CalPERS Principles CII Policies TIAA-CREF Policy Statement AFL-CIO Voting Guidelines ISS
Generally, a company’s retiring CEO should not con- tinue to serve as a director on the board and at the very least be prohibited from sitting on any of the board committees. (III.B.1.6)
Committees who perform the audit, director nomina- tion and executive compensation functions should consist entirely of independent directors. (III.B.1.8) Audit committee financial expertise at a minimum should include skill-sets as outlined by Section 407(d)(5)(i) of Regulation S-K and the Exchange listing requirements. Boards should consider the ef- fectiveness of the audit committee and designated fi- nancial expert(s) in its annual assessment. Firms may be able to reduce their cost of capital as related to the quality of its financial reporting. The quality of fi- nancial reporting can be increased by appropriately structuring the audit committee with effective finan- cial expertise. (III.B.4.11)
[A]ll members of [the audit, nominating and compen- sation] committees should be independent . . . . (§ 2.5) [Members of the compensation committee] should represent diverse backgrounds and professional expe- riences. (§ 5.5a)
Boards should establish at least three standing com- mittees — an audit committee, a compensation com- mittee and a nominating and governance committee — all composed exclusively of independent directors. The credibility of the board will depend in large part on the vigorous demonstration of independence by these standing committees. (pp. 18-19)
[Compensation] Committee members should have an understanding of competitive compensation and be able to critically compare the company’s plans and practices to those offered by the company’s peers. Committee members should be independent-minded, well informed, capable of dealing with sensitive deci- sions and scrupulous about avoiding conflicts of in- terest. Committee members should understand the re- lationship of individual components of compensation to total compensation. (p. 19)
The audit, compensation and nominating commit- tees provide critical oversight roles over manage- ment and should include a higher standard of inde- pendence than that of the full board. Companies listed on U.S. stock exchanges are generally re- quired to have audit, nominating and compensation committees that are entirely composed of independ- ent directors. The trustees believe this is the appro- priate level of independence for these key board committees. The fiduciary should withhold votes from any director nominee serving on these key committees who is non-independent . . . . (Guide- line IV.A.1.6)
Independence is critical for directors to carry out their duties to select, monitor and compensate man- agement, and the voting fiduciary should generally support efforts to enhance board of director inde- pendence. This includes, but is not limited to, pro- posals to require . . . that 100% of the directors on key committees (nominating, compensation and au- dit) be independent . . . . (Guideline IV.A.10)
Proxy Voting Guidelines
Vote AGAINST or WITHHOLD from Inside Directors and Affiliated Outside Directors . . . when:
[I]nside or affiliated outside director serves on any of . . . the [key committees];
[C]ompany lacks an audit, compensation, or nomi- nating committee so that the full board functions as that committee; [or]
[C]ompany lacks a formal nominating committee, even if board attests that the independent directors fulfill the functions of such a committee . . . . (p. 13) Generally vote FOR shareholder proposals requiring that the chairman’s position be filled by an independent di- rector, unless the company . . . maintains the following counterbalancing governance structure[, including] [f]ully independent key committees . . . . (pp. 19-20) Vote FOR shareholder proposals asking that . . . [key] committees be composed exclusively of independent di- rectors unless they currently meet that standard. (p. 20) Generally vote AGAINST proposals seeking a policy to prohibit any outside CEO from serving on a company’s compensation committee, unless . . . problematic pay practices . . . raise concerns about the performance and composition of the committee. (p. 54)
QuickScore
What percentage of nominating committee members are independent based on ISS standards? (Question 19) What is the independent status of the compensation committee members? (Question 25)
What is the independent status of the audit committee members? (Question 31)
Do the directors with [related party transactions] sit on key board committees? (Question 51)
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IV.G. Assignment & Rotation of Committee Members27
ALI Principles/Recommendations BRT Principles NACD Report Conference Board Recommendations OECD Principles/Millstein Report The nominating committee should . . . [r]ecommend
to the board directors to fill the seats on board com- mittees. (§ 3A.04(b)(3))
[T]he committee structure is sufficiently important in carrying out the board’s oversight function that a separate organ [the nominating committee] should be vested with the function of considering questions of committee composition, to ensure that those ques- tions receive regular and careful attention. As in the case of nominations to the board itself, it is to be ex- pected that the chief executive officer, although not a member of the nominating committee, would often be active in recommending and discussing committee assignments. (§ 3A.04, Comment d)
Decisions about committee membership and chairs should be made by the full board based on recom- mendations from the corporate governance commit- tee. Consideration should be given to whether period- ic rotation of committee memberships and chairs would provide fresh perspectives and enhance direc- tors’ understanding of different aspects of the corpo- ration’s business, consistent with applicable listing standards. (p. 16)
The corporate governance committee . . . recommends directors for appointment to committees of the board. The committee should periodically review the board’s committee structure and annually recommend candi- dates for membership on the board’s committees. The committee should see that the key board committees, including the audit, compensation and corporate gov- ernance committees, are composed of directors who meet applicable independence and qualification standards. (p. 22)
Boards should establish guidelines for, and discuss with some pre-defined frequency . . . the selection and rotation of committee members. (p. 5)
[T]he nominating/governance committee should recommend to the full board of directors . . . com- mittee assignments . . . . (Part 2, Principle IV, Best Practice 1)
Not covered directly, but see Topic Headings IV.E and
F, above.
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See 2011 ABA Guidebook at 63-64 (“The board should select committee members using criteria appropriate to the committee’s purpose and in compliance with any applicable legal and stock exchange requirements…. Committee membership criteria may include: experience rel- evant to committee responsibilities; subject matter expertise that will assist the committee in its work; committee members’ ability to meet requisite time commitments; disinterest in the committee’s subject matter; and independence from management, as appropriate.”); id. at 102 (“[The nominating and governance] committee should . . . recommend qualifications for membership on committees …. Although some boards have a policy of periodic rotation of committee memberships among the directors to develop expertise and allocate equitably the time commit- ment, rotation may be more difficult for the audit committee than for others...”).
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