occasion, lobbied the government for a change. For example, Antoine recounts P&G was operating in a country (which he declined to identify) "where women were not allowed to work in a factory or office environment. We worked with the [political] leaders over several years to get that law changed. Today, we have women working their way up through our organization there and making fantastic contributions to the business."

Antoine insists, however, that P&G doesn't overplay its hand. "We can't come in and tell them their laws are crazy. We just try to point out some of the advantages their country could be getting" by making some changes. "We operate within their laws."

To put the matter in context, Antoine points out that P&G also lobbies for changes in federal and state laws in the United States as well.

Values vs. Culture

Formal corporate values, if genuinely respected, will permeate the more amorphous realm of corporate culture. And the prevailing culture at the Most Admired global companies on HRE's list seems to include respecting and empowering employees. No surprises here.

"We've got a pretty strong culture," says DuPont's Borel. "It has an impact on who enjoys working here, and how we do our work."

Ken Weigand, vice president of HR for Deerfield, Ill.-based Walgreen Co., the fast-growing drug-store chain and health-services company, says his organization, thanks in part to its 105-year history, has a deeply embedded culture that emphasizes, among other things, employee longevity. "I've been here 23 years, and I'm still a 'baby,' " Weigand says.

That culture is, to some degree, self-perpetuating because employees inclined to make a long-term commitment to a company are drawn to Walgreen with the knowledge that longevity is a strong tradition there.

A long-tenure culture is also present at P&G, DuPont (HR leader Borel joined that company in 1978) and other global corporations high on the accompanying list, such as John Deere. Mert Hornbuckle, Deere's vice president of human resources, is a 31-year veteran of the 47,000-employee Moline, Ill.-based farm and industrial equipment manufacturer.

Though Deere is constantly raising the performance bar for employees (for instance, salaried employees each year are asked to identify several "stretch goals" along with their regular performance objectives), the company still prides itself in its low -- 2 percent to 2.5 percent -- turnover rates.

Longevity isn't necessarily a universal value among top-ranked companies for HR attributes and global orientation, however. At ninth-ranked Texas Instruments, for example, the culture places a higher emphasis on workplace flexibility, diversity and lack of bureaucracy.

"The diversity priority fits into all aspects of what we're trying to do from an HR perspective," says Tegwin Pulley, a vice president of the Dallas-based semiconductor maker with responsibility for workforce development, diversity and work/life strategies.

Focus on Business Goals

Despite variation in corporate cultures among the Most Admired listed here, all appear to be united by a strong sense of their own company's key business goals. At Deere, for example, when Chairman and CEO Robert W. Lane assumed that position six years ago, he "looked at what it was going to take to focus Deere on moving from a pre-eminent North American manufacturer, to become a truly global player," says Hornbuckle.

That goal is being pursued aggressively through a series of initiatives, including Deere's multi-pronged "global performance management process."

"We revised our global total-rewards strategy to support the desired performance characteristics," Hornbuckle says. It's based on two financial parameters -- one derived from straight operating performance and the other that adjusts for the cost of capital -- plus a subjective variable known as "aligned high-performance teamwork."

In particular, the new system places a higher proportion of management compensation at risk based on meeting corporate financial targets, and fine-tunes the formulas that measure financial performance, Hornbuckle says.

The result has been that employees "could see and grasp fairly quickly" the kind of performance improvement Deere needed to achieve to meet its overall objectives. Over the past three years, the company has enjoyed "record or near-record performance," including net income of $1.45 billon on net sales of $22 billion in fiscal year 2005, Hornbuckle says.

Hornbuckle's strong financial focus is shared by Roger A. Jackson, senior vice president of human resources at Lear Corp., a Southfield, Mich.-based auto-parts manufacturer with employees scattered across 34 countries. In the struggling auto industry, and with a small (35-member) staff covering 115,000 employees, Jackson has outsourced administrative functions, allowing his department to "focus on the critical issues," including HR strategy, program design, global labor relations and executive compensation, and pass over the "nice-to-have" sorts of HR initiatives.

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Such as?

Jackson's example: 360-degree appraisal processes. "While we fully appreciate their intellectual value, we'll stick with ours, which, while it may not be perfect, allows us to have a dialogue with most of the employees in the organization and to explain to them what they're expected to accomplish, and assess that at the end of the year."

Jackson also notes that, at Lear, "We tend not to spend a lot of time worrying if somebody doesn't seem to quite fit with the culture of the organization, trying to move people around until they find the right 'home.' We're much more comfortable saying, 'Maybe this isn't the right kind of organization for you,' and help them to move on."

Those who do fit in, he says, are "fairly aggressive self-starters" who don't need "a lot of infrastructure and policies and procedures" to guide their efforts.

Jackson's hard-nosed approach is, as one would expect, in tandem with most basic requirements of the business. Nobody in HR at Lear should expect to become a top, valued executive "without being able to go to your line boss with ideas and suggestions that are going to improve productivity or profitability," Jackson says.

"Until you learn and understand the numbers," says Jackson, "there's not much you're going to be able to bring to the party with your human resource expertise."

That business-first orientation isn't limited to HR leaders of the Most Admired companies facing intense financial pressures, however. For example, at Procter & Gamble, whose profitability exceeded that (in percentage terms) of all but one of its industry competitors last year in the Fortune 500 rankings, Antoine views himself as one of the CEO's "business partners."

That close relationship is perhaps reflected in the 20-foot proximity from Antoine's office to that of Chairman and CEO A.J. Lafley, who "doesn't have to go far to grab me by the scruff of the neck and haul me in" for an impromptu business discussion, Antoine says. "That's the way he wants it." That may come naturally to Antoine, since, over the course of his long career at P&G, he has had multiple stints working outside HR, in various operations roles.

Cultural Immersion

But no amount of purely domestic financial and operational experience can render an HR leader astute in the requirements of running a truly international operation. Antoine spent three years in Kobe, Japan, as vice president of product supply for Asia. To drive the point home about the nature of the top HR job at P&G, in 1999, the company gave the job the title of global human resources officer.

And at P&G, taking an expat assignment is, informally at least, a requirement for reaching the very top echelons of the company, says Antoine. "Otherwise, we can't be effective as a global company."

Like Antoine, DuPont's Borel also did a stint in Japan, as well as assignments in the U.K. and Canada. "You can learn a lot about a country by traveling, communicating and reading," he says. "But you don't learn nearly as much as by living there."

Expat assignments, however, represent a large investment for a company, and cannot always be financially justified, depending on the scope of an employee's responsibility or career trajectory. Nevertheless, providing cross-cultural training to employees of global corporations who need to interact with co-workers in other countries is critical to the success of the enterprise, according to Pulley.

Many TI electronics engineers operate from offices in India, France and Texas, and "need to work seamlessly around the clock," she says. "Imagine the benefit of their having a deeper kind of understanding of the cultural differences" that might help explain, for example, a different communication style, she says.

Enabling effective collaboration within a diverse corporate culture (whether globally dispersed or even under the same roof) "is central to engagement and productivity, and allows us to be truly competitive," Pulley adds.

There are limits, however, to how much someone raised in one culture or country can understand about another. For that reason, global companies generally want to have local nationals managing the divisions in their countries.

"We hire, promote and develop locals in every country we're in," Antoine says. "Our objective is to have roughly 80 percent of the leadership [coming] from citizens of that country."

"The only reason it's not 100 percent," he adds, "is that we like to bring people in [from other countries, including the United States] for training and development."

In addition, bringing non-U.S. nationals to serve at U.S. corporate headquarters also enriches and improves the quality of human resource and other functions, HR leaders say. "You always learn when people ask you, 'Why do you to it this way? In my country, we would have done X, Y and Z,' " says Lear's Jackson.

A truly global company should be able to point to significant business success stories that would have been impossible for a primarily U.S.-centric corporation. At P&G, the case in point is Pantene, currently the world's largest selling hair-care product.

P&G acquired the brand -- relatively unknown at the time -- when it bought a British company 20 years ago. A few years later, some P&G employees based in Taiwan "took a new technology which combined shampoo and conditioner, used some innovative advertising, and built an incredibly successful brand," says Antoine.

"People said, 'Wow! What's going on here?' It didn't come out of the U.K. or the U.S. It's taking advantage of our brands and our people," he adds.

That's probably the kind of people-based success story that globalization guru Friedman would applaud, and accounts for P&G's No. 1 ranking on HRE's adaptation of the Most Admired list.

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