The Roles and Responsibilities of 21 st Century Directors

1. The Roles and Responsibilities of 21st Century Directors John F. LevyBoard Advisory (O): (908) 518-0781 (O): (201) 650-6269 John@BoardAdvisory.net www.BoardAdvisory.net

2. Creating a Competitive Advantage • Back in the Day • Was Ceremonial • Sarbanes Oxley • Then Compliance • New World Order • Now Competitive Advantage John F. LevyBoard Advisorywww.BoardAdvisory.net

3. History of Directors • Dutch East India Trading Company • Need for Capital • Limited Investors • Direct contact between managers and investors • More shareholders John F. LevyBoard Advisorywww.BoardAdvisory.net

4. Fiduciary • Comes from the Latin fides, meaning faith, and, and fiducia, meaning trust. • Act at all times for the sole benefit and interests of another,. • Highest standard of care at either equity or law. • Highlighted by good faith, loyalty and trust. John F. LevyBoard Advisorywww.BoardAdvisory.net

5. Duties of Directors • Director duties are governed by the corporate law of the state of incorporation. • Under Delaware law the business is managed by or under the direction of the Board of Directors. • In this capacity, members of the Board serve as fiduciaries of the Company and its shareholders. John F. LevyBoard Advisorywww.BoardAdvisory.net

6. Directors’ Fiduciary Duties • The Duty of Care • The Duty of Loyalty • The Duty of Disclosure John F. LevyBoard Advisorywww.BoardAdvisory.net

7. Good Faith Directors do not act in good faith when there is: • fiduciary conduct motivated by an actual intent to do harm; • “gross negligence”; or • intentional dereliction of duty. John F. LevyBoard Advisorywww.BoardAdvisory.net

8. Business Judgment Rule The courts will not second guess directors’ decisions if the directors can demonstrate that they complied with the duties of care, loyalty and disclosure in good faith. John F. LevyBoard Advisorywww.BoardAdvisory.net

9. Documenting Board Compliance • A full, complete and considered process • Consider utilizing legal, financial and other expert advice • Complete agendas • Materials in advance of meetings • Sufficient time for discussion • Complete minutes John F. LevyBoard Advisorywww.BoardAdvisory.net

10. The Role of the Board • Set Strategy • Understand Risk • Monitor Execution • Select, Assess, Evaluate and Compensate the CEO • Comply with Laws and Regulations John F. LevyBoard Advisorywww.BoardAdvisory.net

11. Director’s Immediate Concerns • Tough times require additional Board involvement attention • Government, shareholders and activists are watching • Board are focused on Risk • Cash forecasting and management are Board issues John F. LevyBoard Advisorywww.BoardAdvisory.net

12. Board Structure and Committees • Board Chairperson or Lead Director • Governance Committee • Compensation Committee • Audit Committee • Other Committees John F. LevyBoard Advisorywww.BoardAdvisory.net

13. Typical Company Structure John F. LevyBoard Advisorywww.BoardAdvisory.net

14. Board Charters • Each Committee is responsible to a Charter. • The Charter lists the responsibilities and expectations of each committee. • Charters may be detailed or broad. • Charters are typically available on company websites or in public filings. John F. LevyBoard Advisorywww.BoardAdvisory.net

15. Financial Expert Public companies must disclose: • Audit committee financial expert by name, • Independence, • If no expert the public company must disclose this fact and explain why. John F. LevyBoard Advisorywww.BoardAdvisory.net

16. Financial Expert(continued) An understanding of: • GAAP and the ability to assess the general application GAAP; • Internal controls and procedures for financial reporting; and • Audit committee functions. John F. LevyBoard Advisorywww.BoardAdvisory.net

17. Financial Expert(continued) • Must have obtained by : • principal financial officer, principal accounting officer, controller, public accountant or auditor or similar or actively supervision; • oversee or assess the performance of companies or public accountants; • or other relevant experience. John F. LevyBoard Advisorywww.BoardAdvisory.net

18. Additional Responsibilities of the Audit Committee Financial Expert • NONE • Higher Standard John F. LevyBoard Advisorywww.BoardAdvisory.net

19. Assessing and Building a Board • Annual Board evaluation • Entire Board • Each Director • Skills Assessment • Skills Required • Skills of Existing Board • Board Dynamics • Big Name - Small Company • Team Players • Building Consensus John F. LevyBoard Advisorywww.BoardAdvisory.net

20. Training Issues • On Boarding • The Company • The Industry • The Role of Board Members • Committee Responsibilities and Committee Charters • Ongoing Training • Keeping Current • New Committee Assignments • Ongoing Education John F. LevyBoard Advisorywww.BoardAdvisory.net

21. Why Board Members are Responsible for Ethics • Tone at the Top • Continuing role with the Company • See the “big picture” • Independent • Adults in the room John F. LevyBoard Advisorywww.BoardAdvisory.net

22. Why Boards Fail Ethically • Failure to see ethical issue • Not trained to look for ethical issues • Don’t want to “rock the boat” • Close relationships with CEOs • Short-term focus John F. LevyBoard Advisorywww.BoardAdvisory.net

23. Ethics is Good Business • Healthy relationships, personal, professional and business, are built on trust. • Unethical behavior violates our trust. John F. LevyBoard Advisorywww.BoardAdvisory.net

24. Conclusion • Must become a competitive advantage • Under Delaware law, fiduciaries for the shareholders • Protected by the business judgment rule • Primary role must be to set strategy • Improve selection process and training • Potential to create great wealth, job creation and innovation. • Work hard, faithfully and diligently and make ethical decisions to stop repeating past mistakes. John F. LevyBoard Advisorywww.BoardAdvisory.net