About the Board
Determinations with Respect to Independence of Directors
The Corporate Governance Standards adopted by the board of directors require the board to make an annual determination regarding the independence of each of the company's directors and provide standards for making these determinations that are consistent with the listing standards of the New York Stock Exchange.
As set forth in the company's Corporate Governance Standards, a director will be independent only if the board of directors determines, based on a consideration of all relevant facts and circumstances, that the director has no material relationship with the company or any of its subsidiaries (either directly or as a partner, shareholder or officer of an organization that has a relationship with the company or any of its subsidiaries). In assessing the materiality of a director's relationship with the company and each director's independence, the board must 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 will 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. In assessing a director's independence, the board must 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.
The board cannot conclude that a director is independent in the following circumstances:
- The director is, or has been within the last three years, an employee of the company or any of its subsidiaries, or an immediate family member of the director is, or has been within the last three years, an executive officer of the company (but employment as an interim executive officer will 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 12-month period within the last three years, more than $120,000 in direct compensation from the company or its subsidiaries, 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 chairperson 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 internal or external auditor of the company or any of its subsidiaries; (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 works on the company's or a subsidiary's audit; 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 audit of the company or any of its subsidiaries 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, exceeded the greater of $1 million, or 2 percent of such other company's consolidated gross revenues. 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. 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 it has made 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 percent of that organization's consolidated gross revenues. In addition, the board must consider the materiality of any such relationship in making its determination of independence.
- The director owns, or is affiliated with the owner of, a controlling amount of voting stock of the company.
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.
To assist in the board's determinations, each director has completed materials designed to identify any relationships that could affect the director's independence, and the general counsel/secretary of the company has conducted follow-up interviews with certain directors. On the basis of these materials and the standards described above, the board determined that each of the directors, except Joe A. Raver, is independent. Accordingly, Joe A. Raver does not serve on the Audit, Compensation and Management Development or Nominating/Corporate Governance Committees of the board of directors.