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Defining, recruiting, and leveraging digital expertise for the board


The Korn/Ferry Market Cap 100 2013


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 classic. The technological trends that are reshaping everyday existence — influencing 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 shareholders. “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 relevant 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 executives, 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 business. 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 companies operate and interact with the world. That still leaves a lot of leeway in defining who qualifies as a digital director. 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 investors. Even applying broader parameters—experience as a chief information 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 “digital”;

Jeff Epstein, current Operating Partner, Bessemer Ventures, former CFO of Oracle, and current director for Priceline and Kaiser Permanente, 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 diamond and jewelry business Blue Nile — onto the home improvement retailer’s board.

Recruiting and retaining a digital director, much like success in attracting 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 requirements, 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 Vice Chairman

Robert E. Hallagan Vice Chairman

Stephen P. Mader 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 enterprise-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 competition.

This director can prove an important board-level resource overseeing important IT-related projects and in the selection of key personnel — 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 interviews 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 requirements 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 hundred 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 directors. This is certainly in part because the companies on this list, with a median market capitalization of $65.7 billion, can attract the most accomplished 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), although 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 independent 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 compared 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 diversity 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 international 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 directors compared with only 33 percent in 2011. Other desirable backgrounds 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, often 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 private 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 requirements 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 directorship. “A lot of these people are used to managing closed environments 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 oriented 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 example.” 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 execuothers — as a peer and a tives who’ve held more than one sigcolleague.” nificant management position, and —Rick Crandall sees many such candidates at a roundtable of software CEOs he’s been running 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 function. The board should first agree on what the new director will be expected 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 recommends that chairmen craft a plan to leverage this individual’s contributions 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 consuming,” 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 experience everywhere, including on boards.” Almost every industry is undergoing revolutionary change, says Epstein, 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. “Internet 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 knowledge of how technology and product development is making incursions into the most traditional sectors. Even non-technology companies have recognized that their products, operations, competitors, and customer interaction are being transformed because of technological 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.

“If these companies 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 agile That time frame can be pared down new ways of developing to a matter of weeks for a team of products.” three to produce a beta “minimum The fast-paced culture of innovation that started in Silicon Valley is spreading everywhere. Take software development. The earlier “waterfall method” involved dozens of people who assessed the requirements of users through countless interviews with staff and customers. “If things went well, two years later you would have a finished product,” Epstein says.

viable product,” or MVP, at companies using lean software development.

—Jeff Epstein

This radically altered approach to product development — better products developed much faster, at much lower cost and risk — has implications 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 engineers 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 programmer level, but also at the strategic executive one. “If these companies 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 agile new ways of developing products,” he says. “But they may represent 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. “Perhaps 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 companies, retailers, and financial companies are facing similar challenges 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 acquisition 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 executives 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 digiare 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 with deep technical or contribute to specific meetings or expertise. There are strategy sessions designed to refresh 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 someit’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 larger 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 discussing not just technology, but also strategy and risk, with the most senior-level executives. He or she must step outside his or her functional sphere into the larger universe of governance, while maintaining the much-needed digital point of view. “Digital experts on boards,” Epstein says, “are likely to be either businesspeople with deep experience 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 upto-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 expertise 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 experience 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 expertise 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 offered five names of executives who would fit the general profile for digital expertise. The board soon began to home in on one of those suggestions, Mark Vadon, 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 asadmit 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 this stuff, and we’re expertise, expertise in public affairs, learning we don’t know HR, and the rest, but those people also must have had experience runas 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 meeting 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 differently, 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 responsibility. Solutions will vary depending on such crucial factors as board history, 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 experience recruiting directors with specialized expertise — here is a road map with particular “destinations” to pay attention to when adding digital 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, particularly 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 determine 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 expertise, including input from a digital consultant or perhaps a digital advisory board.


26

K o r n / F e r r y I N t E r n at i o n a l

Agree on the specifics. An empty board seat, or newly added one, represents 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 social media expert — or someone else entirely? Don’t neglect the personal 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 directors. Demands on active technology executives — whether CEOs or digital 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 ability 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 includes board procedures and critical details about the company, is always a good idea. But something more comprehensive may be required for a young or first-time director. Consider a formal onboarding program as well as an experienced independent director as a mentor to enable a new director to contribute effectively to the board team as soon as possible. Of course, even veteran directors may occasionally need a refresher 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.


27

T H E K ORN / F ERRY M AR K ET C A P 1 0 0 

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 removed 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 social network Facebook, which went public that year, and energy company Phillips 66, which was spun off from ConocoPhillips. AbbVie, a pharmaceutical 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. Duke Energy Corp. Kinder Morgan Inc. Phillips 66

Dominion Resources Inc. NextEra Energy Inc. Allergan Inc. AbbVie Inc.


28

K o r n / F e r r y I N t E r n at i o n a l

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 

Basic materials  Conglomerates  Consumer goods 

Companies

13 3 13

Financial 

11

Health care 

16

Industrial goods 

6

Services 

20

Technology 

14

Utilities 

4


29

T H E K ORN / F ERRY M AR K ET C A P 1 0 0 

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.

Rank

Company

Market cap in billions on May 1, 2013

1

Apple Inc. (NasdaqGS:AAPL)

$416.6

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

Industry

Computer hardware

(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


30

K o r n / F e r r y I N t E r n at i o n a l

Rank

Company

Market cap in billions on May 1, 2013

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

Industry


31

T H E K ORN / F ERRY M AR K ET C A P 1 0 0 

Rank

Company

Market cap in billions on May 1, 2013

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

Industry


32

K o r n / F e r r y I N t E r n at i o n a l

Rank

Company

Market cap in billions on May 1, 2013

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

Industry


T H E K ORN / F ERRY M AR K ET C A P 1 0 0 

33

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%


34

K o r n / F e r r y I N t E r n at i o n a l

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


35

T H E K ORN / F ERRY M AR K ET C A P 1 0 0 

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 4 5

7 1

050 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


36

K o r n / F e r r y I N t E r n at i o n a l

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%


37

T H E K ORN / F ERRY M AR K ET C A P 1 0 0 

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

Profile

Profile

Sharon L. Allen

Marc R. Benioff

New board

New board

Profile

Profile

The TJX Companies, Inc. President, PepsiCo Inc.

Bank of America Corp. Former Chairman, Deloitte LLP Marc L. Andreessen New board

Altria Group, Inc. Chairman/CEO, Altria Group, Inc.

Cisco Systems, Inc. Chairman/CEO, Salesforce.com, Inc. Other board(s)

Salesforce.com, Inc.

Facebook, Inc.

Stephen F. Bollenbach

Profile

New board

Co-Founder/General Partner, Andreessen Horowitz; Co-Founder/Chairman, Ning, Inc. Other board(s)

eBay Inc.; Hewlett-Packard Co. Lamberto Andreotti New board

Mondelez International Inc. Profile

Former Co-Chairman/CEO, Hilton Hotels Corp. Other board(s)

Time Warner Inc.; Macy’s, Inc.; KB Home

E.I. DuPont de Nemours & Co.

Joshua B. Bolten

Profile

New board

Other board(s)

Profile

Nikesh Arora

Lewis W. K. Booth

New board

New board

Profile

Profile

Other board(s)

Other board(s)

Janice M. Babiak

Jack O. Bovender Jr.

New board

New board

Profile

Profile

CEO, Bristol-Myers Squibb Co. Bristol-Myers Squibb Co.

Colgate-Palmolive Co. Senior VP/Chief Business Officer, Google Inc. Bharti Airtel Ltd.

Walgreen Co. Former Managing Partner, Ernst & Young Other board(s)

Emerson Electric Co. Former White House Chief of Staff

Mondelez International Inc. Former Chairman/President/CEO, Mazda Motor Corp. Rolls-Royce Holdings

Bank of America Corp. Former Chairman/CEO, HCA Inc.

Bank of Montreal

Erskine B. Bowles

Richard Barker

Facebook, Inc.

New board

Celgene Corp. Profile

Former CEO, Chiron Diagnostics, and former Director General, the Association of the British Pharmaceutical Industry

New board Profile

Co-Chair, National Commission on Fiscal Responsibility and Reform Other board(s)

Morgan Stanley; Norfolk Southern Corp.


38

K o r n / F e r r y I N t E r n at i o n a l

John J. Brennan

Thomas F. Chen

New board

New board

Profile

Profile

General Electric Co. Chairman Emeritus, The Vanguard Group, Inc. Other board(s)

The Hanover Insurance Group; LPL Financial Holdings Inc. James W. Breyer New board

Facebook, Inc. Profile

Managing Partner, Accel Partners Other board(s)

Baxter International Inc. Former Senior VP, Abbott Laboratories Other board(s)

Cyanotech Corp. Uma Chowdhry New board

Baxter International Inc. Profile

Former Senior VP/Chief Science & Technology Officer, EI DuPont de Nemours & Co.

Wal-Mart Stores, Inc.; Dell Inc.; News Corp.; Brightcove Inc.

Michael L. Corbat*

George W. Buckley

Profile

New board

Citigroup Inc.

New board

CEO, Citigroup Inc.

Profile

Dr. Marijn E. Dekkers

Other board(s)

General Electric Co.

PepsiCo Inc. Former Chairman/President/CEO, 3M Co.

New board

Archer Daniels Midland Co.; Stanley Black & Decker, Inc.; Hitachi, Ltd.

Profile

Edson de Godoy Bueno

Other board(s)

CEO/Member of Executive Council, Bayer AG

New board

Bayer AG

Profile

Harris E. DeLoach Jr.

UnitedHealth Group Inc. Chairman/President/CEO, Amil Participações SA

New board

Ursula M. Burns

Chairman/CEO, Sonoco

New board

Exxon Mobil Corp. Profile

Chairman/CEO, Xerox Corp. Other board(s)

Duke Energy Corp. Profile

Other board(s)

Florida Progress Corp.; Sonoco Richard W. Dreiling New board

American Express Co.; Xerox Corp.

Lowe’s Companies, Inc.

Victor M.G. Chaltiel

CEO, Dollar General Corp.

New board

Las Vegas Sands Corp. Profile

Profile

Other board

Dollar General Corp.

Founder and former Chairman/CEO, HealthDataInsights Inc.

Robert A. Eckert

Elaine L. Chao

Profile

New board

Amgen Inc.

New board

Chairman/Former CEO, Mattel, Inc.

Profile

McDonald’s Corp.; Mattel, Inc.

Other board(s)

David N. Farr

News Corp. Former US Secretary of Labor Wells Fargo & Co.; Protective Life Corp.; Dole Food Co., Inc.

Other board(s)

New board

International Business Machines Corp. Profile

Chairman/CEO, Emerson Electric Co.


39

T H E K ORN / F ERRY M AR K ET C A P 1 0 0 

J. Brian Ferguson

Murry Gerber

New board

New board

Profile

Profile

Phillips 66 Former Chairman/CEO, Eastman Chemical Co. Other board(s)

NextEra Energy, Inc.; Owens Corning Timothy P. Flynn New boards

Wal-Mart Stores, Inc.; JPMorgan Chase & Co. Profile

Halliburton Co. Former Chairman/CEO, EQT Corp. Other board(s)

BlackRock, Inc.; United States Steel Corp. Charles W. Goodyear New board

Anadarko Petroleum Corp. Profile

Former CEO, Temasek Holdings

Retired Chairman, KPMG International

Jamie S. Gorelick

Scott T. Ford

Amazon.com, Inc.

New board

AT&T Inc. Profile

Former President/CEO, Alltel Corp. Other board(s)

First Federal Bancshares of Arkansas Inc. Henrietta H. Fore New board

Exxon Mobil Corp.

New board Profile

Partner, Wilmer Cutler Pickering Hale and Dorr LLP Other board(s)

United Technologies Corp. Alex Gorsky* New board

Johnson & Johnson Profile

Profile

Chairman/CEO, Johnson & Johnson

Other board(s)

Donald E. Graham

Chairman/CEO, Holsman International Theravance, Inc.

New board

Jody Freeman

Profile

New board

ConocoPhillips Profile

Archibald Cox Professor of Law, Harvard Law School Greg C. Garland* New board

Facebook, Inc. Chairman/CEO, The Washington Post Co. Other board(s)

The Washington Post Co. David J. Grain New board

Southern Co. Profile

Profile

Chairman/CEO, Phillips 66

Founder/Managing Partner, Grain Management; CEO, Grain Communications Group

Alice P. Gast

Diane B. Greene

New board

New board

Profile

Profile

Phillips 66

Chevron Corp. President, Lehigh University Robert Gates New board

Google Inc. Former President/CEO, VMware, Inc. Other board(s)

Intuit, Inc.

Starbucks Corp.

Anthony W. Hall Jr.

Profile

New board

Former US Secretary of Defense Richard L. George New board

Anadarko Petroleum Corp. Profile

Former Chairman/CEO, Suncor Energy Inc. Other board(s)

Royal Bank of Canada

Kinder Morgan, Inc. Profile

Attorney/Former City Councilman/Chief Administrative Officer for the city of Houston


40

K o r n / F e r r y I N t E r n at i o n a l

W. Reed Hastings Jr.

Jon M. Huntsman Jr.

New board

New boards

Profile

Profile

Other board(s)

Other board(s)

Roland Hernandez

James B. Hyler Jr.

New board

New board

Profile

Profile

Facebook, Inc. Founder/Chairman/President/CEO, Netflix, Inc. Netflix, Inc.

U.S. Bancorp Founding Principal/CEO, Hernandez Media Ventures Other board(s)

Caterpillar Inc.; Ford Motor Co. Former Governor of Utah and US Ambassador to China Huntsman Corp.

Duke Energy Corp. Former Vice Chairman/COO, First Citizens Bank & Trust Co. Inc.

MGM Resorts International; Vail Resorts, Inc.; Sony Corp.

Tyler Jacks

Robert H. Herz

Profile

New board

Amgen Inc.

New board

Morgan Stanley

Professor, Massachusetts Institute of Technology

Profile

Other board(s)

Former Chairman, Financial Accounting Standards Board (FASB) Doreen Woo Ho New board

U.S. Bancorp Profile

President, San Francisco Port Commission Dr. Susan Hockfield New board

QUALCOMM Inc. Profile

Former President, Massachusetts Institute of Technology Other board(s)

General Electric Co. Linda P. Hudson New board

Bank of America Corp. Profile

President/CEO, BAE Systems, Inc. Other board(s)

BAE Systems, Inc. Franz Humer New board

Citigroup Inc. Profile

Chairman/former CEO, Roche Holding AG; Chairman, Diageo PLC Other board(s)

Diageo PLC; Roche Holding AG

Thermo Fisher Scientific Inc. Kristina M. Johnson New board

Cisco Systems, Inc. Profile

Former Senior Vice President of Academic Affairs and Provost, Johns Hopkins University Other board(s)

AES Corp.; Boston Scientific Corp. Dr. William G. Kaelin New board

Eli Lilly & Co. Profile

Associate Director, Dana-Farber/Harvard Cancer Center Klaus Kleinfeld New board

Morgan Stanley Profile

Chairman/CEO, Alcoa Inc. Other board(s)

Alcoa Inc.; Bayer AG John J. Koraleski* New board

Union Pacific Corp. Profile

President/CEO, Union Pacific Corp.


41

T H E K ORN / F ERRY M AR K ET C A P 1 0 0 

Robert A. Kotick

Marissa A. Mayer

New board

New board

Profile

Profile

Other board(s)

Other board(s)

Ryan M. Lance*

Harold W. McGraw III

New board

New board

Profile

Profile

Marshall O. Larsen

Other board(s)

The Coca-Cola Co. President/CEO, Activision Blizzard, Inc. Activision Blizzard, Inc.

ConocoPhillips Chairman/CEO, ConocoPhillips New board

United Technologies Corp. Profile

Former Chairman/President/CEO, Goodrich Corp. Other board(s)

Lowe’s Companies, Inc.; Becton Dickinson & Co. Matthew S. Levatich New board

Emerson Electric Co. Profile

Division President/COO, Harley-Davidson, Inc. Grace D. Lieblein New board

Honeywell International Inc. Profile

Vice President for Global Purchasing and Supply Chain, General Motors Co. William R. Loomis Jr. New board

Phillips 66 Profile

Former Chairman, Terra Industries Inc. Other board(s)

L Brands Inc. John E. Lowe New board

Phillips 66 Profile

Senior Executive Advisor, Tudor Pickering Holt & Co. Other board(s)

Agrium Inc.

Wal-Mart Stores, Inc. President/CEO, Yahoo Inc. Yahoo Inc.

Phillips 66 Chairman/President/CEO, The McGraw-Hill Companies, Inc. United Technologies Corp.; The McGrawHill Companies, Inc. E. Marie McKee New board

Duke Energy Corp. Profile

President, Corning Museum of Glass and former President, Steuben Glass Kathryn B. McQuade New board

Altria Group, Inc. Profile

Executive Vice President/Chief Financial Officer, Canadian Pacific Railway Limited Jorge Mesquita New board

Mondelez International Inc. Profile

Group President, New Business Creation and Innovation, The Procter & Gamble Co. Judith A. Miscik New board

EMC Corp. Profile

Vice Chairman/President, Kissinger Associates, Inc.; former Deputy Director for Intelligence, US Central Intelligence Agency Charles W. Moorman New board

Chevron Corp. Profile

Chairman/CEO, Norfolk Southern Corp. Other board(s)

Norfolk Southern Corp.

Stephen J. Luczo

Eric D. Mullins

New board

New board

Microsoft Corp. Profile

Chairman/President/CEO, Seagate Technology Other board(s)

Seagate Technology

Anadarko Petroleum Corp. Profile

Chairman/Co-CEO, LRR Energy Other board(s)

LRR Energy


42

K o r n / F e r r y I N t E r n at i o n a l

James J. Mulva

Dr. William L. Roper

New board

New board

Profile

Profile

General Motors Co. Former Chairman/CEO, ConocoPhillips Other board(s)

General Electric Co. Dominic P. Murphy New board

Walgreen Co. Profile

Partner, Kohlberg Kravis Roberts & Co. Adebayo O. Ogunlesi New board

The Goldman Sachs Group, Inc. Profile

Chairman/Managing Partner, Global Infrastructure Partners Other board(s)

Kosmos Energy LTD; Callaway Golf Co. Stefano Pessina New board

Express Scripts Holding Co. Dean, University of North Carolina, Chapel Hill School of Medicine Other board(s)

DaVita HealthCare Partners Inc. Carlos A. Saladrigas New board

Duke Energy Corp. Profile

Chairman/CEO, Regis HR Group Other board(s)

Advance Auto Parts, Inc. Sheryl Sandberg New board

Facebook, Inc. Profile

Chief Operating Officer, Facebook, Inc. Other board(s)

The Walt Disney Co.

Walgreen Co.

Patrick T. Siewert

Profile

New board

Other board(s)

Profile

Executive Chairman, Alliance Boots GmbH Galenica LTD Preetha Reddy

Mondelez International Inc. Chairman, Eastern Broadcasting Co. Other board(s)

New board

Avery Dennison Corp.; China Fishery Group Limited; C.P. Pokphand Co. Ltd.

Profile

Ruth J. Simmons

Medtronic, Inc. Consultant for Disaster Management Program in Chennai, India, and health care advisor to Indian government Other board(s)

Apollo Hospitals Enterprise Ltd. James L. Robo* New board

NextEra Energy, Inc. Profile

President/CEO, NextEra Energy, Inc. Other board(s)

J.B. Hunt Transport Services, Inc. Virginia M. Rometty* New board

International Business Machines Corp. Profile

Chairman/President/CEO, International Business Machines Corp.

New board

Mondelez International Inc. Profile

President Emeritus, Brown University Other board(s)

Texas Instruments Inc. John L. Skolds New board

NextEra Energy, Inc. Profile

Chairman, Zolo Technologies, Inc. Theodore (Tim) M. Solso New board

General Motors Co. Profile

Former Chairman/CEO, Cummins Inc. Other board(s)

Ball Corp.


43

T H E K ORN / F ERRY M AR K ET C A P 1 0 0 

Joan E. Spero

Victoria J. Tschinkel

New board

New board

Profile

Profile

Citigroup Inc. Former US Under Secretary of State for Economic, Business and Agricultural Affairs and US Ambassador to the United Nations for Economic and Social Affairs Other board(s)

Phillips 66 Former Director, Florida Nature Conservancy Mark Edward Tucker New board

International Business Machines Corp.; International Paper Co.

The Goldman Sachs Group, Inc.

Gerald Storch

Other board(s)

Profile

President/Group CEO, AIA Group Ltd.

New board

AIA Group Ltd.

Profile

Ă lvaro Uribe VĂŠlez

Bristol-Myers Squibb Co. Chairman/CEO, Toys R Us, Inc.

New board

Michael E. Szymanczyk

Profile

News Corp.

New board

Former President, Colombia

Profile

Mark C. Vadon

Dominion Resources, Inc. Former Chairman/CEO, Altria Group, Inc.

New board

Kathryn A. Tesija

Profile

The Home Depot, Inc.

New board

Co-Founder/Chairman/former CEO, Blue Nile Inc.

Profile

Other board(s)

Verizon Communications Inc. Executive Vice President, Merchandising and Supply Chain, Target Corp.

Blue Nile Inc.

Peter A. Thiel

New board

Robert F. Vagt

New board

Kinder Morgan, Inc.

Profile

Former President, Charles W. Davidson College of Engineering, San Jose State University

Facebook, Inc. Founder/President, Clarium Capital Management LLC; Co-Founder and former CEO, PayPal John W. Thompson

Profile

Daniel L. Vasella New board

New board

American Express Co.

Profile

Chairman, Novartis AG

Other board(s)

PepsiCo Inc.; Novartis AG

Microsoft Corp. CEO, Virtual Instruments, Inc. United Parcel Service, Inc. Inge G. Thulin*

Profile

Other board(s)

R.A. Walker* New board

New board

Anadarko Petroleum Corp.

Profile

Chairman/President/CEO, Anadarko Petroleum Corp.

3M Co.

CEO, 3M Co. Glenn F. Tilton

Profile

Other board(s)

New board

CenterPoint Energy, Inc.; Western Gas Partners LP

Profile

Kevin M. Warsh

Phillips 66 Non-Executive Chairman, United Continental Holdings, Inc. Other board(s)

United Continental Holdings, Inc.; Abbott Laboratories

New board

United Parcel Service, Inc. Profile

Former Member, Board of Governors, Federal Reserve


44

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.

K o r n / F e r r y I N t E r n at i o n a l


T H E K ORN / F ERRY M AR K ET C A P 1 0 0 

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 directors

27% 13 to 15 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

45


46

K o r n / F e r r y I N t E r n at i o n a l

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 $1 to $25,000 $0

10% 1% 4%

0%50%


47

T H E K ORN / F ERRY M AR K ET C A P 1 0 0 

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. 89%

One or more directors with work experience anywhere outside the US One or more directors with work experience specifically in BRIC countries

32%

0%100%


48

K o r n / F e r r y I N t E r n at i o n a l

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 5

13 1

050 Number of companies


49

T H E K ORN / F ERRY M AR K ET C A P 1 0 0 

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. 16% 70 to 74

5% 75 and over 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


50

K o r n / F e r r y I N t E r n at i o n a l

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


51

T H E K ORN / F ERRY M AR K ET C A P 1 0 0 

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. Key contacts

Dennis Carey Vice Chairman Korn/Ferry International +1 215 656 5348

Robert E. Hallagan Vice Chairman Korn/Ferry International +1 617 790 5790

Stephen P. Mader Vice Chairman Korn/Ferry International +1 617 790 5700

Š 2013 Korn/Ferry International


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. Visit www.kornferry.com for more information on Korn/Ferry International, and www.kornferryinstitute.com for thought leadership, intellectual property, and research.

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2013 KFMC

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