“A Peek Inside the Boardroom”

1. “A Peek Inside the Boardroom” The Director Perspective on D&O Liability New York City ~ February 2 & 3, 2011

2. “A Peek Inside the Boardroom” Charles M. Elson Ellen B. Richstone Alan A. Rudnick Ric Marshall, Moderator

3. Director Liability? “I personally would not be fearful about liability if I was serving on a public company board.”Delaware Chancellor William B. Chandler III, December 17, 2010

4. DirectorResponsibility In 2010, the average tenure of an independent, non-executive S&P 500 director was 8.4 years; the median was 7 years. Fewer than 25% of all 5400+ non-executive S&P 500 directors had served for less than five years.

5. DirectorResponsibility For this same period, the average tenure of an S&P 500 CEO was 6.2 years; the median was just 5 years. And more than 56% of all S&P 500 CEOs had held that position for five years or less.

6. DirectorResponsibility Between 2003, just after the passage of Sarbanes-Oxley, and 2010, the percentage of S&P 500 companies where the CEO was also Chairman of the Board fell from 73.4% to 59.6%.

7. Director Accountability In the coming 2011 proxy season, US boards will face mandated “Say on Pay” votes for the very first time – shareholder approval of all executive pay plans. Mandated – but not binding.

8. Director Accountability “Proxy Access”, however – which would allow significant long-term shareholders to nominate their own board candidates – has been relegated to legal & regulatory limbo. Arguments open April 7, 2011.

9. “A Peek Inside The Boardroom” D&O: A Director’s View CEO PAY Charles M. Elson Board Director, Compensation Committee Member, Governance & Nominating Committee Chair

10. “A Peek Inside The Boardroom” RISK MANAGEMENT M & A OVERSIGHT Ellen B. Richstone Board Director, Audit, Nominating Committee Chair, Comp Committee Member, CFO, Financial Expert

11. Risk Management:Managing Risk Risk management is not about eliminating risk, it is about taking risk – but risks that are well thought out and well understood and support the business objectives. FROM DELOITTE REVIEW- November 2010

12. Risk Management:The Board’s Role • Identifying Risks • Identifying Opportunities • Understanding Impact on Company of Both • Prioritizing & Understanding Company Steps • Requires Both Long and Short-Term View • Requires Full Board Responsibility • DOES THIS SOUND LIKE STRATEGY AND THE OPERATING PLAN?

13. Risk Management:Key Benefits • Gaining first mover advantage through the identification of “Black Swans” –both uncommon opportunities and unexpected disruptions • Finding the unexpected before it finds you, focusing on being proactive • Defining the appropriate level of risk taking for the company FROM DELOITTE REVIEW- November 2010

14. Risk Management:Types of Risk • Operational • Market • Credit & Liquidity • Reputation • BusinessContinuity /IT Security • Regulatory /Compliance • Strategic Model Risk • Litigation • Hazard or Insurable Risks • Vendor • Privacy • Budgeting / Financial • Geopolitical FROM DELOITTE REVIEW- November 2010

15. Risk Management:Where Risk Resides • Culture • Data • Tools and Supporting Technology Systems • Human Resource Policies and Practices • Risk Methodology • Organizational Structure • Ability to Demonstrate Checks/Balances • Ability to Evaluate Risks/Benefits • Transparency with Board

16. Risk Management:“Inside Discussions” • Reputational Risk • Stakeholder Satisfaction • Market Risk • Concerns about Outside Factors • The Unknown

17. Risk Management:Fatal Flaws • Counting on false assumptions • Failing to exercise vigilance • Ignoring velocity and momentum • Failing to make key connections and manage complexity • Failing to imagine failures • Maintaining inadequate margins of safety • Focusing exclusively on the short or long term • Lack of operational discipline • FAILING TO TAKE THE RIGHT RISKS FROM DELOITTE REVIEW – November 2010

18. M & A:Growing Scrutiny • M&A activities continue to increase, even though as many as 80% are ultimately unsuccessful • M&A securities class action lawsuits are also now on the rise

19. M & A:Business Judgment The acquirer must have clear goals: • Focused diversification • Market share / customer technology gains • Financial strength and liquidity • Timing (company has access to financing when few others do) • Strategic positioning (global relationships)

20. M & A:Business Judgment Has the company prepared a detailed post closing time-line, with working teams / owners? • Milestone completion dates? • Standard tracking system with defined measurables? • Systematic / disciplined approach to execution? • Senior management monthly reviews? • Continuous communication?

21. M & A:Business Judgment • Success factors are those described in the acquisition plan - measure and communicate • “PEOPLE” issues FIRST • Get bad news out early • Are integration “owners” appointed? • Are JOINT teams established and working? • Does senior management review milestones regularly and discuss issues / status with the board?

22. M & A:Key Issues • Communication • Organization – Who and at what position? • Standardized Comp / Benefits • Business Processes • Product Roadmap • Selling - Unified sales force • Reporting Systems • Facilities – Space / move required FOCUS FOCUSFOCUSFOCUSFOCUS

23. M & A:Communication • Strategy • Business Goals • Operations • Technology/ Products • Sales & Marketing • Human Resources • Financial Goals • Investors TEAMS MADE UP OF PEOPLE FROM BOTH ACQUIRER AND COMPANY BEING ACQUIRED

24. M & A:Organization • Sizing number of levels / “flat” org • Who reports to whom • “Titles” • Location • Assignment “Balance” • Minimize burnout

25. M & A:Comp and Benefits • Compensation / Benefits • Base salary levels-compatibility? • Benefit plans-compatibility? • Bonus / incentive plans • Stock plans • Severance / payment policies • Salary grade structure/offices • Retention bonus and payment

26. M & A:Products & Sales • Unification of the sales force is critical • Sales training- priority • Product training • Product road map • Sales kits • Sales terms and conditions • Sales cycle reduction techniques

27. M & A:Process & Reporting • Business Process Inconsistencies • Culture / Policies of doing business will differ between companies and if left unchecked will frustrate all stakeholders (employees, customers, suppliers and shareholders) • Performance measurement standards must be consistent and comparable with data integrity

28. M & A:Process & Reporting • Management Information System Issues • Hardware / Security • Software • Telephone / E-Mail; Website; Voice mail • Financial and Reporting • Single system recommendation • Complete all systems integration within one year of closing

29. M & A:Measuring Success • Shareholder(s) / investor(s) satisfaction • Achieving predicted financial returns • Customer satisfaction • Employee turnover (low) • Client / customer retention (high) • Achieving time sensitive milestones • Achieving / maintaining respect in the marketplace and the community

30. Risk Management:Business Judgment • Have they evaluated their operational risks? • Has there been reviews of products (coming technology changes) and sourcing of materials? • If there is a widely dispersed supply chain, particularly in global companies, is there visibility / control? • What about systems? • Does Internal Audit pay attention to “business risk” as well as financial risk? FROM KPMG REVIEW – January 2011

31. Risk Management:Business Judgment • Does the Company’s risk culture promote or hinder efforts to manage / understand risks? • Does the company “think about the unthinkable” in identifying both opportunities and risks? • Has there been an effort to create a disaster preparedness team to brainstorm about potential threats to the business and how to respond? FROM KPMG REVIEW – January 2011

32. Risk Management:Does the Board… • Understand both Management’s and the Board’s differing approaches and responsibilities • Spend adequate time at board meetings, and insure that management is spending adequate time, on the risk elements identified here? • Maintain appropriate checks / balances? • Maintain appropriate levels of reporting / milestones / analysis / discussion? DOES THE COMPANY TAKE RISK SERIOUSLY?

33. “A Peek Inside The Boardroom” RISK MITIGATION THROUGH BOARD EFFECTIVENESS Alan A. Rudnick Corporate Governance Advisor , Former Corporate Secretary & General Counsel

34. Risk Mitigation:Board Effectiveness How can board effectiveness mitigate the risk of litigation and liability? • Alignment among directors and CEO • Enhanced decision making • Better oversight and monitoring • Effective corporate culture

35. Risk Mitigation:Board Effectiveness What are some of the characteristics of effective boards? • Alignment regarding company strategies • Understanding the company’s risk profile • Understanding factors that drive the business • Mutual trust and respect on board • Governance practices and procedures articulated and understood

36. Risk Mitigation:Board Effectiveness What are some of the characteristics of effective boards? • Board composition and succession planning geared to business, strategic, and risk issues • Meaningful annual assessments of board and committee effectiveness • Relationships with shareholders and other constituencies

37. Risk Mitigation:Board Effectiveness What are some of the characteristics of effective boards? • Appropriate levels of engagement and satisfaction among directors • Understanding appropriate roles of board and management

38. Risk Mitigation:Board Effectiveness How can boards maximize effectiveness? • Discussion and deliberation time during meetings; regular executive sessions • Annual assessment – interviews with facilitator to surface issues

39. Risk Mitigation:Board Effectiveness How can boards maximize effectiveness? • Improved communication – executive sessions, opportunities for interaction • Use of annual board retreat – focus on potentially difficult matters outside of board meeting pressures

40. Board Assessment:Liability Red Flags What are some red flags? When should you dig deeper? • Recent company merger; significant acquisition • Events changing board and corporate culture • New CEO, particularly if from outside • Significant changes in board composition within short period

41. Board Assessment:Liability Red Flags What are some red flags? When should you dig deeper? • Shareholder action involving the board • Disagreements and disputes among non-management directors • Corporate crisis: criminal prosecution SEC investigation, etc.

42. Risk Mitigation:Board Assessment What can you do? What are the questions to ask? • Meet with the corporate secretary, general counsel, and, if possible, non-executive chair or lead director in person. • Do all directors understand the company’s business drivers and risk profile? • Does the CD&A make sense to you?

43. Risk Mitigation:Board Assessment What can you do? What are the questions to ask? • Does the board have a board diversity and board succession policy? How does it work? • Read the last couple of years of press releases; Google the company. Has the company or its directors gone through difficult events?

44. Risk Mitigation:Board Assessment What can you do? What are the questions to ask? • How does the company do ethics training? Is ethics training required for each employee, officer, and director ? Is training done in local languages? • Is there an executive session at every board and committee meeting?

45. Risk Mitigation:Board Assessment What can you do? What are the questions to ask? • What portion of meeting time is devoted to presentation and what to discussion? • What type of annual board and committee assessment process is used? Is it geared toward each directors’ ability to raise matters of concern?

46. Risk Mitigation:Board Assessment What can you do? What are the questions to ask? • Are there pending criminal prosecutions and government investigations anywhere in the world? • Is there a strong non-executive chair or a strong lead director?

47. Risk Mitigation:Board Assessment What can you do? What are the questions to ask? • Are the governance practices and procedures well articulated? Ask for copies of all such procedures – especially if they’re not published on the company’s website.

48. Risk Mitigation:Board Assessment What can you do? What are the questions to ask? • Ask whether you can speak with the non-executive chair, lead director, or chair of the nominating/governance committee; if you can’t, why not? • Trust your gut reactions.

49. The Director’s Role “ Corporate directors have a significant responsibility and play a critical role in safeguarding the integrity of a company’s public statements and the interests of investors when evidence of fraudulent conduct by corporate management comes to their attention.” Securities Exchange Commission

50. “A Peek Inside the Boardroom” The Director Perspective on D&O Liability New York City ~ February 2 & 3, 2011