KORN/FERRY INTERNATIONAL

29th AnnualBoard of Directors Study

2002

Healthcare Services

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29th AnnualBoard of Directors Study

2002

Healthcare Services

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 Healthcare Services companies. The study indicates that theseorganizations are making long-term progress in efforts to implement board practicesfor stronger corporate governance — but that some significant gaps still remain.

This year:

� 60 percent of Healthcare Services boards have written guidelines on corporate governance.

� 50 percent of boards formally evaluate the entire board’s performance on aregular basis; and

� 60 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:

� 60 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 Healthcare Services company survey also shows that evaluation ofindividual directors clearly has not yet taken hold as a board practice.

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

� only 20 percent of boards currently conduct such evaluations, and

� only 14 percent of directors on those boards think that the evaluationsare effective.

29th AnnualBoard of Directors Study

2002

Healthcare Services

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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:

� 71 percent of directors say the former CEO shouldn't sit on the board.

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

� only 50 percent of boards hold such sessions.

� Directors are spending an average of 14 hours per month on board matters, or approximately 168 hours annually.

� Most directors (56 percent) say their company’s CEO compensation programis effective.

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

� only 22 percent of boards have a requirement that directors own shares of company stock.

� 74 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 — Healthcare Servicescompany highlights provides a comprehensive and illuminating look into the state of board practices at the nation’s leading healthcare services companies — charting progress made, as well as progress still to be achieved.The publication represents Korn/Ferry’s ongoing commitment to generating and sharing timely, practical information from the nation’s corporate leaders regarding their efforts 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 40 Healthcare Services boards.

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 eight outside.

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29th AnnualBoard of Directors Study

2002

Healthcare Services

0 2

2

7

4 6 8 10

Outside

Inside

0 2

2

4 6 8

8

10

Outside

Inside

Current Board Size Optimal Board Size

No67%

Yes33%

No71%

Yes29%

Does the former CEOsit on the board?

Should the former CEOsit on the board?

74%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 78%

African American 33%

Hispanic 11%

Asian 22%

Other 22%

Diversity in the Boardroom

5

29th AnnualBoard of Directors Study

2002

Healthcare Services

No50%

Yes50%

No39% Yes

61%

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

30%

10%

40 60 80 100

OutsideDirectors

CEO

0 20

50%

80%

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?

Should there be a limit to the numberof other boards on which the CEO

and board members may serveas outside directors?

No75%

Yes25%

No24%

Yes76%

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 Yes

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29th AnnualBoard of Directors Study

2002

Healthcare Services

Does the board have written guidelines on corporate governance?

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

No40%

Yes60%

No40%

Yes60%

Yes97%

No3%

Managing Corporate Governance

In keeping with the established trend of a formal committee that reviews corporate governance processes and board operations, 60% of HealthcareServices companies have such committees.

60% of these companies have written guidelines on corporate governance and 97% believe these guidelines are helpful to a board.

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

Compared to last year howmany hours are you

spending per month onboard matters?

14average hours per monthspent on board matters.

More 46%

Fewer 5%

About the Same 49%

29th AnnualBoard of Directors Study

2002

Healthcare Services

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No60%

Yes40%

No40%

Yes60%

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

Management Succession

Data reveals that in the last three years only 40% of Healthcare Services companies have undergone a management succession process. 60% of these companies have a management succession committee or process, and would be prepared for such change at the top.

Does the board have a management succession committee or process?

25%of respondents feel there

is a director on their boardthat should be replaced.

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29th AnnualBoard of Directors Study

2002

Healthcare ServicesEffective

25%

VeryIneffective

13%

VeryEffective

6%

If YES: What form of stock?

No80%

Yes20%

Does your board evaluate individual directors on a regular basis?

No50%

Yes50%

86% of respondents felt

that individual directorsshould be evaluated

regularly as totheir performance.

Evaluating Performance

There is an even split on the practice of evaluating the full boards performance on a regular basis and only a one quarter of respondents feel this is effective.Only 20% of boards evaluated individual directors but 86% feel this practiceshould be done regularly.

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

29th AnnualBoard of Directors Study

2002

Healthcare Services

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Board Experience

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

Compensation

More than half of the respondents feel their CEO’s compensation program is effective.

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

0

20

40

60

80

100

LegalMarketingFinancialTechnicalInternational

Not At All DifficultSomewhat DifficultVery Difficult

13.6%

36.4%

50%

10.4%

58.6%

31%

8.8%

17.6%

73.6%

12.5%

21.9%

65.6%

3.2%

22.6%

74.2%

Should audit committeechairs be paid more than

chairs of other committees?

Yes 42%

No 58%

FairlyEffective

10%

VeryEffective

34%

Effective56%

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29th AnnualBoard of Directors Study

2002

Healthcare Services

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 (50 percent) of the directors indicated that their board and management team had not developed or discussed a crisis management planprior to September 11th. The same percentage reported action had beentaken post-September 11th.

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

No60%

Yes40%

No40%

Yes60%

Has your board taken any action to address crisis management since thetragedy of September 11th?

29th AnnualBoard of Directors Study

2002

Healthcare Services

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0%

7.7%

17.9%

41.1%

5.1%

28.2%

0 10 20 30 40 50

75 Years or Older

65-74

55-64

45-54

35-44 Years

34 Years or Younger

2.6%

15.4%

30.8%

17.9%

33.3%

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 Chairman19.4%

25.8%

35.5%

0%

6.5%

3.2%

0%

0%

9.7%

12.9%

29%

Survey Demographics

What is your title or status with your primary company?

Are you responding as anInside or outside director?

Inside 15%

Outside 85%

You are:

92% Male

8% Female

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29th AnnualBoard of Directors Study

2002

Healthcare Services

Korn/Ferry InternationalHealthcare Services Practice

With close to 40 seasoned and dedicated client partners, Korn/Ferry’sHealthcare Services Practice understands the critical issues facing healthcarecompanies today. In 2001, our Healthcare Services team handled more than 250assignments, representing 11-percent growth from the previous fiscal year.

Korn/Ferry’s global network of Healthcare Services consultants possess expertise in a range of related fields, including:

� Hospitals, academic medical centers and hospital systems

� Managed care and payer/insurer organizations

� Integrated delivery systems

� Physician groups and independent practice associations

� Practice and network management companies

� Ancillary services companies

� Venture-backed healthcare service companies

� Sub-acute care, including home care, rehabilitation and long-term care.

Korn/Ferry’s Healthcare Services Practice offers clients the highest levels ofservice and exclusivity, working for only a few clients in each sector at the sametime. More important, our team has a proven track record of finding the righthealthcare executives on a timely basis - nationwide.

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.kornferry.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.