EXHIBIT 10.34
HILLENBRAND INDUSTRIES, INC.
(THE "COMPANY")
CORPORATE GOVERNANCE STANDARDS
FOR
BOARD OF DIRECTORS
(As approved by Board of Directors on September 14, 2006)
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 written charter that has been approved by the
Board.
2. At all times, 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, 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.
(1) For purposes of this numbered paragraph 3, all references to the Company
include the Company's subsidiaries.
Further, the Board cannot conclude that a director is independent if:
- The director is, or has been within the last three years, an
employee of the Company, or an immediate family member(2) of the
director is, or has been within the last three years, an executive
officer of the Company. Employment as an interim Chairman or CEO or
other executive officer shall not disqualify a director from being
considered independent following that employment.
- The director has received, or has an immediate family member who has
received, during any twelve-month period within the last three
years, 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).
Compensation received by a director for former service as an interim
Chairman or CEO or other executive officer need not be considered in
determining independence under this test. Compensation received by
an immediate family member for service as an employee of the Company
(other than an executive officer) need not be considered in
determining independence under this test.
- (A) The director or an immediate family member of the director is a
current partner of a firm that is the Company's internal or external
auditor; (B) the director is a current employee of such a firm; (C)
the director has an immediate family member who is a current
employee of such a firm and who participates in the firm's audit,
assurance or tax compliance (but not tax planning) practice; or (D)
the director or an immediate family member was within the last three
years (but is no longer) a partner or employee of such a firm and
personally worked on the Company's audit within that time.
- The director or an immediate family member of the director is, or
has been within the last three years, employed as an executive
officer of another company where any of the Company's present
executives at the same time serves or served on that company's
compensation committee.
- The director is a current employee, or an immediate family member of
the director is a current executive officer, of a company that has
made payments to, or received payments from, the Company for
property or services in an amount which, in any of the last three
fiscal years, exceeds the greater of $1 million, or 2% of such other
company's consolidated gross revenues. The look-back provision for
this test applies solely to the financial relationship between the
(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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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. Contributions to tax exempt
organizations shall not be considered "payments" for purposes of
this provision, but the Company shall disclose in its annual proxy
statement any such contributions made by the Company to any tax
exempt organization in which any independent 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 tax exempt organization's consolidated gross
revenues. In addition, the Board must consider the materiality of
any such 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 Officer. As a general rule, the Chief Executive Officer
should not also hold the position of Chairman of
(3) See Position Specification for Member of Board of Directors of Hillenbrand
Industries, Inc.
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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, product and technology development, healthcare, death care or other low
growth industry, manufacturing, services businesses, sales and market
development, international operations, international governance, mergers and
acquisitions related business development, , strategic oversight, government
relations, investor relations, executive leadership development, public company
governance, and executive compensation design and processes. 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
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the Nominating/Corporate Governance Committee, at the annual meeting of the
Board to serve 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. When any director intends to become a director of
another board of directors, that director shall provide advance notice to the
Chairman of the Board and the Secretary. Upon termination of or significant
change in a member of the Board's principal employment or acceptance of a
position as a director on a public company board that results in a director
serving on more than four more public company boards 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. No more than half the members of the Board may be over seventy years
of age.
11. Succession planning and management development will be reviewed
annually by the Chief Executive Officer with the Board. The Board will review at
least annually the succession plan for the Company's Chief Executive Officer.
12. All executive officers and designated members of management are
expected to own shares of the Company's common stock. Specifically, the Chief
Executive Officer of the Company, his or her executive officer or Grade Level V
Employee direct reports, each of their direct reports who are officers or Grade
Level V Employees of the Company or any of its subsidiaries, and all other Grade
V level employees of the Company or any of its subsidiaries from and after the
later to occur of (i) February 13, 2006 or (ii) the date on which any such
individual first became an officer or Grade Level V Employee of the Company or
any of its subsidiaries ("Start Date") shall be required to hold shares of the
Company's common stock or equivalents described below at the following levels
("Required Ownership Level"):
POSITION REQUIRED OWNERSHIP LEVEL (EXPRESSED AS
BASE ANNUAL SALARY MULTIPLE)
Company Chief Executive Officer ("CEO") 4 x Base Annual Salary
CEO Executive Officer Direct Reports who
are Officers or Grade Level V Employees 2 x Base Annual Salary
Officer or Grade V Level Direct Reports of
CEO Executive Officer or Grade Level V
Direct Reports 1 x Base Annual Salary
Other Grade V level Employees 0.75 x Base Annual Salary
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Shares owned outright (including vested deferred shares) and restricted stock
units (otherwise known as deferred stock awards under the Company's Stock
Incentive Plan ("RSUs")) with respect to shares of the Company's common stock
(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 Start Date.
Failure to achieve or maintain the Required Ownership Level may result in (i)
the applicable individual being required to hold all after tax vested RSU's and
shares acquired upon exercise of stock options or (ii) suspension of future
restricted stock or RSU grants until the Required Ownership Level is achieved.
The Compensation and Management Development Committee (or its designee) may make
exceptions, in its (his or her) sole discretion, in the event of disability or
great financial hardship.
13. Shareholders of the Company will be given an opportunity to vote on
the adoption of all equity-compensation plans and any material revisions to such
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.
14. 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.
15. 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.
16. 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.
17. 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.
18. The Nominating/Corporate Governance Committee shall assess, from time
to time, the adequacy and suitability of the compensation package for members of
the Company's
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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 from time to time 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.
19. The Board, with the recommendation of the Nominating/Corporate
Governance Committee, will modify from time to time the compensatory
arrangements with the Company's non-officer, non-employee directors.
20. 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.
21. 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.
22. Proposed agendas for each regularly scheduled Board meeting shall be
developed by the Chairman of the Board, Chief Executive Officer and Secretary,
revised, as appropriate after joint review by those individuals together with
the Chairs of each Board committee, and revised again, as appropriate after
review by each member of the Board. Likewise, proposed agendas for each
regularly scheduled Board committee meeting shall be developed by the Chair of
the applicable Board committee, management liaison and Secretary, revised, as
appropriate after joint review by those individuals together with the Chairman
of the Board and Chairs of each other Board committee, and revised again, as
appropriate after review by each member of the Board.
23. The Board is committed to the continuing orientation and training of
new and incumbent directors at the Board and Committee levels.
24. Any related party transactions between the Company or any of its
subsidiaries and any director or executive officer of the Company shall be
reviewed and preapproved by the Nominating/Corporate Governance Committee.
25. The non-management directors regularly shall conduct executive
sessions without participation by any employees of the Company. The Chairman of
the Board, or, in his or her absence, the Vice Chairman of the Board, shall
preside over such executive sessions at each regularly scheduled meeting of the
Board of Directors. The Chairman of each of the Nominating/Corporate Governance,
Compensation and Management Development and Audit Committees of the Board, or,
in his or her absence, the Vice Chairman of each of those committees, shall
preside over executive sessions of those committees without participation by any
employees of the Company at each regularly scheduled meeting of those
committees. The
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names of the directors who will preside at those regularly scheduled executive
sessions shall be publicly disclosed.
26. 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.
27. 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.
28. 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 on the
Company's website.
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