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T Magazine 07
Magazine
Tax insight for business leaders
The global
executive
A new breed of manager
takes center stage
Tax as a factor
in employee relocation
The rise of the stateless
employee
The challenges of
managing virtual teams
07

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Stephan Kuhn
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Dear Reader
By Stephan Kuhn Editorial
The growing emergence
of a “new global
executive”
Recruiting and retaining talent is a perennial challenge for any multinational business. In rapidgrowth
markets, there is already intense competition for relatively small numbers of highly skilled
and experienced workers, especially within middle and upper management, despite huge
numbers of new graduates emerging each year. In developed markets, multinational businesses
are grappling with other challenges: an aging workforce as a result of demographic change,
and all too often a disconnect between the skills of the labour force and those that businesses
need to succeed.
Addressing these talent mismatches requires companies to think carefully about how they
manage their human capital on a global basis. For many, the greater use of overseas postings is
an important tool for filling talent gaps and transferring best practice around the world.
Gaining experience in other markets is also a crucial part of management development, helping
high-potential employees to develop the international experience and cultural understanding
that will enable them to lead tomorrow’s global business. Can tomorrow’s CEO be someone without
deep, first-hand knowledge of today’s rapid-growth markets?
In recent years, the pattern of international postings has evolved. Traditional expatriate models,
whereby companies relied on the experience of managers from developed markets to establish
operations in rapid-growth economies are now just one part of the mix. Today, there is
a much more fluid, dynamic approach to the migration of talent, with executives also moving
from rapid-growth to developed markets, and also from one rapid-growth market to another.
The emergence of a new generation of “global executives”, while beneficial for the business overall,
presents companies with many challenges from a tax perspective. Different rates of income
tax around the world can make it difficult for companies to create remuneration structures that
equalize liabilities between jurisdictions. A related challenge here lies in crafting incentive
structures that motivate global executives, without creating a mismatch between them and local
workers. Beyond this, social security obligations and pension entitlements, complex enough in
many jurisdictions, become even more challenging to manage for mobile employees. In addition,
meeting the challenges of housing, schooling for children and potentially work assistance for
spouses present complications. Obtaining appropriate residential and working permits are also
critical steps in managing risks for both the firm and employees. Even employees who are not
based overseas can present problems because they may trigger local tax liabilities if they travel
frequently enough.
In this issue of T Magazine, we look at the emergence of a new generation of “global executives”,
either traveling frequently, or else shifting from one international posting to the next. We
consider how companies are developing global talent management processes to build talent
pipelines for the future, and explore the tax implications of this increasingly mobile workforce.
We hope that you find the publication valuable and stimulating.
Stephan Kuhn
Stephan Kuhn is Area Tax Leader for the Europe, Middle East, India and
Africa (EMEIA) region at Ernst & Young.
Ernst & Young Issue 07 T Magazine 3

Contents Credits: Jos Schmid, Digital Vision / Jeremy Woodhouse, Keystone / MaxPPP / Leemage; Cover: Keystone / EPA / Patrick Seeger
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T Magazine 07
Magazine
Tax insight for business leaders
The global
executive
07
Tax as a factor
in employee relocation
A new breed of manager The rise of the stateless
employee
takes center stage
The challenges of
managing virtual teams
8
Cover
16
Features
8 __ From expat manager to global executive
A competitive, globalized marketplace is reshaping
the nature and dynamics of the expatriate
assignment. Is your organization meeting this
challenge?
14 __ Assessing the global executive
As the global map for today’s expartriate changes,
our infographic provides an overview of today’s
expatriates.
16 __ Upward and outwardly mobile
Increasingly global business leaders need to be
mobile. This can have costs, both personal and
financial, as well as presenting challenges for
employers.
20 __ Preparing a new human age
T Magazine interviews Françoise Gri, President
of ManpowerGroup Southern Europe and one of
Fortune’s Global 50 Most Powerful Women in
Business.
Focus
22 __ Living costs
How the relative costs of the world’s business cities
are evolving in line with shifts in the global economy.
28 __ The stateless employee
Managing an increasingly mobile workforce
presents a new set of challenges to meet associated
tax obligations for employee and employer alike.
Management
30 __ Making relocation a success
Expatriate postings all too often end in failure.
So what can be done to help ensure a successful
assignment?
34 __ Human capital on the move
The traditional pattern of West to East migration
is giving way to a new multipolar reality for
expatriates.
36 __ Managing in a virtual world
Effectivly managing virtual, multinational
teams requires both new tools and different
approaches.
40 __ Welcome back. Now – please don’t leave!
Returning expatriates are far more likely to
leave an organization than their compatriots.
How can this be avoided?
44 __ Who’s next?
An effective CEO succession planning strategy
is crucial to the long-term success of any
company. Why do so many corporate boards
struggle?
Outlook
48 __ Developing global leaders
Professor Manfred Kets de Vries, founder of
INSEAD’s Global Leadership Centre, writes on
future challenges and tomorrow’s global
business leaders.
“Our disadvantage as an economic zone is the coexistence
of 27 different national systems. Of course, variety can also be a bonus.
But what we do need is a common framework and common rules,
so that employees can move inside the EU without barriers.”
Martin Schulz, President of the European Parliament, in an interview with T Magazine on free movement of labor (see page 13).
4 T Magazine Issue 07 Ernst & Young
36

Global tax news
A roundup of recent developments from major
governments and tax administrations
1 France
communications with HMRC
February 2012
through an electronic system,
A proposal was submitted to part of efforts to streamline
parliament for the introduction VAT procedures. These
of a tax on certain financial encompass applications to
transactions, which would be register for VAT, make returns,
introduced from 1 August submit claims, and keep
2012. It proposes taxes on the
transaction of shares of
accounts, among other things.
publicly traded companies 3 South Africa
established in France, whose February 2012
capital is valued at over South Africa will switch from
€1b, at a rate of 0.1% of the its current secondary tax on
value of the shares traded. companies to a dividend
High frequency and automated withholding tax, as of the first
trading operations would be of April 2012. The new tax is
taxed at 0.01% on the amount essentially a tax on the
of cancelled or modified shareholder, rather than the
orders above a ceiling. company, and is calculated at
a 15% of the net amount of
2 United Kingdom the dividend declared, up from
February 2012
The UK’s HM Revenue &
the 10% initially proposed.
Customs (HMRC) published 4 Canada
draft updates to its VAT law and January 2012
regulations, aimed at enabling Effective January 1, 2012, the
businesses to make specific federal corporate tax rate was
4
2
1
5
3
Ernst & Young Issue 07 T Magazine 5
6
7
News
cut to 15%, from 16.5%. Certain 6 Finland
accelerated tax depreciation January 2012
incentives for manufacturing The Finnish government
and processing equipment were confirmed amendments to
extended through to 2013. its corporate and individual
During 2011, new legislation taxation rules, as part of its
was introduced to curtail the 2012 budget. Within this,
use of partnerships to achieve a the corporate tax rate was
tax deferral and draft legislative reduced to 24.5%, while
proposals were released related the special withholding tax on
to foreign affiliates.
certain dividends was cut
to 18.38%.
5 Portugal
January 2012
7
China
Portugal confirmed a range of January 2012
tax amendments in January, China’s Ministry of Finance
affecting both corporate and increased the tax threshold
income tax rates. Withholding of its windfall tax on the
taxes on investment income oil industry, from $40 per
were increased, along with the barrel to $55. Progressively
tax rate applicable to capital high taxes are applied
gains on the sale of shares. The thereafter, with a maximum
rate of autonomous taxation on rate of 40% for any prices
profits distributed to entities above $75. This applies to
wholly or partially exempt from all oil companies operating in
corporation tax was also China effective from
increased in certain cases. 1 November 2011.

News Credit: Getty / ChinaFotoPress
Tax reform in the spotlight
Share of labour force
Canada
Ireland
United Kingdom
New Zealand
United States
0%
% foreign
% native
20.7%
21.2%
Source: MARC M&A Maturity Index
Source: OECD, 2011
The freedom to move
May 2004
Expansion of the
European Union
gives residents of
10 more countries
the right to move
freely within the EU.
26.0%
31.5%
29.3%
30.0%
37.5%
38.9%
43.5%
46.9%
20% 40% 60%
September 2006
The G20 calls for
international tax
transparency to
be “vigorously
addressed”.
__ In recent decades large corporations have explored every corner of the world
in search of new growth. Between 1976 and 2007, the number of multinational
companies expanded nearly eightfold, from 11,000 to 79,000, according to
United Nations Conference on Trade and Development (UNCTAD). These
businesses now compete at a global level to attract, retain and develop the
best talent for their enterprises.
In 2011, the main motivation for sending an executive abroad was involvement
in a specific project; anything from an engineer on a mining survey to a manager
overseeing a merger. Close behind this were managerial assignments – often with
specific leadership or strategic components aimed at filling skill gaps, spreading
corporate procedures or developing local talent.
Naturally, with the economic turmoil of recent years, international expansion
has slowed for many large companies. From 2008 to 2010 there was a steady
decrease in employees on short-term assignments. However, in 2011 this trend
reversed and today more companies are sending a larger percentages of
employees on short-term international assignments. Interestingly, where
long-term investments were concerned the global economic crisis did not have
such a large effect. In other words, companies continued to see the need for
long-term assignments throughout the economic downturn.
Net migration
Top 20 importers Top 20 exporters
Country Net for 2007–2011
1 United States 4,954,924
2 United Arab Emirates 3,076,634
3 Spain 2,250,005
4 Italy 1,998,926
5 Russian Federation 1,135,737
6 Australia 1,124,639
7 Canada 1,098,444
8 Saudi Arabia 1,055,517
9 United Kingdom 1,020,211
10 Qatar 857,090
Source: World Bank
2006 2008 2009
February 2008
The UK begins
phased introduction
of points based
immigration.
September 2008
The global financial
crisis begins to slow
the movement of
workers.
Country Net for 2007–2011
1 India 2,999,998
2 Bangladesh 2,908,015
3 Pakistan 1,999,998
4 China 1,884,102
5 Mexico 1,805,238
6 Indonesia 1,293,089
7 Philippines 1,233,365
8 Zimbabwe 900,000
9 Peru 724,999
10 Morocco 675,000
June 2009
The first-ever High
Level Policy Forum
on Migration held at
the OECD.
May 2009
The European
Parliament backs
the introduction of
the ‘blue card’, an
EU-wide work
permit.
6 T Magazine Issue 07 Ernst & Young

Credit: Getty / Bloomberg, Keystone / Laif / Thomas Grabka
83%
Percentage of companies
outsourcing the taxation for
their international assignees
given the complexity of global
tax law, according to Spencer
Stuart.
262
The number of additional
jobs created by every
100 foreign-born workers
with an advanced US degree
in a science or technology
field, according to the
American Enterprise Institute.
30%
Percentage tax relief that
Ireland will offer highly paid
foreign executives,
as part of a suite of measures
aimed at attracting talent
to the country.
2010 2011
July 2010
Russia introduces
measures to attract
highly-skilled
foreign workers, as
part of efforts to
modernize the
economy.
November 2010
The UK announces
a cap on the
number of skilled
workers from
outside the
European Economic
Area.
“This measure will reduce the cost to
employers of assigning skilled individuals in
their companies from abroad to take up
positions in Ireland . . . [This] will help us
compete for foreign investment.”
Michael Noonan, Ireland’s Finance Minister, quoted in The
Financial Times, February 2012, on his country’s new tax relief
measures being introduced to help attract highly skilled workers.
China
New legislation will force foreign workers in China
to pay up to 11% of their salaries into five separate
insurance funds, covering pensions, health care,
unemployment, maternity and work-related injuries.
In addition employers can be forced to contribute up
to 37% of the employee’s salary. The move will make
a foreign workforce more expensive for multinationals,
as well as making China less attractive for global
executives.
Germany
Despite widespread unemployment across the Euro
area - averaging 10.4% overall, and as high as 22.9% in
Spain - Germany has low unemployment of just 5.5%
and a worsening skills shortage. Germany is in need of
engineers, doctors and highly qualified IT professionals.
Skilled healthcare
workers are especially
difficult to find.
March 2011
The UK unveils a
new visa aimed at
attracting foreign
entrepreneurs and
investors.
Photo:
Germany’s Federal Minister
of Labour and Social Affairs,
Ursula von der Leyen.
January 2012
The US Department
of Homeland
Security announces
reforms aimed at
attracting and
retaining highlyskilled
immigrants.
2012
January 2012
Ireland offers new
tax relief to attract
highly paid foreign
workers.
Inbounds =
__ Over the next three years
companies expect to increase
the number of assignees to:
India by 80%; Africa by
75%; Brazil by 71%; Russia by
43%; and China by 23%.
China currently has the
highest number of inbound
assignees per company,
followed by Africa, then India.
Outbounds =
__ Over the same period to
2014, outbound assignees will
increase by: 80% from China;
67% from both Russia and
Africa; 20% from Brazil; and
13% from India. However,
India’s relatively low increase
could be due to the fact that it
currently has the highest
volume of outbound assignees
per company, followed by
Africa and then China.
February 2012
Switzerland’s
largest political
party files a petition
to cap immigration
to the country.
Ernst & Young Issue 07 T Magazine 7

Feature The global executive Credit: Jos Schmid
From expat manager
to global executive
Despatching old hands from head office to run the show in new territories has
been a feature of international business. But a competitive, globalized marketplace
is reshaping the nature and dynamics of the expatriate assignment.
Summary
The traditional
expatriate model is
changing as companies
get to grips with a
changing global
economy. Executives • By Paul Kielstra
are not just flowing from
West to East, but in all Viewed through a narrow lens,
directions. Overseas
the traditional corporate expat
postings can be a
seems alive and well. Cost
powerful tool to share cutting during the recent downturn
expertise and build dented the enthusiasm of companies
leadership talent, but for sending people abroad, but now
there are many
firms are stepping up the number of
practical difficulties such assignments.
that can impede their Ernst & Young’s recent Global
success.
Mobility Effectiveness Survey found
that, although the number of
companies with at least 1% of
employees on a short-term international
assignment declined precipitously from 48% in
2008 to just 20% in 2010, it bounced back up to
33% during 2011. Longer-term assignments,
which are harder to cut rapidly, never went out
of fashion: the proportion of businesses with
more than 1% of employees on long-term
postings rose steadily from 27% in 2008 to 46%
in 2011.
In line with the rebalancing of the global
economy toward high-growth emerging markets,
these are the primary destinations for expatriate
postings. About six in 10 (61%) of companies
polled have seen an increase in the number of
international transfers to emerging growth
markets in the last three years. Nearly seven in
ten (68%) expect to see a further rise in the next
three years. Other studies back this up. A 2010
Economist Intelligence Unit (EIU) survey
indicated that by far the most international
transfers still originate from Western Europe and
North America, with China and the rest of Asia
the most common destinations. The key drivers
for such assignments are strategic and
managerial needs. In the EIU’s words, “The
traditional expat model is alive and well”.
New patterns of postings
But all this misses some significant changes. The
most obvious is the evolving traffic patterns of
executives. Philippe Waty, Group Head of
Compensation and Benefits at Novartis, the
Swiss-based global pharmaceutical company, has
seen a “rapid change with respect to executives
moving out of developing countries, with many
people from India and China coming to
developed countries over the last few years.”
Others agree. Susan Steele, Global Chief Human
Resources Officer at Millward Brown, a global
brand insight consultancy, explains that, “In the
past, it was one-way traffic from the United
States and Europe to the rest of the world. Now,
in sending people to Africa, we are taking folks
from India and vice versa. It is becoming much
more blended and less one-way. Going on
assignment will be the norm for this current
8 T Magazine Issue 07 Ernst & Young

Credit: Xxxxxx / NameVorname GCR today Feature
Philippe Waty, Novartis
__ As Group Head of
Compensation and Benefits,
Philippe Waty is responsible
for developing Novartis’ pipeline
of emerging global executives,
a growing number of whom hail
from markets such as India,
China and Latin America.
Ernst & Young Issue 07 T Magazine 9

Feature The global executive
80%
The number of international
transfers originating from
China will increase by 80%
between 2010 and 2014,
according to Ernst & Young.
Main drivers for sending
people across borders
86%
Project-based
84%
Managerial and strategic
75%
Developmental
50%
Other
32%
Employee-driven
Most common reason
Least common reason
14%
16%
25%
50%
68%
Source: Ernst & Young’s Global Mobility
Effectiveness Survey 2011
generation, so they will become more global.”
Ernst & Young’s research backs this up:
companies expect to increase the number of
international transfers originating from China by
80% between 2010 and 2014, and those from
Russia and Africa by 67%. India will see less
growth (13%), but from a far higher baseline,
given it has an average of three times as many
outbound assignees as incoming ones.
This highly visible change reflects an even
more fundamental one: if the expat executive
model seems still to be thriving, it is because its
very purpose has adapted to a more globalized
business environment. “The idea of people being
sent out from head office to colonize the world
ended more than 10 years ago,” says Peter
Ferrigno, the EMEIA Area Leader for Human
Capital at Ernst & Young. This reflects the way in
which many companies have moved away from a
model in which a central head office, frequently
with distinct characteristics shaped by the
business’s country of origin, controlled what
were essentially branch operations abroad.
Instead, leading firms today are seeking to create
more integrated, global operations.
Inevitably, this has affected the role of the
global executive. At a broad level, executives
going abroad no longer resemble high-ranking
foreign dignitaries from the corporate center, but
are increasingly arriving to work as equals with
others. In line with this, the primary objectives in
sending them have grown more complex. The
main ones now include:
Filling vacancies/project support
This objective has always been an important
driver of international transfers and remains the
most common reason for sending employees
across borders. Globalization and modern
technology, however, allow a greater use of
international talent in this way and new forms of
assignment for global executives. Indeed, Waty
notes an increasingly common phenomenon,
especially within Europe, of business travelers
who spend weekdays in one country and return
to their homes in another country for the
weekend. Others companies are embracing
“virtual” international assignments, notes Steele,
with executives working as part of teams in
another country while remaining in their own
home countries. “It is not ideal but, with
technology, it is increasingly feasible and
increasingly being done,” she says. This also
avoids many of the practical difficulties and costs
of sending people to another country.
Knowledge transfer
The benefits of bringing knowledge from one
part of the company to another have also always
been a driver in the use of international
executives, but the direction of flow is no longer
one-way. For example, Indian and Chinese
executives often have more experience with the
intricacies of outsourcing, says Waty. They can
bring such expertise along on placements in
Europe or North America. Greg Schupp, Partner
for Human Capital at Ernst & Young in the United
States, sees this cross-fertilization as an
important benefit of modern expatriate postings.
“The more diverse and inclusive your teams can
be, the more global and thought-provoking they
become. The solutions they propose tend to be
better for the organization.”
Developing executives
International transfers have also always been
used for executive development, and as a benefit
to retain talent. But in global companies, the
scope of these opportunities has changed. These
sorts of assignments – especially short-term
ones – are happening earlier in careers, notes
Steele. Her own company has found that, in
emerging markets, taking new local hires and
giving them international exposure is a fast and
efficient way of growing talent. Ernst & Young’s
Global Mobility Effectiveness Survey indicates
that this practice is common in emerging
markets with, for example, junior executives
making up half of outbound assignees from India
– in part to make up for the lack of experienced
senior executives to provide mentorship. “If you
find decent people in a small country, sometimes
they outgrow the local market,” says Ferrigno.
“You need to take people like that into the global
talent pool.”
Creating the company’s future leaders
International exposure is becoming ever more
important for businesses seeking to train
leadership prospects. The reason is simple. “If
only 5% of your business is in the home country,
and you’ve only worked there, how qualified are
you to sit on the board?” asks Ferrigno. Novartis
has institutionalized this in its leadership
development processes. Once a year, its
executive committee looks at people who have
the potential to become future leaders of the
company and then considers how international
postings should figure in their development. “We
are 150 countries,” explains Waty. “A successful
global executive is someone who can hit the
ground running, can pick up the nuances of the
new location quickly, can spot the issues quickly
and begin delivering on the issues in a very short
space of time. They should also be able to bring
an insight into how other markets operate and
other ways of doing things.”
Getting the most out of international
assignments
If these goals are met, sending executives across
borders can create substantial value for
companies, but at a cost. Although dependent on
the location and position, Schupp estimates that
the total expense may be as high as three to five
times that of the base salary of an executive who
stays at home. “The cost is such that you have to
make sure there will be a benefit,” adds Steele.
10 T Magazine Issue 07 Ernst & Young

Credit: Reuters / Handout, Iron Ore Company Canada
Carlos Ghosn, the Brazilian-born Chairman and CEO of the
Renault-Nissan Alliance splits his time between Tokyo and Paris.
He holds both Brazilian and French citizenships.
One difficulty facing companies, however,
is that the goals outlined above are not
complementary, and can even be contradictory.
To give one example, a person sent primarily to
learn about a foreign market may encounter a
completely different set of tasks and
responsibilities from one sent to plug knowledge
gaps. To get the full benefit of such assignments,
says Ms Steele, companies have to aim for global
executives to do both teaching and learning.
However, as she says, most businesses do
neither. “Doing neither has a cost. Doing both is
not difficult but it does require planning.”
Comprehensive planning, though, is too often
absent when executives are sent abroad because
very few companies approach such activity
holistically. Instead, foreign placements are
frequently driven by an ad hoc desire of an
individual business unit. Ernst & Young research
shows, for example, that human resources
departments play little role in helping to decide
who would benefit most from going abroad – for
nearly 6 in 10 companies, global mobility
professionals are not involved at all in candidate
selection. “People aren’t always looking
strategically. Instead they are looking tactically
and short term,” says Ferrigno. “There is a
massive difference between companies who treat
transfers as a way to invest in people and those
who see them as a way to fill positions.”
The first step, then, toward getting the most
benefit out of international placements is for
Zoë Yujnovich, the Australian-born President and CEO of Rio Tinto’s
Iron Ore Company of Canada, built her career in roles within
the company’s operations in Australia, the UK, US and Brazil.
companies to recognize the multiple objectives
involved and to try and align the varying interests
of distinct parts of the organization around
meeting as many of them as possible. But the
million-dollar question, says Schupp, is working
out how to bring this together. This is especially
true amid the tension between business units
and HR in trying to align strategies. “You get
pressure from business units to quickly fill the
open positions. To maximize the value of an
assignment, the best thing to do is to get the two
groups to sit at the table together to begin to
understand each other and collaborate on how to
meet the multiple objectives they each have,”
says Schupp. “It sounds simple, but many
organizations have a difficult time doing that.”
One way that some companies have found to
improve cooperation is to fund international
postings jointly, especially of junior executives. In
this model, the budget is split between the
receiving business unit and corporate level
training funds, as both parties have an interest in
the assignment.
Such alignment allows a coherent approach to
another crucial element of success: defining how
each assignment will benefit the business and
what is expected of the executive. Millward
Brown’s Steele notes, “Every transfer is looked at
individually and as part of a broader strategic
plan.” Not only are executives properly prepared,
but corporate expectations are made explicit.
Being very clear about why you are sending
Global executives
The highly globalized
operating environment of
today is increasingly
demanding leaders with a
suitably international
background and CV, in order
to more effectively manage
multinational teams and
organizations. Executives
such as Renault-Nissan’s
Carlos Ghosn or Rio Tinto’s
Zoë Yujnovich may once
have been the outliers, but
a growing number of
companies are now actively
working to develop new
leaders with similarly global
backgrounds.
Ernst & Young Issue 07 T Magazine 11

Feature The global executive
people on assignment is hugely important,
agrees Ferrigno. “You see people go with the
wrong expectation to markets, thinking they are
there to show and tell when they should be there
to listen and learn,” he says. Indeed, appropriate
metrics are a central part of defining the
assignment properly. Global executives should
not be evaluated against traditional business
measures such as revenue goals, but they
should also be measured on how well they are
adapting to their assignment. “From there you
can quantify the return,” says Schupp.
A clearly defined assignment also helps
significantly in finding the right person for the
job. The ideal attributes of potential
international executives is one of the most
studied aspects of global transfers. But barring
some obviously useful aspects – cultural
sensitivity, ability to interact with others, and a
desire to succeed – no definitive list exists.
Inevitably, choosing a candidate is a balancing
act between the talent available, the ability of
candidates to thrive in a foreign environment,
and the skills needed to do the particular job at
hand. “There is no perfect test. Each case has to
be looked at individually,” says Steele.
Practical issues
Once the job is defined, and the correct person
found, international assignments throw up a wide
range of challenges for the sending company.
Many of these have long been present - from the
basic need for appropriate visa and working
permits, to the more complex need to align
assignment strategies with overall business goals
- but several are worth noting here given how they
are changing. All of these issues are discussed in
greater detail in other articles throughout this
issue of T Magazine. Nevertheless, as the list
highlights, there are many practical complexities
of using global executives.
The social network
Any transferring executive has a network of social
connections at home that will be disturbed as a
result. This is especially true of close family. “It is
also increasingly difficult to move some
employees on assignment when their spouses
work,” says Waty. “We do provide spousal support
to find work in the new location and support to
complete further education. Very often we can
‘sell’ the assignment on the basis that it is a great
experience for the whole family in terms of
personal development.” A separate issue is that
an increasing number of people may be together
but not married, raising challenges over
immigration rights. Addressing family issues is
more than just a practical matter: it may define
how well international executives fulfil their
assignments. “Very often, if an executive has
been successful, it is thanks to a spouse and
family who have a global mindset,” says Waty.
“Companies are not doing enough to assess how
well the family can adapt.”
Compensation arrangements
As the goals of international placements evolve,
payment arrangements need to keep pace. “If
you send people around as part of their
development, you are going to need to look at
how these costs get people to take on the right
challenges without overly enriching them,” notes
Ferrigno. It might be valuable, therefore, to tie
compensation to metrics designed around those
challenges. Another current trend is for
companies to use “localization” packages, with
executives receiving a lump sum up front to
cover moving costs, but then being compensated
in the same way as their new local peers,
including in terms of eligibility for bonuses. Not
only does this control costs, but it leads to
executives being taken more seriously by their
colleagues because they now have an obvious
stake in local success.
Dealing with tax
International employment has always brought
income tax complications, but the current
economic climate can make this even tougher.
“Many countries are looking for additional
sources of revenue, so revenue agencies are
turning over rocks to make sure organizations
are compliant on income or payroll tax,” notes
Schupp. Over half of companies polled by
Ernst & Young describe tax compliance as very
challenging. Although the most pressing specific
issues vary by jurisdiction, some tax issues have
a growing profile internationally. For example,
the payment of stock options to executives.
Depending on where the executive is resident
for tax purposes when these are earned and
exercised, a variety of countries – which may
or may not have relevant double taxation
treaties – might wish to tax the proceeds.
There is also the important need to adhere to
social security obligations in all relevant
jurisdictions.
Bringing them back again
“Assigning a person abroad creates a retention
issue. It is not always easy to bring back a former
assignee,” says Waty. Indeed, Ernst & Young
research indicates that just over 1 in 10 executives
resign within two years of returning from foreign
assignments. Given the significant investment
made into the development of these executives,
this can be a costly loss for any company.
The broader picture is that the expat has, in
recent years, evolved into the global executive.
Within this, the key factors of who is being sent,
why they are going, and where they are headed
to, are all changing as companies have
transformed themselves from centrally run
multinationals to globally diverse enterprises.
In order to manage this new species, however,
businesses have to keep up. In particular,
different functions in the company need to work
together in a way that too few are currently
doing.
Percent of the total number
of employees are long-term
assignees (>12 months)
12 T Magazine Issue 07 Ernst & Young
2008
21%
2011 2%
9%
18%
7%
6%
9%
73%
64%
Source: Ernst & Young’s Global Mobility
Effectiveness Survey 2011

Credit: Keystone / EPA / Julien Warnand
Martin Schulz, President of the European Parliament
Interview
Toward integration
Martin Schulz
is Member of the
European Parliament
for the Social Democratic
Party of Germany,
since 2004 leader of
the Socialists in the
European Parliament.
In January 2012, the
56-year old politician
was elected President
of the Parliament.
One complication facing multinational
organizations trying to relocate and develop more
rounded global executives is the national barriers
that inhibit the free movement of labor. Even
within an integrated region such as the EU, this
can prove difficult, not least due to differing social
security schemes and tax regimes. T Magazine
speaks to Martin Schulz, the new President of the
European Parliament, about what is being done
to create a more flexible labor market.
What is being done from a political perspective,
at both a national and European level,
to eliminate the barriers to cross-border tax
and social insurance legislation and
facilitate more flexibility on the international
labor market?
Martin Schulz: I must point out, unfortunately,
that there are practically no borders for capital
any longer, whereas in terms of labor mobility, the
freedom of movement for workers, there are still
considerable obstacles. However, many fiscal
issues and, above all, decisions relating to the
labor and social sector are still the national
responsibility. I regret this since, in Europe, it
means we are faced with fiscal and social
competition between one another, usually with a
downward tendency, which is damaging to the
economy in many of our countries. This
754
The European Parliament is
the only directly-elected
EU body and one of the largest
democratic assemblies in
the world. Its 754 Members
are there to represent the
EU’s 500 million citizens.
complicates the desired convergence of our
economies and ultimately does not lead to
sustainable growth for the Member States. I see
our social model as a key to the economic success
of the European Union and it will play an essential
role in overcoming the current crisis. All the
same, the European Parliament will continue to
press for decisions in important fiscal matters –
whether toward the harmonization of corporate
tax assessment bases or toward a financial
transaction tax.
What are Germany and/or the EU doing to
standardize the various pension regulations?
Our disadvantage as an economic zone –
compared, say, with the USA – is the coexistence
of 27 different national systems. Of course,
variety and difference can also be a bonus: I am
against total standardization. But what we do
need is a common framework and common rules,
so that workers can move inside the EU without
barriers. Yes, superannuation and pension
schemes are a matter for Member States. But the
European Parliament will support any steps
aimed at helping enable workers to retain their
retirement pension claims if they move from one
Member State to another. However, in that
process, there should be no need to weaken
national social standards.
One of the key areas of harmonization
lies within the financial services sector.
What else needs to be done here?
As noted, capital nowadays can be transferred
between countries almost instantaneously. But
many financial centers are only inadequately
regulated, a situation that can cause substantial
damage to our economy. I firmly believe that
politicians have to help to set clear guidelines
here, which is why I wholeheartedly support
measures taken within the G20 framework – it is
in this area that we must take joint action. The
European Parliament has already made an
important contribution by limiting certain kinds of
short selling in particular and by generally
creating more transparency on the derivatives
trading market.
Ernst & Young Issue 07 T Magazine 13

Feature The expatriates
Assessing the global executive
The devil is in the detail when it comes to assignments abroad. Executives must work out
how taking — or not taking — an overseas role will affect their career, how their family
will cope and how effective they might be in another culture. There are also wide-ranging
considerations of the net impact on their finances and lifestyle.
US$200,000
In Singapore, over half of expats earn at least
US$200,000, making it one of the highest paid expat
destinations globally.
According to expats:
1 in 3 complain of
excessive interference
from HQ
1 in 3 believe foreign
subsidiaries too often
work to their own rules
1 in 3 report that the
corporate centre has
excessive revenue
expectations from
the local market
1 in 5 report
insufficient involvement from
HQ
3 out of 5 believe that their
corporate HQ does not
sufficiently grasp the nature
of the local business
environment
71%
of expats report increased
earnings since moving
abroad, but also more
complicated finances
In 27% of companies declining
the opportunity to relocate
hinders your career
Expats in South Africa, Mexico and the Philippines
are most likely to have luxuries like domestic staff,
swimming pools and second properties.
The most popular expat destinations
Singapore
The countries with the highest
ranking financial complexity
for expats
Source: HSBC Expat Explorer 2011, Atlas Corporate Relocation Survey 2011, Ernst & Young Global Mobility Effectiveness Survey 2011,
EIU - Up or out: Next moves for the modern expatriate 2010 / Graphic: Käthi Dübi
4
2
USA
Australia
74%
of companies provide
cross-cultural preparation
Nigeria, India and China
are the top three postings
most likely to qualify an
expat for a hardship
allowance.
Most expats
are married men
in their 40s
The most important
attribute for a successful
expat = cultural sensitivity
Between two and five years
— the length of time most
senior expatriates are sent
to a particular destination
46% of companies make
periodic adjustments
to expat compensation to
manage exchange rate
fluctuations
80% believe an assignment
in a “major emerging” market
aids career progression
14 T Magazine Issue 07 Ernst & Young
3
1
5
20%
80%

80%
of graduates want to work
internationally
Most expensive destinations/highest cost of living
1. Luanda, Angola
2. Tokyo, Japan
3. N’Djamena, Chad
4. Moscow, Russia
5. Geneva, Switzerland
The top three
expatriate package benefits
1 Housing allowance
2 Regular paid trips home
3 Relocation costs allowance
63%
By 2014, multinational companies
expect to send:
more expats to India
more to Africa
more to Brazil
71%
75%
80%
37%
On repatriation 37% of
assignees return to a new
position and responsibilities
which leverage their gained
experience.
Don’t forget the family
France (1st),
the Netherlands (2nd)
and Australia (3rd)
are the top ranked
countries for raising
children abroad.
The top reasons for early return from
assignment:
ª Family concerns (34%)
ª A new position at the company (22%)
ª Early completion (21%)
US$7,500
The average annual cost of childcare for expats
is $7,500 and $11,500 for education
Ernst & Young Issue 07 T Magazine 15

Feature Tax as a factor of executive mobility
Upward and
outwardly mobile
Global business leaders need to be mobile, but this brings real costs,
not least in terms of potentially higher personal taxes. Employers also need
to manage their risks from increased mobility.
33%
Percentage of companies
that have at least one
percent of their workforce
on an assignment
away from home.
• By Nigel Gibson
Summary
A growing number
of business executives
are spending much
of their time in jobs
away from home, as
business becomes more
globalized. Employers
need to address the tax
and financial challenges
this presents.
Despite worries about the strength of
the world economy the number of
employees working in a foreign country
on a long-term contract has also remained
buoyant. Indeed, it has hardly been affected by
the dark days of 2008. What does this mean?
First, it suggests that companies realize the
benefits of deploying people with
the skills and experience required
in promising, new markets.
Second, it means that firms are
more efficiently managing a
number of considerations best
coordinated centrally - from
unequal rates of tax to domestic
pensions and complicated
systems of social security – which
can deter executives from
accepting an assignment, long or
short, in another country.
Michael Dickmann, Professor
of International Human Resource
Management at the UK’s Cranfield University, and
the author of Global Careers, a new book on the
subject, explains that global careers are
becoming increasingly important. “This is
because we all know that the world is becoming a
smaller place in one sense. We all see the rising
multinationals from developing countries. We
know that they operate much more globally, but
even small organizations nowadays have global
issues to master.”
Assignment challenges
Having worked with many well-known
multinationals, Dickmann and his co-author,
Yehuda Baruch, are under no illusions about the
need for change. Although more companies now
Credit: Uwe Noelke
employ more people on assignments in more
places around the world, there are no easy
solutions to the problems it creates. “What it
means for organizations is that they have to
start thinking about different patterns of
international work and to understand their
individuals better, as well as the tensions in the
whole process,” says Dickmann.
Chief among which obstacles is tax. Moving
from a country with a high rate to one where
they pay little or no tax may seem straightforward
to an employee. But expecting executives to
move between destinations with markedly
different rates of tax, not to mention social
security and other changes, can lead to strife,
disillusion and, sometimes, even defections.
To overcome these problems, some 85% of
multinational companies adopt what is known as
tax equalization. This aims to create a level base,
so that all mobile executives feel part of the same
team. Chris Debner, Senior Manager for Human
Capital at Ernst & Young in Zurich, explains: “If
you go abroad with a company, the amount of tax
you pay is equalized in such a way that you do
not lose out. There is often something called a
net promise which means that, as an employee,
you do not suffer from a higher rate of tax and
neither benefit from a lower one. Especially in
financial services the amount of tax that needs to
be paid is a factor in how mobile some executives
are prepared to be.”
Taxing alternatives
There are two other main ways to manage an
employee’s liability when on a foreign
assignment, which are hardly used anymore. One
is tax protection, under which the employee is
subsidized if they pay more tax than at home, yet
enjoys a windfall if the posting is to a destination
with a lower rate. The second is laissez-faire, in
16 T Magazine Issue 07 Ernst & Young

Credit: Xxxxxx / NameVorname Estonia Feature
Matthew Ozburn
__ Deutsche Bank’s
US-born director of Human
Resources International
has spent many years
living in Europe, the US
and Japan, helping him
assess the challenges
that multinational
executives face.
Ernst & Young Issue 06 T Magazine 17

Feature Tax as a factor of executive mobility
Singapore’s steady rise as a global hub for international expansion has been partly fuelled by its wide-ranging steps to attract
expatriate workers. Today, nearly one in four people in the city-state are foreigners.
Migration mix
Deutsche Bank now has
180 sets of country
combinations between
which employees migrate
on a mixture of short- and
long-term contracts, a
growing number of which
are located in emerging
markets. Singapore has
been one of its Asian
expansion hubs, ever since
setting up operations there
in 1971/2. It now employs
over 1,900 staff there.
__ Does your company have more and
more employees working in different
parts of the world?
Is the administration of masses of
contracts, currencies and
assignments causing a headache?
Then the answer may be to set up
what is known as a global employment
organization (or GEO).
Besides the above reasons, many
companies find other valid business
cases for changing the employment
structure of their mobile employees.
Such entities have long been popular
among multinational companies in the
oil and gas and mining industry. The
idea is that a peripatetic executive is
employed not by the company in their
home country, nor by a subsidiary
elsewhere, but centrally by a GEO.
Not only does this reduce the number
of country combinations and
therefore complexity; it may also
Credit: Digital Vision / Jeremy Woodhouse
Alternative solutions to managing a global workforce
Going GEOpolitical
enable all expatriates, wherever they
happen to be, to be treated equitably
and compliant with local legislation.
The parent company may also find it
easier to standardize the salaries,
pensions and other benefits of those
employed by the GEO. Indeed, many
international firms look upon a GEO
as a center of excellence that hosts
and manages much of the company’s
talent.
There are drawbacks, of course. One
is the effort that goes into the setup
of such a structure. Another is that
the employees have to change their
existing terms of employment.
Employees of the GEO could also find
they are ineligible for social security
at home unless their employer has a
subsidiary registered there.
For many international employers,
however, the advantages are
sufficiently convincing.
18 T Magazine Issue 07 Ernst & Young

which the employee is left to fend for themself.
Unsurprisingly, the latter is an option that can
prove tempting in countries where there is little
or no tax to pay, but unpopular elsewhere. A
further approach – known as “net to net” –
adjusts the employee’s net income for the cost of
living in the new country and may be used in
conjunction with one of the other approaches.
As Peter Ferrigno, Leader of Ernst & Young’s
Human Capital practice for EMEIA, points out,
the aim of equalizing liabilities between
destinations is to remove tax from the question
of whether or nor to accept the assignment.
“Large companies don’t want people to
determine whether they move or not based on
the rate of tax. Tax protection, on the other
hand, to cover the cost of higher rates but giving
someone the benefit of lower ones, becomes
more and more difficult to justify on the grounds
of fairness.”
A global approach
Small wonder therefore that a growing number
of firms, particularly larger multinationals
international, have chosen to set up what are
known as “global employment organizations”
(see box). These seek to lift executives clear of
disagreements over the rate of tax, as well as
problems over entitlements to pensions, by
creating an international entity that hovers over
all destinations.
Often domiciled in an offshore location, such
organizations are popular with oil companies and
firms that need to move skilled people from one
site to another, often at short notice. Instead of
providing a fresh contract each time an employee
moves from one country to another, all those
within the global employment organization are
employed on similar terms.
Such an approach may have its advantages but it
does not suit all, not least because of the cost of
managing offshoots. Take Deutsche Bank, a
global financial services organization
headquartered in Germany that has no fewer
than 180 “country combinations” – sets of
nations, in other words, between which
employees migrate on a mixture of short- and
longer-term contracts. With developing markets
making much of the running within the world
economy, many of the destinations are big cities
in Asia.
“Five years ago,” says Matthew Ozburn,
Deutsche Bank’s Director of Human Resources
International, “the number of executives moving
from job to job around the world was probably
1% of the workforce. Today it may be double
that number, even allowing for a rise in the
number of employees in Germany brought in by
the acquisition of a domestic operation such as
Postbank. “We use an approach which we call
host-based”, says Ozburn. “We start from the
premise that the executive has a pay package
which looks like those of his or her peers. Then,
considerations as to whether or not the employee
has a family, children and so a need for
schooling, etc. are introduced on top.”
“Within each market, we must remain
competitive. So an assignment in, say, Singapore
will be different from one in Frankfurt. We do a
calculation at the outset, which addresses
whether there is an advantage or disadvantage
for the employee. We look at the difference
between what an executive would have received
in their home country and what they stand to
get in the new one. The result is a system of
equalization that allows for the combinations
of pay found in the financial services industry:
a mixture of salary, bonus and deferred
equity.”
Deutsche Bank also uses a system called
“local to local”. Under this, an employee would
complete an assignment on local terms in one
place and then move to another on similar terms.
That such an arrangement is used more and
more reflects, among other things, the growth in
banking in and around offshore and what are
known as near-shore locations. Many such
centers require the same kind of skills,
experience and knowledge, so executives can
move easily from one to another.
Pensions pose a problem
Within the European Union, of course, individuals
assigned from one country to another can
remain under their home state’s system of social
security, subject to certain conditions. This can
be done for up to five years. So, for a typical
assignment, it may not become an obstacle to a
job abroad.
By comparison, says Ferrigno, pensions
remain an issue. In part, he says, this is because
each country’s legislation is different, but also
because of a philosophical difference between
private vs. state, and employer vs. private
provision, in different places. “Long term, the
trend away from final salary systems in countries
like the UK and the US will probably accelerate a
simplification towards schemes based on defined
contributions,” he explains.
Even so, the appetite for mobility among
international executives will still pose difficulties
for companies, not least because of the risk of
getting it wrong. Firms are in danger not just of
leaving employees disgruntled and so losing
them altogether, but also of making mistakes
that can undermine their reputation at home as
well as abroad.
As Debner points out, out that there is a risk
of an employee choosing to do it themselves,
making a mistake and thereby failing to comply,
and so causing trouble for their employer.
“The risk of an investigation by the tax
authorities has increased in recent years.
This can damage a company’s reputation. The
danger of being dragged into the headlines for
alleged wrongdoing is one of the worst.” The
secret, it seems, is to be aware of such risks from
the outset and to manage them as they arise.
Percentage of employees
that are short-term
assignees (

Feature Working trends
33%
The proportion of some
36,000 firms globally,
polled by ManpowerGroup,
that are struggling to fill
positions due to local
skills shortages.
Preparing a new
human age
Françoise Gri is President of ManpowerGroup Southern Europe and has been named
as one of Fortune’s Global 50 Most Powerful Women in Business for eight consecutive years.
She talks to T Magazine about key trends in the world of work. Interview by Fergal Byrne
T Magazine: In today’s increasingly global
business environment, how important is it for
managers to have international experience?
Françoise Gri: Over the past decade or so,
businesses have become more global. But what
has changed more recently is the way in which
we think about different markets. In the past, we
assumed that the world was flat and we wanted
managers who dealt with different markets in a
similar way. Today, we no longer believe that the
world is flat. We want business leaders who have
an international perspective and who can
respond to local differences.
Although we still need managers with
international experience, we view this experience
in a slightly different way than we did in the past.
It’s no longer desirable to have a manager who
has lived in five different countries for two years
each because, although they have some
experience of different cultures, they do not
have a deep enough knowledge of any. Today, we
need managers who are totally connected with
the local culture but who can also build a bridge
with the culture of the company. This will be a
critical dimension of tomorrow’s leadership style.
ManpowerGroup has recently published
research on the Human Age. Can you tell us
what this is?
We believe that we are entering what we call a
20 T Magazine Issue 07 Ernst & Young

Credit: Philippe Schlienger
Human Age. This is a complex new era in which
companies will have to embrace new work
models, people practices and talent sources to
ensure future success. In order to unleash their
potential, companies will need to engage with
their people on a deeper, human level. Individual
needs will determine recruitment and
development strategies. Companies will need to
provide an environment suitable for collaboration
and to anticipate more precisely the skills that
they’ll need.
When we first discussed these ideas at the
2011 World Economic Forum in Davos, many felt
that they were interesting. Since then, there has
been continued social, political and economic
turbulence. This year in Davos, we noticed that
more and more companies are seeing the impact
of these changes. Business leaders realize, for
example, that there is a shortage of good people,
that they don’t have the right people to develop
the right strategy and that there is skill mismatch
in key markets.
What does the future hold for expatriate
managers?
We see fewer and fewer companies today looking
for expatriate managers. They are not
sufficiently or deeply connected to the markets
in which they operate. The old idea where
managers from developed countries go in and
show the locals what to do is finished.
Increasingly, we see what we call the “reverse
expat” phenomenon. This approach rotates a
local manager, based in the emerging market,
through functions outside the home market. The
manager can then adapt the experiences gained
from this to the local market upon their return.
The reverse expat approach is also a
particularly powerful way to enhance retention
of local talent because it allows employees in
emerging markets to see that the company is
truly global. If you are sitting in a business in
Asia, for example, and you can see some Asian
counterparts who have been promoted and are
now running pieces of the business, it makes a
big difference to the overall level of employee
retention, particularly when it comes to key
talent. Seeing that the top echelons of
management are not just dominated by the
parent country management team provides
reassurance for ambitious local managers in
these markets.
How can companies balance local
responsiveness with global economies of scale?
I think many companies struggle to get a balance
between being aligned globally but also being
sensitive to appropriate local interpretation.
Companies need to have global collaboration but
they also need to be anchored in the local
market. Some company programs will be applied
systematically in all markets; others can be
adapted to the needs of the local environment.
There is a lot of complexity here, and managers
Rise of the reverse
expatriate
One of the trends that
Manpower’s Françoise Gri
is seeing in the market
is the rise of the “reverse
expat”, in which a local
manager from an emerging
market is rotated through
functions outside of their
home market.
have a new level of responsibility to implement
this quickly, efficiently and in the right way.
At ManpowerGroup, we have developed
frameworks to help the company find a balance
between local and global. The framework has two
major components to it: one fixed and one
flexible. The fixed part consists of processes that
are non-negotiable, whether you are in Istanbul
or Buenos Aires. In those instances, the local
company needs to operate according to this fixed
template, no matter what. Then there’s a flexible
component, where managers can localize the
program to the needs of the local market.
Creating those frameworks has increased our
speed tremendously because it has taken a lot of
the mystery out of who’s accountable for what.
Is technology changing the nature of work?
It is difficult to understate the likely impact of
technology on the workforce. Technological
developments allow new ways of getting work
done, which increase the importance of
co-ordination and collaboration. Rapid
communication via online networks, for example,
is changing organizations’ choice of where, when
and how work is performed. Social networks are
pervasive, but research suggests that only 30
of executives understand the implications of this
new, data-intensive, social network-intensive
world. This is a big challenge. We have had waves
of technology before, but I think the impact
today is much more subtle, while no less
important. It has therefore become crucial to
understand the human dimension, to adapt and
respond to this changing technology.
How important is diversity?
I am a strong believer in diversity. It isn’t just
about hiring on the basis of gender, religious
persuasion or culture. Without genuine diversity
of thought and representation, you’re not going
to come up with the right answers. It’s just too
complex to have a purely British team, for
example, running a global company.
As part of that drive for diversity, we need to
have more women involved in business,
particularly given the talent supply challenges
and talent mismatch problems we see. The
female talent pool is still largely untapped. I think
involving women more in the labor market and,
in particular, at senior leadership level, will help
companies to access the right talent to succeed.
In addition, female executives can bring new and
valuable perspectives to the leadership team.
This kind of change does not come about on
its own, however. You have to fight for it. I think
companies are slowly making progress on this
front, but not enough. Much more still needs to
be done. Looking to the future, I think the
companies that will do best in the new and
evolving workplace of tomorrow are those that
have dealt with diversity for a long time
and that have embedded it into their values and
culture.
Ernst & Young Issue 07 T Magazine 21

Focus Living costs Credit: Reuters / Chico Sanchez
The cost of a liter of unleaded petrol in Caracas,
Venezuela, the world’s cheapest.
US$ 0.02
Most expensive cities
Paris US$ 2.76
Oslo US$ 2.62
Istanbul US$ 2.52
Amsterdam US$ 2.40
Rome US$ 2.37
Cheapest cities
Bahrain US$ 0.21
Riyadh US$ 0.15
Jeddah US$ 0.13
Al Khobar US$ 0.13
Caracas US$ 0.02
The Economist Intelligence Unit’s Worldwide Cost of Living survey ranks 140 major business cities in 93 countries by their cost of living,
based on a wide-ranging basket of goods, such as the price of fuel, and other goods profiled here.
22 T Magazine Issue 07 Ernst & Young

Living costs
The relative costs of the world’s business cities are evolving
in line with shifts in the global economy.
• By Nigel Holloway
Globalization is both a product of and a
contributing factor of economic integration.
As national markets become increasingly
connected, the demand among international
employers for globally-minded executives has
grown. For the jet-setting business traveler, many
markets can seem fairly homogeneous, as they
travel from hotel to hotel, their feet barely
touching the ground.
Yet, despite the trend toward globalization,
the cost of living varies almost as widely from
city to city today as it did 20 years ago. This
is a problem not only for expatriate business
executives trying to maintain their living
standard. It is also a headache for their
employers that seek to keep their top talent
happy, while deploying them around the world
wherever the need is greatest.
With the expatriate in mind, the Economist
Intelligence Unit (EIU) has collected price data
from cities around the world for more than
two decades, comparing costs such as home
rental, private school tuition and the costs of
domestic help. It then ranks the cities on an
index, using New York as a constant baseline at
100. Today, the most expensive city in the world,
Zurich, is at 170, meaning that costs there
are 70% higher than New York’s. Twenty years
ago, the most expensive, Tokyo, was at 171.
The cheapest city today is Karachi at 46. In
1992, the cheapest was Mumbai at 32, which
this year ranked just above Karachi.
Generally, cities in the developed markets of
Europe and Japan are among the most
expensive. Their individual rankings bounce up
and down according to exchange rate
movements, but they remain in the same richer
group. By the same token, cities in the
fast-growth regions of Asia and the Middle East
are among the cheapest. But there are some
notable exceptions. Singapore, for example, is
now in the top 10 and 42% pricier than New
York, thanks to soaring rents and a strong
exchange rate. It is now far more expensive than
rival Hong Kong (115 on the index) and
neighboring Kuala Lumpur (83). Nor are all cities
in other rapidly growing countries cheap.
Luanda, the oil-rich capital of Angola, was one
of the most expensive cities in the world for
expatriates in 2011. Two other African cities
were also prominent on a the list, Ndjamena,
Chad and Libreville, Gabon. Energy and mining
companies have been lured there by the promise
of natural resources. But the lack of
infrastructure means that these firms must build
their own housing and amenities, resulting in
high costs for expatriates’ employers.
Cheapness, in and of itself, does not
necessarily make a city attractive. But as the
global economy tilts towards fast-growth markets,
an increasing number of professionals are seeing
cities in those markets both as a source of jobs
and as places that offer a boost to their careers.
Inevitably, as demand for fine housing grows,
prices go up. Shanghai, on a par with Moscow, is
now slightly more pricey than New York. São
Paulo in Brazil is 12% more expensive than New
York, and pricier than Rome and Berlin.
And the variations within countries are often
as great as from one nation to another. Thanks
to the weak US dollar, American cities are in the
middle of the global rankings. But the gap
between the top (Los Angeles at 102) and the
cheapest (Cleveland at 73) is greater than
between Shanghai (102) and Tianjin (79). In the
US, high unemployment and falling rents have
made the traditional manufacturing heartland
a cheap region in which to do business.
Overall, though, the cities with the lowest
expatriate costs tend to be in non-western
countries. Mumbai, New Delhi, even Panama City
(42% less expensive than New York) would seem
to present enticing bargains to the expatriate.
The question arises, though, as to how much
longer such disparities will last. The foreign
executive living in the lap of luxury on a foreign
assignment, with domestic help covering the
daily chores, may become a thing of the past,
not least as cheap labour finds better-paying jobs
in manufacturing or IT. Indeed, a popular
complaint for wealthy households in São Paolo
today is the soaring cost of domestic labor, as
the pool of available nannies, cooks and cleaners
dries up. Such changes will continue as the
balance of power in the global economy shifts
towards key growth markets.
Ernst & Young Issue 07 T Magazine 23

Focus Living costs Credit: Keystone / Laif / Frank Tophoven
Average cost of 4 theatre tickets to a good show
at teatro real in Madrid, Spain.
US$ 1,182.86
Most expensive cities
Madrid US$ 1182.86
Beijing US$ 1022.26
Caracas US$ 876.46
Munich US$ 857.14
Milan US$ 828.57
Cheapest cities
Lexington US$ 130.0
Amman US$ 126.76
Istanbul US$ 120.0
Nouméa US$ 82.75
Nairobi US$ 47.81
Cost of living surveys are a key tool for corporate HR teams to compare costs of key locations around the world, as part of their calculations
in creating fair compensation policies for expatriate employees.
24 T Magazine Issue 07 Ernst & Young

Credit: Reuters / David Gray
Average cost of a routine checkup at
family doctor in Dalian, China.
US$ 6.35
Most expensive cities
Frankfurt US$ 377.14
Bangkok US$ 340.51
Houston US$ 325.00
Chicago US$ 279.00
Miami US$ 275.00
Cheapest cities
Shenzhen US$ 12.54
New Delhi US$ 12.01
Colombo US$ 9.55
Algiers US$ 6.86
Dalian US$ 6.35
HR teams can apply the cost of living index to an expatriate’s net income, to assess whether it provides a fair cost of living allowance for their
overseas assignment.
Ernst & Young Issue 07 T Magazine 25

Focus Living costs Credit: Keystone / Laif / Multhaupt
Average monthly rent of 2 bedroom furnished
apartment in Tokyo, Japan.
US$ 12,331.21
Most expensive cities
Tokyo US$ 12331.21
Osaka US$ 8006.60
London US$ 7741.94
Hong Kong US$ 6974.75
New York US$ 6333.33
Cheapest cities
Karachi US$ 718.24
Cairo US$ 621.85
New Delhi US$ 596.93
Panama City US$ 291.67
Kathmandu US$ 477.75
Until recent years, the typically low costs of living in many emerging markets made expatriate assignments relatively luxurious.
But living costs in many emerging market cities, from Luanda to Moscow to Shanghai, now outstrip New York, the usual baseline city.
26 T Magazine Issue 07 Ernst & Young

Credit: Reuters / Punit Paranjpe
Average cost of a tailored men’s business suit
in New Dehli, India.
US$ 120.11
Most expensive cities
Vancouver US$ 2022.11
Tel Aviv US$ 1952.91
São Paulo US$ 1917.79
Milan US$ 1866.67
Brisbane US$ 1840.07
Cheapest cities
Dhaka US$ 331.75
Ho Chi Minh City US$ 331.22
Phnom Penh US$ 294.33
Kathmandu US$ 227.50
New Delhi US$ 120.11
The cost of living in a given city is a crucial factor in deciding an expatriate’s pay package, but other factors also matter, not least of which is the
local rates of taxes, and or social security provisions.
Ernst & Young Issue 07 T Magazine 27

Focus Finances and tax risks
The stateless
employee
A growing number of workers are nearly permanently on the road
as their employers expand globally. This in turn raises considerable challenges,
not least of which in terms of finances and tax.
71%
The proportion of expatriate
workers who have experienced
more complex finances since
relocating abroad, according
to HSBC.
• By Andrea Chipman
An era of rapid globalization has produced
a new generation of “stateless
employees.” These executives may be
born in one country, live in another and spend a
significant proportion of their working lives
traveling from one continent to another, either
as an expatriate on assignment or else simply as
an executive constantly on the move. This
nomadic workforce is increasingly valuable to
companies, but can also pose headaches from a
tax and benefits perspective.
This challenge isn’t for the companies alone.
Expatriate employees that move intermittently
from one geographic assignment to another can
face considerable difficulties in managing their
personal finances too. Those who spend a lot of
time overseas can have more complex personal
tax affairs, may need multiple bank accounts,
and can have difficulties with moving pension
arrangements when they relocate. In a survey
for HSBC International, 71% of expatriate
employees said that their finances had become
more complex since relocating. 1
Salary arrangements may need to be split
between home and host country, causing
significant reconciliation work when tax returns
are filed, to determine how much time the
executive spent in each location. Certain
compensation structures can make tax affairs
even more complex. For example, if an executive
receives deferred compensation in the form of
equity, rather than cash, this can have tax
consequences if equity awards are granted for a
particular business year but vested over a longer
period during which the employee changes
location several times.
Such issues can also crop up for so-called
“accidental expatriates”, which relates to the
phenomenon of executives who are ostensibly
based in their home country, but which travel
overseas frequently. Employees who are paid in
their home country but do a lot of work overseas
can trigger local tax liabilities, presenting a
challenge to companies to find ways of tracking
these individuals in order to be compliant. “We
see more and more individuals who are on a
domestic contract but overseeing a regional area
with a lot of cross-border commuting that can
expose them to local taxes,” says Nick Bacon, a
Partner in EMEIA Financial Services-Human
Capital at Ernst & Young.
It may also be unclear how to account for the
mobile employee’s time and costs, particularly if
they move frequently. “If you have someone
sitting in a legal entity in India, going to work for
an entity in the same group in London, what
happens to the individuals’ costs – are they borne
by London or Mumbai?” asks Bacon. “If there is
a supply of staff, it can give rise to a VAT reverse
charge, where the host country would have to
charge itself VAT on the deemed import of
services from the home country.”
There are also corporate tax risks for
employers in the context of triggering a taxable
presence (or permanent establishment) and
impacts for their transfer pricing systems when
high-value creating employees frequently travel
and work abroad. “If you think about financial
institutions sending project teams abroad to
work on a large deal, they may be based abroad
for weeks or months at a time. This could
certainly attract the attention of local tax
authorities during transfer pricing reviews or tax
audits,” says Chris Price, the Head of Tax for
Ernst & Young’s EMEIA Financial Services
practice in London.
Creating mobile retirement plans
Pension arrangements also pose a major
challenge to the mobile workforce. Employees
1
28 T Magazine Issue 07 HSBC Expat Explorer Survey 2011
Ernst & Young

who live in several countries throughout their
career are likely to have multiple pension plans,
each in a different currency. When the executive
finally retires, reconciling these plans and
moving money to where it can be accessed from
one location can be a time-consuming process
that holds currency and taxation risks.
“Pensions are the one thing people want tied
to what they see as their home country,” says
Sarah Dyce, Senior Manager for Global Mobility
at Ernst & Young. “Portability is increasing
slowly, but we’re a long way from people being
able to move their pensions wherever they are in
the world.” Matthew Ozburn, a director at HR
International at Deutsche Bank, argues that it
can be extremely complex to advise highly
mobile executives to save for retirement in a
tax-efficient way. “One of our biggest challenges
is in the area of private company pension
planning looking over the course of a person’s
career,” he explains. “If most highly performing
people will have careers taking place in different
countries with different tax-related incentives,
you will end up with this challenge of saving in a
tax-efficient way to allow mobile people to live
well in retirement.”
Tax policy on international pensions has been
slow to develop. There are currently no tax relief
regimes for international employee pensions,
and no way to claim deductions on foreign
assignments when plans vest. This means that
employees can be exposed to tax liabilities, while
employers may be taxed in multiple locations on
the contributions.
Domicile debates
Remaining domiciled in one’s home country for
pension purposes has been a particularly
emotive issue for citizens of European countries,
which have traditionally had strong welfare
states and extremely generous health care and
social security benefits. Increasingly, however,
employers are less willing to keep global
employees in their home country benefit plans.
Changes in the social contract between
government and the population in these
countries have also started to weaken this link:
“Social security systems are no longer as secure
as they were 20 years ago so people are more
willing to work elsewhere because they have no
idea where and when they are going to retire,”
says Bernd Kirchner, Global Head of HR
International at Deutsche Bank. “In the old days,
it was a big selling point if you could tell someone
you were sending them on an assignment but
keeping them in the German social security
system. Now that’s not seen as much of a
benefit. The opportunity cost is lower today.”
More generally, employees who work overseas
as expatriates are now less likely to receive the
generous benefits that once went with the role.
In part, this is because there is a view that
international postings should now be seen as an
attractive part of the career path, rather than a
Tracking compliance
Tax track and trace
for global executives
__ Keeping track of globally mobile
employees is a major challenge for
corporate compliance teams. Senior
executives that live in one country,
work largely in another, and regularly
fly into several others can present a
particular challenge from a tax
tracking perspective, as can
international expatriates. Some
countries are even handing executives
and their employers an income or
social security tax bill when they stay
too long in one place, or pass a time
threshold after one-too-many
short-term visits to a location.
But a new app called “Tracer”
promises to help globetrotting
executives avoid tax traps. Created
by Ernst & Young, the app provides a
mobile calendar service which, when
activated, records the location of an
employee and tracks their movements
using the phone’s GPS. This
generates a report that allows
employers to analyze the travel
hardship. This reduction in the financial
incentives for expatriate postings can create a
dilemma for some employees. While recognizing
that the move is good for their own career, it
may mean that their spouse – if they are also
working – will not be able to work because of visa
issues. This can mean that, in real terms, the
employee’s total household income will fall,
making the move less attractive.
Kirchner thinks that, in future, companies will
need to do more to encourage mobility among
their employees, particularly those below the
C-suite who rely on incomes from both partners.
“Companies need to find a smart way to make it
an attractive package to both partners, even
though you can only employ one,” he says. “For
example, they can offer support for the spouse
to apply for a job, visa sponsorship or an
explanation of the labor market in the host
country.”
As companies become more global and as
talent flows increasingly in every direction, the
stateless employee is likely to become a more
important fixture in the workforce. Rather than
being the preserve of the top echelons in a
company, mobility is likely to be common at all
levels, requiring companies to consider the
needs of this section of the workforce whenever
corporate decisions are made.
data—which automatically excludes
holidays and other exceptions, as well
as any personal information—and
provides alerts when an individual is
close to triggering a tax alert in a
location.
According to Tim Stansel, an
Executive Director in the Human
Capital practice at Ernst & Young in
New York, the app targets two kinds
of executives. One is the frequent
traveller who works outside of his or
her home tax jurisdiction and is at
risk for triggering a taxable event; the
other is an expatriate on assignment
and who needs to track their travel
for income tax purposes. “It helps
mitigate the potential risks
associated with cross border tax and
immigration,” he says. “At the same
time, it allows employees to focus on
their job responsibilities by
eliminating the need for users to log
into a web-based calendar to keep
track of their travel.”
Ernst & Young Issue 07 T Magazine 29

Ellen Shipley
__Ellen Shipley, the Head of
Mobility and International
Assignments at BT, the
telecommunications
company, works to ensure
the successful overseas
placement of executives
and their families.
30 T Magazine Issue 07 Ernst & Young

Credit: Muir Vidler Expatriate postings Management
Making relocation
a success
Despite their obvious benefits for any executive pursuing a global career,
expatriate postings all too often end in failure. So what can be done
to help ensure a successful assignment?
• By David Balchover
Anecdotal evidence strongly suggests that
a significant proportion of expatriate
placements end in failure, with workers
returning earlier than planned to their home
country, thus giving their company an
organizational headache and creating further
costs. So what causes these placements to end in
disappointment for both worker and employer?
And, more practically, what can be done to help
expatriates overcome these difficulties and
thrive in their new role in a distant land?
Many expatriate postings might actually be
doomed to failure before they have even begun,
To avoid potential conflict or
failure, companies need to test for
cultural sensitivity
simply because the particular employee is poorly
suited to living and working abroad. Nearly
three-quarters (73%) of respondents (all of them
current or recent expatriates, or those who had
overall responsibility for assignments) to a 2010
Economist Intelligence Unit survey cited “cultural
sensitivity” as the most important attribute in a
Summary
Despite the obvious
benefits to both
employees and the
firms they work for, a
significant proportion
of foreign placements
end in failure. But
various measures can
help ensure a greater
likelihood of success,
from better initial
planning through to
better support for the
expatriate’s family.
successful expatriate. If you
don’t have the ability to
perceive cultural differences,
you are destined to struggle in
both the workplace and your
wider social life in a foreign
environment.
“Managers who struggle are
the ones who aren’t sufficiently
flexible to adjust their
management style; what has
been successful in their home
country for years suddenly
doesn't work any more, and they find it difficult
to adapt to the new situation,” says Thomas
Efkemann, an Executive Director for Assignment
Services at Ernst & Young. “You need to have
different managerial approaches available, and
then you select the best one according to the
circumstances.”
Several management thinkers, most notably
Geert Hofstede and Fons Trompenaars, have
sought to measure cultural differences in the
workplace, comparing attitudes across the world
to various concepts such as teamwork, hierarchy
and risk. Any expatriate who ignores the intricate
subtleties of national culture will soon pay the
penalty.
35%
The proportion of spouses
working during an assignment,
down from 89% that were
working prior to the placement,
according to the Permits
Foundation.
Ernst & Young Issue 07 T Magazine 31

Management Expatriate postings Credit: Getty / Sean Sexton
“I once went to a meeting with a fellow
Westerner in Japan,” recalls Ellen Shipley, Head
of Mobility and International Assignments at BT,
a major telecommunications company. “He took
a business card from our Japanese hosts, didn’t
look at it, and flipped it on the table. You just
can’t do that there. There are a lot of little rules
you simply have to pick up on, wherever you go.”
Getting the right person
Because many workers are just unsuited to
conditions abroad, careful selection of the
expatriate is vital. To avoid potential conflict
and the resulting failure of the placement,
companies routinely test for cultural sensitivity
in prospective expatriates. But all too often,
company headquarters will play down the
importance of the test’s findings, and go ahead
in selecting candidates purely on their
performance on home territory. "I have seen
Language ability, or at least the
desire to learn, can be a key factor
in helping expatriates settle in
people who were superstars in their own
country," recalls Efkemann. "And based on this
record, their management assumes they will
perform just as well in a different country.
But then they fall flat on their faces because
their approach didn't fit the local market at
all."
Cultural training, prior to departure, can teach
some of the essential dos and don’ts and help
reduce the risk of major clashes. Large
companies also routinely offer language training
to ease the transition. Although no one will
become fluent in a language after a short course,
a basic grounding can demonstrate respect for
the local culture, and a willingness to learn more
about it.
Indeed, language ability, or at least the desire
to learn, doubtless correlates strongly with the
cultural sensitivity that is so essential to
expatriate success. After all, it must be difficult
to be sensitive to a culture when you have very
little idea what is being said around you. The
Economist Intelligence Unit survey seems to
confirm this link. Former expatriates were much
more likely to crave another posting if they found
dealing with a foreign language to be “highly
attractive.”
Despite the apparent benefits of cultural
and language training, the current economic
climate is prompting some companies to cut back
on it. “There is a real lack of understanding
within the corporate world about what it actually
means to pack up and move to another country,”
says Shipley. “Consequently, when times are
hard, heads of departments can see the
investments that have traditionally been made to
help an expatriate settle as dispensable items.”
5 key measures that can help boost the success of a placement
Improving the odds
__ No strategy can guarantee the
success of an expatriate placement.
However, companies can certainly
adopt measures to facilitate their
employee’s transition, and thus
increase the likelihood that he or
she will excel in a foreign
environment.
1. Choose the right individual
The key issue of selection is too
often downplayed, with companies
often believing that domestic star
performers will automatically
reach a similar standard within a
completely alien culture. Robust
selection procedures which ensure
that the individual is flexible and
sensitive enough to recognize and
adapt to cultural differences are
essential.
2. Offer cultural and language training
Provided that prospective expatriates
possess this necessary openness,
cultural training will educate them
about the key differences in approach
and behavior that they are likely
to encounter in their new country.
Language training can teach the
basics, and thus help to show
a welcome interest in the host
culture.
Relocations on the rise
International relocations,
especially among service
firms, have risen steadily
for three years in a row,
rebuilding since a 2009
low. In 2011, 28% of firms
globally expected an
increase in the number of
relocations abroad,
according to Atlas' 2011
Corporate Relocations
Survey.
3. Allow the family time to commit
wholeheartedly
Rushed decisions to spend several
years away from family, friends and
a familiar setting can quickly be
regretted. Companies should insist
that the whole family contemplates
all the personal repercussions of the
placement before consenting to
it. A paid-for “look-and-see” trip
will aid this decision-making process.
4. Support the entire family
Family discontent frequently
undermines the success of an
expatriate placement. Companies
can help to integrate spouses by
introducing them to others in a
similar situation, or by assisting
them to find work that is appropriate
for someone of their level. (According
to the Permits Foundation, 82% of
expatriate spouses or partners have
a university degree.)
5. Appoint a good destination service
provider
Once ensconced in their new country,
a destination service provider can
teach the family all the necessary
practicalities, such as how to pay
utility bills and where to go shopping
for various items.
32 T Magazine Issue 07 Ernst & Young

The importance of family integration
The adjustment for the expatriate may be
difficult enough, but many believe that
assignments more often than not fail because
the worker’s partner and children don’t
acclimatize well to their new surroundings.
“Family issues are the biggest obstacle to
expatriate success,” says Yvonne McNulty, an
academic specialising in global mobility at
Monash University in Australia. “If the
organization is focusing only on the expat and
not on the family, problems can quickly surface.”
When you look at the available evidence, it’s
not hard to understand why. According to an
extensive 2008 survey by the Permits
Foundation, interviewing more than 3,000
expatriate spouses and partners of 122
nationalities, 89% of spouses were working prior
to the assignment, but only 35% during the
assignment itself.
Three-quarters of those not working said they
wanted to work, inevitably leading to frustration,
disillusionment and boredom. Eight in 10
working spouses reported a positive adjustment
to their adopted country, compared with only
32% of non-working spouses. “The location may
have changed, but the expat worker’s routine of
getting up and going to work hasn’t,” says
Shipley. “But the partner doesn’t know a soul –
he or she’s not working and, unlike the expat,
has no ready-made networks to tap into. Three
or four months down the line, you’re both fed up,
and we’re talking about bringing you home.”
Many companies, including BT, try to help
partners (also known as, “the trailing spouse”),
by offering them a few thousand pounds to be
used for anything that might help them to
integrate, be it a vocational training course,
language classes or club membership.
However, McNulty says that the amount of
corporate attention devoted to helping the
spouse and other family members is simply
insufficient, given the impact of their potential
unhappiness on the success of the overall
assignment. “HR departments have a hugely
difficult time getting sufficient funding for
something that doesn’t have a clearly
Insufficient corporate attention is
devoted to helping the expatriate's
family members
measurable return on investment,” she says.
“Family support has rarely been seen as an
essential part of expatriate management. Maybe
companies shy away from it because the issue is
too challenging, or perhaps they are wary of
crossing a line and interfering in their employees’
personal lives.”
Further statistics from the Permits Foundation
appear to verify these views. About threequarters
(76%) of expat partners, for example,
would have welcomed some guidance or advice
on their job search, but only 11% believed they
received adequate support in this regard.
Taking matters into their own hands,
expatriates and their partners have established
informal networks throughout the world,
including clubs to meet each other face-to-face
and websites for sharing ideas, anxieties and
local recommendations. Most partners’ websites
and blogs are set up by women (according to a
2010 survey by Brookfield Global Relocation
Services, 83% of expatriates are men), but there
are signs that support groups for male partners
are emerging, such as the Brussels-based STUDS
(Spouses Trailing Under Duress Successfully).
Careful consideration
Thomas Efkemann of Ernst & Young
recommends that expatriates should discuss the
potential international assignment in depth with
their partner and family prior to accepting the
offer. “Company managers should allow them
the time to consider all the implications,” he
says. “Sometimes, after the initial wave of
Companies need to intervene to
ensure that executives are not
placed at a financial disadvantage
enthusiasm for this exciting opportunity to work
abroad, problems begin to arise. Where will they
live? What about schooling and health care? Is
the partner able to work abroad as well? By the
time worker and partner both realize they don't
really want to go, they may have already made a
commitment.”
A “look-and-see” trip to the relevant
destination, often paid for by the company, can
give the family the knowledge they need to make
an informed decision, prior to formal acceptance.
If they then do decide to take the plunge, a good
destination service provider who can assist with
the practicalities of the move is also invaluable.
“Having someone there to help you find the right
property to live in, sort out your bank account, get
you a driving license or show you the local grocery
store, can greatly ease the stress involved in the
transition to a new country,” says Shipley.
“Cutting back on this service is a false economy
for companies. They need their expatriates to hit
the ground running, not spend their days
worrying about how to pay an electricity bill.”
For any potential expatriate family, an open
and curious mind, and the motivation to make the
assignment work, along with the initial assistance
an employer might provide, will make for a good
start to what can be a fulfilling and successful
venture. But those who are inflexible by nature,
or are accompanied by a family member dragged
to the foreign destination against their will, are
unlikely to get successfully through the long days,
weeks and years that lie ahead, even with the
most expert tax advice or instructive cultural
training course in the world.
Most common issues
affecting international
assignments
49%
Family- or spouse-related issues
47%
Compensation package
36%
Repatriation
32%
Location or cultural issues
14%
Others
9%
Position-related issues
(e.g., unsatisfactory position)
*multiple responses possible
Source: Ernst & Young's Global
Mobility Effectiveness Survey 2011
Ernst & Young Issue 07 T Magazine 33

Management The reverse brain drain
Human capital
on the move
The magnetic pull of skilled professionals and students from developing
to developed markets is giving way to a more multipolar world, where countries
increasingly compete for talent.
Summary
For the past century,
the flow of talent has
been largely from
emerging to developed
markets. But a more
multipolar world is
triggering new flows
of skilled workers.
This is sparking global
competition for talent.
• By Gerri Chanel
People have been moving in search of better
opportunities since the dawn of humanity.
Back then, hunters migrated to stalk
bigger herds. Today, it is intellectual capital on
the move. Just a few years ago, talented
engineers or scientists from such countries as
India or China would make their way to countries
such as the UK or the US. Today, those
individuals are increasingly returning to their
country of origin after obtaining education and
experience – a phenomenon sometimes called
“reverse brain drain.” Of course, one country’s
brain drain is another’s gain, presenting
challenges and opportunities for the countries
– and companies – on both shores.
China, India – and beyond
Hai gui is the Mandarin term for sea turtle, a
creature that is born on land, but grows up in the
ocean before returning. It is also the informal
term for the ever-growing number of Chinese
graduates and professionals abroad who are
increasingly returning home. China is not alone
in this phenomenon: according to a 2011 study
by recruitment consulting firm Kelly Services, an
estimated 300,000 Indian professionals now
working overseas are expected to return to India
by 2015. Elsewhere, skilled expat workers from
African countries such as Nigeria, Kenya, Ghana
and Angola are also returning in notable
numbers to their countries of origin, not
least due to a slowdown in many richer
economies.
Joseph Pagop Noupoue, Ernst & Young’s
Managing Partner for Cameroon, is one example.
He recently relocated back to Africa after being
educated and working in France for 23 years,
and is far from alone. “We are receiving
applications from so many young and talented
Africans who are ready to make the trip back and
bring their contribution to the development of
the continent,” he says.
Another notable trend is the movement
of skilled workers within Europe due to varying
economic conditions, says Michael Liley of
Ernst & Young’s Human Capital practice
in London and former Global HR Director of
Ernst & Young. As a result, Spain, Italy and
Greece now host a generation of highly-educated
people in their mid-20s to mid-30s who cannot
find good work. “So EU countries that are doing
better economically, like Germany, have had
quite a significant intake of qualified talent from
those other countries,” he says.
These trends are quite different to the
established ones, which are characterized by the
movement of talented workers from less
developed to more developed countries. But a
striking reversal may be looming, with various
talent consultancies arguing that within several
decades, many vacancies for senior roles in
countries such as India will be filled not only by
returning Indians, but also by Americans and
Europeans seeking better prospects.
Push and pull
“The labor market is a major driver of talent
migration,” says David Rooney, Executive
Director of Global Mobility in Ernst & Young’s
Human Capital practice, but he notes that it is
only one of many factors, often categorized as
either “push” or “pull.” Push factors might
include lack of career or salary growth, or
immigration policies that discourage permanent
residence after training. “Pull factors,” he says,
“may include higher wages or opportunity for
career advancement, but there are others.
Cultural affinity and family ties can also pull
people back home, as well as pride around
supporting growth in the home country, and
sometimes simply quality of life.”
According to a 2011 study sponsored by the
Kaufmann Foundation in the US, which
interviewed Indian and Chinese professionals
who had been educated in America about their
reasons for returning home, the top three
34 T Magazine Issue 07 Ernst & Young

factors were economic opportunities, access to
local markets and family ties.
For highly skilled scientists and technology
workers, there are yet other factors. According
to a 2008 OECD publication, The Global
Competition for Talent: Mobility of the Highly
Skilled, these workers also seek better research
funding and research infrastructure, the
opportunity to work with “star” scientists and
more freedom to debate.
Government programs and policies
Governments across the world continue to
create a wide repertoire of programs to help
draw highly skilled expats home. China’s list
alone is huge. To encourage students to return,
the Government there has set up educational
bureaux in its embassies and consulates as well
as several thousand student associations.
Universities and government-funded research
organizations actively recruit returnees. One
initiative, The Thousand Talents Program, offers
incentives to top researchers to come home,
including a one-time, tax-free cash allowance of
¥1 million (US$159,000), and a residency
permit in whichever city they choose, among
other benefits. Some cities have created
“enterprise incubators” for returnees.
The United Arab Emirates has made its expat
workers aware of employment opportunities
back home by creating an online platform called
Return2Home. The initiative targets Emirati
jobseekers in the US, UK, Canada, India and
South East Asia, as well as employers seeking
non-resident Emiratis with international
experience and expertise.
With many skilled expats being increasingly
“pulled” home, the countries currently hosting
these expats have an equally large stake in
encouraging them to stay. According to Liley,
“How well a country integrates its talent will
have a high impact on whether that talent comes
to consider the host society home. For example,”
he says, “countries such as Sweden and other
Nordic countries have provided language training
for numerous years, which is the key to
connecting with the local population and
integrating into the society.
In some cases, immigration policies create
barriers to workers who might otherwise wish to
stay in a host country. For example, the US is
experiencing an exodus of skilled foreign
workers, particularly in crucial fields of science,
technology, engineering and mathematics.
“Many of these people are leaving simply
because they cannot get permanent visas to
stay in the US after their student or training
visas expire,” says Rooney. Another approach is
to ease immigration policies that prevent needed
talent from entering. Like the US, the UK faces
shortages of skilled workers, particularly in
certain sectors. The British Business Secretary
Vince Cable stated in 2011 that the UK’s
aerospace industry faces a serious, chronic
shortage of engineers; he believes certain
immigration caps are partly to blame.
Governments can also change immigration
rules to make it easier for expats to return. For
example, in Canada, a pilot program was
launched in 2011 to encourage Canadian expats
in certain sectors facing significant shortages,
such as health care and academic research, to
return home by easing immigration restrictions
on non-Canadian spouses.
Education is also on the move
Working professionals are one facet, but
students are also crucial here. Vast numbers of
students in developing economies leave home
each year to attend Western institutions of
higher education. That fact has not been lost on
Western business schools. INSEAD, a top
European business school, has a campus in
Singapore, and other schools, such as the
University of Pennsylvania’s Wharton School,
have established campuses abroad for their
executive-MBA programs. Local business schools
in countries such as India and China are also
appearing at a rapid pace.
Science and technology research institutions
are globalizing more slowly. However, a new
publication, OECD Science, Technology and
Industry Scoreboard 2011: Innovation and
Growth in Knowledge Economies, indicates
that there is evidence that some universities in
Asia are emerging as leading research
institutions. With non-OECD economies
accounting for a growing share of the world’s
R&D (measured in terms of both number of
researchers and R&D expenditures), it is
reasonable to expect that, over time, additional
research institutions in these regions will
continue to emerge and grow; these will further
support shifting brain flows.
Talent at stake
Employers face somewhat different concerns in
managing talent flows from an HR point of view.
But whether the issue at hand is retaining valuable
immigrant employees or encouraging people to
come home, “companies need to focus on the
opportunities they create for employees,” says
Michael Dickmann, Professor of International HRM
at the UK’s Cranfield School of Management and
co-author of Global Careers. “This goes far beyond
monetary issues. I believe it is about the very clear
development of employees and the way companies
manage their talent. We consistently see that, in
the range of drivers for people who work globally,
these are the strongest.”
In his book, Dickmann notes that what was
once a clear brain drain, where the talent flow was
one-way, is now changing to what he terms “brain
circulation,” with mutual sharing of talent and
learning. In an increasingly interconnected world,
this circulation will only continue to increase. And
those capturing the top minds, regardless of their
origin, will benefit most.
¥1m
The one-time, tax-free cash
allowance that one of China’s
initiatives – The Thousand
Talents Program – offers to top
researchers to come home,
amounting to about
US$159,000.
70%
The approximate percentage
of expatriates, as a proportion
of the total population, in the
United Arab Emirates, the
highest such ratio in the world.
Ernst & Young Issue 07 T Magazine 35

Management Leading virtual teams Credit: Keystone / MaxPPP / Leemage
Managing in a virtual world
A globalized economy is allowing companies to tap into talent
from around the world. But effectively managing such virtual, multinational
teams requires both new tools and different approaches.
36 T Magazine Issue 07 Ernst & Young

Videoconferencing, as it was
envisioned in 1910, one of a series
of prints commissioned in France
to imagine the world in the year 2000.
Ernst & Young Issue 07 T Magazine 37

Management Leading virtual teams
Summary
The rise of
globalization and
technology has seen an
increase in the use of
virtual teams. Despite
this, relatively little
is yet known about the
best practices of
how to manage such
teams, from the tools
required to alternative
management practices.
97%
Percentage of Accenture
employees in an internal poll
who agreed that new
videoconferencing technology
was a good substitute for
face-to-face meetings.
$2.2b
The estimated size of the
telepresence videoconferencing
market at end 2010, which is
expected to more than double
to US$4.7 billion by 2014.
• By Kim Thomas
The days when a team consisted of a group
of people who arrived at the same office at
9:00 a.m. each day are long gone.
Knowledge workers now often work from home,
and may live in different parts of the country or
even across several countries and time zones.
This change has been driven by a combination
of factors: a recognition that staff may need to
balance work with family commitments; an
awareness that the ability to work offsite is a
useful option during epidemics, riots or bad
weather; a desire to save on travel and office
costs, especially during difficult economic
conditions; increasingly capable and cost-effective
technology that can help make collaboration far
easier and more effective; and ongoing
globalization, which makes cross-border global
teams a now common and essential part of doing
business. In her recent book, The Shift, London
Business School Professor Lynda Gratton argues
that virtual working will largely become the norm
for most office workers in the coming decade.
There are some clear benefits to this approach,
not least of which is the opportunity to bring
together different experiences and perspectives.
But it also brings obvious challenges for
managers: in a team of people who rarely see
each other, individual members can feel isolated,
and may lack the opportunity to share ideas or
engage in casual conversation that can spark a
fruitful idea. While research shows that people
who work from home tend to be more productive
than those working in an office, the opposite is
the case for virtual teams, according to a recent
study from The Society for Human Resource
Management. As Richard Edwards, Principal
Analyst at Ovum, points out, even in co-located
teams, managers need to accommodate the fact
that people have different styles of working. “It
can exacerbate and challenge team-working more
if you are separated,” he says.
Rethinking virtual management
So what is the secret to managing a virtual team
successfully? INSEAD Professor José Santos has
found that teams where each member has a
clearly defined role and focus work better than
ones where roles are loosely defined. The
measurement of performance also needs to
adapt – toward a system where team members
are measured on outputs. “You have to focus on
performance rather than on how people are
behaving with you,” says Bill Shedden, Director
of the Centre for Customised Executive
Development at Cranfield School of Management.
Other things can help. Although it’s not always
feasible, teams that have had a chance to meet
before they start working virtually tend to be
more effective. Without this, team meetings can
be challenging, especially for a team that spans
multiple cultures. Some may wish to speak but
find it difficult to interrupt a conversation in
mid-flow and so will opt to stay silent.
Until recently, videoconferencing has
remained an imperfect alternative, often with
out-of-sync audio and video, or an inability to see
participants clearly. This is quickly changing.
Sales of telepresence videoconference
technology, which uses multiple screens and
high-quality audio to simulate people sitting at
the same table, have increased rapidly. In 2010,
the market grew 18%, totaling US$2.2 billion, and
analyst firm Frost & Sullivan expects it to more
than double to US$4.7 billion by 2014. Already,
as costs reduce, such systems are becoming
more widespread. Accenture is just one example
of a multinational that is rolling out a significant
number of telepresence systems globally; it
already had over 50 in place by early 2010. In an
internal poll, 97% of Accenture employees said
that the technology was a good substitute for
face-to-face meetings. “To see people’s faces
makes the discussion just more productive,” says
Thomas Efkemann, an Executive Director for
Assignment Services at Ernst & Young. “You see,
for example, when someone doesn’t agree with
your comments – how someone is shaking their
head or trying to get into a call.”
Technology isn’t the only answer
But technology alone is not the answer;
management practices have to adapt too. “One
consideration is to reduce the number of
meetings,” says Efkemann, “but to make sure
that those you do hold have very clearly defined
aims.” Shedden agrees, not least due to often
challenging time zone considerations. “You’ve
got to pay a lot of attention to the managing of
the team in terms of who’s going to be there,
what’s the purpose of the meeting, what are the
outcomes we expect, because for some people it
will be at an unsocial time. You also want to
ensure that you stick to time, because a person
might be waiting to go home – he might be
waiting till eight o’clock at night because he’s in a
different time zone to you.” To grapple with this,
some teams opt to rotate the times of meetings.
Managers also need to ensure that everyone
has a chance to speak, particularly when there
isn’t a common first language. With meetings
typically defaulting to English, some team
members may need more thinking time, rather
than being rushed into a response. One way of
helping this along is to give team members in
different locations a turn at chairing meetings, so
it’s not always the same manager who chairs.
Another common solution is to record a
teleconference and make it available later for
those who were unable to take part, allowing
them to add written comments.
A further consideration relates to cultural
differences. Team members in different countries
will be used to different meeting styles. In an
38 T Magazine Issue 07 Ernst & Young

Credit: Cisco Pics
Virtual technology is shrinking the business world by connecting team members from across the globe.
article for Forbes magazine, INSEAD Professor
Erin Meyer identified that Swedish teams, for
example, make decisions through lengthy
consensus building, while in Japan, decisions
tend to be made in informal one-on-one
discussions before larger meetings. “Trying to
force these different styles into a single mold can
be tricky – but can also be seen as an opportunity
to do things differently,” says Efkemann.
“Sometimes it’s good to learn how the different
ways are successful, because you may want to
apply them to one of your future projects.”
Going social
Of course, meetings are only one part of keeping
the team running smoothly. What happens
between meetings can be even more important.
While email and phone are tried-and-tested ways
of staying in touch, they can suffer from being
overly formal and stilted. In recent years,
however, a range of new enterprise social
networking software tools, such as Yammer or
IBM Connections, have emerged. These mimic
consumer applications like Facebook and Twitter
as a more effective way of holding informal
discussions, sharing tips and ideas or getting a
group conversation started. Edwards describes
such tools as a “glue to provide the
connectiveness that we have lost as we become
more distributed in our working locations.”
These methods of working enable those who find
it difficult to speak up in meetings to express
themselves in their own time, thinking through
their response. They can also be a valuable way
of sharing personal and organizational insights,
which a number of multinational companies are
now adopting as part of a suite of collaboration
tools. Gratton argues that such tools are even
helping to deformalize organizational structures,
replacing traditional hierarchies with a more
meritocratic structure. Furthermore, many are
realizing the potential for such social-style tools
to help cut email overload, freeing up workers to
collaborate more effectively.
As part of this, Efkemann also suggests using
what he calls a “virtual coffee corner” – a web
space where team members can just chat,
whether it’s about personal issues or work issues,
without the pressure of an agenda. Others make
much use of instant messaging tools, which can
be a useful replacement for either the phone or
email for quick, informal communication. This is
especially popular among younger employees
who have grown up with the technology.
Even with all this, some of the basics of
management remain the same: focus on what
the team has to achieve, keep lines of
communication open between meetings and
make sure issues are brought out in the open
and dealt with swiftly. “You can’t just go into the
corridor and shout three people in for a
meeting,” says Shedden.
Virtually there
Technology vendors such
now provide dramatically
more capable
videoconferencing systems,
known as telepresence, to
better facilitate virtual
meetings for teams
scattered around the world.
As costs have fallen,
corporate uptake of such
systems has increased
markedly, not least as
travel budgets come under
pressure.
Ernst & Young Issue 07 T Magazine 39

Gareth Williams
__ is Human Resources
Director of Diageo, a
premium drinks business
that employs 25,000 people
around the world. Over the
past decade, the firm has
steadily expanded its
business geographically
and now sells its products
in most countries around
the world, providing a range
of assignment
opportunities for its
workforce.
40 T Magazine Issue 07 Ernst & Young

Credit: Diageo / Tim Bishop
• By Bill Millar
International experience is becoming
increasingly valuable in a world where
globalization continues to deepen. To succeed
at a senior level, executives need an
understanding and awareness of different
cultures. And perhaps the best way of developing
this experience is through a series of temporary
foreign assignments or secondments.
Moving executives around the globe can be a
valuable way of developing
Summary
Secondments abroad
represent a valuable
opportunity for
employers and
employees alike. But
companies need to
take steps to make
sure that employees
still feel valued once
they return.
the managerial skills and
knowledge that are
necessary for an
international business, but it
can be challenging to get
right. One of the biggest
problems is the regular
departure of executives after
the completion of a foreign
assignment, especially in the
The reintegration process Management
immediate 12–24 months after repatriation.
Over the years, countless surveys have shown
that expatriates who have recently returned
from a secondment are much more likely to leave
the company than those who have not been
away.
This sounds counterintuitive. After all, if a
company is willing to invest time and money to
build the international experience and knowledge
of its high-potential managers, surely those
executives would be more likely to remain loyal.
In fact, the opposite is true. One of the main
reasons for this is that, on return, expatriates
find that the dynamics and management teams
in their home country have changed, leaving
them without their original sponsors or mentors.
“They can return to a sort of vacuum, with no job
and no one looking out for them,” says Marion
Festing, Professor at the Berlin campus of the
ESCP Europe Business School.
A weak economy exacerbates this problem. In
the current environment, many executives are
Welcome back.
Now – please don’t leave!
Departure rates among executives returning to their home country
following an offshore secondment are well above average. Stemming these
losses requires careful planning and constant communication.
Ernst & Young Issue 07 T Magazine 41

Management The reintegration process Credit: Corbis / Xinhua Press / Zhang Jinqiao
Diageo’s global expansion into many new global markets has been supported by its detailed expatriate management programme.
Global growth
Diageo now trades in
approximately 180 markets
globally, employing a
workforce of almost 20,000
people, with dedicated
offices in 80 countries.
returning to a company where there are fewer
senior positions to fill. “Companies send
managers on expatriate assignments with the
expectation that they will fill another more
senior position upon their return,” says Festing.
“But with many companies either downsizing or
cutting back on expansion plans, there’s often no
position available.”
Another common problem is that returning
executives experience a sense of loss or
diminishment. As David Rooney, an Executive
Director in Human Resources at Ernst & Young in
Frankfurt explains: “Expatriates on assignment
away from the headquarters are treated almost
regally. The company will often attend to – and
pay for – many of their needs, from housing and
transportation to their children’s education.
Their total reward will typically be higher than in
their home country.”
Returning executives can feel deflated
because there may be a perception that they
have less influence than they had overseas.
“Expatriates are often big fish in a small pond,”
says Rooney. “When they come back, they return
to a big pond. They may be a bigger fish than
when they departed but, overall, they are often
left feeling as though they’ve been demoted.”
There are other potential problems.
Sometimes an expatriate, away for a long
assignment, no longer feels at home upon
return. They have established strong
connections with the country they have just left.
In addition, they may realize that their skills or
abilities, no matter how well developed during an
offshore assignment, no longer align with the
organization’s needs. In these situations, it is
unsurprising that these executives will actively
Returning executives may feel
deflated, perceiving less influence
than when abroad
seek a way to return to their former standing or
location. “They want what they’ve lost and, if the
parent company can’t provide such an
opportunity, they begin to look elsewhere,” says
Rooney.
Stemming the loss
Addressing the problem starts with the selection
process. Companies need to set expectations
carefully and ensure that expatriates are aware
that there is no guarantee of promotion on return.
There should be a similar discussion about
compensation. Although an executive may be well
42 T Magazine Issue 07 Ernst & Young

paid while on assignment, they need to
understand that the same level of pay is not likely
to continue when they return. “It’s vital not to
overpromise,” says Festing. “Be honest and
explain that this is valuable experience, but it’s
only an assignment and there are no guarantees.”
By setting expectations in this way, companies
are more likely to select the right person for a
position. As Rooney explains, the ideal candidate
is someone who goes into the assignment for all
the right reasons. “If they’re looking for
something you can’t provide, they’re not right for
the posting.”
Companies should ensure that there is a
strong channel of communication between their
home country office and expatriate. Often, a
formal mentoring relationship can be a good way
of ensuring that managers do not feel cut off
from corporate headquarters. This relationship
should be tracked formally and included as an
element of performance evaluation for both the
mentor and the expatriate.
Finally, there should be a formal process that
prepares for the expatriate’s return. Preparations
should be made well in advance to ensure that the
transition is smooth. “You don’t want to wait until
they are back before you make plans for their next
job or their next assignment,” says Rooney.
Many executives returning from secondment
complain that their new skills and experience are
not sufficiently valued. Companies can avoid this
problem by ensuring that the executive’s new
role makes use of these new capabilities and
experience. It can be a good idea to arrange one
or more seminars or talks where the returning
expatriate can share their experiences and
lessons with others in the company. This not only
spreads knowledge, but also gives the executive
a sense of accomplishment.
The embodiment
International experience is crucial for the drinks
manufacturer Diageo, which owns a range of
globally recognized brands, including Guinness,
Smirnoff and Johnnie Walker. At any one time, it
has around 400 managers in its “expatriate
pool,” who are all gaining overseas experience in
order to develop their skills and build long-term
careers with the company.
This pool includes executives from a wide
range of positions. Some are short-term
pragmatic assignments, such as bringing specific
brewing experience to get a new operation up
and running. But most are long-term
assignments, lasting two or three years, which
tend to be occupied by managers and senior
executives who have been selected especially for
the role.
These assignments have two primary
objectives in mind. “One is that we want these
executives to get the job done,” says Gareth
Williams, Director of Human Resources at
Diageo. “But the second objective is to provide
these executives with valuable experience that
can benefit the company. These are highpotential
individuals in whom we’ve chosen to
invest because we believe in them.”
Executives on secondment at Diageo remain
closely connected with head office via a series of
formal processes. This involves ongoing
discussions about performance in the position,
personal growth, challenges and training
requirements. “Wherever they are, they are still
tracked within our global talent processes,” says
Williams. The company also thinks ahead to
ensure that the expatriate’s next steps are
carefully considered. “Even though the current
assignment might not be over for another 12–18
months, we’re already making plans for the next
one,” says Williams.
But of all the mechanisms that optimize talent
development and minimize attrition rates,
perhaps the most valuable, according to
Williams, is the initial selection process. This
requires detailed up-front conversations about
every aspect of the candidate’s personality,
including their family situation and aspirations.
Plan ahead 12–18 months;
certainly before the current
assignment is over
“You need to get an idea of how they might get
on in a more developing, as opposed to more
developed, country,” says Williams.
Finally, it is also very important to nail down
the particulars. “We have a conversation where
we say: “Here’s your base package. Here’s your
expatriate package. Here’s who you will work for
and report to. Here’s what we’ll take care of for
you and these other areas will be your
responsibility,” says Williams.
More taxing matters
Given current economic conditions, it is not
surprising that host nations are becoming more
aggressive in their pursuit of expatriate tax
revenues. This highlights the importance of
being clear with expatriates about
responsibilities for different aspects of tax
compliance. “Administrations are paying closer
attention to due dates – and they’re tougher
when deadlines are missed,” says Williams.
“We devote a good deal of effort and
discipline to make sure our very considerable
expatriate programs are meeting their tax
obligations.”
An investment in talent
Executives returning from an international
assignment are typically much more valuable
than when they left. Yet despite this, there is a
high risk of them leaving the company. By being
more proactive and, in particular, by applying
formal processes, companies can reduce the rate
of attrition and thereby improve returns on their
investments in human capital.
Effectiveness of the
organization's repatriation
process
Good
Satisfactory
Scope for improvement
Ernst & Young Issue 07 T Magazine 43
49%
20%
31%
Source: Ernst & Young’s Global
Mobility Effectiveness Survey 2011
400
The number of managers
that Diageo keeps within
its “expatriate pool”
at any given time,
as part of its skills and
careers development.

Management Succession planning
Who’s next?
An effective CEO succession planning strategy is crucial
to the long-term success of any company. Yet all too often this is something
that corporate boards fail to plan for effectively.
35%
Proportion of global companies
that have a succession plan in
place and are ready to deal
with a CEO's departure,
according to Korn/Ferry.
• By Fergal Byrne
In an increasingly competitive business
environment, the role of the chief executive is
more demanding than ever. As a result, the
average length of CEO tenure is shrinking, while
failure rates are climbing. All this makes effective
succession planning crucial to a company’s
long-term success. For those that don’t, the risks
are high: badly planned succession processes can
become prone to internal politics, with firms
risking the loss of their best talent, and,
increasingly, bad publicity. Bank of America’s long
and circuitous search for a chief executive is just
one example of this, taking two-and-a-half-months
to complete, amidst constant media and industry
speculation.
This global phenomenon can be even more of a
challenge in emerging markets that don’t have
strength in depth at higher executive levels. Yet
despite all this, the overwhelming majority of
companies do not plan for succession. According
to a December 2010 Korn/Ferry survey, only 35%
of global companies have a succession plan in
place and are ready to deal with a CEO’s departure.
In his book The CEO Within, Joseph L. Bower
suggests a figure of about 40%.
Olga Gorbanovskaya, Head of Human Capital at
Ernst & Young Ukraine, believes that firms cannot
underestimate the importance of good planning.
“Having the right people, in the right place, at the
right time, particularly when it comes to the CEO,
is a pre-requisite for long-term resilience and
success,” she says. “This is especially true as
current demographic trends suggest that a
shortage of the appropriate talent is becoming a
major issue for businesses."
Companies with a well-planned, fair and
objective succession process not only have better
chances of securing the best leaders, but also find
it easier to attract and retain key talent. A sideline
benefit is less internal politics, with a tighter focus
on achieving the organization’s goals.
Credit: Muir Vidler
Given such benefits, why has succession been
poorly dealt with for so long? One reason is that
the outgoing CEO often manages the process. And
as Sacha Sadan, Director of Corporate Governance
at Legal & General Investment Management (LGIM)
notes, chief executives often don’t want to hand
over power. “Historically, I think CEOs overstaying
their welcome has been a problem in the UK,” he
says. “When CEOs stay on too long, they get tend
to get stale, or overconfident, or too dominant.
And the company ends up losing key people, as
talented employees give up trying to be the CEO.”
Rakesh Khurana, Marvin Bower Professor of
Leadership Development at Harvard Business
School, and author of Searching for a Corporate
Savior: The Irrational Quest for Charismatic CEOs,
believes that the real legacy of a CEO should not
only be measured by their own performance, but
the performance of their successor. “In many ways,
I think that’s ultimately the real judge of the quality
of the CEO,” he says.
More succession attention
In the UK, Sadan has noticed a substantial
improvement over the past decade in the
professionalism of approach to succession, with
a positive impact from better stewardship and
corporate governance codes in particular. “It is
much more professional now than it used to be,”
he says. “It’s not perfect, but I see much more
evidence that CEOs are thinking about their
support staff, thinking about who is going to get
the job, and good CEOs are moving their
lieutenants around the business to try and get
them the skills that may be needed next.”
Gorbanovskaya also notes that succession is an
increasing focus of many companies, not least to
support talent retention. “Our research suggests
that development and retention is the number one
issue on the agenda of HR managers at the
moment, especially bearing in mind the overall
increase in personnel mobility, which we have
noticed during 2010–11.”
44 T Magazine Issue 07 Ernst & Young

Sacha Sadan
__ Director of Corporate
Governance at Legal &
General Investment
Management, argues that
the past decade has seen
substantial improvements
in corporate governance,
which in turn has pushed
corporate boards to
take succession issues
more seriously.
Ernst & Young Issue 07 T Magazine 45

Management Succession planning
There are a number of factors that are driving
companies to take succession more seriously.
Increased competition is one. “It’s simply become
harder for companies to succeed, in virtually every
industry,” says Sadan. “It is imperative that
companies recruit the best people. At the same
time, they can’t afford to lose the best people.”
Another factor is greater engagement at board
level, which Sadan believes is largely due to the
UK’s 2003 Higgs Report on the role and
effectiveness of non-executive directors. Similarly,
more chairmen are taking the issue seriously. “I
think many of the new chairmen coming through
now are much more proactive. They’ve all been
CEOs in the past, or most of these new chairmen
have been, and they understand this is crucial.”
The increasing involvement of stakeholders is a
further factor: investors do not like uncertainty,
and CEO succession is receiving unprecedented
scrutiny. In 2009, the US SEC, for example,
proposed more transparency and shareholder
disclosure about succession risk.
While more companies are looking at succession
more closely, many of those that do engage in
succession planning are unhappy with the quality
of their planning. Korn/Ferry’s research suggests
that less than 1 in 10 UK business leaders, for
example, rate their own company’s succession
planning practices as ”excellent.” So what
elements constitute best practice here?
1. Start the succession process early
The first element is that succession planning
can’t be started too early. “The succession
process is never-ending,” says Gorbanovskaya.
“The best companies view this as an ongoing,
real-time process. Companies should try and
create a self-renewing succession culture that
develops leaders at all levels.”
Khurana points out that succession is not a
punctuated event. “Succession is a process that
should be part of board-level discussions
throughout the year. Leadership development is
not a decision to be made in weeks, but something
to be made over years,” he says. “In really good
companies, it’s something that boards get involved
in years in advance of the tenure of the CEO.”
2. Focus on strategy, not personalities
Any well-planned succession should start with a
thorough review of the business strategy, says
Gorbanovskaya. Unfortunately, this rarely
happens. Khurana’s research suggests that
boards often start thinking about the people
first: “Too often it ends up being a contest of
personalities,” he says. “Companies should first
think about the company’s strategic direction,
and only then think about the necessary skills
and backgrounds of the leadership team, not
only the CEO, that are going to be needed to
meet those challenges.”
Furthermore, moving away from a focus on
skills – assessing people against the strategy and
the skills that you’re looking for – can unduly
magnify the strengths of outsider candidates,
while discounting weaknesses, argues Khurana.
This helps explain why many companies turn to
external CEOs, which can be risky. A study by AT
Kearney on S&P 500 companies in the US,
between 1988 and 2007, identified 36 highperforming
companies and argued that much of
their success was due to “home grown” talent.
Gorbanovskaya notes that one of the main CEO
succession challenges concerns the reluctance of
current leaders to create a strong pool of
candidates to replace them. To counter this, she
recommends creating a blend of material and
non-material incentives for current leaders to put
succession planning on their agenda. To ensure
this is embedded, it can be formalized within a
management scorecard and linked to a significant
part of an executive’s bonus (in certain cases, up to
30% of the total).
3. Give HR a seat at the table
Somewhat surprisingly, HR is all too often
excluded from the process, and merely treated
as a support function. Khurana notes that the
best companies respect the importance of HR
and invest very deeply in their internal
development process. “If you look at successful
companies HR is seen as key to the company’s
success. They spend a lot of time and attention
on developing people,” he says.
Companies that realize the importance of
talent give HR a major role. “The head of HR is
usually treated as equivalent to functions like
chief financial officer. In these companies, HR is
given a seat at the table in succession
discussions and is integral to the process,” he
says.
4. Define the role of external recruiters
External consultants and recruiters often play an
important role in sourcing a new CEO. But some
worry that companies expect too much from the
executive search firms. Khurana believes that
the roles of the search committee and external
recruiters need to be clearly distinguished. A
good search committee needs people with a
deep understanding of the context and the
functional backgrounds and requirements for
senior positions, and who are cognizant of their
own biases. For example, one bias to overcome is
that of the stereotype CEO, to ensure a broader
variety of candidates is attracted. “There’s a
dangerous ’ideal form’ as to what a CEO should
look like,” says Khurana. “It’s typically a male
who’s over six feet tall and of European descent.
In the global world, those biases will kill you.”
One thing is certain. Given the changing
balance of the global economy, the future
stereotype of a CEO is sure to include an executive
with considerable experience in rapid growth
markets. Being able to demonstrate an
understanding of the diversity between different
cultures and a global mindset will be essential for
tomorrow’s CEOs.

Credit: Keystone / Ria Novosti / Ruslan Krivobok
Kraft Foods Ukraine has been one of the company’s top performing divisions globally.
Case study
Kraft Foods Ukraine’s
succession success
Planning ahead
The departure of a
veteran CEO, along with a
management reshuffle,
helped prove the resilience
of the firm’s in-depth
transition planning.
Kraft Foods Ukraine (KFU) faced a major
succession challenge in 2011, when the
company’s veteran Ukrainian-American CEO
George Logush left to work for local poultry
producer MHP. Logush had played an integral
role in the company’s growth and success over
the prior 16 years, so this was a hard blow for
the company. During his tenure, Kraft’s sales in
Ukraine had grown more than 100-fold to some
US$500 million in 2011, helping to make the
Ukraine one of the US food giant’s 10 priority
emerging markets.
The succession challenge was exacerbated by
the fact that three other KFU senior managers
were moving on to other internal roles at the
same time, while several changes were also
taking place in the company’s board. All this
came after a full decade with zero turnover in
KFU’s top management. “This was not something
we could have expected to happen
simultaneously, but when the opportunities
arise, and when you have the talent in the
pipeline, you have to be able to respond to these
opportunities,” says Oksana Semenyuk, the
company’s HR Director.
In the end, the transition process for the top
job went smoothly, which Semenyuk credits to
the attention that senior management pays to
succession planning in the business, with Taras
Lukachuk, a Ukrainian national who had worked
for Kraft for more than 10 years, taking the
helm. “The whole succession had been preceded
by years of preparation, so there were no conflict
or arguments,” she says. “Everything was
planned ahead, with a deep bench of senior
management talent developed over years, and
Mr Lukachuk knew several years in advance that
he was the preferred successor, so underwent a
period of targeted training.”
As part of the succession management
process, and to provide him with the necessary
managerial experience, Lukachuk had been
appointed several years earlier as the General
Manager of the subdivision in charge of all 11
markets under KFU’s control. He also worked
intensively with a management coach to prepare
for the role. Today, he represents the first of a
new generation of local managers playing a
senior role in running the multinational’s local
operations in the Ukraine.
One of the direct benefits of the firm’s longrunning
career development program is its
ability to help with talent retention. This is a key
focus within KFU. “Being able to offer long-term
career development, particularly with an
international dimension, undoubtedly helps with
our management retention,” says Semenyuk.
“KFU has about 3% employee turnover
compared with a figure of five or six times that
for the Ukrainian economy as whole.” This is
helped by the ability of local business units to
develop customized employee development
programs and tools, including programs to help
address work-life balance issues of employees.
Succession is seen as a key part of this
integrated talent management process, and is
directly linked to performance management,
leadership development, reward and recognition.
“Talent management is about getting the right
people, with the right skills, into the right jobs,”
says Semenyuk. “It starts with the definition of
the goal and strategy of the business. We have
our main financial target, brand strategies and
the overall strategies. We need to translate all
these business objectives into people
management strategies to help the organization
to achieve its overall objective. The foundation
of KFU’s success is our people strategies.”
HR plays a major role in this too, along with
senior management, as part of a program that
works on developing successors for all key
positions in the company. “All employees have
their own three- to five-year career path
development plan, divided into stages with
specific goals. And it is essential to meet these
goals if managers wish to progress in the
company,” says Semenyuk.
Indeed, KFU’s track record on management
development has been excellent. Over the
previous decade, it has developed a number of
top managers for Kraft’s headquarters and other
regional branches of the company, including vice
presidents in Central and Eastern Europe,
directors who used to work in South Africa and
middle managers who worked in assignments in
their worldwide head offices in Chicago, USA.
Ernst & Young Issue 07 T Magazine 47

Outlook Global leaders Credit: Philippe Aubry
Manfred Kets de Vries
48 T Magazine Issue 07 Ernst & Young

Biography
A clinical professor of
leadership and
organizational change,
Manfred Kets de Vries
holds the Raoul de Vitry
d’Avaucourt Chair of
Leadership Development
at INSEAD, France,
Singapore and Abu
Dhabi. He is the Founder
of INSEAD’s Global
Leadership Centre and
the program director of
INSEAD’s top
management seminar:
“The Challenge of
Leadership: Creating
Reflective Leaders.” His
most recent book is The
Hedgehog Effect: The
Secrets of Building High
Performance Teams
(John Wiley & Sons,
2012).
Developing global leaders
There are few greater challenges than leading a
large organization in today’s fast changing and
competitive world. Leaders face a baffling
array of questions: How do you create highperformance
organizations? How can you design
effective teams? How do you hold virtual and
cross-cultural teams together, working for a common
purpose, in complex, matrix-like structures?
As the pace of economic globalization continues,
senior leadership teams are becoming increasingly
diverse. And with the growing importance of the
developing world, this trend is only going to continue.
Although most large corporations try and create all
encompassing homogenous global corporate
cultures — that only goes so far. To succeed, CEOs
and senior leaders need more than ever to
understand the international dimension of leadership
– to learn how to work with a diverse group of leaders
from different countries and cultures. Present-day
leaders need to be savvy in building networks in
these organizations through co-creation. They need
to know how to tap the brains of an increasingly
diverse workforce.
Managing a diverse team is challenging
because people tend to like the familiar, what
they know well and understand. Executives
feel most comfortable working in teams where team
members share the same background, values and
experience: in such instances, they know what to
expect. But executives can be challenged when faced
with the unknown, when they have to deal with
individuals whose culture or mind-set is unfamiliar to
them. And in some cases this can trigger certain
defensive psychological behaviours and fears — not
least as our evolutionary history has programmed us
to expect the worst when we do not understand
something, which can lead to seemingly paranoid
reactions. This potential has become exacerbated in
recent years because we now live in an age of virtual
teams, where members need to work at a distance.
To be successful, leaders must learn to overcome
and to manage these responses. They must
understand that they do not always make decisions
rationally and that they may have blind spots in their
decision-making processes. My work with CEOs
focuses on helping them to become self-aware, to
sensitize them to how and why they make decisions,
to help them become more authentic, reflective
leaders; to help them engage in the delicate
balancing act between “doing” and “being.”
The best global leaders are open to new
experiences. They are able to suspend disbelief when
dealing with new cultures and different perspectives.
They are able take into account contextual factors
and have a measure of flexibility. In addition, leaders
must be resilient because they can be subjected to an
enormous amount of stress.
I
also like to emphasize that the most effective
leaders are emotionally aware. They have a high
degree of empathy that enables them to get along
well with people from diverse backgrounds and
cultures. They know how to listen to other people’s
stories, and can integrate these stories into the
organization’s narrative.
How do you help leaders to become better global
leaders? I have learned from experience that one of
the best ways to build trust is to get leaders together
in a workshop situation to share and learn about
each other. We are, after all, a story-telling species!
I have found that this group leadership coaching is
a very effective intervention method to help
organizations to become more agile. The impact of
group coaching can be even stronger – and more
beneficial for the organization – if the intervention
method is applied to “natural” working groups, in
particular top executive teams. To jump-start the
process, an in-depth leadership audit will precede the
intervention to collect material that can be shared.
Critical insights are requested from a wide variety of
people, not only individuals at work but also friends
and family members. This material is then used for
participants to deepen their understanding of
themselves and each other.
This kind of leadership coaching has proven to be
highly effective in breaking down barriers and
preventing silos. By building trust, which is essential
for successful teamwork, and enabling leaders to
understand themselves more deeply, it can help to
create “boundary-less” organizations. The process
also helps executives to deal with lingering
“elephants in the room” – conflicts that should have
been dealt with years ago but that continue to create
major problems.
What’s more, this intervention method also helps
leaders to become more authentic. A good example
of this is Nelson Mandela, who remains the world’s
most respected living leader because he lived
according to his ideals and his values. His authenticity
provides an inspiring lesson for leaders today.
Manfred Kets de Vries,
Professor of leadership and organizational
change at INSEAD
Ernst & Young Issue 07 T Magazine 49

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