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NYSE: Corporate Governance Guide

NYSE: Corporate Governance Guide cgguide

NYSE: Corporate Governance Guide

Published in association with New York Stock Exchange, an Intercontinental Exchange Company | NYSE Governance Services

Consulting editors: Steven A. Rosenblum, Karessa L. Cain, and Sabastian V. Niles, Wachtell, Lipton, Rosen & Katz

Published by White Page Ltd

NYSE: Corporate Governance Guide

Consulting editors Steven A. Rosenblum, Karessa L. Cain, and Sabastian V. Niles, Wachtell, Lipton, Rosen & Katz

Publisher Tim Dempsey

Publishing editor Nigel Page

Production editor Matt Rosenquist

Design Graphic World Inc

Printing and binding Transcontinental Printing

cgguide

NYSE: Corporate Governance Guide is published by: White Page Ltd 17 Bolton Street London W1J 8BH United Kingdom Phone: + 44 20 7408 0268 Fax: + 44 20 7408 0168 Email: mail@whitepage.co.uk Web: whitepage.co.uk

First published: 2014 ISBN: 978-0-9565842-6-7

NYSE: Corporate Governance Guide ? December 2014

Copyright in individual chapters rests with the authors. No photocopying: copyright licenses do not apply.

DISCLAIMER

This guide is written as a general guide only. It should not be relied upon as a substitute for specific legal or financial advice. Professional advice should always be sought before taking any action based on the information provided. Every effort has been made to ensure that the information in this guide is correct at the time of publication. The views expressed in this guide are those of the authors. The publishers and authors stress that this publication does not purport to provide investment advice; nor do they accept responsibility for any errors or omissions contained herein.

The NYSE: Corporate Governance Guide (the Guide) contains summary information about legal and regulatory aspects of corporate governance and is current as of the date of its initial publication (December 2014). Although the Guide may be revised and updated at some time in the future, Intercontinental Exchange | NYSE Governance Services does not have a duty to update the information contained in the Guide, and will not be liable for any failure to update such information. Intercontinental Exchange | NYSE Governance Services makes no representation as to the completeness or accuracy of any information contained in the Guide. It is your responsibility to verify any information contained in the Guide before relying upon it.

Introduction--the spotlight on boards

Steven A. Rosenblum, Karessa L. Cain, and Sabastian V. Niles Wachtell, Lipton, Rosen & Katz

T he ever evolving challenges facing corporate boards prompt an updated snapshot of what is expected from the board of directors of a major public company--not just the legal rules, but also the aspirational "best practices" that have come to have almost as much influence on board and company behavior. The end goals of boards remain the same: overseeing the successful, profitable, and sustainable operations of their companies. But the pressures that confront directors, from activism and short-termism, to ongoing shifts in governance, to global risks and competition, are many. The submissions contained in this guide provide additional perspectives on the current corporate governance environment and the challenges--and opportunities--faced by boards of directors.

In the current environment, boards are expected to:

? Establish the appropriate "tone at the top" to actively cultivate a corporate culture that gives high priority to ethical standards, principles of fair dealing, professionalism, integrity, full compliance with legal requirements, and ethically sound strategic goals.

? Choose the CEO, monitor his or her performance, and have a succession plan in case the CEO becomes unavailable or fails to meet performance expectations.

? Maintain a close relationship with the CEO and work with management to encourage entrepreneurship, appropriate risk taking, and investment to promote the long-term success of the company (despite the constant pressures for short-term performance) and to navigate the dramatic changes in domestic and worldwide economic, social, and political conditions.

? Approve the company's annual operating plan and longterm strategy, monitor performance, and provide advice to management as a strategic partner.

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Introduction--the spotlight on boards Wachtell, Lipton, Rosen & Katz

? Develop an understanding of shareholder perspectives on the company and foster long-term relationships with shareholders, as well as deal with the requests of shareholders for meetings to discuss governance and the business portfolio and operating strategy.

? Evaluate the escalating demands of corporate governance activists designed to increase shareholder power.

? Work with management and advisors to review the company's business and strategy, with a view toward minimizing vulnerability to attacks by activist hedge funds.

? Organize the business, and maintain the collegiality, of the board and its committees so that each of the increasingly time-consuming matters that the board and board committees are expected to oversee receives the appropriate attention of the directors.

? Plan for and deal with crises, especially crises where the tenure of the CEO is in question, where there has been a major disaster or a risk management crisis, or where hard-earned reputation is threatened by a product failure or a sociopolitical issue. Many crises are handled less than optimally because management and the board have not been proactive in planning to deal with crises, and because the board cedes control to outside counsel and consultants.

? Determine executive compensation to achieve the delicate balance of enabling the company to recruit, retain, and incentivize the most talented executives, while also avoiding media and populist criticism of "excessive" compensation and taking into account the implications of the "say-on-pay" vote.

? Face the challenge of recruiting and retaining highly qualified directors who are willing to shoulder the escalating workload and time commitment required for board service, while at the same time facing pressure from shareholders and governance advocates to embrace "board refreshment", including issues

of age, length of service, independence, expertise, gender and diversity, and provide compensation for directors that fairly reflects the significantly increased time and energy that they must now spend in serving as board and board committee members. ? Evaluate the board's performance, and the performance of the board committees and each director. ? Determine the company's reasonable risk appetite (financial, safety, cyber, political, reputation, etc), see to the implementation by management of stateof-the-art standards for managing risk, monitor the management of those risks within the parameters of the company's risk appetite, and oversee that necessary steps are taken to foster a culture of riskaware and risk-adjusted decision making throughout the organization. ? See to the implementation by management of state-of-the-art standards for compliance with legal and regulatory requirements, monitor compliance, and respond appropriately to "red flags." ? Take center stage whenever there is a proposed transaction that creates a seeming conflict between the best interests of stockholders and those of management, including takeovers and attacks by activist hedge funds. ? Recognize that shareholder litigation against the company and its directors is part of modern corporate life and should not deter the board from approving a significant acquisition or other material transaction, or rejecting a merger proposal or a hostile takeover bid, all of which is within the business judgment of the board. ? Set high standards of social responsibility for the company, including human rights, and monitor performance and compliance with those standards. ? Oversee relations with government, community, and other constituents. ? Review corporate governance guidelines and committee charters and tailor them to promote effective board functioning.

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Wachtell, Lipton, Rosen & Katz Introduction--the spotlight on boards

To meet these expectations, it will be necessary for major public companies (1) to have a sufficient number of directors to staff the requisite standing and special committees and to meet expectations for diversity; (2) to have directors who have knowledge of, and experience with, the company's businesses, even though meeting this requirement may result in boards with a greater percentage of directors who are not "independent"; (3) to have directors who are able to

devote sufficient time to preparing for and attending board and committee meetings; (4) to provide the directors with regular tutorials by internal and external experts as part of expanded director education; and (5) to maintain a truly collegial relationship among and between the company's senior executives and the members of the board.

We thank each of the contributors to this guide for their thoughtfulness and hope you find their perspectives of value.

NYSE: Corporate Governance Guide v

NYSE: Corporate Governance Guide

Tom Farley, President New York Stock Exchange, an Intercontinental Exchange Company

Foreword The relationship between companies and their shareholders has never been more important than it is today. Open communication as well as trust in both management and the board are critical to building long-term relationships with investors, which allow companies to stand out amongst an ever-increasing range of global investment options.

The New York Stock Exchange has long recognized the role of good corporate governance in protecting shareholder value and, in turn, the capital markets. In 1895, the Exchange recommended that companies issue a full report of their annual operations at least 15 days before the shareholder meeting. In 1899, we began requiring regular financial statements of all listed companies. We supported one share, one vote initiatives in 1926 and the establishment of proxy solicitation regulations in 1927. Furthermore, in recognition of the critical role the board plays in supporting good governance, we urged listed companies to have at least two outside directors on the board starting in 1956. In 1977, we required that listed companies have independent audit committees comprised of outside directors. Finally, in 1999, well before Sarbanes-Oxley Act of 2002 (SOX) regulations, we required domestic listed companies to have audit committees of at least three independent directors, and set financial expertise requirements for the committees.

This long history of supporting good corporate governance is the reason we are pleased to be bringing you NYSE: Corporate Governance Guide. We are very grateful to our partners on the project, including our publisher and expert contributors. Our collective goal is to help you navigate the changing landscape of corporate governance today. To that end, the guide covers a broad spectrum of topics from selecting and developing a high quality board and succession planning to ensuring a board works effectively as a team. It goes on to explore a range of topics that a board must address if it is to enable the company to achieve its full potential including strategy, risk management, communicating with shareholders, and overseeing an effective ethics and compliance program.

Companies need corporate governance policies that place the interests of their shareholders first. In today's world of increasingly

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Foreword NYSE: Corporate Governance Guide

complex regulation it is necessary to supplement a skillful compliance team with an equally strong governance program. Effective governance and compliance programs must be tailored for the unique and continually evolving circumstances of each corporation, and a well-functioning board is at the heart of that challenge. Even privately held companies would benefit from establishing good governance practices now, as this would allow them

to position themselves well for meeting investor expectations down the road. After all, good governance is about enabling entrepreneurship and innovation within a framework of accountability, which ultimately increases trust in our capital markets and allows us to continue to lead globally.

Regards,

NYSE: Corporate Governance Guide vii

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