Hallagan December Presentation

©COPYRIGHT 2013 Korn/Ferry International. ALL RIGHTS RESERVED.

Summit 2015Vision 2020 – The Refreshment Challenge

Bob Hallagan, Vice Chairman, Co-Leader of Board Practice, Korn/Ferry; Director, ResCare; Director, MSH; Director, Friends of ChildrenDecember 2015

2©COPYRIGHT 2013 Korn/Ferry International. ALL RIGHTS RESERVED.

Businesses are changing at lightning speedR

ate

of C

hang

e

Time

Business then

Disruptive TechnologiesRapid Innovation

Talent MobilityGlobalization

Accelerated Half-Lives of Business StrategyActivists

CEOs and Leadership Teams Working 24X7Business now


Businesses are changing at lightning speed;Boards are changing, but not at the same pace

Rat

e of

Cha

nge

Time

Business thenBusiness now

Boards then

Boards now

Low Turnover/Long TenuresRetirement Age IncreasingHeavy Focus on ComplianceEvaluations Not Effective

Disruptive TechnologiesRapid Innovation

Talent MobilityGlobalization

Accelerated Half-Lives of Business StrategyActivists

CEOs and Leadership Teams Working 24X7


Uncomfortable Questions and Observations

CEO

I spend half my time

keeping the Board up to

speedLeadership team never reaches out to Board for

counsel between meetingsWe could definitely replace half our Directors

with new Directors that add greater value – and if we don’t, activists will

Our complicated skills matrix is just an excuse so every

existing Board member can check a box – but boxes don’t

connect to what adds value

My least effective Directors are great fun

people, love to have them at a dinner party, BUT….

Is collegiality a barrier to

refreshment?

The more the so-called “governance” experts push for

independence and diversity for diversity’s sake, the more removed candidates are from

adding value

Since Sarbanes Oxley, our audit committee takes up 4-5 hours at each meeting, and

frankly adds little value

If a Director is not as

accomplished in decision making as our executive team - hard to see how they

add value

The board in theory should energize our

leadership team, unfortunately, it

“saps” their energy

Our most valuable directors have choices – our least

ones don’t, leading to strong entitlement mentality


Uncomfortable Questions and Observations

If a company has under-performed for 10 years, why shouldn’t the board look in the mirror – and respectfully plan a Board succession plan?

Does governance matter?

Is there evidence that good governance and good performance are related?

Should Boards be continuously aligning skills and competencies to future challenges?

It takes 3 months for us to replace a non-performing CFO – a lifetime to replace a non-performing Board member

Directors should look in the mirror and “earn the right” to stay on the Board because of the value they contribute


What do shareholders want? Why do they elect us?

Shall we re-elect the Board members?


What is your Board’s value equation?

Board Value

Cost= ? ?

• $• Leadership Time• Energy• Opportunity Cost

4321-1-2-3-4


You are all here – you know and we agree that governance matters!!

Aspirational Vision 2020:Why shareholders elect us?

To be a strategic asset

To be a source of long-term competitive advantage

To ensure company maximizes long-term shareholder value and operates with impeccable ethics and integrity


We must be willing to press the “reset” button and disrupt the Board Room


Let’s get granular together…“Zero-Based Thinking”

Types of Boards:

1. Negative Impact

2. Neutral, No Impact

3. Basic Monitor/Checklist Board

4. Strategic Asset/Performance Enhancer/ Source of Competitive Advantage


11

Shar

ehol

der V

alue

Years

Current Performanceas Private Company

Future PerformanceProjected Board Impact??

IPO


12

Shar

ehol

der V

alue

Years

Current Performance Future PerformanceProjected Board Impact

IPO

• No Impact

Type of Boards:


13

Shar

ehol

der V

alue

Years


IPO

• No Impact• Negative Impact

Type of Boards:

Imagine shareholders voting for Board that creates negative value….BUT THEY DO


14

Shar

ehol

der V

alue

Years


IPO

• No Impact• Negative Impact• Strong Compliance

(Oversight Boards)

Type of Boards:


15

Shar

ehol

der V

alue

Years


IPO

• No Impact• Negative Impact• Strong Compliance• Performance Enhancer/

Strategic Asset

Type of Boards:

How did they do that? Let’s reelect

this board!


An analysis for each company of what adds value may be different• Must customize biggest challenges and opportunities over the next three – five

years and align skills to match

But Every Board Member Must:

Have a documented history of making good decisions

Thrive in a team environment – the Board is a team

Be absolutely enthusiastic about the company


If you are on the Board of a publicly held company

• Board refreshment is not a natural event– Will not happen without respected and strong leadership – our

responsibility, not activists • Requires “Earn the Right” culture – define expectations

up front• Establish and keep current Board succession framework

– Keeps conversation on the table– Allows Board to be patient and opportunistic

• Board Leadership – one of two critical pillars– Unique skills and competencies – selection and succession

planning is critical


Board Succession Planning Case Study: Large Global Medical Device CompanyChallenge/ Key Driver Aligned Board Skills Current Board

StatusProjected

TenureFuture

Prioritization

1. Drive to be world class in operating efficiency and effectiveness

• Executives with first-hand exposure to driving operational excellence

2. Creation of new growth platforms (successful innovation)Company must create culture, processes & discipline that enables company to consistently innovate and bring new products to market

• CEO/COO who has led company successful in innovation (in related industry a plus)

• Executives who have led successful research and development functions

3. Medical ScienceCompany must keep abreast of where science is going and the implications on future opportunities, changes in health care policy, obsolescence, etc.

• Research directors of prestigious genomics/ microbiology research organizations

• Research directors – diabetes research

4. Health Care Delivery and InsuranceFuture success depends on understanding the demands on major customers and how to build trusted relationships

• CEO of major Health Care Delivery systems

• CEO - HMO


Board Succession Planning Case Study: Large Global Medical Device Company, cont.Challenge/ Key Driver Aligned Board Skills Current

Board StatusProjected

TenureFuture

Prioritization5. World Health Policy InitiativesCompany must manage world health partnerships with extreme human sensitivity, as well as strategic and financial prudence

• A leader of global health organizations

6. GlobalizationCompany must continue to maximize global growth opportunities

• An executive with experience building global markets-specific knowledge of global healthcare a plus

7. Laser sharp financial management, capital markets and acquisition skills

• World-class, highly respected global CFO

8. TalentTo outperform its competitors, company must become “firm of choice” for the industry’s high performing talent

• An executive who has driven a talent rich organization


Board Succession Planning Case Study: Large Global Medical Device Company, cont.Challenge/ Key Driver Aligned Board Skills Current

Board StatusProjected

TenureFuture

Prioritization9. Product and Service Quality ExcellenceCompany must maintain and enhance its reputation for excellence

This includes its reputation for impeccable ethics and integrity and exemplary regulatory compliance

• An executive who has led an organization that is respected for its customer service and product quality excellence

• A respected former FDA leader or head of regulatory affairs at major pharmaceutical company


If you now know how Board members will add value and you have the right players around the table, then…

BoardIntellectual Capital

Board Objective:Use It, Don’t Waste It


High Performance Board Framework: Complex, Difficult to Achieve

Mission: To be a valued asset of the company measured by the

contribution we make – collectively and individually – to enhance long-term shareholder

value

Right People

Right Issues

Right Information

Right Process

Right Structure

Right Culture

High

Superior Value

Organization

Shareholder

Performing


Is there a correlation between corporate governance and performance?

• Can it be in the future – YES!!!– It is the reason we are all here today

• A major opportunity:– Let’s learn and challenge each other together

©COPYRIGHT 2013 Korn/Ferry International. ALL RIGHTS RESERVED. 24