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The Korn/Ferry Market Cap 100 Board leadership at America’s most valuable public companies
Transcript of The Korn/Ferry Market Cap 100 - The Wall Street …online.wsj.com › public › resources ›...
The Korn/Ferry Market Cap 100Board leadership at America’s most valuable public companies
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About the 2010 Korn/Ferry Market Cap 100
The Korn/Ferry Market Cap 100 (KFMC100) comprises the U.S. companies traded on the NYSE or NASDAQ , excluding public investment firms, with the largest market capitalization as of the close of market on May 3, 2010, after reporting for the 2009 fiscal year. Data about the companies’ boards, compiled from proxies related to fiscal year 2009, provide the baseline for this report.
Contents
Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
Board leadership in an era of change . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
What’s in a name? . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
Portrait of a lead director . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
Interview with Mark Ketchum. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8 Lead director, Kraft Foods
Adding value to the board . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
Interview with Irv Hockaday . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14 Presiding director, Ford Motor Co. and Estée Lauder Companies Inc.
Committee membership and leadership . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
Leadership succession on the board. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
Assessing the need for terms . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
Interview with Bonnie G. Hill . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20 Lead director, The Home Depot, Inc.
Compensating for time and value . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
Final thoughts and best practices . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
Appendix A . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25 Board data
Appendix B . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32 List of the KFMC100 companies
Appendix C . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35 List of the KFMC100 non-executive board leaders
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Introducing the Korn/Ferry Market Cap 100
The Korn/Ferry Market Cap 100 (KFMC100) marks a new approach to the governance research our firm has undertaken for thirty-five years. We’ve chosen to examine the United States’ one hundred most valuable compa-nies, working from the assumption that leadership models represented on these boards are worth observing and emulating.
In this first KFMC100 report, we focus on non-executive board leadership in this elite subset of boards. Among our top-line findings:
There is no rush to split the role of chairman and CEO. Non-executive chairmen remain rare, leading only 9 percent of boards in the KFMC100. By comparison, 19 percent of S&P 500 boards have non-executive chairmen.
Current or former CEOs are the most sought-after group for the role of non-executive board leader. About three-quarters of non-executive board leaders have held one or more top corporate title (chairman, president, or CEO) and 8 percent are active CEOs at public companies.
Thirteen percent of companies rotate the role of non-executive board leader. This model clearly works well for some companies, but poses additional challenges, including maintaining available talent and ensuring continuity in the board’s important work.
Outside of these boardrooms, the bigger corporate governance picture continues to develop. The dramatic economic hemorrhaging of 2008 led to additional scrutiny of boards, with shareholder groups and the news media criticizing boards for any perceived lack of independence. While the causes of our economic woes have proven far more complex and widespread than the actions of some boards, the result has been a raft of new regulations from Washington addressing “say on pay,” proxy access, and CEO succession plans.
At the same time, the role of the of non-executive board leader is growing. The non-executive board leader position began as a means of meeting an independence requirement, but today the role increasingly is being leveraged to create efficiency and additional value in the boardroom. The role must be tailored to the culture of individual boards, of course, but some best practices are beginning to crystallize.
To determine what top boards are doing in the area of non-executive board leadership, we engaged in a two-step process. First, we examined the KFMC100 to get a clear picture of non-executive board leaders, including their backgrounds and experience, their responsibilities on the board, and their compensation. We also looked at similar data for all directors in this group. Second, we interviewed three non-executive board leaders to get a closer look at how this evolving role is changing the face of governance. Specifically, we probed for the board’s role in shaping strategy, managing risk, and leadership succession.
The following report provides both statistical and anecdotal insights. In addition, we have folded in our own views, developed over the course of hundreds of board-level search and consulting engagements for the largest companies in the United States. We hope the practices we’ve highlighted will help boards determine how to select, evaluate, compensate, and establish a succession planning process for the non-executive board leader.
Finally, we would like to thank Bonnie Hill, lead director of The Home Depot, Irv Hockaday, presiding director of Ford Motor Company and Estée Lauder, and Mark Ketchum, lead director of Kraft Foods for generously sharing their time and valuable perspectives.
We welcome your comments and queries, whether regarding this report or any of the challenges your board may be facing.
Dennis Carey Stephen P. Mader Vice Chairman Vice Chairman
Board leadership in an era of change
At Korn/Ferry International, we have heard more than one observer compare change on corporate boards to watching a glacier move. No more. Amid an atmosphere of panic and recriminations stemming from the 2008 financial crisis, political and media attention directed at corporate boards surged. Warranted or not, the focus on board performance—especially on risk mitigation, CEO pay, and succession—has fueled major regulatory changes intended to foster greater independence and board oversight. In particular, the Dodd-Frank Act, signed into law on July 21, 2010, requires further disclosure on company proxies, including on whether the CEO and chairman of the board roles are split and why companies chose a given approach.
Such rules and public pressure will continue to compel boards to demonstrate independent board leadership. What is unknown is precisely how boards will do that, or what specific responsibilities will fall to the non-executive board leader. Each company has a unique culture, so best practices will be adapted more than transplanted. The exact shape non-executive leadership takes should remain the board’s decision.
Today’s non-executive board leader—sometimes referred to by the shorthand “lead director”—plays a key role in determining not only what the board will focus on but also how it will fulfill its responsibilities. One might think of the board leader as the conscience of the board.
Central to success is the relationship between this individual and the CEO. Communications between the two should be entirely candid. The non-executive board leader operates as the CEO’s thought partner, providing insights into the board’s thinking, and conveying good news as well as bad. The board, too, must view the non-executive board leader as an honest broker. With those building blocks in place, the non-executive board leader represents a potentially powerful vehicle for enhanced board performance.
What’s in a name?
From our perspective, independent board leadership is a rising value proposition, but the specific title given to a non-executive board leader does not appear to have significance. Whether that person is called a lead director, presiding director, or non-executive chairman, there is little difference in responsibilities.
Rotating the roleCompanies that rotate non-executive leadership may switch it up each meeting, every six months, or once a year. The most common practice is to have the executive session led by the chair of the committee whose subject matter is the principal topic of discussion.
Examples of how boards rotate the role, from several proxy statements of KFMC100 companies:
“The role of presiding director alternates each six months between the chair of the compensation committee…and the chair of the governance committee.”
“Directors serve as the chairperson, or presiding director, for these executive sessions on a rotating basis (meeting-by-meeting) in accordance with years of service on the board.”
“The independent directors will serve as lead director in turn, rotating in alphabetical order.”
“The discussion leader position rotates annually among the chairs of each of the independent board committees.”
Only 9 percent of the KFMC100 have non-executive chairmen. By comparison, 19 percent of the S&P 500 did.
The only actual pattern we have observed is related to the title of non-executive chairman. While a few companies have a tradition of non-executive chairmen, that title also surfaces temporarily during a period of transition, such as during a CEO succession or after a crisis.
Contrary to frequent media reports suggesting there is a surge to implement non-executive chairmanship, we found that only nine companies among the KFMC100 have adopted that model.
Figure 1
Titles for non-executive board leaders in the KFMC100
Titles were taken from companies’ 2009 proxy statements. If no title was specifically indicated, the title of the individual who chairs executive sessions was used.
Title Count
Lead director 49
Co-lead director 1
Rotating lead director 2
Non-executive chairman 9
Presiding director 28
Rotating presiding director 10
Rotating discussion leader 1
The practice of having a non-executive chairman is notably more prevalent among the Standard & Poor’s 500; 19 percent of the S&P 500 had non-executive chairman during fiscal 2009, compared with the 9 percent we found in the KFMC100 . This may be because the S&P 500, which encompasses a wide range of performance levels and track records, has responded more to pressure to implement what are perceived to be improvements and best practices.
The CEO was not chairman at an additional twelve companies in the KFMC100; in most of those cases, another insider was chairman of the board, such as the former CEO, a founder, or a member of the founding family. But so far, the largest, most valuable companies—represented by the KFMC100—appear more prone to leave the CEO/chairman roles combined.
KFMC100 companies with non-executive chairmen
> Bank of America Corp.
> Intel Corp.
> Citigroup, Inc.
> McDonald’s Corp.
> Walt Disney Co.
> Walgreen Co.
> Unitedhealth Group, Inc.
> Mastercard Inc.
> Newmont Mining Corp.
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Portrait of a lead director
In our daily work with boards, we’re seeing the role of non-executive board leaders evolve. When the designation of a non-executive board leader was just starting to be implemented, the main objective was to find someone capable of filling the role. In many cases that person was the senior-most director; some boards had a revolving board leader, with directors on the board taking turns for defined periods.
Boards that are learning to reap the benefits of independent board leadership are ahead of the curve. They recognize how beneficial the right leader is to board effectiveness and approach the selection process in much the same way a CEO would approach selecting a key member of his or her management team. They take into account background, experience, and personal characteristics. They ask themselves if this person would be a good partner and advisor to the CEO, which they are defining as a key ingredient.
But before they leverage the role fully, they have to define what it is. While admittedly few boards have yet done so, the process starts with building a position specification comprising key responsibilities and characteristics. The spec of an ideal board leader (see “The position specification” sidebar) can then serve as a yardstick for prospective non-executive board leaders. Boards may define the role slightly differently, but they must define it; there should be no ambiguity.
The position specification: non-executive board leader
Most boards have yet to formalize the job responsibilities of the non-executive board leader, and they will naturally vary by the situation. As a starting point, here are the requirements and characteristics cited most frequently during our engagements.
Key responsibilities
Chairs all executive sessions, and—in the absence of the CEO/chairman—meetings of the board. Calls meetings of independent directors when necessary.
Consults with chairman and directors on meeting schedule, agenda and materials. Provides information on topics to be discussed and ensures directors will be prepared.
Acts as liaison between chairman, members of the board (collectively and individually).
In cooperation with the CEO, responds to shareholder inquiries and approves company responses to outside communication.
Works with the chair of the compensation committee on CEO performance evaluation and compensation.
Determines who should attend board meetings, including members of management and outside advisors.
The responsibilities of the non-executive board leader position are fairly straightforward, reflecting regulatory requirements designed to ensure proper independent oversight. The personal characteristics are more open to interpretation, but are the essential ingredients of excellence. The role is very demanding, and the prospective leader must have the energy and ability to engage other directors, as a team and individually, to ferret out their views. He or she must also be a strong communicator, capable of conveying prevailing and minority opinions to the CEO.
Beyond keen business judgment, a board leader is expected to have an in-depth understanding of the organization’s specific strategic and operating issues so as to serve as a close counsel to the CEO. Accordingly, a large percentage of non-executive board leaders are active or former CEOs, which likely gives them an empathetic view of the challenges a CEO faces.
The non-executive board leader must command the respect of his or her peers, accomplished executives in their own right. He or she must possess the stature and social skills required to influence and guide, rather then dictate. This individual should lead by example, possess unassailable personal and professional integrity, and be even-tempered, courageous, and confident—especially when faced with a crisis.
About three-quarters of non-executive board leaders in the KFMC100 have been corporate chairmen, presidents and/or CEOs.
Advises the nominating/governance committee on the selection of committee chairs and board members. Advises the committee chairs.
Presides over the board evaluation process.
Ensures that the board has the appropriate performance monitoring tools in place.
Personal characteristics
Has the time and emotional energy to devote to board leadership. Shows a passion for governance.
Engages other directors. Listens well and draws out ideas. Can integrate and crystallize varying views.
Exhibits proficiency at influence, diplomacy and social skills. Seen as even-tempered, or a voice of reason.
Known to have mastery of company-specific strategic/operating issues. Keen business judgment in general.
Characterized by a personal authenticity that fosters genuine communication with trust.
Is a “master facilitator” who can sense underlying issues, dodge tangents, and create focus.
Experienced with success and failure and comfortable with the reality of both.
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When Mark Ketchum joined the Kraft board in 2007, the CEO, Irene Rosenfeld, had been in that role less than a year. It was a period of tremendous change for Kraft: The company had just spun off from Altria Group and Rosenfeld had embarked on an ambitious three-year turnaround plan.
“The spin-off provided a unique opportunity to virtually build the board from the ground up, along best practice lines,” says Ketchum. Kraft started with a model selection process—mapping out the experience needed in its directors, assessing current skill sets, identifying gaps, and adding an ongoing board evaluation process. The company also intended to better leverage its lead director—a decision that when former lead director Mary Shapiro was tapped to head up the SEC quickly got stress-tested.
Ketchum had been on the board a little more than a year when Rosenfeld asked him to take on the
role of lead director. “She thought I had the right personality and that I could represent the other Board members effectively,” he recalls. “She and I had a good rapport and she knew she could talk candidly with me. As a CEO, I identified with the need to have a peer to use as a sounding board; I know being a CEO can be a lonely job.”
Soon thereafter, Kraft began the long and convoluted process of acquiring Cadbury, a deal that finally closed in January 2010.
As lead director, Ketchum served as a funnel and filter for information from the board to the CEO, who was knee-deep in the details of the acquisition. “It is my job to represent the range of views on the board, including the minority viewpoint, which can be hard to surface in a large group, especially with quieter board members. But their opinions can be critical,” Ketchum explains. “A good lead director is a good facilitator. If we hadn’t had a lead director, I don’t believe we would have had the richness of discussion we did.”
Ensuring success of the strategy
Interview with Mark Ketchum
Public companies where the CEO and chairman are one and the same—Kraft included—now feel obligated to have a lead director. We’re moving, as a board, from simply fulfilling that requirement to figuring out how to best leverage the role.”
Mark Ketchum Lead director, Kraft Foods
“
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Likewise, managing the board’s workflow throughout the intense deal period was crucial. Ketchum helped determine what work the whole board would focus on, what could be handled by a committee, and what would require external input. “We had recently added a finance committee to the board, and they were invaluable when it came to examining the fine details; not everything could or should fall on the entire board,” says Ketchum.
He worked to strike the balance where all the directors felt comfortable with their involvement. “It was our necks—all of our necks—that were ultimately on the line. A deal of this magnitude requires a high degree of individual responsibility which you can’t delegate to a committee, no matter how capable it is,” says Ketchum. As the Cadbury deal progressed, the full board wanted to be involved in everything, so Ketchum helped divvy up the huge workload in a way that maintained board oversight but also ensured all the required work was accomplished in a timely manner.
The completed deal advanced Kraft’s strategy, as articulated by CEO Rosenfeld, to use Cadbury’s strength to grow in emerging markets.
“Strategy has always been a focus of Kraft’s board,” says Ketchum. “The directors have expressed a desire to dig in even more, so we always make time for it.” One solution has been to carve out time for an annual off-site meeting—in Kraft’s case two days—devoted solely to strategy.
“I work with fellow board members and management to set the agenda,” explains Ketchum. “One year, for example, we might focus on a competitive analysis.” Then, throughout the year, the board revisits the strategy, diving deeper into specific issues explored at the off-site.
Kraft is also focused on increasing board effectiveness. While most boards still have not tackled the tricky task of assessing individual
directors, Kraft has implemented a rigorous process designed to raise the performance of individual directors as well as the whole board as a team.
The process is managed by the chair of the nominating/governance committee, who meets individually with board members to gather their feedback on the board’s performance and their own. Both the committee chair and Ketchum subsequently provide feedback—confidentially, of course—to each director on how peers view his or her contribution. Says Ketchum, “As individuals and as a team, there are always things we can do better, and our board recognizes the need to continuously improve to properly execute our substantial responsibilities.”
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The KFMC100 non-executive board leaders are overwhelmingly former chairmen, presidents and/or CEOs: About three-quarters of non-executive board leaders in the KFMC100 have held one or more of those senior-most titles.
Eight percent are, in fact, active CEOs at other public companies (some also in the KFMC100). This is a testament to the skills and dedication of those individuals that they could take on such demanding roles concurrently.
Several other backgrounds are represented in the pool of non-executive board leaders, including government/military, other corporate executive, and CFO—although each tallies 3 percent or less. The group is more than 90 percent male, white and U.S. citizens. The homogeneity of the group isn’t particularly surprising; It reflects the lack of diversity in the CEO ranks of a decade ago, since this group comprises so many former CEOs.
It seems logical that a former CEO’s background and experience would be highly desirable in a non-executive board leader. These are generally corporate senior statesmen who must facilitate discussions and help directors coalesce around important issues. A former CEO’s operations experience, combined with a perspective on the overall mission of the board, mean he or she can be a successful integrator
Figure 2
Percentage of female directors and lead directors in the KFMC100
16% Female directors
16% Female directors
8% Female lead directors
8% Female lead directors
0
5
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15
20
25
30
35
40
0%
10%
20%
30%
40%
50%
0%
50%
Also in line with their status as primarily retired CEOs, non-executive board leaders tend to be older than directors generally; their median age is 67. One-third are over the age of 70. Only 10 percent are under the age of 60. The senior age range of non-executive board leaders raises the important issue of leadership succession on the board. We address this issue later in greater detail.
Figure 2.1
Percentage of directors and lead directors by age group in the KFMC100
0
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5
10
15
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40Board leaders
All directors
75 and older70-7465-6960-64Under 60
32%
10%
25% 24% 20%
35%
15%
3%
30%
4%
0%
50%All directors
Lead directors
Age 75and older
Age70-74
Age65-69
Age60-64
Underage 60
32%
25% 24%
15%
3%
10%
20%
35%
30%
4%
35
40Board leaders
All directors
75 and older70-7465-6960-64Under 60
Figure 2.2
Percentage of minorities among directors and lead directorsin the KFMC100
0
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10
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15% Ethnic minority directors
6% Ethnic minority lead directors
0%
10%
20%
30%
40%
50%
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Adding value to the board
The right non-executive board leader inherently enhances the board’s relationship with the CEO. At the same time, he or she adds value to the “how” and the “what” of the board’s work. By the “how,” we mean board processes: how the board coalesces as a team and makes use of its limited time. The “what” represents the decisions about what issues the board works on, and whether that occurs in committee or requires the input of the full board.
Simply serving as the voice of the board to the CEO naturally improves efficiency of communication. An executive session or one-on-ones may produce multiple perspectives and opinions that the CEO should, but might not otherwise, hear. The non-executive board leader can streamline the process, so communication to the CEO is not duplicative. Most CEOs’ doors are certainly open to individual directors, but funneling communication makes the best use of everyone’s time.
At the outset, it is the board leader’s job—and it can be difficult—to ensure that all directors express their views. Board leaders rely on their intuition and diplomacy to draw out the more reserved in the room and give all views equal airing.
The foundation for the board’s work is the company strategy, so it’s crucial to schedule time to focus on it, both at regular
board meetings and at more intensive off-sites. Non-executive board leaders we have spoken with have told us that their antennae go up during these discussions to sense whether individual directors have a strong grasp of the strategy. If more discussion and explanation are called for, they plan for it. As one board leader puts it: “If the whole board doesn’t understand strategy it’s difficult to make decisions, because everything is based on alignment with the strategy. When there is lack of alignment, boards can make bad decisions.”
Non-executive board leaders say their antennae go up when strategy is discussed to sense whether individual directors have a strong grasp of it.
Similarly, risk decisions and monitoring are part and parcel of the strategy, and board leaders keep risk on the radar screen. Formerly viewed mainly in the context of financial risk, risk management was considered squarely the bailiwick of the audit committee. But as enterprises identify new types of risk—reputational, operational, etc.—that isn’t the case as often. Among the KFMC100, 46 percent of boards assign responsibility for risk monitoring to the entire board, while 47 percent assign it to the audit committee. Only 7 percent have formed a special risk management committee.
Considering boards’ increasingly hefty workload, it may be difficult to find time to step back and take in the big picture. But a good board leader regularly considers the board’s primary, overarching duties, and weighs how well they are being met.
Figure 3
Risk management responsibility in the KFMC100
The committee responsible for risk management, as indicated in the fiscal year 2009 proxy statements.
47% Audit committee
46% Entire board
7% Risk management committee
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When it comes to boardroom experience—and particularly board leadership—few, if any, have the edge on Irv Hockaday. He has served as lead director of four companies: currently on the boards of Ford Motor Co. and Estée Lauder Companies Inc. and formerly on the boards of Sprint Nextel and Dow Jones. He is also the former presi-dent and CEO of Hallmark Cards.
During his long tenure as a director, he’s seen the best boards move from a compliance orientation to a strategic one. They’re now geared toward maximizing board effectiveness, he says, and how best to meet their responsibilities to shareholders. The lead director then has to determine how the board will operate—and shaping committees is a critical part of that responsibility.
The board’s conversation on committees should start with what is required and what is desirable, says Hockaday, and that doesn’t take long. There are the sine qua non of compensation, audit, and governance. But after that? Do you have an investor relations
committee? Do you have an environment committee? Do you need one? It’s up to the lead director to ensure that each committee has a clear charter and that there are no holes, or overlap, in executing the board’s responsibilities.
Once the list is set, directors can determine what traits, back-ground, and experience to seek in committee chairs and members.
“I’m not one who believes that everyone on the board has to have a committee appointment; you need to have the appropriate skill set to contribute and be of value to a particular committee,” says Hockaday. “I’m also sensitive to the risk of proliferating committees.” It needs to be clear which committee is responsible for what, so that no issue falls through the cracks, or worse, gets tackled by two separate committees. This can pose a real threat when there is both an audit committee and a separate risk management committee.
Targeting and managing risk
Interview with Irv Hockaday
Even with the most rigorous risk manage-ment process there will be plenty of unforeseen events. When selecting an independent leader, boards should assume there will be at least one crisis during his or her tenure.”
Irv Hockaday Presiding director Ford Motor Co. and Estée Lauder Companies Inc.
“
“Should there be a separate risk management committee? I don’t necessarily think so,” Hockaday says, with one caveat: if the audit committee is overextended, such as with an investigation.
Risk formerly was viewed chiefly in financial terms and thus compartmentalized within the audit committee. But the definition of risk has broadened to encompass hazards to operations, supplies, strategy, and reputation, as well as having ramifications for succession planning and crisis management. Still, Hockaday believes that the audit committee has the best line of sight into business risks. “It’s up to the audit committee to present to the board what the risk manage-ment process is internally; why it believes that process is either adequate or insufficient; and engage the board in dialogue.”
One comprehensive approach to ensuring all logical risk is addressed, suggests Hockaday, is to survey senior management, asking them to identify primary risks to the company, ranking their choices by likelihood and
magnitude. Executive management can then whittle the list down to a reasonable number for the board to monitor, and close the loop with senior management on the final list to actively manage, and explain any judgment calls. But the board has to own responsibility for managing risk from there. “One au courant trend I am seeing with boards is the growing recognition that there are some risks in the overall matrix that, while highly unlikely, would be devastating to the company if they did indeed occur,” Hockaday says. “That catastrophic potential keeps them on the watch list.”
No matter how vigilant a board is, he adds, directors know things will happen that they didn’t predict and couldn’t plan for. That’s why risk management should be linked to crisis management, he says, so that when an unidentified risk occurs you can contain it. And learn from it.
As an example, he points to the Ford Explorer rollover cases. “Seen in retrospect, it took time for
Ford to interpret disparate data. Rollovers do happen; but eventually, data points began to pop up, with a cluster of rollovers in high-temperature areas. That is what triggered further investigation of the possible relationship between heat, tires, and rollovers. Out of that experience came a refined data processing capability and an improved risk-management process.”
Still, the unforeseen happens—as Ford found out when GM was handed a federal bailout.
“A couple of years ago, for example, who would have identified risk as competing with companies that are owned by the government?”
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Committee membership and leadership
Many non-executive board leaders serve on committees—including as chairs—in addition to fulfilling their demanding primary roles. When that is the case, the committee is most likely one of the “big three”: nominating/governance, compensation, or audit.
In the KFMC100, three-quarters of non-executive board leaders serve on the nominating/governance committee, as chair in about half those cases. Just under half of
non-executive board leaders serve on the compensation committee, but chair it only about 25 percent of the time. More than 40 percent of non-executive board leaders are on the audit committee, but only as chair in about a quarter of those cases. Two other committees attract a significant number of non-executive board leaders: the executive committee, which has 28 percent of non-executive board leaders, and the finance committee, with 13 percent.
Figure 4
Committee responsibilities of non-executive board leaders
When examining proxy data from fiscal year 2009, we consolidated committees that had different names but shared the same responsibilities. Highlighted below are the committees that most often attract lead directors as members or chairs.
Committee Assignment Member Chair
Acquisition 2 1
Audit 27 10
Compensation 33 9
Compliance 3 0
Corporate development 4 0
Dividend 1 0
Executive 19 6
Finance 8 3
Human resources 1 1
Nominating/governance 30 37
Public issues & contributions 6 0
Risk management 1 0
Science/technology 3 0
Strategy 1 0
In the KFMC100, three-quarters of non-executive board leaders serve on the nominating/governance committee, as chair in about half those cases.
The nominating/governance committee is by far the most common for non-executive board leaders to chair. That makes sense because its charter includes monitoring the performance of the board and individual directors. The most logical person to provide that kind of feedback is the board leader. (While virtually all boards have now implemented some sort of overall board evaluation, many still struggle with how to handle assessments of individual directors. Instead of being provided with feedback that might help them—and the overall board—improve, ineffectual directors are often just cycled off the board through retirement. This task may become easier in the future if a rigorous, competency-based approach is managed by a respected, diplomatic board leader.)
There was significant variation in the way the KFMC100 companies struc-tured their committees. It was interesting, if not really surprising, that only one of those 100 had a designated strategy committee. Boards’ focus on strategy diminished for several years—much to the frustration and dismay of directors we have spoken with—while boards got new compliance duties under their belt. By all appearances, boards are accelerating their attention to strategy, and our data point to some consensus that it is the work of the entire board.
It is perhaps a sign of the times that 35 of the KFMC100 have a public issues and contributions committee, making it the fourth most common commit-tee. This is a relatively new addition, and likely a response to pressure on boards to respond (or not) to shareholder activists and the news media. This finding dovetails with other Korn/Ferry research that has indicated a trend toward more directors with public service backgrounds serving on boards.
18
Leadership succession on the board
As boards begin to appreciate the significant potential of the non-executive board leader role, they undoubtedly will adopt a more systematic selection process, and ideally formalize a succession plan for the entire board.
A board leader almost certainly needs to be selected from the ranks of the current directors. The ideal board
leader may be a natural choice by virtue of his or her experience and established leadership contributions. But the best way to keep the selection process effective and thoughtful is to implement a systematic and objective methodology.
The urgency to address board succession planning is underscored by the relatively high age range of non-executive board leaders. This group is generally among the oldest directors: two-thirds are over age 65, and one-third over 70. The demands and responsibilities of the role have tilted criteria toward seniority, and that makes succession preparedness— emergency and planned—a necessity.
Figure 5
Age of KFMC100 non-executive board leaders
The median age of non-executive board leaders is 67, four years older than directors as a whole.
Age Count Percentage
Under 60 9 10%
60-64 18 20%
65-69 31 35%
70-74 26 30%
75 and older 4 4%
The best way to keep the selection process effective and thoughtful is to implement a systematic and objective methodology.
Best practices would dictate having successors for the non-executive board leader in mind before they’re needed. On most boards, the responsibility for such succession planning would be spearheaded by the nominating/governance committee, which can float names and then make one or more recommendations to the full board. One lead director we interviewed suggests that the committee chair meet with each director and the CEO to assess lead director potential as part of the board evaluation process.
Writing a formal position specification (see page 6) is an important initial exercise. Establishing objective criteria and a well-defined process that the entire board buys into and perceives as fair will help to establish a smooth, no-surprises process, one less likely to encounter obstacles. Of the many directors we have spoken with on this topic, all generally agree that creating a formal position specification should be considered a best practice, even though, to our knowledge, very few boards currently have one.
Assessing the need for terms
The fact that most boards have not defined the length of term for the non-executive board leader does not mean they shouldn’t. Even strong leaders may stay too long. Terms put appropriate pressure on performance review and open the opportunity to re-energize the role with a new perspective.
High-performing boards should regularly review the non-executive board leader’s work against established performance criteria. This will help the board leverage the role to their own benefit, and at the same time demonstrate to key outside constituencies that board leadership and succession are high priorities. It is both good business—and increasingly necessary in order to meet greater transparency requirements—to have a succession process in place.
Many directors believe that a three-year, renewable term is best for the non-executive board leader.
20
Passing the baton on the board
Interview with Bonnie G. Hill
Serving as lead director shouldn’t be viewed as an entitlement. Succession planning on the board is equally important as for the CEO and the management team.”
Bonnie G. Hill Lead director, The Home Depot, Inc.
“
The Home Depot board pioneered the lead director role as early as 1996, long before it was in vogue. The prescience of the board and the CEO to separate governance and operational responsibilities—so that the CEO could focus on running the business—is now widely considered a best practice. And now The Home Depot is ahead of the pack in focusing on board succession.
Current lead director Bonnie G. Hill took over that position from Ken Langone in 2008. Part board ambassador, part team leader, and part go-between, Hill is involved with directors and the CEO on a regular basis. “My own role has evolved with Ken leaving,” she says. “As time has passed, I have increasingly recognized the value of someone who is the board’s interface with the CEO, partly so he or she doesn’t have to answer the same questions nine times from nine different directors!”
Hill also serves as chair of the nominating and governance committee, a common
appointment for lead directors that she believes is logical, in part, because it gives the lead director oversight of the succession process for directors, committee chairs, and her own position. “The lead director doesn’t have any real responsibility for succession, unless he or she is the head of the nominating/governance committee,” she emphasizes.
Maintaining an uninterrupted flow of capable leadership on the board is essential, for the same reasons CEO succession is so important. Continuity is crucial to the board’s ability to manage its workload, manage a crisis, and instill confidence in investors. “The management team looks to the board for oversight and direction,” explains Hill, “and it is important to recruit people for the board who have the skills, expertise, and time.”
Implementing a rigorous succession process for leadership on the board should be a high priority. Those who serve as non-executive board leaders are generally among the most experienced and senior in
age of the directors. That means their period of service is likely to be shorter, and turnover more frequent. Moreover, says Hill, there is a potential danger that the board leader begins to view the position as an entitlement rather than a role with specific responsibilities and a succession plan of its own. Given these factors, the best boards plan well in advance for a change in leadership.
Since the role of non-executive board leader has been required for a relatively short time, many boards have yet to formalize a succession process. But The Home Depot has developed and implemented a thoughtful, inclusive process that might serve as a model.
Hill admits that succeeding Langone, who was not only the company’s first lead director but also one of its founders, was a bit intimidating. Langone, who chaired the nominating/governance committee, asked her privately
if she would be willing to serve. As head of the compensation committee at the time, Hill had demonstrated her diplomacy with shareholders during a particularly challenging period for the company. “Directors on the board at the time told me that experience made them confident I would be an effective lead director,” recalls Hill.
But what really helped, she says, is that the selection occurred early enough that there was a bit of overlap with Langone. That provided “an opportunity for me to benefit from the sitting lead director,” she says.
The selection process should kick off, she believes, with the nominating/governance committee making an initial recommendation, which is then brought to the full board for discussion and approval. “My personal recommendation would be that the chair of the committee speak with each director, individually. That way, if there are any reservations concerning the person being recommended, they can be discussed in private and without attribution.”
Hill encourages The Home Depot board to remain focused on its own succession planning. “We have solicited major long-term shareholders for recommendations for our succession planning on the board,” she says. “It’s an ongoing process for us, to find people who fit in the areas of expertise we require.”
She knows that it won’t be long before she hands the baton to the next lead director. She is a mere three years, or less, from retirement. “That is not long, so we are having these discussions as we speak. The lead director is appointed annually, and I’ve asked the board to make recommendations to the chairman or the general counsel. They should not see me as serving in perpetuity.”
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Several lead directors we have spoken with believe that a three-year, renewable term provides the non-executive board leader sufficient time to establish progress against performance objectives, as well as to review his or her personal interest in continuing in the role. A board leader who is a good fit will be renewed for another term. But when there is cause for a change, the end of a term facilitates an effective and graceful transition.
Board leaders who hold the title “non-executive chairman” are even less likely to have a defined length of term, in our experience. There is no objective reason why that should be the case; it is just a matter of custom. Like all boards, those with a non-executive chairman should make succession and creating defined terms a priority.
Compensating for time and value
Serving as a non-executive board leader is time-consuming and demanding, and those who fill these roles should be compensated for the efforts they expend and the value they add. Boards have recognized these factors when determining appropriate compensation for committee chairs, and
should be applying the same logic to compensation for non-executive directors.
Of the 88 KFMC100 boards that don’t rotate the leadership
role, thirty-six—or 40 percent—provide no additional cash retainer at all to their non-executive board leader. Among the 60 percent that do, the rates vary significantly. Non-executive chairmen receive the most: $87,000 is their median supplemental cash retainer. By contrast, the median for a compensated lead director is $25,000 and for a presiding director $17,500.
The 60 percent of non-executive board leaders who receive additional cash compensation often get more than committee chairs.
The 60 percent of non-executive board leaders who receive additional cash compensation often get more than committee chairs. Even for chairing the big three committees—audit, compensation and governance/nominating—the supplemental cash retainers are a bit smaller: $10,000 to $20,000.
Figure 6
Cash retainers comparison
A small percentage of chairmen for each of these committees received no additional retainer. We have not included them in these median calculations so as to provide a consistent comparison to the paid non-executive board leaders.
Median retainer
Role above $0
Base retainer for all directors $78,750
All non-executive board leaders $25,000
Audit committee chair $20,000
Compensation committee chair $15,000
Nominating/governance committee chair $10,000
Contrary to what the headlines would have us believe, directors—including non-executive board leaders—do not ordinarily choose to serve on boards for the compensation. Rather, they seek the opportunity to work alongside peers, contribute their skills and experience, and continue learning themselves. That said, boards should be taking a hard look at cash and non-cash compensation for all non-executive board leaders to ensure that their significant time investment and responsibilities are rewarded as befits this critical role.
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Final thoughts and best practices
Looking at the substance of governance—leadership and work processes— a great deal has changed on boards in less than a decade. Shifts that began initially under the regulatory “stick” are now spurred by the perceived value “carrot.”
Emerging best practices for leveraging the relatively new role of non- executive board leader include:
Define the role. As a team, the board should agree on what is required in a non-executive board leader, develop a position specification that reflects those priorities, and select a leader who aligns to those criteria.
Establish a board leadership succession plan. Maintaining a steady flow of leadership is as important in the boardroom as it is in the executive suite. Boards should establish an ongoing succession process to ensure they are never caught without a capable leader.
Determine length of term. While a defined term of service for board leaders has yet to be implemented widely, it should be considered a best practice. A three-year, renewable term provides sufficient time to assess progress against agreed-upon objectives.
Compensate fairly. The responsibilities of non-executive board leaders demand significant time and effort over and above that of the average board member. That, and the value board leaders provide, should be reflected in compensation.
Boards of companies that aspire to join the ranks of the most successful will consider implementing not only incremental change pushed by regulation, but transformational change to maximize the value of the non-executive board leader.
Appendix A
The Korn/Ferry Market Cap 100 (KFMC100) comprises the U.S. companies traded on the NYSE or NASDAQ with the largest market capitalization as of the close of market on May 3, 2010, after reporting for the 2009 fiscal year. Public investment firms as defined by Capital IQ (those that make direct investments in companies and limited partner investments, or are a mutual fund, pension fund, hedge fund manager or real estate investment trust) have been excluded, specifically Berkshire Hathaway Inc.; Blackrock, Inc.; Franklin Resources Inc.; and Simon Property Group Inc.
Data about the companies’ boards, compiled from proxies related to fiscal year 2009, provide the baseline for this report. Additional data were retrieved from the research firms BoardEx and Capital IQ.
The Korn/Ferry Market Cap 100 represents a departure from the methodology of previous Korn/Ferry International board studies, which examined boards of the Fortune 1000. Year-over-year comparison data are not available.
About the KFMC100 companies
Figure 1
Market capitalization
The KFMC100 companies had a median market capitalization of $43.9 billion on May 3, 2010. Just under 25 percent of the companies were valued above $100 billion.
Market cap Count Percentage
Under $30 billion 16 16%
$30 billion - $39.99 billion 26 26%
$40 billion - $59.99 billion 19 19%
$60 billion - $79.99 billion 11 11%
$80 billion - $99.99 billion 5 5%
$100 billion - $149.99 billion 8 8%
$150 billion - $199.99 billion 10 10%
$200 billion and over 5 5%
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Figure 1.1
Industry sectors represented
The KFMC100 companies included a wide range of sectors, with service businesses the most common.
Sector Count Percentage
Basic materials 15 15%
Conglomerates 4 4%
Consumer goods 9 9%
Financial 12 12%
Healthcare 12 12%
Industrial goods 8 8%
Services 23 23%
Technology 15 15%
Utilities 2 2%
Boards of the KFMC100
Figure 2
Board size
The median size for a board was 12 directors, and the majority of boards fell in the range of 10 to 12 directors.
10% 16 to 18 directors
12% 7 to 9 directors
51% 10 to 12 directors
27% 13 to 15 directors
Figure 2.1
Board independence
In the KFMC100, 85 percent of boards had one or two executive directors. The rest are independent directors.
59% One executive director
26% Two executive directors
6% Three executive directors
9% Four to seven executive directors
Figure 2.2
Who’s the chairman?
The separation of the CEO and chairman's roles occurs in a limited way in the KFMC100. At twenty-one companies, the CEO was not the chairman: nine had non-executive chairmen and eleven had some other insider, such as a former CEO or founder, in the role. One company had no chairman.
79% CEO is also chairman of the board
9% Non-executive chairman 11% Other insider chairman
1% No chairman
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Figure 2.3
Cash retainers for directors
The median cash retainer for directors in the KFMC100 was $78,750, and 40 percent of directors’ cash retainers fell in the $75,001-$100,000 range. Four percent received no cash compensation.
4% $0
0% $1 - $25,000
7% $100,101 - $125,000
3% $125,001 - $150,0001% > $150,000
40% $75,001 - $100,000
14% $25,001 - $50,000
31% $50,001 - $75,000
0% 50%
$0-$25,000
$25,001-$50,000
$50,001-$75,000
$75,001-$100,000
$1000,101-$125,000
$125,001-$150,000
>$150,000
0% 50%
$0-$25,000
$25,001-$50,000
$50,001-$75,000
$75,001-$100,000
$1000,101-$125,000
$125,001-$150,000
>$150,000
0% 50%
$0-$25,000
$25,001-$50,000
$50,001-$75,000
$75,001-$100,000
$1000,101-$125,000
$125,001-$150,000
>$150,000
Figure 2.4
Director terms
One-year renewable terms for directors is becoming the standard.
1% Two years
86% One year
13% Three years
The board at work
Figure 3
Committees
The KFMC100 companies had scores of different names for their committees, including a few highly specialized ones. We consolidated committees that did the same work, according to their proxy statements, under the most common name. To give an accurate sense of the supplemental cash retainers for committee work, we have shown the median for payments above $0 only.
Number of Average Average Median member Median chair
Committee companies with number of number of retainer retainer
this committee directors meetings above $0 above $0
Acquisition 5 5.2 5.4 $5,000 $8,083
Audit 100 4.5 9.6 $10,000 $20,000
Charitable contributions 1 5 5 $0 $0
Compensation 89 4.4 7 $9,500 $15,000
Compliance 8 5.1 4 $15,000 $15,000
Corporate development 4 4.8 3.8 $0 $10,000
Credit 2 5.5 5.5 $0 $17,500
Dividend 1 6 1 $0 $0
Energy delivery 1 7 5 $0 $10,000
Equity 2 3 3.5 $0 $15,000
Executive 34 4.5 1.3 $5,000 $12,250
Finance 41 4.8 4.7 $5,000 $10,000
Generation oversight 2 5.5 5.5 $0 $13,750
Human resources 10 4.8 5.8 $8,750 $12,500
Infrastructure 1 4 4 $0 $10,000
Nominating/governance 100 4.8 5.1 $9,000 $10,000
Public issues & contributions 35 4.9 3.4 $6,250 $10,000
Real estate 1 4 0 $0 $0
Reserves 1 3 2 $0 $10,000
Risk management 7 6 7.6 $0 $20,000
Science/technology 15 5 3.9 $9,500 $10,000
Special programs 2 3.5 3.5 $0 $13,750
Strategy 1 4 1 $9,000 $18,000
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Figure 3.2
Number of board meetings
The KFMC100 boards met on average 9.8 times. But 18 percent met between thirteen and thirty-four times, which underscores how in any given year, a significant number boards will face unexpected circumstances that will necessitate meeting more frequently.
8% 4 to 5 meetings
17% 10 to 12 meetings
35% 6 to 7 meetings
22% 8 to 9 meetings
18% 13 to 34 meetings
Figure 3.1
Risk management responsibility
How to oversee risk—and who should do it—continues to be an issue boards wrestle with. Among the KFMC100, only seven have carved out a specialized risk management committee. The rest are evenly divided between assigning that task to the audit committee, or having it be handled by the whole board.
47% Audit committee
46% Entire board
7% Riskmanagement committee
The directors
Figure 4
Age
Among the 1069 directors of the KFMC100—noting that some have multiple appointments in the group—fifteen are more than 80 years old.
4% 75 and over
24% 65 to 69
15% 70 to 74
32% Under 60
25% 60 to 64
Figure 4.1
Gender
While nearly all—97 percent—of boards have at least one female director, women make up only 16 percent of all directors. The average number of women on a board is two.
16% Female
84% Male
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Appendix B
The KFMC100 ranked in order of market capitalization as of the close of markets on May 3, 2010.
Market cap
Rank Company in billions Industry
1 Exxon Mobil Corp. (NYSE:XOM) $318.7 Integrated oil and gas
2 Microsoft Corp. (NasdaqGS:MSFT) $270.4 Systems software
3 Apple Inc. (NasdaqGS:AAPL) $242.4 Computer hardware
4 General Electric Co. (NYSE:GE) $205.6 Industrial conglomerates
5 Wal-Mart Stores Inc. (NYSE:WMT) $201.6 Hypermarkets and super centers
6 Bank of America Corp. (NYSE:BAC) $181.2 Other diversified financial services
7 Procter & Gamble Co. (NYSE:PG) $180.5 Household products
8 Johnson & Johnson (NYSE:JNJ) $180.1 Pharmaceuticals
9 Wells Fargo & Co. (NYSE:WFC) $175.8 Diversified banks
10 JPMorgan Chase & Co. (NYSE:JPM) $173.0 Other diversified financial services
11 Google Inc. (NasdaqGS:GOOG) $168.9 Internet Software and Services
12 Chevron Corp. (NYSE:CVX) $166.4 Integrated oil and gas
13 International Business Machines Corp. (NYSE:IBM) $166.2 IT consulting and other services
14 Cisco Systems, Inc. (NasdaqGS:CSCO) $157.7 Communications equipment
15 AT&T, Inc. (NYSE:T) $155.3 Integrated telecommunication services
16 Pfizer Inc. (NYSE:PFE) $136.4 Pharmaceuticals
17 Oracle Corp. (NasdaqGS:ORCL) $130.5 Systems software
18 Intel Corp. (NasdaqGS:INTC) $128.8 Semiconductors
19 Citigroup, Inc. (NYSE:C) $126.2 Other diversified financial services
20 The Coca-Cola Co. (NYSE:KO) $124.0 Food and beverage
21 Hewlett-Packard Co. (NYSE:HPQ) $123.6 Computer hardware
22 Merck & Co. Inc. (NYSE:MRK) $110.0 Pharmaceuticals
23 Pepsico, Inc. (NYSE:PEP) $105.9 Food and beverage
24 Philip Morris International, Inc. (NYSE:PM) $92.2 Tobacco
25 ConocoPhillips (NYSE:COP) $91.2 Integrated oil and gas
26 Schlumberger Ltd. (NYSE:SLB) $85.1 Oil and gas equipment and services
27 Verizon Communications Inc. (NYSE:VZ) $82.8 Integrated telecommunication services
28 Goldman Sachs Group Inc. (NYSE:GS) $80.5 Investment banking and brokerage
29 Abbott Laboratories (NYSE:ABT) $79.0 Pharmaceuticals
30 McDonald’s Corp. (NYSE:MCD) $76.8 Restaurants
31 Occidental Petroleum Corp. (NYSE:OXY) $73.1 Integrated oil and gas
32 Walt Disney Co. (NYSE:DIS) $72.8 Movies and entertainment
33 United Technologies Corp. (NYSE:UTX) $71.2 Aerospace and defense
34 United Parcel Service, Inc. (NYSE:UPS) $70.0 Air freight and logistics
Market cap
Rank Company in billions Industry
35 Visa, Inc. (NYSE:V) $65.2 Data processing and outsourced services
36 3M Co. (NYSE:MMM) $64.0 Industrial conglomerates
37 QUALCOMM Inc. (NasdaqGS:QCOM) $63.4 Communications equipment
38 Amazon.com Inc. (NasdaqGS:AMZN) $61.3 Internet retail
39 The Home Depot, Inc. (NYSE:HD) $60.7 Home improvement retail
40 Comcast Corp. (NasdaqGS:CMCS.A) $56.7 Cable and satellite
41 American Express Co. (NYSE:AXP) $56.5 Consumer finance
42 Boeing Co. (NYSE:BA) $56.5 Aerospace and defense
43 Amgen Inc. (NasdaqGS:AMGN) $55.6 Biotechnology
44 U.S. Bancorp (NYSE:USB) $52.1 Diversified banks
45 Kraft Foods Inc. (NYSE:KFT) $51.8 Packaged foods and meats
46 CVS Caremark Corp. (NYSE:CVS) $51.5 Drug retail
47 Medtronic, Inc. (NYSE:MDT) $48.6 Healthcare equipment
48 Ford Motor Co. (NYSE:F) $45.4 Automobile manufacturers
49 Altria Group Inc. (NYSE:MO) $44.6 Tobacco
50 Caterpillar Inc. (NYSE:CAT) $43.9 Construction and farm machinery and heavy trucks
51 News Corp. (NasdaqGS:NWSA) $43.9 Movies and entertainment
52 Bristol-Myers Squibb Co. (NYSE:BMY) $43.2 Pharmaceuticals
53 Morgan Stanley (NYSE:MS) $42.5 Investment banking and brokerage
54 Target Corp. (NYSE:TGT) $42.2 General merchandise stores
55 Colgate-Palmolive Co. (NYSE:CL) $41.3 Household products
56 Eli Lilly & Co. (NYSE:LLY) $40.6 Pharmaceuticals
57 Emerson Electric Co. (NYSE:EMR) $40.3 Electrical components and equipment
58 Lowe’s Companies Inc. (NYSE:LOW) $40.0 Home improvement retail
59 EMC Corp. (NYSE:EMC) $39.8 Computer storage and peripherals
60 Union Pacific Corp. (NYSE:UNP) $39.1 Railroads
61 Time Warner Inc. (NYSE:TWX) $38.8 Movies and entertainment
62 The Bank of New York Mellon Corp. (NYSE:BK) $38.0 Asset management and custody banks
63 Nike Inc. (NYSE:NKE) $37.8 Footwear and apparel
64 MetLife, Inc. (NYSE:MET) $37.5 Life and health insurance
65 Honeywell International Inc. (NYSE:HON) $37.2 Aerospace and defense
66 E.I. du Pont de Nemours & Co. (NYSE:DD) $36.4 Diversified chemicals
67 The Dow Chemical Co. (NYSE:DOW) $36.2 Diversified chemicals
68 PNC Financial Services Group Inc. (NYSE:PNC) $36.1 Regional banks
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Market cap
Rank Company in billions Industry
69 Gilead Sciences Inc. (NasdaqGS:GILD) $35.9 Biotechnology
70 Apache Corp. (NYSE:APA) $35.2 Oil and gas exploration and production
71 Walgreen Co. (NYSE:WAG) $34.9 Drug retail
72 UnitedHealth Group, Inc. (NYSE:UNH) $34.6 Managed healthcare
73 Monsanto Co. (NYSE:MON) $34.6 Fertilizers and agricultural chemicals
74 DIRECTV Group, Inc. (NasdaqGS:DTV) $33.8 Cable and satellite
75 Carnival Corp. (NYSE:CCL) $33.6 Hotels, resorts and cruise lines
76 Mastercard Inc. (NYSE:MA) $32.7 Data processing and outsourced services
77 Texas Instruments Inc. (NYSE:TXN) $32.3 Semiconductors
78 Lockheed Martin Corp. (NYSE:LMT) $32.2 Aerospace and defense
79 Dell Inc. (NasdaqGS:DELL) $32.1 Computer hardware
80 Anadarko Petroleum Corp. (NYSE:APC) $32.1 Oil and gas exploration and production
81 Freeport-McMoRan Copper & Gold Inc. (NYSE:FCX) $31.8 Diversified metals and mining
82 eBay Inc. (NasdaqGS:EBAY) $31.2 Internet software and services
83 Corning Inc. (NYSE:GLW) $30.9 Electronic components
84 Devon Energy Corp. (NYSE:DVN) $30.4 Oil and gas exploration and production
85 Prudential Financial, Inc. (NYSE:PRU) $30.0 Life and health insurance
86 General Dynamics Corp. (NYSE:GD) $29.9 Aerospace and defense
87 Exelon Corp. (NYSE:EXC) $29.2 Electric utilities
88 FedEx Corp. (NYSE:FDX) $29.0 Air freight and logistics
89 EOG Resources, Inc. (NYSE:EOG) $28.7 Oil and gas exploration and production
90 Southern Company (NYSE:SO) $28.6 Electric utilities
91 Baxter International Inc. (NYSE:BAX) $28.5 Healthcare equipment
92 Celgene Corp. (NasdaqGS:CELG) $28.5 Biotechnology
93 Halliburton Co. (NYSE:HAL) $28.4 Oil and gas equipment and services
94 Danaher Corp. (NYSE:DHR) $27.7 Industrial machinery
95 Express Scripts Inc. (NasdaqGS:ESRX) $27.5 Healthcare services
96 Newmont Mining Corp. (NYSE:NEM) $27.0 Gold
97 MedcoHealth Solutions Inc. (NYSE:MHS) $26.5 Healthcare services
98 Illinois Tool Works Inc. (NYSE:ITW) $26.1 Industrial machinery
99 Costco Wholesale Corp. (NasdaqGS:COST) $26.1 Hypermarkets and super centers
100 Deere & Co. (NYSE:DE) $26.0 Construction and farm machinery and heavy trucks
Appendix C
Non-executive board leaders of the KFMC100
The lead directors, presiding directors, non-executive chairmen, and co-lead directors of the KFMC100 boards during fiscal year 2009. An asterisk (*) indicates that this person serves as the non-executive board leader on an additional board as well.
1 Samuel J. Palmisano Presiding Director, Exxon Mobil Corp. Profile: Chairman, President & CEO, International Business Machines Corp. Additional board: International Business Machines Corp.
2 Raymond V. Gilmartin Lead Director, Microsoft Corp. Profile: Former Chairman, President & CEO, Merck & Co. Inc. Additional board: General Mills Inc.*
3 William V. Campbell Co-Lead Director, Apple Inc. Profile: Chairman & Former CEO, Intuit Inc. Additional board: Intuit Inc.
Arthur D. Levinson Co-Lead Director, Apple Inc. Profile: Chairman, Former President & CEO, Genentech Inc. Additional boards: Genentech Inc. Google Inc. Roche Hldg AG
4 Ralph S. Larsen Presiding Director, General Electric Co. Profile: Former Chairman & CEO, Johnson & Johnson
5 James W. Breyer Presiding Director, Wal-Mart Stores Inc. Profile: Managing Partner, Accel Partners LP Additional boards: Dell Inc. Marvel Entertainment Inc.
6 Walter E. Massey Non-Executive Chairman, Bank of America Corp. Profile: President Emeritus, Morehouse College Additional board: McDonald’s Corp.
7 W. James McNerney, Jr. Presiding Director, Procter & Gamble Co. Profile: Chairman, President & CEO, Boeing Co. Additional boards: Boeing Co. International Business Machines Corp.
8 James G. Cullen Presiding Director, Johnson & Johnson Profile: Former President & COO, Bell Atlantic Corp. Additional boards: Agilent Technologies Inc.* NeuStar Inc.* Prudential Financial Inc.
9 Philip J. Quigley Lead Director, Wells Fargo & Co. Profile: Former Chairman, President & CEO, Pacific Telesis Finance Additional board: Nuance Communications Inc.
10 JPMorgan Chase & Co. Rotates presiding directorship semi-annually
11 John L. Hennessy Lead Director, Google Inc. Profile: President, Stanford University Additional boards: Atheros Communications, Inc.* Cisco Systems, Inc.
12 Samuel H. Armacost Lead Director, Chevron Corp. Profile: Former President & CEO, Bank of America Corp. Additional boards: Callaway Golf Co. Del Monte Foods Co. Exponent, Inc.* Franklin Resources Inc.
13 International Business Machines Corp. Rotates presiding directorship among committee chairs
14 Carol A. Bartz Lead Director, Cisco Systems, Inc. Profile: President & CEO, Yahoo Inc. Additional boards: Autodesk Inc. Intel Corp. NetApp Inc. Yahoo Inc.
36
15 Jon C. Madonna Lead Director, AT&T, Inc. Profile: Former President & CEO, Digital Think Inc. Additional boards: Freeport-McMoRan Copper & Gold Inc. Tidewater Inc.
16 Constance J. Horner Lead Director, Pfizer Inc. Profile: Former Commissioner, U.S. Commission on Civil Rights Additional boards: Ingersoll-Rand PLC Prudential Financial Inc.
17 Oracle Corp. Rotates presiding director annually between compensation and governance committee chairs
18 Jane E. Shaw Non-Executive Chairman, Intel Corp. Profile: Former Chairman & CEO, Aerogen Inc. Additional board: McKesson Corp.
19 Richard D. Parsons Non-Executive Chairman, Citigroup, Inc. Profile: Former Chairman & CEO, Time Warner Inc. Additional boards: Estée Lauder Cos. Inc. Time Warner Inc.
20 James D. Robinson III Presiding Director, The Coca-Cola Co. Profile: Former Chairman & CEO, American Express Co. Additional board: Novell Inc.
21 Robert L. Ryan Lead Director, Hewlett-Packard Co. Profile: Former Sr. VP & CFO, Medtronic, Inc. Additional boards: Black & Decker Corp. Citigroup, Inc. General Mills Inc.
22 Samuel O. Thier Lead Director, Merck & Co. Inc. Profile: Former President & CEO, Partners Healthcare Systems Inc. Additional board: Charles River Laboratories International Inc.
23 Sharon P. Rockefeller Presiding Director, Pepsico, Inc. Profile: President & CEO, Greater Washington Educational Television Association
24 Lucio A. Noto Presiding Director, Philip Morris International, Inc. Profile: Former Chairman, President & CEO, Exxon Mobil Corp. Additional boards: Commercial International Bank SAE Penske Automotive Group Inc.
25 Richard H. Auchinleck Presiding Director, ConocoPhillips Profile: Former President & CEO, Gulf Canada Resources Additional board: TELUS Corp.
26 Anthony E. Isaac Lead Director, Schlumberger Limited Profile: Former CEO, BOC Group PLC Additional boards: Hogg Robinson Group PLC International Power PLC
27 Sandra O. Moose Presiding Director, Verizon Communications Inc. Profile: Senior Advisor, Boston Consulting Group Additional boards: AES Corp. Loomis Sayles Funds Rohm and Haas Co.*
28 John H. Bryan Presiding Director, Goldman Sachs Group Inc. Profile: Former Chairman & CEO, Sara Lee Corp. Additional board: General Motors Corp.
29 H. Laurance Fuller Lead Director, Abbott Laboratories Profile: Former Chairman & CEO, Amoco Corp. Additional board: Cabot Microelectronics Corp.
30 Andrew J. McKenna Non-Executive Chairman, McDonald’s Corp. Profile: Chairman, Schwarz Supply Source Inc Additional Boards: Aon Corp.* Skyline Corp.*
31 Aziz R. D. Syriani Lead Director, Occidental Petroleum Corp. Profile: President & CEO, Olayan Group Additional board: Credit Suisse Group
32 John E. Pepper, Jr. Non-Executive Chairman, Walt Disney Co. Profile: Former Chairman & CEO, Procter & Gamble Co. Additional board: Boston Scientific Corp.
33 Richard D. McCormick Lead Director, United Technologies Corp. Profile: Former Chairman, President & CEO, US West Inc. Additional boards: Nortel Networks Corp. Wells Fargo & Co.
34 United Parcel Service, Inc Rotates presiding directorship between chairs of independent committees
35 John A. Swainson Lead Director, Visa, Inc. Profile: Former President & CEO, CA Inc. Additional boards: CA Inc. Cadence Design Systems Inc.
36 Vance D. Coffman Lead Director, 3M Co. Profile: Former Chairman, President & CEO, Lockheed Martin Corp. Additional boards: Amgen Inc. Deere & Co.
37 Raymond V. Dittamore Presiding Director, QUALCOMM Inc. Profile: Former Managing Partner, Ernst & Young LLP Additional boards: Gen-Probe Inc. Life Technologies Corp.
38 Thomas O. Ryder Lead Director, Amazon.com Inc. Profile: Former Chairman & CEO, Readers Digest Association Inc. Additional boards: Virgin Mobil USA Inc.* Starwood Hotels & Resorts Worldwide Inc. World Color Press Inc.*
39 Bonnie G. Hill Lead Director, The Home Depot, Inc. Profile: COO & Founder, Icon Blue Inc. Additional boards: AK Steel Holding Corp. California Water Service Group YUM! Brands Inc.
40 Edward D. Breen Presiding Director, Comcast Corp. Profile: Chairman & CEO, Tyco International Ltd. Additional board: Tyco International Ltd.
41 American Express Co. Rotates presiding directorship among committee chairs
42 Kenneth M. Duberstein Lead Director, Boeing Co. Profile: Former Chief of Staff, U.S. Office of the President Additional boards: ConocoPhillips Mack-Cali Realty Corp. Neff Corp. The Travelers Cos. Inc.
43 Frank C. Herringer Presiding Director, Amgen Inc. Profile: Chairman, Former President & CEO, Transamerica Corp. Additional boards: Charles Schwab Corp.* Safeway Inc.
44 Jerry W. Levin Lead Director, U.S. Bancorp Profile: Former Chairman & Interim CEO, Sharper Image Corp. Additional boards: Ecolab Inc.* Saks Inc.
45 Mark D. Ketchum Lead Director, Kraft Foods Inc. Profile: President & CEO, Newell Rubbermaid Inc. Additional board: Newell Rubbermaid
46 Terrence Murray Lead Director, CVS Caremark Corp. Profile: Former Chairman & CEO, Fleet Boston Financial Corp.
47 Kendall J. Powell Lead Director, Medtronic, Inc. Profile: Chairman & CEO, General Mills Inc. Additional boards: General Mills Inc.
48 Irvine O. Hockaday Presiding Director, Ford Motor Co. Profile: Former President & CEO, Kansas City Southern Additional boards: Crown Media Holdings Estée Lauder Cos. Inc.* Sprint Nextel Corp.
49 Robert E. R. Huntley Presiding Director, Altria Group Inc. Profile: Former Chairman, President & CEO, Best Products Co. Inc.
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50 W. Frank Blount Presiding Director, Caterpillar Inc. Profile: Chairman & CEO, JI Ventures Inc. Additional boards: Alcatel-Lucent Entergy Corp. KBR Inc.*
51 Roderick I. Eddington Lead Director, News Corp. Profile: Former CEO, British Airways PLC Additional boards: Allco Finance Group Ltd. CLP Holdings Ltd. Rio Tinto / Rio Tinto Limited
52 Lewis B. Campbell Lead Director, Bristol-Myers Squibb Co. Profile: Chairman & CEO, Textron Inc. Additional board: Textron Inc.
53 C. Robert Kidder Lead Director, Morgan Stanley Profile: Chairman & CEO, 3Stone Advisors LLC Additional board: Merck & Co. Inc.
54 James A. Johnson Lead Director, Target Corp. Profile: Vice Chairman, Perseus LLC Additional boards: Forestar Group Inc. Goldman Sachs Group Inc.
55 Richard J. Kogan Presiding Director, Colgate-Palmolive Co. Profile: Former Chairman, President & CEO, Merck & Co. Inc. Additional board: Bank of New York Mellon Corp.
56 Karen N. Horn Lead Director, Eli Lilly & Co. Profile: Sr. Managing Director, Brock Capital Group LLC Additional boards: Norfolk Southern Corp. Simon Property Group Inc.
57 Emerson Electric Co. Discussion leader title rotated annually among chairs of independent committees
58 O. Temple Sloan, Jr. Lead Director, Lowe’s Cos. Inc. Profile: Chairman & CEO, General Parts Inc. Additional boards: Bank of America Corp.* Highwoods Properties Inc.*
59 David N. Strohm Lead Director, EMC Corp. Profile: Partner, Greylock Partners Additional boards: Data Domain Inc. Progress Financial Corp Successfactors Inc.* VMWare Inc.
60 Steven R. Rogel Lead Director, Union Pacific Corp. Profile: Former Chairman & CEO, Weyerhaeuser Co. Additional boards: EnergySolutions Inc. Kroger Co. Weyerhaeuser Co.
61 Frank J. Caufield Lead Director, Time Warner Inc. Profile: General Partner & Co-Founder, Kleiner Perkins Caufield and Byers LLP
62 Wesley W. von Schack Lead Director, The Bank of New York Mellon Corp. Profile: Former Chairman, President & CEO, Energy East Corp. Additional board: Teledyne Technologies Inc.
63 Nike Inc. Rotates presiding directorship between chairs of independent committees
64 William C. Steere, Jr. Lead Director, MetLife, Inc. Profile: Former Chairman & CEO, Pfizer Inc. Additional boards: Health Management Associates Inc. Pfizer Inc.
65 Honeywell International Inc. Rotates presiding directorship by years of service on the board
66 Richard H. Brown Presiding Director, E.I. du Pont de Nemours and Co. Profile: Former Chairman & CEO, Electronic Data Systems Corp.
67 Paul G. Stern Presiding Director, The Dow Chemical Co. Profile: Partner & Co-founder, Thayer Capital Partners LLP Additional board: Whirlpool Corp.
68 Thomas J. Usher Presiding Director, PNC Financial Services Group Inc. Profile: Former Chairman & CEO, United States Steel Corp. Additional boards: H.J. Heinz Co.* Marathon Oil Corp.* PPG Industries Inc.
69 James M. Denny Lead Director, Gilead Sciences Inc. Profile: Former Sr. VP & CFO, Sears Roebuck & Co. Additional board: GATX Corp.
70 Apache Corp. Rotates lead directorship alphabetically
71 Alan G. McNally Non-Executive Chairman, Walgreen Co. Profile: Former Chairman & CEO, Harris Bancorp Inc.
72 Richard T. Burke Non-Executive Chairman, UnitedHealth Group, Inc. Profile: Former Chairman & CEO, UnitedHealthcare Inc. Additional boards: First Cash Financial Services Inc. Meritage Homes Corp.
73 Robert J. Stevens Lead Director, Monsanto Co. Profile: Chairman & CEO, Lockheed Martin Corp. Additional board: Lockheed Martin Corp.
74 Neil R. Austrian Lead Director, DIRECTV Group, Inc. Profile: Former Interim Chairman & CEO, Office Depot Inc. Additional board: Office Depot Inc.*
75 Stuart S. Subotnick Presiding Director, Carnival Corp. Profile: Former President & CEO, Metromedia International Group Inc. Additional boards: Abovenet Inc. Carnival PLC Conair Corp. PDM Sports Group Inc.
76 Richard N. Haythornthwaite Non-Executive Chairman, Mastercard Inc. Profile: Former CEO, Invensys PLC Additional board: Land Securities Group PLC
77 Texas Instruments Inc. Rotates lead directorship among committee chairs
78 James R. Ukropina Lead Director, Lockheed Martin Corp. Profile: Chairman & CEO, Directions LLC Additional board: Internet Brands Inc.
79 Samuel A. Nunn Presiding Director, Dell Inc. Profile: Former U.S. Senator, State of Georgia Additional boards: Chevron Corp. The Coca-Cola Co. General Electric Co.
80 John R. Gordon Lead Director, Anadarko Petroleum Corp. Profile: Sr. Managing Director, Deltec Asset Management LLC
81 Freeport McMoRan Copper & Gold Rotates presiding directorship among chairs of independent committees
82 Edward W. Barnholt Lead Director, eBay Inc. Profile: Former Chairman, President & CEO, Agilent Technologies Inc. Additional boards: Adobe Systems Inc. KLA Tencor Corp.*
83 James J. O’Connor Lead Director, Corning Inc. Profile: Former Chairman & CEO, Unicom Corp. Additional boards: Armstrong World Industries Inc.* Smurfit-Stone Container Corp. UAL Corp.*
84 Thomas F. Ferguson Lead Director, Devon Energy Corp. Profile: Former Managing Director, United Gulf Management Ltd.
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85 Jon F. Hanson Lead Director, Prudential Financial, Inc. Profile: Chairman & Founder, Hampshire Management Co Additional board: HealthSouth Corp.*
86 General Dynamics Corp. Rotates presiding directorship among chairs of independent committees
87 M. Walter D’Alessio Lead Director, Exelon Corp. Profile: President & CEO, NorthMarq Advisors LLC Additional boards: Brandywine Realty Trust* PECO Energy Co. Pennsylvania Real Estate Investment Trust
88 Peter S. Willmott Presiding Director, FedEx Corp. Profile: Managing Partner, Berkshires Capital Investors
89 James C. Day Presiding Director, EOG Resources Inc. Profile: Former Chairman & CEO, Noble Corp. Additional boards: Oneok Inc. Tidewater Inc.
90 Thomas F. Chapman Presiding Director, Southern Company Profile: Former Chairman & CEO, Equifax Inc.
91 Walter E. Boomer Lead Director, Baxter International Inc. Profile: Former Chairman, President & CEO, Rogers Corp. Additional board: Rogers Corp.
92 Michael D. Casey Lead Director, Celgene Corp. Profile: Former President & CEO, Matrix Pharmaceutical Inc. Additional boards: Allos Therapeutics Inc. AVI Biopharma Inc. Durect Corp.
93 J. Landis Martin Lead Director, Halliburton Co. Profile: Intrepid Potash Inc.* Managing Director & Founder, Platte River Ventures LLC Additional boards: Intrepid Potash Inc.* Apartment Investment & Management Co.* Crown Castle International Corp.*
94 Danaher Corp. Presiding director is chair of the nominating/governance committee unless majority of independent directors decides otherwise
95 Thomas P. Mac Mahon Presiding Director, Express Scripts Inc. Profile: Former Chairman, President & CEO, Laboratory Corp. of America Hldgs Additional boards: Golden Pond Healthcare Inc. Laboratory Corp. of America Holdings Pharmerica Corp.*
96 Vincent A. Calarco Non-Executive Chairman, Newmont Mining Corp. Profile: Former Chairman, President & CEO, Crompton Corp. (now Chemtura Corp.) Additional boards: Consolidated Edison Inc.
97 Michael Goldstein Lead Director, MedcoHealth Solutions Inc. Profile: Former Chairman & CEO, Toys R Us Inc. Additional boards: Charming Shoppes Inc.* 4Kids Entertainment Inc. Martha Stewart Living Omnimedia Inc.* Pacific Sunwear of California Inc.
98 Robert S. Morrison Lead Director. Illinois Tool Works Inc. Profile: Former Chairman, President & CEO, Quaker Oats Co. Additional boards: Aon Corp. 3M Co.
99 Hamilton E. James Lead Director, Costco Wholesale Corp. Profile: President & COO, Blackstone Group LP Additional boards: Blackstone Group LP
100 Charles O. Holliday, Jr. Presiding Director, Deere & Co. Profile: Former Chairman & CEO, E.I. du Pont de Nemours and Co. Additional boards: Bank of America Corp.* E.I. du Pont de Nemours and Co. Royal Dutch Shell PLC
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About the Korn/Ferry InstituteThe Korn/Ferry Institute generates forward-thinking research and viewpoints that illuminate how talent advances business strategy. Since its founding in 2008, the institute has published scores of articles, studies and books that explore global best practices in organizational leadership and human capital development.
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