Statement on Corporate Governance Business-Roundtable-1997(1)

RTB THEBUSINESSROUNDTABLE

RTBThe Business Roundt abl eAn Associat ion of Chief Execut ive Officer s Commit t ed t o Impr oving Publ ic Pol icy

Statement on Corporate Governance

September 1997

A White Paper from THE BUSINESS ROUNDTABLE© September 1997


FOREWORD

The Business Roundtable is recognized as an authorita-tive voice on matters affecting large corporations and, assuch, is keenly interested in a proper understanding of thepurpose of corporate governance. Past publications of TheBusiness Roundtable that have addressed corporate gover-nance issues include The Business Roundtable’s statementon Corporate Governance and American Competitiveness(March, 1990), Statement on Corporate Responsibility(October, 1981) and The Role and Composition of theBoard of Directors of the Large Publicly OwnedCorporation (January, 1978). In the current publication,The Business Roundtable summarizes its current views ongovernance issues, thus updating and building on the workof the past.

The Business Roundtable notes with pride that, in theseven years since its last publication on corporate gover-nance, many of the practices suggested for consideration byThe Business Roundtable have become more common.This has been the result of voluntary action by the businesscommunity without new laws and regulations and reflectsthe positive impact of interested stockholders. The BusinessRoundtable believes it is important to allow corporategovernance processes to continue to evolve in the samefashion in the years ahead.


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 1

I. INTRODUCTION

The Business Roundtable wishes to emphasize that theprincipal objective of a business enterprise is to generateeconomic returns to its owners. Although the link betweenthe forms of governance and economic performance isdebated, The Business Roundtable believes that goodcorporate governance practices provide an importantframework for a timely response by a corporation’s board ofdirectors to situations that may directly affect stockholdervalue. The absence of good corporate governance, even in acorporation that is performing well financially, may implyvulnerability for stockholders because the corporation isnot 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 corporationhave a non-executive chairman of the board? Should theboard have a lead director? Should there be a limit on thenumber of boards on which a director serves? The BusinessRoundtable considers such questions important. Indeed,much of this Statement is devoted to discussing them.However, The Business Roundtable wishes to emphasize thatthe substance of good corporate governance is more impor-tant than its form; adoption of a set of rules or principles orof any particular practice or policy is not a substitute for, anddoes not itself assure, good corporate governance.

Examples of this point abound. A corporation with thebest formal policies and processes for board involvementmay be at risk if the chief executive officer is not genuinelyreceptive to relevant board input or if knowledgeable direc-tors hesitate to express their views. A corporation can haveexcellent corporate governance structures and policies on

... the substance of good corporategovernance ismore importantthan its form;adoption of a set of rules or principles or ofany particularpractice or policyis not a substitutefor, and does notitself assure, good corporate governance.

2 The Business Roundtable

paper, but if the CEO and the directors are not focused onstockholder value, it may be less likely the corporation willrealize that value. Directors can satisfy the most demandingtests for independence, but if they do not have the personalstature 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 thatdoes 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 advancingthe interests of stockholders.

One of the reasons why people focus on the formal,structural aspects of corporate governance is that doing sopermits evaluations that appear to be objective and verifi-able. Formal attributes of good corporate governance canbe tabulated to compare corporate governance practicesacross the spectrum of companies. Such comparisons dohave value, but it would be a mistake to lose sight of theirlimitations. The “soft,” subjective factors in corporategovernance — such as the quality of directors and thepersonalities of CEOs and directors — receive less atten-tion from scholars and journalists but are critical in the realworld of corporate behavior. Boards and managementshould not feel that they have discharged their responsibil-ities in regard to corporate governance just by putting inplace a particular set of structures and formal processes.They must also periodically review these structures andprocesses to insure that they are achieving good corporategovernance in substance.

Corporate governance is not an abstract goal, but existsto serve corporate purposes by providing a structure withinwhich stockholders, directors and management can pursue

Corporate governance is notan abstract goal,

but exists to servecorporate purposes

by providing a structure

within whichstockholders,

directors andmanagement can

pursue most effectively the

objectives of thecorporation.


most effectively the objectives of the corporation. There hasbeen much debate in corporate governance literature aboutthe parties to whom directors owe a duty of loyalty and inwhose interest the corporation should be managed. Somesay corporations should be managed purely in the interestsof stockholders or, more precisely, in the interests of itspresent and future stockholders over the long-term. Othersclaim 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 clarificationof the relationship between these two perspectives. It is inthe long-term interests of stockholders for a corporation totreat its employees well, to serve its customers well, toencourage its suppliers to continue to supply it, to honor itsdebts, and to have a reputation for civic responsibility. Thus,to manage the corporation in the long-term interests of thestockholders, management and the board of directors musttake into account the interests of the corporation’s otherstakeholders. Indeed, a number of states have enactedstatutes that specifically authorize directors to take intoaccount the interests of constituencies other than stock-holders, and a very limited number of state statutes actuallyrequire consideration of the interests of other constituencies.

In The Business Roundtable’s view, the paramount dutyof management and of boards of directors is to the corpo-ration’s stockholders; the interests of other stakeholders arerelevant as a derivative of the duty to stockholders. Thenotion that the board must somehow balance the interestsof stockholders against the interests of other stakeholdersfundamentally misconstrues the role of directors. It is,moreover, an unworkable notion because it would leave the

In The BusinessRoundtable’s view, the paramount dutyof management and of boards of directors is to thecorporation’s stockholders …


board with no criterion for resolving conflicts betweeninterests of stockholders and of other stakeholders oramong different groups of stakeholders.

While The Business Roundtable favors certain broadprinciples as generally contributing to good corporategovernance, not all of these broad principles are necessarilyright for all corporations at all times. Good corporategovernance is not a “one size fits all” proposition, and a wide diversity of approaches to corporate governanceshould be expected and is entirely appropriate. Moreover, acorporation’s practices will evolve as it adapts to changingsituations.

II. FUNCTIONS OF THE BOARD

The business of a corporation is managed under thedirection of the board of directors, but the board delegatesto management the authority and responsibility formanaging the everyday affairs of the corporation. Theextent of this delegation varies depending on the size andcircumstances of the corporation. In a large corporationthat is performing well and has strong management, theboard may delegate more; in a smaller or closely-heldcorporation, or one facing critical challenges, more detailedinvolvement 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, inaddition to reviewing and approving specific corporateactions 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 thechief executive officer; determine managementcompensation; and review succession planning;

Good corporategovernance is not

a “one size fitsall” proposition ...


(ii) Review and, where appropriate, approve the majorstrategies and financial and other objectives and plansof the corporation;

(iii) Advise management on significant issues facing the corporation;

(iv) Oversee processes for evaluating the adequacy ofinternal controls, risk management, financialreporting and compliance, and satisfy itself as to theadequacy of such processes; and

(v) Nominate directors and ensure that the structure andpractices of the board provide for sound corporategovernance.

Management Selection and Compensation

• The selection and evaluation of the chief executiveofficer and concurrence with the CEO’s selection andevaluation of the corporation’s top management team isprobably the most important function of the board. Inits broader sense, “selection and evaluation” includesconsidering compensation, planning for succession and,when appropriate, replacing the CEO or other membersof the top management team.

• The performance of the CEO should generally bereviewed at least annually without the presence of theCEO and other inside directors. The board should havean understanding with the CEO with respect to thecriteria according to which he or she will be evaluated,and there should be a process for communicating theboard’s evaluation to the CEO.

• Boards have a responsibility to ensure that compensationplans are appropriate and competitive and properlyreflect the objectives and performance of managementand the corporation. Incentive plans will vary from


corporation to corporation and should be designed toprovide the proper balance between long- and short-term performance incentives. Stock options and otherequity-oriented plans should be considered as a meansfor linking management’s interests directly to those ofstockholders.

Approval of Major Strategies And Financial Objectives

• Approving major strategies and financial objectives andtracking results is related to the function of selecting andevaluating the CEO. Insofar as the corporation developsand successfully executes sound long-range plans, theCEO and the corporation’s management team willgenerally be deemed to be doing a good job. There mayalso be circumstances in which the CEO is deemed to bedoing a good job even though financial results fall shortof plans.

• A corporation may achieve its near-term financial objec-tives but may ultimately fail if it has not developed anappropriate business strategy. Accordingly, boards shouldconsider financial objectives and results in the context ofthe 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 iswarranted. This kind of circumstance requires the bestjudgment of people highly experienced in business andmanagement. Alternatives must be considered carefullyand appropriate action taken.

Advising Management

• Providing advice and counsel to management is a keyelement of the board’s role. It is fulfilled both in formal

Providing adviceand counsel to

management is akey element of the

board’s role.

board and board committee meetings and also ininformal, individual director contacts with the CEO andother members of management.

• A board member who effectively fulfills his or her role ofadvising the CEO provides an important service to thecorporation.

Risk Management, Controls and Compliance

• The Board must assure that an effective system ofcontrols is in place for safeguarding the corporation’sassets, managing the major risks faced by the corpora-tion, reporting accurately the corporation’s financialcondition and results of operations, adhering to keyinternal policies and authorizations, and complying withsignificant laws and regulations that are applicable to it.

• In performing these functions, the board generally relieson the advice and reports of management, internal andexternal counsel, and internal and external auditors. Theboard’s role should be to review reports from suchexperts, to provide them with guidance and to assurethat management takes appropriate corrective actionswhen significant control problems are reported.

Selection of Board Candidates

• It is the board’s responsibility to nominate directors. Theboard nominates a whole slate, which should encompassindividuals with diverse talents, backgrounds, andperspectives who can work effectively together to furtherthe interests of the corporation’s stockholders, whilepreserving their ability to differ with each other onparticular issues as policy is developed. Men and womenof different ages, races and ethnic backgrounds cancontribute different, useful perspectives.



• Each director should represent the interests of all stock-holders, not those of any single individual or group ofstockholders or any single interest group. Cumulativevoting is generally not recommended for large publiclyowned corporations because it may lead to the electionof directors who represent particular groups of stock-holders, which can in turn create factionalism andundermine the effectiveness of the board.

• Effective boards are composed of individuals who arehighly experienced in their respective fields of endeavorand whose knowledge, background and judgment willbe useful to the corporation. Directors must have theability and willingness to learn the corporation’s businessand to express their personal views.

• Each person serving as a director must devote the timeand attention necessary to fulfill the obligations of adirector. Service on other boards often broadens anddeepens the knowledge and experience of directors. Inaddition, CEOs who serve on other boards frequentlygain valuable insight and experience which prove usefulin the running of their own companies. However, serviceon too many boards can interfere with an individual’sability to perform his or her responsibilities. Beforeaccepting an additional board position, a director shouldconsider whether the acceptance of a new directorshipwill compromise the ability to perform present responsi-bilities. Similarly, it is advisable for an inside director toconsult with his or her own board before accepting a newdirectorship on the board of another corporation.Because time demands from board to board and capaci-ties of individual directors will vary, The BusinessRoundtable does not endorse a specific limitation on thenumber of directorships an individual may hold.

Each directorshould represent

the interests of allstockholders, not

those of any singleindividual or group of

stockholders orany single

interest group.

• Each nominating/governance committee should developits own process for considering stockholder suggestionsfor board nominees. Should a stockholder desire tosuggest a nominee to the board, most corporationsrequest that a letter be written to the secretary of thecompany providing a resume of the suggested nominee.

Board Evaluation

• The board is responsible for its own evaluation fromtime to time. Such evaluations will provide the basis forthe board’s recommendation of a slate of directors to thestockholders. Boards also implicitly evaluate individualdirectors by endorsing them for re-nomination. Someboards formalize this process through evaluations ofindividual directors. Other boards formally address indi-vidual director performance only when it appears that aparticular director is not contributing sufficiently to theperformance of the board as a whole. While no partic-ular approach to individual director evaluation is best forall companies at all times, each board should have aprocess, formal or informal, for discharging its responsi-bility to nominate good directors.

• The board should from time to time review its ownstructure, governance principles, composition, agenda,processes and schedule to consider whether it is func-tioning well in view of its responsibilities and theevolving situation of the corporation.



III. STRUCTURE AND OPERATIONSOF THE BOARD

There are, and should be, diverse approaches to boardstructure and operations. In the following sections wedescribe approaches that The Business Roundtableconsiders 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 smallerboards are often more cohesive and work more effec-tively than larger boards.

• It is important for the board of a large publicly ownedcorporation to have a substantial degree of independencefrom management. Accordingly, a substantial majorityof 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 manyfactors, including the personal stature of the director andany business relationship of the director with the corpo-ration or any business or personal relationship of thedirector with management. Directors, or firms in whichthey have an interest, are sometimes engaged to providelegal, consulting, accounting or other services to thecorporation, or a director may have an interest in acustomer, supplier or business partner of the corpora-tion, or may at an earlier point in his or her career havebeen an employee or officer of the company. Depending

It is important forthe board of alarge, publicly

owned corporation to have a

substantial degreeof independence

from management.

on their significance to the director and to the corpora-tion, such relationships may affect a director’s actual orperceived independence. The Business Roundtablebelieves that, where such relationships exist, boardsshould be mindful of them and make a judgment abouta director’s independence based on his or her individualcircumstances rather than through the mechanical appli-cation of rigid criteria. This would involve considerationof whether the relationships are sufficiently significant asto interfere with the director’s exercise of independentjudgment. If a particular director is not deemed suffi-ciently independent, the board may neverthelessconclude that the individual’s role on the board remainshighly desirable (as in the case of an inside director) inthe context of a board composed of a majority of direc-tors with the requisite independence. The overall resultshould be a board that, as a whole, represents the inter-ests of stockholders with appropriate independence.

• For certain functions, such as membership on an auditor compensation committee, more specific standards ofindependence should be used. For example, Section162(m) of the Internal Revenue Code prescribes certainstandards that the compensation committee must meetto permit the deduction for federal income tax purposesof performance-based compensation exceeding $1million paid to the CEO and the four other highest paidexecutive officers. There are other examples of prescribedstandards for members of the compensation committeeunder Section 16 of the Securities Exchange Act of 1934and for members of the audit committee under rules ofthe New York Stock Exchange. In addition, more partic-ularized rules apply in certain industries, such asbanking. It is recommended that the board, or a



committee such as the nominating/governancecommittee, periodically confirm that the composition ofthe 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 whosepositions or potential for succession make it appropriate,in the judgment of the board, for them to sit on theboard.

• There has been considerable discussion of mechanismsfor 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 Roundtablebelieve their corporations are generally well servedby a structure in which the CEO also serves aschairman of the board. They believe that theCEO should set the agenda and the priorities forthe board and for management and should serveas the bridge between management and the board,ensuring that management and the board areacting with common purpose.

▲ Some corporations have separated the roles of CEO and chairman of the board, often inresponse to particular circumstances, such as toprovide a smooth transition from one CEO to another.

▲ Some other corporations have employed theconcept of a lead director. The role of a lead

Most members of The Business

Roundtablebelieve their

corporations aregenerally well

served by a structure in

which the CEOalso serves aschairman of

the board.


director is sometimes designed with specificduties, such as consultation with the CEO onboard agendas and chairing the executive sessionsof the board. In other cases, the lead director hasno special duties in ordinary situations, butassumes a leadership role in the event of the deathor incapacity of the CEO or in other situationswhere it is not possible or appropriate for theCEO to take the lead.

Each corporation should be free to make its own deter-mination of what leadership structure serves it best, given itspresent and anticipated circumstances. The BusinessRoundtable believes that most corporations will continue tochoose, and be well served by, unifying the positions ofchairman and CEO. Such a structure provides a singleleader with a single vision for the company and mostBusiness Roundtable members believe it results in a moreeffective organization. Where these positions are unified,The Business Roundtable also believes that it is desirable fordirectors to have an understanding as to how non-executiveleadership of the board would be provided, whether on anongoing basis or on a transitional basis if and when the needarose. In some boards, the presence of one strong figuremight provide the natural leader. In other circumstances,there could be an understanding that leadership would fallto the committee chair responsible for the subject matterthat gave rise to the need. In still others, it could be theresponsibility of the committee chairs to recommendwhether non-executive leadership is required, and if so, inwhat form. Whether the board’s understanding of theprocess would be codified as a formal board action shouldbe a matter for individual boards to determine.

• It is now common practice to establish rules for theretirement or resignation of directors. These may, forexample, include a mandatory retirement age for direc-tors or a requirement that a director submit his or herresignation 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 normalretirement. Even in the absence of such provisions, aboard should plan for its own continuity and succession— for the retirement of directors and the designation ofnew board members. Because the composition andcircumstances 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 maketerm limits desirable for them. However, The BusinessRoundtable generally does not favor the establishment ofterm limits for directors. Such limits often cause the lossof directors who have gained valuable knowledgeconcerning the company and its operations and whosetenure over time has given them an important perspectiveon long-term strategies and initiatives of the corporation.

Committee Structure

• Virtually all boards of directors of large publicly ownedcompanies operate with a committee structure to permitthe board to address certain key areas in more depth thanmay be possible in a full board meeting. A wide diversityof approaches in committee structure and functionresponds to the specific needs of companies facingdifferent business challenges and having different corpo-rate cultures, and reflects the need to allow organiza-tional experimentation.


A wide diversityof approaches in committee structure and

function respondsto the specific

needs of companies facingdifferent business

challenges andhaving different

corporatecultures, and

reflects the needto allow

organizationalexperimentation.

• It is recommended that each corporation have an auditcommittee, which is required under New York StockExchange rules, a compensation/personnel committee,and a nominating/governance committee and thatmembership in these committees be limited to outsidedirectors. The board may also wish to establish othercommittees with other specific responsibilities. Othercommon committees include an executive committee toact for the board between meetings and to handle otherspecifically assigned duties, a finance committee, and asocial responsibility or public policy committee. In somecases a board may wish to establish ad hoc committees toexamine special problems or opportunities in greaterdepth than would otherwise be feasible.

• The number of committees will vary from corporationto corporation. Boards should also be conscious of thelimitations inherent in having too much of their businesshandled in committees. Boards working as a whole onimportant strategic issues allow the corporation to takeadvantage of the collective wisdom of the board.

• The primary functions of the audit committee are generally to recommend the appointment of the publicaccountants and review with them their report on thefinancial reports of the corporation; to review theadequacy of the system of internal controls and ofcompliance with material policies and laws, includingthe corporation’s code of ethics or code of conduct; andto provide a direct channel of communication to theboard for the public accountants and internal auditorsand, when needed, finance officers, compliance officersand the general counsel.


• The compensation/personnel committee is generallyresponsible for ensuring that a proper system of long-and short-term compensation is in place to provideperformance-oriented incentives to management. Thecompensation committee will also evaluate the CEO’sperformance for compensation purposes and report onthis subject to all of the outside directors, if this functionis not performed by the entire board. Likewise, it authorsthe report on executive compensation required under theproxy rules. This committee is also often responsible forassuring that key management succession plans andmanagers are reviewed periodically. In some companies,succession planning and review of key personnel issuesare handled by the nominating/governance committee.When CEOs serve on each other’s boards, it is generallyinadvisable for them to serve on each other’s compensa-tion committees because of the potential for conflicts ofinterest.

• The nominating/governance committee is typicallyresponsible for advising the board as a whole on corpo-rate governance matters, developing a policy on the sizeand composition of the board, reviewing possible candi-dates for board membership, performing board evalua-tions, and recommending a slate of nominees. The boardshould have the benefit of the CEO’s involvement in theselection process, but the responsibility for selection ofboard nominees remains that of the board.

Board Compensation

• Board compensation should be competitive in view ofindustry practices and the extent of burdens placed onboard members. The form of such compensation willvary from corporation to corporation and may depend


on the circumstances of the directors that the board maybe seeking to attract and retain.

• Boards should consider aligning the interests of directorswith those of the corporation’s stockholders by includingsome form of equity, such as stock grants or options, asa portion of each director’s compensation.

• Some corporations may wish to establish a specific goalfor equity ownership by directors; however, the desir-ability of setting such a goal is company specific and maydepend on the circumstances of its directors. Forexample, some directors whose principal occupations arein public service or academic settings may prefer currentcash compensation.

• Although there has recently been a trend away fromretirement programs for directors, The BusinessRoundtable believes that the focus should be on theappropriate level of total compensation, rather than onthe timing of payments.

Operations

• Boards must meet as frequently as needed in order fordirectors to discharge properly their responsibilities.According to surveys, the typical board of a largepublicly owned corporation meets about eight times peryear. Depending on the complexity of the organization,the degree of business success and stability, and thedesires of the board, greater or lesser frequency may beappropriate. Many directors prefer to have fewer butlonger meetings where subjects can be explored in depth.

• There should be an opportunity for the board to meetperiodically, at least annually, outside the presence of theCEO and other inside directors. This may be a portion


There should bean opportunity forthe board to meetperiodically, atleast annually,outside the presence of theCEO and otherinside directors.

of a normally scheduled board meeting, and the CEO’sannual performance evaluation is a good opportunity forsuch a meeting.

• A carefully planned agenda is important for effectiveboard meetings, but it must be flexible enough toaccommodate crises and unexpected developments. Inpractice, the items on the agenda are typically deter-mined by the chairman in consultation with the board,with subjects also being suggested by various outsideboard members. A CEO should be responsive to adirector’s request to add a specific subject to a futureagenda.

• To ensure continuing effective board operations, theCEO should periodically ask the directors for their eval-uation of the general agenda items for board meetingsand any suggestions they may have for improvement. Inparticular, the board should ensure that adequate time isprovided for full discussion of important corporate itemsand that management presentations are scheduled in amanner that permits a substantial proportion of boardmeeting time to be available for open discussion.

• The board must be given sufficient information to exer-cise fully its governance functions. This informationcomes from a variety of sources, including managementreports, personal observation, a comparison of perfor-mance to plans, security analysts’ reports, articles invarious business publications, etc. Generally, boardmembers should receive information prior to boardmeetings so they will have an opportunity to reflectproperly on the items to be considered at the meeting.

• Board members should have full access to seniormanagement and to information about the corporation’s


Board membersshould have

full access to senior

management andto information

about the corporation’s

operations.

operations. Except in unusual circumstances, the CEOshould be advised of significant contacts with seniormanagement.

• Because the information and expertise relevant to theboard’s regular decision-making will normally be foundwithin the corporation, the main responsibility forproviding assistance to the board rests on the internalorganization. There may, however, be occasions when itis appropriate for the board to seek legal or other expertadvice from a source independent of management, andgenerally this would be with the knowledge and concur-rence of the CEO.

• In general, the corporation’s management should speakfor the corporation. Communications with the public atlarge, the press, customers, securities analysts and stock-holders should typically flow through, and be coordi-nated by, the CEO or other management. From time totime outside directors may be requested by the board ormanagement to meet or speak with other parties that areinvolved with the corporation.

• It is important that each board consider its policies andpractices on corporate governance matters. Whether or not a board will formalize its board practices inwritten form will vary depending on the particularcircumstances. Some corporations have found that over-formalization leads to a rigid structure which emphasizesform over substance, while others have found that insuf-ficient formalization leads to lack of clarity.


IV. STOCKHOLDER MEETINGS

Meetings of stockholders provide an important forumfor the consideration of management and stockholderproposals. An orderly discussion of the corporation’s affairsis facilitated by following a specific agenda and by adheringto a code that governs the conduct of the meeting.

Agendas and Conduct of the Meeting

• To facilitate an orderly meeting of stockholders, it isdesirable that there be a written agenda made available toall attendees.

• Principal rules for the conduct of the meeting should beset forth in writing and also made available to everyattendee. The rules may address matters such as theprocedures for moving resolutions and asking questionsof the chair, and include any limits on time or numberof speakers for matters under discussion.

Management and Stockholder Proposals

• The consideration of management and stockholderproposals and board nominations is largely conductedthrough the proxy process rather than through proposalsraised at stockholder meetings. This gives all stock-holders, rather than only those who attend the meeting,the opportunity to consider relevant matters. Althoughthe rules governing inclusion of stockholder proposals inproxy statements have changed over the years and arelikely to continue to evolve, certain underlying principlesshould govern the process. Most importantly, mattersbrought to stockholder attention through the proxy state-ment should be matters of significance to the business ofthe corporation and to stockholders as a whole. Othermatters, such as those relating to personal grievances and


… mattersbrought

to stockholderattention

through the proxystatement should

be matters ofsignificance to

the business of thecorporation and

to stockholders asa whole.

political or social issues are more appropriately discussedin other forums. Matters pertaining to the conduct of theordinary business operations of the corporation should begoverned by management and the stockholder-electedboard of directors.

• Reasonable notice of topics permits all interested partiesto participate in the process in a considered way. As aresult, The Business Roundtable recommends thatcorporations consider advance notice requirements inby-laws because such requirements generally promotegood corporate governance.

• Adequate measures to assure the integrity, accuracy andtimeliness of the voting tabulation process are highlyimportant.


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Documents

Statement on Corporate Governance Business-Roundtable-1997(1)