EXHIBIT 10.24
HILLENBRAND INDUSTRIES, INC.
(THE "COMPANY")
CORPORATE GOVERNANCE STANDARDS
FOR
BOARD OF DIRECTORS
(As approved by Board of Directors on December 2, 2004)
The following corporate governance standards established by the Board of
Directors provide a structure within which directors and management can
effectively pursue the Company's objectives for the benefit of its shareholders
and other constituencies. The Company's business is managed under the direction
of the Board, but the conduct of the Company's business has been delegated by
the Board to the Company's senior management team.
1. The Board will consider all major decisions of the Company. However,
the Board has established the following standing Committees so that certain
important areas can be addressed in more depth than may be possible in a full
Board meeting: Audit Committee, Nominating/Corporate Governance Committee,
Compensation and Management Development Committee and Finance Committee. Each
standing Committee has a specific charter that has been approved by the Board.
2. By the Company's 2004 Annual Meeting of Shareholders, and at all
times thereafter, at least a majority of the directors of the Company shall be
independent, as determined pursuant to numbered paragraph 3 below.
3. The Board, after receiving a recommendation from the
Nominating/Corporate Governance Committee, must determine annually, based on a
consideration of all relevant facts and circumstances, whether each director is
independent. A director does not qualify as independent unless the Board has
affirmatively determined that the director has no material relationship with the
Company(1), (either directly or as a partner, shareholder or officer of an
organization that has a relationship with the Company). In assessing the
materiality of a director's relationship with the Company and each director's
independence, the Board shall consider the issue of materiality not only from
the standpoint of the director but also from that of the persons or
organizations with which the director has an affiliation and shall consider
whether the relationship represents a potential conflict of interest or
otherwise interferes with the director's exercise of his or her independent
judgment from management and the Company. Material relationships can include,
among others, commercial, industrial, banking, consulting,
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(1) For purposes of this numbered paragraph 3, all references to the Company
include the Company's subsidiaries.
legal, accounting, charitable and familial relationships. In assessing a
director's independence, the Board shall also consider the director's ownership,
or affiliation with the owner, of less than a controlling amount of voting
securities of the Company. The basis for the Board's determination that a
relationship is not material shall be disclosed in the Company's annual proxy
statement.
Further, the Board cannot conclude that a director is independent as
follows:
- A director who is or was an employee, or whose immediate family
member(2) is or was an executive officer, of the Company may not be
considered independent until three years after the end of such
employment relationship. Employment as an interim Chairman or CEO
shall not disqualify a director from being considered independent
following that employment.
- A director who receives or received, or whose immediate family
member receives or received, more than $100,000 per year in direct
compensation from the Company, other than director and committee
fees and pension or other forms of deferred compensation for prior
service (provided such compensation is not contingent in any way on
continued service), may not be considered independent until three
years after he or she ceased to receive more than $100,000 per year
in such compensation. Compensation received by a director for former
service as an interim Chairman or CEO need not be considered in
determining independence under this test.
- A director who is or was affiliated with or employed by, or whose
immediate family member is or was affiliated with or employed in a
professional capacity by, a present or former internal or external
auditor of the Company may not be considered independent until three
years after the end of the affiliation or the employment or auditing
relationship.
- A director who is or was employed, or whose immediate family member
is or was employed, as an executive officer of another company where
any of the Company's present executives serves or served on that
company's compensation committee may not be considered independent
until three years after the end of such service or the employment
relationship.
- A director who is an executive officer or an employee, or whose
immediate family member is an executive officer, of a company that
makes or made payments to, or receives or received payments from,
the Company for property or services in an amount which, in any
single fiscal year, exceeds or exceeded the greater of $1 million,
or 2% of such other company's consolidated gross revenues,
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(2) As used in these Corporate Governance Standards, "immediate family member"
includes a person's spouse, parents, children, siblings, mothers and
fathers-in-law, sons and daughters-in-law, brothers and sisters-in-law, and
anyone (other than domestic employees) who shares such person's home. When
applying the three-year lookback provisions described in this numbered paragraph
3, the Board need not consider individuals who are no longer immediate family
members of the director as a result of legal separation or divorce, or those who
have died or become incapacitated.
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may not be considered independent until three years after falling
below such threshold. The look-back provision for this test applies
solely to the financial relationship between the Company and the
director or immediate family member's current employer; the Board
need not consider former employment of the director or immediate
family member. Charitable organizations shall not be considered
"companies" for purposes of this provision, but the Company shall
disclose in its annual proxy statement any charitable contributions
made by the Company to any charitable organization in which a
director serves as an executive officer if, within the preceding
three years, contributions in any single fiscal year exceeded the
greater of $1 million, or 2% of such charitable organization's
consolidated gross revenues. In addition, the Board must consider
the materiality of any such charitable relationship in making its
determination of independence.
- A director who owns, or is affiliated with the owner, of a
controlling amount of voting stock of the Company may not be
considered independent.
The disqualification of one director from being independent pursuant to these
provisions shall not automatically disqualify any other director on the Board
who is an immediate family member of such disqualified director but the
disqualification of an immediate family member shall be one of the facts and
circumstances considered by the Board in assessing such other director's
independence.
Moreover, the Board discourages the following types of transactions with
or on behalf of non-officer directors:
- the making of substantial charitable contributions to any
organization in which a director is affiliated;
- the entering into of consulting contracts with (or providing
other indirect forms of compensation to) directors; or
- the entering into of other compensatory arrangements with
directors that may raise questions about their independence.
4. The Audit Committee, the Nominating/Corporate Governance Committee
and the Compensation and Management Development Committee of the Board will
consist entirely of independent directors.
5. Each member of the Board will act in accordance with the criteria
for selection and discharge the responsibilities set forth in the Position
Specifications(3) for a director of the Company.
6. In addition to evaluations to be performed by the Compensation and
Management Development Committee, the Board will evaluate the performance of the
Company's Chief Executive Officer and certain other senior management positions
at least annually in meetings of independent directors that are not attended by
the Chief Executive
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(3) See Position Specification for Member of Board of Directors of Hillenbrand
Industries, Inc.
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Officer. As a general rule, the Chief Executive Officer should not also hold the
position of Chairman of the Board. However, if, with the Board's approval, the
Chief Executive Officer also holds the position of Chairman of the Board, the
Board will elect a non-executive Vice Chairman (or a non-executive director who
is the Lead Director). The Vice Chairman or Lead Director will preside at
meetings to evaluate the performance of the Chief Executive Officer.
7. Every year the Board will engage management in a discussion of the
Company's strategic direction and, based on that discussion, set the Company's
strategic direction and review and approve a three-year strategic framework and
a one-year business plan.
8. On an ongoing basis during each year, the Board will monitor the
Company's performance against its annual business plan and against the
performance of its peers. In this connection, the Board will assess the impact
of emerging political, regulatory and economic trends and developments on the
Company. The Board will hold periodic meetings devoted primarily to the review
of the Company's strategic plan and business plan and its performance against
them.
9. The Nominating/Corporate Governance Committee will annually assess
the Board's effectiveness as a whole as well as the effectiveness of the
individual directors and the Board's various Committees, including a review of
the mix of skills, core competencies and qualifications (including independence
under applicable standards) of members of the Board and its various committees,
which should reflect expertise in one or more of the following areas: accounting
and finance, healthcare, international business, mergers and acquisitions,
leadership, business and management, strategic planning, government relations,
investor relations, executive leadership development, and executive
compensation. In order to make these assessments, the Nominating/Corporate
Governance Committee shall solicit annually the opinions of each director
regarding the foregoing matters. The Nominating/Corporate Governance Committee
shall present its findings and recommendations to the Board of Directors for
appropriate corrective action by the Board. Ineffective directors shall be
replaced as promptly as practicable and inefficient Committees of the Board
shall be restructured or eliminated promptly.
10. Directors are expected to own shares of common stock of the Company.
The Board of Directors may from time to time adopt, revise or terminate director
stock ownership guidelines. Specifically, any non employee director who from and
after October 1, 2003 is awarded restricted shares of the Company's common stock
or restricted stock units (otherwise known as deferred stock awards) with
respect to shares of the Company's common stock shall be required to hold any
vested shares of the Company's common stock under such awards until at least the
six month anniversary from the date such director ceases to be a director of the
Company.
Directors are encouraged to limit the number of directorships that they hold in
public companies so that they can devote sufficient time to the discharge of
their responsibilities to each public company for which they serve as a
director, including the Company. The Nominating/Corporate Governance Committee
shall make recommendations to the Board regarding the membership of the several
Board committees and the chairs of such committees. The members of the several
Board committees shall be elected by the Board, after consideration of the
recommendation of the Nominating/Corporate Governance Committee, at the annual
meeting of the Board to serve
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until the next annual meeting of the Board or until their successors shall be
duly elected and qualified. Unless the Chair of any Committee is elected by the
Board, after consideration of the recommendation of the Nominating/Corporate
Governance Committee, the members of the Committee may designate a Chair by
majority vote of the Committee membership. The several Committee Chairs will
periodically report the Committee's findings and conclusions to the Board. Upon
termination of or significant change in a member of the Board's principal
employment, he or she shall notify the Chairman of the Board and tender his or
her resignation from the Board, which may be rejected by the Board if the change
in status is satisfactory and the Board believes that the director will continue
to be a valuable contributor to the Board.
11. Succession planning and management development will be reviewed
annually by the Chief Executive Officer with the Board.
12. All executive officers are expected to own shares of the Company's
common stock, in addition to options to purchase common stock. Specifically, all
executives who are awarded restricted shares of the Company's common stock or
restricted stock units (otherwise known as deferred stock awards under the
Company's Stock Incentive Plan) with respect to shares of the Company's common
stock from and after December 2003 shall be required to hold shares of the
Company's common stock or equivalents described below at a level equal to at
least 400% of their initial annual restricted stock or restricted stock unit
grant ("Required Ownership Level"). Until, but not after, the Required Ownership
Level is achieved, if annual grants subsequent to the first annual grant are
less than the initial annual grant, then the Required Ownership Level will be
adjusted downward based on the annual average grant amount. Shares owned
outright, restricted stock units (whether vested or unvested) and restricted
shares (whether vested or unvested) will count as share equivalents towards the
Required Ownership Level. The Required Ownership Level must be achieved within
five years from the date of the first annual restricted stock grant. Failure to
maintain the Required Ownership Level will result in suspension of future
restricted stock or restricted stock unit grants until the Required Ownership
Level is achieved.
13. Incentive compensation plans will link executive compensation
directly and objectively to measured financial and non-financial goals set in
advance by the Compensation and Management Development Committee.
14. Shareholders of the Company will be given an opportunity to vote on
the adoption and amendment of all equity-compensation plans. Brokers may not
vote a customer's shares on any equity compensation plan unless the broker has
received that customer's instructions to do so.
15. Subject to limited exceptions permitted by law, the Company will not
directly or indirectly grant loans to executive officers or directors of the
Company that are not available to outsiders.
16. Stock options will not be repriced, that is, the exercise price for
options will not be lowered even if the current fair market value of the
underlying shares is below their exercise price.
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17. Analyses and empirical data that are important to the directors'
understanding of the business to be conducted at a meeting of the Board or any
Committee will be distributed, to the extent practicable, in writing to all
members in advance of the meeting. Management will make every reasonable effort
to assure that this material is both concise and in sufficient detail to provide
a reasonable basis upon which directors may make an informed business decision.
In many cases, significant items requiring Board or Committee approval may be
reviewed in one or more meetings, with the intervening time being used for
clarification and discussion of relevant issues. Outside directors shall be
encouraged to provide input into the development of Board and Committee meeting
agenda.
18. Directors shall have complete access to the Company's management. It
is assumed that directors will exercise reasonable judgment to assure that
contact of this sort is not distracting to the business operations of the
Company and that any such contact, if in writing, will be copied to the Chief
Executive Officer and the Chairman of the Board. Furthermore, the Board
encourages the Chief Executive Officer to bring managers into Board meetings
from time to time who: (a) can provide additional insight into the items being
discussed because of personal involvement in these areas, and/or (b) represent
potential members of future senior management that the Chief Executive Officer
believes should be given exposure to the Board.
19. The Nominating/Corporate Governance Committee shall assess, at least
annually, the adequacy and suitability of the compensation package for members
of the Company's Board of Directors in relation to competitive market and sound
corporate governance practices. The Chief Executive Officer or other members of
the senior management team or other persons appointed by the
Nominating/Corporate Governance Committee shall report to the
Nominating/Corporate Governance Committee once a year regarding the adequacy and
suitability of the Company's Board compensation package in relation to other
comparable U.S. companies. Changes in Board compensation, if any, should be
suggested by the Nominating/Corporate Governance Committee and approved only
after a full discussion among the members of the Board.
20. While the Board, with the recommendation of the Nominating/Corporate
Governance Committee, will review from time to time the compensatory
arrangements with the Company's non-officer, non-employee directors, the Board
believes that the form and amount of the Company's current compensatory
arrangements with its non-officer, non-employee directors summarized below are
both customary and appropriate:
- Directors shall receive an annual retainer of $25,000 for their service as
directors, together with a $3,500 fee for each Board meeting attended. The
Chairman of the Board of Director's annual retainer shall, however, be
$150,000.
- For any Board meeting lasting longer than one day, each Director who
attends will receive $1,000 for each additional day.
- Directors who attend a Board meeting or standing committee meeting by
telephone will receive fifty percent (50%) of the usual meeting fee.
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- Each Director who is a member of the Nominating/Corporate Governance,
Finance, Audit or Compensation and Management Development Committee
receives a fee of $1,500 for each committee meeting attended.
- The Chairmen of the Audit, Compensation and Management Development,
Nominating/Corporate Governance and Finance Committees shall receive an
additional $10,000, $8,000, $7,000 and $5,000 annual retainer,
respectively.
- Directors who attend meetings of committees of which they are not members
shall receive no fees for their attendance.
- Notwithstanding the foregoing, for any meeting of an ad hoc committee or
team of the Board that requires attendance in person or by telephone, the
Directors who attend shall each receive a meeting fee of $1,500, except
when such meetings occur before, during or after a meeting of the Board or
a standing committee of the Board that also is attended by such Directors.
- Board and committee retainers shall be paid in quarterly installments and
the meeting fees shall be paid following the meeting.
- Each Director shall be reimbursed for expenses incurred as a result of
attendance at Board or committee meetings.
- Each Director shall be awarded on the first trading day following the
close of each annual meeting of the Company's shareholders 1,800
restricted stock units (otherwise known as deferred stock awards) under
the Corporation's Stock Incentive Plan in lieu of the stock option grant
contemplated by Section 12 of the Corporation's Stock Incentive Plan.
Vesting for such restricted stock units will occur on the later to occur
of one year and one day from the date of the grant or the six month
anniversary of the date that a the applicable Director ceases to be a
member of the Board of Directors of the Corporation. In the case of the
Chairman of the Board of Directors, his or her annual grant of restricted
stock units shall be 3,500.
21. The Board is responsible for the enactment and approval of changes
in the Company's Code of Business Conduct and Ethics ("Policy Statement"). The
Board's Audit Committee has responsibility for the oversight of the
implementation and administration of the Policy Statement, the review and
assessment at least annually of the effectiveness of the Policy Statement and
the recommendation to the Board of suggested changes in the Policy Statement.
22. The Board will consider from time to time its optimum size and will
increase or decrease from time to time, as appropriate, the number of its
members.
23. The Board is committed to the continuing orientation and training of
new and incumbent directors at the Board and Committee levels.
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24. The non-management directors regularly shall conduct executive
sessions without participation by any employees of the Company and shall
designate and publicly disclose the name of a director who will preside at
regularly scheduled meetings of the non-management directors.
25. While the information needed for the Board's decision making
generally will be found within the Company, from time to time the Board may seek
legal or other expert advise from sources independent of management. Generally
such advice will be sought with the knowledge and concurrence of the Chief
Executive Officer. Accordingly, the Board shall have the sole authority to
engage, compensate, oversee and terminate external independent consultants,
counsel and other advisors as it determines necessary to carry out its
responsibilities. The Company shall provide appropriate funding (as determined
by each committee) for payment of compensation to advisors engaged by the Board.
26. Likewise, each committee of the Board shall have the sole authority
to engage, compensate, oversee and terminate external independent consultants,
counsel and other advisors as it determines necessary to carry out its duties,
including the resolution of any disagreements between management and the auditor
regarding financial reporting. The Company shall provide appropriate funding (as
determined by each committee) for payment of compensation to advisors engaged by
the committees.
27. These Corporate Governance Standards have been developed and
approved by the Board. The Board will review at least annually the practices
incorporated into these Corporate Governance Standards by comparing them to the
standards identified by leading governance authorities and the evolving needs of
the Company and determine whether these Corporate Governance Standards should be
updated. These Corporate Governance Standards shall be published in the
Company's Proxy Statement or Annual Report to shareholders.
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