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The Company’s current practice is to combine the Chief Executive Officer (“CEO”) and Chairman roles. The Board has determined that combining these positions serves the best interests of the Company and its shareholders at this time, but the Board does not believe that there should be a set policy. The Board will review, at least once every two years, whether combining these positions continues to serve the best interests of the Company.
The size of the Board is relatively small. The independent Directors are expected to play a very active role in Board matters. The independent Directors will annually designate a Director from among the chairs of the Audit Committee, the Nominating and Corporate Governance Committee and the Organization and Compensation Committee to serve as Lead Director who will perform the functions set forth in these Guidelines and such other functions as the Board may direct, including presiding at all meetings of the Board at which the Chairman is not present and serving as liaison between the CEO and independent Directors. The Nominating and Corporate Governance Committee will reassess on an annual basis the continuing effectiveness of the role of Lead Director.
Currently, there are four standing Board committees: Audit; Nominating and Corporate Governance; Organization and Compensation; and Executive. The Board may, from time to time, form a new committee or disband a current committee depending on the circumstances. The current charters and key practices of the Nominating and Corporate Governance Committee, the Organization and Compensation Committee and the Audit Committee are published on The Company’s website, and will be mailed to shareholders on written request. Each committee has a designated committee chair. The committee chairs provide a report on their meetings to the Board following each meeting of the respective committees. The Nominating and Corporate Governance Committee has the responsibility of annually reviewing the committee structure, charters and membership, and recommending changes to the Board, if any. The Executive Committee, which has all of the power of the Board (subject to certain limitations), is maintained for the purpose of acting when it is impractical for the Board to meet and there is a need for prompt action. In the event the Executive Committee takes any action, it shall report in a timely fashion such action to all members of the Board.
Each of the Audit Committee, Nominating and Corporate Governance Committee and Organization and Compensation Committee shall be comprised solely of independent Directors.
The Nominating and Corporate Governance Committee is responsible, in consultation with the Chairman of the Board, for the assignment of Board members to the various committees, and appointment, rotation or removal of committee chairs.
Consideration should be given to rotating committee members periodically at about a five-year interval, but the Board does not have a firm policy mandating rotation of committee assignments since there may be reasons to maintain an individual Director's committee membership for a longer period.
The committee chairs, in consultation with committee members, and the assistance of staff management, will determine the frequency and length of the meetings of their respective committees.
The committee chairs, in consultation with committee members and with the assistance of staff management, will develop their respective committee's agenda. Additional agenda items may be recommended by other committees or Board members.
An annual Board Core Agenda shall be determined by the Board based upon key strategic direction and operational challenges identified by the CEO and the Lead Director together with standard items scheduled throughout the year and presentations according to approval level requirements or other business purposes. Directors are also encouraged to suggest items to be included on the Core Agenda. Directors may make suggestions for additional agenda items to the Chairman, the Lead Director, or appropriate committee chair at any time. Prior to each Board meeting, the CEO will discuss the agenda items for the meeting and the amount of time allocated for agenda items with the Lead Director, who shall have the authority to make changes or approve the agenda for the meeting.
The CEO and the Lead Director, or committee chair as appropriate, shall determine the type of information that shall be provided to the Directors for each scheduled Board or committee meeting. Directors are also encouraged to suggest additional materials. Directors may make suggestions for additional materials to the Chairman, the Lead Director, or appropriate committee chair at any time. Generally, materials are sent approximately one week in advance of the Board or committee meeting.
Attendance at the Board meetings by the Management Committee members is a routine practice while other management personnel (including Segment Leaders and Division Presidents) are invited to attend Board meetings depending on the agenda.
The Board will meet in executive sessions for the independent Directors without management present at each regularly scheduled Board meeting, which will be presided over by the Lead Director. Additional sessions may be convened at any time by the Lead Director, either on his or her own initiative or at the request of any other Director. The Lead Director shall develop a regular agenda of items to be considered at executive sessions and distribute to the outside Directors in advance a specific agenda for each meeting. The Lead Director shall discuss the conclusions of the executive session with the CEO promptly after such executive session and report to the Board on the discussions with the CEO at the next executive session (or sooner if warranted by the nature of the matter discussed). In the event that the subject of discussion at any meeting of a committee pertains to a person in attendance, such committee will conduct such discussion in executive session as it deems appropriate.
Directors have open access to Segment/Division management, and as stated earlier, the members of the Management Committee attend all Board meetings. Directors may communicate with such persons directly or may request the Lead Director to serve as a liaison in such communications. As a general rule, Directors will inform the CEO and coordinate with the Corporate Secretary when scheduling division visits.
The Nominating and Corporate Governance Committee is responsible for reviewing and making recommendations to the Board with respect to non-employee Director compensation and benefits. Board compensation recommendations are presented to the Board for action. The Board believes that compensation and benefits for non-employee Directors should fairly pay Directors for work required in a company of the Company’s size and scope and should align Directors' interests with the long-term interests of shareholders.
The Board believes that each member of the Board should be long-term shareholder of the Company. Accordingly, a significant amount (not less than 45%) of each non-employee Director’s annual retainer is paid in stock units issued by the Company and each non-management Director is expected to accumulate within ten years a minimum level of stock ownership equal to eight times the annual cash retainer prior to the tenth anniversary of the Director joining the Board. Non-employee Directors also receive a one-time grant of 2,000 shares of restricted stock upon joining the Board. Furthermore, the Board has adopted a policy restricting any non-management Directors from transferring any restricted stock or stock units owned by them for the period they serve on the Board.
The Board historically has ranged between 12 and 14 Directors and the Board believes there should not be substantial fluctuation outside of this range.
The Company maintains a staggered (or “classified”) Board pursuant to which approximately one-third of all Directors stand for election each year, with each Director serving a three-year term. The Board has determined that maintaining a staggered Board serves the best interests of the Company and its shareholders at this time. The Board will review, at least once every two years, whether maintaining a staggered Board continues to serve the best interests of the Company and its shareholders.
Generally. No more than three of the Directors will not be independent Directors as such term is defined in the listing standards of the Company and the NYSE as set forth below.
Definition of “Independence.” Under the NYSE standards, no Director qualifies as "independent" unless the Board of Directors affirmatively determines that the Director has no material relationship with the Company (either directly or as a partner, shareholder or officer of an organization that has a relationship with the Company). In addition, a Director is not independent if:
(a) the Director is, or has been within the last three years, an employee of the Company, or an immediate family member is, or has been within the last three years, an executive officer of the Company;
(b) 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 $120,000 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);
(c) (i) the Director or an immediate family member is a current partner of a firm that is the Company’s internal or external auditor; (ii) the Director is a current employee of such a firm, (iii) the Director has an immediate family member who is a current employee of such a firm and who personally worked on the Company's audit; or (iv) 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;
(d) the Director or an immediate family member 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; and
(e) the Director is a current employee, or an immediate family member 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 and 2% of such other company’s consolidated gross revenues.
Categorical Standards of Independence. The Board of Directors has determined that the following relationships will not be considered material relationships that would impair a Director's independence:
I. Business Relationships.
(a) The Company does business with a Director’s business affiliate or the business affiliate of an immediate family member of a Director for goods or services, or other contractual arrangements, in the ordinary course of business and on substantially the same terms as those prevailing at the time for comparable transactions with non-affiliated persons and the annual revenues or purchases from such business affiliate are less than the greater of $500,000 and 1% of such person’s consolidated gross revenues;
(b) A company (of which a Director or an immediate family member is an officer) does business with the Company and the annual sales to, or purchases from, the Company during such other company’s preceding fiscal year are less than the greater of $500,000 and 1% of the gross annual revenues of such other company;
(c) A law firm of which a Director or an immediate family member is a partner or of counsel performs legal services for the Company, the Director or the immediate family member does not personally perform any legal services for the Company, and the annual payments to such law firm are less than the greater of $500,000 and 1% of such law firm’s consolidated gross revenues;
(d) An investment bank or consulting firm of which a Director or an immediate family member is a partner or of counsel performs investment banking or consulting services for the Company, the Director or the immediate family member does not personally perform any investment banking or consulting services for the Company and the annual payments to such investment bank or consulting firm are less than the greater of $500,000 and 1% of such investment bank’s or consulting firm’s consolidated gross revenues; and
(e) The Director serves on a regularly constituted advisory board of the Company, for which such Director receives standard fees of no more than $50,000 per annum.
II. Relationships with Not-for-Profit Entities.
A foundation, university or other not-for-profit organization of which a Director or immediate family member is an officer, director or trustee receives from the Company contributions in an amount which does not exceed the greater of $100,000 and 1% of the not-for-profit organization’s aggregate annual charitable receipts during the entity’s preceding fiscal year. (The Company’s automatic matching of employee charitable contributions are not included in the Company’s contributions for this purpose. )
Definition of “Immediate Family Member.” For purposes of the independence standards described above, an “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 “look-back” provisions above, the Company need not consider individuals who are no longer immediate family members as a result of legal separation or divorce, or those who have died or become incapacitated.
Standard of Independence for Audit Committee Membership. Also, under NYSE and Securities Exchange Commission requirements, to be considered independent for purposes of serving on the Audit Committee, a Director may not directly or indirectly, other than in his or her capacity as a member of the Board or any of its committees, accept any compensatory fee from Textron or any of its subsidiaries or be an affiliated person of the Company or any of its subsidiaries.
Director Disclosure and Board Determination. Each Director is required to disclose to the Company certain relationships between and among that Director, the Company, and senior management of the Company in order to allow for an appropriate determination of that Director’s independence. Each Director shall promptly disclose to the Corporate Secretary, who will then notify the Chairman, the Lead Director and the Chair of the Nominating and Corporate Governance Committee with respect to, any change in circumstances that may affect his or her independence.
The determination that a Director is independent or eligible to serve on the Audit Committee shall be made by the Board following a review of all relevant information and a recommendation by the Nominating and Corporate Governance Committee; such determination shall be made by the Board at least annually and at the next Board meeting after the Board receives information from or in connection with a Director indicating a significant change in information previously received.
Related Party Transactions. It is the policy of the Board that all Interested Transactions with Related Parties shall be subject to approval or ratification in accordance with the procedures set forth below.
(a) The Nominating and Corporate Governance Committee shall review the material facts of all Interested Transactions that require the Committee’s approval and either approve or disapprove of the entry into the Interested Transaction. If advance Committee approval of an Interested Transaction is not feasible, then the Interested Transaction shall be considered and, if the Committee determines it to be appropriate, ratified at the Committee’s next regularly scheduled meeting. In determining whether to approve or ratify an Interested Transaction, the Nominating and Corporate Governance Committee will take into account, among other factors it deems appropriate, whether the Interested Transaction is on terms no less favorable than terms generally available to an unaffiliated third-party under the same or similar circumstances and the extent of the Related Person’s interest in the transaction.
No Director shall participate in any discussion or approval of an Interested Transaction for which he or she is a Related Party, except that the Director shall provide all material information concerning the Interested Transaction to the Nominating and Corporate Governance Committee.
If an Interested Transaction will be ongoing, the Nominating and Corporate Governance Committee may establish guidelines for the Company’s management to follow in its ongoing dealing with the Related Party. Thereafter, the Nominating and Corporate Governance Committee, on at least an annual basis, shall review and assess ongoing relationships with the Related Party to see that they are in compliance with the Committee’s guidelines and that the Interested Transaction remains appropriate.
(b) An “Interested Transaction” is any transaction, arrangement or relationship or series of similar transactions, arrangements or relationships (including any indebtedness or guarantee of indebtedness) in which the aggregate amount involved will or may be expected to exceed $100,000; in any calendar year, the Company is a participant, and any Related Party has or will have a direct or indirect interest (other than solely as a result of being a Director or a less than 10 percent beneficial owner of another entity).
A “Related Party” is any (a) person who is or was (since the beginning of the last fiscal year for which the Company has filed a Form 10-K and proxy statement, even if they do not presently serve in that role) an executive officer, director or nominee for election as a director, (b) greater than 5 percent beneficial owner of the Company’s Common Stock, or (c) immediate family member of any of the foregoing. Immediate family member includes a person’s spouse, parents, stepparents, children, stepchildren, siblings, mothers- and fathers-in-law, sons- and daughters-in-law, and brothers- and sisters-in-law and anyone residing in such person’s home (other than a tenant or employee).
The Board believes that the Company should not enter into paid consulting arrangements with independent Directors, excluding service by an independent Director on any regularly constituted advisory board of the Company for which such Director receives standard fees of less than $50,000 per annum.
The Board believes that it is appropriate for the CEO to offer his/her resignation from the Board at the same time he/she resigns or retires from the CEO position. Whether the individual continues to serve on the Board is a matter for discussion with the new CEO and the Board. It is also recommended that should the Board decide that the former CEO should continue on the Board, the period of service should be reviewed periodically.
The Nominating and Corporate Governance Committee is responsible for reviewing annually the Board’s future requirements for Board members and the appropriate criteria for membership to the Board. Generally, non-employee Directors shall have unquestioned personal ethics and integrity; shall possess specific skills and experience aligned with Textron's strategic direction and operating challenges and that complement the overall composition of the Board; core business competencies of high achievement and a record of success, financial literacy and history of making good business decisions and exposure to best practices; interpersonal skills that maximize group dynamics; should be enthusiastic about Textron and have sufficient time to become fully engaged.
The Nominating and Corporate Governance Committee has, as one of its responsibilities, the recommendation of Director candidates to the Board. In making such recommendation, the Nominating and Corporate Governance Committee shall, in respect of new candidates, seek input from sources the Committee deems helpful and, in respect of incumbent Directors standing for reelection, conduct an evaluation of such Directors in accordance with the Committee’s Charter and Operating Guidelines. Nominees suggested by shareholders shall be communicated to the Nominating and Corporate Governance Committee and shall be considered in the selection process for nominees to be included among the Director candidates to be recommended to the Board.
Currently, an invitation to join the Board is extended by the Chairman of the Nominating and Corporate Governance Committee and the CEO after approval by the Board.
As described more fully in the Operating Guidelines of the Nominating and Corporate Governance Committee, the Board and each of the committees will perform an annual self-evaluation of its overall performance. The Nominating and Corporate Governance Committee is responsible for developing and conducting or coordinating such self-evaluations and reviewing the results with the Board and each committee.
A Director shall submit his/her resignation to the Board when a change in the Director's status or job responsibility occurs. The Nominating and Corporate Governance Committee is responsible for recommending to the Board whether such resignations should be accepted. Non-employee Directors are also required to advise the Corporate Secretary, who will then advise the Chairman of the Board and the Chair of the Nominating and Corporate Governance Committee, of any significant change in their employment or other personal circumstances, which might affect their service on the Board.
With the evaluation of incumbent Directors standing for reelection (Guideline No. 18), the annual assessment of Board performance (Guideline No. 20), the resignation requirement upon a change in job responsibility (Guideline No. 21), and the By-Law prohibiting Directors from standing for election past age 72, the Board does not believe that an artificial term limit should be established.
Under Textron's By-Laws, no person shall be elected a Director who has attained the age of 72.
The non-employee Directors shall conduct an annual performance evaluation of the CEO against predetermined objectives. In addition, the CEO also shall annually prepare a self-evaluation prior to such annual performance evaluation by the Board.
The Organization and Compensation Committee shall review with the Company’s management, the succession plans for executive officers and senior operations executives. Succession planning is also annually reviewed with the Board in a separate organizational planning meeting. The current CEO's recommendation for his or her successor (as the result of an unexpected event) will be communicated to the Chair of the Organization and Compensation Committee in a letter to be opened only in case of such an event. The CEO will update the recommendation periodically.
The Organization and Compensation Committee is responsible for reviewing with appropriate representatives of management, Textron's organization structure and, in particular, the responsibilities and performance of executive officers, and from time to time, senior operations executives and the plans for their succession and to report at least annually to the Board on this subject.
The Company shareholders rights plan expired by its terms on September 27, 2005.
Board members should, in most instances, only communicate with the outside constituents at the request of management. However, the Lead Director may determine to meet with Textron shareholders, as appropriate. Such sessions are not intended to serve as a forum for the communication of material non-public information that is subject to SEC Regulation FD.
In addition, the Textron Disclosure Policy, which is intended to ensure that material non-public information about Textron is not disclosed in violation of SEC Regulation FD, currently authorizes only the Chairman and Chief Executive Officer, the Executive Vice President and Chief Financial Officer, the Vice President Investor Relations, Vice President Corporate Communications, and the Vice President and Treasurer (and others specifically authorized by the above) to disclose information about Textron to the investment community.
The number of other boards on which non-management Directors may serve is limited to five, provided that any Director who was serving on more than five boards on July 24, 2007, shall not be required to withdraw from serving on such Boards but shall not agree to serve on any additional Board while in excess of the five Board limit. In addition non-management Directors shall advise the Corporate Secretary, who will then advise the Chairman of the Board, the Lead Director and the Chair of the Nominating and Corporate Governance Committee, in advance of accepting an invitation to serve on another board. The Nominating and Corporate Governance Committee and the Board will take into account the nature of and the time involved in a Director's service on other boards in evaluating the suitability of new Directors and incumbent Directors for election (or re-election) to the Board and making its recommendations to shareholders.
The basic responsibility of the Directors is to exercise their business judgment to act in the best interests of Textron and its shareholders. In carrying out this responsibility, the Board also considers the concerns of the Company’s other stakeholders and interested parties, including its employees, customers, suppliers, partners, local communities, and the public at large. The Directors rely on the honesty and integrity of Textron's officers, employees, and outside advisors in making Board decisions.
The CEO, together with the other members of the Management Committee, shall be responsible for providing an orientation for new Directors. Each new Director shall, as soon as practicable, spend a day at the Company's offices for personal briefing by senior management on the Company's strategic plans, its financial statements, and its key policies and practices. All Directors are encouraged to attend, from time to time, continuing education programs for Directors at the Company’s expense and to make at least one visit annually to a business unit of Textron (in addition to any visits made in connection with Board or Committee meetings).
The Board expects its Directors, officers and other employees to act ethically at all times and to acknowledge adherence to the Textron Business Conduct Guidelines. The Board will not permit any waiver of any ethics policy for any Director or executive officer. Directors are expected to avoid any action, position or interest that conflicts with an interest of Textron or that gives the appearance of a conflict. If any actual or potential conflict of interest arises for a Director, the Director shall promptly inform the Chairman and Chief Executive Officer and the Chair of the Nominating and Corporate Governance Committee. If a significant conflict exists and cannot be resolved, the Director should resign. All Directors will recuse themselves from any discussion or decision affecting their personal, business or professional interests.
Anyone who has a concern about the Company's conduct, or a complaint regarding the Company's accounting, internal accounting controls or auditing matters, may communicate that concern directly to the outside Directors or to the Audit Committee. Such communications may be confidential or anonymous, and may be emailed, submitted in writing, or reported by phone to special addresses and a toll-free phone number that will be published on the company's website. All communications to the outside Director(s) or the Audit Committee (other than unsolicited commercial communications unrelated to the Company) will be forwarded to the appropriate outside Director(s) or the Audit Committee for their review and will be simultaneously reviewed and addressed by the Company's compliance, internal audit or legal staffs in the same way that other concerns are addressed by the Company. The status of all outstanding concerns addressed to the outside Directors or the Audit Committee will be reported to the Directors on a quarterly basis. The outside Directors or the Audit Committee may direct special treatment, including the retention of outside advisors or counsel, for any concern addressed to them. The Textron Business Conduct Guidelines prohibits any employee from retaliating or taking any adverse action against anyone for raising or helping to resolve an integrity concern.
The Board and its committees shall have the right at any time to retain and authorize the compensation of independent outside financial, legal or other advisors.
The Nominating and Corporate Governance Committee is responsible for annually reviewing these guidelines, as well as considering other corporate governance principles that may, from time to time, merit consideration by the Board.
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