The Korn/Ferry Market Cap 100 Board leadership at America’s most valuable public companies About the 2010 Korn/Ferry Market Cap 100

The Korn/Ferry Market Cap 100 (KFMC100) comprises the U.S. companies traded on the NYSE or NASDAQ , excluding public investment firms, with the largest market capitalization as of the close of market on May 3, 2010, after reporting for the 2009 fiscal year. Data about the companies’ boards, compiled from proxies related to fiscal year 2009, provide the baseline for this report.

B Contents

Introduction ...... 2

Board leadership in an era of change ...... 4

What’s in a name? ...... 4

Portrait of a lead director ...... 6

Interview with Mark Ketchum ...... 8 Lead director, Kraft Foods

Adding value to the board ...... 12

Interview with Irv Hockaday ...... 14 Presiding director, Ford Motor Co. and Estée Lauder Companies Inc.

Committee membership and leadership ...... 16

Leadership succession on the board ...... 18

Assessing the need for terms ...... 19

Interview with Bonnie G. Hill ...... 20 Lead director, The Home Depot, Inc.

Compensating for time and value ...... 22

Final thoughts and best practices ...... 24

Appendix A ...... 25 Board data

Appendix B ...... 32 List of the KFMC100 companies

Appendix C ...... 35 List of the KFMC100 non-executive board leaders Introducing the Korn/Ferry Market Cap 100

The Korn/Ferry Market Cap 100 (KFMC100) marks a new approach to the governance research our firm has undertaken for thirty-five years. We’ve chosen to examine the United States’ one hundred most valuable compa- nies, working from the assumption that leadership models represented on these boards are worth observing and emulating.

In this first KFMC100 report, we focus on non-executive board leadership in this elite subset of boards. Among our top-line findings:

There is no rush to split the role of chairman and CEO. Non-executive chairmen remain rare, leading only 9 percent of boards in the KFMC100. By comparison, 19 percent of S&P 500 boards have non-executive chairmen.

Current or former CEOs are the most sought-after group for the role of non-executive board leader. About three-quarters of non-executive board leaders have held one or more top corporate title (chairman, president, or CEO) and 8 percent are active CEOs at public companies.

Thirteen percent of companies rotate the role of non-executive board leader. This model clearly works well for some companies, but poses additional challenges, including maintaining available talent and ensuring continuity in the board’s important work.

Outside of these boardrooms, the bigger corporate governance picture continues to develop. The dramatic economic hemorrhaging of 2008 led to additional scrutiny of boards, with shareholder groups and the news media criticizing boards for any perceived lack of independence. While the causes of our economic woes have proven far more complex and widespread than the actions of some boards, the result has been a raft of new regulations from Washington addressing “say on pay,” proxy access, and CEO succession plans.

At the same time, the role of the of non-executive board leader is growing. The non-executive board leader position began as a means of meeting an independence requirement, but today the role increasingly is being leveraged to create efficiency and additional value in the boardroom. The role must be tailored to the culture of individual boards, of course, but some best practices are beginning to crystallize.

2 To determine what top boards are doing in the area of non-executive board leadership, we engaged in a two-step process. First, we examined the KFMC100 to get a clear picture of non-executive board leaders, including their backgrounds and experience, their responsibilities on the board, and their compensation. We also looked at similar data for all directors in this group. Second, we interviewed three non-executive board leaders to get a closer look at how this evolving role is changing the face of governance. Specifically, we probed for the board’s role in shaping strategy, managing risk, and leadership succession.

The following report provides both statistical and anecdotal insights. In addition, we have folded in our own views, developed over the course of hundreds of board-level search and consulting engagements for the largest companies in the United States. We hope the practices we’ve highlighted will help boards determine how to select, evaluate, compensate, and establish a succession planning process for the non-executive board leader.

Finally, we would like to thank Bonnie Hill, lead director of The Home Depot, Irv Hockaday, presiding director of Ford Motor Company and Estée Lauder, and Mark Ketchum, lead director of Kraft Foods for generously sharing their time and valuable perspectives.

We welcome your comments and queries, whether regarding this report or any of the challenges your board may be facing.

Dennis Carey Stephen P. Mader Vice Chairman Vice Chairman Board leadership in an era of change

At Korn/Ferry International, we have heard more than one observer compare change on corporate boards to watching a glacier move. No more. Amid an atmosphere of panic and recriminations stemming from the 2008 financial crisis, political and media attention directed at corporate boards surged. Warranted or not, the focus on board performance—especially on Rotating the role risk mitigation, CEO pay, and succession—has fueled major regulatory Companies that rotate non-executive changes intended to foster greater independence and board oversight. In leadership may switch it up each meeting, every six months, or once a year. The most particular, the Dodd-Frank Act, signed into law on July 21, 2010, requires common practice is to have the executive further disclosure on company proxies, including on whether the CEO session led by the chair of the committee and chairman of the board roles are split and why companies chose a whose subject matter is the principal topic of discussion. given approach.

Examples of how boards rotate the role, Such rules and public pressure will continue to compel boards to 100 from several proxy statements of KFMC demonstrate independent board leadership. What is unknown is precisely companies: how boards will do that, or what specific responsibilities will fall to “The role of presiding director alternates the non-executive board leader. Each company has a unique culture, so each six months between the chair of the best practices will be adapted more than transplanted. The exact shape compensation committee…and the chair non-executive leadership takes should remain the board’s decision. of the governance committee.”

“Directors serve as the chairperson, or Today’s non-executive board leader—sometimes referred to by the presiding director, for these executive shorthand “lead director”—plays a key role in determining not only what sessions on a rotating basis (meeting-by- meeting) in accordance with years of service the board will focus on but also how it will fulfill its responsibilities. One on the board.” might think of the board leader as the conscience of the board.

“The independent directors will serve as lead Central to success is the relationship between this individual and the director in turn, rotating in alphabetical order.” CEO. Communications between the two should be entirely candid. The “The discussion leader position rotates non-executive board leader operates as the CEO’s thought partner, providing annually among the chairs of each of the insights into the board’s thinking, and conveying good news as well as bad. independent board committees.” The board, too, must view the non-executive board leader as an honest broker. With those building blocks in place, the non-executive board leader represents a potentially powerful vehicle for enhanced board performance.

What’s in a name?

From our perspective, independent board leadership is a rising value proposition, but the specific title given to a non-executive board leader does not appear to have significance. Whether that person is called a lead director, presiding director, or non-executive chairman, there is little difference in responsibilities. The only actual pattern we have observed is related to the title of non-executive chairman. While a few companies have a tradition of non-executive chairmen, that title also surfaces temporarily during a period of transition, such as during a CEO succession or after a crisis.

100 Contrary to frequent media reports suggesting there is a surge to KFMC companies with non-executive chairmen implement non-executive chairmanship, we found that only nine companies among the KFMC100 have adopted that model. > Bank of America Corp. > Intel Corp. > Citigroup, Inc. > McDonald’s Corp. Figure 1 Titles for non-executive board leaders in the KFMC100 > Walt Disney Co. > Walgreen Co.

Titles were taken from companies’ 2009 proxy statements. If no title was specifically indicated, > Unitedhealth Group, Inc. the title of the individual who chairs executive sessions was used. > Mastercard Inc. > Newmont Mining Corp.

Title Count Lead director 49 Co-lead director 1 Rotating lead director 2 Non-executive chairman 9 Presiding director 28 Rotating presiding director 10 Rotating discussion leader 1

The practice of having a non-executive chairman is notably more prevalent among the Standard & Poor’s 500; 19 percent of the S&P 500 had non-executive chairman during fiscal 2009, compared with the 9 percent we found in the KFMC100 . This may be because the S&P 500, which encompasses a wide range of performance levels and track records, has responded more to pressure to implement what are perceived to be improvements and best practices. Only 9 percent of the KFMC100 have non-executive The CEO was not chairman at an additional twelve companies in the chairmen. By comparison, 19 percent of KFMC100; in most of those cases, the S&P 500 did. another insider was chairman of the board, such as the former CEO, a founder, or a member of the founding family. But so far, the largest, most valuable companies—represented by the KFMC100—appear more prone to leave the CEO/chairman roles combined. Portrait of a lead director

In our daily work with boards, we’re seeing the role of non-executive board leaders evolve. When the designation of a non-executive board leader was just starting to be implemented, the main objective was to find someone capable of filling the role. In many cases that person was the senior-most director; some boards had a revolving board leader, with directors on the board taking turns for defined periods.

Boards that are learning to reap the benefits of independent board leadership are ahead of the curve. They recognize how beneficial the right leader is to board effectiveness and approach the selection process in much the same way a CEO would approach selecting a key member of his or her management team. They take into account background, experience, and personal characteristics. They ask themselves if this person would be a good partner and advisor to the CEO, which they are defining as a key ingredient.

But before they leverage the role fully, they have to define what it is. While admittedly few boards have yet done so, the process starts with building a position specification comprising key responsibilities and characteristics. The spec of an ideal board leader (see “The position specification” sidebar) can then serve as a yardstick for prospective non-executive board leaders. Boards may define the role slightly differently, but they must define it; there should be no ambiguity.

The position specification: non-executive board leader

Most boards have yet to formalize Key responsibilities Acts as liaison between chairman, members the job responsibilities of the of the board (collectively and individually). non-executive board leader, and they Chairs all executive sessions, and—in the will naturally vary by the situation. absence of the CEO/chairman—meetings of In cooperation with the CEO, responds to As a starting point, here are the the board. Calls meetings of independent shareholder inquiries and approves company requirements and characteristics directors when necessary. responses to outside communication. cited most frequently during our engagements. Consults with chairman and directors on Works with the chair of the compensation meeting schedule, agenda and materials. committee on CEO performance evaluation Provides information on topics to be and compensation. discussed and ensures directors will be prepared. Determines who should attend board meetings, including members of management and outside advisors.

6 The responsibilities of the non-executive board leader position are fairly straightforward, reflecting regulatory requirements designed to ensure proper independent oversight. The personal characteristics are more open to interpretation, but are the essential ingredients of excellence. The role is very demanding, and the prospective leader must have the energy and ability to engage other directors, as a team and individually, to ferret out their views. He or she must also be a strong communicator, capable of conveying prevailing and minority opinions to the CEO.

Beyond keen business judgment, a board leader is expected to have an in-depth understanding of the organization’s specific strategic and operating issues so as to serve as a close counsel to the CEO. Accordingly, a large percentage of non-executive board leaders are active or former CEOs, which likely gives them an empathetic view of the challenges a CEO faces.

The non-executive board leader About three-quarters of non-executive board leaders must command the respect of his or in the KFMC100 have been corporate chairmen, her peers, accomplished executives presidents and/or CEOs. in their own right. He or she must possess the stature and social skills required to influence and guide, rather then dictate. This individual should lead by example, possess unassailable personal and professional integrity, and be even-tempered, courageous, and confident—especially when faced with a crisis.

Advises the nominating/governance Personal characteristics Known to have mastery of company-specific committee on the selection of committee strategic/operating issues. Keen business chairs and board members. Advises the Has the time and emotional energy to devote judgment in general. committee chairs. to board leadership. Shows a passion for governance. Characterized by a personal authenticity that Presides over the board evaluation process. fosters genuine communication with trust. Engages other directors. Listens well and Ensures that the board has the appropriate draws out ideas. Can integrate and crystallize Is a “master facilitator” who can sense performance monitoring tools in place. varying views. underlying issues, dodge tangents, and create focus. Exhibits proficiency at influence, diplomacy and social skills. Seen as even-tempered, or a Experienced with success and failure and voice of reason. comfortable with the reality of both. Ensuring success of the strategy

Interview with Mark Ketchum

When Mark Ketchum joined the role of lead director. “She thought I Kraft board in 2007, the CEO, Irene had the right personality and that I Rosenfeld, had been in that role could represent the other Board less than a year. It was a period members effectively,” he recalls. of tremendous change for Kraft: “She and I had a good rapport and The company had just spun off she knew she could talk candidly “Public companies where from Altria Group and Rosenfeld with me. As a CEO, I identified had embarked on an ambitious with the need to have a peer to use the CEO and chairman three-year turnaround plan. as a sounding board; I know being are one and the same— a CEO can be a lonely job.” Kraft included—now feel “The spin-off provided a unique opportunity to virtually build the Soon thereafter, Kraft began the obligated to have a lead board from the ground up, along long and convoluted process of director. We’re moving, as best practice lines,” says Ketchum. acquiring Cadbury, a deal that a board, from simply Kraft started with a model finally closed in January 2010. fulfilling that requirement selection process—mapping out the experience needed in its As lead director, Ketchum served as to figuring out how to directors, assessing current skill a funnel and filter for information best leverage the role.” sets, identifying gaps, and adding from the board to the CEO, who an ongoing board evaluation was knee-deep in the details of process. The company also intended the acquisition. “It is my job to Mark Ketchum Lead director, Kraft Foods to better leverage its lead director— represent the range of views on the a decision that when former lead board, including the minority director Mary Shapiro was tapped viewpoint, which can be hard to to head up the SEC quickly got surface in a large group, especially stress-tested. with quieter board members. But their opinions can be critical,” Ketchum had been on the board Ketchum explains. “A good lead a little more than a year when director is a good facilitator. If we Rosenfeld asked him to take on the hadn’t had a lead director, I don’t believe we would have had the richness of discussion we did.”

8 Likewise, managing the board’s The completed deal advanced directors, Kraft has implemented a workflow throughout the intense Kraft’s strategy, as articulated by rigorous process designed to raise deal period was crucial. Ketchum CEO Rosenfeld, to use Cadbury’s the performance of individual helped determine what work the strength to grow in emerging directors as well as the whole board whole board would focus on, what markets. as a team. could be handled by a committee, and what would require external “Strategy has always been a focus The process is managed by the input. “We had recently added a of Kraft’s board,” says Ketchum. chair of the nominating/governance finance committee to the board, “The directors have expressed a committee, who meets individually and they were invaluable when it desire to dig in even more, so we with board members to gather came to examining the fine details; always make time for it.” One their feedback on the board’s not everything could or should fall solution has been to carve out time performance and their own. Both on the entire board,” says Ketchum. for an annual off-site meeting—in the committee chair and Ketchum Kraft’s case two days—devoted subsequently provide feedback— He worked to strike the balance solely to strategy. confidentially, of course—to each where all the directors felt director on how peers view his or comfortable with their involvement. “I work with fellow board members her contribution. Says Ketchum, “It was our necks—all of our and management to set the agenda,” “As individuals and as a team, necks—that were ultimately on explains Ketchum. “One year, for there are always things we can do the line. A deal of this magnitude example, we might focus on a better, and our board recognizes requires a high degree of individual competitive analysis.” Then, the need to continuously improve responsibility which you can’t throughout the year, the board to properly execute our substantial delegate to a committee, no matter revisits the strategy, diving deeper responsibilities.” how capable it is,” says Ketchum. into specific issues explored at As the Cadbury deal progressed, the off-site. the full board wanted to be involved in everything, so Ketchum helped Kraft is also focused on increasing divvy up the huge workload in board effectiveness. While most a way that maintained board boards still have not tackled the oversight but also ensured all the tricky task of assessing individual required work was accomplished in a timely manner.

9 The KFMC100 non-executive board leaders are overwhelmingly former chairmen, presidents and/or CEOs: About three-quarters of non-executive board leaders in the KFMC100 have held one or more of those senior- most titles.

Eight percent are, in fact, active CEOs at other public companies (some also in the KFMC100). This is a testament to the skills and dedication 40 of those individuals that they could take on such demanding roles 50% concurrently. 35 30 40% Several other backgrounds25 are represented in the pool of non-executive board leaders, including government/military, other corporate executive, 20 30% and CFO—although each 16%tallies Female 3 percent directors or less. The group is more than 15 90 percent male, white and U.S. citizens. The homogeneity of the group 20% isn’t particularly surprising;10 It reflects the lack8% of Female diversity lead directors in the CEO ranks of a decade ago, 5since this group comprises so many former CEOs. 10% 0 It seems logical that a former CEO’s background and experience would be 0% highly desirable in a non-executive board leader. These are generally corporate senior statesmen who must facilitate discussions and help directors coalesce around important issues. A former CEO’s operations experience, combined with a perspective on the overall mission of the board, mean he or she can be a successful integrator

Figure 2 Percentage of female directors and lead directors in the KFMC100

50%

16% Female directors

8% Female lead directors

0%

10 40 Board leaders 40 35 35% Board leaders All directors 40 35 32% 30 30% All directors 35 25 25% 24% 30 20 20% 25 15 15% 20 10 10% 15 5 4% 3% 0 10 Under 60 60-64 65-69 70-74 75 and older

5 Under 60 60-64 65-69 70-74 75 and older 0

Figure 2.1 Percentage of directors and lead directors by age group in the KFMC100

50% All directors

Lead directors 35% 32% 30%

25% 24% 40 20% 35 15% 30 10%

25 3% 4%

20 0% Under Age Age Age Age 75 15 age 60 60-64 65-69 70-74 and older

10

5 Also in line with their status as primarily retired CEOs, non-executive 0 board leaders tend to be older than directors generally; their median age is 67. One-third are over the age of 70. Only 10 percent are under the age of 60. The senior age range of non-executive board leaders raises the important issue of leadership succession on the board. We address this issue later in greater detail.

Figure 2.2 Percentage of minorities among directors and lead directors in the KFMC100

50%

40%

30%

20% 15% Ethnic minority directors

10% 6% Ethnic minority lead directors

0% Adding value to the board

The right non-executive board leader inherently enhances the board’s relationship with the CEO. At the same time, he or she adds value to the “how” and the “what” of the board’s work. By the “how,” we mean board processes: how the board coalesces as a team and makes use of its limited time. The “what” represents the decisions about what issues the board works on, and whether that occurs in committee or requires the input of the full board.

Simply serving as the voice of the board to the CEO naturally improves efficiency of communication. An executive session or one-on-ones may produce multiple perspectives and opinions that the CEO should, but might not otherwise, hear. The non-executive board leader can streamline the process, so communication to the CEO is not duplicative. Most CEOs’ doors are certainly open to individual directors, but funneling communication makes the best use of everyone’s time.

At the outset, it is the board leader’s job—and it can be difficult—to ensure that all directors express their views. Board leaders rely on their intuition and diplomacy to draw out the more reserved in the room and give all views equal airing. Non-executive board leaders say their antennae go The foundation for the board’s up when strategy is discussed to sense whether work is the company strategy, individual directors have a strong grasp of it. so it’s crucial to schedule time to focus on it, both at regular board meetings and at more intensive off-sites. Non-executive board leaders we have spoken with have told us that their antennae go up during these discussions to sense whether individual directors have a strong grasp of the strategy. If more discussion and explanation are called for, they plan for it. As one board leader puts it: “If the whole board doesn’t understand strategy it’s difficult to make decisions, because everything is based on alignment with the strategy. When there is lack of alignment, boards can make bad decisions.”

12 Similarly, risk decisions and monitoring are part and parcel of the strategy, and board leaders keep risk on the radar screen. Formerly viewed mainly in the context of financial risk, risk management was considered squarely the bailiwick of the audit committee. But as enterprises identify new types of risk—reputational, operational, etc.—that isn’t the case as often. Among the KFMC100, 46 percent of boards assign responsibility for risk monitoring to the entire board, while 47 percent assign it to the audit committee. Only 7 percent have formed a special risk management committee.

Considering boards’ increasingly hefty workload, it may be difficult to find time to step back and take in the big picture. But a good board leader regularly considers the board’s primary, overarching duties, and weighs how well they are being met.

Figure 3 Risk management responsibility in the KFMC100

The committee responsible for risk management, as indicated in the fiscal year 2009 proxy statements.

7% Risk management committee

47% Audit committee

46% Entire board

Targeting and managing risk Interview with Irv Hockaday

When it comes to boardroom committee? Do you have an experience—and particularly board environment committee? Do leadership—few, if any, have the you need one? It’s up to the lead edge on Irv Hockaday. He has director to ensure that each served as lead director of four committee has a clear charter companies: currently on the boards and that there are no holes, or “Even with the most of Ford Motor Co. and Estée Lauder overlap, in executing the board’s Companies Inc. and formerly on the responsibilities. rigorous risk manage- boards of Sprint Nextel and Dow ment process there will Jones. He is also the former presi- Once the list is set, directors be plenty of unforeseen dent and CEO of Hallmark Cards. can determine what traits, back- ground, and experience to seek in events. When selecting During his long tenure as a director, committee chairs and members. an independent leader, he’s seen the best boards move boards should assume from a compliance orientation to “I’m not one who believes that there will be at least a strategic one. They’re now everyone on the board has to have geared toward maximizing board a committee appointment; you one crisis during his or effectiveness, he says, and how need to have the appropriate skill her tenure.” best to meet their responsibilities set to contribute and be of value to to shareholders. The lead director a particular committee,” says then has to determine how the Hockaday. “I’m also sensitive to the Irv Hockaday Presiding director board will operate—and shaping risk of proliferating committees.” It Ford Motor Co. and Estée Lauder committees is a critical part of needs to be clear which committee Companies Inc. that responsibility. is responsible for what, so that no issue falls through the cracks, or The board’s conversation on worse, gets tackled by two separate committees should start with what committees. This can pose a real is required and what is desirable, threat when there is both an audit says Hockaday, and that doesn’t committee and a separate risk take long. There are the sine qua management committee. non of compensation, audit, and governance. But after that? Do you have an investor relations

14

“Should there be a separate risk magnitude. Executive management Ford to interpret disparate data. management committee? I don’t can then whittle the list down to a Rollovers do happen; but eventually, necessarily think so,” Hockaday reasonable number for the board to data points began to pop up, says, with one caveat: if the audit monitor, and close the loop with with a cluster of rollovers in committee is overextended, such as senior management on the final list high-temperature areas. That is with an investigation. to actively manage, and explain any what triggered further investigation judgment calls. But the board has of the possible relationship between Risk formerly was viewed chiefly to own responsibility for managing heat, tires, and rollovers. Out of in financial terms and thus risk from there. “One au courant that experience came a refined compartmentalized within the trend I am seeing with boards is data processing capability and audit committee. But the definition the growing recognition that there an improved risk-management of risk has broadened to encompass are some risks in the overall matrix process.” hazards to operations, supplies, that, while highly unlikely, would strategy, and reputation, as well as be devastating to the company if Still, the unforeseen happens—as having ramifications for succession they did indeed occur,” Hockaday Ford found out when GM was planning and crisis management. says. “That catastrophic potential handed a federal bailout. Still, Hockaday believes that the keeps them on the watch list.” audit committee has the best line “A couple of years ago, for example, of sight into business risks. “It’s up No matter how vigilant a board is, who would have identified risk as to the audit committee to present he adds, directors know things will competing with companies that are to the board what the risk manage- happen that they didn’t predict and owned by the government?” ment process is internally; why it couldn’t plan for. That’s why risk believes that process is either management should be linked to adequate or insufficient; and crisis management, he says, so that engage the board in dialogue.” when an unidentified risk occurs you can contain it. And learn One comprehensive approach from it. to ensuring all logical risk is addressed, suggests Hockaday, is As an example, he points to the to survey senior management, Ford Explorer rollover cases. “Seen asking them to identify primary in retrospect, it took time for risks to the company, ranking their choices by likelihood and Committee membership and leadership

Many non-executive board leaders serve on committees—including as chairs—in addition to fulfilling their demanding primary roles. When that is the case, the committee is most likely one of the “big three”: nominating/ governance, compensation, or audit.

100 100 In the KFMC , three-quarters of In the KFMC , three-quarters of non-executive non-executive board leaders serve board leaders serve on the nominating/governance on the nominating/governance committee, as chair in about half those cases. committee, as chair in about half those cases. Just under half of non-executive board leaders serve on the compensation committee, but chair it only about 25 percent of the time. More than 40 percent of non- executive board leaders are on the audit committee, but only as chair in about a quarter of those cases. Two other committees attract a significant number of non-executive board leaders: the executive committee, which has 28 percent of non-executive board leaders, and the finance committee, with 13 percent.

Figure 4 Committee responsibilities of non-executive board leaders

When examining proxy data from fiscal year 2009, we consolidated committees that had different names but shared the same responsibilities. Highlighted below are the committees that most often attract lead directors as members or chairs.

Committee Assignment Member Chair Acquisition 2 1 Audit 27 10 Compensation 33 9 Compliance 3 0 Corporate development 4 0 Dividend 1 0 Executive 19 6 Finance 8 3 Human resources 1 1 Nominating/governance 30 37 Public issues & contributions 6 0 Risk management 1 0 Science/technology 3 0 Strategy 1 0

16 The nominating/governance committee is by far the most common for non-executive board leaders to chair. That makes sense because its charter includes monitoring the performance of the board and individual directors. The most logical person to provide that kind of feedback is the board leader. (While virtually all boards have now implemented some sort of overall board evaluation, many still struggle with how to handle assessments of individual directors. Instead of being provided with feedback that might help them—and the overall board—improve, ineffectual directors are often just cycled off the board through retirement. This task may become easier in the future if a rigorous, competency-based approach is managed by a respected, diplomatic board leader.)

There was significant variation in the way the KFMC100 companies struc- tured their committees. It was interesting, if not really surprising, that only one of those 100 had a designated strategy committee. Boards’ focus on strategy diminished for several years—much to the frustration and dismay of directors we have spoken with—while boards got new compliance duties under their belt. By all appearances, boards are accelerating their attention to strategy, and our data point to some consensus that it is the work of the entire board.

It is perhaps a sign of the times that 35 of the KFMC100 have a public issues and contributions committee, making it the fourth most common commit- tee. This is a relatively new addition, and likely a response to pressure on boards to respond (or not) to shareholder activists and the news media. This finding dovetails with other Korn/Ferry research that has indicated a trend toward more directors with public service backgrounds serving on boards. Leadership succession on the board

As boards begin to appreciate the significant potential of the non-executive board leader role, they undoubtedly will adopt a more systematic selection process, and ideally formalize a succession plan for the entire board.

The best way to keep the selection process A board leader almost effective and thoughtful is to implement a systematic certainly needs to be selected and objective methodology. from the ranks of the current directors. The ideal board leader may be a natural choice by virtue of his or her experience and established leadership contributions. But the best way to keep the selection process effective and thoughtful is to implement a systematic and objective methodology.

The urgency to address board succession planning is underscored by the relatively high age range of non-executive board leaders. This group is generally among the oldest directors: two-thirds are over age 65, and one-third over 70. The demands and responsibilities of the role have tilted criteria toward seniority, and that makes succession preparedness— emergency and planned—a necessity.

Figure 5 Age of KFMC100 non-executive board leaders

The median age of non-executive board leaders is 67, four years older than directors as a whole.

Age Count Percentage Under 60 9 10% 60-64 18 20% 65-69 31 35% 70-74 26 30% 75 and older 4 4%

18 Best practices would dictate having successors for the non-executive board leader in mind before they’re needed. On most boards, the responsibility for such succession planning would be spearheaded by the nominating/ governance committee, which can float names and then make one or more recommendations to the full board. One lead director we interviewed suggests that the committee chair meet with each director and the CEO to assess lead director potential as part of the board evaluation process.

Writing a formal position specification (see page 6) is an important initial exercise. Establishing objective criteria and a well-defined process that the entire board buys into and perceives as fair will help to establish a smooth, no-surprises process, one less likely to encounter obstacles. Of the many directors we have spoken with on this topic, all generally agree that creating a formal position specification should be considered a best practice, even though, to our knowledge, very few boards currently have one.

Assessing the need for terms

The fact that most boards have not defined the length of term for the non-executive board leader does not mean they shouldn’t. Even strong leaders may stay too long. Terms put appropriate pressure on performance review and open the opportunity to re-energize the role with a new perspective.

High-performing boards should regularly review the non-executive board leader’s work against established performance criteria. This will help the board leverage the role to their own benefit, and at the Many directors believe that a three-year, renewable same time demonstrate to key term is best for the non-executive board leader. outside constituencies that board leadership and succession are high priorities. It is both good business—and increasingly necessary in order to meet greater transparency requirements—to have a succession process in place. Passing the baton on the board Interview with Bonnie G. Hill

The Home Depot board pioneered appointment for lead directors the lead director role as early as that she believes is logical, in part, 1996, long before it was in vogue. because it gives the lead director The prescience of the board and the oversight of the succession process CEO to separate governance and for directors, committee chairs, operational responsibilities—so and her own position. “The lead “Serving as lead director that the CEO could focus on director doesn’t have any real running the business—is now responsibility for succession, shouldn’t be viewed as an widely considered a best practice. unless he or she is the head of entitlement. Succession And now The Home Depot is the nominating/governance planning on the board ahead of the pack in focusing on committee,” she emphasizes. board succession. is equally important as Maintaining an uninterrupted flow for the CEO and the Current lead director Bonnie G. of capable leadership on the board management team.” Hill took over that position from is essential, for the same reasons Ken Langone in 2008. Part board CEO succession is so important. ambassador, part team leader, and Continuity is crucial to the board’s Bonnie G. Hill part go-between, Hill is involved ability to manage its workload, Lead director, The Home Depot, Inc. with directors and the CEO on a manage a crisis, and instill regular basis. “My own role has confidence in investors. “The evolved with Ken leaving,” she management team looks to the says. “As time has passed, I have board for oversight and direction,” increasingly recognized the value explains Hill, “and it is important of someone who is the board’s to recruit people for the board interface with the CEO, partly so he who have the skills, expertise, or she doesn’t have to answer the and time.” same questions nine times from nine different directors!” Implementing a rigorous succession process for leadership on the board Hill also serves as chair of the should be a high priority. Those nominating and governance who serve as non-executive board committee, a common leaders are generally among the most experienced and senior in

20 age of the directors. That means if she would be willing to serve. Hill encourages The Home Depot their period of service is likely to As head of the compensation board to remain focused on its be shorter, and turnover more committee at the time, Hill had own succession planning. “We frequent. Moreover, says Hill, there demonstrated her diplomacy with have solicited major long-term is a potential danger that the board shareholders during a particularly shareholders for recommendations leader begins to view the position challenging period for the company. for our succession planning on the as an entitlement rather than a role “Directors on the board at the time board,” she says. “It’s an ongoing with specific responsibilities and told me that experience made them process for us, to find people who a succession plan of its own. confident I would be an effective fit in the areas of expertise we Given these factors, the best boards lead director,” recalls Hill. require.” plan well in advance for a change in leadership. But what really helped, she says, is She knows that it won’t be long that the selection occurred early before she hands the baton to Since the role of non-executive enough that there was a bit of the next lead director. She is a board leader has been required overlap with Langone. That mere three years, or less, from for a relatively short time, many provided “an opportunity for me retirement. “That is not long, so boards have yet to formalize a to benefit from the sitting lead we are having these discussions succession process. But The director,” she says. as we speak. The lead director is Home Depot has developed and appointed annually, and I’ve implemented a thoughtful, The selection process should asked the board to make inclusive process that might serve kick off, she believes, with the recommendations to the chairman as a model. nominating/governance committee or the general counsel. They making an initial recommendation, should not see me as serving Hill admits that succeeding which is then brought to the full in perpetuity.” Langone, who was not only the board for discussion and approval. company’s first lead director but “My personal recommendation also one of its founders, was a would be that the chair of the bit intimidating. Langone, who committee speak with each chaired the nominating/governance director, individually. That way, committee, asked her privately if there are any reservations concerning the person being recommended, they can be discussed in private and without attribution.” Several lead directors we have spoken with believe that a three-year, renewable term provides the non-executive board leader sufficient time to establish progress against performance objectives, as well as to review his or her personal interest in continuing in the role. A board leader who is a good fit will be renewed for another term. But when there is cause for a change, the end of a term facilitates an effective and graceful transition.

Board leaders who hold the title “non-executive chairman” are even less likely to have a defined length of term, in our experience. There is no objective reason why that should be the case; it is just a matter of custom. Like all boards, those with a non-executive chairman should make succession and creating defined terms a priority.

Compensating for time and value

Serving as a non-executive board leader is time-consuming and demanding, and those who fill these roles should be compensated for the efforts they expend and the value they add. Boards have recognized these factors when determining appropriate compensation for committee chairs, and should be applying the same The 60 percent of non-executive board leaders who logic to compensation for non-executive directors. receive additional cash compensation often get more than committee chairs. Of the 88 KFMC100 boards that don’t rotate the leadership role, thirty-six—or 40 percent—provide no additional cash retainer at all to their non-executive board leader. Among the 60 percent that do, the rates vary significantly. Non-executive chairmen receive the most: $87,000 is their median supplemental cash retainer. By contrast, the median for a compensated lead director is $25,000 and for a presiding director $17,500.

22 The 60 percent of non-executive board leaders who receive additional cash compensation often get more than committee chairs. Even for chairing the big three committees—audit, compensation and governance/ nominating—the supplemental cash retainers are a bit smaller: $10,000 to $20,000.

Figure 6 Cash retainers comparison

A small percentage of chairmen for each of these committees received no additional retainer. We have not included them in these median calculations so as to provide a consistent comparison to the paid non-executive board leaders.

Median retainer Role above $0 Base retainer for all directors $78,750 All non-executive board leaders $25,000 Audit committee chair $20,000 Compensation committee chair $15,000 Nominating/governance committee chair $10,000

Contrary to what the headlines would have us believe, directors—including non-executive board leaders—do not ordinarily choose to serve on boards for the compensation. Rather, they seek the opportunity to work alongside peers, contribute their skills and experience, and continue learning themselves. That said, boards should be taking a hard look at cash and non-cash compensation for all non-executive board leaders to ensure that their significant time investment and responsibilities are rewarded as befits this critical role. Final thoughts and best practices

Looking at the substance of governance—leadership and work processes— a great deal has changed on boards in less than a decade. Shifts that began initially under the regulatory “stick” are now spurred by the perceived value “carrot.”

Emerging best practices for leveraging the relatively new role of non- executive board leader include:

Define the role. As a team, the board should agree on what is required in a non-executive board leader, develop a position specification that reflects those priorities, and select a leader who aligns to those criteria.

Establish a board leadership succession plan. Maintaining a steady flow of leadership is as important in the boardroom as it is in the executive suite. Boards should establish an ongoing succession process to ensure they are never caught without a capable leader.

Determine length of term. While a defined term of service for board leaders has yet to be implemented widely, it should be considered a best practice. A three-year, renewable term provides sufficient time to assess progress against agreed-upon objectives.

Compensate fairly. The responsibilities of non-executive board leaders demand significant time and effort over and above that of the average board member. That, and the value board leaders provide, should be reflected in compensation.

Boards of companies that aspire to join the ranks of the most successful will consider implementing not only incremental change pushed by regulation, but transformational change to maximize the value of the non-executive board leader.

24 Appendix A

The Korn/Ferry Market Cap 100 (KFMC100) comprises the U.S. companies traded on the NYSE or NASDAQ with the largest market capitalization as of the close of market on May 3, 2010, after reporting for the 2009 fiscal year. Public investment firms as defined by Capital IQ (those that make direct investments in companies and limited partner investments, or are a mutual fund, pension fund, hedge fund manager or real estate investment trust) have been excluded, specifically Berkshire Hathaway Inc.; Blackrock, Inc.; Franklin Resources Inc.; and Simon Property Group Inc.

Data about the companies’ boards, compiled from proxies related to fiscal year 2009, provide the baseline for this report. Additional data were retrieved from the research firms BoardEx and Capital IQ.

The Korn/Ferry Market Cap 100 represents a departure from the methodology of previous Korn/Ferry International board studies, which examined boards of the Fortune 1000. Year-over-year comparison data are not available.

About the KFMC100 companies

Figure 1 Market capitalization

The KFMC100 companies had a median market capitalization of $43.9 billion on May 3, 2010. Just under 25 percent of the companies were valued above $100 billion.

Market cap Count Percentage Under $30 billion 16 16% $30 billion - $39.99 billion 26 26% $40 billion - $59.99 billion 19 19% $60 billion - $79.99 billion 11 11% $80 billion - $99.99 billion 5 5% $100 billion - $149.99 billion 8 8% $150 billion - $199.99 billion 10 10% $200 billion and over 5 5% Figure 1.1 Industry sectors represented

The KFMC100 companies included a wide range of sectors, with service businesses the most common.

Sector Count Percentage Basic materials 15 15% Conglomerates 4 4% Consumer goods 9 9% Financial 12 12% Healthcare 12 12% Industrial goods 8 8% Services 23 23% Technology 15 15% Utilities 2 2%

Boards of the KFMC100

Figure 2 Board size

The median size for a board was 12 directors, and the majority of boards fell in the range of 10 to 12 directors.

10% 16 to 18 directors

27% 13 to 15 directors 12% 7 to 9 directors

51% 10 to 12 directors

26 Figure 2.1 Board independence

In the KFMC100, 85 percent of boards had one or two executive directors. The rest are independent directors.

6% Three executive directors

26% Two executive directors

59% One executive director

9% Four to seven executive directors

Figure 2.2 Who’s the chairman?

The separation of the CEO and chairman's roles occurs in a limited way in the KFMC100. At twenty-one companies, the CEO was not the chairman: nine had non-executive chairmen and eleven had some other insider, such as a former CEO or founder, in the role. One company had no chairman.

9% Non-executive chairman 11% Other insider chairman 1% No chairman

79% CEO is also chairman of the board >$150,000 40% $75,001 - $100,000 $125,001-$150,000 >$150,000 31%$1000,101-$125,000 $50,001 - $75,000 $125,001-$150,000 $75,001-$100,000 $1000,101-$125,000 $50,001-$75,000 $75,001-$100,000 14% $25,001$25,001-$50,000 - $50,000 $50,001-$75,000 $0-$25,000 7% $100,101 - $125,000 $25,001-$50,000 4% $0 0% 3% $125,001 - $150,000 50% $0-$25,000 1% > $150,000 0% $1 - $25,0000% 50%

Figure 2.3 Cash retainers for directors

The median cash retainer for directors in the KFMC100 was $78,750, and 40 percent of directors’ cash retainers fell in the $75,001-$100,000 range. Four percent received no cash compensation.

>$150,000

$125,001-$150,000

$1000,101-$125,000

$75,001-$100,000

$50,001-$75,000

$25,001-$50,000

$0-$25,000 0% 50%

Figure 2.4 Director terms

One-year renewable terms for directors is becoming the standard.

1% Two years

13% Three years

86% One year

28 The board at work

Figure 3 Committees

The KFMC100 companies had scores of different names for their committees, including a few highly specialized ones. We consolidated committees that did the same work, according to their proxy statements, under the most common name. To give an accurate sense of the supplemental cash retainers for committee work, we have shown the median for payments above $0 only.

Number of Average Average Median member Median chair Committee companies with number of number of retainer retainer this committee directors meetings above $0 above $0 Acquisition 5 5.2 5.4 $5,000 $8,083 Audit 100 4.5 9.6 $10,000 $20,000 Charitable contributions 1 5 5 $0 $0 Compensation 89 4.4 7 $9,500 $15,000 Compliance 8 5.1 4 $15,000 $15,000 Corporate development 4 4.8 3.8 $0 $10,000 Credit 2 5.5 5.5 $0 $17,500 Dividend 1 6 1 $0 $0 Energy delivery 1 7 5 $0 $10,000 Equity 2 3 3.5 $0 $15,000 Executive 34 4.5 1.3 $5,000 $12,250 Finance 41 4.8 4.7 $5,000 $10,000 Generation oversight 2 5.5 5.5 $0 $13,750 Human resources 10 4.8 5.8 $8,750 $12,500 Infrastructure 1 4 4 $0 $10,000 Nominating/governance 100 4.8 5.1 $9,000 $10,000 Public issues & contributions 35 4.9 3.4 $6,250 $10,000 Real estate 1 4 0 $0 $0 Reserves 1 3 2 $0 $10,000 Risk management 7 6 7.6 $0 $20,000 Science/technology 15 5 3.9 $9,500 $10,000 Special programs 2 3.5 3.5 $0 $13,750 Strategy 1 4 1 $9,000 $18,000 Figure 3.1 Risk management responsibility

How to oversee risk—and who should do it—continues to be an issue boards wrestle with. Among the KFMC100, only seven have carved out a specialized risk management committee. The rest are evenly divided between assigning that task to the audit committee, or having it be handled by the whole board.

7% Risk management committee

47% Audit committee

46% Entire board

Figure 3.2 Number of board meetings

The KFMC100 boards met on average 9.8 times. But 18 percent met between thirteen and thirty-four times, which underscores how in any given year, a significant number boards will face unexpected circumstances that will necessitate meeting more frequently.

18% 13 to 34 meetings

8% 4 to 5 meetings 17% 10 to 12 meetings

35% 6 to 7 meetings 22% 8 to 9 meetings

30 The directors

Figure 4 Age

Among the 1069 directors of the KFMC100—noting that some have multiple appointments in the group—fifteen are more than 80 years old.

4% 75 and over 15% 70 to 74

24% 65 to 69 32% Under 60

25% 60 to 64

Figure 4.1 Gender

While nearly all—97 percent—of boards have at least one female director, women make up only 16 percent of all directors. The average number of women on a board is two.

16% Female

84% Male Appendix B

The KFMC100 ranked in order of market capitalization as of the close of markets on May 3, 2010.

Market cap Rank Company in billions Industry 1 Exxon Mobil Corp. (NYSE:XOM) $318.7 Integrated oil and gas 2 Microsoft Corp. (NasdaqGS:MSFT) $270.4 Systems software 3 Apple Inc. (NasdaqGS:AAPL) $242.4 Computer hardware 4 General Electric Co. (NYSE:GE) $205.6 Industrial conglomerates 5 Wal-Mart Stores Inc. (NYSE:WMT) $201.6 Hypermarkets and super centers 6 Bank of America Corp. (NYSE:BAC) $181.2 Other diversified financial services 7 Procter & Gamble Co. (NYSE:PG) $180.5 Household products 8 Johnson & Johnson (NYSE:JNJ) $180.1 Pharmaceuticals 9 Wells Fargo & Co. (NYSE:WFC) $175.8 Diversified banks 10 JPMorgan Chase & Co. (NYSE:JPM) $173.0 Other diversified financial services 11 Google Inc. (NasdaqGS:GOOG) $168.9 Internet Software and Services 12 Chevron Corp. (NYSE:CVX) $166.4 Integrated oil and gas 13 International Business Machines Corp. (NYSE:IBM) $166.2 IT consulting and other services 14 Cisco Systems, Inc. (NasdaqGS:CSCO) $157.7 Communications equipment 15 AT&T, Inc. (NYSE:T) $155.3 Integrated telecommunication services 16 Pfizer Inc. (NYSE:PFE) $136.4 Pharmaceuticals 17 Oracle Corp. (NasdaqGS:ORCL) $130.5 Systems software 18 Intel Corp. (NasdaqGS:INTC) $128.8 Semiconductors 19 Citigroup, Inc. (NYSE:C) $126.2 Other diversified financial services 20 The Coca-Cola Co. (NYSE:KO) $124.0 Food and beverage 21 Hewlett-Packard Co. (NYSE:HPQ) $123.6 Computer hardware 22 Merck & Co. Inc. (NYSE:MRK) $110.0 Pharmaceuticals 23 Pepsico, Inc. (NYSE:PEP) $105.9 Food and beverage 24 Philip Morris International, Inc. (NYSE:PM) $92.2 Tobacco 25 ConocoPhillips (NYSE:COP) $91.2 Integrated oil and gas 26 Schlumberger Ltd. (NYSE:SLB) $85.1 Oil and gas equipment and services 27 Verizon Communications Inc. (NYSE:VZ) $82.8 Integrated telecommunication services 28 Goldman Sachs Group Inc. (NYSE:GS) $80.5 Investment banking and brokerage 29 Abbott Laboratories (NYSE:ABT) $79.0 Pharmaceuticals 30 McDonald’s Corp. (NYSE:MCD) $76.8 Restaurants 31 Occidental Petroleum Corp. (NYSE:OXY) $73.1 Integrated oil and gas 32 Walt Disney Co. (NYSE:DIS) $72.8 Movies and entertainment 33 United Technologies Corp. (NYSE:UTX) $71.2 Aerospace and defense 34 United Parcel Service, Inc. (NYSE:UPS) $70.0 Air freight and logistics

32

Market cap Rank Company in billions Industry 35 Visa, Inc. (NYSE:V) $65.2 Data processing and outsourced services 36 3M Co. (NYSE:MMM) $64.0 Industrial conglomerates 37 QUALCOMM Inc. (NasdaqGS:QCOM) $63.4 Communications equipment 38 Amazon.com Inc. (NasdaqGS:AMZN) $61.3 Internet retail 39 The Home Depot, Inc. (NYSE:HD) $60.7 Home improvement retail 40 Comcast Corp. (NasdaqGS:CMCS.A) $56.7 Cable and satellite 41 American Express Co. (NYSE:AXP) $56.5 Consumer finance 42 Boeing Co. (NYSE:BA) $56.5 Aerospace and defense 43 Amgen Inc. (NasdaqGS:AMGN) $55.6 Biotechnology 44 U.S. Bancorp (NYSE:USB) $52.1 Diversified banks 45 Kraft Foods Inc. (NYSE:KFT) $51.8 Packaged foods and meats 46 CVS Caremark Corp. (NYSE:CVS) $51.5 Drug retail 47 Medtronic, Inc. (NYSE:MDT) $48.6 Healthcare equipment 48 Ford Motor Co. (NYSE:F) $45.4 Automobile manufacturers 49 Altria Group Inc. (NYSE:MO) $44.6 Tobacco 50 Caterpillar Inc. (NYSE:CAT) $43.9 Construction and farm machinery and heavy trucks 51 News Corp. (NasdaqGS:NWSA) $43.9 Movies and entertainment 52 Bristol-Myers Squibb Co. (NYSE:BMY) $43.2 Pharmaceuticals 53 Morgan Stanley (NYSE:MS) $42.5 Investment banking and brokerage 54 Target Corp. (NYSE:TGT) $42.2 General merchandise stores 55 Colgate-Palmolive Co. (NYSE:CL) $41.3 Household products 56 Eli Lilly & Co. (NYSE:LLY) $40.6 Pharmaceuticals 57 Emerson Electric Co. (NYSE:EMR) $40.3 Electrical components and equipment 58 Lowe’s Companies Inc. (NYSE:LOW) $40.0 Home improvement retail 59 EMC Corp. (NYSE:EMC) $39.8 Computer storage and peripherals 60 Union Pacific Corp. (NYSE:UNP) $39.1 Railroads 61 Time Warner Inc. (NYSE:TWX) $38.8 Movies and entertainment 62 The Bank of New York Mellon Corp. (NYSE:BK) $38.0 Asset management and custody banks 63 Nike Inc. (NYSE:NKE) $37.8 Footwear and apparel 64 MetLife, Inc. (NYSE:MET) $37.5 Life and health insurance 65 Honeywell International Inc. (NYSE:HON) $37.2 Aerospace and defense 66 E.I. du Pont de Nemours & Co. (NYSE:DD) $36.4 Diversified chemicals 67 The Dow Chemical Co. (NYSE:DOW) $36.2 Diversified chemicals 68 PNC Financial Services Group Inc. (NYSE:PNC) $36.1 Regional banks Market cap Rank Company in billions Industry 69 Gilead Sciences Inc. (NasdaqGS:GILD) $35.9 Biotechnology 70 Apache Corp. (NYSE:APA) $35.2 Oil and gas exploration and production 71 Walgreen Co. (NYSE:WAG) $34.9 Drug retail 72 UnitedHealth Group, Inc. (NYSE:UNH) $34.6 Managed healthcare 73 Monsanto Co. (NYSE:MON) $34.6 Fertilizers and agricultural chemicals 74 DIRECTV Group, Inc. (NasdaqGS:DTV) $33.8 Cable and satellite 75 Carnival Corp. (NYSE:CCL) $33.6 Hotels, resorts and cruise lines 76 Mastercard Inc. (NYSE:MA) $32.7 Data processing and outsourced services 77 Texas Instruments Inc. (NYSE:TXN) $32.3 Semiconductors 78 Lockheed Martin Corp. (NYSE:LMT) $32.2 Aerospace and defense 79 Dell Inc. (NasdaqGS:DELL) $32.1 Computer hardware 80 Anadarko Petroleum Corp. (NYSE:APC) $32.1 Oil and gas exploration and production 81 Freeport-McMoRan Copper & Gold Inc. (NYSE:FCX) $31.8 Diversified metals and mining 82 eBay Inc. (NasdaqGS:EBAY) $31.2 Internet software and services 83 Corning Inc. (NYSE:GLW) $30.9 Electronic components 84 Devon Energy Corp. (NYSE:DVN) $30.4 Oil and gas exploration and production 85 Prudential Financial, Inc. (NYSE:PRU) $30.0 Life and health insurance 86 General Dynamics Corp. (NYSE:GD) $29.9 Aerospace and defense 87 Exelon Corp. (NYSE:EXC) $29.2 Electric utilities 88 FedEx Corp. (NYSE:FDX) $29.0 Air freight and logistics 89 EOG Resources, Inc. (NYSE:EOG) $28.7 Oil and gas exploration and production 90 Southern Company (NYSE:SO) $28.6 Electric utilities 91 Baxter International Inc. (NYSE:BAX) $28.5 Healthcare equipment 92 Celgene Corp. (NasdaqGS:CELG) $28.5 Biotechnology 93 Halliburton Co. (NYSE:HAL) $28.4 Oil and gas equipment and services 94 Danaher Corp. (NYSE:DHR) $27.7 Industrial machinery 95 Express Scripts Inc. (NasdaqGS:ESRX) $27.5 Healthcare services 96 Newmont Mining Corp. (NYSE:NEM) $27.0 Gold 97 MedcoHealth Solutions Inc. (NYSE:MHS) $26.5 Healthcare services 98 Illinois Tool Works Inc. (NYSE:ITW) $26.1 Industrial machinery 99 Costco Wholesale Corp. (NasdaqGS:COST) $26.1 Hypermarkets and super centers 100 Deere & Co. (NYSE:DE) $26.0 Construction and farm machinery and heavy trucks

34 Appendix C

Non-executive board leaders of the KFMC100 The lead directors, presiding directors, non-executive chairmen, and co-lead directors of the KFMC100 boards during fiscal year 2009. An asterisk (*) indicates that this person serves as the non-executive board leader on an additional board as well.

1 Samuel J. Palmisano 8 James G. Cullen Presiding Director, Exxon Mobil Corp. Presiding Director, Johnson & Johnson Profile: Profile: Chairman, President & CEO, Former President & COO, Bell Atlantic Corp. International Business Machines Corp. Additional boards: Agilent Technologies Inc.* Additional board: International Business Machines Corp. NeuStar Inc.* 2 Raymond V. Gilmartin Prudential Financial Inc. Lead Director, Microsoft Corp. 9 Philip J. Quigley Profile: Lead Director, Wells Fargo & Co. Former Chairman, President & CEO, Merck & Co. Inc. Profile: Additional board: General Mills Inc.* Former Chairman, President & CEO, 3 William V. Campbell Pacific Telesis Finance Co-Lead Director, Apple Inc. Additional board: Nuance Communications Inc. Profile: 10 JPMorgan Chase & Co. Chairman & Former CEO, Intuit Inc. Rotates presiding directorship semi-annually Additional board: Intuit Inc. 11 John L. Hennessy Arthur D. Levinson Lead Director, Google Inc. Co-Lead Director, Apple Inc. Profile: Profile: President, Stanford University Chairman, Former President & CEO, Genentech Inc. Additional boards: Atheros Communications, Inc.* Additional boards: Genentech Inc. Cisco Systems, Inc. Google Inc. Roche Hldg AG 12 Samuel H. Armacost Lead Director, Chevron Corp. 4 Ralph S. Larsen Profile: Presiding Director, General Electric Co. Former President & CEO, Bank of America Corp. Profile: Additional boards: Callaway Golf Co. Former Chairman & CEO, Johnson & Johnson Del Monte Foods Co. 5 James W. Breyer Exponent, Inc.* Presiding Director, Wal-Mart Stores Inc. Franklin Resources Inc. Profile: 13 International Business Machines Corp. Managing Partner, Accel Partners LP Rotates presiding directorship among Additional boards: Dell Inc. committee chairs Marvel Entertainment Inc. 14 Carol A. Bartz 6 Walter E. Massey Lead Director, Cisco Systems, Inc. Non-Executive Chairman, Bank of America Corp. Profile: Profile: President & CEO, Yahoo Inc. President Emeritus, Morehouse College Additional boards: Autodesk Inc. Additional board: McDonald’s Corp. Intel Corp. 7 W. James McNerney, Jr. NetApp Inc. Presiding Director, Procter & Gamble Co. Yahoo Inc. Profile: Chairman, President & CEO, Boeing Co. Additional boards: Boeing Co. International Business Machines Corp. 15 Jon C. Madonna 24 Lucio A. Noto Lead Director, AT&T, Inc. Presiding Director, Philip Morris International, Inc. Profile: Profile: Former President & CEO, Digital Think Inc. Former Chairman, President & CEO, Exxon Mobil Corp. Additional boards: Freeport-McMoRan Copper & Gold Inc. Additional boards: Commercial International Bank SAE Tidewater Inc. Penske Automotive Group Inc. 16 Constance J. Horner 25 Richard H. Auchinleck Lead Director, Pfizer Inc. Presiding Director, ConocoPhillips Profile: Profile: Former Commissioner, U.S. Commission on Civil Rights Former President & CEO, Gulf Canada Resources Additional boards: Ingersoll-Rand PLC Additional board: TELUS Corp. Prudential Financial Inc. 26 Anthony E. Isaac 17 Oracle Corp. Lead Director, Schlumberger Limited Rotates presiding director annually between Profile: compensation and governance committee chairs Former CEO, BOC Group PLC Additional boards: Hogg Robinson Group PLC 18 Jane E. Shaw International Power PLC Non-Executive Chairman, Intel Corp. Profile: 27 Sandra O. Moose Former Chairman & CEO, Aerogen Inc. Presiding Director, Verizon Communications Inc. Additional board: McKesson Corp. Profile: Senior Advisor, Boston Consulting Group 19 Richard D. Parsons Additional boards: AES Corp. Non-Executive Chairman, Citigroup, Inc. Loomis Sayles Funds Profile: Rohm and Haas Co.* Former Chairman & CEO, Time Warner Inc. Additional boards: Estée Lauder Cos. Inc. 28 John H. Bryan Time Warner Inc. Presiding Director, Goldman Sachs Group Inc. Profile: 20 James D. Robinson III Former Chairman & CEO, Sara Lee Corp. Presiding Director, The Coca-Cola Co. Additional board: General Motors Corp. Profile: Former Chairman & CEO, American Express Co. 29 H. Laurance Fuller Additional board: Novell Inc. Lead Director, Abbott Laboratories Profile: 21 Robert L. Ryan Former Chairman & CEO, Amoco Corp. Lead Director, Hewlett-Packard Co. Additional board: Cabot Microelectronics Corp. Profile: Former Sr. VP & CFO, Medtronic, Inc. 30 Andrew J. McKenna Additional boards: Black & Decker Corp. Non-Executive Chairman, McDonald’s Corp. Citigroup, Inc. Profile: General Mills Inc. Chairman, Schwarz Supply Source Inc Additional Boards: Aon Corp.* 22 Samuel O. Thier Skyline Corp.* Lead Director, Merck & Co. Inc. Profile: 31 Aziz R. D. Syriani Former President & CEO, Partners Healthcare Systems Inc. Lead Director, Occidental Petroleum Corp. Additional board: Charles River Laboratories Profile: International Inc. President & CEO, Olayan Group Additional board: Credit Suisse Group 23 Sharon P. Rockefeller Presiding Director, Pepsico, Inc. 32 John E. Pepper, Jr. Profile: Non-Executive Chairman, Walt Disney Co. President & CEO, Greater Washington Educational Profile: Television Association Former Chairman & CEO, Procter & Gamble Co. Additional board: Boston Scientific Corp.

36 33 Richard D. McCormick 42 Kenneth M. Duberstein Lead Director, United Technologies Corp. Lead Director, Boeing Co. Profile: Profile: Former Chairman, President & CEO, US West Inc. Former Chief of Staff, U.S. Office of the President Additional boards: Nortel Networks Corp. Additional boards: ConocoPhillips Wells Fargo & Co. Mack-Cali Realty Corp. Neff Corp. 34 United Parcel Service, Inc The Travelers Cos. Inc. Rotates presiding directorship between chairs of independent committees 43 Frank C. Herringer Presiding Director, Amgen Inc. 35 John A. Swainson Profile: Lead Director, Visa, Inc. Chairman, Former President & CEO, Transamerica Corp. Profile: Additional boards: Charles Schwab Corp.* Former President & CEO, CA Inc. Safeway Inc. Additional boards: CA Inc. Cadence Design Systems Inc. 44 Jerry W. Levin Lead Director, U.S. Bancorp 36 Vance D. Coffman Profile: Lead Director, 3M Co. Former Chairman & Interim CEO, Sharper Image Corp. Profile: Additional boards: Ecolab Inc.* Former Chairman, President & CEO, Saks Inc. Lockheed Martin Corp. Additional boards: Amgen Inc. 45 Mark D. Ketchum Deere & Co. Lead Director, Kraft Foods Inc. Profile: 37 Raymond V. Dittamore President & CEO, Newell Rubbermaid Inc. Presiding Director, QUALCOMM Inc. Additional board: Newell Rubbermaid Profile: Former Managing Partner, Ernst & Young LLP 46 Terrence Murray Additional boards: Gen-Probe Inc. Lead Director, CVS Caremark Corp. Life Technologies Corp. Profile: Former Chairman & CEO, Fleet Boston Financial Corp. 38 Thomas O. Ryder Lead Director, Amazon.com Inc. 47 Kendall J. Powell Profile: Lead Director, Medtronic, Inc. Former Chairman & CEO, Readers Digest Association Inc. Profile: Additional boards: Virgin Mobil USA Inc.* Chairman & CEO, General Mills Inc. Starwood Hotels & Resorts Worldwide Inc. Additional boards: General Mills Inc. World Color Press Inc.* 48 Irvine O. Hockaday 39 Bonnie G. Hill Presiding Director, Ford Motor Co. Lead Director, The Home Depot, Inc. Profile: Profile: Former President & CEO, Kansas City Southern COO & Founder, Icon Blue Inc. Additional boards: Crown Media Holdings Additional boards: AK Steel Holding Corp. Estée Lauder Cos. Inc.* California Water Service Group Sprint Nextel Corp. YUM! Brands Inc. 49 Robert E. R. Huntley 40 Edward D. Breen Presiding Director, Altria Group Inc. Presiding Director, Comcast Corp. Profile: Profile: Former Chairman, President & CEO, Chairman & CEO, Tyco International Ltd. Best Products Co. Inc. Additional board: Tyco International Ltd. 41 American Express Co. Rotates presiding directorship among committee chairs 50 W. Frank Blount 59 David N. Strohm Presiding Director, Caterpillar Inc. Lead Director, EMC Corp. Profile: Profile: Chairman & CEO, JI Ventures Inc. Partner, Greylock Partners Additional boards: Alcatel-Lucent Additional boards: Data Domain Inc. Entergy Corp. Progress Financial Corp KBR Inc.* Successfactors Inc.* VMWare Inc. 51 Roderick I. Eddington Lead Director, News Corp. 60 Steven R. Rogel Profile: Lead Director, Union Pacific Corp. Former CEO, British Airways PLC Profile: Additional boards: Allco Finance Group Ltd. Former Chairman & CEO, Weyerhaeuser Co. CLP Holdings Ltd. Additional boards: EnergySolutions Inc. Rio Tinto / Rio Tinto Limited Kroger Co. Weyerhaeuser Co. 52 Lewis B. Campbell Lead Director, Bristol-Myers Squibb Co. 61 Frank J. Caufield Profile: Lead Director, Time Warner Inc. Chairman & CEO, Textron Inc. Profile: Additional board: Textron Inc. General Partner & Co-Founder, Kleiner Perkins Caufield and Byers LLP 53 C. Robert Kidder Lead Director, Morgan Stanley 62 Wesley W. von Schack Profile: Lead Director, The Bank of New York Mellon Corp. Chairman & CEO, 3Stone Advisors LLC Profile: Additional board: Merck & Co. Inc. Former Chairman, President & CEO, Energy East Corp. Additional board: Teledyne Technologies Inc. 54 James A. Johnson Lead Director, Target Corp. 63 Nike Inc. Profile: Rotates presiding directorship between chairs Vice Chairman, Perseus LLC of independent committees Additional boards: Forestar Group Inc. 64 William C. Steere, Jr. Goldman Sachs Group Inc. Lead Director, MetLife, Inc. 55 Richard J. Kogan Profile: Presiding Director, Colgate-Palmolive Co. Former Chairman & CEO, Pfizer Inc. Profile: Additional boards: Health Management Associates Inc. Former Chairman, President & CEO, Merck & Co. Inc. Pfizer Inc. Additional board: Bank of New York Mellon Corp. 65 Honeywell International Inc. 56 Karen N. Horn Rotates presiding directorship by years of service Lead Director, Eli Lilly & Co. on the board Profile: 66 Richard H. Brown Sr. Managing Director, Brock Capital Group LLC Presiding Director, E.I. du Pont de Nemours and Co. Additional boards: Norfolk Southern Corp. Profile: Simon Property Group Inc. Former Chairman & CEO, Electronic Data Systems Corp. 57 Emerson Electric Co. 67 Paul G. Stern Discussion leader title rotated annually among Presiding Director, The Dow Chemical Co. chairs of independent committees Profile: 58 O. Temple Sloan, Jr. Partner & Co-founder, Thayer Capital Partners LLP Lead Director, Lowe’s Cos. Inc. Additional board: Whirlpool Corp. Profile: Chairman & CEO, General Parts Inc. Additional boards: Bank of America Corp.* Highwoods Properties Inc.*

38 68 Thomas J. Usher 76 Richard N. Haythornthwaite Presiding Director, PNC Financial Services Group Inc. Non-Executive Chairman, Mastercard Inc. Profile: Profile: Former Chairman & CEO, United States Steel Corp. Former CEO, Invensys PLC Additional boards: H.J. Heinz Co.* Additional board: Land Securities Group PLC Marathon Oil Corp.* 77 Texas Instruments Inc. PPG Industries Inc. Rotates lead directorship among committee chairs 69 James M. Denny 78 James R. Ukropina Lead Director, Gilead Sciences Inc. Lead Director, Lockheed Martin Corp. Profile: Profile: Former Sr. VP & CFO, Sears Roebuck & Co. Chairman & CEO, Directions LLC Additional board: GATX Corp. Additional board: Internet Brands Inc. 70 Apache Corp. 79 Samuel A. Nunn Rotates lead directorship alphabetically Presiding Director, Dell Inc. 71 Alan G. McNally Profile: Non-Executive Chairman, Walgreen Co. Former U.S. Senator, State of Georgia Profile: Additional boards: Chevron Corp. Former Chairman & CEO, Harris Bancorp Inc. The Coca-Cola Co. General Electric Co. 72 Richard T. Burke Non-Executive Chairman, UnitedHealth Group, Inc. 80 John R. Gordon Profile: Lead Director, Anadarko Petroleum Corp. Former Chairman & CEO, UnitedHealthcare Inc. Profile: Additional boards: First Cash Financial Services Inc. Sr. Managing Director, Deltec Asset Management LLC Meritage Homes Corp. 81 Freeport McMoRan Copper & Gold 73 Robert J. Stevens Rotates presiding directorship among chairs of Lead Director, Monsanto Co. independent committees Profile: 82 Edward W. Barnholt Chairman & CEO, Lockheed Martin Corp. Lead Director, eBay Inc. Additional board: Lockheed Martin Corp. Profile: 74 Neil R. Austrian Former Chairman, Lead Director, DIRECTV Group, Inc. President & CEO, Agilent Technologies Inc. Profile: Additional boards: Adobe Systems Inc. Former Interim Chairman & CEO, Office Depot Inc. KLA Tencor Corp.* Additional board: Office Depot Inc.* 83 James J. O’Connor 75 Stuart S. Subotnick Lead Director, Corning Inc. Presiding Director, Carnival Corp. Profile: Profile: Former Chairman & CEO, Unicom Corp. Former President & CEO, Additional boards: Armstrong World Industries Inc.* Metromedia International Group Inc. Smurfit-Stone Container Corp. Additional boards: Abovenet Inc. UAL Corp.* Carnival PLC 84 Thomas F. Ferguson Conair Corp. Lead Director, Devon Energy Corp. PDM Sports Group Inc. Profile: Former Managing Director, United Gulf Management Ltd. 85 Jon F. Hanson 94 Danaher Corp. Lead Director, Prudential Financial, Inc. Presiding director is chair of the Profile: nominating/governance committee unless majority Chairman & Founder, Hampshire Management Co of independent directors decides otherwise Additional board: HealthSouth Corp.* 95 Thomas P. Mac Mahon 86 General Dynamics Corp. Presiding Director, Express Scripts Inc. Rotates presiding directorship among chairs of Profile: independent committees Former Chairman, President & CEO, Laboratory Corp. of America Hldgs 87 M. Walter D’Alessio Additional boards: Golden Pond Healthcare Inc. Lead Director, Exelon Corp. Laboratory Corp. of America Holdings Profile: Pharmerica Corp.* President & CEO, NorthMarq Advisors LLC Additional boards: Brandywine Realty Trust* 96 Vincent A. Calarco PECO Energy Co. Non-Executive Chairman, Newmont Mining Corp. Pennsylvania Real Estate Investment Trust Profile: Former Chairman, President & CEO, 88 Peter S. Willmott Crompton Corp. (now Chemtura Corp.) Presiding Director, FedEx Corp. Additional boards: Consolidated Edison Inc. Profile: Managing Partner, Berkshires Capital Investors 97 Michael Goldstein Lead Director, MedcoHealth Solutions Inc. 89 James C. Day Profile: Presiding Director, EOG Resources Inc. Former Chairman & CEO, Toys R Us Inc. Profile: Additional boards: Charming Shoppes Inc.* Former Chairman & CEO, Noble Corp. 4Kids Entertainment Inc. Additional boards: Oneok Inc. Martha Stewart Living Omnimedia Inc.* Tidewater Inc. Pacific Sunwear of California Inc. 90 Thomas F. Chapman 98 Robert S. Morrison Presiding Director, Southern Company Profile: Lead Director. Illinois Tool Works Inc. Profile: Former Chairman & CEO, Equifax Inc. Former Chairman, President & CEO, Quaker Oats Co. 91 Walter E. Boomer Additional boards: Aon Corp. Lead Director, Baxter International Inc. 3M Co. Profile: Former Chairman, President & CEO, Rogers Corp. 99 Hamilton E. James Additional board: Rogers Corp. Lead Director, Costco Wholesale Corp. Profile: 92 Michael D. Casey President & COO, Blackstone Group LP Lead Director, Celgene Corp. Additional boards: Blackstone Group LP Profile: Former President & CEO, Matrix Pharmaceutical Inc. 100 Charles O. Holliday, Jr. Additional boards: Allos Therapeutics Inc. Presiding Director, Deere & Co. Profile: AVI Biopharma Inc. Former Chairman & CEO, E.I. du Pont de Nemours and Co. Durect Corp. Additional boards: Bank of America Corp.* 93 J. Landis Martin E.I. du Pont de Nemours and Co. Lead Director, Halliburton Co. Royal Dutch Shell PLC Profile: Intrepid Potash Inc.* Managing Director & Founder, Platte River Ventures LLC Additional boards: Intrepid Potash Inc.* Apartment Investment & Management Co.* Crown Castle International Corp.*

40 About Korn/Ferry’s Board & CEO Services Practice Korn/Ferry International has recruited CEOs and board directors for more than 40 years. Our dedicated Board & CEO Services practice is committed to improving governance practices worldwide. Our approach includes Board Director and CEO Search and Selection, CEO Succession Planning and Assessment, Board Effectiveness and Director/Executive Compensation Consulting.

Visit www.kornferry.com/BoardCEOServices for more information.

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© 2010 The Korn/Ferry Institute About the Korn/Ferry Institute The Korn/Ferry Institute generates forward-thinking research and viewpoints that illuminate how talent advances business strategy. Since its founding in 2008, the institute has published scores of articles, studies and books that explore global best practices in organizational leadership and human capital development. About Korn/Ferry International Korn/Ferry International (NYSE:KFY), with a presence throughout the Americas, Asia Pacific, Europe, the Middle East and Africa, is a premier global provider of talent management solutions. Based in Los Angeles, the firm delivers an array of solutions that helps clients to attract, develop, retain and sustain their talent.

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