Corporate Governance

Shearman & Sterling 10 | Director Self-Evaluation Process DIRECTOR SELF-EVALUATION PROCESS: HOW FAST ARE YOU RUNNING? INSIGHTS By Stephen Giove While many corporate governance practices vary considerably from company to company, director self-evaluation practices are among the most varied. This is the case for a couple of related reasons. First, there is a no listing standard, SEC rule, corporate law or other requirement which specifies how to conduct this process. Second, there is no requirement to disclose the process being used, the results therefrom or any actions taken. As a result, practices fall on a continuum. Investors have only relatively THE KEY DIRECTOR SELF-EVALUATION DESIGN QUESTIONS recently begun to probe into understanding the specifics of a company's process. As has been the case in other governance areas, board and investor focus on this process and the consequent disclosure of its details have led companies to make significant improvements over the last several years. Like many corporate governance practices, process enhancements have tended to occur at large-cap companies and then migrated to mid- and small-cap companies. Who will lead the process? Process Leadership To what extent, if at all, will an outside service provider be involved? Outside Service Provider Will individual director evaluations be conducted? What type of evaluations (e.g., self-assessment, peer-to-peer, "360 degree")? Individual Evaluations How will the self-evaluation results be discussed (e.g., full board meetings, executive sessions, separate committee meetings)? Discussion Who will synthesize the results and provide feedback to the board, its committees, and to the individual directors who are evaluated? Analysis of Results Will interviews of senior management be conducted? Senior Management Will all directors be individually evaluated each year or will these evaluations be staggered? Individual Evaluation Frequency Will the results of the various evaluations be memorialized in a written report? What records will be retained? Written Reports Will an evaluation of the lead independent director, independent board chair, or committee chairs be conducted? Other Evaluations Who will be responsible for monitoring the follow-up from the self-evaluation process? Follow-up How will information be obtained from directors (e.g., written questionnaires, director interviews, group discussions)? Format Will committees of the board other than the audit, compensation and nominating and governance committees be evaluated? Committee Evaluations What will the company disclose about the self-evaluation process it conducted? Disclosure To what extent, if at all, will the board change its process from year to year? Evolution Will the committee process be conducted on an integrated basis with the board process or will it be conducted separately? Integration

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