AMERICAN STANDARD COMPANIES INC.
CORPORATE GOVERNANCE GUIDELINES
Board Composition and Compensation
Selection of Directors. The Board of Directors is responsible for nominating candidates to the Board and for filling vacancies that occur between annual meetings of shareholders. The Corporate Governance and Nominating Committee is responsible for identifying, screening, and recommending candidates to the Board. Shareholders may also nominate candidates for the Board's consideration by following the directions set out in the Company's By-laws.
Board Membership Criteria. The Corporate Governance and Nominating Committee is responsible for determining the appropriate skills and characteristics required of directors and will consider judgment, diversity, age, and skills in its assessment of the needs of the Board.
Number of Independent Directors on Board. A majority of the Board should be independent.
Determination of Director Independence. The Corporate Governance and Nominating Committee reviews the status of each director and recommends to the Board whether directors meet independence requirements. The guiding principle of American Standard is that the only money or perquisites received, directly or indirectly, by independent directors or their immediate family members from the Corporation is the remuneration directly related to the director's service as a director of American Standard. To assist the directors in making determinations of director independence, the Board has adopted a definition of director independence which is reprinted at the end of these Guidelines.
Change in Directors' Status. Directors should volunteer to resign from the Board upon a material change in their position, including retirement from the position they held when they were elected to the Board. The Board will then determine whether continued board membership is appropriate under the circumstances. This procedure applies when the Company's chief executive officer resigns or retires from that position.
Term Limits. There are no term limits for directors.
Retirement. A Director may not stand for election after the year in which he or she reaches the age of 70.
Selection of Chairman and CEO. The Board elects the Chairman of the Board. The Board has no policy with respect to separation of the roles of Chairman and Chief Executive Officer.
Director Compensation. Non-employee directors receive compensation for their board service. Employee directors do not receive compensation for their board service.
The Corporate Governance and Nominating Committee reviews directors' remuneration and recommends any changes to the Board.
Board and Committee Meetings; Performance
Board and Committee Meetings. There are six regularly scheduled Board meetings each year; additional meetings may be held as needed. One meeting each year is held at a Company facility other than corporate headquarters. The Chairman proposes a master agenda at the beginning of each year for review and approval by the Board; additional agenda items may be scheduled as needed. Committees prepare their own calendar of meetings and master agendas, which are reviewed with the Board. Materials for Board and committee meetings are distributed in advance to the extent reasonably possible.
Committees. The Board has three standing committees: Audit, Corporate Governance and Nominating, and Management Development and Compensation. Only independent directors may serve on the Audit, Corporate Governance and Nominating and Management Development and Compensation Committees. No member of the Audit Committee may serve on the audit committee of more than three public companies, including the company, unless the Board (i) determines that such simultaneous service would not impair the ability of such member to effectively serve on the Committee and (ii) discloses such determination in the annual proxy statement. It is the Board's practice to rotate committee assignments from time to time.
Executive Sessions. The non-management directors meet in executive session at every board meeting. The Chairman of the Corporate Governance and Nominating Committee serves as the presiding director for executive sessions of the non-management directors.
Directors Access to Management. The Board has complete access to management and to information regarding the Company's operations, including access to the Company's internal employee-only website, MyStandard. Members of senior management who are not Board members regularly attend Board and committee meetings and bring other managers into Board meetings to provide insight regarding matters being discussed in their areas of expertise. The CEO is also encouraged to offer managers with future potential the opportunity to have exposure to the Board.
Board Contact with Institutional Investors, Media, Shareholders, and Customers. The Board believes management should speak for the Company. Each director generally refers all inquiries from institutional investors, the media, shareholders, or customers to management. The directors may, upon request by the Board or management, meet or speak with outside individuals involved with the Company. The directors are expected to attend the annual meeting of shareholders.
Director Access to Independent Advisors. In addition to the authority provided by Delaware law, the Corporate Governance and Nominating Committee has the sole authority to retain and terminate outside consultants for the purpose of identifying candidates qualified to serve as a director. The Audit Committee confers with the Board regarding the retention of, and meets regularly with, the Company's outside auditors, and is directly responsible for the appointment, compensation, retention and oversight of the work of the Company's outside auditors and approves any significant audit or non-audit work by the Company's outside auditors. The Management Development and Compensation Committee has the sole authority to retain compensation and benefits consultants or other experts to provide independent advice to it.
New Director Orientation. The Corporate Governance and Nominating Committee maintains an orientation program for new directors.
Director Education. The Board provides educational opportunities for directors through, among other things, the new director orientation program, rotation of committee assignments and annual visits to at least one of the Company's manufacturing facilities.
Evaluations. The Board evaluates its performance annually, led by the Corporate Governance and Nominating Committee. Each committee evaluates its performance annually and reviews the results of its evaluation with the full Board.
Evaluation of CEO. Annually the Board will meet with the CEO to review his or her performance. The evaluation is based on objective criteria including performance of the business, accomplishment of long-term strategic goals and development of management succession plans. The Management Development and Compensation Committee is responsible for making specific recommendations to the Board regarding compensation for the Company's executive officers, including the CEO, based on these criteria. The Board will then meet in executive session of independent directors to review the CEO's performance and to determine his or her compensation based on the Management Development and Compensation Committee's recommendation.
Succession Planning. The Board will meet at least annually with the CEO and the Chief Human Resources officer to review planning for succession to the CEO and other senior management positions. As part of this review the Board will also discuss the management development progress of company executives. The Board also maintains a short-term succession strategy in the event one or more senior officers of the Company unexpectedly becomes unable to fulfill his or her duties.
Other Company Policies
Code of Conduct. The company's Code of Conduct and Ethics, which has been adopted by the Board, applies to directors, officers, senior financial officers, and all other employees. It is designed to eliminate conflicts of interest, to ensure proper reporting of company performance to the public, and otherwise to enhance ethical and legal behaviors by all company people. No waivers or exceptions to the Code with respect to directors and executive officers would be permitted without approval of the Audit Committee and, if ever approved, would be made public. The Code of Conduct and Ethics is available to Company employees in 12 languages and is accessible through the Company's website.
Charitable Contributions. Charitable contributions by the Company or its charitable foundation will be made only in the best interests of the Company and not in the personal interests of any director, officer or employee other than matching employee contributions through the Corporation's matching gifts program.
Shareholder Rights Plan. The Company's shareholder rights plan is designed to ensure that the Company's shareholders receive fair and equal treatment in the event of an unsolicited attempt to take over the Company and to guard against abusive takeover tactics designed to gain control of the Company without paying a fair value to shareholders. It is not intended to prevent a takeover of the Company or another business combination involving the Company which, in the Board's judgment, is in the best interest of shareholders.
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Definition of Director Independence
The following definition of Director Independence was adopted by the Board on February 6, 2003, and revised on February 4, 2004 and February 3, 2005:
The New York Stock Exchange listing rules define "Independent Director" as a director who has no material relationship with the Corporation that may interfere with the exercise of the director's independent judgment. To assist the Board in making determinations of director independence for all purposes, including under the securities laws and regulations applicable to the Corporation, the New York Stock Exchange listing rules and the Corporation's Corporate Governance Guidelines, the Board hereby adopts the following standards:
1. In general, the guiding principle of American Standard is that the only money or perquisites received, directly or indirectly, by independent directors or their immediate family members from the Corporation is the remuneration directly related to the director's service as a director of American Standard.
2. Without limiting the foregoing, a director shall not qualify as "independent" if any of the following are true.
(i) The director or an immediate family member is, or within the past three years was, an officer or employee of the Corporation.
(ii) The director or an immediate family member is, or within the past three years has been, affiliated with or employed by the Corporation's auditor or any other entity that, within the past three years, acted as the Corporation's auditor.
(iii) The director is, or within the past three years has been, part of an "interlocking directorate": which means (x) an officer of the Corporation serves or served on the compensation committee of another company that concurrently employs or employed the director or an immediate family member or (y) an officer of the Corporation served as a director of another company at the same time that one of the officers of the other company was on the compensation committee of the Corporation.
(iv) The director or an immediate family member has received any compensation from the Corporation during any of the past three years other than compensation and benefits, including deferred compensation and pension benefits, directly related to his or her Board service.
(v) The director is a current partner in, or a significant shareholder, officer or employee or the director's immediate family member is a current executive officer, of any company to which the Corporation made, or from which the Corporation received, payments (other than those arising solely from such entity's investments in the Corporations securities) in any of the last three fiscal years that exceeded the greater of $1 million or 2% of the Corporation's or such other business's consolidated gross revenue.
(vi) The director or an immediate family member is a director or officer of a tax-exempt organization to which the Corporation's contributions exceeded the greater of $1 million or 2% of such organization's consolidated gross revenue in any of the last three fiscal years (other than matching employee contributions through the Corporation's matching gifts program).
For purposes of clauses (i) and (iii) above, employment of a family member in a non-officer position does not preclude the board from determining that a director is independent. For purposes of clause (ii) above, employment of a director or an immediate family member by, or affiliation with, the Corporation's auditor within the last three years (but not currently) does not preclude the board from determining that a director is independent unless the director or immediate family member personally worked on the Corporation's audit within that time.
For purposes of interpreting these standards, the Board has adopted the following definitions:
"Corporation" means American Standard Companies Inc. and/or any of its subsidiaries.
"immediate family member" means the director's spouse, parents, children, siblings, mothers and fathers-in-law, sons and daughters-in-law, brothers and sisters-in-law, and anyone (other than employees) who shares his or her home.
"officer" has the meaning specified in Rule 16a-1(f) of the Securities Exchange Act of 1934, or any successor rule, or, for any entity that is not an "issuer" as defined in the Rule, a person who performs functions similar to an "officer" as defined in such rule.
"significant shareholder" of any entity means a person who is the direct or indirect beneficial owner of more than 10% of the equity interests of the entity.