Corporate Governance

4 S h e a r m a n & S t e r l i n g l l p The 2005 proxy season is the second proxy season during which most of the Top 100 companies were required to comply with the revised NYSE and Nasdaq listing standards and various provisions of the Sarbanes-Oxley Act of 2002, and certain trends have developed over the last three years as companies have implemented the listing standards and SEC rules adopted during that period. DIRECTOR INDEPENDENCE AND OTHER QUALIFICATIONS The Top 100 companies, both in policy and practice, have continued to exceed the minimum independent director requirements of the NYSE and Nasdaq listing standards. Although listing standards require that boards be comprised of a majority of independent directors, 54 of the Top 100 companies surveyed this year, eight more than in 2004, have adopted standards more stringent than a simple majority. The numbers are even more striking with respect to the actual practices of the Top 100 companies. 2005 In this, our third annual survey of certain corporate governance practices of the 100 largest US companies (as ranked in Fortune magazine's FORTUNE 500 ® * list, by revenue, for the most recently ended fiscal year) that have equity securities listed on the New York Stock Exchange (NYSE) or Nasdaq (we refer to the surveyed companies herein as the "Top 100 companies"), 1 we reviewed the most recently available Annual Reports on Form 10-K, annual proxy statements and corporate governance documents available as of June 15, 2005 for the Top 100 companies as well as the Current Reports on Form 8-K filed by the Top 100 companies during the period from August 23, 2004 through April 30, 2005. 2 * FORTUNE 500 ® is a registered trademark of FORTUNE magazine, a division of Time Inc. 1 This survey and the 2003 and 2004 surveys are available on the Shearman & Sterling llp website at http://www.shearman.com/corporategovernance/cg_publications.html. 2 For a list of the Top 100 companies surveyed this year, see page 52 of this survey. Tr e n d s in the Co r p o r a t e Go v e r n a n c e P r a c t i c e s of the 1 0 0 L a r g e s t U S Pu b l i c Co m p a n i e s Independent directors continue to comprise 75% or more of the boards of 81 Top 100 companies surveyed this year as they did in 2004, and the CEO is the only non-independent director of 37 of the Top 100 companies surveyed this year, an increase from 35 such companies in 2004. As >nancial reporting issues remain in the spotlight, so does the role of the audit committee. It is perhaps not surprising, then, that many companies continue to take steps to bolster public con>dence, including increasing the level of >nancial expertise represented on the audit committee. SEC rules require disclosure of the name of only one audit committee >nancial expert even if more than one such expert serves on the audit committee, but 48 of the Top 100 companies surveyed this year, six more than in 2004, voluntarily chose to publicly disclose the name of more than one audit committee >nancial expert. Of those 48 companies, 15 disclosed that all of their audit committee members are audit committee >nancial experts.

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