Boards of Directors Study in Australia and New Zealand by Korn Ferry

KORN/FERRY INTERNATIONAL in partnership with

EGAN ASSOCIATES

Boards of Directors Study in Australia and New Zealand 2002

ABOUT KORN/FERRY INTERNATIONAL Korn/Ferry International, with over 70 offices in 40 countries, is the world’s leading provider of recruitment solutions. The firm works closely with clients to provide solutions tailored to their recruitment and assessment needs: through the firm’s Executive Search business identifying CEOs, COOs, CFOs, board members and other senior-level executives; through the firm’s Management Assessment business, providing evaluation of senior management teams; and through Futurestep, which combines the power of the Internet with Futurestep’s proprietary assessment tools and search expertise to fill the growing demand for middle managers. Since 1972 in Australasia, Korn/Ferry has handled a wide range of board-level assignments – and understands the challenges of assembling an effective, knowledgeable and cohesive board of directors to meet growing demands for greater accountability and more effective board performance. The shortage of experienced directors, the tightening of governance policies and the desire on the part of corporations to broaden the board base are making it more difficult than ever to identify and recruit those with the skills needed. KORN/FERRY INTERNATIONAL PTY LIMITED

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Level 20 60 Castlereagh Street SYDNEY NSW 2000 AUSTRALIA Telephone (612) 9006 3400 Facsimile (612) 9006 3600

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ABOUT EGAN ASSOCIATES Egan Associates advises listed companies, major private and international corporations and government on executive and director reward, service agreements, incentive and share plans and strategic and corporate governance issues. Details of these services are set out fully on the company’s website. The Group’s principal, John Egan commenced his career in remuneration consulting in the late 1960s. He spent 21 years with Cullen Egan Dell, the last six as their Executive Chairman concurrently with his role as Chief Executive of the Noble Lowndes Group, now both part of Mercer. Egan Associates’ principal involvement in remuneration and organisation advisory work over the last 14 years has been at the board and senior executive level. The company is retained by a number of Australia’s largest corporate entities as an adviser to their Chief Executive and/or Board on strategic organisation, reward and appointment issues, particularly those that have become increasingly sensitive as a result of disclosure, shareholder and government scrutiny. JOHN V EGAN ASSOCIATES PTY LTD

ACN 001 290 017

28 The Corso MANLY NSW 2095 AUSTRALIA Telephone (612) 9977 3077 Facsimile (612) 9977 3577 Web site: www.eganassociates.com.au Email address: mail@eganassociates.com.au

P.O Box 807 MANLY NSW 2095

Boards of Directors Study in Australia and New Zealand 2002

CONTENTS Foreword.................................................................................................................................................. 4 Introduction ............................................................................................................................................ 6 The Changing Nature of Boards ........................................................................................................ 8 Board Composition: Most Seek Quality Through Diversity .................................................... 8 Women on Boards: Still Under Represented .............................................................................. 9 The Generational Divide: Boards Continue to Look for Experience ...................................... 9 The Chairman’s Role: Conduit to the CEO ................................................................................10 Redefining the Role of the Board: Towards Greater Interaction with Management ............10 The Role of Committees ................................................................................................................11 Board Effectiveness ..............................................................................................................................13 Reviewing Board Performance ....................................................................................................13 Board Compensation ............................................................................................................................15 Non Executive Chairmen Fees ......................................................................................................16 Non Executive Directors’ Fees ......................................................................................................19 Non Executive Directors’ Retirement ..........................................................................................23 Board Demographics ............................................................................................................................25 Board Composition ........................................................................................................................25 Distribution of Board Size..............................................................................................................26 Meeting Frequency ........................................................................................................................27 Board Position by Gender..............................................................................................................28 Age of Directors ..............................................................................................................................31 Board Committees ..........................................................................................................................32 Committee and Board Meeting Attendance ..............................................................................33 New Zealand Companies ....................................................................................................................34 Board Demographics ......................................................................................................................34 Board Compensation ......................................................................................................................35 Appendix ................................................................................................................................................36 List of Organisations Surveyed ....................................................................................................36 List of Tables and Charts................................................................................................................41

Boards of Directors Study in Australia and New Zealand 2002

FOREWORD Over the past thirty years, Korn/Ferry International has been reviewing and investigating the structure (demographics) and performance of boards of directors and analysing trends in the compensation of directors. In our 2002 Study we have partnered with Egan Associates to ensure a very high level of data integrity and a significant improvement in the statistical validity of the key measures of board composition and compensation. Additionally, we have sought commentary from nine of Australia’s prominent non executive chairmen and directors, on several topics of specific interest to all independent directors and senior corporate executives. To supplement the views of these business leaders, we have drawn on Korn/Ferry’s experience in identifying and appointing independent directors to boards and in advising on the evaluation of the performance of directors and boards as a whole. Topics covered in this Study bring together inputs from these three sources. A common objective for all boards is to improve their effectiveness by determining the key responsibilities of the directors and focusing on ‘best practice’ for board governance in today’s commercial and business environment. It is well recognised that governance has been about, and of course remains, the exercise of responsibilities for compliance, the fulfiling of fiduciary duties and, in general, representing shareholder interests. But importantly, it is also about creating and sustaining an environment to optimise performance so as to create shareholder value and protect the assets of the enterprise. With the increasing focus, particularly in developed economies such as Australia and New Zealand, on the so called triple bottom line covering economic, environmental and social responsibilities, and for each of these to be incorporated into the business value system, the definition of creating shareholder value can be broadened to the notion of stakeholder value and in doing this, the requirements of ‘best practice’ for board governance can be applied to public owned and government enterprises as well as commercial, shareholder or privately owned businesses. The recent spate of local and international collapses has put corporate governance back on the agenda in a way we have not seen since the late 1980s and early 1990s. This 21st edition of the Boards of Directors Study for Australia and New Zealand 2002 is particularly timely and provides a rich insight into the nature of boards and the role of directors in the new millennium. The changing nature of boards, as outlined in this Study, gives some emphasis to improvements in quality through appropriate diversity, the continuing and growing importance of the chairman’s role, the importance of effective interaction with management, and through the role of committees. We have devoted a separate section to board effectiveness. As expanded in the Study, key features of Australia’s corporate governance system include a clear separation between the roles of the chief executive and the chairman and a predominance of independent directors on boards. With corporate regulators in Australia willing to aggressively pursue malpractice, with proposals for greater corporate transparency and with the Government’s recently announced CLERP 9 reforms focussing on the role of audit committees and the independence of auditors, the Australian corporate environment can only benefit.

Boards of Directors Study in Australia and New Zealand 2002

Korn/Ferry International is particularly grateful for the generosity of time and the frankness of opinions given by: Don Argus, Keith Barton, Frank Conroy, John Curtis, Bill Cutbush, David Gonski, Adrian Lane, Helen Lynch and Harry Perkins. Their contribution has substantially enriched the quality of commentary on many of these important issues currently facing boards in Australia and New Zealand.

Signed by

Gary Reidy Managing Director, Australasia Korn/Ferry International

John Egan Chairman Egan Associates

Boards of Directors Study in Australia and New Zealand 2002

INTRODUCTION The 2002 Study, completed in partnership with Egan Associates, has been compiled from: an analysis of published information from the annual reports of 426 listed and government entities in Australia and New Zealand for the 2001 financial year; from in-depth interviews with nine of Australia’s prominent non executive directors and chairmen; as well as from existing Korn/Ferry International research and the observations of the firm’s senior partnership team. It is noteworthy that, despite prominent collapses such as Ansett, HIH and One.Tel, Australian business has fared relatively well during the turbulence of the past two years following the end of the 1990s boom. One key reason for this is that, following the excesses of the 1980s and the lessons learned from subsequent collapses, the country has developed a corporate governance system that appears to be amongst the world’s best. This Study highlights that there is room for improvement in areas such as the effectiveness of relationships between organisations’ boards and the senior management, the identification of highly skilled and competent directors to sit on boards and mechanisms for reviewing their performance and compensation.

Information and Interpretation Whilst both Egan Associates and Korn/Ferry International have approached their research differently in the past, the current analysis is drawn from the 2001 financial year annual reports of 426 entities and has been updated from Egan Associates' consulting records where appropriate. As a result of adopting a new format and data gathering methods, this year’s findings are not completely comparable with previous years’ conclusions, however, the key areas of interest and trends are clear. Assistance with the interpretation of the charts and tables can be obtained from Korn/Ferry International or Egan Associates by contacting: Suzanne Williams at Korn/Ferry International Penny Brown at Egan Associates

612 9006 3400 612 9977 3077

Specific studies and comparisons by industry can be prepared to meet customised requests on an individually tailored professional basis.

Profile of Participating Organisations The list of 426 organisations from which data has been drawn is appended. These can be categorised as: Principal bourse – Australia Australian Government Organisations Principal bourse – New Zealand

387 12 27

For Australian companies, analysis has been provided for the Total Sample, and for the Top 50 companies. Total Sample when used in the Study refers to the 387 listed and 12 government entities in Australia.

Boards of Directors Study in Australia and New Zealand 2002

Financial Profile of Participating Organisations Australian Publicly Listed Companies Average ($)

Count (#)

Market Capitalisation Market Capitalisation in the Top 50 companies

1,648,755,969 10,794,728,200

387 50

Total Operating Revenue Total Operating Revenue in the Top 50 companies

1,123,353,662 6,276,716,560

387 50

104,476,928 727,450,520

387 50

4,710,615,147 33,624,772,320

387 50

Operating Profit Operating Profit in the Top 50 companies Total Assets Total Assets in the Top 50 companies

Australian Government Organisations Average ($)

Count (#)

Total Operating Revenue

766,759,333

Operating Profit

94,680,083

1,602,421,000

Total Assets

New Zealand Publicly Listed Companies

Total Operating Revenue Operating Profit Total Assets

Average (NZ$)

Count (#)

1,190,973,093

83,200,336

1,918,639,750

The introduction of Standard and Poor’s Global Industry Classification Standards (GICS) to the Australian market officially commenced on 7 July, 2002. The GICS began calculation and dissemination on 25 June, 2001. Before the introduction of the GICS, the Australian equity market had been split along two lines, Industrials and Resources, with 24 industry sectors unique to this country. Standard and Poor’s reclassified all companies in the S&P/ASX indices in accordance with the GICS. Industry analysis in this Study has been prepared in accordance with the GICS. In order to provide a contemporary approach to industry analysis we have used the ten GICS economic sectors throughout the Study. The ten sectors are Energy, Materials, Industrials, Consumer Discretionary, Consumer Staples, Health Care, Financials, Information Technology, Telecommunication Services, and Utilities. Two new sectors have been introduced by GICS under the umbrella of Financials, for the Australian market - Financials excluding Property Trusts. This Study refers solely to the sector of Financials and therefore is inclusive of Property Trusts. Further information regarding the introduction of Standard and Poor’s GICS may be obtained from their website at the following address: http://www.spglobal.com

Boards of Directors Study in Australia and New Zealand 2002

THE CHANGING NATURE OF BOARDS Board Composition: Most Seek Quality Through Diversity "A good director these days is not someone who thinks only about financials, but leadership, culture, values and reputation." Independent directors have long been recognised as an essential element of good corporate governance. Independence brings objectivity and objectivity usually gives rise to a beneficial tension between the board and management. A review of 426 entities shows that the prevailing trend is to appoint more non executive directors than executive directors by a factor of almost 3:1. Across the total sample, 72% of directors are non executive. The percentage of non executive directors is even higher among the Top 50 companies, at 77%. Supporters of non executive directors argue that people who do not have a ‘hands-on’ management role can deliver a clearer perspective on the big picture for an organisation. External expertise also bypasses internal pressures and the politics of management to provide a more realistic and solid basis for decisions on some issues. "One of the common features of many of the recent corporate collapses is the lack of strong, uninvolved outside directors," noted one chairman. Good governance also dictates that a well constituted Board should reflect a broad matrix of gender, skills, age and experience. So what is the profile of the ideal Board? In interviews conducted for this Study, all directors deemed the presence of the chief executive on the board as a necessity, with most interviewees also preferring to include the chief financial officer. Diversity on boards was also favoured, with interviewees saying that the biggest danger lay in homogeneity of board members. However, the right mix for a specific board will depend on the type of organisation. Generally speaking ex chief executives were considered to have the most desirable profile. "The ideal director is someone who has sat in the chief executive’s chair – they understand what it is like to be a head manager", said one ex CEO chairman. As a general rule it was considered desirable to include members who have the requisite industry experience. With regard to the inclusion of lawyers, some interviewees acknowledged that a lawyer is good for governance while others thought legal services could be brought in on a needs basis. An accountant or financial person is generally considered a valuable addition to a board. The skills mix was only part of the story, with many interviewees saying it is equally important to find the right blend of personalities on the board. While synergy between board and management is crucial, it is also essential between board members. "We look for chemistry – people with the commonsense to work together because few issues dealt with by boards are black and white," noted one chairman. "A board must be a group of people who are prepared to differ, who respect other people’s ability, but who can talk things through and come to a consensus and support the corporate view." Interviewees considered that the qualities of candour and courage were vital to the healthy functioning of a board – with one insisting on the inclusion of a ‘brave’ person who will ask the first question to clarify an issue. The recruitment of new, high calibre directors is now the top priority for many boards. While some boards still rely on their own networks to find new members, there is an increasing reliance on executive search firms to identify candidates, particularly when younger and less experienced directors are sought. As one prominent chairman described it "I prefer to go through headhunters because headhunters, particularly if you are running a global company, have good networks and can deliver a list of people who they think will meet the criteria you have set."

Boards of Directors Study in Australia and New Zealand 2002

Women on Boards: Still Under Represented “ Most boards have only one, perhaps two, women. It looks contrived but it’s not - it’s that women generally don’t have the mix of experience you are looking for”. Women represent only 9% of all directors in the Study, with 1% in the chairman’s role and 2% as deputy chairman. Within the Top 50 companies ranked by market capitalisation, the representation of women directors is slightly higher at 14%, with 5% taking the chair. The representation of women on Australian boards, though ahead of the figures for the United Kingdom (5%) and Japan (0.2%), remains almost static. One explanation of the gender imbalance of Australian boards is that non executive directors are drawn primarily from the senior executive ranks – where Australian women have been traditionally under represented. A United Nations report published last year, found that Australia had one of the lowest percentages of female senior executives in the OECD, and the analysis of the Top 200 Australian companies supports this, with only three having female chief executives. One interviewee summed up the plight of female ‘would be’ directors – "It is a nonsense to say that there are not enough qualified women, there are plenty…the thing that women haven’t done in the majority of cases is run a big business but I don’t think that that disqualifies them from being a very effective director or indeed a chairman". While two interviewees openly eschewed the notion of appointing a woman to a board in the interests of ‘political correctness’, the importance of Boards reflecting the diversity in society was acknowledged. According to the interviewees, women bring a new rigour to the boardroom that is increasingly important. The questioning of issues by women directors is often more far-reaching and determined than their male counterparts, observed several chairmen.

The Generational Divide: Boards Continue to Look for Experience The average age for company directors continues to rise. Across the entire Study the average age was 58 years, despite apparent pressures in the business world for executives and professionals to have shorter working lives. While based on a different methodology, the 2000 equivalent of this Study found that most Australian non executive directors fell in the 51-55 year age range, which was up from 46-50 around 1994. While age is a factor inherent in the necessary commercial experience for directors, the interviewees maintained that the once mooted ‘old boy’s club’ of directors is being supplanted by the ‘highly skilled network’. "Twenty years ago, when I was first on boards, [an old boys’ club] definitely existed, and it was very difficult to get on to top boards," said one chairman. "There remains a limited number of people who become directors, but this in part reflects the size of the economy rather than a social network." The view that directors should be younger is gaining momentum. "The experience of older directors, particularly those who are not busy, is often outdated... Management, which tends to be younger these days, is looking for contemporary direction and leadership," stated one chairman. Several chairmen noted the rise of the youthful non executive director and said that the behaviour of younger directors tended to differ from older board members. Younger directors typically displayed more interest in organisational strategy and less in the board’s role as ‘watchdog’. Others observed benefits in the closer alignment between the mindsets of younger directors and management. One chairman spoke in support of the older director, "You want people who have done it before. You’ve got to be old and have grey hair like me …We’ve been there and done it and made all the mistakes…" 9

Boards of Directors Study in Australia and New Zealand 2002

These comments must be noted against the reality that, when in the past the proportion of executive directors was higher, the average age of directors was lower than it is now, partly due to the fact that executive directors are appointed at a younger age. Highly experienced non executive directors are still sought after.

The Chairman’s Role: Conduit to the CEO “There is a fallacy that because you have been an outstanding chief executive, it means you will be a good chairman. I don’t think that is right. The role of the chairman, unless it is done well, is the one that is most criticised amongst directors – there is no reverence towards the chairman amongst a group of equals.” The competency and experience of the chairman is vital to the proper and effective functioning of the board. "Sometimes you can have the best team of directors around a table and it just doesn’t work, partly due to the chairman," noted one interviewee. The chairman’s ability to steer the discussion and ensure that boardroom debate results in an appropriate outcome for management to evaluate is vital. As one interviewee suggested "… a good chairman, if he thought someone had a contribution to make, and hadn’t, would actually ask that person for a view – because you can’t talk all the time." The relationship between the CEO and the chairman is viewed as critical, with the chairman’s role to mentor and advise the CEO. While much debate and discussion will take place around a boardroom table it is up to the chairman to convey the board’s sentiments to the CEO. However one interviewee warned: "Sometimes chairmen become the ‘captive’ of the CEO and don’t get the best out of the board. They will be defensive on behalf of the CEO... the result may be that a board holds on to the wrong chief executive for too long." Another chairman was strongly of the view that it is a bad principle for a chairman to take on the chief executive role for any material period of time. "Once a new chief executive is found it would be wrong for the chairman to resume the chair in those circumstances…he would lose his objectivity."

Redefining the Role of the Board: Towards Greater Interaction with Management "The Board members are the representatives of the shareholders, they are the owners’ committee yet so many boards think that they are there to run the company." The relationship between board and management has evolved over time with the recent series of corporate collapses heightening awareness on both sides. The trend has been towards greater interaction, with the directors’ expertise being actively sought by management, and directors seeking more information from, and enhanced communication with, management. As this trend develops, clear delineation of the respective roles should also evolve. While the appointment and support of a capable chief executive is considered of paramount importance, allowing the CEO to act merely as a filter between the board and the organisation is no longer considered adequate. Instead, boards often want to receive more information from management and to consult more frequently with senior executives than they have done in the past. The issue is the degree of involvement. As one interviewee put it "Directors add value because they have got experience across a wide range of issues and because they haven’t been involved in the detail, they can be very objective about it."

Boards of Directors Study in Australia and New Zealand 2002

Interviewees heralded the death of the passive board of directors. There is a clear view that boards should exercise rigour in dealings with management. "To say you are there to support management is not enough in my view. It’s not a matter of hiring a CEO who is highly remunerated and then listening to everything that person has to say, rarely objecting," said one director. Disharmony between board and management was identified as posing the greatest threat to an organisation. "The most important single action of a board is in the choosing of a chief executive as an individual who can be trusted," said one chairman. "Many of the recent debacles have been because there has been disharmony between the CEO and the board." The trend to more interactive dialogue is a two-way street. "Most insightful managers want the board to add some value," observed one chairman. It was noted that in 3600 performance reviews of directors, managers more frequently request opinions on complex issues from board members. Directors in some corporations contact management directly, with the blessing of the chairman. "I encourage the Board members, if they have any technical issues they need clarified, to ring the author of the Board paper. I don’t have an issue with Board members contacting management direct in these circumstances – I think it is quite helpful." There are risks involved however, such as creating an environment where decisions can be made without consultation with the full board, and interviewees added that the objectivity of the board remains paramount and must be respected. The interviewees generally regarded the board as a vital checkpoint but not a strategic driver of the organisation. The board’s main focus should be governance and policy that must remain outside the ambit of management and operations, although there should be a collegiate approach in supporting the CEO to implement the policy set by the board. Indeed, a board which does too much of the driving is seen to be indirectly commenting on the abilities of its chief executive. Some interviewees felt that the board should play an active role in strategy. While this was widely viewed as the responsibility of management, special strategy sessions where executives and non executive directors could exchange ideas for the future were seen as useful. "So many businesses are a combination of heart and brain. It’s important that the directors see where management is coming from and understand the basis for its decisions. Meetings where the two can mix therefore become vital," said one.

The Role of Committees "I’m a great believer in sub-committees. There’s no better way to focus the mind of a director than to make him the chairman of a Board sub-committee." Of the organisations surveyed in the Study, 86% had an audit committee and 58% had a remuneration committee. Interestingly, from the perspective of the Government’s CLERP 9 reforms, all of the Top 50 listed companies in Australia have an audit committee. One advantage of having committees is that they sift through the detail, enabling the board to focus on broader matters such as setting policy and on governance. Some interviewees did not regard committees positively. One chairman observed that committees "can be a real menace when it comes to letting management get on with running the business" and another expressed the view that it was risky for non executive directors to delegate the decision making process entirely to committees. He was concerned that board members should not surrender the thought processes necessary to make logical and well informed decisions.

Boards of Directors Study in Australia and New Zealand 2002

Two interviewees had particular responses in the current climate of debate surrounding the independence of auditors and the role of audit committees. One chairman had introduced the practice of the auditors reporting directly to the audit committee, and another chairman had abolished all committees except the audit committee, deeming compliance and remuneration issues as essential to all directors. Several chairmen said that the size of their board was to some extent dictated by the number of committees, with each committee, on average, being made up of three non executive directors.

Boards of Directors Study in Australia and New Zealand 2002

BOARD EFFECTIVENESS Measuring board effectiveness is not an exact science and ultimately it is judged by market performance and shareholder reactions. However, the interviewees pinpointed four key areas which influence board effectiveness: • Relationship between the Board and the CEO; • Strong, detached independent directors with the appropriate combination of skills and competencies; • Transparency in terms of open communication and the flow of information between the Board and senior management; and • Leadership of the chairman. Board size can impact on overall performance. "Any more than ten and you start to carry passengers," observed one chairman. Only 5% of the boards studied had fewer than four members and 10% had 12 or more. Among the Top 50 companies, 38% had 12 or more. The average number of members across all boards was seven, which is in line with the findings of the 2000 Study and suggests that the trend towards a reduction in the size of boards may be slowing. According to one interviewee, the focus of the board was limited to the financials for too long. The new agenda for an effective board requires contemporary directors who understand the need for a broader corporate reach and who will "think about leadership, culture, values and reputation".

Reviewing Board Performance "The board is more engaged if there is going to be a performance review. Directors become more accountable and the format and agenda of meetings change." While there is no "best practice" methodology for assessing board performance, formal reviews are increasingly welcomed as a way to improve effectiveness. All the interviewees had engaged in some type of review process. A range of methods was reported, from an informal assessment of directors standing for re-election to highly structured 3600 assessments conducted by external consultants and incorporating feedback from senior management, co-directors and the chairman. Self-assessment, and sessions where board members are invited to assess each other, were generally criticised by the interviewees. One chairman observed, "...Using one director’s subjective viewpoint of another tends to deal with irritants rather than performance." The traditional approach of the chairman tapping a poorly performing director on the shoulder is also considered ineffective and outdated. The effectiveness of formal review was embraced by interviewees who recognise the inappropriateness of leaving a dysfunctional director in place. The outcome of performance review inevitably leads to some directors retiring earlier than planned. "I have been on a number of boards where, because of the review, the chairman has been asked to leave. It is a way of delivering the message that it’s time to move on." With regard to tenure, between six and ten years is favoured as a sufficient period in which to bring influence to bear on an organisation. "You want directors to be a bit edgy and contributing and be conscious of the responsibilities. If you have a drop dead date you are going to get better results."

Boards of Directors Study in Australia and New Zealand 2002

Interviewees reported a positive reaction from directors who had been through a formal review process, despite some initial scepticism and resistance. "Everyone would say they have learned from the process and the collective performance of that board is much better now than it was three years ago", one chairman observed. What was needed in a formal review process was a consultant prepared to offer suggestions for performance improvement, rather than just a critique of performance. Some boards carry out annual reviews, others prefer to undertake them every two years due to the time commitment and expense. The more frequent the review, the more likely it is that suggested improvements will be implemented. One interviewee said, "Three years is not sufficient because directors change and management changes in that time frame and you have gaps." However, one chairman believed that review was necessary only every three years and then, only at the macro level. "If the company’s going well, you probably don’t need a formal review – everybody knows they’re going fine and away they go." The same chairman considered that the best judges of a board’s performance are the institutional investors and other shareholders. Some resistance to the adoption of performance reviews is generational, coming mainly from traditional chairmen who, from their executive experience, are less familiar with 3600 performance assessments. "Real leadership is about doing what you say you are going to do and what you are asking other people to do," one chairman commented.

Boards of Directors Study in Australia and New Zealand 2002

BOARD COMPENSATION In a climate of closer scrutiny and greater accountability for board members, the issue of compensation has become increasingly complicated. A general observation is that the time commitment of non executive directors to their work on boards has increased, with increasing regulatory and legislative impost, increasing complexity with internationalisation and scale, and volatility on the bourses. Arising from these circumstances there is also a trend towards more unbundled fees with an increasing amount of work undertaken by directors as members of formally constituted committees, for which separate committee fees are determined.

Corporations Act The regulation of directors’ remuneration under the Corporations Act is effected in two ways, one is the requirement that the shareholders must approve the directors’ remuneration (section 202A, a replaceable rule and/or section 208) and the other is that the directors’ remuneration must be disclosed to the marketplace (section 300A). Accordingly, shareholders may exercise control over the rate at which directors are paid and, in submitting proposals for directors’ remuneration, the Board will be aware that the institutions and shareholder organisations as well as various commentators will assess the reasonableness of the proposals. The Corporations Act also requires that remuneration of company officers be reasonable. Section 9 defines officers to include directors. That section also defines "emoluments" as being "the amount or value of any money, consideration or benefit given directly or indirectly, to a director of a body corporate in connection with the management of affairs of the body….". That definition does not seem to imply that "emoluments" is an exclusive term, thereby excluding other words such as "remuneration" from also meaning money or consideration given to a director in the circumstances described above. For the purposes of the Corporations Act, remuneration can include: • Salary and/or fees; • Bonuses; • Expense allowances; • Benefits (cash and non-cash) "in the nature of" fringe benefits such as employee discounts on housing loans and on share acquisition; • Superannuation contributions; • Termination or retirement benefits; • Indemnity; • Insurance premium for liability cover; and • The value of shares issued or options granted. The level of directors’ fees and the processes by which they are determined continues to receive attention from stakeholders and the media. Boards, in response to closer scrutiny and demands from groups concerned to require from them greater accountability and reassurance, may believe it prudent to: • Ensure that they have a way of maintaining awareness of current market philosophy in this area; • Take steps to ascertain the level of directors’ fees in commensurate companies in similar industries; • Make sure that the board has appropriate processes for the establishment of directors’ fees; and • Effectively inform and update the company’s shareholders so that recommendations put to them are in proper context and are easily understandable. We have observed that board compensation has become increasingly complicated with a trend towards more unbundled fees, and that there are more committees and therefore more committee fees.

Boards of Directors Study in Australia and New Zealand 2002

Non Executive Chairmen Fees Non executive chairmen fees in Australiaâ&#x20AC;&#x2122;s leading companies by revenue and market capitalisation Chairmen fees are analysed according to company size, that is, by Revenue, and Market Capitalisation as at 1 May 2002. As well as examining boards in the Total Sample and in the Top 50 sample, analysis is also done for the sample according to their position on the Top 25, Second 50, Top 100, Top 100 to 200, Top 200 to 300 and Top 300 to 400, to broaden the opportunity for comparison. The fees encompass all payments made during the year including base retainer fees, committee fees, disclosed superannuation contributions, and other benefits. Chairing the Boards of the Total Sample companies are 308 non executive and 91 executive chairmen. A total of 42 of the Top 50 Australian companies are chaired by non executive chairmen, with 8 executive chairmen comprising the remainder. Table 1 shows that the average fees for the Total Sample of non executive chairmen are $106,201 and the median is $85,000. Companies are ranked in accordance with their annual revenue and market capitalisation. The data illustrates that non executive chairmen fees in the Top 50 companies ranked according to annual revenue are relatively similar to those ranked by market capitalisation (Table 1 and Table 2). For example, at the 75th percentile, non executive chairmen in the Top 50 companies ranked by revenue receive total annual remuneration of $295,000; a similar amount of $292,500 is accorded to non executive chairmen at the 75th percentile in the Top 50 companies ranked by market capitalisation. This trend is also noted in the average chairmen fees ($235,889 and $231,905 respectively).

Table 1. Non Executive Chairmen Fees in Australiaâ&#x20AC;&#x2122;s Leading Companies by Revenue Analysis includes Base Retainer Fees, Committee Fees and Disclosed SGC Contributions and Other Benefits 90th Percentile $

75th Percentile $

Median

10th Percentile $

Average

Sample

25th Percentile $

Total Sample

208,000

135,000

85,000

55,000

35,000

106,201

308

Revenue < $200 million $200 - $500 million $500 million - $2 billion $2 - $5 billion > $5 billion

125,000 145,000 200,000 295,000 429,000

85,000 125,000 157,500 225,000 317,500

55,000 90,000 120,000 205,000 275,000

35,000 62,500 75,000 185,000 197,500

25,000 55,000 60,000 165,000 162,000

68,648 96,538 123,036 210,238 273,500

159 52 56 21 20

Ranked by Revenue Top 25 Companies Top 50 Companies Second 50 Companies Top 100 Companies Top 100 - 200 Companies Top 200 - 300 Companies Top 300 - 400 Companies

423,000 341,000 205,000 305,000 145,000 122,000 105,000

310,000 295,000 155,000 225,000 125,000 102,500 75,000

255,000 215,000 125,000 175,000 85,000 65,000 55,000

210,000 175,000 75,000 97,500 60,000 45,000 35,000

165,000 147,000 55,000 75,000 47,000 35,000 15,000

269,783 235,889 120,854 181,047 92,711 74,595 60,385

23 45 41 86 83 74 65

Total Sample covers 387 listed and 12 government entities in Australia

Boards of Directors Study in Australia and New Zealand 2002

Table 2. Non Executive Chairmen Fees in Australia’s Leading Companies by Market Capitalisation Analysis includes Base Retainer Fees, Committee Fees and Disclosed SGC Contributions and Other Benefits 90th Percentile $

75th Percentile $

Median

125,000 145,000 203,000 239,000 425,000

95,000 115,000 165,000 215,000 315,000

65,000 75,000 115,000 200,000 255,000

45,000 55,000 85,000 145,000 205,000

25,000 37,000 55,000 114,000 165,000

71,347 87,558 128,208 185,000 275,952

167 43 53 24 21

416,000 334,000 215,000 305,000 145,000 118,000 125,000

307,500 292,500 177,500 225,000 105,000 95,000 95,000

250,000 215,000 125,000 175,000 75,000 65,000 55,000

205,000 165,000 85,000 115,000 55,000 45,000 35,000

163,000 145,000 55,000 75,000 35,000 35,000 25,000

266,500 231,905 137,727 183,721 84,877 77,059 65,685

20 42 44 86 81 68 73

25th 10th Average Percentile Percentile $ $ $

Sample #

Market Capitalisation < $200 million $200 - $500 million $500 million - $2 billion $2 - $5 billion > $5 billion Ranked by Market Capitalisation Top 25 Companies Top 50 Companies Second 50 Companies Top 100 Companies Top 100 - 200 Companies Top 200 - 300 Companies Top 300 - 400 Companies Market Capitalisation as at 1 May 2002.

Non executive chairmen fees in Australia’s leading companies by industry Industries are categorised using the Global Industry Classification Standard (GICS). Categorised by industry, the Financial sector pays the highest fees at the 90th percentile ($300,000) and, together with the Materials sector, pays the lowest fees at the 10th percentile ($25,000). Nevertheless, Financial sector companies pay on average the highest fees overall ($126,964). At the median, the Utilities sector awards the chairmen the highest ($105,000). At the other end of the scale, Energy and Utilities sectors chairmen receive average fees of $96,250 and $97,857 respectively however, both samples are relatively low compared with other sectors.

Table 3. Non Executive Chairmen Fees in Australia’s Leading Companies by Industry Analysis includes Base Retainer Fees, Committee Fees and Disclosed SGC Contributions and Other Benefits 90th Percentile $

75th Percentile $

Median

181,000 270,000 – 300,000 169,000 105,000 211,000 205,000 – –

135,000 167,500 112,500 175,000 135,000 95,000 125,000 145,000 120,000 115,000

95,000 90,000 80,000 85,000 85,000 65,000 85,000 85,000 80,000 105,000

25th 10th Percentile Percentile $ $

Average

Sample

105,222 120,833 96,250 126,964 93,824 73,421 101,512 103,983 106,667 97,857

45 36 8 56 17 19 43 59 6 7

GICS 10 Economic Sectors Consumer Discretionary Consumer Staple Energy Financials Healthcare Information Technology Industrials Materials Telecom. Services Utilities

55,000 55,000 62,500 55,000 45,000 50,000 55,000 50,000 55,000 65,000

45,000 35,000 – 25,000 41,000 33,000 35,000 25,000 – –

Boards of Directors Study in Australia and New Zealand 2002

Non executive chairmen fees in Australia’s leading companies by location The Total Sample and Top 50 analysis (Table 4) is supplemented by analysing chairmen fees of the Top 100 and Top 100 – 200 companies (Table 5). Tasmania is excluded from all these analyses except the Total Sample due to the comparatively small sample size. As only one publicly listed company located its registered office in the ACT, it too has been excluded from the analyses. In the Total Sample, companies in Victoria, New South Wales and South Australia award their non executive chairmen the highest fees across the average. In the Top 50 companies, ranked by market capitalisation, the data shows that the most highly paid non executive chairmen, that is, those falling into the 90th percentile, are located in Victoria ($370,000) and New South Wales ($353,000). Of the 308 non executive chairmen, 126 chair boards in New South Wales followed by 82 in Victoria, and 40 in Western Australia. New South Wales and Victoria have the highest number of non executive chairmen across all the samples.

Table 4. Non Executive Chairmen Fees in Australia’s Leading Companies by Location Analysis includes Base Retainer Fees, Committee Fees and Disclosed SGC Contributions and Other Benefits 90th Percentile $

75th Percentile $

Median

25th 10th Percentile Percentile $ $

215,000 234,000 179,000 156,000 205,000

145,000 145,000 92,500 105,000 135,000 52,500

85,000 105,000 75,000 85,000 95,000 40,000

55,000 65,000 55,000 55,000 50,000 35,000

353,000 370,000

295,000 300,000

215,000 230,000

170,000 160,000

Average

Sample

35,000 36,000 35,000 34,000 35,000

110,000 121,707 86,765 89,000 108,684 46,667

126 82 34 40 19 6

145,000 140,000

237,105 243,750 205,000 161,667 220,000

19 16 2 3 2

Total Sample New South Wales Victoria Queensland Western Australia South Australia Tasmania Top 50 Companies New South Wales Victoria Queensland Western Australia South Australia

Total Sample covers 387 listed and 12 government entities in Australia

Table 5. Non Executive Chairmen Fees in Australia’s Leading Companies by Location Analysis includes Base Retainer Fees, Committee Fees and Disclosed SGC Contributions and Other Benefits 90th Percentile $

75th Percentile $

Median

10th Percentile $

Average

Sample

25th Percentile $

296,000 337,000

215,000 285,000 205,000 165,000 232,500

170,000 195,000 175,000 155,000 190,000

102,500 145,000 85,000 105,000 132,500

73,000 109,000

178,250 213,000 153,750 145,000 183,333

40 25 8 7 6

135,000 136,000

115,000 105,000 85,000 120,000 117,500

65,000 75,000 75,000 95,000 95,000

55,000 65,000 75,000 62,500 65,000

35,000 35,000

81,341 84,000 77,000 107,500 93,333

41 20 5 8 6

Top 100 Companies New South Wales Victoria Queensland Western Australia South Australia Top 100 - 200 Companies New South Wales Victoria Queensland Western Australia South Australia Market Capitalisation as at 1 May 2002.

Boards of Directors Study in Australia and New Zealand 2002

Non Executive Directors’ Fees Non executive directors’ fees in Australia’s leading companies by revenue and market capitalisation Non executive director fees are analysed according to company size, by revenue (Table 6) and market capitalisation (Table 7) as at 1 May 2002. As well as examining boards in the Total Sample and the Top 50 sample, analysis is also done for the sample according to the position on the Top 25, Second 50, Top 100, Top 100 to 200, Top 200 to 300 and Top 300 to 400, to allow a broader opportunity for comparison. Fees paid, excluding chairmen fees, encompass all payments made during the year including base retainer fees, committee fees, disclosed superannuation contributions, and other benefits. Of the Total Sample companies, non executive directors in each company, excluding all chairmen, number 1,445. Most companies fall into the category of less than $200 million in annual revenue and market capitalisation, with 581 and 642 non executive directors respectively. When ranked by these criteria the majority of the sample are in the Top 100, 559 non executive directors when ranked by revenue and 549 ranked by market capitalisation. At the median, non executive directors’ fees for the Top 50 ranked by revenue are $85,000 and ranked market capitalisation, are $95,000; for the Top 100, they are both $75,000.

Table 6. Non Executive Directors’ Fees in Australia’s Leading Companies by Revenue Analysis includes Base Retainer Fees, Committee Fees and Disclosed SGC Contributions and Other Benefits

Total Sample

90th Percentile $

75th Percentile $

Median

10th Percentile $

Average

Sample

25th Percentile $

105,000

75,000

45,000

35,000

25,000

59,748

1,445

65,000 75,000 105,000 119,000 195,000

45,000 55,000 75,000 95,000 125,000

35,000 45,000 55,000 75,000 105,000

25,000 35,000 45,000 65,000 75,000

15,000 25,000 35,000 45,000 45,000

39,320 48,760 65,060 80,591 110,590

581 242 334 127 161

175,000 145,000 105,000 135,000 75,000 65,000 55,000

117,500 115,000 85,000 105,000 55,000 45,000 45,000

105,000 85,000 65,000 75,000 45,000 35,000 25,000

75,000 65,000 45,000 45,000 35,000 25,000 15,000

45,000 45,000 35,000 35,000 25,000 15,000 15,000

107,065 94,024 68,074 83,301 48,880 42,189 32,692

184 328 231 559 384 281 221

Revenue < $200 million $200 - $500 million $500 million - $2 billion $2 - $5 billion > $5 billion Ranked by Revenue Top 25 Companies Top 50 Companies Second 50 Companies Top 100 Companies Top 100 - 200 Companies Top 200 - 300 Companies Top 300 - 400 Companies

Analysis excludes Chairmen Fees. Total Sample covers 387 listed and 12 government entities in Australia

Boards of Directors Study in Australia and New Zealand 2002

Table 7. Non Executive Directors’ Fees in Australia’s Leading Companies by Market Capitalisation Analysis includes Base Retainer Fees, Committee Fees and Disclosed SGC Contributions and Other Benefits 90th Percentile $

75th Percentile $

Median

10th Percentile $

Average

Sample

25th Percentile $

65,000 75,000 95,000 115,000 192,000

45,000 55,000 75,000 95,000 127,500

35,000 45,000 55,000 75,000 105,000

25,000 35,000 45,000 55,000 85,000

15,000 15,000 35,000 25,000 55,000

39,268 46,263 63,107 74,396 117,717

642 190 280 149 184

125,000 115,000 75,000 105,000 55,000 45,000 45,000

105,000 95,000 60,000 75,000 45,000 35,000 35,000

85,000 65,000 45,000 55,000 35,000 25,000 25,000

55,000 45,000 35,000 35,000 25,000 15,000 15,000

114,360 99,579 66,886 86,002 46,358 41,655 35,149

172 321 228 549 346 281 269

Market Capitalisation < $200 million $200 - $500 million $500 million - $2 billion $2 - $5 billion > $5 billion

Ranked by Market Capitalisation Top 25 Companies Top 50 Companies Second 50 Companies Top 100 Companies Top 100 - 200 Companies Top 200 - 300 Companies Top 300 - 400 Companies

174,000 145,000 105,000 135,000 70,000 65,000 55,000

Market Capitalisation as at 1 May 2002. Analysis excludes Chairmen Fees.

Non executive directors’ in Australia’s leading companies by industry Industries are categorised using the Global Industry Classification Standard (GICS). Similar to the results of annual fees paid to non executive chairmen, the Financial sector pays the highest non executive director fees at the 90th percentile ($145,000) and the highest average of $79,924 (Table 8). The Energy and Healthcare sectors account for the lowest directors’ fees paid with averages of $41,078 and $40,333 respectively. A total of 4 from the sample of 10 sectors received annual fees $45,000 at the median.

Table 8. Non Executive Directors’ Fees in Australia’s Leading Companies by Industry Analysis includes Base Retainer Fees, Committee Fees and Disclosed SGC Contributions and Other Benefits 90th Percentile $

75th Percentile $

Median

10th Percentile $

Average

Sample

25th Percentile $

105,000 105,000 85,000 145,000 75,000 56,000 95,000 115,000 97,000 85,000

65,000 75,000 60,000 105,000 55,000 45,000 65,000 75,000 75,000 62,500

45,000 45,000 25,000 65,000 45,000 35,000 55,000 45,000 55,000 55,000

35,000 35,000 20,000 35,000 25,000 32,500 35,000 35,000 25,000 45,000

25,000 25,000 15,000 25,000 15,000 25,000 25,000 15,000 15,000 35,000

56,928 58,476 41,078 79,924 44,368 40,333 56,164 59,567 57,414 56,176

223 164 51 264 95 60 195 254 29 34

GICS 10 Economic Sectors Consumer Discretionary Consumer Staple Energy Financials Healthcare Information Technology Industrials Materials Telecom. Services Utilities Analysis excludes Chairmen Fees.

Boards of Directors Study in Australia and New Zealand 2002

Non executive directors’ fees in Australia’s leading companies by location The Total Sample and Top 50 analysis (Table 9) is supplemented by analysing non executive directors’ fees of the Top 100 and Top 100 to 200 (Table 10). Tasmania is excluded from all these analyses except the Total Sample due to the comparatively small sample size. As only one publicly listed company located its registered office in the ACT, it too has been excluded from the analyses. Table 9 shows that among the Total Sample’s 1,445 non executive directors, New South Wales has the most non executive directors with 629. Tasmania (18) and South Australia (89) have the lowest number of non executive directors in the sample. In the Top 50, companies in Victoria pay their non executive directors the highest fees, with $171,000 at the 90th percentile and $105,000 at the median. In the Top 100, companies in New South Wales pay the highest fees, $145,000 at the 90th percentile, while the median fees for New South Wales, Victoria and Queensland are all $75,000.

Table 9. Non Executive Directors’ Fees in Australia’s Leading Companies by Location Analysis includes Base Retainer Fees, Committee Fees and Disclosed SGC Contributions and Other Benefits

90th Percentile $

75th Percentile $

Median

10th Percentile $

Average

Sample

25th Percentile $

115,000 115,000 85,000 85,000 95,000 35,000

75,000 75,000 55,000 55,000 85,000 25,000

55,000 45,000 35,000 45,000 45,000 25,000

35,000 35,000 25,000 35,000 35,000 25,000

25,000 25,000 15,000 15,000 25,000 22,000

63,871 61,481 42,898 49,483 58,258 26,111

629 378 157 174 89 18

155,000 171,000 95,000 91,000 101,000

125,000 115,000 85,000 65,000 95,000

95,000 105,000 85,000 55,000 85,000

75,000 75,000 85,000 55,000 80,000

45,000 55,000 75,000 25,000 43,000

104,509 105,190 87,727 57,609 83,947

163 105 11 23 19

Total Sample New South Wales Victoria Queensland Western Australia South Australia Tasmania Top 50 Companies New South Wales Victoria Queensland Western Australia South Australia

Analysis excludes Chairmen Fees. Total Sample covers 387 listed and 12 government entities in Australia

Boards of Directors Study in Australia and New Zealand 2002

Table 10. Non Executive Directorsâ&#x20AC;&#x2122; Fees in Australiaâ&#x20AC;&#x2122;s Leading Companies by Location Analysis includes Base Retainer Fees, Committee Fees and Disclosed SGC Contributions and Other Benefits 90th Percentile $

75th Percentile $

Median

10th Percentile $

Average

Sample

25th Percentile $

145,000 135,000 101,000 85,000 105,000

105,000 115,000 85,000 75,000 95,000

75,000 75,000 75,000 65,000 85,000

55,000 55,000 55,000 55,000 45,000

35,000 45,000 45,000 28,000 45,000

90,204 91,125 73,857 60,682 75,976

269 160 35 44 41

75,000 64,000 55,000 75,000 70,000

55,000 55,000 45,000 45,000 55,000

45,000 45,000 35,000 45,000 45,000

35,000 35,000 20,000 35,000 45,000

25,000 15,000 15,000 35,000 35,000

47,575 44,146 35,741 52,500 50,385

167 82 27 40 26

Base retainer and committee fees paid to non executive directors by gender Fees include base retainer fees and committee fees and exclude disclosed SGC contributions and other benefits. Zero values were excluded from the analysis. For the Total Sample, 90% of directors were male, and for the Top 50, 88% were male. Table 11 shows that for the Total Sample, at the 90th percentile, males are paid $105,000 and females are paid $100,028, however at the median, males receive fees of $45,000 while females receive fees of $58,750. The average total fee is $57,444 for males and $66,460 for females. In the Top 50 companies, total fees for males are higher than for females at the 90th and 75th percentiles, and at the median, whereas at the 25th and 10th percentiles average, total fees for female directors are higher.

Table 11. Base Retainer and Committee Fees Paid to Non Executive Directors by Gender Analysis includes Base Retainer Fees and Committee Fees Analysis excludes Disclosed SGC Contributions and Other Benefits 90th Percentile $

75th Percentile $

Median

10th Percentile $

Average

Sample

25th Percentile $

105,000 105,118 100,028

72,511 72,000 75,366

45,000 45,000 58,750

30,000 29,767 40,000

17,241 16,667 25,983

58,078 57,444 66,460

1,519 1,408 110

183,270 185,607 120,589

106,312 110,000 97,500

82,000 82,375 77,790

63,833 60,000 70,813

37,183 29,438 57,000

97,319 97,214 98,112

333 294 39

Total Sample Combined Male Female Top 50 Companies Combined Male Female

Note: Zero Values are excluded from the analysis. Total Sample covers 387 listed and 12 government entities in Australia

Boards of Directors Study in Australia and New Zealand 2002

Non Executive Directors’ Retirement Length of tenure A stimulus has been the emerging governance issue of the desirable periods for director tenure with a broad view being that two terms would represent a minimum period of commitment, three terms more normal and beyond three terms less frequent. There is a desire to keep non executive directors well compensated for commitments beyond say, two terms where there may be no supplemental retirement benefit for the additional period of service.

Retirement benefits for directors Directors’ retirement benefits, from our perspective, have moved from ‘sleepy hollow’ to an active area of enquiry. In part the reason for this is the broader disclosure of retirement benefits among Australia’s largest companies and the increased awareness among institutional investors and other shareholders of the value of directors’ retirement benefits.

Share-based retirement benefits Also aligned to the question of retirement provisions is the growing internationalisation of executive reward generally within Australia and the future potential for aligning non executive director reward with corporate prosperity through the issue of shares in lieu of providing a formula based retirement benefit, after a fixed period of service.

Superannuation guarantee payments One area of variable practice in the market would be the treatment of payments made on behalf of non executive directors arising from compliance with the Superannuation Guarantee (Administration) Act. In some organisations the levy, which is 9% of fees effective July 2002, is paid into a company superannuation fund on behalf of the non executive director; in others, it is passed on to the non executive director for payment into their own complying personal superannuation fund; in other situations no payment is made due to an individual director’s exemption, either as a result of the individual’s existing RBL status or age. The superannuation guarantee payment is a payment for retirement purposes. Our observation is that the majority of major companies take the superannuation levy payment not necessarily earnings on the payment into account when determining the final entitlement of a non executive director, whereas some organisations consider the superannuation guarantee payment a legislated payment, independent of an agreed retirement benefit. It is our judgment that as a superannuation contribution is imposed to provide income for retirement, it should be incorporated in the determination of a non executive directors’ retirement benefit, though the payment should be ignored for the purpose of establishing a reasonable limit on a directors’ retirement benefit, as should any fees which are supplemental and outside normal fees payable for board membership and board committee membership. The limit should then be applied to the total amount proposed to be paid. This view is not universally held. It is equally our judgment that the Corporations Act in relation to the determination of non executive directors’ retirement benefits is flawed and the benefits should be determined on the basis of fees alone, not total emoluments which may represent an appropriate foundation for executives, as distinct from non executive directors. A statement of our interpretation of the Corporations Act provisions in this regard is attached. A further outcome of variable practice by companies in endeavouring to be fair to directors who are exempt from the guarantee payment is to add the amount of the payment to their fees - this does not arise where the guarantee payments are incorporated in the calculation of the director’s retirement benefit.

Boards of Directors Study in Australia and New Zealand 2002

Funding rates The underlying funding rate for a retirement benefit in a major public company where the sum of a director’s fees over the last three years is normally payable after five to six years’ service approximates twice that of an executive. In organisations which are not listed companies, but international subsidiaries, private companies, corporatised government entities, etc., where there are no equity provisions, where retirement allowances are paid they are normally compliant with the Corporations Act and in this context would have an accrual rate of between 10% and 20% per annum, or indeed be discretionary.

The future It is our judgment that the area of non executive directors’ retirement benefits and performance aligned rewards will be the most fertile area of discussion and debate in relation to non executive director reward in the triennium ahead. The debate cannot proceed, in our judgement, in isolation of emerging principles of corporate governance and review of relevant sections of the Corporations Act. (Note: Neither Korn/Ferry International nor Egan Associates give legal advice. The above comments should be accepted in that context.)

The Corporations Act provisions There is some difficulty in the interpretation of section 200G of the Corporations Act which sets out the method of calculation of the limit of reasonable retirement benefit. The formula for the limit is: Total remuneration x Relevant period 3 A note to the section refers to the definition of remuneration in section 9. Section 9 provides that a benefit is only remuneration if, were it received by a director of the corporation, it would be remuneration for the purposes of an accounting standard dealing with the disclosure of related parties information. However, according to UIG Abstract 14 "prescribed " retirement benefits are excluded from remuneration where they are required by AASB 1017 to be disclosed separately. These are benefits given to a superannuation fund so as to provide a retirement benefit to the relevant person, i.e. the director. It appears then that superannuation guarantee payments and the benefits flowing from them do not form part of remuneration under AASB 1017 for the purpose of disclosure. They are specifically required to be disclosed separately. This would appear to mean that when the reasonable limit for a director’s superannuation is being calculated, the superannuation guarantee payments should not be included. On the other hand, section 200F describes benefits given in prescribed circumstances as exempt from the reasonable limit set by the Act. Accordingly, the payments from a superannuation fund are not required to be included when considering whether benefits paid to a director are within the limit. It would appear that a company is required to make superannuation guarantee payments to provide for a director’s retirement, but may then make a retirement allowance or benefit in addition to the proceeds from those payments. The limit set out in the Corporations Act appears only to apply to the additional payment not the superannuation payment.

Boards of Directors Study in Australia and New Zealand 2002

BOARD DEMOGRAPHICS Board Composition â&#x20AC;&#x201C; All Directors (Executive and Non Executive) One of the strong elements in the discussion of sound corporate governance in the last five to ten years has been the support for there being a high proportion of non executive directors on the board. The prevailing wisdom about what is an appropriate ratio changes over time. What is most important is that the ratio reflects what is best for the company, the business it is in, with the executive team that it has. It is clear that the impetus for a higher proportion of non executive directors on boards is being reflected in the practices of our Total Sample and Top 50 companies. Chart 1 shows that the composition of the board for the Total Sample is executive directors 28% and non executive directors 72%, and for the Top 50, 23% and 77% respectively. Chart 2 shows that the proportion of executive directors decreases as company revenue increases, with 30% executive directors in companies with revenue less than $200 million and 18% in companies with revenue greater than $5 billion. When analysed by Industry (Chart 3), Information Technology and Industrials have boards with the highest proportion of executive directors (35%) and the Financial sector has the lowest (20%). Industries are categorised using the Global Industry Classification Standard (GICS).

Chart 1. Board Composition â&#x20AC;&#x201C; Proportion of Executive and Non Executive Directors 28% Total Sample 72%

23% Top 50 77%

Executive Directors

100

Non Executive Directors

Total Sample covers 387 listed and 12 government entities in Australia

Chart 2. Proportion of Executive and Non Executive Directors by Revenue

30% > $200 million 70%

26% $200 - $500 million 74%

24% $500 million - $2 billion 76%

23% $2 - $5 billion 77%

18% > $5 billion 82%

Executive Directors

100

Non Executive Directors

Boards of Directors Study in Australia and New Zealand 2002

Chart 3. Proportion of Executive and Non Executive Directors by GICS Industry

28% Consumer Discretionary 72% 21% Consumer Staple 79% 29% Energy 71% 20% Financials 80% 28% Healthcare 72% 35% Information Technology 65% 35% Industrials 65% 32% Materials 68% 25% Telecommunication Services 75% 26% Utilities 74%

Executive Directors

100

Non Executive Directors

Distribution of Board Size â&#x20AC;&#x201C; All Directors (Executive and Non Executive) Board size is analysed according to annual revenue and then by industry, with board size in the following seven categories: less than 4 directors; 4 to 5; 6 to 7; 8 to 9; 10 to 11; 12 to 13; and greater than 13 directors. Both the median and average board size across the entire sample stood at 7 directors. Table 12 sets out the number of directors serving on the boards of 399 companies and for the Top 50 companies ranked by market capitalisation. It also provides information in relation to nominated revenue ranges and industry sectors. Approximately half (52%) of the Total Sample have between 4 and 7 directors, whereas only 5% have less than 4 directors and 10% have 12 or more directors. Of the Top 50, however, 38% have 12 or more. The larger the company by revenue, the larger the board size. The modal position across the GICS sectors is variable â&#x20AC;&#x201C; in the Information Technology sector, 44% of boards have between 4 and 5 directors and in the Telecommunication Services sector 43% of boards have 6 to 7 directors. 50% of boards in the Industrial sector have between 4 and 7 directors, Materials (the largest sample) has a total of 60%. Within the Financial sector, encompassing Property Trusts, 70% of boards contain between 4 and 9 directors. 21% of companies in the Energy sector have 10 to 11 board members. Director numbers in the Consumer Discretionary and Consumer Staple sectors have modes between 6 and 7 directors, 29% and 37% respectively.

Boards of Directors Study in Australia and New Zealand 2002

Table 12. Distribution of Board Size â&#x20AC;&#x201C; All Directors (Executive & Non Executive) < 4 Directors Number

4-5 Directors

6-7 Directors

Number

8-9 Directors

10 - 11 Directors

12 - 13 Directors

Number

> 13 Directors %

Number

Sample %

Total Sample

113

399

Top 50 Companies

223

Ranked by Revenue < $200 million

$200 - $500 million

$500 million - $2 billion

$2 - $5 billion

> $5 billion

GICS 10 Economic Sectors Consumer Discretionary

Consumer Staple

Energy

Financials

Healthcare

Information Technology

Industrials

Materials

Telecom. Services Utilities

Total Sample covers 387 listed and 12 government entities in Australia

Meeting Frequency The number of board meetings held in any one year may be influenced by unusual events such as volatility in a particular market, by changes in control of the company or by changes within the company such as restructuring or adjustments to products or services. Table 13 shows that it is usual for companies of all sizes and sectors to meet approximately monthly. For the Top 50 the average is 11 meetings per annum and the median is 12. For companies with revenues of less than $200 million the average is 10 and the median is 11. For those with revenues between $200 million and $500 million the median and average are 12 meetings. For companies with revenues between $500 million and $2 billion there are 11 meetings on average and 12 meetings at the median. For companies with revenues between $2 billion and $5 billion the average is 13, and the median is 13, and for companies with revenues in excess of $5 billion the average is 10 and the median 11. On an industry basis the Telecommunications sector meets on average 15 times per year. This is followed by Utilities and Industrials with 13 and 12 meetings per annum respectively. With an average of 11 meetings per year are Consumer Staples, Financials, Information Technology and Materials. Consumer Discretionary, Energy and Healthcare have on average 10 meetings annually.

Boards of Directors Study in Australia and New Zealand 2002

Table 13. Meeting Frequency

Total Sample

90th Percentile #

75th Percentile #

Median #

25th Percentile #

10th Percentile #

Average #

Sample #

399

Ranked by market capitalisation Top 50

Top 100

100

Top 100 â&#x20AC;&#x201C; 200

200

< $200 million

223

$200 -$500 million

$500 million - $2 billion

Revenue

$2 - $5 billion

> $5 billion

GICS 10 Economic Sectors Consumer Discretionary

Consumer Staple

Energy

Financials

Healthcare

Information Technology

Industrials

Materials

Telecom. Services Utilities

Total Sample covers 387 listed and 12 government entities in Australia

Board Position by Gender Board position by gender for Total Sample While some commentators have been surprised that women have not taken on a greater role on boards of directors, it has been acknowledged that much of the directorâ&#x20AC;&#x2122;s role depends on extensive senior business experience. This will take time for women to acquire, particularly given the current slow rate of change in the gender balance in senior management in business, government and academia. It is clear that the path of women to participation on boards is not most directly by way of the executive ladder. Charts 4 and 5 indicate the gender of non executive board members by position, that is, chairmen, deputy chairmen, and directors, for general board meetings (Chart 4) and for committees of the board (Chart 5). This analysis is based on the Total Sample. In each position for general board meetings, between 91% and 99% of the Total Sample are male, with the highest percentage of females, 9%, belonging to the director position. For committees of the board between 91% and 100% of the total sample are male, with the highest percentage of females, 9%, again occupying the director position.

Boards of Directors Study in Australia and New Zealand 2002

Chart 4. Board Position by Gender for Total Sample

99% Chairman 1%

98% Deputy Chairman 2%

91% Director 9%

Male

100

Female

Total Sample covers 387 listed and 12 government entities in Australia

Chart 5. Committee Position by Gender for Total Sample

93% Chairman 7%

100% Deputy Chairman 0%

91% Director 9%

10 Male

100

Female

Total Sample covers 387 listed and 12 government entities in Australia

Boards of Directors Study in Australia and New Zealand 2002

Board position by gender for Top 50 Companies Charts 6 and 7 indicate the gender of non executive board members by position, that is, chairmen, deputy chairmen, and director, for general board meetings (Chart 6) and for committees of the board (Chart 7) for the Top 50. The Top 50 companies are ranked by market capitalisation as at 1 May 2002. For general board meetings, males occupy 95% of all chairman positions in the Top 50 companies and 100% of deputy chairman positions. Of directors 86% are male and 14% are female. For committees of the board, males occupy 91% of all chairman positions in the Top 50 companies and 100% of deputy chairmen positions. Similar to the findings in relation to the general board meetings, 83% of directors are male and the remaining 17% are female.

Chart 6. Board Position by Gender for Top 50 Companies

95% Chairman 5%

100% Deputy Chairman 0%

86% Director 14%

Male

100

Female

Chart 7. Committee Board Position by Gender for Top 50 Companies

91% Chairman 9%

100% Deputy Chairman 0%

83% Director 17%

10 Male

100

Female

Boards of Directors Study in Australia and New Zealand 2002

Age of Directors Age of directors in Australia’s leading companies ranked by revenue There are two opposing influences on the ages at which people perform functions in society. One is that the median age of the population is increasing as our birth-rate declines (the "greying of Australia"). On the other hand, there are strong pressures in the business world for executives and professionals to have shorter working lives. Despite the suggestion that the working life of senior executives will become shorter, it is clear from the entire sample that the impetus towards a shorter working life has not yet had great impact on directors who are still largely drawn from older age groups. The average age of directors serving on boards across the Total Sample was 57 years, this varied quite significantly depending upon whether the director held an executive (52 years) or non executive (59 years) position. The inter-quartile range (25th percentile to 75th percentile) was from 54 to 64 years for the Total Sample. The range of the age of both non executive and executive directors was from 30 to 92. The age of directors in the Top 100 companies ranked by revenue was 60 at the median and 59 at the average. The first four samples in Table 14, companies ranked 1 through to 100 had an average age ranging from 59 to 60 years. This result differed from companies ranked 200 to 400 where the average age was approximately two years younger (58).

Table 14. Age of Directors in Australia’s Leading Companies Ranked by Revenue 90th Percentile

75th Percentile

Median

70 69 69 69 70 70 71

66 65 65 65 64 64 65

61 60 60 60 69 59 59

25th 10th Percentile Percentile

Average

Sample #

60 60 59 59 59 58 59

129 219 149 368 243 181 117

Ranked by Revenue Top 25 Companies Top 50 Companies Second 50 Companies Top 100 Companies Top 100 - 200 Companies Top 200 - 300 Companies Top 300 - 400 Companies

56 56 54 55 53 53 53

48 49 48 48 47 45 46

Age of directors in Australia’s leading companies by industry Table 15 displays the age of non executive directors in the Total Sample grouped by industry, as defined by GICS. The median age is between 56 and 61, and the average age is between 58 and 60 across all industries. The youngest age across all industries when looking at the 10th percentile is 43 in the Consumer Discretionary sector. At the 90th percentile the youngest age of a director in the Materials sector is 65 years.

Table 15. Age of Directors in Australia’s Leading Companies by GICS 90th Percentile

75th Percentile

Median

65 64 65 67 63 65 65 63 62 64

60 60 61 59 60 58 61 59 57 56

25th 10th Percentile Percentile

Average

Sample #

59 60 59 59 58 58 60 58 58 58

151 113 33 167 47 26 150 157 21 27

GICS 10 Economic Sectors Consumer Discretionary Consumer Staple Energy Financials Healthcare Information Technology Industrials Materials Telecom. Services Utilities

70 69 67 71 65 69 71 67 68 71

53 55 54 53 55 52 54 54 52 52

43 52 48 46 49 48 49 46 51 47

Boards of Directors Study in Australia and New Zealand 2002

Age of directors in Australia’s leading companies by location Table 16 displays the age of non executive directors in the Total Sample grouped by location. The age of directors shows little variation according to location, with the median between 59 and 62 years and the average between 58 and 62 years in all States.

Table 16. Age of Directors in Australia’s Leading Companies by Location 90th Percentile

75th Percentile

Median

70 69 69 69 71 64

64 64 64 65 69 63

59 60 60 59 62 59

25th 10th Percentile Percentile

Average

Sample #

58 59 60 58 62 59

392 247 84 105 56 21

Total Sample New South Wales Victoria Queensland Western Australia South Australia Tasmania

53 54 55 53 55 55

46 49 52 45 53 49

Total Sample covers 387 listed and 12 government entities in Australia

Board Committees Committees are seen to be a way of streamlining the flow of work through the board, helping to maintain appropriate priorities in the time allocated to the matters in hand.

The role of committees The committees of the board are designed to facilitate the functioning of the board by: • The consideration of the detail of proposals and the making of recommendations to the board; • The monitoring of particular areas of the company’s activities; • The undertaking of some of the board’s functions or; • The undertaking of duties where there are structural reasons why the whole board is inappropriate, such as the duties of the remuneration committee. To simplify comparison, committees have been grouped according to similarity of function. Audit committee includes compliance committees. Remuneration committee can include human resources, nomination and compensation committees. From our observation, Special Committees are often indicated by the existence of an executive chairman, and are established to deal with specific external influences or enquiries, as well as tasks associated with takeover defence, or takeover, merger and acquisition activity initiated by the enterprise. The category Other Committees, which are often industry or sector specific, are analysed further below. While not all listed entities have a separately designated Audit Committee, we understand from our interpretation of each entity’s corporate governance statement that in a number of entities the whole board undertake the role of the Audit Committee and as such do not constitute a separate committee for the completion of this work.

Distribution of committee types Table 17 shows that of the Total Sample, 352 (88%) have an Audit Committee, 233 (58%) have a Remuneration Committee, 117 (29%) have what we have categorised under Other Committees, and 37 (9%) have Special Committees. Of the Top 50, the analysis shows that 50 (100%) have an Audit Committee, 42 (84%) have a Remuneration Committee, 38 (76%) have Other Committees, and 16 (32%) have Special Committees.

Table 17. Distribution of Committee Types Total Sample #

Total Sample %

Top 50 #

Top 50 %

Committee Type Total Sample

399

Audit Committee Remuneration Committee Special Committee Other Committee

352 233 37 117

50 88% 58% 9% 29%

50 42 16 38

100% 84% 32% 76%

Total Sample covers 387 listed and 12 government entities in Australia

Boards of Directors Study in Australia and New Zealand 2002

Distribution of other committee types Twelve committee types were included in the Other Committees category. Table 18 shows for the Total Sample, 5% have a Risk Committee, and 4% have a Corporate Governance Committee. In the Top 50, 12% have a Risk Committee, 10% have a Corporate Governance Committee and 12% have an Investment and Property Committee.

Table 18. Distribution of Other Committee Types Total Sample #

Total Sample %

Top 50 #

Top 50 %

20 22 15 10 10 5 4 3 2 1 1 1

5% 6% 4% 3% 3% 1% 1% 1% 1% 0% 0% 0%

6 6 5 3 3 1 2 1 1 0 0 0

12% 12% 10% 6% 6% 2% 4% 2% 2% 0% 0% 0%

Committee Type Risk Investment & Property Corporate Governance Occupational Health & Safety Environment Management Planning Review Marketing Industry Specific Resources Restructure Total Sample covers 387 listed and 12 government entities in Australia

Committee and Board Meeting Attendance by Position While attendance at meetings is no guarantee of a director’s reasonable contribution to the governance of a company, diligent attendance at least gives directors the opportunity to take part in the board’s activities. The analysis of directors’ attendances at meetings of boards and committees indicates the diligence and hard work that Australian directors contribute to the work of their boards. Chart 8 shows attendance at general board meetings and committee meetings by chairmen and directors and includes executive and non executive directors. Attendance by chairmen at meetings is high, their average attendance for general board meetings is 97%, and for committee meetings average attendance ranges from 88% for Special Committees to 99% for Audit and 97% for Other Committees. Director attendance at general board meetings is 93% on average and for committee meetings average attendance by directors ranges from 90% for Special Committees to 96% for the Remuneration Committees.

Chart 8. Committee and Board Meeting Attendance by Position 100

99%

97% 93%

99% 93%

97%

96% 88%

90%

91%

80 70 60 50 40 30 20 10 0 General Board Meeting

Audit Committee

Chairman Attendance

Remuneration Committee Special Committee

Other Committee

Director Attendance

Boards of Directors Study in Australia and New Zealand 2002

NEW ZEALAND COMPANIES A sample of 27 listed New Zealand companies was analysed to establish their demographic profile and board compensation.

Board Demographics Of the 203 board members, 161 (80%) were non executive directors and 42 (21%) were executive directors. There were 26 (13%) chairmen, 6 (3%) deputy chairmen and 171 (84%) directors. Whilst there were no executive directors that were deputy chairmen there was one executive director that was a chairman. The number of members of the board ranged between 4 and 14 with an average of 8 and a median of 7 members. From the sample of 27 companies, 17 disclosed the number of committee meetings per committee per year. For the reported meetings, the average number was 6 and 4 at the median. On average the board met 11 times per year, Other Committees met 7 times per year, Audit Committee met 4 times, and Remuneration Committee met 3 times (Table 19).

Table 19. Meeting Frequency Frequency #

Sample #

11 4 3 7

16 15 10 5

Committee Type General Board Meetings Audit Committee Remuneration Committee Other Committee

Where age was disclosed, the average was 59 and median was 57. The average age of chairmen and directors was 64 and 58 respectively. The average age of non executive and executive directors was 60 and 54 respectively (Table 20).

Table 20. Age of Directors 75th Percentile

Median

25th Percentile

Average

Sample #

67 63

64 57

61 52

64 68 58

9 3 59

65 66 57

57 60 33

53 54 52

59 60 54

71 59 12

Committee Position Chairmen Deputy Chairmen Directors Position All Directors Non Executive Directors Executive Directors

Of the total sample, 185 (91%) were male, 15 (7%) were female, and 3 (1%) did not disclose their gender. Of those persons that disclosed gender, all chairmen and deputy chairmen were male and the majority of directors (91%) were male (Chart 9).

Boards of Directors Study in Australia and New Zealand 2002

Chart 9. Board Position by Gender

100% Chairman 0%

100% Deputy Chairman 0%

91% Director 9%

10 Male

100

Female

Board Compensation From the Total Sample of 161 non executive directors, 152 were included in the sample for board compensation. Non executive director fees paid for less than a year’s office were excluded as were fees disclosed in currencies other than NZ$. The New Zealand companies in our sample disclosed varying levels of detail with regards to total fees. Of the 27 companies, 59% disclosed one fee amount without any detail of how that fee was made up, 22% presented total fees including detail as to the composition of the fee, and 19% indicated that the fee included ‘other payments’ which were not defined. Across the sample of New Zealand companies, the average fee payable to non executive directors was NZ$43,477 and to non executive chairmen NZ$65,260 (Table 21).

Table 21. Fees by Non Executive Position

Chairmen Deputy Chairmen Directors

75th Percentile $

Median $

25th Percentile $

Average $

Sample #

75,500

60,344

50,000

38,000

25,000

65,260 36,000 43,477

23 4 125

Boards of Directors Study in Australia and New Zealand 2002

APPENDIX List of Organisations Surveyed Australian Companies A I Limited

Ipoh Limited

A.P. Eagers Limited

ITG Limited

Aberdeen Leaders Limited

IWL Limited

Abigroup Limited

IXLA Limited

Adacel Technologies Limited

James Hardie Industries Limited

Adcorp Australia Limited

Joe White Maltings Limited

Adelaide Bank Limited

John Fairfax Holdings Limited

Adelaide Brighton Limited

John Shearer (Holdings) Limited

Adsteam Marine Limited

Johnson's Well Mining NL

Adtrans Group Limited

Jubilee Mines NL

Advent Limited

Jupiters Limited

Agenix Limited

K&S Corporation Limited

Alesco Corporation Limited

KAZ Computer Services Limited

AlintaGas Limited

Keith Harris & Co Ltd

Altium Limited

Keycorp Limited

Amalg Resources NL

Kidston Gold Mines Limited

Amalgamated Holdings Limited

Kimberley Diamond Company NL

Amcor Limited

Kingsgate Consolidated NL

Amity Oil NL

Korvest Limited

Ammtec Limited

Leighton Holdings Limited

AMP Limited

Lemarne Corporation Limited

AMRAD Corporation Limited

Lemvest Limited

Anaconda Nickel Limited

Lend Lease Corporation Limited

Angus & Coote (Holdings) Limited

Leyshon Resources Limited

APN News and Media Limited

Lion Selection Group Limited

Apollo Group Limited

Lynas Corporation Limited

ARB Corporation Limited

Macquarie Bank Limited

Argo Investments Limited

Macquarie Corporate Telecommunications Hldgs Ltd

Ariadne Australia Limited

Magellan Petroleum Australia Limited

Aristocrat Leisure Limited

Maxitrans Industries Limited

Astro Mining NL

Mayne Group Limited

Auridiam Consolidated NL

McConnell Dowell Corporation Limited

Aurion Gold Limited

McPhersons Limited

Aurora Gold Limited

Medica Holdings Limited

AUSDOC Group Limited

Menzies Gold Limited

Ausdrill Limited

Metabolic Pharmaceuticals Limited

Auspine Limited

Metcash Trading Limited

Austal Limited

MIA Group Limited

Austereo Group Limited

Micromedical Industries Limited

Austpac Resources NL

Miller's Retail Limited

Australand Holdings Limited

Milton Corporation Limited

Australia and New Zealand Banking Group Limited

MIM Holdings Limited

Australian Assets Corporation Limited

Mirvac Group Limited

Australian Food & Fibre Limited

Monadelphous Group Limited

Australian Foundation Investment Company Limited

Multispares Holdings Limited 36

Boards of Directors Study in Australia and New Zealand 2002

Australian Gas Light Company

MYOB Limited

Australian Infrastructure Fund

Namoi Cotton Co-operative Ltd

Australian Oil & Gas Corporation Limited

National Australia Bank Limited

Australian Pharmaceutical Industries Limited

National Can Industries Limited

Australian Stock Exchange Limited

National Foods Limited

Australian Worldwide Exploration NL

Nautronix Limited

Auto Group Limited

Newcrest Mining Group

Autogen Limited

Newhaven Park Stud Limited

Automotive Industrial and Mining Supplies Limited

News Corporation Limited

AV Jennings Homes Limited

Normandy Mining Limited

AWB Limited

Normandy NFM Limited

AXA Asia Pacific Holdings Limited

Novogen Limited

Bank of Queensland

Novus Petroleum Limited

Bank of Western Australia Limited

Oil Company of Australia Limited

Baycorp Advantage Limited

OneSteel Limited

Becker Group Limited

Open Telecommunications Limited

Bendigo Bank Limited

OPSM Group Limited

Berklee Limited

Orbital Engine Corporation Limited

Beyond International Limited

Orica Limited

Beyond Online Limited

Oroton International Limited

BHP Billiton Limited

P. Clelands Enterprises Limited

Billabong International Limited

Pacific Dunlop Limited

Biota Holdings Limited

Pacific Hydro Limited

Biron Capital Limited

Pacifica Group Limited

Blackmores Limited

Palm Springs Limited

Bligh Oil & Minerals NL

Pan Pacific Petroleum NL

Bligh Ventures Limited

PaperlinX Limited

Boral Limited

Patrick Corporation Limited

Boulder Steel Limited

Penfold Buscombe Limited

Brambles Industries Limited

Peptech Limited

Brandrill Limited

Permanent Trustee Company Limited

Brazin Limited

Perpetual Trustees Australia Limited

Brian McGuigan Wines Limited

Peter Lehmann Wines Limited

Brickworks Limited

Pipers Brook Vineyard Limited

Bridgestone Australia Limited

Plaspak Group Limited

Bristile Limited

Platinum Capital Limited

BRL Hardy Limited

PMP Limited

Buderim Ginger Limited

Polartechnics Limited

Burswood Limited

Poltech International Limited

Cable and Telecoms Limited

PowerTel Limited

Caltex Australia Limited

Pracom Limited

Campbell Brothers Limited

Precious Metals Australia Limited

Candle Australia Limited

Primary Health Care Limited

Capral Aluminium Limited

Prime Television Limited

Carlton Investments Limited

Progen Industries Limited

Cash Converters International Limited

Prophecy International Holdings Limited

Casinos Austria International Limited

Publishing and Broadcasting Limited

CCI Holdings Limited

Qantas Airways Limited

CDS Technologies Limited

QBE Insurance Group

Boards of Directors Study in Australia and New Zealand 2002

Cedar Woods Properties Limited

Queensland Cotton Holdings Limited

Cendant Australasia Limited

R M Williams Holdings Limited

Centamin Egypt Limited

Ramsay Health Care Limited

Centro Properties Limited

Ranger Minerals NL

Challenger International Limited

Rebel Sport Limited

Chaos Group Limited

Reece Australia Limited

Charter Pacific Corporation Limited

Revesco Group Limited

Choiseul Investments Limited

Rib Loc Group Limited

Ci Technologies Group Limited

Ridley Corporation Limited

CIM Resources Ltd

Rio Tinto Limited

Clements Marshall Consolidated Limited

Roberts Limited

Clough Limited

Roma Petroleum NL

Coates Hire Limited

Rural Press Limited

Coca-Cola Amatil Limited

Ruralco Holdings Limited

Cochlear Limited

Santos Limited

Cockatoo Ridge Wines Limited

Schaffer Corporation Limited

Coles Myer Limited

Scientific Services Limited

Commonwealth Bank of Australia

SDI Limited

Computershare Limited

SecureNet Limited

Consolidated Minerals Limited

Select Harvests Limited

Consolidated Rutile Limited

Servcorp Limited

Continental Venture Capital Limited

Seven Network Limited

Corporate Express Australia Limited

Silex Systems Limited

Country Road Limited

Simeon Wines Limited

Coventry Group Limited

Simsmetal Limited

CPI Group Limited

Sino Securities International Limited

Crane Group Limited

Skilled Engineering Limited

Cranswick Premiums Wines Limited

Smorgon Steel Group Limited

Croesus Mining NL

SMS Management & Technology Limited

CSL Limited

Snack Foods Limited

CSR Limited

Solution 6 Holdings Limited

Cumnock Coal Limited

Sonic Healthcare Limited

Cypress Lakes Group Limited

Sons of Gwalia Limited

Danks Holdings Limited

Southcorp Limited

Data#3 Limited

Southern Cross Broadcasting (Australia) Limited

David Jones Limited

Southern Equity Holdings Limited

DCA Group Limited

Southern Pacific Petroleum NL

Deep Sea Fisheries Limited

Southern Star Group Limited

Devine Limited

Southpointe Limited

Diamond Rose NL

Spencer Gulf Telecasters Limited

Dioro Exploration NL

Spotless Group Limited

Diversified United Investment Limited

St Barbara Mines Limited

Djerriwarrh Investments Limited

St George Bank Limited

Dominion Mining Limited

Stockland Corporation Limited

Downer EDI Limited

Straits Resources Limited

ecorp Limited

Strathfield Group Limited

ECSI Limited

Striker Resources NL

Emperor Mines Limited

Structural Systems Limited

Energy Developments Limited

Suncorp-Metway Limited

Boards of Directors Study in Australia and New Zealand 2002

Energy Resources of Australia Limited

Sunland Group Limited

Energy World Corporation Ltd

Sunraysia Television Limited

Envestra Limited

Swish Group Limited

EquitiLink eLink Limited

Sydney Aquarium Limited

ERG Australia Limited

TAB Limited

eSec Limited

TABCORP Holdings Limited

Farm Pride Foods Limited

Tandou Limited

FKP Limited

Tap Oil NL

Fleetwood Corporation Limited

Tassal Limited

Flight Centre Limited

Techniche Limited

Foodland Associated Limited

Technology One Limited

Forest Place Group Limited

Television & Media Services Limited

Foster's Group Limited

Telstra Corporation Limited

Freedom Group Limited

Templeton Global Growth Fund Limited

Futuris Corporation Limited

Tempo Services Limited

Gazal Corporation Limited

Ten Network Holdings Limited

Genesis Biomedical Ltd

Thakral Holdings Limited

Genetic Technologies Limited

The Maryborough Sugar Factory Limited

George Weston Foods Limited

The Rock Building Society Limited

Goodman Fielder Limited

Ticor Limited

Gradipore Limited

Timbercorp Limited

GrainCorp Limited

Titan Resources NL

GRD NL

Toll Holdings Limited

Great Southern Plantations Limited

Tooth & Company Limited

Green's Foods Limited

TransUrban Group Limited

GUD Holdings Limited

travel.com.au Limited

Gunns Limited

Troy Resources N L

Gutnick Resources NL

Union Capital Limited

GWA International Limited

United Energy Limited

Gympie Gold Limited

United Group Limited

Haoma Mining NL

Utility Services Corporation Limited

Harvey Norman Holdings Limited

Villa World Limited

Heggies Bulkhaul Limited

Village Roadshow Limited

Helix Resources Limited

Vision Systems Limited

Henry Walker Eltin Group Limited

Wadepack Limited

HGL Limited

Washington H Soul Pattinson and Company Limited

Hill 50 Gold Limited

Watpac Limited

Hills Industries Limited

Wattyl Limited

Hills Motorway Group

WC Penfold Limited

HP JDV Limited

Webster Limited

Hudson Investment Group Limited

Wesfarmers Limited

Hudson Timber & Hardware Limited

West Australian Newspapers Holdings Limited

Huntley Investment Company Limited

Westel Group Limited

Hutchison Telecommunications (Australia) Limited

Western Metals Limited

ICSGlobal Limited

Westfield Holdings Limited

Iluka Resources Limited

Westpac Banking Corporation

Incitec Limited

Wide Bay Capricorn Building Society Limited

Infomedia Limited

WMC Limited

Institute of Drug Technology Australia Limited

Woodside Petroleum Limited

Insurance Australia Group Limited Intellect Holdings Limited 39

Boards of Directors Study in Australia and New Zealand 2002

Non-Listed and Government Organisations Surveyed Australian Broadcasting Corporation Australian Dairy Corporation Australian Postal Corporation Barwon Region Water Authority Bonlac Foods Limited Gladstone Port Authority Gold Corporation Hospitals Contribution Fund of Australia Integral Energy Royal Automobile Club of Queensland TAB Queensland Limited Water Corporation

New Zealand Companies Surveyed Advantage Group Ltd Air New Zealand Limited Auckland International Airport Limited Bendon Group Ltd Carter Holt Harvey Limited Contact Energy Limited DB Group Limited Fisher & Paykel Industries Limited Fletcher Building Ltd Frucor Beverages Ltd Hallenstein Glasson Holdings Ltd Horizon Energy Distribution Ltd Independent Newspapers Limited IT Capital Limited Lion Nathan Limited Mainfreight Michael Hill International Ltd Natural Gas Corporation Nuplex Port of Tauranga Sky City Entertainment Group Limited Sky Network Television Telecom Corporation of New Zealand The Warehouse Group Limited Tower Limited Tranz Rail Holdings Limited Wrightson

Boards of Directors Study in Australia and New Zealand 2002

List of Tables and Charts

Australia Tables Table 1. Table 2. Table 3. Table 4. Table 5. Table 6. Table 7. Table 8. Table 9. Table 10. Table 11. Table 12. Table 13. Table 14. Table 15. Table 16. Table 17. Table 18.

Non Executive Chairmen Fees in Australia’s Leading Companies by Revenue................................16 Non Executive Chairmen Fees in Australia’s Leading Companies by Market Capitalisation ........17 Non Executive Chairmen Fees in Australia’s Leading Companies by Industry................................17 Non Executive Chairmen Fees in Australia’s Leading Companies by Location ..............................18 Non Executive Chairmen Fees in Australia’s Leading Companies by Location ..............................18 Non Executive Directors’ Fees in Australia’s Leading Companies by Revenue................................19 Non Executive Directors’ Fees in Australia’s Leading Companies by Market Capitalisation ........20 Non Executive Directors’ Fees in Australia’s Leading Companies by Industry ................................20 Non Executive Directors’ Fees in Australia’s Leading Companies by Location ..............................21 Non Executive Directors’ Fees in Australia’s Leading Companies by Location................................22 Base Retainer and Committee Fees Paid to Non Executive Directors by Gender ............................22 Distribution of Board Size – All Directors (Executive & Non Executive) ..........................................27 Meeting Frequency ......................................................................................................................................28 Age of Directors in Australia’s Leading Companies Ranked by Revenue ........................................31 Age of Directors in Australia’s Leading Companies by GICS ..............................................................31 Age of Directors in Australia’s Leading Companies by Location ........................................................32 Distribution of Committee Types ..............................................................................................................32 Distribution of Other Committee Types ..................................................................................................33

Charts Chart 1. Chart 2. Chart 3. Chart 4. Chart 5. Chart 6. Chart 7. Chart 8.

Board Composition – Proportion of Executive and Non Executive Directors ..................................25 Proportion of Executive and Non Executive Directors by Revenue ....................................................25 Proportion of Executive and Non Executive Directors by GICS Industry..........................................26 Board Position by Gender for Total Sample ............................................................................................29 Committee Position by Gender for Total Sample....................................................................................29 Board Position by Gender for Top 50 Companies ..................................................................................30 Committee Board Position by Gender for Top 50 Companies ............................................................30 Committee and Board Meeting Attendance by Position ......................................................................33

New Zealand Tables Table 19. Meeting Frequency ......................................................................................................................................34 Table 20. Age of Directors ..........................................................................................................................................34 Table 21. Fee’s by Non Executive Position ..............................................................................................................35

Charts Chart 9. Board Position by Gender ................................................................................................................35

Copyright 2002 Korn/Ferry International Pty Limited and John V Egan Associates Pty Limited Copyright ownership of Boards of Directors Study in Australia and New Zealand 2002 is vested in Korn/Ferry International, as initiator of the inaugural Study in 1981 and all subsequent Studies, and John V Egan Associates Pty Limited. 41