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|Corporate Governance refers to that blend of law, regulation, and appropriate voluntary private-sector practices which enables the corporation to attract financial and human capital, perform |
|efficiently, and thereby perpetuate itself by generating long-term economic value for its shareholders, while respecting the interests of stakeholders and society as a whole. |
|The principal characteristics of effective corporate governance are: transparency (disclosure of relevant financial and operational information and internal processes of management oversight and |
|control); protection and enforceability of the rights and prerogatives of all shareholders; and directors capable of independently approving the corporation’s strategy and major business plans and |
|decisions, and of independently hiring management, monitoring management’s performance and integrity, and replacing management when necessary. |
|Ira M. Millstein |
|Senior Partner, Weil, Gotshal & Manges LLP |
|and noted authority on corporate governance |
|[pic] |Weil, Gotshal & Manges LLP: Founded in 1931, Weil, Gotshal & Manges LLP has evolved into a leading international law firm, offering expertise in a wide |
| |range of diverse practice areas. With an extraordinary talent base of over 1,200 attorneys in 20 offices around the world, Weil Gotshal serves a broad |
| |array of clients across multiple industries. |
| |The Firm’s Corporate Governance Group is recognized as the preeminent counselors of corporate boards, management and institutional investors on the full |
| |range of governance issues including: board composition, structure and processes; executive and director compensation; director responsibilities, |
| |including in connection with mergers, spin-offs and other extraordinary transactions; internal and governmental investigations of alleged accounting or |
| |other corporate misconduct; and shareholder initiatives. |
| |The Corporate Governance practice is well-integrated with other practice areas, providing the Firm with an unparalleled capacity to serve as counselors to |
| |companies and their boards across the entire range of situations: from healthy companies using governance to reduce risks of future business distress or |
|Holly J. Gregory |to protect extraordinary transactions, to companies facing takeovers or enterprise-threatening litigation, to companies on the brink of financial distress.|
|Partner |The Business, Finance & Restructuring department is renowned for its ability to advise directors, investors, creditors, and companies on preventing and |
|Weil, Gotshal & Manges LLP |handling all forms of financial distress. The Business & Securities Litigation department is highly regarded for its representation of a wide variety of |
|767 Fifth Avenue |companies and their directors in various forms of shareholder litigation, including in litigation related to takeovers. The Firm’s Corporate department |
|New York, NY 10153-0119 |regularly represents clients in the full range of merger and acquisition, private equity, capital markets, bank and securitized financing, and other |
|Tel: +1 212 310 8038 |commercial transactions, including in many of the largest and innovative transactions completed each year. |
|Fax: +1 212 310 8007 |Weil Gotshal attorneys have advised the World Bank, the Organisation for Economic Co-operation and Development (“OECD”), the European Commission and |
|e-mail: holly.gregory@ |various stock exchanges and regulatory bodies on governance reform efforts and have been leaders in providing director training programs worldwide. In |
| |addition, the Firm has played a leading role in the development of some of the world’s most influential corporate governance recommendations and |
|Ms. Gregory specializes in |guidelines, including: General Motors Board of Directors, Corporate Governance Guide-lines (1994, revised 2004); National Association of Corporate |
|corporate governance as a |Directors (“NACD”), Report of the NACD Blue Ribbon Commission on Director Professionalism (1996, reissued 2001); Report of the OECD Business Sector |
|field of legal practice |Advisory Group on Corporate Governance (“Millstein Report”) (1998); OECD Principles of Corporate Governance (1999, revised 2004); International Corporate |
| |Governance Network (“ICGN”), Statement on Global Corporate Governance Principles (1999); Report of The Blue Ribbon Committee on Improving the Effectiveness|
| |of Corporate Audit Committees (for the New York Stock Exchange (“NYSE”) and National Association of Securities Dealers (“NASD”) (1999); and European |
| |Association of Securities Dealers (“EASD”), Corporate Governance Principles and Recommendations (2000); and the Firm completed a study of guidelines and |
| |codes for the European Commission entitled: Comparative Study of Corporate Governance Codes Relevant to the European Union and Its Member States (2002). |
| |For more information about the services we offer, visit or call Holly J. Gregory at 212-310-8038. |
The attached analysis compares suggestions for board structure and practice by influential members of the corporate, institutional investor and legal communities to the governance guidelines used by the General Motors Board of Directors. Footnotes and Appendices reference relevant provisions of the Sarbanes-Oxley Act of 2002, New York Stock Exchange (“NYSE”) and Nasdaq Listing Rules, the 2004 ABA Corporate Director’s Guidebook, 2003-2004 survey data on actual board practices compiled by Korn/Ferry International and the National Association of Corporate Directors (“NACD”), and other information.
The “soft regulation” provided by voluntary guidelines and codes of best practice is in keeping with the regulatory philosophy that “one size does not fit all” when it comes to board practices. By definition, guidelines and best practice codes describe standards to aspire to. This does not mean that these guidelines and codes lack force and effect. Even though compliance with substantive code provisions is wholly voluntary, reputational and market forces help focus the attention of companies and investors on governance issues and provide compliance pressures. Thus, over time, best practices often become the norm and may even eventually become the basis for minimum standards as, for example, reflected in recent amendments to listing rules.
The structure and practice of corporate boards of directors has been a particular focus of institutional activism in recent years. Coincident with their growing dominance as shareholders of publicly traded corporations, institutional investors have become active in corporate governance reform efforts in the past decade. Increased sophistication about the use of shareholder power – and limits on their ability to sell the stock of underperforming portfolio companies – has focused key institutional investors on improving the accountability of corporate boards and managers. In recent years, two of the most influential institutional investors, the California Public Employees’ Retirement System (“CalPERS” – the largest U.S. public pension fund, with more than US$180 billion in assets under management) and the Teachers Insurance and Annuity Association – College Retirement Equities Fund (“TIAA-CREF” – a private pension fund that is the largest U.S. pension fund, public or private, with assets of more than US$300 billion under management), have issued guideline documents that express their expectations concerning how the board of directors carries out its functions. Also in recent years, the Council of Institutional Investors (“CII” – representing over 140 pension fund members with more than US$3 trillion in assets under management) and the American Federation of Labor – Congress of Industrial Organizations (“AFL-CIO” – representing over 13 million persons organized in labor unions) have issued guidelines relating to the corporate governance practices of the board. In emphasizing the need for directors to exert independent influence over management while abjuring a “one-size-fits-all” approach, these documents all express philosophies similar to the board best practice suggestions issued in recent years by The Business Roundtable (“BRT”) and the NACD. Nonetheless, some key differences remain on topics such as who qualifies as an “independent” director and whether, and to what extent, some independent board leadership is called for.
In several markets outside the U.S., similarly voluntary codes rely on a mandatory disclosure requirement to encourage compliance. For example, in the United Kingdom and Canada, domestic companies listed on the London Stock Exchange and the Toronto Stock Exchange are required to disclose whether they comply with the specified code (the Combined Code in the U.K.; the Dey Report – as modified by the Saucier Report – in Canada) and to explain any deviations. Linking codes to a disclosure requirement on a “comply or explain” basis is a means of encouraging adoption of specific corporate governance practices without mandating actual practices. None of the U.S. listing bodies have yet adopted a code of best practice, nor has any U.S. code yet been linked to a disclosure requirement on a “comply or explain” basis. However, the New York Stock Exchange listing rules mandate that listed companies adopt and publish corporate governance guidelines that address key issues.
This comparative analysis of recommended governance practices is designed to assist boards, directors and listed companies as they consider how to improve their own practices, including through the adoption and publication of corporate governance guidelines.
OVERVIEW 1
1. The Corporate Objective & Mission of the Board of Directors 3
1a. Board Job Description/Director Responsibilities** 5
1b. The Role of Stakeholders 7
2. Board Membership Criteria/Director Qualification Standards** 9
3. Selecting & Inviting New Directors 11
3a. Director Orientation & Continuing Education** 13
4. Separation of Chairman & CEO 15
5. “Presiding” or Lead Director 17
6. Board Size 19
7. Independent Board Majority 21
8. Definition of “Independence” 23
9. Conflicts of Interest & Ethics 25
10. Commitment, Limits on Other Board Service & Changes
in Job Responsibility 27
11. Election Term, Term Limits & Mandatory Retirement 29
12. Director Compensation** & Stock Ownership 31
13. Executive Sessions of Outside Directors 33
14. Evaluating Board Performance** 35
15. Board Interaction/Communication with Shareholders,
Press, Customers, etc. 37
16. Board Access to Senior Management** 39
17. Board Meetings & Agenda 41
18. Board Information Flow, Materials & Presentations 43
19. Number, Structure & Independence of Committees 45
20. Assignment & Rotation of Committee Members 47
21. Committee Meeting Frequency, Length & Agenda 49
22. Formal Evaluation of the Chief Executive Officer 51
23. Management Succession** & Development 53
24. Executive Compensation & Stock Ownership 55
25. Board Access to Independent Advisors** 57
26. Content & Character of Disclosure 59
27. Disclosure Regarding Compensation 61
28. Disclosure Regarding Corporate Governance 63
29. Accuracy of Disclosure, Internal Control Systems & Liability 65
30. Auditor Independence 67
31. Shareholder Voting Practices (Cumulative & Confidential Voting,
Broker Non-Votes, One Share/One Vote) 69
32. Shareholder Voting Powers 71
33. Shareholder Meetings & Proxy Proposals 73
34. Anti-Takeover Devices 75
APPENDIX I: Board of Director Composition and Function Requirements App-1
APPENDIX II: International Listing of Corporate Governance Guidelines & Codes of Best Practice App-24
* This Comparison relies on the General Motors Corporate Governance Guidelines for organizational structure: headings in the Table of Contents generally follow the order of the GM Guidelines. In the tables that follow, italic typeface is used to indicate the author’s comments. All other typeface represents the quoted text of the Guidelines and Codes cited.
** Under the NYSE Listing Rules as approved by the Securities & Exchange Commission on November 4, 2003, domestic listed companies are required to adopt and disclose corporate governance guidelines addressing: director responsibilities; director qualification standards; director orientation and continuing education; director compensation; annual board performance evaluation; director access to management; management succession; and board access, as necessary and appropriate, to independent advisors. The double asterisk next to a heading indicates a topic that must be addressed in a domestic listed company’s guidelines.
|GM Guidelines[?] |ALI Principles & Recommendations[?] |BRT Principles[?] |NACD Report[?] |Conference Board Recommendations[?] |
|OVERVIEW |
|The General Motors (“GM”) Corporate |The American Law Institute (“ALI”) adopted |The Business Roundtable (“BRT”) issued |The Report of the National Association of |The Conference Board Commission on Public |
|Governance Guidelines, adopted by the GM |its “Principles of Corporate Governance: |“Principles of Corporate Governance” in May |Corporate Directors (“NACD”) Commission on |Trust and Private Enterprise recently issued|
|Board in 1994 and regularly updated, are |Analysis and Recommendations” in May 1992 |2002. The BRT is an association of CEOs of |Director Professional-ism, chaired by Ira M.|“Findings and Recommendations, Part 1: |
|widely viewed as a seminal expression of a |(published 1994, and regularly updated |approximately 160 leading corporations. |Millstein, discusses governance practices |Executive Compensation” (September 2002), |
|board’s voluntary efforts to improve its |through issuance of supplements). |The BRT Principles are intended to assist |designed to promote a culture of |and “Part 2: Corporate Governance/ Part 3: |
|own governance. The GM Guidelines have |The ALI Principles and Recommendations are |corporate management and boards of directors|“professionalism” for boards and board |Audit and Accounting” (January 2003). |
|been widely discussed and emulated, and |based on analysis of laws relating to the |in their efforts to implement effective |members. The NACD Report (1996, reissued |The Conference Board formed a 12-member |
|their influence has extended well beyond |governance of corporations. While they are,|corporate governance and to serve as |unchanged in 2001 and again in 2005) is |Commission on Public Trust and Private |
|the U.S. |in large part, a restatement of widely |guideposts for public dialogue on evolving |intended to be forward-looking and |Enterprise in 2002 to address recent |
| |accepted legal principles, they also touch |governance standards. |aspirational. It recognizes that board |corporate scandals and the perception of |
| |on governance best practice, especially in |The 2002 BRT Principles are an update of the|practices are evolving and will continue to |declining public trust in U.S. companies, |
| |Vol. 1, Part III-A, “Recommendations of |“Statement on Corporate Governance” |evolve. |their leaders and the capital markets. |
| |Corporate Practice Concerning the Board and |(September 1997), which updated “Corporate |The Report grants the premise that each |Commission members represented institutional|
| |the Principal Oversight Committees.” |Governance and American Competitiveness” |corporation has its unique history and |investors, private corporations, government |
| | |(March 1990), which in turn updated “The |perspectives, and its own future to plan. |and the legal community. |
| | |Role and Composition of the Board of |Fixed, rigid rules of board governance are | |
| | |Directors of the Large Publicly Owned |not, therefore, in order. The Report | |
| | |Corporation” (January 1978). Other BRT |suggests that qualified directors | |
| | |publications on corporate governance include|collectively make their own rules for the | |
| | |“Executive Compensation/Share Ownership” |governance of their respective boards, and | |
| | |(March 1992) and “Statement on Corporate |it strong-ly urges that they do so after | |
| | |Responsibility” (October 1981). |thoughtful and rigorous deliberation.... | |
| | | |In no sense is this a “one-size-fits-all” | |
| | | |approach; rather, it is a sophis-ticated | |
| | | |“do-it-yourself” process for board members | |
| | | |seeking a culture of boardroom | |
| | | |professionalism. (Introduction by Ira M. | |
| | | |Millstein, pp. 1-2) | |
|CalPERS Principles/Guidelines[?] |CII Policies[?] |TIAA-CREF Policy Statement[?] |AFL-CIO Voting Guidelines[?] |OECD Principles/Millstein Report[?] |
|OVERVIEW |
|California Public Employees’ Retirement |Founded in 1985, the Council of |Teachers Insurance and Annuity Association |The American Federation of Labor and |In April 1998, the Business Sector Advisory |
|System (“CalPERS”) is the largest public |Institu-tional Investors (“CII”) is an |– College Retirement Equities Fund |Congress of Industrial Organizations |Group on Corporate Govern-ance, chaired by |
|U.S. pension fund with more than U.S. $180 |organiza-tion of large public, Taft-Hartley |(“TIAA-CREF”), a private pension fund, is |(“AFL-CIO”) represents approximately 10 |Ira M. Millstein, is-sued a report to the |
|billion in assets under management. |and corporate pension funds. CII’s |the largest U.S. pension fund, public or |million workers. |Organisation for Economic Cooperation and |
|CalPERS believes the criteria contained in |objec-tives are to encourage member funds, as|private, with assets of more than US$300 |The AFL-CIO Proxy Voting Guide-lines … have |Develop-ment (“OECD”) entitled “Corporate |
|both the Principles and the Guidelines are |major shareholders, to take an active role in|billion under management. TIAA-CREF |been developed to serve as a guide for |Governance: Improving Competitive-ness and |
|important considerations for all companies |protecting plan assets and to help member |encourages companies in which it invests to|Taft-Hartley and union benefit fund trustees|Access to Capital in Global Markets” (“the |
|within the U.S. market. However, CalPERS |funds increase the return on their |observe its corporate governance policies, |in meeting their fiduciary duties as |Millstein Report”). It addresses the |
|does not expect nor seek that each company |investments as part of their fiduciary |as set forth in its “Policy Statement on |outlined in the Em-ployee Retirement Income |elements of a corporate governance framework|
|will adopt or embrace every aspect of |obligations. Currently, CII has more than |Corporate Governance” (1997, revised |Security Act of 1974 (ERISA) and subsequent |relevant to the promotion of access to |
|either the Principles or Guidelines. |140 pension fund mem-bers, whose cumulative |January 2004). |Department of Labor (DOL) policy |capital. The OECD built upon this report |
|CalPERS recognizes that some of these may |assets under management exceed US$3 trillion.|We place particular priority on three areas|statements…. In addition, the Guide-lines |through its “Principles of Corporate |
|not be ap-propriate for every company.... |The CII Policies, adopted in March 1998 and |that were generally recognized as sources |have been created to aid public employee |Govern-ance” (1999, revised 2004), ratified |
|As one shareowner, CalPERS believes that |regularly updated, bind neither members nor |of significant and continu-ing corporate |trustees in the review and development of |by OECD Ministers. |
|the Principles represent the foundation for|corporations. They are designed to provide |governance deficien-cies: 1) the failure |guidelines for their funds. (Introduction) |The OECD Principles address: |
|accountability be-tween a corporation’s |guidelines that CIl has found to be |of boards of directors to play their | |I. Ensuring the Basis for an Effective |
|management and its owners. The Guidelines |appropriate in most situations. |required over-sight role; 2) the failure of| |Corporate Governance Framework; |
|represent, in CalPERS’ view, additional | |some pro-fessional advisors … to discharge | |II. The Rights of Shareholders and Key |
|features that may further advance this | |their responsibilities properly; and 3) the| |Ownership Functions; III. Equi-table |
|relationship of accountability. (II) | |failure of many investors, particularly | |Treatment of Shareholders; |
|CalPERS has also embraced as its own a | |institutional investors, to exercise | |IV. The Role of Stakeholders in Cor-porate |
|10-point Working Kit of best practices | |effectively their rights and | |Governance; V. Disclosure and |
|adopted by the International Corporate | |responsibilities or even to be heard on | |Transparency; and VI. Responsibilities of |
|Governance Network (“ICGN”). | |matters of corporate governance importantly| |the Board. They are intended to serve as |
| | |affecting them. Our new policy initiatives| |non-binding reference points for local |
| | |reinforce and sup-plement the reforms | |governments and private sectors to adapt and|
| | |announced to date, and help to ensure that | |build upon. They are grounded on two |
| | |the spirit of these reforms is incorporated| |propositions underpinning the Millstein |
| | |into practice. (Introduction, p. 2) | |Report: 1) no one country or existing |
| | | | |system of corporate governance can serve as |
| | | | |the model that dictates reform worldwide; |
| | | | |and 2) access to capital is the primary |
| | | | |driver for the integration of core corporate|
| | | | |governance practices in the international |
| | | | |arena. |
|GM Guidelines |ALI Principles & Recommendations |BRT Principles |NACD Report |Conference Board Recommendations |
|1. The Corporate Objective & Mission of the Board of Directors[?] |
|The General Motors Board of Directors |[A] corporation should have as its objective|The business of a corporation is man-aged |The objective of the corporation (and |Each board of directors should establish a |
|represents the owners’ interest in |the conduct of business activities with a |under the direction of the corpo-ration’s |therefore of its management and board of |structure … that provides an appropriate |
|perpetuating a successful business, |view to enhancing corporate profit and |board. The board delegates to the CEO, and |directors) is to conduct its business |balance between the powers of the CEO and |
|including optimizing long-term financial |shareholder gain. (§ 2.01(a)) |through him or her to other senior |activities so as to enhance corporate profit|those of the independent directors, enables |
|returns. The Board is responsible for |See § 3.01, Comment a (It is generally |management, the author-ity and |and shareholder gain. In pursuing this |it to carry out its oversight function, and |
|determining that the Corporation is managed|recognized that the board of directors is |responsibility for managing the everyday |corporate objective, the board’s role is to |gives the independent directors, in |
|in such a way to ensure this result. This |not expected to operate the business. Even |affairs of the corporation. Directors |assume accountabil-ity for the success of |particular, the powers they require to |
|is an active, not a passive, |under statutes providing that the business |monitor management on behalf of the |the enterprise by taking responsibility for |perform their oversight roles. (Part 2, |
|responsibility. The Board has the |and affairs shall be “man-aged” by the board|corporation’s stockhold-ers. (pp. 2-3) |the manage-ment, in both failure and |Principle I) |
|responsibility to ensure that in good |of directors, it is recognized that actual |The board must exercise its fiduciary |success. This means selecting a successful |See Topic Heading 1a, below. |
|times, as well as difficult ones, |operation is a function of management. The |responsibilities in the best interests of |corporate management team, overseeing | |
|management is capably executing its |respon-sibility of the board is limited to |the corporation and its shareholders. (p. |corpor-ate strategy and performance, and | |
|responsibilities. The Board’s |over-seeing such operation….). |6) |acting as a resource for management in | |
|responsibility is to regularly monitor the |See Topic Heading 1a, below. |See Topic Heading 1a, below. |matters of planning and policy. (p. 3) | |
|effectiveness of management policies and | | |Among the most important missions of the | |
|decisions, including the execution of its | | |board is ensuring that shareholder value is | |
|strategies. | | |both enhanced through corpor-ate performance| |
|In addition to fulfilling its obligations | | |and protected through adequate internal | |
|for increased stockholder value, the Board | | |financial controls. (p. 10) | |
|has responsibility to GM’s customers, | | |See Topic Heading 1a, below. | |
|employees, suppliers and to the communities| | | | |
|where it operates – all of whom are | | | | |
|essential to a successful business. All of| | | | |
|these responsibilities, however, are | | | | |
|founded upon the successful perpetuation of| | | | |
|the business. (Introduction) | | | | |
|See Topic Heading 1a, below. | | | | |
|CalPERS Principles/Guidelines |CII Policies |TIAA-CREF Policy Statement |AFL-CIO Voting Guidelines |OECD Principles/Millstein Report |
|1. The Corporate Objective & Mission of the Board of Directors |
|Not covered directly, but see III.A |Not covered directly, but see p. 1 |The primary responsibility of the board of |Corporate directors have a fiduciary duty to|The corporate governance framework should |
|(Independence is the cornerstone of |(In general, the Council believes that |directors is to foster the long-term success|shareholders and the corpora-ion they serve.|ensure the strategic guidance of the |
|accountability. It is now widely recognized|corporate governance structures and |of the corporation, consistent with its |Shareholders elect corporate directors to |company, the effective monitoring of |
|throughout the U.S. that independent boards |practices should protect and enhance |fiduciary responsibility to shareholders and|hire, monitor, compensate and, if necessary,|management by the board, and the board’s |
|are essential to a sound governance |accountability to, and ensure equal |obligations to regulators. To carry out |termi-ate senior management. (IV.A) |accountability to the company and the |
|structure…. |financial treatment of, shareholders. An |this responsibility, the board must ensure |Directors bear ultimate responsibility for |shareholders. |
|“A director’s greatest virtue is the |action should not be taken if its purpose is|that it is independent and accountable to |the success or failure of the com-pany, and |Board members should act on a fully informed|
|independence which allows him or her to |to reduce accountability to shareholders.). |shareholders, and must exert authority for |should be held accountable for actions taken|basis, in good faith, with due diligence and|
|challenge management decisions and evaluate |See also p. 2 (The Council believes good |the continuity of executive leadership with |that may not be in the company’s best |care, and in the best interest of the |
|corporate performance from a completely free|governance practices should be followed by |proper vision and values. (p. 3) |interests. (IV.A.1) |company and the shareholders. |
|and objective perspective. A director |publicly traded compan-ies, private |See Topic Heading 1a, below. |The primary purpose of the board is to |Where board decisions may af-fect different |
|should not be beholden to management in any |companies and companies in the process of | |protect shareholders’ interests by providing|shareholder groups differently, the board |
|way.” |going public.). | |independent oversight of management, |should treat all shareholders fairly. |
|(Quoting R.H. Rock, Chairman, NACD, in |See also Topic Heading 1a, below. | |including the CEO. (IV.A.7) |The board should apply high ethi-cal |
|Directors & Boards 5 (Summer 1996).). | | |See Topic Heading 1a, below. |standards. It should take into account the |
| | | | |interests of stake-holders. |
| | | | |(Principle VI) |
| | | | |See Principle I (The corporate govern-ance |
| | | | |framework should promote trans-parent and |
| | | | |efficient markets, be con-sistent with the |
| | | | |rule of law and clearly articulate the |
| | | | |division of responsibili-ties among |
| | | | |different supervisory, regu-latory and |
| | | | |enforcement authorities.). |
| | | | |See Millstein Report, Perspective 21 |
| | | | |([C]orporations should disclose the extent |
| | | | |to which they pursue projects and policies |
| | | | |that diverge from the pri-ary corporate |
| | | | |objective of generating long-term economic |
| | | | |profit so as to enhance shareholder value in|
| | | | |the long term.). |
| | | | |See also Topic Heading 1a, below. |
|GM Guidelines |ALI Principles & Recommendations |BRT Principles |NACD Report |Conference Board Recommendations |
|1a. Board Job Description/Director Responsibilities[?] |
|[A]t a minimum, the independent directors |The board of directors … should…: |The board of directors has the import-ant |[E]ach board has the freedom – and, the |Among the core responsibilities of the board|
|will review CEO succession, performance and |(1) Select, regularly evaluate, fix the |role of overseeing management performance on|Commission believes, the obligation – to |are: understanding and approv-ing the |
|compensation; strategic issues for Board |compensation of, and, where ap-propriate, |behalf of stockhold-ers. Its primary duties|define its role and duties in detail. (p. |corporation’s long-term, central strategies;|
|consideration; future Board agendas and the |replace the principal senior executives; |are to select and oversee a well qualified |3) |understanding the issues, forces, and risks |
|flow of information to directors; management|(2) Oversee the conduct of the corpo- |and ethical CEO who, with senior |[B]oard responsibilities include: |that define and drive the company’s |
|progression and succession; and the Board’s |ration’s business to evaluate whether the |manage-ment, runs the corporation on a daily|approving a corporate philosophy and mission|business; and overseeing the performance of |
|corporate governance guidelines. (Guideline|business is being properly managed; |basis, and to monitor management’s |selecting, monitoring, evaluating, |management. A vigorous and diligent board |
|18) |(3) Review and, where appropriate, |performance and adherence to corpo-rate |compensating, and – if necessary – replacing|of directors, a substantial major-ity of |
|See Topic Heading 1, above. |approve the corporation’s financial |standards. Effective corporate directors |the CEO.... |whom are independent, with an appropriate |
| |objectives and major corporate plans and |are diligent monitors, but not managers, of |reviewing and approving management’s |committee structure, is the key to |
| |actions; |business operations. (p. 1) |strategic and business plans.... |fulfilling the board’s responsi-bilities and|
| |(4) Review and, where appropriate, |Directors should not represent the interests|reviewing and approving the corporation’s |to a corporation’s effective governance. |
| |approve major changes in … the appropriate |of particular constituencies. (p. 3) |financial objectives, plans, and actions....|(Part 2, Principle II) |
| |auditing and account-ing principles and |The board has responsibility for over-seeing|reviewing and approving material |To discharge their responsibilities most |
| |practices…; |and understanding the corpora-tion’s |transactions not in the ordinary course of |effectively, directors should: |
| |(5) Perform such other functions as |strategic plans from their incep-tion |business |exercise objectivity and autonomy to make |
| |are prescribed by law, or assigned to the |through their development and execution by |monitoring corporate performance against the|independent, informed decisions; |
| |board under a standard of the corporation. |management. (p. 4) |strategic and business plans |develop the knowledge and expertise to |
| |(§ 3.02(a)) |[T]he board reviews and approves specific |ensuring ethical behavior and compliance |provide effective board oversight; |
| |A board of directors … has power to: |corporate actions…. The board and senior |with laws.... |display the character, integrity, and will |
| |(1) Initiate and adopt corporate plans, |management should have a clear understanding|assessing its own effectiveness.... |to assert their points of view, and |
| |commitments, and actions; |of what level or types of decisions require |performing such other functions as are |demonstrate loyalty exclusively to the |
| |(2) Initiate and adopt changes in ac- |specific board approval. (p. 6) |prescribed by law. |corporation and its shareowners; |
| |counting principles and practices; |See generally II. The Roles of the Board of|(pp. 3-4) |devote the time necessary to fulfill the |
| |(3) Provide advice and counsel to |Directors and Management, pp. 2-10, and III.|Boards should periodically review board and |legal, regulatory and stock exchange |
| |the principal senior executives; |How the Board Performs Its Oversight |CEO role descriptions to accommodate changes|requirements imposed upon them; and |
| |(4) Instruct any committee, principal |Function, pp. 10-30. |in corporate governance and company |Have the ability to retain … advisors and |
| |senior executive, or other officer, and |See also Topic Heading 1, above. |operations. (p. 6) |independent staff support. |
| |review actions of any com-mittee, principal | |See generally Chapter 2, How Boards Should |(Part 2, Introduction at 10) |
| |or other officer; | |Fulfill Their Responsibilities, pp. 5-8. |See Topic Heading 1, above. |
| |(5) Make recommendations to share- | |See also Topic Heading 1, above. | |
| |holders; | | | |
| |(6) Manage the business of the cor- | | | |
| |poration; | | | |
| |(7) Act as to all other corporate mat- | | | |
| |ters not requiring shareholder approval. | | | |
| |(§ 3.02(b)) | | | |
| |See also Topic Heading 1, above. | | | |
|CalPERS Principles/Guidelines |CII Policies |TIAA-CREF Policy Statement |AFL-CIO Voting Guidelines |OECD Principles/Millstein Report |
|1a. Board Job Description/Director Responsibilities |
|Not covered directly, but see Topic Heading |Boards should take actions recommended in |The board is singularly responsible for the |Not covered directly, but see IV.A.1 |The board should fulfill certain key |
|1, above. |shareholder proposals that receive a |selection and evaluation of the |(Directors bear ultimate responsibility for |functions, including: |
| |majority of votes cast for and against. If |corporation’s chief executive officer and |the success or failure of the com-pany, and |Reviewing and guiding corporate strategy, |
| |shareholder approval is required for the |included in that evaluation is assurance as |should be held accountable for actions taken|major plans of action, risk policy, annual |
| |action, the board should submit the proposal|to the quality of senior management. The |that may not be in the company’s best |budgets and business plans; setting |
| |to a binding vote at the next shareholder |board should also be responsible for the |long-term interests. Such actions may |perform-ance objectives; monitoring |
| |meeting…. |review and approval of the corporation’s |include awarding excessive compensation to |im-plementation and corporate per-formance; |
| |Directors should respond to communications |long-term strategy, the assurance of the |executives or themselves; approving |and overseeing major capital expenditures, |
| |from shareholders and should seek |corporation’s financial integrity, and the |corporate restructurings or downsizings that|acquisitions and divestitures. |
| |shareholder views on important governance, |development of equity and compensation |are not in the company’s best long-term |Monitoring the effectiveness of the |
| |management and performance matters. All |policies that motivate management to achieve|interest; adopting anti-takeover pro-visions|company’s governance prac-tices…. |
| |directors should attend the annual |and sustain superior long-term performance. |without shareholder approval; refusing to |Selecting, compensating, moni-toring and, |
| |shareholders’ meeting and be available, when|The board should put in place structures and|provide information to which the |when necessary, re-placing key executives |
| |requested by the chair, to answer |processes that enable it to carry out these |shareholders are entitled; or other actions |and over-seeing succession planning. |
| |shareholder questions…. |responsibilities effectively. Certain |that may not be in the company’s long-term |Aligning key executive and board |
| |All companies should establish a mechanism |issues may be delegated appropriately to |best interests…. |remuneration with the longer term interests |
| |by which shareholders with non-trivial |committees, including the audit, |The fiduciary should take into |of the company and its shareholders. |
| |concerns could communicate directly with all|compensation and corporate |consid-eration the performance of the key |Ensuring a formal and transparent board |
| |directors, including independent directors. |governance/nominating committees, to develop|committees (audit, compensation and |nomination and election process. |
| |(pp. 2-3) |recommendations to bring to the full board. |nominating committees), particularly with |Monitoring and managing poten-tial conflicts|
| |[I]ndependence is critical to a properly |Nevertheless, the board maintains overall |regard to advancing and uphold-ing the |of interest of management, board members and|
| |functioning board. (p. 14) |responsibility for the work of the |principles established in these Guidelines. |shareholders…. |
| |See p. 6 (All members of the compensation |committees and the long-term success of the |Factors to consider in-clude specific |Ensuring the integrity of the corp-oration’s|
| |committee … should exercise due diligence |corporation. (p. 3) |actions of the commit-tees (e.g., approving |accounting and financial reporting systems, |
| |and independent judgment in carrying out |The board should review the company’s |excessive execu-tive compensation or failing|including the independent audit, and that |
| |their committee responsibilities.). |strategic plan at least annually. (p. 7) |to address auditor conflicts of interest) |appro-priate systems of control are in |
| |See also Topic Heading 1, above. |[The board] should ensure that it is the |and the quality of committee disclosure.). |place…. |
| | |focal point for accountability of the CEO |See also IV.A.12 (Shareholders have |Overseeing the process of disclo-sure and |
| | |and management of the company. (p. 8) |introduced proposals asking for |communications. |
| | |See p. 13 (Shareholders should have the |clari-fication on the role the board of |(Principle VI.D) |
| | |right to expect that each director is acting|direc-tors, as representatives of the |The board should be able to exercise |
| | |in the interests of all shareholders and not|share-holders, play in developing business. |objective independent judgment on corporate |
| | |the interest of a dominant shareholder or |The fiduciary should support proposals |affairs. (Principle VI.E) |
| | |particular stakeholder.). |asking for such additional disclosure.). |See Topic Heading 1, above. |
| | |See also Topic Heading 1, above. |See also Topic Heading 1, above. | |
__________________________________
(Footnote 12, continued)
tems), and strategic planning); Korn/Ferry International, 31st Annual Board of Directors Study (2004) (hereinafter “2004 Korn/Ferry Study”) at 33 (“Independent, unbiased oversight representing the best interests of shareholders is possible only when a board meets respondents’ top criteria determining good governance: a board made up of a majority of outside directors (93 percent), conducting a formal review of the CEO (87 percent), and the need for a formal management succession committee (83 percent).”).
|GM Guidelines |ALI Principles & Recommendations |BRT Principles |NACD Report |Conference Board Recommendations |
|1b. The Role of Stakeholders[?] |
|In addition to fulfilling its obligations for|Even if corporate profit and share-holder |Effective corporate governance re-quires a |In consultation with the CEO, the board |Among the practices which boards should |
|increased stockholder value, the Board has |gain are not thereby enhanced, the |clear understanding of the respective roles |should clearly define its role, considering |consider for establishing an ethical |
|responsibility to GM’s customers, employees, |corporation, in the conduct of its business:|of the board and of senior management and |both its legal responsibil-ities to |corporate culture are: |
|suppliers and to the communities where it |(1) Is obliged, to the same extent as |their relation-ships with others in the |shareholders and the needs of other |programs to ensure that employees |
|operates – all of whom are essential to a |a natural person, to act within the |corporate structure. The relationships of |constituencies, provided share-holders are |understand, apply, and adhere to the |
|successful business. All of these |boundaries set by law; |the board and management with stock-holders |not disadvantaged. (p. 21) |company’s code of ethics; |
|responsibilities, however, are founded upon |(2) May take into account ethical |should be characterized by candor; their | |processes that encourage and make it safe |
|the successful perpetuation of the business. |considerations that are reasonably regarded |relationships with employees should be | |for employees to raise ethical issues and |
|(Introduction) |as appropriate to the responsible conduct of|characterized by fairness; their | |report possible ethical violations; |
| |business; and |relationships with the communities in which | |processes for prompt investigation of |
| |(3) May devote a reasonable amount |they operate should be characterized by good| |complaints and prompt disposition, |
| |of resources to public welfare, |citi-zenship; and their relationships with | |including discipline and corrective action,|
| |humanitarian, educational, and philanthropic|government should be characterized by a | |if necessary; and |
| |purposes. |commitment to compliance. (p. 1) | |processes to measure and track employees’ |
| |(§ 2.01(b)) |Corporations are often said to have | |adherence to the company’s ethical |
| |[In the context of considering how to |ob-ligations to stockholders and to other | |requirements…. |
| |respond to unsolicited tender offers,] [t]he|constituencies, including employees, the | |(Part 2, Principle VI, Best Practice 2) |
| |board may … have regard for interests or |communities in which they do business, and | |Among the practices which boards should |
| |groups (other than share-holders) with |government, but these obligations are best | |consider for establishing an ethical |
| |respect to which the corporation has a |viewed as part of the paramount duty to | |corporate culture are … ethics-related |
| |legitimate concern if to do so would not |optimize long-term stockholder value. The | |criteria in employees’ annual performance |
| |significantly disfavor the long-term |Business Roundtable believes that | |reviews…. (Part 2, Principle VI, Best |
| |interests of shareholders. (§ 6.02(b)) |stockholder value is enhanced when a | |Practice 3) |
| | |corporation treats its employees well, | |[T]he [Sarbanes-Oxley] Act contains |
| | |serves its customers well, maintains good | |provisions [for] an employee com-plaint |
| | |relationships with suppliers, and has a | |system for accounting and audit matters…. |
| | |reputation for civic responsibility and | |(Part 3, Principle II) |
| | |legal compliance. (p. 30) | | |
| | |It is in a corporation’s best interest to | | |
| | |treat employees fairly and equitably. (p. | | |
| | |32) | | |
| | |For a discussion of policies regarding | | |
| | |employees, see p. 32. | | |
|CalPERS Principles/Guidelines |CII Policies |TIAA-CREF Policy Statement |AFL-CIO Voting Guidelines |OECD Principles/Millstein Report |
|1b. The Role of Stakeholders |
|Not covered. |Pay decisions are one of the most direct |TIAA-CREF believes that building long-term |In voting on the entire board of direc-tors,|The corporate governance framework should |
| |ways for shareowners to assess the |shareholder value is consistent with |the voting fiduciary should con-sider … |recognize the rights of stake-holders |
| |performance of the board. And they have a |directors giving careful consideration to |[t]he views of … important constituents, |established by law or through mutual |
| |bottom line effect, not just in terms of |issues of social responsibility and the |such as employees and communities. The |agreements and encourage active cooperation |
| |dollar amounts, but also by formalizing |common good. We recognize that efforts to |trustees believe that in order to succeed |between corpora-tions and stakeholders in |
| |performance goals for employees, signaling |promote good corporate citizenship may serve|over the long-term, businesses need to be |creating wealth, jobs, and the |
| |the market and affecting employee morale. |to enhance a company’s reputation and |responsive to important corporate |sustainability of financially sound |
| |(p. 5) |long-term economic performance, and we |constituents such as their employees and the|enterprises. |
| |The [compensation] committee should ensure |encourage boards … to adopt policies and |com-munities in which they operate. When |The rights of stakeholders that are |
| |that the structure of employee compensation |practices that promote corporate citizenship|one of these important corporate |established by law or through mutual |
| |throughout the company is fair, |and establish open channels of communication|con-stituencies makes its views known, it |agreements are to be respected. |
| |non-discriminatory and forward-looking, and |with shareholders, employees, customers, |may indicate significant problems that are |Where stakeholder interests are protected by|
| |that it motivates, recruits and retains a |suppliers and the larger community. In |likely to affect the corporation’s |law, stakeholders should have the |
| |workforce capable of meeting the company’s |particular, we believe that the following |performance, and the voting fiduciary should|opportunity to obtain effective redress for |
| |strategic objectives. (p. 6) |concerns should be among the issues that |give these concerns special consideration |viola-tion of their rights. |
| |The [compensation] committee should also |companies address: |when evaluating director performance. |Performance-enhancing mechan-isms for |
| |ensure that the structure of pay at |The environmental impact of the |(IV.A.1) |employee participation should be permitted |
| |different levels (CEO …, other executives |corporation’s operations and products. |The trustees believe that in order to |to develop. |
| |and non-executive employees) is fair and |Equal employment opportunities for all |succeed over the long term, businesses need |Where stakeholders participate in the |
| |appropriate in the context of broader |segments of the population. |to treat employees, suppliers and customers |corporate governance process, they should |
| |company policies and goals and fully |Employee training and development. |well, to be environmentally responsible, and|have access to rele-vant, sufficient and |
| |justified and explained. (p. 7) |Evaluation of corporate actions to ensure |to be responsive to the communities in which|reliable infor-mation on a timely and |
| |To maximize effectiveness and efficiency, |that these actions do not negatively affect |they ope-rate. A range of issues relating |regular basis. |
| |compensation committees should carefully … |the common good of the corporation’s |to how businesses fulfill these goals can be|Stakeholders, including individ-ual |
| |consider whether performance and incentive |communities and its constituencies. |addressed with what are called corpo-rate |employees and their represen-tative bodies, |
| |objectives would be enhanced if awards were |In developing our proxy voting guidelines |responsibility, or social issue, shareholder|should be able to freely communicate their |
| |distributed throughout the company, not |for social issues, we seek to balance |proposals. In general, the fiduciary can |con-cerns about illegal or unethical |
| |simply to top executives. (p. 9) |fiduciary responsibility with a commitment |support such shareholder proposals if they |practices to the board and their rights |
| |See p. 1 (The Council believes companies |to corporate social responsibility and a |either contribute to the long-term economic |should not be compromised for doing this. |
| |should adhere to responsible business |belief that companies should be allowed |best interests of plan participants and |The corporate governance frame-work should |
| |practices and practice good corporate |flexibility in dealing with these issues. |beneficiaries or will have no adverse effect|be complemented by an effective, efficient |
| |citizenship. Promotion, adoption and |(p. 23) |on the long-term economic best interests of |insolvency framework and by effective |
| |effective implementation of guidelines for |See p. 24 ([TIAA-CREF’s] guidelines for |plan participants and beneficiaries…. |en-forcement of creditor rights. |
| |the responsible conduct of business and |voting [including guidelines pertaining to]:|(IV.F) |(Principle IV) |
| |business relationships are consistent with |Environmental Resolutions…. Tobacco-Related|The trustees believe companies should adopt |See Millstein Report, 1.2.16 (Attend-ing to |
| |the fiduciary responsibility of protecting |Resolutions…. [and] Labor Issues |workplace practices covering basic labor and|legitimate social concerns should, in the |
| |long-term investment interests.). |Resolu-tions.). |human rights standards for company-owned and|long run, benefit all parties, including |
| | | |supplier operations…. (IV.F.1) |investors.). |
| | | |See generally IV.E, Employee-Related | |
| | | |Proposals, and IV.F, Corporate | |
| | | |Responsibility. | |
|GM Guidelines |ALI Principles & Recommendations |BRT Principles |NACD Report |Conference Board Recommendations |
|2. Board Membership Criteria/Director Qualification Standards[?] |
|The Directors and Corporate Governance |The nominating committee may … perform other|Directors bring to the corporation a range |To be considered for board member-ship, |Basic qualifications for membership on the |
|Committee is responsible for reviewing with |functions [such as] the recommendation of |of experience, knowledge and judgment. |individual directors should possess all of |board should be articulated. The mix of |
|the Board, on an annual basis, the |policies on … criteria for membership…. |Directors should not represent the interests|the following personal characteristics: |director backgrounds and qualifications |
|appropriate skills and characteristics |Criteria for board membership might include |of particular constituencies. (p. 3) |Integrity and Accountability.... |should depend, among other things, on the |
|required of Board members in the context of |such elements as occupational background and|The Business Roundtable believes that having|Informed Judgment…. |nature of the company, its stage of |
|the current make-up of the Board. In |field of skill. (§ 3A.04, Comment e) |directors with relevant business and |Financial Literacy.... |development, its future strategic vision, |
|assessing potential new directors, the |See § 3A.04, Comment e (The nomi-nating |industry experience is beneficial to the |Mature Confidence.... [and] |and its current business needs. |
|Committee considers individuals from various|committee may [recommend] policies on board |board as a whole. Directors with such |High Performance Standards.... |Corporations’ businesses vary greatly, and |
|disciplines and diverse backgrounds. The |composition…. Policies on board composition|backgrounds can provide a useful perspective|(pp. 9-10) |each board should ensure that the mix of its|
|selection of qualified directors is complex |might include such elements as the desired |on significant risks and competitive |The Commission recommends that the board as |directors’ qualifications is tailored to its|
|and crucial to GM’s long-term success. |mix of senior executives, persons with a |advantages and an understanding of the |a whole should possess all of the following |specific needs. Collectively, the board |
|Board candidates are considered based upon |significant relationship to the senior |challenges facing the business. Because the|core competencies, with each candidate |should have knowledge and expertise in areas|
|various criteria, such as their broad-based |executives, and persons without such a |corpora-tion’s need for particular |contributing know-ledge, experience, and |such as business, finance, accounting, |
|business skills and experiences, prominence |relationship.). |backgrounds and experiences may change over |skills in at least one domain: |marketing, public policy, manufacturing and |
|and reputation in their profession, a global| |time, the board should monitor the mix of |Accounting and Finance.... |operations, government, technology, and |
|business and social perspective, concern for| |skills and experience that directors bring |Business Judgment.... |other areas that the board has decided are |
|the long-term interests of the stockholders,| |to the board to assess, at each stage in the|Management.... |desirable and helpful to fulfilling its |
|and personal integrity and judgment – all in| |life of the corporation, whether the board |Crisis Response.... |role. Diversity in gender, race, and |
|the context of an assessment of the | |has the necessary tools to perform its |Industry Knowledge.... |background of directors, consistent with the|
|perceived needs of the Board at that point | |oversight function effectively. (p. 11) |International Markets.... |board’s requirements for knowledge, |
|in time. In addition, directors must have | | |Leadership.... [and] |standards, and experience, are desirable in |
|significant time available to devote to | | |Strategy/Vision…. |the mix of the board. (Part 2, Principle |
|Board activities and to enhance their | | |(pp. 10-11) |III) |
|knowledge of the global automotive | | |To have greater congruence with |The Board should articulate in writing the |
|industry…. The Directors and Corporate | | |shareholders’ interests, candidates should |basic qualifications of all directors for |
|Governance Committee will annually review | | |be prepared to own a signifi-cant equity |membership on the board. (Part 2, Principle|
|the membership criteria and modify them as | | |position in the company…. (p. 14) |III, Best Practice 2) |
|appropriate. (Guideline 1) | | |Boards should seriously consider ... the |[T]he nominating/governance commit-tee |
| | | |distinctive skills, perspectives, and |should recommend to the full board of |
| | | |experiences that candidates diverse in |directors … qualifications for board |
| | | |gender, ethnic background, geographic origin|membership…. (Part 2, Princi-ple IV, Best |
| | | |and professional experience ... can bring to|Practice 2) |
| | | |the boardroom. (p. 15) | |
| | | |See generally Chapter 3, Selection: Who | |
| | | |Directors Should Be, pp. 9-15. | |
|CalPERS Principles/Guidelines |CII Policies |TIAA-CREF Policy Statement |AFL-CIO Voting Guidelines |OECD Principles/Millstein Report |
|2. Board Membership Criteria/Director Qualification Standards |
|No director may also serve as a con-sultant |Not covered directly, but see p. 1 (The |The board should be comprised of individuals|For directors to effectively discharge |[B]oards in many companies have established |
|or service provider to the com-pany. |Council … believes shareholders should have |who can contribute business judgment to |[their] responsibilities, they must be |nomination committees … to facilitate and |
|(Principle III.A.5) |… meaningful opportuni-ties … to suggest |board deliberations and decisions, based on |highly qualified, diligent in the |coordinate the search for a balanced and |
|With each director nomination |processes and cri-teria for director |their experience in relevant business, |per-formance of their duties, committed to |qualified board. (Annotation to Principle |
|recommendation, the board considers the mix |selection and evalua-tion.). |management disciplines or other professional|high ethical standards, and independ-ent of |II.C.3) |
|of director characteristics, experiences, |See also p. 3 (Board evaluation should |life. Directors should reflect a diversity |the company management they oversee. The |[T]he board has a key role in identify-ing |
|diverse perspectives and skills that is most|include an assessment of whether the board |of background and experience, and at least |trustees expect corporate boards to be |potential members for the board with the |
|appropriate for the company. (Principle |has the necessary diversity of skills, |one director should qualify as a financial |composed of qualified individuals…. (IV.A) |appropriate knowledge, com-petencies and |
|III.B.2) |backgrounds, experiences, ages, races and |expert for service on the audit committee. |In voting on the entire board of direc-tors,|expertise to complement the existing skills |
|To be re-nominated, directors must |genders appropriate to the company’s ongoing|Each director should be prepared to devote |the voting fiduciary should con-sider the |of the board and thereby improve its |
|satisfactorily perform based on the |needs.). |substantial time and effort to board duties,|following factors: |value-adding po-tential for the company. |
|established criteria. Re-nomination on any |See also p. 6 ([M]embers of the compensation|taking into account other executive |Board Independence…. |(Annotation to Principle VI.D.5) |
|other basis is neither expected nor |committee … should represent diverse |responsibilities and board memberships. |The company’s long-term value growth as |See Annotation to Principle II |
|guaranteed. (Guideline IV.C.2) |backgrounds and professional experiences.). |(pp. 4-5) |judged by relevant long-term financial and |(Share-holders’ rights to influence the |
|The board should establish and make | |See p. 10 (The corporate governance/ |economic performance indicators…. |cor-poration center on certain fundamental |
|available to shareowners the skill sets | |nominating committee … should be charged to |The overall conduct of the com-pany…. |issues, such as ... the composition of the |
|which it seeks for director candidates. | |make recommendations related to … director |The board’s responsiveness to shareholders’ |board.). |
|Minimally, these core competencies should | |qualifications….). |concerns…. | |
|address: accounting or finance, | | |The views of other important constituents, | |
|international markets, business or | | |such as employees and communities…. | |
|management experience, industry knowledge, | | |In voting on individual directors, the | |
|customer base experience or perspective, | | |voting fiduciary should consider the | |
|crisis response, or leadership or strategic | | |following factors: | |
|planning. (Guideline IV.C.4) | | |Independence of key commit-tees…. | |
|See III.D ([E]ach director should add | | |Performance of key commit-tees…. | |
|something unique and valuable to the board | | |Attendance records of incumbent directors…. | |
|as a whole. Each director should fit within| | |The ability of the candidate(s) to devote | |
|the skill sets identi-fied by the board.). | | |sufficient time and energy to the oversight | |
| | | |of the company in question…. | |
| | | |Directors’ performance on other boards…. | |
| | | |(IV.A.1) | |
________________________________
(Footnote 14 (continued)
(first choice of 26 percent), expertise in long-range/strategic planning (first choice of 11.9 percent), and expertise in accounting/finance (first choice of 10.8 percent); 2004 Korn/Ferry Study at 12 (proxy data indicate the percentage of boards that have directors with the following qualifications: retired executive (other companies) - 95%; investor - 91%; CEO/COO (other companies) - 82%; woman - 82%; ethnic minority member – 76%; former government official – 58%; academician – 58%; commercial banker – 29%; non-U.S. citizen – 15%.”); id. at 35 (“[Thirty-seven] percent stated adding members with general management knowledge or experience was ‘difficult’ or ‘very difficult’.”).
|GM Guidelines |ALI Principles & Recommendations |BRT Principles |NACD Report |Conference Board Recommendations |
|3. Selecting & Inviting New Directors[?] |
|The Board itself should be responsible, in |The nominating committee should: |Stockholders … have the right to elect |Boards should establish a wholly independent|[T]he nominating/governance commit-tee |
|fact as well as procedure, for selecting its|(1) Recommend to the board candi- |representatives (directors) to look out for |committee that is respon-sible for … |should recommend to the full board of |
|own members and in recommending them for |dates for all directorships to be filled by |their interests, and to receive the |nominating directors for board membership…. |directors … an appropriate slate of |
|election by the stockholders. The Board |the shareholders or the board. |information they need to make invest-ment |(p. 5) |qualified nominees for election to the |
|delegates the screening process involved to |(2) Consider, in making its recom- |and voting decisions. (p. 1) |Creating an independent and inclusive |board…. (Part 2, Principle IV, Best |
|the Directors and Corporate Governance |mendations, candidates for direc-torships |It is the responsibility of the board and |process for nominating ... both direc-tors |Practices 3-4) |
|Committee with direct input from the |proposed by the chief executive officer and,|its corporate governance committee to |and the CEO will ensure board accountability|Boards of directors should develop |
|Chairman and Chief Executive Officer. |within the bounds of practicality, by any |nominate directors and committee members and|to shareholders and reinforce perceptions of|procedures to receive and to consider |
|(Guideline 2) |other senior executive or any director or |to oversee the composi-tion, structure, |fairness and trust between and among |shareowners’ nominations for the board of |
|The invitation to join the Board should be |shareholder. |practices and evalua-tion of the board and |manage-ment and board members. (p. 6) |directors…. (Part 2, Principle VII, Best |
|extended by the Board itself via the |(§ 3A.04(b)) |its committees. (pp. 6-7) |Boards should involve all directors in all |Practice 1) |
|Chairman and Chief Executive Officer of the |The board of directors has five primary | |stages of the CEO and board member selection|The procedures for receiving share-owner |
|Corporation, together with an independent |functions, [one of which is to] [s]elect and| |and compensation processes. (p. 6) |nominations and proposals should include, |
|director, when appropriate. (Guideline 3) |recommend to sharehold-ers for election an | |Boards should institute as a matter of |where appropriate, meetings of shareowners |
| |appropriate slate of candidates for the | |course an independent director succession |with the nominating/governance committee or |
| |board of direc-tors…. (§ 3.02, Comment a.4)| |plan and selection process, through a |its representatives. (Part 2, Principle |
| |[T]he purpose of § 1.34 [which defines | |committee or overseen by a designated |VIII, Best Practice 3) |
| |“significant relationships” or impedi-ments | |director or directors. (p. 7) | |
| |to director independence – see Topic Heading| |In selecting members, the board must assure | |
| |8, below] is only to set forth minimum | |itself of their commitment to: | |
| |objective standards. These standards should| |learn the business of the company and the | |
| |then be com-plemented through a more | |board | |
| |individual-ized review by the nominating | |meet the company’s stock ownership | |
| |committee, which should attempt to make up a| |requirements | |
| |slate of directors that meets not only the | |offer to resign on change of employment or | |
| |letter but the spirit of § 3A.01 [that | |professional responsibilities, or under | |
| |boards have a majority of directors free | |other specified conditions, and | |
| |from any significant relationship with | |importantly, devote the necessary time and | |
| |management]. (§ 3A.01, Comment d) | |effort. | |
| | | |(p. 22) | |
| | | |See generally Chapter 3, Selection: Who | |
| | | |Directors Should Be, pp. 9-16. | |
|CalPERS Principles/Guidelines |CII Policies |TIAA-CREF Policy Statement |AFL-CIO Voting Guidelines |OECD Principles/Millstein Report |
|3. Selecting & Inviting New Directors |
|Shareowners should have effective access to |The Council … believes shareholders should |Not covered directly, but see p. 10 (The |Shareholders elect corporate direc-tors…. |Basic shareholder rights should in-clude the|
|the director nomination process. (Guideline|have … meaningful opportu-nities to suggest |corporate governance/nominating committee is|(IV.A) |right to ... elect and remove members of the|
|IV.D.10) |or nominate director candidates…. (p. 1) |responsible for ensuring that the |[K]ey committees [include the] nomi-nating |board…. (Principle II.A) |
|[The Lead Independent Director should] |Companies should provide access to |corporation has an engaged and vital board |committee…. (IV.A.1) |The board should fulfill certain key |
|interview, along with the chair of the |management proxy materials for a long-term |of directors. The committee should be |The trustees support shareholder pro-posals |functions, including ... ensuring a for-mal |
|[nominating committee], all Board |investor or group of long-term investors |charged to make recommendations related to |to enhance the ability of long-term |and transparent board nomination and |
|candidates, and make recommendations to the |owning in aggregate at least 5 percent of a |the preparation of corporate governance |shareholders to cost-effectively nominate |election process. (Principle VI.D.5) |
|[nominating committee] and the Board. |company’s voting stock to nominate less than|principles; director qualifications and |and elect directors to repre-sent their |For the election process to be effec-tive, |
|(Appendix A: Lead Independent Director |a majority of the directors. Eligible |compensation; board and committee size, |interests, so long as these efforts do not |shareholders should be able to participate |
|Position Duty Statement) |investors must have owned the stock for at |structure, composition and leadership; board|provide a tool that can be used to |in the nomination of board members and vote |
|[The Independent Chair should] interview, |least three years. Company proxy materials |and committee effectiveness; director |facilitate hostile takeovers by short-term |on individual nomi-nees or on different |
|along with the chair of the [nominating |and related mailings should provide equal |independence evaluation and director |investors. (IV.A.6) |lists of them. To this end, shareholders |
|committee], all Board candidates, and make |space and equal treatment of nominations by |retirement policy and be responsible for |The voting fiduciary should support |have access in a number of countries to the |
|recommendations to the [nominating |qualifying investors. (p. 4) |succes-sion planning. The committee should |proposals requesting companies to make |company’s proxy materials which are sent to |
|committee] and the Board. (Appendix C: |See p. 2 (Absent compelling and stated |also consider how new regulatory |efforts to seek more women and minority |shareholders, although sometimes subject to |
|Independent Chair Position Duty Statement) |reasons, directors who attend fewer than 75 |requirements affecting corporate governance |group members for service on boards…. |conditions to prevent abuse. With respect |
| |percent of board and board-committee |should change company practices.). |Another example of such diversity would be |to nomination of candi-dates, boards in many|
| |meetings for two consecu-tive years should |See also Topic Heading 2, above. |employee shareholders, and it is reasonable |companies have established nomination |
| |not be renomi-nated.). | |to support proposals that would allow for |committees to ensure proper compliance with |
| | | |such representation. (IV.A.11) |estab-lished nomination procedures and to |
| | | |The trustees believe that competing slates |facilitate and coordinate the search for a |
| | | |should be evaluated based upon the personal |balanced and qualified board. It is |
| | | |qualifications of the can-didates, the |increasingly regarded as good practice in |
| | | |quality of the strategic cor-porate plan |many countries for independent board members|
| | | |they advance to enhance long-term corporate |to have a key role on this committee. |
| | | |value, and their expressed and demonstrated |(Annotation to Principle II.C.3) |
| | | |commit-ment to the interests of shareholders| |
| | | |and other key constituents…. (IV.A.2) | |
| | | |Proxy voting is the main form of | |
| | | |rank-and-file shareholder involvement in | |
| | | |corporate matters such as director | |
| | | |elections…. (V.D.2) | |
| | | |See generally IV.A.1, Election of Directors,| |
| | | |and IV.A.2, Contested Election of Directors.| |
_________________________________
(Footnote 15, continued)
ing Committee can recommend a candidate to the board, or the board as a whole make the selection, based on the Nominating Committee’s advice.); 2003-2004 NACD Survey at 16 (the most sought-after candidates are senior executives from within the company’s industry (first choice of 43.7 percent of respondents) and senior executives from outside of the company’s industry (first choice of 41.4 percent); id. at 23 (85.9 percent of large companies report having a nominating/governance committee, while 61.7 percent of mid-cap companies and 32.3 percent of small-cap companies report having them – up 20 percent from 2000); 2004 Korn/Ferry Study at 11 (“Retired executives continue to be the most prevalent type of director, valued for their previous corporate and governance experience, freedom from conflicts of interest, and ability to devote the requisite time.”); id. at 12 (“Since last year, there has been a significant increase in the frequency of formally designated Nominating Committees, from 87 percent in 2003 to 96 percent in 2004.”); id. at 28 (“Seven of ten (70 percent) respondents indicate recruitment of new members for their own boards commands greater time and effort.”).
|GM Guidelines |ALI Principles & Recommendations |BRT Principles |NACD Report |Conference Board Recommendations |
|3a. Director Orientation & Continuing Education[?] |
|The Board and Management will conduct a |Not covered. |Many corporations provide new direc-tors |When first selected, many directors will not|[T]he nominating/governance commit-tee |
|comprehensive orientation process for new | |with materials and briefings to permit them |have extensive knowledge of the major |should recommend to the full board of |
|Directors to become familiar with the | |to become familiar with the corporation’s |businesses in which the company is engaged. |directors … requirements for, and means of, |
|Corporation’s vision, strategic direction, | |business, industry and corporate governance |Directors have an obligation to develop |director orientation and training…. (Part |
|core values including ethics, financial | |practices. The Business Roundtable believes|broad, current knowledge of all the |2, Principle IV, Best Practices 3-4) |
|matters, corporate governance practices and | |that it is appropriate for corporations to |company’s major businesses, including, | |
|other key policies and practices through a | |provide additional educational |specifically, the relevant technology, | |
|review of background material, meetings with| |oppor-tunities to directors on an ongoing |markets, and economics, as well as the | |
|senior management and visits to Corporation | |basis to enable them to better perform their|strengths and weaknesses of the company | |
|facilities. The Board also recognizes the | |duties and to recognize and deal |vis-à-vis its major competitors. | |
|importance of continuing education for its | |appropriately with issues that arise. (p. |Being an outstanding director also requires | |
|directors and is committed to provide such | |27) |developing broad, current knowledge of all | |
|education in order to improve both Board and| | |of the company’s responsibilities, including| |
|Committee performance. It is the | | |the general legal principles applicable to | |
|responsibility of the Directors and | | |directors’ activities in fulfilling those | |
|Corporate Governance Committee to advise the| | |responsi-bilities. Boards should select | |
|independent directors about their continuing| | |candi-dates who possess or are willing to | |
|education, including leading-edge corporate | | |develop broad, current knowledge of both | |
|governance issues. Directors are encouraged| | |critical issues affecting the company | |
|to participate in continuing director | | |(including industry-, technology-, and | |
|education programs. (Guideline 4) | | |market-specific information), and | |
| | | |directorship roles and responsibilities | |
| | | |(including the general legal principles that| |
| | | |guide board members). (p. 13) | |
| | | |See pp. 12-13 (A director should main-tain | |
| | | |leadership in the field of endeavor that | |
| | | |attracted the board to select that director.| |
| | | |For example, a person chosen for expertise | |
| | | |in biotechnology should keep up-to-date in | |
| | | |that field. A director who has retired from| |
| | | |a CEO position but is invited to remain on | |
| | | |the board should stay current with the world| |
| | | |of business and the latest management | |
| | | |thought and practice. Similarly, other | |
| | | |persons who retire from the position they | |
| | | |had when selected should remain up-to-date | |
| | | |in their fields of expertise.). | |
|CalPERS Principles/Guidelines |CII Policies |TIAA-CREF Policy Statement |AFL-CIO Voting Guidelines |OECD Principles/Millstein Report |
|3a. Director Orientation & Continuing Education |
|Not covered. |Directors should receive training from |Directors should continuously take steps |Not covered. |[A]n increasing number of jurisdic-tions are|
| |independent sources on their fiduciary |through director education to improve their | |now encouraging companies to engage in board|
| |responsibilities and liabilities. |competence and under-standing of their roles| |training and voluntary self-evaluation that |
| |Direc-tors have an affirmative obligation to|and responsibil-ities and to deepen their | |meets the needs of the individual company. |
| |become and remain independently familiar |exposure to the company’s businesses, | |This might include that board mem-bers |
| |with company operations; they should not |operations and management. The company | |acquire appropriate skills upon appointment,|
| |rely exclusively on information provided to |should disclose whether directors are | |and thereafter remain abreast of relevant |
| |them by the CEO to do their jobs. (p. 3) |participating in such programs. New | |new laws, regula-tions, and changing |
| | |directors should receive comprehen-sive | |commercial risks through in-house training |
| | |orientation, and all directors should | |and external courses. (Annotation to |
| | |receive periodic updates con-cerning their | |Principle VI.E.3) |
| | |responsibilities or parti-cipate in periodic| | |
| | |director education programs. Companies may | | |
| | |develop and conduct such programs | | |
| | |internally, and may encourage directors to | | |
| | |participate in independent programs | | |
| | |available for director education through | | |
| | |universities and organizations with a | | |
| | |history of providing excellent education. | | |
| | |(p. 5) | | |
|GM Guidelines |ALI Principles & Recommendations |BRT Principles |NACD Report |Conference Board Recommendations |
|4. Separation of Chairman & CEO[?] |
|The Board should be free to make this choice|Not covered. |Most American corporations are well served |The roles of non-executive chairman or board|Each board of directors should estab-lish a |
|any way that seems best for the Corporation | |by a structure in which the CEO also serves |leader have been under con-sideration for |structure, based on its particular |
|at a given point in time. Therefore, the | |as chairman of the board. The CEO serves as|some years…. The purpose of creating these |circumstances, that provides an appro-priate|
|Board does not have a policy, one way or the| |a bridge between management and the board, |positions is not to add another layer of |balance between the powers of the CEO and |
|other, on whether or not the role of the | |ensuring that both act with a common |power but instead to ensure organization of,|those of the independent directors, enables |
|Chairman and Chief Executive Officer should | |purpose. Some corporations have found it |and accountability for, the thoughtful |it to carry out its oversight function, and |
|be separate or combined and, if it is to be | |useful to separate the roles of CEO and |exe-cution of certain critical independent |gives the independent directors, in |
|separate, whether the Chairman should be | |chairman of the board to provide continuity |director functions. The board should ensure|particular, the powers they require to |
|selected from the non-employee Directors or | |of leadership in times of transition. Each |that someone is charged with: organizing |perform their oversight roles. (Part 2: |
|be an employee. (Guideline 5) | |corporation should make its own |the board’s evaluation of the CEO and |Principle I) |
| | |determination of what leadership structure |providing continuous ongoing feedback; |The Commission notes three principal |
| | |works best, given its present and |chairing executive sessions of the board; |approaches to provide the appropriate |
| | |anticipated circumstances. (p. 13) |setting the agenda with the CEO; and leading|balance between board and CEO func-tions: |
| | |See p. 7 (The governance model followed by |the board in anticipating and responding to |Each corporation should give care-ful |
| | |most public corporations in the United |crises…. |consideration to separating the offices of |
| | |States has historically been one of |Boards should consider formally designating |Chairman of the Board and CEO, with those |
| | |individual, rather than group, leadership. |a non-executive chairman or other |two roles being performed by separate |
| | |U.S. corporations have traditionally vested |independent board leader. If they do not |individuals. The Chairman would be one of |
| | |responsibility in the CEO as the leader of |make such a designation, they should |the independent directors. |
| | |manage-ment rather than diffusing high-level|designate, regardless of title, independent |…. Where the chairman is not one of the |
| | |responsibility among several individ-uals. |members to lead the board in its most |independent directors, a Lead Independent |
| | |The Business Roundtable believes that this |critical functions…. (p. 6) |Director position, or other equivalent |
| | |model has generally served corporations | |designation, should be established…. |
| | |well.). | |Where boards do not choose to separate the |
| | |See also p. 13 (The board should have | |Chairman and CEO position, or when they are |
| | |contingency plans to provide for | |in tran-sition to a structure where the |
| | |tran-sitional board leadership if questions | |posi-tions will be separated, a Presiding |
| | |arise concerning management’s con-duct, | |Director position should be estab-lished. |
| | |competence, or integrity or if the CEO dies | |(Part 2: Principle I, Best Practice 1) |
| | |or is incapacitated. An individual | | |
| | |director, a small group of directors, or the| | |
| | |chairman of a com-mittee may be selected by | | |
| | |the board for this purpose.). | | |
|CalPERS Principles/Guidelines |CII Policies |TIAA-CREF Policy Statement |AFL-CIO Voting Guidelines |OECD Principles/Millstein Report |
|4. Separation of Chairman & CEO |
|When selecting a new chief executive |The board should be chaired by an |In the absence of special circum-stances, we|[T]he trustees believe that having an |In a number of countries with single-tier |
|officer, boards should reexamine the |independent director. The CEO and chair |would leave to the discre-tion of the board |independent director serve as chair-person |board systems, the objectivity of the board |
|traditional combination of the “chief |roles should only be combined in very |whether to separate the positions of CEO and|enhances the board’s independ-ence and |and its independence from management may be |
|executive” and “chairman” positions. |limited circumstances; in these situations, |chairman. (p. 8) |effectiveness. (IV.A) |strengthened by the separation of the role |
|(Guideline IV.A.3) |the board should provide a written statement| |The primary purpose of the board is to |of chief executive and chairman, or, if |
|See Appendix C, Independent Chair Position |in the proxy mater-ials discussing why the | |protect shareholders’ interests by providing|these roles are combined, by designating a |
|Duty Statement. |combined role is in the best interests of | |independent oversight of management, |lead non-executive director to convene or |
| |shareholders, and it should name a lead | |including the CEO. The chairperson’s duty |chair sessions of the outside direc-tors. |
| |independent director who should have | |to oversee manage-ment is compromised when |Separation of the two posts may be regarded |
| |approval over information flow to the board,| |self-monitoring is required, and the |as good practice, as it can help to achieve |
| |meeting agendas, and meeting sched-ules to | |trustees fear that combining the positions |an appropriate balance of power, increase |
| |ensure a structure that provides an | |of chairman and CEO may give the CEO undue |accountability and improve the board’s |
| |appropriate balance between the powers of | |power to determine corporate policy. |capacity for deci-sion making independent of|
| |the CEO and those of the independent | |However, in certain circum-stances, such as |manage-ment. (Annotation to Principle VI.E)|
| |directors. (p. 3) | |a small-cap company with a limited group of | |
| | | |leaders, it may be appropriate for these | |
| | | |positions to be combined for some period of | |
| | | |time. The voting fiduciary should support | |
| | | |shareholder proposals seeking to require | |
| | | |that an independent director who has not | |
| | | |served as an executive at the company shall | |
| | | |serve as chairman of the board of directors.| |
| | | |(IV.A.7) | |
|GM Guidelines |ALI Principles & Recommendations |BRT Principles |NACD Report |Conference Board Recommendations |
|5. “Presiding” or Lead Director[?] |
|The Chairman of the Directors and Corporate |Not covered. |Not covered directly, but see p. 13 (The |The roles of non-executive chairman or board|[When Chairman and CEO roles are separate |
|Governance Committee will be an independent | |board should have contingency plans to |leader have been under con-sideration for |but the Chairman is nevertheless not an |
|Director and will act as the presiding | |provide for transitional board leadership if|some years…. The purpose of creating these |independent director within the meaning of |
|director for the executive sessions of the | |questions arise concern-ing management’s |positions is not to add another layer of |stock exchange requirements, there should be|
|independent Directors and in communicating | |conduct, compet-ence, or integrity or if the|power but instead to ensure organization of,|a] Lead Independent Director (or equivalent |
|the Board’s annual evaluation of the | |CEO dies or is incapacitated. An individual|and accountability for, the thoughtful |designee) [whose duties] should, at a |
|Chairman and Chief Executive Officer. The | |direc-tor, a small group of directors, or |exe-cution of certain critical independent |minimum, include: chairing meetings of the |
|Chairman of the Committee, together with the| |the chairman of a committee may be se-lected|director functions. The board should ensure|non-management directors; serving as the |
|members of that Committee, will develop the | |by the board for this purpose.). |that someone is charged with: organizing |principal liaison to the independent |
|agendas for those executive sessions and | | |the board’s evaluation of the CEO and |directors; and working with the non-CEO |
|periodically review and propose revisions to| | |providing continuous ongoing feedback; |Chairman to finalize information flow to the|
|the Board’s procedures and the Corporate | | |chairing executive sessions of the board; |board, meeting agendas, and meeting |
|Governance Guidelines. (Guideline 6) | | |setting the agenda with the CEO; and leading|schedules. (Part 2, Principle I, Best |
|The independent Directors of the Board will | | |the board in anticipating and responding to |Practice 2.b) |
|meet in executive session two or three times| | |crises…. |[When Chairman and CEO roles are joined, |
|each year. The presiding director at these | | |Boards should consider formally de-signating|there should be a] Presiding Director [whose|
|sessions is the Chair of the Directors and | | |a non-executive chairman or other |duties] should, at a minimum, include: |
|Corporate Governance Committee who is | | |independent board leader. If they do not |presiding at board meetings in the absence |
|elected by the independent Directors. | | |make such a designation, they should |of the Chairman; presiding at executive |
|(Guideline 18) | | |designate, regardless of title, independent |sessions of the non-management directors; |
|The Chairman and Chief Executive Officer | | |members to lead the board in its most |serving as the principal liaison to the |
|will establish the agenda for each Board | | |critical functions…. |independent directors; having ultimate |
|meeting and a draft of such agenda will be | | |A designated director or directors should |approval over information sent to the board;|
|sent to the presiding director. He or she | | |work with the CEO to create board agendas |having ultimate approval over the board |
|will issue a schedule of agenda subjects to | | |(incorporating other board members’ input as|meeting agenda; and setting meeting |
|be discussed for the ensuing year at the | | |provided) and to ensure that all relevant |schedules to assure that the directors have |
|beginning of each year (to the degree these | | |mater-ials are provided in a timely manner |sufficient time for discussion of all agenda|
|can be foreseen) which will be discussed at | | |prior to each meeting. (p. 6) |items. (Part 2, Principle I, Best Practice |
|each executive session, as appropriate. | | | |2.c) |
|(Guideline 25) | | | | |
|CalPERS Principles/Guidelines |CII Policies |TIAA-CREF Policy Statement |AFL-CIO Voting Guidelines |OECD Principles/Millstein Report |
|5. “Presiding” or Lead Director |
|When the chair of the board also serves as |[In the limited circumstances where the CEO |[W]hen the board chooses not to separate the|At companies that have not adopted an |In a number of countries with single-tier |
|the company’s chief execu-tive officer, the |and chair roles are combined, the board] |positions [of chairman and CEO], it should |independent board chairperson, the voting |board systems, the objectivity of the board |
|board designates — formally or informally — |should name a lead independent director who |designate a lead or presiding director who |fiduciary should support the establishment |and its independence from management may be |
|an inde-pendent director who acts in a lead |should have approval over information flow |would preside over executive sessions of |of a lead independent director. In addition|strengthened by the separation of the role |
|capacity to coordinate the other independent|to the board, meeting agendas, and meeting |independent directors and, if the board |to serving as the presiding director at |of chief executive and chairman, or, if |
|directors. (Principle III.A.3) |schedules to ensure a structure that |determines to be appropriate, would |meetings of the board’s independent |these roles are combined, by designating a |
|See Appendix A: Lead Independent Director |provides an appropriate balance between the |participate actively in the preparation of |directors, a lead director is responsible |lead non-executive director to convene or |
|Position Duty Statement. |powers of the CEO and those of the |board agendas. (p. 8) |for coordinating the activities of the |chair sessions of the outside direc-tors…. |
| |independent directors. | |independent direc-tors. At a minimum, a |The designation of a lead director is … |
| |Other roles of the lead independent director| |lead independ-ent director helps to set the |regarded as a good prac-tice alternative in |
| |should include chairing meet-ings of | |schedule and agenda for Board meetings, |some jurisdictions. Such mechanisms can |
| |non-management directors and of independent | |moni-tors the quality, quantity and |also help to ensure high quality governance |
| |directors, presiding over board meetings in | |timeli-ness of the flow of information from |of the enterprise and the effective |
| |the absence of the chair, serving as the | |management, and has the ability to hire |function-ing of the board. (Annotation to |
| |principle liai-son between the independent | |independent consultants necessary for the |Principle VI.E) |
| |directors and the chair, and leading the | |independent directors to effectively and | |
| |board/ director evaluation process. Given | |responsibly perform their duties. (IV.A.8) | |
| |these additional responsibilities, the lead | | | |
| |independent director should expect to devote| | | |
| |a greater amount of time to board service | | | |
| |than the other directors. (p. 3) | | | |
|GM Guidelines |ALI Principles & Recommendations |BRT Principles |NACD Report |Conference Board Recommendations |
|6. Board Size[?] |
|The Board in recent years has averaged 13 |Not covered. |Boards of directors of large, publicly owned|Boards should determine the appropri-ate |Not covered. |
|members. The Board believes that a board | |corporations vary in size from industry to |board size, and periodically assess overall | |
|ranging in size from 10 to 14 is | |industry and from corpora-tion to |board composition to ensure the most | |
|appropriate. (Guideline 7) | |corporation. In determining board size, |appropriate and effective board membership | |
| | |directors should consider the nature, size, |mix. (p. 6) | |
| | |and complexity of the corporation as well as| | |
| | |its stage of development. The experience of| | |
| | |many Roundtable members suggests that | | |
| | |smaller boards are often more cohe-sive and | | |
| | |work more effectively than larger boards. | | |
| | |(p. 11) | | |
|CalPERS Principles/Guidelines |CII Policies |TIAA-CREF Policy Statement |AFL-CIO Voting Guidelines |OECD Principles/Millstein Report |
|6. Board Size |
|The board should periodically review its own|Absent compelling, unusual circum-stances, a|The board should be large enough to allow |A board that is too large may function |Not covered directly, but see Annota-tion to|
|size, and determine the size that is most |board should have no fewer than 5 and no |key committees to be staffed with |inefficiently; a board that is too small may|Principle VI (Board structures and |
|effective toward future operations. |more than 15 members (not too small to |independent directors, but small enough to |allow the CEO to exert greater force. |procedures vary both within and among OECD |
|(Guideline IV.B.3) |maintain the needed expertise and |allow all views to be heard and to encourage|Proposals allowing the board to set board |countries. Some coun-tries have two-tier |
| |independence, and not too large to be |the active participa-tion of all members. |size may be supported if the board sets a |boards that separate the supervisory |
| |efficiently functional). Shareholders should|(p. 12) |range that it will not exceed…. Any |function and the management function into |
| |be allowed to vote on any major change in |See p. 10 (The corporate governance/ |proposal for fewer than five directors or |different bodies…. Other countries have |
| |board size. (p. 3) |nominating committee … should be charged to |more than 15 generally should not be |“unitary” boards, which bring together |
| | |make recommendations related to … board and |supported. (IV.A.3) |executive and non-executive board members. |
| | |committee size, structure, composition and | |In some countries there is also an |
| | |leadership….). | |additional statutory body for audit |
| | | | |purposes. The Principles are intended to be|
| | | | |sufficiently general to apply to whatever |
| | | | |board structure is charged with the |
| | | | |functions of govern-ing the enterprise and |
| | | | |monitoring management.). |
| | | | |See also Millstein Report, Perspective 15 |
| | | | |([B]oard structure … is not a |
| | | | |“one-size-fits-all” proposition, and should |
| | | | |be left, largely, to individual |
| | | | |partici-pants.). |
|GM Guidelines |ALI Principles & Recommendations |BRT Principles |NACD Report |Conference Board Recommendations |
|7. Independent Board Majority[?] |
|The Board believes that as a matter of |It is recommended … that: |A substantial majority of directors of the |Boards should require that independ-ent |A substantial majority of the board should |
|policy, there should be a substantial |The board of every large pub-licly held |board of a publicly owned corpora-tion |directors fill the substantial majority of |be composed of independent directors. (Part|
|majority of independent Directors on the GM |corporation should have a majority of |should be independent of manage-ment, both |board seats. (p. 11) |2, Principle II, Best Practice 1) |
|Board (as defined in Bylaw 2.11). |directors who are free of any significant |in fact and appearance, as determined by the|Boards should ensure that any director |Boards must be composed of qualified |
|(Guideline 8) |relation-ship with the corporation’s senior |board. (p. 12) |candidate under consideration, with the |individuals, a substantial majority of whom |
|The Board is comprised of a substan-tial |executives, unless a majority of the |See pp. 11-12 (Providing objective |exception of their own CEO or senior |are free from disqualifying conflicts of |
|majority of Directors who qualify as |corporation’s voting securities are owned by|independent judgment is at the core of the |managers, is independent. (p. 11) |interest, who have and will devote the |
|independent under the Listing Standards of |a single person, a family group, or a |board’s oversight function, and the board’s |See p. 12 ([T]o ensure board independ-ence: |necessary time to fulfill their |
|the New York Stock Exchange (NYSE). The |control group. |composition should reflect this principle.).|Boards should define and disclose to |responsibilities, and who are able to |
|Board believes there is no current |The board of a publicly held cor-poration | |shareholders a definition of “independent |understand the issues facing the company, |
|relationship between any independent |that does not fall within Subsection (a) | |director.” |challenge management with tough questions |
|Director and GM that would be construed in |should have at least three directors who are| |Boards should require that director |and goals, and take action when needed. To |
|any way to compromise any Board member being|free of any significant relationship with | |candidates disclose all existing business |perform their functions effectively, |
|designated independent. (Guideline 9) |the corporation’s senior executives. | |relationships between them or their employer|directors must act diligently and |
| |(§ 3A.01) | |and the board’s company. |independently of management. (Part 2, |
| | | |Boards should then evaluate the extent to |Introduction at 9) |
| | | |which, if any, a candidate’s other | |
| | | |activities may impinge on his or her | |
| | | |independence as a board member, and | |
| | | |determine when relationships are such that a| |
| | | |candidate can no longer be considered | |
| | | |independent.). | |
|CalPERS Principles/Guidelines |CII Policies |TIAA-CREF Policy Statement |AFL-CIO Voting Guidelines |OECD Principles/Millstein Report |
|7. Independent Board Majority |
|A substantial majority of the board consists|At least two-thirds of the directors should |The Board should be comprised of a |The trustees expect corporate boards to be |The corporate governance framework should |
|of directors who are inde-pendent. |be independent (i.e., their only non-trivial|substantial majority of independent |composed of qualified individ-uals, at least|ensure the strategic guidance of the |
|(Principle III.A.1) |professional, familial or financial |directors. This is a prime example of a |two-thirds of whom are independent…. (IV.A)|company, the effective monitoring of |
| |connection to the corpora-tion, its |principle long espoused by TIAA-CREF and now|Effective boards must exercise inde-pendent |management by the board, and the board’s |
| |chairman, CEO or any other executive officer|accepted by main-stream boards and senior |judgment, and this fundamen-tal duty can be |accountability to the company and the |
| |is their directorship). (p. 2) |manage-ments. Going forward, TIAA-CREF will|compromised by direc-tor conflicts of |shareholders. (Principle VI) |
| | |focus on how company boards interpret and |interest. To mitigate these concerns, the |A number of national principles, and in some|
| | |implement the new exchange listing |trustees believe that at least two-thirds of|cases laws … recommend that a majority of |
| | |requirements as reflected by their actions |a corpora-tion’s directors should be |the board should be independent. |
| | |and corporate governance positions and will |independ-ent…. The voting fiduciary may |(Annotation to Principle V.A.4) |
| | |encour-age board practices that promote a |wish to withhold votes from all |See Annotation to Principle VI.E (Board |
| | |spirit and culture of true independence and |non-independent nominees standing for |independence … usually re-quires that a |
| | |vitality. (p. 4) |election if 33 percent or more of the |sufficient number of board members will need|
| | | |directors are non-independent…. (IV.A.1) |to be inde-pendent of management. |
| | | |Independence is critical for directors to |[However,] [t]he variety of board |
| | | |carry out their duties to select, monitor |structures, ownership patterns and practices|
| | | |and compensate management, and the voting |in different countries … require different |
| | | |fiduciary should generally support efforts |approaches to the issue of board |
| | | |to enhance board of director independence. |objec-tivity. In many instances objectivity|
| | | |This includes, but is not limited to, |requires that … independence from |
| | | |proposals to require that at least |controlling shareholders or another |
| | | |two-thirds of a company’s directors be |controlling body will need to be |
| | | |independent…. (IV.A.9) |em-phasized.). |
| | | | |See Millstein Report, Perspective 15 (Policy|
| | | | |makers and regulators should encourage some |
| | | | |degree of independ-ence in the composition |
| | | | |of corporate boards. Stock exchange listing|
| | | | |requirements that address a minimal |
| | | | |threshold for board independence ... have |
| | | | |proved useful, while not unduly restrictive |
| | | | |or burdensome.). |
|GM Guidelines |ALI Principles & Recommendations |BRT Principles |NACD Report |Conference Board Recommendations |
|8. Definition of “Independence”[?] |
|Bylaw [2.11] defines the term “inde-pendent”|[A] director has a “significant |An independent director should be free of |Relationships that may compromise a |Independent directors should not only be |
|as qualifying as independent under any |relation-ship” with the senior executives of|any relationship with the corpora-tion or |director’s independence include, but are not|independent in accordance with legislative |
|definition or standard of “independence” |a corporation if …: |its management that may im-pair, or appear |limited to: reciprocal director-ships (or |and stock exchange listing requirements, but|
|adopted by the Securities and Exchange |(1) The director is employed by the |to impair, the director’s ability to make |“director interlocks”); an existing |should also act independently of management.|
|Commission (SEC) or the NYSE. (Guideline 9)|corporation, or was so employed within the |independent judg-ments. The listing |significant consulting or employment |(Part 2, Principle II, Best Practice 2) |
|See Bylaw 2.11(c) (For purposes of this |two preceding years; |standards of the major securities markets |relationship; an existing substantial |See Part 2, Introduction at 7 (In order to |
|bylaw, the term “Independent Director” shall|(2) The director is a member of the |relating to audit committees provide useful |commercial relationship between the |achieve the objectives of board |
|mean a director who qualifies as independent|immediate family of an individual who (A) is|guid-ance in determining whether a |director’s organization and the board’s |independence, each board must be sensitive |
|under any definition or standard of |… or (B) was em-ployed by the corporation as|particu-lar director is “independent.” |company; or new business relationships that |to any relationships between the CEO and the|
|“independ-ence” adopted by the SEC or the |a senior executive within the two preceding |These standards focus primarily on familial,|develop through board membership. (p. 11) |leaders of the non-management directors that|
|New York Stock Exchange.). |years; |employment and business relation-ships. | |could im-pair the appropriate balance |
| |(3) The director has made to or re- |However, boards of directors should also | |between the Board’s and CEO’s roles. Each |
| |ceived from the corporation during either of|consider whether other kinds of | |board should be particularly sensitive to |
| |its two preceding years, commercial payments|relationships, such as close personal | |the possibility of such relationships and |
| |which exceeded $200,000, or the director |relationships between poten-tial board | |should tailor its inquiries about these |
| |owns or has power to vote an equi-ty |members and senior man-agement, may affect a| |relationships to its company’s particular |
| |interest in a business organiza-tion to |director’s actual or perceived independence.| |circumstances….). |
| |which the corporation made, or from which |(p. 12) | | |
| |the corporation re-ceived, during either of |Some observers have questioned the | | |
| |its two preceding years, commercial |independence of directors who have | | |
| |pay-ments that … exceeded $200,000; |relationships with non-affiliated | | |
| |(4) The director is a principal man- |not-for-profit organizations that receive | | |
| |ager of a business organization to which the|support from corporations. The [BRT] | | |
| |corporation made, or from which the |believes that such relationships and their | | |
| |corporation re-ceived, during either of the |effect on a director’s independ-ence should | | |
| |org-anization’s two preceding years, |be assessed by the board or its corporate | | |
| |commercial payments that ex-ceeded five |governance committee on a case-by-case | | |
| |percent of the organ-ization’s consolidated |basis…. Independ-ence issues are most | | |
| |gross reve-nues for that year, or $200,000, |likely to arise where a director is an | | |
| |whichever is more; or |employee of the not-for-profit organization | | |
| |(5) The director is affiliated in a |and where a substantial portion of the | | |
| |professional capacity with a law firm that |organiza-tion’s funding comes from the | | |
| |was the primary legal adviser to the |corporation. (pp. 12-13) | | |
| |corporation … or with an investment banking |See p. 11 (Board independence de-pends not | | |
| |firm that was retained by the corpora-tion …|only on directors’ individual relationships | | |
| |within the two preceding years…. (§ 1.34) |– personal, employment, or business – but | | |
| |See § 3A.01, Comment d (significant |also on the board’s overall attitude toward | | |
| |relationships) and Topic Heading 9. |management.). | | |
|CalPERS Principles/Guidelines |CII Policies |TIAA-CREF Policy Statement |AFL-CIO Voting Guidelines |OECD Principles/Millstein Report |
|8. Definition of “Independence” |
|“Independent director” means a direc-tor |[A]n independent director is someone whose |[T]he definition of independence should |A director is defined as independent if he |Not covered directly, but see Princi-ple |
|who: |only nontrivial professional, familial or |extend beyond that incorporated in amended |or she has only one non-trivial con-nection |VI.E (The board should be able to exercise |
|has not been employed by the Company in an |financial connection to the corporation, its|listing standards of the exchanges. We |to the corporation – that of his or her |objective independent judg-ment on |
|executive capacity within the last five |chairman, CEO or any other executive officer|believe independence means that a director |directorship – or is a rank-and-file |corporate affairs.). |
|years; |is his or her directorship. (p. 15) |and his or her immediate family have no |employee. A director generally will not be |See also Annotation to Principle VI.E (In |
|is not, and is not affiliated with … an |A director will not generally be considered |present or former employment with the |considered independent if currently or |order to exercise its duties of monitoring |
|adviser, or consultant to the Company or a |independent if he or she: |company, nor any substantial connection of a|previously employed by the company or an |managerial performance, preventing |
|member of the Company’s senior management; |is, or in the past 5 years has been, or |personal or financial nature (other than |affiliate in an exe-cutive capacity; if |conflicts of interest and balancing |
|is not affiliated with a significant |whose relative is, or in the past 5 years |equity in the company or equivalent stake) |employed by a pre-sent or former auditor of |competing demands on the corporation, it is|
|customer or supplier…; |has been, employed by the corporation or |to the company or its management that could |the company in the past five years; if |essential that the board is able to |
|has no personal services contract(s) with |employed by or a director of an affiliate…; |in fact or in appearance compromise the |employed by a firm that is one of the |exercise objective judgment. In the first |
|the Company, or [with] senior management; |is, or in the past 5 years has been … an |director’s objectivity and loyalty to |company’s paid advisors or consultants; if |instance this will mean independence and |
|is not affiliated with a not-for-profit |employee, director or |shareholders. To be independent, the |employed by a customer or supplier with a |objec-tivity with respect to management…. |
|entity that receives significant |greater-than-20-percent owner of a firm that|director must not provide, or be affiliated |non-trivial business relationship; if |The variety of board structures, own-ership|
|contributions from the Company; |is one of the corpora-tion’s … paid advisers|with any organization that provides, goods |em-ployed by a foundation or university that|patterns and practices in differ-ent |
|within the last five years, has not had any |or consul-tants…; |or services for the company if a reasonable,|receives grants or endowments from the |countries will … require different |
|business relationship with the Company |is, or in the past 5 years has been … |disinterested observer could consider the |company; if the person has any personal |approaches to the issue of board |
|(other than service as a director) for which|employed by or has a 5 per-cent or greater |relationship substantial. (p. 4) |services contract with the company; if |ob-jectivity. In many instances |
|the Company has been required to make |ownership inter-est in a third party that | |related to an executive or director of the |objectiv-ity requires that a sufficient |
|disclosure under Regulation S-K of the SEC, |provides payments to or receives pay-ments | |company; or if an offi-cer of a firm on |number of board members not be employed by |
|is not employed by a public company at which|from the corporation…; | |which the company’s chairman or chief |the company or its affiliates and not be |
|an executive officer of the Company serves |has, or in the past 5 years had … a personal| |executive officer also is a board member. |closely related to the company or its |
|as a director; |services contract with the corporation, an | |(IV.A.1) |management through signifi-cant economic, |
|has not had any of the relationships |executive officer or any affiliate…. | |See IV.A.9 ([T]he voting fiduciary should |family or other ties. This does not |
|described above with any affiliate of the |is, or in the past 5 years has been … an | |generally support efforts to en-hance board |prevent shareholders from being board |
|Company; and |employee or director of a … non-profit | |of director independence. This includes, |members. In others, independence from |
|is not a member of the immediate family of |organization that receives significant | |but is not limited to, proposals to require |control-ling shareholders or another |
|any person described above. |grants or endowments from the corpora-tion….| |… the company to adopt a stricter definition|control-ling body will need to be |
|(Appendix B-1) |(pp. 15-16) | |of director independence consistent with the|emphasized. … This has led to both codes |
|See Principle III.A.5 (No director may also |See generally pp. 14-17 (independent | |definition of director independence … |and the law in some jurisdictions to call |
|serve as a consultant or service provider to|director definition). | |above….). |for some board members to be independ-ent |
|the company.). | | | |of dominant shareholders…. In other cases,|
| | | | |parties such as particular creditors can |
| | | | |also exercise significant influence. Where|
| | | | |there is a party in a special position to |
| | | | |influence the com-pany, there should be |
| | | | |stringent tests to ensure the objective |
| | | | |judgment of the board.). |
(Footnote 21, continued)
tor Composition and Function Requirements) at 5-6. See also 2004 ABA Guidebook at 27 (“In general, a director will be viewed as independent only if he or she is a non-management director free of any family relationship or any material business or professional relationship (other than stock ownership and the directorship) with the corporation or its management, and has been free of any such relationship for three years.”); 1997 BRT Statement at 10-11 (“[B]oards should … make a judgment about a director’s independence based on his or her individual circumstances rather than through the mechanical application of rigid criteria.”); 2003-2004 NACD Survey at 13 (an independent director is one “with no material relationship with the listed company, and with no employment, interlock, or family relationship for the past five years.”); 2004 Korn/Ferry Study at 37 (“Meeting the standards of independence established by Sarbanes-Oxley caused boards to review current composition and assess directors’ relationships with the company. Seven percent found it necessary to add new or replace existing directors in the past 12 months to comply with the legislation’s requirements. Only two percent indicated taking such action in 2003.”).
|GM Guidelines |ALI Principles & Recommendations |BRT Principles |NACD Report |Conference Board Recommendations |
|9. Conflicts of Interest & Ethics[?] |
|The Board expects all directors, as well as |A director, senior executive, or |A corporation should have a code of conduct |Not covered directly, but see p. 12 (Boards |The Compensation Committee should … |
|officers and employees, to act ethically at |con-trolling shareholder makes “disclosure |with effective reporting and enforcement |should require that director candidates |recognize the potential conflict of interest|
|all times and to adhere to GM’s “Winning |concerning a conflict of interest” if the |mechanisms. Employees should have a means |disclose all existing busi-ness |in management’s recommend-ing its own |
|With Integrity: Our Values and Guidelines |director, senior executive, or control-ling |of alerting management and the board to |relationships between them or their employer|compensation levels. (Part 1, Principle I) |
|for Employee Conduct” guidelines. The Board|shareholder discloses to the cor-porate |potential misconduct without fear of |and the board’s com-pany. Boards should |No compensation arrangement should be |
|will not permit any waiver of any ethics |decisionmaker who authorizes in advance or |retribution, and violations of the code |then evaluate the extent to which, if any, a|permitted that creates an incentive for top |
|policy for any director or executive |ratifies the transaction in question the |should be addressed promptly and |candidate’s other activities may impinge on |executives to act contrary to the company’s |
|officer. If an actual or potential conflict|material facts known to the director, senior|effectively. (p. 10) |his or her independence as a board member, |best interests…. (Part 1, Principle I, Best|
|of interest arises for a director, the |executive, or controlling shareholder |It … is good practice for directors to |and determine when relationships are such |Practice) |
|director shall promptly inform the Chairman |concerning the conflict of interest, or if |notify each board on which they serve before|that a candidate can no longer be considered|Boards must be composed of … a substantial |
|and the presiding director. If a |the corporate decisionmaker knows of those |accepting a seat on the board of another |independent.). |majority … free from disqualifying conflicts|
|significant conflict exists and cannot be |facts at the time the transaction is |business corporation, in order to avoid |See also p. 22 ([T]he board should … seek |of interest…. (Part 2, Introduction at 9) |
|resolved, the director should resign. All |authorized or ratified. (§ 1.14(a)) |potential conflicts. (pp. 25-26) |disclosure of any relationships that would |Each director should disclose to the board |
|directors will recuse themselves from any |See § 3.04, Comment c ([W]here directors of |From time to time, it may be appropri-ate |appear to compromise director |or to a designated committee all |
|discussion or decision affecting their |either a publicly or non-publicly held |for boards and board committees to seek |independence.). |relationships between and among that |
|business or personal interests. (Guideline |corporation are review-ing a |advice from outside advisors independent of | |director, the company, and senior |
|21) |conflict-of-interest transaction, it might |management with respect to matters within | |man-agement of the company, including any |
| |be appropriate to recognize a right to |their respon-sibility. For example, there | |potential conflict of interest, whe-ther or |
| |expert assistance … in the subset of |may be … conflict of interest situations for| |not required for public disclos-ure, in |
| |directors who are disinter-ested….). |which the board or a committee determines | |order to allow for a comprehen-sive |
| |See generally Part V, Duty of Fair Dealing. |that additional expert advice would be | |determination of a director’s inde-pendence.|
| |See also Topic Heading 26, below. |useful. (pp. 27-28) | |(Part 2, Principle II, Best Practice 4) |
|CalPERS Principles/Guidelines |CII Policies |TIAA-CREF Policy Statement |AFL-CIO Voting Guidelines |OECD Principles/Millstein Report |
|9. Conflicts of Interest & Ethics |
|[I]ndependence … requires a lack of conflict|The Council expects that corporations will |In addition to ensuring that corporate |Effective boards must exercise inde-pendent |Insider trading and abusive self-deal-ing |
|between the directors’ personal, financial |comply with all applicable federal and state|resources are used only for appropriate |judgment, and this fundamen-tal duty can be |should be prohibited. (Principle III.B) |
|or professional interests, and the interests|laws and regulations and stock exchange |business purposes, the board should be a |compromised by direc-tor conflicts of |Members of the board and key execu-tives |
|of shareowners…. Accordingly, CalPERS |listing standards. |model of integrity and inspire a culture of |interest. To mitigate these concerns, the |should be required to disclose to the board |
|recommends that: |The Council believes every company should |high ethical standards. The board should |trustees believe that at least two-thirds of|whether they, directly, indi-rectly or on |
|No director may also serve as a consultant |also have … an ethics code that applies to |mandate strong internal controls, avoid |a corpora-tion’s directors should be |behalf of third parties, have a material |
|or service provider to the company. (III.A |all employees and directors, and provisions |board member conflicts of interest, and |independ-ent…. (IV.A.1) |interest in any trans-action or matter |
|and Principle III.A.5) |for its strict enforce-ment…. |promote fiscal accountability and compliance|Independence is critical for directors to |directly affecting the corporation. |
| |The Council believes companies should adhere|with all applicable laws and regulations. |carry out their duties to select, mon-itor |(Principle III.C) |
| |to responsible business practices and |(p. 6) |and compensate management, and the voting |Stakeholders, including individual employees|
| |practice good corporate citizenship. |[T]he audit committee … should establish a |fiduciary should generally support efforts |and their representatives, should be able to|
| |Promotion, adoption and effective |means by which employees can communicate |to enhance board of director independence. |freely communicate their concerns about |
| |implementation of guidelines for the |directly with com-mittee members, and should|This includes, but is not limited to, |illegal or unethi-cal practices to the board|
| |responsible conduct of business and business|ensure that the company develops and is in |proposals to re-quire … the company to |and their rights should not be compromised |
| |relationships are consist-ent with the |compliance with ethics policies and legal |provide expanded disclosure of potential |for doing this. (Principle IV.E) |
| |fiduciary responsibility of protecting |and regulatory requirements. (p. 9) |con-flicts involving directors. (IV.A.9) |The board should fulfill certain key |
| |long-term investment interests. (p. 1) |See p. 13 (Shareholders should have the |See IV.F.6 (Several recent shareholder |functions including ... [m]onitoring and |
| | |right to expect that each director is acting|proposals have urged financial service |managing potential conflicts of interest of |
| | |in the interests of all sharehold-ers and |companies to effectively manage investment |management, board members and shareholders, |
| | |not the interest of a dominant shareholder |banking related conflicts of interest by |including misuse of corporate assets and |
| | |or a particular stake-holder.). |formally separating the company’s investment|abuse in related party transactions. |
| | | |banking busi-ness from the company’s |(Principle VI.D) |
| | | |sell-side analyst research and IPO |Boards should consider assigning a |
| | | |allocation process, or by taking other |sufficient number of non-executive board |
| | | |measures. The fiduciary should support such|members capable of exercising independent |
| | | |proposals.). |judgment to tasks where there is a potential|
| | | | |for conflict of interest. (Principle |
| | | | |VI.E.1) |
| | | | |See Annotation to Principle III.B (Abusive |
| | | | |self-dealing, e.g., by control-ling |
| | | | |shareholders, and insider trading, are |
| | | | |prohibited in most, but not all, OECD |
| | | | |jurisdictions; such practices violate the |
| | | | |principle of equitable treat-ment of |
| | | | |shareholders.). |
| | | | |See also Principle II.F.2 (Institutional |
| | | | |investors acting in a fiduciary capacity |
| | | | |should disclose how they manage material |
| | | | |conflicts of interest….). |
| | | | |See also Topic Headings 10 & 28, below. |
|GM Guidelines |ALI Principles & Recommendations |BRT Principles |NACD Report |Conference Board Recommendations |
|10. Commitment, Limits on Other Board Service & Changes in Job Responsibility[?] |
|[D]irectors must have significant time |Not covered directly, but see Topic Heading |Serving on a board requires significant time|Boards should consider whether a change in |Not covered directly, but see Part 2, |
|available to devote to Board activities and |11, below. |and attention on the part of directors. |an individual’s professional |Introduction at 10 ([D]irectors should … |
|to enhance their knowledge of the global | |Directors must participate in board |responsibilities directly or indirectly |display the character, integrity, and will |
|automotive industry. Directors are expected| |meetings, review relevant materials, serve |impacts that person’s ability to fulfill his|to assert their points of view, and |
|to attend meetings of the Board, its | |on board committees, and prepare for |or her directorship obligations. To |demonstrate loyalty exclusively to the |
|Committees on which they serve and the | |meetings and for discussions with |facilitate the board’s consideration: |corporation and its shareowners; [and] |
|Annual Meeting of Stockholders. (Guideline | |management. They must spend the time needed|Boards should require that the CEO and other|devote the time necessary to fulfill the |
|1) | |and meet as frequently as necessary to |inside directors submit a resignation as a |legal, regulatory and stock exchange |
|The Board believes that it is preferable | |properly discharge their responsibilities. |matter of course upon retirement, |requirements imposed upon them….). |
|that the Chairman and Chief Executive | |The appropriate number of hours to be spent |resignation, or other significant change in | |
|Officer not continue to serve on the Board | |by a director on his or her duties and the |their professional roles and | |
|following retirement from GM. (Guideline | |frequency and length of board meetings |responsibilities. | |
|10) | |depend largely on the complexity of the |Boards should require that all directors | |
|It is the sense of the Board that when a | |corporation and its operations. (pp. 24-25)|submit a resignation as a matter of course | |
|Director’s principal occupation or business | |The Business Roundtable does not endorse a |upon retirement, a change in employer, or | |
|association changes substantially from the | |specific limitation on the number of |other significant changes in their | |
|position he or she held when originally | |directorships an individual may hold. |professional roles and responsibilities. | |
|invited to join the Board, the Director | |However, service on too many boards can |If the board determines that a director | |
|shall tender a letter of resignation to the | |interfere with an individual’s ability to |continues to make a contribution to the | |
|Directors and Corporate Governance | |perform his or her responsibilities. Before|organization, the Commission supports the | |
|Committee. Such Committee will review | |accepting an additional board position, a |continued membership of that director on the| |
|whether the new occupation, or retirement, | |director should consider whether the |board. (p. 14) | |
|of the Director is consistent with the | |accept-ance of a new directorship will |[T]he board should consider guide-lines that| |
|specific rationale for originally selecting | |com-promise the ability to perform present |limit the number of positions on other | |
|that individual and the guidelines for board| |responsibilities. (p. 25) |boards, subject to individual exceptions – | |
|membership. The Committee will recommend | |[T]he corporation should establish a process|for example, for CEOs and senior executives,| |
|action to be taken…. The bias of the | |to review senior management service on other|one or two; for others fully employed, three| |
|Committee will be to accept the resignation | |boards prior to acceptance. (p. 26) |or four; and for all others, five or six. | |
|if the basis for originally selecting the | |The board should establish procedures for |(p. 22) | |
|individual no longer exists. (Guideline 11)| |the retirement or replacement of board | | |
|Non-employee Directors are encour-aged to | |members. Such procedures may … include … a | | |
|limit the number of other boards (excluding | |requirement that direc-tors who change their| | |
|non-profits and GM subsidiaries) on which | |primary employ-ment tender a board | | |
|they serve, to no more than four …. [They] | |resignation, pro-viding an opportunity for | | |
|should also advise the Chairman of the Board| |the corporate governance committee to | | |
|and the Chairman of the Directors and | |consider the desirability of their continued| | |
|Corporate Governance Committee in advance of| |service on the board. (p. 29) | | |
|accepting an invitation to serve on another | | | | |
|board. (Guideline 12) | | | | |
|CalPERS Principles/Guidelines |CII Policies |TIAA-CREF Policy Statement |AFL-CIO Voting Guidelines |OECD Principles/Millstein Report |
|10. Commitment, Limits on Other Board Service & Changes in Job Responsibility |
|No director … can fulfill his or her |Companies should establish and publish |Not covered directly, but see Topic Heading |[T]he voting fiduciary should consider |Board members should be able to commit |
|potential as an effective board member |guidelines specifying on how many other |11, below.. |withholding votes for director nomi-nees who|themselves effectively to their |
|without a personal dedication of time and |boards their directors may serve. Absent | |are employed, or self-employed, on a |responsibilities. (Principle VI.E.3) |
|energy and an ability to bring new and |unusual, specified circumstances, directors | |full-time basis and who serve on boards at |Service on too many boards can inter-fere |
|different perspectives to the board. |with full-time jobs should not serve on more| |three other public companies, and for |with the performance of board members. |
|(III.D) |than two other boards. Currently serving | |nominees who are retired and who serve on |Companies may wish to consider whether |
|See Principle III.D.1 (The board has adopted|CEOs should only serve as a director of one | |boards at five other public companies. |multiple board mem-berships by the same |
|guidelines that address the competing time |other company, and then only if the CEO’s | |Responsibilities known to be equiva-lent, |person are com-patible with effective board |
|commitments that are faced when director |own company is in the top half of its peer | |such as serving on the board of major |perform-ance and disclose the information to|
|candidates serve on multiple boards. These |group. No person should serve on more than | |private or non-profit corpora-tions, should |shareholders. Some countries have limited |
|guidelines are published annually in the |five for-profit company boards. (p. 3) | |also be taken into account to the extent |the number of board positions that can be |
|com-pany’s proxy statement.). |See p. 17 (The Council … believes that it is| |that this informa-tion is disclosed by the |held. Specific limitations may be less |
| |important to discuss relation-ships between | |company or otherwise made available to the |important than ensuring that members of the |
| |directors on the same board which may | |voting fiduciary. (IV.A.1) |board enjoy legitimacy and confidence in the|
| |threaten either direc-tor’s independence. A| |In general, support should be withheld from |eyes of shareholders. Achieving legitimacy |
| |director’s objectivity as to the best | |directors who have failed to attend at least|would also be facilitated by the publication|
| |interests of the shareholders is of utmost | |75 percent of board and committee meetings |of attendance records for individual board |
| |import-ance, and connections between | |without adequate justification. The SEC |members (e.g., whether they have missed a |
| |direc-tors outside the corporation may | |requires com-panies to disclose any |significant number of meetings) and any |
| |threaten such objectivity and promote | |incumbent director who attended less than 75|other work undertaken on behalf of the board|
| |inappropriate voting blocks. As a result, | |percent of the aggregate of board and |and the associated remuneration. |
| |directors must evaluate all of their | |applicable committee meetings in the last |(Annotation to Principle VI.E.3) |
| |relationships with each other….). | |full fiscal year, and a failure to include |It is important to disclose membership [on] |
| | | |information can be assumed to mean that all |other boards not only because it is an |
| | | |directors attended 75 percent of the |indication of experience and possi-ble time |
| | | |meetings. (IV.A.1) |pressures facing a member of the board, but |
| | | | |also because it may reveal potential |
| | | | |conflicts of interest and makes transparent |
| | | | |the degree to which there are interlocking |
| | | | |boards. (Annotation to Principle V.A.4) |
_____________________________
(Footnote 23, continued)
Survey at 14 (83.2 percent of respondents believe companies should have a policy restricting the number of boards an active CEO or other executive may serve at any one time: of them, 34.1 percent favor a maximum of two outside boards, while 31.7 percent favor a maximum of three outside boards); 2004 Korn/Ferry Study at 22-23 (75 percent of respondents indicate that the former CEO does not sit on the board; 80 percent opine that the former CEO should not sit on the board, for reasons that include potential conflicts and the best course for new corporate leadership); id. at 24 (a majority of respondents’ boards (51 percent) have a policy that limits the number of other boards on which the CEO may serve as an outside director, allowing the CEO the discretion to join up to two other boards); id. at 28 (the percentage of directors declining an invitation for board service in the past 12 months was 23 percent, almost double the 2002 figure (13 percent); likely factors include time commitment, current board obligations, and the perception of increased risk).
|GM Guidelines |ALI Principles & Recommendations |BRT Principles |NACD Report |Conference Board Recommendations |
|11. Election Term, Term Limits & Mandatory Retirement[?] |
|The Board does not believe it should |Not covered directly, but see § 3A.04, |Planning for the departure of directors and |Until … processes are established [for a |Not covered. |
|establish term limits. While term limits |Comment e (The nominating commit-tee may |the designation of new board members is |strong individual director evaluation | |
|could help ensure that there are fresh ideas|also perform other functions [such as] the |essential. The board should establish |process], boards should recognize that when | |
|and viewpoints available to the Board, they |recommendation of policies on … continuation|procedures for the retirement or replacement|certain predetermined criteria are met – for| |
|hold the disadvantage of losing the |on the board…. Criteria for continuation on|of board members. Such procedures may, for |example, 10 to 15 years of service or a | |
|contribution of Directors who have been able|the board might include such elements as age|example, include a mandatory retire-ment |specified retirement age – it may be | |
|to develop, over a period of time, |and attendance to board duties. |age, a term limit, and/or a requirement that|desirable to promote director turnover to | |
|increasing insight into the company and its |Another function that may be per-formed by |directors who change their primary |obtain the fresh ideas and critical thinking| |
|operations and, therefore, provide an |the nominating committee is the |employment tender a board resignation, |that a new director can bring to the board. | |
|increasing contribution to the Board as a |recommendation of removal of directors prior|providing an oppor-tunity for the corporate |However – for the sake of continuity – some | |
|whole. |to expiration of their term of office when |governance committee to consider the |directors’ tenures should survive that of | |
|As an alternative to strict term limits, the|such removal seems warranted. Usually a |desirability of their continued service on |the CEO. | |
|Directors and Corporate Governance |director who is not performing in a |the board. (p. 29) |Unless boards have a process to evaluate the| |
|Committee, in conjunction with the Chairman |satisfactory manner would be allowed to | |performance of individual directors, they | |
|and Chief Executive Officer, will formally |serve out the full term, but would not be | |should establish tenure conditions under | |
|review each Director’s continuation on the |renomi-nated. In extreme cases, however, | |which, as a matter of course, directors | |
|Board every five years. This will also |removal of a director before the ex-piration| |should submit a resignation for | |
|allow each Director the opportunity to |of the full term, when legally permissible, | |consideration or offer to withdraw from | |
|conveniently confirm his/her desire to |may seem indicated. It would normally be | |consideration for renomination. (pp. 14-15)| |
|continue as a member of the Board. |desirable to vest the initial consideration | | | |
|(Guideline 13) |of such a removal in a committee that is | | | |
|It is the sense of the Board that the |independent of management, and the | | | |
|current retirement age of 70 is appropriate.|nominating committee would be a logical | | | |
|(Guideline 14) |choice because this function complements the| | | |
| |committee’s responsibilities in connection | | | |
| |with the selection and nomination of | | | |
| |candidates for the board. Of course, | | | |
| |vesting this function in the committee would| | | |
| |not preempt the legal power of the | | | |
| |shareholders and the board to take whatever | | | |
| |action they deem appropriate at whatever | | | |
| |time they deem appropriate.). | | | |
|CalPERS Principles/Guidelines |CII Policies |TIAA-CREF Policy Statement |AFL-CIO Voting Guidelines |OECD Principles/Millstein Report |
|11. Election Term, Term Limits & Mandatory Retirement |
|Every director should be elected an-nually. |All directors should be elected annu-ally |All directors should stand for annual |The voting fiduciary should vote against |Not covered directly, but see Topic Headings|
|(Guideline IV.D.6) |(no classified boards). (p. 2) |election to the board…. [A] classified |proposals to limit terms of directors |2, 3 & 10, above. |
|See Guideline IV.A.2 (With each director | |board structure can restrict a board’s |because they may result in prohibiting the | |
|nomination recommendation, the board should | |ability to remove expeditiously an |service of directors who significantly | |
|consider the issue of continuing director | |ineffective director. (p. 11) |contribute to the company’s success and | |
|tenure and take steps as may be appropriate | |Although TIAA-CREF does not sup-port |represent shareholders’ interests | |
|to ensure that the board maintains an | |arbitrary limitations on the length of |effectively. (IV.A.10) | |
|openness to new ideas and a willingness to | |director service, we believe the board | | |
|critically re-examine the status quo.). | |should establish a director retirement | | |
| | |policy. A fixed director retirement policy | | |
| | |will contribute to board vitality. (p. 12) | | |
| | |See p. 10 (The corporate governance/ | | |
| | |nominating committee … should be charged to | | |
| | |make recommendations related to … director | | |
| | |retirement policy….). | | |
|GM Guidelines |ALI Principles & Recommendations |BRT Principles |NACD Report |Conference Board Recommendations |
|12. Director Compensation & Stock Ownership[?] |
|Only non-employee directors receive payment |The nominating committee may also perform |A diverse mix of compensation for the board |A significant ownership stake leads to a |Compensation policies should en-courage a |
|for serving on the Board. It is appropriate|functions … that are assigned to it by a |and management can foster the right |stronger alignment of interests between |meaningful financial stake in the |
|for the staff of the Cor-poration to report |standard of the corporation. Among the |incentives and prevent a short-term focus or |directors and shareholders. Increasingly, |corporation through long term “acquire and |
|once a year to the Directors and Corporate |functions that might be assigned by such a |a narrow emphasis on particular aspects of |compensation programs for directors and |hold” practices by key executives and |
|Governance Committee the status of GM Board |standard [is] reviewing the compensation of |the corporation’s business…. |senior management are emphasizing stock |directors, while insuring that any |
|compensation in relation to compensation |directors…. (§ 3A.04, Comment e) |[C]orporations have increasingly moved toward|over benefits. The Report of the NACD Blue|contribution by the company to creating |
|paid to directors at comparable |A director … who receives compensa-tion from |compensating directors and management with |Ribbon Commission on Director Compensation,|that stake is done in a reasonable and |
|corporations. As part of a Director’s total|the corporation for services in that capacity|stock options and other equity compensation |issued in 1995, recommended the following |cost-effec-tive manner. (Part 1, Principle|
|compensation and to create a direct linkage |fulfills the duty of fair dealing with |geared to the corporation’s stock price…. |best practices with respect to director |IV) |
|with corporate performance, the Board |respect to compensation if either: |[E]quity compensation should be care-fully |compensation: |While recognizing that director |
|believes that a meaningful portion of a |(1) The compensation is fair to the |designed to avoid unintended incentives such |Boards should establish a process by which |compensation involves policy issues |
|Director’s retainer, at least 70 percent, |corporation when approved; |as an undue emphasis on short-term market |directors can determine the compensation |different from those in management |
|should be provided as equity which must be |(2) The compensation is authorized in |value changes. (pp. 23-24) |program in a deliberative and objective |compensation, directors nonetheless should |
|held until retirement from the Board. |advance by disinterested direc-tors…; |Directors should be incentivized to focus on |way. |own and retain substantial amounts of |
|Members of the Audit Committee may not |(3) The compensation is ratified by |long-term stockholder value. Including |Boards should set a substantial target for |company stock they receive as compensation |
|directly or indirectly receive any |disinterested directors who satisfy the |equity as part of directors’ compensation |stock ownership by each director and a time|or otherwise acquire. Furthermore, at a |
|compensation from the corporation other than|requirements of the business judgment rule…; |helps align the interests of directors with |period during which this target is to be |minimum, required retention and holding |
|their directors’ compensation.… Changes in |or |those of the corpora-tion’s stockholders. |met. |levels by directors should also be |
|Board compensation, if any, should come at |(4) The compensation is authorized in |Accordingly, a meaningful portion of a |Boards should define the desirable total |established. (Part 1, Principle IV, Best |
|the suggestion of the Directors and |advance or ratified by disinter-ested |director’s compensation should be in the form|value of all forms of director |Practice) |
|Corporate Governance Committee, but with |shareholders, and does not constitute a waste|of long-term equity. Corporations may wish |compensation. | |
|full discussion and concurrence by the |of corporate assets at the time of the |to consider establishing a re-quirement that |Boards should pay directors solely in the | |
|Board. (Guideline 15) |share-holder transaction. |… they acquire and hold stock in an amount |form of equity and cash with equity | |
|Non-employee directors are required to own |(§ 5.03(a)) |that is mean-ingful and appropriate…. (p. |representing a substantial portion of the | |
|stock, stock units or other equity |See § 5.03, Comment e (Section 5.03 is |25) |total up to 100 percent; boards should | |
|equivalents equal in value to five times |intended to vest wide discretion in |Because stockholders have a particular |dismantle existing benefit programs and | |
|their annual retainer within five years of |disinterested directors or shareholders in |interest in the amount and nature of equity |avoid creating new ones. | |
|joining the Board or the a-doption of this |satisfying themselves that the corp-oration |compensation paid to directors and senior |Boards should disclose fully in the proxy | |
|guideline [and] are also prohibited during |can reasonably be expected to receive the |management, corporations should obtain |statement the philosophy and process used | |
|their term of service from selling any GM |benefits contemplated by a particular |stockholder approval of new stock option and |to determine director compensation and the | |
|equity instruments…. (Guideline 17) |arrangement….). |restricted stock plans in which directors or |value of all elements of compensation. | |
|See Guideline 16 (It is the policy of the | |executive officers participate. (p. 32) |(p. 7) | |
|Corporation not to make any personal loans | | | | |
|to its directors and executive officers….). | | | | |
|CalPERS Principles/Guidelines |CII Policies |TIAA-CREF Policy Statement |AFL-CIO Voting Guidelines |OECD Principles/Millstein Report |
|12. Director Compensation & Stock Ownership |
|Director compensation is a combination of |[D]irectors should own, after a reasonable |Directors should have a direct, personal |Shareholder evaluation of director |The board should fulfill certain key |
|cash and stock in the company. The stock |period of time, a meaningful position in the |and material investment in the common |compensation is especially important since |functions, including … aligning key |
|component is a significant portion of the |company’s common stock. (p. 14) |shares of the company so as to align |directors are responsible for compensating |executive and board remuneration with the |
|total compensation. (Principle III.A.6) | |their attitudes and interests with those |themselves. The voting fiduciary should |longer-term interests of the company and |
| | |of public shareholders. The definition |support compensating directors in a fashion|its shareholders. (Principle VI.D.4) |
| | |of a material investment will vary |that rewards excellent service and in a |In an increasing number of countries it is |
| | |depending on directors’ individual |manner that does not compromise the |regarded as good practice for boards to |
| | |circumstances. Director compensation |independence of directors. To enhance |develop and disclose a re-muneration policy|
| | |programs should include shares of stock |director’s independence from management, |statement covering board members and key |
| | |or restricted stock. TIAA-CREF |director compensation plans should be |executives. Such policy statements specify|
| | |discourages stock options as a form of |separate from executive compensation plans |the relationship between remuneration and |
| | |director compensation; their use is less |and should be voted on separately by |performance, and include mea-surable |
| | |aligned with the interests of long-term |shareholders. Excessively large |standards that emphasise the longer run |
| | |equity owners than other forms of equity.|compensation packages may also make |interests of the company over short term |
| | |(p. 5) |directors less willing to challenge |considerations. Pol-icy statements |
| | |See p. 5 (The Board should approve and |management out of fear of not being |generally tend to set conditions for |
| | |disclose to shareholders any monetary |renominated. Direct stock ownership is the|payments to board members for extra-board |
| | |arrangements with directors for services |best way to align the interests of outside |activities, such as consulting. They also |
| | |outside normal board activities.). |directors and shareholders. Accordingly, a|often specify terms to be observed by board|
| | |See also p. 10 (The corporate |significant proportion of director |members and key executives about holding |
| | |governance/nominating committee … should |compensation should be in the form of |and trading the stock of the company, and |
| | |be charged to make recommendations |stock. Directors should be subject to |the procedures to be followed in granting |
| | |related to … director … compensation….). |reasonable equity-holding requirements. In|and repric-ing of options. In some |
| | | |addition to these conditions, director |countries, policy also covers the payments |
| | | |compensation plans should be evaluated |to be made when terminating the contract of|
| | | |using the same standards as apply to |an executive. (Annotation to Principle |
| | | |executive compensation plans. (IV.C.9) |VI.D.4) |
| | | |See generally IV.C, Executive and Director |See Topic Heading 28, below. |
| | | |Compensation. | |
____________________________________
(Footnote 25, continued)
to stock options, to voluntary guidelines for stock purchases. Every board should develop clear and comprehensive criteria for director pay, making occasional exceptions when unforeseen events make this necessary. Also, each board must decide the most appropriate mechanics for disclosing its process for setting director compensation. Director pay should be set annually, but evaluated on an ongoing basis.”); 1990 BRT Statement at 12 (“[T]o underscore their independence, non-management directors should not be dependent financially on the companies on whose boards they serve.”); 2003-2004 NACD Survey at 18 (93.9 percent of respondents think directors should be compensated with both cash and stock (up from 87 percent in 2001); 56.3 percent of respondents’ companies require directors to own stock in the company; the average cash portion of a director’s annual retainer was $32,186); 2004 Korn/Ferry Study at 15-16 (the percentage of Fortune 1000 companies that pay outside directors an annual fee, but not a per-meeting fee, has grown to 27 percent; 70 percent continue to pay an annual retainer plus a per-meeting fee; 3 percent compensate with per-meeting fees only); id. at 16 (in 2004, “[t]he average annual retainer plus per-meeting fee awarded to outside directors was $56,970, a 22 percent increase above the $46,640 paid last year.”); id. at 18 (the average cash retainer for audit committee chairs was $10,317 (up 27 percent); for compensation committee chairs, $7,282 (up 16 percent); and for corporate governance committee chairs, $6,863 (up 15 percent)); id. at 19 (average committee chair per-meeting fee, $1,506 (up 9 percent); average committee member per-meeting fee, $1,351 (up 9 percent); average committee member retainer, $6,895 (up 9 percent)); id. at 16 (78 percent of respondents think the majority of a director’s compensation should be in stock (up from 54 percent in 2003)); id. at 20 (79 percent of Fortune 1000 companies compensate directors with stock; an increasing number of companies (currently 37 percent) are turning to restricted stock grants, but 46 percent continue to provide stock options (down from 48 percent in 2003)); id. at 30 (65 percent of respondents report that they are required to own company stock); id. (only six percent of respondents report that their company provides them with a retirement plan).
|GM Guidelines |ALI Principles & Recommendations |BRT Principles |NACD Report |Conference Board Recommendations |
|13. Executive Sessions of Outside Directors[?] |
|The independent Directors of the Board will |Not covered directly, but see § 3.04 (The |Independent directors should have the |Executive sessions, defined here as meetings|The non-management directors should have |
|meet in executive session two or three times|directors of a publicly held corporation who|opportunity to meet outside the presence of |comprised solely of independent directors, |regular, frequent meetings with-out the CEO |
|each year. The pre-siding director at these|have no significant relationship with the |the CEO and any other management directors. |provide board members the opportunity to |or other directors who are members of |
|sessions is the Chairman of the Directors |corporation’s senior executives should be |(p. 26) |react to management proposals and/or actions|management present. (Part 2, Principle I, |
|and Corporate Governance Committee who is |entitled, acting as a body by the vote of a | |in an environment free from formal or |Best Practice 7) |
|elected by the independent directors. At |majority of such directors, to retain legal | |informal constraints. They also pro-vide an| |
|these sessions, at a minimum, the |counsel, accountants, or other experts, at | |opportunity for dialogue between and among | |
|independent directors will review CEO |the corporation’s expense, to advise them on| |independent directors that facilitates a | |
|succession, performance and compensation; |problems arising in the exercise of their | |more open and timely exchange of ideas, | |
|strategic issues for Board consideration; |functions and powers….). | |perspec-tives, and feelings. | |
|future Board agendas and the flow of | | |Regularly scheduled executive ses-sions set | |
|information to directors; management | | |an expectation that private discussions | |
|progression and succession; and the Board’s | | |among independent directors will be held as | |
|corporate governance guidelines. The | | |a matter of course, thus disarming concern | |
|presiding director is responsible for | | |over an action that may otherwise be | |
|advising the Chairman and Chief Executive | | |per-ceived as unusual or threatening. | |
|Officer of decisions reached, and | | |Boards should adopt a policy of holding | |
|suggestions made, at these sessions. The | | |periodic executive sessions at both the full| |
|format will also include a discussion with | | |board and committee levels on a preset | |
|the Chairman and Chief Executive Officer on | | |schedule. (p. 8) | |
|each occasion. (Guideline 18) | | | | |
|See Guideline 6 (The Chairman of the | | | | |
|Directors and Corporate Governance Committee| | | | |
|… together with the mem-bers of that | | | | |
|Committee, will develop the agendas for … | | | | |
|executive sessions….). | | | | |
|See also Guideline 29 (The three key | | | | |
|committees (Audit, Executive Compensation | | | | |
|and Directors and Corporate Governance) will| | | | |
|conduct periodic executive sessions of the | | | | |
|independent directors without Management.). | | | | |
|CalPERS Principles/Guidelines |CII Policies |TIAA-CREF Policy Statement |AFL-CIO Voting Guidelines |OECD Principles/Millstein Report |
|13. Executive Sessions of Outside Directors |
|Independent directors meet periodi-cally (at|Non-management directors should hold |The board should hold routinely scheduled |Not covered directly, but see IV.A.8 (At |Not covered directly, but see Annota-tion to|
|least once a year) alone, without the CEO or|regularly scheduled executive sessions |executive sessions at which management, |companies that have not adopted an |Principle VI.E (In a number of countries |
|other non-independent directors. (Principle|without the CEO or staff present. The |including the CEO, is not present. These |independent board chairperson, the voting |with single-tier board sys-tems, the |
|III.A.2) |independent directors should also hold |meetings should help to facilitate a culture|fiduciary should support the establishment |objectivity of the board and its |
|[When the CEO is also the Chair, the Lead |regularly scheduled in-person executive |of independ-ence, providing directors with |of a lead independent director. In addition|independence from management may be |
|Independent Director should] develop the |sessions without non-independent directors |an op-portunity to engage in open discussion|to serving as the presiding director at |strengthened by the separation of the role |
|agenda for and moderate executive sessions |and staff present. (p. 4) |of issues that might otherwise be inhibited |meetings of the board’s independent |of chief executive and chairman, or, if |
|of the Board’s independent directors [and] |See p. 7 ([The compensation] com-mittee |by the presence of the CEO or management. |directors, a lead director is responsible |these roles are com-bined, by designating a |
|act as the principal liaison between |should regularly report on its activities to|Executive sessions should also be used to |for coordinating the activities of the |lead non-executive director to convene or |
|independent directors and the Chair on |the independent directors of the board, who |evaluate CEO performance and discuss CEO |independent directors.). |chair sessions of the outside directors.). |
|sensitive issues. (Appendix A: Lead |should review and ratify committee |compensation. (p. 11) | | |
|Independent Director Position Duty |decisions.). |See p. 8 ([W]hen the board chooses not to | | |
|Statement) | |separate the positions [of chair-man and | | |
|[When the CEO and Independent chair | |CEO], it should designate a lead or | | |
|positions are held by separate people, the | |presiding director who would preside over | | |
|Independent Chair should] develop the agenda| |executive sessions of independent | | |
|for and moderate executive sessions of the | |directors….). | | |
|Board’s independent directors [and] act as | |See also pp. 8-9 (The audit, compensa-tion | | |
|the principal liaison between independent | |and corporate governance/nomi-nating | | |
|directors and the CEO on sensitive issues. | |committees should meet in executive session | | |
|(Appendix C: Independent Chair Position | |on a regular basis with inclusion of | | |
|Duty Statement) | |management per-sonnel, if appropriate | | |
| | |because of issues under discussion, and also| | |
| | |without such personnel being present.). | | |
|GM Guidelines |ALI Principles & Recommendations |BRT Principles |NACD Report |Conference Board Recommendations |
|14. Evaluating Board Performance[?] |
|The Board must perform a self-evaluation on |The board of directors has five primary |It is the responsibility of the board and |There are three separate aspects to |Each board should develop a three-tier |
|an annual basis. The Directors and |functions, [one of which is to] evaluate |its corporate governance committee to … |effective evaluation at the board level, |director evaluation process which includes |
|Corporate Governance Committee is |board processes and perform-ance. (§ 3.02, |oversee the … evaluation of the board and |each of which constitutes a critical |evaluation of the performance of the board |
|responsible to report annually to the Board |Comment a.4) |its committees. (pp. 6-7) |component of board professionalism and |as a whole, the performance of each |
|an assessment of the Board’s performance. | |[T]he board should monitor the mix of skills|effectiveness: CEO evaluation, board |committee and the performance of each |
|The Committee usually reviews the evaluation| |and experience that directors bring to the |evaluation, and individual director |individual director, as necessary. The |
|structure at its October meeting and | |board to assess, at each stage in the life |evaluation. All three of these evaluations |board should also adopt a process for review|
|discusses its findings with the full Board | |of the corporation, whether the board has |should be assessed vis-à-vis pre-established|and evaluation of the Chief Executive |
|during the December executive session. The | |the necessary tools to perform its oversight|criteria to provide the CEO, the board as a |Officer. (Part 2, Principle V) |
|assessment will include a review of the | |function effectively. (p. 11) |whole, and each director with critical |Depending on the corporate govern-ance model|
|Board’s overall effectiveness and the areas | |The board should have an effective mechanism|information pertaining to their collective |adopted, boards should consider having the |
|in which the Board or management believes | |for evaluating perform-ance on a continuing |and individual performance and areas that |non-CEO Chair-man, the Lead Independent |
|the Board can make an impact on the | |basis. Meaning-ful board evaluation |can be improved. |Director (or equivalent designation) or the |
|Corporation. The purpose of the evaluation | |requires an assessment of the effectiveness |Boards should regularly and formally |Presiding Director take a lead role, in |
|is to increase the effectiveness of the | |of the full board, the operations of board |evaluate the CEO, the board as a whole, and |conjunction with the Chairman, in the board |
|Board, not to focus on the performance of | |committees and the contributions of |individual directors; |evaluation process. (Part 2, Principle V, |
|individual Board members. The Directors and| |individual directors. |Boards should ensure that independent |Best Practice 3) |
|Corporate Governance Committee will also | |The performance of the full board should be |directors create and control the methods and|Audit committees should conduct an annual |
|utilize the results of this evaluation | |evaluated annually, as should the |criteria for evaluating the CEO, the board, |assessment of the performance of the |
|process in determining the characteristics | |performance of its committees. The board |and individual directors. |committee and its members, including in such|
|and assessing critical skills required of | |should conduct periodic – generally annual –|Such an evaluation practice will enable |review a comparison of the committee and its|
|prospective candidates for election to the | |self-evaluations to deter-mine whether it |boards to identify and address problems |members to legal and stock exchange |
|Board and making recommendations to the | |and its committees are following the |before they reach crisis proportions. (p. |requirements and to prevailing best |
|Board with respect to assignments of Board | |procedures necessary to function |7) |practices for audit committees. (Part 3, |
|members to various committees. (Guideline | |effectively. |See Ch. 4, Evaluation: How Boards and |Principle I, Best Practice 4) |
|20) | |The board should have a process for |Directors Should Be Judged, pp. 17-20; and |[E]valuation of directors should ensure that|
|See Guideline 9 (Each independent director | |evaluating whether the individ-uals sitting |Summary and Conclusion, p. 22 |each director meets the board’s |
|shall notify the Chairman of the Directors | |on the board bring the skills and expertise |See also Appendix D1, Board Evalua-tion |qualifications for membership when the |
|and Corporate Governance Committee, as soon | |appropriate for the corporation and how they|Practicalities: Creating a Board |director is nominated or renomi-nated to the|
|as practicable, of any event, situation or | |work as a group…. [A] director’s abil-ity |Self-Assessment Methodology; and Appendix |board…. Beyond meeting baseline standards, |
|condition that may affect the Board’s | |to continue to contribute to the board |D2, Sample Evaluation Forms. |evaluation can be a powerful tool for |
|evaluation of his or her independence.). | |should be considered each time the director |See also Report of the NACD Blue Ribbon |directors to improve their performance by |
|See also Guideline 29 (Each Board Committee | |is considered for renomination. |Commission on Perfor-mance Evaluation of |understanding areas which require further |
|will perform an annual evaluation of its | |(pp. 28-29) |Chief Execu-tive Officers, Boards, and |develop-ment or training. (Part 2, |
|performance, in-cluding a review of its | | |Direc-tors (1994). |Introduction at 10-11) |
|compliance with the Committee charter.). | | | | |
|CalPERS Principles/Guidelines |CII Policies |TIAA-CREF Policy Statement |AFL-CIO Voting Guidelines |OECD Principles/Millstein Report |
|14. Evaluating Board Performance |
|No board can truly perform its over-riding |Boards should evaluate themselves and their |The board should conduct regular evaluations|Not covered. |Independent board members … can bring an |
|functions of establishing a company’s |individual members on a regular basis. |of its performance and that of its key | |objective view to the evalua-tion of the |
|strategic direction and then monitoring |Board evaluation should include an |committees. Such evaluations should be | |performance of the board and management. |
|management’s success without a system of |assessment of whether the board has the |designed to improve the board’s | |(Annotation to Principle VI.E) |
|evaluating itself. CalPERS views this |necessary diversity of skills, backgrounds, |effectiveness and enhance its engagement and| |In order to improve board practices and the |
|self-evaluation to have several elements, |experiences, ages, races and genders |vitality. They should be based on criteria | |performance of its members, an increasing |
|including: .… |appropriate to the company’s ongoing needs. |defined in the board’s governance principles| |number of jurisdictions are now encouraging |
|The board establishes performance criteria |Individual director evaluations should |and its committee charters, and should | |companies to engage in board training and |
|for itself and periodically reviews board |include high standards for in-person |include a review of the skills, experience | |voluntary self-evaluation that meets the |
|performance against those criteria. (III.B |attend-ance at board and committee meetings |and contributions represented in the | |needs of the individual company. |
|and Principle III.B.3) |and disclosure of all absences or conference|boardroom. In addition to director | |(Annotation to Principle VI.E.3) |
|Each board should establish perfor-mance |call substitutions. |orientation and education, the board should | | |
|criteria, not only for itself (acting as a |Boards should review the performance and |consider other ways to improve director | | |
|collective body) but also individual |qualifications of any director from whom at |performance, including individual director | | |
|behavioral expectations for its directors. |least 10 percent of the votes cast are |performance evaluations. (p. 11) | | |
|Minimally, these criteria should address the|withheld. |See p. 10 (The corporate governance/ | | |
|level of director attendance, preparedness,|Absent compelling and stated reasons, |nominating committee … should be charged to | | |
|participa-tion, and candor. (Guideline |directors who attend fewer than 75 percent |make recommendations related to … board and | | |
|IV.C.1) |of board and board committee meetings for |committee effectiveness [and] director | | |
|To be re-nominated, directors must |two consecutive years should not be |independence evaluation….). | | |
|satisfactorily perform based on the |renominated. (p. 3) | | | |
|established criteria. Re-nomination on any |See p. 1 (The Council … believes | | | |
|other basis should neither be expected nor |shareholders should have … meaning-ful | | | |
|guaranteed. (Guideline IV.C.2) |opportunities … to suggest pro-cesses and | | | |
| |criteria for director … evaluation.). | | | |
| |See also p. 5 ([E]xecutive compensa-tion is | | | |
| |a critical and visible aspect of a company’s| | | |
| |governance. Pay decisions are one of the | | | |
| |most direct ways for shareowners to assess | | | |
| |the perform-ance of the board.). | | | |
___________________________________
(Footnote 27, continued)
effectiveness of the board and board committees [and] reviewing the board’s committee structure, including each committee’s charter and size as well as the possible addition of other committees….”); 1994 NACD Report at 13-14 (“Directors should evaluate board performance as a whole. Each board should consider developing goals for the board as a whole and for each of its committees.... The board can then measure board, chairmen, and committee perform-ance against these goals, position descriptions, and responsibilities, making any appropriate recommendations for improvement.... The board should evaluate not just its process for nominating director candidates, but also its process for educating and renominating new directors. It should evaluate the evaluation process itself. The focus of the evaluation should also include some evaluation of individual director performance.”); 1990 Business Roundtable Statement at 15 (“The most difficult duties of the board include a thorough evaluation of the board’s own effectiveness including the contributions of its individual members. The non-management directors (or a committee such as the Nominating Commit-tee) are responsible for periodically undertaking a self-evaluation.”); 2004 Korn/Ferry Study at 34 (“Four of five (81 percent) respondents’ boards formally evaluate the full board’s performance on a regular basis, a significant increase from the 65 percent who reported conducting such reviews last year. Three-fourths (73 percent) describe the process as ‘very effective’ or ‘effective’. Once considered anathema to board culture, 37 percent of respondents state their board regularly reviews individual director performance, compared to last year, when 29 percent said their boards had instituted the practice…. Individual evaluations have broad support: 79 percent of respondents believe such reviews should be part of board operations.”).
|GM Guidelines |ALI Principles & Recommendations |BRT Principles |NACD Report |Conference Board Recommendations |
|15. Board Interaction/Communication with Shareholders, Press, Customers, etc.[?] |
|The Board believes that as a general matter |Not covered directly, but see § 5.01 |Corporations communicate with investors and |Not covered. |Company executives charged with |
|the Management speaks for General Motors. |(Directors, senior executives, and |other constituencies not only in proxy | |communicating with shareowners, such as the |
|Individual Board members may meet or |con-trolling shareholders, when interested |statements, annual and other reports and | |Corporate Governance Officer, Corporate |
|otherwise communicate with various |in a matter affecting the corporation, are |formal stockholder meetings, but in many | |Secretary and In-vestor Relations |
|constituencies that are involved with |under a duty of fair dealing, which … |other ways. All of these communications | |Executives, should formulate and communicate|
|General Motors. If comments from the Board |includes the obligation to make appropriate |should pro-vide consistency, clarity and | |to invest-ors a strategy specifically |
|are appropriate, they should, in most |disclosure….). |candor. (p. 31) | |designed to attract investors known to |
|circumstances, come from the Chairman. Any | | | |pursue long-term holding investment |
|interested parties desiring to communicate | | | |strategies (e.g., public and private pension|
|with the presiding director or with the | | | |funds and mutual funds that emphasize index |
|non-management Directors as a group, may | | | |strategies, money managers with stated |
|send a letter by regular or express mail | | | |long-term investment horizons, etc.). In |
|addressed to the Secretary, General Motors | | | |this way, the corporation may be able to |
|Corporation, MC 482-C38-B71, 300 Renaissance| | | |reduce the volatility in trad-ing of its |
|Center, P.O. Box 33118, Detroit, MI | | | |shares and build a stronger shareowner base.|
|48233-5118, Attention: Pre-siding Director | | | |(Part 2, Principle IX, Best Practice 1) |
|or Non-Management Directors. (Guideline 22)| | | |While corporations cannot dictate how |
| | | | |investors make their decisions, they can |
| | | | |provide them with information that is |
| | | | |focused more on long-term strategies, |
| | | | |financial goals, and intrinsic values, and |
| | | | |less on transitory short-term factors. |
| | | | |(Part 2, Principle IX, Best Practice 4) |
| | | | |See Part 2, Principle IX, Best Practice 5 |
| | | | |(Institutional investors should estab-lish |
| | | | |compensation arrangements for portfolio |
| | | | |managers that reward a long-term rather than|
| | | | |short-term focus.). |
| | | | |See also Part 2, Introduction at 20 ([T]o |
| | | | |the extent institutional investors – holding|
| | | | |more than half of all equity securities of |
| | | | |U.S. companies – are traders rather than |
| | | | |owners, they … squander their potential |
| | | | |influence on corporate management and |
| | | | |policy.). |
|CalPERS Principles/Guidelines |CII Policies |TIAA-CREF Policy Statement |AFL-CIO Voting Guidelines |OECD Principles/Millstein Report |
|15. Board Interaction/Communication with Shareholders, Press, Customers, etc. |
|Not covered. |Directors should respond to communi-cations |Not covered directly, but see p. 13 ([I]t is|The trustees expect corporate boards to be |The exercise of ownership rights by all |
| |from shareholders and should seek |appropriate for institutional investors that|composed of qualified individ-uals … who are|shareholders, including institutional |
| |shareholder views on important governance, |are entrusted with the investment funds of |open to shareholder input on issues facing |investors, should be facilitated. |
| |management and perfor-mance matters. All |others to be active shareholders and promote|the com-pany…. (IV.A) |(Principle II.F) |
| |directors should attend the annual |more effective corporate governance in the |Directors bear ultimate responsibility for |Channels for disseminating informa-tion |
| |shareholders’ meet-ing and be available, |companies in which they invest.). |the success or failure of the com-pany, and |should provide for equal, timely and |
| |when requested by the chair, to answer |See also p. 15 (Formal procedures should be |should be held accountable for actions taken|cost-efficient access to relevant |
| |shareholder questions. |created to enable shareholders to |that may not be in the company’s best |information by users. (Principle V.E) |
| |All companies should establish a me-chanism |communicate their views and concerns |interests. Such ac-tions may include … |The corporate governance framework should be|
| |by which shareholders with non-trivial |directly to board members.). |refusing to pro-vide information to which |complemented by an effec-tive approach that |
| |concerns could communi-cate directly with |See also p. 25 (TIAA-CREF believes that its |the share-holders are entitled…. (IV.A.1) |addresses and promotes the provision of |
| |all directors, in- cluding independent |policies on corporate governance should be |Reports can … assist shareholders in |analysis or advice by analysts, brokers, |
| |directors. At a minimum, there should be an|shaped and allowed to evolve in |assessing how the company plans to address |rating agencies and others, that is relevant|
| |open meeting in connection with the |collaboration with the companies in which it|some of the challenges inherent in doing |to decisions by investors, free from |
| |com-pany’s annual meeting (before or after) |invests. Accordingly, we will continue to …|business in countries where forced labor or |material conflicts of interest that might |
| |in which shareholders could ask questions |a) provide copies of this Policy Statement …|child labor is common, where rights to |compromise the integrity of their analysis |
| |and communicate their con-cerns to the |to companies in which we invest and suggest |organize and bargain collectively are |or advice. (Principle V.F) |
| |independent directors. (pp. 2-3) |that the companies distribute the Statement |severely restricted, or where environmental |See Principle II.G (Shareholders, in-cluding|
| |In addition to attending all annual and |to all executive officers and directors; b)|regulation and facilities are deficient. A |institutional shareholders, should be |
| |special shareowner meetings, [com-pensation]|periodically seek suggestions from companies|review or report can shed needed light on a |allowed to consult with each other on issues|
| |committee members should be available to |and knowledgeable observers for ways to |controversy and help invest-ors to better |concerning their basic shareholder rights as|
| |respond directly to questions about |improve our guidelines…; c) arrange for |understand management’s position. It also |defined in the Principles, subject to |
| |executive compensa-tion; the chair of the |occasional informal opportunities for |could form the basis for further shareholder|exceptions to prevent abuse.). |
| |committee should take the lead. (p. 7) |company directors, managers, and TIAA-CREF |or company action if that is needed. | |
| |See p. 1 (The Council … believes |managers to review the guidelines in the |Proposals that ask companies to prepare | |
| |shareholders should have meaningful ability |Policy Statement…. |reports on their human rights policies, | |
| |to participate in the major fun-damental |We also communicate directly with companies |their operations in particular countries, or| |
| |decisions that affect corpor-ate |where we perceive shortcomings in governance|their impact on local groups, should | |
| |viability….). |structure or policies. We engage in |generally be supported. (IV.F.1) | |
| | |confidential discussions with board members | | |
| | |and senior executives of the companies to | | |
| | |explain our concerns and gain insights to | | |
| | |their company. Our aim is to resolve | | |
| | |privately any differences we may have. When| | |
| | |these discussions fail to persuade us that | | |
| | |management is responsive to shareholder | | |
| | |interests, we may file shareholder proposals| | |
| | |to build support for necessary change.). | | |
|GM Guidelines |ALI Principles & Recommendations |BRT Principles |NACD Report |Conference Board Recommendations |
|16. Board Access to Senior Management[?] |
|Senior executives other than the Chairman |Not covered. |Board members should have full access to |Not covered directly, but see p. 3 ([T]he |Not covered. |
|and Chief Executive Officer currently attend| |senior management. Generally, the CEO |board should act as a resource for | |
|Board meetings on a regular basis even | |should be advised of significant contacts |management in matters of planning and | |
|though they are not members of the Board. | |between board members and senior management.|policy. To ensure effective decision-making| |
|(Guideline 8) | |(p. 27) |... board members must not only act as | |
|The Board welcomes the regular attendance at| | |advisors, question-askers, and | |
|each Board meeting of non-Board members who | | |problem-solvers, but also as active | |
|are in the most senior management positions | | |participants and decision-makers in | |
|of the Corporation. Should the Chairman and| | |fostering the overall success of the | |
|Chief Executive Officer want to add | | |company.). | |
|additional people as attendees on a regular | | | | |
|basis, it is expected that this suggestion | | | | |
|would be made to the Board for its | | | | |
|concurrence. (Guideline 23) | | | | |
|Board members have complete access to GM’s | | | | |
|Management. | | | | |
|It is assumed that Board members will use | | | | |
|judgment to be sure that this contact is not| | | | |
|distracting to the business operation of the| | | | |
|Corporation and that such contact, if in | | | | |
|writing, be copied to the Chairman and Chief| | | | |
|Executive Officer, as appropriate. | | | | |
|Furthermore, the Board encourages the | | | | |
|Management to, from time to time, bring | | | | |
|managers into Board meetings who: (a) can | | | | |
|provide additional insight into the items | | | | |
|being discussed because of personal | | | | |
|involvement in these areas, and/or (b) are | | | | |
|managers with future potential that the | | | | |
|senior management believes should be given | | | | |
|exposure to the Board. (Guideline 24) | | | | |
|CalPERS Principles/Guidelines |CII Policies |TIAA-CREF Policy Statement |AFL-CIO Voting Guidelines |OECD Principles/Millstein Report |
|16. Board Access to Senior Management |
|All directors should have access to senior |Directors … should be allowed reasonable |Not covered directly, but see pp. 6-7 (The |Not covered. |The contributions of non-executive board |
|management. However, the CEO, chair, or |access to management to discuss board |succession plan should identify | |members to the company can be enhanced by |
|independent lead director may be designated |issues. (p. 4) |high-potential executives and provide them | |providing access to cer-tain key managers |
|as liaison between management and directors | |with career development oppor-tunities to | |within the company such as, for example, the|
|to ensure that the role between board | |advance in increasingly responsible | |company secretary and the internal auditor….|
|oversight and management operations is | |positions. A thoughtful and deliberate | |(Annotation to Principle VI.F) |
|respected. (Guideline IV.B.2) | |succession plan will result in a pool of | | |
| | |senior managers who have the experience and | | |
| | |demonstrated capabilities to succeed as the | | |
| | |Chief Executive Officer.). | | |
| | |See also p. 8 (Committees should have the | | |
| | |right ... to communicate directly with staff| | |
| | |below the senior level.). | | |
|GM Guidelines |ALI Principles & Recommendations |BRT Principles |NACD Report |Conference Board Recommendations |
|17. Board Meetings & Agenda[?] |
|The Chairman and Chief Executive Officer |Not covered directly, but see Topic Headings|[T]he frequency and length of board meetings|Board and committee meetings are the |As a matter of right, exercised reason-ably,|
|will establish the agenda for each Board |1 and 1a, above, and Topic Headings 19 and |depend largely on the complexity of the |settings in which most of the directors’ |all directors should have the abil-ity to |
|meeting and a draft of such agenda will be |21, below. |corporation and its operations…. When |decisions are made. Therefore, developing |place items on the board agenda [and] be |
|sent to the presiding director. He or she | |arranging a meeting schedule for the board, |the agenda for such meetings is a critical |assured that adequate time is allotted for |
|will issue a schedule of agenda subjects to | |each corporation should consider the nature |element in determining and reinforcing board|discussion of those items…. (Part 2, |
|be discussed for the ensuing year at the | |and complexity of its operations and |independence and effectiveness. |Principle I, Best Practice 6) |
|beginning of each year (to the degree these | |transactions, as well as its business and |Boards should ensure that mem-bers are |The independent non-CEO Chairman’s duties … |
|can be foreseen) which will be discussed at | |regulatory environment. (p. 25) |actively involved with their CEO in setting |include: presiding at board meetings …; |
|each executive session, as appropriate. | |The board’s agenda must be carefully |the agendas for full board meetings. A |having ultimate approval over the board |
|Each Board member may suggest the inclusion | |planned, yet flexible enough to accom-modate|designated director or directors should work|meeting agenda; … and setting meeting |
|of additional item(s) on the agenda. | |emergencies and unexpected developments. |with the CEO to create board agendas |schedules to ensure that the independent |
|(Guideline 25) | |The chairman of the board should be |(incorporat-ing other board members’ input |directors have time for discussion of all |
| | |responsive to individ-ual directors’ |as provided)…. |agenda items…. |
| | |requests to add items to the agenda, and |For committee meetings, commit-tee chairs |The duties of the Lead Independent Director |
| | |open to suggestions for improving the |should work with the CEO and committee |(or equivalent designee) … include … serving|
| | |agenda. Important-ly, the agenda and |members to create agendas (incorporating |as the principal liaison to the independent |
| | |meeting schedule must permit adequate time |other board members’ input as provided)…. |directors; and working with the non-CEO |
| | |for discus-sion and a healthy give-and-take |(p. 6) |Chairman to finalize … meeting agendas, and |
| | |between board members and management. (p. | |meeting schedules. |
| | |26) | |The duties of the Presiding Director … |
| | |See p. 8 (The CEO and senior manage-ment | |include: presiding at board meetings in the |
| | |generally take the lead in stra-tegic | |absence of the Chairman; … serving as the |
| | |planning …; present those plans to the | |principal liaison to the independent |
| | |board; implement the plans once board review| |directors; … having ultimate approval over |
| | |is completed; and recommend and carry out | |the board meeting agenda; and setting |
| | |changes to the plans as necessary…. | |meeting schedules to assure that the |
| | |With the corporation’s overall stra-tegic | |directors have sufficient time for |
| | |plans in mind, senior manage-ment develops | |discussion of all agenda items. (Part 2, |
| | |annual operating plans and annual budgets | |Principle I, Best Practices 2.a, b, c) |
| | |for the corpora-tion, and the CEO presents | | |
| | |those plans and budgets to the board. Once | | |
| | |board review is completed, the management | | |
| | |team implements the annual operating plans | | |
| | |and budgets.). | | |
|CalPERS Principles/Guidelines |CII Policies |TIAA-CREF Policy Statement |AFL-CIO Voting Guidelines |OECD Principles/Millstein Report |
|17. Board Meetings & Agenda |
|[The Lead Independent Director should] |[The independent board chair or, if the CEO |The board should establish schedules and |Not covered directly, but see IV.A. 8 (At |Not covered directly, but see Topic Headings|
|advise the Chair as to an ap-propriate |and board chair positions are combined in |agendas for the full board and its |companies that have not adopted an |1a, above, and 21 & 23, below. |
|schedule of Board meetings, seeking to |the same person, the lead independent |committees that anticipate business |independent board chairperson, the voting | |
|ensure that the independent directors can |director] should have approval over … |“rhythms” and normal recurring agenda items.|fiduciary should support the establishment | |
|perform their duties responsibly while not |meeting agendas and meeting schedules to |They should specify the dates of meetings, |of a lead independent director…. [A] lead | |
|interfering with the flow of Company |ensure a struc-ture that provides an |subjects to be covered at each meeting, and |independent director helps to set the | |
|operations [and] provide the Chair with |appropriate bal-ance between the powers of |ensure that all relevant materials are |schedule and agenda for Board meetings….). | |
|input as to the preparation of the agendas |the CEO and those of the independent |provided to members well before each | | |
|for the Board and Committee meetings. |directors. |meeting. This will enable directors to be | | |
|(Appendix A: Lead Independent Director |Other roles of the lead independent director|pre-pared and vigorously engaged in | | |
|Position Duty Statement) |should include … presiding over board |meet-ings, and the staff to be prepared to | | |
|[The Independent Chair should] schedule |meetings in the absence of the chair [and] |respond to the needs and concerns of the | | |
|Board meetings in a manner that enables the |serving as the principle liaison between the|board and its committees. Meeting agendas | | |
|Board and its Committees to perform their |independent directors and the chair…. (p. |should allow sufficient time to discuss | | |
|duties responsibly while not interfering |3) |important issues thoroughly. (pp. 11-12) | | |
|with the flow of Company operations [and] |Directors should be allowed to place items |See p. 8 ([W]hen the board chooses not to | | |
|prepare, in consultation with the CEO and |on board agendas. (p. 4) |separate the positions [of chair-man and | | |
|other directors and Committee chairs, the | |CEO], it should designate a lead or | | |
|agendas for the Board and Committee | |presiding director who … if the board | | |
|meetings. (Appendix C: Independent Chair | |determines to be appropriate, would | | |
|Position Duty Statement) | |participate actively in the preparation of | | |
| | |board agendas. The board should encourage | | |
| | |full discussion of all issues before the | | |
| | |board and pro-vide appropriate resources for| | |
| | |board members so that they may prepare for | | |
| | |meetings.). | | |
_________________________________
(Footnote 30, continued)
work and 66.1 hours on committee-related duties)); 2004 Korn/Ferry Study at 9 (“Proxy data shows that … boards convene an average of eight times annually, the same frequency reported for the past ten years.”); id. at 10 (more specifically, companies valued under $5 billion average seven board meetings per year; companies valued at $5-10 billion average eight board meetings per year; companies valued at $10-20 billion average nine board meetings per year; and companies valued at more than $20 billion average eight board meetings per year); id. at 26 (respondents report that they devote, on average, 18 hours per month to board matters (down from 19 hours in 2003, but up from 13 hours in 2001)); id. at 27 (“[A]) lead director is now seen as integral in fostering a positive working relationship with the CEO, maintaining independence of the board from management, and stimulating open discourse among outside directors by serving as an impartial sounding board. Four out of five (80 percent) of … respondents have an elected or appointed lead director….”).
|GM Guidelines |ALI Principles & Recommendations |BRT Principles |NACD Report |Conference Board Recommendations |
|18. Board Information Flow, Materials & Presentations[?] |
|Information important to the Board’s |Every director has the right … to in-spect |Senior management, led by the Chief |Board and committee meetings are the |[I]ndependent directors must have adequate |
|understanding of the business will be |and copy all books, records, and documents |Executive Officer, is responsible for |settings in which most of the directors’ |information to make good decisions, the |
|distributed in writing to the Board before |of every kind, and to inspect the physical |running the day-to-day operations of the |decisions are made. Therefore, developing |ability to put key ques-tions on the agenda,|
|the Board meetings. Management will try to |properties, of the corporation and of its |corporation and properly inform-ing the |the agenda for such meetings is a critical |and adequate time to deal with the central |
|provide material that efficiently furnishes |subsidiaries, domestic or foreign, at any |board of the status of such operations. |element in determining and reinforcing board|issues they are confronting. (Part 2, |
|the desired information. (Guideline 26) |reasonable time, in person or by an attorney|(p. 1) |independence and effectiveness…. |Introduction at 9) |
|As a general rule, presentations on specific|or other agent. (§ 3.03(a)) |Management presentations should be scheduled|A designated director or directors should |The independent non-CEO Chair-man’s duties …|
|subjects should be sent to the Board members|A judicial order to enforce such right |to allow for question-and-answer sessions |work with the CEO to create board agendas |include … having ultimate approval over |
|in advance to save time at Board meetings |should be granted unless the corpora-tion |and open discussion of key policies and |(incorporat-ing other board members’ input |information sent to the board [and] serving |
|and focus discussion on the Board’s |establishes that the information to be |practices. Board members should have full |as provided) and to ensure that all relevant|as the principal liaison to the independent |
|questions. On those occasions in which the |obtained by the exercise of the right is not|access to senior management. Generally, the|materials are provided in a timely manner to|directors…. |
|subject matter is extremely sensitive, the |reasonably related to the performance of |CEO should be advised of significant |each meeting. |The duties of the Lead Independent Director |
|presentation will be discussed at the |directorial functions and duties, or that |contacts between board members and senior |For committee meetings, commit-tee chairs |(or equivalent designee) … include … serving|
|meeting. (Guideline 27) |the director or the director’s agent is |management. |should work with the CEO and committee |as the principal liaison to the independent |
| |likely to use the information in a manner |The board must have accurate, com-plete |members to create agendas (incorporating |directors; and working with the non-CEO |
| |that would violate the director’s fiduciary |information to do its job; the quality of |other board members’ input as provided) and |Chairman to finalize information flow to the|
| |obliga-tion to the corporation. |information received by the board directly |to ensure that all relevant materials are |board…. |
| |(§ 3.03(b)(1)) |affects its ability to per-form its |provided in a timely manner to each meeting.|The duties of the Presiding Director … |
| |See § 3.03, Comment c (The mere fact that a |oversight function effectively. Directors | |include … serving as the principal liaison |
| |director intends to use informa-tion as part|should be provided with, and review, |(pp. 6) |to the independent directors [and] having |
| |of a proxy fight or other effort to unseat |information from a variety of sources, | |ultimate approval over information sent to |
| |management is not in itself an improper |including management, board committees, | |the board…. (Part 2, Principle I, Best |
| |motive….). |outside experts, auditor presentations, and | |Practices 2.a, b, c) |
| | |analyst and media reports. The board should| |As a matter of right, exercised reason-ably,|
| | |be provided with information before board | |all directors should have the ability to … |
| | |and committee meetings with sufficient time | |request such information as they believe |
| | |to review and reflect on key issues and to | |necessary to make sound, informed business |
| | |request supplemental information as | |decisions on a timely basis. (Part 2, |
| | |necessary. (p. 27) | |Principle I, Best Practice 6) |
|CalPERS Principles/Guidelines |CII Policies |TIAA-CREF Policy Statement |AFL-CIO Voting Guidelines |OECD Principles/Millstein Report |
|18. Board Information Flow, Materials & Presentations |
|[A]lthough Company management is responsible|[The independent board chair or, if the CEO |[The board should] ensure that all relevant |Not covered directly, but see IV.A.8 (At |In order to fulfill their responsibilities, |
|for the preparation of materials for the |and board chair positions are combined in |materials are provided to members well |companies that have not adopted an |board members should have access to |
|Board, the Lead Independent Director may |the same person, the lead independent |before each meeting. This will enable |independent board chairperson, the voting |accurate, relevant and timely informa-tion. |
|specifically request the inclusion of |director] should have approval over |directors to be prepared and vigorously |fiduciary should support the establishment |(Principle VI.F) |
|certain material. (Appendix A: The Lead |information flow to the board…. (p. 3) |engaged in meetings, and the staff to be |of a lead independent director…. [A] lead |Board members require relevant infor-mation |
|Independent Director Position Duty |Directors should be provided meaning-ful |prepared to respond to the needs and |independent director … monitors the quality,|on a timely basis in order to support their |
|Statement) |information in a timely manner prior to |concerns of the board and its committees. |quantity and timeliness of the flow of |decision-making. Non-executive board |
|[A]lthough Company management is responsible|board meetings…. (p. 4) |(pp. 11-12) |information from management….). |members do not typi-cally have the same |
|for the preparation of materials for the | | | |access to informa-tion as key managers |
|Board, the Independent Chair may | | | |within the com-pany. The contributions of |
|specifically request the inclusion of | | | |non-execu-tive board members to the company |
|certain material. (Appendix C: The | | | |can be enhanced by providing access to |
|Independent Chair Position Duty Statement) | | | |certain key managers within the company such|
| | | | |as, for example, the company secretary and |
| | | | |the internal auditor, and recourse to |
| | | | |independent external advice at the expense |
| | | | |of the company. In order to fulfill their |
| | | | |responsibilities, board members should |
| | | | |ensure that they obtain accurate, rele-vant |
| | | | |and timely information. (Annota-tion to |
| | | | |Principle VI.F) |
| | | | |See Principle IV.D (Where stakehold-ers |
| | | | |participate in the corporate govern-ance |
| | | | |process, they should have access to |
| | | | |relevant, sufficient and reliable |
| | | | |information on a timely and regular basis.).|
|GM Guidelines |ALI Principles & Recommendations |BRT Principles |NACD Report |Conference Board Recommendations |
|19. Number, Structure & Independence of Committees[?] |
|The current five committees are Audit, |The audit committee should consist of at |Every publicly owned corporation should have|Boards should establish a wholly independent|[I]t is important that each corporation |
|Directors and Corporate Governance, |least three members … who are neither |an audit committee com-prised solely of |committee that is respon-sible for the |establish a committee of independent |
|Executive Compensation, Investment Funds, |employed by the corporation nor were so |independent directors. Audit committees |governance of the board, and should define |directors to oversee corporate govern-ance |
|and Public Policy. Committee membership on |employed within the two preceding years, |typically consist of 3 to 5 members. The |the accompanying functions and |issues, including the statement of corporate|
|all the committees will consist only of |including at least a majority of members who|listing standards of the major securities |responsibilities of that committee, |governance principles and performance |
|independent Directors as defined in Bylaw |have no sig-nificant relationship with the |markets require that an audit committee have|including nominating directors for board |evaluations…. (Part 2, Introduction at |
|2.11. From time to time, the Board may want|corpora-tion’s senior executives. (§ 3.05) |at least 3 members and that all members of |membership, and setting and monitoring board|10-11) |
|to form a new committee or disband a current|[T]he executive committee of a large |the audit committee qualify as independ-ent |perform-ance goals. (Although such a |The Compensation Committee should be |
|Committee depending upon the circumstances, |publicly held corporation should include a |under the applicable listing stand-ards, |commit-tee could go by any appropriate name |comprised solely of directors who are free |
|regulations or Bylaws. (Guideline 28) |majority of directors who are free of any |subject to limited exceptions. (p. 16) |[e.g., “nominating” or “organization-al”], |of any relationships with the company |
| |significant relationship with the senior |Every publicly owned corporation should have|this Report will use the term “governance |(except for compensation received in their |
| |executives, and the executive committee of |a committee that address-es corporate |committee.”) (pp. 5) |role as directors) and its management and |
| |other publicly held corporations should |governance issues…. [It] should be |Boards should require that key com-mittees –|who can act inde-pendently of management in |
| |include enough such directors to approximate|comprised solely of inde-pendent directors. |compensation, audit, and nominating or |carrying out their responsibilities. (Part |
| |the proportion of such directors on the full|(pp. 20-21) |governance – include only independent |1, Principle I, Best Practice) |
| |board. (§ 3A.01, Comment e) |Every publicly owned corporation should have|directors, and are free to hire independent |The nominating/governance commit-tee should |
| |[A] nominating committee [should be] |a committee comprised solely of independent |advisors as necessary. (p. 7) |be composed entirely of independent |
| |composed exclusively of directors who are |directors that addresses compensation |Boards should ... discuss, with some |directors. (Part 2, Principle IV) |
| |not officers or employees of the |issues. (p. 22) |pre-defined frequency, the number of |Members of the audit committee must be |
| |corporation, including at least a majority |Many board responsibilities may be delegated|committees [and] the size and struc-ture of |independent and have both knowledge and |
| |of members who have no significant |to committees to permit directors to address|committees. (p. 7) |experience in auditing financial matters. |
| |relationship with the corporation’s senior |key areas in more depth. Regardless of | |(Part 3, Principle I) |
| |executives. (§ 3A.04(a)) |whether the board grants plenary power to | |Among the practices which boards should |
| |[A] compensation committee [should be] |its com-mittees with respect to particular | |consider for establishing an ethical |
| |composed exclusively of directors who are |issues or prefers to take recommenda-tions | |corporate culture are … desig-nation of a |
| |not officers or employees of the |from its committees, committees should keep | |board committee to oversee ethics issues…. |
| |corporation, including at least a majority |the full board informed of their activities.| |(Part 2, Principle VI, Best Practice 3) |
| |of members who have no sig-nificant |Corporations benefit greatly from the | | |
| |relationship with the corpora-tion’s senior |collective wisdom of the entire board acting| | |
| |executives. (§ 3A.05(a)) |as a delibera-tive body, and the interaction| | |
| | |between committees and the full board should| | |
| | |reflect this principle. (p. 26) | | |
|CalPERS Principles/Guidelines |CII Policies |TIAA-CREF Policy Statement |AFL-CIO Voting Guidelines |OECD Principles/Millstein Report |
|19. Number, Structure & Independence of Committees |
|Certain board committees consist en-tirely |Companies should have audit, nomi-nating and|The board should delegate certain functions |[C]ompanies listed on U.S. stock exchanges |The board may … consider establish-ing |
|of independent directors. These include the|compensation committees, and all members of |to committees. Under new regulations, three|[are] required to have audit, nominating and|specific committees to consider questions |
|committees who perform the following |these committees should be independent. (p.|key committees must be comprised exclusively|compensation com-mittees that are entirely |where there is a potential for conflict of |
|functions: |2) |of independent directors: the audit |composed of independent directors. The |interest. These committees may require a |
|Audit |All members of the compensation committee |committee, the compensation committee, and |trustees believe this is the appropriate |minimum number or be composed entirely of |
|Director Nomination |should be independent. (p. 6) |the corporate governance/nomi-nating |level of independence for these key board |non-executive members. In some countries, |
|Board Evaluation & Governance | |committee…. The credibility of the |committees. The fiduciary should withhold |share-holders have direct responsibility for|
|CEO Evaluation and Manage-ment | |corporation will depend in part on the |votes from any director nom-inee serving on |nominating and electing non-executive |
|Compensation [and] | |vigorous demonstration of independence by |these key committees who is |directors to specialized functions. |
|Compliance and Ethics. | |the committees and their chairs. (p. 8) |non-independent…. (IV.A.1) |(Annotation to Principle VI.E.1) |
|(Principle III.A.4) | | |Independence is critical for directors to |With respect to nomination of candi-dates, |
| | | |carry out their duties to select, mon-itor |boards in many companies have established |
| | | |and compensate management, and the voting |nomination committees to ensure proper |
| | | |fiduciary should generally support efforts |compliance with estab-lished nomination |
| | | |to enhance board of director independence. |procedures and to facilitate and coordinate |
| | | |This includes, but is not limited to, |the search for a balanced and qualified |
| | | |proposals to re-quire … that 100% of the |board. It is increasingly regarded as good |
| | | |directors on key committees (nominating, |practice in many countries for independent |
| | | |compen-sation and audit) be independent…. |board members to have a key role on this |
| | | |(IV.A.9) |committee. (Annotation to Principle II.C.3)|
| | | | |Stock exchange listing requirements that |
| | | | |address a minimal threshold for ... audit |
| | | | |committee independence have proved useful, |
| | | | |while not unduly restrictive or burdensome. |
| | | | |(Millstein Report, Perspective 15) |
| | | | |See Topic Heading 21, below. |
__________________________________
(Footnote 32, continued)
Each corporation should have an audit committee, a compensation/personnel committee, and a nominating committee. Other common committees are an executive committee to act for the board between meetings and handle other specifi-cally assigned duties, and a finance committee. Some boards have a pension or retirement plan committee, a social responsibility or public policy committee, or other special function committees.”); 2003-2004 NACD Survey at 19 (“The two most prevalent committees are audit [98.3 percent of companies surveyed] and compensation [94.2 percent]…. [G]overnance/nominating committees were a distant third [46.3 percent]…. The percentage of governance/nomi-nating committees is likely to increase in the near future because the NYSE requires such a committee.”) id. at 20-23 (most surveyed boards already conform to stock market requirements for fully independent director membership on key committees: audit committee (96.6 percent of companies surveyed), compensation committee (94.2 percent) and governance/nominating committee (85.2 percent)); 2004 Korn/Ferry Study at 12-13 (“The vast majority of Fortune 1000 boards have been quick to comply with Sarbanes-Oxley. All have committees dedicated to performing the Audit and Compensation functions. Since last year, there has been a significant increase in the frequency of formally designated Nominating Committees, from 87 percent in 2003 to 96 percent in 2004. Similarly, the percentage of boards with a formally assigned Corporate Governance Committee, most often in tandem with a nominating committee responsibility, increased dramatically from 72 percent to 90 percent during this time.”); id. at 13 (percentage of boards with the following committee functions/names: audit – 100%; compensation – 100%; nominating – 96%; corporate governance – 90%; succession planning – 35% (up from 32% in 2000)); directors’ compensation – 41% (up from 31% in 2000). Among committee functions/names that are in decline, the percentage of boards that have a stock options committee is currently 80% (down from 87% in 2000), 49% have an executive committee (down from 57% in 2000); 30% have a finance committee (down from 40% in 2000); 17% have a corporate responsi-bility committee (down from 22% in 2000); and 15% have an investment committee (down from 21% in 2000). These committee names actually represent particular committee functions. With the wide variation in actual committee names, Korn/Ferry standardized committee names for data analysis); id. (“[T]he notion of an Executive Committee, mostly made of inside directors with the power to act as the board when the board itself does not meet, is contrary to the spirit of Sarbanes-Oxley.”); id. at 14 (“As compliance to Sarbanes-Oxley increases, inside directors no longer sit on Audit, Compensation and most Nominating/Corporate Governance committees. However, they do continue to sit on Executive, Finance and Investment committees and ‘make their presence felt.’”).
|GM Guidelines |ALI Principles & Recommendations |BRT Principles |NACD Report |Conference Board Recommendations |
|20. Assignment & Rotation of Committee Members[?] |
|The Directors and Corporate Governance |The nominating committee should … |It is the responsibility of the board and |Boards should establish guidelines for, and |[T]he nominating/governance commit-tee |
|Committee will … utilize the results of [its|[r]ecommend to the board directors to fill |its corporate governance committee to |discuss with some pre-defined frequency ... |should recommend to the full board of |
|Board] evaluation process in determining the|the seats on board committees. (§ 3A.04) |nominate directors and committee members and|the selection and rotation of committee |directors … committee assignments…. (Part |
|characteristics and assessing critical |[T]he committee structure is suffici-ently |to oversee the composi-tion, structure, |members. (p. 7) |2, Principle IV, Best Practice 1) |
|skills required [when] making |important in carrying out the board’s |practices and evalua-tion of the board and | |In keeping with the requirements of the |
|recommendations to the Board with respect to|oversight function that a sepa-rate organ |its committees. (pp. 6-7) | |[Sarbanes-Oxley] Act, the board of directors|
|assignments of Board members to various |[the nominating committee] should be vested |Decisions about committee member-ship should| |should assess the independ-ence and |
|committees. (Guideline 20) |with the function of considering questions |be made by the full board, based on | |qualifications of the mem-bers of the audit |
|The Directors and Corporate Governance |of committee composition, to ensure that |recommendations from a committee responsible| |committee, using out-side counsel or |
|Committee is responsible, after consultation|those questions receive regular and careful |for corporate governance issues. The board | |consultants if desira-ble, to ensure that |
|with the Chairman and Chief Executive |attention. As in the case of nomina-tions |should designate the chairmen of the various| |each qualifies for membership on the |
|Officer, and with consideration of the |to the board itself, it is to be expected |committees, if this is not done by the | |committee. (Part 3, Principle I, Best |
|desires of individual Board members, for the|that the chief executive officer, although |committees themselves. (p. 14) | |Practice 2) |
|assignment of Board members to various |not a member of the nominating committee, | | |There should be an orientation pro-gram for |
|committees. |would often be active in recommending and | | |each member of the audit committee, and |
|Consideration should be given to rotating |discuss-ing committee assignments. | | |members of the audit committee should |
|Committee members periodically at |(§ 3A.04, Comment d) | | |participate regularly in continuing |
|approximately five-year intervals, but the | | | |education programs. (Part 3, Principle II) |
|Board does not believe that such a rotation | | | | |
|should be mandated as a policy since there | | | | |
|may be reasons at a given point in time to | | | | |
|maintain an individual Director’s committee | | | | |
|membership for a longer period. (Guideline| | | | |
|30) | | | | |
|CalPERS Principles/Guidelines |CII Policies |TIAA-CREF Policy Statement |AFL-CIO Voting Guidelines |OECD Principles/Millstein Report |
|20. Assignment & Rotation of Committee Members |
|[The Lead Independent Director should] |The board (not the CEO) should appoint the |The corporate governance/nominating |Not covered directly, but see Topic Heading |Boards should consider assigning a |
|recommend to the Chair the membership of the|committee chairs and members. (p. 2) |committee … should be charged to make |19, above. |sufficient number of non-executive board |
|various Board Committees, as well as the |[Compensation committee] member-ship should |recommendations related to … committee size,| |members capable of exercising independent |
|selection of the Committee chairs. |rotate periodically among the board’s |structure, composition and leadership…. (p.| |judgment to tasks where there is a potential|
|(Appendix A: Lead Independent Director |independent directors. Members should be or|10) | |for conflict of in-terest. Examples of such|
|Position Duty Statement) |take responsi-bility to become knowledgeable| | |key respon-sibilities are ensuring the |
|[The Independent Chair should] recommend to |about compensation and related issues. | | |integrity of financial and non-financial |
|the full Board the membership for the |(p. 6) | | |reporting, the review of related party |
|various Board Com-mittees, as well as | | | |trans-actions, nomination of board members |
|selection of the Committee chairs [and will]| | | |and key executives, and board remuneration. |
|serve as an ex officio member of each of the| | | |(Principle VI.E.1) |
|committees of the Board of which the | | | |[C]ommittees may require a minimum number or|
|Independent Chair is not a member. | | | |be composed entirely of non-executive |
|(Appendix C: Independent Chair Position | | | |members. In some countries, shareholders |
|Duty Statement) | | | |have direct responsibility for nominating |
| | | | |and electing non-executive directors to |
| | | | |specialized functions. (Annotation to |
| | | | |Principle VI.E.1) |
| | | | |See also Principle VI.E.2 (When com-mittees |
| | | | |of the board are established, their … |
| | | | |composition … should be well defined and |
| | | | |disclosed by the board.). |
|GM Guidelines |ALI Principles & Recommendations |BRT Principles |NACD Report |Conference Board Recommendations |
|21. Committee Meeting Frequency, Length & Agenda[?] |
|The Board of Directors will assure that each|It is recommended … that [t]he audit |A written charter approved by the board, or |Not covered directly, but see p. 6 (For |A strong, independent Compensation Committee|
|Committee has a charter setting forth the |committee…: a) Recommend the … |a board resolution establish-ing [each |committee meetings, committee chairs should |should take primary re-sponsibility for |
|purpose, authority and duties of each |corporation’s external auditor …; b) Review |board] committee, is appro-priate. (p. 15) |work with the CEO and committee members to |ensuring that the com-pensation programs, |
|Committee. On an annual basis, each |the external auditor’s compen-sation … and |[T]he board, through its audit commit-tee, |create agendas (incorporating other board |and values trans-ferred to management |
|Committee will review its charter and will |independence; c) Re-view the appointment and|bears responsibility for engaging an outside|members’ input as provided) and to ensure |through cash pay, stock and stock-based |
|present any modifications to the Board for |replacement of the senior internal auditing |auditor…. (p. 5) |that all relevant materials are provided in |awards, are fair and appropriate to attract,|
|approval. (Guideline 28) |execu-tive, if any; d) Serve as the channel |The audit committee is responsible for |a timely manner prior to each meeting.). |retain and motivate management, and are |
|The Committee Chairman, in consul-tation |of communication between the external |oversight of the corporation’s finan-cial |See p. 7 (Boards should establish guidelines|reasonable in view of company economics…. |
|with committee members, will determine the |auditor and the board and between the senior|reporting process. (p. 16) |for ... committees….). |The committee should be held accountable for|
|frequency and length of the meetings of each|internal auditing executive, if any, and the|Audit committee meetings should be held | |the decisions they make. (Part 1, Principle|
|Committee. (Guideline 31) |board; e) Review the … external audit ...; |frequently enough to allow the committee to | |I) |
|The Chairman of each Committee, in |f) Review the corpo-ration’s annual |appropriately monitor the annual and | |The Compensation Committee should hold |
|consultation with the appropriate members of|financial statements …; g) Consider … the |quarterly financial reports. For many | |executive sessions as required (for example,|
|the Committee and man-agement, will develop |adequacy of the corporation’s internal |corporations, this means four or more | |to determine CEO pay and stock option |
|the Commit-tee’s agenda. |controls; h) Consider … appropriate auditing|meetings a year. (p. 20) | |grants) and the Com-mittee should … schedule|
|Each Committee will issue a schedule of |and accounting principles and practices…. |For an enumeration of the primary functions | |meetings and set its own agenda. (Part 1, |
|agenda subjects to be discussed for the |(§ 3A.03) |of the audit committee, in-cluding | |Principle I, Best Practice) |
|ensuing year at the beginning of each year |The nominating committee should [r]ecommend |overseeing the corporation’s risk profile, | |The nominating/governance commit-tee should |
|(to the degree these can be foreseen). This|to the board candidates for all |see pp. 16-20. | |be responsible for nominat-ing qualified |
|forward agenda will also be shared with the |directorships to be filled by the |Traditionally, the corporate | |candidates to stand for election to the |
|Board. (Guideline 32) |shareholders or the board. (§ 3A.04 (b)) |govern-ance/nominating committee’s role was | |board, monitoring all matters involving |
| |See Topic Headings 2, 3, 7, 11, 12, 20, 22 &|to recommend director nominees to the full | |corporate govern-ance and making |
| |23 (additional functions of the nominating |board and the corporation’s stockholders. | |recommendations to the full board for action|
| |committee). |Over time, the commit-tee’s role has | |in governance matters. (Part 2, Principle |
| |The compensation committee should: |expanded so that, today, it typically | |IV) |
| |(1) Review and recommend to the |provides a leadership role in shaping the | |Audit committees should be vigorous in |
| |board, or determine, the annual salary, |corporate governance of a corporation. (pp.| |complying with the numerous new requirements|
| |bonus, stock options, and other benefits … |20-21) | |imposed by the [Sar-banes-Oxley] Act and by |
| |of the senior executives…. |For an enumeration of the primary functions | |the proposed listing standards of the New |
| |(2) [E]stablish and periodically re- |of the corporate governance committee, see | |York Stock Exchange. (Part 3, Principle I) |
| |view policies for … executive compensation |pp. 20-22. | |The internal auditor … should attend all |
| |programs…. |A compensation committee has two | |regularly scheduled audit commit-tee |
| |(3) Establish and periodically review |interrelated responsibilities: oversee-ing | |meetings, report on the status of audits |
| |… management perquisites. |the corporation’s overall compen-sation | |conducted by the internal audit group, |
| |(§ 3A.05) |programs, and setting CEO and senior | |report to the committee on other matters |
| | |management compensation. (pp. 22-23) | |[that] should be brought to the audit |
| | |For an enumeration of the primary functions | |committee’s attention, and meet with the |
| | |of the compensation commit-tee, see pp. | |audit committee in executive session. (Part|
| | |23-24. | |3, Principle III, Best Practice 3) |
|CalPERS Principles/Guidelines |CII Policies |TIAA-CREF Policy Statement |AFL-CIO Voting Guidelines |OECD Principles/Millstein Report |
|21. Committee Meeting Frequency, Length & Agenda |
|Not covered directly, but see Appen-dix A: |Some regularly scheduled committee meetings |In addition to selecting the independ-ent |The audit, compensation and nominat-ing |Not covered directly, but see Principle |
|Lead Independent Director Position Duty |should be held with only the committee |auditors and ensuring the quality and |committees provide critical over-sight roles|VI.E.2 (When committees of the board are |
|Statement ([The Lead Independent Director |members (and, if appropriate, the |integrity of the company’s financial |over management…. (IV.A.1) |established, their mandate, composition and |
|should] provide the chair with input as to |committee’s independent consultants) |statements, the audit committee is |The voting fiduciary should … sup-port |working procedures should be well defined |
|the prepara-tion of the agendas for … |present. (p. 2) |responsible for the adequacy and |proposals to enhance the trans-parency of |and disclosed by the board.). |
|Committee meetings.). |As prescribed by law, the audit com-mittee |effectiveness of the company’s internal |the executive compensa-tion process. Such |See also Annotation to Principle VI.E.2 |
|See also Appendix C: Independent Chair |has the responsibility to hire, oversee and,|controls and the effectiveness of |proposals may include the adoption of |(While the use of committees may improve the|
|Position Duty Statement ([The Independent |if necessary, fire the company’s outside |management’s process to monitor and manage |compensation committee charters or |work of the board, they may also raise |
|Chair should] prepare, in consultation with |auditor. The audit committee should seek |business risks facing the company. The |supplemental reports on compensation |questions about the collective |
|the CEO and other directors and Committee |competitive bids for the external audit |committee should establish a means by which |practices. (IV.C.7) |responsibility of the board and of |
|chairs, the agendas for … Committee |engagement no less frequently than every |employees can communicate directly with | |individual board members. In order to |
|meetings.). |five years. (p. 4) |committee members, and should ensure … | |evaluate the merits of board committees it |
| |It is … the job of the compensation |ethics policies and legal and regulatory | |is therefore important that the market |
| |committee to ensure that elements of |requirements. (p. 9) | |receives a full and clear picture of their |
| |compensation packages are appropri-ately |Through the compensation committee, the | |purpose, duties and composition. Such |
| |structured to enhance the com-pany’s short- |board should implement rational compensation| |information is particularly important in the|
| |and long-term strategic goals and to retain |practices that respond to the company’s | |increasing number of jurisdictions where |
| |and motivate executives to achieve those |equity policy…. (p. 10) | |boards are establishing independent audit |
| |strategic goals…. The compensation |The corporate governance/nominating | |committees with powers to oversee the |
| |commit-tee is responsible for structuring |committee … should … make recom-mendations | |relationship with the external auditor and |
| |executive pay, evaluating executive |related to the preparation of corporate | |to act in many cases independently. Other |
| |performance within the context of the pay |governance principles; director | |such committees include those dealing with |
| |structure of the entire company, subject to |qualifications and compensa-tion; board and | |nomination and compensation. The |
| |the approval of the board of directors… |committee size, structure, composition and | |accountability of the rest of the board and |
| |[It] should vigorously oversee all aspects |leadership; board and committee | |the board as a whole should be clear.). |
| |of executive com-pensation for a group |effectiveness; director independence | | |
| |composed of the CEO and other highly paid |evaluation and director retirement policy | | |
| |executives, as required by law, and any |and be responsible for succession planning. | | |
| |other highly paid employees, including |The committee should also consider how new | | |
| |executives of subsidiaries…. (p. 6) |regulatory requirements affecting corporate | | |
| |See generally pp. 6-8 (role of the |governance should change company practices. | | |
| |compensation committee). |(p. 10) | | |
| | |See pp. 9-12 (functions of the audit, | | |
| | |compensation and nominating/corpo-rate | | |
| | |governance committees). | | |
_________________________________
(Footnote 34, continued)
ABA Guidebook at 30 (“Time at ... committee meetings should be budgeted carefully. A balance should be sought between management presentations and discussion among directors and management. When possible, concise reports and analyses that can be given effectively in writing, without oral presentation, should be furnished in advance.”); id. at 42 (“The full board should be kept regularly informed of standing committee activities. This can be accomplished through periodic oral reports at board meetings or circulation to all directors of committee agendas and meeting minutes or written reports.”); 2003-2004 NACD Survey at 20-23 (according to survey respondents, audit committees average 6.7 meetings per year, and meetings last on average 3.1 hours; several directors noted that their audit committees also hold conference calls (often quarterly), which last about an hour, in addition to regular meetings; compensation committees average 4.1 meetings per year, and meetings last on average 2.5 hours; governance/nominating committees average 3.6 meetings per year, and meetings average 2 hours); 2004 Korn/Ferry Study at 31 (as regards compensation committee meetings, 71 percent of respondents report more frequent or longer meetings, 53 percent report greater reliance on compensation consultants, and 43 percent report greater focus on CEO performance).
|GM Guidelines |ALI Principles & Recommendations |BRT Principles |NACD Report |Conference Board Recommendations |
|22. Formal Evaluation of the Chief Executive Officer[?] |
|The independent Directors should make this |The board of directors has five primary |The selection, compensation and eval-uation |There are three separate aspects to |The board should … adopt a process for |
|evaluation annually, and it should be |functions, [one of which is to] regularly |of a well qualified and ethical CEO is the |effective evaluation at the board level, |review and evaluation of the Chief Executive|
|communicated to the Chairman and Chief |evaluate … the chief executive officer. |single most important function of the board.|each of which constitutes a critical |Officer. (Part 2, Principle V) |
|Executive Officer by the presiding director.|(§ 3.02, Comment a.1) |(p. 3) |component of board professionalism and |Boards should develop processes to evaluate |
|The evaluation should be based on objective |The primary function of the board of |Under the oversight of a committee comprised|effectiveness: CEO evaluation, board |the performance of the CEO on at least an |
|criteria including performance of the |directors is the selection of the chief |of independent directors, the board should |evaluation, and individual director |annual basis. (Part 2, Principle V, Best |
|business, accomplishment of long-term |executive officer…. In its broader sense, |annually review the performance of the CEO….|evaluation. All three of these evaluations |Practice 2) |
|strategic objectives, development of |“selection” includes monitor-ing |The results of the CEO’s evaluation should |should be assessed vis-à-vis pre-established|See Part 2, Principle VI ([E]thical |
|management, etc. The evaluation will be |performance…. (§ 3.02, Comment d, quoting |be promptly communicated to the CEO by |criteria to provide the CEO, the board as a |standards and the skills required to foster |
|used by the Executive Compensation Committee|the BRT, “Corporate Governance and American |representatives of the non-management |whole, and each director with critical |ethical practice throughout the organization|
|in the course of its deliberations when |Competitiveness” (1990), p. 246) |directors. (p. 30) |information pertaining to their collective |should be among the core qualifications for |
|considering the compensation of the Chairman| |See pp. 7-10 (job description of the CEO and|and individual performance and areas that |the CEO and other senior management |
|and Chief Executive Officer. (Guideline 33)| |senior management). |can be improved. |positions.). |
|See Guideline 6 (The Chairman of the | |See also Topic Heading 23, below. |Boards should regularly and formally |See also Part 2, Principle VI, Best Practice|
|Directors and Corporate Governance Committee| | |evaluate the CEO, the board as a whole, and |1 (Among the practices which boards should |
|will be an independent Director and will act| | |individual directors; |consider for establishing an ethical |
|as the presiding director for … | | |Boards should ensure that independent |corporate culture are: |
|communicating the Board’s annual evaluation | | |directors create and control the methods and|Tone at the top |
|of the Chairman and Chief Executive | | |criteria for evaluating the CEO, the board, |continued and repeated emphasis, and |
|Officer.). | | |and individual directors. |commensurate behavior, by the board and CEO,|
| | | |(p. 7) |on the importance of ethical conduct to the |
| | | |See Report of the NACD Blue Rib-bon |corporation and its business; and |
| | | |Commission on Performance Evaluation of |using, as criteria for selection of the CEO |
| | | |Chief Executive Officers, Boards, and |and senior management, a candidate’s ability|
| | | |Directors (1994). |to and prior history of fostering ethical |
| | | | |practices, including the candidate’s |
| | | | |demonstrated business values and response to|
| | | | |any misconduct in prior organizations in |
| | | | |which the candidate was employed.). |
|CalPERS Principles/Guidelines |CII Policies |TIAA-CREF Policy Statement |AFL-CIO Voting Guidelines |OECD Principles/Millstein Report |
|22. Formal Evaluation of the Chief Executive Officer |
|The independent directors establish |Each year, the compensation commit-tee |The board is singularly responsible for the|Not covered directly, but see IV.A.7 (The |Not covered directly, but see Princi-ple VI|
|performance criteria and compensa-tion |should review performance of [the CEO and |selection and evaluation of the |primary purpose of the board is to protect |(The corporate governance framework should |
|incentives for the CEO, and regu-larly |other highly paid execu-tives] and approve |corporation’s chief executive officer and |shareholders’ interests by providing |ensure … the effective monitoring of |
|review the CEO’s performance against those |any bonus, seve-rance, equity-based award or|included in that evaluation is assurance as|independent oversight of management, |management by the board….). |
|criteria. The independ-ent directors have |extra-ordinary payment made to them. (p. 7)|to the quality of senior management…. The |including the CEO.). |See also Principle VI.D.3 (The board should|
|access to advisers on this subject, who are |See p. 6 (The compensation committee is |board should put in place structures and |See also IV.A (Shareholders elect cor-porate |fulfill certain key functions, including |
|independent of management. Minimally, the |responsible for … evaluating execu-tive |processes that enable it to carry out these|directors to hire, monitor, com-pensate and, |... [s]electing, compensat-ing, monitoring |
|criteria ensure that the CEO’s interests are|performance within the context of the pay |responsibilities effectively. (p. 3) |if necessary, terminate senior management.). |and, when necessary, replacing key |
|aligned with the long-term inter-ests of |structure of the entire com-pany, subject to|The development, selection and evaluation | |executives….). |
|shareowners, that the CEO is evaluated |the approval of the board of directors.). |of executive leadership are among the most | |See also Annotation to Principle VI.D.4 (In|
|against comparable peer groups, and that a |See also p. 7 (Compensation of the [CEO and |important decisions the board will make…. | |an increasing number of countries it is |
|significant portion of the CEO’s total |other highly paid execu-tives] should be |To ensure the long-term success of the | |regarded as good practice for boards to |
|compensation is at risk. (Principle |driven predominantly by performance. The |company and its shareholders, it is | |develop and disclose a remuneration policy |
|III.B.4) |compensation committee should establish |imperative that the board develop, select | |state-ment covering board members and key |
|[The Lead Independent Director should] |perform-ance measures for executive |and support strong corporate leadership. | |executives … specify[ing] the relationship |
|evaluate, along with members of the |compen-sation that are agreed to ahead of |This process depends upon a thorough and | |between remuneration and performance, and |
|[compensation committee/full board], the |time and publicly disclosed. Performance |effective management development and | |includ[ing] measurable standards that |
|CEO’s performance [and] meet with the CEO to|measures applicable to all |succession plan, and a sound evaluation | |emphasise the longer run interests of the |
|discuss the Board’s evaluation. (Appendix |perform-ance-based awards (including annual |process…. The evaluation process should be| |com-pany over short-term considerations.). |
|A: Lead Independent Director Position Duty |and long-term incentive compensa-tion) |ongoing and should reflect a clear | |See also Annotation to Principle VI.E |
|Statement) |should reward superior perform-ance – based |understanding between the board and the CEO| |(Independent board members … can bring an |
|[The Independent Chair should] evaluate, |predominantly on total stock return measures|regarding the corporation’s expected | |objective view to the evalua-tion of the |
|along with the members of the [compensation |and key opera-tional measures – at minimum |performance, including specific objectives | |performance of the board and management.). |
|committee/full board], the CEO’s performance|reason-able cost and should reflect downside|and measures for CEO performance. (pp. | | |
|[and] meet with the CEO to discuss this |risk.). |6-7) | | |
|evaluation. (Appendix C: Independent Chair| |Executive sessions should … be used to | | |
|Position Duty Statement) | |evaluate CEO performance and discuss CEO | | |
| | |compensation. (p. 11) | | |
__________________________________
(Footnote 35, continued)
pensation and continuation decisions.... The most difficult duties of the board include a thorough evaluation of the CEO. The non-management directors (or a committee such as the Compensation Committee) are responsible for periodically evaluating the CEO’s performance. This evaluation is used to guide the board’s decisions about the CEO’s compensation, incentive pay and continued employment, as well as to identify strengths or areas needing improvement. The CEO will, of course, be informed of the results of the evaluation.”); 2004 Korn/Ferry Study at 33 (“Independent, unbiased oversight representing the best interests of shareholders is possible only when a board meets respondents’ top criteria determining good governance: a board made up of a majority of outside directors (93 percent), conducting a formal review of the CEO (87 percent), and the need for a formal management succession committee (83 percent).”).
|GM Guidelines |ALI Principles & Recommendations |BRT Principles |NACD Report |Conference Board Recommendations |
|23. Management Succession & Development[?] |
|The Board believes that management should |The board of directors has five pri-mary |The board should plan for CEO and senior |Boards should institute a CEO suc-cession |[T]he nominating/governance commit-tee |
|encourage senior managers to understand that|functions, [one of which is to] [r]eview |management succession and, when appropriate,|plan and selection process, through an |should recommend to the full board of |
|Board membership is not necessary or a |succession planning. (§ 3.02, Comment a.1) |replace the CEO or other members of senior |independent committee or overseen by a |directors … candidates for CEO succession. |
|prerequisite to any higher management |The primary function of the board of |management. (p. 4) |designated director or directors. (p. 7) |(Part 2, Principle IV, Best Practice 6) |
|position in the Corporation. Senior |directors is the selection of the chief |Planning for management succession is … | | |
|executives other than the Chairman and Chief|executive officer…. In its broader sense, |critical. The board or its corpo-rate | | |
|Executive Officer currently attend Board |“selection” includes … suc-cession |governance committee should identify, and | | |
|meetings on a regular basis even though they|planning…. |periodically update, the qualities and | | |
|are not members of the Board. (Guideline 8)|(§ 3.02, Comment d, quoting BRT, “Corporate |characteristics necessary for an effective | | |
|Selecting a Chief Executive Officer and |Governance and American Competitiveness” |CEO. With these principles in mind, the | | |
|planning for succession is a major |(1990), p. 246) |board or committee should periodically | | |
|responsibility of the Board. An annual |The nominating committee may also perform |monitor and review the development and | | |
|report will be made by the Chief Executive |functions … assigned to it by a standard of |progression of potential internal candidates| | |
|Officer to the Board on succession planning.|the corporation. Among the functions that |against these standards. Advance planning | | |
|There should also be available, on a |might be assigned by such a standard are … |for contingencies such as the departure, | | |
|continuing basis, the Chairman’s and Chief |recommend-ing candidates to fill vacancies |death or disabil-ity of the CEO or other top| | |
|Executive Officer’s recommendation as to a |in principal senior executive offices, |executives is also critical so that, in the | | |
|successor in the event of an unexpected |reviewing proposed personnel changes |event of an untimely vacancy, the | | |
|disability. (Guideline 34) |involving such executives … and |corporation has in place an emergency | | |
|There should be an annual report to the |peri-odically reviewing management |succession plan to facilitate the transition| | |
|Board by the Chief Executive Officer on the |suc-cession plans. (§ 3A.04, Comment e) |to both interim and longer-term leadership. | | |
|Corporation’s program for management | |(p. 29) | | |
|development. This report should be given to| | | | |
|the Board at the same time as the succession| | | | |
|planning report noted previously. | | | | |
|(Guideline 35) | | | | |
|CalPERS Principles/Guidelines |CII Policies |TIAA-CREF Policy Statement |AFL-CIO Voting Guidelines |OECD Principles/Millstein Report |
|23. Management Succession & Development |
|The board should have in place an effective |The board should approve and main-tain a CEO|The development, selection and evaluation of|Not covered. |The board should fulfill certain key |
|CEO succession plan, and receive periodic |succession plan. (p. 4) |executive leadership are among the most | |functions, including ... overseeing |
|reports from management on the development | |important decisions the board will make…. | |suc-cession planning. (Principle VI.D.3) |
|of other members of senior management. | |To ensure the long-term success of the | |Independent board members … can play an |
|(Guideline IV.B.1) | |company and its shareholders, it is | |important role in areas where the interests |
| | |imperative that the board develop, select | |of management, the com-pany and shareholders|
| | |and support strong corporate leadership. | |may diverge, such as … succession planning….|
| | |This process depends upon a thorough and | |(Annotation to Principle VI.E) |
| | |effective management development and | | |
| | |succession plan, and a sound evaluation | | |
| | |process. The succession plan should | | |
| | |identify high-potential executives and | | |
| | |provide them with career development | | |
| | |opportunities to advance in increasingly | | |
| | |responsible positions. A thoughtful and | | |
| | |deliberate succession plan will result in a | | |
| | |pool of senior managers who have the | | |
| | |experience and demonstrated capabilities to | | |
| | |succeed as the Chief Executive Officer. | | |
| | |(pp. 6-7) | | |
_________________________________
(Footnote 36, continued)
basis at least annually, and should periodically update succession planning and related procedures.”); 1994 NACD Report at 3, 7 (the CEO’s performance objectives should include an evaluation of the CEO’s proposed succession plan; and “directors should provide for senior management succession”); 1990 BRT Statement at 7, 13 (“The board of directors has five primary functions [one of which is to] [r]eview succession planning.... The compensation/personnel committee … is … responsible for assuring that management succession plans and key people are reviewed periodically. In some companies succession planning … is handled by the nominating committee….”); 2003-2004 NACD Survey at 6 (CEO succession was identified as the top issue facing boards of U.S. companies by the largest percentage of respondents (23.8 percent)); id. (90.5 percent of survey respondents consider their board “somewhat effective,” “effective” or “highly effective” on CEO succession planning, however, 9.5 percent consider their board’s performance on this issue as “below acceptable levels”); 2004 Korn/Ferry Study at 32 (“More boards are dealing with the delicate issue of succession by formalizing a process or establishing a committee dedicated to the responsibility. This year, 71 percent of respondents’ boards have done so, double the percentage reported in 2001 (33 percent).”); id. at 33 (“Independent, unbiased oversight representing the best interests of shareholders is possible only when a board meets respondents’ top criteria determining good governance: a board made up of a majority of outside directors (93 percent), conducting a formal review of the CEO (87 percent), and the need for a formal management succession committee (83 percent).”).
|GM Guidelines |ALI Principles & Recommendations |BRT Principles |NACD Report |Conference Board Recommendations |
|24. Executive Compensation & Stock Ownership[?] |
|The evaluation [of the CEO’s performance by |The board of directors of a publicly held |In addition to reviewing and setting |Creating an independent and inclusive |Performance-based compensation tied to |
|the independent Directors] will be used by |corporation should … fix the compensation of|compensation for management, a com-pensation|process for remunerating ... the CEO will |specific goals can be a powerful and |
|the Executive Compensation Committee in the |… the principal senior executives. |committee should look more broadly at the |ensure board accountability to shareholders |effective tool to advance the business |
|course of its deliberations when considering|(§ 3.02(a)(1)) |overall compensation structure of the |and reinforce perceptions of fairness and |interests of the corporation, and the use of |
|the compensation of the Chairman and Chief |The board of directors has five primary |enterprise to determine that it establishes |trust between and among management and board|performance-based compensation tools should |
|Executive Officer. (Guideline 33) |functions, [one of which is to] [d]etermine |appropriate incen-tives for management and |members. Boards should involve all |be encouraged in a balanced and |
| |management compensa-tion. (§ 3.02, Comment |employees at all levels…. All incentives |directors in all stages of the CEO … |cost-effective manner. (Part 1, Principle |
| |a.1) |should further the corporation’s long-term |selection and compensation processes…. (p. |II) |
| |See § 5.03 (duty of fair dealing with |strategic plan and should be consistent with|6) |The Compensation Committee should endeavor to|
| |respect to senior executive compensa-tion). |the culture of the corporation and the |A significant ownership stake leads to a |use all equity-based com-pensation |
| | |overall goal of enhancing enduring |stronger alignment of interests be-tween |arrangements in a reason-able and |
| | |stockholder value. |directors and shareholders, and between |cost-effective manner. (Part 1, Principle |
| | |A diverse mix of compensation for the board |executives and shareholders. Increasingly, |III) |
| | |and management can foster the right |compensation programs for directors and |Compensation policies should encour-age a |
| | |incentives and prevent a short-term focus or|senior management are emphasizing stock over|meaningful financial stake in the corporation|
| | |a narrow emphasis on particular aspects of |benefits. (p. 7) |through long term “ac-quire and hold” |
| | |the corporation’s business…. |See Topic Heading 12, above. |practices by key ex-ecutives and directors, |
| | |In recent years, many corporations have | |while insuring that any contribution by the |
| | |increasingly moved toward com-pensating | |company to creating that stake is done in a |
| | |directors and management with stock options | |reasonable and cost-effective manner. (Part |
| | |and other equity compensation geared to the | |1, Principle IV) |
| | |corpora-tion’s stock price. While this | |Compensation decisions should be based on the|
| | |trend may align director and management | |effectiveness of various forms of |
| | |interests with stockholder value, equi-ty | |compensation to achieve company goals and |
| | |compensation should be carefully designed to| |their respective relative costs, rather than |
| | |avoid unintended incen-tives such as an | |simply on their accounting treatment. (Part |
| | |undue emphasis on short-term market value | |1, Principle V) |
| | |changes. (pp. 23-24) | |See Part 1, Principle II, Best Practice (The |
| | |[C]orporations should obtain stock-holder | |Compensation Committee should adopt specific |
| | |approval of new stock option and restricted | |policies and programs to recapture incentive |
| | |stock plans in which directors or executive | |compensation from executives in the event |
| | |officers parti-cipate. (p. 32) | |[of] malfeas-ance….). |
| | |See p. 24 (long- and short-term management | |See also Topic Headings 26, 27, 29 & 32, |
| | |incentives and benefits). | |below. |
|CalPERS Principles/Guidelines |CII Policies |TIAA-CREF Policy Statement |AFL-CIO Voting Guidelines |OECD Principles/Millstein Report |
|24. Executive Compensation & Stock Ownership |
|Executive compensation programs should be |In developing, approving and monitor-ing the|Through the compensation committee, the |Executive compensation packages are |The board should fulfill certain key |
|designed and implemented to ensure alignment|executive pay philosophy, the compensation |board should implement rational compensation|generally composed of annual salary, annual |functions, including … [s]electing, |
|of interest with the long-term interests of |committee should con-sider the full range of|practices that respond to the company’s |incentive awards, long-term incentive |compensating, monitoring and, when |
|shareowners. (Principle III.C.1) |pay components, including structure of |equity policy, including conditional forms |awards, stock options and other forms of |necessary, replacing key executives [and] |
|Executive compensation should be comprised |programs, de-sired mix of cash and equity |of compensation that motivate managers to |equity compensation. The structure of a |[a]ligning key executive and board |
|of a combination of cash and equity-based |awards, goals for distribution of awards |achieve per-formance that is better than |CEO’s compensa-tion package influences |remuneration with the longer term interests |
|compensation, and direct equity ownership |throughout the company, how execu-tive pay |that of a peer group…. Compensation should |whether the CEO focuses on boosting the |of the company and its shareholders. |
|should be encouraged. (Principle III.C.2) |relates to the pay of other employees, use |reward only the creation of genuine and |corporation’s day-to-day share price or |(Principles VI.D.3 – VI.D.4) |
| |of employment con-tracts, and policy |sustainable value. With shareholders’ |concentrates on building long-term corporate|In an increasing number of countries it is |
| |regarding dilution. (p. 6) |interest and fairness in mind, the committee|value. For this reason, the trustees |regarded as good practice for boards to |
| |Compensation of the [CEO and other highly |should develop policies and practices |believe that long-term incentive |develop and disclose a remuneration policy |
| |paid executives] should be driven |regarding cash pay, the role of equity-based|compensation should constitute more than 50%|statement covering board mem-bers and key |
| |predominantly by performance. (p. 7) |compensation, fringe benefits and senior |of an executive’s total compensation, and |executives. Such policy statements specify |
| |In general, salary should be set to reflect |management employment contracts, severance |pay-for-performance over the long term |the relationship be-tween remuneration and |
| |responsibilities, tenure and past |and payments after change of control…. |should be the benchmark for all executive |performance, and include measurable |
| |performance, and to be tax efficient – |TIAA-CREF has developed guidelines for the |compensation plans. Pay-for-performance |standards that emphasise the longer run |
| |meaning no more than $1 million…. |specific components of executive |means rewarding executives for meeting |interests of the company over short term |
| |Cash incentive compensation plans should … |compensation. (p. 10) |explicit and demanding performance criteria,|consid-erations. Policy statements … often |
| |appropriately align execu-tive interests |Compensation plans should be reason-able and|and penalizing executives (by either |specify terms to be observed by board |
| |with company goals and objectives and to |fair by prevailing industry standards and |reducing or withholding compensation) for |members and key executives about holding and|
| |reasonably reward superior performance…. |able to withstand the cri-tical scrutiny of |failures to meet these goals as determined |trading the stock of the company, and the |
| |(p. 8) |investors, employees and the public at |by the board of directors…. |procedures to be followed in granting and |
| |Re: provisions for: |large. [They] should be understandable and |Executive compensation policies and plans |re-pricing of options. In some countries, |
| |salary, see p. 8; |appropriate to the corporation’s size, |should be created by fully inde-pendent |policy also covers the payments to be made |
| |annual incentive compensation, see pp. 8-9; |complexity and performance. (p. 16) |directors – with the assistance of |when terminating the contract of an |
| |long-term incentive compensa-tion, see pp. |The use of equity in compensation programs |independent compensation consultants – and |execu-tive. |
| |9-10; |should be limited by the equity policy |approved by shareholders. |It is considered good practice in an |
| |dilution, see pp. 10-11; |developed by the board of directors [and] |In general, the trustees support |increasing number of countries that |
| |stock option awards, see p. 11; |should emphasize restricted stock awards. |compensation plans that provide challenging |remuneration policy and employment contracts|
| |stock awards/units, see pp. 11-12; |Restricted stock more closely aligns the |performance objectives and serve to motivate|for board members and key executives be |
| |perquisites, see p. 12; |interests of executives with shareholders |executives toward creating superior |handled by a special committee of the board |
| |employment contracts, severance and |(as opposed to option grants)…. When stock |long-term corporate growth and value. The |comprising either wholly or a majority of |
| |change-of-control payments, see pp. 12-13; |options are awarded, a company should |trustees oppose plans that adversely affect |inde-pendent directors. There are also |
| |retirement, see pp. 13-14; and |develop plans for performance-based |shareholders, that are excessively generous,|calls for a remuneration committee that |
| |stock ownership, see p. 14. |options…. (pp. 17-18) |that lack clear and challenging performance |excludes executives that serve on each |
| | |See generally pp. 15-20 (Executive |goals, or that adversely affect employee |others’ remuneration committees, which could|
| | |Compensation) and Appendix (Guide-lines for |productivity and morale. (IV.C) |lead to conflicts of inter-est. (Annotation|
| | |Assessing Compensation Plans). |See generally IV.C, Executive and Director |to Principle VI.D.4) |
| | | |Compensation. |See Topic Heading 28, below. |
__________________________________
Footnote 37, continued)
cently, restricted stock has been identified as an incentive to better tie executive reward to longer-term corporate performance. Almost half (45 percent) report that restricted stock was increased or added to the CEO compensation program.”).
|GM Guidelines |ALI Principles & Recommendations |BRT Principles |NACD Report |Conference Board Recommendations |
|25. Board Access to Independent Advisors[?] |
|The Board, as well as each Committee, will |The directors of a publicly held corporation|In performing its oversight function, the |Boards should require that key com-mittees –|The Compensation Committee should retain any|
|retain independent outside finan-cial, |who have no significant relationship with |board is entitled to rely on the ad-vice, |compensation, audit, and nominating or |outside consultants who advise it, and the |
|legal, compensation, or other ad-visors as |the corporation’s senior executives should |reports and opinions of … coun-sel, auditors|governance – include only independent |outside consultants should report solely to |
|appropriate at the expense of the |be entitled, acting as a body by the vote of|and expert advisors. The board should |directors, and are free to hire independent |the Committee. (Part 1, Principle I, Best |
|Corporation. (Guideline 19) |a majority of such directors, to retain |assess the qualifications of those it relies|advisors as necessary. (p. 7) |Practice) |
| |legal counsel, accountants, or other |on and hold [them] accountable. (p. 3) |Boards and board committees occasionally |Boards should … retain … outside advisors |
| |experts, at the corporation’s expense, to |The board, through its audit commit-tee, |need independent advice. In most cases, the|and staff as appropriate, to fulfill their |
| |advise them on problems arising in the |bears responsibility for engaging an outside|company and the board can jointly satisfy |responsibilities. (Part 2, Principle II, |
| |exercise of their functions and powers…. |auditor to audit the corpora-tion’s |their needs through the retention of a |Best Practice 5) |
| |(§ 3.04) |financial statements and for ongoing |common resource. In other cases, given the |In the event an independent investiga-tion |
| |[W]here directors of either a publicly or |communications with the out-side auditor…. |different roles and responsibilities of |is reasonably likely to implicate company |
| |non-publicly held corporation are reviewing |(p. 5) |management and the board, the board may need|executives, the board and not management |
| |a conflict-of-interest transaction, it might|[T]he CEO necessarily relies on the expert |to retain its own profes-sional advisors. |should retain special counsel…. (Part 2, |
| |be appropriate to recognize a right to |advice of others on technical questions and |Board members and senior man-agement, as |Principle VII) |
| |expert assistance ... in the subset of |legal requirements. (p. 7) |necessary, should concurrently participate |[T]he board of directors should assess the |
| |directors who are disinterested…. (§ 3.04, |[Audit committee meetings] should be |in the selection of outside professionals |independence and qualifications of the |
| |Comment c) |scheduled with enough time to permit and |who give advice both to the board and to |members of the audit committee, using |
| |It is recommended … that [t]he audit |encourage active discussions with management|management. |outside counsel or consultants if |
| |committee … should: |and the internal and outside auditors. The |Under special circumstances, the board and |desirable…. (Part 3, Principle I, Best |
| |Recommend the firm to be employed as the |audit committee should meet with the |board committees may wish to hire their own |Practice 2) |
| |corporation’s external auditor and review |internal and outside auditors, without |outside counsel, consultants, and other |Members of the audit committee … should |
| |the proposed discharge of any such firm; |management present, at every meeting and |professionals to advise the board. |exercise their right to retain outside |
| |Review the external auditors’ compensation, |com-municate with them between meetings as |(p. 8) |advisors or educational con-sultants as they|
| |the proposed terms of its engagement, and |necessary. (p. 20) | |deem appropriate. (Part 3, Principle II, |
| |its independence…. |From time to time, it may be appropri-ate | |Best Practice 1) |
| |(§ 3A.03) |for boards and board committees to seek | |The company’s outside auditors should |
| |See Topic Heading 30, below. |advice from outside advisors in-dependent of| |include … areas of risk and vulnerability in|
| | |management with respect to matters within | |assessing … the company’s financial |
| | |their responsibility. … The Business | |statements and internal controls. (Part 3, |
| | |Roundtable believes that board and committee| |Principle III) |
| | |access to outside advisors in such cases is | |The audit committee should, if neces-sary, |
| | |an important element of an effective | |retain professional advisors with no other |
| | |cor-porate governance system. (pp. 27-28) | |ties to the company to assist it in carrying|
| | |See Topic Heading 30, below. | |out its functions. (Part 3, Principle V) |
| | | | |See Topic Heading 30, below. |
|CalPERS Principles/Guidelines |CII Policies |TIAA-CREF Policy Statement |AFL-CIO Voting Guidelines |OECD Principles/Millstein Report |
|25. Board Access to Independent Advisors |
| [The Lead Independent Director should] |Directors should receive training from |Independent advisors, including public |At companies that have not adopted an |The contributions of non-executive board |
|recommend to the Chair the retention of |independent sources on their fiduciary |accountants, law firms, investment bankers |independent board chairperson, the voting |members to the company can be enhanced by |
|consultants who report directly to the |responsibilities and liabilities. (p. 3) |and consultants can be critical to the |fiduciary should support the establishment |providing ... recourse to independent |
|Board.... (Appendix A: Lead Independent |The compensation committee should retain and|effectiveness of corporate gov-ernance and |of a lead independent director…. [A] lead |external advice at the expense of the |
|Director Position Duty Statement) |fire outside experts, including consultants,|enhance the legal and regulatory compliance |independent director … has the ability to |company. (Annotation to Principle VI.F) |
|[The Independent Chair should] approve, in |legal advisors and any other advisors when |of the corporate client…. Accordingly, |hire inde-pendent consultants necessary for |See Topic Heading 30, below. |
|consultation with other directors, the |it deems appropriate, including when |advisors should provide advice and support |the independent directors to effectively and| |
|retention of consultants who report directly|negotiating contracts with executives. |in the best interests of the corporate |responsibly perform their duties. (IV.A.8) | |
|to the board. |Compensation advisors should be independent |client as a whole and avoid any actual or |Executive compensation policies and plans | |
|(Appendix C: Independent Chair Position |of the company, its executives and |appearance of conflict of interest or undue |should be created by fully independent | |
|Duty Statement) |directors, and should report solely to the |influence of senior management. Such |directors – with the assistance of | |
|See Principle III.B.4 (The independent |committee. (p. 7) |advisors should not provide their |independent compensation consultants – and | |
|directors have access to advisers [on |See p. 2 (Committees should be able to |professional skills and expertise to enable |approved by shareholders. (IV.C) | |
|compensation for the CEO] who are |select their own service providers. Some |clients to engage in transactions or | | |
|independent of management.). |regularly scheduled committee meetings |corporate practices that are primarily | | |
| |should be held with only the committee |designed for the purpose of obscuring or | | |
| |members (and, if appropriate, the |disguising financial condition or to mislead| | |
| |committee’s independent consultants) |the market in other material ways. If | | |
| |present.). |advisors reasonably understand that their | | |
| |See also Topic Heading 30, below. |professional engagement and advice is being | | |
| | |misused for these purposes, they should seek| | |
| | |to bring such matters to the attention of | | |
| | |the independent directors. If advisors are| | |
| | |not reasonably satisfied that an appropriate| | |
| | |response is forthcoming from the company, | | |
| | |they should withdraw from the engagement and| | |
| | |if permitted by the advisor’s applicable | | |
| | |rules of professional conduct, they should | | |
| | |bring the matter to the attention of the | | |
| | |appropriate regulator. (p. 20) | | |
| | |TIAA-CREF encourages the board to work with | | |
| | |consultants who are inde-pendent of | | |
| | |management to develop carefully designed | | |
| | |cash pay, stock-based compensation and | | |
| | |fringe benefit programs that are clearly | | |
| | |understood by management and shareholders…. | | |
| | |(p. 16) | | |
| | |See p. 8 (Committees should have the right | | |
| | |to retain and evaluate outside | | |
| | |consultants….). | | |
| | |See also Topic Heading 30, below. | | |
|GM Guidelines |ALI Principles & Recommendations |BRT Principles |NACD Report |Conference Board Recommendations |
|26. Content & Character of Disclosure[?] |
|Not covered. |Directors, senior executives, and |[T]he CEO is responsible for provid-ing |Not covered directly, but see Topic Headings|The Compensation Committee must disclose in |
| |con-trolling shareholders, when interested |stockholders and others with information |27-30, below. |conspicuous ways the ef-fective costs passed|
| |in a matter affecting the corporation, are |that the CEO believes is important to | |on to shareholders through dilution or any |
| |under a duty of fair dealing, which … |understanding the corporation’s business. | |direct costs associated with shares acquired|
| |includes the obligation to make appropriate |(p. 7) | |in the open market to limit that dilution. |
| |disclosure…. (§ 5.01) |Corporations have a responsibility to | |(Part 1, Principle III, Best Practice) |
| | |communicate effectively and candidly with | |[C]osts associated with equity-based |
| | |stockholders. The goal of stock-holder | |compensation should be reported on a uniform|
| | |communications should be to help | |and consistent basis by all public |
| | |stockholders understand the business, risk | |companies. (Part 1, Principle V) |
| | |profile, financial condi-tion, and operating| |[F]ixed price stock options should be |
| | |performance and trends of the corporation. | |expensed on financial statements of public |
| | |(p. 30) | |companies. (Part 1, Principle V, Best |
| | |In planning communications with stockholders| |Practice) |
| | |and investors, corpora-tions should | |Shareholder and market interests are best |
| | |consider: | |served through transparent and readily |
| | |Candor. Directors and manage-ment should | |understandable disclosure of executive |
| | |never mislead or misinform stockholders | |compensation and the econ-omic impact of |
| | |about the corporation’s operations or | |such compensation. Public trust would be |
| | |financial condition. | |enhanced if the Compensation Committee took |
| | |Need for timely disclosure. In an age of | |spec-fic steps and implemented policy to |
| | |instant communication, there is an | |further reassure the public that senior |
| | |increasing need for corporations to disclose| |management is not engaged in stock |
| | |signifi-cant information closer to the time | |transactions involving the company in |
| | |when it arises and becomes available. The | |advance of material information being |
| | |Business Round-table supports the beneficial| |available to the public. These policies |
| | |trend toward prompt disclosure…. | |should be disclosed in filings with the SEC.|
| | |Ultimate goal of stockholder communications.| |(Part 1, Principle VII) |
| | |Whatever the substance of the communication,| |In the event that the board chooses not to |
| | |the corporation’s ultimate goal should be to| |implement a proposal that receives a |
| | |furnish information that is honest, | |substantial percentage [of share-holder |
| | |intelligible, meaningful, timely and broadly| |votes], even if less than a majority of the |
| | |disseminated, and that gives investors a | |votes cast, it should publicly disclose its |
| | |realistic picture of the corporation’s | |reasons for its actions. (Part 2, Principle|
| | |financial condition and results of | |VII, Best Practice 4) |
| | |operations through the eyes of management. | | |
| | |(p. 31) | | |
|CalPERS Principles/Guidelines |CII Policies |TIAA-CREF Policy Statement |AFL-CIO Voting Guidelines |OECD Principles/Millstein Report |
|26. Content & Character of Disclosure |
|Not covered. |Committee members should take an active role|Not covered directly, but see Topic Headings|Not covered directly, but see Topic Headings|The corporate governance framework should |
| |in preparing the compensation committee |27-30, below. |27-30, below. |ensure that timely and accurate disclosure |
| |report contained in the annual proxy | | |is made on all material mat-ters regarding |
| |materials, and be responsible for the | | |the corporation, in-cluding the financial |
| |contents of that report. (p. 7) | | |situation, per-formance, ownership, and |
| | | | |governance of the company. (Principle V) |
| | | | |Disclosure should include, but not be |
| | | | |limited to, material information on: |
| | | | |The financial and operating re-sults of the |
| | | | |company. |
| | | | |Company objectives. |
| | | | |Major share ownership and voting rights. |
| | | | |Remuneration policy for mem-bers of the |
| | | | |board and key execu-tives, and information |
| | | | |about board members, including … whether |
| | | | |they are regarded as independent by the |
| | | | |board. |
| | | | |Related party transactions. |
| | | | |Foreseeable risk factors. |
| | | | |Issues regarding employees and other |
| | | | |stakeholders. |
| | | | |Governance structures and poli-cies…. |
| | | | |(Principle V.A) |
| | | | |Information should be prepared and disclosed|
| | | | |in accordance with high quality standards of|
| | | | |accounting and financial and non-financial |
| | | | |disclosure. (Principle V.B) |
| | | | |Channels for disseminating informa-tion |
| | | | |should provide for equal, timely and |
| | | | |cost-efficient access to relevant |
| | | | |information by users. (Principle V.E) |
| | | | |See Millstein Report, Perspectives 9 – 10 |
| | | | |(Regulators should require that corporations|
| | | | |disclose accurate, timely information [and] |
| | | | |co-operate interna-tionally in developing |
| | | | |clear, consistent and comparable standards |
| | | | |for disclosure.). |
_________________________________
(Footnote 39, continued)
meet in private session. Companies identify which members of the Audit Committee are financial experts and what criteria have been used in so naming them. Many companies are including the charters of the various board committees in the proxy itself.”); id. at 33 (“Almost all (96 percent) respondents state their board has written guidelines on corporate governance, compared with 71 percent in 2002.”).
|GM Guidelines |ALI Principles & Recommendations |BRT Principles |NACD Report |Conference Board Recommendations |
|27. Disclosure Regarding Compensation |
|Not covered. |Not covered directly, but see § 5.03 (duty |Not covered directly, but see p. 32 (Because|Boards should disclose fully in the proxy |Shareholder and market interests are best |
| |of fair dealing with respect to director and|stockholders have a particu-lar interest in |statement the philosophy and process used to|served through transparent and readily |
| |senior executive compen-sation). |the amount and nature of equity compensation|determine director compensation and the |understandable disclosure of executive |
| | |paid to directors and senior management, |value of all elements of compensation. (p. |compensation and the econ-omic impact of |
| | |corporations should obtain stockholder |7) |such compensation. Public trust would be |
| | |approval of new stock option and restricted | |enhanced if the Compensation Committee took |
| | |stock plans in which directors or executive | |spec-fic steps and implemented policy to |
| | |officers participate.). | |further reassure the public that senior |
| | | | |management is not engaged in stock |
| | | | |transactions involving the company in |
| | | | |advance of material information being |
| | | | |available to the public. These policies |
| | | | |should be disclosed in filings with the SEC.|
| | | | |(Part 1, Principle VII) |
| | | | |Executive officers should be required to |
| | | | |give advance public notice of their |
| | | | |intention to dispose directly or indi-rectly|
| | | | |(e.g., by hedging or other simi-lar |
| | | | |arrangement) of the corporation’s equity |
| | | | |securities…. [T]he Compensa-tion Committee |
| | | | |… should develop and publish appropriate |
| | | | |methods by which disclosure of such |
| | | | |intentions must be made. Companies should |
| | | | |be required to disclose publicly employment |
| | | | |agreements entered into with execu-tive |
| | | | |officers promptly following their execution.|
| | | | |(Part 1, Principle VII, Best Practice) |
| | | | |[A]ny compensation arrangement for a senior |
| | | | |executive officer involving any subsidiary, |
| | | | |special purpose entity (“SPE”) or other |
| | | | |affiliate … should be disclosed in filings |
| | | | |with the SEC. (Part 1, Principle I, Best |
| | | | |Practice) |
|CalPERS Principles/Guidelines |CII Policies |TIAA-CREF Policy Statement |AFL-CIO Voting Guidelines |OECD Principles/Millstein Report |
|27. Disclosure Regarding Compensation |
|Executive compensation policies should be |The compensation philosophy should be |The board should develop an equity policy |The trustees generally believe that |Disclosure should include, but not be |
|transparent to shareowners. The policies |clearly disclosed to shareowners in annual |that reflects its broad philosophy regarding|shareholders benefit from full disclo-sure |limited to, material information on ... |
|should contain, at a minimum, compensation |proxy statements…. Best prac-tices would |the proportion of stock that the company |of all forms of compensation received by |[r]emuneration policy for members of the |
|philosophy, the targeted mix of base |include shareowner approval of the |intends to be available for executive |senior executives. Requiring shareholder |board and key executives…. (Principle |
|compensation and “at risk” compensation, key|compensation philos-ophy. (p. 6) |compensation and communicate that policy to |approval of important compensation matters |V.A.4) |
|methodologies for alignment of interest, and|The compensation committee should establish |shareholders. The board should establish |also provides an important safeguard against|Information about board and executive |
|parameters for guidance of employment |performance measures for executive |limits on the number of shares to be |excessive executive pay. The voting |remuneration is … of concern to |
|contract provisions, including severance |compensation that are agreed to ahead of |available for option programs, as measured |fiduciary should support pro-posals seeking |shareholders. Of particular interest is the |
|packages. Companies should submit executive|time and publicly disclosed. (p. 7) |by potential dilution, and should disclose |to expand the disclo-sure of executive |link between remuneration and company |
|compensation policies to shareowners for |The compensation committee is re-sponsible |the terms of those programs…. (p. 7) |compensation or to enhance shareholders’ |performance. Companies are generally |
|approval. (Principle III.C.3) |for ensuring that all aspects of executive |All policies [regarding executive |voting rights on compensation matters. The |expected to disclose inform-ation on the |
|All equity-based compensation plans should |compensation are clearly, comprehensively |compensation] should be disclosed to |voting fiduciary should also support |remuneration of board members and key |
|be shareowner-approved. All material |and promptly dis-closed, in plain English, |shareholders upon adoption by the full |propos-als to enhance the transparency of |executives so that investors can assess the |
|changes to existing equity-based |in the annual proxy statement regardless of |board. (p. 10) |the executive compensation process. Such |costs and benefits of remuneration plans and|
|compensation plans, including re-pricings of|whether such disclosure is required by |Disclosure to shareholders about executive |proposals may include the adoption of |the contribution of incentive schemes, such |
|any form, should be shareowner-approved. |current rules and regulations. The |compensation should be full and complete, |compensation committee charters or |as stock option schemes, to company |
|(Guideline IV.D.11) |compensa-tion committee should disclose all |and should be adequate to enable a |supplemental reports on compensation |performance. Disclosure on an individual |
| |information necessary for shareowners to |reasonably sophisticated investor to |practices. (IV.C.7) |basis (including termina-tion and retirement|
| |understand how and how much executives are |evaluate and assess the total compensation |Shareholder evaluation of [non-executive] |provisions) is increasingly regarded as good|
| |paid and how such pay fits within the |package as well as particular elements. (p.|director compensation is especially |practice and is now mandated in several |
| |overall pay structure of the company. It |16) |important since directors are responsible |coun-tries. In these cases, some |
| |should provide annual proxy statement |Equity-based plans should fully disclose the|for compensating themselves…. To enhance |jurisdic-tions call for remuneration of a |
| |disclosure of the com-mittee’s compensation |size of grants, potential value to |directors’ independence from management, |certain number of the highest paid |
| |decisions with respect to salary, short-term|recipients, cost to the company, and plan |di-rector compensation plans should be |executives to be disclosed, while in others |
| |incentive compensation and all other aspects|provisions that could have a material impact|separate from executive compensation plans |it is confined to specified positions. |
| |of executive compensation, including the |on the number and value of shares |and should be voted on sepa-rately by |(Annotation to Principle V.A.4) |
| |relative weights assigned to each com-ponent|distributed. (p. 17) |shareholders. (IV.C.9) | |
| |of total compensation. (p. 7) |When developing fringe benefit plans, the | | |
| |See p. 2 (The company should disclose |board should be guided by the same | | |
| |information necessary for shareholders to |principles of disclosure, reasonableness and| | |
| |determine whether directors qualify as |fairness that guide development of other | | |
| |independent…. This information should |compensation plan components. (p. 19) | | |
| |include all financial or business |Executive contracts and their costs also | | |
| |relationships with and payments to directors|should be disclosed. (p. 19) | | |
| |and their families and all significant |See p. 5 (The Board should approve and | | |
| |payments to companies, non-profits, |disclose to shareholders any mon-etary | | |
| |foundations and other organizations where |arrangements with directors for services | | |
| |company directors serve….). |outside normal board activities.). | | |
|GM Guidelines |ALI Principles & Recommendations |BRT Principles |NACD Report |Conference Board Recommendations |
|28. Disclosure Regarding Corporate Governance[?] |
|All Committee charters are available on the |Not covered. |A corporate governance committee should |Boards should establish guidelines for … |Boards that choose not to take any of these |
|Corporation’s Web site…. (Guide-line 28) | |develop and recommend to the board a set of |committees…. (p. 7) |approaches [for separating Chair-man and CEO|
|These guidelines are also available on our | |corporate governance principles applicable |[T]o ensure board independence: |or for Lead/Presiding Director -- see Topic |
|Web site…. (Guideline 35) | |to the corporation. These principles should|Boards should define and disclose to |Headings 4 & 5, above] should explain their |
|See Guideline 8 (On matters of corpo-rate | |be communi-cated to the corporation’s |shareholders a definition of “independent |reasons for doing so, as well as the board |
|governance, the Board assumes decisions will| |stockholders and should be readily available|director.” |structure which they employ to achieve the |
|be made by the inde-pendent Directors.). | |to pro-spective investors and other |Boards should require that director |objectives of strong, independent board |
| | |interested persons. (p. 22) |candidates disclose all existing busi-ness |leadership. (Part 2, Principle I, Best |
| | |See p. 2 (Effective corporate govern-ance |relationships between them or their employer|Practice 3) |
| | |requires a proactive, focused state of mind |and the board’s company. |Among the practices which boards should |
| | |on the part of directors, the CEO and senior|Boards should then evaluate the extent to |consider for establishing an ethical |
| | |management, who all must be committed to |which, if any, a candidate’s other |corporate culture are … disclo-sure of |
| | |business success through maintenance of the |activities may impinge on his or her |practices and processes the company has |
| | |highest standards of responsibility and |independence as a board member, and |adopted to promote ethi-cal behavior. (Part|
| | |ethics. … A good corporate governance |determine when relationships are such that a|2, Principle VI, Best Practice 3) |
| | |struc-ture is a working system for |candidate can no longer be considered |The board should understand the obligations |
| | |principled goal-setting, effective |independent. |under the [Sarbanes-Oxley] Act that the |
| | |decision-making and appropriate monitoring |(p. 12) |company must disclose whether or not one or |
| | |of compli-ance and performance. Through |Shareholders’ understanding of board and |more members of the audit committee qualify |
| | |such a vibrant and responsive structure, the|director assessment processes and criteria |as financial experts within the meaning of |
| | |CEO, the management team and the board of |is indispensable to both board credibility |regula-tions promulgated pursuant to the Act|
| | |directors can interact effec-tively and |and shareholders’ ability to appraise the |and, if not, why not. (Part 3, Principle I,|
| | |respond quickly to changing circumstances, |board’s recommended re-solutions and |Best Practice 3) |
| | |within a framework of solid corporate |proposed slate of directors. Boards should |See Part 2, Principle IV, Best Practice 5 |
| | |values, to provide en-during value to the |disclose evaluation procedures to |([T]he nominating/governance commit-tee |
| | |stockholders who invest in the enterprise…. |shareholders in the proxy statement or other|should recommend to the full board of |
| | |An effective system of corporate governance |shareholder communication. Board disclosure|directors … corporate governance principles |
| | |provides the framework within which the |of procedures is distinct from sharing the |for adoption by the full board….). |
| | |board and manage-ment address their |substance of such deliberations, which | |
| | |respective responsi-bilities.). |should be confidential. (p. 19) | |
| | | |[T]he board should … seek disclosure of any | |
| | | |relationships that would appear to | |
| | | |compromise director independence. (p. 22) | |
|CalPERS Principles/Guidelines |CII Policies |TIAA-CREF Policy Statement |AFL-CIO Voting Guidelines |OECD Principles/Millstein Report |
|28. Disclosure Regarding Corporate Governance |
|No board can truly perform its over-riding |[E]very company should … have writ-ten |[N]on-management directors should evaluate |[S]hareholders have introduced pro-posals |Disclosure should include, but not be |
|functions of establishing a company’s |disclosed governance procedures and |the independence of each of their fellow |asking for clarification on the role the |limited to, material information on: |
|strategic direction and then monitoring |policies…. The Council posts its corporate |directors based on all information available|board of directors, as repre-sentatives of |…. |
|management’s success without a system … |governance policies on its web site…; it |to them, and should disclose to shareholders|the shareholders, play in developing |2. Company objectives. |
|including: |hopes corporate boards will meet or exceed |how they determine that directors are |business. The fiduciary should support |3. Major share ownership and voting |
|The board has adopted a written state-ment |these standards and adopt similarly |capable of acting independently. (p. 4) |proposals asking for such additional |rights. |
|of its own governance principles and |appropriate additional policies to best |The board should develop a clear and |disclosure. (IV.A.12) |4. [I]nformation about board members |
|regularly re-evaluates them. (III.B and |protect shareholders’ interests. (p. 1) |meaningful set of governance principles and |More disclosure from management to |[including] whether they are re-garded as |
|Principle III.B.1) |The company should disclose informa-tion |disclose them to shareholders on the |shareholders on most corporate |independent by the board. |
|[E]ach corporation should publish in their |necessary for shareholders to determine |company’s website, as well as in the annual |respon-sibility issues is generally |…. |
|proxy statement the definition [of |whether directors qualify as independent…. |report or proxy statement. (p. 6) |desirable…. [S]hareholder support of |8. Governance structures and policies, |
|“independence”] adopted or relied upon by |The process by which committee members and |Each committee should create and disclose to|proposals that request reports on particular|in particular, the content of any cor-porate|
|its board. (Guideline IV.A.1) |chairs are selected should be disclosed to |shareholders a clear and meaningful charter |issues may provide a useful focus. (IV.F) |governance code or policy and the process by|
|See Appendix A: Lead Independent Directors’|share-holders. (p. 2) |specifying its role and responsibilities…. |See IV.D.9 (To enable investors to monitor |which it is im-plemented. |
|Position Duty Statement ([The Lead |Companies should disclose individual |(p. 9) |potential conflicts of interest by money |(Principle V.A.8) |
|Independent Director should] assist the |director attendance figures for board and |See p. 10 (The corporate governance/ |managers who vote proxies on behalf of |Capital structures and arrangements that |
|Board and Company officers in assuring |committee meetings. (p. 3) |nominating committee … should be charged to |investors at the same companies to which |enable certain shareholders to ob-tain a |
|compliance with, and implementation of, the |The proxy statement should … include a copy |make recommendations related to the |they market other financial services, the |degree of control disproportion-ate to their|
|Company’s [governance guidelines, and is] |of the audit committee charter and a |preparation of corporate governance |trustees strongly support after-the-fact |equity ownership should be disclosed. |
|princi-pally responsible for recommending |statement by the audit committee that it has|principles….). |proxy vote dis-closure by third-party |(Principle II.D) |
|revisions to the guidelines.). |complied with the duties outlined in the |See also p. 13 (Institutional investors … |fiduciaries to their clients, whether these |Particularly for enforcement purposes, and |
|See also Appendix C: Independent Chair |charter. (p. 4) |should assure that their own internal |clients are institutional investors such as |to identify potential conflicts of interest,|
|Position Duty Statement ([The Independent |To perform its oversight duties, the |corporate governance practices meet high |pension funds or individual mutual fund |related party transactions and insider |
|Chair should] assist the Board and Company |[compensation] committee should ap-prove, |standards of accountability, transparency |share-holders.). |trading, information about re-cord ownership|
|officers in assuring compliance with and |comply with and fully disclose a charter |and fiduciary responsibility.). |See also IV.F.1 (A large portion of both |may have to be com-plemented with |
|implementation of the Company’s [governance |detailing its responsibilities. (p. 6) | |domestic and overseas manufac-turing is done|information about beneficial ownership. In |
|guidelines, and is] principally responsible |Use of outside compensation consulting firms| |through contracting and subcontracting, |cases where major shareholdings are held |
|for recommending revisions to the |retained by the compensation committee | |rather than through facilities owned |through intermediary structures or |
|guidelines.). |should be disclosed, along with the | |directly by the com-panies. This makes it |arrange-ments, information about the |
| |compensation committee’s assessment of the | |possible for a company’s products to be |beneficial owners should therefore be |
| |advisors’ independence and a description of | |produced in conditions that violate |obtainable at least by regulatory and |
| |other business performed for the company. | |international labor standards, with all of |enforcement agencies and/or through the |
| |(p. 7) | |the attend-ant liabilities…. [C]ompanies |judicial process. (Annotation to Principle |
| | | |should establish a monitoring process that |V.A.3) |
| | | |includes disclosure and independent |[C]orporations should disclose the extent to|
| | | |verification of contractors’ compliance with|which they pursue projects and policies that|
| | | |labor standards. (IV.F.1) |diverge from the primary corporate objective|
| | | |See generally IV.D, Corporate Governance and|of generating long-term economic profit so |
| | | |Changes in Control, and IV.F, Corporate |as to enhance shareholder value in the long |
| | | |Responsibility. |term. (Millstein Report, Perspective 21) |
|GM Guidelines |ALI Principles & Recommendations |BRT Principles |NACD Report |Conference Board Recommendations |
|29. Accuracy of Disclosure, Internal Control Systems & Liability[?] |
|Not covered. |A director, senior executive, or con-trolling|In performing its oversight function, the |Not covered directly, but see p. 10 (Among |Public companies should revise their |
| |shareholder makes “disclosure concerning a |board is entitled to rely on the ad-vice, |the most important missions of the board is |internal controls to reflect a broad |
| |transaction” if the direc-tor, senior |reports and opinions of manage-ment, counsel,|ensuring that share-holder value is both |risk-based approach and to support the |
| |executive, or controlling shareholder |auditors and expert advisors. (p. 3) |enhanced through corporate performance and |certification process for both financial |
| |discloses to the corporate decisionmaker who |While financial reports are primarily the |protected through adequate internal |reports and internal controls. |
| |authorizes in advance or ratifies the |responsibility of management, the board and |financial controls. Boards should seek |Boards should be responsible for overseeing |
| |transaction in question the material facts |its audit committee should take reasonable |candidates with expertise in financial |corporate ethics…. “Tone at the top” is |
| |known to the director, senior executive, or |steps to be comfort-able that the |accounting and corporate finance.). |critical to responsible behavior throughout |
| |controlling shareholder concerning the |corporation’s financial statements and other | |the corporation, as are appropriate |
| |transaction, or if the corporate |disclosures accurately present the | |management processes and “follow though” on |
| |decisionmaker knows of those facts at the |corporation’s financial condition and results| |violations of a company’s code of conduct. |
| |time the transaction is authorized or |of op-erations to stockholders…. In order to| |(Part 2, Principle VI) |
| |ratified. (§ 1.14(b)) |do this, the board, through its audit | |All companies should have an internal audit |
| |[T]he corporation, in the conduct of its |committee, should have a broad under-standing| |function, regardless of whether it is an |
| |business … [i]s obliged, to the same extent |of the corporation’s financial statements, | |“in-house” function or one per-formed by an |
| |as a natural person, to act within the |including why the account-ing principles | |outside accounting firm [not] the regular |
| |boundaries set by law. (§ 2.01(b) (1)) |critical to the corpora-tion’s business were | |outside auditors. (Part 3, Principle III, |
| |[The] audit committee [should] implement and |chosen, what key judgments and estimates were| |Best Practice 1) |
| |support the oversight function of the board |made by management, and how the choice of | | |
| |by reviewing on a periodic basis the |principles, and the making of such judgments | | |
| |corporation’s processes for producing |and estimates, impacts the reported financial| | |
| |financial data, its internal controls, and |results…. (p. 5) | | |
| |the independ-ence of the corporation’s |It is senior management’s responsibil-ity to | | |
| |external auditor. (§ 3.05) |put in place and supervise the operation of | | |
| |It is recommended … that [t]he audit |systems that allow the corporation to produce| | |
| |committee … should: |financial state-ments that fairly present the| | |
| |…. |corpora-tion’s financial condition…. (p. 9) | | |
| |(e) Review the results of each external |A corporation should have an effective system| | |
| |audit…; |of internal controls providing reasonable | | |
| |(f) Review the corporation’s annual |assurance that the corpora-tion’s books and | | |
| |financial statements…; |records are accurate, that its assets are | | |
| |(g) Consider, in consultation with the |safeguarded and that it complies with | | |
| |external auditor and the senior internal |applicable laws. (p. 10) | | |
| |auditing executive, if any, the adequacy of |The audit committee should under-stand and be| | |
| |the corporation’s internal controls; |familiar with the corpora-tion’s system of | | |
| |(h) Consider major changes and other |internal controls and on a periodic basis | | |
| |major questions of choice respect-ing |should review with both internal and outside | | |
| |appropriate auditing and accounting |auditors the adequacy of the system. (p. 18)| | |
| |principles and practices…. (§ 3A.03) | | | |
|CalPERS Principles/Guidelines |CII Policies |TIAA-CREF Policy Statement |AFL-CIO Voting Guidelines |OECD Principles/Millstein Report |
|29. Accuracy of Disclosure, Internal Control Systems & Liability |
|Not covered. |Not covered directly, but see p. 2 (The |The board should … be responsible for …the |[T]he voting fiduciary may support |The board should ... [e]nsur[e] the integrity|
| |Council believes that U.S. companies should |assurance of the corporation’s financial |liability-limiting proposals when … |of the corporation’s account-ing and |
| |not reincorporate offshore because corporate |integrity…. The board should put in place |necessary to attract and retain direc-tors, |financial reporting systems, including the |
| |governance structures there are weaker and |structures and processes that enable it to |but [should] generally oppose |independent audit, and that appropriate |
| |therefore reduce management accountability to |carry out these responsibilities effectively.|liability-limiting proposals. The vot-ing |systems of control are in place, in |
| |share-holders.). |(p. 3) |fiduciary should also oppose pro-posals to |particular, systems for risk management, |
| |See also p. 3 (Directors should receive |The board should mandate strong internal |reduce or eliminate direc-tors’ personal |financial and operational control, and |
| |training from independent sources on their |controls, avoid board member conflicts of |liability when litigation is pending against|compliance with the law and relevant |
| |fiduciary responsibilities and liabilities. |interest, and promote fiscal accountability |current board mem-bers. Shareholder |standards [and] [o]ver-see[] the process of |
| |Directors have an affirmative obligation to |and compliance with all applicable laws and |proposals may seek to provide for personal |disclosure and communications. (Principles |
| |become and remain inde-pendently familiar with|regulations…. The board also should develop |monetary liability for fiduciary breaches |VI.D.7 – VI.D.8) |
| |company opera-tions; they should not rely |procedures that require that it be informed |arising from gross negligence and should |Ensuring the integrity of the essential |
| |exclusively on information provided to them by|of violations of corporate standards. (p. 6)|generally be supported to strengthen the |reporting and monitoring systems will require|
| |the CEO to do their jobs.). |The audit committee plays a critical role in |call for promoting personal direc-tor |the board to set and enforce clear lines of |
| |See also p. 9 (Executives should be re-quired |ensuring the corporation’s financial |accountability…. |responsibility and ac-countability throughout|
| |to repay incentive compensation to the company|integrity and consideration of legal and |[T]he voting fiduciary may support [director|the organisa-tion. The board will also need |
| |in the event of malfeas-ance involving the |compliance issues…. [It] is responsible for |indemnification] proposals when … necessary |to en-sure that there is appropriate |
| |executive, or fraudu-lent or misleading |the adequacy and effectiveness of the |to attract and re-tain directors [but |oversight by senior management. One way of |
| |accounting that results in substantial harm to|company’s internal controls and the |should] generally oppose indemnification |doing this is through an internal audit |
| |the corpo-ration.). |effectiveness of manage-ment’s process to |when it is being proposed to insulate |system directly reporting to the board. ... |
| | |monitor and manage business risks facing the |directors from actions they have already |Companies are also well advised to set up |
| | |company. (p. 9) |taken. (IV.A.5) |internal programmes and pro-cedures to |
| | |Directors should be held accountable to the |A company operating in a repressive |promote compliance with applicable laws, |
| | |shareholders and the corporation for willful |environment, either directly or through its |regulations and stand-ards, including |
| | |or gross negligence of their duty of loyalty |contracting relationships, has an obligation|statutes to criminalise bribery of foreign |
| | |and their duty of care and should not obtain |to keep shareholders informed of its efforts|officials…. (Annotation to Principle VI.D.7) |
| | |insurance for these types of conduct. |to counter re-pression and to demonstrate |Policy makers and regulators should |
| | |Exclusive of this, the corporation should be |that it is not implicitly acquiescing in |articulate clearly the legal standards that |
| | |free to indemnify directors for legal |other parties’ repressive practices. Taking|govern shareholder, director and management |
| | |expenses and judgments in connection with |such actions will help the company to |authority and accountability, including their|
| | |their service as directors. (p. 12) |protect its reputation and to reduce its |fiduciary roles and legal liabilities.... |
| | | |vulnerability to lawsuits. (IV.F.1) |[L]egal standards should be flexible and |
| | | |The trustees generally support en-hanced |permissive of evolution. (Millstein Report, |
| | | |disclosure to shareholders on how the |Perspective 13) |
| | | |company addresses issues that may present |See Topic Headings 26 – 28, above, and Topic |
| | | |significant risk to long-term corporate |Heading 30, below. |
| | | |value. (IV.F.5) | |
| | | |See Topic Heading 28, above. | |
__________________________________
(Footnote 41, continued)
quirements) at 19. Upon finding a violation of a listing standard, the NYSE may issue a public reprimand letter to any listed company and ultimately suspend or delist an offending company. Id. The Sarbanes-Oxley Act provides “whistle blower” protections. Id. at 8. See 2004 Korn/Ferry Study at 36 (“Almost all (99 percent) of respondents’ boards have complied with the requirements set for by Sarbanes-Oxley…. Respondents state the average cost to the company to implement the required changes is $5.1 million. Ongoing compliance will trim an average of $3.7 million in total from the corporate bottom line.”).
|GM Guidelines |ALI Principles & Recommendations |BRT Principles |NACD Report |Conference Board Recommendations |
|30. Auditor Independence[?] |
|Not covered directly, but see Topic Heading |It is recommended … that [t]he audit |The board, through its audit commit-tee, |Not covered directly, but see Topic Heading |Audit committees should consider rotating |
|25, above. |committee … should: |bears responsibility for engaging an outside|25, above. |audit firms when there is a combination of |
| |Recommend the firm to be employed as the |auditor to audit the corpora-tion’s | |circumstances that could call into question |
| |corporation’s external auditor and review |financial statements and for ongoing | |the audit firm’s independence from |
| |the proposed discharge of any such firm; |communications with the out-side auditor. | |manage-ment…. Alternatively, the |
| |Review the external auditors’ compensation, |The board, through its audit committee, | |Commis-sion suggests that the audit |
| |the proposed terms of its engagement, and |should periodically consider the | |commit-tees of public companies allow the |
| |its independence…. |independence and contin-ued tenure of the | |current auditor as well as other quali-fied |
| |(§ 3A.03) |auditor. (p. 5) | |firms to submit proposals in the review |
| |Subsection (a) … is designed to en-hance the|The selection of an outside auditor should | |process for an audit engage-ment…. Even if |
| |independence of the external auditor in the |involve an annual due diligence process in | |the company’s pre-vious auditor is selected,|
| |event of conflict. |which the audit committee reviews the … | |the bidding process would emphasize the |
| |[In performing its functions described in |independence … of the proposed outside | |point to external auditors that they report |
| |Subsection (b),] the [audit] commit-tee |auditor. (p. 17) | |to the audit committee, rather than |
| |should carefully consider any matters that |The audit committee should consider the | |management…. |
| |might affect the external auditor’s |independence of the outside auditor and | |Public accounting firms should limit their |
| |independence, such as the extent to which |should develop policies concerning the | |services to their clients to performing |
| |the external auditor performs non-audit |provision of non-audit services by the | |audits and to providing closely related |
| |services. (§ 3A.03, Comment c) |outside auditor. The provision of some | |services that do not put the auditor in an |
| | |types of audit-related and consulting | |advocacy position, such as novel and |
| | |services by the outside auditor may not be | |debatable tax strate-gies and products that |
| | |inconsist-ent with independence or the | |involve income tax shelters and extensive |
| | |attesta-tion function. In considering | |off-shore partnerships or affiliates…. The |
| | |whether the outside auditor should provide | |Commission does not believe that there is a |
| | |certain types of non-audit services, the | |conflict of interest in a public accounting |
| | |audit committee should consider the degree | |firm providing certain income tax and other |
| | |of review and oversight that may be | |services, such as preparing tax returns for |
| | |appropriate for new and exist-ing services. | |corporations, provided that these services |
| | |When making independ-ence judgments, the | |do not place the auditor in the role of |
| | |audit committee should consider the nature | |acting as advocate for the company. (Part |
| | |and dollar amount of all services provided | |3, Principle VI) |
| | |by the outside auditor. (p. 17-18) | | |
|CalPERS Principles/Guidelines |CII Policies |TIAA-CREF Policy Statement |AFL-CIO Voting Guidelines |OECD Principles/Millstein Report |
|30. Auditor Independence |
|Not covered directly, but see Topic Heading|As prescribed by law, the audit com-mittee |The audit committee … has sole authority to |The trustees believe that auditor |An annual audit should be conducted by an |
|25, above. |has the responsibility to hire, oversee and,|hire and fire the corporation’s independent |inde-pendence is essential for the rendering|independent, competent and qualified auditor |
| |if necessary, fire the com-pany’s outside |auditors. When selecting auditors, the |of objective opinions on which inves-tors |in order to provide an external and objective|
| |auditor. |committee should consider the outside firm’s|can rely. Further, the trustees believe |assurance to the board and shareholders that |
| |The audit committee should seek competitive |independence. The committee should ensure |that a company’s engagement of its audit |the finan-cial statements fairly represent |
| |bids for the external audit engagement no |that the firm’s independence is not |firm to perform non-audit services |the financial position and performance of the|
| |less frequently than every five years. |compromised by the provision of non-audit |(audit-related, tax and all other services) |company in all material respects. (Principle|
| |The company’s external auditor should not |services. The committee should establish |may compromise the independence of the audit|V.C) |
| |perform any non-audit services for the |limitations on the type and amount of such |firm, or give rise to questions and concerns|The board should fulfill certain key |
| |company, except those required by statute or|services that the audit firm can provide. |about the integrity and reliability of the |functions, including … [e]nsuring the |
| |regulation to be performed by a company’s |The committee should also consider imposing |auditor’s work…. Real and perceived auditor|integrity of the corporation’s account-ing |
| |external auditor, such as attest services. |limitations on the corporation’s ability to |conflicts are most serious when non-audit |and financial reporting systems, including |
| |(p. 4) |hire staff from the audit firm, and |services constitute a significant percentage|the independent audit…. (Principle VI.D.7) |
| | |requiring periodic rotation of the outside |of the total fees paid by the company to the|It is increasingly common for external |
| | |audit firm. (p. 9) |auditor, or when the nature of these |auditors to be recommended by an independent |
| | |See p. 6 ([T]hrough the audit committee, the|non-audit services places the auditor in the|audit committee of the board or an equivalent|
| | |board should be directly engaged in the |role of advocate for the company or its |body and to be appointed either by that |
| | |selection and oversight of the corporation’s|executives (e.g., advising the company or |committee/ body or by shareholders directly. |
| | |external audit firm.). |its executives on tax avoidance stra-tegies |More-over, the IOSCO Principles of Audit-or |
| | | |or executive compensation). The trustees |Independence and the Role of Corporate |
| | | |also believe that an audit firm’s |Governance in Monitor-ing an Auditor’s |
| | | |independence can be compro-mised when the |Independence states that, “standards of |
| | | |company has em-ployed the same audit firm |auditor independ-ence should establish a |
| | | |for a sub-stantial period of time…. |framework of principles, supported by a |
| | | |The trustees prefer that companies only |combination of prohibitions, restrictions, |
| | | |engage their auditors to perform audit |other poli-cies and procedures and |
| | | |services. The trustees acknow-ledge, |disclosures, that addresses at least the |
| | | |however, that the performance of certain |following threats to independence: |
| | | |non-audit services—audit-related services |self-interest, self-review, advocacy, |
| | | |and routine tax ser-vices that do not |familiarity and intimidation.” |
| | | |involve advocacy—do not necessarily |The audit committee or an equivalent body … |
| | | |compromise the independence of the audit |should … be charged with overseeing the |
| | | |process. (IV.B) |overall relationship with the external |
| | | |The voting fiduciary should support |auditor…. (Annotation to Principle V.C) |
| | | |shareholder proposals to enhance auditor |See Annotation to Principle V.C (A number of |
| | | |independence…. (IV.B.2) |countries are tightening audit oversight |
| | | |See generally IV.B, Auditors. |through an independent entity … acting in |
| | | | |the public interest [that] provides oversight|
| | | | |over the qual-ity and implementation, and |
| | | | |ethical standards used in the |
| | | | |jurisdiction….). |
|GM Guidelines |ALI Principles & Recommendations |BRT Principles |NACD Report |Conference Board Recommendations |
|31. Shareholder Voting Practices (Cumulative & Confidential Voting, Broker Non-Votes, One Share/One Vote) |
|Not covered. |Not covered directly, but see Topic Heading |Not covered directly, but see Topic Heading |Not covered. |Not covered directly, but see Topic Heading |
| |32, below. |32, below. | |32, below. |
|CalPERS Principles/Guidelines |CII Policies |TIAA-CREF Policy Statement |AFL-CIO Voting Guidelines |OECD Principles/Millstein Report |
|31. Shareholder Voting Practices (Cumulative & Confidential Voting, Broker Non-Votes, One Share/One Vote) |
|Proxies should be kept confidential from the|Each share of common stock should have one |TIAA-CREF votes … in accordance with the |The right of employee and institutional |Shareholders should be able to vote in |
|company, except at the ex-press request of |vote. Corporations should not have classes |following principles…: |shareholders to vote without pressure from |person or in absentia, and equal effect |
|shareowners. (Guide-line IV.D.7) |of common stock with disparate voting |Each Director Represents All Shareholders…. |management is crucial. The pur-pose of |should be given to [such] votes…. |
|Broker non-votes should be counted for |rights. Author-ized unissued common shares |One Share-One Vote…. [No] classes of common|confidential voting is to pro-tect |(Principle II.C.4) |
|quorum purposes only. (Guideline IV.D.8) |that have voting rights to be set by the |stock with disparate ... voting rights…. |shareholders from management pressure to |Capital structures and arrangements that |
| |board should not be issued with unequal |Confidential Voting…. |change their votes before the shareholder |enable certain shareholders to ob-tain a |
| |voting rights without share-holder approval.|Shareholders should have the right to |meeting at which those votes are cast. The |degree of control disproportion-ate to their|
| | |approve matters … with a simple majority of |fiduciary should support shareholder |equity ownership should be disclosed. |
| |All proxy votes should be confidential, with|the shares voted…. |proposals that seek greater confidential |(Principle II.D) |
| |ballots counted by independent tabulators. |Shareholder votes cast “for” or “against” a |voting. (IV.D.9) |All shareholders of the same series of a |
| |Confidentiality should be automatic and |proposal should be the only votes counted. |The voting fiduciary’s analysis must |class should be treated equally. |
| |permanent and apply to all ballot items. |Votes cast to abstain should not be counted,|consider the fact that cumulative vot-ing is|Within any series of a class, all shares |
| |Rules and practices concerning the casting, |except for … a quorum…. |a method of obtaining minority shareholder |should carry the same rights. All investors|
| |counting and verifying of shareholder votes |Shareholders should have the right to |representation on a board and of achieving a|should be able to obtain information about |
| |should be clearly disclosed. |approve increases in the authorized number |measure of board independence from |the rights attached to all series and |
| |A majority vote of common shares outstanding|of common shares…. |management con-trol. Generally, the |classes of shares before they purchase. Any |
| |should be sufficient to amend company bylaws|All shareholders should receive equal |fiduciary should support shareholder |changes in voting rights should be subject |
| |or take other action requiring or receiving |financial treatment. TIAA-CREF supports |proposals to restore cumulative voting and |to ap-proval by those classes of shares |
| |a share-holder vote. Supermajority votes |“fair price” provisions … to limit the |oppose management proposals to eliminate |which are negatively affected. |
| |should not be required…. |corporation’s ability to buy back shares … |this feature. (IV.D.10) |Minority shareholders should be protected |
| |Broker non-votes and abstentions should be |at higher-than-market prices. Similarly, we|See IV.D.9 (Confidential voting does not |from abusive actions by, or in the interest |
| |counted only for purposes of a quorum. |support the elimination of pre-emptive |pertain to proxy vote disclosure after the |of, control-ling shareholders … and should |
| |Shareholders should be allowed to vote on |rights.… |shareholder meeting. To enable investors to|have effective means of redress. |
| |unrelated issues separately. Individual |[Re:] Anti-takeover Provisions. |monitor potential conflicts of interest by |Votes should be cast by custodians or |
| |voting issues, particularly those amending a|Shareholders should have the right to |money manag-ers who vote proxies on behalf |nominees in a manner agreed upon with the |
| |company’s charter, bylaws or anti-takeover |approve any action that alters the |of investors at the same companies to which |beneficial owner of the shares. |
| |provisions, should not be bundled. (pp. |fundamental relationship between the |they market other financial services, the |Impediments to cross border voting should be|
| |4-5) |shareholders and the board…. |trustees strongly support after-the-fact |eliminated. |
| | |[Re:] Incorporation Site. Shareholder |proxy vote disclosure by third-party |Processes and procedures for general |
| | |interests should be protected, regardless of|fiduciaries to their clients, whether these |shareholder meetings should allow for |
| | |the corporation’s domicile…. |clients are institutional investors such as |equitable treatment of all shareholders. |
| | |Shareholders should have the a-bility to |pension funds or individual mutual fund |Company procedures should not make it unduly|
| | |communicate effectively with the board of |shareholders.). |difficult or expensive to cast votes. |
| | |directors…. | |(Principle III.A) |
| | |[No] Bundled Issues…. | |See Principle II.F.1 (Institutional |
| | |(pp. 13-15) | |investors acting in a fiduciary capacity |
| | |[W]e … will vote for alternative candidates | |should disclose their overall corporate |
| | |when [they] better represent shareholder | |governance and voting policies … in-cluding |
| | |interests. (p. 3) | |… use of their voting rights.). |
|GM Guidelines |ALI Principles & Recommendations |BRT Principles |NACD Report |Conference Board Recommendations |
|32. Shareholder Voting Powers |
|Not covered. |A change in the corporation’s charter |Because stockholders have a particular |Not covered. |Shareholders should have control over |
| |documents that affects shareholders’ rights |interest in the amount and nature of equity | |potential equity dilution resulting from |
| |of control of the corporation that is made |compensation paid to directors and senior | |compensation practices. (Part 1, Principle |
| |by the board of directors is to be |management, corporations should obtain | |VI) |
| |considered as having been approved by the |stockholder approval of new stock option and| |Shareowner involvement in the corpo-ration’s|
| |shareholders if the shareholders have |restricted stock plans in which directors or| |governance is primarily through the |
| |clearly empowered the board of directors to |executive officers participate. (p. 32) | |corporate electoral process where |
| |adopt the change or provision. (§ 1.02(c)) | | |shareowners are given the statu-tory right |
| |A transaction in control of the corp-oration| | |to vote on only a limited number of matters |
| |to which the corporation is a party should | | |of significance to the corporation, |
| |require approval by the shareholders. | | |including, for exam-ple, election of |
| |(§ 6.01(b)) | | |directors, mergers, and amendments to |
| |See § 5.11 (A controlling shareholder may | | |charter documents. (Part 2, Introduction at|
| |not use corporate property, its controlling | | |16) |
| |position, or (when trading in the | | |Shareowners, particularly long-term |
| |corporation’s securities) mater-ial | | |shareowners, should act more like owners of |
| |non-public corporate information to secure a| | |the corporation. As shareowners, they |
| |pecuniary benefit, unless: | | |should have the ability to participate more |
| |(1) Value is given for the use and the | | |readily in the corporation’s election |
| |transaction meets the standards of § 5.10 | | |process through involvement both in the |
| |(Transactions by a control-ling shareholder | | |nomination of directors and in proposals in |
| |with the Corpora-tion), or | | |the company’s proxy statement about business|
| |(2) Any resulting benefit to the con- | | |issues and shareowner concerns regarding |
| |trolling shareholder either is made | | |governance of the corporation. (Part 2, |
| |proportionately available to the other | | |Principle VIII) |
| |similarly situated sharehold-ers or is | | |Equity-based compensation should be made |
| |derived only from the use of controlling | | |through plans approved by shareholders. |
| |position and is not unfair to other | | |Existing equity compen-sation arrangements |
| |shareholders, and the use is not otherwise | | |should not be materially modified, including|
| |unlaw-ful.). | | |the re-pricing of options, without |
| | | | |shareholder approval. (Part 1, Principle |
| | | | |VI, Best Practice) |
| CalPERS Principles/Guidelines |CII Policies |TIAA-CREF Policy Statement |AFL-CIO Voting Guidelines |OECD Principles/Millstein Report |
|32. Shareholder Voting Powers |
|A majority of shareowners should be able to|The shareholders’ right to vote is invio-late |[S]hareholders have a responsibility to |The range of actions available to |The corporate governance framework should |
|amend the company’s by-laws by shareowner |and should not be abridged. (p. 4) |monitor the conduct of the board of directors |shareholders include … withholding plan |protect and facilitate the exer-cise of |
|proposal. (Guideline IV.D.1) |A majority vote of common shares out-standing |and exercise their voting rights by casting |votes from some or all of the un-contested |shareholders’ rights. |
|Any shareowner proposal that is approved by|should be required to approve: |thoughtful and informed proxy votes that |management slate, meeting with management |Basic shareholder rights should include the|
|a majority of proxies cast should either be|Major corporate decisions concerning the sale |enhance the financial interests of their |or director candi-dates and supporting |right to: |
|implemented by the board, or the next |or pledge of corporate assets that would have |investors. (p. 12) |shareholder resolutions designed to address|secure methods of ownership registration; |
|annual proxy statement should contain a |a material effect on shareholder value…. |[T]he proxy vote is the key mechanism by which|these issues. Withholding votes for a |convey or transfer shares; |
|detailed explanation of the board’s reason |The corporation’s acquiring 5 percent or more |shareholders play a role in the governance of |com-pany nominee is one of the strongest |obtain relevant and material information on|
|for not implementing it. (Guideline |of its common shares at above-market prices |the corporation…. (p. 13) |means for shareholders to express |the corporation on a timely and regular |
|IV.D.9) |other than by tender offer to all |Shareholders should have the right to a vote |dissatisfaction…. (IV.A.1) |basis; |
|Shareowners should have effective access to|shareholders. |in proportion to their economic stake in the |The trustees generally oppose propos-als by|participate and vote in general shareholder|
|the director nomination process. |Poison pills. |company ... The board should not create |companies to reincorporate to jurisdictions|meetings; |
|(Guideline IV.D.10) |Abridging or limiting the rights of common |multiple classes of common stock with |that will result in a weakening of |elect and remove members of the board; |
|In an uncontested director election, a |shares to (i) vote on the election or removal |disparate or “super” voting rights, nor should|shareholder rights…. (IV.D.5) |share in the profits of the corporation. |
|majority of shareowners should be required |of directors or the timing or length of their |it give itself the discretion to cap voting |The voting fiduciary should review |Shareholders should have the right to |
|to elect a director. In a contested |term of office, or (ii) make nominations for |rights or reduce the proportional impact of |supermajority proposals on a case-by-case |participate in, and to be sufficiently |
|election, a plurality of votes should be |directors or propose other action to be voted |larger shareholdings…. Shareholders should |basis…. Generally, the trustees oppose |informed on, deci-sions concerning |
|required to elect a director. (Guideline |on by shareholders, or (iii) call special |have the right to approve matters submitted |management proposals to re-quire a |fundamental corporate changes…. |
|IV.D.12) |meetings of shareholders or take action by |for their consideration with a simple majority|supermajority vote and sup-port shareholder|Shareholders should have the op-portunity |
|A majority of shareowners should be able to|written consent or affect the procedure for |of the shares voted. The board should not |proposals to lower supermajority voting |to participate effec-tively and vote in |
|remove a director with or without cause. |fixing the record date for such action. |impose super-majority voting requirements, |requirements. (IV.D.7) |general share-holder meetings and should be|
|(Guideline IV.D.13) |Provisions resulting in the issuance of debt |except if necessary to protect the interests |The Trustees oppose any voting sys-tem that|informed of the rules, including voting |
| |to a degree that would excessively leverage |of minority stockholders where there is a |entrenches company man-agement at the |procedures, that govern general shareholder|
| |the company and imperil the long-term |single dominant shareholder…. |expense of sharehold-ers. The voting |meetings…. |
| |viability of the corporation. |Shareholders should have the right to approve |fiduciary should generally oppose proposals|(Principle II) |
| |(pp. 4-5) |increases in the authorized number of common |that limit shareholder power by issuing |The corporate governance framework should |
| |Shareowners should approve the establishment |shares.… |dual class shares. In recognition of the |ensure the equitable treatment of all |
| |of, and material amendments to, annual |Shareholders should have the right to approve |beneficial role that long-term invest-ors |shareholders, including minority and |
| |incentive compensation plans covering the [CEO|any action that alters the fundamental |can play in strengthening a com-pany’s |foreign shareholders. All share-holders |
| |and higher level executives]. (p. 9) |relationship between [them] and the board.… |corporate governance and management |should have the opportunity to obtain |
| |See Topic Headings 31, above, and 33, below. |TIAA-CREF will not support reincorporations to|accountability, propos-als that seek to |effective redress for viola-tion of their |
| | |a new domicile if we believe the motivation is|enhance the voting rights of long-term |rights. (Principle III) |
| | |to take advantage of laws or judicial |shareholders should be given favorable |All shareholders of the same series of a |
| | |interpretations that reduce shareholder |considera-tion. (IV.D.8) |class should be treated equally. |
| | |rights…. |The voting fiduciary should oppose |(Principle III.A) |
| | |Shareholders should have the right to vote on |management requests to approve other |See generally II (The Rights of |
| | |separate and distinct issues. The board |business because this gives management |Share-holders and Key Ownership |
| | |should not combine disparate issues and |broad authority to take action without |Func-tions), III (The Equitable Treatment |
| | |present them for a single vote. (pp. 13-15) |shareholder consent…. (IV.D.15) |of Shareholders), and Annotations on II and|
| | |See Topic Heading 31, above. | |III. |
| | | | |See also Topic Headings 31 & 33. |
|GM Guidelines |ALI Principles & Recommendations |BRT Principles |NACD Report |Conference Board Recommendations |
|33. Shareholder Meetings & Proxy Proposals[?] |
|Directors are expected to attend … the |Not covered directly, but see Topic Heading |Not covered. |Not covered. |[T]he Chair of the Compensation Committee |
|Annual Meeting of Stockholders. (Guideline |32, above. | | |should … be available at shareholders’ |
|1) | | | |meetings to respond directly to questions |
| | | | |about executive compensation. (Part 1, |
| | | | |Principle I, Best Practice) |
| | | | |Shareowners, particularly long-term |
| | | | |shareowners, should act more like owners of |
| | | | |the corporation. As shareowners, they |
| | | | |should have the ability to participate more |
| | | | |readily in the corporation’s election |
| | | | |process through involvement both in the |
| | | | |nomination of directors and in proposals in |
| | | | |the company’s proxy statement about business|
| | | | |issues and shareowner concerns regarding |
| | | | |governance of the corporation. (Part 2, |
| | | | |Principle VIII) |
| | | | |See Topic Heading 32, above. |
|CalPERS Principles/Guidelines |CII Policies |TIAA-CREF Policy Statement |AFL-CIO Voting Guidelines |OECD Principles/Millstein Report |
|33. Shareholder Meetings & Proxy Proposals |
|A majority of shareowners should be able to |Corporations should make sharehold-ers’ |As owners of the corporation, shareholders |Proxy voting is the main form of |Shareholders should have the opportu-nity to|
|call special meetings. (Guide-line IV.D.3) |expense and convenience primary criteria |have a unique relationship to the board and |rank-and-file shareholder involvement in |participate effectively and vote in general |
|See Guideline IV.D.2 (A majority of |when selecting the time and location of |management. Unlike other groups that do |corporate matters such as director |shareholder meetings and should be informed |
|shareowners should be able to act by written|shareholder meetings. |business with the corporation (e.g., |elections, corporate mergers and |of the rules, in-cluding voting procedures, |
|consent.). |Appropriate notice of shareholder meetings …|customers, suppliers, lenders and labor), |reso-lutions submitted at annual meetings. |that govern general shareholder meetings: |
| |should be given to share-holders in a manner|common stock shareholders do not and cannot |Though shareholders generally have the right|Shareholders should be furnished with |
| |and within time frames that will ensure that|have contractual protection of their |to attend corporate annual meetings in |sufficient and timely information concerning|
| |sharehold-ers have a reasonable opportunity |interests. Instead, they must rely on the |person, most individual shareholders who |the date, loca-tion and agenda of general |
| |to exercise their franchise. |board of directors, whom they elect, and on |care to vote on cor-porate matters will do |meet-ings, as well as full and timely |
| |Polls should remain open at share-holder |their right to vote at shareholder meetings.|so by assigning their votes to someone else |information regarding the issues to be |
| |meetings until all agenda items have been |To protect their long-term economic |to cast in response to a proxy solicitation.|decided at the meeting. |
| |discussed and shareholders have had an |interests, shareholders have a |The proxy voting process often amounts to |Shareholders should have the op-portunity to|
| |opportunity to ask and receive answers to |responsibility to monitor the conduct of the|little more than a formality, but in some |ask questions…, to place items on the agenda|
| |questions…. |board of directors and exercise their voting|cases corporations face real proxy contests |… and to propose resolutions…. |
| |Companies should not adjourn a meeting for |rights by casting thoughtful and informed |in which shareholders give significant |Effective shareholder participa-tion in key |
| |the purpose of soliciting more votes to |proxy votes…. [T]he proxy vote is the key |support to independent resolutions and |corporate governance decisions, such as the |
| |enable management to prevail on a voting |mechanism by which shareholders play a role |candidates who chal-lenge the incumbent |nomination and election of board members, |
| |item. Extending a meeting should only be |in the governance of the corporation…. (pp.|management. (V.D.2) |should be facilitated. Sharehold-ers should |
| |done for compelling reasons such as vote |12-13) |In analyzing proposals to limit or eliminate|be able to make their views known on the |
| |fraud, problems with the voting process or |See p. 9 (If the company receives a |the right of shareholders to call special |remuneration policy…. The equity component |
| |lack of a quorum. |shareholder proposal, the committee most |meetings and act by writ-ten consent, the |of compensation schemes … should be subject |
| |Companies should hold shareholder meetings |appropriate to consider the matter should |voting fiduciary must weigh the fact that |to shareholder approval. |
| |by remote communication (so-called |review such proposal and the management |these rights may enhance the opportunity for|Shareholders should be able to vote in |
| |electronic or “cyber” meet-ings) only as a |response to it.). |sharehold-ers to raise issues of concern |person or in absentia…. |
| |supplement to tradi-tional in-person |See also p. 15 (Shareholders should have the|with the board of directors against their |(Principle II.C) |
| |shareholder meetings, not as a substitute…. |ability to communicate effectively with the |poten-tial for facilitating changes in |Processes and procedures for general |
| |[A]ll directors should attend the annual |board of directors. Formal procedures |control. Generally the fiduciary should |shareholder meetings should allow for |
| |shareholders’ meeting and be available … to |should be created to enable shareholders to |oppose any attempts to limit and eliminate |equitable treatment of all shareholders. |
| |answer shareholder questions. (p. 5) |communicate their views and concerns |such rights if they already exist in a |Company procedures should not make it unduly|
| |[T]here should be an open meeting in |directly to board members.). |company’s by-laws, and should support |difficult or expensive to cast votes. |
| |connection with the company’s annual meeting| |shareholder resolutions that seek to restore|(Principle III.A.5) |
| |(before or after) in which shareholders | |these rights. (IV.D.11) |See Principle II.G (Shareholders, in-cluding|
| |could ask questions and communicate their | |See IV.D.9 (The purpose of confiden-tial |institutional shareholders, should be |
| |concerns to the independent directors. (p. | |voting is to protect shareholders from |allowed to consult with each other on issues|
| |3) | |management pressure to change their votes |concerning their basic shareholder rights as|
| |Companies should provide access to | |before the shareholder meeting at which |defined in the Principles, subject to |
| |management proxy materials for a long-term | |those votes are cast…. Confidential voting |exceptions to prevent abuse.). |
| |investor or group of long-term investors | |does not pertain to proxy vote disclosure |See also Topic Headings 31 & 32, above, and |
| |owning in aggregate at least 5 percent of a | |after the shareholder meeting.). |34, below. |
| |company’s voting stock to nominate less than| |See also V.D.3, Determining Which | |
| |a majority of the directors. (p. 4) | |Fiduciaries Have Proxy Voting | |
| | | |Re-sponsibilities. | |
|GM Guidelines |ALI Principles & Recommendations |BRT Principles |NACD Report |Conference Board Recommendations |
|34. Anti-Takeover Devices |
|Not covered. |The board of directors, in the exercise of |Not covered. |Not covered. |Not covered. |
| |its business judgment, may approve, reject, | | | |
| |or decline to consider a proposal to the | | | |
| |corporation to engage in a transaction in | | | |
| |control. (§ 6.01(a)) | | | |
| |A transaction in control of the corp-oration| | | |
| |to which the corporation is a party should | | | |
| |require approval by the shareholders. | | | |
| |(§ 6.01(b)) | | | |
| |The board of directors may take an action | | | |
| |that has the foreseeable effect of blocking | | | |
| |an unsolicited tender offer, if the action | | | |
| |is a reasonable response to the offer. | | | |
| |(§ 6.02(a)) | | | |
| |In considering whether its action is a | | | |
| |reasonable response to the offer: | | | |
| |(1) The board may take into account | | | |
| |all factors relevant to the best interests | | | |
| |of the corporation and shareholders, | | | |
| |including, among other things, questions of | | | |
| |legality and whether the offer, if | | | |
| |success-ful, would threaten the | | | |
| |corpora-tion’s essential economic prospects;| | | |
| |and | | | |
| |(2) The board may, in addition …, | | | |
| |have regard for interests or groups (other | | | |
| |than shareholders) with respect to which the| | | |
| |corporation has a legitimate concern if to | | | |
| |do so would not significantly disfavor the | | | |
| |long-term interests of shareholders. | | | |
| |(§ 6.02(b)) | | | |
| |See § 5.15, Transfer of Control in Which a | | | |
| |Director or Principal Senior Executive Is | | | |
| |Interested. | | | |
| |See generally Part VI, Role of Direc-tors | | | |
| |and Shareholders in Transactions in Control | | | |
| |and Tender Offers. | | | |
|CalPERS Principles/Guidelines |CII Policies |TIAA-CREF Policy Statement |AFL-CIO Voting Guidelines |OECD Principles/Millstein Report |
|34. Anti-Takeover Devices |
|Every company should prohibit green-mail. |Corporations should not adopt so-called |All directors should stand for annual |Directors … should be held account-able for |Markets for corporate control should be |
|(Guideline D.4) |“continuing director” provisions (also known|election to the board. A classified board |… adopting anti-takeover provisions without |allowed to function in an efficient and |
|No board should enact or amend a poison pill|as “dead-hand” poison pills) that allow |structure at a public company can be a |shareholder approval…. (IV.A.1) |transparent manner. |
|except with shareowner approval. (Guideline|former directors who have left office to |significant impediment to a free market for |[C]lassified, or staggered term, boards may |The rules and procedures govern-ing the |
|D.5) |take action on behalf of the corporation. |corporate control, particularly in |reduce the ability of shareholders to |acquisition of corporate control in the |
| |(p. 3) |combination with other takeover defenses, |annually hold directors accountable versus |capital markets, and extraordinary |
| |Shareholders should be allowed to vote on |such as a “poison pill” shareholder rights |the potential benefit of discou-raging |transactions such as mergers, and sales of |
| |unrelated issues separately. Individual |plan. (p. 11) |transactions that may be detri-mental to the|substantial portions of corporate assets, |
| |voting issues, particularly those amending a|Shareholders should have the right to |enhancement of long-term corporate value. |should be clearly articulated and disclosed |
| |company’s charter, bylaws or anti-takeover |approve any action that alters the |(IV.A.4) |so that investors under-stand their rights |
| |provisions, should not be bundled. (p. 5) |fundamental relationship between the |[T]he voting fiduciary is not required to |and recourse. Transactions should occur at |
| | |shareholders and the board. Companies |maximize short-term gains where disrupting |transparent prices and under fair conditions|
| | |should make a compelling case to adopt |the stability and continuity of the |that protect the rights of all shareholders |
| | |shareholder rights plans (“poison pills”) |corporation is not consistent with the |according to their class. |
| | |and other anti-takeover measures, |long-term economic best interests of plan |Anti-takeover devices should not be used to |
| | |articulating their potential benefits to |participants and beneficiaries. Measures |shield management and the board from |
| | |shareholders. We believe that any |originally designed to protect companies |accountabil-ity. (Principle II.E) |
| | |anti-takeover measure should have reasonably|from takeovers may also serve to entrench |In some countries, companies employ |
| | |short expiration periods of no longer than |management. (IV.D) |anti-takeover devices. However, both |
| | |three years. We strongly oppose |While the trustees support the legiti-mate |investors and stock exchanges have expressed|
| | |anti-takeover provisions that contain |use of shareholder rights plans, typically |concern over the possibility that widespread|
| | |“continuing director” or “deferred |known as poison pills, the trustees believe |use of anti-takeover devices may be a |
| | |redemption” provisions that seek to limit |shareholders should always be given the |serious impediment to the functioning of the|
| | |the discretion of a future board to redeem |opportunity to vote on such plans…. In |market for corporate control. (Annotation |
| | |the plan. (pp. 14-15) |addition, the voting fiduciary should … |to Principle II.E.2) |
| | |Shareholder interests should be protected, |oppose any plan with a threshold of less |See Annotation to Principle II.G |
| | |regardless of the corporation’s domicile. |than 20 percent of a company’s shares. |([C]o-operation among investors could also |
| | |Many jurisdictions have adopted statutes |(IV.D.6) |be used … to obtain control over a company |
| | |that protect companies from unfriendly |[G]reenmail discriminates against other |without being subject to any takeover |
| | |takeovers, in some cases through laws that |shareholders and may result in decreased |regulations…. For this rea-son, in some |
| | |obscure or dilute directors’ fiduciary |stock price. Where the voting fiduciary |countries, the ability of institutional |
| | |obligations to shareholders. TIAA-CREF will|concludes that the greenmail payment lacks |investors to co-operate on their voting |
| | |not support reincorporations to a new |satisfactory long-term business |strategy is either limited or prohibited.). |
| | |domicile if we believe the motivation is to |justification (such as stopping an |See also Principle II.B (Shareholders should|
| | |take advantage of laws or judicial |acquisition attempt that would be |have the right to participate in, and to be |
| | |interpretations that reduce share-holder |detrimental to the long-term economic best |sufficiently informed on ... extraordinary |
| | |rights. We encourage boards to opt out of |interests of plan participants and |transactions, including the transfer of all |
| | |coverage under local laws mandating special |beneficiaries), the fiduciary must oppose |or substantially all assets, that in effect |
| | |anti-takeover protection. (p. 15) |the proposal. (IV.D.14) |result in the sale of the company.). |
| | | |See generally IV.D, Corporate Gov-ernance | |
| | | |and Changes in Control. | |
Weil, Gotshal & Manges LLP(
as of November 3, 2004[?]
The following chart summarizes and compares the corporate governance requirements relating to the composition and function of the board of directors of companies having equity traded on the New York Stock Exchange (the “NYSE”) or the Nasdaq Stock Market (“Nasdaq”), as established under the Sarbanes-Oxley Act of 2002 (the “Act”), related rules of the U.S. Securities and Exchange Commission (the “SEC”) and the corporate governance listing standards of the NYSE and the Nasdaq (as such listing standards were extensively revised and approved by the SEC on November 4, 2003 and have subsequently been amended).
Certain companies are excluded from some of the listing standard requirements, notably:
“Controlled companies” (companies in which a majority of the voting power is held by an individual, a group[?] or another company) are not required to comply with the NYSE or Nasdaq requirements that a majority of directors be independent or the requirements regarding the independence and functions of the compensation, nominating and, in the case of the NYSE, corporate governance committees. A company that relies upon the controlled company exemption must disclose in its annual proxy statement (or, if the company does not file a proxy statement, in its annual report) that it is a controlled company and the basis for that determination.
Companies in bankruptcy proceedings and limited partnerships (through their general partners) are not required to comply with the NYSE and Nasdaq requirements that a majority of their directors be independent or the requirements regarding the independence and functions of the compensation and nominating and, in the case of the NYSE, corporate governance committees.[?]
Listed companies organized under the laws of a foreign jurisdiction will be required to comply with most of the audit committee requirements, as discussed more fully below, but generally are not be required to satisfy any other provision that conflicts with their home-country practices.
Investment companies are subject to variations on the corporate governance listing standards applicable to operating companies, and passive investment entities such as royalty trusts and securitization vehicles generally are not subject to the standards.
Generally, companies listed on either the NYSE or Nasdaq in November 2003 were required to comply with the pertinent corporate governance listing standards by the company’s first annual meeting occurring after January 15, 2004 but not later than October 31, 2004[?] (as were companies that listed during such period, but subject to certain transitional provisions) and newly listed companies are required to comply upon listing, subject to certain transitional provisions[?]. However, in the case of a company with a classified board where compliance in 2004 would have required a change in the term of a director, the company has until the second annual meeting of shareholders after January 15, 2004, but no later than December 31, 2005, to comply. Finally, non-U.S. companies have until July 31, 2005 to come into compliance with the audit committee requirements (and will not be required to provide the written affirmations of compliance required of them until af-
ter that date) but were required to start making the necessary annual disclosures regarding how their governance practices differ from those required by the listing standards starting with their annual reports distributed after the earlier of their 2004 annual meeting or after October 31, 2004 (or, in the case of NYSE-listed companies, could make such disclosure on their corporate websites not later than such date). (Where such information is included on the corporate website and the company’s pertinent governance practices change, the company must update its website disclosure promptly.)
|Role and Authority of Independent Directors |
|SARBANES-OXLEY ACT / SEC RULEMAKING |
|The Act does not address the role and authority of independent directors in general. However, the Act does require director independence for audit committee purposes. (See “Audit Committee Requirements” |
|below.) |
|NYSE REQUIREMENTS |NASDAQ REQUIREMENTS |
|Majority of Independent Directors. Independent directors must comprise a majority of the board. (See |Majority of Independent Directors. Independent directors must comprise a majority of the board. (See|
|“Definition of ‘Independent Director’” below.) |“Definition of ‘Independent Director’” below.) The company must disclose in its annual proxy |
| |statement (or, if the com-pany does not file a proxy statement, in its annual report) those directors |
| |that the board has determined to be independent. |
|Cure. The NYSE listing standards do not contain specific cure provisions regarding violations of the |Cure. If a company fails to comply with the majority independent director requirement because a |
|corporate governance requirements and the Exchange’s general procedures for listing standard violations |director is no longer independent for reasons beyond the director’s reasonable control, or due to a |
|apparently apply. |vacancy on the board, the company shall regain compliance with the requirement by the earlier of its |
| |next annual meeting or one year from the event that caused the failure to comply with the requirement.|
| |A company relying on this provision must notify Nasdaq upon learning of the non-compliance. |
|Executive Sessions. Non-management directors must meet in regularly scheduled executive sessions |Executive Sessions. Boards must convene regular meetings of independent directors in executive |
|(without management). Annually, the name of the director presiding at the executive sessions or, if the |session.[?] |
|same individual is not to be the presiding director at every meeting, the procedure by which the | |
|presiding director is selected for each executive session, must be disclosed in the proxy statement (or, | |
|if the company does not file a proxy statement, in the company’s annual report), together with | |
|information about how interested parties can communicate with the presiding director or the | |
|non-management directors as a group. If the regularly scheduled executive sessions of non-management | |
|directors include non-independent directors, then an executive session with only independent directors | |
|should be scheduled at least once a year. | |
|Role and Authority of Independent Directors (continued) |
|NYSE REQUIREMENTS |NASDAQ REQUIREMENTS |
|Committee Independence Requirements. In addition to an independent audit committee, companies must have:|Committee Independence Requirements. In addition to an independent audit committee, companies must |
|an independent nominating/corporate governance committee (see “Other Board Committee Requirements” below,|have: |
|for a description of its charter requirements); and |director nominees selected or recommended for the board’s selection by an independent nominating |
|an independent compensation committee (see “Other Board Committee Requirements” below, for a description |committee or by a majority of the independent directors. (One non-independent director may serve on a|
|of its charter requirements). |nominating committee (of at least three members) if such director is not then an officer or employee |
|Companies may allocate the responsibilities of the nominating/corporate governance and compensation |or a family member of an officer or employee in “exceptional and limited circumstances” as determined |
|committees to committees of their own denomination, provided that the committees are comprised entirely |by the board of directors and disclosed in the annual proxy statement (or, if the company does not |
|of independent directors. |file a proxy statement, in its annual report), for a period of no longer than two years.) |
| |CEO and executive officer compensation determined or recommended to the board for approval by an |
| |independent compensation committee or by a majority of the independent directors. (The CEO may not be|
| |present for voting or deliberations regarding his/her compensation. One non-independent director who |
| |is not then an officer or employee or a family member of an officer or employee may serve on a |
| |compensation committee (of at least three members) in “exceptional and limited circumstances” as |
| |determined by the board of directors and disclosed in the annual proxy statement (or, if the company |
| |does not file a proxy statement, in its annual report), for a period of no longer than two years.) |
| | |
|Definition of “Independent Director” |
|SARBANES-OXLEY / SEC RULEMAKING |
|An “independent director” is defined in Section 301 of the Act, for audit committee purposes (only), as one who does not accept any compensation from the company (other than as a director) and is not an |
|“affiliated person” of the company or any subsidiary. (See “Audit Committee Requirements” below for further elaboration.) This requirement is implemented through listing standards required by the SEC of all|
|stock exchanges and Nasdaq pursuant to Rule 10A-3, which requires listed issuers to be in compliance with these standards by the earlier of the listed issuer’s first annual meeting after January 15, 2004 or |
|October 31, 2004, except for foreign private issuers and small business issuers who have until July 31, 2005 to come into compliance. |
|NYSE REQUIREMENTS |NASDAQ REQUIREMENTS |
|Definition. An “independent director” is one who has no material relation-ship with the listed |Definition. An “independent director” is one who is not an officer or employee of the company or any |
|company;[?] this definition applies for all purposes throughout the NYSE listing standards, except that |of its subsidiaries and who, in the opinion of the board of directors, has no relationship which would|
|additional restrictions, consistent with Section 301 of the Act, apply to membership on the audit |interfere with the exercise of independent judgment in carrying out the responsibilities of a |
|committee (as discussed further below). |director; this definition applies for all purposes throughout the Nasdaq listing standards, except |
| |that additional restrictions, consistent with Section 301 of the Act, apply to membership on the audit|
| |committee (as discussed further below). |
|Independence Criteria. For a director to be considered “independent,” the board must affirmatively have |Independence Criteria. For a director to be considered independent, the board must have affirmatively|
|determined that the director has no “material relationship”[?] with the company either directly or “as a |determined that the director has no relationship that would interfere with his or her exercise of |
|partner, shareholder or officer of an organization that has a relationship with the company.” In |independent business judgment in carrying out his or her responsibilities. In addition, a director |
|addition, a director does not qualify as independent if any of the following “bright line” |does not qualify as independent if any of the following “bright line” disqualification standards apply|
|disqualification standards apply to him or her: |to him or her: |
|the director is, or has been within the last three years, an employee of the listed company, or an |a person who is employed by the company or by any parent or subsidiary of the company;[?] |
|immediate family member[?] is, or has been within the last three years, an executive officer[?] of the |a person who is a family member[?] of an individual who is employed by the company or any parent or |
|listed company;[?] |subsidiary of the company as an executive officer;[?] |
|the director has received, or has an immediate family member who has received, during any twelve-month |a person who is, or has a family member who is, a current partner of the company’s outside auditor or |
|period within the last three years, compensation of more than $100,000 directly from the listed company, |was a partner or employee of the company’s outside auditor who worked on the company’s audit at any |
|other than director compensation or pension or deferred compensation for prior service (provided such |time during any of the past three years; |
|compensation is not contingent in any way on continued service);[?] | |
|Definition of “Independent” Director (continued) |
|NYSE REQUIREMENTS |NASDAQ REQUIREMENTS |
|the director or an immediate family member is a current partner of a firm that is the company’s internal |a person who accepts, or is a family member of a person (other than an employee of the company or a |
|or external auditor; the director is a current employee of such a firm; the director has an immediate |parent or subsidiary of the company) who accepts, payments from the company or any of its affiliates |
|family member who is a current employee of such a firm and who participates in the firm’s audit, |in excess of $60,000 during any period of twelve consecutive months within the three years preceding |
|assurance or tax compliance (but not tax planning) practice; or the director or an immediate family |the determination of independence;[?] |
|member was, within the last three years (but is no longer), a partner or employee of such a firm and |a person who is, or has a family member who is, “a partner in, or a controlling shareholder or an |
|personally worked on the listed company’s audit within that time;[i] |executive officer of,” any organization to which the company made, or from which the company received,|
|the director or an immediate family member is, or has been within the last three years, part of an |payments for property or services that exceed 5% of the recipient’s consolidated gross revenues or |
|interlocking compensation committee arrangement;[?] or |$200,000, whichever is more, for the current or any of the past three fiscal years;[?] or |
|the director is a current employee, or an immediate family member is a current executive officer, of a |a person who is, or has a family member who is, employed as an executive officer of another company |
|company that has made payments to or received payments from the listed company for property or services |where any of the company’s executive officers serve on the other company’s compensation committee. |
|in an amount which, in any of the last three fiscal years, exceeds the greater of 2% of such other |See “Shareholdings” below regarding disqualifying relationships between directors and parent and |
|company’s consolidated gross revenues or $1 million.[?] |subsidiary companies of a listed company. |
|In addition, certain of such relationships between a director and a “parent company” of a listed company | |
|are also disqualifying. See “Shareholdings” below. | |
|Independence “Cooling Off” Period. In applying the independence criteria discussed above by which |Independence “Cooling Off” Period. In applying the independence criteria discussed above by which |
|specific relationships are considered to impair independence, a three-year “cooling off” period is to be |specific relationships are considered to impair independence, a three-year “cooling off” period is to |
|applied, and no individual who has had – even though he no longer has – such a relationship within the |be applied, and no individual who has had – even though he no longer has – such a relationship within |
|“cooling off” period, or who is an immediate family member of an individual who had such a relationship, |the “cooling off” period, or who is a family member of an individual who had such a relationship, can |
|can be considered independent. |be considered independent. |
| |Generally, the three-year look back period begins on the date the disqualifying relationship ceases. |
| |For example, a director who is employed by the company will not be independent until three years after|
| |such employment terminates. |
|Definition of “Independent” Director (continued) |
|NYSE REQUIREMENTS |NASDAQ REQUIREMENTS |
|Shareholdings. “[A]s the concern is independence from management, the Exchange does not view ownership |Shareholdings. “Because Nasdaq does not believe that ownership of com-pany stock by itself would |
|of even a significant amount of stock, by itself, as a bar to an independence finding.” However, for |preclude a board finding of independence, it is not included in the aforementioned objective [“bright |
|purposes of apply-ing the “bright line” standards of independence, a “parent company” of a listed company|line”] factors.” How-ever, for purposes of applying the “bright line” standards of independence, a |
|is considered as if it were the listed company and, accord-ingly, if a director is, or has been within |“parent company” of a listed company is considered as if it were the listed company and, accordingly, |
|the last three years, an employee or officer of, or has received in any twelve month period more than |if a director is, or has been within the last three years, an employee or officer of, or has received |
|$100,000 in compensation from, the parent company of a listed company, or is employed by a company that |in any twelve month period more than $100,000 in compensation from, the parent company of a listed |
|engaged in business with the parent company at the prohibited level, he or she is disqualified from |company, he or she is disqualified from treatment as an independent director. For this purpose, a |
|treatment as an independent director. For this purpose, a company is considered a “parent company” of a |company is considered a “parent company” of a listed company if the listed company and the parent |
|listed company if the listed company and the parent company are part of a consolidated group of companies|company are part of a consolidated group of companies for financial reporting purposes, as deter-mined|
|for financial reporting purposes, as determined applying U.S. generally accepted accounting principles. |applying U.S. generally accepted accounting principles. |
|Disclosure of Director Independence. Listed companies must identify which directors are independent in |Disclosure of Director Independence. Listed companies must identify which directors are independent |
|their annual meeting proxy statement or annual report. |in their annual meeting proxy statement or annual report. |
|Immateriality Determinations. In addition, listed companies must disclose in the company’s annual proxy | |
|statement (or, if the company does not file a proxy statement, in the company’s annual report) the basis | |
|for the board’s determina-tion that a relationship between the company or its management and a director | |
|is not material. | |
|Customized Materiality Standards. A board may adopt categorical standards concerning what relationships | |
|are “material” for purposes of determining director independence, but must disclose such standards. In | |
|such cases, a general disclo-sure may be made that a director is considered independent by reason of the | |
|application of such categorical standards to relationships addressed by such standards and without | |
|further explanation. This is intended to give investors adequate means for assessing board independence | |
|while avoiding excessive disclosure about immaterial relationships. | |
|AUDIT COMMITTEE REQUIREMENTS |
|SARBANES-OXLEY ACT / SEC RULEMAKING |
|Audit Committee Independence. Under Section 301 of the Act, the listing standards of every national securities exchange and national securities association must provide, in accordance with SEC rules, for the|
|independence of the audit committee of every listed company. Specifically, every member of the audit committee of a listed company must be “independent.” Independence is defined in Section 301 of the Act, |
|and Rule 10A-3 under the Exchange Act, to have two principal components. First, a director must not accept any direct or indirect consulting, advisory or other compensatory fees[?] from the listed company |
|other than compensation for service as a director. (Unless the listing standard provides otherwise, compensatory fees do not include the receipt of fixed amounts of compensation under a retirement plan |
|(including deferred compensation) for prior service with the listed issuer (provided that such compensation is not contingent in any way on continued service).) Second, a director must not be affiliated with|
|the company or its subsidiaries. Rule 10A-3 defines “affiliate” or “affiliated person” as “a person that directly, or indirectly through one or more intermediaries, controls, or is controlled by, or is under|
|common control with, the person specified.” “Control” is defined as “the possession, direct or indirect, of the power to direct or cause the direction of the management and policies of a person, whether |
|through the ownership of voting securities, by contract, or otherwise.” Under a “safe harbor,” a person who is not an executive officer or a shareholder owning 10 percent or more of any class of voting |
|securities of the company would be deemed not to control the company.[?] |
|Auditor Oversight; Approval of Non-Audit Work. Section 301 of the Act also requires that the audit committee of a listed company to be responsible for appointing, compensating and retaining the independent |
|auditor and for overseeing the work of the auditor in preparing or issuing any audit report (and any related work) including resolving any disagreements between management and the auditor regarding financial |
|reporting. In addition, Section 202 of the Act requires the audit committee to approve all audit services and prohibits an independent auditor from providing any otherwise permissible non-audit services |
|without prior approval of the audit committee (subject to certain exceptions). |
|Authority to Engage Professionals. Section 301 of the Act provides that audit committees must be authorized to engage independent counsel and other advisors as the committee determines necessary to carry out|
|its duties and must have appropriate funding to compensate the independent auditor and its advisors and to carry on its operations. |
|“Whistle Blower” Policy. Section 301 of the Act requires the audit committee to establish procedures for the receipt, retention and treatment of complaints regarding accounting, internal accounting controls |
|or auditing matters and for the confidential, anonymous submission by employees of concerns regarding accounting or auditing matters. In addition, Section 806 of the Act prohibits companies from discharging,|
|demoting or otherwise discriminating against any employee who provides information regarding conduct the employee reasonably believes constitutes a violation of securities or financial fraud laws (i) to any |
|governmental authority, (ii) in any proceeding pending or about to be commenced concerning such a violation or (iii) to any person with supervisory authority over the employee or authorized by the company to |
|investigate such conduct (e.g., the audit committee; auditors; counsel engaged by the committee). |
|Required Disclosures. Any reliance on exemptions to the audit committee requirements, including the exemptions for certain foreign private issuers discussed below, must be disclosed with an assessment of any|
|materially adverse effects on the ability of the audit committee to act independently and to satisfy its requirements. Such disclosure is required in the annual reports filed with the SEC (or incorporated by|
|reference) and in proxy statements or information statements for shareholders’ meetings at which elections for directors are held. Audit committee membership must be disclosed (or incorporated by reference) |
|in the company’s annual report. Compliance was or is required beginning with reports covering periods ending on or after (or proxy or information statements for actions occurring on or after) the compliance |
|date for the listing standards applicable to the particular issuer. |
|AUDIT COMMITTEE REQUIREMENTS (continued) |
|Audit Committee Financial Expert. Section 407 of the Act, as implemented by Item 401(h) of Regulation S-K, requires all companies whose securities trade in the U.S (even if none of the securities are listed)|
|to disclose in annual reports whether or not the audit committee includes at least one member who is an “audit committee financial expert” and, if not, the reasons (subject to certain exceptions). An “audit |
|committee financial expert” is a person who has an understanding of financial statements and generally accepted accounting principles (“GAAP”); experience in preparing, auditing, analyzing or evaluating |
|financial statements of companies comparable to the company or experience in actively supervising one or more persons engaged in such activities; experience in applying GAAP to accounting for estimates, |
|accruals and reserves; and an understanding of internal accounting controls, procedures for financial reporting and the functioning of audit committees; as a result of: |
|education and experience as a public accountant, auditor, principal financial officer, controller or principal accounting officer of a company, or a position involving similar functions, |
|experience actively supervising a principal financial officer, principal accounting officer, controller, public accountant, auditor or person performing similar functions, |
|experience overseeing or assessing the performance of companies or public accountants with respect to the preparation, auditing or evaluation of financial statements, or |
|other relevant experience.[?] |
|NYSE REQUIREMENTS |NASDAQ REQUIREMENTS |
|Audit Committee Size. Each company must have a minimum three person audit committee. |Audit Committee Size. Each company must have a minimum three person audit committee. |
|Additional Independence Requirements for Audit Committee Members. An audit committee member must meet |Additional Independence Requirements for Audit Committee Mem-bers. An audit committee member must |
|the independence requirements of Section 301 of the Act and Rule 10A-3(b)(1) (subject to the exemptions |meet the independence require-ments of Section 301 of the Act and Rule 10A-3(b)(1) (subject to the |
|provided for in Rule 10A-3(c)). |exemptions provided for in Rule 10A-3(c)) and must not have participated in the preparation of the |
| |financial statements of the company or any current subsidiary at any time during the past three years.|
| |One director who meets the criteria for independence set forth in Section 301 and is not a family |
| |member of an officer or employee but is otherwise not independent under Nasdaq’s independence |
| |standards may serve on the committee in “excep-tional and limited circumstances” as determined by the |
| |board of directors and disclosed in the annual proxy statement (or, if the company does not file a |
| |proxy statement, in its annual report), for a period of no longer than two years. |
|AUDIT COMMITTEE REQUIREMENTS (continued) |
|NYSE REQUIREMENTS |NASDAQ REQUIREMENTS |
|Authority Over Auditor Relationships. Audit committees must be directly responsible for hiring and |Authority Over Auditor Relationships. Audit committees must be directly responsible for hiring and |
|firing the independent auditors. |firing the independent auditors. |
|Financial Literacy/Expertise. Audit committee members must be finan-cially literate, as determined by |Financial Literacy/Expertise. Audit committee members must be able to read and understand financial |
|the board, or must become financially literate within a reasonable period of time following their |statements at the time of appointment. In addition, at least one member of the committee will be |
|appointment. In addition, at least one member of the committee (who need not be the committee chair) |required to have had past employment in finance or accounting, professional certification in |
|must have “accounting or related financial management expertise” in the judgment of the board. A board |accounting or other comparable experience or background such as being or having been a chief executive|
|may presume that a person who would be considered an audit committee financial expert under Section 407 |officer, chief financial officer or other senior official with financial oversight responsibilities, |
|of the Act has accounting or related financial management expertise. |that results in the individ-ual’s financial sophistication. A director who qualifies as an audit |
| |commit-tee financial expert under Section 407 of the Act is presumed to qualify as a financially |
| |sophisticated audit committee member. |
|Related Party/Conflict of Interest Transactions. No provision, except insofar as implicit in the other |Related Party/Conflict of Interest Transactions. All related-party transactions must be reviewed on |
|audit committee responsibilities referred to above.[?] |an “on-going basis” and approved by the audit committee or comparable independent body of the |
| |board.[?] |
|Internal Audit. Every company must have an internal audit function. As indicated above, the audit |Internal Audit. [No internal audit requirement.] |
|committee will have oversight responsibility over such function. | |
|Cure. Listed companies will be provided the opportunity to cure any defects for failing to comply with |Cure. If a company fails to comply with the audit committee composition requirements because a |
|any of the requirements of Section 301 and Rule 10A-3 discussed above. The Exchange’s normal procedures |committee member is no longer independent for reasons beyond the member’s reasonable control, such |
|for dealing with non-compliance with listing standards apparently apply. |member may stay on the committee and the company will have up to the earlier of its next annual |
| |meeting or one year from the event that caused the failure to comply with the composition |
| |requirements. If there is a failure of compliance with the composition requirement due to a vacancy |
| |(and the foregoing exception is not also being relied on), the company has the same period to cure the|
| |non-compliance. A company relying on such provisions must provide notice to Nasdaq immediately upon |
| |learning of the event or circumstance that caused the compliance failure. |
|AUDIT COMMITTEE REQUIREMENTS (continued) |
|NYSE REQUIREMENTS |NASDAQ REQUIREMENTS |
|Audit Committee Charter. The audit committee charter must specify the committee’s purpose, which must |Audit Committee Charter. The audit committee charter must specify all of the duties and |
|include (i) assisting board oversight of the integrity of the company’s financial statements, the |responsibilities of the audit committee required under Section 301 of the Act, including: |
|company’s compliance with legal and regulatory requirements, the independent auditor’s qualifica-tions |appointing, retaining, compensating, evaluating and terminating the company’s independent auditors |
|and independence, and the performance of the company’s internal audit function and independent |(this includes resolving disagreements between management and the independent auditor); |
|auditors and (ii) preparing an audit committee report that SEC rules require be included in the company’s|establishing procedures for the receipt, retention and treatment of complaints from company employees |
|annual proxy statement. |on accounting, internal accounting controls or auditing matters, as well as for the confidential, |
|The charter must also detail the duties and responsibilities of the audit com-mittee, including: |anonymous submissions by company employees of concerns regarding questionable accounting or auditing |
|appointing, retaining, compensating, evaluating and terminating the company’s independent auditors (this |matters; |
|includes resolving disagreements between management and the independent auditor); |having the authority to engage independent counsel and other advisors as it determines necessary to |
|establishing procedures for the receipt, retention and treatment of complaints from company employees on |carry out its duties; and |
|accounting, internal accounting controls or auditing matters, as well as for the confidential, anonymous |receiving appropriate funds, as determined by the audit committee, from the company for payment of |
|submissions by company employees of concerns regarding questionable accounting or auditing matters; |compensation to the outside legal, accounting or other advisors employed by the audit committee. |
|having the authority to engage independent counsel and other advisors as it determines necessary to carry|In addition, each issuer must certify that it has adopted a formal written audit committee charter and|
|out its duties; and |that the audit committee has reviewed and reassessed the adequacy of the charter on an annual basis. |
|receiving appropriate funds, as determined by the audit committee, from the company for payment of | |
|compensation to the outside legal, accounting or other advisors employed by the audit committee. | |
|(Note: The foregoing charter requirements correspond to the requirements of Rule 10A-3.) | |
|at least annually: (i) obtaining and reviewing a report by the independent auditor describing the | |
|independent auditor’s internal quality control procedures; (ii) reviewing any material issues raised by | |
|the auditor’s most recent internal quality control review of themselves; and (iii) assessing the | |
|auditor’s independence; | |
|AUDIT COMMITTEE REQUIREMENTS (continued) |
|NYSE REQUIREMENTS |NASDAQ REQUIREMENTS |
|meeting to review and discuss the annual audited financial statement and quarterly financial statements | |
|with management and the independent auditor, including review of specific disclosures under “Management’s| |
|Discussion and Analysis of Financial Condition and Results of Operations”; | |
|discussing earnings press releases, as well as financial information and earnings guidance that is given | |
|to analysts and rating agencies; | |
|discussing policies with respect to risk assessment and risk management; | |
|meeting separately, from time to time, with management, with the internal auditors and with | |
|the independent auditors; | |
|reviewing with the independent auditor any audit problems or difficulties and management’s response to | |
|such issues; | |
|setting clear hiring policies for employees or former employees of the independent auditor; | |
|reporting regularly to the board of directors; and | |
|evaluating the audit committee on an annual basis. | |
|The company’s website must include the charter of the audit committee and its annual report must state | |
|that the charter is available on its website and is available in print to any shareholder that requests | |
|it. | |
| | |
| | |
| | |
| | |
|OTHER BOARD COMMITTEE REQUIREMENTS |
|SARBANES-OXLEY ACT / SEC RULEMAKING |
|The Act does not address the role or composition of other board committees. |
|NYSE REQUIREMENTS |NASDAQ REQUIREMENTS |
|Other Committee Charters. Companies must adopt and disclose charters for their compensation and |Other Committee Charters. Companies must adopt a charter or board resolution, as applicable, |
|nominating/corporate governance committees. |regarding the nominations process and other such related matters as may be required under the federal |
|The Nominating/Corporate Governance Committee: The nominating/corpo-rate governance committee must be |securities laws (such as disclosures about consideration of shareholder nominees required in a |
|composed only of independent directors and must have a written charter that addresses: |company’s proxy statement). There is no charter requirement for the compensation committee. |
|the committee’s purpose and responsibilities, which must include (i) identifying individuals who are |The Nominating Committee: The rules do not provide specific requirements for the nominating committee|
|qualified to become board members consistent with criteria that were approved by the full board, (ii) |charter. Note that all director nominees must be selected or recommended for the board’s selection by|
|selecting, or recommending that the board select, the director nominees for the next annual meeting of |a nominating committee that is composed only of independent directors (which in exceptional and |
|shareholders, (iii) developing and recommending to the board a set of corporate governance guidelines for|limited circumstances may include one director on a three member committee who does not meet all the |
|the corporation and (iv) overseeing the evaluation of the board and management; and |independence standards, as discussed above under “Role and Authority of Independent Directors”) or, if|
|an annual performance evaluation of the committee. |no such committee exists, by a majority of the independent directors.[?] |
|In addition, the charter should give the nominating/corporate governance committee sole authority to hire| |
|and fire any search firm to be used to identify director candidates. | |
|The company’s website must include the charters of its most important committees (this would usually be | |
|applicable to the nominating/corporate governance committee). If the charter is on the company’s | |
|website, the company’s annual report must state that and that it is available in print to any shareholder| |
|that requests it. | |
|If the company is required by contract or otherwise to provide a party the ability to nominate one or |Where the right to nominate a director does not reside with a company by reason of a lawful |
|more directors, the selection and nomination of such directors need not be subject to the nominating |arrangement, the provision for nomination of directors by independent directors does not apply to such|
|committee process. |director nominee. However, the company is still obligated to comply with the nominating (and other |
| |governance) requirements under the listing standards. |
|OTHER BOARD COMMITTEE REQUIREMENTS (continued) |
|NYSE REQUIREMENTS |NASDAQ REQUIREMENTS |
|Compensation Committee: The compensation committee composed of independent directors must have a written|Compensation Committee: The rules do not require a charter for the compensation committee. However, |
|charter that addresses: |CEO and other executive officer compensation must be determined or recommended to the board for |
|the committee’s purpose and responsibilities, which must include: (i) producing a compensation committee |approval by a compensation committee that is composed only of independent directors (which in |
|report on executive officer compensation that must be included in the company’s annual proxy statement or|exceptional and limited circumstances may include one director on a three member committee who does |
|in the company’s annual report; (ii) reviewing and approving corporate goals and objectives relevant to |not meet all the independence standards, as discussed above under “Role and Authority of Independent |
|CEO compensation, evaluating the CEO’s performance in light of those goals and objectives, and either as |Directors”) or, if no such committee exists, by a majority of the independent directors. The CEO may |
|a committee or together with the other independent directors (as directed by the board), determining and |not be present for voting or deliberations regarding his/her compensation. |
|approving the CEO’s compensation level based on such evaluation;[?] and (iii) making recommendations to | |
|the board with respect to non-CEO executive officer compensation, and incentive-compensation and | |
|equity-based plans that are subject to board approval;[?] and | |
|an annual performance evaluation of the compensation committee. | |
|In addition, the charter should give the committee sole authority to retain and terminate any consulting | |
|firm to assist in the evaluation of director or executive officer compensation, including sole authority | |
|to approve the firm’s compensation and other retention terms. | |
|The company’s website must include the charters of its most important committees (this would usually be | |
|applicable to the compensation committee). If the charter is on the company’s website, the company’s | |
|annual report must state that and that it is available in print to any shareholder that requests it. | |
| | |
|DIRECTOR AND OFFICER DISQUALIFICATION |
|SARBANES-OXLEY ACT/SEC RULEMAKING |
|Bar to Future Service. Pursuant to Section 305 of the Act, any person found to have violated the general antifraud provision of the Securities Exchange Act of 1934, as amended (the “Securities Exchange |
|Act”), including the provisions of the Act which amend the Securities Exchange Act, can be barred by a court or the SEC, after notice and a hearing, from serving as a director or officer of a public company |
|if his conduct demonstrates “unfitness” to serve as a director or officer of such a company. |
|NYSE REQUIREMENTS |NASDAQ REQUIREMENTS |
|None. |None. |
| | |
| | |
| | |
| | |
| | |
|CODES OF CONDUCT AND ETHICS |
|SARBANES-OXLEY ACT / SEC RULEMAKING |
|Code of Ethics for Senior Financial Officers and Chief Executive Officers. Section 406 of the Act, as implemented by SEC rules (Regulation S-K, Item 406; Form 8-K, Item 10), requires companies to disclose in|
|their annual reports whether or not they have adopted a code of ethics applicable to their principal executive officer, principal financial officer and comptroller or principal accounting officer (and, if |
|not, why not). The code of ethics must include standards reasonably necessary to promote: honest and ethical conduct, including the handling of actual or apparent conflicts of interest between personal and |
|company interests; full, fair, accurate, timely and understandable disclosure in SEC periodic reports; and compliance with applicable governmental rules. In addition, the company must promptly disclose any |
|change in or waiver of the code of ethics. While the SEC’s rules do not explicitly require board oversight of the code of ethics, given the seniority of the officers involved and the subject matter, |
|responsibility to adopt and oversee the code will usually be a board responsibility, which, given the customary audit committee charter, may fall within the audit committee’s responsibilities.[?] |
|Manipulation of Auditors. Section 303 of the Act states that no action may be taken by any director or officer of the company (or other person acting under the direction thereof), in contravention of such |
|rules as the SEC may establish (as the SEC has done by Rule 13b2-2), to fraudulently influence, coerce, manipulate or mislead any independent auditor of the company’s financial statements for the purpose of |
|rendering the financial statements materially misleading.[?] |
|CODES OF CONDUCT AND ETHICS (continued) |
|NYSE REQUIREMENTS |NASDAQ REQUIREMENTS |
|Code of Business Conduct and Ethics. Companies are required to adopt and disclose[?] a Code of Business |Code of Conduct. Companies must adopt a code of conduct for all directors, officers and employees |
|Conduct and Ethics (beyond the Code of Ethics referred to in Section 406 of the Act) for directors, |that is publicly available and includes the elements necessary to meet the code of ethics requirements|
|officers and employees that addresses: |provided for senior financial officers by the SEC pursuant to Section 406 of the Act. In addition, |
|conflicts of interest; |the code must provide for an enforcement mechanism. |
|corporate opportunities; | |
|confidentiality; | |
|fair dealing with customers, suppliers, competitors and employees; | |
|protection and proper use of company assets; | |
|compliance with laws, rules and regulations (including insider trading laws); and | |
|encouraging the reporting of any illegal or unethical behavior. | |
|Waivers. Companies must promptly disclose any waivers given to directors or executive officers (the |Waivers. Companies must disclose any waivers given to directors or executive officers on Form 8-K |
|timing and manner of disclosure is not dictated, but it is recommended that waivers be disclosed within |within five business days; such waivers must be approved by the board. |
|five business days via either Form 8-K or website posting); the waivers must be approved by the board or | |
|a board committee. | |
|Corporate Governance Guidelines. Companies are required to adopt and disclose Corporate Governance | |
|Guidelines that address: | |
|qualification standards for directors; | |
|responsibilities of directors; | |
|director access to management and, as necessary, independent advisors; | |
|compensation of directors; | |
|continuing education and orientation of directors; | |
|management succession; and | |
|an annual performance evaluation of the board. | |
|The company’s website must include its corporate governance guidelines and the charters of its most | |
|important committees (including at least the audit committee).[?] | |
|EDUCATION AND TRAINING OF DIRECTORS |
|SARBANES-OXLEY ACT / SEC RULEMAKING |
|The Act does not address education and training of directors. |
|NYSE REQUIREMENTS |NASDAQ REQUIREMENTS |
|Continuing Education of Directors. Listed companies will be required to address continuing education and|Continuing Education of Directors. Nasdaq has announced that it will provide directors of listed |
|training of directors in their corporate governance guidelines. |companies with relevant continuing education opportunities concerning governance responsibilities and,|
| |among other things, make educational materials available on its website. |
| | |
|APPLICABILITY TO NON-U.S. COMPANIES |
|SARBANES-OXLEY ACT / SEC RULEMAKING |
|Many of the Act’s provisions (including those referred to above) apply to all companies (organized within or outside the U.S.) that have registered with the SEC under the Securities Exchange Act equity or |
|debt securities. However, some, including those regarding audit committee member independence, apply only to companies (organized within or outside the U.S.) whose equity securities are listed on an exchange|
|or on the Nasdaq Stock Market. Subject to any exemptions the SEC might grant, most provisions of the Act (but not the provisions regarding director independence, unless the company is simultaneously listed),|
|also apply to companies (organized within or outside the U.S.) that have registered a public offering of their securities in the U.S. (and therefore will incur a reporting obligation under Section 15(d) of |
|the Securities Exchange Act, regardless of whether the securities thus offered were ever sold or traded in the U.S. public markets), although in such cases compliance may be required only during the period |
|when they have such reporting obligation, which will continue, at the least, until the fiscal year of the company following the fiscal year in which it registered its offering of securities. |
|Exemptions Relating to Foreign-Listed Company Audit Committees. Certain limited exemptions to the independence and other audit committee requirement of Section 301 of the Act apply to listed companies not |
|organized in the U.S.: |
|Non-management employees are allowed to sit on the audit committee of the company if the employee is elected or named to the board of directors or audit committee of the company pursuant to home country legal|
|or listing requirements. |
|The supervisory or non-management board is considered the board of directors for companies that contain two-tier boards of directors. The audit committee of such a company could be formed from the |
|supervisory or non-management board. |
|One member of the audit committee could be a shareholder, or representative of a shareholder or group, owning more than 50 percent of the voting securities of the company, if (i) the “no compensation” prong |
|of the independence requirements is satisfied; (ii) the member in question has only observer status, and is not a voting member or the chair of, the audit committee; and (iii) the member in question is not an|
|executive officer. |
|One member of the audit committee could be a representative of a foreign government or foreign governmental entity, if (i) the “no compensation” prong of the independence requirement is satisfied and (ii) the|
|member in question is not an executive officer of the company. |
|APPLICABILITY TO NON-U.S. COMPANIES (continued) |
|Companies that have boards of auditors or statutory auditors (as required in several jurisdictions) would not need to have a separate independent audit committee if (i) these boards operate under legal or |
|listing provisions that are intended to provide oversight of outside auditors that is independent of management; (ii) membership on the board excludes executive officers of the company; and (iii) certain |
|other requirements are met. |
|NYSE REQUIREMENTS |NASDAQ REQUIREMENTS |
|Exemption of Foreign Issuers; Disclosures Required. The NYSE permits foreign private issuers (as defined|Exemption of Foreign Issuers; Disclosures Required. Except for the requirements concerning audit |
|in SEC Rule 3b-4) to follow home-country practices in lieu of most of its corporate governance standards.|committees mandated by Section 301 of the Act, a foreign private issuer may obtain an exemption from |
|However, foreign private issuers are required to comply with most of the audit committee requirements |any requirement of Nasdaq’s corporate governance listing standards that is contrary to a law or any |
|(including committee independence, size and certain functions) and are also required to notify promptly |rule or regulation of any public authority exercising jurisdiction over it or that is contrary to |
|the NYSE after any executive officer of the company becomes aware of any material non-compliance with any|generally accepted business practices in its country of domicile, but must disclose annually in its |
|applicable provision of the NYSE corporate governance listing standards and must make the required annual|annual report filed with the SEC the standards from which it has been exempted and the alternative |
|and interim affirmations regarding their govern-ance. See “Enforcement” below. In addition, foreign |practices it will follow in lieu of any waived requirement. |
|issuers must disclose annually any significant ways in which their actual corporate governance practices | |
|differ from those required of U.S. companies by the NYSE listing standards. The disclosure may be made | |
|in a brief, general summary of material differences on the company’s website or in its annual report | |
|distributed to its shareholders in the U.S. | |
| | |
| | |
|ENFORCEMENT |
|SARBANES-OXLEY ACT / SEC RULEMAKING |
|Rule 10A-3 prohibits the national securities exchanges and Nasdaq from listing or continuing the listing of securities of a company that is not in compliance with the audit committee requirements of the rule,|
|subject to providing an opportunity for the company to cure its non-compliance. With regard to the disclosure and other requirements of the Act discussed above, the Act provides the SEC with authority to |
|promulgate rules and regulations in furtherance of the Act (which generally should provide it with interpretive and exemptive power) and treats a violation of the Act as a violation of the Securities Exchange|
|Act, for which a broad variety of sanctions may be imposed (and also establishes certain other sanctions for violation of certain provisions of the Act– not, however, for any of the provisions discussed |
|above). |
|ENFORCEMENT (continued) |
|Standards Relating to Listed Company Audit Committees. Under Rule 10A-3, each exchange and Nasdaq must require a listed company to notify it of any material non-compliance with the audit committee |
|requirements it has established under the rule promptly after an executive officer of a company becomes aware of such non-compliance. Subject to the interpretive and any exemptive power which the exchange or|
|Nasdaq has over its listing standards and subject to the opportunity to cure any non-compliance which must be provided to the listed company, delisting is required upon non-compliance with the audit committee|
|requirements. |
|NYSE REQUIREMENTS |NASDAQ REQUIREMENTS |
|Public Reprimand Letter and Delisting. Upon finding a violation of an Exchange listing standard, the |Delisting. A material misrepresentation or omission by a company to Nasdaq may result in the |
|NYSE may issue a public reprimand letter to any company and ultimately suspend or delist an offending |company’s being delisted. The Nasdaq Listing and Hearing Review Council may deny a re-listing based |
|company. (Note that notification of delisting or issuance of a public reprimand also triggers a Form 8-K|upon a corporate governance violation that occurred while the company’s appeal was pend-ing. (Note |
|disclosure obligations under Item 3.01 thereof.) |that notification of delisting or issuance of a communication similar to a public reprimand also |
| |triggers Form 8-K disclosure obligations under Item 3.01 thereof.) |
|Compliance Certification. The CEO must certify each year to the NYSE within 30 days of the annual |Compliance Certification. A duly authorized officer annually must certify to Nasdaq that the company |
|shareholders’ meeting (simultaneous with the annual written affirmation noted below) that he/she is not |complies with the audit committee composition and charter requirements, the nominating procedure |
|aware of any violations of the NYSE listing standards, qualifying the certification to the extent |requirements, the independent director executive session requirements and the code of conduct |
|necessary. The NYSE certification (and the CEO and CFO certifications of the company’s Form 10-K or |requirements of the Nasdaq listing standards. |
|other annual report required by Section 302 of the Act) must be disclosed in each company’s annual report| |
|to shareholders.[?] | |
|Notification. Each company CEO is required to promptly notify the NYSE in writing after any executive |Notification. A listed company is required to promptly notify Nasdaq if an executive officer becomes |
|officer of the company becomes aware of any material non-compliance with any applicable provision of the |aware of any material non-compliance with Nasdaq’s corporate governance rules. (Note that this |
|listing standards. (Note that this notification also triggers Form 8-K disclosure obligations under Item|notification also triggers Form 8-K disclosure obligations under Item 3.01 thereof.) |
|3.01 thereof.) | |
|ENFORCEMENT (continued) |
|NYSE REQUIREMENTS |NASDAQ REQUIREMENTS |
|NYSE Affirmations. Each company must submit an executed written affir-mation annually to the NYSE, in | |
|the form specified by the NYSE, containing detailed information concerning its compliance or | |
|non-compliance with the NYSE corporate governance listing standing. The annual written affirmation must | |
|be submitted within 30 days of the annual shareholders’ meeting. In addition, each company must submit | |
|an interim written affirmation, in the form specified by the NYSE, each time a change occurs in the | |
|composition of the board or any of the committees required by the corporate governance listing standards.| |
ENDNOTES
APPENDIX II
International Listing of Corporate Governance Guidelines and Codes of Best Practice
INTERNATIONAL ORGANIZATIONS
▪ Institutional Shareholder Services (“ISS”), Global Proxy Voting Manual (2005). Available to subscribers at *
▪ Organisation for Economic Cooperation and Development (“OECD”) Steering Group on Corporate Governance, OECD Principles of Corporate Governance (April 1999, revised April 2004).
▪ European Corporate Governance Service (“ECGS”), European Governance Principles (February 6, 2004). Available upon request at
▪ Hermes Pensions Management & Asian Development Bank, Corporate Governance Principles for Business Enterprises (2003). *
▪ Institute of International Finance (“IIF”) Working Group on Corporate Governance and Transparency, Code of Corporate Governance (February, 2002).
▪ Center for International Private Enterprise (“CIPE”), Instituting Corporate Governance in Developing, Emerging and Transitional Economies – A Handbook (2002).
▪ Asia Pacific Economic Cooperation – Pacific Economic Cooperation Council (“APEC-PECC”), Towards Implementing Corporate Governance Reforms: Guidelines for Good Corporate Governance Practice (October 15, 2001). Available upon request at
▪ California Public Employees’ Retirement System (“CalPERS”), Global Proxy Voting Principles (March 19, 2001). *
▪ European Association of Securities Dealers (now Nasdaq Europe), Corporate Governance: Principles and Recommendations (May 2000).
▪ European Shareholders Group (“Euroshareholders”), Euroshareholders Corporate Governance Guidelines (February 2000). *
▪ Hermes Investment Management Ltd., International Corporate Governance Principles (December 13, 1999). *
▪ Commonwealth Association for Corporate Governance (“CACG”), CACG Guidelines: Principles for Corporate Governance in the Commonwealth (November 1999).
▪ CalPERS, Global Corporate Governance Principles (1999). *
▪ International Corporate Governance Network (“ICGN”), Statement on Global Corporate Governance Principles (July 1999, revised draft May 2003). *
▪ ICGN, Global Share Voting Principles (July 10, 1998). *
▪ OECD Business Sector Advisory Group on Corporate Governance, Corporate Governance: Improving Competitiveness and Access to Capital in Global Markets,
Report to the OECD (“Millstein Report”) (April 1998). Available upon request at
▪ European Bank for Reconstruction and Development (“EBRD”), Sound Business Standards and Corporate Practices: A Set of Guidelines (September 1997).
▪ Centre for European Policy Studies (“CEPS”), Corporate Governance in Europe – Recommendations (June 1995).
ARGENTINA
▪ Report on Capital Market Transparency and Reform for Best Corporate Governance Practices (“Villegas Report”) (June 2001). Available upon request at
vscaffino@.ar
AUSTRALIA
▪ Chartered Secretaries Australia, Good Governance Guides (May 8, 2004).
▪ Australian Stock Exchange Corporate Governance Council, Principles of Good Corporate Governance and Best Practice Recommendations (March 2003). **
▪ Investment & Financial Services Association (“IFSA”), formerly Australian Investment Managers Association (“AIMA”), Corporate Governance – A Guide for Fund Managers and Corporations (1995, revised December 2002). *
▪ The Audit Office of New South Wales, Performance Audit Report – Corporate Governance, Volume One: In Principle & Volume Two: In Practice (June 1997). (Vol. 1) and (Vol. 2)
▪ Working Group representing Australian Institute of Company Directors, Australian Society of Certified Practicing Accountants, Business Council of Australia, Law Council of Australia, The Institute of Chartered Accountants in Australia & The Securities Institute of Australia, Corporate Practices and Conduct (“Bosch Report”) (3d ed., 1995). Available upon request at robertco@.au
AUSTRIA
▪ Österreichischen Arbeitskreises für Corporate Governance, Regierungsbeauftragter für den Kapitalmarkt, Austrian Code of Corporate Governance (September 2002).
BANGLADESH
▪ Bangladesh Enterprise Institute Taskforce on Corporate Governance, The Code of Corporate Governance for Bangladesh – Principles & Guidelines for Best Practices in the Private Sector, Financial Institutions, State-Owned Enterprises & Non-Governmental Organisations (March 2004).
BELGIUM
▪ Corporate Governance Committee (“Lippens Committee”), The Belgian Code on Corporate Governance (December 9, 2004). *
▪ Fondation des Administrateurs (“FDA”), The Directors’ Charter (January 2000).
▪ Brussels Stock Exchange/Banking & Finance Commission, Corporate Governance for Belgian Listed Companies (a “Dual Code” combining the Cardon Report and the Banking & Finance Commission Recommendations) (December 1998).
▪ Federation of Belgian Companies (“VBO/FEB”), Corporate Governance – Recommendations (January 1998).
BRAZIL
▪ Instituto Brasileiro de Governança Corporativa (“IBGC”), Code of Best Practice of Corporate Governance (May 8, 1999, most recently revised March 30, 2004).
▪ Comissão de Valores Mobiliários (“CVM”) (Securities & Exchange Commission of Brazil), CVM Recommendations on Corporate Governance (June 2002).
CANADA
▪ Canadian Coalition for Good Governance, Corporate Governance Guidelines for Building High Performance Boards (January 2004). $FILE/CCGG_Guidelines_v1_Jan04.pdf *
▪ Joint Committee on Corporate Governance, Beyond Compliance: Building a Governance Culture (“Saucier Report”) (November 2001). **
▪ Institute of Corporate Directors & Toronto Stock Exchange, Report on Corporate Governance, 1999 – Five Years to the Dey (1999). $FILE/5years.pdf
▪ Pension Investment Association of Canada (“PIAC”), Corporate Governance Standards (September 1993; 2001 update). , 2001 update *
▪ Toronto Stock Exchange Commission on Corporate Disclosure, Responsible Corporate Disclosure: A Search for Balance (March 1997). Available upon request at marketdata@
▪ Toronto Stock Exchange Committee on Corporate Governance in Canada, “Where Were The Directors?”: Guidelines For Improved Corporate Governance in Canada (“Dey Report”) (December 1994).
CHINA
▪ China Securities Regulatory Commission (“CSRC”), Guidelines For Introducing Independent Directors to the Board of Directors of Listed Companies (August 16, 2001).
▪ CSRC and State Economic and Trade Commission, Code of Corporate Governance for Listed Companies in China (January 7, 2001).
COLOMBIA
▪ Confederación Colombiana de Cámaras de Comercio (“Confecámaras”) (Colombian Confederation of Chambers of Commerce), Corporate Governance Code (August 2002).
CYPRUS
▪ Cyprus Stock Exchange, Addendum of the Corporate Governance Code (November 2003). of the cgc-Engl.doc
▪ Cyprus Stock Exchange, Corporate Governance Code (September 2002).
CZECH REPUBLIC
▪ Czech Securities Commission, Corporate Governance Code Based on the OECD Principles (February 2001, revised June 2004).
▪ Czech Institute of Directors, Corporate Governance Code of Practice (February 2001). (Now Annex 3 to Czech Securities Commission Code, above)
DENMARK
▪ The Nørby Commission, Recommendations for Good Corporate Governance in Denmark (December 6, 2001).
▪ Danish Shareholders Association, Guidelines on Good Management of a Listed Company (Corporate Governance) (draft, February 29, 2000). *
FINLAND
▪ HEX Integrated Markets, the Central Chamber of Commerce of Finland & the Confederation of Finnish Industry and Employers, Corporate Governance Recommendations for Listed Companies (December 2003).
▪ Ministry of Trade and Industry, Guidelines for Handling Corporate Governance Issues in State-Owned Companies and Associated Companies (November 7, 2000).
▪ Central Chamber of Commerce/Confederation of Finnish Industry and Employers, Corporate Governance Code for Public Limited Companies (February 10, 1997).
FRANCE
▪ Association Française de la Gestion Financière – Association des Sociétés et Fonds Français d’Investissement (“AFG-ASFFI”), Recommendations sur le Gouvernement d’Entreprise (“Hellebuyck Commission Recommendations”) (June 9, 1998, revised March 4, 2004) English translation available of earlier version only: (June 9, 1998, amended October 2001) *
▪ Working group chaired by Daniel Bouton, Promoting Better Corporate Governance in Listed Companies (“Bouton Report”) (September 23, 2002). Available upon request at bllserve@
▪ Association Française des Entreprises Privées (AFEP) & Mouvement des Entreprises de France (“MEDEF”), Report of the Committee on Corporate Governance
(Viénot II) (July 1999).
▪ Conseil National du Patronat Français (“CNPF”) & Association Française des Entreprises Privées (“AFEP”), The Boards of Directors of Listed Companies in France (Viénot I) (July 10, 1995).
▪ CNPF & AFEP, Stock Options: Mode d’Emploi pour les Enterprises (“Lévy-Lang Report”) (1995).
GERMANY
▪ Government Commission German Corporate Governance Code, German Corporate Governance Code (February 26, 2002, revised May 21, 2003).
▪ Government Panel on Corporate Governance, Recommendations (“Baums Report”) (July 2001). . English summary available upon request at gpw@
▪ German Panel on Corporate Governance, Corporate Governance Rules for German Quoted Companies (January 2000, revised July 2000). **
▪ Berliner Initiativkreis, German Code of Corporate Governance (June 6, 2000).
▪ Deutsche Schutzvereinigung für Wertpapierbesitz e.V. (“DSW”), DSW Guidelines (June 1998).*
▪ Deutsche Bundestag, Gestez zur Kontroll und Tranzparenz im Unternehmensbereich (Law on Control and Transparency in the Corporate Sector) (“KonTraG”) (March 1998).
GREECE
▪ Federation of Greek Industries, Principles of Corporate Governance (August 2001). English translation by Weil, Gotshal & Manges LLP (January 2002) available upon request at
▪ Capital Market Commission, Committee on Corporate Governance, Principles on Corporate Governance in Greece: Recommendations for its Competitive Transformation (“Mertzanis Report”) (October 1999).
HONG KONG
▪ Hong Kong Society of Accountants (“HKSA”), Corporate Governance for Public Bodies – a Basic Framework (2004).
▪ HKSA, A Guide for Effective Audit Committees (2002). Available upon request at
▪ HKSA, Corporate Governance Disclosure in Annual Reports: A Guide to Current Requirements and Recommendations for Enhancement (March 2001). Available upon request at
▪ Stock Exchange of Hong Kong (“SEHK”), Code of Best Practice (December 1989; revised June 1996, February 1999, August 2000).
▪ SEHK, Model Code for Securities Transactions by Directors of Listed Companies (August 2000).
HUNGARY
▪ Budapest Stock Exchange, Corporate Governance Recommendations (2004).
ICELAND
▪ Iceland Stock Exchange (“ICEX”), Iceland Chamber of Commerce & Confederation of Icelandic Employers, Guidelines on Corporate Governance (March 16, 2004).
INDIA
▪ Securities & Exchange Board of India (“SEBI”), Report of the Committee Appointed by the SEBI on Corporate Governance (February 2000).
▪ Confederation of Indian Industry, Desirable Corporate Governance – A Code (April 1998).
INDONESIA
▪ National Committee for Corporate Governance, Code of Good Corporate Governance (April 2001).
IRELAND
▪ Irish Association of Investment Managers (“IAIM”), Corporate Governance, Share Option and Other Incentive Scheme Guidelines (March 1999). *
▪ IAIM, Statement of Best Practice on the Role and Responsibilities of Directors of Public Limited Companies (1992).*
ITALY
▪ Committee for the Corporate Governance of Listed Companies, Report & Code of Conduct (“Preda Report”) (October 1999, revised July 2002).
▪ Commissione Nazionale per le Società e la Borsa (“Consob”), 2002 Corporate Code of Conduct (July 2002, revised May 2, 2003). Available upon request at
▪ Ministry of the Italian Treasury, Report of the Draghi Committee (Audizione Parlamentare, Prof. Mario Draghi, Direttore Generale de Tesoro) (December 1997).
JAPAN
▪ Tokyo Stock Exchange, Listed Company Corporate Governance Committee, Principles of Corporate Governance for Listed Companies (May 4, 2004).
▪ Japan Corporate Governance Committee of the Japan Corporate Governance Forum, Revised Corporate Governance Principles (October 26, 2001).
▪ Kosei Nenkin Kikin Rengokai (Pension Fund Corporate Governance Research Committee), Action Guidelines for Exercising Voting Rights (June 1998). *
▪ Japan Federation of Economic Organizations (Keidanren), Urgent Recommendations Concerning Corporate Governance (Provisional Draft, Sept. 1997).
KENYA
▪ Government of Kenya, Code/Guidelines of Best Practice in State-Owned Corporations: A Summary (no date).
▪ Private Sector Initiative for Corporate Governance, Principles for Corporate Governance in Kenya and a Sample Code of Best Practice for Corporate Governance (November 1999, revised July 2000).
KOREA, REPUBLIC OF
▪ Korea Stock Exchange et al. Committee on Corporate Governance, Code of Best Practice for Corporate Governance (September 1999).
KYRGYZ REPUBLIC
▪ Kyrgyz Republic Office of the Prime Minister, Department of Economic Sectors Development, Model Charter of a Shareholding Society of Open Type (Approved by decree of government July 26, 1997).
▪ Working Group on Corporate Governance, Handbook on Best Practice – Corporate Governance in the Kyrgyz Republic (July 26, 1997).
LITUANIA
▪ National Stock Exchange of Lithuania (“NSEL”), The Corporate Governance Code for the Companies Listed on the National Stock Exchange of Lithuania (April 23, 2004).
MALAYSIA
▪ Malaysian Institute of Chartered Secretaries and Administrators, Good Governance Guides (March 16, 2004).
▪ Finance Committee on Corporate Governance, Malaysian Code on Corporate Governance (March 20, 2000).
MALTA
▪ Malta Stock Exchange Working Group on Corporate Governance, The Code of Principles of Good Corporate Governance (October 1, 2001).
MEXICO
▪ El Consejo Coordinador Empresarial (“CCE”) y la Comisión Nacional Bacaria y de Valores (“CNBV”), Corporate Governance Code for Mexico (June 9, 1999).
THE NETHERLANDS
▪ Corporate Governance Committee (“Tabaksblat Committee”), The Dutch Corporate Governance Code: Principles of Good Corporate Governance and Best Practice Provisions (December 9, 2003). percent20DEF percent20ENGELS percent20COMPLEET percent20III.pdf
▪ Stichting Corporate Governance Onderzoek voor Pensioenfondsen (“SCGOP”) (Foundation for Corporate Governance Research for Pension Funds), Corporate Governance Handbook of the SCGOP (August 2001). *
▪ Committee on Corporate Governance, Corporate Governance in the Netherlands – Forty Recommendations (“Peters Code”) (June 1997).
▪ Vereniging van Effectenbezitters (“VEB”), Ten Recommendations on Corporate Governance in the Netherlands (1997).*
NEW ZEALAND
▪ Institute of Chartered Secretaries and Administrators (“ICSA”) New Zealand, Good Governance Guides (May 8, 2004).
▪ Institute of Chartered Accountants of New Zealand, Corporate Governance Principles (November 2003).
▪ New Zealand Exchange Limited, NZX Corporate Governance Best Practice Code (August 2003).
▪ Institute of Directors in New Zealand, under the aegis of the Commonwealth Association for Corporate Governance (“CACG”), Best Practice Statements for Boards and Directors in New Zealand (August 2000). Available upon request at iod_nz@
NIGERIA
▪ Nigerian Security and Exchange Commission & the Corporate Affairs Commission, Code of Good Corporate Governance (November 2003).
NORWAY
▪ Norwegian Shareholders Association, et al., The Norwegian Code of Practice for Corporate Governance (December 7, 2004). **
PAKISTAN
▪ Securities & Exchange Commission of Pakistan, Code of Corporate Governance (March 28, 2002). (revised).htm
▪ Institute of Chartered Accountants of Pakistan (“ICAP”) Committee on Corporate Governance, Recommendations for Code of Corporate Governance in Pakistan (March 4, 2002).
PERU
▪ Comisió Nacional Supervisora de Empresas y Valores (“CONASEV”), et al., Principles of Good Governance for Peruvian Companies,
▪ Centro de Estudios de Marcado de Capitales y Financiero, Código de Buen Gobierno Corporativo para Empresas de Valores (November 2001).
THE PHILIPPINES
▪ Securities & Exchange Commission, Manual on Corporate Governance – Model Corporation (May 28, 2002).
▪ Securities & Exchange Commission, Code of Corporate Governance (April 4, 2002).
▪ Institute of Corporate Directors, Code of Proper Practices for Directors (March 30, 2000).
POLAND
▪ Polish Corporate Governance Forum, Best Practices in Public Companies (July 4, 2002, revised October 29, 2004).
▪ Gdansk Institute for Market Economics and Polish Corporate Governance Forum, The Corporate Governance Code for Polish Listed Companies (June 2002).
PORTUGAL
▪ Comissäo do Mercado de Valores Mobiliários (Securities Market Commission), Recommendations on Corporate Governance (November 1999, revised December 2001). . Amended (November 2003).
ROMANIA
▪ University of Bucharest International Center for Entrepreneurial Studies, and the Strategic Alliance of Business Associations, Corporate Governance Code (June 24, 2000).
RUSSIA
▪ Federal Securities Commission, Corporate Governance Code (April 4, 2002).
▪ Yeltsin, Boris, President of the Russian Federation & Parker School of Foreign & Comparative Law, Columbia University, Decree on Measures to Ensure the Rights of Shareholders (as amended, October 27, 1993) (Release No. 28, Transnational Juris, 1996).
SINGAPORE
▪ Singapore Association of the Institute of Chartered Secretaries and Administrators, Good Governance Guides (May 8, 2004).
▪ Corporate Governance Committee of the Singapore Institute of Directors, Code of Corporate Governance (March 21, 2001).
▪ Stock Exchange of Singapore, Best Practices Guide (1998).
SLOVAKIA
▪ Bratislava Stock Exchange, Corporate Governance Code (based on the OECD Principles) (September 2002).
SLOVENIA
▪ Ljubljana Stock Exchange, the Association of Supervisory Board Members of Slovenia, and the Managers’ Association, Corporate Governance Code (March 18, 2004).
SOUTH AFRICA
▪ Institute of Directors in Southern Africa, The King Report on Corporate Governance (“King Report,” November 1994; revised as “King II Report,” March 2002).
Executive Summary ; full Report available upon request at
SPAIN
▪ Instituto de Consejeros-Administradores, Principles of Good Corporate Governance: Code of Good Practices for Boards and Directors (June 2004, English version December 2004). Available upon request at
▪ Asociación Española de Directivos (“AED”), Decálogo del Directivo – Principios y valores de actiación del directivo para el buen gobierno de la empresa (May 2004).
▪ Comisión Especial, Informe de la Comisión Especial para el Fomento de la Transparencia y Seguridad en los Mercados y en las Sociedades Cotizadas (“Aldama
Report”) (January 8, 2003).
▪ Comisión Especial para el Estudio de un Código Etico de los Consejos de Administración de las Sociedades, The Governance of Spanish Companies (February 1998):
▪ El Circulo de Empresarios, Una propuesta de normas para un mejor funcionamiento de los Consejos de Administración (October 1996).
SRI LANKA
▪ Institute of Chartered Accountants of Sri Lanka, Code of Best Practice: Report of the Committee to Make Recommendations on Matters Relating to Financial Aspects of Corporate Governance (December 12, 1997). Available upon request at icaweb@
SWEDEN
▪ The Code Group, Swedish Code of Corporate Governance (2005).
▪ Swedish Shareholders Association, Corporate Governance Policy (October 26, 2001). English translation: *
▪ Swedish Academy of Directors, Western Region, Introduction to a Swedish Code of “Good Boardroom Practice” (March 27, 1995). Available upon request at
bandreaz@vast.styrakad.se
SWITZERLAND
▪ Swiss Stock Exchange (“SWX”), Directive on [Disclosure of] Information Relating to Corporate Governance (August 2002).
▪ Panel of Experts on Corporate Governance, Swiss Code of Best Practice (“Böckli Report”) (Final Draft, March 25, 2002). **
THAILAND
▪ Stock Exchange of Thailand (“SET”), The Roles, Duties and Responsibilities of the Directors of Listed Companies (December 1997; revised October 1999).
TURKEY
▪ Capital Markets Board of Turkey, Corporate Governance Principles (July 23, 2003).
▪ Turkish Industrialists’ and Businessmen’s Association, Corporate Governance Code of Best Practice: Composition and Functioning of the Board of Directors
(December 2002).
UNITED KINGDOM
▪ Pensions Investment Research Consultants (“PIRC”), PIRC Shareholder Voting Guidelines (1993, revised 2005). Available upon request at *
▪ Association of British Insurers, ABI Guidelines, Guidance Notes and Other Relevant Material (1993, most recently revised 2004). *
▪ Institute of Chartered Secretaries and Administrators (“ICSA”) UK, ICSA UK Guidance Notes and Best Practice Guides (May 8, 2004).
▪ The Financial Reporting Council (“FRC”), The Combined Code on Corporate Governance (July 1998, revised July 2003).
▪ Derek Higgs, Review of the Role and Effectiveness of Non-Executive Directors (“Higgs Report”) (January 20, 2003).
▪ Financial Reporting Council Group, Audit Committees -- Combined Code Guidance (“Smith Report”) (January 20, 2003).
▪ Hermes Pensions Management Limited, The Hermes Principles (October 21, 2002). *
▪ Institutional Shareholders’ Committee, The Responsibilities of Institutional Shareholders and Agents – Statement of Principles (October 21, 2002). *
▪ Paul Myners, Institutional Investment in the United Kingdom: A Review (“Myners Report”) (March 6, 2001). *
▪ Hermes Investment Management Ltd., Statement on UK Corporate Governance & Voting Policy (March 1997, revised January 2001). *
▪ Association of Unit Trusts and Investment Funds, Code of Good Practice (January 2001). *
▪ National Association of Pension Funds (“NAPF”), Towards Better Corporate Governance (June 5, 2000). *
▪ Institute of Chartered Accountants in England and Wales, Internal Control: Guidance for Directors on the Combined Code (“Turnbull Report”) (September 1999).
▪ Law Commission & The Scottish Law Commission, Company Directors: Regulating Conflicts of Interests and Formulating a Statement of Duties (September 1999).
▪ Committee on Corporate Governance (sponsored by the London Stock Exchange et al.), Final Report (“Hampel Report”) (January 1998).
▪ Study Group on Directors’ Remuneration, Directors’ Remuneration (“Greenbury Report”) (July 1995).
▪ Institute of Directors, Good Practice for Directors – Standards for the Board (1995).
▪ Report of the Committee on the Financial Aspects of Corporate Governance (“Cadbury Report”) (December 1, 1992, reissued April 1996).
▪ Institutional Shareholders’ Committee, The Role and Duties of Directors: A Statement of Best Practice (April 1991). *
▪ Institute of Chartered Secretaries and Administrators, Good Boardroom Practice: A Code for Directors and Company Secretaries (February 1991, reissued 1995). Available upon request at
UNITED STATES
▪ California Public Employees’ Retirement System (“CalPERS”), Corporate Governance Principles and Guidelines – United States (April 13, 1998, updated April 5, 2005). *
▪ National Association of Corporate Directors (“NACD”), Report of the NACD Blue Ribbon Commission on Director Professionalism (November 1996, reissued 2001, 2005). Available upon request at
▪ Institutional Shareholder Services (“ISS”), U.S. Proxy Voting Manual (2005). Available to subscribers at *
▪ New York Stock Exchange (“NYSE”), Corporate Governance Rules (revised November 4, 2003, further revised November 3, 2004).
▪ Council of Institutional Investors (“CII”), Corporate Governance Policies (March 1998, most recently revised October 13, 2004). *
▪ General Motors Board of Directors, GM Corporate Governance Guidelines (January 1994, most recently revised June 2004).
▪ American Bar Association, Committee on Corporate Laws, Section of Business Law, Corporate Director’s Guidebook (1978; 4th ed. 2004). Available upon request at
▪ Teachers Insurance and Annuity Association – College Retirement Equities Fund (“TIAA-CREF”), TIAA-CREF Policy Statement on Corporate Governance
(October 1997, most recently revised January 2004). *
▪ Blue Ribbon Commission on Improving the Effectiveness of Corporate Audit Committees, Report and Recommendations (sponsored by the New York Stock Exchange & the National Association of Securities Dealers) (1999, revised 2004).
▪ National Association of Securities Dealers, Inc. (“NASD”), Nasdaq Marketplace Rules (November 2003).
▪ The Business Roundtable (“BRT”), Principles of Corporate Governance (May 2002).
▪ The Conference Board Commission on Public Trust and Private Enterprise, Findings and Recommendations, Part 1: Executive Compensation; Part 2: Corporate Governance & Part 3: Audit and Accounting (2003).
▪ American Federation of Labor and Congress of Industrial Organizations (“AFL-CIO”), Exercising Authority, Restoring Accountability – AFL-CIO Proxy Voting Guidelines (1997, revised 2003). *
▪ Corporate Governance Center, Kennesaw State University, 21st Century Governance and Financial Reporting Principles (March 26, 2002).
▪ BRT, Statement on Corporate Governance (September 1997).
▪ American Society of Corporate Secretaries, Suggested Guidelines for Public Disclosure and Dealing with the Investment Community (1997).
▪ NACD, Report of the NACD Blue Ribbon Commission on Performance Evaluation of Chief Executive Officers, Board and Directors (1994).
▪ American Law Institute (“ALI”), Principles of Corporate Governance: Analysis & Recommendations (1994, revised 2002). Available upon request at
▪ BRT, Statement on Corporate Governance and American Competitiveness (1990).
▪ BRT, The Role and Composition of the Board of Directors of the Large Publicly Owned Corporation (January 1978).
ZIMBABWE
▪ Institute of Chartered Secretaries and Administrators in Zimbabwe, Good Governance Guide (May 8, 2004).
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* Holly J. Gregory, a partner in the law firm of Weil, Gotshal & Manges LLP, practices in the Firm’s Corporate Governance Group. Frederick W. Philippi, a paralegal specialist, assisted in this comparative analysis. See also Holly J. Gregory, International Comparison of Selected Corporate Governance Guidelines and Codes of Best Practice: America · Europe · Asia · Africa · Australia (1998, revised 2005); and regional Comparisons: Latin America (2003), Asia (2002), European Union (2002) and Developing & Emerging Markets (2002), available at .
[1] General Motors Board of Directors, Corporate Governance Guidelines (January 1994; most recently revised June 2004).
[2] The American Law Institute (“ALI”), Principles of Corporate Governance: Analysis and Recommendations, Vol. 1 (1994, with supplements).
[3] The Business Roundtable, Principles of Corporate Governance (May 2002).
[4] National Association of Corporate Directors (“NACD”), Report of the NACD Commission on Director Professionalism (November 1996, reissued 2001, 2005).
[5] The Conference Board Commission on Public Trust and Private Enterprise, Findings and Recommendations, Part 1: Executive Compensation (September 17, 2002); Findings and Recommendations, Part 2: Corporate Governance and Part 3: Audit and Accounting (January 9, 2003).
[6] California Public Employees’ Retirement System (“CalPERS”), Corporate Governance Principles and Guidelines – United States (April 1998, updated April 2005).
[7] Council of Institutional Investors, Corporate Governance Policies (March 1998, most recently revised October 2004).
[8] Teachers Insurance and Annuity Association–College Retirement Equities Fund (“TIAA-CREF”), TIAA-CREF Policy Statement on Corporate Governance (October 1997, most recently revised January 2004).
[9] American Federation of Labor and Congress of Industrial Organizations (“AFL-CIO”), Exercising Authority, Restoring Accountability – AFL-CIO Proxy Voting Guidelines (1997, revised 2003).
[10] Organization for Economic Cooperation and Development (“OECD”) Steering Group on Corporate Governance, Principles of Corporate Governance (April 1999, revised April 2004); Business Sector Advisory Group on Corporate Governance, Corporate Governance: Improving Competitiveness and Access to Capital in Global Markets: A Report to the OECD (“the Millstein Report”) (April 1998).
[11] See American Bar Association, Committee on Corporate Laws, Section of Business Law, Corporate Director’s Guidebook (4th ed. 2004) (hereinafter “2004 ABA Guidebook”) at 5 (“As a general matter, a business corporation’s core objective in conducting its business activities is to create and increase shareholder value.”); id. at 7 (“Stated broadly, the principal responsibility of a corporate director is to promote the best interests of the corporation by providing general direction for the management of the corporation’s business and affairs.”); The Business Roundtable, Statement on Corporate Governance (September 1997) (hereinafter “1997 BRT Statement”) at 1 (“[T]he principal objective of a business enterprise is to generate economic returns to its owners.”); The Business Roundtable, Statement on Corporate Governance and American Competitiveness (1990) (hereinafter “1990 BRT Statement”) at 7 (“The boards of directors of American corporations play a central role in corporate governance. Their principal responsibility is to exercise governance so as to ensure the long-term successful performance of their corporation.”).
[12] Under the NYSE Listing Rules, domestic listed companies are required to adopt and disclose corporate governance guidelines that clearly articulate the responsibilities of directors. Appendix I (Board of Director Composition and Function Requirements) at 16. See 2004 ABA Guidebook at 6 (“[Under the Model Act,] all corporate powers shall be exercised by or under the authority of the board of directors of the corporation, and the business and affairs of the corporation shall be managed by or under the direction, and subject to the oversight, of its board of directors. This language emphasizes the board’s responsibility to oversee the management of the corporation….”); 1990 BRT Statement at 7 (“The board of directors has five primary functions: 1. Select, regularly evaluate and, if necessary, replace the chief executive officer. Determine management compensation. Review succession planning. 2. Review and, where appropriate, approve the financial objectives, major strategies, and plans of the corporation. 3. Provide advice and counsel to top management. 4. Select and recommend to shareholders for election an appropriate slate of candidates for the board of directors, evaluate board processes and performance. 5. Review the adequacy of systems to comply with all applicable laws/regulations.”); 2003-2004 National Association of Corporate Directors (“NACD”) Public Company Governance Survey (hereinafter “2003-2004 NACD Survey”) at 5 (among the top issues facing U.S. companies today, survey respondents identified: CEO succession, corporate performance and valuation, corporate governance (accountability sys-
[13] See 2004 ABA Guidebook at 7 (“Several states have adopted legislation expressly confirming corporate directors’ authority to consider, in various decisions they make, the effect of corporate action on constituencies other than shareholders, such as employees, local communities, suppliers and customers. As a general rule, however, the law does not hold the board accountable to constituencies other than shareholders (and possibly creditors if the corporation is insolvent or near insolvency) in overseeing management or in making decisions. Non-shareholder constituency considerations are best understood not as independent corporate objectives but rather as factors to be taken into account in pursuing the best interests of the corporation.”); id. at 75 (“An increasing number of corporations, especially corporations with a high international profile, have recognized the value to the corporation and its reputation of having policies and practices relating to the concept of global corporate citizenship…. These principles relate to such matters as ethics and integrity in corporate dealings, scientific integrity, employee health and safety, environmental practices, employment practices, board diversity, quality control, community investment and promotion of sustainable development and human rights in countries where the corporation does business.”); 2003-2004 NACD Survey at 7 (98 percent of respondents consider their board’s relations with stakeholders to be “effective” or “highly effective,” but 2 percent gave their boards a failing grade (“below acceptable levels”).
[14] Under the NYSE Listing Rules, domestic listed companies are required to adopt and disclose corporate governance guidelines that address qualification standards for directors. Appendix I (Board of Director Composition and Function Requirements) at 16. See 2004 ABA Guidebook at 25-26 (“In determining board composition, consideration should be given to both the personal qualities and experience of the individual directors and the overall mix of experience, independence and diversity of backgrounds likely to make the board of directors, as a body, effective in monitoring and overseeing the performance of the corporation and contributing to its success.”); NACD, Report of the NACD Blue Ribbon Commission on Performance Evaluation of Chief Executive Officers, Board and Directors (1994) (hereinafter “1994 NACD Report”) at 7-8 (Directors “should be chosen on the basis of ... talent, expertise, and accomplishment. Diversity of race, gender, age, and nationality ... may also be taken into account.... Diversity should not, however, be confused with constituency representation.... Also, each director should be a shareholder of the corporation.”); 1990 BRT Statement at 9, 11-12 (“Effective boards are composed of individuals who are highly experienced in business, investments, large organizations or public affairs, [and] willing and able to commit the time and effort needed to be an effective director.”); 2003-2004 NACD Survey”) at 16-17 (top skill sets considered when recruiting outside directors are: knowledge of the company’s industry (first choice of 37.1 percent of respondents), successful experience as a corporate director
[15] Under the NYSE Listing Rules, domestic listed companies (subject to certain exemptions for “controlled companies”) are required to have an independent nominating/corporate governance committee with a written charter setting forth the committee’s purpose, which must include (i) identifying individuals who are qualified to become board members consistent with criteria that were approved by the full board, and (ii) selecting, or recommending that the board select, the director nominees for election at the next annual meeting of shareholders. Appendix I (Board of Director Composition and Function Requirements) at 13. See 2004 ABA Guidebook at 67 (“The principal nominating function of the nominating/corporate governance committee is to approve and select, or recommend that the board select, director nominees, including both incumbent directors and new candidates. The committee also recommends candidates to be elected by the board to fill an interim director vacancy.”); 1997 BRT Statement at 7, 16 (“It is the board’s responsibility to nominate directors…. The nominating/governance committee is typically responsible for ... reviewing possible candidates for board membership ... and recommending a slate of nominees.”); 1994 NACD Report at 10 (The Nominating Committee should evaluate the profile of the board and discuss it with the CEO and the rest of the board, forming a consensus on the number of additional directors to be added at the time and the ideal set of job skills. The Nominating Committee, with input from the entire board, should make a list of candidates. The CEO should have input into the process as well. Once a list of candidates has been established, the members of the Nominating Committee, the Chairman and CEO should meet with each candidate to evaluate his or her suitability. The Nominat-
[16] Under the NYSE Listing Rules, domestic listed companies’ corporate governance guidelines are required to address the matter of orientation and continuing education of directors. Appendix I (Board of Director Composition and Function Requirements) at 16. See 2003-2004 NACD Survey at 12 (33.2 percent of respondents favor a stock exchange rule requiring continuing director education, 27.8 percent favor director certification, and 16.5 percent favor director accreditation; however, 46.3 percent of respondents did not favor any of the director education options listed in the survey).
[17] See 2004 ABA Guidebook at 28 (“In the United States, public companies generally follow one of two models. In most cases, the chief executive officer also serves as board chair; however, in a growing number of public companies, the two functions are separated.”); Spencer Stuart Board Index (2004) at 8 (26 percent of all S&P company boards separate the chairman and CEO roles – up from 20 percent five years earlier; of those companies that separate the roles, 57 percent have a former CEO as chairman – down from 70 percent one year earlier); 1997 BRT Statement at 13 (“The [BRT] believes that most corporations will continue to choose, and be well served by, unifying the positions of chairman and CEO. Such a structure provides a single leader with a single vision for the company and most [BRT] members believe it results in a more effective organization.”); 2003-2004 NACD Survey at 10-11 (based on a survey of proxy data, “[T]he percentage of companies with separate CEO and chairman positions rose above the halfway mark in 2003.” Survey data show that 50.4 percent of the 5,000-plus companies studied separate the chairman and CEO positions (up from 45 percent in 2001), and 31.9 percent of respondents report not only that they have separated the positions of chairman and CEO, but that the chairman position is held by an independent director).
[18] Under the NYSE Listing Rules, domestic listed companies are required to disclose either the name of the director who will preside at executive sessions of the non-management directors (the “presiding” director) or, alternatively, the procedure by which a director will be selected to preside at each session. Appendix I (Board of Director Composition and Function Requirements) at 3. See 2004 ABA Guidebook at 28 (“Where the chief executive officer of a corporation also serves as chair of the board, a growing practice … is to have the independent directors formally designate one of their number to act as a presiding or lead director, or in the alternative, empower the chair of the nominating/corporate governance committee to act in that capacity.”); 2004 Spencer Stuart Board Index at 8 (84 percent of S&P 500 companies have appointed a lead or presiding director – up from 36 percent one year earlier); 1997 BRT Statement at 13 (“Where [the CEO and Chairman] positions are unified, the [BRT] ... believes that it is desirable for directors to have an understanding as to how non-executive leadership of the board would be provided, whether on an ongoing basis or on a transitional basis, if and when the need arose.”); 1994 NACD Report at 4 (discussing board appointment of a lead director for the CEO evaluation process); 2004 Korn/Ferry Study at 27 (“[A]) lead director is now seen as integral in fostering a positive working relationship with the CEO, maintaining independence of the board from management, and stimulating open discourse among outside directors by serving as an impartial sounding board. Four out of five (80 percent) of … respondents have an elected or appointed lead director who presides at executive sessions and evaluates the CEO. This practice has been integrated with astounding speed: only 32 percent of respondents’ boards had formalized the lead director role in 2002. Support for the concept is strong, with 85 percent of outside directors and 65 percent of insiders advocating creation of the role”).
[19] See 2004 ABA Guidebook at 28-29 (“Each board should determine the appropriate size to accommodate its key needs and objectives, which include performing its decision-making and oversight responsibilities effectively, including the functions assigned to the key oversight committees and satisfying applicable independence standards. Other factors that might influence board size are the corporation’s need to maintain a strong community presence, to establish or maintain relationships with large shareholders or other constituencies, or to respond to factors particular to the corporation or the industry in which the corporation operates. In accommodating these needs, board size should not be expanded to a point that size interferes with effective functioning.”); 1994 NACD Report at 7 (“Ideally, a board should be small enough to permit thorough discussion of important issues, with enough ‘air time’ for each view presented, yet large enough to bring a sufficient variety of views and talents to the table.”); 1990 BRT Statement at 11 (“The average size of the board of directors of large publicly-traded U.S. corporations (Fortune 500) is estimated to be 13. Many authorities believe small, cohesive boards work more effectively than large boards. From experience it would appear that the optimum number of non-management board members for a large U.S. corporation ranges between eight and fifteen.”); 2003-2004 NACD Survey at 8 (among the 5,000-plus companies studied, small-cap companies (< $100m) average 6.5 board members, mid-cap companies ($100–800m) average 8.1 board members, and large companies (> $800m) average 9.8 board members; among S&P companies in the survey, however, small-caps average 8.3 board members, mid-caps average 9.2 board members, and S&P 500 companies average 10.9 board members); 2004 Korn/Ferry Study at 9 (“Concerns and compliance with Sarbanes-Oxley have not affected the number of directors present in Fortune 1000 boardrooms. Proxy data for 2004 shows that the boards of North America’s largest organizations [average] 11 members, the same as reported since 1995.”); id. at 10 (more specifically, companies valued under $3 billion average 9 board members; companies valued at $3-5 billion average 10 board members; companies valued at $5-20 billion average 11 board members; and companies valued at more than $20 billion average 12 board members.).
[20] Under the NYSE and Nasdaq Listing Rules, domestic listed companies (subject to certain exemptions for “controlled companies”) are required to have a majority of independent directors. Appendix I (Board of Director Composition and Function Requirements) at 3. See 2004 ABA Guidebook at 26 (“To encourage an environment likely to nurture independence in fact and to communicate an appearance of independence, most corporate governance commentators have for some time recommended that, in most circumstances, at least a majority of a public company board should be independent of management and that no more than one or two directors should also be executives of the corporation. Recently, investor and business groups have taken the position that a substantial majority of the directors of a public company should be independent of management. The major securities markets now require all listed companies to have a majority of independent directors, unless they are ‘controlled companies’….”); 1997 BRT Statement at 10 (“It is important for the board of a large, publicly-owned corporation to have a substantial degree of independence from management. Accordingly, a substantial majority of the directors of such a corporation should be outside (non-management) directors.”); 1990 BRT Statement at 11 (“Boards of directors of large publicly-held corporations should be composed predominantly of independent directors who do not hold management responsibilities within the corporation…. A number of board functions should be reserved for non-management directors only, such as membership on the audit, compensation/personnel, and nominating committees; selection and evaluation of the CEO; and board evaluation and selection.”); 2003-2004 NACD Survey at 13 (92.4 percent of respondents report that their boards already conform to the new stock exchange requirement that there be a majority of independent directors); 2004 Korn/Ferry Study at 11 (“Regulation has not altered the balance between inside and outside directors comprising Fortune 1000 Boards. The number of outside directors is nine, the average reported since 1990. Insiders continue to retain two board seats, unchanged since 1995.”); id. at 10 (more specifically, companies valued at under $3 billion average 9 board members with 2 insiders and 7 outsiders; companies valued at $3-5 billion average 10 board members with 2 insiders and 8 outsiders; companies valued at $5-20 billion average 11 board members with 2 insiders and 9 outsiders; and companies valued at more than $20 billion average 12 board members with 2 insiders and 10 outsiders).
[21] Under NYSE Listing Rule 303A.02, “[n]o director qualifies as ‘independent’ unless the board of directors affirmatively determines that the director has no material relationship with the listed company (either directly or as a partner, shareholder or officer of an organization that has a relationship with the company).” Certain family, employment and close consulting and business relationships are presumptively or per se “material.” See Appendix I (Board of Direc-
[22] Under the NYSE Listing Rules, domestic listed companies are required to adopt and disclose a code of business conduct and ethics for directors, officers and employees addressing: conflicts of interest; corporate opportunities; confidentiality; fair dealing with customers, suppliers, competitors and employees; protection and proper use of company assets; compliance with laws, rules and regulations (including insider trading laws); and encouraging the reporting of any illegal or unethical behavior. Appendix I (Board of Director Composition and Function Requirements) at 16. Companies would also be required to promptly disclose any waivers of the code given to directors or executive officers. Id. In addition, under the Sarbanes-Oxley Act and related SEC rules, companies must disclose whether or not they have adopted a code of ethics applicable to their CEO, CFO and certain other officers and, if not, why not. Id. at 15. The Sarbanes-Oxley Act also provides “whistle blower” protections. Id. at 8. See 2004 ABA Guidebook at 15 (“Each director should be alert and sensitive to any interest he or she may have that might conflict with the best interests of the corporation. When a director has a direct or indirect financial or personal interest in a contract or transaction to which the corporation is to be a party, or the director is contemplating entering into a transaction that involves use of corporate assets or may involve competition with the corporation, the director is considered to be interested in the matter. A transaction in which any director has such an interest should be approved by disinterested directors or by shareholders. Interested directors should, subject to any confidentiality obligations owed to others outside the corporation, first disclose their interest to the board members who are to act on the matter and then describe all material facts concerning the matter that are known to the interested directors. After such disclosure, the interested directors should abstain from voting on the matter. In most situations, after disclosing the interest, describing the relevant facts and responding to any questions, the interested directors should leave the meeting while the disinterested directors complete their discussion and vote. State corporation statutes usually provide procedures that may be used to authorize or ratify interested director transactions, and those procedures should be followed to safeguard both the corporation and the interested director.”); 2003-2004 NACD Survey at 12 (asked who should monitor corporate ethical conduct (respondents could choose more than one answer), 76.6 percent said the board as a whole, 25.5 percent said the audit committee, and 22.2 percent named another committee or individual); id. (asked who should monitor compliance issues for the board, 73.6 percent of respondents said the general counsel, 23.4 percent said management, 2.9 percent named the audit committee, 2.4 percent the board as a whole, 2.2 percent the governance/nominating committee, and 2 percent the internal audit. Other responses included another board committee (e.g., a compliance committee) or individual (e.g., outside counsel or a compliance officer); id. at 13 (84.9 percent of respondents’ boards have already developed and disclosed a code of ethics in compliance with stock market requirements).
[23] See 2004 ABA Guidebook at 30-31 (“All directors are expected to devote substantial time and attention to their responsibilities – enough time to permit the directors to prepare for and attend meetings of the board and board committees and to stay informed about the corporation’s business performance and competitive position in the marketplace…. Directors entertaining a new or continued board commitment should carefully consider how much time will be required to meet their responsibilities…. Directors should not over-commit themselves, and the nominating/corporate governance committee should consider a board candidate’s ability to devote the necessary time. In times of possible change-of-control transactions, financial distress, management succession crises or similar circumstances, directors of public companies will be required to devote substantially more time during the critical period.”); 2003-2004 NACD
[24] See 2004 ABA Guidebook at 67 (“All boards should consider the desirability of some limiting principle on the length of director tenure to enable the board to gain fresh perspectives from new board members from time to time. Some public companies establish term limits and/or a mandatory retirement age for directors.”); 2003-2004 NACD Survey at 14 (71.3 percent of respondents oppose tenure limits); id. (the average term of service for directors of surveyed companies lasts 9.6 years); id. (35.1 percent of respondents reject the concept of a mandatory retirement age; however, among those who favor a mandatory retirement age, the average retirement age proposed is 71.9 years); 2004 Korn/Ferry Study at 24-25 (69 percent of respondents indicate their boards have set a mandatory retirement age (up from 23 percent in 2001), and that the average age set for retirement is 71); id. at 35 (“[A] diverse board membership devoid of management ties seems to have few qualms about asking a director to resign or not stand for reelection. The majority (56 percent) state their board has done so and 27 percent cite poor performance as the reason.”).
[25] Under the NYSE Listing Rules, domestic listed companies’ corporate governance guidelines are required to address the matter of director compensation. Appendix I (Board of Director Composition and Function Requirements) at 16. See 2004 ABA Guidebook at 31-32 (“Directors have an unavoidable conflict of interest in fixing their own compensation…. Recognizing that they have the responsibility to determine their own compensation, directors normally make sure they have the data necessary to reach a fair result…. A major objective of board compensation plans should be to align the directors’ financial interests more closely with the long-term interests of the corporation and its shareholders. Director compensation may take a number of different forms, including annual stock or cash retainers, attendance fees for board and committee meetings, deferred compensation plans, stock options, restricted stock grants and life, accident or other insurance…. The board should be sensitive to and avoid compensation policies or corporate perquisites that might tend to subvert the independence of its non-management directors.”); 1997 BRT Statement at 16 (“Boards should consider aligning the interests of directors with those of the corporation’s stockholders by including some form of equity, such as stock grants or options, as a portion of each director’s compensation.”); 1994 NACD Report at 20 (“Each board must decide what plan best serves the needs of the company, its shareholders, and its directors. For companies that wish to increase stock ownership by directors, there is a range of possibilities, from restricted stock grants with prohibitions on resale,
[26] Under the NYSE Listing Rules, domestic listed companies are required to hold regular executive sessions of the non-management directors without members of management present. The name of the director who will preside at these executive sessions or, alternatively, the procedure by which a presiding director will be selected for each executive session, must be disclosed in the proxy statement, together with information about how interested parties can communicate with either the presiding director or the non-management directors as a group. Appendix I (Board of Director Composition and Function Requirements) at 2. See 2004 ABA Guidebook at 30 (“The New York Stock Exchange listing standards now require boards of listed companies to schedule regular meetings of non-management directors to promote open discussion among them and to schedule at least one meeting per year among the independent directors only. The Nasdaq Stock Market has a similar requirement for independent directors only. These meetings present an opportunity to evaluate the performance and continued effectiveness of management and the board. These meetings are usually coordinated with regular meetings of the board.”); 2003-2004 NACD Survey at 12 (88.9 percent of respondents’ companies are already holding regular executive sessions of the board without management present); 2004 Korn/Ferry Study at 23-24 (93 percent of respondents report that executive sessions of the outside directors, without the CEO present, now occur at their companies – more than double the 41 percent reporting this practice in 2002); id. at 27 (“[A] lead director is now seen as integral in fostering a positive working relationship with the CEO, maintaining independence of the board from management, and stimulating open discourse among outside directors by serving as an impartial sounding board. Four out of five (80 percent) of … respondents have an elected or appointed lead director who presides at executive sessions….”).
[27] Under the NYSE Listing Rules, domestic listed companies’ boards are required to address annual performance evaluation in their corporate governance guidelines. Appendix I (Board of Director Composition and Function Requirements) at 16. The charters of the audit, compensation and nominating/corporate governance committees are required to provide for annual performance evaluations of these committees. Id. at 12-14. See 2004 ABA Guidebook at 6 (The board has the responsibility for “evaluating the procedures, operation and overall effectiveness of the board and its committees.”); id. at 70 (“[T]he nominating/corporate governance committee typically addresses … evaluating the
[28] See 2004 ABA Guidebook at 18-19 (“A public company director is sometimes asked by investors, analysts, investment advisors or others to comment on sensitive issues, particularly financial information. However, an individual director is not usually authorized to be a spokesperson for the corporation and directors should avoid responding to such inquiries, particularly when confidential or market-sensitive information is involved…. Directors should refer requests for corporate information to the chief executive officer or other individual designated by the corporation to deal with such inquiries.”). 2004 Korn/Ferry Study at 9 (“Reforms generated by corporate scandals have changed the look, tone and content of the proxy statements. More companies devote a section of the proxy to discussing the company’s ‘Corporate Governance’ philosophy. Many proxies include the company’s criteria in choosing directors for its board. When new directors are being nominated, the means of their selection is described. Companies explain how stockholders may put forth nominees and detail how stockholders may contact the board directly. Companies must now carefully identify their independent directors and the criteria they use to do this. Proxies state the number of times independent directors meet in private session. Companies identify which members of the Audit Committee are financial experts and what criteria have been used in so naming them. Many companies are including the charters of the various board committees in the proxy itself.”).
[29] Under the NYSE Listing Rules, domestic listed companies are required to adopt and disclose corporate governance guidelines that address director access to management. Appendix I (Board of Director Composition and Function Requirements) at 16. See 2004 ABA Guidebook at 67 (“Because it is important for the board to receive candid input from senior management, the [nominating/corporate governance] committee should consider how best to effect appropriate access to management. Some nominating/corporate governance committees determine that senior officers of the corporation other than the chief executive officer should also serve as directors, whereas others decide that attendance at board meetings by senior officers in a non-director capacity is sufficient to facilitate the board’s ready access to information regarding the business and operations of the corporation.”).
[30] See 2004 ABA Guidebook at 33 (“Traditionally, management has determined the presentations to be made and the matters to be acted on by the board, but that is less so today. When there is a non-executive chair of the board or a nominating/corporate governance committee chair or other person designated as presiding or lead director, that director and the chief executive officer should collaborate on the agenda and plans for the meeting. However, any director should always be free to request that an item be included on the agenda. Further, the board should satisfy itself that there is an overall annual agenda of the matters that require recurring and focused attention, as well as periodic reexamination and updating.”); 1990 Business Roundtable Statement at 14 (“A carefully planned agenda is very important for effective board meetings. In practice, the items on the agenda are determined by the chairman in consulta-tion with the board, with important subjects being suggested by various outside board members…. To ensure continuing effective board operations, the CEO can periodically ask the directors for their evaluation of the general items for board meetings and any suggestions they may have for improvement.”); 2003-2004 NACD Survey at 14 (70 percent of respondents’ boards meet 4 to 6 times per year, while – at the other end of the spectrum – 11 percent meet 10 to 12 times per year); id. at 15 (time spent on board matters has risen dramatically since 2001: outside directors now spend, on average, 155.8 hours annually on board duties for each board they serve (83.5 hours on board-related
[31] See 2004 ABA Guidebook at 13 (“When specific actions are contemplated, directors should receive the relevant information far enough in advance of the board or committee meeting to allow study of, and reflection upon, the issues raised. Important time-sensitive materials that become available between meetings should be distributed to board members. On their part, directors should review carefully the materials supplied. If a director believes that information is insufficient or inaccurate or is not made available in a timely manner, the director should request that action be delayed until appropriate information is made available and can be studied.”); id. at 30 (“A balance should be sought between management presentations and discussion among directors and management [at board and committee meetings].”); 1990 Business Roundtable Statement at 14 (“[B]oards should ensure that adequate time is provided for full discussion of important corporate items and that management presentations be tailored so as to provide a substantial proportion of board meeting time for open discussion.”).
[32] Under the NYSE Listing Rules, domestic listed companies (subject to certain exemptions for “controlled companies”) are required to have an audit committee, a nominating/corporate governance committee and a compensation committee, and all three committees must consist exclusively of “independent” directors. Appendix I (Board of Director Composition and Function Requirements) at 4. Under Section 301 of the Sarbanes-Oxley Act and Rule 10A-3 of the Securities Exchange Act of 1934, directors’ fees must be the only compensation they receive from the company and they must not be affiliated with the company or its subsidiaries. Id. at 5. See 2004 ABA Guidebook at 41-42 (“Diversity in board structure and size does not allow for a uniform mandate for a particular committee structure…. Any recommendations in this Guidebook that certain matters be considered by a particular committee are not meant to suggest a particular board structure or any specific division of committee responsibilities. The important point is that the matters be considered by some group of directors and, when mandated by law or securities market regulations – or in instances calling for disinterested review and approval – by directors who are independent of management and disinterested in the matter at hand.”); id. at 69 (“[T]he nominating/corporate governance committee will also often make recommendations to the board regarding the responsibilities, organization and membership of all board committees. The committee should recommend to the board the types and functions of board committees, together with the qualifications for membership on each committee.”). The 2004 ABA Guidebook provides extensive treatment of the audit, compensation and nominating/corporate governance committees at 45-72, and also references executive, finance, legal compliance, public policy and strategic planning committees at 41-44, while observing that each corporation needs to tailor the number of its committees and their functions to its own particular needs; 1990 Business Roundtable Statement at 12-13 (“A wide diversity of approach in committee structure and function responds to the specific needs of companies facing different business challenges and different corporate cultures, and reflects the need to allow organizational experimentation.
[33] The Sarbanes-Oxley Act requires that companies disclose whether or not the audit committee includes at least one member who is a “financial expert” and, if not, the reasons. Appendix I (Board of Director Composition and Function Requirements) at 9. Under NYSE and Nasdaq Listing Rules, audit committee members must be financially literate or become so within a reasonable period of time. Id. at 10. See 2004 ABA Guidebook at 42 (“The membership of each committee should be appropriate to its purpose and, in the case of a public company, in compliance with federal law and securities market requirements. Membership considerations include relevant experience, expertise and, for members of the key oversight committees, independence from management.”); id. at 69 (“[T]he nominating/corporate governance committee will also often make recommendations to the board regarding … the qualifications for membership on each committee. Consideration should be given to a policy of periodic rotation of committee memberships, and the responsibilities of chairing committees, among the directors.”); 1990 Business Roundtable Statement at 12 (“It is recommended that the audit committee, compensation/personnel committee and nominating committee limit their membership to non-management directors only.”); 2003-2004 NACD Survey at 19 (“According to surveyed directors, the governance/nominating committee nominates the chairmen for the various committees at the greatest number of companies (45.5 percent). Other responses included: the CEO/chairman does the nominating (29.1 percent), the full board does it (20.3 percent) and committee members elect the committee chairperson (7.4 percent).”); 2004 Korn/Ferry Study at 37 (“Sarbanes-Oxley’s definition of a ‘financial expert’ disqualifies many individuals from serving in this capacity. Not surprisingly, the percentage of boards adding or replacing directors in order to comply with this narrow definition has increased, tripling from three percent in 2003 to 12 percent this year.”); id. at 35 (“The high degree of financial specialization demanded by Sarbanes-Oxley continues to make recruitment of directors with the requisite expertise challenging. Not surprisingly, 29 percent of respondents admit it was ‘very difficult’ or ‘difficult’ for their boards to attract such talent the past year.”).
[34] Under the NYSE Listing Rules, the audit, nominating/corporate governance and compensation committees are required to adopt and disclose written charters that address each committee’s purpose and responsibilities. Appendix I (Board of Director Composition and Function Requirements) at 11-14. For committee charter requirements, see id. Under the Sarbanes-Oxley Act, the audit committee of a public company is to be responsible for the appointment, compensation and oversight of the work of auditors. Id. at 8. In addition, the audit committee must pre-approve all services, whether audit or non-audit, provided to the public company by a registered accounting firm. Id. See 2004
[35] Under the NYSE Listing Rules, the compensation committee is required to adopt and disclose a written charter that addresses evaluation of the CEO’s performance in light of corporate goals and objectives. Appendix I (Board of Director Composition and Function Requirements) at 14. See 2004 ABA Guidebook at 6 (“[T]he board’s responsibility to oversee the management of the corporation … includes … choosing, setting goals for, regularly evaluating and establishing the compensation of the chief executive officer and the most senior executives, and making changes in senior management when appropriate….”); id. at 59 (“The compensation committee should review and approve corporate goals and objectives relevant to the chief executive officer and senior executive compensation and evaluate their performance in light of those goals and objectives; [and] establish and periodically review executive compensation programs and take steps to modify any executive compensation program that yields payments and benefits that are not reasonably related to executive and corporate performance or appear excessive in practice….”); id. at 69-70 (“[The nominating/ corporate governance] committee should – to the extent not done by another board committee – review the performance of the chief executive officer and members of senior management on a formal basis at least annually, and should periodically update succession planning and related procedures.”); 1994 NACD Report at 1, 3 (“Formal performance reviews of the CEO are necessary. The process can take many different forms, depending on the company. Every board should consider developing a job description for the CEO. The CEO and the board should agree to performance objectives, established in advance of each fiscal year. Such objectives might include quantitative performance factors and qualitative ones, such as integrity, vision and leadership.”); 1990 Business Roundtable Statement at 8, 15 (“Boards must have in place a credible process that ensures that the CEO’s performance is reviewed periodically. That review must lead to appropriate com-
[36] Under the NYSE Listing Rules, domestic listed companies are required to adopt and disclose corporate governance guidelines that address management succession. Appendix I (Board of Director Composition and Function Requirements) at 16. See 2004 ABA Guidebook at 6 (“[T]he board’s responsibility to oversee the management of the corporation … includes … developing, approving and implementing succession plans for the chief executive officer and the most senior executives….); id. at 67 (“It is not unusual to use one or two board positions for senior executives other than the chief executive officer in order to evaluate their succession prospects and to facilitate a peer relationship and firsthand contact with them.”); id at 69 (“The nominating/corporate governance committee will often have the responsibility for recommending to the board a successor to the chief executive officer in the event of retirement or termination of service. The committee may also review and approve proposed changes in other senior management positions, with the understanding that the chief executive officer should be given considerable discretion in selecting and retaining members of the management team. In order to carry out these functions, the committee should – to the extent not done by another board committee – review the performance of the chief executive officer and members of senior management on a formal
[37] See 2004 ABA Guidebook at 60 (“The compensation committee should be guided by the basic principle that a significant portion of an executive’s compensation should be tied to the economic objectives and performance of the corporation. There should be an appropriate balance between short-term pay and long-term incentives…. Many commentators now assert that stock options do not effectively motivate management to advance the best interests of the corporation…. Consequently, many [compensation] committees are refocusing their attention on restricted stock grants or options whose exercise price is indexed to corporate performance … or that vest only when specified internal performance goals are met. Compensation committees are also requiring retention or holding periods for stock … in order to align executive pay more effectively with long-term performance.”); 2003-2004 NACD Survey at 22 (“Over two-thirds (68.6 percent) of the surveyed directors feel that CEOs of major public companies are paid too much in total compensation in relation to their performance.”); 2004 Korn/Ferry Study at 29 (“While regulation in the 1990s en-couraging stock option awards rather than cash was thought to better align executive performance with corporate performance, the practice did not yield the desired results. Not surprisingly, 96 percent of directors indicate their com- pensation plan for the chief executive has been altered in the past 12 months. Twenty percent state stock options were decreased or eliminated as part of the package, and 35 percent indicate the cash component was increased. Re-
[38] Under the NYSE Listing Rules, domestic listed companies are required to adopt and disclose corporate governance guidelines that address director access to independent advisors. Appendix I (Board of Director Composition and Function Requirements) at 16. The audit committee must have sole authority to hire and fire independent auditors, and the charters of the audit, nominating/corporate governance and compensation committees must give them sole authority to retain, set the retention terms of, and terminate independent advisors. Id. at 11, 13-14. The Sarbanes-Oxley Act contains provisions relating to the hiring and oversight of outside auditors, approving any significant non-audit relationship with the independent auditors, and engaging outside counsel and advisors. Id. at 8. See 2004 ABA Guidebook at 10 (“The board and board committees … should have access to the corporation’s general counsel and regular outside counsel and the authority to retain their own legal counsel and professional advisors, independent of those who usually advise the corporation, when they determine such independent advice is appropriate.”); id. at 17 (“Independent advice, which may be confirmed by oral or written fairness opinions, appraisals or valuations from investment bankers or others, is often helpful, especially when a transaction is significant and conflicts are involved.”).
[39] See 2004 Korn/Ferry Study at 9 (“Reforms generated by corporate scandals have changed the look, tone and content of the proxy statements. More companies devote a section of the proxy to discussing the company’s ‘Corporate Governance philosophy. Many proxies include the company’s criteria in choosing directors for its board. When new directors are being nominated, the means of their selection is described. Companies explain how stockholders may put forth nominees and detail how stockholders may contact the board directly. Companies must now carefully identify their independent directors and the criteria they use to do this. Proxies state the number of times independent directors
[40] Under the NYSE Listing Rules, domestic listed companies are required to adopt and disclose corporate governance guidelines, a code of business conduct and ethics, and key committee charters. Appendix I (Board of Director Composition and Function Requirements) at 16. Listed foreign private issuers must disclose any significant ways in which their corporate governance practices differ from those followed by domestic companies under NYSE listing standards. Id. at 18. Any waivers of the code of business conduct and ethics must be promptly disclosed. Id. at 16. See 2004 Korn/Ferry Study at 9 (“More companies devote a section of the proxy to discussing the company’s “Corporate Governance” philosophy. Many proxies include the company’s criteria in choosing directors for its board. When new directors are being nominated, the means of their selection is described. Companies explain how stockholders may put forth nominees and detail how stockholders may contact the board directly. Companies must now carefully identify their independent directors and the criteria they use to do this. Proxies state the number of times independent directors meet in private session. Companies identify which members of the Audit Committee are financial experts and what criteria have been used in so naming them. Many companies are including the charters of the various board committees in the proxy itself.”); id. at 33 (“Almost all (96 percent) respondents state their board has written guidelines on corporate governance, compared with 71 percent in 2002.”).
[41] Under the NYSE Listing Rules, the CEO of each domestic listed company is required to certify to the NYSE annually that he or she is not aware of any violation by the company of NYSE listing standards, and both this certification and any certifications required to be filed with the SEC regarding the quality of the company’s public disclosure must be disclosed in the listed company’s annual report. Appendix I (Board of Director Composition and Function Re-
[42] The Sarbanes-Oxley Act directs the SEC to require that the audit committee of a listed company be responsible for appointing and compensating the company’s independent auditor. Appendix I (Board of Director Composition and Function Requirements) at 8. In addition, the audit committee must approve all audit services, and the independent auditor is prohibited from providing any non-audit services (to the extent non-audit services may permissibly be provided by an independent auditor) without prior approval of the audit committee. Id.
[43] See 2004 Korn/Ferry Study at 9 (“Reforms generated by corporate scandals have changed the look, tone and content of the proxy statements…. Many proxies include the company’s criteria in choosing directors for its board. When new directors are being nominated, the means of their selection is described. Companies explain how stockholders may put forth nominees and detail how stockholders may contact the board directly.”).
( Copyright 2005, Weil, Gotshal & Manges LLP. All rights reserved. This material is intended to provide information of a general nature. It is not provided and should not be taken or used as legal advice. Application of the information contained herein to any specific situation will depend on consideration of the prevailing circumstances, and should be undertaken only with the advice of legal counsel.
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[i] On April 10, 2003, the SEC released the text of the rules it adopted under Section 301 of the Act, requiring all U.S. stock exchanges and Nasdaq to adopt listing standards setting certain minimum standards regarding the composition and functions of audit committees (Release No. 33-8220). On November 4, 2003, the SEC approved (Release No. 34-48745) revised corporate governance listing standards (as amended) previously filed by the NYSE, adopting a new Section 303A of the NYSE Listed Company Manual, and revised corporate governance listing standards (as amended) previously filed by Nasdaq, adopting a new Marketplace Rule 4350 and related rules. The SEC approved on November 3, 2004 (Release No. 34-50625; File No. SR-NYSE-2004-41), effective immediately, certain amendments, largely of a supplemental and clarifying nature, to such NYSE listing standards. On January 12, 2004, (Release No. 34-49060, File No. SR-NASD-2003-172), May 19, 2004 (Release No. 34-49753; File No. SR-NASD-2004-69) and June 22, 2004 (Release No. 34-49901; File No. SR-NASD-2004-80), the SEC approved certain amendments, largely of a technical and clarifying nature, to such Nasdaq listing standards.
[ii] For this purpose, the NYSE looks to the concept of “group” set out in Section 13(d)(3) of the Securities Exchange Act of 1934, as amended, and expects that generally a group would have an obligation to file on Schedule 13D or 13G with the SEC acknowledging such group status. See NYSE Corporate Governance Listing Standards Frequently Asked Questions, available at (updated as of February 13, 2004) [“NYSE FAQs”]. In order for a group to exist for purposes of the Nasdaq rules, the shareholders must have publicly filed a notice that they are acting as a group, e.g., a Schedule 13D or 13G. See Nasdaq IM-4350-4, available at (updated as of April 15, 2004).
[iii] Nasdaq-listed limited partnerships are governed by a separate Nasdaq governance listing standard that reflects certain of the listing standards applicable to corporations. Marketplace Rule 4360.
[iv] Certain Nasdaq requirements became effective at earlier dates, as indicated in the annotations to the requirements presented below.
[v] Specifically, with respect to the requirement that the audit, compensation, nominating and (in the case of the NYSE) governance committees each be composed entirely of independent directors, newly listed companies may phase in their compliance with the requirement by having one independent director on the committee at the time of initial listing, a majority of the members within 90 days after the listing and achieving full compliance within one year after listing. In addition, newly listed companies have a one year period to satisfy the requirement that a majority of the board members be independent. Companies that have emerged from bankruptcy and that have ceased to be controlled companies have the same phase-in period for satisfying the requirements for an independent compensation and nominating/governance committee and a majority of independent directors as companies that are newly listed. Somewhat different requirements apply to companies that transfer from one market to another. See NYSE Listed Company Manual § 303A and Nasdq Marketplace Rule 4350(a).
[vi] Nasdaq contemplates that executive sessions should occur at least twice per year. See Nasdaq IM-4350-4, available at (updated as of April 15, 2004).
[vii] References to a listed company for these purposes include a parent or subsidiary that is in a consolidated group with the listed company. See the discussion under “Shareholdings.”
[viii] A material relationship “can include commercial, industrial, banking, consulting, legal, accounting, charitable and familial relationships, among others.”
[ix] For purposes of Section 303A, an immediate family member includes a person’s spouse, parents, children, siblings, mothers- and fathers-in-law, sons- and daughters-in-law, brothers- and sisters-in-law, and anyone (other than domestic employees) who shares such person’s home.
[x] For purposes of Section 303A, the term “executive officer” has the same meaning specified for the term “officer” in Exchange Act Rule 16a-1(f). Rule 16a-1(f) provides that the term “officer” shall include the company’s president, principal financial officer, principal accounting officer (or, if there is no such accounting officer, the controller), any vice president of the company in charge of a principal business unit, division or function, any other officer who performs a policy-making function, or any other person who performs similar policy-making functions for the issuer.
[xi] Service as an interim Chairman, CEO or other executive officer does not automatically disqualify a person from being considered independent following such employment.
[xii] Compensation need not be considered for this independence test if received (i) for prior service as an interim Chairman, CEO or other executive officer or (ii) by an immediate family member for service as an employee (other than an executive officer) of the listed company.
[xiii] A “parent” or “subsidiary” includes entities that are controlled by the issuer and are consolidated with the financial statements of the issuer as filed with the SEC (but not if the issuer reflects such entity solely as an investment in its financial statement).
[xiv] For purposes of Rule 4350, a family member includes a person’s spouse, parents, children, siblings, mothers- and fathers-in-law, sons- and daughters-in-law, brothers- and sisters-in-law, whether by blood, marriage or adoption, or someone who has the same residence as the person.
[xv] References to “executive officer” mean those officers covered by Exchange Act Rule 16a-1(f). See Nasdaq IM-4350-4, available at (updated as of April 15, 2004).
[xvi] On November 3, 2004, the NYSE adopted a substantive change to the director-auditor relationship test in Section 303A.02(b)(iii), which previously had not considered the role an immediate family member of a director played in an audit as long as the family member acted in a professional capacity for the firm. A number of companies had found directors precluded from independence under the prior test because of past personal or family member affiliations with an audit firm, even though the person involved never worked on the listed company’s account. The revised standard narrowed the disqualifying relationships of those now specified. However, as a result of the amendment to Section 303A.02(b)(iii), certain directors that were previously eligible to be considered independent are precluded from independence under the revised standard; namely, a director with an immediate family member who is a current partner of the audit firm no longer qualifies as independent. Under the prior standard, a director would still qualify as independent if the immediate family member did not act in “a professional capacity” at the audit firm. Companies will have until their first annual meeting after June 30, 2005, to replace a director who was independent under the prior standard but who is not independent under the revised standard.
[xvii] Section 303A.02(b)(iv) provides that a director is not independent if “the director or an immediate family member is, or has been within the last three years, employed as an executive officer of another company where any of the listed company's present executive officers at the same time serve or served on that company's compensation committee.” The NYSE has interpreted this standard – due to the three-year look back period – not to require a classic simultaneous interlock; that is, it does not require that the two crossing relationships occur at the same point in time during the three year period.
[xviii] The payments and consolidated gross revenue numbers to be used for this independence test must be those from the last completed fiscal year. Contributions to tax-exempt organizations are not considered “payments” for purposes of this independence test. However, the listed company must disclose in its annual proxy statement (or, if the company does not file a proxy statement, in the company’s annual report) any such contributions from the company to a tax-exempt organization that one of their directors is an executive officer of, if, within the previous three years, contributions in any single fiscal year exceeded the greater of 2% of such charity’s consolidated gross revenues or $1 million. Furthermore, companies may have business relationships (as a vendor, for example) with a charitable organization, and payments related to such business relationships are intended to be covered by this test.
[xix] The following payments are excluded from the $60,000 limitation: (i) payments received as compensation for board or committee service, (ii) payments arising solely from investments in the company’s securities, (iii) compensation paid to an immediate family member who is an employee of the company or a parent or subsidiary of the company (but not if such person is an executive officer of the company or a parent or subsidiary of the company), (iv) loans from a financial institution (provided such loans were made in the ordinary course of business on prevailing market terms for comparable transactions, did not involve more than a normal degree of risk or other unfavorable factors, and were not otherwise subject to the specific disclosure requirements of Regulation S-K, Item 404), (v) payments from a financial institution in connection with the deposit of funds or the financial institution acting in an agency capacity (provided such payments were made in the ordinary course of business on prevailing market terms for comparable transactions and were not otherwise subject to the specific disclosure requirements of Regulation S-K, Item 404), (vi) benefits under a tax qualified retirement plan or non-discretionary compensation and (vii) loans permitted under Section 402 of the Act.
[xx] Payments arising solely from investments in the company’s securities or under non-discretionary charitable contribution matching programs are not included in the limitation.
[xxi] Indirect compensation includes payments to spouses, minor children or stepchildren and children or stepchildren sharing a home with the audit committee member, as well as payments accepted by an entity which provides accounting, consulting, legal, investment banking or financial advisory services to the company and in which the audit committee member is a partner, member, an officer such as a managing director or an executive officer, or occupies a similar position (except limited partners, non-managing members and those occupying similar positions).
[xxii] Also exempt from the “affiliated person” requirement is an audit committee member that sits on the board of directors of both a listed issuer and an affiliate of the listed issuer, if the audit committee member otherwise meets the independence requirements for both the issuer and the affiliate. It is recommended that a company disclose in its annual proxy statement (or, if the company does not file a proxy statement, in its annual report) if any audit committee member is deemed independent but falls outside of the safe harbor provisions of Exchange Act Rule 10A-3(e)(1)(ii).
[xxiii] Companies were required to comply with the audit committee financial expert disclosure requirements in their annual reports for fiscal years ending on or after July 15, 2003, except small business issuers which must comply with the audit committee financial expert disclosure requirements in their annual reports for fiscal years ending on or after December 15, 2003.
[xxiv] See “Codes of Conduct and Ethics” below regarding requirements of the Act and the NYSE listing standards requirements regarding conflict of interest matters in codes of conduct and ethics.
[xxv] For this purpose, a related party transaction is one defined as such in Item 404 of Regulation S-K or, in the case of a small business issuer, Item 404 of Regulation S-B or, in the case of a non-U.S. issuer, a transaction required to be disclosed pursuant to Item 7.B. of Form 20-F.
[xxvi] A company need not comply with the director nomination requirement if it is subject to a binding obligation (existing prior to November 4, 2003) that is inconsistent with this new listing standard.
[xxvii] Discussions regarding CEO compensation with the board generally are not precluded, as it is not the intent to impair communication among board members.
[xxviii] This provision in Section 303A.05(b)(i)(B) is not intended to preclude a board’s ability to delegate its authority to approve non-CEO executive officer compensation to the compensation committee.
[xxix] Companies were required comply with the code of ethics disclosure requirements in their annual reports for fiscal years ending on or after July 15, 2003.
[xxx] Effective April 26, 2003.
[xxxi] The company must include in its website its Code of Business Conduct and Ethics and state in its annual proxy statement (or, if the company does not file an annual proxy statement, in the company’s annual report) that its Code of Business Conduct and Ethics is available on the company’s website and are available in print to any shareholder who requests it.
[xxxii] The company must also state in its annual proxy statement (or, if the company does not file an annual proxy statement, in the company’s annual report) that its Corporate Governance Guidelines are available on the company’s website and are available in print to any shareholder who requests them.
[xxxiii] The Commentary to Section 303A.12(a) states that “any CEO/CFO certifications required to be filed with the SEC regarding the quality of the company’s public disclosure” must be disclosed in the company’s annual report to shareholders. The NYSE has clarified that the only CEO/CFO certification required to be included in the annual report to shareholders is that required by Section 302 of the Act with respect to the company’s Form 10-K (which contains the annual financial statements included in the annual report to shareholders). Section 303A.12(a) does not apply to certifications required under Section 906 of the Act, Section 302 certifications of quarterly financial statements filed as exhibits to Form 10-Q, or the internal control report required of management by Section 404 of the Act. See NYSE FAQs.
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© 2005
Holly J. Gregory
July 2005
Comparison of
Corporate Governance Guidelines and Codes of Best Practice
UNITED STATES
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