1. Beverly Behan Partner, Corporate Governance Mercer Delta Consulting, New York Effective Board-Building June 7, 2006

2. 2 Mercer Delta Consulting What Is an Effective Board? When you think of a “high- performing” or “world-class” Board: – What attributes of this Board come to your mind? – What is such a Board particularly good at? – What is the relationship like between this Board and the CEO? – If you walked into this boardroom, how would it feel?

3. 3 Mercer Delta Consulting What Is an Effective Board? (cont’d) Effective Boards – Include the right people (composition) – Develop the right work processes (succession planning, CEO evaluation, strategy, etc.) – Do the right work (agendas) – Consider the right information (presentations/pre-reading materials) – Have the right culture - engaged, constructive (leadership/dynamics)

4. 4 Mercer Delta Consulting How Does a Board Add Value to an Enterprise? Board members can provide an outside perspective on opportunities and risks that management may overlook The Board can support, counsel, and challenge the CEO and bring higher levels of performance to the enterprise Engaging the Board properly in fiduciary oversight, corporate strategy, and succession can have a significant impact

5. 5 Mercer Delta Consulting Boards as Teams Board Engagement Board-Building Important Concepts

6. 6 Mercer Delta Consulting The Board as a Team Unique characteristics of Boards as teams: – Partial inclusion – Episodic interaction – Limited time and information – Membership comprised of leaders – Unclear or complex authority relationships – Changing expectations for work – Aura of formality – Majority of work done in meetings

7. 7 Mercer Delta Consulting The “Passive” Board The “Operating” Board The “Intervening” Board The “Engaged” Board The “Certifying” Board n Functions at discretion of CEO n Limited activity and participation of Board n Limited accountability n Ratifying management preferences n “Certifies” to shareholders that: CEO is doing what Board expects; management is capable of taking corrective action when needed n Emphasizes outside/ independent directors; meets independently without the CEO n Stays informed of current performance; designates external Board members to evaluate CEO n Establishes an orderly succession process n Is willing and able to change management to be credible to shareholders n “Partners” with CEO to provide insight, advice, and support to CEO and management team on key decisions and implementation n Also recognizes ultimate responsibility to oversee CEO and company performance; dual role of guiding/supporting as well as judging the CEO n Board meetings characterized by useful, two-way discussions of key issues/decisions facing the company n Board members need sufficient industry and financial expertise to add value to decisions n Time and emphasis spent on defining role and behaviors required of Board members; boundaries of CEO/ Board responsibility n Typical mode during a “crisis” situation n Board becomes intensely involved in discussions of key decisions facing the organization and in decision-making n Frequent and intense Board meetings, often called on short notice n Board makes key decisions; management implements n Not uncommon in early “start-ups” where Board members are selected to “fill gaps” in management experience Degree of Board Engagement

8. 8 Mercer Delta Consulting Board Evaluation in the Context of Board-Building Board Leadership Taking Stock of the Board Determine Required Engagement Focus and Scope Getting Right Board Members Build Processes and Structures Provide Needed Information Shape Culture of the Board Create Value-Added Engagement Assess Quality of Engagement

9. 9 Mercer Delta Consulting Board Evaluation: What is the Focus? Policy Review Focus: Ensuring all appropriate policies are in place and documented Fosters institutional memory Best undertaken by General Counsel who understands the legal and regulatory environment in which the Board functions Board Effectiveness Focus: How effectively the Board is working together and working with management Highlights current strengths to build upon these Identifies opportunities to further enhance Board effectiveness to add greater value for stakeholders, management, Board members Discusses how policies are being “operationalized” – may identify gaps

10. 10 Mercer Delta Consulting Proposed Board Evaluation Process 1 1 2 2 3 3 4 4 5 5 6 6 Interviews with Steve and Roberto to talk about unique factors impacting the mandate and operation of the Fresno County Employees’ Retirement Association Board Development of an Interview Protocol covering key parameters of Board effectiveness but tailored to reflect the unique mandate and issues of the FCERA Board Interview Protocol distributed to all Board members and telephone interviews of 45 minutes each are scheduled; interviews may also be conducted with key senior managers who regularly interface with the Board to get their perspectives, if appropriate Interview feedback is summarized and analyzed. Key themes are developed from the analysis – areas of unique strength/effectiveness, opportunities for further enhancement Summary Report of the interview feedback is distributed to all Board members for review Working session of the Board of FCERA to discuss the Summary Report – agree on areas of strength, discuss areas for enhancement and determine priorities. Discuss alternatives and create an action plan to address those opportunities considered most worthwhile.

11. 11 Mercer Delta Consulting Process Can Also be Used to Develop Board Expectations and Priorities: Sample Expectations - ABC Co. Of the Board Devote the time, energy, and effort to understand the company’s business and prepare for Board meetings Open, honest, and constructive feedback. Be respectful in expressing your views, but say what’s on your mind. Active engagement and participation Timely and sound decision-making Once a decision is reached, support management in moving forward with it Refrain from micromanaging Of Management Honesty, integrity, and the highest ethical standards No surprises - keep the Board informed of significant issues, transactions, and events. Be honest if there’s a problem. Come to the Board with a point of view but provide a balanced perspective – Pros/cons of alternatives – Risks/implications Run the business effectively Execute on the strategy

12. 12 Mercer Delta Consulting Process Can Also be Used to Develop Board Expectations and Priorities: Sample Priorities - ABC Co. For the Company Developing ABC’s strategic plans – Growth strategy for ABC, including diversification – Capital allocation decisions – Growth strategy for the utility business - buy or generate? – Growth strategy for the Florida properties Reputation/communications issues within NE Minnesota CEO and executive succession planning For the Board Corporate growth strategy - engaging and aligning with management CEO succession planning - emergency and long-term Restructuring Board meetings to make them more effective Board succession planning

13. 13 Mercer Delta Consulting Questions/Discussion What are the objectives of the Board of FCERA in undertaking the Board evaluation? – What would you like to accomplish? – What would you like to avoid? – What would be the most helpful and productive outcome of this process?