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Hallagan December Presentation

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Hallagan December Presentation

  1. 1. ©COPYRIGHT 2013 Korn/Ferry International. ALL RIGHTS RESERVED. Summit 2015 Vision 2020 – The Refreshment Challenge Bob Hallagan, Vice Chairman, Co-Leader of Board Practice, Korn/Ferry; Director, ResCare; Director, MSH; Director, Friends of Children December 2015
  2. 2. 1 ©COPYRIGHT 2013 Korn/Ferry International. ALL RIGHTS RESERVED. Businesses are changing at lightning speed RateofChange Time Business then Disruptive Technologies Rapid Innovation Talent Mobility Globalization Accelerated Half-Lives of Business Strategy Activists CEOs and Leadership Teams Working 24X7 Business now
  3. 3. 2 ©COPYRIGHT 2013 Korn/Ferry International. ALL RIGHTS RESERVED. Businesses are changing at lightning speed; Boards are changing, but not at the same pace RateofChange Time Business then Business now Boards then Boards now Low Turnover/Long Tenures Retirement Age Increasing Heavy Focus on Compliance Evaluations Not Effective Disruptive Technologies Rapid Innovation Talent Mobility Globalization Accelerated Half-Lives of Business Strategy Activists CEOs and Leadership Teams Working 24X7
  4. 4. 3 ©COPYRIGHT 2013 Korn/Ferry International. ALL RIGHTS RESERVED. Uncomfortable Questions and Observations I spend half my time keeping the Board up to speed Leadership team never reaches out to Board for counsel between meetings We 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
  5. 5. 4 ©COPYRIGHT 2013 Korn/Ferry International. ALL RIGHTS RESERVED. 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
  6. 6. 5 ©COPYRIGHT 2013 Korn/Ferry International. ALL RIGHTS RESERVED. What do shareholders want? Why do they elect us? Shall we re-elect the Board members?
  7. 7. 6 ©COPYRIGHT 2013 Korn/Ferry International. ALL RIGHTS RESERVED. What is your Board’s value equation? Board Value Cost = ? ? • $ • Leadership Time • Energy • Opportunity Cost 4 3 2 1 -1 -2 -3 -4
  8. 8. 7 ©COPYRIGHT 2013 Korn/Ferry International. ALL RIGHTS RESERVED. 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
  9. 9. 8 ©COPYRIGHT 2013 Korn/Ferry International. ALL RIGHTS RESERVED. We must be willing to press the “reset” button and disrupt the Board Room
  10. 10. 9 ©COPYRIGHT 2013 Korn/Ferry International. ALL RIGHTS RESERVED. 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. 11. 10 ©COPYRIGHT 2013 Korn/Ferry International. ALL RIGHTS RESERVED. 10 ShareholderValue Current Performance as Private Company Future Performance Projected Board Impact??
  12. 12. 11 ©COPYRIGHT 2013 Korn/Ferry International. ALL RIGHTS RESERVED. 11 ShareholderValue Current Performance Future Performance Projected Board Impact • No Impact Type of Boards:
  13. 13. 12 ©COPYRIGHT 2013 Korn/Ferry International. ALL RIGHTS RESERVED. 12 ShareholderValue Current Performance Future Performance Projected Board Impact • No Impact • Negative Impact Type of Boards: Imagine shareholders voting for Board that creates negative value….BUT THEY DO
  14. 14. 13 ©COPYRIGHT 2013 Korn/Ferry International. ALL RIGHTS RESERVED. 13 ShareholderValue Current Performance Future Performance Projected Board Impact • No Impact • Negative Impact • Strong Compliance (Oversight Boards) Type of Boards:
  15. 15. 14 ©COPYRIGHT 2013 Korn/Ferry International. ALL RIGHTS RESERVED. 14 ShareholderValue Current Performance Future Performance Projected Board Impact • No Impact • Negative Impact • Strong Compliance • Performance Enhancer/ Strategic Asset Type of Boards: How did they do that? Let’s reelect this board!
  16. 16. 15 ©COPYRIGHT 2013 Korn/Ferry International. ALL RIGHTS RESERVED. 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
  17. 17. 16 ©COPYRIGHT 2013 Korn/Ferry International. ALL RIGHTS RESERVED. 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
  18. 18. 17 ©COPYRIGHT 2013 Korn/Ferry International. ALL RIGHTS RESERVED. Board Succession Planning Case Study: Large Global Medical Device Company Challenge/ Key Driver Aligned Board Skills Current Board Status Projected Tenure Future 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 Science Company 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 Insurance Future success depends on understanding the demands on major customers and how to build trusted relationships • CEO of major Health Care Delivery systems • CEO - HMO
  19. 19. 18 ©COPYRIGHT 2013 Korn/Ferry International. ALL RIGHTS RESERVED. Board Succession Planning Case Study: Large Global Medical Device Company, cont. Challenge/ Key Driver Aligned Board Skills Current Board Status Projected Tenure Future Prioritization 5. World Health Policy Initiatives Company must manage world health partnerships with extreme human sensitivity, as well as strategic and financial prudence • A leader of global health organizations 6. Globalization Company 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. Talent To 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
  20. 20. 19 ©COPYRIGHT 2013 Korn/Ferry International. ALL RIGHTS RESERVED. Board Succession Planning Case Study: Large Global Medical Device Company, cont. Challenge/ Key Driver Aligned Board Skills Current Board Status Projected Tenure Future Prioritization 9. Product and Service Quality Excellence Company 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
  21. 21. 20 ©COPYRIGHT 2013 Korn/Ferry International. ALL RIGHTS RESERVED. If you now know how Board members will add value and you have the right players around the table, then… Board Intellectual Capital Board Objective: Use It, Don’t Waste It
  22. 22. 21 ©COPYRIGHT 2013 Korn/Ferry International. ALL RIGHTS RESERVED. 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 Shareholder Performing
  23. 23. 22 ©COPYRIGHT 2013 Korn/Ferry International. ALL RIGHTS RESERVED. 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
  24. 24. ©COPYRIGHT 2013 Korn/Ferry International. ALL RIGHTS RESERVED. 23

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