SARBANES OXLEY AFTER THREE YEARS MARKKULA CENTER

1. SARBANES OXLEY AFTER THREE YEARSMARKKULA CENTER Mark Bertelsen November 4, 2005

2. Today’s Environment • Sarbanes Oxley is here to stay • “Stop complaining and get on with it” • Management Accountability and Shareholder Empowerment/Activism: • Recent news articles • HP and Pfizer require majority vote for directors • Role of ISS • “Don’t propose anything to shareholders that ISS doesn’t support” • GovernanceMetrics International (GMI) • Governance is an international issue Privileged and Confidential

3. Continuing Themes • Transparency • Management Accountability • Shareholder Improvement/Activism • Board Independence • Role Board Committees • Time Commitment and more informed decision-making • Wall Street Journal Test • compliance with the letter and spirit of the law Privileged and Confidential

4. Observations From 12/04 SEC/PCAOB Conference • Financial reporting is management’s tool for communicating with investors • Minimum compliance is not enough • Disclosure rules are the floor, not the ceiling • Audit Committees need to be strong, active and independent • Effective monitoring by other gatekeepers’ such as independent accountants, lawyers, and bankers • Overtime, the benefits of SOX reforms will outweigh the costs • Importance of strong internal controls • Senior management must promote and reward ethical conduct • Executive Compensation: • Transparent disclosure • Reasonableness standard Privileged and Confidential

5. Cost/Impact of Compliance • SEC estimate of $1.24 billon vs. AEA estimate of $35 billion for 404 compliance • Audit fees for Fortune 1000 increased, on average, 103% • Companies below $100 million in revenues spent 2.55% of revenues on compliance vs. 0.06% for companies with over $5 billion in revenues • Role of PCAOB • PCAOB budget for 2006 is $137 million • Powerful with Minimal legislative oversight; senate has no say on Chair • Companies below $200 million in revenues had highest 404 failure rate in calendar 2004 (43% of adverse opinions) Privileged and Confidential

6. Small Company Relief • 404 compliance extended for small issuers • first fiscal year ending on or after July 15, 2007 • More time to file SEC reports • COSO proposal • SEC subcommittee proposal Privileged and Confidential

7. Institutional Shareholders • Impact of ISS “Recommendation” • Current and evolving positions: • Majority vote for Directors • Annual election of Directors • Poison Pills • Options • Executive compensation/performance compensation • Board-Shareholder communications Privileged and Confidential

8. Securities Act Reform • Manner and speed of communication, e.g., use of internet, web casts, etc • 1934 Act reporting more timely and robust • More frequent SEC review of 1934 Act filings • More frequent use of registered offerings • Communications in registered offerings • Categories of issuers: seasoned issuer vs. unseasoned issuer Privileged and Confidential

9. Other Developments • Impact on Capital Markets • Going private transactions and being acquired rather than IPO • Risk Management • Disney • Siebel Privileged and Confidential

10. Impact on Boards and Management • Is there enough clarity about what is expected? • Going beyond director independence • Risks to entrepreneurialism and creativity • Developing a new recipe with respect to corporate trust and integrity, and the principal elements are: • Transparency • Responsibility • Accountability Privileged and Confidential