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Voice of the Director

Every year, Larry Fink, Chairman and CEO of BlackRock (NYSE:BLK), the world’s largest investor with $4.6 trillion of assets under management, writes a letter to the chief executives of the S&P 500 and large European companies. In the 2016 annual letter Mr. Fink calls on CEOs as well as management teams, boards of directors, investors and policy makers to “resist the powerful forces of short-termism” and instead invest in long-term growth.

BlackRock recommends that companies communicate to shareholders the strategic framework for long-term value creation with a clear focus on the future:

• How the company is navigating the competitive landscape• How the company is innovating• How the company is adapting to technological disruption

or geopolitical events• Where the company is investing • How the company is developing talent

Mr. Fink expresses an understanding that companies need to be flexible enough to pivot in response to a changing environment, but he cautions that without a clearly articulated strategic plan companies risk losing the confidence of long-term shareholders by such moves. He shares that while some activists do have better plans than management, companies are better served when value-creation ideas are generated through a framework driven and executed by management and the board of directors.

BlackRock also proposes “…that companies explicitly affirm to shareholders that their boards have reviewed their strategic plans. This review should be a rigorous process that provides the board the necessary context and allows for a robust debate. Boards have an obligation to review, understand, discuss and challenge a company’s strategy.” By focusing on, communicating clearly about, and providing meaningful metrics on progress regarding long-term growth frameworks and plans

As we move into spring, we have an exciting slate of programs scheduled for the next several months that focus on the diverse set of issues that directors are dealing with in the boardroom:

April 28th: Michelle Edkins of BlackRock (NYSE:BLK) and Anne Sheehan of CalSTRS will share the perspectives of leading institutional investors on topics such as shareholder activism. Our Chairman, Chris Mitchell, will lead this fireside chat.

May 17th: Ron Sugar, retired Chairman/CEO of Northrop Grumman (NYSE:NOC) and current board member of Apple (NASDAQ:APPL) and Chevron (NYSE:CVX), will discuss do’s and don’ts for aligning the goals of boards and management teams. Our director, Rafael Pastor, will lead this fireside chat.

May 31st: Our first program in Santa Barbara, with Dr. Karen Bogart, Larraine Segil, Dr. Sung Won Sohn, and Dr. Larry Taylor will feature a review of the global economic outlook and a panel discussion of current governance topics.

SAVE THE DATE:• Ted Craver, CEO Edison International (NYSE:EIX) with NIRI Los

Angeles: Wednesday, July 19th, at the California Club. • Latina Leaders in the Boardroom in a fireside chat with

Dorene Dominguez and Larraine Segil: Wednesday, September 7th, at the California Club.

• The USC Marshall Corporate Directors Symposium: Wednesday, November 16th, on the USC campus.

Look for email invitations to these programs or go to our chapter website (www.southerncalifornia.nacdonline.org) for additional information. I hope to see you at what is shaping up to be a terrific set of programs!

April 2016 • Vol. 6

http://southerncalifornia.nacdonline.org

Message From The President

Chairman’s Corner

David L. RosenblumChapter President

M. Christian MitchellChapter Chairman

southerncalifornia.nacdonline.org

Message from the President .....................................................................1Chairman’s Corner ....................................................................................1-2Upcoming Events .........................................................................................2NACD Directorship 2020 with Fay Feeney.......................................2-3New Board Appointments ....................................................................3-4Recent Events ............................................................................................5-8A Member’s View ......................................................................................6-8Welcome New Full Board Members.......................................................9Newsworthy Members and Sponsors ................................................ 10Members....................................................................................................... 11Sponsor Highlights ................................................................................... 12

Inside This Edition

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Voice of the Director

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Voice of the Director

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Chairman’s Corner (continued)companies can move away from quarterly guidance and the associated short-termism. Additionally, Mr. Fink shares that investors are looking at environmental, social and governance (ESG) issues as a “signal of operational excellence” in making investment decisions. As a community of corporate directors we need to read and understand the views of the world’s largest investor as we engage with management teams and our fellow directors about the topics of strategic planning and long-term growth.

On April 28th we all will have an opportunity to discuss more about the perspectives of institutional investors when we host Michelle Edkins of BlackRock (NYSE:BLK) and Anne Sheehan of CalSTRS for lunch at the California Club. I urge you to continue your development as a well-informed and deeply engaged corporate director by making plans to attend and participate.

Upcoming Events (click here to register)April 28th, 2016:Power Lunch with Three Corporate Powerhouses (Anne Sheehan, Michelle Edkins, and Chris Mitchell)

May 17th, 2016:Harmonizing Goals of Outside Directors with ManagementTeams (Ron Sugar and Rafael Pastor)

May 31st, 2016:Economic Outlook and Current Governance Topics (Dr. Karen Bogart, Larraine Segil, Dr. Sung Won Sohn, Dr. Larry Taylor)

July 19th, 2016:Ted Craver, CEO of Edison International (EIX) with NIRI Los Angeles

August 15th & 16th, 2016:NACD Director Professionalism

August 18th & 19th, 2016:NACD Master Class

September 7th, 2016:Latina Leaders in the Boardroom (Dorene Dominguez and Larraine Segil)

September 17th - 20th, 2016:NACD Global Leaders Summit in Washington D.C.

October 6th, 2016:USC/NACD Family Business Forum

October 31st, 2016:“Role of Banking in Uncertain Global Economy” with Tim Sloan, President and COO of Wells Fargo

November 16th, 2016:The USC Marshall Corporate Directors Symposium

NACD Directorship 2020 with Fay FeeneyWe frequently hear about the value a sitting CEO brings to the overall board composition. Today we are going to explore the value created from having a sitting finance professional on your board. Brenda Morris is a strategic contributor in the retail industry’s transformation on customer experience, omni-channels, global supply chains and how mobile devices have changed commerce.

Brenda is Senior Vice President, Finance of Hot Topic and Torrid, exciting leaders in pop culture,

gift and fashion apparel retail. She serves as a strategic partner to leadership to grow and develop these companies and is enjoying being a part of their amazing culture.

Brenda also serves on the Board of Directors and chairs the Audit Committee of Boot Barn Holdings (NASDAQ:BOOT), a public western lifestyle retailer with 205 stores and growing. She also sits on the board of Duluth Trading Company (NASDAQ:DLTH),

a lifestyle retailer based in Wisconsin, where she serves on the Compensation Committee.

Fay Feeney:

Welcome Brenda. As a director, what value does sitting on a corporate board contribute to your company’s strategy? What do you bring back and forth from operating executive to board leader roles?

Brenda Morris:

I believe that being a director stimulates ideas and conversation that not only assists in the boardroom but that drives ideas and strategic initiatives in my company’s day to day operations. I usually come back from a board meeting energized and excited to look at ways we can optimize systems or processes and where we could increase or enhance strategic focuses. It is a mutually beneficial set of roles - I think you bring energy back and forth which helps drive ideas and performance in both environments.

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Fay Feeney

Brenda MorrisSenior Vice President, Finance

Hot Topic and Torrid

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Fay Feeney:

The retail sector is rapidly changing by differentiating the consumer experience. How can we effectively capture this in market share? In what ways are the technology and mobile savvy customers raising expectations about service?

Brenda Morris:

I’m not sure you will have enough room in your newsletter for all the amazing ideas and opportunities being generated at this time. Technology has elevated the ability of the retailer to be in front of the customer almost 24/7 - though mobile apps, mobile sites, email blasts, proximity alerts and omni-channel initiatives. The world of the retailer and consumer relationship has changed dramatically the past few years and will continue to do so. This constant interfacing raises the bar for retailers to be highly effective in delivering the service promised such as ship to store, inventory checks both web and store based, overnight delivery, save the sale options and other high touch options. Those who get it right and then deliver consistently will win - customer satisfaction is front and center as the consumer posts on Facebook (NASDAQ:FB), Instagram, Snapchat, Yelp (NYSE:YELP) and other forums that deliver instant feedback to other potential customers. It is an amazing and exciting time to be in retail!

Fay Feeney:

What, in your opinion as a board member, is the best opportunity for the boardroom to focus on so they can enhance their effectiveness and create value, minimize risk and ensure sustainable leadership?Brenda Morris:

I believe the best focus for a board is to be “nose in, fingers out” and

to trust and empower management to do the jobs they were hired to do! Our job is to be available to guide, coach or just listen to the management team to ensure they have objective input on the operations and effectiveness of the company. It is important for the board member(s) to be active and engaged in the company and the work being done. Ensuring healthy debates and that questions are addressed and researched as needed is key for the board chair. I am fortunate to work with great board chairs that bring a high level of integrity to the meetings and are not afraid to address risk areas and what mitigation is in place to ensure great performance, great risk management and a focus on shareholder value.

Fay Feeney:

What personally interests you about board service? How does the NACD So Cal chapter help you?

Brenda Morris:

I enjoy working with smart and passionate people. Most directors I have been in contact with have these qualities. It is exciting to be a part of a team that advises and assists a company in making solid decisions and managing risk. I believe that the thirty years plus of work experience I have adds value and helps the companies I work with, and that is very fulfilling. I have been an NACD member for the past year and can find a resource for any topic related to my work as a director. The meeting topics are always relevant, the NACD website is a topnotch resource when I am researching a specific question or topic, and the networking with other directors is invaluable. I recommend it highly!

Directorship 2020 (continued)

New Board AppointmentsVanessa C.L. Chang Sykes Enterprises (NASDAQ:SYKE)Former partner of KPMG.

Tracey Doi City National Bank (merged with Royal Bank of Canada) Chief financial officer of Toyota Motor Sales, USA.

Sara Lewis Weyerhaeuser (NYSE:WY)Joined Weyerhaeuser board upon completion of its merger with Plum Creek.

Keith R. Leonard, Jr. Intuitive Surgical (NASDAQ:ISRG)Former CEO and founder of Kythera Biopharmaceuticals.

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Monica C. Lozano Target (NYSE:TGT)Former CEO of ImpreMedia, one of the largest media companies serving Hispanic communities in the U.S.

Steven Loranger Edwards Lifesciences Corporation (NYSE:EW)Most recently chief executive officer and president of leading global water technology company Xylem Inc., following service as chairman, president and chief executive officer of ITT Corporation for seven years.

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New Board Appointments (continued)

Erin Selleck Broadway Financial (NASDAQ:BYFC)Formerly senior executive vice president and treasurer of Union Bank until her retirement in 2014.

Anthony J. Vinciquerra Pandora (NYSE:P)Media veteran brings decades of experience in advising and growing global businesses.

Lisa Greer Quateman Scherzer International Partner of Los Angeles office of Polsinelli LLP.

Larry Taylor African American Board Leadership Institute The mission of AABLI is to prepare seasoned minority executives for board service, including placements and referrals.

Wendy Markus Webb TiVo Inc. (NASDAQ:TIVO)Joined TiVo’s board and the board’s audit committee effective January 11, 2016.

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Got an idea for an NACD So Cal Chapter Event? Submit your ideas for

programming toadmin@nacdsocal.org

Membership BenefitsNACD membership comes with access to benefits that arm members with the resources to make informed decisions at the Board level.

Click to see full list of benefitsClick to join!

Scott A. McGregor Xactly (NYSE:XTLY)Most recently served as Broadcom’s president and CEO.

Craig Martin CSRA Inc. (NYSE:CSRA)Former CEO of Jacobs Engineering.

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“Getting Prepared for the 2016 Proxy”- October 5th, 2015NACD Southern California held a lunch meeting on Monday, October 5th, 2015, from 11:00am to 1:30pm at The California Club in downtown Los Angeles. Forty people attended this educational event, where a four-person panel discussed the topic of “Getting Prepared for the 2016 Proxy.”

Panel Participants

1. Bruce Edwards - a sitting director and current chairman of compensation committees for of two public companies

2. Dave Swinford - CEO of Pearl Meyer and a member of the NACD faculty

3. John Kelsh - attorney in the Chicago headquarters of Sidley Austin and co-head of Executive Compensation

4. Hoshi Printer (moderator) - a sitting director, member of compensation committee member, and board member of NACD Southern California

Key Takeaways

• 2015 was a relatively “uneventful year” from proxy standpoint. Two items of interest: (a) ISS changed their evaluation criteria to have a double trigger for equity vesting upon change of control and (b) Glass Lewis has become increasingly skeptical of one time compensation deals for executive teams.

• Regarding Executive pay design and measurement criteria:

o Recent study by Cornell and Pearl Meyer determined that TSR may not be the “magic” metric to consider in compensation. The metrics should be company specific.

o One model could be 40% for Earnings Growth, 40% ROE, and 20% for TSR or Relative TSR. Relative TSR could be more appropriate than TSR.

o Provide Executive Summary in the Proxy, because CD&A’s have grown longer than MD&A’s.

o Use Charts and Graphs as necessary to explain. Readability and comprehension/clarity are the two tests for an effective CD&A.

• Shareholder Engagement

o Proactively reach out to largest 10 or 20 shareholders.

o Compensation Committee Chair (CCC) should be able to explain and justify the levels and the measurement metrics. The competency of CCCs to do that varies considerably.

o Say-on-Pay (SOP) dissatisfaction by investors does not

necessarily have to do with compensation issues but rather using it to bring up other items.

o Most of the outreach can be done by phone.

• Clawbacks & Failure Parachutes

o To mitigate triggering a large failure parachute, the compensation committee should have a sunset clause in the employment contract at the start which states that the contract will be re-negotiated after a certain period (say five years). Evergreening causes problems.

o Clawbacks are difficult to calculate because of the equity component - but clawbacks are here to stay.

• Director Compensation

o Should be a mixture of cash and stock.

o Trend is away from options/performance-based comp for directors and towards full value grants with time based (or non-performance based) vesting.

o Excessive stock ownership may give rise to potential conflict of interest.

o Directors should not be allowed to sell shares while serving.

o Compensation should include a set number of meetings per year (say 12). Modest meeting fee after that.

o Review director compensation every year but try to make changes every three years.

o Although there are no limits set by shareholders for Director Compensation, there have been two recent cases challenging the equity portion of the compensation. Recommend including a specific pool of shares for directors in the next SOP vote so it is clear that shareholders have approved the plan. Current practice is to seek approval for an equity plan by shareholders that includes both executives and directors without differentiation.

Pictured (from left to right): John Kelsh, Bruce Edwards, Hoshi Printer (NACD So Cal Chair of Programs Committee), and David Swinford

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Recent Events

Recent Events (continued)

Pictured (from left to right): Patrick Fraioli (Partner with Ervin, Cohen & Jessup’s cyber security group); Dr. Stan Stahl (President of Citadel Information Group and past president of Information Security Systems Association); Dr. Sung Won Sohn; Mr. Michael Sohn (FBI Cyber-security Forensics Team) and Larry Taylor (Chairman of the Board of The Creighton Group, Inc.)

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“Chairman’s Spotlight: A Conversation with Maggie Wilderotter, Executive Chairman of Frontier Communications” - February 16th, 2016

NACD Southern California hosted a Chairman’s Spotlight Lunch event on Tuesday, February 16th, 2016, at the California Club in downtown Los Angeles. This was the third event that the Chapter has co-hosted with the National Investor Relations Institute (NIRI), Los Angeles Chapter.

With more than 90 guests attending, this was one of the Chapter’s two largest events in the last several years. The 75-minute meeting included about 25 minutes of Q&A from the audience.

Maggie Wilderotter, executive chairman of Frontier Communications(NASDAQ:FTR), was interviewed by Larraine Segil, a member of Frontier’s board of directors, and the NACD So Cal board in a fireside chat format. Following a prestigious career in the telecommunications and cable television industries, including her role as president and CEO of Wink Communications, Inc., Maggie ran the worldwide

“Global Economy, Cyber Security and Investment Implications” - October 16th, 2015

In alliance with the Institute for Global Economic Research, NACD Southern California staged a two-hour lunch program on the campus of California State University Channel Islands (CSUCI). The sponsor of the event was the Martin V Smith Foundation.

More than 110 professionals attended the event. The audience was a mixture of small business owners, academics and corporate directors. After a buffet lunch, Dr. Sung Won

Sohn was introduced as the primary speaker. Dr. Sohn gave a 25-minute presentation on the state of the economy in emerging markets as compared to the U.S. economy. Several PowerPoint slides were used as he explained the reasons for GNP declines in Brazil and China. In addition, he provided a comparative analysis of the economies including comments on investment opportunities in several other countries. Finally, he spoke on the impact cyber security and fraudulent transactions on economies. Dr. Sohn left the audience with copies of his white paper on the emerging market economies.

The economic presentation was followed by a cyber security panel that was moderated by Dr. Stan Stahl who was introduced by the program host, Dr. Larry Taylor. Other panelists included Mr. Michael Sohn, a special agent with the Federal Bureau of Investigation who specializes in cyber security investigations and Mr. Patrick Fraioli, an attorney and partner with the law firm of Ervin, Cohen and Jessup who specializes in cyber security litigation. Mr. Sohn spoke about the current environment for cyber security and outlined the protocols and practices employed by the FBI when they are called in on industrial espionage and stolen intellectual property cases. He expressed some frustration about the magnitude of the problem; how too often victims decide not to pursue the perpetrators after some stolen property is recouped for fear of reputational damages. The legal side of the cyber security was presented by Fraioli. He described several legal cases, and highlighting the lessons learned from not appropriately protecting their properties and communications.

A Member’s ViewSpotlight on Wilderotter LeadershipBy Sandy Brown

On February 16, 2016, I attended the Chairman’s Spotlight luncheon featuring Maggie Wilderotter, and following are my takeaways on her dynamic interview that took the audience on a journey.

Ms. Wilderotter enlightened her audience with a fascinating discussion of her team-building strategy, which involved a “listening tour” across the nation followed by a call to action.

The “listening tour” in question ultimately resulted in transforming the rural dial-up company that Frontier once was, into the corporate powerhouse that recently acquired Verizon’s wireline connections.

Pragmatic leadership has featured prominently in Maggie’s success with respect to executive roles in business and the boardroom. She has consistently demonstrated that she relishes the role of primary responsibility for the companies she serves.

As a current board member, I know that I need to be able to rely upon colleagues whom have equal expertise as strategic thinkers and practical implementers. My role is to be there to “serve others.” I like Maggie’s thinking.

Sandy BrownMaggie Wilderotter(Executive Chairman of

Frontier Communications)

Recent Events (continued)

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Chairman’s Spotlight: A Conversation with Maggie Wilderotter (continued)public sector for Microsoft. In 2004, she embraced the opportunity to turn around broadband provider Frontier, taking the helm as CEO, and immediately embarking on a “listening tour” to meet with employees across the country. During Maggie’s tenure, Frontier increased revenues to $12 billion from $750 million over 12 years. She also reshaped the company’s executive team, board and culture, emphasizing a customer-centric and local community based approach. Today, women comprise 50% of Frontier’s executive team and 14% of the company’s workforce are veterans.

Maggie emphasized the importance of CEO succession planning, which for many of her companies begins seven to eight years in advance. Just over a year ago, she seamlessly transitioned her role as CEO of Frontier to Executive Chairman and on April 1st, 2016 will step down from that role after a successful transition year.

Remarkably, Maggie joined her first board at the age of 27 and has served on 28 public company boards to date, including The Procter & Gamble Company (NYSE:PG), Yahoo (NASDAQ: YHOO) and Xerox (NYSE:XRX). Maggie currently serves on the boards of Frontier, DreamWorks Animation (NASDAQ:DWA), Hewlett Packard Enterprises Company (NYSE:HPE), Costco (NASDAQ:COST) and Juno Therapeutics (NASDAQ:JUNO). Most of the boards she serves on today are for companies headquartered in the western US.

Key takeaways from Maggie were as follows:

• She transformed Frontier in a short period of time from a sleepy rural dial-up company to a leading broadband and internet provider. Upon joining Frontier, she immediately sold all four company jets and gave a raise to all employees who had not had one in the prior four years. Within her first year, she replaced 11 of 12 board members, whose average age was 75, and increased

A Member’s ViewRecap of “Generational Disruption: The Impact of Generational Dynamics on Leadership” - March 22nd, 2016 By Edrienne Brandon

NACD Southern California hosted a lunch program at The California Club on Tuesday, March 22, 2016. There were 40 members and guests present to listen to and learn from Mr. Chuck Underwood, the nation’s leading presenter and renowned thought provocateur, on the impact of generational dynamics on board director and executive performance.

This engaging 90-minute presentation, which will be featured in a PBS series later this year, provided a history of the discipline, defining characteristics of a generation within a global context, a detailed overview of the interconnectedness of the five existing U.S. generations, and the unique leadership attributes of each generation. After taking thoughtful questions from the audience, Mr. Underwood gave three lucky attendees gifts, which included copies of his latest book. NACD Full Board Members, Board Leadership Fellows, and

Board Governance Fellows had the privilege of a stimulating post-presentation fireside chat with Mr. Underwood on ways a keen lens and deeper insight on generational dynamics can increase the overall effectiveness of board members and business enterprises.

Key takeaways:• Generational dynamics are nation-specific. America’s major

problems have been influenced by generational dynamics. It is expected that the approach to solving America’s problems has been and will be generational in nature.

• There are five U.S. living generations today:o G.I.: Ages 90+o Silent: Ages 71 – 90o Boomers: Ages 52 – 70o GenX: Ages 35 – 51 o Millenials: Ages 18 – 34

• Values are a key defining characteristic of a generation. o It is the formative years that shape values. o Each generation has its own life-long core values that are

created by the teachings each generation receives and shaped by the time in which a generation comes of age – all of which is beyond its control.

• Each generation will have its turn at the top to lead America.

• While they lead, that generation’s core values will drive and define America’s direction and culture. This has yielded defined yet varying impacts, per generation, on business ethics, public service, religion, marriage, parenting, communication style, relationship with technology and social media, etc.

Edrienne BrandonCo-Founder and Chief Executive

Officer of Ablaze Ventures

Pictured: Maggie Wilderotter with chapter leaders from NACD So Cal and NIRI Los Angeles

Recent Events (continued)

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Chairman’s Spotlight: A Conversation with Maggie Wilderotter (continued)

the diversity of the board. Maggie insisted on a US-only workforce, including staff at 23 call centers, and made hiring veterans a priority.

• Strategies that served Frontier well were a customer first approach and community involvement in all 350 communities that Frontier serves. The company held on to that ethos even during the depths of the recession.

• Boards have two major responsibilities: (a) hiring and firing the CEO and (b) strategy. She noted the importance of succession planning and recommended that companies be more transparent about their long-term strategy.

• “We all have to be activists,” she commented. How board members should behave and act is situational. As an example, when on the board of Yahoo, she alerted the board that Yahoo should be prepared for a hostile offer from Microsoft, prompting the CEO to “put a press release on the shelf.” A few months later, it did happen. This was followed by Carl Icahn taking three seats on Yahoo’s board.

• Commenting on her role as past chairman of the President’s National Security Telecommunications Advisory Committee (NSTAC), Maggie noted that that the U.S. infrastructure is highly vulnerable to cyber-attacks. She authored the bill, which is now a law, that allows corporations to share cyber-attack data without penalty. Other than the U.S. defense department, financial institutions have the best cyber defense. All companies and boards must be diligent in this matter.

• Her advice for success in business includes:

o Be there to “serve others” o Love people - interact with them wherever you cano Be yourself, ando Close doors the same way you open them.

A Member’s View:

Recap of “Generational Disruption” (continued)

• Each generation’s ability to deliver good leadership has been mixed. Some generations have led well while others have not.

• Currently, America is beginning its leadership transition from Boomers to GenXers who are entering the C-Suite, board service, and other leadership positions.

• Board members and executives are encouraged to understand generational dynamics to better relate to and understand their peers, teams, and families. Everyone has a role to play, and generational understanding can ensure core values, perspective, tendencies and talents are appropriately acknowledged and leveraged.

• An era of corporate scandal and the weakening of political discourse have led to distrust of leadership and national unrest about the future. The discipline of generational leadership needs champions, particularly from the Boomer generation, to step up and amplify these insights for the edification of America.

Pictured (from left to right): Ed Merino, Edrienne Brandon, Fay Feeney, Chuck Underwood, Christine Scheuneman, Erin Selleck

Welcome New Full Board Members

Thank You for Attending our Events

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HPC, Inc. manufactures key machines and accessories, code cards, car openers, lock pick sets, key cabinets, door guards, and tools for cylinders, plugs, automotive purposes, safes, along with decoders, micrometers, lock defeaters, stamping, impressioning, lights and scopes.http://www.hpcworld.com/

California Resources Corporation (NYSE: CRC) is a publicly traded oil and natural gas exploration and production company and the largest oil and natural gas producer in California on a gross-operated basis. We operate our world-class resource base exclusively within the State of California, and use integrated infrastructure to gather, process and market our production. Using advanced technology, CRC’s workforce of approximately 4,000 employees and contractors focuses on safely and responsibly supplying affordable energy for California by Californians.http://www.crc.com/

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Pacific Mercantile Bank opened for business March 1st, 1999. Today, Pacific Mercantile is one of the largest banks headquartered in Orange County and serves small- and middle-market businesses with a full range of loan, deposit and cash management products and services.

The Bank, which is FDIC insured and a member of the Federal Reserve System, provides a wide range of commercial banking services to businesses, business owners and business professionals through its combination of traditional banking offices and comprehensive, sophisticated electronic banking services.

Pacific Mercantile Bank operates a total of eight banking offices in Southern California, located in Orange, Los Angeles, San Diego, and San Bernardino counties. Pacific Mercantile Bancorp (NASDAQ: PMBC) is the parent holding company of Pacific Mercantile Bank.https://www.pmbank.com/

Newsworthy Members and Sponsors

Corporate Governor

Audit committee spotlight: The audit committee has a role in influencing data analytics usage

Providing vision and advice for management, boards of directors and audit committees Winter 2016

Warren Stippich, Partner and National Governance, Risk and Compliance Solution LeaderMatt Petrich, Senior Manager, Forensic Technology Solutions

The audit committee can play a key role in influencing a chief audit executive (CAE) — and consequently an organization — about the importance of incorporating data analytics and data visualization into the internal audit function. Data analytics is the process whereby different types of data (enterprise, third-party, internal/external, etc.) are put into a format where analysis can be done with the goal of identifying useful information that better supports corporate decision-making. Data visualization is used to better understand the significance of those analytics by allowing the review of the data in a visual context. Data visualization can help the internal audit team identify key patterns, trends and correlations within the data that might otherwise go undetected.

1 Available in The Institute of Internal Auditors’ bookstore March 2016. See www.grantthornton.com/data-analytics for more information.

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The audit committee needs to fully understand its role in developing a “culture of analytics,” especially as Grant Thornton LLP and The Institute of Internal Auditors Research Foundation release their new book Data Analytics: Elevating Internal Audit’s Value.1 Having an understanding of how data analytics and data visualization can help the CAE is the first step. When committee members meet with the CAE, questions to initiate a dialogue might include:

• Can you discuss your plan for using data analytics and data visualization?

• Are you employing a data analytics approach in audit testing?

• Are you hiring people with database and data analytics skills?

• How are you and the internal audit team working with IT to get quality data for analysis?

• Is IT open to working with you to have more comprehensive internal audit coverage using data analytics and data visualization?

Click here to read the full article. Click here to read the full article.

Click here to read the full article.

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No doubt, most of the directors reading this article are aware of the pending new accounting rules affecting revenue recognition. Many of you have been told that the standard is not likely to have a material effect on your company but that more analysis is required to be sure. Based on assessments we have performed to date, the majority of our clients have been surprised to learn the true extent of the impact to their organization. They now realize that, as the implementation deadline gets closer each day, they will need all the time available to implement the standard. Here are some observations we can share from helping our clients develop their revenuerecognition implementation game plans: The first issue encountered typically has to do with data. Companies may have difficulty ensuring a complete population of contracts to assess. Contracts may be hard copy or electronic, at corporate or business units, inEnglish or another language. Some may not be documented and some may have been modified with amendments or side letters. Having access to all contracts is critical to identify revenue streams. Controls over contract review should be increased now to implement policies for heightened attention, if certain materiality or complexity criteria are met.

The extent to which a company’s financial and operational systems will be affected depends on the technical accounting policy changes required and the capabilities of existing systems. Some companies will be able to modify systems, while others will

need to seek new options. Those relying on Excel should consider how an automated solution might offer a more sustainable path forward.

The amount of time it will take to implement the standard depends not only on the complexity of accounting issues and gaps identified, including necessary changes to systems, processes and controls, but also the method of implementation selected by the company. The guidance allows an option to restate prior periods at the effective date (2018 for U.S. public companies), or adopt prospectively with increased disclosures. Which option a company chooses will largely be based on the anticipated financial statement impact, investor expectations for comparability, and cost considerations.

Companies are burdened with day-to-day activities and projects that already put a strain on the bandwidth of their people. The timeframe and in-house expertise will be a factor in considering whether the assessment and implementation can be done with internal resources, or whether external advisors/support teams should help with one or more work streams, including the essential role of project management.

For many organizations, the new Rev Rec guidance is a tsunami on the horizon. Avoid underestimating the impact.Plan and institutionalize the changes early and manage stakeholder expectations, so you are not caught in the mayhem that will likely unfold.

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Bob Zukis authored the chapter “IT and Cybersecurity Governance in a Digital World” in The Handbook of Board Governance (Wiley, 2016), to be published in May 2016. 60 NACD Directorship March/April 2016

Enhancing the Board’s Global Perspective By Dean A. Yoost and D. J. PetersonThe global landscape is rapidly changing and becoming even more important as new customers and new markets emerge, creating huge opportunities, and along with them, new competitors, disruptions, and risks. Many U.S. companies rely on for-eign markets for a significant proportion of their growth and profits. This requires the board’s simultaneous focus on far-reaching locations, markets that are often not moving in tandem, a diverse workforce, expanding supply chains, and complex relationships with governments, communities, and local stakeholders. Moreover, as we see with questions about the trajectory of China’s economy and the outlook for energy prices, these markets are multidimensional and data and knowledge about them is often very subjective and incomplete.

“The board’s oversight of global mat-ters is challenging, complex, and multilay-ered, so that directors need to be vigilant and proactive. Boards often are stretched to provide the proper global perspective,” says Gary Daichendt, a director of NCR Corp., Juniper Networks, and Polycom, Inc. These concerns are echoed by the 2015–2016 NACD Public Company Governance Sur-vey, which asked directors what attributes they deemed most important for director recruitment. International expertise ranked among the top six traits, along with financial expertise, specific industry knowledge, and leadership skills. Nevertheless, many boards often do not possess directors who have the requisite international expertise to provide a credible challenge to management.

How can boards improve their over-sight? There are (arguably) at least three approaches to enhancing the global per-spective of the board:

1. Recruit and appoint a new director

or directors with global expertise and ex-perience;

2. Form a separate committee of the board to focus on global opportunities and risks; and

3. Appoint one or two designated direc-tors to serve as the board’s facilitator on global matters.

Recruit New DirectorsDepending on the complexity and impor-tance of international issues facing the

company, the board may wish to consider whether it needs at least one director with a sophisticated understanding of key geogra-phies and issues.

The recruitment and appointment of a new director or directors who are experi-enced in relevant overseas markets can be very helpful in paving the way and enhanc-ing the board’s knowledge of specific mar-kets, relationships with local managers, partners and influencers, and knowledge of local laws, regulations, customers, and business practices. Directors who are for-eign nationals or who have led organiza-tions abroad often have an intuitive sense of important issues to watch and what ques-tions to ask, and can play a critical role of flagging potential trouble spots. Moreover, these directors may add something to the board that is harder to quantify than spe-cific market knowhow but potentially adds

even greater value: creating a more open and diverse mindset and thereby enhanc-ing the board’s deliberation and problem-solving skills.

However, adding a foreign national as a new director can be easier said than done. Despite the increasing importance of global markets to U.S. businesses, foreign nationals remain a small minority on the boards of leading companies. Spencer Stu-art reported that foreign nationals account for only 8 percent of the directors in the top S&P 200 companies, and 45 percent of these companies have no foreign national directors. In many cases, there is also a logis-tical challenge for boards that need to coor-dinate travel and communications of those outside of the US. “Differing time zones, languages, customs, and cultural nuances can present seemingly insurmountable hurdles, but boards that are truly moti-vated to add an international dimension find ways to overcome these obstacles,” says Elizabeth J. Fisher, a lead consultant with Spencer Stuart. A foreign national joining a U.S. board, in turn, may incur onerous and costly U.S. tax requirements, which the company will have to assist with if it wants to recruit the right talent.

Some boards believe that the appoint-ment of one new “global” director may be somewhat limiting as no candidate would have all of the required country knowledge and this may, in fact, result in an extraordi-nary burden on a director regardless of inter-national experience or expertise. The board may also have a sense of false security if it relies on one director for all things global.

Form a Separate CommitteeThe complexity and importance of inter-national issues also should be considered

In Practice

There are (arguably) at least three approaches to enhancing the global perspective of the board.

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“Directors who choose to enhance their skills and acumen by becoming NACD Fellows demonstrate to company management, shareholders, and their peers a desire to perform their fiduciary duties to the best of their abilities.”

—Ken Daly, NACD Chief Executive Officer

*So Cal Chapter Leaders Click Here to learn more about becoming an NACD Governance Fellow

GOVERNANCE FELLOWSBOARD LEADERSHIP FELLOWS

Peter AgarwalRené AliceaGeorge Ball

Honorable Jamie BarronLisa Bartlett

Rhonda BiddixEdrienne Brandon

Chris CahillHonorable Latisha Casas

Jackie CharnleyCarol Criner Mary Curran

David Drabik Honorable Vince Duro

James EdwardsJohn Erickson

Bradley FeldmannElizabeth Ghaffari

Jeff Goh Honorable Larry Hernandez

Randall Herrell Kim Hunter

Bob Jacobson Steven James

Honorable William Jeffrey, PhDJohn Jenrette, MD

Craig Jiminez Genevieve Kelly

Marvin Kropke Hernan Lopez

Honorable David Manzano Glenda Martinez

Walter MoedeLawrence Mulryan

Rhonda Ozanian, PhD Kristina Peterson

Honorable Ken RamirezMark RefowitzDarlyn Regan

Duleep Rodrigo Robert Rollo*

David Rosenblum* Mark Schulein

Erin SelleckSonya Sepahban

David TehleJay Thomas

John ThomasSusan Thronson

Colonel John TreeHonorable Lynn Valbuena

Kendall Williams Esq. Shane Whiteside

Dean Yoost*Christopher Zimmerman

Kenton AlderKenneth Berns

Dr. Karen Bogart Martin Casey

Paul Chan Kenneth Cleveland* J. Michal Conaway

Molly Coye James Eats

Dr. Rudolph EstradaMartin Feinstein

Fay Feeney*Cesar Garcia James Gauss Nelson GillisGerald Gorski

Veronica Hagen Stephen Hansen

Adam Hartung Joan Herman*

Bonnie Hill Jack Hockema

John HottaBrian Jones

Sara Grootwassink Lewis

Senator Michael MachadoJeffrey Margolis

Dan Maurer Edward Merino*

M. Christian Mitchell* Brenda MorrisJames Myers

Raymond Pacini Hoshi Printer*

Shepherd Pryor IV Dr. Alfred Osborne, Jr.

Stephen RizzoneEdward Sanderson, Jr.

Honorable Lynn SchenkLarraine Segil*Jason Shapiro

Dr. Richard Sherman Mark Siegel

Jon SlangerupJames Swartwout CAE

Mohan Tavorath Jack Taylor

Dr. Larry Taylor*Elizabeth Tuppeny

Edward Watson

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