Towards More Effective Board Functioning Fall Lausanne Confidential to CEO-CF and CEO-CF members

Today’s Flow 1 1.Board Functioning & Performance 2.Readings (why did I provide them) 3.The Workings of an Effective Board 4.The results from your recent survey 5.Key Discoveries and Milestone Commitments

Basic Board Functions & Performance Provide Superior Strategic Guidance Guide & approve company strategy Review & approve strategic plan and operating budgets Approve strategic financial decisions/transactions Set up external relations’ policy Ensure Accountability Supervise & monitor company progress & performance Supervise on behalf of the shareholders Monitor the main enterprise risks Evaluate the corporate governance’s effectiveness Build & Maintain Senior Management Team (SMT) Advise & evaluate CEO & SMT Nominate & remunerate CEO/SMT and plan succession 2 Confidential to CEO-CF and CEO-CF members

Determinants of Functioning & Performance 3 Board Composition Board Systems & Structure Board Performance Inputs Independence (and complimentary) Diligence (commitment and preparation) Competence (changes with time) Flexibility (in schedule and topics) Ethics... Processes Board structure (leadership, size, & committees) Productive meetings (agenda and culture of challenge to the CEO & members of Board) Succession planning (CEO/SMT growth and replacement) Financial reporting/risk management (independent audit committee) Performance evaluation Overall corporation (strategic & financial) CEO (the rigor of KPIs) Board & member (refer to CEO-CF) Confidential to CEO-CF and CEO-CF members

Determinants of Functioning & Performance 4 Corporate Performance Board Performance Board Composition Board Systems & Structure Result Long run financial success Results Superior strategic guidance Ensure accountability to all stakeholders Ensure highly qualified executive team in place Confidential to CEO-CF and CEO-CF members

For the next slides, please refer to Nadler Building Better Boards 5 Confidential to CEO-CF and CEO-CF members

Level of Engagement The Passive Board The Certifying Board The Engaged Board The Intervening Board The Operating Board 6 Confidential to CEO-CF and CEO-CF members

7 Habits of an Effective Board 1. Own the Strategy Creates ownership and facilitates better/quicker decisions 2.Build the Top Team Continuum to select, build, and grow their skills 3.Match Reward to Performance Process to define the KPI 4. Process to review attainment (or not) Ensure Financial Viability 5.Value of a concise 1-2 page “Dashboard/Flash Report” Match Risk with Return 6.70% of major acquisitions fail to create value Manage Corporate Reputation 7.Drive Effective Board Processes Value of sub-committees 7 Confidential to CEO-CF and CEO-CF members

Does Your BoD Really Work? 8 Do BoD members individually and collectively understand the changing external picture of the industry? Are BoD members individually and collectively clear about the company’s strategic direction? Is the process in place for frequently reviewing the CEO and providing unmistakable and clear feedback? Is the BoD comfortable that the company has the right CEO? If not, is the BoD actively dealing with the issue? Does the BoD have a robust process for self-evaluation/improvement? Does the BoD construction have value in diversity (global diversity, age balance, experience mix (financial, industry, etc.) and perspective? Confidential to CEO-CF and CEO-CF members

Management Will… 9 Lead the BoD in understanding the changing external environment (industry, competition, etc.) Tell the BoD what it is trying to accomplish in the near and long term Provide sufficient and efficient information to allow the BoD to assess whether goals are being achieved Put good and bad news on the table Create and support an atmosphere conducive to critical discussion Listen to and learn from the BoD Confidential to CEO-CF and CEO-CF members

The Board Will… 10 Take independent view on company, CEO, and SMT Keep up-to-date on the company from external viewpoint Ask all questions and state all concerns as they arise Make their perspectives, experience, and judgment available to SMT Ensure congruity in strategic goals Be rigorous with Compensation Plans and KPIs –Process to define the KPI –Process to review attainment (or not) Seek to improve their own performance Confidential to CEO-CF and CEO-CF members

Board Members Will… 11 Engage in dialogue on substantive issues to add value Maintain independent judgment at all times about issues/management Put forth, without hesitation, any potential conflict of interest Take initiative to counsel other directors and CEO, as appropriate, inside and outside the Boardroom Help make BoD dynamics positive and effective Constructively participate in reaching concurrence on strategy Use judgment in navigating through the ‘grey’ area of active involvement/micromanaging Passive role is not welcome Seek to improve their own performance

FROM Reactive Boards Rectifying the past Unilateral agendas Trying to deal with too many must- accomplish items Constantly dealing with the same issues Directors with long terms Too little/much information Subjective evaluation TO Proactive Boards Building the future Agreed agendas Focus Adjusting Board to company & ownership’s challenges/priorities Directors with shorter terms & selected according to company/ownership’s challenges The right information Planning, doing, measuring, & evaluating objectively Improving BoD Functioning & Effectiveness 12 Confidential to CEO-CF and CEO-CF members

Key Discoveries & Milestone Commitments 13 What are your Key Discoveries from this session (3-5)? As a result of those Discoveries, what will you do differently with your Board for in 2013? Confidential to CEO-CF and CEO-CF members