2 0 11 C O R P O R AT E B O A R D O F D I R E C T O R S S U R V E Y

2011 CORPORATE BOARD OF DIREcTORS SURVEY

T ab L e of C o N te N ts

Introduction

2 2

Executive Summary: Key Results and Recommendations

Survey Questions and Descriptive Statistics

4 21

About The Rock Center for Corporate Governance at Stanford University

About Heidrick & Struggles

21

Contact Information

24

Copyright 2011 by the Board of Trustees of the Leland Stanford Junior University and Heidrick & Struggles. All rights reserved

E X eC U T I V e S U M M A RY: K e Y Res U L T s A N D Re C O M M e N D A T I O N s

Do Active CEOs Make the Best Board Members?

New Survey from Stanfords Rock Center and Heidrick & Struggles Examines the Pros and Cons Active CEOs Might Be Too Busy to Be Effective CEOs also more tainted by ethics lapses than board directors A new survey from Stanford Universitys Rock Center for Corporate Governance and Heidrick & Struggles has uncovered surprises about who makes the best board directors: its not necessarily the current CEOs that most companies seek out. The popular consensus is that active CEOs make the best board members because of their current strategic and leadership experience, says David Larcker, professor at the Stanford Graduate School of Business. In the 2011 Corporate Board of Directors Survey, when asked about potential problems a full 87 percent said that active CEOs are too busy with their own companies to be effective directors. A third of the respondents said that active CEOs were too bossy/used to having their own way. Its great to have sitting CEOs on a board, but companies need to be aware of the costs associated with having them, says Stephen A. Miles, Vice Chairman at leadership advisory rm Heidrick & Struggles. Because active CEOs are so busy, they might be unavailable during a crisis or have to cancel meeting attendance at the last minute. They also have less time to review materials. For some, the demands of their full-time job make it hard for them to consistently be as engaged as they need to be. Analyzing responses from 163 directors of public and private companies across North America, the 2011 Corporate Board of Directors Survey reveals how directors think about the composition of the board and the effectiveness of various types of board members. Key ndings include:
n n n

the board and one who will actively contribute real work as a director, says Mr. Miles. CEOs of companies that have experienced public ethical lapses are seen as far more tainted by the scandal than their boards are. While only 37% of directors believe that an ex-CEO of a company that experienced substantial accounting or ethical problems can be a good board member, 67% believe a director of a similarly-plagued company can, says Professor Larcker. Some directors do see value in having a CEO who has experienced and hopefully learned from mistakes in judgment. But far more are concerned about the stigma and perception issues in bringing aboard a CEO like this. Boards are struggling to evaluate whether prospective board members will be a good t for the company. Fifty-one percent of directors see it as moderately difcult and 20% see it as extremely or very difcult to gauge whether a prospect will be a good addition to the board, says Mr. Miles. Boards are clearly nding it a challenge to determine someones t. A single person can ruin a great board, so boards need to spend considerable time evaluating this very subjective quality. More than half of directors think that board turnover is too low. The challenge of getting rid of board members is that there is a widespread assumption of board tenure, says Professor Larcker. You may want to bring them on for three to ve years, but they end up staying for ten. While egregious problems might be taken care of more quickly, it is much more difcult to get rid of an underperforming or irrelevant director who just happens to stay on too long. Forty-six percent of companies do not engage in succession planning for their board of directors. Just as we found in our study last year that companies are seriously lagging in CEO succession planning, boards arent doing a great job of planning for board succession either, said Mr. Miles. Sixtysix percent of directors do believe that board succession planning is an important best practice, but only 54% actually do it.

Despite the fact that sitting CEOs are highly sought-after for board seats, 79% of directors said that, in practice, active CEOs are no better than non-CEO board members. Companies need to differentiate between a CEO who brings cach to

2011 CORPORATE BOARD OF DIREcTORS SURVEY

Nearly 20% of lead directors are chosen by the CEO or chairman. For obvious reasons, CEOs should not choose the lead director, says Mr. Miles. The CEO should be asked for input, but the ultimate choice needs to be made by the board. Forty-seven percent of respondents said that their lead director was elected by the independent directors, but this number should be much higher. More than 80% of board members are somewhat skeptical of the value of professional directors. Even though there has been a call among some for increased use of professional directors those who make it a full-time job to sit on boards most directors dont think that professional directors are any better than traditional board members, says Professor Larcker. While some respondents believe that this groups diversity of experience is an asset to a board, many are concerned that professional board members are too busy with other directorships to be effective.

3. Tread carefully when evaluating professional directors as board candidates. Its important to remember that boards must have a good, working relationship with their CEO in order to build value, says Mr. Miles. Ideally, a professional director comes from a background of multiple leadership positions where he or she has a deep understanding for what the CEO is going through. For these reasons, retired CEOs have the potential to make great professional directors. They can have a constructive dialogue with the CEO and can really contribute strategically and operationally. 4. Take the lead director position much more seriously. You should conduct a succession process for your lead director just as you would for a CEO or board seat, says Mr. Miles. The lead director should be the most respected member on the board a rst among equals. The nominating/ governance committee needs to run this process and make sure that the best director is in the position. It should never be rotational as not every director is suited for this leadership role. 5. Evaluate and refresh your board. Of course most board members think they are above average, says Professor Larcker. Its human nature. However, the evaluation process should be structured so that companies get a clear understanding of who is adding real value and who is not. It is time to move beyond check-the-box board reviews and start to seriously evaluate the boards effectiveness and its individual directors. Once you have this information, the chairman or lead director has to be ready to have the difcult conversation about how a director can improve, or whether it is better for them to step down.

As companies think about who to bring onto the board that can deliver the greatest value, Professor Larcker and Mr. Miles offer the following suggestions: 1. Re-think appointing the name CEO to the board. Yes, a company gets great publicity when it recruits a big name onto the board, says Professor Larcker, but you really need to think about what this person will actually deliver in value. If they are too busy or if they dont t the culture or have the right chemistry, it might not be worth it. 2. Weigh failure when evaluating a prospective board member. Obviously, personal ethical lapses should preclude someone from being chosen as a director, but there might be value in someone coming from a company that failed, says Professor Larcker. Boards need to understand what this persons contribution was to the failure. Did they learn important lessons, or are they likely to repeat past mistakes?

To speak with David Larcker or Stephen Miles about this research survey, please contact Helen Chang, Stanford Graduate School of Business, (650) 7233358 or chang_helen@gsb.stanford.edu; or Jennifer Nelson, Heidrick & Struggles, (404) 682-7373 or jnelson@heidrick.com.

2011 CORPORATE BOARD OF DIREcTORS SURVEY

SURVEY QUEsTIONs A N D D E s C R I P T I V E S TAT I s T I C s

Total Number of Respondents = 163 responses (mostly complete) collected April to May, 2011

A. BAcKGROUND 1. What is your present position? (Please check all that apply.)
Percent Chief Executive Ofcer Retired Chief Executive Ofcer Chairman of the Board Retired Chairman of the Board Lead Director Executive Ofcer Retired Executive Ofcer Outside Board Member 15 15 17 5 10 13 7 66

2. What is the revenue for the company that you are most closely identied with?
Percent <$500 million $500 million to $1 billion $1 billion to $5 billion $5 billion to $10 billion $10 billion to $20 billion >$20 billion Total Percentage 31 14 25 14 7 9 100

<$500 million $500 million to $1 billion $1 billion to $5 billion $5 billion to $10 billion $10 billion to $20 billion >$20 billion

Other 9

Chief Executive Officer Retired Chief Executive Officer Chairman of the Board Retired Chairman of the Board Lead Director Executive Officer Retired Executive Officer Outside Board Member Other

10

15

20

25

30

35

Percent

10

20

30

40 Percent

50

60

70

80

2011 CORPORATE BOARD OF DIREcTORS SURVEY

3. What is the industrial sector for the company that you are most closely identied with?
Percent Natural Resources Non-durables Regulated Utility Wholesale/Retail 5 12 2 7

5. Age
Percent < 30 31 to 40 41 to 50 51 to 60 61 to 70 > 70 Total Percentage 0 2 12 37 40 9 100

Durables 21

Financials 13 Services 26 High Technology Total Percentage

Natural Resources Non-durables Durables Regulated Utility Wholesale/Retail

14 100

< 30 31 to 40 41 to 50 51 to 60 61 to 70 > 70 0 5 10 15 20 25 Percent 30 35 40

Financials Services High Technology

6. What is your present board service?

6.a. Number of public, for-prot boards Percent
0 5 10 15 Percent 20 25 30

0 26 1 40 2 16 3 13 4 4 5 1
0 1

4. Gender
Percent Female 26 Male 74 Total Percentage 100

Female Male 0 10 20 30 40 50 60 70 80 90 100

2 3 4 5 0 5 10 15 20 25 Percent 30 35 40

Percent

2011 CORPORATE BOARD OF DIREcTORS SURVEY

6.b. Number of private, for-prot boards Percent 0 48 1 32 2 10 3 4 4 2 5 1 > 5 3

6.d. Total number of boards - this is computed from the above three questions Percent

0 5 1 13 2 19 3 22 4 13 5 10 >5 18
0

0 1 1 2 2 3 3 4 4 5 5 >5
0 10 20 30 Percent 40 50 0 5 10 15 Percent 20 25

>5

6.c. Number of not-for-prot boards Percent

0 35 1 30 2 22 3 4 4 6 5 2 >5 1

7. Are you a professional board member or director (a director whose primary job is to serve on boards)?
Percent Yes 29 No 71 Total Percentage 100

0 1 2 3 4 5 >5
0 5 10 15 20 25 30 35

Yes No 0 10 20 30 40 50 60 70 80 90 100

Percent

Percent

2011 CORPORATE BOARD OF DIREcTORS SURVEY

B. PLANNING FOR NEw BOARD MEmbERS 8. Who in your company is responsible for identifying new candidates to serve on the board of directors (Please check all that apply):
Percent CEO Lead Director Other Directors Nominating & Governance Committee Full Board of Directors External Consultants Other (please specify 18 6 8 28 15 6 1 Chairman 16
CEO Chairman Lead Director Nominating & Governance Committee Full Board of Directors External Consultants Other
0 10 20 30 40 50 60 70

Percent

CEO Chairman

10. When does your company typically begin the process of identifying candidates to serve on the board: (please check only one) ?
Percent

Lead Director Other Directors Nominating & Governance Committee Full Board of Directors External Consultants Other

After an outgoing director has stepped down While an outgoing director is in the process of stepping down Before an outgoing director announces plans to step down Other Total Percentage

6 26 49 19 100

After While Before Other

0 10 20 30 Percent 40 50 60

10

15 Percent

20

25

30

9. Who in your company has primary responsibility for identifying candidates to serve on the board (please check only one):
Percent CEO 11 Chairman 14 Lead Director Nominating & Governance Committee Full Board of Directors External Consultants Other Total Percentage 1 62 7 2 3 100

Selected other responses: Need new skills When a need for a particular skill set is identied or required (new expertise sought OR replacement) When someone that would add value to the board is identied Ongoing with assumed 1-2 year lead; ongoing review of potential candidates We are constantly looking to expand the Board When board assessments reveal the need for certain capabilities/ skills/insights that are not currently represented on the Board When modications to the strategy are made Approaching mandatory retirement Well in advance of mandatory retirement dates When a director is approaching mandatory retirement or term limits Acquisition Acquisitions bring directors

2011 CORPORATE BOARD OF DIREcTORS SURVEY

11. Does your company develop a formal written document that outlines the skills, competencies, and experiences required for the next board member (skills and experience prole)? (please check only one)
Percent

13. How difcult is it to evaluate whether a prospective board member will be a good choice (in terms of chemistry, experience, and knowledge) for the company? (please check only one)
Percent Extremely difcult Very difcult Moderately difcult Slightly difcult Not at all difcult Total Percentage 3 17 51 22 7 100

Yes 60 No 40 Total Percentage 100

Yes No 0 10 20 30 40 50 60 70 80 90 100

Extremely difficult Very difficult Moderately difficult Slightly difficult Not at all difficult
0 10 20 30 Percent 40 50 60

Percent

12. (If Yes to q11) How different is the skills and experiences prole for your next board member from the skills and experiences prole of the outgoing director (please check only one):
Percent Extremely different Very different Moderately different Slightly different Not at all different Total Percentage 4 21 46 20 9 100

14. Is the present turnover of board members on U.S. Corporate Boards (please check only one)
Percent Much too low About right Much too high Total Percentage 8 44 0 100 Low 47

Extremely different Very different Moderately different Slightly different Not at all different
0 10 20 30 Percent 40 50 60

High 1

Much too low Low About right High Much too high
0 10 20 30 Percent 40 50 60

2011 CORPORATE BOARD OF DIREcTORS SURVEY

C. BOARD SUccESSION PLANNING 15. Does your company engage in succession planning for the board of directors? (please check only one)
Percent Yes 54 No 46 Total Percentage 100

17. (If Yes to q15) How often is board succession planning discussed in formal board or committee meetings (please check only one):
Percent One meeting per year Two meetings per year More than two meetings per year Every few years Total Percentage 24 36 33 6 100

Never 1
Yes No 0 10 20 30 40 50 60 70 80 90 100

One meeting per year Two meetings per year More than two meetings per year Every few years Never

Percent

16. (If Yes to q15) Where is board succession planning primarily discussed (please check only one):
Percent Meetings of the full board Meetings of the nominating and governance committee Informally among directors Other (please specify) Total Percentage
Meetings of the full board Meetings of the nominating and governance committee Informally among directors Other (please specify)
0 10 20 30 40 Percent 50 60 70 80

21 71 4 4 100

10

15

20 Percent

25

30

35

40

18. Which of the following statements best summarizes your opinion of board succession planning (please check only one):
Percent It is an important best practice It is useful only when the board has critical directors whose loss would be very bad for the company It is not useful at all Total Percentage 66 26 8 100

19. Does your company have board members with an expertise in CEO succession planning (i.e., they have led or have participated in three or more succession processes in the past as a CEO or director):
Percent Yes 66 No 34 Total Percentage 100

Yes No 0 10 20 30 40 50 60 70 80 90 100

Percent

2011 CORPORATE BOARD OF DIREcTORS SURVEY

20. (If Yes to q19) Which of the following directors have expertise in succession planning (please check all that apply):
Number Chairman 79 Lead Director Director(s) other than these 48 93 Chair of the Nominating and Governance Committee 69

Yes No 0 10 20 30 40 50 60 70 80 90 100

Percent

Chairman Lead Director Chair of the Nominating and Governance Committee Director(s) other than these
0 20 40 60 Percent 80 100

23. What traits of active CEOs make them attractive board candidates (please check all that apply):
Percent Strategic expertise Risk management expertise Operational expertise Experience responding to a crisis or failure Leadership qualities Extensive personal and/or professional networks Other (please specify) 77 45 74 43 67 46 13

21. When recruiting for an open board seat, does your company consider whether a candidate has previous experience in CEO succession planning?
Percent Yes 24 No 76 Total Percentage 100

Strategic expertise Risk management expertise Operational expertise Experience responding Leadership qualities

Yes No 0 10 20 30 40 50 60 70 80 90 100

Extensive personal Other

0 10 20 30 40 Percent 50 60 70 80

Percent

Selected other responses:

D. CEOs AS BOARD MEmbERS 22. Are directors who are active CEOs better than non-CEO board members?
Percent Yes 21 No 79 Total Percentage 100

Current Knowledge Current industry knowledge Current issues, current issues experience External global market dynamics perspective Ability to identify with the CEO in terms of issues They are currently in the ow of business issues They are currently experiencing some of the same problems as our CEO Retired CEOs bring considerable perspective but not the immediacy of serving CEOs

10

2011 CORPORATE BOARD OF DIREcTORS SURVEY

24. What traits of active CEOs make them unattractive board candidates (please check all that apply):
Percent Too busy with their company to be effective directors 87 Too interested in networking/promoting their own company to be effective directors Too bossy/used to having their way Not good collaborators Other (please specify) 21 33 28 5

26. Are directors who are retired CEOs better than average board members?
Percent Yes 46 No 54 Total Percentage 100

Yes No 0 10 20 30 40 50 60 70 80 90 100

Too busy Too interested Too bossy Not good collaborators Never
0 20 40 60 Percent 80 100

Percent

27. How many years before the experiences of a retired CEO become outdated and are no longer valuable to current board service?
Percent Less than 3 years More than 3 but less than 5 years More than 5 but less than 10 years More than 10 years CEO experience never becomes outdated Total Percentage 10 16 20 16 38 100

Selected other responses: Big ego Not good listeners Too generous with compensation

Less than 3 years

25. Are directors who are retired CEOs better board members than active CEOs?
Percent Yes 55 No 45 Total Percentage 100

More than 3 but less than 5 years More than 5 but less than 10 years More than 10 years CEO experience never outdated
0 5 10 15 20 Percent 25 30 35 40

Yes No 0 10 20 30 40 50 60 70 80 90 100

Percent

11

2011 CORPORATE BOARD OF DIREcTORS SURVEY

28. Can an ex-CEO of a company that experienced substantial accounting and ethical problems be a good board member at another company? (please check only one)
Percent Yes 37 No 63 Total Percentage 100

Not a good t as ability to assess risk may be decient Assuming the problems occurred during his/her tenure, there is a reputational risk that may affect his/her ability to perform well If the issues arose on the CEOs watch they should have had the processes in place to see the risks and correct before they became problems for the company, the employees and shareholders Earnings experience may be a good teacher A good CEO learns why he missed the aws, and does not drop the ball twice, though be careful of awed characters. As long as the CEO was not involved (aware of or acting in) in personal egregious behavior and the CEO is able to openly speak to lessons learned so that Board can learn from his/her experience. However, there may always be a question mark around that person I would say yes depending on the situation if the CEO has learned from the mistake, he/she could be very valuable They may be a productive board member in a private company depending on their expertise in the segment or growth initiatives that do not track culture If the CEO recognized the deciencies and tried to be transformational, then yes. But if the CEO accepted status quo, then no There either is or is not a culture of ethical behavior and compliance or not. The CEO sets the tone. HOWEVER, there are CEOs who have inherited problems they did not create and they should not be blanketed with the above statement These problems may have strengthened the CEOs ability to respond effectively and plan proactively

Yes No 0 10 20 30 40 50 60 70 80 90 100

Percent

29. Please briey explain your answer to q28

Selected other responses: Not a good t due to credibility and ethical issues Directors need to be role models for ethical behavior Ethical problems are not caused by a lack of knowledge, they are caused by character aws (and character doesnt change) I would have more problems with the ethical issues than the accounting ones, but both are problematic he/she was in charge. Although I think someone with this experience could be great, the stigma and perception issues would prevent them from being effective May have difculty establishing credibility/trust, however depends on who caused them, but it does show a problem managing and controlling information and risk Tone at the top is a key driver of corporate culture and the CEO is the most inuential person in setting tone at the top. Accounting and ethics issues at his / her company are usually the result of problems with CEO performance. Not a good t due to potential reputational and judgment issues Absolutely not. This concept smacks of reward for bad behavior thinking. Different if the CEO went in and reversed the problems. The risk to the new organization is too difcult to assess relative to the upside. Was it a failure in oversight, knowledge, other? How does the board assess whether the CEO has learned from the past problems adequately? How can the board assess this? Reputation risk outweigh[s] the experience

30. Can a board member (not the CEO) at a company that experienced substantial accounting and ethical problems be a good board member at another company? (please check only one)
Percent Yes 67 No 33 Total Percentage 100

Yes No 0 10 20 30 40 50 60 70 80 90 100

Percent

12

2011 CORPORATE BOARD OF DIREcTORS SURVEY

31. Please briey explain your answer to q30

Selected other responses: OK if not closely involved-is highly situation dependent As long as they are not too closely associated with the scandal and the perception is that this particular board member was not complicit in the problems Each circumstance can be different. A board member must rely on information supplied to him. You can question, but not get honest answers If this board member was part of the solution and not part of the problem, (s)he might make an outstanding board member Not a good t due to potential reputational, judgment and trust issues Although less strongly than the explanation to the preceding question (we may think of mitigation factors such as the behavior of the Board Member in trying to prevent or resolve the problem), there is also a potential reputational risk involved If it is not the CEO or the CFO - possibly. Even then you have to decide if it is worth the reputational risk to the company At the end of the day it is the Board that shareholders place trust in and they must have and show understanding of the companys accounts Most likely not since the level of the person being recruited to the Board is C Suite and they are responsible for running the Enterprise along with their peers and CEO Yes, if they were brought in to solve the problem. No if they were part of the problem. If they were part of ethical issues, NEVER! Yes experience is a good teacher A good director learns why he missed the aws, and does not drop the ball twice, though be careful of awed characters. As long as the person was not the cause of the problem s/he must have high integrity and scrupulous ethics Assuming the Board member was not involved in the irregularities, he or she should have learned valuable lessons from the experience If the director was the person who uncovered the problems and led the investigation, he/she could be a great board member. In contrast, if he/she was there for a decade and never dug into issues that ultimately proved problematical This truly depends on the situation. For example, if a new board member was instrumental in discovering the problems, then this board member is hugely valuable to others!

E. SEPARATING ThE ChAIRmAN AND CEO POSITIONS 32. Does your company separate the Chairman and CEO roles? (please check only one)
Percent Yes 68 No 32 Total Percentage 100

Yes No 0 10 20 30 40 50 60 70 80 90 100

Percent

33. (If Yes to q32) How many years ago were the positions separated?
Percent 1 6 2 8 3 11 4 8 5 16 6 to 10 24 >10 8 Always 19 Total Percentage 100

1 2 3 4 5 6 to 10 > 10 Always

10 Percent

15

20

25

13

2011 CORPORATE BOARD OF DIREcTORS SURVEY

34. (If Yes to q32) What event or events caused the separation of CEO/Chairman positions? (please check all that apply)
Percent Pressure from large shareholders Legislative action Board members view this as a best practice It has always been the case for our company 4 2 38 25 Proxy advisor (ISS or Glass-Lewis) recommendation 4

36. (If Yes to q35) Is this separation expected to be permanent or temporary?

Percent Permanent 95 Temporary 5 Total Percentage 100

Yes No 0 10 20 30 40 50 60 70 80 90 100

Other 20

Pressure from large shareholders Proxy advisor (ISS or Glass-Lewis) recommendation Legislative action Board members view this as a best practice It has always been the case Other

Percent

F. LEAD INDEPENDENT DIREcTOR 37. Does your company have a lead independent director?
Percent Yes 50 No 50
0 5 10 15 20 Percent 25 30 35 40

Total Percentage

100

Selected other responses: Concern over leadership qualities of promoted CEO Part of implementation of succession plan. Needed transition period Retirement of the previous CEO and hiring of a new rst time CEO who the board felt needed mentoring
Yes No 0 10 20 30 40 50 60 70 80 90 100

Percent

35. (If Yes to q32) Is the separation due to a CEO succession event?
Percent

Yes 41 No 59 Total Percentage 100

Yes No 0 10 20 30 40 50 60 70 80 90 100

Percent

14

2011 CORPORATE BOARD OF DIREcTORS SURVEY

38. (If Yes to q37) How is the lead director selected?

Percent Chosen by the CEO or chairman Chosen by the Nominating and Governance Committee Elected by independent directors Rotated among independent directors Other reason Total Percentage
Chosen by the CEO or chairman Chosen by the Nominating and Governance Committee Elected by independent directors Rotated among independent directors Other reason
0 10 20 30 Percent 40 50

40. (If Rotated to q38) How frequently is the lead director position rotated?
Percent Every year Every 2 years 21 47 7 7 100
Every year Every 2 years Every 3 years No set schedule
0 10 20 30 Percent 40 50 60

18

20 60 0 20 100

Every 3 years No set schedule Total Percentage

41. (If Yes to q37) Is the lead independent director at your company the senior-most outside (nonexecutive) director?
Percent Yes 40 No 60 Total Percentage
Yes No 0 10 20 30 40 50 60 70 80 90 100

39. (If Elected to q38) How frequently does the lead director election occur?
Percent Every year Every 2 years Every 3 years No set schedule Total Percentage 43 12 12 33 100

100

Percent

Every year Every 2 years Every 3 years No set schedule

0 10 20 30 Percent 40 50

42. (If Yes to q37) Is the lead independent director at your company the most highly respected nonexecutive director?
Percent Yes 39 No 61 Total Percentage
Yes No 0 10 20 30 40 50 60 70 80 90 100

100

Percent

15

2011 CORPORATE BOARD OF DIREcTORS SURVEY

43. (If Yes to q37) Does the lead independent director have personality attributes (such as the ability to build consensus) that specially equip this person to be effective in this position?
Percent Yes 86 No 14 Total Percentage 100

G. PROFESSIONAL BOARD MEmbERS In the following questions, we refer to a professional board member as a director whose primary job is to serve on boards (i.e., these individuals have prior executive experience, but currently they have no other full-time job than to sit on boards). Traditional board members are individuals that either have a full-time job or other professional interests. Most of their annual income is not derived from compensation for board positions. 46. Do you have any professional directors on your board?
Percent

Yes No 0 10 20 30 40 50 60 70 80 90 100

Yes 63 No 37 Total Percentage 100

Percent

44. (If Yes to q38) Does the lead independent director have prior board experience that is more extensive than the average director?
Percent

Yes No 0 10 20 30 40 50 60 70 80 90 100

Yes 55 No 45 Total Percentage 100

Percent

Yes No 0 10 20 30 40 50 60 70 80 90 100

47. Are professional directors better than traditional board members?

Percent

Yes 19 No 81 Total Percentage 100

Percent

45. Which of the following statements best summarizes your opinion of the lead independent director position in your company (please check only one):
Percent It is an effective position that is a best practice It is something that is done to simply satisfy exchange listing requirements It is something that is simply window dressing for our shareholders Total Percentage 81 7 12 100

Yes No 0 10 20 30 40 50 60 70 80 90 100

Percent

Effective position Exchange listing requirements Window dressing 0 20 40 60 Percent 80 100

16

2011 CORPORATE BOARD OF DIREcTORS SURVEY

48. What traits about professional board members make them attractive board candidates (please check all that apply):
Percent Experience with multiple companies Diversity of background Experience with successful companies Experience with failed companies Experience managing a crisis Extensive professional networks
Experience with multiple companies Diversity of background Experience with successful companies Experience with failed companies Experience managing a crisis Extensive professional networks 0 20 40 Percent 60 80 100

Too busy with directorships Too interested in networking/ promoting Lack independence No experience Doing this for the money Too old Other
0 10 20 30 Percent 40 50 60

86 62 58 36 50 40

H. BOARD ObSERVERS In the following questions, we refer to a board observer as an individual who attends board meetings or committee meetings, but is neither a full-time board member nor a paid consultant. 50. Does your company have board observers?
Percent Yes 17 No 83 Total Percentage 100

49. What traits of professional board members make them unattractive board candidates (please check all that apply):
Percent Too busy with other directorships to be effective Too interested in networking/promoting their own career to be effective Lack independence (because they rely on director fees as primary income) No current experience in executive position They are simply doing this for the money Too old Other 56 27 24 31 26 16 10

Yes No 0 10 20 30 40 50 60 70 80 90 100

Percent

17

2011 CORPORATE BOARD OF DIREcTORS SURVEY

51. (If Yes to q50) How many board observers are present in a typical meeting?
Percent 1 32 2 5 3 0 4 26 >4 37 Total Percentage 100

Yes No 0 10 20 30 40 50 60 70 80 90 100

Percent

54. If Yes to q53 Do these positions rotate among internal managers of the company (e.g., a new person(s) every year or every other year)?
Percent

1 2 3 4 >4
0 5 10 15 20 Percent 25 30 35 40

Yes 23 No 77 Total Percentage 100

Yes No 0 10 20 30 40 50 60 70 80 90 100

Percent

52. (If Yes to q50) How are board observers compensated for their services? (please check all that apply)
Percent Cash Options or stock They are not compensated Total Percentage 12 4 84 100

55. (If Yes to q50) Are board observers ever (please check all that apply)
Percent Investors 21 Customers 1 Suppliers 0 Employee representatives Other 18 25

Cash Options or stock They are not compensated

0 20 40 60 Percent 80 100

Investors Customers Suppliers Employee representatives Other

0 5 10 15 Percent 20 25

53. (If Yes to q50) Do any of your board observers include internal management employees that have high potential to become senior executives within the company?
Percent Yes 52 No 48 Total Percentage 100

18

2011 CORPORATE BOARD OF DIREcTORS SURVEY

56. (If Yes to q50) How are board observers identied and sourced? (please check all that apply):
Percent Management recommendation Director recommendation Recommendation by an investor Recommendation by a consultant Recommendation by an outside third party Other 46 18 1 4 0 18

Deeper company knowledge Deeper industry knowledge Deeper functional knowledge Scientific Knowledge Regulatory Knowledge Business Relationships Governmental Relationships Other

Management recommendation Director recommendation Recommendation by an investor Recommendation by a consultant Recommendation by an outside third party Other

10

20

30

40 Percent

50

60

70

80

58. (If Yes to q50) Which of the following are most likely to have a board observer (please check all that apply):
Percent
0 10 20 Percent 30 40 50

Meeting of the full board Meeting of the audit committee Meeting of the compensation committee

79 39 21

57. (If Yes to q50) What value do board observers add to the company? (please check all that apply):
Percent Deeper company knowledge Deeper industry knowledge Deeper functional knowledge Scientic Knowledge Regulatory Knowledge Business Relationships Governmental Relationships Other 61 29 29 4 21 25 4 11

Meeting of the nominating and governance committee 11 Meeting of a specialized committee (such as nance, risk, technology, etc.) 14

Meeting of the full board Meeting of the audit committee Compensation committee Nominating and governance committee Specialized committee
0 10 20 30 40 Percent 50 60 70 80

19

2011 CORPORATE BOARD OF DIREcTORS SURVEY

59. (If Yes to q50) Does the presence of a board observer inuence the discussion or level of candor in the formal boardroom?
Percent Yes 17 No 83 Total Percentage 100

60. (If Yes to q50) Has a board observer ever been added to the board as a full voting member?
Percent Yes 17 No 83 Total Percentage 100

Yes Yes No No 0 0 10 20 30 40 50 60 70 80 90 100 Percent 10 20 30 40 50 60 70 80 90 100

Percent

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A B O U T S TA N F O R D U N I V E R s I T Y s R O C K C E N T E R F O R C O R P O R AT E G O V E R N A N C E A N D H E I D R I C K & S T R U gg L E s

About Stanford Universitys Rock Center for Corporate Governance

The Arthur and Toni Rembe Rock Center for Corporate Governance is a joint initiative of Stanford Law School and the Stanford Graduate School of Business, created with the idea that advances in the understanding and practice of corporate governance are most likely to occur in a cross-disciplinary environment where leading academics, business leaders, policy makers, practitioners and regulators can meet and work together. The Rock Centers goal is to conduct research and tap this wealth of expertise to advance the practice and study of corporate governance. The Rock Center works closely with the Corporate Governance Research Program.

About Heidrick & Struggles

Heidrick & Struggles International, Inc., (Nasdaq:HSII) is the leadership advisory rm providing executive search and leadership consulting services, including succession planning, executive assessment, talent retention management, executive development, transition consulting for newly appointed executives, and M&A human capital integration consulting. For almost 60 years, we have focused on quality service and built strong leadership teams through our relationships with clients and individuals worldwide. Today, Heidrick & Struggles leadership experts operate from principal business centers globally. . For more information about Heidrick & Struggles, please visit www.heidrick.com.

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DAVID F. LARcKER James Irvin Miller Professor of Accounting; Director of the Corporate Governance Research Program; Senior Faculty, Arthur and Toni Rembe Rock Center for Corporate Governance at Stanford University; Codirector of the Directors Consortium Executive Program Website Phone Email http://www.gsb.stanford.edu/cgrp (650) 725-6159 larcker_david@gsb.stanford.edu

Professor Larckers research focuses on executive compensation, corporate governance, and managerial accounting. His work examines the choice of performance measures and compensation contracts in organizations. He has current research projects on the valuation implications of corporate governance, role of the business press in the debate on executive compensation, and modeling the cost of executive stock options. Professor Larcker presently holds the James Irvin Miller Professorship. He is the director of the Corporate Governance Research Program at the Stanford Graduate School of Business and senior faculty of the Arthur and Toni Rembe Rock Center for Corporate Governance at Stanford University. He recently co-authored the book Corporate Governance Matters: A Closer Look at Organizational Choices and Their Consequences, published by FT Press-Pearson Prentice Hall in April, 2011. He has also authored numerous academic research papers, case studies, corporate governance closer look studies, and articles for the popular press including Do You Have A Plan For Finding Your Next CEO? The Corporate Board September/October 2010 with Stephen Miles of Heidrick & Struggles. Daves research has been often cited by the WSJ, BloombergBusinessWeek, FT, Forbes, NY Times, Agenda, NACD Directorship, Corporate Board Member, SHRM and Corporate Secretary Magazine among others. Professor Larcker was previously the Ernst & Young Professor of accounting at the Wharton School of the University of Pennsylvania and Professor of accounting and information systems at the Kellogg Graduate School of Management at Northwestern University. He received his PhD in Business from the University of Kansas and his BS and MS in Engineering from the University of Missouri- Rolla. He is on the editorial boards of the Journal of Accounting and Economics, Journal of Accounting Research, Accounting, Organizations and Society, Journal of Accounting and Public Policy, Journal of Applied Corporate Finance. Professor Larcker received the Notable Contribution to Managerial Accounting Research in 2001. He is also a trustee of the Wells Fargo Advantage Funds.

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STEPhEN A. MILES Vice Chairman, Heidrick & Struggles Phone Email (404) 538-0119 smiles@heidrick.com

Stephen Miles is a vice chairman of Heidrick & Struggles. He runs Leadership Advisory Services within the Leadership Consulting Practice and oversees the rms worldwide executive assessment and succession planning activities. He is also a key member of Heidrick & Struggles Chief Executive Ofcer & Board of Directors Practice. With more than 15 years of experience in assessment, top-level succession planning, organizational effectiveness and strategy consulting, Stephen specializes in CEO succession and has partnered with numerous boards of global Fortune 500 companies to ensure that a successful leadership selection and transition occurs. He also has led many chairman successions and board effectiveness reviews, partnering with boards of directors to help them with their overall effectiveness, committee effectiveness and individual director effectiveness. Additionally, he is a recognized expert on the role of the chief operating ofcer, and has consulted numerous companies on the establishment and the effectiveness of the position and supporting the transition from COO to effective CEO. Stephen is a coach to many CEOs and COOs around the world. He has built the Practices coaching expertise by focusing on high-performance leadership competencies with a heavy emphasis on the business and cultural context. Stephen works extensively internationally, and his clients cut across all industry sectors. Stephen and his CEO advisory services were proled in the BusinessWeek article The Rising Star of CEO Consulting. Prior to joining Heidrick & Struggles, Stephen held various positions at Andersen Consulting. Stephen is author and co-editor of the best-selling business book Leaders Talk Leadership. He also co-authored Riding Shotgun: The Role of the Chief Operating Ofcer, as well as the cover article in the May 2006 issue of Harvard Business Review* on the same topic. Stephen also co-authored the feature article in the April 2007 issue of Harvard Business Review titled: The Leadership TeamComplementary Strengths or Conicting Agendas? Great top teams work to their members disparate strengthsbut those differences can cause discord, too, especially during succession. His third book, Your Career Game: How Game Theory Can Help You Achieve Your Professional Goals, was released in April 2010 (Stanford University Press) and he has also recently completed a chapter on Assessing the Leader for Linkage Inc.s Best Practices in Leadership Development Handbook 2nd edition; Wiley 2009. Stephen is the author of the Stanford Graduate School of Business case study entitled Multimillionaire Matchmaker: An Inside Look at CEO Succession Planning. Stephen has also been featured in Forbes, BusinessWeek, Boardroom Intelligence, Strategy + Business, WSJ/MIT, Consulting Magazine, MIT Sloan, Ivey Business Journal, and CEO Magazine. He is a frequent speaker on the topics of CEO succession, coaching C-level executives, talent management and complementary leadership at the top (high performance teams). Stephen is a member of the Heidrick & Struggles Management Committee. He is an independent director for Overlay.TV and DNA13, and an advisory board member at Rypple and The Pythian Group. He has lived in Kenya, South Africa, Iraq, Argentina and Canada.

* Second in Command: The Misunderstood Role of the COO was a McKinsey Award nalist for the best article in Harvard Business Review in 2006.

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C O N TA C T I N F O R M AT I O N

If you have any questions about this survey, please contact: Michelle E. Gutman Associate Director, Corporate Governance Research Programs Arthur and Toni Rembe Rock Center for Corporate Governance Stanford Graduate School of Business Knight Management Center 655 Knight Way, C222 Stanford, CA 94305-7298 (USA) Phone: +1.650.736.7420 Email: gutman_michelle@gsb.stanford.edu

Copyright 2011 by the Board of Trustees of the Leland Stanford Junior University and Heidrick & Struggles. All rights reserved. 10.21.2011

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