Op-ed post assignment

RTB T H EB U S I N E S SR O U N D TA B L E

RTBThe Business RoundtableAn Association of Chief Executive Officers Committed to Improving Public Policy

Statement on Corporate Governance

September 1997

A White Paper from THE BUSINESS ROUNDTABLE © September 1997

Statement on Corporate Governance

FOREWORD

The Business Roundtable is recognized as an authorita-

tive voice on matters affecting large corporations and, as

such, is keenly interested in a proper understanding of the

purpose of corporate governance. Past publications of The

Business Roundtable that have addressed corporate gover-

nance issues include The Business Roundtable’s statement

on Corporate Governance and American Competitiveness

(March, 1990), Statement on Corporate Responsibility

(October, 1981) and The Role and Composition of the

Board of Directors of the Large Publicly Owned

Corporation (January, 1978). In the current publication,

The Business Roundtable summarizes its current views on

governance issues, thus updating and building on the work

of the past.

The Business Roundtable notes with pride that, in the

seven years since its last publication on corporate gover-

nance, many of the practices suggested for consideration by

The Business Roundtable have become more common.

This has been the result of voluntary action by the business

community without new laws and regulations and reflects

the positive impact of interested stockholders. The Business

Roundtable believes it is important to allow corporate

governance processes to continue to evolve in the same

fashion in the years ahead.

Statement on Corporate Governance

TABLE OF CONTENTS

I. INTRODUCTION . . . . . . . . . . . . . . . . . . . . . . 1

II. FUNCTIONS OF THE BOARD . . . . . . . . . . . . 4

Management Selection and Compensation . . . . . . . . . . 5

Approval of Major Strategies and

Financial Objectives. . . . . . . . . . . . . . . . . . . . . . . . 6

Advising Management . . . . . . . . . . . . . . . . . . . . . . . . . 6

Risk Management, Controls and Compliance . . . . . . . 7

Selection of Board Candidates . . . . . . . . . . . . . . . . . . . 7

Board Evaluation . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9

III. STRUCTURE AND OPERATIONS

OF THE BOARD . . . . . . . . . . . . . . . . . . . . . . 10

Board Composition . . . . . . . . . . . . . . . . . . . . . . . . . 10

Committee Structure . . . . . . . . . . . . . . . . . . . . . . . . 14

Board Compensation . . . . . . . . . . . . . . . . . . . . . . . . 16

Operations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17

IV. STOCKHOLDER MEETINGS . . . . . . . . . . . . 20

Agendas and Conduct of the Meeting . . . . . . . . . . . . 20

Management and Stockholder Proposals . . . . . . . . . . 20

Statement on Corporate Governance

Statement on Corporate Governance 1

I. INTRODUCTION

The Business Roundtable wishes to emphasize that the

principal objective of a business enterprise is to generate

economic returns to its owners. Although the link between

the forms of governance and economic performance is

debated, The Business Roundtable believes that good

corporate governance practices provide an important

framework for a timely response by a corporation’s board of

directors to situations that may directly affect stockholder

value. The absence of good corporate governance, even in a

corporation that is performing well financially, may imply

vulnerability for stockholders because the corporation is

not optimally positioned to deal with financial or manage-

ment challenges that may arise.

Many discussions of corporate governance focus on ques-

tions of form and abstract principle: Should a corporation

have a non-executive chairman of the board? Should the

board have a lead director? Should there be a limit on the

number of boards on which a director serves? The Business

Roundtable considers such questions important. Indeed,

much of this Statement is devoted to discussing them.

However, The Business Roundtable wishes to emphasize that

the substance of good corporate governance is more impor-

tant than its form; adoption of a set of rules or principles or

of any particular practice or policy is not a substitute for, and

does not itself assure, good corporate governance.

Examples of this point abound. A corporation with the

best formal policies and processes for board involvement

may be at risk if the chief executive officer is not genuinely

receptive to relevant board input or if knowledgeable direc-

tors hesitate to express their views. A corporation can have

excellent corporate governance structures and policies on

... the substance

of good corporate

governance is

more important

than its form;

adoption of a

set of rules or

principles or of

any particular

practice or policy

is not a substitute

for, and does not

itself assure,

good corporate

governance.

2 The Business Roundtable

paper, but if the CEO and the directors are not focused on

stockholder value, it may be less likely the corporation will

realize that value. Directors can satisfy the most demanding

tests for independence, but if they do not have the personal

stature and self-confidence to stand up to a non-

performing CEO, the corporation may not be successful.

On the other hand, a corporation that lacks many of the so-

called “best practices” for corporate governance, or that

does not memorialize its practices in formal documents,

may nonetheless perform well if its directors and manage-

ment are highly able people who are dedicated to advancing

the interests of stockholders.

One of the reasons why people focus on the formal,

structural aspects of corporate governance is that doing so

permits evaluations that appear to be objective and verifi-

able. Formal attributes of good corporate governance can

be tabulated to compare corporate governance practices

across the spectrum of companies. Such comparisons do

have value, but it would be a mistake to lose sight of their

limitations. The “soft,” subjective factors in corporate

governance — such as the quality of directors and the

personalities of CEOs and directors — receive less atten-

tion from scholars and journalists but are critical in the real

world of corporate behavior. Boards and management

should not feel that they have discharged their responsibil-

ities in regard to corporate governance just by putting in

place a particular set of structures and formal processes.

They must also periodically review these structures and

processes to insure that they are achieving good corporate

governance in substance.

Corporate governance is not an abstract goal, but exists

to serve corporate purposes by providing a structure within

which stockholders, directors and management can pursue

Corporate

governance is not

an abstract goal,

but exists to serve

corporate purposes

by providing

a structure

within which

stockholders,

directors and

management can

pursue most

effectively the

objectives of the

corporation.

Statement on Corporate Governance 3

most effectively the objectives of the corporation. There has

been much debate in corporate governance literature about

the parties to whom directors owe a duty of loyalty and in

whose interest the corporation should be managed. Some

say corporations should be managed purely in the interests

of stockholders or, more precisely, in the interests of its

present and future stockholders over the long-term. Others

claim that directors should also take into account the inter-

ests of other “stakeholders” such as employees, customers,

suppliers, creditors and the community.

The Business Roundtable does not view these two posi-

tions as being in conflict, but it sees a need for clarification

of the relationship between these two perspectives. It is in

the long-term interests of stockholders for a corporation to

treat its employees well, to serve its customers well, to

encourage its suppliers to continue to supply it, to honor its

debts, and to have a reputation for civic responsibility. Thus,

to manage the corporation in the long-term interests of the

stockholders, management and the board of directors must

take into account the interests of the corporation’s other

stakeholders. Indeed, a number of states have enacted

statutes that specifically authorize directors to take into

account the interests of constituencies other than stock-

holders, and a very limited number of state statutes actually

require consideration of the interests of other constituencies.

In The Business Roundtable’s view, the paramount duty

of management and of boards of directors is to the corpo-

ration’s stockholders; the interests of other stakeholders are

relevant as a derivative of the duty to stockholders. The

notion that the board must somehow balance the interests

of stockholders against the interests of other stakeholders

fundamentally misconstrues the role of directors. It is,

moreover, an unworkable notion because it would leave the

In The Business

Roundtable’s

view, the

paramount duty

of management

and of boards of

directors is to the

corporation’s

stockholders …

4 The Business Roundtable

board with no criterion for resolving conflicts between

interests of stockholders and of other stakeholders or

among different groups of stakeholders.

While The Business Roundtable favors certain broad

principles as generally contributing to good corporate

governance, not all of these broad principles are necessarily

right for all corporations at all times. Good corporate

governance is not a “one size fits all” proposition, and a

wide diversity of approaches to corporate governance

should be expected and is entirely appropriate. Moreover, a

corporation’s practices will evolve as it adapts to changing

situations.

II. FUNCTIONS OF THE BOARD

The business of a corporation is managed under the

direction of the board of directors, but the board delegates

to management the authority and responsibility for

managing the everyday affairs of the corporation. The

extent of this delegation varies depending on the size and

circumstances of the corporation. In a large corporation

that is performing well and has strong management, the

board may delegate more; in a smaller or closely-held

corporation, or one facing critical challenges, more detailed

involvement by the board in the business of the corpora-

tion may be appropriate. In a large publicly owned corpo-

ration that is not facing extraordinary difficulties, in

addition to reviewing and approving specific corporate

actions as required by law (e.g., declaration of dividends),

the principal functions of the board are to:

(i) Select, regularly evaluate and, if necessary, replace the

chief executive officer; determine management

compensation; and review succession planning;

Good corporate

governance is not

a “one size fits

all” proposition ...

Statement on Corporate Governance 5

(ii) Review and, where appropriate, approve the major

strategies and financial and other objectives and plans

of the corporation;

(iii) Advise management on significant issues facing

the corporation;

(iv) Oversee processes for evaluating the adequacy of

internal controls, risk management, financial

reporting and compliance, and satisfy itself as to the

adequacy of such processes; and

(v) Nominate directors and ensure that the structure and

practices of the board provide for sound corporate

governance.

Management Selection and Compensation

• The selection and evaluation of the chief executive

officer and concurrence with the CEO’s selection and

evaluation of the corporation’s top management team is

probably the most important function of the board. In

its broader sense, “selection and evaluation” includes

considering compensation, planning for succession and,

when appropriate, replacing the CEO or other members

of the top management team.

• The performance of the CEO should generally be

reviewed at least annually without the presence of the

CEO and other inside directors. The board should have

an understanding with the CEO with respect to the

criteria according to which he or she will be evaluated,

and there should be a process for communicating the

board’s evaluation to the CEO.

• Boards have a responsibility to ensure that compensation

plans are appropriate and competitive and properly

reflect the objectives and performance of management

and the corporation. Incentive plans will vary from

6 The Business Roundtable

corporation to corporation and should be designed to

provide the proper balance between long- and short-

term performance incentives. Stock options and other

equity-oriented plans should be considered as a means

for linking management’s interests directly to those of

stockholders.

Approval of Major Strategies

And Financial Objectives

• Approving major strategies and financial objectives and

tracking results is related to the function of selecting and

evaluating the CEO. Insofar as the corporation develops

and successfully executes sound long-range plans, the

CEO and the corporation’s management team will

generally be deemed to be doing a good job. There may

also be circumstances in which the CEO is deemed to be

doing a good job even though financial results fall short

of plans.

• A corporation may achieve its near-term financial objec-

tives but may ultimately fail if it has not developed an

appropriate business strategy. Accordingly, boards should

consider financial objectives and results in the context of

the wider business strategy of the corporation.

• When a corporation falls significantly short of its impor-

tant objectives or when plans appear to be inadequate,

more intensive board oversight of management is

warranted. This kind of circumstance requires the best

judgment of people highly experienced in business and

management. Alternatives must be considered carefully

and appropriate action taken.

Advising Management

• Providing advice and counsel to management is a key

element of the board’s role. It is fulfilled both in formal

Providing advice

and counsel to

management is a

key element of the

board’s role.

board and board committee meetings and also in

informal, individual director contacts with the CEO and

other members of management.

• A board member who effectively fulfills his or her role of

advising the CEO provides an important service to the

corporation.

Risk Management, Controls and Compliance

• The Board must assure that an effective system of

controls is in place for safeguarding the corporation’s

assets, managing the major risks faced by the corpora-

tion, reporting accurately the corporation’s financial

condition and results of operations, adhering to key

internal policies and authorizations, and complying with

significant laws and regulations that are applicable to it.

• In performing these functions, the board generally relies

on the advice and reports of management, internal and

external counsel, and internal and external auditors. The

board’s role should be to review reports from such

experts, to provide them with guidance and to assure

that management takes appropriate corrective actions

when significant control problems are reported.

Selection of Board Candidates

• It is the board’s responsibility to nominate directors. The

board nominates a whole slate, which should encompass

individuals with diverse talents, backgrounds, and

perspectives who can work effectively together to further

the interests of the corporation’s stockholders, while

preserving their ability to differ with each other on

particular issues as policy is developed. Men and women

of different ages, races and ethnic backgrounds can

contribute different, useful perspectives.

Statement on Corporate Governance 7

8 The Business Roundtable

• Each director should represent the interests of all stock-

holders, not those of any single individual or group of

stockholders or any single interest group. Cumulative

voting is generally not recommended for large publicly

owned corporations because it may lead to the election

of directors who represent particular groups of stock-

holders, which can in turn create factionalism and

undermine the effectiveness of the board.

• Effective boards are composed of individuals who are

highly experienced in their respective fields of endeavor

and whose knowledge, background and judgment will

be useful to the corporation. Directors must have the

ability and willingness to learn the corporation’s business

and to express their personal views.

• Each person serving as a director must devote the time

and attention necessary to fulfill the obligations of a

director. Service on other boards often broadens and

deepens the knowledge and experience of directors. In

addition, CEOs who serve on other boards frequently

gain valuable insight and experience which prove useful

in the running of their own companies. However, service

on too many boards can interfere with an individual’s

ability to perform his or her responsibilities. Before

accepting an additional board position, a director should

consider whether the acceptance of a new directorship

will compromise the ability to perform present responsi-

bilities. Similarly, it is advisable for an inside director to

consult with his or her own board before accepting a new

directorship on the board of another corporation.

Because time demands from board to board and capaci-

ties of individual directors will vary, The Business

Roundtable does not endorse a specific limitation on the

number of directorships an individual may hold.

Each director

should represent

the interests of all

stockholders, not

those of any single

individual

or group of

stockholders or

any single

interest group.

• Each nominating/governance committee should develop

its own process for considering stockholder suggestions

for board nominees. Should a stockholder desire to

suggest a nominee to the board, most corporations

request that a letter be written to the secretary of the

company providing a resume of the suggested nominee.

Board Evaluation

• The board is responsible for its own evaluation from

time to time. Such evaluations will provide the basis for

the board’s recommendation of a slate of directors to the

stockholders. Boards also implicitly evaluate individual

directors by endorsing them for re-nomination. Some

boards formalize this process through evaluations of

individual directors. Other boards formally address indi-

vidual director performance only when it appears that a

particular director is not contributing sufficiently to the

performance of the board as a whole. While no partic-

ular approach to individual director evaluation is best for

all companies at all times, each board should have a

process, formal or informal, for discharging its responsi-

bility to nominate good directors.

• The board should from time to time review its own

structure, governance principles, composition, agenda,

processes and schedule to consider whether it is func-

tioning well in view of its responsibilities and the

evolving situation of the corporation.

Statement on Corporate Governance 9

10 The Business Roundtable

III. STRUCTURE AND OPERATIONS OF THE BOARD

There are, and should be, diverse approaches to board

structure and operations. In the following sections we

describe approaches that The Business Roundtable

considers generally useful for good corporate governance.

However, these should not be regarded as rigid rules applic-

able to all corporations at all times.

Board Composition

• Boards of directors of most large publicly owned corpo-

rations typically range in size from 8 to 16 individuals.

Optimal board size will vary from corporation to corpo-

ration and industry to industry. In general, the experi-

ence of many Roundtable members suggests that smaller

boards are often more cohesive and work more effec-

tively than larger boards.

• 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. The degree of indepen-

dence of an outside director may be affected by many

factors, including the personal stature of the director and

any business relationship of the director with the corpo-

ration or any business or personal relationship of the

director with management. Directors, or firms in which

they have an interest, are sometimes engaged to provide

legal, consulting, accounting or other services to the

corporation, or a director may have an interest in a

customer, supplier or business partner of the corpora-

tion, or may at an earlier point in his or her career have

been an employee or officer of the company. Depending

It is important for

the board of a

large, publicly

owned corporation

to have a

substantial degree

of independence

from management.

on their significance to the director and to the corpora-

tion, such relationships may affect a director’s actual or

perceived independence. The Business Roundtable

believes that, where such relationships exist, boards

should be mindful of them and make a judgment about

a director’s independence based on his or her individual

circumstances rather than through the mechanical appli-

cation of rigid criteria. This would involve consideration

of whether the relationships are sufficiently significant as

to interfere with the director’s exercise of independent

judgment. If a particular director is not deemed suffi-

ciently independent, the board may nevertheless

conclude that the individual’s role on the board remains

highly desirable (as in the case of an inside director) in

the context of a board composed of a majority of direc-

tors with the requisite independence. The overall result

should be a board that, as a whole, represents the inter-

ests of stockholders with appropriate independence.

• For certain functions, such as membership on an audit

or compensation committee, more specific standards of

independence should be used. For example, Section

162(m) of the Internal Revenue Code prescribes certain

standards that the compensation committee must meet

to permit the deduction for federal income tax purposes

of performance-based compensation exceeding $1

million paid to the CEO and the four other highest paid

executive officers. There are other examples of prescribed

standards for members of the compensation committee

under Section 16 of the Securities Exchange Act of 1934

and for members of the audit committee under rules of

the New York Stock Exchange. In addition, more partic-

ularized rules apply in certain industries, such as

banking. It is recommended that the board, or a

Statement on Corporate Governance 11

12 The Business Roundtable

committee such as the nominating/governance

committee, periodically confirm that the composition of

the relevant committees meets the applicable require-

ments as well as any other criteria determined by

the board.

• Inside directors will ordinarily include the chief execu-

tive officer and may also include other officers whose

positions or potential for succession make it appropriate,

in the judgment of the board, for them to sit on the

board.

• There has been considerable discussion of mechanisms

for providing board leadership independent of manage-

ment. Such leadership is particularly important when

a CEO dies or becomes incapacitated or when there

are questions concerning the competence or conduct

of management:

▲ Most members of The Business Roundtable

believe their corporations are generally well served

by a structure in which the CEO also serves as

chairman of the board. They believe that the

CEO should set the agenda and the priorities for

the board and for management and should serve

as the bridge between management and the board,

ensuring that management and the board are

acting with common purpose.

▲ Some corporations have separated the roles

of CEO and chairman of the board, often in

response to particular circumstances, such as to

provide a smooth transition from one CEO

to another.

▲ Some other corporations have employed the

concept of a lead director. The role of a lead

Most members

of The Business

Roundtable

believe their

corporations are

generally well

served by a

structure in

which the CEO

also serves as

chairman of

the board.

Statement on Corporate Governance 13

director is sometimes designed with specific

duties, such as consultation with the CEO on

board agendas and chairing the executive sessions

of the board. In other cases, the lead director has

no special duties in ordinary situations, but

assumes a leadership role in the event of the death

or incapacity of the CEO or in other situations

where it is not possible or appropriate for the

CEO to take the lead.

Each corporation should be free to make its own deter-

mination of what leadership structure serves it best, given its

present and anticipated circumstances. The Business

Roundtable 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

Business Roundtable members believe it results in a more

effective organization. Where these positions are unified,

The Business Roundtable also 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. In some boards, the presence of one strong figure

might provide the natural leader. In other circumstances,

there could be an understanding that leadership would fall

to the committee chair responsible for the subject matter

that gave rise to the need. In still others, it could be the

responsibility of the committee chairs to recommend

whether non-executive leadership is required, and if so, in

what form. Whether the board’s understanding of the

process would be codified as a formal board action should

be a matter for individual boards to determine.

• It is now common practice to establish rules for the

retirement or resignation of directors. These may, for

example, include a mandatory retirement age for direc-

tors or a requirement that a director submit his or her

resignation at such time as the director no longer occu-

pies the position he or she held at the time of election,

unless the change in position is as a result of normal

retirement. Even in the absence of such provisions, a

board should plan for its own continuity and succession

— for the retirement of directors and the designation of

new board members. Because the composition and

circumstances of boards will vary, so too will the retire-

ment policies of different corporations.

• The Business Roundtable recognizes that certain corpo-

rations may have histories or circumstances that make

term limits desirable for them. However, The Business

Roundtable generally does not favor the establishment of

term limits for directors. Such limits often cause the loss

of directors who have gained valuable knowledge

concerning the company and its operations and whose

tenure over time has given them an important perspective

on long-term strategies and initiatives of the corporation.

Committee Structure

• Virtually all boards of directors of large publicly owned

companies operate with a committee structure to permit

the board to address certain key areas in more depth than

may be possible in a full board meeting. A wide diversity

of approaches in committee structure and function

responds to the specific needs of companies facing

different business challenges and having different corpo-

rate cultures, and reflects the need to allow organiza-

tional experimentation.

14 The Business Roundtable

A wide diversity

of approaches

in committee

structure and

function responds

to the specific

needs of

companies facing

different business

challenges and

having different

corporate

cultures, and

reflects the need

to allow

organizational

experimentation.

• It is recommended that each corporation have an audit

committee, which is required under New York Stock

Exchange rules, a compensation/personnel committee,

and a nominating/governance committee and that

membership in these committees be limited to outside

directors. The board may also wish to establish other

committees with other specific responsibilities. Other

common committees include an executive committee to

act for the board between meetings and to handle other

specifically assigned duties, a finance committee, and a

social responsibility or public policy committee. In some

cases a board may wish to establish ad hoc committees to

examine special problems or opportunities in greater

depth than would otherwise be feasible.

• The number of committees will vary from corporation

to corporation. Boards should also be conscious of the

limitations inherent in having too much of their business

handled in committees. Boards working as a whole on

important strategic issues allow the corporation to take

advantage of the collective wisdom of the board.

• The primary functions of the audit committee are

generally to recommend the appointment of the public

accountants and review with them their report on the

financial reports of the corporation; to review the

adequacy of the system of internal controls and of

compliance with material policies and laws, including

the corporation’s code of ethics or code of conduct; and

to provide a direct channel of communication to the

board for the public accountants and internal auditors

and, when needed, finance officers, compliance officers

and the general counsel.

Statement on Corporate Governance 15

• The compensation/personnel committee is generally

responsible for ensuring that a proper system of long-

and short-term compensation is in place to provide

performance-oriented incentives to management. The

compensation committee will also evaluate the CEO’s

performance for compensation purposes and report on

this subject to all of the outside directors, if this function

is not performed by the entire board. Likewise, it authors

the report on executive compensation required under the

proxy rules. This committee is also often responsible for

assuring that key management succession plans and

managers are reviewed periodically. In some companies,

succession planning and review of key personnel issues

are handled by the nominating/governance committee.

When CEOs serve on each other’s boards, it is generally

inadvisable for them to serve on each other’s compensa-

tion committees because of the potential for conflicts of

interest.

• The nominating/governance committee is typically

responsible for advising the board as a whole on corpo-

rate governance matters, developing a policy on the size

and composition of the board, reviewing possible candi-

dates for board membership, performing board evalua-

tions, and recommending a slate of nominees. The board

should have the benefit of the CEO’s involvement in the

selection process, but the responsibility for selection of

board nominees remains that of the board.

Board Compensation

• Board compensation should be competitive in view of

industry practices and the extent of burdens placed on

board members. The form of such compensation will

vary from corporation to corporation and may depend

16 The Business Roundtable

on the circumstances of the directors that the board may

be seeking to attract and retain.

• 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.

• Some corporations may wish to establish a specific goal

for equity ownership by directors; however, the desir-

ability of setting such a goal is company specific and may

depend on the circumstances of its directors. For

example, some directors whose principal occupations are

in public service or academic settings may prefer current

cash compensation.

• Although there has recently been a trend away from

retirement programs for directors, The Business

Roundtable believes that the focus should be on the

appropriate level of total compensation, rather than on

the timing of payments.

Operations

• Boards must meet as frequently as needed in order for

directors to discharge properly their responsibilities.

According to surveys, the typical board of a large

publicly owned corporation meets about eight times per

year. Depending on the complexity of the organization,

the degree of business success and stability, and the

desires of the board, greater or lesser frequency may be

appropriate. Many directors prefer to have fewer but

longer meetings where subjects can be explored in depth.

• There should be an opportunity for the board to meet

periodically, at least annually, outside the presence of the

CEO and other inside directors. This may be a portion

Statement on Corporate Governance 17

There should be

an opportunity for

the board to meet

periodically, at

least annually,

outside the

presence of the

CEO and other

inside directors.

of a normally scheduled board meeting, and the CEO’s

annual performance evaluation is a good opportunity for

such a meeting.

• A carefully planned agenda is important for effective

board meetings, but it must be flexible enough to

accommodate crises and unexpected developments. In

practice, the items on the agenda are typically deter-

mined by the chairman in consultation with the board,

with subjects also being suggested by various outside

board members. A CEO should be responsive to a

director’s request to add a specific subject to a future

agenda.

• To ensure continuing effective board operations, the

CEO should periodically ask the directors for their eval-

uation of the general agenda items for board meetings

and any suggestions they may have for improvement. In

particular, the board should ensure that adequate time is

provided for full discussion of important corporate items

and that management presentations are scheduled in a

manner that permits a substantial proportion of board

meeting time to be available for open discussion.

• The board must be given sufficient information to exer-

cise fully its governance functions. This information

comes from a variety of sources, including management

reports, personal observation, a comparison of perfor-

mance to plans, security analysts’ reports, articles in

various business publications, etc. Generally, board

members should receive information prior to board

meetings so they will have an opportunity to reflect

properly on the items to be considered at the meeting.

• Board members should have full access to senior

management and to information about the corporation’s

18 The Business Roundtable

Board members

should have

full access

to senior

management and

to information

about the

corporation’s

operations.

operations. Except in unusual circumstances, the CEO

should be advised of significant contacts with senior

management.

• Because the information and expertise relevant to the

board’s regular decision-making will normally be found

within the corporation, the main responsibility for

providing assistance to the board rests on the internal

organization. There may, however, be occasions when it

is appropriate for the board to seek legal or other expert

advice from a source independent of management, and

generally this would be with the knowledge and concur-

rence of the CEO.

• In general, the corporation’s management should speak

for the corporation. Communications with the public at

large, the press, customers, securities analysts and stock-

holders should typically flow through, and be coordi-

nated by, the CEO or other management. From time to

time outside directors may be requested by the board or

management to meet or speak with other parties that are

involved with the corporation.

• It is important that each board consider its policies and

practices on corporate governance matters. Whether

or not a board will formalize its board practices in

written form will vary depending on the particular

circumstances. Some corporations have found that over-

formalization leads to a rigid structure which emphasizes

form over substance, while others have found that insuf-

ficient formalization leads to lack of clarity.

Statement on Corporate Governance 19

IV. STOCKHOLDER MEETINGS

Meetings of stockholders provide an important forum

for the consideration of management and stockholder

proposals. An orderly discussion of the corporation’s affairs

is facilitated by following a specific agenda and by adhering

to a code that governs the conduct of the meeting.

Agendas and Conduct of the Meeting

• To facilitate an orderly meeting of stockholders, it is

desirable that there be a written agenda made available to

all attendees.

• Principal rules for the conduct of the meeting should be

set forth in writing and also made available to every

attendee. The rules may address matters such as the

procedures for moving resolutions and asking questions

of the chair, and include any limits on time or number

of speakers for matters under discussion.

Management and Stockholder Proposals

• The consideration of management and stockholder

proposals and board nominations is largely conducted

through the proxy process rather than through proposals

raised at stockholder meetings. This gives all stock-

holders, rather than only those who attend the meeting,

the opportunity to consider relevant matters. Although

the rules governing inclusion of stockholder proposals in

proxy statements have changed over the years and are

likely to continue to evolve, certain underlying principles

should govern the process. Most importantly, matters

brought to stockholder attention through the proxy state-

ment should be matters of significance to the business of

the corporation and to stockholders as a whole. Other

matters, such as those relating to personal grievances and

20 The Business Roundtable

… matters

brought

to stockholder

attention

through the proxy

statement should

be matters of

significance to

the business of the

corporation and

to stockholders as

a whole.

political or social issues are more appropriately discussed

in other forums. Matters pertaining to the conduct of the

ordinary business operations of the corporation should be

governed by management and the stockholder-elected

board of directors.

• Reasonable notice of topics permits all interested parties

to participate in the process in a considered way. As a

result, The Business Roundtable recommends that

corporations consider advance notice requirements in

by-laws because such requirements generally promote

good corporate governance.

• Adequate measures to assure the integrity, accuracy and

timeliness of the voting tabulation process are highly

important.

Statement on Corporate Governance 21

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