What Keeps Boards Up At Night What Keeps Boards Up At Night? ACC Chapter Meeting CLE July 28, 2016 Aaron Carlson, Associate General Counsel, Noble Energy, Inc. Pamela Taylor, Senior Attorney, Securities and Governance, Noble Energy, Inc. Sean Gorman, Partner, Bracewell LLP EMILY LEITCH, Partner, Bracewell LLP

Boards are up Thinking About: Disclosure and Transparency Long-term Business Strategy Shareholder Engagement Proxy Access Executive Compensation Board Composition

Board Member Fiduciary Duty Standards Duty of care – Board members must educate themselves with “all material information reasonably available to them” prior to making a business decision Smith v. Van Gorkom, 488 A.2d 858, 872 (Del. 1985). Duty of loyalty – Board members have the duty to “eschew any conflict between duty and self-interest” Ivanhoe Partners v. Newmont Mining Corp., 535 A.2d 1334, 1345 (Del. 1987).

Disclosure and Transparency Why do we disclose? Public companies must disclose information (good and bad) that may influence investment decisions How do we disclose? Periodic and current filings Proxy statements Registration statements

Long-term Business Strategy Balancing the goals of long-term value creation versus delivery of short-term results Board and management both have roles in strategy development Recent developments - climate change and corporate social responsibility Boards must be able to effectively communicate long-term strategy

Shareholder Engagement Engagement has historically been focused on business or financial matters Recent trend includes focus on governance issues Activists are recruiting and teaming with mainstream investors Shareholders are increasingly demanding access to boards

Proxy Access Hot topic over the last two years – well over 100 companies received a proxy access proposal SEC has been unwilling to grant companies relief Noble withstood proposals over last two years but has made adjustments Is this the new normal?

Executive Compensation Say-on-pay advisory votes Proper performance measures Special awards Upcoming Dodd-Frank requirements CEO pay ratio Pay-for-performance Clawbacks Hedging disclosure

Board Composition Looking for proper balance of experience and expertise A single director can draw the attention of activists Women and minorities are still underrepresented Most companies have mandatory retirement age but few have term limits Boards should have succession plans in place 40% of directors surveyed say at least one director on their board should resign.