KFMC100 De!ning, recruiting, and leveraging digital expertise for the board The Korn/Ferry Market Cap 100

2013

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Contents

Page

Introduction: W hat is a digital director? Does your board need one?. . . . 4 Executive summary...... 7 Form follows function for ‘digital’ on the board...... 13 Jump-starting the board’s digital expertise ...... 17 Recruiting the right digital director...... 21 Conclusion...... 25 Appendix A: The KFMC100 companies ...... 27 Appendix B: The KFMC100 Class of 2012...... 33 Appendix C: The KFMC100 boards...... 45

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Introduction What is a digital director? Does your board need one?

In the 1950 Akira Kurosawa film Rashomon, four characters relate the same event from radically different perspectives. Ask four directors — even perhaps those on the same board — what “digital expertise” means and you might feel trapped in a boardroom version of that Japanese clas- sic.

The technological trends that are reshaping everyday existence — influ- encing what and how we read, shop, and even choose a partner — are just as consequential to companies and their boards. Digital is no longer a tangential aspect of commerce; it is, rather, the very context in which these companies operate and compete. Digital transformation of one type or another is quickly becoming a focal point of more companies’ strategies, regardless of business sector.

We are witnessing nothing short of a digital revolution and yet many boards are lagging behind, to the longer-term detriment of their share- holders. “Every facet of corporate life has gone digital,” a recent Wall Street Journal article noted, “but many public company boards remain stuck in analog mode.”

Even boards that recognize the stakes still may not fully comprehend the connection to their company’s strategy. Is the focus e-commerce? Mobile? Social? Data?

The evidence to date suggests that few boards are even getting the rele- vant data they need to assess how digital is impacting the enterprise. Underscoring this issue, The Conference Board and Stanford University’s

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Rock Center for Corporate Governance surveyed CEOs, senior execu- tives, and boards of directors about social media. The survey found that even as social media has become the preeminent platform for external marketing and branding, customer outreach, and market research, only 14 percent of companies factor in social media metrics as an indicator of corporate performance. Only 32 percent of companies monitor social media to detect risks — particularly reputational risks — to their busi- ness. And directors are the least in the know: only 8 percent said their board reports contained social media information.

Social media, of course, is only one facet of this new “digital” landscape, which is not just about hardware and software but a way of life. In this report, we use the term “digital” to broadly encompass the cultural and technological phenomenon driving disruptive change in the way compa- nies operate and interact with the world.

That still leaves a lot of leeway in defining who qualifies as a digital di- rector. To one board, “digital” may mean cybersecurity experience, whereas to another it may mean mobile phone experience in emerging markets, or social media know-how. But for the purposes of discussion in this report, we use the term “digital director” to refer to someone with deep executive experience putting information technology to work in a business context, whether as IT implementers, providers, or inves- tors. Even applying broader parameters—experience as a chief informa- tion officer (CIO), chief technology officer (CTO), or in a management position with any technology-related company—less than 20 percent of directors can be counted as “digital.” That number is inflated by the fact that fourteen of the KFMC100 are technology companies. Among nontech companies, the rate is 13 percent.

There clearly has been an uptick in boards interested in adding digital expertise, but that task is not without challenges. Pinning down the specific digital skills a board requires is an essential first step. In this report, we explore how companies — particularly large ones with legacy technology — can recruit the most relevant digital talent and reap the benefit of this added expertise.

We would like to thank the experts in both the digital and corporate governance worlds who shared their views in this report:

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• Rick Crandall, a computer industry pioneer — and veteran director and chairman — shares his view of the evolving definition of “digi- tal”;

• Jeff Epstein, current Operating Partner, Bessemer Ventures, former CFO of Oracle, and current director for Priceline and Kaiser Perma- nente, weighs in on the digital culture shift on boards; and

• Bonnie Hill, lead director of Home Depot, discusses the motivations and process of bringing Mark Vadon — co-founder of online dia- mond and jewelry business Blue Nile — onto the home improvement retailer’s board.

Recruiting and retaining a digital director, much like success in attract- ing any other expertise to the board, are the result of a rigorous strategic process. Boards that take the time to think through their specific needs, assess the skills and experiences prescribed by broad governance re- quirements, and then plan for how best to leverage digital expertise will be well positioned to provide oversight with an eye to the future.

Dennis Carey Robert E . Hallagan Stephen P . Mader Vice Chairman Vice Chairman Vice Chairman

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Executive summary

Our interviews with Rick Crandall, Jeff Epstein, and Bonnie Hill yielded key insights regarding when, why, who, and how to add digital expertise to boards.

For many boards the when, if not now, is coming soon. As digital becomes central to more corporate strategies, the need will increase and a digital director’s role won’t be limited to IT-related matters, but take on enter- prise-wide significance. That said, not every board may require digital expertise. Before embarking on a recruiting process, boards should take stock of what expertise they have, and what they need to provide proper oversight of management, risk insight, and guidance on strategy.

The why question relates to the value that a digital director can bring to governance. Among the points we heard in our interviews:

• The digital director can play a crucial role in expanding the board’s view of technology issues, and shifting opinion when appropriate on the importance of investing in various initiatives.

• The right digital director can help the board get up to speed more quickly on innovative practices and the changing nature of the com- petition.

• This director can prove an important board-level resource oversee- ing important IT-related projects and in the selection of key person- nel — even the CEO.

As for whom to select, boards should remember that they are adding a member of the team who will need to contribute on all fronts. Our inter- views pointed out:

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• A digital director should be actively involved in a day-to-day role that enables him or her to remain current on business-related technological developments.

• A digital expert on the board has to first satisfy all the basic require- ments for a director: someone senior in stature, able to operate at both a tactical and strategic level, and ethical beyond reproach.

• Seek directors who are a fit in terms of culture and personality, not just experience and specialized skills. This individual has to be viewed by the rest of the board, and be able to perform, as a member of the team.

• Make sure the director shares the board’s view of the role of the board and the boundaries between governance and management.

When it comes to how to recruit a digital director, we’ve also drawn on the experience of Korn/Ferry’s Board and CEO Services Practice. Among recommended practices:

• Beware of appointing a specialist, or worse, of taking on a “token director,” who may find it difficult to contribute fully as a board team member. Also, beyond the specific digital experience sought, pay attention to the crucial soft skills and attributes that determine fit with the rest of the board.

• Gain agreement on what a specific board needs. Is an element of the business strategy to ramp up online sales or to protect the company from cyberthreats? The answers to these and other questions will help determine critical selection criteria.

• Don’t neglect onboarding. Especially with a first-time director or where there is a significant age or experience gap with the rest of the board, a thoughtful integration process — which may include a formal onboarding program and mentoring from an experienced director — will enable the new director to more quickly add value to the board.

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Digital directors in the KFMC100

Despite high levels of interest and media coverage, our study found that there hasn’t been a flood of technology expertise added to the one hun- dred largest US public companies in recent years. In fact, twenty-four KFMC100 companies have no digital director by our definition: someone with experience as a chief information officer (CIO), chief technology officer (CTO), or in a management position with an IT company.

Further, the independent directors who do match such a profile aren’t newcomers: their average tenure is 7.8 years.

Our analysis of director profiles also indicates that KFMC100 companies haven’t stretched their typical recruiting patterns to add digital direc- tors. This is certainly in part because the companies on this list, with a median market capitalization of $65.7 billion, can attract the most ac- complished executives to serve on their boards.

Of the 1,181 seats on KFMC100 boards, there are 211 digital directors, 176 of whom are independent directors. Of the independent directors:

• 54 percent have been CEOs, and 14 percent are currently CEOs of a public company. Fifty-five percent have current or past experience as a board chairman.

• The majority are male (88 percent) and American (91 percent), al- though nearly a third have had international work experience (31 percent).

• They are slightly younger, sixty-one on average, in comparison with their non-tech counterparts, who have an average age of sixty-three. Newly recruited digital directors had an average age of fifty-four.

Our analysis also found:

• Directors with technology backgrounds are being added to KFMC100 boards at about the same rate as those from marketing (14 and 13 percent, respectively), less than half the rate of those with finance or audit, COO, or public policy experience.

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• Digital directors remain concentrated in a few sectors. The fourteen technology companies in the KFMC100 have 30 percent of the inde- pendent digital directors. Services companies have 23 percent of digital directors, and consumer goods companies have 13 percent.

• Technology companies also added the most digital directors in 2012 — 50 percent of the fourteen new digital directors joined tech boards. Consumer goods companies recruited 29 percent of new digital directors, followed by the financial sector, which recruited 14 percent.

The KFMC100 Class of 2012

Turnover remained strikingly low on KFMC100 boards in 2012. Although the number of new directors was up — 113 compared with ninety in 2011 — that included the whole board of Facebook after its IPO, and the buildup of two new boards: Mondelez (split from Kraft Foods) and Phillips 66 (spun off from ConocoPhillips). Remove those distortions, and there were only ninety-two new directors.

Forty companies in the KFMC100 added no new directors at all in 2012.

Other trends in new board appointments:

• A drop in diversity. Ninety percent of new directors are white com- pared with 77 percent of this group in 2011. Moreover, diversity has dropped in virtually every category year-over-year: The percentage of new women directors dropped from 27 to 23; African-Americans from 11 percent to 6 percent; Asians from 7 percent to 1 percent; and Hispanics from 4 percent to 3 percent. Only international diver- sity has increased, with new, non-American directors representing 20 percent of recruits, up from 16 percent in 2011.

• Global gains. There has been an increase in new directors with inter- national work experience (38 percent vs. 29 percent) as well as new directors with an international personal background, having been born and/or educated abroad (27 percent vs. 16 percent).

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• Industry experience is actively sought. The biggest jump in industry/ functional experience was on boards specifically seeking experience in their company’s sector. That represented 54 percent of new direc- tors compared with only 33 percent in 2011. Other desirable back- grounds include operating experience either as COO (30 percent vs. 18 percent) or CEO (41 percent vs. 37 percent).

• Government experience reaches a new high. There are many peaks and valleys when government experience on boards is charted, of- ten corresponding to election cycles. But for the Class of 2012, the number of new directors coming from the public sector climbed to 23 percent from 18 percent the previous year.

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Form follows function for ‘digital’ on the board

Rick Crandall has had a front-row seat for the digital revolution. He has been steering and advising tech companies since 1966, when he founded Comshare, the computer-timeshare company that was one of the tech industry’s earliest public stock offerings.

Crandall sees both the definition and value of digital expertise on boards morphing toward greater precision. “I’m seeing a shift in the traditional view of what digital means to boards. It used to mean having someone from the hardware, software, or networking world whose utility might have been for the IT committee of the board,” Crandall says. Such a director’s role might have been largely limited to overseeing IT progress on behalf of the board, for instance, determining whether IT was being leveraged for maximum operational efficiency. In the absence of an IT committee, Crandall explains, a director with technology expertise might be asked to be the active board member asking the right questions about cybersecurity, usually as an audit committee member.

Today, as digital technology shapes virtually every aspect of operations, marketing, and strategy, that formerly circumscribed role now has implications enterprise-wide. At the same time, the experience and competencies sought in the director have become more clearly defined. General tech credentials no longer suffice as boards are now more savvy about recruiting the specific sort of digital expertise they require to support the CEO, the board, and the strategy. Depending on the company, that may mean a digital director who is a pro at social networking, e-commerce, protecting against cyberthreats, or in other areas, such as how technology is increasingly becoming an important part of product offerings.

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“If you were in the digital world five years ago and just came back to it, you would be completely out of date today,” says Crandall, who currently serves on the boards of RR Donnelley and Diebold as well as several tech ventures. “There’s a whole new flavor with the use of digital technology for marketing, customer engagement, selling through the Internet, and the use of social networks to get greater customer engagement.” In other words, there are many digital opportunities to weigh. Likewise, there are more risks to assess. With hacking and data security heating up, Crandall says, “a digital director may play a central role in overseeing the protection strategies from vulnerabilities boards didn’t know they had.”

Serving as technology translator for the rest of the board is also a crucial role. “There are a lot of discussions that take place among boards at pri- vate sessions and at dinners,” Crandall notes, “where it’s important for at least one director to explain what he or she has been hearing about developments in technology, in terms other directors can understand. This is a distinct area of functional expertise and communication skills, and the environment is changing so fast, an expert has to be in the middle of it day-to-day.”

In terms of director material, think both broad and narrow, Crandall advises. A candidate must satisfy all of the overarching, immutable re- quirements of a director: strategic and tactical thinking, high ethical standards, collegiality, and senior executive experience. But not every chief information officer or chief technology officer is well suited to di- rectorship. “A lot of these people are used to managing closed environ- ments and in many cases are actually too technical with little patience for those whose skills and understanding lie outside the technology arena,” Crandall observes. “For the board role, you need a digitally ori- ented person who can educate others — as a peer and a colleague.”

At the same time, he says, a digital director must be “in a role where he or she is able to stay current on how technology is making incursions into the enterprise, bring that expertise to the board, and contribute to the oversight role of the board — much like a financial expert, for ex- ample.”

Cultural fit can be a deal breaker when sizing up any potential director,

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and age specifically can be a barrier. Although Crandall has approved adding directors in their forties to boards, those much younger require “huge acclimatization” to effectively contribute. “I haven’t seen it work,” he says. “These are, generally speaking, people who have come up through new companies and been successful in a world of their own. So they don’t appreciate complexity, bureaucracy, and the administrative side. Their patience and maturity working alongside older directors, who are not practiced in tech jargon, is often lacking. Even if they come from a public environment, it is newly public and they don’t know the issues of the larger enterprise.”

Boards should have plenty of digital “ For the board role, you director talent to choose from if they need a digitally oriented go about recruiting it the right way. person who can educate He suggests former CEOs or execu- others — as a peer and a tives who’ve held more than one sig- nificant management position, and colleague.” sees many such candidates at a round- — Rick Crandall table of software CEOs he’s been run- ning since the 1990s. When these chief executives want a career change, boards are an appealing option, alongside advising venture capital firms or investing in new enterprises. “I don’t see a shortage of these people. At least once a month I hear from one of them, ‘I’d like to go on a board; how do I go about that?’ There may be a shortage if you’re looking for the [Mark] Zuckerbergs of the world, but a plan like that is destined to go down in flames.”

Before leapfrogging directly to recruiting, a board first has to settle on what variety of digital director is needed, and form should follow func- tion. The board should first agree on what the new director will be ex- pected to contribute: is he or she sought for social networking expertise, to help understand how technology drives online sales, or for another sort of digital expertise entirely? That will help determine the skills, experience, and general profile required.

Beyond the recruitment, to ensure maximum value, Crandall recom- mends that chairmen craft a plan to leverage this individual’s contribu- tions from day one. “Did you just read in the newspaper about digital

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directors and say, ‘I think we need one of those,’ or have you thought it through? Will this person chair a committee? Have a special function to interact with management and bring that information back to the board?” No executive of any stature, digital or otherwise, wants to be brought on a board as a token. Approaching potential directors with a role that is positioned to have influence and add value to the board will help in recruiting the best director talent, as well.

Crandall further believes that a digital strategy committee would prove a benefit to many boards. In addition to focusing oversight on the plans and operations for all things digital, making such a committee essential — akin to the governance or compensation committee — also would ensure the right balance of skills on the full board.

“I know it’s one more committee. And it’s expensive and time consum- ing,” Crandall concedes. “But digital expertise is so important to the most effective internal use of IT, how digital is mixed into products, marketing, brand protection, and also the hot issue of cyberthreats. Those functions deserve a committee of the board all their own.”

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Jump-starting the board’s digital expertise

“Software is eating the world,” Priceline board member Jeff Epstein says, citing the oft-quoted line from Netscape co-founder Marc Andreessen. “That pretty much sums up the demand for digital skills and experi- ence everywhere, including on boards.”

Almost every industry is undergoing revolutionary change, says Ep- stein, who was Executive Vice President and Chief Financial Officer at Oracle from 2008 to 2011, and is currently an Operating Partner with Bessemer Venture Partners. Existing companies are challenged by newcomers that can win by technology, he says, giving Priceline as a prime example. Fifteen years ago, most people booked travel by telephone through a travel agent; today nearly no one does. “Inter- net competition has changed all that. There are similar examples across industries — retail, real estate, everywhere.” Take banks, as another example, Epstein says, “they’re now computer companies with tellers.”

The right digital director can jump-start a board’s working knowl- edge of how technology and product development is making incur- sions into the most traditional sectors. Even non-technology compa- nies have recognized that their products, operations, competitors, and customer interaction are being transformed because of techno- logical tools that were not available as little as five years ago. At the same time, technology has empowered start-up competitors that are able to enter the market with little investment. “This process was well described in the book The Innovator’s Dilemma,” Epstein points out. “It’s not the traditional competition you have to be concerned about. It’s new competitors who enter the market with cheaper products and

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compete from the bottom up. Before you know it, you’re head to head with them.”

Technology is no longer an add-on feature; it’s more often the main attraction. Particularly for companies enmeshed in legacy technology, a digital director can help the board ramp up its knowledge quickly. He or she can steer discussions on what technological tools are available and how other companies are applying them to their advantage.

The fast-paced culture of innovation “ If these companies are that started in Silicon Valley is spread- doing a good job ing everywhere. Take software devel- recruiting, they are opment. The earlier “waterfall meth- seeking people who are od” involved dozens of people who aware of the competitive assessed the requirements of users through countless interviews with opportunities and threats staff and customers. “If things went from new technology, well, two years later you would have a possess some finished product,” Epstein says. technological expertise,

That time frame can be pared down and understand agile to a matter of weeks for a team of new ways of developing three to produce a beta “minimum products.” viable product,” or MVP, at compa- —Jeff Epstein nies using lean software develop- ment.

This radically altered approach to product development — better prod- ucts developed much faster, at much lower cost and risk — has impli- cations for companies in every sector.

“It’s a huge culture shift,” observes Epstein, that goes to the very heart of how companies operate. It’s all about speed, and employees have to be prepared to adapt accordingly to make the new system work. Facebook’s Mark Zuckerberg has famously encouraged his engi- neers to develop quickly and “break things,” a complete reversal of the earlier priority of thorough quality reviews and “do no harm.” If you’re manufacturing airplane engines, you want zero errors. If you’re running a consumer Internet company, you want speed.

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Companies need insight into this digital culture not just at the pro- grammer level, but also at the strategic executive one. “If these com- panies are doing a good job recruiting, they are seeking people who are aware of the competitive opportunities and threats from new technology, possess some technological expertise, and understand ag- ile new ways of developing products,” he says. “But they may repre- sent a minority of employees.”

A digital director can help the company compensate by sensitizing the whole board to the importance of technological issues, Epstein says. In addition, the digital director can provide board-level support on key IT projects, or help the board and CEO determine the best route to acquiring the technology, skills, and expertise needed for growth or called for in the strategy.

But not just any digital director will do. The recruiting process should focus on prospective directors who are a good match for the expertise that is central to a company’s strategy. And more than one director may be required. A company seeking to transform itself by leveraging newly available technology might need a Chief Information Officer on its board, while a company seeking an in-depth understanding of the innovation cycle and where new competitive threats are coming from might benefit from having a venture capitalist.

Could some now-defunct companies have been saved with this sort of input on the board? “Kodak is one example,” Epstein suggests. “Per- haps no one would have been able to help them make the shift from film to digital. But they did have thirty years to prepare. Media com- panies, retailers, and financial companies are facing similar challeng- es today.”

The right digital director also can provide valuable input on other high-level strategy and leadership issues. He or she could very well shift the CEO’s or board’s view on investing in a given technology, threats to the company’s competitiveness, and new product and ac- quisition opportunities. He or she might encourage the CEO to take greater risks, when appropriate, and play more offense than defense. “Depending on how central these issues are to a company’s strategy,

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this input might even lead to a different CEO choice,” Epstein notes. The director can also be instrumental in ensuring that digital execu- tives are given greater responsibility earlier in their career, tapping their expertise and preparing them for leadership roles.

Beyond shifting the mindset toward “ Digital experts on boards commitment to technology, the digi- are likely to be either tal director plays a pivotal role by businesspeople with ensuring the full board has all the deep experience in information required to make key technology or engineers decisions. He or she might even lead or contribute to specific meetings or with deep technical strategy sessions designed to refresh expertise. There are the CEO’s and board’s knowledge on people who can do both emerging technology issues. For the at the highest levels, but digital director, this can be some- it’s a short list.” thing of a balancing act: he or she —Jeff Epstein must juggle the role of director with that of a specialist who can serve as a liaison with IT management. That requires patience and an ability to make technical information accessible and clearly relevant to larg- er corporate objectives. And all of this must be delivered in a collegial fashion.

Although a digital director can prove a valuable asset to the board, it’s not a job that everyone is cut out for. The director has to possess the experience and confidence to walk into a boardroom capable of dis- cussing not just technology, but also strategy and risk, with the most senior-level executives. He or she must step outside his or her func- tional sphere into the larger universe of governance, while maintain- ing the much-needed digital point of view. “Digital experts on boards,” Epstein says, “are likely to be either businesspeople with deep experi- ence in technology or engineers with deep technical expertise. There are people who can do both at the highest levels, but it’s a short list.”

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Recruiting the right digital director

These have been tough times for retailers. “There has been pressure to keep up, and it’s something that all major retailers are dealing with,” says Bonnie Hill, Home Depot’s longtime lead director. “Just think of the expectations customers have when they go into a store now — if they actually go into the store.” She points to the Apple store as the standard-bearer: “You can do everything on your phone — make an appointment, find products, pay. We have to be more up- to-date now.”

This radical shift in what shoppers expect from retailers prompted Home Depot’s board to seek a director with relevant digital expertise. The board appointed Mark Vadon — co-founder of online diamond and jewelry retailer Blue Nile Inc. — in September 2012.

Home Depot’s press release at the time anticipated that “Vadon’s exper- tise in developing and implementing successful online strategies will be a benefit to the company and board.” He has not disappointed.

When considering adding digital — or any — area of expertise to a board, Hill believes it’s important to maintain as a touchstone the board’s primary directive: to represent the interests of shareholders. To do that, its membership must have the right mix of skills and experi- ence to properly oversee management.

Events or circumstances sometimes force a board’s hand: such was the case with the Sarbanes-Oxley Act, which necessitated the recruitment of directors with finance and audit expertise. “Now roll forward,” Hill says. “We’re undergoing rapid change, with the Internet and social media be-

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coming so much a part of people’s lives. What we deal with on a daily basis also affects the companies on whose boards we serve.”

It’s up to the board to sort out which skills are critical and which are tangential to its company’s governance. Although many areas of exper- tise are desirable, which are central to the strategy? For Home Depot, e-commerce insight and the related digital skills were unequivocally valuable. “The board at Home Depot is always examining whether we have access to the right resources,” Hill says. “We took a hard look and asked whether we had what we needed in a digital era to review issues as a board and to provide direction for management. We decided we needed to beef up our digital expertise.”

Home Depot followed a methodical approach — from identifying its need for digital expertise, to pinpointing candidates, to the selection of Vadon, and finally his integration onto the board.

Some excellent prospects, including the final candidate, emerged from conversations with Home Depot investors. Hill says she and CEO Frank Blake regularly meet with major shareholders for input on changes the company needs to make. In one such meeting, a major shareholder of- fered five names of executives who would fit the general profile for digi- tal expertise.

The board soon began to home in on one of those suggestions, Mark Va- don, because of his broad understanding of business, experience as a CEO, and depth of knowledge of e-commerce. It all seemed a good match for Home Depot’s needs. Despite eagerness to proceed, the board didn’t skip any important initial steps. It took Vadon through the process all prospective directors go through before making it official. Both the CEO and Hill interviewed Vadon and he was interviewed and vetted by a search firm before he was presented to the governance committee and then to the full board.

“It was a no-brainer once we met Mark and discussed among ourselves the skills set he brought; he was perfect,” Hill says. It certainly didn’t hurt that Vadon had done his homework: he arrived to meet the board with a deep understanding of the challenges Home Depot faces and where he might add value.

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Vadon cleared some other important hurdles as well. Although digital expertise and broad business knowledge were important criteria for the selection, the directors also required someone who was in sync on the board’s role. “Every board, like every company, has a unique culture and each individual brought on the board has to fit. We had other people in the queue who had the right technology skills but didn’t share our view of governance and the role of a director versus the role of a member of the management team,” Hill explains.

Indeed, keeping an eye on that broad- “Older directors er vision for governance is one way to sometimes don’t want to avoid the pitfall of becoming an as- admit what they don’t semblage of experts instead of a unit. know…But younger “Boards should be well balanced,” directors grew up with Hill says. “You want to see financial expertise, expertise in public affairs, this stuff, and we’re HR, and the rest, but those people learning we don’t know also must have had experience run- as much as we thought ning businesses. You look for those we did.” who have been successful by a num- —Bonnie Hill ber of measures and who possess both a view of the big picture and where their knowledge fits in — people who can think.”

Once appointed, Vadon was quickly up and running as a contributing member of the board. As part of Home Depot’s onboarding process for new directors, he met with everyone on the senior management team to get to know the company. In reality though, Hill says, “at Home Depot we never stop onboarding. Directors stay current by continually meet- ing with the management team and walking through stores.” Regardless of specialized expertise, everyone has to maintain the same depth of knowledge about the company and its operations.

One of the things about Vadon that impresses Home Depot directors is his willingness to air what he doesn’t know. “Mark is a really smart person; he gets it. But if he’s not familiar with something, he’s not afraid to ask questions and learn,” Hill says. That willingness to probe can enhance the whole board’s renewal process, and generate new insights

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and perspectives, says Hill. “It enables the board to take a fresh look, consider things they may have overlooked, and possibly shift their thinking.”

Vadon’s personal style also has made him a good partner for board colleagues who appreciate having a peer who can translate technology jargon into English. Although the board members are all fairly astute about personal technology, directors and senior executives alike turn to Vadon as a sounding board when they think through the strategic issues related to technology. He regularly meets with the CEO to discuss the digital strategy, and is the go-to in board meetings when the topic turns tech. He often puts forward practices and platforms he has seen succeed elsewhere for consideration or comparison. “Often, it makes us take a second look,” Hill says.

“Just as we would tap a financial expert for the audit committee, we often ask Mark for his opinion on technology-related issues. We want to make sure his voice is heard and that our discussions benefit from the full level of knowledge and input required to come to the best decisions. He has added a level of expertise to discussions we haven’t had before,” Hill observes.

Hill says the board has been “ecstatic” about the contributions Vadon has made in less than a year. “Mark has helped us navigate and leverage social networks and made us aware of some of the pitfalls out there. He’s young — in his early forties — and given his experience, it’s second nature to him. He’s a sage voice and has a manner about him that is just first-class. In the digital space you hear that people act and think differ- ently, but he fit right in.”

By adding Vadon, Hill says, Home Depot closed a common generational knowledge gap: “Older directors sometimes don’t want to admit what they don’t know; they think they’re the greatest thing since sliced pie. But younger directors grew up with this stuff, and we’re learning we don’t know as much as we thought we did.”

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Conclusion

Determining whether a particular board requires a director with digital expertise and, if so, precisely what variety, is a board-wide responsibili- ty. Solutions will vary depending on such crucial factors as board histo- ry, culture, and the strategic imperatives of the company. But the route a board follows to recruiting a director with the right background and experience has highly predictable signposts and junctures, as well as detours and dead-ends.

Based on what we heard in our interviews — and on our significant ex- perience recruiting directors with specialized expertise — here is a road map with particular “destinations” to pay attention to when adding dig- ital expertise to a board:

First stop: the strategy. Although a thorough understanding of the strategy seems a given, it is something many boards struggle with, par- ticularly during periods of transition. A third party can be helpful in ensuring directors are viewing recruiting priorities through the same lens. Without alignment on the strategy among the entire board team, and an understanding of where the board is headed, it’s difficult to de- termine what director profiles the board needs, regardless of expertise.

Implement a board succession plan. Just as smooth CEO succession demands a rigorous and systematic process for designating replacement candidates for the short and long term, a similar approach can keep the board’s feet to the fire on assessing current directors and identifying skills and experience that are needed. It will also temper the impulse to add the director du jour. Digital expertise may be needed or, on the other hand, there may be alternative routes to harnessing that exper- tise, including input from a digital consultant or perhaps a digital advi- sory board.

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Agree on the specifics.An empty board seat, or newly added one, rep- resents a somewhat rare opportunity and it should be filled wisely. If the board agrees on the need for a director with specialized knowledge, such as digital, get specific about the experience required to support the CEO in driving the business strategy. Is a CIO required or perhaps a so- cial media expert — or someone else entirely? Don’t neglect the per- sonal attributes essential for a good cultural fit with the board.

Be prepared to compete. Only a small number of highly prestigious boards can expect the pick of the litter when it comes to digital direc- tors. Demands on active technology executives — whether CEOs or digi- tal leaders in an earlier phase of their careers — are many, and there are many boards seeking their expertise. Be prepared to explain how board service might benefit the careers of active executives, including the abil- ity to bring valuable new intelligence and experience back to their home company. If formality in dress and custom present potential barriers to recruiting younger directors, consider loosening superficial standards.

Follow through. Onboarding, at least an orientation package that in- cludes board procedures and critical details about the company, is al- ways a good idea. But something more comprehensive may be required for a young or first-time director. Consider a formal onboarding pro- gram as well as an experienced independent director as a mentor to en- able a new director to contribute effectively to the board team as soon as possible. Of course, even veteran directors may occasionally need a re- fresher regarding new regulations, shifts in the business environment and industry, or developments at plants or facilities. Why not play it safe and adopt The Home Depot board’s philosophy that onboarding never stops?

Finally, beyond merely observing the phenomenon of adding directors with digital expertise to boards, our goal is to provide guidance for boards on when and how to recruit them. A properly and thoughtfully assembled board constitutes a powerful competitive arsenal, and digital directors are but one weapon in it.

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About the 2013 Korn/Ferry Market Cap 100

The Korn/Ferry Market Cap 100 (KFMC100) are the US companies that had the largest market capitalization as of the close of markets on May 1, 2013, after the end of most firms’ 2012 fiscal year. Companies were re- moved from the list if they were not traded primarily on the NYSE or Nasdaq, or were real estate investment trusts or public investment firms.

Appendix A: The KFMC100 companies

Eight companies joined the ranks of the KFMC100 in 2012, including so- cial network Facebook, which went public that year, and energy compa- ny Phillips 66, which was spun off from ConocoPhillips. AbbVie, a phar- maceutical research company that split off from Abbott, also was in the KFMC100 on May 1, 2013, but did not have a board seated in 2012. Facebook Inc. Dominion Resources Inc. Duke Energy Corp. NextEra Energy Inc. Kinder Morgan Inc. Allergan Inc. Phillips 66 AbbVie Inc.

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Figure 1 KFMC100 market capitalization

The KFMC100 companies had a median market capitalization of $65.7 billion on May 1, 2013, after the close of most companies’ fiscal year. Exactly 31 percent of companies were valued at $100 billion or more.

Market cap Companies $30 billion – $39.99 billion 10 $40 billion – $59.99 billion 35 $60 billion – $79.99 billion 21 $80 billion – $99.99 billion 3 $100 billion – $149.99 billion 13 $150 billion – $199.99 billion 6 $200 billion and over 12

Figure 2 Industry sectors represented

Services remained the most represented sector among the KFMC100 with 20 companies, down two from last year’s report. Likewise, basic materials went from 15 to 13 companies. The health care and utilities sectors both grew by two companies on the KFMC100 list, while other sectors remained stable.

Sector Companies Basic materials 13 Conglomerates 3 Consumer goods 13 Financial 11 Health care 16 Industrial goods 6 Services 20 Technology 14 Utilities 4

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Figure 3 The Korn/Ferry Market Cap 100

The KFMC100 companies ranked in order of market capitalization as of the close of markets on May 1, 2013.

Market cap in billions on Rank Company May 1, 2013 Industry

1 Apple Inc. (NasdaqGS:AAPL) $416.6 Computer hardware 2 Exxon Mobil Corp. (NYSE:XOM) $394.4 Integrated oil and gas 3 Microsoft Corp. (NasdaqGS:MSFT) $274.4 Systems software 4 Google Inc. (NasdaqGS:GOOG) $272.9 Internet software and services 5 Wal-Mart Stores, Inc. (NYSE:WMT) $258.3 Hypermarkets and super centers 6 Johnson & Johnson (NYSE:JNJ) $238.3 Pharmaceuticals 7 Chevron Corp. (NYSE:CVX) $237.0 Integrated oil and gas 8 General Electric Co. (NYSE:GE) $231.8 Industrial conglomerates 9 International Business Machines Corp. $225.2 IT consulting and other services (NYSE:IBM)

10 The Procter & Gamble Co. (NYSE:PG) $211.3 Household products 11 Pfizer Inc.(NYSE:PFE) $208.6 Pharmaceuticals 12 AT&T Inc. (NYSE:T) $207.9 Integrated telecommunication services

13 Wells Fargo & Co. (NYSE:WFC) $198.4 Diversified banks 14 The Coca-Cola Co. (NYSE:KO) $187.9 Soft drinks 15 JPMorgan Chase & Co. (NYSE:JPM) $187.5 Diversified financial services 16 Philip Morris International Inc. (NYSE:PM) $158.6 Tobacco 17 Oracle Corp. (NasdaqGS:ORCL) $157.7 Systems software 18 Verizon Communications Inc. (NYSE:VZ) $151.9 Integrated telecommunication services

19 Citigroup Inc. (NYSE:C) $141.8 Diversified financial services 20 Merck & Co., Inc. (NYSE:MRK) $136.1 Pharmaceuticals 21 Visa Inc. (NYSE:V) $134.2 Data processing and outsourced services

22 Bank of America Corp. (NYSE:BAC) $133.2 Diversified financial services 23 PepsiCo Inc. (NYSE:PEP) $127.4 Soft drinks 24 Intel Corp. (NasdaqGS:INTC) $119.3 Semiconductors 25 Amazon.com, Inc. (NasdaqGS:AMZN) $115.5 Internet retail 26 The Walt Disney Co. (NYSE:DIS) $113.5 Movies and entertainment 27 Cisco Systems, Inc. (NasdaqGS:CSCO) $111.5 Communications equipment

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Market cap in billions on Rank Company May 1, 2013 Industry

28 Comcast Corp. (NasdaqGS:CMCSA) $109.0 Cable and satellite 29 The Home Depot, Inc. (NYSE:HD) $109.0 Home improvement retail 30 QUALCOMM Inc. (NasdaqGS:QCOM) $106.7 Communications equipment 31 McDonald’s Corp. (NYSE:MCD) $102.4 Restaurants 32 Schlumberger Limited (NYSE:SLB) $98.2 Oil and gas equipment and services 33 United Technologies Corp. (NYSE:UTX) $84.0 Aerospace and defense 34 United Parcel Service, Inc. (NYSE:UPS) $81.5 Air freight and logistics 35 Amgen Inc. (NasdaqGS:AMGN) $78.0 Biotechnology 36 Gilead Sciences, Inc. (NasdaqGS:GILD) $77.1 Biotechnology 37 American Express Co. (NYSE:AXP) $75.6 Consumer finance 38 ConocoPhillips (NYSE:COP) $73.8 Integrated oil and gas 39 Altria Group, Inc. (NYSE:MO) $73.5 Tobacco 40 AbbVie Inc. (NYSE:ABBV) $72.6 Pharmaceuticals 41 3M Co. (NYSE:MMM) $72.3 Industrial conglomerates 42 News Corp. (NasdaqGS:NWSA) $72.1 Movies and entertainment 43 CVS Caremark Corp. (NYSE:CVS) $71.6 Drug retail 44 Occidental Petroleum Corp. (NYSE:OXY) $71.3 Integrated oil and gas 45 The Boeing Co. (NYSE:BA) $69.3 Aerospace and defense 46 Union Pacific Corp.(NYSE:UNP) $68.6 Railroads 47 The Goldman Sachs Group, Inc. (NYSE:GS) $68.0 Investment banking and brokerage 48 eBay Inc. (NasdaqGS:EBAY) $67.9 Internet software and services 49 Facebook, Inc. (NasdaqGS:FB) $66.9 Social media 50 MasterCard Inc. (NYSE:MA) $66.2 Data processing and outsourced services

51 Bristol-Myers Squibb Co. (NYSE:BMY) $65.2 Pharmaceuticals 52 Eli Lilly & Co. (NYSE:LLY) $62.6 Pharmaceuticals 53 U.S. Bancorp (NYSE:USB) $61.4 Diversified banks 54 UnitedHealth Group Inc. (NYSE:UNH) $61.2 Managed health care 55 American International Group, Inc. (NYSE:AIG) $61.2 Multiline insurance 56 Abbott Laboratories (NYSE:ABT) $58.0 Pharmaceuticals 57 Honeywell International Inc. (NYSE:HON) $57.9 Aerospace and defense 58 Nike Inc. (NYSE:NKE) $56.9 Footwear and apparel 59 Monsanto Co. (NYSE:MON) $56.5 Fertilizers and agricultural chemicals 60 Mondelez International Inc. (NasdaqGS:MDLZ) $55.9 Packaged foods 61 Colgate-Palmolive Co. (NYSE:CL) $55.7 Household products

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Market cap in billions on Rank Company May 1, 2013 Industry

62 Caterpillar Inc. (NYSE:CAT) $55.5 Construction and farm machinery and heavy trucks

63 Time Warner Inc. (NYSE:TWX) $55.4 Movies and entertainment 64 Enterprise Products Partners L.P. (NYSE:EPD) $54.8 Oil and gas storage and transportation

65 Ford Motor Co. (NYSE:F) $53.8 Automobile manufacture 66 Duke Energy Corp. (NYSE:DUK) $53.0 Electric utilities and natural gas distribution

67 Biogen Idec Inc. (NasdaqGS:BIIB) $51.7 Biotechnology 68 E.I. DuPont de Nemours & Co. (NYSE:DD) $50.9 Diversified chemicals 69 Celgene Corp. (NasdaqGS:CELG) $49.4 Biotechnology 70 Express Scripts Holding Co. (NasdaqGS:ESRX) $48.8 Health care services 71 Danaher Corp. (NYSE:DHR) $47.5 Industrial machinery 72 Costco Wholesale Corp. (NasdaqGS:COST) $47.3 Hypermarkets and super centers 73 EMC Corp. (NYSE:EMC) $47.2 Computer storage and peripherals 74 Medtronic, Inc. (NYSE:MDT) $47.1 Health care equipment 75 Walgreen Co. (NYSE:WAG) $46.9 Drug retail 76 Las Vegas Sands Corp. (NYSE:LVS) $46.2 Casinos and gaming 77 Target Corp. (NYSE:TGT) $45.3 General merchandise stores 78 Starbucks Corp. (NasdaqGS:SBUX) $45.1 Restaurants 79 Morgan Stanley (NYSE:MS) $42.9 Investment banking and brokerage 80 MetLife, Inc. (NYSE:MET) $42.5 Life and health insurance 81 Anadarko Petroleum Corp. (NYSE:APC) $42.4 Oil and gas exploration and production

82 General Motors Co. (NYSE:GM) $42.1 Automobile manufacture 83 Southern Co. (NYSE:SO) $41.9 Electric utilities 84 Lowe’s Companies, Inc. (NYSE:LOW) $41.8 Home improvement retail 85 The Dow Chemical Co. (NYSE:DOW) $40.8 Diversified chemicals 86 Kinder Morgan, Inc. (NYSE:KMI) $40.5 Oil and gas storage and transportation

87 Texas Instruments Inc. (NasdaqGS:TXN) $40.2 Semiconductors 88 Emerson Electric Co. (NYSE:EMR) $40.0 Electrical components and equipment

89 Hewlett-Packard Co. (NYSE:HPQ) $40.1 Computer hardware 90 Kimberly-Clark Corp. (NYSE:KMB) $40.0 Household products 91 Halliburton Co. (NYSE:HAL) $39.6 Oil and gas equipment and services 92 Baxter International Inc. (NYSE:BAX) $38.1 Health care equipment

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Market cap in billions on Rank Company May 1, 2013 Industry

93 Phillips 66 (NYSE:PSX) $37.3 Integrated oil and gas 94 Dominion Resources, Inc. (NYSE:D) $35.6 Electric utilities and natural gas distribution

95 PNC Financial Services Group Inc. (NYSE:PNC) $35.5 Regional banks 96 The TJX Companies, Inc. (NYSE:TJX) $35.2 Apparel retail 97 Deere & Co. (NYSE:DE) $34.8 Construction and farm machinery and heavy trucks

98 NextEra Energy, Inc. (NYSE:NEE) $34.7 Electric utilities and renewable energy

99 Priceline.com Inc. (NasdaqGS:PCLN) $34.7 Internet retail 100 Allergan, Inc. (NYSE:AGN) $33.9 Pharmaceuticals and medical devices

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Appendix B: The KFMC100 Class of 2012

Turnover on KFMC100 boards remained low in 2012. Forty companies in the KFMC100 added no new director at all in 2012.

The Class of 2012 comprises 113 total appointments. With 1,181 total board seats available, that represents a turnover rate of 9.6 percent. Although the gross number of new directors rose from ninety in 2011, the Class of 2012 included an entirely new board for Facebook after its IPO, and the the buildup of the boards of two split companies, Mondelez (from Kraft Foods) and Phillips 66 (from ConocoPhillips). Remove those distortions, and the rate of director turnover is below 8 percent.

Figure 4 Governance experience in the Class of 2012

KFMC100 boards primarily, but not exclusively, added directors with previous board experience with a public company.

New directorships by governance experience (n=113) First-time directors 27% Experienced directors 73%

Figure 5 CEO experience in the Class of 2012

Directors with experience as a CEO remain highly desirable for boards. Even as companies restrict their CEOs’ availability for outside board service, the large companies in the KFMC100 have continued to attract high levels of current and retired CEOs to their boards.

Past or present CEO experience with a public company Seats newly filled in 2012 41% Incumbents’ seats 46%

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Figure 6 Professional experience in the Class of 2012

The KFMC100 covers a wide array of industries, and board makeup varies accordingly. But two types of experience emerged as prominent in the Class of 2012: that in the public sector and in the same specific industry as the board the director joined. Finance and operations experience were also at the top of the list.

New directorships (n=113) Same-industry experience 54% Finance/Audit 35% COO/Operations 30% Public policy/Government 29% Academic research 19% Marketing/Sales 17% Technology 13% Academic administration 12% Nonprofit 12% Legal 7%

Figure 7 Age of Class of 2012 directors

The median age of a director joining a board in 2012 was 59, six years younger than the median age for all directors. 2% 70 and older 20% 65 to 69 10% 49 or younger

16% 50 to 54 25% 60 to 64

27% 55 to 59

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Figure 8 Board service among the Class of 2012

A large majority of the 102 new independent directors were on only one or two boards.

Number of boards

36 1 39 2 19 3 7 4 1 5 0 50 Number of directors

Figure 9 Women in the Class of 2012

Of the 113 total directors added to these boards in 2012, 23 percent were women; 25 percent of new independent directors were female.

23% Female

77% Male

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Figure 10 Minorities in the Class of 2012

Overall rates of diversity hardly changed on KFMC100 boards in 2012, but the rate of new appointments of minority directors was lower than in 2011. Note that ethnicity information was unavailable for 140 of the incumbent directors.

Class of 2012 (n=102) Incumbents’ seats (n=980) African-American 7% 10% Asian-American 1% 3% Hispanic-American 3% 4%

Figure 11 Nationality among the Class of 2012

After a drop to 13 percent in 2011, the percentage of foreign director appointments to KFMC100 boards returned to above 20 percent again in 2012. Nationality data was unavailable for 109 incumbent directorships.

American Non-American Seats filled in 2012 79% 21% Incumbents’ seats 86% 14%

Figure 12 Global experience of the Class of 2012

In addition to nationality, other indicators of global experience rose in 2012, with more appointees born, educated, or working abroad than in the past.

International work experience Seats filled in 2012 36% Incumbents’ seats 26%

Born and/or educated abroad Seats filled in 2012 29% Incumbents’ seats 17%

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Members of the Class of 2012

The following list includes all directors who joined one or more KFMC100 board in 2012. New directors who are also CEO of that company are marked with an asterisk (*).

Zein Abdalla Martin J. Barrington* New board New board The TJX Companies, Inc. Altria Group, Inc. Profile Profile President, PepsiCo Inc. Chairman/CEO, Altria Group, Inc. Sharon L. Allen Marc R. Benioff New board New board Bank of America Corp. Cisco Systems, Inc. Profile Profile Former Chairman, Deloitte LLP Chairman/CEO, Salesforce.com, Inc. Other board(s) Marc L. Andreessen Salesforce.com, Inc. New board Facebook, Inc. Stephen F. Bollenbach Profile New board Co-Founder/General Partner, Andreessen Mondelez International Inc. Horowitz; Co-Founder/Chairman, Ning, Inc. Profile Other board(s) Former Co-Chairman/CEO, Hilton Hotels eBay Inc.; Hewlett-Packard Co. Corp. Other board(s) Lamberto Andreotti Time Warner Inc.; Macy’s, Inc.; KB Home New board E.I. DuPont de Nemours & Co. Joshua B. Bolten Profile New board CEO, Bristol-Myers Squibb Co. Emerson Electric Co. Other board(s) Profile Bristol-Myers Squibb Co. Former White House Chief of Staff Nikesh Arora Lewis W. K. Booth New board New board Colgate-Palmolive Co. Mondelez International Inc. Profile Profile Senior VP/Chief Business Officer, Google Former Chairman/President/CEO, Mazda Inc. Motor Corp. Other board(s) Other board(s) Bharti Airtel Ltd. Rolls-Royce Holdings Janice M. Babiak Jack O. Bovender Jr. New board New board Walgreen Co. Bank of America Corp. Profile Profile Former Managing Partner, Ernst & Young Former Chairman/CEO, HCA Inc. Other board(s) Bank of Montreal Erskine B. Bowles New board Richard Barker Facebook, Inc. New board Profile Celgene Corp. Co-Chair, National Commission on Fiscal Profile Responsibility and Reform Former CEO, Chiron Diagnostics, and Other board(s) former Director General, the Association of Morgan Stanley; Norfolk Southern Corp. the British Pharmaceutical Industry

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John J. Brennan Thomas F. Chen New board New board General Electric Co. Baxter International Inc. Profile Profile Chairman Emeritus, The Vanguard Group, Former Senior VP, Abbott Laboratories Inc. Other board(s) Other board(s) Cyanotech Corp. The Hanover Insurance Group; LPL Financial Holdings Inc. Uma Chowdhry New board James W. Breyer Baxter International Inc. New board Profile Facebook, Inc. Former Senior VP/Chief Science & Profile Technology Officer, EI DuPont de Nemours Managing Partner, Accel Partners & Co. Other board(s) Wal-Mart Stores, Inc.; Dell Inc.; News Corp.; Michael L. Corbat* Brightcove Inc. New board Citigroup Inc. George W. Buckley Profile New board CEO, Citigroup Inc. PepsiCo Inc. Profile Dr. Marijn E. Dekkers Former Chairman/President/CEO, 3M Co. New board Other board(s) General Electric Co. Archer Daniels Midland Co.; Stanley Black & Profile Decker, Inc.; Hitachi, Ltd. CEO/Member of Executive Council, Bayer AG Edson de Godoy Bueno Other board(s) New board Bayer AG UnitedHealth Group Inc. Profile Harris E. DeLoach Jr. Chairman/President/CEO, Amil New board Participações SA Duke Energy Corp. Profile Ursula M. Burns Chairman/CEO, Sonoco New board Other board(s) Exxon Mobil Corp. Florida Progress Corp.; Sonoco Profile Chairman/CEO, Xerox Corp. Richard W. Dreiling Other board(s) New board American Express Co.; Xerox Corp. Lowe’s Companies, Inc. Profile Victor M.G. Chaltiel CEO, Dollar General Corp. New board Other board Las Vegas Sands Corp. Dollar General Corp. Profile Founder and former Chairman/CEO, Robert A. Eckert HealthDataInsights Inc. New board Amgen Inc. Elaine L. Chao Profile New board Chairman/Former CEO, Mattel, Inc. News Corp. Other board(s) Profile McDonald’s Corp.; Mattel, Inc. Former US Secretary of Labor Other board(s) David N. Farr Wells Fargo & Co.; Protective Life Corp.; New board Dole Food Co., Inc. International Business Machines Corp. Profile Chairman/CEO, Emerson Electric Co.

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J. Brian Ferguson Murry Gerber New board New board Phillips 66 Halliburton Co. Profile Profile Former Chairman/CEO, Eastman Chemical Former Chairman/CEO, EQT Corp. Co. Other board(s) Other board(s) BlackRock, Inc.; United States Steel Corp. NextEra Energy, Inc.; Owens Corning Charles W. Goodyear Timothy P. Flynn New board New boards Anadarko Petroleum Corp. Wal-Mart Stores, Inc.; JPMorgan Chase & Profile Co. Former CEO, Temasek Holdings Profile Retired Chairman, KPMG International Jamie S. Gorelick New board Scott T. Ford Amazon.com, Inc. New board Profile AT&T Inc. Partner, Wilmer Cutler Pickering Hale and Profile Dorr LLP Former President/CEO, Alltel Corp. Other board(s) Other board(s) United Technologies Corp. First Federal Bancshares of Arkansas Inc. Alex Gorsky* Henrietta H. Fore New board New board Johnson & Johnson Exxon Mobil Corp. Profile Profile Chairman/CEO, Johnson & Johnson Chairman/CEO, Holsman International Other board(s) Donald E. Graham Theravance, Inc. New board Facebook, Inc. Jody Freeman Profile New board Chairman/CEO, The Washington Post Co. ConocoPhillips Other board(s) Profile The Washington Post Co. Archibald Cox Professor of Law, Harvard Law School David J. Grain New board Greg C. Garland* Southern Co. New board Profile Phillips 66 Founder/Managing Partner, Grain Profile Management; CEO, Grain Communications Chairman/CEO, Phillips 66 Group Alice P. Gast Diane B. Greene New board New board Chevron Corp. Google Inc. Profile Profile President, Lehigh University Former President/CEO, VMware, Inc. Other board(s) Robert Gates Intuit, Inc. New board Starbucks Corp. Anthony W. Hall Jr. Profile New board Former US Secretary of Defense Kinder Morgan, Inc. Profile Richard L. George Attorney/Former City Councilman/Chief New board Administrative Officer for the city of Houston Anadarko Petroleum Corp. Profile Former Chairman/CEO, Suncor Energy Inc. Other board(s) Royal Bank of Canada

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W. Reed Hastings Jr. Jon M. Huntsman Jr. New board New boards Facebook, Inc. Caterpillar Inc.; Ford Motor Co. Profile Profile Founder/Chairman/President/CEO, Netflix, Former Governor of Utah and US Inc. Ambassador to China Other board(s) Other board(s) Netflix, Inc. Huntsman Corp. Roland Hernandez James B. Hyler Jr. New board New board U.S. Bancorp Duke Energy Corp. Profile Profile Founding Principal/CEO, Hernandez Media Former Vice Chairman/COO, First Citizens Ventures Bank & Trust Co. Inc. Other board(s) MGM Resorts International; Vail Resorts, Tyler Jacks Inc.; Sony Corp. New board Amgen Inc. Robert H. Herz Profile New board Professor, Massachusetts Institute of Morgan Stanley Technology Profile Other board(s) Former Chairman, Financial Accounting Thermo Fisher Scientific Inc. Standards Board (FASB) Kristina M. Johnson Doreen Woo Ho New board New board Cisco Systems, Inc. U.S. Bancorp Profile Profile Former Senior Vice President of Academic President, San Francisco Port Commission Affairs and Provost, Johns Hopkins University Dr. Susan Hockfield Other board(s) New board AES Corp.; Boston Scientific Corp. QUALCOMM Inc. Profile Dr. William G. Kaelin Former President, Massachusetts Institute New board of Technology Eli Lilly & Co. Other board(s) Profile General Electric Co. Associate Director, Dana-Farber/Harvard Cancer Center Linda P. Hudson New board Klaus Kleinfeld Bank of America Corp. New board Profile Morgan Stanley President/CEO, BAE Systems, Inc. Profile Other board(s) Chairman/CEO, Alcoa Inc. BAE Systems, Inc. Other board(s) Alcoa Inc.; Bayer AG Franz Humer New board John J. Koraleski* Citigroup Inc. New board Profile Union Pacific Corp. Chairman/former CEO, Roche Holding AG; Profile Chairman, Diageo PLC President/CEO, Union Pacific Corp. Other board(s) Diageo PLC; Roche Holding AG

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Robert A. Kotick Marissa A. Mayer New board New board The Coca-Cola Co. Wal-Mart Stores, Inc. Profile Profile President/CEO, Activision Blizzard, Inc. President/CEO, Yahoo Inc. Other board(s) Other board(s) Activision Blizzard, Inc. Yahoo Inc. Ryan M. Lance* Harold W. McGraw III New board New board ConocoPhillips Phillips 66 Profile Profile Chairman/CEO, ConocoPhillips Chairman/President/CEO, The McGraw-Hill Companies, Inc. Marshall O. Larsen Other board(s) New board United Technologies Corp.; The McGraw- United Technologies Corp. Hill Companies, Inc. Profile Former Chairman/President/CEO, Goodrich E. Marie McKee Corp. New board Other board(s) Duke Energy Corp. Lowe’s Companies, Inc.; Becton Dickinson Profile & Co. President, Corning Museum of Glass and former President, Steuben Glass Matthew S. Levatich New board Kathryn B. McQuade Emerson Electric Co. New board Profile Altria Group, Inc. Division President/COO, Harley-Davidson, Profile Inc. Executive Vice President/Chief Financial Officer, Canadian Pacific Railway Limited Grace D. Lieblein New board Jorge Mesquita Honeywell International Inc. New board Profile Mondelez International Inc. Vice President for Global Purchasing and Profile Supply Chain, General Motors Co. Group President, New Business Creation and Innovation, The Procter & Gamble Co. William R. Loomis Jr. New board Judith A. Miscik Phillips 66 New board Profile EMC Corp. Former Chairman, Terra Industries Inc. Profile Other board(s) Vice Chairman/President, Kissinger L Brands Inc. Associates, Inc.; former Deputy Director for Intelligence, US Central Intelligence Agency John E. Lowe New board Charles W. Moorman Phillips 66 New board Profile Chevron Corp. Senior Executive Advisor, Tudor Pickering Profile Holt & Co. Chairman/CEO, Norfolk Southern Corp. Other board(s) Other board(s) Agrium Inc. Norfolk Southern Corp. Stephen J. Luczo Eric D. Mullins New board New board Microsoft Corp. Anadarko Petroleum Corp. Profile Profile Chairman/President/CEO, Seagate Chairman/Co-CEO, LRR Energy Technology Other board(s) Other board(s) LRR Energy Seagate Technology

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James J. Mulva Dr. William L. Roper New board New board General Motors Co. Express Scripts Holding Co. Profile Profile Former Chairman/CEO, ConocoPhillips Dean, University of North Carolina, Chapel Other board(s) Hill School of Medicine General Electric Co. Other board(s) DaVita HealthCare Partners Inc. Dominic P. Murphy New board Carlos A. Saladrigas Walgreen Co. New board Profile Duke Energy Corp. Partner, Kohlberg Kravis Roberts & Co. Profile Chairman/CEO, Regis HR Group Adebayo O. Ogunlesi Other board(s) New board Advance Auto Parts, Inc. The Goldman Sachs Group, Inc. Profile Sheryl Sandberg Chairman/Managing Partner, Global New board Infrastructure Partners Facebook, Inc. Other board(s) Profile Kosmos Energy LTD; Callaway Golf Co. Chief Operating Officer, Facebook, Inc. Other board(s) Stefano Pessina The Walt Disney Co. New board Walgreen Co. Patrick T. Siewert Profile New board Executive Chairman, Alliance Boots GmbH Mondelez International Inc. Other board(s) Profile Galenica LTD Chairman, Eastern Broadcasting Co. Other board(s) Preetha Reddy Avery Dennison Corp.; China Fishery Group New board Limited; C.P. Pokphand Co. Ltd. Medtronic, Inc. Profile Ruth J. Simmons Consultant for Disaster Management New board Program in Chennai, India, and health care Mondelez International Inc. advisor to Indian government Profile Other board(s) President Emeritus, Brown University Apollo Hospitals Enterprise Ltd. Other board(s) Texas Instruments Inc. James L. Robo* New board John L. Skolds NextEra Energy, Inc. New board Profile NextEra Energy, Inc. President/CEO, NextEra Energy, Inc. Profile Other board(s) Chairman, Zolo Technologies, Inc. J.B. Hunt Transport Services, Inc. Theodore (Tim) M. Solso Virginia M. Rometty* New board New board General Motors Co. International Business Machines Corp. Profile Profile Former Chairman/CEO, Cummins Inc. Chairman/President/CEO, International Other board(s) Business Machines Corp. Ball Corp.

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Joan E. Spero Victoria J. Tschinkel New board New board Citigroup Inc. Phillips 66 Profile Profile Former US Under Secretary of State for Former Director, Florida Nature Economic, Business and Agricultural Affairs Conservancy and US Ambassador to the United Nations for Economic and Social Affairs Mark Edward Tucker Other board(s) New board International Business Machines Corp.; The Goldman Sachs Group, Inc. International Paper Co. Profile President/Group CEO, AIA Group Ltd. Gerald Storch Other board(s) New board AIA Group Ltd. Bristol-Myers Squibb Co. Profile Álvaro Uribe Vélez Chairman/CEO, Toys R Us, Inc. New board News Corp. Michael E. Szymanczyk Profile New board Former President, Colombia Dominion Resources, Inc. Profile Mark C. Vadon Former Chairman/CEO, Altria Group, Inc. New board The Home Depot, Inc. Kathryn A. Tesija Profile New board Co-Founder/Chairman/former CEO, Blue Verizon Communications Inc. Nile Inc. Profile Other board(s) Executive Vice President, Merchandising Blue Nile Inc. and Supply Chain, Target Corp. Robert F. Vagt Peter A. Thiel New board New board Kinder Morgan, Inc. Facebook, Inc. Profile Profile Former President, Charles W. Davidson Founder/President, Clarium Capital College of Engineering, San Jose State Management LLC; Co-Founder and former University CEO, PayPal Daniel L. Vasella John W. Thompson New board New board American Express Co. Microsoft Corp. Profile Profile Chairman, Novartis AG CEO, Virtual Instruments, Inc. Other board(s) Other board(s) PepsiCo Inc.; Novartis AG United Parcel Service, Inc. R.A. Walker* Inge G. Thulin* New board New board Anadarko Petroleum Corp. 3M Co. Profile Profile Chairman/President/CEO, Anadarko CEO, 3M Co. Petroleum Corp. Other board(s) Glenn F. Tilton CenterPoint Energy, Inc.; Western Gas New board Partners LP Phillips 66 Profile Kevin M. Warsh Non-Executive Chairman, United New board Continental Holdings, Inc. United Parcel Service, Inc. Other board(s) Profile United Continental Holdings, Inc.; Abbott Former Member, Board of Governors, Laboratories Federal Reserve

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A. Eugene Washington New board Johnson & Johnson Profile Dean, David Geffen School of Medicine at UCLA Marna C. Whittington New board Phillips 66 Profile Former CEO, Allianz Global Investors Other board(s) Oaktree Capital Group LLC; Macy’s, Inc. E. Jenner Wood III New board Southern Co. Profile Chairman/President/CEO, SunTrust Bank’s Atlanta/North Florida Division Other board(s) Oxford Industries, Inc.; Crawford & Co. R. David Yost New board Bank of America Corp. Profile Former CEO, AmerisourceBergen Corp. Other board(s) Tyco International Ltd.; Exelis Inc.; Marsh & McLennan Companies, Inc. Mark E. Zuckerberg* New board Facebook, Inc. Profile Chairman/CEO, Facebook, Inc.

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Appendix C: The KFMC100 boards

Figure 13 Board size

The median size for a KFMC100 board was 12 directors and 84 percent of boards had between 10 and 15 directors. 10% 8 to 9 directors

6% 16 to 17 directors

57% 10 to 12 27% 13 to 15 directors directors

Figure 14 Board independence

In the KFMC100, 83 percent of boards had one or two executive directors. The rest were independent directors. 6% 4 to 7 executive directors 11% 3 executive directors

25% 2 executive directors 58% 1 executive director

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Figure 15 Who is the chairman?

The company CEO chairs the board of directors at 68 of the 100 KFMC100 companies. Another 20 have chairmen or executive chairmen leading the board, 15 of whom were the former CEO of the company. 12% Non-executive chairman

20% Chairman or executive chairman

68% CEO is also chairman of the board

Figure 16 Compensation and retainers for directors

The median total compensation for KFMC100 directors was $275,000 according to figures reported in company proxy statements, and the median cash retainer was $85,000. Four companies stated that they offered no cash retainer to directors.

Cash retainer >$150,000 5%

$125,001 to $150,000 6%

$100,001 to $125,000 14%

$75,001 to $100,000 37%

$50,001 to $75,000 23%

$25,001 to $50,000 10%

$1 to $25,000 1%

$0 4%

0% 50%

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Figure 17 Board meetings

Just over half of the KFMC100 boards met eight or more times in 2012. The average number of board meetings was 8.4, the same as 2011. One newly formed company in the KFMC100 had no meetings in 2012. 10% 13 to 22 meetings

10% 0 to 5 meetings 21% 10 to 12 meetings

37% 6 to 7 meetings

22% 8 to 9 meetings

Figure 18 Global experience on KFMC100 boards

Although 89 percent of KFMC100 boards include directors who held a significant work assignment outside the United States, only a third had members with experience in one of the BRIC nations—Brazil, Russia, India, and China. About 10 percent of directors joining boards in 2012 were born, educated, or worked in one of those markets.

One or more directors 89% with work experience anywhere outside the US

One or more directors 32% with work experience specifically in BRIC countries 0% 100%

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Figure 19 Gender balance on KFMC100 boards

Only 20 percent of all KFMC100 board seats were held by women, and 95 percent of those were independent directorships.

20% Female

80% Male

Figure 20 Distribution of female directors in the KFMC100

There is only one all-male board in the KFMC100; in 2011, there were four. The average number of women on a KFMC100 board is 2.4. At the companies with female CEOs, five of the six boards have four female directors, and the other has three.

Number of female directors 0 1

1 15

2 45

3 23

4 13

5 1

0 50 Number of companies

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Figure 21 Age of KFMC100 directors

Excluding CEOs, there were 973 individual directors in the KFMC100, the bulk of whom were in their 50s and 60s. The median age was 65. 5% 75 and over 16% 70 to 74 4% 49 or younger

9% 50 to 54

28% 65 to 69 18% 55 to 59

20% 60 to 64

Figure 22 KFMC100 retirement age policies

Eighty-one of the KFMC100 companies have an established retirement age for directors, though 23 of those have granted exceptions. The average mandatory retirement age of boards with such policies is 72.

Retirement policy Companies Exceptions Average director age Mandatory retirement age 47 7 62.6 Policy explicitly allows exceptions 34 16 62.9 No retirement age policy 19 -- 63.4

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Figure 23 Duration of directorships in the KFMC100

Directors in the KFMC100 tend to serve a long time on boards. The current average tenure is eight years, and 28 percent of directors have been in their seats a decade or longer. Among the 89 directors who left in 2012, the average tenure was nine years. The average age of a departing director was 66.

Board seats held for 12 years or more 20%

9 or more years 33%

6 or more years 53%

3 or more years 75%

0% 100%

Figure 24 Individual director review policy in the KFMC100

Board renewal and improvement are sometimes approached by a vigorous annual review of each individual director. In their 2012 proxy statement, 47 KFMC100 companies indicated that individual reviews were their policy.

47% Boards that perform individual reviews of directors

53% Boards with no stated individual review policy

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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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Korn/Ferry International is a premier global provider of talent management solutions, with a presence throughout the Americas, Asia Pacific, Europe, the Middle East and Africa. The firm delivers solutions and resources that help clients cultivate greatness through the design, building and attraction of their talent. Visit www.kornferry.com for more informa- tion on Korn/Ferry International, and www.kornferryinstitute.com for thought leadership, intellectual property, and research.

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