Upload
korn-ferry
View
218
Download
0
Tags:
Embed Size (px)
DESCRIPTION
29th Annual Board of Directors Study - Life Sciences (2002)
Citation preview
KORN/FERRY INTERNATIONAL
29th AnnualBoard of Directors Study
2002
Life Sciences
2
29th AnnualBoard of Directors Study
2002
Life Sciences
Executive Summary
It has been an extraordinarily turbulent year for American companies and theirboards, marked by near-unprecedented volatility in investment markets, sharperosion of investor confidence, heightened focus on the validity and credibilityof financial reporting practices, and high-profile corporate failures such asEnron and Worldcom. In this environment, the board’s critical role in overseeingfundamental corporate practices — how effectively that role is being executed andhow it can be strengthened — has come under scrutiny as never before.
This publication, a supplement to Korn/Ferry International’s 29th Annual Boardof Directors Study, presents responses and findings from survey participants onthe boards of Life Sciences companies. The study indicates that these organiza-tions are making long-term progress in efforts to implement board practices forstronger corporate governance — but that some significant gaps still remain.
This year:
� 62 percent of Life Sciences boards have written guidelines on corporate governance.
� 48 percent of boards formally evaluate the entire board’s performance on aregular basis, and
� 57 percent of boards have a formal committee that reviews corporategovernance processes and board operations.
While progress is being made regarding corporate governance processes andboard evaluation, boards will have to do more — especially in light of newregulatory mandates designed to formalize these processes in the wake of thepast year’s notable failures of board oversight.
For example, corporate governance rule proposals adopted by the New YorkStock Exchange Board of Directors in August state that listed companies mustadopt and disclose corporate governance guidelines on management successionand other key processes. Yet our survey of Life Sciences directors reveals that:
� only 52 percent of boards have a management succession committee orprocess, and
Mandates such as those of the NYSE, with prescriptions for formal governanceguidelines, could create issues for the significant percentage of companies that,according to our survey, do not have such guidelines or processes at this time.
The Korn/Ferry Life Sciences company survey also shows that evaluation ofindividual directors clearly has not yet taken hold as a board practice.
� 78 percent of respondents say that individual directors should be evaluatedregularly regarding performance. However:
� only 19 percent of boards currently conduct such evaluations, and
� only 18 percent of directors on those boards think that the evaluationsare effective.
29th AnnualBoard of Directors Study
2002
Life Sciences
3
Boards going forward can anticipate closer examination of how they measurethe performance and, ultimately, the effectiveness of directors on behalf ofshareholders, as part of the heightened concern over how well boards executetheir oversight role.
Other key survey findings include:
� Independence is an essential concern of directors:
� 73 percent of directors say the former CEO shouldn’t sit on the board.
� 69 percent of directors say the board should hold regular executivesessions without the CEO during board meetings, yet
� only 14 percent of boards hold such sessions.
� Directors are spending slightly less time on board matters than their Fortune 1000 counterparts — average of 13 hours per month, or approximately 156 hours annually, compared with 183 hours annually for Fortune 1000 companies.
� Most directors (55 percent) say their company’s CEO compensation programis effective.
� 55 percent of directors think the majority of a director’s compensation shouldbe in stock.
� Only 43 percent of boards have a requirement that directors own shares ofcompany stock.
� 60 percent of directors would like to see their board become more diverse byincreasing its minority representation.
Korn/Ferry’s 29th Annual Board of Directors Study — Life Sciences companyhighlights provides a comprehensive and illuminating look into the state ofboard practices at the nation’s Life Sciences companies — charting progressmade, as well as progress still to be achieved. The publication representsKorn/Ferry’s ongoing commitment to generating and sharing timely, practicalinformation from the nation’s corporate leaders regarding their efforts to maintain and extend “best practices” for corporate governance.
We hope that you find the study informative and useful, and that it provides you withinsight into the key steps that governance programs must take to address today’spressing concerns about the credibility and responsibility of corporate America.
Survey Responses
The following responses are a supplement to Korn/Ferry International’s29th Annual Board of Director’s Study. The findings are based on responses fromDirectors of over 80 Life Sciences companies.
Board Composition
The average board in our survey consists of three inside directors and eightoutside directors. According to respondents, the optimal board size is twoinside directors and seven outside.
4
29th AnnualBoard of Directors Study
2002
Life Sciences
0 2
3
8
4 6 8 10
Outside
Inside
0 2
2
4 6 8
7
10
Outside
Inside
Current Board Size Optimal Board Size
No67%
Yes33%
No73%
Yes27%
Does the former CEOsit on the board?
Should the former CEOsit on the board?
Do you have any of the following minorities currentlyrepresented on your board?
Women 94%
African American 56%
Hispanic 11%
Asian 33%
Other 8%
Diversity in the Boardroom
5
29th AnnualBoard of Directors Study
2002
Life Sciences
No86%
Yes14% No
31%
Yes69%
Does the board typically holdregular executive sessions withoutthe CEO during board meetings?
Should the board typically holdregular executive sessions withoutthe CEO during board meetings?
0 20
52%
10%
40 60 80 100
OutsideDirectors
CEO
0 20
54%
85%
40 60 80 100
OutsideDirectors
CEO
Is there a limit to the number ofother boards on which the CEOand board members may serve
as outside directors?
Should there be a limit to the numberof other boards on which the CEO
and board members may serveas outside directors?
No78%
Yes22% No
37%Yes63%
If your chairman is also the CEO,do you have an elected orappointed lead director?
Should a board that has aninside director as chairman elect
or appoint an outside directoras the lead director?
Yes Yes
6
29th AnnualBoard of Directors Study
2002
Life Sciences
Does the board have written guidelines on corporate governance?
Do you believe written governance guidelines are helpful to a board?
No43% Yes
57%
No38% Yes
62%
No8%
Yes92%
Managing Corporate Governance
In keeping with the established trend of a formal committee that reviews corporate governance processes and board operations, 57% of Life Sciencescompanies have such committees.
62% of these companies have written guidelines on corporate governance and92% believe these guidelines are helpful to a board.
Does your board have a formal committee that reviews corporate governanceprocesses and board operations?
More 58%
Fewer 4%
About the Same 39%
Compared to last year howmany hours are you
spending per month onboard matters?
13average hours per monthspent on board matters.
29th AnnualBoard of Directors Study
2002
Life Sciences
7
No43% Yes
57%
No48%
Yes52%
In the last three years, has your company undergone a management succession process?
Management Succession
Data reveals that in the last three years 57% of these Life Sciences companieshave undergone a management succession process. In spite of the frequency ofchange at the top, 52% of these companies do not have a management successioncommittee or process, despite strong public and regulatory support for creationand disclosure of such.
Does the board have a management succession committee or process?
28% of respondents feel there is
a Director on their boardthat should be replaced.
8
29th AnnualBoard of Directors Study
2002
Life Sciences
No81%
Yes19%
Does your board evaluate individual directors on a regular basis?
No52%
Yes48%
78% of respondents felt
that individual directorsshould be evaluated
regularly as totheir performance.
Evaluating Performance
48% of the companies responding evaluate the full board’s performance on aregular basis with 19% of those individual directors being evaluated. However,78% of respondents felt individual directors should be evaluated as to their per-formance.
Is the entire board’s performance formally evaluated on a regular basis?
Effective35%
VeryIneffective
3%
VeryEffective
17%
If YES: How effective is the evaluation?
29th AnnualBoard of Directors Study
2002
Life Sciences
9
No45%
Yes55%
Other7%
PrimarilyStock
Options71%
PrimarilyStock
Grants22%
If YES: What form of stock?
Board Experience
How difficult has it been for your board to add directors with the followingskill sets?
Compensation
More than half of the respondents think that a director should be paid in stock.72% feel that stock options should be the primary form.
Do you think the majority of a director’s compensation should be in stock?
0
20
40
60
80
100
LegalMarketingFinancialTechnicalInternational
Not At All DifficultSomewhat DifficultVery Difficult
43.4% 44.8%
3.7%
22.2%
74.1%
6.5%
31.2%
62.3%
2.7%
27.6%
69.7%
21.9%
35.6%
42.5%
11.8%
10
29th AnnualBoard of Directors Study
2002
Life Sciences
How do you feel about your company’s CEO compensation program?
Average number of shares: 3440
Is there a requirement that directors own shares of company stock?
No57%
Yes43%
FairlyEffective
10%
Ineffective1%
VeryEffective
34%
Effective55%
Should audit committeechairs be paid more than
chairs of other committees?
Yes 62%
No 38%
29th AnnualBoard of Directors Study
2002
Life Sciences
11
Risk & Crisis
Though the past year was characterized by devastating crises, these events werenot a catalyst for greater board involvement in risk and crisis management. Themajority of the directors (67%) indicated that their board and management teamhad not developed or discussed a crisis management plan prior to September11th. However, 60% have taken action post September 11th..
As to assessing personal risk, the majority (52%) of directors report they havedeclined a board invitation because the risk was too great. Eighteen percentindicate they turned down an offer to serve in the past 12 months for this reason.
No67%
Yes33%
No40% Yes
60%
Had your board and management team developed or discussed a crisis management plan prior to September 11th?
Has your board taken any action to address crisis management since thetragedy of September 11th?
12
29th AnnualBoard of Directors Study
2002
Life Sciences
0%
3.4%
26.4%
44.8%
2.3%
23.1%
0 10 20 30 40 50
75 Years or Older
65-74
55-64
45-54
35-44 Years
34 Years or Younger
1.2%
17.2%
33.3%
20.7%
27.6%
0 10 20 30 40 50
Over 10 Years
6-10
3-5 Years
1-2 Years
Less Than One Year
How long have you served on this board?
Your age:
0 5 10 15 20 25 30 35 40 45 50
Other
Retired
Retired CEO
Corporate Secretary
Chief Technical Officer
Chief Financial Officer
Vice Chairman
General Counsel
CEO
President
Board Chairman15.5%
21.4%
31%
3.6%
6%
6%
1.2%
2.4%
13.1%
14.3%
17.9%
Survey Demographics
What is your title or status with your primary company?
Are you responding as anInside or outside director?
Inside 24%
Outside 76%
29th AnnualBoard of Directors Study
2002
Life Sciences
13
Korn/Ferry InternationalNorth American Life Sciences Practice
With close to 40 seasoned and dedicated client partners, Korn/FerryInternational’s Global Life Sciences Market understands the critical issues facing healthcare companies today. In 2001, our Life Sciences team handledmore than 490 assignments, representing 11-percent growth from the previous fiscal year.
Korn/Ferry’s global network of Life Sciences consultants possesses expertisein a range of related fields, including: Pharmaceuticals BiotechnologyMedical Devices Life Sciences Contract Services Healthcare ServicesKorn/Ferry’s Global Life Sciences Market offers clients the highest levels ofservice and exclusivity, working for only a few clients in each sector at thesame time. More important, our team has a proven track record of finding the right Life Sciences executives on a timely basis - worldwide.
About Korn/Ferry International
Korn/Ferry International (NYSE:KFY), with over 70 offices in 36 countries, is theworld’s leading provider of executive human capital solutions. Based in Los Angeles,the firm works closely with clients worldwide to deliver customized executivesearch, management assessment and mid-level search services, including theidentification of CEOs, COOs, CFOs, board members and other senior-levelexecutives; the formal evaluation of senior management teams; and the recruitmentof middle managers through its Futurestep subsidiary.
For more information, visit the Korn/Ferry International web site atwww.kornferry.com or the Futurestep web site at www.futurestep.com.
For additional copies of this study, please callthe Global Marketing Department at (310) 552-1834.