[CORPORATE GOVERNANCE GUIDELINES]

Transcription

1 2015 [CORPORATE GOVERNANCE GUIDELINES]

2 Chapter: Board of Directors Table of Contents Board of Directors 2 I. Director Guidelines 2 II. Election Process 7 III. Board Structure 8 Executive Compensation 10 I. Management Say on Pay (MSOP) 10 II. Equity Plans 13 III. Change-in-Control and Retirement Plans 14 Auditors 15 I. Ratification 15 Mergers and Acquisitions 16 I. Merger and Acquisition Proposals 16 II. Tender Offers 17 III. Spinoffs 18 Take Over Defenses 18 I. Shareholder Rights Plan 18 II. Voting Rights 19 III. Company Stock Repurchase and Placement 20 Capital Structure 20 I. Capital Stock Authorizations 20 II. Voting Rights 20 State of Incorporation 21 I. Re-incorporations 21 Shareholder Rights 22 I. Voting Process 22 II. Meeting Request 22 III. Miscellaneous Corporate Governance Issues 23 Shareholder Proposals 23 I. All Proposals 23 II. Social Proposals 24 III. Environmental Proposals 24 IV. Governance Proposals 25

3 Chapter: Board of Directors Board of Directors I. Director Guidelines A. Entire Board 1. SWIB will generally withhold votes for the entire board if one of the following situations exists a. The company does not adhere to SEC disclosure requirements b. The company is formally charged with backdating c. The company has failed the advisory management say on pay vote two or more times 2. SWIB will generally withhold votes for the entire board if at least three of the situations exists a. Sub-standard company economic performance and earnings relative to investment expectations and earnings projections b. Entrenchment of management, consisting of three or more anti-takeover defenses c. The awareness of financial restatements and/or public misstatement of the company s condition d. Lack of independence of the full board defined as when less than half of the board consists of independent directors e. Failure of the board to respond to majority vote shareholder proposals f. CEO/senior management compensation is in the top quartile of industry or market capitalization peers while company performance is in the bottom quartile g. Failure to serve shareholders adequately defined by the companies under-performance over the 1-, 3- and 5-year period as measured by identified performance metrics including total shareholder return and other metrics relative to identified peers and index h. Failure to disclose major components of the compensation plan i. Failure for directors to follow and implement company policies

4 Chapter: Board of Directors B. Individual Directors Domestic 1. SWIB will generally withhold votes for the director nominee if any of the following situations exists a. Attendance and Overboarding i. Nominee attended less than 75 percent of board and committee meetings in one year without valid reason or explanation ii. iii. Nominee is a current CEO and sits on more than two other boards Nominee is serving on more than four boards total b. Non-Independence i. Nominee is a non-independent who sits on key committees such as audit, compensation or nominating committees ii. Nominee is an insider who sits on key committees such as audit, compensation or nominating committees iii. Nominee sits on key committees such as audit, compensation or nominating committees and has been on the board for 15 years or more iv. Nominee serves as both CEO/Chair v. Nominee has consulting arrangements with company management vi. vii. viii. Nominee or immediate family member receives personal or direct benefit from company Nominee has had previous executive level employment with the company and is serving on a key committee Nominee has had financial transactions between the company and an entity that employs the company s director ix. Nominee is a non-independent and board independence falls below majority x. Nominee is being compensated by a third party to run or sit on a board

5 Chapter: Board of Directors c. Committee Action i. Nominee sits on the nominating committee and the company does not fully disclose the process for selecting and nominating director candidates ii. iii. d. Responsiveness Nominee has failed to perform his or her committee responsibilities on any board or committee assignment. Failure to perform duties is defined to mean that a nominee has not been truly elected, or has approved unwarranted practices such as excessive compensation plans, lack of adequate disclosure, option back-dating, disproportionate non-audit fees or other action which would be considered detrimental to the long term viability of the company Nominee has prior service on a board where CEO/senior management compensation was in the top quartile of industry for two years or market capitalization peers while company performance was in the bottom quartile i. Nominee fails to remove another director who has received less than a majority vote ii. Nominee receives less than 75 percent favorable votes iii. Nominee has served on a board within the last 5 years where there is evidence the company was unresponsive to a shareholder resolution that received a majority vote iv. Nominee failed to receive a majority vote in previous election and is still serving v. Nominee first appears on the ballot, but has been serving the board prior to being elected and contributed to poor board decisions e. Qualifications i. Evidence shows the nominee is not qualified to represent shareholders

6 Chapter: Board of Directors f. Disclosure i. Company fails to disclose nominee qualification or why they are specifically qualified to serve on the board ii. g. Other Failure of board to identify each director by using slate voting i. Nominee had been convicted or is under investigation of a financial, corporate, or securities crime or has a history of serious misconduct, regulatory sanctions or ethical violations relating to corporate financial responsibilities ii. Nominee has served on a board within the last 5 years where there is evidence the company s financial condition was purposely misstated iii. iv. Evidence shows the nominee acted in a manner that compromises their ethics or ability to represent the best economic interest of shareholders Nominee is part of a board that authorizes greenmail v. The nominee is pledging shares of company stock in excess of 2 percent of outstanding shares, and/or 25 percent of the nominee s ownership amount, and the company does not provide adequate justification or oversight vi. Nominee is a SWIB employee or trustee vii. C. Individual Directors International Nominee is part of a board that approved a bylaw without shareholder approval 1. SWIB will generally withhold votes for the director nominee if any of the following situations exists a. Attendance and Overboarding i. Nominee attended less than 75 percent of board and committee meetings in one year without valid reason or explanation

7 Chapter: Board of Directors ii. Nominee is serving on more than four boards total iii. Nominee is a current CEO and sits on more than two other boards b. Non-Independence i. Nominee is an insider who sits on compensation and/or audit committees ii. Nominee is a non-independent who sits on compensation and/or audit committees iii. Nominee or immediate family member receives personal or direct benefit from company iv. Nominee has had financial transactions between the company and an entity that employs the company s director v. Nominee has consulting arrangements with company management vi. Nominee is a non-independent and board independence falls below majority or below recommended best market practice vii. Nominee sits on key committees such as audit, compensation or nominating committees and has been on the board for 15 years or more viii. Nominee serves as both CEO/Chair c. Disclosure i. Director nominees are not individually disclosed on proxies ii. iii. d. Japan Company fails to disclose nominee qualification or why they are specifically qualified to serve on the board Failure of board to identify each director by using slate voting i. Nominee is a Statutory Auditor who is not independent ii. Nominee is President/Chair of the Board if the Board isn t majority independent Note: SWIB will generally support directors when the company has a U.S. style board structure (nominating committee, compensation committee and audit committee)

8 Chapter: Board of Directors II. Election Process A. Frequency 1. SWIB will generally vote for proposals supporting annual elections of directors B. Cumulative Voting 1. SWIB will support cumulative voting practices according to Wisconsin State statutes 2. SWIB will generally not support management if it proposes to eliminate cumulative voting unless a majority vote for directors is implemented C. Majority Voting 1. SWIB will generally support director election by majority vote 2. SWIB will generally support a majority vote standard election process in uncontested elections 3. SWIB will generally support a simple vote 4. SWIB will generally not support a supermajority vote D. Contested Elections E. Proxy Access 1. SWIB will review alternate directors in contested elections on a case-by-case basis per the following factors a. Company performance relative to its peers and long-term goals b. Current management s ability to improve performance c. The qualifications of the alternative slate of independent directors d. The alternative slate of independent directors business plan to remedy poor business or corporate performance e. The alternative slate of independent directors ability to meet similar criteria SWIB imposes upon uncontested election directors 1. SWIB will generally support company efforts to establish conditions and procedures for shareholders to nominate director candidates to the company s proxy ballot

9 Chapter: Board of Directors III. Board Structure A. Diversity B. Board Size 1. SWIB will support a variety of qualified nominees and encourage all types of diversity 2. SWIB will support disclosure of a Skills Matrix to ensure director nominees are bringing a skill set that matches what companies seek to have on their board 3. SWIB will generally support requirements to increase the number of women on their boards without increasing the overall size of the board 1. SWIB will review proposals seeking to set board size on a caseby-case basis 2. SWIB will generally support management proposals to fix the size of the board at a specific reasonable number 3. SWIB will generally not support proposals requesting to increase the board size due to the French board structure law C. Board Processes 1. SWIB will generally support the following a. Board self-evaluations b. Board retirement policies c. Board charters d. Definitions and disclosure, by the board, of CEO and Chair role and responsibilities e. Disclosure of board succession planning and polices f. Efforts and standards of companies to improve the professionalism of their board with training and education g. Process for discharging directors h. Board refreshment 2. SWIB will generally not support proposals which try to limit the number of terms a director may serve D. Board Committees 1. SWIB will generally support the establishment of key committees 2. SWIB will generally support independent directors on key committees

10 Chapter: Board of Directors 3. SWIB will generally support proposals requesting the company provide detailed director attendance reports 4. SWIB will generally support Japanese directors of companies with committee-style boards 5. SWIB will generally not support the committee responsible for pledging oversight when the company allows excessive pledging 6. Compensation Committee a. SWIB takes the position members of the compensation committee should be held accountable for any compensation package given to management b. SWIB will review company pay practices, stock options and other non-cash plans on a case-by-case basis and may withhold from the compensation committee if practices are deemed inadequate. Inadequate practices include i. Not linking the compensation package to performance, excessive dilution/burn rate, lack of defined and significant vesting provisions/periods, and other structural concerns ii. iii. iv. 7. Audit Committee The company does not adequately disclose compensation practices and the company is unwilling to address SWIB s concerns through communication attempts The director was a member of the compensation committee at the time options were backdated (if the company has made a financial restatement as a direct result of backdating) The company is formally charged with backdating a. SWIB takes the position members of the audit committee should be held accountable for audit oversight and company financial reports b. SWIB may withhold from the audit committee director nominees when i. Ratification is not placed on the ballot for shareholder vote

11 Chapter: Executive Compensation ii. Non-Audit fees are deemed excessive - above 25 percent of total fees iii. Material weaknesses in the internal controls are identified and the company has not established an effective remedial control mechanism or is unwilling to address shareholder concerns 8. Nominating/Corporate Governance Committee a. SWIB takes the position members of the nominating/corporate governance committee should be held accountable for governance/ nominating policies and procedures b. SWIB may withhold from the nominating/corporate governance committee director nominee when i. The company does not fully disclose the process for selecting and nominating director candidates ii. iii. iv. The company limits or eliminates directors and/or officers liability for monetary damages for violating the duty of care The company expands indemnity coverage for intentional or criminal acts that are more serious violations of fiduciary duty than mere negligence, consistent with Wisconsin State statutes The nominating/corporate governance committee does not provide an informative CEO succession plan v. The company combines the roles of CEO/Chair Executive Compensation I. Management Say on Pay (MSOP) A. Pay for performance criteria 1. SWIB will review company pay for performance on a case-bycase basis and vote against plans that lack compensation tied to company performance 2. SWIB will generally support plans that measure performance achieved and pay relative to a. Prior year(s) performance on a one-three-five-year basis

12 Chapter: Executive Compensation b. Meaningful and rigorous financial metrics c. Overall company performance d. Industry peer s performance i. Peer Groups should be a similar industry, size, annual revenue or market capitalization ii. Justification should be provided for any abovemedian peers e. Index performance 3. SWIB will generally support a company s use of performance criteria, metrics and targets that link pay and performance and a. Are rigorous and align with a company s business strategy b. Provide clear information to support compensation and performance connection c. Provide a clear explanation(s) why metrics, pay targets and other considerations are used to determine annual and long-term compensation d. Provide justification for any changes or possible changes made to criteria or metrics during a pay cycle e. Different short and long-term metrics 4. SWIB will generally not support plans that measure performance based on general market measurements that cannot be tied to the company performance 5. SWIB will generally not support plans that provide disclosure for only one CEO at a Co-CEO company 6. SWIB will generally not support plans that pay dividends on unvested stock awards 7. SWIB will evaluate any non-performance based compensation on a case-by-case basis and generally will not support a. Tax gross ups b. Excessive perquisites (such as home security etc.) 8. Disclosure a. SWIB will generally support compensation disclosure that includes i. Total compensation ii. Executive benefits

13 Chapter: Executive Compensation B. Plan Structure iii. iv. Performance targets Financial Metrics v. Compensation drivers vi. vii. viii. ix. Long-term Incentives Peer groups (if used) and justification for selected group Severance packages and other post retirement packages In kind retirement perquisites x. Executive pensions (SERPS) xi. xii. xiii. xiv. xv. Guaranteed post retirement consulting fees Deferred compensation plans Below market rate loans Perquisites (such as home security) Safety components as metric targets b. SWIB will generally not support plans where executive compensation is paid on behalf of a 3 rd party, and plan information Is not disclosed 1. SWIB will review company pay plan structure on a case-by-case basis and vote against plans if practices are deemed inadequate 2. SWIB generally considers the following practices inadequate when a. Compensation consultants who work on other activities directed by the compensation committee b. Existence of employment agreements that are guaranteed and indefinite c. Internal pay structures that are disproportional 3. SWIB will generally support the following practices a. An annual vote on the advisory compensation package b. Meaningful stock ownership or retention requirements which link a portion of an executive s compensation to company stock performance c. Clawback policy that applies to a broader employee base than just the CEO and CFO and triggered by events that

14 Chapter: Executive Compensation change the basis on which incentive compensation was originally calculated and awarded d. Plans that are consistent and fair between management and other employees e. SWIB will support Companies that adopt and disclose policies, guidelines, and requirements related towards hedging and pledging of company stock 4. Disclosure a. SWIB will generally support disclosure of compensation plan design that includes i. Compensation committee consultants including the consultants name, company and whether or not the consultant firm will work on activities directed by the compensation committee II. Equity Plans A. Plan Structure 1. SWIB will review stock option and other non-cash plans on a case-by-case basis and vote against plans if practices are deemed inadequate 2. SWIB generally considers the following practices inadequate a. Dilution greater than 15 percent b. Burn rate exceeds 2 percent of outstanding stock for each year or 10 percent in aggregate over a ten year plan and will be measured on a rolling three year average c. Vesting periods and provisions that lack specific holding periods and/or specific time frames to exercise awards are not clearly disclosed and or utilize a significant time horizon d. Awards are not granted at 100 percent fair market value on the date of the grant e. The plan has re-pricing or re-issuance provisions (without shareholder approval) of underwater options or options with a current stock price below the current option contract price without the cancellation of the original option

15 Chapter: Executive Compensation III. f. The plan allows for reissuance of previously issued awards to become available under the plan (share recycling) g. The plan is not performance-based h. The performance metrics and goals are not rigorous i. The plan has an evergreen feature allowing a specified percentage of outstanding shares to be held in reserve for award each year without a termination date Change-in-Control and Retirement Plans A. Change-in-control 1. SWIB will generally support change-in-control payments when two or more of the following conditions are met B. Severance Plans a. Significant change in ownership structure b. Loss of employment c. Substantial change in job duties due to change-in-control d. A merger or acquisition has legally taken place 1. SWIB will generally support severance plans made under the following conditions C. Retirement Plans a. Plans which do not allow for excise tax gross-ups b. Severance agreements that do not create an incentive for executives to be terminated c. Severance payments that are not triggered by failure to renew an employment contract d. Severance payments that are not triggered under questionable events e. Severance agreements with total severance pay not exceeding two times current salary 1. SWIB will review retirement related proposals on a case-by-case basis and will generally not support the proposal per the following considerations a. The plan continuously escalates pay into a supplemental retirement benefit to executives b. The plan is for a director c. The plan exceeds two years of salary

16 Chapter: Auditors d. The plan bans shareholder approval e. The plan allows compensation levels deemed excessive by market standards f. Proposals seeking to award a death-benefit package to the heirs of executives who die while still employed with the company 2. SWIB will generally not support supplemental executive retirement plans that include a. Additional years of service b. Inclusion of variable pay 3. SWIB will generally not support deferred compensation that provides for a. Above market returns b. Guaranteed minimum returns Auditors I. Ratification A. Non-Audit Fees 1. SWIB will generally not support ratification of auditors when non-audit services represent 25 percent or more of the total fees paid to auditors during the previous fiscal year 2. The following non-audit fees are excluded from the non-audit fee calculation a. IPO Fees b. Bankruptcy Fees c. Spin-off Fees B. Financial Restatements d. Other potential one-time events e. Non-Audit Fees are not pre-approved by the audit committee for specific events f. Tax compliance and tax preparation services 1. SWIB will generally not support ratification of auditors when a financial restatement has occurred

17 Chapter: Mergers and Acquisitions C. Rotation 1. SWIB will review auditor rotation proposals on a case-by-case basis based on the following a. Rigor of the company s processes in place to assess and monitor the external auditor s qualifications and performance b. Any significant audit concerns that have been raised at the bank by regulators or by audit oversight boards c. Any applicable laws pertaining to audit rotation Mergers and Acquisitions I. Merger and Acquisition Proposals A. Financial Effects 1. SWIB will review company merger and acquisitions on a case-bycase basis based on the following B. Non-Financial Effects a. Offer price relative to current share price (i.e. premium paid to shareholders) b. Current offer price relative to prior offers c. Opportunity cost of rejecting offer d. Cost of accepting the offer e. Anticipated financial benefits of the offer f. Long term financial viability of combined and/or acquired companies 1. SWIB will review non-financial effects on a case-by-case basis based on the following a. Impact on corporate governance and shareholder rights b. Opinion of the financial advisor(s) c. Operating benefits of the offer d. Stakeholder Laws e. Process by which proposals were accepted or rejected (company due diligence) f. The independence of the board of directors and financial advisors involved in the transaction

18 Chapter: Mergers and Acquisitions II. C. Change in Control 1. SWIB will review change in control disclosures on a case-by-case basis based on the following factors a. Overall disclosure b. Severance agreements c. Triggers for payment D. Asset Purchases and Sales E. Inversions Tender Offers d. Who controls the triggers for payment 1. SWIB will review the sale or purchase of assets on a case-by-case basis based on the following factors a. Purchase-Sale price b. Fairness opinion c. Financial and strategic benefits d. Anticipated use of funds or asset e. Negotiation process f. Conflicts of interest g. Disclosure h. Non-completion risks 1. SWIB will review corporate inversions on a case-by-case basis based on the following factors A. Financial Effects a. Anticipated tax impact b. Business synergy c. Cost of merger d. Impact on shareholder rights 1. SWIB will review tender offers on a case-by-case basis based on the following a. Offer price relative to current share price (i.e. premium paid to shareholders) b. Opportunity cost of rejecting offer c. Anticipated financial benefits of the offer d. Long-term financial viability of the company

19 Chapter: Take Over Defenses B. Non-Financial Effects 1. SWIB will review non-financial effects on a case-by-case basis based on the following a. Impact on corporate governance and shareholder rights b. Existence of a fair price provision III. Spinoffs A. Financial Effects 1. SWIB will review company spinoffs on a case-by-case basis based on the following B. Non-Financial Effects a. Opportunity cost of rejecting offer b. Anticipated financial benefits of the offer c. Long term financial impact 1. SWIB will review non-financial effects on a case-by-case basis based on the following a. Impact on corporate governance and shareholder rights b. Operating benefits of the offer Take Over Defenses I. Shareholder Rights Plan A. Poison Pill 1. SWIB will generally support shareholder proposals asking a company to submit its poison pill for shareholder ratification 2. SWIB will generally support poison pills that are a. Short term (3 years or less) b. Evaluated by the independent directors 3. SWIB will generally not support pills when the pill is being used to prevent a takeover 4. SWIB will generally support pills that are structured to be triggered with 20 percent ownership

20 Chapter: Take Over Defenses B. Fair Price Provisions 1. SWIB will review proposals to adopt a fair price provision on a case-by-case basis based on the following a. Bargaining power the provision gives to the company s board b. Likelihood the provision may discourage a beneficial takeover 2. SWIB will generally vote against fair price provisions that require a supermajority vote C. Blank Check Preferred Stock 1. SWIB will generally not support requests for authorizing preferred stock when it includes provisions that allow the board to set voting rights at the time of issuance D. Bylaw Amendments 1. SWIB will generally support a requirement of shareholder approval for any amendments to company bylaws 2. SWIB will generally vote against boards that approve bylaws without shareholder approval II. Voting Rights A. Preemptive Rights 1. SWIB will review preemptive rights proposals seeking to create or abolish preemptive rights on a case-by-case basis 2. SWIB will generally require a company to have a policy in place when additional awards of discounted shares are made B. Without Preemptive Rights C. Supermajority 1. SWIB will generally vote against issuances without preemptive rights if the request exceeds 10% above current levels of issued capital 1. SWIB will generally support simple majority provisions that require 51 percent of votes to pass D. Classified Boards 1. SWIB will generally support annual elections of directors

21 Chapter: Capital Structure III. Company Stock Repurchase and Placement A. Repurchases B. Greenmail 1. SWIB will generally support company stock repurchases unless a. The repurchase can or will be used as a takeover defense without shareholder approval 1. SWIB will generally not support payment of greenmail without shareholder approval 2. SWIB will generally not support resolutions that provide for payment of greenmail C. Target Share Placements 1. SWIB will generally support shareholder approval of any target stock placements over 10 percent of current outstanding stock 2. SWIB will determine on a case-by-case basis whether the placement is equitable to all shareholders Capital Structure I. Capital Stock Authorizations A. Voting 1. SWIB will generally support proposals that require existing shareholders be allowed to vote on resolutions to increase authorized capital B. Increase Authorization C. Stock Split 1. SWIB will generally support plans requesting up to 50 percent increase in capital 2. SWIB will review request over 50 percent on a case-by-case basis 1. SWIB will review reverse stock splits on a case-by-case basis II. Voting Rights A. Equal Rights 1. SWIB will generally support equal voting rights for all shareholders

22 Chapter: State of Incorporation B. Preemptive Rights 1. SWIB will review preemptive rights proposals seeking to create or abolish preemptive rights on a case-by-case basis 2. SWIB will generally require a company to have a policy in place when additional awards of discounted shares are made C. Without Preemptive Rights 1. SWIB will generally vote against issuances without preemptive rights if the request exceeds 10% above current levels of issued capital D. Blank Check E. Stock Class 1. SWIB will generally not support requests for authorizing preferred stock when it includes provisions that allow the board to set voting rights at the time of issuance 1. SWIB will generally support one class of stock with equal voting rights State of Incorporation I. Re-incorporations A. Domestic and International Companies 1. SWIB evaluates re-incorporations to a different domestic state or country on a case-by-case basis based on the following factors a. Previous shareholder responsiveness b. Rationale for relocation c. Impact on business strategy d. Extent to which shareholder rights are limited e. Extent to which transparency is decreased f. Impact on the change of venue as it relates to corporate law

23 Chapter: Shareholder Rights Shareholder Rights I. Voting Process A. Broker Non-Votes 1. SWIB will generally support the elimination of broker non-votes in the vote tally 2. SWIB will generally support disclosure of the broker non-vote numbers in a separate column to fully disclose the actual votes cast B. Vote Tabulation C. Vote Execution 1. SWIB will generally support shareholder resolutions requesting that a tabulation of votes be based on total votes cast, which is consistent with Wisconsin statutes and Delaware law 1. Confidential Voting a. SWIB will generally support resolutions calling for confidential voting 2. Proxy Voting a. SWIB will generally support resolutions that allow shareholders to place items on the proxy b. SWIB will generally support the requirement to identify the shareholder sponsor D. Shareholder Meetings/Ballot Issues 1. SWIB will generally support company procedures to reconcile all ballot issues from the annual meeting and disclose vote counts within a reasonable amount of time II. Meeting Request A. Written Consent 1. SWIB will generally support shareholders ability to submit resolutions (act with written consent) 2. SWIB will generally not support proposals requesting an unrealistic threshold in order to obtain written consent B. Special Meeting 1. SWIB will generally support shareholders rights to call special meetings when issues need to be brought before shareholders prior to the next annual meeting