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Update on Proxy Statement Disclosures and Strategies

for2011 Annual Stockholder

MeetingsMarch 17, 2011

Presented by:

Christine Daly, Partner at Holme Roberts & Owen LLPJennifer D’Alessandro, Senior Counsel at Holme Roberts & Owen LLPEdgar J. Lewandowski, Senior Associate at Holme Roberts & Owen LLP

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Director Qualifications

Since February 2010, Item 401(e) of Regulation S-K has required disclosure of the qualifications of each director and nominee, including the particular experience, qualifications, attributes or skills that: qualify that person to serve on your company’s board at the time of that particular filing in light of the company’s then-current

business and structure

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Director Qualifications

Frequent SEC comments regarding this disclosure, often related to the following areas: aggregated disclosure regarding the board as a whole

or groups of directors generic references to “business experience, skills, or

knowledge” directors in board classes not currently up for election directors nominated or elected by specific

stockholders or classes of stock not simply why the person was chosen as a director in

the first place, but why he or she should be one now

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Compensation Committee Independence Dodd-Frank requires SEC to adopt rules

regarding independence of compensation committee members and compensation consultants / other advisors Committee member independence rules are expected

to relate to additional affiliations of directors (similar to enhanced standards for audit committee members)

Consultant independence is not required, but process for evaluating and disclosing independence of consultants is required

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Compensation Committee Independence Committee must consider matters to be

specified by SEC including disclosure of: Other services provided by the advisor Fees paid to the advisor as a percentage of the

advisor’s revenue Policies and procedures used by committee designed

to prevent conflicts of interest Business and personal relationships between the

advisor and committee members Advisor’s ownership of company stock

Rules will apply equally to compensation consultants, attorneys and other advisors

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Compensation Committee Independence Current SEC timetable:

Proposed rules: March 2011 Final rules: April – July 2011

Action Items: Begin considering importance of consultants and their

independence Review current compensation committee member

independence in light of strict audit-committee-style requirements

Review and revise compensation committee charter to comply with final rules (when available)

Controlled companies are exempt

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Board Diversity Since February 2010, public companies must disclose

whether the nominating committee considers diversity in identifying board nominees Not required to consider diversity, just whether it is considered,

and if so, how – which leads to an odd disclosure if not considered

If there is a policy, how it is implemented, as well as how the nominating committee (or the board) assesses its effectiveness

“Diversity” not defined by rules - each company must disclose how it defines diversity Experience Expertise Background Gender / Ethnic Origin

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Board Diversity In a September 2010 speech, SEC Commissioner

Aguilar indicated his disappointment with most disclosures to date in response to this rule and suggested improvements: Disclose actual diversity on board (number of women,

minorities, etc.) Describe concrete steps taken by the board to increase

its diversity adopt policy of interviewing women/minority candidates

for each board vacancy disclose number of interviews conducted with diverse

candidates instruct search firms to seek out diverse candidates

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Proxy Disclosure of Risk Oversight

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New Disclosures Rules in Practice New proxy disclosures have been in places

since February 28, 2010: Disclosure of compensation policies and

practices as they relate to the company’s risk management practices (Item 402(s) of Regulation S-K)

Disclosure of the board’s role in risk oversight of the company, such as how the board administers its oversight function, and the effect this has on the board’s leadership structure (Item 407(h) of Regulation S-K)

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New Disclosures Rules in Practice Deloitte Study of 398 of the S&P 500 (Jan. ‘11):

58% of disclosures note that the audit committee is primarily responsible for risk

53% of disclosures note that compensation committee is responsible for overseeing compensation-related risks

34% discussed how risk oversight/management aligns with strategy

19% noted a management-level risk management committee, but only 4% have board-level risk committee

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Best Practice Recommendations

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Best Practice Recommendations Evaluate Role of Board Committees Consider Forming a Risk Committee

Dodd-Frank §165(h) requires some financial service companies to form them

Approximately 4-6% of companies have them (ArcelorMittal, Genzyme, La-Z-Boy, Duke Energy and others)

A new best practice? Evaluate Lines of Communication and

Information Flow Are “risk dashboards” enough?

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Best Practice Recommendations Examine Board Composition and Director

Education Programs Dodd-Frank will require some financial companies to

have a risk management expert on the board Site visits? Review analyst reports?

Consult Recognized Sources of Guidance for Risk Governance NACD and COSO reports

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Executive Compensation Say-on-Pay and Say-on-Golden Parachutes

Final Rule – January 25, 2011

Smaller reporting companies – delayed effective date until January 21, 2013

Includes SEC “model” resolution for SOP

CD&A mandatory disclosure re consideration of SOP results

Form 8-K disclosure of frequency of SOP decision

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Executive Compensation Dodd-Frank planned guidance

Comp Committee Independence – Mar 2011

Clawback policy – Aug-Dec 2011

Pay for performance – Aug-Dec 2011

Internal pay equity – Aug-Dec 2011

Hedging policy – Aug-Dec 2011

Chair and CEO positions – None planned

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Executive Compensation Compliance Disclosure Interpretations (CDIs)

How and when to report modifications to awards

How to report awards payable in cash or stock

How to report awards declined or not accepted

Performance award disclosures

SOP, frequency and golden parachutes

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Executive Compensation SEC Comments

Performance goals

Peer groups and benchmarking

How amounts were determined

Compensation risk assessment process

The “Why” of compensation

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Executive Compensation Disclosure “best practices:”

Compensation Discussion and Analysis (CD&A)

Pay for performance

Selection of peer groups and benchmarking

Compensation risk assessment

Plain English – simple and clear disclosures

Check it one more time – do the math

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Conclusion – Q&A

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