KORN/FERRY INTERNATIONAL

29th AnnualBoard of Directors Study

2002

Technology Markets

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29th AnnualBoard of Directors Study

2002

Technology Markets

Executive Summary

It has been an extraordinarily turbulent year for American companies and theirboards, marked by near-unprecedented volatility in investment markets, sharperosion of investor confidence, heightened focus on the validity and credibilityof financial reporting practices, and high-profile corporate failures such asEnron and Worldcom. In this environment, the board’s critical role in overseeingfundamental corporate practices — how effectively that role is being executed andhow it can be strengthened — has come under scrutiny as never before.

This publication, a supplement to Korn/Ferry International’s 29th Annual Boardof Directors Study, presents responses and findings from survey participants onthe boards of Technology companies. The study indicates that these organizationsare making long-term progress in efforts to implement board practices for strongercorporate governance — but that some significant gaps still remain.

This year:

� 66 percent of technology boards have written guidelines on corporate governance.

� Only 34 percent of boards formally evaluate the entire board’s performance on a regular basis; and

� 58 percent of boards have a formal committee that reviews corporategovernance processes and board operations.

While progress is being made regarding corporate governance processes andboard evaluation, boards will have to do more — especially in light of newregulatory mandates designed to formalize these processes in the wake of thepast year’s notable failures of board oversight.

For example, corporate governance rule proposals adopted by the New YorkStock Exchange Board of Directors in August state that listed companies mustadopt and disclose corporate governance guidelines on management successionand other key processes. Yet our survey of directors reveals that:

� Only 49 percent of boards have a management succession committee or process.

Mandates such as those of the NYSE, with prescriptions for formal governanceguidelines, could create issues for the significant percentage of companies that,according to our survey, do not have such guidelines or processes at this time.

The Korn/Ferry Technology companies survey also shows that evaluation of indi-vidual directors clearly has not yet taken hold as a board practice.

� 80 percent of respondents say that individual directors should be evaluatedregularly regarding performance. However:

� only 22 percent of boards currently conduct such evaluations, and

� 28 percent of directors on those boards think that the evaluationsare effective.

29th AnnualBoard of Directors Study

2002

Technology Markets

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Boards going forward can anticipate closer examination of how they measurethe performance and, ultimately, the effectiveness of directors on behalf ofshareholders, as part of the heightened concern over how well boards executetheir oversight role.

Other key survey findings include:

� Independence is an essential concern of directors:

� 73 percent of directors say the former CEO shouldn’t sit on the board.

� 71 percent of directors say the board should hold regular executivesessions without the CEO during board meetings, yet

� only 18 percent of boards hold such sessions.

� Directors are spending an average of 12 hours per month on board matters, or approximately 144 hours annually.

� Most directors (54 percent) say their company’s CEO compensation programis effective.

� 69 percent of directors think the majority of a director’s compensation shouldbe in stock.

� 50 percent of boards have a requirement that directors own shares of company stock.

� 63 percent of directors would like to see their board become more diverse byincreasing its minority representation.

Korn/Ferry’s 29th Annual Board of Directors Study — Technology companieshighlights provides a comprehensive and illuminating look into the state ofboard practices at the nation’s leading technology companies — chartingprogress made, as well as progress still to be achieved. The publication repre-sents Korn/Ferry’s ongoing commitment to generating and sharing timely,practical information from the nation’s corporate leaders regarding theirefforts to maintain and extend “best practices” for corporate governance.

We hope that you find the study informative and useful, and that it provides you withinsight into the key steps that governance programs must take to address today’spressing concerns about the credibility and responsibility of corporate America.

Survey Responses

The following responses are a supplement to Korn/Ferry International’s29th Annual Board of Director’s Study. The findings are based on responses fromDirectors of over 170 Technology companies.

Board Composition

The average board in our survey consists of two inside directors and sevenoutside directors. According to respondents, the optimal board size is twoinside directors and seven outside.

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29th AnnualBoard of Directors Study

2002

Technology Markets

0 2

2

7

4 6 8 10

Outside

Inside

0 2

2

4 6 8

7

10

Outside

Inside

Current Board Size Optimal Board Size

No77%

Yes23%

No73%

Yes27%

Does the former CEOsit on the board?

Should the former CEOsit on the board?

63%of respondents said

they would like to seetheir board become morediverse by increasing itsminority representation.

Do you have any of the following minorities currentlyrepresented on your board?

Women 86%

African American 34%

Hispanic 7%

Asian 10%

Other 3%

Diversity in the Boardroom

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29th AnnualBoard of Directors Study

2002

Technology Markets

No56%

Yes44%

No29%

Yes71%

Does the board typically holdregular executive sessions withoutthe CEO during board meetings?

Should the board typically holdregular executive sessions withoutthe CEO during board meetings?

0 20

24%

8%

40 60 80 100

OutsideDirectors

CEO

Is there a limit to the number ofother boards on which the CEOand board members may serve

as outside directors?

No59%

Yes41%

No35%

Yes65%

If your chairman is also the CEO,do you have an elected orappointed lead director?

Should a board that has aninside director as chairman elect

or appoint an outside directoras the lead director?

Yes

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29th AnnualBoard of Directors Study

2002

Technology Markets

Board Meetings

Board commitment and activity continues to intensify. The majority of technologyboards meet on a quarterly basis. With 51 percent of directors spending moretime on board matters. Face to face meetings are still the way most boards continue to meet.

Does your board typically have board members who attend meetings electronically?

No74%

Yes26%

Yes3%

No97%

No57%

Yes43%

Has your board ever held a virtual board meeting via the Internet?

Would you feel comfortable holding a board meeting in a secure Internet environment?

12average hours per monthspent on board matters.

Compared to last year howmany hours are you

spending per month onboard matters?

More 51%

Fewer 7%

About the Same 42%

29th AnnualBoard of Directors Study

2002

Technology Markets

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Does the board have written guidelines on corporate governance?

Do you believe written governance guidelines are helpful to a board?

No41%

Yes59%

No34%

Yes66%

No13%

Yes87%

Managing Corporate Governance

In keeping with the established trend of a formal committee that reviews corporate governance processes and board operations, 59% of technology companies have such committees.

66% of these companies have written guidelines on corporate governance and 87% believe these guidelines are helpful to a board.

Does your board have a formal committee that reviews corporate governanceprocesses and board operations?

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29th AnnualBoard of Directors Study

2002

Technology Markets

No44% Yes

56%

No51%

Yes49%

In the last three years, has your company undergone a management succession process?

Management Succession

Data reveals that in the last three years only 56% of technology companies haveundergone a management succession process. Only 48% of these companieshave a management succession committee or process.

Does the board have a management succession committee or process?

29th AnnualBoard of Directors Study

2002

Technology Markets

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Effective38%

Ineffective11%

VeryIneffective

2%Very

Effective3%

If YES: How effective is the evaluation?

Effective28%

Ineffective4%

VeryEffective

8%

SomewhatEffective

60%

If YES:How effective is this evaluation

of individual directors?

No78%

Yes22%

Does your board evaluate individual directors on a regular basis?

Should individual directors be evaluated regularly as to their performance?

No66%

Yes34%

Evaluating Performance

66% of technology company boards evaluate the full boards performance whileonly 22% of the boards evaluated individual directors performance. However,80% of respondents feel individual directors should be evaluated.

Is the entire board’s performance formally evaluated on a regular basis?

No20%

Yes80%

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29th AnnualBoard of Directors Study

2002

Technology Markets

No31%

Yes69%

PrimarilyStock

Options67%

Other8%

PrimarilyStock

Grants26%

If YES: What form of stock?

Board Experience

How difficult has it been for your board to add directors with the followingskill sets?

Compensation

More than half (69%) of the respondents think that directors should be paid instock. 67% suggested stock options as the primary form.

Do you think the majority of a director’s compensation should be in stock?

LegalMarketingFinancialTechnicalInternational

Not At All DifficultSomewhat DifficultVery Difficult

15.3%

39.9%44.8%

18.6%

32.9%

48.5%

4.1%

23.7%

72.2%

5.4%

41%

53.6%

1.3%

24.2%

74.5%

0

20

40

60

80

100

29th AnnualBoard of Directors Study

2002

Technology Markets

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How do you feel about your company’s CEO compensation program?

If YES, average number of shares: 1811

Is there a requirement that directors own shares of company stock?

No50%

Yes50%

FairlyEffective-

Needs SomeChanges

25%

Ineffective3%

VeryEffective

18%

Effective54%

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29th AnnualBoard of Directors Study

2002

Technology Markets

Risk & Crisis

Though the past year was characterized by devastating crises, these events were not a catalyst for greater board involvement in risk and crisis management.More than half (58 %) of the directors indicated that their board and managementteam had not developed or discussed a crisis management plan prior toSeptember 11th. 29% reported action has not been taken post-September 11th.

Had your board and management team developed or discussed a crisis management plan prior to September 11th?

No58%

Yes48%

No71%

Yes29%

Has your board taken any action to address crisis management since thetragedy of September 11th?Is there a director on

your board you feel shouldbe replaced?

Yes: 38%No: 62%

Have you ever turneddown a board position

because you felt your riskwas too great?

Yes, but not in 31%the last 12 months

Yes, in the past 19%12 months

No 50%

29th AnnualBoard of Directors Study

2002

Technology Markets

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.6%

3.8%

28.9%

44.4%

.6%

21.7%

0 10 20 30 40 50

75 Years or Older

65-74

55-64

45-54

35-44 Years

34 Years or Younger

5.5%

15.5%

22.7%

26%

30.3%

0 10 20 30 40

Over 10 Years

6-10

3-5 Years

1-2 Years

Less Than One Year

How long have you served on this board?

Your age:

0 5 10 15 20 25 30 35 40 45 50

Other

Retired

Retired CEO

Corporate Secretary

Chief Technical Officer

Chief Financial Officer

Vice Chairman

General Counsel

CEO

President

Board Chairman20%

27.6%

41.2%

.6%

1.2%

2.4%

2.4%

0%

7.6%

17.1%

14.1%

Survey Demographics

What is your title or status with your primary company?

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29th AnnualBoard of Directors Study

2002

Technology Markets

Global Technology PracticeKorn/Ferry International

Korn/Ferry International’s Global Technology Market is about industry andfunctional knowledge - our team has significant experience helping our clientssolve their human capital needs in the technology space. By staying on top ofthe industry and partnering with our clients and top executives, we are able toanticipate trends and produce substantive, measurable results.

Korn/Ferry Technology consultants utilize our market knowledge and world-wide relationships to benefit our clients. Our areas of expertise range across allof the key technology platforms. Specialties include:

� Communications & Convergence

� Professional & IT Services

� Software & Emerging Technologies

� Systems & Electronics

Korn/Ferry takes pride in the one-on-one commitment we make to each andevery client. Our team-based approach allows us to be proactive and responsive- and to exceed your expectations in regard to the quality of candidates, ease ofcommunication and speed of execution. Armed with our industry expertise andtrack record of performing challenging assignments, Korn/Ferry’s Technologygroup serves as a strategic partner and trusted advisor, helping our clientsattract leaders who embrace, anticipate and lead change.

About Korn/Ferry International

Korn/Ferry International (NYSE:KFY), with over 70 offices in 36 countries, isthe world’s leading provider of executive human capital solutions. Based in Los Angeles, the firm works closely with clients worldwide to deliver customizedexecutive search, management assessment and mid-level search services, includingthe identification of CEOs, COOs, CFOs, board members and other senior-level executives; the formal evaluation of senior management teams; and the recruitment of middle managers through its Futurestep subsidiary.

For more information, visit the Korn/Ferry International web site atwww.kornferry5.com or the Futurestep web site at www.futurestep.com.

For additional copies of this study, please callthe Global Marketing Department at (310) 552-1834.