Corporate Governance

Shearman & Sterling 12 | Director Self-Evaluation Process DESIGNING THE DIRECTOR SELF-EVALUATION PROCESS There are many aspects to be considered when designing a director self-evaluation process. As a result, there is a considerable range of "best practices" as what is best for one board may not be best for another. One size does not fit all. A well thought through director self-evaluation process is tailored to a particular board and will evolve over time. While this process is increasingly being used as a board refreshment tool, many boards are resistant to a change in the process for a number of reasons. These reasons include time commitments, perceptions that the process will not be fruitful and may cause divisiveness, cost considerations, and that it is simply not needed for board refreshment given the other practices and policies the company has (such as mandatory retirement age and term limits). The attitude of the company and its board will dictate the pace at which they will make changes to their self-evaluation process. Given the number of design questions involved, this process can be conducted in many different ways and be equally effective. However, processes which are generally considered to be more robust have more of the characteristics set forth below — is your board sprinting, jogging or walking? A third-party facilitator is used to design and lead the process, working with the nominating and governance committee chair and the lead independent director The lead independent director / independent board chair is separately evaluated every year The third-party facilitator reviews the questionnaires / interview topic surveys Long-form proxy disclosure is made which describes in detail the self-evaluation process that was conducted A written report is prepared but no other materials are retained Individual director interviews are conducted by the third-party facilitator The board and each of its three standing committees are evaluated in separate processes Peer-to-peer individual director evaluations are conducted every year and each director completes a self-assessment of his / her performance Short-form questionnaires, which are modified each year to focus on key issues, are used for the board and each committee The questionnaires / interview topic surveys are designed to elicit information about the areas which should be focused on in the individual director interviews The third-party facilitator analyzes all of the information received from directors and presents the findings to the full board The general counsel or the nominating and governance committee chair is tasked with following up on items that are identified as areas for improvement The process is re-examined each year and changes are made from year to year SPRINTING 1 9 8 5 4 13 12 3 2 11 10 7 6

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