2011 Board Practices Report Design, Composition, and Function

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2011 Board Practices Report

Design, Composition,

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December 2011

Dear Reader:

The Society of Corporate Secretaries and Governance Professionals (“the Society”) and the Deloitte Center for Corporate Governance are pleased to issue the 2011 Board Practices Report (the “Report”) of companies represented in the Society's membership. This Report is a key component in our efforts to analyze and report on current governance practices. And, as this is the seventh edition, comparative information and trends related to reports published in 1999, 2002, 2005, and 2008, are provided. Topics addressed in the Report keep pace with the dynamic corporate governance environment; thus, this year’s issue covers new topics such as details on director qualifications, shareholder engagement, social media policies, and the use of technology in the boardroom.

The value of this Report lies in the unique data it provides. Based on the responses of over 200 corporate secretaries, where else will you learn how much board meetings are lengthening, that mandatory retirement ages are trending older, that classified boards are only increasing at small-cap companies, and that a majority of audit committees receive reports on tips from internal compliance hotlines at least 2-4 times per year? It also reveals hard-to-come-by data, such as how many times directors have had direct contact with shareholders in the last year, and how many boards are using web portals and tablets to receive their materials.

In short, we believe this Report is the only one of its kind tailored specifically to practitioners of corporate governance. We hope it will be a useful tool to you and those executives and boards that you advise.

Finally, we sincerely thank the participants for their time; this Report would not be possible without you.

Sincerely yours,

Darla C. Stuckey

Senior Vice President Policy & Advocacy

Society of Corporate Secretaries and Governance Professionals

Maureen P. Errity

Director Deloitte LLP

Deloitte Center for Corporate Governance

This publication contains general information only and is based on the experiences and research of Deloitte practitioners. Deloitte is not, by means of this publication, rendering business, financial, investment, or other professional advice or services. This publication is not a substitute for such professional advice or services, nor should it be used as a basis for any decision or action that may affect your business. Before making any decision or taking any action that may affect your business, you should consult a qualified professional advisor. Deloitte, its affiliates, and related entities shall not be responsible for any loss sustained by any person who relies on this publication.

As used in this document, “Deloitte” means Deloitte LLP and its subsidiaries. Please see www.deloitte.com/us/about for a detailed description of the legal structure of Deloitte LLP and its subsidiaries. Certain services may not be available to attest clients under the rules and regulations of public accounting.

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2011 Board Practices Report Design, Composition, and Function 3

Introduction

Background

The 2011 Board Practices Report (the “Report”) is the 7th edition put forth by the Society of Corporate Secretaries and

Governance Professionals, Inc. (“the Society”). The first issue was published in 1995, and subsequent editions were made available in 1999, 2000, 2002, 2005, and 2008. The three most recent survey questionnaires and accompanying reports, including those from 2011, were developed in collaboration with Deloitte LLP’s Center for Corporate Governance.

Each report is based on the results of a survey distributed to the Society’s membership, which includes more than 3,000 members representing companies of various sizes, industries, and organization structures. The reports are intended to present timely information on board roles and responsibilities and other topics of corporate governance.

To provide trend data, the 2011 questionnaire contained many questions that were asked previously. Where appro-priate, questions were removed if they were no longer relevant, and questions were added to account for developments affecting board and governance practices. Industry data was not considered in 2008; therefore, the trend data applies only to market capitalization results.

Board Practices Report Questionnaire

The 2011 questionnaire included 81 questions (14 more than was on the 2008 survey), covering 19 areas of board practice, including: board meetings and materials, committee structures and roles, risk oversight, and strategy. The survey topics and questions reflect established board practices, as well as policies relating to recent efforts in the areas of governance reform and regulation. New this year was the addition of questions related to political contributions and donations, fifth analyst calls with investors, social media policies, and questions on sustainability. Also new to the questionnaire is a section on director qualifications, which provides data on the survey participants’ board demographics, attributes, and skills.

The choices for answers varied. In most cases, participants could select from either “Yes” or “No” responses; in some instances, it was appropriate to provide a numerical range or specific set of responses from which to choose. When appropriate, “Not Applicable” (represented by N/A) or “Don’t Know” was included in the choices.

Because the questionnaire was primarily limited to data not publicly available, Deloitte and the Society researched the proxy statements of the public company survey participants to obtain more information about the board governance practices of these companies. The results can be found in the public company survey results section.

Methodology

Throughout this Report, percentages were based on the number of responses to a particular question. Due to rounding to the nearest whole digit, there may be cases where percentages may not add up to 100%.

A number of questions allowed respondents to supply an answer if none of the provided choices was suitable. In some cases, these "other" responses have been consolidated into appropriate categories.

Participant overview

A total of 208 survey responses were received and are illustrated in the charts and tables contained in this Report. Survey participants were anonymous and the results provided cannot be attributed to a specific company. Participants were from a number of company types, shown in the table to the right.

Company Type Number of Respondents Public 175 Privately held 19 Nonprofit 12 Partnership 2

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2011 Board Practices Report Design, Composition, and Function 5 Report contents

Participant demographics

This section provides information concerning the industry, size, and type of companies that participated in this year’s survey.

Summary of overall results and key findings

Responses from all 208 participants from the public, private, and nonprofit companies have been compiled in a table for easy viewing. When answer choices consisted of a numerical range or another specific answer, the affirmative response (“Yes”) has been provided. When fewer than 208 participants responded to a question, the number of responses is indicated by an “n” value.

Public company survey results

The charts in this section represent responses from the 175 public company participants. In addition, the results are broken down by market capitalization and financial versus non-financial industries. When fewer than 175 participants responded to a question, an “n” value has been provided. Results from the 2008 results have been included, where applicable.

Non-public company survey results

This section includes responses received from participants representing private, partnership, and nonprofit organizations; the results for the 33 participants have been summarized in a tabular format, broken down to show results by company type. When fewer than 33 participants responded to a question, an “n” value has been provided.

Director qualifications survey results

New this year is a section providing data on director qualifications, which were segmented into three categories: leader-ship, technical, and professional. Other data related to director age, gender, and ethnicity is also included.

Appendices

• Comparison table of prior year results: Results from comparable questions in the 1999, 2002, 2005, and 2008 surveys have been consolidated in a table.

• 2011 Board practices survey questionnaire

Certain charts contain information that was obtained from the proxy statements of the public company survey participants. This data was researched by the authors of this Report and are denoted by a blue border.

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Participant demographics

2. Please specify your company type (for each company type, the count of respondents (n value) and percentage of the total count is provided as “n value/ percentage”)

1. What is your organization's industry?

Large-cap 60/ 34% Mid-cap 88/ 50% Small-cap 27/ 16% Small-cap (n=207) Mid-cap Large-cap 15% 15% 10% 8% 8% 8% 7% 5% 5% 3% 3% 2% 2% 1% 1% 1% 1% 0% 3%

2. Please specify your company type (for each company type, the count of respondents (n value) and percentage of the total count is provided as “n value/ percentage”)

1. What is your organization's industry?

Large-cap 60/ 34% Mid-cap 88/ 50% Small-cap 27/ 16% Small-cap (n=207) Mid-cap Large-cap 15% 15% 10% 8% 8% 8% 7% 5% 5% 3% 3% 2% 2% 1% 1% 1% 1% 0% 3% Industry

Fifty-two respondents represented financial services companies, a category that consisted of banking, finance, insurance, real estate and construction. Other participating companies were considered non-financial services.

Company type and size

There were a total of 208 participants in this survey, which are further classified as follows:

Company type Total number of respondents Financial services industry Public 175 38 Privately held 19 11 Nonprofit 12 3 Partnership 2 0

For purposes of the 2011 survey and to follow the breakdown used in the 2008 survey, the distribution of public company participants were segregated using the following market capitalization:

Large-cap companies > $10 billion

Mid-cap companies ≥700 million and ≤ $10 billion Small-cap companies < $700 million

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2011 Board Practices Report Design, Composition, and Function 7

Organization criteria

1 What is your organization’s industry: (n=207)

Advertising and publishing 0%

Agriculture or mining 3% Banking or finance 14% Energy 5% Healthcare or pharmaceutical 8% Insurance 8% Manufacturing consumer 7% Manufacturing industrial 14% Media/ communications 1%

Nonprofit or public admin 2%

Professional services 0%

Public utility/ utility holding 10%

Real estate or construction 2%

Retail/ Wholesale 8%

Service industries (misc.) 2%

Technology (including software) 5%

Telecommunications 1%

Transportation or distribution 3%

Other 3%

1a* If Other industry (Please specify): • Aerospace

• Gaming

• Industrial gases-basic materials • Specialty chemical

2 Please specify your company type:

Public company 84%

Privately held 9%

Partnership 1%

Nonprofit 6%

Board practices

Board selection, recruitment and composition

Yes No

3 Does your organization use a skills matrix or similar tool to periodically assess board

composition and fill gaps when selecting new directors? (n=206)

59% 41%

Yes No

4 Does your organization use written criteria in director selection? (n=207) 75% 25%

Yes No

5 Does your organization use an executive search/ board director recruiting firm to

assist in the recruitment of board directors?

58% 42%

Yes No N/A

6 Does your organization provide a mechanism for shareholders to nominate

candidates to the board?

77% 13% 10%

Summary of results and

key findings

Summary of results

The following table includes the responses to the 2011 questionnaire from all 208 survey participants. For those questions in which fewer than 208 responses were received, an “n” value has been provided to indicate the number of responses. An asterisk represents questions where a participant was asked to provide a numerical or text response. These responses have been consolidated into categories or ranges.

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Yes No

7 Do you have a mandatory retirement policy for directors? 65% 34%

7a* If so, at what age is retirement required? (n=132)

≤70 20% 71 2% 72 52% 73 3% 74 2% ≥75 21%

Other: formula based on age + years of service 1%

Independent chairman

8 Is the independent board chairman also the chairman of the nominating and

governance committee?

The independent board chairman is also the chairman of the nominating and governance committee

8%

No, but our policy would not restrict the same individual from holding both positions 36% Our policy does not permit the same individual from holding both positions 4%

Not applicable — we do not have an independent chairman 52%

9 Who is responsible for the periodic evaluation and development of the independent

chairman? (n=207)

The nominating and governance committee 13%

The full board 17%

Another committee 1%

No formal evaluation is performed 17%

9a* If another committee, please specify:

• Another independent director has been appointed to complete this review • Executive compensation committee

10 How often is periodic evaluation of the independent chairman performed?

Annually 23%

Periodically, as needed 4%

No formal evaluation is performed 21%

11 Does your policy specify a rotation policy or term limit for the independent chair?

(n=207)

Rotation policy 1%

Term limit 4%

Neither 41%

Board meetings and materials

12 Does your company permit shareholders to call special shareholder meetings?

(n=198)

Permitted without any restriction 11%

Permitted but with minimum ownership threshold percentages 40%

Not permitted 49%

12a* If permitted with a minimum ownership threshold, please specify the threshold percentage (e.g., 10, 15, 20, 25%) (n=70) ≤10% 23% 15-20% 13% 25% 39% 33-35% 3% 50% 7% 66% 1% 75% 1%

Majority of shares (not including specific threshold percentages listed above) 9%

Other (e.g., as required by state law) 4%

13 How many hours does a typical board meeting last? (Do not count time spent on

committee meetings on a board meeting day) (n=207)

1-2 hours 5%

3-5 hours 55%

6-8 hours 30%

9-10 hours 6%

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14 How far in advance are board meeting materials provided to board members?

(n=206)

At most five business days before meeting 37%

Between five to ten business days before meeting 61%

More than ten business days before meeting 2%

Materials are not distributed prior to board meetings 0%

15 What is the most common form of board meetings for your organization?

Live, face-to-face meetings 90%

Live, face-to-face meetings with some directors attending via web-conference or video conference

1% Live, face-to-face meetings with some directors attending via telephone 5%

Tele-conference calls 3%

16 How often do you hold board meetings outside of the country in which your

company is headquartered? (n=206)

Frequently (five or more times a year) 1%

Sometimes (two to four times a year) 3%

Rarely (once a year) 24%

We do not hold board meetings outside of the country in which our company is headquartered 71%

Yes No N/A

17 Do you make company owned aircraft available to directors for travel to meetings?

(n=207)

29% 30% 40%

18 What amount of reimbursement does your company provide to directors for travel to

meetings?

Full reimbursement 93%

Partial reimbursement 1%

None 6%

Committee structures and roles

19 How many standing committees does your board have?

Two or less 3%

Three to five 83%

Five or more 13%

20 Please complete the following table with regard to the specific committee practices of your board

Note: For each committee in the following table, the count of respondents (n value) and this percentage of the total count of respondents for the committee is provided as “n value/ percentage”.

Committee Committee size All companies Meeting frequency in a year All companies Average length of meetings (hrs) All companies Auditor attendance in meetings (Y/N) All companies Audit committee 1-4 120/ 59% 1-6 91/ 46% 0.5-1.5 47/ 23% Yes 196/ 98% 5-9 83/ 41% 7-11 93/ 47% 2-3 132/ 66% No 3/ 2% >10 1/ 0% ≥12 16/ 8% >3 22/ 11% Compensation committee 1-4 117/ 58% 1-6 162/ 84% 0.5-1.5 70/ 35% Yes 0/ 0% 5-9 85/ 42% 7-11 28/ 14% 2-3 118/ 59% No 186/ 100% >10 0/ 0% ≥12 4/ 2% >3 11/ 6% Nominating/ corporate governance 1-4 119/ 61% 1-6 179/ 95% 0.5-1.5 121/ 63% Yes 0/ 0% 5-9 75/ 38% 7-11 7/ 4% 2-3 68/ 35% No 178/ 100% >10 1/ 1% ≥12 2/ 1% >3 3/ 2% Executive committee 1-4 34/ 45% 1-6 26/ 79% 0.5-1.5 30/ 73% Yes 0/ 0% 5-9 37/ 49% 7-11 3/ 9% 2-3 11/ 27% No 68/ 100% >10 5/ 7% ≥12 4/ 12% >3 0/ 0% Science & technology committee 1-4 5/ 56% 1-6 9/ 100% 0.5-1.5 3/ 38% Yes 0/ 0% 5-9 4/ 44% 7-11 0/ 0% 2-3 5/ 63% No 12/ 100% >10 0/ 0% ≥12 0/ 0% >3 0/ 0% Risk committee 1-4 6/ 25% 1-6 17/ 77% 0.5-1.5 6/ 25% Yes 3/ 14% 5-9 18/ 75% 7-11 4/ 18% 2-3 17/ 71% No 19/ 86% >10 0/ 0% ≥12 1/ 5% >3 1/ 4%

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21 Which of the following has the primary responsibility for appointing committee

members and chairs?

Full board 47%

Nominating/ corporate governance committee 44%

Board chair/ lead director 5%

Other 4%

21a* If Other, please specify:

• Chairman makes recommendations which are then acted upon by the full board • Executive committee

• Nominating/ corporate governance committee nominates committee members/ chairs for full board approval

Yes No

22 Does your board have a policy to rotate committee chairs? (n=206) 22% 78%

Yes No

23 Does your board have a policy to rotate committee membership? (n=206) 21% 79%

Yes No

24 Does your board have limits on audit committee members being able to participate

on other organizations’ audit committees? (n=207)

45% 55%

24a* If yes, please specify the limit: (n=88)

1 2% 2 42% 3 43% 4 6% 5 1% Other

• Directors should hold participation in other boards to a level that does not adversely impact their ability to serve the company’s board and avoid accepting director responsibilities that would create the opportunity for/ appearance of a conflict.

• Individualized according to demands on time • Per NYSE rules

• The SEC limit

6%

Audit committee

25 How often does the audit committee meet annually via:

In-person meetings (n=202) 1-4 68% 5-9 30% 10-14 2% By tele-conference calls (n=161) 1-4 81% 5-9 19% 10-14 0%

By video or web conference (n=3)

1-4 100% 5-9 0% 10-14 0% Committee Committee size All companies Meeting frequency in a year All companies Average length of meetings (hrs) All companies Auditor attendance in meetings (Y/N) All companies Strategy committee 1-4 3/ 25% 1-6 11/ 100% 0.5-1.5 3/ 25% Yes 0/ 0% 5-9 7/ 58% 7-11 0/ 0% 2-3 7/ 58% No 15/ 100% >10 2/ 17% ≥12 0/ 0% >3 2/ 17% Environment committee 1-4 8/ 53% 1-6 15/ 100% 0.5-1.5 5/ 36% Yes 0/ 0% 5-9 7/ 47% 7-11 0/ 0% 2-3 9/ 64% No 15/ 100% >10 0/ 0% ≥12 0/ 0% >3 0/ 0% Corporate responsibility 1-4 4/ 40% 1-6 10/ 100% 0.5-1.5 6/ 60% Yes 0/ 0% 5-9 6/ 60% 7-11 0/ 0% 2-3 4/ 40% No 11/ 100% >10 0/ 0% ≥12 0/ 0% >3 0/ 0% Disclosure 1-4 2/ 25% 1-6 5/ 63% 0.5-1.5 5/ 63% Yes 2/ 22% 5-9 4/ 50% 7-11 3/ 38% 2-3 3/ 38% No 7/ 78% >10 2/ 25% ≥12 0/ 0% >3 0/ 0%

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26 How has the frequency of audit committee meetings changed since last year?

(n=207) Increased substantially 2% Increased slightly 9% Decreased 4% No change 85% Yes No

27 Are audit committee meetings held by phone considered different than in-person

meetings for purpose of proxy disclosure? (n=197)

6% 94%

28 Does your organization’s audit committee hold a separate meeting to review the

earnings release vs. quarterly reviews or are they combined? (n=193)

Separate meetings 37%

Combined meetings 63%

29 How often do external auditors attend your company’s audit committee meetings?

(n=206)

Frequently (all or almost all audit committee meetings) 93%

Sometimes (two to three audit committee meetings a year) 4%

Rarely (one audit committee meeting a year) 2%

Never 0%

Don’t know 0%

30 How often does your audit committee meet separately with management? (n=206)

Frequently (all or almost all audit committee meetings) 81%

Sometimes (two to three audit committee meetings a year) 15%

Rarely (one audit committee meeting a year) 2%

Never 2%

Don’t know 0%

31 Which members of management meet separately with the audit committee? (Check

all that apply) (n=202)

Head of internal audit 87%

General counsel 49%

Chief executive officer 44%

Chief financial officer 77%

Chief compliance officer 32%

Other 18%

31a* If Other, please specify: Representative responses:

• Controller and/ or chief accounting officer • Chief risk officer

• Chief operating officer Other responses:

• All members of management except the internal auditor

• Management group meets with audit committee; Internal audit meets alone with audit committee

• Risk manager, corporate secretary, chief credit officer, human resources director, controller, director of retail banking, commercial banking manager

• Secretary and treasurer • No meetings

32 How often does your company’s audit committee engage specialists for specific

matters on their agenda? (n=204)

Never 25%

Don’t know 2%

33 How often does the audit committee receive reports on internal tips from a

compliance hotline? (n=203)

Never 9%

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Board orientation and training

Yes No

34 Does your organization have a formal orientation program for new directors (beyond

supplying a directors’ manual)? (n=203)

74% 26%

34a If yes, please check the orientation programs sponsored by your organization for directors: (Choose all that apply) (n=149)

Live, in-house session led by an individual serving on the board and/or a staff member of the organization

99%

Live training by a third party 2%

Internet-based training 5%

35 Does your company train directors on: (Choose all that apply) (n=180)

Anti-corruption policies (e.g., FCPA, UK Anti-bribery Act) 36%

Insider trading 78%

Political contributions 22%

Company policies 81%

Other regulatory issues related to your business such as privacy, etc. 62%

Other formal training 21%

35a* If Other, please specify: Representative responses: • Code of conduct • Ethics

• Company, operations, and industry specific matters • General corporate governance

• Fiduciary/ director duties Other responses: • Basel II

• BSA/ AML - Section 16 - Reg FD

• Reinsurance, investment management, marketing

36 Which of the following best describes your board’s director education program?:

(Choose all that apply) (n=206)

Provided in-house by management 71%

Provided in-house by a third party 21%

Directors are reimbursed for public forums or peer group sessions attended 60%

The full board collectively attends a single public forum 1%

Other 4%

Our board does not have a formal director education program 15%

• Different approaches reflecting the needs of different directors

• Each board member in a three year period is encouraged to participate in educational programs relevant to the director’s committee assignment and/ or recommended best governance practices

• Once a year training is provided at a board meeting by either in-house or external providers. In addition, directors are encour-aged to attend programs sponsored by groups such as NACD, NASDAQ, UCLA, Stanford, etc.

• Provided by corporate secretary • Public webinars

• Regular store walks with management • Relevant reading materials are sent to directors

37 How do your directors learn about director education programs? (Choose all that

apply) (n=192)

From the corporate secretary or management 85%

From other directors 48%

From third party mailings 59%

Other 5%

37a* If Other, please specify: • External auditors

• The nominating/ governance committee may suggest outside education programs • All they learn from our company comes through meeting materials/ presentations.

Board evaluations

38 How are your directors evaluated? (Choose all that apply) (n=205)

Self-evaluation 74%

Individual peer-evaluation led by corporate secretary or other in-house personnel 18%

Individual peer-evaluation led by a third party facilitator 13%

Our organization does not have a formal board performance evaluation process 6%

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2011 Board Practices Report Design, Composition, and Function 13 38a* If Other, please specify:

• Annual board/ committee self evaluation facilitated by outside counsel; no formal peer-evaluation

• Bio, qualifications, meeting attendance all provided to full board; suggested discussion topics given to full board to discuss in private session

• Board and committee evaluations and ‘lite’ individual assessments done in executive session

• Board evaluates board and committee performance via questionnaire, coordinated by corporate secretary

• Chair of the governance committee meets with all committee chairs and evaluates directors’ performance and participation • Each independent director meets privately with the chairman of the board and the chairman of the corporate governance

and nominating committee • Evaluation by committee chairs

• For 2012, moving to a third-party independent evaluation method • Individual peer by electronic survey (anonymous)

• Individual peer-evaluation led by chair of the nominating and corporate governance committee • Individual peer-evaluation led by chairman of the board

• Individual peer-evaluation led by independent lead director - another independent director leads the review of the lead director

• Individual peer-evaluation led by two chairs (of board and one committee) • Individual self and peer-evaluation led by governance committee chair • Management evaluation of board

• No peer-to-peer evaluation program. Facilitated by outside counsel, each director evaluates the full board’s performance over the year.

• Outside advisor periodically engaged to conduct interviews after self-evaluations are done • Self-evaluations facilitated by lead director

• We rotate our approach from year-to-year to keep the process fresh

39 To whom does the evaluation pertain? (Select all that apply) (n=206)

Individual board members 42%

Board committees 80%

Full board as a whole 88%

Not applicable 6%

Yes No N/A

40 Have you had a third party evaluate the board’s performance? (n=206) 18% 77% 5%

41 How often is the board evaluated? (n=207)

More frequently than once a year 1%

Less frequently than once a year 4%

Once a year 89%

Not evaluated 5%

Strategy

42 How often are strategic objectives discussed with the board? (n=207)

Annually 21%

Quarterly 20%

At every meeting 50%

Other 9%

Representative responses provided:

• 2-day semi-annual deep dive; discussion privately with CEO at nearly every meeting • Periodically; as developments occur on various aspects of the strategy

• Semi-annually

• Some aspect of strategy is discussed at nearly every meeting

• The entire strategic plan, for the following year and long-term, is discussed once a year. Progress against objectives may be discussed quarterly.

• There are annual strategy sessions with follow ups by certain businesses during the year

43 How often does your board participate in an off-site strategy meeting with

management? (n=205)

More frequently than once a year 2%

Less frequently than once a year 10%

Once a year 60%

We do not hold off-site strategy meetings with management 29%

44 How is strategy set at your organization? (n=206)

Management develops strategy and the board advises, challenges and approves 92%

The board and management develop strategy together 6%

The board develops the strategy and management approves and executes 0%

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• At every meeting, but with special emphasis semi-annually. • Continuous collaboration between management and the board

45 Is the level of board involvement in setting strategy increasing or decreasing? (n=206)

Increasing 50%

Decreasing 0%

Remains the same 50%

Risk oversight, disclosure committee, and political contributions**

46 How does your board assign risk oversight for the organization’s risk management

program? (Select all that apply) (n=207)

We have a board risk committee 13%

The audit committee has primary responsibility for risk oversight 50%

Risk oversight responsibilities are spread across all board committees 43%

The full board is responsible for risk oversight 54%

We have not considered board responsibility for risk oversight 0%

Other 8%

46a* If Other, please specify: • Audit and risk committee

• Board oversees strategic, operational; committees oversee risk in their respective areas of responsibility; audit committee oversees allocation of oversight response

• Committees are also charged with risk oversight for the risks within their committee charters • Compliance committee

• Currently evaluating

• Executive committee is responsible for risk oversight

• Chief risk officer, risk management structure and management risk committees and board approve risk appetite • Internal auditor manages/ designs risk management

• Management enterprise risk management committee with audit committee chair as board’s liaison with reports to full board

• Nominating & governance committee ensures oversight by a committee or board

• Risk management is supplemented by senior management reviews and reported up to the board • Split between governance and audit committee

• The safety committee has oversight of specific safety-related risks • We have a finance and risk management committee

• While the board has full responsibility for risk oversight, quarterly activities of the management risk committee are made to the audit committee

Yes No N/A

47 Does your organization have a management disclosure committee as recommended

by the SEC for public companies? (n=207)

78% 10% 12%

Yes No

47a If yes, does the management disclosure committee report to either the board or a board committee? (n=158)

34% 66%

47b If yes, how often? (n=54)

Monthly 0%

Quarterly 87%

Semi-annually 2%

Annually 0%

No determined frequency; only when needed 11%

48 Does the company align risk oversight/ risk management with the company’s

strategy? (n=206)

Yes 87%

No 5%

Don’t know 8%

49 Does your company’s board oversee political contributions and donations made

by the company — or oversee the political action committees (or similar) of the company? (n=202)

Yes 30%

No 63%

Don’t know 7%

50 Has your company imposed any limitations, or reporting obligations, to the company

on political contributions by directors? (n=203)

Yes 11%

No 82%

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CEO succession planning

51 How often does the full board review CEO succession plans? (n=204)

More than once a year 23%

Once a year 62%

Less than once a year (e.g., every two years) 4%

Only when a change in circumstance requires 8%

Never 2%

52 Who has the primary responsibility over the CEO succession planning process?

(n=205)

Entire board 37%

Compensation committee 24%

Independent directors 4%

CEO 3%

Other 6%

• As a partnership, the majority partner’s chairman decides • Chairman and CEO, which in turn report status to the board • Compensation committee but in practice, the full board

• Entire board responsible, plan and planning process driven by CEO • Executive committee

• Full board through its executive committee • Human resource and governance committee • Lead director

• Small committee of independent directors

• Special committee composed of lead director and the chairs of the governance and compensation committees

CEO performance evaluation

53 How often does the full board review the CEO’s performance? (n=205)

More than once a year 8%

Once a year 86%

Less than once a year (e.g., every two years) 0%

Only when a change in circumstance requires 3%

Never 3%

54 Who has the lead responsibility over the CEO performance evaluation process?

(n=204)

Entire board 13%

Compensation committee 61%

Independent chair or lead director 10%

Other 4%

• Compensation committee in conjunction with lead independent director • Executive committee

• Human resource and governance committee

• Nominating and governance committee and lead director

• The independent directors (all of whom sit on the executive compensation committee) evaluate the performance of the management directors as a group, and individually, following a presentation by management to the committee

Shareholder engagement and shareholder activism

Yes No N/A

55 Are directors required to attend the annual shareholders meeting? (n=207) 66% 23% 12%

Yes No N/A

56 Do you have a policy relating to contact between directors and shareholders? (n=206) 45% 45% 10%

57 Have board members had direct contact with shareholder(s) or shareholder groups

over the past year? (n=203)

Board members have had direct contact 21%

Direct contact was made only as arranged or suggested by company management 15%

Board members did not have direct contact 51%

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Yes No N/A

58 Has your organization been approached by a shareholder activist within the last 12

months? (n=204)

30% 57% 13%

59 Has your board considered holding what is known as a “fifth analyst” call with

investors? (n=207)

Yes 5%

No 56%

Not familiar with the term 27%

Not applicable 12%

Voting and proxy issues

Yes No N/A

60 Did your organization receive a shareholder proposal during the 2011 proxy season

other than auditor ratification, say-on-pay, or required proposals? (n=207)

30% 55% 14%

61 When does your organization provide reimbursement of expenses related to director

election campaigns? (Choose one) (n=206)

Reimbursement is provided when the nominee is successful 1%

Reimbursement is provided when the nominee achieves a certain percentage of the vote 0%

Never 31%

Not applicable 68%

62 Is your organization considering adopting a policy or by-law providing

reimbursement of expenses related to director election campaigns in light of proxy access? (Choose one) (n=202)

Reimbursement would be provided when the nominee is successful 0%

Reimbursement would be provided when the nominee achieves a certain percentage of the vote 0%

Not considering adopting a policy or by-law 69%

Not applicable 31%

Earnings guidance

63 Does your organization publicly provide earnings per share (EPS) estimates? (Select all

that apply) (n=202)

Quarterly earnings per share estimates are provided 22%

Annual earnings per share estimates are provided 36%

Other types of forward-looking information (e.g., net income, revenue, operating cash flow, etc.) are provided

32% EPS estimates nor other types of forward-looking information (e.g., net income, revenue,

operating cash flow, etc.) are not provided

21%

Not applicable 19%

64 Does your organization intend to change how it provides EPS estimates or other

forward-looking information? (n=205)

There is no intention to change the amount of information provided 59%

We intend to reduce the amount of information provided 1%

We intend to increase the amount of information provided 1%

Don’t know 18%

Not applicable 20%

Directors and officers liability insurance

Yes No

65 Does your organization have directors and officers (“D&O”) liability insurance?

(n=207)

99% 1%

Yes No

65a If yes, does the D&O insurance cover more than designated directors and officers of

the organization? (n=198)

32% 68%

65a* Please list who else is covered under the D&O policy: Representative responses:

• All or most employees • Select employees, e.g.,

– Employees who serve in nonprofit director positions at company request

– Employees who serve at the company’s request on the boards of subsidiary companies or joint ventures, or portfolio companies.

– Employees who take responsibilities or roles at the request of the company – Employees for securities claims

– Certain key employees (environmental, investor relations, etc.) who are not officers – Employees acting on behalf of the organization

– Other employees on the disclosure committee and in the finance department • Directors and/ or officers of subsidiaries and affiliates

• Investor Relations

Yes No N/A

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2011 Board Practices Report Design, Composition, and Function 17 66a If yes, which statement best describes how the individual director liability insurance

policies gets funded? (n=2)

The director funds his/ her own insurance policy 50%

The company funds his/ her own insurance policy 50%

Don’t know 0%

67 Please indicate how your liability insurance policy limits have changed in the past 12

months: (n=205) Increased 20% Decreased 2% No change 58% Don’t know 18% Not applicable 1%

Board’s use of technology

68 What level best describes your board’s involvement with information technology?

(n=207)

No involvement besides basic email communications 24%

Aware of the benefits technology can provide 38%

Frequently engaged and up-to-date on latest technology applications 34%

Don’t know 4%

69 Please specify how your organization distributes board materials. (Select all that

apply)

Through unsecured e-mail, e.g., Internet 25%

Through secure e-mail, e.g., company intranet 19%

Through an internal or external board portal 42%

Through mailing of hardcopies 77%

In-person at board meetings 50%

Using an application for the iPad or other tablet device 20%

70 If your organization does not have a board portal, which statement below best

explains your company’s view on the technology platform? (n=124)

We have considered the use of board portals but do not currently see a need for this technology 23%

We are currently considering the benefits of the use of board portals 35%

We will be introducing this technology in the near future 31%

We have not considered board portal technology 11%

71 Would you assess the board’s use of technology to be:

Increasing 79%

Decreasing 0%

No change 21%

72 Do your directors engage in social media associated with your organization?

Directors engage in social media 1%

Some directors engage in social media 8%

Directors do not engage in social media 57%

Don’t know 34%

Yes No

73 Does your company have a social media policy? (n=205) 61% 39%

Sustainability

74 Does your organization prepare and file a separate sustainability report? (n=206)

Yes 36%

No 51%

Don’t know 13%

74a If yes, is this report available on your organization’s website (n=74)

Yes 96%

No 1%

Don’t know 3%

75 Has your organization received a shareholder proposal related to corporate social

responsibility initiatives? (n=202)

Yes 22%

No 75%

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18

75a* If yes, please specify: Most common responses:

• Disclosure of political contributions and/ or lobbying • EEO reporting proposal

• Human Rights Policy / Participate in community’s development around the company activities • Environmental / Climate change disclosure

• Request for and specific metrics for Sustainability Report • Link sustainability to executive compensation

Other responses: • Animal welfare

• Divest from specified companies

• Healthcare reform and affordable premiums

• To prepare and publish a report based on certain criteria

76 Is the board and its committees involved with reviewing the sustainability effort

maintained by the organization? (n=202)

Yes 38%

No 53%

Don’t know 9%

Culture/ setting the tone at the top

77 Given the new SEC whistleblower rules (May 2011), has your board asked

management to take specific steps to continue to enhance a culture of candid and open communication? (n=198)

Yes 30%

No 61%

Don’t know 9%

78 How often does your organization conduct cultural surveys? (n=201)

Annually 26%

Only in certain circumstances 28%

We do not conduct cultural surveys 45%

78a If cultural surveys are conducted by your organization, which parties participate? (Select all that apply) (n=177)

All employees (including management) 59%

All employees under the management level 1%

The board 0%

Not applicable 40%

78b If cultural surveys are conducted by your organization, does management review the survey findings with the board? (n=177)

Management reviews the survey findings with the board 34%

Management reviews the survey findings with the board in certain circumstances 19%

Management does not review the survey findings with the board 6%

Not applicable 41%

79 How do employees receive communication from the board? (Select all that apply)

(n=202)

Through electronic communication 9%

Through verbal communications (e.g., live meetings, voicemails, etc.) 8%

The board does not provide communications to employees 84%

Only in certain circumstances 6%

79a* If certain circumstances apply, please specify

• Management has communicated on the board’s behalf, but there is a possibility that certain circumstances could arise neces-sitating the direct involvement of the board

• Had directors address several different employee leadership groups and an employee affinity group • In some cases, messages from the board are sent to employees via e-mail

• Individual directors have participated in several employee forums; several female directors have spoken to groups focused on the advancement of women in the company

• Only when a major issue arises such as the departure of a CEO

• The audit committee sends twice yearly emails to all finance and accounting personnel reminding them that they may contact the audit committee or any member with any report regarding misconduct in connection with financial reporting • The board communicates regularly with members of management both verbally and electronically, but generally does not

communicate with employees otherwise

• The board has only dealt with a few employees (management, internal audit, legal and controller’s group) • Through chairman and CEO communications

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80 Has your company established an anti-hedging policy that applies to directors?

(n=199)

My company has established an anti-hedging policy that applies to directors 56% My company has not established an anti-hedging policy that applies to directors 32%

We are considering the establishment of such a policy 12%

Private sessions (Board access to management)**

Yes No

81 Do non-employee directors have direct access to management below the CEO level

(not including boardroom presentations) without CEO approval? (n=202) 97% 3%

**In this Report, the section header has been modified from the original survey questionnaire.

Key findings

Presented in this table are some of the most common practices and interesting responses derived from the total participant responses received.

Most common practices/ interesting responses Question

99% Provide live, in-house director orientation sessions led by an individual serving on the board and/or a staff member of the organization

34a

99% Companies that have directors and officers (“D&O”) liability insurance 65

97% Non-employee directors have direct access to management below the CEO level (not including boardroom presen-tations) without CEO approval

81

94% In-person audit committee meetings and those held by phone are considered the same for purposes of proxy disclosure

27

93% Companies provide full reimbursement to directors for travel to meetings 18

93% External auditors attend every meeting or almost every meeting of the company audit committee 29

92% Management develops strategy and the board advises, challenges and approves 44

90% Most common form of board meetings are live, face-to-face meetings 15

89% Boards evaluated once a year 41

87% Head of internal audit meets separately with the audit committee 31

87% The company aligns risk oversight/risk management with the company’s strategy 48

86% The full board reviews the CEO’s performance once a year 53

85% No change to the frequency of audit committee meetings since last year 26

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20

Public company

survey results

Board selection, recruitment and composition Since the 2008 report, small-cap companies appear to have made considerable changes to their practices relating to board composition. Specifically, 59% use a board skills matrix or similar tool, nearly double the number of companies that did so in 2008. Also since 2008, there has been a significant (29%) increase in small-cap companies using written criteria for director selection, and a significant increase of small-cap companies using search firms to assist in recruiting board directors. From an industry perspective, significantly fewer financial services companies (37%) use executive search firms for recruiting directors compared to non-financial services companies (69%).

These changes suggest heightened focus on board compo-sition during the past couple of years. The potential for proxy access, which would allow shareholders to nominate

directors on the proxy ballot sent to investors, was one factor that put the spotlight on board composition. However, on July 22, 2011, the final SEC proxy access rule 14a-11 was vacated by the U.S. Court of Appeals. While the SEC has decided not to appeal, many companies are spending more time thinking about the directors they need on their boards to execute their strategy. Further, the SEC’s proxy disclosure enhancement rules, which took effect February 28, 2010, may also be a factor. These rules require all public companies to disclose more information about director qualifications, including why a director is qualified to serve on the board of a particular company. With this increased focus, more boards are utilizing a board skills matrix and placing emphasis on the specific skills and attributes they need.

The results in this section represent survey responses by 175 public companies. In order to provide a comprehensive view of the results, findings are presented in the following three formats, and in each case, an “n” value has been provided to show the actual total participant responses for each question if less than 175 responses were received:

• All 175 public companies respondents

• Market capitalization designation, in which there are 27 small-, 88 mid- and 60 large-cap companies

• Industry classification, in which there are 38 financial services companies and 137 non-financial services companies

In some cases, certain data points have been excluded from the chart and instead are provided in a sidebar.

To the extent possible, survey questions asked in 2008 are presented along with the 2011 survey results. In 2008, the total number of public company survey participants was 229, which included 53 small-cap, 120 mid-cap, and 56 large-cap companies.

Additional information

To learn more about board selection, recruitment and composition, read the Deloitte Center for Corporate Governance publication “Creating the board your company deserves", available at www.corpgov.deloitte.com.

Creating the board your company deserves The art – and science – to choosing directors

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2011 Board Practices Report Design, Composition, and Function 21 3. Does your organization use a skills matrix or similar tool to periodically

assess board composition and fill gaps when selecting new directors?

Small-cap Mid-cap Large-cap

Financial services (n=38) Non-financial services (n=135) All public companies (n=173)

53% 32% 59% 64% 52% 63% 62% 68% 62% Yes Yes 2011 (n=173) 2011 2008 (n=229)

4. Does your organization use written criteria in director selection?

2011 (n=174) 2011 2008 (n=229) 2011 2011 2008 (n=229) 79% 52% 81% 78% 71% 78% 78% 83% 77% Yes Yes

5. Does your organization use an executive search/ board director recruiting firm to assist in the recruitment of board directors?

2011 2011 2011 2011 37% 20% 33% 69% 58% 65% 62% 77% 72% Yes Yes

6. Does your organization provide a mechanism for shareholders to nominate candidates to the board?

92% 78% 84% 82% 86% 95% Yes Yes

7. Do you have a mandatory retirement policy for directors?

71% 44% 69% 69% 70% 82% Yes Yes

With regard to question 7 concerning mandatory retire-ment, 69% of mid-cap companies and 82% of large-cap companies said they have such a policy for directors. For small-cap companies, 44% of the respondents said they had a mandatory retirement policy.

In 2008, no companies had a mandatory retirement age of 75. In 2011, 75 was the mandatory age for retirement at one quarter of the small-cap companies, 13% of mid-cap companies, and 28% of large-cap companies.

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22

3. Does your organization use a skills matrix or similar tool to periodically assess board composition and fill gaps when selecting new directors?

53% 32% 59% 64% 52% 63% 62% 68% 62% Yes Yes 2011 (n=173) 2011 2008 (n=229)

4. Does your organization use written criteria in director selection?

2011 (n=174) 2011 2008 (n=229) 2011 2011 2008 (n=229) 79% 52% 81% 78% 71% 78% 78% 83% 77% Yes Yes

5. Does your organization use an executive search/ board director recruiting firm to assist in the recruitment of board directors?

2011 2011 2011 2011 37% 20% 33% 69% 58% 65% 62% 77% 72% Yes Yes

6. Does your organization provide a mechanism for shareholders to nominate candidates to the board?

92% 78% 84% 82% 86% 95% Yes Yes

7. Do you have a mandatory retirement policy for directors?

71% 44% 69% 69% 70% 82% Yes Yes

Since the 2008 report, the push for boards to move to annual elections of all directors, as opposed to the election of a classified or staggered board structure has grown stronger. The proxy statement research completed revealed that when compared to 2008, at least 20% more mid- and large-cap companies moved to an annual process. Small-cap companies, on the other hand, revealed a movement in the other direction with a 13% increase in classified boards.

11% 4% 5% 4% 21% 23% 30% 2% 3% 3% 10% 5% 24% 28% 27% 9% 8% 11% 15% 25% 30% 2% 19% 4% 7% 11% 19% 15% 22% 4% 24% 6% 8% 13% 23% 15% 8% 2% 31% 8% 15% 19% 17% 8% 2% 9 8 7 6 5 4 ≤ 3 74% 26% 61% 39% 64% 36% 38% 62% 66% 34% 62% 38% 48% 52% 58% 42% 86% 14 % Elected annually Classified/ Staggered Elected annually Classified/ Staggered 95% 77% 99% 90% 98% 92% 100% 97% 100% Yes Yes 13% 8% 11% 11% 11% 5% 42% 2% 7% 14% 23% 16% 10% 7% 21% 2% 8% 13% 20% 15% 10% 6% 26% ≤3 4 5 6 7 8 9 ≥10 16% 23% 4% 46% 6% 45% 3% 14% Yes Yes 66% 18% 41% 61% 39% 59% 62% 74% 76% Yes Yes 4% 37% 46% 13% 3% 22% 50% 22% 3% 11% 45% 32% 11% 7% 19% 33% 41% 5% 27% 45% 23% 8% 47% 37% 5% 2% ≥13 10-12 7-9 4-6 0-3 50% 29% 60% 59% 58% 66% 41% 57% 68% Yes Yes 45% 39% 52% 54% 51% 53% 44% 44% 63% Yes Yes

The chairman of the board is also the CEO

2011 2011 (n=172)

2008 (n=229)

There is a separate position for lead or presiding director

2011 2011 (n=172)

2008 (n=229)

The company has implemented a majority vote policy for uncontested director elections

2011 2011 (n=172)

2008 (n=229)

Is there a limit to the number of other directorships your non-employee directors may hold?

Financial services (n=38) Non-financial services (n=134) All public companies (n=172) 2011

2011 (n=172)

2008 (n=229)

The company provides stock-based compensation to non-employee directors

2011 2011 (n=172) 2008 (n=229) Board classification Small-cap Mid-cap Large-cap Financial services (n=38) Non-financial services (n=134) All public companies (n=172)

2011 2011 2011 (n=172) 2011 (n=172) 2008 (n=229) 2008 (n=229)

Directors designated as "independent" on the board

2011 2011 2011 2011 2011 2011 (n=172) 2011 (n=172) 2011 (n=172) 2011 (n=172) 2008 (n=229) 2011 (n=172) 2008 (n=229) 2008 (n=229) 2008 (n=229) 2008 (n=229) 16% 29% 37% 18% 1% 21% 44% 31% 3% 1% 20% 41% 33% 6% 0-3 4-6 7-9 10-12 ≥13

The number of times a year the board normally meets

2011 2011 2011 2011 2011 2011 2011 2011 2011 (n=172) 2011 (n=172) 2011 (n=172) 2011 (n=172) 2008 (n=229) 2011 (n=172) 2008 (n=229) 2008 (n=229) 2008 (n=229) 2008 (n=229) 2011 (n=172) 2008 (n=229) 2011 (n=172) 2008 (n=229) 2011 (n=172) 2008 (n=229) ≥10 2011 2011 2011 Officers on the board

Financial services (n=38) Non-financial services (n=134) All public companies (n=172) 2011 (n=172) 2011 (n=172) 2011 (n=172) 2011 (n=172) 2008 (n=229) 2008 (n=229) 2008 (n=229) 2008 (n=229) 0% 36% 4% 7% 0% 14% 4% 5% 7% 23% 1% 12% 8% 3% 2% 34% 2% 2% 8% 8% 6% Other titles general counsel/ chief legal officer chief operating officer Chief financial officer 8% 3% 3% 7% 1% 2% 8% 1% Chief financial officer Chief operating officer General counsel/ chief legal officer Other titles 2011 Board selection, recruitment and composition

2011 Board Practices Report Design, Composition, and Function