VISIONARY BOARD LEADERSHIPSTEWARDSHIP FOR THE LONG TERMDr. Tony TAN, CFAHead, Standards & Financial Market Integrity21 January 2016

VISIONARY BOARD LEADERSHIPFollow up to 2006 Breaking the Shortterm Cycle Focuses on Board role in combatingshort-termism, guiding companies forlong-term success Collaboration with:DirectorsInvestorsIssuersLike minded associations

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VISIONARY BOARD LEADERSHIPWhat is a Visionary Board ?

A Visionary Board is committed to working with management to make a companysuccessful in the long-term, does not tolerate corner-cutting strategies to meet fleeting

short-term expectations, and acts as proper stewards of shareowners interests.

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VISIONARY BOARD LEADERSHIPLooking beyond the “just doing the minimum” for compliance

• Visionary Boards are the embodiment of leadership and foresight necessary to breakthrough the short-term noise in the markets to ensure that public companies aremanaged and governed for the long-term benefit of all stakeholders. They influence acompany’s long-term success by focusing on:- Quarterly Earnings Practices- Shareowner Communications- Strategic Direction- Risk Oversight- Executive Compensation- Culture- Board and Company Cultures

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VISIONARY BOARD LEADERSHIPQuarterly Earnings Practices• A Visionary Board expects management

to deliver investor guidance with alonger-term bias by identifying long-term value drivers for the company.

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Money =

Work

Knowledge

EARNINGS REPORT – WHAT’S BEING DONE?

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VISIONARY BOARD LEADERSHIP - EARNINGSA Visionary Board: • Does not engage in the quarterly earnings guidance game.• Provides support to management that encourages long-term strategy.• Remains focused on execution of long-term strategy in the face of volatility.• Helps oversee the guidance process, focusing on long-term guidance.• Listens to quarterly earnings calls and reviews competing firms’ communications to

investors.• Seeks out alternative sources of information about the company.• Communicates for the long term in order to attract long-term shareowners.

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VISIONARY BOARD LEADERSHIP

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Shareowner Communication• A Visionary Board proactively listens to

the concerns of its shareowners,consistently communicating on long-termvision and strategy.

• Hear no evil, see no evil, speak no evil

not an effective board strategy

COMMUNICATIONS – WHAT IS BEING DONE?

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VISIONARY BOARD LEADERSHIP - COMMUNICATIONS

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A Visionary Board: • Ensures that the company has processes and mechanisms in place to allow investors to share

their input with the board.• Is willing to meet with investors and listen to their concerns.• Fosters a “constant conversation” between the company and key shareowners.• Designates the appropriate director to communicate with shareowners.• Works with the company to broaden communication opportunities.• Understands the concerns of shareowners, employees, customers.• Considers the input of company critics

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SHAREOWNER COMMUNICATIONSShareowners want to be listened to, not shuffled along

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VISIONARY BOARD LEADERSHIPStrategic Direction

• A Visionary Board actively oversees andunderstands strategy and regularlymonitors—with management —theimplementation and effectiveness ofstrategic plans.

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STRATEGY – WHAT IS BEING DONE?

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VISIONARY BOARD LEADERSHIP - STRATEGYA Visionary Board:

• Knows that overseeing, understanding, and monitoring strategy is continuous.• Is actively involved in the development of corporate strategy and• Measures progress against strategy at every meeting.• Has all the information necessary to make decisions• Recognizes that an effective strategy must have short-, intermediate, and long-term

elements.• Communicates to investors the board’s role in the strategy-setting process.• Defers to management for more detailed discussion of strategy execution.• Focuses on the quality of a company’s operations.

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VISIONARY BOARD LEADERSHIPRisk Oversight• A Visionary Board embraces risk as a

board-level responsibility. It oversees

robust processes for identifying,managing, and when necessary,mitigating risks to the operations,strategy, assets, and reputation of thecompany.

• It is elementary. The board has to

understand the risks the company istaking, and be frank enough to ask thetough questions.

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RISK MANAGEMENT – WHAT’S BEING DONE?

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VISIONARY BOARD LEADERSHIP - RISKA Visionary Board: • Understands that the whole board is responsible for risk oversight.• Views risk oversight and risk management as a way to protect the company’s assets

while creating long-term value.• Understands the company’s enterprise risk management (ERM) process and the unique

risk facing the company.• Treats risk oversight as a constant process• Clearly explains to investors and stakeholders the process the board uses for risk

oversight.• Analyzes the correlations among risks in a complex globalized environment.• Supports a strong crisis management plan.• Seeks out information on risk from all sources.

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VISIONARY BOARD LEADERSHIPExecutive/Director Compensation• A Visionary Board ensures that

underlying compensation objectivesconsistently supports the long-termstrategy and performance of the

company.

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VISIONARY BOARD LEADERSHIP - PAYA Visionary Board: • Works to align compensation with both long-term performance and company strategy.• Understands the risks inherent in compensation structures.• Understands the compensation processes and practices throughout company to ensure

appropriate incentives for performance and risk-taking.• Communicates the compensation philosophy, as well as critical performance

parameters and benchmarks, of the executive compensation plans.• Actively oversees the Compensation Discussion and Analysis (CD&A)• Pays particular attention to the legitimate concerns of shareowners.

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COMPENSATION – WHAT’S BEING DONE?The CFA Institute CD&A Template focuses on the following areas: • I. Overview of previous year performance and compensation• II. Elements of compensation for the past fiscal year• III. Performance targets for past year/performance period

• IV. Compensation decisions made in past fiscal year/performance period• V. Compensation framework: policies, process, and risk considerations• VI. Employment and termination agreements

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VISIONARY BOARD LEADERSHIPBoard and Corporate Culture• A Visionary Board recognizes that

strong corporate and board cultures areessential to the sustainability of acompany’s long-term value.

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CULTUREBoard and Company Culture Start at the Top

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CULTURE – WHAT’S BEING DONE?

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VISIONARY BOARD LEADERSHIP - CULTUREA Visionary Board• Asks the hard questions and is candid with peers and management.• Avoids “going along to get along.”• Seeks a board culture of accountability.• Values and seeks out diversity of opinion on the board.• Pays attention to the “soft issues” as these issues reflect the culture.• “Walks the floor” of the company.

• Tests a company’s commitment to its core philosophy and mission.• Wants to hear the issues reported to the ethics hotline.• Cares about the morale of all employees.• Is intellectually curious about how the company operates.• Has a passion for the company.

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VISIONARY BOARD CHECKLIST Warning: Checklists are a great excuse to be lazy.

Much of what makes board visionary is based on personalities. Can’t be measured bybox-ticking.

• Does not focus on myopic short-term measures to detriment of long-term?• Sees investors as partners to be listened to, kept well informed• Seeks to build long-term sustainable strategy• Understands risk is responsibility of entire board• Seeks to align pay and performance linked to long-term strategy• Adamant about strong board and company cultures.

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THANK YOU