 2005 Nancy Raulston, LLC. All rights reserved. (415) | | p e r s p e c t i v e 2 Creating an Effective Board of Directors “All part of the CEO job description”

 2005 Nancy Raulston, LLC. All rights reserved. p e r s p e c t i v e 2 2 Introductions Audience –Name, title, company –Number of Board seats –General rating of Board Effectiveness

 2005 Nancy Raulston, LLC. All rights reserved. p e r s p e c t i v e 2 3 Question #1 How have you seen Boards be “dysfunctional”?

 2005 Nancy Raulston, LLC. All rights reserved. p e r s p e c t i v e 2 4 Effective BOD* Characteristics –CEO and Board members have a common vision –Expectations for performance are clear and aligned –Board member skills match the company’s needs –Board members actively manage their conflicting roles/loyalties –Board members have (and use) good “teamwork” skills *Boards of Directors

 2005 Nancy Raulston, LLC. All rights reserved. p e r s p e c t i v e 2 5 Agenda Characteristics of an Effective Board The Role of the Board Board Composition and Board Member Competencies Board Member Interaction Suggestions for Board Development

 2005 Nancy Raulston, LLC. All rights reserved. p e r s p e c t i v e 2 6 Question #2 What is the role of the board?

 2005 Nancy Raulston, LLC. All rights reserved. p e r s p e c t i v e 2 7 Perception The role of the BOD “The only power of the Board is to hire and fire the CEO…”

 2005 Nancy Raulston, LLC. All rights reserved. p e r s p e c t i v e 2 8 Reality The role of the BOD –Encourage the creation of a clear vision and strategic plan –Guide the establishment of effective governance –Provide fiscal oversight –Ensure sound risk management –Select and manage the CEO –Play an appropriate role in establishing alliances –Maintain effective board function

 2005 Nancy Raulston, LLC. All rights reserved. p e r s p e c t i v e 2 9 Common Issues Roles & Responsibilities –Who runs the company - the BOD or the CEO + the management team? –Isn’t there a conflict of interest when an investor also sits on the BOD? –Who hires and manages members of the management team at the company?

 2005 Nancy Raulston, LLC. All rights reserved. p e r s p e c t i v e 2 10 Question #3 How do you put together an effective BOD?

 2005 Nancy Raulston, LLC. All rights reserved. p e r s p e c t i v e 2 11 Building a strong BOD Identify areas of expertise needed to implement business model Match up expertise of CEO and other management Clarify expertise provided by investors and other potential “inside” Board members Profile expertise needed by “outside” Board members

 2005 Nancy Raulston, LLC. All rights reserved. p e r s p e c t i v e 2 12 Leadership Skill Areas External relationships Internal Relationships Planning/ implementation Cross- functional Business model Vision Managing key alliances Securing financing Managing the Board Strategic vision Strategic planning Development of business fundamentals Team development Operational leadership Staff development Cultural leadership

 2005 Nancy Raulston, LLC. All rights reserved. p e r s p e c t i v e 2 13 Industry expertise Financial expertise Relationships Complementing CEO Skills External relationships Internal Relationships Planning/ implementation Cross- functional Business model Vision

 2005 Nancy Raulston, LLC. All rights reserved. p e r s p e c t i v e 2 14 Common Issues Board Composition –What to do with the founders… –The investors all want a Board seat… –How to set expectations with potential external Board members… –Meeting SOX expectations…

 2005 Nancy Raulston, LLC. All rights reserved. p e r s p e c t i v e 2 15 Common Issues Board Member Performance –Lack of additive skills… –Dysfunctional behavior by Board members… –Board members unable to manage their conflicts of interest… –Lack of attention and contribution –Managing individual style…

 2005 Nancy Raulston, LLC. All rights reserved. p e r s p e c t i v e 2 16 A board should … style values/philosophy roles feedback rules of engagement power Storming Norming Performing expectations of leaders interdependencies Forming be a team

 2005 Nancy Raulston, LLC. All rights reserved. p e r s p e c t i v e 2 17 Strong team Characteristics –Communicate openly and freely –Provide each other with open, direct feedback –Hold each other accountable –Fully utilize diverse strengths, styles, points of view –Define and follow decision making guidelines –Manage conflict effectively –Manage time and effort productively

 2005 Nancy Raulston, LLC. All rights reserved. p e r s p e c t i v e 2 18 Question #4 What about the CEO?

 2005 Nancy Raulston, LLC. All rights reserved. p e r s p e c t i v e 2 19 Actuality The role of the BOD “The only power of the Board is to hire and fire the CEO…”

 2005 Nancy Raulston, LLC. All rights reserved. p e r s p e c t i v e 2 20 Tips for Managing CEO/BOD interaction –Agree on expectations for communication – at Board meetings and between –Establish performance measures up front – and provide consistent and timely feedback –Share accountability for identifying and resolving issues as they arise

 2005 Nancy Raulston, LLC. All rights reserved. p e r s p e c t i v e 2 21 How to build an effective BOD Summary Establish a common vision for the Board – the key challenges the company will face and how the Board will contribute Thoughtfully bring together Board members who provide key expertise needed by the company – and be clear on what is expected from each Agree upon how the Board will conduct its business – and hold yourselves accountable Set clear expectations and processes for managing the performance of the CEO Evaluate the effectiveness of the Board – and ask for help if needed

 2005 Nancy Raulston, LLC. All rights reserved. p e r s p e c t i v e 2 22 Q & A

 2005 Nancy Raulston, LLC. All rights reserved. p e r s p e c t i v e 2 23 Contact Info Nancy Raulston (415) This presentation contains copyrighted material and original intellectual property produced by Nancy Raulston on behalf of Perspective2, a DBA of Nancy Raulston LLC. Feel free to use material here so long as you attribute the source to: –Nancy Raulston of Perspective2 at