� � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � K&L I G A TES tug ,hart f ; #fli? c Ef I i ; f k •P~t re~„iu : .~ ; ~`~ ~ °~~ ~"~• `u Ff{1 ~#~~ ~Z°~ ~#' ~ . # ~v i :zar : a(~~ a t ~ ~ a e~i ~ ~`i ~~~~ ~? . ~ ~, ~,~~'``~,y,~ss . c :~ #5f5 ~ .~ a ~ ~~ , ~'} ! r ~,~~, '~•* z~Y ~ ate . 41z ~ ;} t `qt . r' :} t "" ~ " ~ s . 3r r~ aa' =aft a^aw+Uar ~~f z : Et E S t ~ sv^~`~~~~"`' ei ~s~~ f ` :~`+u} . a : s t a £ `v~ ~s c~ .fc"''„3 h~'~~ ~ ~ m ~ ~ ~'~,~~ ;~ * : as ~ns,~ - zsk ~ L•I :~~ :~ c~ 3 (##~~ 4, ~°" ' . ~s ~ H~E~ h~"€-~ ~" ~Et ~><S# ~~~' k ~~ as • s, ' ~i #n? y~ 3~ ,3~},R t~E ~` a ~ a "~ `S a s, &":, ~ "~ ~}4t ~ ~• } ~ ~# ht's ~ ~ j> ~i ?" ## ia• 3~i't~ r aak ~ : Ns ,~ ~~ €~E ~ s~ 'kta~~ .~~j~ES~~~ .~`~~,xa~~i~' t~ ~ ."~',va~~'a'Esaa~r~~~~1,tg£us&('#~ 4 h~ r .•~"~ ~ta~ y~g ~i .~q,~$~'~i} ; vaaia}a a . .~, ~' n ~,fi~ Lx ~`~~a e, "~a ~t x~~~"^s~ .^• ,~, .# .,s ~Y k+ s 1 . "ra i ?w°i . . : . ~~ . k~~• -~a?~'t aRV`e i :s ,s .~~t s ~~E34~'4 ?~ a# ;i ~ i ~ . "a}j p ~' sa~~•aa`3sw sx~a .ca1 ~ ;r . "€)~,va '~ n}'~ -! ss~a :,~as ~#Y d t~ d `~~'v :~, ~d~aa ~=r . -"~ "us .i~,-~aar ;= Y~ 'K ~' ~ ~`~~ ; z'~tx :~~3~ ~ z :~~~~ .f ~ ~~Z € ., ~ WS~S 3 i ~,•~r .~~ 7 ~~ ~` .~ ~~"`r~ ',S`a%~~35 ~~ ~~•• ;^fa ~~ i ~ i ~~~ ht ~4~~ixl# ~ ~Dir^'~,s~ai a .,1~»~~~ 's $''a~~~r `~ i S 4 $4~~'Sva`,~ S ~ ~ i~,'N~ ~E y~ s • . a1~~~r . ~ ~F}F a~ ~ .a ~~ ~ ~ ~naY~~ ',~ ~ ~`g ` ~ Iasi ss s 9 ~ ~ . Y d ~€ ~~,~ . ~ ~ ~ ~r ~~ x ;# ski '&QM`F,s .. .3 .au~r , . i ~~~r . u .?SU+' i . .ujS~`''~k~1 ~ . ~ . . s . , , ~~ ~'l :~s,a~ :i ;~ :ts .s . ;ss ;~ ; f ~t .'s,s- .}r~,~+ .V t .,s, ~€a' ~+•~ . .• : :• : :~r!? .' a• .? + . . ~„ Y s€j•~ °,, ;~ ~ r Y~ c ~ a +s t +~ a =F P" t `~ i~h`~" ~ ~ '~ £ ~ Sa'•~~ ~~ g~ az . .1 '>` s a ~'ah ;~, ~ F ., a~ as #. n .~~,,1 » k, $ lusya>d# .~ . . ~ :`a ~ a~ ;• ~a .roa w ; ~ . '~ .' a~~•` ° ra~a ~a`a m z ~' ~~~` ~' ~, ~'~`~~•'~ a .~` l,~'~~ ~~~ ~ .a~£r vk ~~~~~~~~ "~ '~0''"~ ! : ~xtv ~~~~r~{'t'i t1 i ~~r ~ ,~~~ "s•~" .~'~ . ; . ~~si .u ~ ~ ~~~, ~~ , i `a~~~'~A ~"~`, i'~j'i a ~'~ 4 k . 's : ;t ~v+ :n ;~ ~ .,_, . sa ,` ? ate ~ ' . r :~~ . .•,~x € sr~ .. .?i :?w~ ao, ~ n~a, . ~ .,~'T~'~? . . ~ l\if~° .r `~ ., ., .,cle~ i ~ .~ . tl' .' .mn .ISr } s x ,, ;a'ih . .~ ...n Stanley V . Ragalevsk yy Kirkpatrick & Lockhart Preston Gates Ellis LL P State Street Financial Center One Lincoln Street Boston, MA 02111-295 0 617 .951 .9203 s tan .ragalevsky@klgates .co m
K&L I G A TES wkj,f,ft i,ck & I : 0 l dil i`'i,ustprr (,, e E If s rr , What is Boa r d Succe s sion Planning ? ■ Effective board succession planning is not simply filling a di rector vacancy when one occur s ■ An ongoing, systematic process to ensure board continuity and quality through : ■ Identification of the competencies and qualities expected of director s ■ Assessment of existing board to identify gaps in desired skills which are presently lacking or may be lost in the future
I GATE S &L K li' 1, j `ati t f'f Y & ~ .. ;1r, k h l r : 11 v (`s, 1 .o a Gla1 I , y 1 .1 ~ What is Board Succession Planning ? ■ Improvement and Development of the skills and capabilities of existing directors through a process of education, training, mentoring and coachin g ■ Recruitment of new directors who will satisfy the desired competencies and qualitie s ■ Development and integration of new directors into board through education and training
K&L I GATE S What i s Boa r d Succe ss ion Planning ? ■ An integral part of a bank's governance process ■ Controlled by the Board, not the CE O ■ Tied to the bank's mission and strategic plan ■ Good board succession planning rarely just "happens" but is a product of the directors' collective commitment to thoughtful planning and willingness to hold themselves accountable
K&L I GATES or'O r 1',~ 1*F~ C t CI, ;i f Board Succession Planning - A Challenge for the Boar d ■ Board succession planning is a difficult issue for boards to addres s ■ Only 1/3 of Fortune 1000 companies engage in board succession plannin g ■ Discomfort over establishing standards and evaluating current board members against them ■ Peer to peer evaluations are more stressfu l ■ Board entrenchment
� K irkp{ tn r~ k & I_o L I GATES h,dri I Board Succession Planning - A Challenge for the Boar d ■ Things are changing - fas t ■ Corporate scandals ratcheting up expectations for director s ■ Sarbanes-Oxley Act and NYSE listing standards require public companies to conduct periodic board self-evaluation s ■ SEC rules require public companies to disclose the process used to identify and evaluate board nominee s ■ Knowledge explosion and "best practices" making corporate governance "process" driven
K&L I GATES & 1-ockfum 1 1 Board Succession Planning Has Become a Good Governance Best Practice for Bank s ■ It is the right thing to d o ■ As a director, you have an obligation to leave your bank in better condition than you found it and to assure its continuit y ■ You cannot fulfill that obligation if you make no provision for your replacement
� � K& L I GAT ES II' k p a,I r + k & ! oO urt { ; (iat'?S tc E i rs il . T he " B low b ack" Effec t ■ Once a board defines the qualities and skills it wants from prospective directors, it cannot logically exempt its present directors from those standard s ■ Evaluation of current directors is inextricably tied to a board's succession planning effo rt s for prospective directors . ■ Plugging gaps in the board through a succession planning process should also get the board focused on improving present performance
� K&L I G A TES ! .1 .1, I . .cit ; k s lml G,Rt es His x $, The "Blowba c k" E ff ec t ■ There is a correlat i on between boards that effectively plan for their own succession and good governance . Boards at well governed banks tend to have effective board succession functions because they already have : ■ Board governance principles ■ Board committee charter s ■ Effective strategic plannin g ■ Effective management succession planning
K&L I G A TE S Indicators of a Need for Board Succession Plannin g ■ If your instincts tell you that your bank has a problem with how i t selects and recruits directors, your instincts are probably righ t ■ Your board may need to pay more attention to board succession if too many of the following are true : ■ Your bank has no job description outlining the qualifications and responsibilities of director s ■ No new directors elected to board in past five years
� , ~, k 4i : k hd j,t 1 re s, ;cm Gatos € 1 K &L I GATE Indicators of a Need for Board Succession Plannin g ■ 40% or more of directors have retired or plan to retire from their primary occupations within the next four year s ■ Directors at your bank generally serve until they die or become incapacitate d ■ Your bank does not annually assess the effectiveness of the board and its member s ■ Your board neither provides nor requires directors to partake in continuing education or training on banking issues
I G A TES K&L ,. ,h]P<at n r k, Indicators of a Need for Board Succession Plannin g ■ Your bank has a "3" or worse rating for the management component in its most recent safety and soundness examinatio n ■ Your board does not have a a chair who provides strong leadershi p ■ Your board does not have meaningful succession planning and development for its CEO and senior officers
K&L I GATE S Indicators of a Need for Board Succession Plannin g ■ Board succession planning takes real discipline and commitmen t ■ Peer to peer evaluations are often dreade d ■ The imposition of accountability can be disquieting • Unpopular with least productive director s ■ Easy for top tier decision makers to except themselve s ■ Damage from ineffective board succession planning not visible for years
� I GATE . L I : Ifis t Getting Started - Preliminary Governance Consideration s ■ There are many governance issues which a board should consider before initiating a board succession planning process . The most important are : ■ Deciding who will oversee the board succession process (e .g ., the Chairman, the Governance Committee or the full Board ) ■ Legal restrictions on the size of the board or the number of committees which need to be staffe d ■ The geographic and other constituencies which the board has decided merit representation
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