ADVANCING EXEMPLARY BOARD LEADERSHIP

“DIRECTORSHIP 2020”What Boards Will Look Like In the Future

Summit Conference 2013 , D

December 5 Keynote Address

Reatha Clark King PhD

Board Chair, NACD Current Boards: NACD and Allina Health System.

Former Pubic Company Boards: ExxonMobil Co., Wells Fargo Co.,

HB Fuller Co., Lenox Group Inc and Minnesota Mutual Life Insurance Co.

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Our Main Goals and Challenges

• Sustainable Long-term Success for Companies, in the Challenging Local, National and Global Environment

• Regaining and Keeping the Public’s Trust

WHAT’S THE DIFFERENCE BETWEEN THE 2009 ENVIRONMENT AND TODAY?

Similarities-– Continued misconduct and fraudulent practices by a few companies that

cause a bad image for other companies

– Continued activist pressures for more and stronger regulations of companies

Differences--Proactive leadership by corporate boards and governance associations like

NACD and other governance groups to improve board excellence and board effectiveness

-Excellent educational and training opportunities like this excellent Summit are now available for board members, board advisors, and the investors can learn together how to govern effectively.

-Today, we realize that boards must take the initiative to govern effectively rather than to be complacent and wait for regulators to mandate boards to govern appropriately.

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NACD Today- Advancing Exemplary Board Leadership

1. NACD is the advocate for the profession of directorship.

2. With over 14,000 director members and 22 regional Chapters, NACD is the Voice of the Director in the broader business community.

3. NACD’s membership enhances directors’ personal and professional reputation by showcasing their commitment to excellence in the boardroom.

4. Through research, education and initiatives such as NACD Directorship 2020, NACD is focused on helping corporate directors anticipate the unknown, prepare for emerging governance issues, and professionally oversee the affairs of the enterprise in the years to come.

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What is NACD Directorship 2020?

Through research, education and initiatives such

as Directorship 2020, NACD is focused on

helping corporate directors;

–anticipate the unknown,

–prepare for emerging governance issues, and

– professionally oversee the affairs of the enterprise in the years to come, and

– to prepare boards to govern with foresight.

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NACD DIRECTORSHIP 2020

• This means Developing A ‘Mindset for the Future’

• Governing and Leading with ‘Foresight’

• FUTURE-PROOFING the Boardroom

• Being FUTURE-PRIMED for Exemplary Board Leadership

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NACD DIRECTORSHIP 2020

What is our process for establishing DIRECTORSHIP 2020?

- NACD is using a variety of strategies to identify emerging and future-oriented insights and issues, including

– Special forums, research papers, surveys, and joint projects with NACD sponsors and partner organizations.

• So far, Directorship 2020 forums have been held in New York City (2012), Chicago (2013), and Los Angeles (2013).

– The NACD 2013 Leadership Conference

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FUTURE CHALLENGES FOR BOARDS AND DIRECTORS

• Asymmetric Information Risk. Insuring that the Board has the appropriate information to make good decisions.

• Board Makeup and Engagement

• Pressures to Re-constitute or Re-educate the Board for the Future Environment. Do we have the right Board?

• Effective Communications. What’s the Board’s role?

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FUTURE CHALLENGES FOR BOARDS AND COMPANIES-

• Short Term versus Long Term Focus to achieve sustainable long-term success of the Company.

• Balancing shareholder and stakeholder interests for long-term profitability and success of the company? What’s the RIGHT BALANCE.

• Future Implications for TSR. Total Shareholder Return vs. Total Stakeholder Return?

• Who are the company’s stakeholders?

• The link between Strategy, Risks, and Talent Development. The Board’s Oversight Role for Talent Development.

• Defining Performance. Identifying the appropriate performance metrics.

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WHAT MUST BOARDS DO FOR FUTURE EFFECTIVENESS?

1. Seek Superb Performance of Basic Areas of Governance, such as:

– Audit

– Executive Compensation/Human Resources

– Risk Oversight

– Nomination and Governance Committee

– Strategy

– Communications

--Compliance

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WHAT MUST BOARDS DO FOR FUTURE EFFECTIVENESS?

2. Understand the threats, risks, opportunities and rewards of new technological advances

– Information Technology

– Social Media Risks and Opportunities

– Cybersecurity Risks

– ‘Big Data’ Opportunities

– Future Technological Advances!

3. Understand the company’s emerging internal and external risk profiles. How does it handle complexity? How does it handle volatility?

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WHAT MUST BOARDS DO FOR FUTURE EFFECTIVENESS?

• Resist harmful consequences of a compliance driven company environment, including

–Short-termism

–Company becomes distracted from sources of long term progress, such as innovations, creativity, new discoveries

• Improve skills for dealing with ‘complexity’ and ‘volatility’.

Galaxy of Risks

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“Unexpected” Financial Shocks — Once in a Lifetime Crises Seem to Occur Every Few Years

1987

Stock Market Crash

1994-1995

Money Funds Break

the Buck

US Interest

Rate Hike

Mexican Peso Crisis

1997-1999

Russian Crisis

LTCM

Brazil Crisis

Asian Crisis

Columbus Day

Mortgage Massacre

2000-2002

2000 Tech Meltdown

2001 Tech Meltdown

9/11 Terrorist Attacks

Bubble Bursts

2003-2005

Blackout of 2003

Fannie/Freddie

GM CDS Correlation

2007

Subprime

Quant Meltdown

1988-1993

High-Yield Tumbles

European Currency

Crisis

Nikkei Crash

2008

Liquidity crisis

Bear Stearns

Lehman

AIG

TARP

CP Funding Facility

Bailout Squared of AIG

Goldman and Morgan Stanley become banks

GSES

Bailout Squared of Citi

Auto Bailout

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WHAT BOARDS WILL LOOK LIKE IN THE FUTURE-

• Collectively, the ideal future Board will be effective in addressing all of the governance issues and needs cited above – both the issues we know today and the emerging future issues.

• Facing an increasingly complex and volatile environment, the future Board will consist of individuals who are engaged (not passive), and are able to lead individually and/or to contribute to Board leadership at any time.

• The collective skill set and resourcefulness of the future Board will need to be unusually strong and diverse, to enable the Board to perform effectively the duties of a governing Board.

• Collectively and individually, the future Board fully understands its role as overseers, advisors, and decision makers, and the need for continued development to deal with emerging governance issues.

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NACD Directorship 2020Realizes that how boards lead matters.

I believe that in the tough future ahead, strong directors and their boards must continue be examples of:

–Excellence –Integrity –Discipline –Professionalism–Accountability–A Good Tone at the Top–Commitment

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KEY FACTORS FOR SUSTAINABLE SUCCESS

• Purpose

• Standards

• Values

• Principles: discipline, professionalism

• Integrity

• Courage

• Culture

THANK YOU!