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The Procter & Gamble Company Board of Directors Corporate Governance Guidelines
- Board Purpose and Responsibilities. The Board represents and acts on behalf of all shareholders of the Company. The Board is responsible for establishing, and helping the Company achieve, business and organizational objectives through oversight, review and counsel. The Board also:
- approves and monitors critical business and financial strategies of the Company;
- assesses major risks facing the Company, and options for their mitigation;
- approves and monitors major corporate actions;
- oversees processes designed to ensure the Company's, and Company employees', compliance with applicable laws and regulations and the Company's Worldwide Business Conduct Manual;
- oversees processes designed to ensure the accuracy and completeness of the Company's financial statements;
- monitors the effectiveness of the Company's internal controls;
- selects, evaluates and sets appropriate compensation for the Company's Chief Executive;
- oversees succession planning for the Chief Executive position;
- reviews the recommendations of Company management for, and elects, the Company's principal officers; and
- oversees the compensation of the Company's principal officers elected by the Board.
- Board Size, Composition and Qualifications.
- Size. As required by the Company's Regulations, the Board will be comprised of between ten (10) and fifteen (15) members.
- Composition. The Board will be comprised of a majority of independent members (members who are free of any material relationship with the Company or Company management). For purposes of these Guidelines, "independence" will be determined in accordance with a separate guideline established by the Board. The separate guideline will always be at least sufficient to meet the independence standards of the New York Stock Exchange and applicable legislation.
- Qualifications for Non-Employee Board Members. The Company seeks Board members who will represent the balanced best interests of the Company's shareholders as a whole, rather than special constituencies; who have demonstrated character and integrity; who have an inquiring mind; who have experience at a strategy/policy-setting level or who have high-level managerial experience in a relatively complex organization, or who are accustomed to dealing with complex problems; who have an ability to work effectively with others; who have sufficient time to devote to the affairs of the Company; and who are free of conflicts of interest. In seeking such Board members, the Company also seeks to achieve a mix of Board members that represents a diversity of background and experience, including with respect to age, gender, international background, race and specialized experience.
- Qualifications for Employee Board Members. To be considered for Board membership, employees of the Company must have senior management responsibility for broad areas of the Company's operating or functional groups.
- Specific Qualification Rules of All Board Members. To assist in meeting the objectives listed above on the qualifications of Board members, the Board has adopted certain specific guidelines:
- Disqualifying Factors*. No person will be considered for Board membership who is:
- an employee or director of a company in significant competition with the Company;
- an employee or director of a major or potentially major customer, supplier, contractor, counselor or consultant of the Company;
- a recent employee of the Company; or
- an executive officer of a company where a P&G employee Director serves on the board.
Should any current Board member become subject to one of the above disqualifying factors, s/he will immediately offer his/her resignation to the Board. Absent special circumstances agreed to by a majority of the Board (excluding the affected member(s), the Board will accept the offer of resignation.
- Director Resignation Based on Election Results. In any non-contested election of directors, any director nominee who receives a greater number of votes "withheld" from his or her election than votes "for" such election according to certified election results shall immediately tender his or her resignation as a Director to the Board of Directors. Within ninety days following the certification of the election results, the Board of Directors will decide, after taking into account the recommendation of the Governance and Public Responsibility Committee (in each case excluding the nominee in question) whether to accept the resignation. Absent a compelling reason for the director to remain on the Board, the Board of Directors shall accept the resignation. The Board's explanation of its decision shall be promptly disclosed on a Form 8-K submitted to the Securities and Exchange Commission.
- Retirement Age. Absent exceptional circumstances agreed to by a majority of the Board (excluding the affected member(s)), each Board member, upon reaching the age of seventy (70) years, will resign effective upon the next Board meeting.
- Term Limits. Absent special circumstances agreed to by a majority of the Board (excluding the affected member(s)), no Board member may serve for more than: (i) six (6) full three-year terms or (ii) a total of eighteen (18) years.
- Job Change.
- Except for the Company's Chief Executive, if a Board member's principal occupation or business association changes substantially (including retirement) following his/her initial election, s/he must immediately offer his/her resignation to the Board. The Board will determine by majority vote of members present at a duly-constituted meeting whether to accept the offer of resignation.
- The Company's Chief Executive will resign from the Board when s/he retires from the Company, provided, however, upon the agreement of at least a majority of the Board, such Chief Executive may continue to serve on the Board for a transition period of up to one year following such retirement.
- Conflicts of Interest. In addition to abiding by the Company's Worldwide Business Conduct Standards, each Board member must recuse himself/herself from any discussion or decision affecting his/her personal, business or professional interests.
- Renomination. Renomination to the Board will be based on the needs of the Board at the time of determination. Board members do not have an expectation they will be automatically renominated when their term expires.
- Board Meetings.
- Regular Meeting Calendar.
- Dates and Times. The Board will meet seven (7) times per year, unless it determines that more or fewer meetings are required. Meetings will typically occur during the following months: January, February, April, June, August, October and December.
- Topics. The Board agenda will include regular in-depth reviews of the key issues affecting the Company overall, and various Company businesses and functions. Business unit and functional presentations will address key issues facing the business unit/function, and decisions and strategies relating to those issues. Appropriate time will be allotted for Board-member questions and input. At least once per year, the Board will meet to review the performance and succession plan for the Company's Chief Executive, and executive continuity plans for other principal officers (the meetings may be separate). Succession planning should include policies and principles for Chief Executive selection and performance review, as well as policies regarding succession in the event of an emergency or the retirement of the Chief Executive. The Board's evaluation of the Chief Executive's performance will be shared with the Chief Executive.
- Distribution of Materials. Information and materials will be distributed in advance of the Board meetings where important to the Board's understanding or to facilitate discussion.
- Offsite Meetings. The Board will meet outside of Cincinnati from time to time in conjunction with major strategic issues or an in-depth review of a major segment of the Company's operations.
- Special Meetings. The Chair will call additional meetings as necessary to address important or urgent Company issues. Any member may request that the Chair call a special meeting. Special meetings may be held in person, or by telephone or other form of interactive electronic communication.
- Attendance. Attendance is expected at all Board and Committee meetings, for the full length of such meetings. Any extraordinary circumstance that would cause a member to attend fewer than seventy-five percent (75%) of all Board meetings should be discussed with the Board Chair and the Chair of the Governance & Public Responsibility Committee as far in advance as possible.
- Voting. At any time, the independent members of the Board present at a duly-constituted meeting may determine, by majority vote, that members who are not independent should not participate in the discussion or voting with respect to any issue. This determination may be made for legal, conflict of interest or any other reason deemed appropriate by the independent members. Likewise, if it appears that an issue will impact the personal, business or professional interests of one or more members, and those members fail to recuse themselves in accordance with Section II.E.6 above, a majority of the other members present at a duly-constituted meeting may determine that the affected members should not participate in the discussion or voting with respect to that issue.
- Board Leadership.
- Chair. The Board will be chaired by one (1) member. The Chair will be appointed by vote of a majority of non-employee members of the Board present at a duly-constituted meeting, and may be removed at any time by the same vote.
- Presiding Director. If the Board Chair is the Chief Executive of the Company, then one of the independent members of the Board will be named as Presiding Director. The Presiding Director will act as a key liaison with the Chief Executive, will assist the Board Chair in setting the Board agenda, will chair the executive sessions described in Section IV.C below, and will communicate Board member feedback to the Chief Executive. The Presiding Director will be chosen annually by a majority of the non-employee members of the Board present at a duly-constituted meeting after consultation with the Governance & Public Responsibility Committee. The name of, and a means of directly contacting, the Presiding Director will be made public.
- Executive Sessions. Regardless of who holds the position of Board Chair, the non-employee members of the Board will meet regularly outside the presence of any Company employee. For purposes of these executive sessions, a former Chief Executive of the Company will be considered to be an employee member, and thus will not attend the executive sessions. Executive sessions will be led by the Chair, if the Chair is an independent member of the Board, or otherwise by the Presiding Director. Additional semi-executive sessions (meetings of the non-employee members of the Board plus specific Company employees or other individuals) may be held at any time at the request of the Board, the Chair or the Presiding Director.
- Board Agendas. The Board Chair, in consultation with the Presiding Director, if any, will determine the agenda for each meeting. All Board members should propose to the Chair or the Presiding Director the inclusion of additional agenda items that they deem necessary or appropriate in carrying out their duties.
- Board Committees.
- Purpose. The purpose of Board Committees is to help the Board effectively and efficiently fulfill its responsibilities, although the Committees do not displace the oversight responsibilities of the Board as a whole. Committees will report the results of their significant activities to the full Board or make recommendations to the full Board as appropriate.
- Standing Committees. The Board has established five standing Committees of the Board. The Governance & Public Responsibility Committee will regularly review the Board's committee structure and make recommendations to the full Board as needed. The Board may add, eliminate and change the Charter or composition of any Committee at any time, except to the extent that such a change would violate the Company's Articles, Regulations. By Law or the listing standards of the New York Stock Exchange. The five standing Committees are as follows:
- Audit Committee(established in 1940): The Audit Committee has the responsibilities set forth in its Charter with respect to the quality and integrity of the Company's financial statements; the Company's compliance with legal and regulatory requirements; the Company's overall risk-management profile; the independent auditor's qualifications and independence; the performance of the Company's internal audit function and independent auditors; and preparing the annual Audit Committee Report to be included in the Company's proxy statement.
- Compensation & Leadership Development Committee(predecessor Committee established in 1960): The Compensation & Leadership Development Committee has the responsibilities set forth in its Charter with respect to overseeing overall Company compensation policies and their specific application to principal officers elected by the Board and to members of the Board; assisting the full Board with respect to leadership development, and preparing an annual report on executive compensation for inclusion in the Company's proxy statement.
- Finance Committee (established in 1994): The Finance Committee has the responsibilities set forth in its Charter with respect to overseeing financial matters of importance to the Company. (Topics considered by this Committee include the Company's annual financing plans, global financing principles and objectives, financial strategies and capital structures, funding and oversight of the Company's pension and benefit plans, the Company's insurance program, the financial implications of major investments, restructurings, joint ventures, acquisitions and divestitures, and the impact of various finance activities on debt ratings.)
- Governance & Public Responsibility Committee (predecessor Committee established in 1972): The Governance & Public Responsibility Committee has the responsibilities set forth in its Charter with respect to identifying individuals qualified to become members of the Board; recommending to the Board when new members should be added to the Board; recommending to the Board individuals to fill vacant Board positions; recommending to the Board the director nominees for the next annual meeting of shareholders; in the event of a director resignation after such director-nominee receives more votes "withheld" from his or her election than votes "for" such election in any non-contested election, recommending to Board whether to accept the resignation; periodically developing and recommending to the Board updates to the Company's Corporate Governance Guidelines; assisting the Board and the Company in interpreting and applying the Company's Corporate Governance Guidelines, Board governance; evaluation of the Board and its members; and overseeing matters of importance to the Company and its stakeholders, including employees, consumers, customers, suppliers, shareholders, governments, local communities and the general public (including but not limited to organization diversity, sustainable development, community and government relations, product quality and quality assurance systems and corporate reputation).
- Innovation & Technology Committee (established in 2001). The Innovation & Technology Committee has the responsibilities set forth in its Charter with respect to overseeing and providing counsel on matters of innovation and technology. (Topics considered by this Committee include the Company's approach to technical and commercial innovation, the innovation and technology acquisition process, and tracking systems important to successful innovation.)
- Committee Membership. The Audit, Compensation & Leadership Development and Governance & Public Responsibility Committees each will have not fewer than three (3) members consisting entirely of outside, independent members of the Board. The Finance and Innovation & Technology Committees each include not fewer than three (3) outside, independent members of the Board in addition to any other members of such Committees.
- Assignment and Rotation of Committee Members. The Governance & Public Responsibility Committee will, after consultation with the Board Chair, make membership recommendations for all Committees to the full Board for action at the first Board meeting following the annual meeting of shareholders. In making these recommendations, the Governance & Public Responsibility Committee will consider the Board's preference for rotating Committee chairs and members at no longer than five (5) year intervals measured from January 2005. However, the Board also acknowledges that at times it may not be in the best interest of the Company to rotate certain Directors due to exceptional circumstances.
- Committee Agendas. The Chair of each Committee will, after consultation with appropriate members of Company management, determine the agenda for each meeting. The Board Chair, Presiding Director and other Committee members may also suggest the inclusion of items on the agenda.
- Board Compensation.
- Compensation Committee Responsibility. The Compensation & Leadership Development Committee of the Board will annually review the compensation of Board members, and will make recommendations to the full Board.
- Compensation Philosophy. In making its recommendations to the full Board concerning the compensation of Board members, the Compensation & Leadership Development Committee should consider the following goals:
- Board members should be fairly compensated for the work involved in overseeing the management of a company the size and scope of Procter & Gamble.
- Board-member compensation should be competitive with director compensation at other U.S. companies the size and scope of Procter & Gamble.
- Board-member compensation should align Board members' interests with the long-term interests of the Company's shareholders.
- Board Access to Management and Independent Advisors.
- Management. Non-employee members of the Board are encouraged to contact and/or meet with Company employees without principal officers being present for purposes of gathering information. The Company will, on a regular basis, provide specific opportunities for this type of interaction. However, no individual director should give direction to Company employees during these meetings; such direction should be provided by the full Board to the Company's Chief Executive.
- Independent Advisors. The Board will hire such independent advisors, including attorneys, accountants, investment bankers and other consultants, as it deems necessary or appropriate to carry out its duties.
- Board Orientation and Continuing Education.
- Orientation. The Secretary of the Company will arrange for new members of the Board to meet with senior operating and functional managers of the Company, in order that the new member can become familiar with the Company's strategic plans, financial statements, and key policies and practices. This orientation should begin as soon as practicable after the new Board member is elected, and should be complete within one (1) year after s/he joins the Board.
- Continuing Education. From time to time, the Company will provide Board members with presentations from Company and/or third-party experts on topics that will assist Board members in carrying out their responsibilities. In addition, once per year the Company will pay the reasonable expenses for any Board member who wishes to attend accredited third-party training for directors.
- Service on Other Boards.
- Board Chair. The Board Chair may not serve on more than two (2) outside public boards without the approval of a majority of the non-employee members of the Board. Service on charitable or educational boards does not count towards this limit, unless a majority of the non-employee members of the Board determines that such service constitutes an unreasonable demand on the Chair's time.
- Non-Employee Directors A non-employee director may not serve on the boards of more than five (5) other public companies or, if the member is an active chief executive officer of another public company, on the boards of more than three (3) other public companies
- Employee Directors.
- Chief Executive. The Company's Chief Executive may not serve on more than two (2) outside public boards without the approval of a majority of the non-employee members of the Board, and must consult with the Board before accepting an appointment to an outside Board. Service on charitable or educational boards does not count towards this limit, unless a majority of the non-employee members of the Board determines that such service constitutes an unreasonable demand on the Chief Executive's time.
- Other Employee Board Members. Members of the Board who are Company employees (other than the Chief Executive) may not serve on more than one (1) outside public Board without the approval of a majority of the non-employee members of the Board, and must consult with the Chief Executive before accepting any appointment to an outside Board. The Chief Executive will consult as appropriate with the Board Chair (if the chief executive is not the Chair) or the Presiding Director with respect to such appointments. Service on charitable or educational boards does not count towards this limit, unless a majority of the non-employee members of the Board determines that such service constitutes an unreasonable demand on the employee Board member's time.
- Principal Officers of the Company Elected by the Board. No principal officer of the Company elected by the Board may serve on the board of a significant competitor or customer, or significant potential competitor or customers. Principal officers should normally avoid serving on the Board of a major or potential major supplier, contractor or consultant. All principal officers must consult with the Company's Chief Executive before accepting an appointment to an outside Board. The Chief Executive will consult with the Board prior to any officer accepting a position on the Board of any major or potential major supplier, contractor, or consultant and will inform the Board of any outside board memberships accepted by a principal officer of the Company.
- Stock Ownership Guidelines. Each non-employee member of the Board is required to own common stock of the Company in accordance with the Company's share-ownership guidelines for non-employee directors. Employee members of the Board are required to own stock of the Company in accordance with the Company's share-ownership guidelines for Company executives.
- Board Self-Evaluation. Annually, the Board will conduct a self-evaluation under the leadership of the Governance & Public Responsibility Committee. On a periodic basis, this Committee will engage an independent governance expert to facilitate the evaluation process. The Board will discuss the report of the Governance & Public Responsibility Committee concerning the performance of the Board and its members and take appropriate actions in response.
- Amendment of These Guidelines. Recognizing that best practices for corporate boards of directors, and practical considerations, will change over time, the Board will monitor developments in these areas, and will amend these Guidelines as it deems appropriate.
* CORPORATE SECRETARY'S NOTE: THE TERMS "SIGNIFICANT" AND "MAJOR" AS USED IN THIS SECTION WILL BE INTERPRETED IN LIGHT OF THE THRESHOLDS AND GUIDANCE PROVIDED BY CURRENT LEGAL AND LISTING REQUIREMENTS.
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