The Korn/Ferry Institute The Class of 2012 New NEDs in the FTSE 350 The Class of 2012 i THE KORN/FERRY INSTITUTE The Class of 2012 THE KORN/FERRY INSTITUTE Contents Page Foreword .................................................. i Executive summary ....................................... 1 The Class of 2012 .......................................... 3 Turnover is low on FTSE 350 boards ...................... 4 Primary career discipline ............................... 5 Gender balance ....................................... 7 Nationality and international experience .................. 9 Case study 1 ......................................... 10 NEDs 2.0? ........................................... 11 Case study 2 ......................................... 12 Career experience .................................... 13 Case study 3 ......................................... 15 Motivation to take a FTSE 350 NED role ................... 16 Case study 4 ......................................... 17 Induction processes ................................... 18 Expectations ......................................... 19 Conclusion .......................................... 20 The Class of 2012 biographies .............................. 22 THE CLASS OF 2012 i Foreword UK corporate governance is often something of an echo chamber, with articles from management and talent consultancies following one- another in procession, often saying much the same thing. As such, it is always interesting to come across something a little different, and credit to Korn/Ferry Whitehead Mann for bringing something new and original to the UK corporate governance debate with their ‘The Class of 2012’ study. As well as providing compelling insight into appointment trends in the boardrooms of the UK’s largest companies, the survey offers chairmen a ready-made ‘black book’ of FTSE 350 up-and-comers who may be relevant as they consider changes to their boards. This report also includes a number of case studies which clearly show the enduring importance of sound and effective training and mentorship for new NEDs. Current executives thinking about a plural board career will also find much of relevance and should be encouraged by the increased weighting given to operational experience and diversity when considering first- time appointments to the FTSE boardroom. They can also learn much from the personal accounts from some of the group on the challenges they experienced in securing their first board seat and their range of views on the effectiveness of their induction process. It will be fascinating to see how this group grows into their board careers, and to see how next year’s crop compares. Although diversity is generally increasing, including in career backgrounds, The Class of 2012 is overwhelmingly taken from the business sphere. As Chairmen continue to drive diversity on their boards, will they look outside business to those that have excelled in government, academic and charitable sectors? Or will the needs of the boards of our largest ii THE KORN/FERRY INSTITUTE businesses continue to be largely fed by their own executive talent pools? I encourage all of those that search for candidates to dig deeper and all of those that select the winners to look wider in their pursuit of fresh, diverse talent to make British boardrooms better. I await news of the Class of 2013 with great interest. Sir Roger Carr President CBI THE CLASS OF 2012 1 Executive summary The Korn/Ferry Institute is pleased to present The Class of 2012, our inaugural study of appointment trends to the boards of the UK’s largest companies. We have profiled all individuals who were appointed to their first FTSE 350 Plc non-executive directorship during 2012. We have also conducted a survey of these new Non-Executive Directors (NEDs) on finding their first board role, the appointment process and the induction and training they received. Finally, the report compares the group to first-time NEDs in 2007 in order to identify shifting appointment patterns. The Class of 2012 step into these roles against a backdrop of five years of financial crisis; increased investor and media activism; burdensome regulatory oversight and intervention; and fast-paced technological change. Has refreshment at board level gathered pace with this changing business landscape? Are companies seeking to infuse boards with new skills from a more diverse candidate pool? Are they selecting directors to keep step with regulation or the shifting technological landscape? Are they willing to take on the inherent risk of appointing less seasoned board members? Or have they retreated into themselves, trusting the company’s stewardship to more seasoned, experienced NEDs? The key findings from the research: Fewer NEDs overall were appointed to FTSE 350 boards in 2012 than 2007, but there was a marked increase in the proportion of seats going to first-time appointees. When the distorting effect of IPOs is removed, the proportion of first-time appointees rose from 41 percent in 2007 to 48 percent in 2012. 2 THE KORN/FERRY INSTITUTE The Class of 2012 shows increased diversity in several areas including gender, international experience and background career discipline, evidenced by: • 47 percent of first-time appointments to the FTSE 350 in 2012 were women, compared to only 11 percent in 2007. • More than half of The Class of 2012 have experience living or working abroad. • There are more former human resources, marketing and legal professionals being appointed at the expense of NEDs with purely commercial experience. Increased diversity comes at the expense of deep executive experience. The Class of 2012 NEDs are much less likely to have sat on a quoted board as an executive and there is an accompanying drop in quoted Chief Executive Officer (CEO) experience. Existing networks remain important when looking for a NED position. Among our survey respondents, 15 percent took on their role because of their relationship with an existing chairman or board member. Induction still has room for improvement. New NEDs believe they need better induction processes, particularly related to documentation for new appointments and levels of interaction with other directors and senior management. Our methodology included analysis of all FTSE 350 NED appointments during the year (using data from BoardEx), a survey of all identified first-time FTSE 350 NEDs and several in-depth interviews on topics including: experiences as first-time NEDs, induction processes and board effectiveness. Throughout this report, we refer solely to the FTSE 350, unless otherwise stated. THE CLASS OF 2012 3 The Class of 2012 The Korn/Ferry Institute’s recent study, What Makes an Exceptional Independent Non-Executive Director?, discussed the characteristics that boards seek in every appointment: a sense of independence, strong communication skills, passion for the company’s mission and the ability to think in a strategic manner. Outside of these core traits, every board appointment requires a different mix of skills and background. This mix is determined not only by the company’s strategic objectives but also by the macro-economic or market climate. Building on this study, we have analysed the profiles of The Class of 2012, focusing on attributes that appeared to have been particularly important to board nominating committees over the course of the year. We looked at how the total number of NED appointments has changed across the years, the gender balance of first-time NEDs, their nationality, professional backgrounds and, finally, the extent to which new appointments were driven by nomination committees seeking greater insight into digital/online trends. 4 THE KORN/FERRY INSTITUTE Turnover is low on FTSE 350 boards Overall, boards saw fewer NED appointments in 2012 than in 2007— 402 compared to 466. This also represented a lower rate of churn, with 18 percent of the total NED pool being replaced versus 22 percent five years ago. This decrease in activity can largely be explained by the high number of IPOs in 2007. Listing activity was much higher before the financial crash, with 11 companies listing on the FTSE in 2007, compared to only one (the forced demerger of Direct Line) in 2012. Although there were fewer total appointments, just under half (193 or 48 percent) went to first-time NEDs in 2012, proportionately higher than in 2007 (209 or 45 percent). When the impact of IPOs, which tend to bring about more first-time directors, is removed from the analysis in both years, the shift towards first-time appointments is even more pronounced: 48 percent in 2012, up from 41 percent in 2007. Figure 1 Percentage of FTSE 350 seats going to first-time NEDs The rates of first-time directors joining boards has risen since 2007, and now constitutes nearly half of new appointments. 0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100% All No IPO All No IPO 1st Time NEDs Experienced NEDs 2% 1% 3% 2% 3% 1% 3% 3% Finance related Finance related Commercial/General Management Commercial/General Management 5% 5% Operations Operations 6% Strategy/Consulting Strategy/Consulting 42% 11% Legal 39% Legal 10% Research & Technology Research & Technology Marketing Marketing 13% 11% Other (Academic, Government, Communications) Other (Academic, Government, Communications) Private Equity Private Equity 16% 24% Human Resources Human Resources THE CLASS OF 2012 5 Primary career discipline Korn/Ferry’s What Makes an Exceptional Independent Non-Executive Director? report revealed that, whilst finance has always been valued as