Challenges in Recruiting Independent Board Members

Andrea RedmondRussell Reynolds Associates

March 10, 2003

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• Regulatory changes

• Investor confidence in corporate governance is severely eroded and public disdain widespread

• Economic challenges

• General climate of uncertainty

Current Situation

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• Time commitment is significantly rising

• Complexity of the role is increasing

• Greater shift from approving strategic and operational development to contributing to it

• Director liability appears to be increasing

• Honor/appeal of being a director is decreasing

• Intolerance for inactive directors

• Greater public scrutiny

The Changing Role of the Director

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• The traditional CEO

• Financial experts

• Turn-around or crisis management experience

• International experience

• Strategy expertise

• Track record of operational excellence

• Women & Minorities

• OUT – professional directors, CMO, CTO, “new economy” CEO

The New Board Candidate

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• Analytical approach to director recruitment required

• Candidates must have impeccable ethics

• Candidates must have not only the time to for the directorship, but also a passion & enthusiasm for the role

Client Concerns

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• Time restrictions

• Limited CEO quality

• Operating performance issues

• Rising scrutiny of D&O insurance

Hurdles to Recruitment

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• Broaden the pool

Target senior operating officers such as presidents of global business units

Do not overlook the CEO of a smaller company He/she could have come from a much larger business He/she may have an impeccable track record Be open to considering success wherever it is found

Look at women and minorities Do not chase the obvious candidates along with everyone else

Recruiting Strategies

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• Directors are recruited most successfully when both the CEO and the Nominating Committee commit focused and prioritized attention to the search

Demonstrate the importance of the company’s governance to prospective directors through action

Do not let the search languish between board meetings

Recruiting Strategies

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Comments on Other Trends

• Director compensation

• Lead Directors

• Separate Chairman & CEO

• Director evaluation

• Audit Committee advisor

• CEO succession planning

• Executive compensation