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New Survey from Stanford’s Rock Center and Heidrick & Struggles Examines: Do CEOs Make the Best Board Members?


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  • 1. 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 1 2011 Corporate Board of direCtors survey
  • 2. TA B l E O F C O n T E n T S Introduction 2 Executive Summary: Key Results and Recommendations 2 Survey Questions and Descriptive Statistics 4 About The Rock Center for Corporate Governance at Stanford University 21 About Heidrick & Struggles 21 Contact Information 24Copyright © 2011 by the Board of Trustees of the leland Stanford Junior University and Heidrick & Struggles. All rights reserved
  • 3. E x Ec u t i v E S u m m a ry:K E y r E S u lt S a n d r E c o m m E n d at i o n Sdo active Ceos Make the the board and one who will actively contribute realBest Board Members? work as a director,” says Mr. Miles.New Survey from Stanford’s Rock Center and Heidrick & n CEOs of companies that have experienced publicStruggles Examines the Pros and Cons ethical lapses are seen as far more “tainted” byActive CEOs Might Be “Too Busy” to Be Effective the scandal than their boards are. “While only 37% of directors believe that an ex-CEO of a companyCEOs also more tainted by ethics lapses than that experienced substantial accounting or ethicalboard directors problems can be a good board member, 67% believeA new survey from Stanford University’s Rock Center for a director of a similarly-plagued company can,” saysCorporate Governance and Heidrick & Struggles has Professor larcker. “Some directors do see value inuncovered surprises about who makes the best board having a CEO who has experienced – and hopefullydirectors: it’s not necessarily the current CEOs that most learned from – mistakes in judgment. But far morecompanies seek out. are concerned about the stigma and perception issues in bringing aboard a CEO like this.”“The popular consensus is that active CEOs make thebest board members because of their current strategic n Boards are struggling to evaluate whetherand leadership experience,” says David larcker, professor prospective board members will be a good fit forat the Stanford Graduate School of Business. In the 2011 the company. “Fifty-one percent of directors see itCorporate Board of Directors Survey, when asked about as moderately difficult and 20% see it as extremelypotential problems a full 87 percent said that active CEOs or very difficult to gauge whether a prospect will be aare too busy with their own companies to be effective good addition to the board,” says Mr. Miles. “Boardsdirectors. A third of the respondents said that active CEOs are clearly finding it a challenge to determinewere “too bossy/used to having their own way.” someone’s ‘fit.’ A single person can ruin a great board, so boards need to spend considerable time“It’s great to have sitting CEOs on a board, but companies evaluating this very subjective quality.”need to be aware of the costs associated with havingthem,” says Stephen A. Miles, Vice Chairman at n More than half of directors think that boardleadership advisory firm Heidrick & Struggles. “Because turnover is too low. “The challenge of getting ridactive CEOs are so busy, they might be unavailable during of board members is that there is a widespreada crisis or have to cancel meeting attendance at the last assumption of board ‘tenure,’” says Professorminute. They also have less time to review materials. For larcker. “You may want to bring them on for threesome, the demands of their full-time job make it hard for to five years, but they end up staying for ten. Whilethem to consistently be as engaged as they need to be.” egregious problems might be taken care of more quickly, it is much more difficult to get rid of anAnalyzing responses from 163 directors of public and underperforming or irrelevant director who justprivate companies across north America, the 2011 happens to stay on too long.”Corporate Board of Directors Survey reveals howdirectors think about the composition of the board and n Forty-six percent of companies do not engage inthe effectiveness of various types of board members. Key succession planning for their board of directors.findings include: “Just as we found in our study last year that companies are seriously lagging in CEO successionn Despite the fact that sitting CEOs are highly planning, boards aren’t doing a great job of planning sought-after for board seats, 79% of directors for board succession either,” said Mr. Miles. “Sixty- said that, in practice, active CEOs are no better six percent of directors do believe that board than non-CEO board members. “Companies need succession planning is an important best practice, to differentiate between a CEO who brings caché to but only 54% actually do it.”2 2011 Corporate Board of direCtors survey
  • 4. n Nearly 20% of lead directors are chosen by the 3. Tread carefully when evaluating professional CEO or chairman. “For obvious reasons, CEOs directors as board candidates. “It’s important to should not choose the lead director,” says Mr. Miles. remember that boards must have a good, working “The CEO should be asked for input, but the ultimate relationship with their CEO in order to build value,” choice needs to be made by the board.” Forty-seven says Mr. Miles. “Ideally, a professional director comes percent of respondents said that their lead director from a background of multiple leadership positions was elected by the independent directors, but this where he or she has a deep understanding for what number should be much higher.” the CEO is going through. For these reasons, retiredn More than 80% of board members are somewhat CEOs have the potential to make great professional skeptical of the value of “professional directors.” directors. They can have a constructive dialogue with “Even though there has been a call among some the CEO and can really contribute strategically and for increased use of professional directors — those operationally.” who make it a full-time job to sit on boards — most 4. Take the lead director position much more directors don’t think that professional directors are seriously. “You should conduct a succession any better than traditional board members,” says process for your lead director just as you would for Professor larcker. “While some respondents believe a CEO or board seat,” says Mr. Miles. “The lead that this group’s diversity of experience is an asset director should be the most respected member on to a board, many are concerned that professional the board — a first among equals. The nominating/ board members are too busy with other directorships governance committee needs to run this process to be effective.” and make sure that the best director is in theAs companies think about who to bring onto the board position. It should never be rotational as not everythat can deliver the greatest value, Professor larcker director is suited for this leadership role.”and Mr. Miles offer the following suggestions: 5. Evaluate and refresh your board. “Of course most1. Re-think appointing the “name” CEO to the board members think they are above average,” says board. “Yes, a company gets great publicity when it Professor larcker. “It’s human nature. However, the recruits a big name onto the board,” says Professor evaluation process should be structured so that larcker, “but you really need to think about what this companies get a clear understanding of who is adding person will actually deliver in value. If they are too real value and who is not. It is time to move beyond busy or if they don’t fit the culture or have the right check-the-box board reviews and start to seriously chemistry, it might not be worth it.” evaluate the board’s effectiveness and its individual directors. Once you have this information, the chairman2. Weigh “failure” when evaluating a prospective or lead director has to be ready to have the difficult board member. “Obviously, personal ethical lapses conversation about how a director can improve, or should preclude someone from being chosen as whether it is better for them to step down.” a director, but there might be value in someone coming from a company that failed,” says Professor larcker. “Boards need to understand what this To speak with David Larcker or Stephen Miles about person’s contribution was to the failure. Did they this research survey, please contact Helen Chang, learn important lessons, or are they likely to repeat Stanford Graduate School of Business, (650) 723- past mistakes?” 3358 or; or Jennifer Nelson, Heidrick & Struggles, (404) 682-7373 or 2011 Corporate Board of direCtors survey
  • 5. Survey QueStionSa n d d e S c r i p t i v e S tat i S t i c Stotal number of respondents = 163 responses (mostly complete) collected april to May, 2011a. BaCkground 2. What is the revenue for the company that you are most closely identified with?1. What is your present position? (Please check all that apply.) Percent Percent <$500 million 31chief Executive officer 15 $500 million to $1 billion 14retired chief Executive officer 15 $1 billion to $5 billion 25chairman of the Board 17 $5 billion to $10 billion 14retired chairman of the Board 5 $10 billion to $20 billion 7lead director 10 >$20 billion 9Executive officer 13 Total Percentage 100retired Executive officer 7outside Board member 66 <$500 millionother 9 $500 million to $1 billion Chief Executive $1 billion Officer to $5 billion Retired Chief $5 billionExecutive Officer to $10 billion Chairman $10 billion of the Board to $20 billionRetired Chairman >$20 billion of the Board Lead Director 0 15 20 25 30 35 5 10 PercentExecutive Officer RetiredExecutive Officer Outside Board Member Other 0 10 20 30 40 50 60 70 80 Percent4 2011 Corporate Board of direCtors survey
  • 6. 3. What is the industrial sector for the company 5. age that you are most closely identified with? Percent Percent < 30 0natural resources 5 31 to 40 2non-durables 12 41 to 50 12durables 21 51 to 60 37regulated utility 2 61 to 70 40Wholesale/retail 7 > 70 9Financials 13 Total Percentage 100Services 26High technology 14 < 30Total Percentage 100 31 to 40 Natural Resources 41 to 50 Non-durables 51 to 60 Durables 61 to 70 Regulated Utility > 70Wholesale/Retail 0 5 10 15 20 25 30 35 40 Financials Percent 6. What is your present board service? Services 6.a. number of public, for-profit boardsHigh Technology Percent 0 5 10 15 20 25 30 0 26 Percent 1 40 2 164. gender 3 13 4 4 Percent 5 1Female 26male 74 0Total Percentage 100 1 Female 2 Male 3 0 10 20 30 40 50 60 70 80 90 100 4 Percent 5 0 5 10 15 20 25 30 35 40 Percent5 2011 Corporate Board of direCtors survey
  • 7. 6.b. number of private, for-profit boards 6.d. total number of boards - this is computed from the above three questions Percent Percent0 48 0 51 32 1 132 10 2 193 4 3 224 2 4 135 1 5 10>5 3 >5 18 0 0 1 1 2 2 3 3 4 4 5 5 >5 >5 0 10 20 30 40 50 Percent 0 5 10 15 20 25 Percent 6.c. number of not-for-profit boards Percent 7. are you a professional board member or0 35 director (a director whose primary job is to1 30 serve on boards)?2 22 Percent3 4 yes 294 6 no 715 2 Total Percentage 100>5 1 Yes 0 No 1 2 0 10 20 30 40 50 60 70 80 90 100 Percent 3 4 5 >5 0 5 10 15 20 25 30 35 Percent6 2011 Corporate Board of direCtors survey
  • 8. B. planning for neW Board MeMBers8. Who in your company is responsible for CEO identifying new candidates to serve on the board of directors (Please check all that apply): Chairman Percent Lead DirectorcEo 18 Nominating & Governancechairman 16 Committeelead director 6 Full Board of Directorsother directors 8 Externalnominating & Governance committee 28 ConsultantsFull Board of directors 15 OtherExternal consultants 6 0 10 20 30 40 50 60 70other (please specify 1 Percent 10. When does your company typically begin the CEO process of identifying candidates to serve on the board: (please check only one)? Chairman Percent Lead Director after an outgoing director has stepped down 6 While an outgoing director is in the process Other Directors of stepping down 26 Nominating Before an outgoing director announces plans & Governance Committee to step down 49 Full Board other 19 of Directors Total Percentage 100 External Consultants Other After… While… 0 5 10 15 20 25 30 Percent Before… Other9. Who in your company has primary responsibility for identifying candidates to 0 10 20 30 40 50 60 serve on the board (please check only one): Percent Percent Selected other responses: need new skillscEo 11 When a need for a particular skill set is identified or requiredchairman 14 (new expertise sought OR replacement)lead director 1 When someone that would add value to the board is identifiednominating & Governance committee 62 Ongoing with assumed 1-2 year lead; ongoing review of potential candidatesFull Board of directors 7 We are constantly looking to expand the BoardExternal consultants 2 When board assessments reveal the need for certain capabilities/other 3 skills/insights that are not currently represented on the BoardTotal Percentage 100 When modifications 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 directors7 2011 Corporate Board of direCtors survey
  • 9. 11. does your company develop a formal 13. How difficult is it to evaluate whether a written document that outlines the skills, prospective board member will be a good competencies, and experiences required choice (in terms of “chemistry,” experience, for the next board member (“skills and and knowledge) for the company? (please experience profile”)? (please check only one) check only one) Percent Percentyes 60 Extremely difficult 3no 40 very difficult 17Total Percentage 100 moderately difficult 51 Slightly difficult 22 not at all difficult 7 Yes Total Percentage 100 No Extremely 0 10 20 30 40 50 60 70 80 90 100 di erent Percent Very di erent12. (if yes to q11) How different is the skills Moderately di erent and experiences profile for your next board member from the skills and experiences Slightly di erent profile of the outgoing director (please check only one): Not at all di erent Percent 0 10 20 30 40 50 60Extremely different 4 Percentvery different 21 14. is the present turnover of board members onmoderately different 46 u.s. Corporate Boards (please check only one)Slightly different 20not at all different 9 PercentTotal Percentage 100 much too low 8 low 47 about right 44 Extremely di erent High 1 Very di erent much too high 0 Total Percentage 100 Moderately di erentSlightly di erent Much too low Not at all Low di erent 0 10 20 30 40 50 60 About right Percent High Much too high 0 10 20 30 40 50 60 Percent8 2011 Corporate Board of direCtors survey
  • 10. C. Board suCCession planning 17. (if yes to q15) How often is board succession planning discussed in formal board or15. does your company engage in succession committee meetings (please check only one): planning for the board of directors? (please check only one) Percent Percent one meeting per year 24yes 54 two meetings per year 36no 46 more than two meetings per year 33Total Percentage 100 Every few years 6 never 1 Total Percentage 100 Yes No One meeting per year Two meetings 0 10 20 30 40 50 60 70 80 90 100 per year Percent More than two meetings per year16. (if yes to q15) Where is board succession planning primarily discussed (please check Every few years only one): Never Percent 0 5 10 15 20 25 30 35 40meetings of the full board 21 Percentmeetings of the nominating andgovernance committee 71 18. Which of the following statements bestinformally among directors 4 summarizes your opinion of board successionother (please specify) 4 planning (please check only one):Total Percentage 100 Percent it is an important best practice 66 Meetings of the full board it is useful only when the board has critical directors Meetings of whose loss would be very bad for the company 26 the nominatingand governance it is not useful at all 8 committee Informally Total Percentage 100among directors Other 19. does your company have board members (please specify) with an expertise in Ceo succession planning 0 10 20 30 40 50 60 70 80 (i.e., they have led or have participated in Percent 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 Percent9 2011 Corporate Board of direCtors survey
  • 11. 20. (if yes to q19) Which of the following directors have expertise in succession planning (please Yes check all that apply): No Numberchairman 79 0 10 20 30 40 50 60 70 80 90 100lead director 48 Percentchair of the nominating and Governance committee 69director(s) other than these 93 23. What traits of active Ceos make them attractive board candidates (please check all Meetings of that apply): the full board Meetings of Percent the nominatingand governance Strategic expertise 77 committee Informally risk management expertise 45among directors operational expertise 74 Other (please specify) Experience responding to a crisis or failure 43 0 10 20 30 40 50 60 70 80 leadership qualities 67 Percent Extensive personal and/or professional networks 46 other (please specify) 1321. When recruiting for an open board seat, does your company consider whether a candidate has previous experience in Ceo succession Strategic expertise planning? Risk manage- ment expertise Percent Operationalyes 24 expertiseno 76 ExperienceTotal Percentage 100 responding… Leadership qualities Yes Extensive personal… No Other 0 10 20 30 40 50 60 70 80 0 10 20 30 40 50 60 70 80 90 100 Percent Percent Selected other responses:d. Ceos as Board MeMBers Current knowledge22. are directors who are active Ceos better than Current industry knowledge non-Ceo board members? Current issues, current issues experience Percent External global market dynamics perspectiveyes 21 ability to identify with the Ceo in terms of issuesno 79 They are currently “in the flow” of business issuesTotal Percentage 100 They are currently experiencing some of the same problems as our CEO Retired CEOs bring considerable perspective but not the immediacy of serving CEOs10 2011 Corporate Board of direCtors survey
  • 12. 24. What traits of active Ceos make them 26. are directors who are retired Ceos better unattractive board candidates (please check all than average board members? that apply): Percent Percent yes 46too busy with their company to be effective directors 87 no 54too interested in networking/promoting their Total Percentage 100own company to be effective directors 21too bossy/used to having their way 33not good collaborators 28 Yesother (please specify) 5 No Too busy… 0 10 20 30 40 50 60 70 80 90 100 PercentToo interested… 27. How many years before the experiences of Too bossy… a retired Ceo become outdated and are no Not good longer valuable to current board service? collaborators Percent Never less than 3 years 10 0 20 40 60 80 100 more than 3 but less than 5 years 16 Percent more than 5 but less than 10 years 20Selected other responses: more than 10 years 16Big ego cEo experience never becomes outdated 38not good listeners Total Percentage 100Too generous with compensation Less than 3 years25. are directors who are retired Ceos better More than 3 but board members than active Ceos? less than 5 years More than 5 but Percent less than 10 yearsyes 55 More than 10 yearsno 45Total Percentage 100 CEO experience never outdated 0 5 10 15 20 25 30 35 40 Percent Yes No 0 10 20 30 40 50 60 70 80 90 100 Percent11 2011 Corporate Board of direCtors survey
  • 13. 28. Can an ex-Ceo of a company that not a good fit as ability to assess risk may be deficient experienced substantial accounting and Assuming the problems occurred during his/her tenure, there is ethical problems be a good board member at a reputational risk that may affect his/her ability to perform well another company? (please check only one) If the issues arose on the CEO’s watch they should have had Percent the processes in place to see the risks and correct before they became problems for the company, the employees andyes 37 shareholdersno 63 earnings experience may be a good teacherTotal Percentage 100 A good CEO learns why he missed the flaws, and does not drop the ball twice, though be careful of flawed characters. Yes As long as the CEO was not involved (aware of or acting in) in personal egregious behavior and the CEO is able to openly No speak to lessons learned so that Board can learn from his/her experience. However, there may always be a question mark around that person 0 10 20 30 40 50 60 70 80 90 100 I would say yes depending on the situation — if the CEO has Percent learned from the mistake, he/she could be very valuable They may be a productive board member in a private company29. please briefly explain your answer to q28 depending on their expertise in the segment or growth initiatives that do not track cultureSelected other responses: If the CEO recognized the deficiencies and tried to benot a good fit due to credibility and ethical issues transformational, then yes. But if the CEO accepted statusDirectors need to be role models for ethical behavior quo, then noEthical problems are not caused by a lack of knowledge, they There either is or is not a culture of ethical behavior andare caused by character flaws (and character doesn’t change) compliance or not. The CEO sets the tone. HOWEVER, there are CEOs who have inherited problems they did not create andI would have more problems with the ethical issues than the they should not be blanketed with the above statementaccounting ones, but both are problematic — he/she was incharge. These problems may have strengthened the CEOs ability to respond effectively and plan proactivelyAlthough I think someone with this experience could be great,the stigma and perception issues would prevent them frombeing effective 30. Can a board member (not the Ceo) at aMay have difficulty establishing credibility/trust, however company that experienced substantialdepends on who caused them, but it does show a problem accounting and ethical problems be a goodmanaging and controlling information and risk board member at another company? (please check only one)Tone at the top is a key driver of corporate culture and theCEO is the most influential person in setting tone at the top. PercentAccounting and ethics issues at his / her company are usuallythe result of problems with CEO performance. yes 67 no 33not a good fit due to potential reputational andjudgment issues Total Percentage 100Absolutely not. This concept smacks of ‘reward for badbehavior’ thinking. Different if the CEO went in and reversedthe problems. YesThe risk to the new organization is too difficult to assess Norelative to the upside. Was it a failure in oversight, knowledge,other? How does the board assess whether the CEO haslearned from the past problems adequately? How can the 0 10 20 30 40 50 60 70 80 90 100board assess this? PercentReputation risk outweigh[s] the experience12 2011 Corporate Board of direCtors survey
  • 14. 31. please briefly explain your answer to q30 e. separating tHe CHairMan and Ceo positionsSelected other responses: 32. does your company separate the Chairmanok if not closely involved-is highly situation dependent and Ceo roles? (please check only one)As long as they are not too closely associated with the scandal Percentand the perception is that this particular board member wasnot complicit in the problems yes 68Each circumstance can be different. A board member must no 32rely on information supplied to him. You can question, but not Total Percentage 100get honest answersIf this board member was part of the solution and not part ofthe problem, (s)he might make an outstanding board member Yesnot a good fit due to potential reputational, judgmentand trust issues NoAlthough less strongly than the explanation to the preceding 0 10 20 30 40 50 60 70 80 90 100question (we may think of mitigation factors such as thebehavior of the Board Member in trying to prevent or resolve Percentthe problem), there is also a potential reputational riskinvolved… 33. (if yes to q32) How many years ago were theIf it is not the CEO or the CFO - possibly. Even then you have positions separated?to decide if it is worth the reputational risk to the company PercentAt the end of the day it is the Board that shareholders placetrust in and they must have and show understanding of the 1 6company’s accounts 2 8Most likely not since the level of the person being recruited to 3 11the Board is C Suite and they are responsible for running the 4 8Enterprise along with their peers and CEO 5 16Yes, if they were brought in to solve the problem. no if they 6 to 10 24were part of the problem. If they were part of ethical issues,nEVER! >10 8yes– experience is a good teacher always 19 Total Percentage 100A good director learns why he missed the flaws, and does notdrop the ball twice, though be careful of flawed characters.As long as the person was not the cause of the problem — 1s/he must have high integrity and scrupulous ethicsAssuming the Board member was not involved in the 2irregularities, he or she should have learned valuable lessonsfrom the experience 3If the director was the person who uncovered the problemsand led the investigation, he/she could be a great board 4member. In contrast, if he/she was there for a decade andnever dug into issues that ultimately proved problematical… 5This truly depends on the situation. For example, if a new 6 to 10board member was instrumental in discovering the problems,then this board member is hugely valuable to others! > 10 Always 0 5 10 15 20 25 Percent13 2011 Corporate Board of direCtors survey
  • 15. 34. (if yes to q32) What event or events caused 36. (if yes to q35) is this separation expected to the separation of Ceo/Chairman positions? be permanent or temporary? (please check all that apply) Percent Percent Permanent 95Pressure from large shareholders 4 temporary 5Proxy advisor (iSS or Glass-lewis) recommendation 4 Total Percentage 100legislative action 2Board members view this as a best practice 38 Yesit has always been the case for our company 25other 20 No Pressure from 0 10 20 30 40 50 60 70 80 90 100large shareholders PercentProxy advisor (ISS or Glass-Lewis) recommendation Legislative action f. lead independent direCtor Board members view this 37. does your company have a lead independentas a best practice director? It has always been the case… Percent Other yes 50 no 50 0 5 10 15 20 25 30 35 40 Total Percentage 100 PercentSelected other responses: YesConcern over leadership qualities of promoted CEOPart of implementation of succession plan. needed Notransition periodRetirement of the previous CEO and hiring of a new first time 0 10 20 30 40 50 60 70 80 90 100CEO who the board felt needed mentoring Percent35. (if yes to q32) is the separation due to a Ceo succession event? Percentyes 41no 59Total Percentage 100 Yes No 0 10 20 30 40 50 60 70 80 90 100 Percent14 2011 Corporate Board of direCtors survey
  • 16. 38. (if yes to q37) How is the lead director 40. (if rotated to q38) How frequently is the lead selected? director position rotated? Percent Percentchosen by the cEo or chairman 18 Every year 20chosen by the nominating and Every 2 years 60Governance committee 21 Every 3 years 0Elected by independent directors 47 no set schedule 20rotated among independent directors 7 Total Percentage 100other reason 7Total Percentage 100 Every year Chosen by the Every 2 yearsCEO or chairman Chosen by Every 3 years the Nominatingand Governance Committee No set schedule Elected by independent directors 0 10 20 30 40 50 60 Rotated among Percent independent directors 41. (if yes to q37) is the lead independent director at your company the senior-most outside Other reason (nonexecutive) director? 0 10 20 30 40 50 Percent Percent yes 40 no 6039. (if elected to q38) How frequently does the lead director election occur? Total Percentage 100 Percent YesEvery year 43Every 2 years 12 NoEvery 3 years 12 0 10 20 30 40 50 60 70 80 90 100no set schedule 33 PercentTotal Percentage 100 42. (if yes to q37) is the lead independent director Every year at your company the most highly respected nonexecutive director? Every 2 years Percent Every 3 years yes 39 no 61No set schedule Total Percentage 100 0 10 20 30 40 50 Percent Yes No 0 10 20 30 40 50 60 70 80 90 100 Percent15 2011 Corporate Board of direCtors survey
  • 17. 43. (if yes to q37) does the lead independent g. professional Board MeMBers director have personality attributes (such as the ability to build consensus) that specially equip In the following questions, we refer to a professional this person to be effective in this position? board member as a director whose primary job is to serve on boards (i.e., these individuals have prior Percent executive experience, but currently they have no otheryes 86 full-time job than to sit on boards). Traditional boardno 14 members are individuals that either have a full-time job or other professional interests. Most of their annual incomeTotal Percentage 100 is not derived from compensation for board positions. Yes 46. do you have any professional directors on your board? No Percent yes 63 0 10 20 30 40 50 60 70 80 90 100 Percent no 37 Total Percentage 10044. (if yes to q38) does the lead independent director have prior board experience that is more extensive than the average director? Yes Percent Noyes 55 0 10 20 30 40 50 60 70 80 90 100no 45 PercentTotal Percentage 100 47. are professional directors better than Yes traditional board members? Percent No yes 19 0 10 20 30 40 50 60 70 80 90 100 no 81 Percent Total Percentage 10045. Which of the following statements best summarizes your opinion of the lead Yes independent director position in your company (please check only one): No Percent 0 10 20 30 40 50 60 70 80 90 100it is an effective position that is a best practice 81 Percentit is something that is done to simply satisfyexchange listing requirements 7it is something that is simply “window dressing”for our shareholders 12Total Percentage 100Effective position Exchange listing requirementsWindow dressing 0 20 40 60 80 100 Percent16 2011 Corporate Board of direCtors survey
  • 18. 48. What traits about professional board members make them attractive board Too busy with directorships candidates (please check all that apply): Too interested in networking/ Percent promoting LackExperience with multiple companies 86 independencediversity of background 62 No experienceExperience with successful companies 58Experience with failed companies 36 Doing this for the moneyExperience managing a crisis 50 Too oldExtensive professional networks 40 Other Experience with multiple 0 10 20 30 40 50 60 companies Percent Diversity of background Experience with successful companies H. Board oBservers Experience withfailed companies In the following questions, we refer to a board observer Experience as an individual who attends board meetings ormanaging a crisis committee meetings, but is neither a full-time boardExtensive profes- member nor a paid consultant. sional networks 50. does your company have board observers? 0 20 40 60 80 100 Percent Percent yes 1749. What traits of professional board members make them unattractive board candidates no 83 (please check all that apply): Total Percentage 100 Percenttoo busy with other directorships to be effective 56 Yestoo interested in networking/promoting their Noown career to be effective 27lack independence (because they rely ondirector fees as primary income) 24 0 10 20 30 40 50 60 70 80 90 100 Percentno current experience in executive position 31they are simply doing this for the money 26too old 16other 1017 2011 Corporate Board of direCtors survey
  • 19. 51. (if yes to q50) How many board observers are present in a typical meeting? Yes Percent No1 322 5 0 10 20 30 40 50 60 70 80 90 1003 0 Percent4 26 54. if yes to q53 do these positions rotate among>4 37 internal managers of the company (e.g., a newTotal Percentage 100 person(s) every year or every other year)? Percent 1 yes 23 no 77 2 Total Percentage 100 3 4 Yes >4 No 0 5 10 15 20 25 30 35 40 0 10 20 30 40 50 60 70 80 90 100 Percent Percent52. (if yes to q50) How are board observers 55. (if yes to q50) are board observers ever compensated for their services? (please check (please check all that apply) all that apply) Percent Percent investors 21cash 12 customers 1options or stock 4 Suppliers 0they are not compensated 84 Employee representatives 18Total Percentage 100 other 25 Cash InvestorsOptions or stock Customers They arenot compensated Suppliers 0 20 40 60 80 100 Employee Percent representatives Other53. (if yes to q50) do any of your board observers include internal management employees 0 5 10 15 20 25 that have high potential to become senior Percent executives within the company? Percentyes 52no 48Total Percentage 10018 2011 Corporate Board of direCtors survey
  • 20. 56. (if yes to q50) How are board observers identified and sourced? (please check all Deeper company knowledge that apply): Deeper industry Percent knowledgemanagement recommendation 46 Deeper functional knowledgedirector recommendation 18 Scientificrecommendation by an investor 1 Knowledgerecommendation by a consultant 4 Regulatory Knowledgerecommendation by an outside third party 0 Businessother 18 Relationships Governmental Relationships Managementrecommendation Other Directorrecommendation 0 10 20 30 40 50 60 70 80Recommendation by an investor PercentRecommendation by a consultantRecommendation 58. (if yes to q50) Which of the following are most by an outside likely to have a board observer (please check all third party that apply): Other Percent 0 10 20 30 40 50 meeting of the full board 79 Percent meeting of the audit committee 39 meeting of the compensation committee 2157. (if yes to q50) What value do board observers meeting of the nominating and governance committee 11 add to the company? (please check all that meeting of a specialized committee apply): (such as finance, risk, technology, etc.) 14 Percentdeeper company knowledge 61 Meeting of the full boarddeeper industry knowledge 29 Meeting of thedeeper functional knowledge 29 audit committeeScientific Knowledge 4 Compensation committeeregulatory Knowledge 21 NominatingBusiness relationships 25 and governance committeeGovernmental relationships 4 Specializedother 11 committee 0 10 20 30 40 50 60 70 80 Percent19 2011 Corporate Board of direCtors survey
  • 21. 59. (if yes to q50) does the presence of a board 60. (if yes to q50) Has a board observer ever been observer influence the discussion or level of added to the board as a full voting member? candor in the formal boardroom? Percent Percent yes 17yes 17 no 83no 83 Total Percentage 100Total Percentage 100 Yes Yes No No 0 10 20 30 40 50 60 70 80 90 100 0 10 20 30 40 50 60 70 80 90 100 Percent Percent20 2011 Corporate Board of direCtors survey
  • 22. 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 kc 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 dHeidrick & StruGGleSabout stanford university’s rock Center for about Heidrick & strugglesCorporate governance Heidrick & Struggles International, Inc., (nasdaq:HSII)The Arthur and Toni Rembe Rock Center for Corporate is the leadership advisory firm providing executiveGovernance is a joint initiative of Stanford law School search and leadership consulting services, includingand the Stanford Graduate School of Business, created succession planning, executive assessment, talentwith the idea that advances in the understanding and retention management, executive development, transitionpractice of corporate governance are most likely to consulting for newly appointed executives, and M&Aoccur in a cross-disciplinary environment where leading human capital integration consulting. For almost 60academics, business leaders, policy makers, practitioners years, we have focused on quality service and builtand regulators can meet and work together. The Rock strong leadership teams through our relationships withCenter’s goal is to conduct research and tap this wealth clients and individuals worldwide. Today, Heidrick &of expertise to advance the practice and study of Struggles leadership experts operate from principalcorporate governance. The Rock Center works closely business centers globally. . For more information aboutwith the Corporate Governance Research Program. Heidrick & Struggles, please visit 2011 Corporate Board of direCtors survey
  • 23. 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 (650) 725-6159 Email Professor larcker’s 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. Dave’s 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.22 2011 Corporate Board of direCtors survey
  • 24. stepHen a. Miles Vice Chairman, Heidrick & Struggles Phone (404) 538-0119 Email Stephen Miles is a vice chairman of Heidrick & Struggles. He runs leadership Advisory Services within the leadership Consulting Practice and oversees the firm’s worldwide executive assessment and succession planning activities. He is also a key member of Heidrick & Struggles’ Chief Executive Officer & 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 officer, 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 Practice’s 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 profiled 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 Officer, 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 Team—Complementary Strengths or Conflicting Agendas? Great top teams work to their members’ disparate strengths—but 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 finalist for the best article in Harvard Business Review in 2006.23 2011 Corporate Board of direCtors survey
  • 25. c o n ta c t i n f o r m at i o nIf you have any questions about this survey, please contact:Michelle e. gutmanAssociate Director, Corporate Governance Research ProgramsArthur and Toni Rembe Rock Center for Corporate GovernanceStanford Graduate School of BusinessKnight Management Center655 Knight Way, C222Stanford, CA 94305-7298 (USA)Phone: +1.650.736.7420Email: gutman_michelle@gsb.stanford.eduCopyright © 2011 by the Board of Trustees of the leland Stanford Junior University and Heidrick & Struggles. All rights reserved.24 2011 Corporate Board of direCtors survey