1. Governance—Or Lack of ItChairperson’s Opening Remarks, FTF’s 5th Annual OpRisk Conference, 2 March 2011, New York City Holly H. Miller, Founding Partner Stone House Consulting, LLC 1 © 2011 Stone House Consulting, LLC

2. Effective Corporate Governance Is a Prerequisite to Effective Operational Risk Management The board of directors should take the lead in establishing the “tone at the top” which promotes a strong risk management culture. --Sound Practices for the Management and Supervision of Operational Risk, Basel Committee on Banking Supervision, December 2010 2 © 2011 Stone House Consulting, LLC

3. Yet Corporate Governance Failed During the Crisis “Operational risk is clearly overlooked or misunderstood by many companies to mean operations risks, such as day-to-day processing errors. Operational risk is driven in large part by catastrophic failures in management, such as unauthorized activities, for example rogue traders, or excessive risk taking. The current financial crisis is, at heart, a failure of operational risk management.”—PrakashShimpi, managing principal and head of ERM practice at Towers Watson1 “Reports indicate that the risk controls my team and I put in place were weakened or eliminated after my retirement.”—Maurice Greenberg, former chairman of AIG2 Creating A Successful Risk Management Culture, financierworldwide.com, March 2009 Statement before the US House of Representatives on Oversight and Government Reform, October 2008 3 © 2011 Stone House Consulting, LLC

4. “My administration is the only thing between you and the pitchforks” —Barack Obama to a gathering of Wall Street CEOs April 2009 Wrong! 4 © 2011 Stone House Consulting, LLC

5. Shareholders Have Pitchforks… …and They Are Called Proxies 5 © 2011 Stone House Consulting, LLC

6. Boards of Directors Stand BetweenCEOs and Shareholders Corporate CEOs Answer to Boards of Directors And Those Boards Answer to Shareholders 6 © 2011 Stone House Consulting, LLC

7. But They Are Not Using Them Why? 7 © 2011 Stone House Consulting, LLC

8. America Expressed Its Displeasure with Congress In the 2010 Midterm Elections 8 © 2011 Stone House Consulting, LLC

9. But Corporate Boards Got a Pass Average = 86% Source: SEC filings, Stone House Consulting analysis 9 © 2011 Stone House Consulting, LLC

10. Surprisingly Little Board TurnoverResulting from the Crisis Source: SEC filings, New York Times, Stone House Consulting analysis 10 © 2011 Stone House Consulting, LLC

11. Institutions Own Approximately ⅔ of the Shares of These Top TARP Beneficiaries* For each of these 8 firms: 39%-79% of shares are owned by institutions or mutual funds Between 340 and 1,517 organizations 21%-50% of shares are owned by the top 10 shareholders In total, 29 firms account for nearly 30% of the ownership of all 8 TARP recipients 10 firms, on average, account for nearly ¼ of the shares outstanding * Excluding GM Source: Yahoo! Finance, Stone House Consulting analysis 11 © 2011 Stone House Consulting, LLC

12. Ten Firms Account for Nearly ¼ of All Shares of the Top 8 Public TARP Beneficiaries Source: SEC filings, Stone House Consulting analysis 12 © 2011 Stone House Consulting, LLC

13. AFL-CIO Has Tracked the Proxy Voting Record for 7 of These 10 Largest Shareholders During 2009 and 2010, in three separate votes regarding an independent board chair (JPM, WFC and BAC): 17 against 3 in favor In a 2010 BAC vote on adoption of a policy covering potential recoupment of unearned bonuses 3 against 4 in favor In 3 separate votes during 2010 regarding disclosure of political donations (AIG, BAC, GS): 15 against 4 in favor (all in the BAC vote) 5 abstain Source: AFL-CIO Key Votes Survey and Investment Manager Voting Records 2009-2010, Stone House Consulting analysis 13 © 2011 Stone House Consulting, LLC

14. Food for Thought Institutional investors are conflicted As long-term investors, they want effective boards But they behave like short-term investors by favoring minimal disruption A key operational risk at many investment managers is blind support of incumbent boards Is there the potential for reputation risk? Under whose risk umbrella does proxy voting fall in your firm? Investment risk Operational risk Does your firm have the right tone at the top? What about the firms in which you invest? 14 © 2011 Stone House Consulting, LLC

15. “The election of directors is the most important shareholder franchise” —Larry Sonsini Chairman NYSE Proxy Working Group NYSE 20061 1 Heterogeneity and Peer Effects in Mutual Fund Proxy Voting, Matvos & Ostrovsky, 22 June 2009 15 © 2011 Stone House Consulting, LLC

16. Contact Details Holly H. Miller Partner +1 610 358 1791 phone +1 917 587 2411 cell +1 509 479 1831 fax hmiller@stonehouseconsulting.com Stone House Consulting, LLC Strategic, operational and IT consulting for investment managers and hedge funds www.stonehouseconsulting.com New York | Philadelphia | Wilmington © 2011 Stone House Consulting, LLC 16