30th Annual Board of Directors Study

30th

2003

Annual Board of Directors Study

Korn/Ferry International

30th

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Table of ContentsObservations and Commentary . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .2

Methodology . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .4

Executive Summary: Highlights of Global Findings . . . . . . . . . . . . . . . . . . . . . . . . .5

Proxy Information . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .8

Size of Board . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .8

Inside Directors vs. Outside Directors . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .9

Board Composition and Demographics . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .10

Committees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .11

Committee Composition . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .12

Committee Meeting Frequency . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .13

Full Board Compensation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .13

Annual Retainer Plus Per-Meeting Fee . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .14

Committee Compensation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .15

Stock as Director Compensation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .16

Profile of Proxy Companies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .17

Americas Survey Responses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .19

European Survey Responses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .31

Asia Pacific Survey Responses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .44

Conclusion . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .55

About Korn/Ferry International . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .56

Global Board Services Practice . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .56

As part of this 30th AnnualBoard of Directors Study, wethought it would be interestingto interview a few CEOs,Chairmen and Directors to gettheir candid opinions andpersonal insights on a number ofboard issues. Inside the pages ofthis Study you will find theirthoughts on such matters as:What Really Happens inExecutive Sessions?; the TrueRole of Lead Directors; andChallenging a CEO.


30th Observations and Commentary: A 30-Year EvolutionWhen the Korn/Ferry Board of Directors Study was launched in 1973, corporategovernance was, by no means, perceived to be as significant as it is today. Over theyears, cynicism about the real “work” of boards, interpreted as rubberstamping theCEO, fueled quiet but growing dissonance with those advocating a system that wasto bring a balance of power and protection to shareholder interests.

A new generation of investors has emerged, a group predisposed to instantgratification and protest. They enlisted the previous generation, evolving begrudgingacceptance into activism. Evolving social idealism as corporate credo, “We can makea difference” became the mantra of a broad cross-section of shareholders. Executivesand directors were among those believing change was needed.

Board insularity eroded in the mid-80s, when a judge in the United States allowedthe TransUnion board of directors to be sued by shareholders. This landmark decisionrocked an entrenched system, spotlighting both weaknesses and strengths inherent in the established structure. Aftershocks were felt throughout the global corporatecommunity and from that point forward, shareholders would continuously scrutinizecorporate performance and the board’s role.

Crises also spurred change throughout Europe in the 1990s. Poor CEO performanceand inattentive boards became the catalyst for major reform. Several guidelines weredeveloped, such as the United Kingdom’s (UK) Cadbury Code of Best Practices andFrance’s Vienot Report. The Cadbury Code was the first set of practices adopted by astock exchange. To be listed on the London Stock Exchange, a company must producean annual report and state within whether or not they comply with the Cadbury Code.

More recently, Asia Pacific (APAC) corporate boards have been targets of reform.Prosecutions of major companies, under-funded pension funds and the emerginginfluence of global shareholders served as catalysts for amendments to the JapaneseCommercial Code in 2001 and 2002. Poor performance by prominent Australianorganizations led to the development of the Hilmer Report and, in addition, theAustralian Stock Exchange recently introduced a new set of Governance Principles.

These defining global events made, and continue to impact, the ever changing world of corporate governance. Findings in this 30th anniversary issue of our AnnualBoard of Directors Study show that many practices now common to boards wereconsidered the antithesis of acceptable or necessary governance just a decade ago.

Refusing to be prisoners of “It just isn’t done” conventionalism, corporate directorshave dealt with the most difficult issue facing boards: establishing an appropriaterelationship with management while maintaining independence and representingshareholders’ best interests. Knowing that the future of governance hinged onachieving a productive balance between the chief executive and the board, directorsset a course to establish and maintain independence.

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Charles H. KingBoard Services PracticeGlobal

Didier Vuchot Board Services Practice Europe

Sakie FukushimaBoard Services Practice Asia Pacific

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Today, outside directors comprise the majority of most corporate boards throughoutthe world. Nominating committees are standard for the majority of boards in theAmericas and Europe. Many do not include the chief executive as a member. Thelead director concept is being formalized rapidly by boards in the Americas and inthe United Kingdom.

Increasing numbers of boards conduct CEO performance reviews. In the Americas, 82percent of boards have a formal process to do so. Equally revolutionary is the conceptthat boards themselves should improve – and work at it continuously. A formal committee dealing with the specific subject of corporate governance is standard forboards in Germany and the Americas. The majority of boards worldwide have writtenguidelines concerning corporate governance.

Active participation of all board members has become the minimal accepted standard,a departure from the past. Boards are asking directors to resign with unprecedentedfrequency, most often citing poor performance or a lack of participation as the main reasons.

Despite these improvements, shareholders seem more dissatisfied with boards’execution of duties than ever before. A series of record-breaking corporate scandalsbegged the question: Where was the board? The immediate shareholder responsedemanded more government involvement via regulation and legislation. Sarbanes-Oxley, the Higgs and Smith Reports, the Bouton Report, and the German CorporateGovernance Kodex were devised. The majority of FORTUNE 1000 boards have beenquick to comply with standards for director independence and financial expertise.

The intended outcome of these regulations is improved corporate governance:boards comprised of qualified, independent directors who possess specific expertiseand experience relevant to making substantive contributions. But to meet boardconstituencies’ expectations of infallibility, these statutes would have to legislate thedetermining factor in good governance: integrity.

Integrity is the real catalyst for the changes of the past 15 to 20 years. Individuals withintegrity have recruited others with the same attribute, building boards of independentoutsiders. Their dedication to act in the interests of shareholders is evident.

Directors with integrity have created the reality of good governance. They will continueto explore methods to strengthen and improve their contributions, making the currentpicture of governance as foreign to future generations as that of the one of 1973 is to us today.

Charles H. King Didier Vuchot Sakie FukushimaBoard Services Practice Board Services Practice Board Services Practice Global Europe Asia Pacific

30th MethodologyTo mirror the globalization of governance, the Korn/Ferry 30th Annual Board ofDirectors Study expanded the scope of this special anniversary survey to examineboard practices and opinions of directors of major corporations throughout theworld. Board members in the Americas, Asia Pacific and Europe were invited to participate in this landmark study.

Interest and enthusiasm is evident: 1,362 directors from 15 nations completed andreturned the questionnaire. CEOs accounted for 32 percent of the respondents;presidents, 17 percent; and board chairmen, 32 percent.

Our first section reviews findings on a global level; regional results are then presented in distinct sections. The Americas encompasses Brazil, Canada, Colombia,Mexico and the United States. The European section is based on responses fromboard members of companies headquartered in France, Germany and the UnitedKingdom. Asia Pacific includes Australia, Hong Kong/China, Japan, Malaysia,New Zealand, Singapore and Thailand.

As with each of our Board of Director studies, selected issues pertinent to boards areexamined. This year, corporate governance and regulation are the focus.

Data reported in proxies of FORTUNE 1000 organizations is the basis for our ProxyInformation section. This data tracks changes in board practices of the largest publicorganizations headquartered in North America. Where appropriate, comparisonswith information gathered during the past 30 years are made.

In AppreciationThe Korn/Ferry Board of Directors Study is the most comprehensive, longest runningsurvey of its kind in the world. The company is most grateful to those directors whohave participated in these studies during the past 30 years. The information suppliedhas given the business community a valuable tool in evolving governance.

This year, Korn/Ferry is indebted to those directors who elected to be part of a new tradition in presenting a global look at governance. This data will broadenunderstanding of board practices globally and increase awareness of trends andissues common worldwide.

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Executive Summary: Highlights of Global FindingsA significant factor in the evolution of governance worldwide is the globalization ofinvestment. Specific expectations of foreign shareholders and their comprehension of other business cultures have created greater awareness of board practices aroundthe world. Areas distinguishing governance in specific countries, such as structure,composition, the role of investors and traditional business practices, have been subjectto question. The actions of directors worldwide indicate an openness to evaluateand, in some cases, embrace changes initiated in other regions.

While culture and tradition create distinct business and governance practices, directorseverywhere share common challenges, according to survey respondents. The followinghighlights showcase major changes in governance and common issues confrontingdirectors, regardless of the location of the boardroom.

Executive Sessions

An astounding 87 percent of the Americas company respondents state that their boardholds regular executive sessions without the CEO present during meetings, comparedto 41 percent in 2002. In Europe, only 7 percent of respondents of German boards, 7percent of French boards and 15 percent of United Kingdom boards hold executivesessions. For Asia Pacific, 4 percent of Japanese, 66 percent of Australian and NewZealand and 32 percent of Non-Japan Asian boards follow this practice.

Companies that hold Executive Sessions

Americas 87%Australia/New Zealand 66%Non-Japan Asia 32%United Kingdom 15%France 7%Germany 7%Japan 4%

Lead Director

The percentage of Americas respondents reporting a lead director almost doubledsince 2002, from 32 percent to 62 percent in 2003. Lead directors are in the majority(52 percent) of United Kingdom company boardrooms.

30th CEO Evaluation

Four of five (82 percent) boards in the Americas have a formal process to evaluatethe CEO, compared with 67 percent in 2002. Over half (53 percent) of UK companyboards report this.

Succession Planning

According to Survey results, the percentage of the Americas boards having amanagement succession committee or process has more than doubled in two years,from 33 percent in 2001 to 77 percent in 2003.

Compensation

Overall, cash compensation for the directors of FORTUNE 1000 companies rosefrom $40,964 in 2000 to $43,306 this year.

Average cash compensation for the directors of FORTUNE 1000 organizationsbetween $5 and $9.9 billion in revenue jumped 9.7 percent since last year, increasingfrom $42,264 to $46,348 this year.

Governance

Formal corporate governance committees are on the rise: 86 percent of the Americasboards have such a committee, compared with 62 percent in 2002. Nine of ten (91 percent) of German company boards do not have this committee.

Nine out of ten (88 percent) Americas boards have written guidelines concerning corporate governance, up from 71 percent in 2002. This is also common to AsiaPacific boards (69 percent) and those in the United Kingdom (84 percent).

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$0 $50,000

2000

2001

2002

Annual Cash Compensation

$40,964

$41,875

$43,306

7

30thAlmost all of the Americas respondents report meeting with the Sarbanes-Oxleyrequirements for director independence (98 percent) and financial expertise (97 percent). Two-thirds (63 percent) of those on French corporate boards say their board is in compliance with the Bouton Report for director independence.Nine of ten (87 percent) of boards in the United Kingdom meet the Higgs and Smith Reports guidelines for financial expertise and two-thirds (66 percent) fordirector independence.

Director Evaluations

The practice of individual director performance reviews is most prevalent in AsiaPacific, where 41 percent of respondents’ boards have such reviews. The percentageof the Americas boards conducting these increased from 21 percent last year to 29 percent in 2003.

As to whether directors should receive individual performance reviews, “Yes” is theanswer from 89 percent of Asia Pacific company respondents, 90 percent of UnitedKingdom organization directors, 75 percent of French company board members and79 percent of those serving on boards in the Americas.

Should individual directors receive performance reviews?

Two-thirds (65 percent) of the Americas respondents state a board member has beenasked to resign or not stand for re-election in the past year, up from 54 percent in2002. More than half (57 percent) of European company respondents and 37 percentof directors on Asia Pacific boards indicate this has occurred.

Companies That Have Asked a Board Member to Resign or Not Stand for Re-election (in the past 12 months.)

Americas 65%Europe 57%Asia Pacific 37%

0 20 40 60 80 100

France

UK

Americas

APAC

% Yes

79%

75%

90%

89%

30th Proxy InformationProxies collected for the 30th annual survey were reported by the FORTUNE 1000for FORTUNE year 2001 covering the period of July 1, 2001 through June 30, 2002.

Size of Board

Heightened expectations of performance, increasingly complex responsibilities and the ongoing growth of total shareholders have not resulted in enlarging boardmembership as a means to better execute the duties of corporate boards. However,while the number of members hasn’t increased, the requisite skill sets and requiredlevel of commitment have risen dramatically.

Proxy data suggests that boards have found 11 members to be the most effective size.Average board size, according to proxy data, is 11 members, unchanged since 1994,when the average board size was 12 members.

Thirty years ago, 57 percent of the boards analyzed in the first Korn/Ferry Board ofDirectors Study had 10 to 15 members, and 21 percent, more than 16 members.

Table A — Present Number of Board Members

Average Average Average AverageNumber Number Number Number

Size of Company Insiders Outsiders Members Board Mtgs.

Under $3 billion 2 7 10 7$3 billion - $4,999 billion 2 8 10 7$5 billion - $9,999 billion 2 10 12 8$10 billion - $19,999 billion 2 10 12 8$20 billion and over 2 10 12 8

continued on page 9

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Present Number of Board Members (continued from Table A)

Average Average Average AverageNumber Number Number Number

Type of Company Insiders Outsiders Members Board Mtgs.

Industrial 2 8 10 7Banks 3 12 15 8Other Financial Institutions 3 9 12 7Insurance Companies 2 10 12 6Consumer Products 3 9 11 7Retailers 3 7 10 7Advanced Technology 2 7 10 8Aerospace 2 9 11 9Energy 2 9 11 9Healthcare Providers 2 9 10 7Pharmaceuticals 2 10 12 7Entertainment / Hospitality 3 10 13 7Other Services 2 7 10 7Miscellaneous 3 8 11 7All Companies 2 9 11 7Average 2 9 11 7

Analysis of the 2002 proxy information shows the average board size to be 11 directors, 2insiders and 9 outsiders, which is the same as the 2001 proxy data. The average number ofmembers of boards of companies with revenues under $3 billion rose by one. The averagenumber of boards of companies with revenues over $20 billion went down by one. AverageNumber of Members may not add up to the total number of Average Number of Insidersplus Average Number of Outsiders due to fractional amounts not illustrated in this table.

Inside Directors vs. Outside Directors

Perhaps nothing has been a greater influence on the ratio of inside and outsidedirectors on corporate boards than the increased focus upon achieving balance inthe boardroom: creating a positive working relationship with management whilemaintaining independence of thought and action to provide the best possible guidance and counsel.

Proxy data from 2002 shows corporate boards typically are comprised of nineoutside directors and two inside directors, the same ratio found every year since 1995.

In 1972, 74 percent of the boards having 10 to 15 members reported that 4 or moreof their members were insiders. Of the boards having 6 to 9 members, 55 percenthad 4 to 6 inside directors.

30th Board Composition and Demographics

Proxy data supports the premise that investors have not been content to merelyexpress concern about governance; rather, they have taken an extraordinarily active role, resulting in a quantum increase in the number of boards with investorrepresentation. Analysis of 2002 proxy data reveals 89 percent of boards have aninvestor as a director. In 1992, only 28 percent had a major stockholder on the board.

The unique combination of experience, time availability and desire to contribute to a growing, vital organization is one explanation for the increase in the number ofboards having a retired executive from another company as a member. Additionally,we are seeing a trend of active CEOs, who historically sat on several outside boards,are taking on fewer outside commitments, and the presence of retired audit partners,as a result of recent scandal and legislation, is becoming much more prevalent in theboardroom. In 2002, 94 percent of boards reported having this type of director, asignificant increase in frequency from 1992, when 68 percent of boards included aretired executive.

In step with much of society, there has been a drive toward diversity in the boardroomin 2002. Almost three-fourths of FORTUNE 1000 companies (71 percent) include anethnic minority among their membership and 79 percent have a female director.While percentage increases in recent years are small, significant inroads have beenmade in the past decade. In 1992, ethnic minorities held seats on 46 percent ofboards and women on 60 percent. In 1972, the membership of only 9 percent ofboards included an ethnic minority and only 11 percent had a woman.

Table B — Percent of Boards with One or More of the Following IndividualsProxy Data from 2002 2001 2000

Retired executive (other companies) 94% 93% 91%Investor 89% 91% 87%CEO/COO (other companies) 83% 82% 83%Woman 79% 78% 74%Former government official 59% 56% 52%Ethnic minority member 71% 68% 65%

African-American 44% 42% 41%Latino 17% 16% 14%Asian 10% 10% 11%

Academician 59% 59% 56%Commercial banker 31% 30% 28%Non-U.S. citizen 16% 15% 15%

Proxy information indicates a continued increase in women, African-American andLatino board members. The above categories are not mutually exclusive. An executive mayfall into more than one of the classifications.

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Committees

Outside directors’ dedication to active contribution, independence and continuouslyimproving governance is increasingly being formalized as a standing committee.A majority of boards (54 percent) now have a Corporate Governance (BoardOrganization) Committee, compared with 35 percent of boards reporting a committee dedicated to issues of governance in 1995.

As actual committee names vary greatly, we elected to track committee functionsinstead. While Audit Committees are synonymous with the audit function, othercommittees, such as the Compensation Committee may perform multiple functions.In 2002, a majority of FORTUNE 1000 companies reported that their board committees dealt with six standard functions — an increase over the five reported for the last decade: Audit (100 percent), Compensation (99 percent), Stock Options(86 percent), Nominating (75 percent), Executive (55 percent) and CorporateGovernance (54 percent).

Changes in governance may be best illustrated by the ongoing evolution of the different functions performed by board committees. In 1972, 72 percent of boardshad an Audit Committee and only 2.4 percent reported a Nominating Committee.Proxy data from 1992 revealed that 98.7 percent had an Audit Committee and 60percent had a Nominating Committee. No board had a committee dealing with stockoptions; however, the function of reviewing stock option programs is now routinelyaddressed by either the Compensation Committee or a special committee established for that specific function.

Table C — Evolution of Formal Committees

0102030405060708090

100110

1972 1992 2002 1972 1992 2002

AuditCommittee

NominatingCommittee

72%

98.7% 100%

2.4%

60%

75%

30th Table D — Percentage of Companies with:

Committee 2002 2001 2000 1999 1995

Audit 100% 100% 100% 100% 100%Compensation 99% 99% 99% 99% 99%Stock Options 86% 86% 87% 80% 56%Nominating 75% 72% 73% 74% 73%Executive 55% 56% 57% 60% 65%Corporate Governance 54% 48% 46% 44% 35%Finance 33% 35% 40% 41% 32%Succession Planning 30% 30% 32% 34% 31%Investment 18% 19% 21% 23% 21%Corporate Responsibility 20% 21% 22% 21% 19%Director Compensation 29% 30% 31% 31% n/a

The noteworthy point here is the rise in the number of companies with a committeededicated to questions of “Corporate Governance.” Variously titled, these are generallycommittees once described as “Nominating Committees” whose new responsibilitiesinclude corporate governance.

Committee Composition

Five of the six most prevalent committees are comprised entirely of outside directors.The exception is the Executive Committee, which typically has two inside directorsand three outside directors.

Table E — Committee Composition

Average Number Average Number Average NumberCommittee Inside Directors Outside Directors Directors

Audit 0 4 4Compensation 0 3 3Stock Options 0 3 3Nominating 0 3 4Executive 2 3 4Corporate Governance 0 4 4Finance 1 4 5Succession Planning 0 4 4Investment 1 4 5Corporate Responsibility 1 4 5Directors Compensation 0 4 4

Average Number of Directors may not add up to be total number of Average NumberInsiders and Average Number Outsiders due to fractional amounts not illustrated in this table.

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Committee Meeting Frequency

As with composition, committee meeting frequency remains unchanged, with oneexception. The Audit Committee meets in-person an average of five times, comparedwith four times reported since 1999. Further, the number of telephonic AuditCommittee meetings has also risen as of late; however, the proxy data available doesnot break out the number of these meetings.

Table F — Meeting FrequencyNumber of

Committee Meetings

Audit 5Compensation 4Stock Options 4Nominating 3Executive 4Corporate Governance 3Finance 4Succession Planning 4Investment 4Corporate Responsibility 3Director Compensation 4

Full Board Compensation

Fewer companies are awarding outside directors a per-meeting fee in addition to anannual retainer. Since 1995, the percentage of companies providing this type ofcompensation decreased from 84 percent to 70 percent in 2002. During the sametime period, the percent of companies paying an annual fee only increased from 14percent to 21 percent. Only 4 percent have embraced the practice of paying directorsin stock only although many boards afford their directors the option of beingcompensated entirely in equity.

Table G — Full Board Compensation

Percentage of companies paying: 2002 2001 2000 1999 1995

Annual plus per-meeting fee 70% 72% 75% 77% 84%Annual fee only 21% 20% 18% 17% 14%Per-Meeting fee only 5% 5% 4% 4% 2%No cash compensation (stock only) 4% 3% 3% 2% N/ATotal 100% 100% 100% 100% 100%

There continues to be a decrease in the number of companies that pay both per-meetingand board retainer fees. The trend is to pay a larger lump sum retainer.

30th Annual Retainer Plus Per-Meeting Fee

Outside directors receiving an annual retainer plus a per-meeting fee were awardedan average of $43,306 in 2002, representing a 3.4 percent increase over the $41,875paid in 2001. Outside directors of $20 billion+ companies saw an average increase of8.3 percent, bringing their average cash compensation to $61,307. Peers on boards of$5-$9.9 billion companies were given a 9.7 percent increase, receiving $46,348.

Table H — Annual Retainer Plus Per-Meeting Fee

Average CompensationSize 2002 2001 2000

Under $3 billion $34,336 $33,792 $33,687$3 billion - $4,999 billion $38,378 $37,567 $35,910$5 billion - $9,999 billion $46,348 $42,264 $41,202$10 billion - $19,999 billion $48,667 $47,589 $48,484$20 billion and over $61,307 $56,587 $51,774

Type of Company

Industrial $42,550 $40,467 $37,978Banks $40,934 $38,418 $38,415Other Financial Institutions $48,643 $45,138 $42,162Insurance Companies $43,788 $40,998 $37,317Consumer Products $45,709 $42,781 $39,476Retailers $34,206 $33,716 $32,299Advanced Technology $41,183 $40,744 $41,891Aerospace $56,818 $58,182 $54,042Energy $41,216 $40,664 $40,276Healthcare Providers $39,881 $38,741 $38,803Pharmaceuticals $47,750 $50,500 $50,785Entertainment / Hospitality $45,724 $40,309 $43,975Other Services $34,570 $33,716 $35,114Average $43,306 $41,875 $40,964

Average compensation denotes cash compensation only, not total compensation. While fees rose in all other categories, there was a slight decline this year in Aerospace andPharmaceuticals. Averages were calculated this year by Industry Group and based on this,averages for prior years have been revised slightly.

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Committee Compensation

Although the data reflected in this year’s proxies preceeds Sarbanes-Oxley, it representsa period in which corporate scandals had begun to impact the boardroom. Subsequently,proactive companies, seeing the writing on the wall, began to strengthen committeechairs and in turn, compensation began to rise. The per-meeting fees for committeemembers continued to increase marginally. The average amount paid in 2002 was$1,148, compared with $1,036 awarded in 1997.

Table I — Average Cash Retainer for Committee Chairs

2002 2001 2000Audit Chair Retainer $5,779 5,331 4,987Compensation Chair Retainer $5,500 5,055 4,946Governance Chair Retainer $5,136 5,200 4,902

Table J — Average Cash Compensation by Type of Committee*All Companies

Chair Chair Member MemberCommittee Function/Name Retainer Meeting Fee Retainer Meeting Fee

Audit $5,779 1,256 5,102 1,170Compensation $5,500 1,250 4,820 1,165Corporate Governance (Board Organization) $5,136 1,334 4,815 1,238Corporate Responsibility $5,614 1,395 4,513 1,315Directors Compensation $4,947 1,244 4,810 1,169Executive $6,516 1,248 7,899 1,163Finance $6,172 1,344 5,350 1,247Investment $5,577 1,278 5,441 1,172Nominating $4,978 1,298 4,496 1,203Stock Options $5,576 1,244 4,819 1,162Succession Planning $5,264 1,328 5,400 1,258

* This data was not used in last year’s Board Study.

30th Table K — Average Committee Fees by Size and Type of Company

Committee Committee CommitteeMember Chair Chair

Size Meeting Fee Meeting Fee Retainer

Under $3 billion $1,155 $1,243 $4,635$3 billion - $4,999 billion $1,097 $1,181 $4,250$5 billion - $9,999 billion $1,246 $1,334 $5,199$10 billion - $19,999 billion $1,238 $1,325 $8,131$20 billion and over $1,238 $1,301 $7,551

Type of Company

Industrial $1,256 $1,368 $4,992Banks $1,189 $1,233 $5,261Other Financial Institutions $1,388 $1,500 $9,862Insurance Companies $1,109 $1,118 $6,080Consumer Products $1,105 $1,235 $5,100Retailers $1,031 $1,096 $4,718Advanced Technology $1,290 $1,338 $9,151Aerospace $1,095 $1,257 $5,403Energy $1,186 $1,276 $4,872Healthcare Providers $1,204 $1,329 $6,427Pharmaceuticals $1,285 $1,422 $10,168Entertainment / Hospitality $1,100 $1,294 $7,417Other Services $1,105 $1,131 $4,287Miscellaneous $1,073 $1,245 $3,583All Companies 2003 $1,173 $1,274 $6,237All Companies 2002 $1,148 $1,231 $5,554

Stock as Director Compensation

Of the 906 companies examined, 784 include stock options and grants as part of thecompensation awarded to outside directors. Proxy data shows that 47 percent of thecompanies award stock options, 28 percent provide restricted grants, and 12 percent,stock grants. Thirteen percent of companies include a combination of options andgrants in director compensation.

In 1972, 4 percent of the companies examined provided some type of stock programas part of director compensation. Only 6.9 percent of participants thought directorsshould be compensated with stock options.

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Table L — Stock Options & Grants Summary(Of companies that give directors some form of stock compensation)

More companies awarded a mixture of stock options and grants this year rather thanusing stock options as the only form of stock compensation. There was a decline inthe total number of companies paying stock compensation, perhaps due to thedecline in stock value, and the change in the way that companies must now expensestock options.

Profile of Proxy Companies

Table M — Participating CompaniesNumber of Percent of

Size Companies Companies

Under $3 billion 441 49%$3 billion - $4,999 billion 149 16%$5 billion - $9,999 billion 141 16%$10 billion - $19,999 billion 86 9%$20 billion and over 89 10%Total 906 100%

continued on page 18

StockGrantsOnly Stock

OptionsOnly

Options& Grants

RestrictedGrants

47%

12%

13% 28%

30th Participating Companies (continued from Table M)

Number of Percent of Type of Company* Companies Companies

Advanced Technology 125 14%Aerospace 11 2%Banks 47 5%Consumer Products 60 7%Energy 109 12%Entertainment / Hospitality 16 2%Healthcare Providers 33 4%Industrial 202 22%Insurance Companies 39 4%Miscellaneous 13 1%Other Financial Institutions 23 2%Other Services 62 7%Pharmaceuticals 13 1%Retailers 153 17%Total 906 100%

The biggest changes this year are in the increase in the number of Advanced Technologycompanies from 105 last year to 125 this year; the increase in the number of OtherServices companies which includes Advertising, Transportation, Freight and MailDelivery, Security Systems, Waste Management and Diversified Outsourcing companiesfrom 44 last year to 62 this year; and the decline in the number of Industrial companiesfrom 244 last year to 202 this year.

There are 9 more Energy companies included this year than last, 8 more Insurance companies, 2 more Pharmaceutical companies and one more each in the ConsumerProducts and Miscellaneous categories. There are 6 fewer Healthcare Provider companies, 4 fewer Other Financial Institutions and one less each in the Bank andEntertainment/Hospitality categories of companies.* Manually calculated.

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Board Practices In The Americas —Survey ResponsesA tumultuous business environment and new regulations have strengthened theresolve of directors to provide outstanding counsel. While responding quickly toSarbanes-Oxley and concerns of constituencies, survey respondents indicate theirboards maintained a steady focus on increasing their independence from managementwhile providing guidance of the highest caliber. Continuously improving boardoperations, embracing board and individual director evaluations and intolerance ofpoor performance of peers are becoming the norm for these boards, establishingemerging trends as standard practices.

Board Composition What is your current board size? (Inside and Outside Directors)

Responses from survey participants underscore the importance placed on compositionin attaining greater independence and improving effectiveness. Typically, respondents’boards average 12 members, eight outside directors and four inside directors. Whilerespondents believe 12 is the optimal size for a board, they state the representationshould be shifted to nine outside and three inside directors. Survey results differfrom proxy data that indicates 11 is the average board size for the period from July 1, 2001 to June 30, 2002.

Does your former CEO sit on the board?

0 2 4 6 8 10

Outside

Inside 4

8

0 2 4 6 8 10

Outside

Inside 3

9

Optimal Board SizeCurrent Board Size

No77%

Yes23%

2003

No72%

Yes28%

2002

Robert H. BohannonChairman, President & CEOViad Corp

“I am in my seventh year aschairman of Viad, and I am theonly insider on the ten-memberBoard.

Our Board is quite independent.I have never nominated a candidate for Board membershipbecause our Board believes thata CEO should concur with anomination but not initiate it.During the past year, a leaddirector was nominated to function as Chairman of theBoard’s Executive Sessions. TheseExecutive Sessions are heldwithout the CEO in attendance.The lead directorship rotates to adifferent member of the Boardevery year.

If I had ever asked the directorsto suspend Viad’s conflict ofinterest rules, such as that whichhappened at Enron, they wouldhave fired me on the spot.

I think it’s very important for thedirectors as well as the officersand other executives to have a

30th

20


Having the former CEO remain an active member of the board is a tradition withwaning support. More than three-fourths (77 percent) of the respondents report thatthe company’s former CEO is not a board member. Additionally, four of five (80percent) believe this individual should not serve as a director.

Board/CEO BalanceIf your chairman is also the CEO, do you have an elected or

appointed lead director among the outside directors who will preside at executive sessions and evaluate the CEO?

The lead director concept, until recently met with conservative acceptance, is rapidlybecome a valued, standard practice. The percentage of respondents stating theirboards have an appointed or elected director filling this role almost doubled in oneyear, rising from 32 percent in 2002 to 62 percent in 2003.

Should a board that has an inside director as chairman elect or appoint an outside director as the lead director?

Director support for the practice increased substantially during the same period. Lastyear, 55 percent thought a board chaired by an inside director should have an electedor appointed lead director. This year, 72 percent advocate the practice.

No38%

Yes62%

No28%

Yes72%

30th

21


personal stake in the company’sfortune. Our Board adoptedstock ownership guidelines forthe officers and directors.Directors have to own stockequivalent to five times theirannual board fee. Officers whomake $125,000 or greater mustown Viad stock equivalent to 1 to 5 times their annual basesalary, depending upon theirsalary level. Directors and officers are granted stockoptions, but are expected to hold on to the options for theduration of their terms.

If I had been told two or threeyears ago that companies in theFORTUNE 100 had been guiltyof the type of wrongdoing wehave seen since that time, Iwould have been extremelyshocked. But greed has been a‘constant’ throughout history.

It is very difficult for even themost conscientious directors todetect fraud in extremelycomplex accountingarrangements.

What will have as great animpact as directors’ dedicationto keeping CEOs honest will bethat wrongdoers will likely servereal jail time.”

Does the board typically hold regular executive sessions without the CEO present?

Directors’ seriousness concerning independence is unmistakable: an astounding 87percent of respondents serve on boards that hold regular executive sessions withoutthe CEO present. This more than doubled since last year, when 41 percent of therespondents said their boards embraced this practice.

Such action seems uncommon to European directors. Only 14 percent say theirboards regularly meet in executive session without the chief executive.

Is there a limit to the number of other boards on which the CEO may serve as an outside director?

The percentage of boards limiting the CEO’s freedom to accept invitations for outsideboard service has risen dramatically, from 23 percent in 2001 to 39 percent this year.Boards with formalized limitations specify the number of outside seats as two or three.

Instituting this practice has tremendous support from respondents. The vast majority(84 percent) believe there should be such limits and state the CEO should be allowedto serve on only one or two external boards.

Yes39%

No61%

2003

Yes23%

No77%

2001

No 86%

Yes 14%

EuropeAmericas

Yes 87%

No 13%

Jon BosciaChairman & CEOLincoln National Corporation United States

“Lincoln National has only oneinside director, myself, and thereare eleven outsiders. I serve asthe chairman, but we also have a lead director who sets theagenda for board meetings alongwith me.

At each meeting of the board,there is an executive session atwhich I am asked to leave theroom, and the lead director takesover. That meeting absolutelyassures that every question on adirector’s mind is addressed.

I don’t think that there should beterm limits on board members,but I do think that there shouldbe term limits on chairmanships.At Lincoln National a committeechairman can serve only twoterms of three years.

30th Evaluations of CEO Performance, CompensationDoes the board have a formal process for evaluating CEO performance?

Four of five (82 percent) respondents say their boards have instituted a formalprocess to evaluate CEO performance. Last year, 67 percent reported this practice.Financial performance and thought leadership are the two major criteria used inassessing the effectiveness of the chief executive.

How effective do you feel your company’s CEO compensation program is?

Four of five (81 percent) respondents state the compensation program awarded tothe CEO is “very effective” or “effective.” The percentage holding this opinion is virtually unchanged in the past five years.

22


Yes82%

No18%

2003 2002

Yes67%

No33%

0 10 20 30 40 50 60

1998

2002

2003

Ineffective

Fairly Effective,but needs

some change

Effective

Very Effective

33%26%

33%

48%55%

50%

19%

17%15%

1%2%

1%

Not all committees are createdequal. The audit committee does have a higher calling,and it is important for the audit committee to operateindependently of the CEO. I donot routinely attend meetings of the audit committee. I haveserved on other boards and haveseen that when a director asks aquestion of the CFO or thegeneral counsel, the eyes of theCFO or the general counsel dartto the CEO. So the director hasto wonder whether he is gettingall the information he wants,or whether the interviewee isbeing inhibited by the presenceof the CEO. I stay away fromthose sessions, even though Iknow that most CEOs wouldrather have root canal withoutNovocain than be left out in that way.”

30th

23


Management SuccessionDoes the board have a management succession committee or process?

Stories of the effects of poor management, entrenched CEOs reticent to relinquishthe reins and virtually nonexistent internal pipelines reinforce directors’ resolve toformalize management succession. Since 2001, the percentage of boards reporting amanagement succession committee or process more than doubled, from 33 percentto 77 percent in 2003.

Outside directors continue to exert greater influence in choosing a successor. Thisyear, respondents believe the ratio of influence between the board and CEO in thedecision process is 76 to 24. Last year the ratio was 65 to 35.

Board Meetings and PreparationOn average, how often does your full board meet?

More than half (53 percent) of the Americas respondents indicate their full boardsconvene monthly or quarterly, compared with 71 percent of European boards.However, 6 percent of European boards cite meeting less than four times a year whileonly 1 percent of boards in the Americas do so.

2003

Yes77%

No23%

2001

No67%

Yes33%

2002

No36%

Yes64%

Americas Europe

Other23% Less Than

Quarterly6%

Monthly34%

Quarterly37%

Other46%

Less ThanQuarterly

1%

Monthly 9%

Quarterly44%

Samir GibaraRetired Chairman and CEOThe Goodyear Tire & Rubber CompanyUnited States

“One of the most importantchanges at Goodyear over thepast ten years has been thereduction in the size of theboard, down from as many as 18 directors to no more than 12,only one or two of whom areinsiders. A smaller board is moreeffective, because each memberfeels essential. On a board oftwenty an individual directorcan let somebody else volunteerfor an assignment or head acommittee. When there are only a dozen everyone mustcontribute. Because more thanhalf of Goodyear’s revenuescome from sales outside the U.S.,the board thinks globally. Sevenor eight of the directors have hadsignificant internationalexperience.

Recently, the board elected a leaddirector who helps thechairman, who is also CEO,

30th How many hours per month do you spend on board matters for this company, including review and preparation time, meeting attendance and travel?

Time required to execute fiduciary responsibilities continues to escalate. Since 2001,the average number of hours spent on board matters has increased 46 percent, from13 hours a month to 19 reported this year.

RiskHave you ever turned down a board

position because you felt your risk was too great?

Record-breaking bankruptcies, financial improprieties and less than forthcomingsenior executives have heightened awareness of the risks of board service. Almostone-fourth (23 percent) of the respondents have declined a board invitation in thepast 12 months compared with 13 percent who did so in 2002.

24


0 10 20

2003

2002

2001

Average Number of Hours

15

13

19

No49%

2002

Yes, in the past 12 months13%

Yes, but not in thepast 12 months

38%

No50%

2003

Yes, in the past12 months

23%

Yes, but not in the past 12 months

27%

organize the board agenda.Goodyear introduced a system offormal appraisals in which theboard evaluates its performanceoverall, but not of individualdirectors. Every board meeting isfollowed by an executive sessionfrom which the chairman isexcused and at which the other directors can speak freelyabout anything, including thechairman if they like. Thechairman meets at least once a year with each directorindividually.

I retired in July of this year.Looking back on my career, Iwouldn’t feel good about myselfif I didn’t express outrage at thebehavior at Enron and someother companies. But I stillbelieve that miscreants are avery small minority of corporateleaders. Can an astute boarddetect a miscreant? I don’tbelieve that a board exists primarily to oversee the CEO’sethics. It is there primarily tosupport and oversee the CEO’sstrategy and the company’sfinancial performance.”

30th

25


Pension Plans and Stock OwnershipDoes your company have a director’s pension or retirement plan?

Retirement and pension plans for directors of boards in the Americas appear to be anon-issue. Only 6 percent of respondents indicate they receive such benefits. However,the majority (52 percent) of directors of European boards indicate their compensationpackage includes a retirement or pension plan.

Is there a requirement that directors own shares of company stock?

More organizations stipulate that directors invest in the company. This year,57 percent of the respondents state they are required to own stock, a slight increasefrom the 51 percent in 2002.

However, support for stock as part of the director compensation package is ebbing.This year, 54 percent of respondents think the majority of director compensationshould be in stock compared with 58 percent in 2002 and 66 percent in 2001.

No, neverhad one

66%

No,canceled

28%

No, neverhad one

44%

Yes52%

Americas Europe

Yes6%

No, canceled4%

No43%

Yes57%

2003

No49%

Yes51%

2002

Frank E. Weise, IIIChairman & CEOCott Corporation Canada

“At Cott we have had in placefor several years, well before theEnron scandal, some practicesthat help assure that the boardperforms its job well and maintains an independencefrom management. Directors gettogether at every board meetingfor a time without managementand they do the same with theoutside auditors. Our formerchairman is the lead director,and it is he who interviews andscreens candidates for the board.

The lead director also overseesthe process of board assessmentin which we review overall performance and that ofindividuals. If an individualdirector is not meetingexpectations, has missed severalboard meetings, for example, orhas not read the extensivematerial we send out beforemeeting and is thereforeunprepared, we let that directorknow about it.

30th Corporate GovernanceDoes your board have a formal committee that

reviews corporate governance processes and board operations?

The manifestation of directors’ desire to continuously improve effectiveness is a formal committee devoted to corporate governance processes and board operations.Last year, 62 percent of boards had such a committee. This year, the figure jumped to86 percent.

Does the board have written guidelines on corporate governance?

Commitment to better corporate governance continues to fuel development ofdocumented policies. Approximately nine of ten (88 percent) respondents say theirboards have written guidelines about corporate governance. In 2002, 71 percent did.

26


2002

Yes62%

No38%

2003

Yes86%

No14%

2002

Yes71%

No29%

2003

Yes88%

No12%

30th

27


Clearly, being a board member is very demanding these days,and it is increasingly difficult for companies to find directors.As a company headquartered in Canada, we had an especiallydifficult search, becauseCanadian law used to requirethat a majority of board members be Canadian.Fortunately, the law was changeda year ago.

As for myself, I have turneddown all invitations to be on the boards of otherpublic companies. Acceptingthem at this time, while I am afull-time CEO, is not worth thetime demanded and the risk oflitigation growing out of theSarbanes-Oxley legislation. Ihave talked to CEOs at severallarge companies who now serve on the boards of othercompanies. They say that oncetheir stint is up, that’s it. Theywon’t go on anyone else’s board.”

How important are each of the following factors in determining “good governance”?

Factors enabling directors to achieve a constructive balance with management arecited by a majority of respondents as most important to good governance: a boardcomprised mainly of outside directors, a formal review of the CEO, establishing aformal management succession process and holding regular executive sessions without the CEO.

Board and Director Performance Evaluations

Regular formal evaluations of the full board’s performance are conducted by 65 percentof respondents’ boards, a major increase from the 37 percent reported last year. Only30 percent of European boards undertake this process.

A majority (55 percent) of European directors undergoing evaluation describe theprocess as “effective” or “very effective.” Only 45 percent of their counterparts in theAmericas hold this opinion.

Does your board evaluate individual directors on a regular basis?

% of very important

The board or a committee conducts a formal

CEO performance review61.1%

The board holds regular executive sessions without the CEO

56.8%

A board committee develops and reviews governance guidelines

48.3%

0 10 20 30 40 50 60 70 80

The board is made up of a majorityof independent outside directors 73.5%

A formal management succession process is in place 58%

No71%

Yes29%

30th The percentage of boards tackling the sensitive issue of evaluating individual directorperformance continues to grow, increasing from 21 percent last year to 29 percent in2003. The top five factors used to assess individual performance are contribution,attendance, preparedness for meetings, committee participation and interaction with peers.

This emerging trend has strong support; 79 percent of the respondents think individual director performance should be evaluated regularly.

Has your company ever asked a director to resign or not stand for re-election?

Two-thirds (65 percent) of the respondents indicate a member of their board hadbeen asked to resign or not stand for re-election. In 2002, 54 percent reported this.

The graying of the boardroom, especially with many boards adding retired corporateexecutives, may account for this trend. More than one-fourth (27 percent) of therespondents say the board’s retirement age was the reason for the resignation.However, 23 percent point to poor performance as the catalyst.

Director RecruitmentDo you have a nominating committee?

28


2002

No46%

Yes54%

No35%

Yes65%

2003

No9%

Yes91%

No40% Yes

60%

Americas Europe

30th

29


During the past two decades, issues concerning composition, management succession,board quality and independence made having a nominating committee the norm forboards in the Americas. This year, 91 percent report the presence of such a committee.The practice is far less common in Europe, instituted by only 60 percent of boards.

How difficult has it been for your board to add directors with financial expertise?

Increased scrutiny of accounting practices coupled with the high demand foravailable, qualified directors has seriously affected boards’ abilities to recruitmembers with requisite financial expertise. Two years ago, 25 percent of respondentstermed it “somewhat difficult” or “very difficult” to add directors possessing thisspecialization. That percentage more than doubled in 2003 to 54 percent.

Sarbanes-OxleyDoes your board meet the requirements of Sarbanes-Oxley

with respect to Director Independence and Financial Expertise?

0 10 20 30 40 50 60 70 80

2002

2003

Not at all difficult

Somewhat difficult

Very difficult

15%

3%

39%

22%

46%

75%

Director Independence

Yes98%

No2%

Financial Expertise

Yes97%

No3%

30th Boards responded quickly to demands of new regulations set forth in Sarbanes-Oxley.The vast majority meet the requirements for director independence (98 percent) andfinancial expertise (97 percent). However, 8 percent of boards had to add or replace adirector in the past 12 months to meet the tests for independence and 15 percent didso to comply with the financial expertise rules.

Should audit committee chairs be paid more than chairs of other committees?

Increased oversight and stricter regulations for financial reporting translate to additionaltime commitment, requisite specialized expertise and greater responsibilities for thechair of the audit committee. In recognition of the contributions needed, 75 percentof the respondents believe the audit committee chair’s compensation should begreater than that of other committee chairs.

30


No25%

Yes75%

30th

31


Board Practices In Europe — Survey ResponsesDirectors of boards in France, Germany and the United Kingdom confront universallyshared challenges, yet their perspectives and opinions are products of distinct boardcultures and experiences. A two-tiered board structure is used by German publiccompanies (Aktiengesellschaft), consisting of a management board (Vorstand) and asupervisory board (Aufsichtsrat) that includes elected outside directors and laborrepresentatives. The vast majority of French public companies (Societes Anonymes)use a unitary structure comprised of company executives and outside directors. Someutilize a two-tier structure comprising a Directoire, the senior management boardand the Conseil de Surveillance, the supervisory board of outside directors. In theUnited Kingdom, Public Limited Companies use a unitary structure consisting ofsenior executives and outside, or non-executive, directors.

The following data illustrates the varied opinions of respondents from acrossEurope. In the UK, many of the FTSE 350 along with other large private companieswere surveyed. Respondents include directors from CAC 40-listed companies and abroad spectrum of other major French organizations. The German survey findingspresented in this section focus on those responses from members of Germansupervisory boards, illustrating both shared and divergent opinions of labor andstakeholder members.

Composition

Board size of European companies varies according to structure, company size andincorporation requirements. German supervisory boards average 16 directors.Boards of United Kingdom companies typically comprise five inside directors and fiveoutside members. Membership of boards in France usually consists of three insideand eight outside directors in accordance with statutory requirements.

*In Germany, 50 percent of outside directors are elected by domestic employees.

0 2 4 6 8 10 12 14 16 18

France

UK

Germany 16*

3

8

5

5

Non-Executive Directors

Executive Directors

Sir Peter L. BonfieldSenior Non-Executive DirectorAstraZeneca PLCUnited Kingdom

“A decade before there werescandals like Enron in the U.S., we had corporate ethicsissues in the U.K., such as thecollapse of Robert Maxwell’scommunications empire, whichhad been supported largely byfraud. So abuses of executivepower are familiar to us, notsimply problems of anotherplace. At AstraZeneca we haveestablished a system of checksand balances on the board thatis a model of how inside andoutside directors should relate to one another. Of the 13members of the board only theCEO and one other director are AstraZeneca executives. Therest of us are non-executives.We have a chairman, who is in charge of hiring the CEO and firing him if necessary. Ihave the title of Senior Non-Executive Director and have the responsibility of leading thenon-executives and addressingissues with the chairman shouldthat become necessary forsuccession planning.

30th Like boards in the Americas, the desire to diversify membership has influenced composition of UK boards. Four of five (84 percent) of UK board respondents indicate a woman serves as a director of their board. Asians are present in 14 percent of respondents’ boardrooms and Africans in 7 percent.

The issue of allowing a former CEO to retain a seat on the board seems less controversialin Europe than in the Americas. Almost two-thirds (65 percent) of respondingdirectors of German boards believe this executive could be elected to the supervisoryboard (Aufsichtsrat) after retirement from the board of managing directors. Thispractice is supported by half of the respondents of UK companies. However, 71percent of directors of French companies think a former chief executive should notcontinue to serve on the board, as do 80 percent of the Americas respondents.

Should the former CEO sit on the board?

Board/CEO BalanceDoes the board typically hold regular executive

sessions without the CEO present?

32


% Yes

20%

50%

65%

29%

0 10 20 30 40 50 60 70 80

UK

France

Germany

Americas

UK

No85%

Yes15%

France

Yes7%

No93%

Germany

Yes7%

No93%

30th

33


The system works well in part because the separateresponsibilities of the CEO andchairman are carefully spelledout. It is clear that the CEO runs the company. Employeesknow that he is the top of themanagement tree. Also, he is the one who talks to securitiesanalysts and gets quoted in thenewspapers. For this system towork it is essential that thechairman, most likely a retiredCEO, accepts his transition from the role of leader to one of oversight. Until a year ago,I was CEO of BT, and I canunderstand and empathize withthe difficulty of that change.”

Boards of European companies rarely hold regular executive sessions without theCEO present, a stark contrast to the recent yet common practice of boards in theAmericas. Only 7 percent of German company directors, 7 percent of French companyrespondents and 15 percent of UK directors say their members convene regularlywithout the chief executive.

Should the board typically hold regular executive sessions without the CEO present during board meetings?

Four of five (79 percent) French company directors are opposed to holding regularexecutive sessions without the chief executive as are 58 percent of respondents of UKorganizations. However, the vast majority (93 percent) of directors of German companies believe the board should embrace the practice.

Board Meetings, PreparationHow many hours per month do you estimate that you spend on board matters for

this company, including review and preparation time, meeting attendance and travel?

Board service commands a major time commitment according to respondents. Theaverage number of hours devoted each month to board matters is 14 for directors ofGerman companies and 15 for members of French corporate boards. Directors ofUK company boards report investing the greatest amount of time, 25 hours monthly.

UK

No58%

Yes42%

France

Yes21%

No79%

Germany

No7%

Yes93%

0 10 20 30

Germany

France

UK

Average Number of Hours

14

15

25

George CoxDirector GeneralInstitute of DirectorsUnited Kingdom

“In the old days in the UK ifyou sat on a board as a non-executive director, you couldoften get away with little morethan offering a few sage-likewords of wisdom every now andthen. Not now. Although the UKhas had its share of corporatescandals, what is driving theincreased demands on non-executives is not a need forgreater probity, but pressures oncompany performance. Theworld has become so much moredynamic, unpredictable andcompetitive; if a company doesn’trespond to today’s environment,it is dead. Moreover, not only do boards have to deliver higherperformance, they have to do so under far greater scrutiny.It is, therefore, much moredemanding to serve on a boardthese days.

I work as Director General ofthe Institute of Directors, a century-old organization thathas several functions. It provides

30th Have you ever turned down a board position because you felt your risk was too great?

A majority (52 percent) of directors of French corporations have declined aninvitation to serve on a board, perceiving the risk as too great. Almost half (46percent) of their counterparts on UK company boards have done so. In Germany,directors were asked if they have stepped down from a board seat because ofpersonal risk, only 11 percent reported having done so.

CEO Compensation

In terms of how directors feel about the effectiveness of their organization’s CEOcompensation program, European opinion is consistent. In the UK, 71 percent ofdirectors feel that the CEO compensation program is either “Very Effective” or“Effective,” compared to 77 percent and 65 percent in France and Germany respectively.

How effective is your organization’s CEO compensation program?

34


0 10 20 30 40 50 60

France

UK 46%

52%

% Yes

0 10 20 30 40 50 60

Ineffective

Fairly Effective

Effective

Very Effective13%

16%11%

58%61%

54%

26%16%

28%

3%7%7%

Germany

France

UK

30th

35


support facilities, including the use of magnificent premises,for directors; it acts asspokesman to both the mediaand to government on issuesthat concern business; and theInstitute sets standards forboards of directors. In the lattercontext we have introducedChartered Director, the world’sfirst independently accredited qualification in boardroomcompetency: an award whichrequires directors go throughformal and rigorous training.

In the wake of recent scandalsU.S. government action to make boards behave better hasintroduced new rules withstrong emphasis on punishmentfor misdemeanour. In the UKthe stress is on wider adoption ofbest practice. The recent reviewsby Higgs and Smith extend theestablished code of best practice.Companies are not obliged toadhere to every item of the code,but if they deviate they have toexplain to shareholders why they have deviated.”

Director Compensation, Stock OwnershipIs there a requirement that directors own shares of company stock?

The vast majority (87 percent) of respondents serving on French corporate boardsindicate director ownership of stock is mandatory. In contrast, only a little over one-third (37 percent) of UK company respondents report this requirement.

Management SuccessionDoes the board have a management succession committee or process?

Two-thirds (67 percent) of UK company respondents state their board has amanagement succession committee or process. Less than half (40 percent) ofGerman corporate boards do. Only one-fourth (26 percent) of French organizationboards approach management succession this way.

0 10 20 30 40 50 60 70 80 90 100

France

UK 37%

87%

% Yes

0 10 20 30 40 50 60 70

Germany

France

UK 67%

26%

% Yes

40%

Daniel LebegueChairmanFrench Institute of DirectorsFrance

“When I was first a director of aFrench company 20 years ago wemet an average of three or fourtimes a year, and the meetingswould only last for a couple ofhours. All of the directors, exceptone or two, were executives ofthe company, and there was noaudit committee. But in the pastfew years boards have changeddramatically and for the better,driven by market forces thatdemand a much higherperformance from directors.

Today, I serve on the boards of five French companies. As is typical in many Frenchcompanies these days, one-thirdto one-half of the directors areindependent. They are expectedto bring expertise to the board,such as knowledge in legal,financial, insurance matters oreven experience particular to the company’s industry.

Companies that are listed on theEuronext stock market hold sixto eight board meetings a year,

30th Corporate GovernanceDoes your board have a formal committee that reviews corporate

governance processes and board operations?


Nine of ten (91 percent) directors serving on German company boards do not have aformal committee dedicated to corporate governance and board practices.

Though only 41 percent of the UK company directors indicate formalization of agovernance committee, 84 percent state their companies have written guidelinesconcerning corporate governance. Similarly, only 15 percent of the directors ofFrench companies say such a committee exists, while 36 percent reportdocumentation has been created.

The vast majority of respondents serving on UK and French corporate boardsbelieve these guidelines are helpful, 91 percent and 75 percent respectively.

36


0 10 20 30 40 50

Germany

France

UK 41%

15%

% Yes

9%

0 10 20 30 40 50 60 70 80 90 100

Germany

France

UK 84%

% Yes

36%

9%

30th

37


lasting three or four hours.Members of audit committeesget together for an additionalthree or four hours half a dozentimes a year. Boards are playinga much greater role in analyzingrisk for the corporation and inadvising on acquisitions, sales of business units and mergers.One area in which boards havebeen reluctant to get involved is in establishing salaries,bonuses, stock options and othercompensation for executives. Ihope that will change and thatboards will assume thatfunction.

I have helped create in Francean Institute of Directors, basedon the British model, which willgive directors a place to meetand exchange ideas on bestpractices and will also serve as a resource for everything fromlegal expertise to directors’insurance. Over the next year we hope to offer training for2,000 to 3,000 directors.”

Director Evaluation

When asked if European boards evaluate individual directors on a regular basis,results varied greatly. Germany reported that just 1 percent of supervisory boardsregularly evaluate individual directors, France reported 23 percent and in the UK, 52percent of boards regularly evaluate individual directors.

Are individual directors regularly evaluated?

Should individual directors be evaluated regularly as to their performance?

Though regular performance evaluation of individual directors is not widespread,the practice is gaining support from directors around the globe. Nine of ten (90percent) UK board respondents believe individual directors should receive regularperformance evaluations. Three-quarters (75 percent) of French company directorshold this opinion. The idea is not embraced by a majority of counterparts onGerman boards: only 49 percent saw value in conducting such reviews.

UKFranceGermany

Yes1%

No99%

Yes23%

No77%

Yes52%

No48%

0 10 20 30 40 50 60 70 80 90 100

Germany

France

UK 90%

% Yes

75%

49%

Klaus-Peter MüllerChairman of the Board ofManaging DirectorsCommerzbank AGFrankfurt

“The composition of the supervisory board atCommerzbank AG has notchanged significantly over thelast few years. It consists of20 members (according to theGerman law) almost all of themGerman. Scandals such as Enronhave raised the members’awareness of the importance oftheir role in monitoring the performance of the executiveboard. That awareness and thegreater time required to carryout the responsibilities of thesupervisory board has made itmore difficult to find suitabledirectors. But I think the boardcould perhaps actually workmore efficiently if it were scaleddown in size. Also, employeeinterests should be representedsolely by employees of the company and not by external

30th How important are each of the following factors in determining “good governance”?

For respondents serving on French corporate boards, continually improvingperformance is critical to good governance. Having the board support additionaleducation for directors, conducting a CEO performance review and having fullboard and individual director evaluations are the top three factors in goodgovernance.

Counterparts on UK company boards identified achieving greater independence andbetter balance with management as their highest priorities. Having an outside directorserve as chairman, a formal succession process and a lead director if an insider servesas board chair are the greatest influences in determining good governance.

Established processes that provide the basis for uninterrupted leadership are vital to good governance, according to directors of German company boards. Theserespondents cite having a mandatory retirement age, a formal managementsuccession process and support for continuing director education as factors exertingthe greatest influence on the quality of governance.

Foreign Nationals

The presence of international directors living abroad currently holding board seats isfairly consistent throughout European organizations. The UK and Germanyrespondents reported an average of 1 foreign national director on the board andFrench participants reported an average of 2 foreign directors on the board.

38


0 10 20 30 40 50 60 70 80

There is an elected leaddirector when an inside

chairman is present

A formal managementsuccession process

is in place

An outside directorserves as Chairman

of the Board68%

UK

59%

52%

Stakeholder Representatives

Labor Representatives

50 60 70

42%

0 10 20 30 40

The board endorses that directors receive additional education

A formal management succession process

is in place

There is a mandatory retirement age

Germany

54%58%

25%

48%46%

0 10 20 30 40 50 60 70

Both board and directorperformance is evaluated

The board or a committee conducts a formal CEO

performance review

The board endorsesthat directors receiveadditional education

France

51%

42%

36%

30th

39


trade unionists, as is the case atpresent. I support the GermanCorporate Governance Code,which is excellent. I do not thinkwe need any additionalregulations. In fact, I see apotential danger of over-regulation in the currentenvironment, that is, thereaction to the scandals.”

Questions Specific to the United Kingdom

Governance & the Higgs and Smith ReportsShould a code of corporate governance be supported by statute?

When it comes to legislating good governance, respondents on UK boards areresoundingly opposed: 83 percent do not believe a code of corporate governanceshould be supported by statute.

Does your board meet the requirements of the Higgs and Smith Reports with respect to director independence?

Having board members possessing outstanding financial expertise is a universal concern. According to UK company directors, where the Higgs and Smith Reportsrefer to the guidelines for financial expertise and standards for director independence,the vast majority (87 percent) of UK boards are in compliance with the requisiteguidelines for financial expertise and two-thirds (66 percent) meet the standards fordirector independence.

Twenty-four percent of respondents indicated that their board has or plans to add orreplace a director in order to meet the requirements for director independence and15 percent have had or are planning to replace directors to meet the requirements forfinancial expertise.

No83%

Yes17%

No34%

Yes66%

Claudio SonderChief Executive OfficerCelanese AGKronberg (Rhein-Main-Area)

“The relationship at CelaneseAG between the executive boardand the supervisory board isvery open and marked by truston both sides. The supervisoryboard is a diverse group thatincludes six employees and sixshareholder representatives,two of them German, twoAmerican, one Dutch and onean entrepreneur fromKuwait… We at Celanese havecertainly noticed that since the events at Enron andelsewhere investors are muchmore focused on finance andrisk management issues. Theyare also more concerned withmatters like pensions, liabilityrisks and regional exposure…Celanese is listed on both theFrankfurt and New York stockexchanges and because of newregulations in Germany and theU.S., the tasks of all committeeshave grown significantly. TheGerman Corporate GovernanceCode is as demanding as anycorporate code in the world, ormore so, and Celanese strictlyadheres to it.”

30th

40


Questions Specific to Germany

Director RecruitmentHow difficult has it been for your board to add directors with financial expertise?

Like peers in the Americas, members of German company boards are encounteringgreater challenges in recruiting directors with financial expertise. StakeholderRepresentatives and Labor Representatives share this view, with nearly half reportingthe endeavor as either “Very Difficult” or “Somewhat Difficult.”

Would the services of someone whose experience is not in the field of business add value to your board in the role of non-executive director?

Nearly forty percent of Stakeholder Representatives see wisdom in augmenting theboard’s expertise with individuals other than business people. Labor Representativemembers feel more strongly about this: 49 percent are in favor of recruiting non-executive members without career experience in business.

0 10 20 30 40 50 60 70 80 90

LaborRepresentatives

StakeholderRepresentatives 46%

% Very Difficult or Somewhat Difficult

46%

0 10 20 30 40 50 60 70 80 90 100

LaborRepresentatives

StakeholderRepresentatives

% Yes

39%

49%

30th

41


Should – as considered by the German Government at present – legal regulations be introduced to limit the compensation of members of the Executive Board?

Should shareholders of German companies be able to vote for the compensation of the members of the Executive Board at the annual shareholders meeting?

Respondents serving on German corporate boards take a dim view of external constituencies exerting influence on executive board compensation. Two-thirds (66percent) do not support legal regulations that would limit executive board membercompensation. Four of five (78 percent) do not believe executive board membercompensation should be subject to a shareholder vote at the annual meeting.

No66%

Yes34%

No78%

Yes22%

30th Is the German Corporate Governance Kodex as presentlyformulated too non-committal?

Directors of German corporate boards share their UK counterparts’ opinions ofgovernment involvement in governance. Two-thirds (67 percent) of respondingdirectors do not view the formulation of the German Corporate Governance Kodexas too non-committal.

Questions Specific to FranceDoes your board meet the requirements of

the Bouton Report with respect to director independence?

42


No37%

Yes63%

No67%

Yes33%

30th

43


Have you had to, or are you planning to, add or replace directors in order to meet the Bouton Report requirements for director independence?

Almost two-thirds (63 percent) of respondents of French corporate boards reporttheir membership meets the Bouton Report criteria defining director independence.Considering this, it is not surprising that 83 percent reveal that their board does notintend to recruit new members to meet compliance requirements.

What are the criteria that will guide your search for a Non-Executive Director?

Directors of French corporate boards indicate future recruitment will diversify opinion and composition. To perhaps counter a global “graying of the boardroom”trend and introduce new perspectives, 57 percent indicate age as a factor. Theirboards will target younger members. Female members will be sought by 44 percent.Limiting the number of outside board commitments of members is another avenuethat will be used to strengthen the quality of members’ contributions.

No83%

Yes17%

0 10 20 30 40 50 60

Limit the number ofother directorships

held by your members

Seek morewomen

Seek youngerdirectors 57%

Search Criteria

44%

41%

Nobuyuki IdeiChairman and Group CEOSony CorporationTokyo

“The scandals in the U.S., that of Enron and others, and thepossibility to adopt the system of ‘Company with Committees’upon revision of the JapaneseCommercial Code had promptedus to look again at the boardstructure at Sony and make somechanges, even though we wereunder no legal obligation to doso. We had already separated theroles of chief executive andchairman a few years ago. Butthe chairman nonetheless was a Sony executive. Now, to makea clear distinction between themanagement and supervision of the company, an outsidedirector, Mr. Iwao Nakatani has become chairman. Also, wehave appointed a highly-qualified financial expert, who isan outside director, to chair therecently-formed audit committee.

Improving and broadening theboard is not a new idea at Sony.It’s a process that has been goingon for the past 30 years. In the

30th Board Practices in Asia Pacific — Survey ResponsesGovernance in Asia Pacific perhaps best illustrates the influence of global businessand shareholders on boards ranging from major global forces to those comparativelynew to the international spotlight. Unlike corporations in other regions, many AsiaPacific companies are single-investor, closely-controlled or family-controlled interms of investment and management, especially in Non-Japan Asia. Directors inAsia Pacific face the challenge of developing corporate governance while building on the positive aspects of existing, time-tested practices and instituting measures tobroaden external focus.

Governance in Japan is undergoing major reforms with the recent amendments tothe Japanese Commercial Code dealing with management structure separatingmanagement and the board, director liability, statutory auditors, committee structureand creation of an Important Asset Committee. This Study represents the directionin which the corporate governance landscape is moving in Japan. Directors in Australiaand New Zealand are focusing on corporate financial performance, auditing andforeign investment. Peers serving on boards of companies in Non-Japan Asia areevaluating reforms identified by the Asian Roundtable of Corporate Governanceconcerning protection of minority shareholders, bank governance, enforcement andcorporate governance culture.

The following findings are broken-down and reported in three major areas to bettershow the changes underway in Asia Pacific. For purposes of this Study, Non-JapanAsia includes Hong Kong, Singapore, China, Malaysia and Thailand.

CompositionWhat is your current board size?

44


0 2 4 6 8 10 12

Non-Japan Asia

Australia/New Zealand

Japan

InsideDirectorsOutsideDirectors

12

2

3

6

4

5

30th

45


1970s we began to bring outsidedirectors onto the board andnow almost half of our directorsare non-executives. Five yearsago we added a compensationcommittee and a nominatingcommittee to the board.

One of the things the board ofdirectors should do is monitorwhether management followsdue process and uses due diligence in making materialdecisions, such as formulatingthe company’s strategy and in meeting the agreed goals and objectives. We at Sonybelieve that investors shouldinquire more on each company’scorporate governance system.”

Boards of Japanese companies average two outside and twelve inside directors. InAustralia and New Zealand, board membership usually consists of six outsidedirectors and three inside directors. Non-Japan Asia reported the smallest board size of our global Study with an average of nine total directors.

Does the former CEO sit on the board?(Asia Pacific (APAC) compared to Europe)

In APAC, 27 percent of respondents report that the former CEO sits on the board.This is similar to Europe, where 31 percent of respondents have former CEOs on the board.

Should the former CEO sit on the board?

Japan and Non-Japan Asia respondents reported similarly, where the majority (60percent) believes the former CEO should not be present on the board. Australia/NewZealand took an even greater aggressive stance on the matter with 92 percentreporting that the former CEO should not be on the board.

As a whole, when asked whether the company’s former chief executive should serveas an active board member, 72 percent of directors of Asia Pacific organizations, like80 percent of peers in the Americas, are opposed to the practice.

APAC

No73%

Yes27%

Europe

Yes 31%

No69%

Non-Japan AsiaAustralia/New ZealandJapan

No 60%

Yes8%

Yes 40%

No 60%

Yes 40%

No 92%

Vincent H.S. LoChairman & CEOShui On Holdings LimitedHong Kong

“In the mid 1980s, there wereseveral other members of myfamily on the board of Shui On,but today, there are none. Thatis deliberate. We actively seekoutside independent directorswith a strong track record andexperience who can contributeto the strategic development of the company and its businessand are willing to give their time.

I believe that the remunerationof outside independent directorsshould be tied to theperformance of the company toensure board effectiveness.

Today, of the ten directors on theboard of Shui On Constructionand Materials Limited, two areoutside independent directorswho also head the Audit andRemuneration committees.

30th Board/CEO Balance

Does the board typically hold regular executive sessions without the CEO present?

In Japan, the CEO is present at almost all board meetings. Only 4 percent of boardswill meet regularly without the CEO. The Americas are nearly the exact opposite,with 87 percent of boards holding such sessions.

When asked if these meetings should take place, a higher percentage (23 percent) ofJapanese respondents say “Yes” as do the majority (78 percent and 55 percentrespectively) of Australia/New Zealand and Non-Japan Asia responders.

Should the board hold regular sessions without the CEO?

*For Australia/New Zealand the terminology of these questions was slightly different. The questions canvassed whether or not, and should, the non-executive directors hold regular sessions without the executive directors. We have included these questions in this section due to the similarity of the subject matter, but point out that they are not identical to the Japan and Non-Japan Asia questions.

46


Non-Japan AsiaAustralia/New Zealand*Japan

No 96%

No 34%

No 68%

Yes4%

Yes 66%

Yes 32%

Non-Japan AsiaAustralia/New Zealand*Japan

No 77%

No 22%

No 45%

Yes 23%

Yes 78%

Yes 55%

30th

47


I also think that other reformsmight be advisable as well. Fornow, we have a formal appraisalof the executive directors on theboard, but it might be a goodidea to consider such appraisalfor independent directors in the near future.

I think that it would be wise toseparate the roles of chairmanand CEO. The chairman shouldbe responsible for defining theoverall direction and strategicdevelopment of the company,and the CEO for executing thatstrategy. I foresee myself evolvingslowly into a chairman roleentirely in three years’ time.”

Is there a limit to the number of other boards on which the CEOmay serve as an outside director?

This Study found that Japan is the least stringent with regard to the ability of CEOsto serve on other boards. The remainder of Non-Japan Asia is almost equally split,while Australia/New Zealand takes a more conservative position on the issue.

When asked whether or not there should be a limit to the number of other boardson which the CEO could serve as an outside director, over half (54 percent) ofJapanese responders stated that there should be limits. Meanwhile, 91 percent ofAustralia/New Zealand and 79 percent of Non-Japan Asia also expressed that thereshould be limits on the CEO.

Is there a limit to the number of other boards on which directors may serve as an outside director?

Significantly fewer companies place restrictions on the number of boards on which adirector may serve. However, when asked if there should be limits placed on directors,the level rises dramatically. Twenty-two percent in Japan believe there should belimits, 52 percent in Australia/New Zealand and 70 percent in Non-Japan Asia.


No 90%

No 29%

No 52%

Yes 10%

Yes 71%

Yes 48%


No 86%

No 33%

No 100%

Yes 14% Yes

67%

Tan Sri Nik MohamedGroup Chief ExecutiveSime Darby BerhadKuala Lumpur

“The authorities in Malaysiaintroduced a new code ofgovernance for companies herein the aftermath of the 1997/98Asian financial crisis. The code, drawing from what theybelieved to be the best practicesaround the world, spelled out in great detail the compositionand responsibilities of the board of directors. We at SimeDarby Berhad were already incompliance with most of theregulations, so for us it was justa matter of refining our practicesa little.

Of the 12 members of the boardonly myself and the GroupFinance Director are executivesof the company. The others are mainly independentdirectors drawn from membersof various professions as well as entrepreneurs.

30th Evaluation of CEO CompensationHow effective do you feel your company’s CEO compensation program is?

Sixty-two percent of Asia Pacific directors have a positive opinion of the effectivenessof their CEO’s compensation program. While high, this figure is still lower than theAmericas, where 80 percent of directors say that their CEO’s compensation programis either “Effective” or “Very Effective.”

The sub-regional break-down of response on the effectiveness of the CEO’scompensation program is as follows:

Effectiveness of CEO Compensation ProgramSub-Region Very Effective Effective Fairly Effective IneffectiveJapan 3% 40% 44% 13%Australia/New Zealand 37% 47% 16% 0%Non-Japan Asia 19% 34% 34% 13%

Board Preparation, Meetings

Members of Asia Pacific boards invest an average of 25 hours per month in boardservice. However, 11 percent of respondents state the time devoted to board mattersdecreased from the previous year. It should be noted that the APAC respondents,particularly in Australia/New Zealand, had a large concentration of chairmenresponders (Chairmen frequently spend more time on board matters than otherdirectors.). This could attribute to the high number of hours per month reported byAPAC respondents.

48


0 20 40 60 80 100

Americas

APAC

% Indicating Very Effective or Effective

80%

62%

30th

49


Personally, I don’t think we needany additional reforms. In fact, Ithink that at the moment wesuffer from an overabundance ofrules. There are so many that fora time there was concern thatboards would be more compliance-oriented than business-oriented. The balanceof time spent on compliance andbusiness is better now, but thereare still too many requirementsfor directors. For example,directors must attend variouseducational classes in such matters as the legal environmentin which companies operate and how to detect financialmanipulation.

If it were ‘once-off ’, theeducational program would bereasonable. But directors, whoare very busy people with a lot ofresponsibilities in addition to their board duties, are alsorequired to attend refreshercourses every year. Added up, theregulations are a heavy burden.”

On average, how often does your full board meet?

APAC leads the world in frequency of board meetings and time spent on boardmatters. Fifty-five percent of boards meet monthly. APAC directors on averagedevote 25 hours a month to board matters, which is more than their counterparts inEurope and the Americas. Despite the long hours put in by APAC board members,11 percent of directors within APAC actually report that they are spending less timethan last year on board matters.

Sub-region break-down of board meeting frequency is as follows:

Meeting FrequencySub-Region Quarterly Monthly Less than Twice per Other

Quarterly MonthJapan 0% 78% 0% 9% 13%Australia/New Zealand 2% 77% 0% 0% 21%Non-Japan Asia 45% 26% 15% 3% 11%

Stock OwnershipIs there a requirement that directors own shares of company stock?

AmericasAPAC Europe

Less ThanQuarterly 6%

Other23%

Monthly34%

Quarterly37%

Less Than Quarterly1% Monthly

9%

Other46%

Quarterly44%

Twiceper month

3%

Less ThanQuarterly

7%

Monthly55%

Quarterly21%Other

14%


No 57%

No 88%

No 72%

Yes 28% Yes

43%

Yes 12%

30th Twenty-seven percent of all APAC directors are required to own company stock. Thisis a rather small number, in comparison to the Americas, where 57 percent aremandated to own a stake in the company. The requirement for director shareownership is lowest in the world among executive directors in Non-Japan Asia,where only 12 percent are required to own stock.

Corporate GovernanceDoes your board have a formal committee that reviews corporate

governance processes and board operations?

In a year when corporate governance issues seem to dominate headlines in otherparts of the globe, Asia Pacific companies haven’t rushed to set up formal committeesto review governance. In fact, only 34 percent of directors said that such committeeswere in place at their company. By contrast, in the Americas, 86 percent of boardshave corporate governance committees.


50


0

10

20

30

40

50

%Yes

Non-Japan Asia


Japan

19%

44%

36%


No 3%

No 39%

No 59%

Yes 41%

Yes 97%

Yes 61%

30th

51


Do you believe written governance guidelines are helpful to the board?

Similar to the rest of the world, a disconnect exists in Asia Pacific between corporategovernance perceptions and realities. While 86 percent of those surveyed feel thatwritten governance guidelines are helpful to the board, only 69 percent of boardshave such measures in place. In Australia/New Zealand, only those that respondedthat the board has written guidelines on corporate governance answered the followup question as to whether or not they believed the guidelines to be helpful. In fact,Japanese directors indicate an even lower percentage, with only 41 percent sayingsuch written guidelines are in place.

Board, Director Performance EvaluationsIs the entire board's performance formally evaluated on a regular basis?

When it comes to evaluating the entire board’s performance, Japan seems to bealmost evenly split. Fifty-two percent of directors say that their entire board isregularly reviewed. The figure is much higher in Australia/New Zealand where 64percent of boards are evaluated on a normal schedule. Non-Japan Asia reported thelowest percentage for full board evaluation at just 39 percent. Interestingly, less thanhalf (46 percent) of Asia Pacific respondents say that this evaluation is at least “effective.”


No 7%

No 6%No

43%

Yes 57%

Yes 93%

Yes 94%


No 36%

No 61%

No 48%

Yes 52%

Yes 64%

Yes 39%

30th Does your board evaluate individual directors on a regular basis?

While 51 percent of companies within Asia Pacific regularly review their entireboards, on average, only 41 percent evaluate individual directors. When asked ifindividual directors should be evaluated regularly, an overwhelming 89 percent ofrespondents say yes.

Has your company ever asked a director to resign or not stand for re-election?

Only 37 percent of APAC directors say that their companies have asked directors toresign or not stand for re-election, while in the Americas, this has occurred at 65percent of companies and, in Europe, at 57 percent of companies.

Sub-regional break-down on the issue of asking a director to resign or not stand forre-election is as follows:

52



No 52%

No 69%

No 58%

Yes 42%

Yes 48%

Yes 31%

0 10 20 30 40 50 60 70

Americas

Europe

APAC

57%

37%

% Yes

65%

0 10 20 30 40 50 60 70

Non-Japan Asia


Japan

58%

10%

% Yes

32%

30th

53


Director RecruitmentDoes your board have any reservations about bringing in a new director

with no previous board experience?

Asia Pacific boards are more likely than other boards around the world to welcomenovice members. In fact, as a region, only a third (33 percent) of respondentsindicated reservations about bringing on such a person. In Europe, almost half ofboards (48 percent) are reluctant to do so.

How difficult has it been for your board to add directors with international expertise?

Asia Pacific boards report challenges in recruiting certain kinds of directors.Specifically, 29 percent of directors say that it is “Very Difficult” to add internationalexperts to the board. While globally, only 18 percent of directors found recruitmentof those with international expertise to be “Very Difficult.” Geographic location, timecommitment and travel are among the challenges Asia Pacific boards face inrecruiting members with international experience.

0 10 20 30 40 50 60 70

Non-Japan Asia


Japan

47%

22%

% Yes

27%

0 10 20 30 40

Global

APAC 29%

% Very Difficult

18%

30th Sub-region break-down on the issue of recruiting directors with internationalexperience is as follows:

Adding Directors with International ExpertiseSub-Region Very Somewhat Not at all

Difficult Difficult DifficultJapan 13% 45% 42%Australia/New Zealand 13% 62% 25%Non-Japan Asia 46% 33% 21%

Is there an induction process in place to develop and maintain the required skills fordirectors? (Australia/New Zealand and Non-Japan Asia Only.)

In Australia/New Zealand, induction processes prove rather popular. Eighty-onepercent of companies have an induction process for board members. In Non-JapanAsia, the number was not quite as high, but still the majority (53 percent) reportedhaving an induction process. When asked if continuing education processes are inplace to help board members develop and maintain skills, only 32 percent ofAustralia/New Zealand and 43 percent of Non-Japan Asia respondents say yes.

54



No19%

Yes81%

Non-Japan Asia

Yes53%

No47%

30th

55


ConclusionIn boardrooms around the world, today’s directors entertain challenges foreign totheir predecessors. Shareholders expect to influence boards that are perceived as laxin executing fiduciary responsibilities. These global investors fully expectgovernments of other nations to respond to their concerns. Regulations concerninggovernance have been enacted with never-before-seen swiftness. Relationships withchief executives must be collegial yet have the proper distance allowing directors theindependence to question and act. The definition of dedicated oversight nowincludes continuous improvement of corporate governance.

Directors dedicated to good governance are breaking with those traditions thatimpede their abilities to continuously improve, more frequently voicing opinionsthat evolve into practice and policy. They are even taking action concerning peersnot meeting standards of performance or sharing the dedication needed to offer thebest possible counsel.

In comparing and contrasting practices of boards around the world, this 30thanniversary issue of the Korn/Ferry Annual Board of Directors Study shows acontinuum of meaningful change initiated by individuals of integrity. As interactionwithin the global business community increases, directors will continue to refinegovernance, incorporating valid practices and ideas that enhance capabilities toprotect shareholder interests.

We believe our Study is now the world’s most comprehensive, long-term analysis of its kind. We have broadened our analysis beyond that of the FORTUNE 1000 to reflect a truly world-wide perspective and thus, the mission of the Study continuesto evolve.

The Korn/Ferry Board of Directors Study is conducted to promote an understandingand awareness of emerging and established trends in governance. It is a uniqueresource for board members and board constituencies dedicated to increasing theirknowledge concerning the board practices and opinions of directors guiding theworld’s leading companies. Again, we would like to thank all of the individualsinvolved in preparing this Study. We look forward to updating the CorporateGovernance community once again in next year’s 31st Korn/Ferry Annual Board of Directors Study.

30th Data Integrity

For survey preparation and analysis, Korn/Ferry partnered with PeopleMetrics, Inc.,a leading full service market research firm based in Philadelphia, PA. PeopleMetrics,using state-of-the-art techniques in statistical analysis and data visualization hasassured the integrity and validity of the data in this Study. The survey results arepresented with a +/- 4.5 percent margin of error, at a 95 percent confidence level.PeopleMetrics considers the directors surveyed to be sufficiently representative of theentire population of directors to draw conclusions about this group. Korn/Ferry isgrateful to PeopleMetrics for its part in this landmark Study.

About Korn/Ferry InternationalKorn/Ferry International (NYSE:KFY), with more than 70 offices in 36 countries, isthe world’s leading provider of executive recruitment and development solutions.The firm works closely with clients to provide solutions tailored to their recruitmentand assessment needs, through the company’s executive search business, identifyingCEOs, COOs, CFOs and other senior-level executives; through the firm’s GlobalBoard Services Practice, recruiting for boards of directors and consulting on mattersof corporate governance; through the firm’s Management Assessment and Coachingbusiness, which provides evaluation and development of senior management teams;and through Futurestep, Korn/Ferry’s middle management recruiting provider.

For more information, visit the Korn/Ferry International Web site at www.kornferry.com

or the Futurestep Web site at www.futurestep.com.

About Korn/Ferry International’s Global Board Services Practice

Since 1972, Korn/Ferry International has been a premier provider of directorrecruiting and corporate governance consulting. We understand the difficulties ofassembling an effective, knowledgeable and cohesive board of directors prepared tomeet growing demands for greater accountability and more effective boardperformance. The shortage of experienced directors, the tightening of governancepolicies and the desire on the part of corporations to diversify their boards havemade the identification and recruiting of top-flight talent more difficult than ever.

We have a dedicated team of global professionals whose sole focus is recruiting forboards of directors for clients worldwide and whose depth and expertise on mattersof corporate governance are unparalleled.

For additional copies of this Study, please call the Global Marketing Department at 1 (310) 552-1834.

56


The AmericasCanada

Jeffrey RosinToronto

416-365-1841

MexicoHoracio McCoy

Mexico City52-55-5201-5400

South AmericaSergio Averbach

Sao Paulo5511-3708-2222

Asia PacificAustralasiaGary Reidy

Sydney612-9006-3400

Non-Japan AsiaAndrew TsuiHong Kong

852-2971-2700

JapanSakie Fukushima

Tokyo81-3-3560-1400

EuropeFrance

Didier VuchotParis

33-1-45-61-8686

GermanyPatrick Schild

Frankfurt/Koenigstein49-6174-2905-0

NetherlandsJan Vet

Amsterdam31-20-799-9000

ScandinaviaTorbjørn Gjelstad

Oslo47-22-82-39-00

United KingdomMina Gouran

London44-20-7312-3100

Korn/Ferry International Global Board Services PracticeRepresentatives by Region/Country

Charles H. KingNew York

212-687-1834

Korn/Ferry International Worldwide Offices

www.kornferry.com

The Americas

Atlanta404-577-7542

Bogota57-1-629-2301

Boston617-345-0200

Buenos Aires54-11-4114-0000

Calgary403-269-3277

Caracas58-212-285-0067

Chicago312-466-1834

Dallas214-954-1834

Denver303-542-1880

Houston713-651-1834

Irvine949-851-1834

Lima51-1-221-4202

Los Angeles310-552-1834

Mexico City**52-55-5201-5400

Miami305-377-4121

Minneapolis612-333-1834

Monterrey**52-81-8220-5959

Montreal514-397-9655

New York212-687-1834

Philadelphia215-496-6666

Princeton609-452-8848

Quito*5932-2986-562

Rio de Janeiro55-21-2518-1380

San Francisco415-956-1834

Santiago562-233-4155

Sao Paulo5511-3708-2222

Seattle206-447-1834

Silicon Valley650-632-1834

Stamford203-359-3350

Toronto416-365-1841

Tysons Corner703-761-7020

Vancouver604-684-1834

Washington, D.C.202-822-9444

Asia Pacific

Auckland*64-9-309-4900

Bangkok662-636-1466

Beijing8610-6505-2989

Hong Kong852-2971-2700

Jakarta62-21-573-9933

Kuala Lumpur603-2078-1655

Melbourne613-9654-4588

Mumbai91-22-2282-6689

New Delhi91-124-235-8866

Seoul82-2-399-7475

Shanghai86-21-6256-7333

Singapore65-6224-3111

Sydney612-9006-3400

Tokyo81-3-3560-1400

Wellington64-4-460-4900

Europe

Amsterdam31-20-799-9000

Athens30-210-722-8000

Brussels32-2-640-3240

Bucharest**40-21-230-4567

Budapest36-1-346-0600

Copenhagen45-3916-3600

Frankfurt/Koenigstein49-6174-2905-0

Geneva41-22-310-2071

Gothenburg46-31-13-4710

Helsinki358-9-61-22-560

Istanbul**90-212-231-3949

London44-20-7312-3100

Luxembourg35-2-46-43-421

Madrid34-91-701-4380

Milan39-02-80600-1

Moscow**7095-956-4387

Oslo47-22-82-39-00

Paris33-1-45-61-8686

Rome39-06-80687-090

Stockholm46-8-611-5015

Vienna43-1-531-03-0

Warsaw48-22-622-28-29

Zurich41-43-366-77-88

South Africa

South Africa27-11-722-1600

*Satellite Offices**Affiliate Offices

30th Annual Board of Directors Study

Documents

board composition

outside directors

executivesand directors

board insularity

annualboard of directors

asia pacific survey

committee composition

committee compensation