Building Better Boards

February 27, 2014

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Angie Salmon, EFL Associates

CBIZ Human Capital Services, Inc.

• Leadership Structures

• Succession Planning

• Board Composition/Diversity

• Director Development

• Service Restrictions

Trends in Board Governance

www.eflassociates.com

• Define board/committee chair qualifications to utilize for evaluation and recruitment

• Independent chairs are a hot topic for shareholders

– Ranked third for proposals put forth in the 2012 proxy season

• Boards are trending toward splitting chair and CEO roles

– 45% in 2013 versus 23% ten years ago

Board Leadership

Spencer Stuart US Board Index 2013

Deloitte. “The Split CEO/Chairman Structure Debate.” The Wall Street Journal, CFO Journal 2012

www.eflassociates.com

• Responsibility of nominating/governance committees

• Lack of planning can lead to:

– Entrenchment

– Challenges to re-election of directors

– Shareholder proposals

• Institutional investors are increasingly expecting boards to have and disclose director succession plans

Board Succession Planning

Respelier, Patrick and Scott Gootee “Nominating & Corporate Governance Committee Update”Stinson Morrison Hecker Director’s Institute & 2014 Proxy Season Workshop. 4 December 2014

www.eflassociates.com

Board Succession Planning

www.cbiz.com

• Plan ahead

• Determine preferences rather than replicating

background of departing directors

• Consider long term company strategy and

emerging trends against the current and future board

composition

Hanson, Lee & Les Csorba. Heidrick & Struggles Governance Letter “Be Strategic…” 2013

Board Composition Matrix

www.eflassociates.com

Director/Candidate

Critical Requirements Preferred Attributes Totals

Cultural/Gender Diversity

Financial Expert (Audit Chair)

Industry Operations

Social Media EntrepreneurialCustomer

KnowledgeIPO Experience M&A

Sales/Business Development

Total Critical Overall Total

Illbe There     1   1     1   2 3

Justin Case   1 1     1   1   3 4

Helen Back 1 1     1   1     3 4

Ima Example 1         1     1 2 3

John Doe   1               1 1

Brian Melby   1               1 1

Jack Nimble 1             1   1 2

Industry, financial, and operational expertise cited most often

Board Composition - Diversity

www.cbiz.com

• Boardroom diversity is progressing slowly

• Customer demographics ≠ director diversity

– 73% of Fortune 500 directors are white men and four of five new board appointments are filled by men

• Lack of diverse perspectives can pose a governance risk…and PR problems (Apple, Twitter, Facebook)

• Forward-thinking boards consider skills/experience - not just titles

Catalyst, “Setting the Record Straight.” 2012

Alliance for Board Diversity. “Missing Pieces: Women & Minorities on Fortune 500 Boards” August 2013

Director Development• Orientation needs to prepare new directors for more

immediate impact

• Continued director education is critical in dynamic business environments

• Board Assessments & Evaluations

– Most significant listed companies in the US have an annual assessment process – not all are robust

– 35% of directors believe that someone on their board should be replaced

Spencer Stuart US Board Index 2012

www.eflassociates.com

Rogers, Mark. Forbes “Sarbanes-Oxley Ten Years Later” July 2012

• Limitations on executive outside board service are becoming more prevalent

• US companies are trending away from mandatory retirement and term limits– Companies with a mandatory retirement age dropped from 79% to

73% in the past five years– Only 16 companies on the S&P 500 had director term limits in

2013, none shorter than 10 years (down from 25 companies in 2009)

– 64% of directors have served 10-15 years and another 5% have served 15+ years

Service Restrictions

Hymowitz, Carol & Jeff Green. Businessnweek “Corporate Directors Get Older, Hold Their Seats Longer” May 2013

www.eflassociates.com

• Tim Barton– Executive Chairman & Founder, Freightquote.com

• Robert Druten– Audit, Finance, and Nominating/Corporate Governance Committee

Member, Kansas City Southern– Board Chair & Nominating/Corporate Governance Committee

Member, EPR Properties

• William Lyons– Nominating/Governance Committee Chair, NIC, Inc.– Nominating/Governance and Compensation Committee Member,

Morningstar, Inc.

Panel

Questions?

www.cbiz.com