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Annual Survey of Board Leadership 2013 Edition

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Annual Survey of Board Leadership 2013

Preface Leadership There are two pillars of leadership that are key success factors for driving longterm shareholder value: the leader of the board, and the CEO of the company. Aligning leadership structure to the needs of the company and enabling the highest degree of shareholder value creation are the ultimate responsibilities of corporate directors. There is universal agreement about the need for strong, independent board leadership, but the form it takes is evolving—as is the clarity of the role(s), the process used for selection and succession, the ideal competencies and compensation, and link to performance. This, our first report on the topic, will establish the hard facts around the trends and how we got here. We intend to continue this survey on an annual basis. Over the next few years, we will be reaching out to respected board leaders to understand how their board management needs are changing, and what leading practices they follow to meet those challenges. By fostering this dialogue, we hope to further solidify the role of leadership as a strategic asset.

In separate NACD Blue Ribbon reports, we have discussed “leading practices” for boards to ensure seamless transition of high-performing CEO leadership. This study is focused on board leadership.

In addition, for companies that have split the role of leader of the board and CEO, we will encourage them to share with us (potentially at NACD and Korn/Ferry conferences) reflections on “what has changed—if anything” and start to document—with facts—any correlation between splitting the roles of chairman and CEO and financial performance of the company. We cannot emphasize enough the importance of this topic and hope you will share with us any unique insights you have.

Robert Hallagan

Dennis Carey

Ken Daly

Peter Gleason

Vice Chairman Korn/Ferry Board/CEO Practice

Vice Chairman Korn/Ferry Board/CEO Practice

President & CEO NACD

Managing Director & CFO NACD


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Contents About this report...................................................................................................................5 A call to action........................................................................................................................6 Key implications.....................................................................................................................7 Glossary of terms...................................................................................................................9 Methodology and approach................................................................................................10 Observations on board independence and roles..........................................................11 Part I: Current state of the S&P 500 and Midcap 400 board leadership as of year end 2011 Extending beyond the S&P 500..........................................................................................13 Continuing the trend to separate the CEO and chairman roles..............................14 Trends vary by size of company.........................................................................................16 Reliance on lead director for independence increases with company size..........19 Leadership structure by industry.....................................................................................21 Some S&P 500 subsectors have very low rates of separation.....................................22 Aerospace and defense.........................................................................................................22 Oil and gas...............................................................................................................................22 Top ten US banks...................................................................................................................22 Part II: Board leadership structure decisions at the S&P 500 Planning for successful successions . ..............................................................................26 Recent transitions favor the combined leadership model.........................................27 Separating roles in response to shareholder pressure................................................28 Separating roles proactively...............................................................................................29 Changing the board leadership structure.....................................................................30 Older transitions skew to combined CEO-chairman model.....................................31 Differences between S&P 500 and S&P 400 for most recent leadership change since 2001................................................................................................................................32 Part III: Reasons for changing leadership Planning ahead to get it right............................................................................................34 Reasons for change when the two roles are split.........................................................35 Outcome of leadership change by reason.......................................................................37 Differences between S&P 500 and S&P 400...................................................................38 Part IV: Commitment to new research New research to focus on pressing corporate governance issues............................40 Part V: Chairman successions in 2011 Seasonal trends in succession events...............................................................................42 Characteristics of incoming vs. veteran chairmen......................................................43 Non-executive chairmen assuming office in 2011.......................................................44 Appendix


Annual Survey of Board Leadership 2013

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About this report The Korn/Ferry NACD Annual Survey of Board Leadership continues our joint commitment to corporate governance research with a new, rigorous study of board leadership structure. We’ve chosen to examine this issue across a large playing field of U.S. companies—namely, the S&P 500 and 400—to understand any and all changes to the leadership structure that took place in 2011. In future surveys, we will expand our audience further to include top global companies from around the world. The S&P 500® is widely regarded as the best single gauge of large cap U.S. equities. The index includes 500 leading companies and captures approximately 80 percent coverage of available market capitalization. Introduced in 1991, the S&P MidCap 400® provides investors with a benchmark for mid-sized companies. The index covers over 7 percent of the U.S. equities market, and is part of a series of S&P U.S. indices that can be used as building blocks for portfolio construction.


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A call to action Directors of U.S. publicly held companies currently have the responsibility and discretion to decide whether the roles of CEO and chairman should be combined or divided. But with many U.S. shareholder activists and regulators set against the combined CEO-chairman model, board directors may face a future where they have less freedom to decide on the leadership structure for their companies. The United Kingdom offers an example of that extreme outcome, whereby boards are effectively required to separate their lead roles.

United Kingdom context In 1992, the report of the Committee on the Financial Aspects of Corporate Governance (usually known as the Cadbury Report after Sir Adrian Cadbury, the chairman of the committee) expressed concern over dangers it believed were associated with the practice of combining the roles of chairman and CEO. The Cadbury Report recommended “there should be a clearly accepted division of responsibilities at the head of a company, which will ensure a balance of power and authority, such that no one individual has unfettered powers of decisions.� Any company that does not split the roles must explain to shareholders why they do not. Since this report was issued, an estimated 95 percent of companies in the UK had chosen to split the roles. Fortunately in the United States, the proscriptive approach to board leadership has not been mandated, which has allowed companies to thoughtfully consider which board leadership model is best for their shareholders. We feel that having the right board leadership, one of the two pillars of leadership for a company (the other pillar being a highperforming CEO), is critical for a company. Korn/Ferry and NACD are committed to developing leading practices around board leadership, and will be publishing our findings on an annual basis.


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Key implications In 2011, the chorus of voices calling for public companies to separate the roles of CEO and chairman grew louder. A handful of companies, such as Occidental Petroleum, bowed to shareholder pressure and adopted new leadership structures, separating responsibility for chairing the board and serving as chief executive. But it’s unclear that split roles provide better management oversight and independence. Our review of board leadership at the S&P 500 and S&P MidCap 400 led to the following observations: Independent board leadership. Regardless of form, there is 100 percent agreement among corporate governance stakeholders about the need for each board to have engaged, independent leadership. Independent leadership may take the form of a non-executive chairman or lead director. Role distinction. The exact roles and duties of a non-executive chairman and a highly engaged lead director are similar, providing two viable paths to independent board leadership. The high incidence of companies with a split leadership structure and a lead director will be explored further in future reports. Slow, steady trend to separate. In growing numbers, S&P 500 companies are opting to separate the roles of CEO and chairman, with 42 percent of all S&P companies dividing the roles in 2011, up from 33 percent in 2006, and 26 percent in 2001. Rationale to separate. The accelerated move in the UK to separate the CEO and chairman roles, and the slower but steady trend in the U.S., has been driven primarily by regulation and activist pressure. Varies with size and industry. Larger companies and more traditional industries have been less inclined to separate roles; a partial explanation is the global nature of their business and the ceremonial importance of the title of chairman.


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Leadership competencies. All board members would not make good board leaders—the process used to select and evaluate a board leader should be as thoughtful and rigorous as a CEO selection. Poorly selected leaders have proven to have a negative impact on performance. In this discussion, clarity around ideal terms, compensation, and formal assessment should be established; frequent rotation of board leadership is not recommended, but neither is indefinite terms. Importance of informed point of view. With the slow but steady trend of separating roles, it is extremely important for each board to proactively discuss the board’s current philosophy and be able to clearly articulate why their current board leadership is appropriate, as well as emphasize the point that it will be continuously reviewed and assessed. Compensation. It was observed during the compilation of this report that additional compensation was assigned to board leadership roles. This issue will be explored in detail in subsequent reports. Link to performance. To date, there is no rigorous proof that separation of chairman and CEO leads to enhanced shareholder value (this research is currently being spearheaded by Korn/Ferry International and NACD and will be included in future reports).


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Glossary of terms Recognizing the lack of clarity around many corporate governance terms, Korn/Ferry and NACD have developed a set of definitions to enable consistent interpretation of this report. We hope this glossary will help dispel confusion and prompt a broader dialogue on the meaning of common governance terms. Executive chairman: A full-time office-holder who typically leads the board and takes a hands-on role in the company’s day-to-day management. This is a paid position, most often held by a former CEO as part of an orderly transition. Non-executive chairman: A non-employee chairman of the board who does not serve as an executive for the company and has no day-to-day management responsibilities. For the purposes of this report, we used the following criteria to classify a non-executive chairman: • He or she is an independent director of the board, and is neither currently nor formerly an executive officer of the company, and does not have the title of executive chairman.

• T hose who have the title of non-executive chairman but currently or formerly served as an executive officer of the company are not considered to be nonexecutive chairmen and were classified as executive chairman for the purpose of our analysis.

Lead director: A non-management director of a public company who serves as an independent chief among other board directors and thereby helps ensure board relations run smoothly. This individual acts as an ombudsman for the outside directors and presides over executive session meetings (those held without management present). The lead director role has evolved, and may include helping to set the agenda for board meetings and serving as liaison between the CEO-chairman and outside directors. Presiding director: An independent, non-management director of a public company whose chief responsibility is to preside over executive sessions of independent directors and communicate on behalf of independent directors to the chairman and CEO. The role of presiding director is likely to rotate on a two- or three-year cycle among independent committee chairs, and is typically filled by a member of the nominating/governance committee.


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Methodology and approach This study examined changes to and trends in board leadership structure for 900 U.S. companies, the constituents of the S&P 500 and 400, as of December 31, 2011. For each company, we examined the type of board leadership structure in place at the time of its proxy filing for the years 2008, 2009, 2010, and 2011. We also documented each company’s overall leadership approach for 2011, including the roles of chairman, CEO, and lead director (if at all), by examining proxy filings, annual reports, and the corporate governance section of company websites. In addition, each company that had a change in its leadership structure since January 1, 2001 (by replacing either the CEO or chairman) was investigated to understand the reason for the change, and additional details—like tenure, age, education, committee responsibilities—were sought for the incoming chairman. Company and outside press reports and news articles were used to determine the reason for an executive’s departure, and executive biographical and company data was sourced from secondary sources, including Reuters, Businessweek, Marketwatch, and Morningstar.


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Observations on board independence and roles The consequences of getting the placement of a chairman or CEO wrong, arguably make succession planning for these two roles the most important responsibility of a board. It is our judgment that the exact roles of a nonexecutive chairman and a highly engaged lead director are similar, with the non-executive chairman having slightly greater responsibility for mentoring the CEO and chairing board meetings. The consequences of getting the placement of a chairman or CEO wrong arguably make it the most important responsibility of a board. Yet in most cases, greater attention and care are put into the selection and transitioning of a CEO than for a chairman. We believe that boards should bring the same rigor to succession planning for the chairman as they bring to that of a CEO. Undertaking a comprehensive, objective, and ongoing succession planning process for the chairman role is not only good governance, but it becomes a significant part of protecting and increasing future shareholder value. When thinking about the special case of succession planning for the nonexecutive chairman—who will work alongside and provide oversight to the CEO—we believe the following steps will ensure alignment of the board and set the new chairman up for success: Make chairman succession planning part of long range planning. Getting started one to two years before the succession event allows the board to consider its long-term leadership needs and link that process to ongoing efforts to develop and assess potential board member candidates. Agree on selection criteria. One of the first decisions to make is what criteria should guide the selection process, based on the company’s strategic needs and the defined role for the non-executive chairman. We believe this process begins with the board, which establishes competency-based criteria for the chairman then delegates clear direction to the nominating/governance committee.


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Clearly define the chairman role. There must be a clear and current position description for the board chairman which reflects how this role is different from the lead director (see Figure 1 below). This description should be reviewed on a regular basis as board leadership requirements evolve over time as the organization grows and changes. Be clear about preference for internal vs. external candidates. Decide up front whether consideration will be limited to existing board directors, or should extend outside the company’s current board leadership team. Complete thorough assessment process in a timely manner. If the board is aligned on the selection criteria and a timeline for succession has been established, then the nominating committee should be able to effectively meet the organization’s needs. Support the transition of the new non-executive chairman: The transition needs for the non-executive chairman will vary, based on his or her past relationship with the company, the CEO, and other board members; whether or not the non-executive chairman has prior experience as a chairman or lead director; and whether or not there is a recent or upcoming change to the CEO role. Figure 1 Key responsibilities of non-executive chairman vs. lead director Non-exec chair Serves as mentor and sounding board to CEO on issues facing the enterprise Chairs board meetings Chairs executive sessions Calls meetings of independent directors when necessary

Consults with CEO and directors on and defines meeting schedule, agenda, and materials Acts as liaison between the CEO and members of the board Acts as liaison between executive and independent board directors In cooperation with the CEO, responds to shareholder inquiries and approves company responses to outside communications Works with the chair of the compensation committee on CEO performance evaluation and compensation

Manages intra-board relationships Advises the nominating/governance committee on selection of committee chairs and board members

Advises committee chairs and helps to manage the overall workload of the board Ensures that the board has the appropriate performance monitoring tools in place

Source: Korn/Ferry NACD Annual Survey of Board Leadership.

Lead director


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Annual Survey of Board Leadership 2013

Part 1: Current state of the S&P 500 and Midcap 400 board leadership as of year end 2011 Extending beyond the S&P 500 In approaching this study, our goal was to look not only at the largest publicly held companies in the U.S., but at mid-sized companies as well. S&P provided a natural choice, as it offers a series of three indices in which each cover a separate asset class of U.S. publicly held companies. In addition to the S&P 500, considered the best single gauge of large-cap U.S. equities, we examined the S&P MidCap 400, an independent asset class that represents over 7 percent of the U.S. equities market. Not included is the S&P SmallCap 600, which is much less stable and has a significantly different risk/return profile. This marks the first detailed review of board leadership and governance practices of U.S. large and mid-sized companies. Figure 2 S&P indices: Characteristics and performance

S&P Index

Focus

Type of company

Company size by market cap ($Millions, year end 2011) Average

S&P 500

Primary

Large-cap

S&P 400

Secondary

Mid-cap

$23,909

Largest

$406,272

$2,736 $8,024

S&P 600

Not in scope

Small-cap

$813

$3,660

Smallest

Top 10 companies (as % of market cap)

3 year returns

21%

16.4%

7%

19.4%

6%

19.8%

$1,572

$464

$37

Source: Korn/Ferry NACD Annual Survey of Board Leadership; based on Capital IQ financial and shareholder information and HawkPartners analysis.


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Continuing the trend to separate the CEO and chairman roles As of year end 2011, 42 percent of the S&P 500 operated with a board structure that separated the roles of chairman and CEO. This marks a continuation of a ten-year trend among the S&P 500, with the number of companies separating the two roles up from 26 percent in 2001, to 33 percent in 2006, to the current level of 42 percent. Also on the upswing is the number of companies electing outsiders vs. former CEOs or executives to the role of chairman. Since 2004 (the earliest year we have data for), the percentage of non-CEO chairman who are outsiders rose from 35 percent to 51 percent.

Figure 3 Who is the chairman? (among S&P 500) 100% 16%

9% 20%

23%

26%

25%

9%

10%

23% 17%

20%

75%

23%

13%

22%

16%

23%

16%

21%

19%

20%

21%

21%

50% 84%

80%

77%

74%

75%

77%

74%

71%

67%

65%

25%

61%

63%

Non-executive chairman

Chairman or executive chairman 61%

58%

Also CEO

11 20

10

09

20

08

20

20

07

06

20

20

05

*

04

20

20

*

03

02

20

*

20

* 00

01 20

*

20

99 19

19

98

*

0%

Source: Korn/Ferry NACD Annual Survey of Board Leadership, 2008-2011; Deloitte, Center for Corporate Governance, 1998 – 2007. Percents do not sum to 100 due to rounding. Excludes companies lacking a CEO or chairman in 2011. *Data for the breakdown between non-executive chairman and chairman or executive chairman was not available prior to 2004.


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Figure 4 Chairman roles past and present for S&P 500 (as of 12/31/11) Chairman role

Who is included

Number

Non-executive chairman

All independent chairmen, which includes those who have had no former executive role at the company

105

21%

Founders or family members of founder (not in management role)

6

1%

Former non-CEO executive (e.g., CFO, EVP, senior executive)

8

2%

Current non-CEO executive (e.g., EVP, VP, senior executive)

4

1%

Former CEO*

84

17%

Current CEO, or CEO and president

290

58%

Company does not have a chairman of the board (NVIDIA Corporation, Lennar Corp., Sealed Air Corporation**)

3

1%

500

100%

Chairman or executive chairman

CEO No chairman – lead director only

Total:

Percent

Source: Korn/Ferry NACD Annual Survey of Board Leadership; based on Capital IQ financial and shareholder information, review of annual proxies, and HawkPartners analysis. Percents do not sum to 100 due to rounding. *1 Chairman who was formerly a CEO is also currently president. ** Sealed Air Corporation elected a chairman of the board in May 2013.


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Trends vary by size of company The trend to separate the roles of CEO and chairman is not equally embraced by all publicly held companies. We found that the larger the company, the less likely it is to separate the two roles. Among the one hundred most valuable companies in the S&P 500, only 11 percent are led by a non-executive or outside, independent chairman. An additional 16 percent of these companies are led by other insiders, such as a former CEO or founder, and 73 percent have a dual CEO-chairman. The practice of separating the two top roles becomes increasingly common as the size of the company drops. Within the mid-tier of the S&P 500 (companies with a market capitalization between $11–$27 billion), 40 percent separate the roles, while 49 percent of the smallest companies within the S&P 500 (market capitalization between $1-$11 billion), do so. Companies within the S&P 400 are even more likely to separate the two roles. Figure 5 Leadership structure among S&P 500 and 400 (by market cap, as of 12/31/11)

S&P 500 11%

18%

16% 22%

73%

Market cap: >$27B

60%

$11B – 27B

S&P 400 27%

22%

51%

$1B – 11B

27%

23%

50%

$250M – 1B

32%

25%

43%

Non-executive chairman

Chairman or executive chairman

Also CEO

<$250M

Source: Korn/Ferry NACD Annual Survey of Board Leadership; based on Capital IQ financial and shareholder information, review of annual proxies, and HawkPartners analysis. Excludes companies lacking a CEO or chairman.


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Comparing the board leadership of the S&Pâ&#x20AC;&#x2122;s 100 most valuable companies over time, we found that they were slightly less likely to separate the two roles in 2010 than in 2011. As of year end 2010, only 9 percent of these companies had an independent, non-executive chairman and 12 percent were led by a separate chairman who was a company insider. This incidence is much lower than among smaller companies within the S&P 500. An initial thought is that the global scope of these larger companies, and the importance of the chairman title in different cultures, necessitates keeping the roles combined. Figure 6 Leadership structure among top 100 S&P 500 companies (by market cap, year end 2011 vs. 2010)

2011

73%

2010

79%

16%

11%

12% 9%

Non-executive chairman

Chairman or executive chairman

Also CEO

Source: Korn/Ferry NACD Annual Survey of Board Leadership; based on Capital IQ financial and shareholder information and review of annual proxies. Excludes companies lacking a CEO or chairman.


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Looking at the trend to separate the roles of CEO and chairman over time, we see that S&P 400 companies adopted the split leadership structure in larger numbers and at a faster pace than S&P 500 constituents. This view examines the current S&P 500 and 400 Index constituents retroactively, indicating that of constituents in the S&P 500 as of year end 2011, the percentage with a split leadership structure has been relatively flat at 39 percent until 2011, when it went up to 42 percent. In contrast, presence of a split leadership structure has increased steadily among the S&P 400, from 44 percent in 2008 to 53 percent in 2011.

Figure 7 Percent of S&P Index constituents that separate CEO and chair roles

60%

47%

44% 40%

39%

37%

53%

51%

39%

42%

S&P 500 S&P 400

20%

0%

2008

2009

2010

2011

Source: Korn/Ferry NACD Annual Survey of Board Leadership, 2010â&#x20AC;&#x201C;2011; based on leadership reported in annual proxies. Incidence of split leadership structure for S&P 500 is within 2 percent of the numbers reported by Spencer Stuart; differences may be explained by variation in time period studied, or treatment of companies with no chairman. Excludes companies lacking a CEO or chairman in 2011.


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Annual Survey of Board Leadership 2013

Reliance on lead director for independence increases with company size Appointing an independent director to the role of lead or presiding director has become the de facto alternative for board independence among the largest publicly held U.S. companies. Of the 100 most valuable U.S. companies, only 15 percent do not have a lead director on the board. In nine of those fifteen cases, the board is led by an outside, independent chairman, while three are led by a dual CEO-chairman, and three have a separate chairman who is an insider. The practice of appointing a lead director decreases with company size— the smaller the company, the less likely it is to have such a director. Largeand mid-cap companies appear to be tackling the same problem in different ways. Both are striving to strengthen the board’s independence, but large-cap firms are more likely to do so with a lead director, while mid-cap companies rely on a non-executive chairman.

Figure 8 Presence of lead director at S&P 500 & 400 (by market cap, as of 12/31/11)

100%

S&P 500 15%

28%

75%

50%

85%

S&P 400 34%

46% No lead director

72%

66%

25%

0% Market Cap: >$27B

39%

$11B – 27B

$1B – 11B

62%

$250M – 1B

55%

<$250M

Source: Korn/Ferry NACD Annual Survey of Board Leadership, 2010–2011; based on leadership reported in annual proxies.

Lead director


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A surprising number of companies elect to have a lead director even when the roles of CEO and chairman are separated. This practice is slightly more common among the S&P 500â&#x20AC;&#x201D;with 37 percent of those with a split CEO and chairman (or 78 companies) also having a lead director, while 35 percent of the S&P 400 (76 companies) do the same. Similarly, S&P 500 companies almost always have a lead director when the roles of CEO and chairman are combined (94 percent of the time), while S&P 400 organizations with a combined CEO and chairman have a lead director 86 percent of the time. NACDâ&#x20AC;&#x2122;s Report of the Blue Ribbon Commission on the Effective Lead Director delves further into the distinct role of the lead director and can be referred to for more detail. We feel the surprisingly high incidence of companies with a split leadership structure that also retain a lead director calls for further consideration which we will do going forward.

Figure 9 Presence of lead director at S&P 500 and 400 (by leadership structure, as of 12/31/11)

100%

Combined CEO & chair

6%

14%

75%

50%

63% 94%

S&P 500 N=290

65%

86%

25%

0%

Split CEO & chair

S&P 400 N=183

No lead director Lead director

37%

35%

S&P 500 N=210

S&P 400 N=217

Source: Korn/Ferry NACD Annual Survey of Board Leadership; based on review of annual proxies, company press releases, and articles in major business and industry publications. Includes all constituents; companies lacking a CEO or chairman in 2011 classified as split CEO and chair.


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Annual Survey of Board Leadership 2013

Leadership structure by industry Just as size makes a difference when deciding leadership structure, the industry a company competes in appears to shape decisions about corporate governance. In 2011, more traditional, stable industries such as utilities, industrial goods, and diversified companies chose not to divide the two top roles. Figure 10 Percent of S&P 500 companies with split leadership structure as of 12/31/11 (by industry sector, includes market share for each sector) 62% 50%

S&P 500 Separation rate

49%

47%

Market share

45% 37%

35%

34%

31%

30%

21% 10%

13%

11% 3%

IT

4%

4%

Consumer Services REITs/ Insurance Telecom goods real estate services

Diversified sector not depicted, which constitutes 1 percent of market share.

Basic materials

8%

10%

Financial Healthcare/ services pharma

26%

7%

7%

Utility

Industrial goods


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Some S&P 500 subsectors have very low rates of separation Rates of separation among the largest industry subsectors reveal pockets of industries with very high and very low rates of separation. Every aerospace and defense company notably has a dual CEO-chairman, with not a single company opting to separate the roles as of the end of 2011. Conversely, for semiconductor manufacturers and data services companies, having a separate CEO and chairman is the norm.

Figure 11 Rate of separation of largest subsectors as of 12/31/11 (sectors with nine or more companies) Subsector

Main sector

Total # of companies

Rate of separation

Aerospace & defense

Industrial goods

12

0%

Pharmaceuticals

Pharma/health

11

18%

Regional banks

Fin. services

10

20%

Electric utilities

Utilities

13

23%

Multi-utilities

Utilities

15

33%

Oil & gas exploration/production

Basic materials

14

43%

Asset management & custody banks

Fin. services

9

44%

Healthcare equipment

Pharma/health

12

50%

Industrial Machinery

Industrial goods

9

56%

Packaged foods and meats

Consumer goods

14

57%

Services

9

67%

IT

13

69%

Data processing/outsourced services Semiconductors

Source: Korn/Ferry NACD Annual Survey of Board Leadership; based on Capital IQ subsector designations and HawkPartners sector designations. Since 12/31/11 various companies within these subsectors experienced turnover of either CEO or chairman, resulting in minor changes in the rate of separation. Excludes companies lacking a CEO or chairman.


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Annual Survey of Board Leadership 2013

Aerospace and defense Though approximately a quarter of aerospace and defense companies have replaced one or both positions of CEO and chairman since 2002, none of these transitions resulted in a split leadership structure. In fact, United Technologies had the roles split in 2008 and combined them in 2010. In the course of succession planning, a number of these companies opted to separate the role temporarily before recombining them. This practice suggests a preference for CEO-chairman, with recognition for the need to ease into the succession. Further, each company has a lead or presiding director in place except for Honeywell International.

Figure 12 Rate of separation within aerospace & defense sector as of 12/31/11 Leadership status 2008

Leadership status 2011

Most recent change

United Technologies Corp.

Separated

Combined

Jan-10

The Boeing Company

Company (in order of market cap)

Combined

Combined

Jul-05

Honeywell International Inc.

Combined

Combined

Jul-02

Lockheed Martin Corporation

Combined

Combined

Apr-05

Precision Castparts Corp.

Combined

Combined

Aug-03

General Dynamics Corp.

Combined

Combined

May-10

Raytheon Co.

Combined

Combined

Jan-04

Goodrich Corp.

Oct-03

Combined

Combined

Northrop Grumman Corporation

Combined

Combined

Jul-11

Rockwell Collins Inc.

Combined

Combined

Jun-02

L-3 Communications Holdings Inc.

Combined

Combined

Oct-08

Combined

Combined

Sep-10

Textron

Source:Korn/Ferry NACD Annual Survey of Board Leadership; based on CapitalIQ subsector designations and HawkPartners sector designations. Since 12/31/11 succession events have occurred at some of these companies. Lockheed Martin separated the roles in 2012 and a new CEO took office January 2013. General Dynamics Corp. sustained a combined CEO-chairman in a succession event in January 2013. Goodrich Corp. was acquired by United Technologies Corp. in July 2012 and is no longer a S&P 500 constituent.


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Oil and gas Similarly, the U.S. oil majors and other integrated oil and gas corporations have been less likely to adopt a split leadership structure. Of the seven oil and gas companies that had a change in leadership since 2005, only twoâ&#x20AC;&#x201D; Occidental and Murphy Oilâ&#x20AC;&#x201D;separated the roles, while all others settled on a combined CEO-chairman. In the case of Marathon Oil, it reverted to a dual CEO-chairman format in July 2011 after having the roles separated for nine years.

Figure 13 Rate of separation within oil & gas sector as of 12/31/11 Oil major

Company (in order of market cap)

Leadership status 2008

Leadership status 2011 Combined

Most recent change

Yes

Exxon Corporation

Combined

Jan-06

Yes

Chevron Corporation

Combined

Combined

Jan-10

Yes

ConocoPhillips

Combined

Separated

May-12

No

Occidental Petroleum Corporation

Combined

Separated

May-13

No

Marathon Oil Corporation

Separated

Combined

July-11

Yes

Hess Corporation

Combined

Combined

pending

No

Murphy Oil Corporation

Combined

Separated

May-13

Separated

Combined

Jan-09

Yes

Sunoco, Inc.

Source: Korn/Ferry NACD Annual Survey of Board Leadership; based on Capital IQ subsector designations and HawkPartners sector designations. Since 12/31/11 succession events have occurred at some of these companies. ConocoPhillips combined the roles in May 2012 under a CEO-chairman. Occidental Petroleum shareholders voted out the executive chairman and he was replaced in May 2013. Marathon Oil currently has a dual CEO-chairman who announced plans to retire in December 2013. Hess Corporation announced in May 2013 that it would separate the roles of CEO and chairman. Murphy Oil Corporation has experienced multiple succession events since the death of the former CEO-chairman. The most recent change occurred in May 2013 with the appointment of a new CEO.


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Annual Survey of Board Leadership 2013

Top ten US banks Despite the increasing scrutiny of banks since the 2008 financial crisis, few banks have adopted a split leadership structure in response to shareholder pressure. Leading up to the crisis, Citigroup separated the two roles in 2007, Bank of America separated CEO from chairman in 2008, while all other top ten banks continued to combine the roles of CEO and chairman through 2012. In February 2013, PNC Bank joined the ranks of banks with a split role when James Rohr announced his retirement plan to step down as CEO immediately and chairman a year later. Just over half of the largest banks have experienced a transition since 2009, with most opting to recombine the roles after a transitional separation period as part of their succession planning. Indeed, the practice of instituting a yearlong transitional period where the former CEO-chairman stays on as chairman while the new CEO gets situated indicates these companies have a preference for the dual format and plan successions accordingly to accommodate it.

Figure 14 Rate of separation among top ten US banks as of 12/31/11 Leadership status 2008

Leadership status 2011

Most recent change

Bank of America Corporation

Combined

Separated

Apr-10

Wells Fargo & Company

Separated

Combined

Dec-09

JPMorgan Chase & Co.

Combined

Combined

Dec-06

Citigroup, Inc.

Separated

Separated

Oct - 12

U.S. Bancorp

Combined

Combined

Dec-07

Bank (in rank order of deposits)

PNC Financial Services Group Inc.

Combined

Combined

April - 13

SunTrust Banks, Inc.

Combined

Combined

Dec-11

BB&T Corporation

Combined

Combined

Jan-10

Combined

Combined

Aug-11

Combined

Combined

Jan-11

The Bank of New York Mellon Corporation State Street Corporation

Source: Korn/Ferry NACD Annual Survey of Board Leadership; based on Capital IQ subsector designations and HawkPartners sector designations.Since 12/31/11 succession events have occurred at some of these companies. Citigroup sustained separation of the roles in October 2012 when they appointed a new CEO. PNC separated the roles following the CEO-chairmanâ&#x20AC;&#x2122;s announcement of his retirement in April 2013.


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K o r n F e r r y I n t e r n at i o n a l a n d N A C D

Part II: Board leadership structure decisions at the S&P 500 Planning for successful successions We believe that each time a board is faced with the retirement, sudden resignation, or other unplanned departure of a CEO and/or chairman, it implicitly considers whether it should stay the course with its existing board leadership structureâ&#x20AC;&#x201D;or make a change. Since 2008, on average 17 percent of the S&P 500 faced this decision each year. Since 2001, this adds up to 442 companies, or 88 percent of the S&P 500, who managed at least one transition of the CEO, chairman, or both roles. The high proportion of chairman transitions as the most recent leadership change is explained by the common practice of having an incoming CEO overlap with a dual CEO-chairman before the veteran retires as chairman. This overlap period can be as brief as a few months (typically until the next shareholder meeting), or as long as several years, ending with the promotion of the CEO to the chairman role. There is strong belief, however, that this should last no longer than a year to ensure there is no confusion in the organization about who is the new leader of the company.

Figure 15 Leadership changes at the S&P 500

Number Percent 2008

32

16%

2009

36

18%

2010

30

15%

2011

36

18%

Average

34

17%

442

88%

Cumulative changes since 2001

Source: Korn/Ferry NACD Annual Survey of Board Leadership; based on review of annual proxies, company press releases, and articles in major business and industry publications. Excludes companies lacking a chairman or CEO or companies that added or left a role unfilled.


Annual Survey of Board Leadership 2013

27

Recent transitions favor the combined leadership model We looked deeply at the most recent leadership changes across the S&P 500 that occurred since January 1, 2001. By limiting our focus to the past decade, we enabled a close investigation of the circumstances leading up to each change, while capturing over 80 percent of the S&P 500 in our analysis. Among the 442 companies that had a leadership change since 2001, the majority resulted in a combined leadership structure. In this group we include companies that previously had a combined CEO-chairman and either simultaneously shifted both roles to the same executive (12 percent), recombined after temporarily separating the roles for one year or less (19 percent), or are in the midst of an apparently temporary separation (2 percent).

Figure 16 Type of change to leadership structure as of 12/31/11 (for most recent leadership change since January 2001)

23%

56% combine

24%

Roles combined

44% separate

12% 19% 19%

Sustained combination Combined after temporary separation Temporarily separated* Sustained separation Roles separated

2% Source: Korn/Ferry NACD Annual Survey of Board Leadership; based on review of annual proxies, company press releases, and articles in major business and industry publications. N = 442; numbers do not sum to total because of rounding error. Limited to companies with a change since 2001. Excludes companies lacking a chairman or CEO or companies that added or left a role unfilled. *Temporarily separated refers to companies that were in transition at year end 2011 and recombined the roles in 2012.


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K o r n F e r r y I n t e r n at i o n a l a n d N A C D

Separating roles in response to shareholder pressure Shareholder activism represents a small but significant driver of leadership turnover. The demands of the activists vary; in some cases, they simply call for the resignation of an executive or chairman, without a predilection toward any given leadership structure. Increasingly, there are cases where shareholders agitate for the roles to be separated. We looked closer at the subset of this group where activists specifically called for separation, or instances where boards responded to pressure and ended up separating the roles. These include: Bank of America: Roles separated April 2009. Represents one of the few recent cases where shareholders successfully passed a proposal to separate the roles of CEO and chairman. At the time of the vote, Ken Lewis was forced to step down as chairman, and that role was passed on to Walter E. Massey, an independent director on Bank of Americaâ&#x20AC;&#x2122;s board. Since then, both executives have been replaced and the roles remain separated. Occidental Petroleum Corporation: Roles separated May 2011. Rancor over excessive compensation was a major contributing factor to the former CEO-chairman Ray Irani stepping down as CEO. A pension fund and a private investment group that frequently participates in activism galvanized the situation. Whole Foods Market: Roles separated December 2009. CtW Investment Group pushed for the removal of John Mackey, founder and CEO-chairman, through a proxy fight and open letter campaign to Whole Foodsâ&#x20AC;&#x2122; lead director.

Source: Korn/Ferry NACD Annual Survey of Board Leadership; based on review of annual proxies, company press releases, and articles in major business and industry publications.


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29

Separating roles proactively A select group of companies have made the decision to separate the role of CEO and chairman as a matter of principle or belief that it constitutes “good governance.” Often the change occurred when a longtime CEOchairman was ready to retire, and the structural change was built into succession planning. Most of these companies indicate a preference for this structure in their bylaws (but do not require separation), and acknowledge that the responsibilities of each position are different, making the positions distinct. Cigna Corporation: Roles separated July 2009. When CEO-chairman Edward Hanway retired after serving nine years in that role, Cigna split the positions, elevating independent board director Isaiah Harris to chairman. Its proxy explains, “The roles of chairman of the board and chief executive officer are separated to allow an independent chairman to lead the governance aspects of the board of directors. The board believes that this leadership structure is appropriate for Cigna in the current environment, and aids the company in adhering to sound corporate governance principles.” Danaher Corporation: Roles separated May 2001. Steven M. Rales stepped down as CEO after having served as the CEO and chairman since founding the company in 1984. He continues to serve as the chairman and the company bylaws require separation. Both the proxy statement and corporate guidelines explain the company’s position in the structure. The guidelines further stipulate that a lead director would be needed if the chairman does not meet the criteria for independence.

Source: Korn/Ferry NACD Annual Survey of Board Leadership; based on review of annual proxies, company press releases, and articles in major business and industry publications.


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K o r n F e r r y I n t e r n at i o n a l a n d N A C D

Changing the board leadership structure Almost half of all companies facing a succession event choose to change their board leadership structure. Many times this happens after a company divides the two top jobs, only to reverse course later, as Dell Inc., Walt Disney Corp., General Motors, and Southwest Airlines have done. In the case of Southwest Airlines, it split the roles in 2001 when founder Herb Kelleher stepped down as CEO, only to recombine the roles in 2005 after Kelleher’s CEO replacement resigned. The fact that only half of companies stay the course with their leadership structure (21 percent do this after a temporary change) suggests the following: • D  ifferent times and circumstances demand different leadership approaches: Companies conclude that change is needed to meet a crisis, capitalize on the strengths of a valued executive, or adjust to changing circumstances. • P  rior approach no longer works: Companies have outgrown historic leadership structure and need to change to meet needs for stronger independence, oversight, or leadership. • C  ompanies changed approach proactively or in response to external pressure or a crisis, and after time, preferred prior structure.

Figure 17 Type of change to leadership structure as of 12/31/11 (for most recent leadership change since January 2001)

21% 48%

Stayed the course after a transition period Stayed the course

31%

Changed structures N=442 Source: Korn/Ferry NACD Annual Survey of Board Leadership; based on review of annual proxies, company press releases, and articles in major business and industry publications. Limited to companies with a change since 2001. Excludes companies lacking a chairman or CEO or companies that added or left a role unfilled.


Annual Survey of Board Leadership 2013

31

Older transitions skew to combined CEO-chairman model How about the S&P 500 companies with a long-standing CEO and chairman team or individual in place? Among companies that have not experienced a leadership change since 2001, 83 percent have a dual CEOchairman, showing a strong predilection for a combined model, compared to 56 percent for companies that have had a succession event in the past decade. Five of these companies have been led by the same CEO-chairman since the 1970s or earlier. In fact, all but one of the companies that have not changed their leadership since 1995 are led by a combined CEO and chairman. The push for more board independence and oversight of the CEO through a non-executive chairman picked up after 2001. Looking at the group of companies with stable leadership since 2001 therefore offers a good picture of how boards decided to manage their leadership structure before the groundswell of attention on separating the roles of CEO and chairman. Figure 18 Leadership structure for S&P 500 as of 12/31/11 (recent vs longstanding changes)

Change since 2001 N= 442

No change since 2001 N= 52

56%

44%

83%

Combined

17%

Split

Source: Korn/Ferry NACD Annual Survey of Board Leadership; based on review of annual proxies, company press releases, and articles in major business and industry publications. Limited to companies with a change since 2001. Excludes companies lacking a chairman or CEO or companies that added or left a role unfilled.


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K o r n F e r r y I n t e r n at i o n a l a n d N A C D

Differences between S&P 500 and S&P 400 for most recent leadership change since 2001 • F ewer companies in the S&P 400 replaced the roles of chairman and CEO per year and overall since 2001. While 88 percent of companies in the S&P 500 have replaced either or both positions at least once since 2001, 80 percent of the S&P 400 companies have done so as well. • C  ompanies in the S&P 400 have been less inclined to keep the roles of CEO and chairman combined when they have a leadership change. While only 44 percent of S&P 500 companies separated or sustained separate roles, 62 percent of S&P 400 companies did so. In particular, S&P 400 companies were far more likely to sustain a leadership structure that had the roles separated, accounting for 30 percent of their changes vs. 19 percent of the S&P 500. • S  &P 400 companies are far less likely to separate the roles of CEO and chairman on a temporary basis as part of a succession plan, doing so only 8 percent of the time vs. 19 percent for the S&P 500. • S  imilarly, S&P 400 companies are more likely to either change leadership structures or stay the course, and less likely to resume a prior leadership structure after a temporary change. • W  hen comparing companies in the S&P 500 and 400 with longstanding leadership teams in place (no change in leadership since 2001), they are about equally likely to have a separate CEO and chairman (19 percent of the S&P 500 and 12 percent of the S&P 400). However, for companies that had a change since 2001, those in the S&P 500 are far less likely to have separated the roles (44 percent of the S&P 500 vs. 62 percent of the S&P 400).


33

Annual Survey of Board Leadership 2013

Figure 19 Differences between leadership changes â&#x20AC;&#x201C; S&P 500 vs. S&P 400 as of 12/31/11 S&P 500

S&P 400

Changes per year: 2008

16%

14%

2009

18%

10%

2010

15%

13%

2011

18%

16%

Average

17%

13%

Cumulative changes since 2001

88%

80%

Roles separated

23%

31%

Sustained separation

19%

30%

Combined after temporary separation

19%

8%

Sustained combination

12%

7%

Roles combined

24%

22%

Temporarily separated

2%

2%

48%

54%

31%

37%

21%

10%

With change since 2001

44%

62%

With no change since 2001

17%

12%

Type of change, for changes since 2001:

For changes since 2001: Changed structures Stayed the course Resumed the course

(after temp separation)

Percent of companies w/ separated CEO & chairman

Source: Korn/Ferry NACD Annual Survey of Board Leadership; based on review of annual proxies, company press releases, and articles in major business and industry publications. Numbers do not sum to total because of rounding. Limited to companies with a change since 2001. Excludes companies lacking a chairman or CEO or companies that added or left a role unfilled.


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K o r n F e r r y I n t e r n at i o n a l a n d N A C D

Part III: Reasons for changing leadership Planning ahead to get it right After the last decade of corporate scandals and subsequent reform, many boards are choosing to be proactive and plan for a succession. The occasions when a board has to reactively replace a chairman or CEO are small in number and generally limited to emergency situations, such as the death or illness of an officer or a brewing personal or corporate scandal. Our review of all changes since 2001 indicates the following pattern of change:

Figure 20 Breakdown of most recent change to leadership structure for S&P 500 as of 12/31/11 (by reason for change) Re a so n fo r leadership change

Percent

Ex a m p l e o f change

Chairman retired through planned succession, with no separation of roles

40%

Chairman retired through planned succession, with roles temporarily Separated

20%

DTE Energy: CEO-chairman retired from his CEO role, and the current President assumed the CEO role for a year before becoming chairman.

Resigned (company or personal performance problem or scandal)

14%

UnitedHealth: CEO-chairman resigned amidst a trading scandal, and the company’s former CEO returned as chairman and a new CEO was appointed.

M&A, Spin-off, IPO or new company

10%

Altria: Spun off its Philip Morris business, and Altria’s former CEO-chairman led the newly independent entity.

9%

Humana: Chairman, son of the founder, stepped aside and the longstanding CEO assumed the role

Corp governance preference or requirement

4%

Fifth Third Bancorp: Company instituted the role of the “non-executive chairman”

Death or medical emergency

3%

Gannett Co.: CEO-chair went on medical leave and the role was separated.

Founder steps aside

Assurant Inc.: Chairman retired at 75 and the former vice-chair became chairman


Annual Survey of Board Leadership 2013

35

Reasons for change when the two roles are split Among S&P 500 companies who have chosen to separate or sustain a separated leadership structure, they are most likely to do this as part of a planned succession, but at a much lower rate than all S&P 500 constituents (44 percent vs. 60 percent). Much more common for this group is the adoption of a corporate governance requirement or preference by the board for the roles of chairman and CEO to be separated, and some type of company or corporate crises that results in a resignation.

Figure 21 Chairman leadership structure for S&P 500 as of 12/31/11

42%

Combined CEO chairman

Separate CEO chairman

58%

Figure 22 Reason for change resulting in separate CEO/chairman as of 12/31/11 Death or medical emergency 4%

Corporate governance 10%

Retired â&#x20AC;&#x201C; planned succession

11%

44%

13% 19% Resigned â&#x20AC;&#x201C; shareholder pressure/crisis

M&A/spin-off, IPO

Founder steps aside

Source: Korn/Ferry NACD Annual Survey of Board Leadership; based on review of annual proxies, company press releases, and articles in major business and industry publications. Excludes companies lacking a chairman or CEO or companies that added or left a role unfilled.


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When comparing the set of S&P 500 companies that separated vs. combined the roles of CEO and chairman, it’s clear that companies who are undergoing a major structural change—such as going public, spinning a company off, or merging with or acquiring another company—are much more likely to adopt a split leadership structure. Similarly, when a founder or family member of a founder steps aside, companies are more likely to use that occasion to separate its two top roles (accounts for 13 percent of all changes resulting in split leadership role, vs. 5 percent of combined roles).

Figure 23 Reason for change by type of structure adopted in S&P 500 as of 12/31/11 (among companies with a leadership change since 2001) Retired– planned succession

72% 44%

Resigned– shareholder pressure / crisis

10% 19% 5%

Founder steps aside

13% 10%

M&A, spin-off, IPO, or new company Corporate governance Death or medical emergency

11% 0% 10% 2% 4%

Combined leadership Split leadership

Source: Korn/Ferry NACD Annual Survey of Board Leadership; based on review of annual proxies, company press releases, and articles in major business and industry publications. Numbers do not sum to total because of rounding. Limited to companies with a change since 2001. Excludes companies lacking a chairman or CEO or companies that added or left a role unfilled.


37

Annual Survey of Board Leadership 2013

Outcome of leadership change by reason A review of leadership changes at the S&P 500 by reason for change indicates that for all reasons except a planned succession (the most common reason for change), boards are more likely to separate the roles of chairman and CEO than combine them.

Figure 24 Outcome of leadership structure by reason for change for S&P 500 as of 12/31/11 (among companies with a leadership change since 2001)

Corporate governance

Founder steps aside

0% 100% 33% 67%

Resignedâ&#x20AC;&#x201C; shareholder pressure / crisis

40% 60% 42%

Death or medical Emergency

Split leadership

58% 54%

M&A, spin-off, IPO, or new company

Retiredâ&#x20AC;&#x201C;planned succession

Combined leadership

46% 68% 32%

Source: Korn/Ferry NACD Annual Survey of Board Leadership; based on review of annual proxies, company press releases, and articles in major business and industry publications. Limited to companies with a change since 2001. Excludes companies lacking a chairman or CEO or companies that added or left a role unfilled.


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Differences between S&P 500 and S&P 400 • F or both the S&P 500 and 400, succession planning was the driving force behind the appointment of any new CEO or chairman, accounting for 60 percent and 58 percent of all changes, respectively. • H  owever, planned transitions resulted in a separated leadership more often for the mid-cap S&P 400 companies than for the large-cap S&P 500 (54 percent vs. 44 percent). • T  his difference in outcome for planned succession between the two groups is likely related to the tendency of the large-cap 500 companies to temporarily split the roles and recombine them within a year as part of their succession management. About one third of planned successions in the S&P 500 followed this model, whereas less than one sixth of S&P 400 did so. • S  &P 400 companies were more likely to experience a change in leadership due to a founder stepping aside than were S&P 500 companies, and were also more likely to split the roles on this occasion. This finding is consistent with the higher rate of founders and family members of founders holding chairman or CEO positions at the mid-cap S&P 400 companies, versus the much larger S&P 500 companies.


39

Annual Survey of Board Leadership 2013

Figure 25 Differences between leadership changes â&#x20AC;&#x201C; S&P 500 vs. S&P 400 as of 12/31/11

Reason for leadership change

S&P 400

S&P 500 Total changes

Changes w/ CEO chair split

Total changes

Changes w/ CEO chair with split

Retired - planned succession

40%

40%

50%

51%

Retired - planned succession with roles temporarily separated

20%

4%*

8%

3%*

Resigned (company or personal performance problem or scandal)

14%

19%

9%

12%

M&A, Spin-off, IPO or new company

10%

11%

6%

7%

9%

13%

18%

20%

Corp governance preference or requirement

4%

10%

4%

5%

Death or medical emergency

3%

4%

4%

4%

Founder steps aside

Source: Korn/Ferry NACD Annual Survey of Board Leadership; based on review of annual proxies, company press releases, and articles in major business and industry publications. Limited to companies with a change since 2001. Excludes companies lacking a chairman or CEO or companies that added or left a role unfilled.


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K o r n F e r r y I n t e r n at i o n a l a n d N A C D

Part IV: Commitment to new research New research to focus on pressing corporate governance issues Korn/Ferry and NACD are continuously researching high-performing boards. Maximizing thoughtful board leadership is critical—gaining deep understanding of “what is” high-performance board leadership is the focus of this work. There are still many unanswered questions and leading practices debates to engage our clients and members to which we look forward. Below is a partial list and we certainly encourage your input. Globalization: Optimum board leadership is a global issue as the world economies become interconnected. In future work Korn/Ferry will examine and publish trends in board leadership, including how the roles of CEO, chairman, and lead director differ around the world.  What’s different: And how does it link to performance? We have identified all the companies in the S&P 500 and 400 that have made the decision to separate the roles of chairman and CEO. To enhance our understanding of their decisions we are optimistic that many of these companies will share with us their observations of “what’s different.” In subsequent research we will test for a link between “what’s different” and enhanced performance.  Leadership structure trends: We will continue to examine how size of company and industry align with different trends in board leadership structure. Ideal competencies for board leadership: We will assess leading processes used to select and evaluate board leaders, including competency profiles and other leadership tools.


Annual Survey of Board Leadership 2013

41

Compensation: What is appropriate compensation for different board leaders? Role of non-executive chairman: How does the role of the non-executive chairman differ, with or without a lead director on the board? Markers of success: How do you define success for different independent leaders of a board (e.g., non-executive chairman, lead director)? What will success look like, based on the different situations of the company and its board? Mid- vs. large-cap companies: How do the board leadership needs of mid- vs. large-cap companies vary?


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K o r n F e r r y I n t e r n at i o n a l a n d N A C D

Part V: Chairman successions in 2011 Seasonal trends in succession events This section examines chairman succession events that occurred in 2011, and profiles the set of officers who took over as non-executive chairmen. Included in the calendar year are transitions that took effect on January 1, 2012 (there were three of these, all involving the transition of a chairman only). In addition to documenting all chairman successions, we compare the characteristics and backgrounds of those executives taking office in 2011, to those who were in place prior to 2011.

Figure 26 S&P 500 chairman successions (2011) 12

Figure 27 Monthly chairman successions by role changed in 2011

11 10

10 8 6

6 4

4

3

3

3

3 2

2

D ec

N ov

O ct

Se p

Ju ly

Ju ne

r

ay

M

ar

Ap

M

Fe b

1 Ja n

0

4

Au g

8

Chair only

Chair & CEO

Jan

4

4

Feb

1

2

Mar

0

1

Apr

2

1

May

7

4

June

1

2

July

2

2

Aug

3

3

Sep

1

1

Oct

3

1

Nov

1

2

Dec

8

2

Total

33

25


43

Annual Survey of Board Leadership 2013

Characteristics of incoming vs. veteran chairmen The table below compares how chairmen who took office in 2011 are different from those who took office prior to 2011. In both cases, we detail chairmen who assumed the role of chairman-only separately from those who assumed the dual CEO-chairman role. The data in this table is presented by column, with percentage breakdowns summing to 100 percent by column not row. For example, the comparison by type of appointment shows: • E  xecutives taking office in the chairman only role in 2011 were much more likely to be an outside hire than those who took office as chairman-only prior to 2011 (82 percent vs. 55 percent of all appointments) • Similarly, 2011 chairman-only appointments were far more likely to be an outside hire than those appointed as chairman-CEO in 2011 (82 percent vs. 9 percent)

Figure 28 Characteristics of incoming vs. veteran chairmen

Chairman profile

Took office in 2011 Chairman only

Chair-CEO

Took office prior to 2011 Chairman only

Chair-CEO

By Age: < 56 56 - 65 > 65

9% 50% 41%

56% 44% 0%

6% 36% 58%

33% 61% 6%

Gender: % Male

100%

97%

100%

95%

Has prior experience as chairman

63%

35%

N/A

N/A

Has “Independent” or “non-executive” in title

23%

0%

24%

0%

Inside hire outside hire

18%

91%

45%

92%

82%

9%

55%

8%

Is related to founder

4%

6%

22%

11%

Served on board before appointed chairman

82%

82%

89%

81%

Number of committees: 0 1-2 3 or more

18% 59% 23%

50% 50% 0%

34% 54% 12%

53% 46% 1%


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K o r n F e r r y I n t e r n at i o n a l a n d N A C D

Non-executive chairmen assuming office in 2011 Figure 29 Summary of non-executive chairmen assuming office in 2011 Company name

Chairman name

Start date

Departing chrmn

Role

Harris Corp.

Thomas A. Dattilo

1/1/2012

Howard L. Lance

CEO-chairman

WPX Energy, Inc.

William G. Lowrie

12/31/2011

N/A - Spin-off

--

Apple Inc.

Arthur D. Levinson

11/15/2011

Steve Jobs

Chairman

Xylem Inc.

Markos Tambakeras

11/1/2011

N/A - Spin-off

--

Gannett Co., Inc.

Marjorie Magner

10/6/2011

Craig A. Dubow

CEO-chairman

Beam, Inc.

A. D. David Mackay

10/4/2011

N/A - Spin-off

--

Unum Group

William J. Ryan

10/1/2011

Jon S. Fossel

Bemis Company, Inc.

William J. Bolton

8/1/2011

Jeffrey H. Curler

Executive chairman

Marathon Petroleum Corporation

Thomas J. Usher

7/1/2011

N/A - Spin-off

--

Republic Services, Inc. James W. Crownover Marsh & McLennan Companies, Inc.

Non-executive chairman

5/12/2011 James E. Oâ&#x20AC;&#x2122;Connor Non-executive chairman

Lord Lang of Monkton

5/1/2011

Stephen R. Hardis Non-executive chairman

CVS Caremark Corp.

David Dorman

5/1/2011

Thomas M. Ryan

H&R Block, Inc.

Robert A. Gerard

4/1/2011

Pall Corp.

Ronald L. Hoffman

3/17/2011

Eric Krasnoff

CEO-chairman

The Mosaic Company

Robert L. Lumpkins

1/18/2011

N/A - Spin-off

--

1/3/2011

Steven J. Malcolm

CEO-chairman

1/1/2011

Eli Harari

CEO-chairman

Williams Companies, Inc. Frank T. MacInnis SanDisk Corp.

Michael E. Marks

CEO-chairman

Richard C. Breeden Non-executive chairman


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Annual Survey of Board Leadership 2013

Appendix Figure 30 Changes to chairman role in 2011 Roles separated

Separation sustained

Roles combined

Combination sustained

The J. M. Smucker Co.

H&R Block, Inc.

Public Storage

Prologis, Inc.

Pall Corp.

Molson Coors Brewing Company

Airgas, Inc.

PG&E Corp.

Republic Services, Inc

Sara Lee Corp

Marathon Oil Corporation

The Bank of New York Mellon Corp

Apple Inc.

Marsh & McLennan Comp.

Motorola Solutions, Inc.

Merck & Co. Inc.

Gannett Co., Inc.

Symantec Corporation

Lorillard, Inc.

Medtronic, Inc.

SanDisk Corp.

Unum Group

Cameron International Corp.

Cummins Inc.

Denbury Resources Inc.

Cincinnati Financial Corp.

ONEOK Inc.

Xcel Energy Inc.

The Mosaic Company

Bemis Company, Inc.

Eastman Chemical Co.

KeyCorp

Marathon Petroleum Corp.

99¢ Only Stores

Northrop Grumman Corp

SCANA Corp.

Beam, Inc.

Broadridge Financial Solutions

Pfizer Inc.

CareFusion Corporation

Xylem Inc.

CoreLogic, Inc.

MetLife, Inc.

Allegheny Technologies Inc.

WPX Energy, Inc.

Gardner Denver Inc.

Celgene Corporation

Fluor Corporation*

TripAdvisor Inc.

HCC Insurance Holdings Inc.

State Street Corporation

Teleflex Incorporated

CVS Caremark Corp.

Hologic Inc.

Aetna Inc.

The Brink's Company*

Williams Companies, Inc.

Home Properties Inc.

FMC Technologies, Inc.

The Valspar Corporation*

Harris Corp.

JB Hunt Transport Services Inc.

DTE Energy Co.

AMC Networks Inc.

Omnicare Inc.

SunTrust Banks, Inc.

Collective Brands, Inc.

Trustmark Corporation

EQT Corporation

Dril-Quip, Inc.

Vishay Intertechnology Inc.

Lexmark International Inc.

Exelis, Inc.

Werner Enterprises Inc.

E*TRADE Financial Corp.

Fortune Brands Home & Security, Inc.

Atwood Oceanics**

AECOM Technology Corp.

Greif, Inc.

Affiliated Managers Group Inc.

HollyFrontier Corporation

Catalyst Health Solutions, Inc.

Huntington Ingalls Industries, Inc.

Gen-Probe Inc.

New York Community Bancorp Inc.

PNM Resources, Inc.

Oshkosh Corporation

StanCorp Financial Group Inc.

RadioShack Corp.

IDEX Corporation

Ralcorp Holdings Inc.

Vectren Corporation

S&P 500 S&P 400 *Roles temporarily separated as of 12/31/11, with departing CEO-chairman staying for a transitional period before the new CEO assumes chairman role in 2012. **Role of chairman was added, and lead director was elected to the chairman role.


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K o r n F e r r y I n t e r n at i o n a l a n d N A C D

Figure 31a Mapping of subsectors to industry sectors Basic materials

Aluminum Coal and consumable fuels

Consumer goods

Agricultural products Apparel, accessories and luxury goods

Diversified

Industrial conglomerates

Financial services

Asset management

Diversified

Asset management and custody banks

Diversified chemicals

Automobile manufacturers

Conglomerates

Consumer finance

Diversified metals and mining

Beveragesâ&#x20AC;&#x201D; wineries & distillers

Industrial conglomerates

Diversified banks*

Fertilizers and agricultural chemicals

Brewers

Investment banking and brokerage

Consumer electronics

Other diversified financial services

Independent oil & gas

Distillers and vintners

Regional banks

Industrial gases

Electronic manufacturing services

Specialized finance

Gold*

Integrated oil and gas

Footwear

Metal and glass containers

Forest products

Oil and gas drilling

Home furnishing & fixtures

Oil and gas equipment and services

Home furnishings

Oil and gas exploration and production

Household appliances

Oil and gas refining and marketing Oil and gas storage and transportation Specialty chemicals Steel

Household products Housewares and specialties Leisure products Motorcycle manufacturers Office electronics Packaged foods and meats Paper products Personal products Soft drinks Tires and rubber Tobacco

Thrifts and mortgage finance


47

Annual Survey of Board Leadership 2013

Figure 31b Mapping of subsectors to industry sectors Insurance

Healthcare & Pharma

Industrial Goods

IT/Telecomm

Insurance Brokers

Biotechnology

Aerospace and Defense

Alternative Carriers

Life and Health Insurance

Health Care Technology

Multi-line Insurance

Healthcare Distributors

Auto Parts and Equipment

Cable and Satellite

Property and Casualty Insurance

Healthcare Equipment

Building Products

Communications Equipment

Reinsurance

Healthcare Facilities

Construction and Farm Machinery and Heavy Trucks

Computer Hardware

Healthcare Services

Construction Materials

Computer Storage and Peripherals

Healthcare Supplies

Diversified Machinery

Electronic Components

Life Sciences Tools and Services

Electrical Components and Equipment

Electronic Equipment and Instruments

Managed Healthcare

Farm & Construction Machinery

Home Entertainment Software

Medical Appliances & Equipment

Industrial Machinery

Integrated Telecommunication Services

Medical Instruments & Supplies

Marine

Internet Software and Services

Metal and Glass Containers

Semiconductor Equipment

Packaging & Containers

Semiconductors

Pharmaceuticals

Agricultural Products

Paper Packaging

Application Software

Systems Software Technology Distributors Wireless Telecommunication Services


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K o r n F e r r y I n t e r n at i o n a l a n d N A C D

Figure 31c Mapping of subsectors to industry sectors REI T s / real estate services

Building products Diversified real estate activities

Se r v i c e s

Advertising Air freight and logistics

Se r v i c e s c o n t .

Human resource and employment services Hypermarkets and super centers Internet retail

Diversified REITs

Airlines

Homebuilding

Apparel retail

Industrial REITs

Automotive retail

Leisure facilities

Office REITs

Broadcasting

Movies and entertainment

Casinos and gaming

Music & video stores

Real estate services Residential construction

Catalog retail

Residential REITs

Commercial printing

Retail REITs Specialized REITs

Computer and electronics retail Construction and engineering Data processing and outsourced services

IT consulting and other services

Office services and supplies Publishing Railroads Research and consulting services Restaurants

Department stores

Security and alarm services

Distributors

Specialized consumer services

Diversified support services Drug retail Education services Environmental and facilities services

Specialty stores Trading companies and distributors Trucking Utility

Food distributors

Electric utilities

Food retail

Gas utilities

General merchandise stores

Independent power producers and energy traders

Home furnishing retail

Multi-utilities

Home omprovement retail

Water utilities

Hotels, resorts and cruise lines


49

Annual Survey of Board Leadership 2013

Figure 32 Companies with non-standard leadership structures as of 12/31/11 S&P 500

S&P 400

No chairman

No chairman

NVIDIA Corporation (NasdaqGS:NVDA)

American Financial Group Inc. (NYSE:AFG)

Lennar Corp. (NYSE:LEN)

DST Systems Inc. (NYSE:DST)

Sealed Air Corporation (NYSE:SEE)*

Compass Minerals International Inc. (NYSE:CMP) No CEO Intrepid Potash, Inc. (NYSE:IPI) No chairman or CEO Hospitality Properties Trust (NYSE:HPT) Senior Housing Properties Trust (NYSE:SNH)

*Sealed Air Corporation elected a chairman of the board in May 2013. Companies that have adopted non-standard leadership structures since 12/31/11 not noted above.


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K o r n F e r r y I n t e r n at i o n a l a n d N A C D

About Korn/Ferryâ&#x20AC;&#x2122;s Board practice Korn/Ferry International has recruited board directors for more than 40 years. Our dedicated Board Practice is committed to improving governance practices worldwide. Our services include individual director searches as well as building new boards for IPOs, spins, carve-outs and companies emerging from bankruptcy. In addition, our Practice consults on Board Effectiveness and Board & CEO Succession Planning. Visit www.kornferry.com/Boardservices

Key contacts - Korn/Ferry:

Robert Hallagan*

Dennis Carey

Vice Chairman CEO & Board Practice *NACD-Chairman Emeritus 617-345-0200

Vice Chairman CEO & Board Practice 215-656-5348


Annual Survey of Board Leadership 2013

51

About the National Association of Corporate Directors (NACD) NACD advances exemplary board leadership NACDâ&#x20AC;&#x2122;s mission is to advance exemplary board leadershipâ&#x20AC;&#x201D;for directors, by directors. We deliver the knowledge and insight that board members need to confidently navigate complex business challenges and enhance shareholder value. We amplify the collective voice of directors in setting a substantive policy agenda. NACD was founded in 1977 as the only national membership organization created for and by directors. Today, more than 13,000 directors and key executives from public, private, and nonprofit companies rely on us for board development, education, resources, and connections. Visit www.nacdonline.org for more information. Key contacts

Ken Daly

Peter Gleason

President & CEO NACD 202-775-0509

Managing Director & CFO NACD 202-775-0509


About Korn/Ferry International 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.

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Kf NACD Annual Survey of Board Leadership 2013