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THE DYNAMICS OF GETTING ON A PUBLIC CORPORATE BOARD

THE DYNAMICS OF GETTING ON A PUBLIC CORPORATE BOARD. ELLEN B. RICHSTONE JUNE 2017. NUMBER OF PUBLIC COMPANIES HAS REDUCED: US BOARD POSITIONS LESS. 1997– through 2016 US down by 46% NON US up by 28% --------------------------

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THE DYNAMICS OF GETTING ON A PUBLIC CORPORATE BOARD

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  1. THE DYNAMICS OF GETTING ON A PUBLIC CORPORATE BOARD ELLEN B. RICHSTONE JUNE 2017

  2. NUMBER OF PUBLIC COMPANIES HAS REDUCED: US BOARD POSITIONS LESS • 1997– through 2016 • US down by 46% • NON US up by 28% • -------------------------- • Number of Directors on each US board also dropping- average 11 for large cap; 9 for Mid Cap; • Many going down to 7

  3. Time Commitment • Time Commitment Rising • Average Age of Directors increasing • Board Compensation rising slower than time commitment

  4. Board Compensation (2016) • Size* Avg. Total Compensation % Cash • Micro $121,000 51% • Small $157,292 47% • Medium $181,400 44% • Large $222,300 44% • Top 200 $272,000 42% • All Firms $191,500 45% • Micro ($50-499); Small ($500-999); Medium ($1-2.4 Billion); Large ($2.5 B-9.9) • Top 200 ($10 Billion plus): • Source: 2016-2017 NACD Director Compensation Report

  5. BOARD REFRESHMENT: WHAT DRIVES IT? • MAJORITY: • RETIREMENTS • TERM LIMITS • ILLNESS OR DEATH • SPECIAL SITUATIONS • M&A • CHANGING NEEDS IN BUSINESS STRATEGY • ACTIVIST SHAREHOLDER

  6. Differences between Public and Private Boards • Needs • Legal Compliance • SEC reporting • Visibility: Reputational Risk • Time Commitment • COMPENSATION (not negotiable)

  7. Director Needs Change with Company Life Cycle • Start UP Rapid Growth Maturity Distressed • TYPE: • Private Hands On/ Specialization Broad Exp Legal, Exit M&A • Pre-Pub Prior IPO Specialization Indust Exp Legal; M&A • Public SEC Finan/ IR, Marketing --- Corp Finance/M&A • Mature/ • Public ---- ----- Broad indust Exit strategy New Prod intro/ Life Cycle Mgmt.

  8. CHARACTERISTICS OF NEW INDEPENDENT DIRECTORS • Title or Skill set 2006 2016 • Financial Background 24% 25% • Divisional President/Functional 15% 23% • Active CEO’s/ Presidents 29% 19% • Retired CEO’s 11% 19% • Academics/nonprofit 8% 4% • Consultants 5% 3% • Lawyers 2% 1% • Others 6% 6% ACTIVE OR RETIRED CEO’S MAKE UP 38% OF NEW INDEPENDENT DIRECTORS

  9. How Do Boards Decide on Needs: • Hot Need Areas: • Digital Marketing • Technology • Sitting CEO of Public Company • Financial Expert/ Experience as Audit Chair of a Public Company

  10. THE CURRENT ENVIRONMENT: LOOKING FOR A DIRECTOR • Lots of candidates – • Most boards do not want to be your first public board– they want you to go through learning process elsewhere • Premium on Women or Minority Candidates– but still 75% of seats going to white males • Age can be a factor: Age limits are moving to between 72-75: Most boards do not want someone for less than eight to ten years. So after 65 probability of getting on your first board drops significantly.

  11. SO HOW DOES A BOARD DECIDE WHO TO ADD? • IT STARTS WITH AN EVALUATION OF WHO THEY HAVE • REINFORCED BY REQUIREMENT TO DISCLOSE WHAT EACH DIRECTOR’s VALUE IS. • NOMINATING GOVERNANCE USUALLY TAKES LEAD

  12. Skill Matrix Review: Board Composition • Company’s strategic plan • Future combined with tactical expectations • Evolving Structure • Strengths, style interests • Competency today and in the future • Succession discussion • Gap analysis today and in the future • Sample skills matrix- handout

  13. Best ideas for getting on Boards • NETWORK • SPEND TIME WHERE BOARD DIRECTORS ARE • ROLE OF RETAINED SEARCH FIRMS IN BOARD SEARCH

  14. Spend time where Directors spend time • NACD (National Association of Corp Dir) • Seat at the Table • WCD (Women Corporate Directors) • ACCD (American College Corporate Directors) • Audit Firms have Audit Committee programs; Deloitte-Governance. • Law Firms have Director institutes • Board Leaders

  15. KEY STEPS: 1 • Understand your value add • Board Style: Bio and Resume- different than traditional • Education: Bootcamps/ Webinars; programs to be current with public company board issues; Demonstrate your seriousness.

  16. KEY STEPS: 2 • Networking with: • People you know WELL professionally who currently sit on public boards • People you know WELL professionally who are advisors to public boards • People you know well- personally who currently sit on public boards • Getting on your first board is the hardest: 80-90% of the time it will be through your network.

  17. Once you get the interview? • Questions to Ask Before you join a Board (article-handout) • Be prepared • Come with questions: strategic as well as tactical

  18. Time Frame • From start of process: often quoted for first board: 18-24 months • Faster if need is urgent: example Audit Chair

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