Governance Commitment in Action
Colgate’s Corporate Governance Commitment
Colgate’s Board of Directors believes strongly that good corporate governance accompanies and greatly aids our long-term business success. This success has been the direct result of Colgate’s key business strategies, including its focus on core product categories and global brands, people development programs emphasizing “pay for performance” and the highest business standards. Colgate’s Board has been at the center of these key strategies, helping to design and implement them, and seeing that they guide the Company’s operations.
The Board believes that the Company has consistently been at the forefront of good corporate governance. Reflecting its commitment to continuous improvement, the Board reviews its governance practices on an ongoing basis to ensure that they promote shareholder value. This review resulted in the recent amendment of our by-laws to provide for a majority voting standard in uncontested elections for directors.
Board Independence and Expertise
- Strict Director Independence Standards. The Board is composed entirely of outside independent directors, with the exception of Ian Cook, Chairman, President, and CEO. Nine of Colgate’s ten directors are independent and only one is a member of Colgate management. The Board believes that an independent director should be free of any relationship with Colgate or its senior management that may in fact or appearance impair the director’s ability to make independent judgments or compromise the director’s objectivity and loyalty to stockholders. Based on this principle, the Board adopted director independence standards which outline the types of relationships, both personal and professional, between directors and Colgate, its senior management and other directors that, if present, would preclude a finding of independence. These standards, which are substantially stricter than those required by the listing standards of the NYSE, guide the Board’s annual affirmative determinations of independence. Click here to view the standards.
- Executive Sessions/Presiding Director. The independent directors of the Board are scheduled to meet in executive session, without the Chairman, President and CEO present, at every regularly scheduled Board meeting. The role of presiding director at these sessions is rotated among the independent directors every year in accordance with an established schedule. The role of the independent presiding director is to, among other things: establish agendas for executive sessions in consultation with the other directors; serve as a liaison between the independent directors and the Chairman, President and CEO in matters relating to the Board as a whole (although all independent directors are encouraged freely to communicate with the Chairman, President and CEO and other members of management at any time); review meeting schedules to help ensure there is sufficient time for the discussion of all agenda items; have the authority to call meetings of the independent directors as appropriate and to be available, as appropriate, for consultation and direct communication from shareholders. Stephen Sadove currently is serving as the presiding director.
- Audit Committee Independence and Financial Literacy. All members of the Audit Committee are independent directors. The Board has also determined that all members of the Audit Committee are “audit committee financial experts” as that term is defined in the rules of the Securities and Exchange Commission (the “SEC”) and that they meet the independence and financial literacy requirements of the NYSE.
- Board Experience and Diversity. As its present directors exemplify, Colgate values experience in business, education and public service fields, international experience, educational achievement, strong moral and ethical character and diversity. Click here to view Colgate’s criteria for Board membership entitled “Independent Board Candidate Qualifications.”
Directors are Stockholders
- Director Compensation in Stock. On average, 78 percent of a director’s compensation is paid in Colgate stock. Board members also receive stock options each year.
- Significant Levels of Director Stock Ownership. Board members own significant amounts of Company stock. Under the Company’s stock ownership guidelines, independent directors are required to own stock equal in value to at least five times their annual stock retainer. For more information on director stock ownership, please see the table included in “Stock Ownership of Directors and Executive Officers” in Colgate’s 2010 Proxy Statement.
- No Director Pensions. In 1996, the Director Pension Plan was terminated. At the same time, the annual grant of Common Stock under the Stock Plan for Non-Employee Directors was increased to further align the interests of directors with those of stockholders.
Established Policies Guide Governance and Business Integrity
- Charters for Board Committees. Each of the Audit Committee, the P&O Committee, the Finance Committee and the Nominating and Corporate Governance Committee has committee charters developed under the leadership of their respective committee chairs. The committee charters describe the purpose, responsibilities, structure and operations of each committee. The Audit Committee charter reflects the increased authority and responsibilities of the committee under the corporate governance rules of the SEC and the NYSE. View the committee charters: Audit Committee, Finance Committee, Nominating and Corporate Governance Committee, P&O Committee.
- Corporate Governance Guidelines. First formalized in 1996, the guidelines reflect the Board’s views and Company policy regarding significant corporate governance issues. As part of its ongoing review of best practices in corporate governance, the Board periodically updates the guidelines. The Board believes the Corporate Governance Guidelines are state-of-the-art. Click here to view Colgate’s Corporate Governance Guidelines.
- Code of Conduct. The Board sponsors the Company’s Code of Conduct, which was first issued in 1987, and Business Practices Guidelines, both of which promote the highest ethical standards in all of the Company’s business dealings. The Global Business Practices function, headed by an executive officer, oversees compliance with these standards. The Code of Conduct applies to the Company’s directors and employees, including the Chief Executive Officer, the Chief Financial Officer and the Chief Accounting Officer, and satisfies the SEC’s requirements for a code of ethics for senior financial officers. The Code of Conduct is updated periodically, most recently in August 2008. Click here to view Colgate’s Code of Conduct.
- Business Integrity Initiatives. The Board supports the Company’s efforts to communicate its commitment to ethical business practices. To further this goal, executives and key managers throughout the Colgate world are required to annually certify in writing that they understand and comply with the Code of Conduct and that the people they supervise are also in compliance. Colgate directors also annually certify their compliance with the Code of Conduct. In addition to already existing training regarding the Code of Conduct, Colgate values and effective leadership, Colgate’s Global Business Practices function has launched an updated mandatory management training program entitled “Business Integrity—Colgate Values at Work.” This initiative is designed to educate Colgate executives, managers, and other key Colgate people around the world about the applicable laws, regulations, guidelines and policies governing Colgate’s business practices. The training includes topics such as: the proper gathering of competitive information, adhering to antitrust laws, ensuring proper accounting practices, avoiding conflicts of interest, the giving and receiving of gifts, insider trading and Colgate’s Code of Conduct, including our internal compliance certification process.
- Political Expenditures. As set forth in the Company’s Code of Conduct and Business Practices Guidelines, the Company has a long-standing policy against making contributions to any political party or candidate. In addition, each year the Company advises its U.S. trade associations of this policy to prevent use of Company dues or contributions for any such expenditures.
Board Focused on Key Business Priorities
- Strategic Role of Board. The Board plays a major role in developing Colgate’s business strategy. It reviews the Company’s strategic plan and receives detailed briefings throughout the year on critical aspects of its implementation. These include subsidiary performance reviews, product category reviews, presentations regarding research and development initiatives and reports from specific disciplines such as manufacturing and information technology.
- Succession Planning and People Development. The Board has extensive involvement in this area with special focus on CEO succession. It discusses potential successors to key executives and examines backgrounds, capabilities and appropriate developmental assignments. Regular reviews of professional training programs, benefit programs and career development processes assist the Board in guiding Colgate’s people development initiatives and efforts to gain a competitive recruitment and retention advantage.
Direct Access to Management
- Management Participation at Board Meetings. Key senior managers regularly attend Board meetings. Topics are presented to the Board by the members of management who are most knowledgeable about the issue at hand irrespective of seniority. An open and informal environment allows dialogue to develop between directors and management, which often produces new ideas and areas of focus.
- Direct Access to Management. The Board’s direct access to management continues outside the boardroom during frequent discussions with corporate officers, division presidents and other employees, usually without the CEO present. Directors are invited to, and often do, contact senior managers directly with questions and suggestions.
Ensuring Management Accountability
- Performance-Based Compensation. Colgate has linked the pay of its managers and employees at all levels to the Company’s performance. As described in greater detail in the Compensation Discussion and Analysis in Colgate’s 2010 Proxy Statement, the P&O Committee adheres to this pay-for-performance philosophy, and stock-based incentives comprise a significant component of senior management’s overall compensation.
- CEO Evaluation Process. The Board’s evaluation of the CEO is a formal annual process. The CEO is evaluated against the goals set each year, including both objective measures (such as earnings per share) and subjective criteria reflective of the Company’s strategy and core values. As part of the overall evaluation process, the Board meets informally with the CEO to give and seek feedback on a regular basis.
Board Practices Promote Effective Oversight
- Board Size. Designed to maximize board effectiveness, Colgate’s by-laws fix the number of directors between seven and 12. Ten directors currently serve on the Board.
- Directorship Limits. To devote sufficient time to properly discharge their duties, the Corporate Governance Guidelines recommend that directors should not serve on more than three other corporate boards.
- Meeting Attendance. On average, the directors attended 95% of the meetings of the Board and the committees on which they served in 2009. No director attended less than 86% of these meetings.
Continuous Improvement through Evaluation
- Board Self-Evaluation Process. Each year, the Board evaluates its performance against certain criteria that it has determined are important to its success. These include financial oversight, succession planning, compensation, strategic planning and Board structure and role.
- Board Committee Evaluations. The Board’s committees also conduct self-evaluations annually, examining their performance against their committee charters. The results of these evaluations are reviewed with the Board, and further enhancements are agreed for each committee.
- Individual Director Evaluations. Complementing the Board and committee self-evaluations, the Board has also developed an individual director evaluation process to be used every few years. Using director effectiveness criteria selected by the Board following a review of external best practices, directors evaluate their peers and the resulting feedback is shared with individual directors by an external facilitator. The process enables the directors to provide valuable feedback to one another and identifies areas of strength and areas of focus for enhanced effectiveness.
- Colgate-Specific Director Education Program. During 2007, the directors, under the leadership of the Chair of the Nominating and Corporate Governance Committee and the Presiding Director, designed a Colgate-specific director education program. Held in December 2007 and attended by all of Colgate’s directors, the Institutional Shareholder Services (“ISS”)-accredited program was led by an expert external faculty with relevant judicial, legal, business and board experience.
External Recognition for Colgate’s Governance Practices
- High Governance Ratings. In December 2008, Colgate received the highest rating of 10 from GovernanceMetrics International, Inc. (“GMI”), becoming one of only two U.S. companies to achieve this score in every GMI ratings cycle since they began in 2003. GMI is an independent governance ratings agency which examines the governance practices of over 4,100 companies worldwide. Colgate is also among the high rated companies by ISS, a provider of proxy voting and corporate governance services. ISS evaluates the corporate governance structures and policies of nearly 7,500 companies worldwide.
- Business Week Top 10 Boards. On three occasions, most recently in October 2002, the Board has been ranked among the top 10 boards in the U.S. by BusinessWeek. In each case, Colgate was chosen from a group of more than 200 public companies based on BusinessWeek’s surveys of institutional investors and leading corporate governance experts.
- Corporate Board Member “Champion Board”. In September 2002, the Board was named one of five “Champion Boards” by Corporate Board Member. Colgate was chosen by a group of securities analysts, competitors and academics who cited the open interaction among directors and between the Board and management.