Medtronic, Inc.
Principles Of Corporate Governance
(As amended through April 17, 2008)
I. Purpose and Nature of Principles
These principles have been adopted by Board resolution as a definitive statement of the elements of governance by which the Board will manage its affairs.
These principles replace all previous Board policies on this subject and will be reviewed and modified by the Board as needed on recommendation of the Corporate Governance Committee.
II. Corporate Governance Committee
This Committee consists of all of the independent directors and is chaired by the Chairman of the Board except at times when the Chairman and CEO are the same or in the event the Chairman is not otherwise independent. In such case, it will be chaired by the Chair of the Corporate Governance Committee. The Skills/Characteristics and the Principal Duties of the Chair of the Corporate Governance Committee are attached hereto as Exhibits 1 and 2, respectively. The Committee is intended to provide a forum for independent directors to address all issues of Corporate Governance.
The principal elements of the charter of the Governance Committee shall be to:
- Adopt, regularly monitor and recommend to the Board any modifications of these principles of Corporate Governance which may be necessary.
- Recommend to the Board the selection and replacement, if necessary, of the CEO, oversee the evaluation of senior management, and periodically evaluate the performance of the CEO in light of corporate goals as well as objectives established by the Compensation Committee. In addition, the Committee will annually evaluate the performance of the Board as a whole.
- Conclude each Committee meeting with an executive session.
- Form from its ranks a Nominating Subcommittee consisting of the Chair of the Corporate Governance Committee, plus at least three members selected by the Chair of the Corporate Governance Committee, to recommend to the full committee:
- Process and criteria for selection of new directors and nominees for vacancies on the Board pursuant to the Policy Regarding Director Nominees attached hereto as Exhibit 3.
Candidates for Board membership and for the positions of CEO, Chairman and Chair of the Corporate Governance Committee. - A decision on the tendered resignation of a director for reason of change of employment.
- To evaluate the performance of any director whose term is expiring and whether such director should be invited to stand for reelection. Attached hereto as Exhibit 4 are the Criteria for Evaluation of Individual Director Performance.
- Process and criteria for selection of new directors and nominees for vacancies on the Board pursuant to the Policy Regarding Director Nominees attached hereto as Exhibit 3.
- Act on recommendations made by the Nominating Subcommittee.
- Establish any Special Committee which may be necessary to properly govern ethical, legal or other matters which might arise.
- Review and approve for all meetings of the Board and all committees an annual calendar recommended by the Chairman and CEO.
- Review and determine the philosophy underlying directors' compensation and be informed regarding the Compensation Committee's actions in approving executive compensation and the underlying philosophy for it.
- Review the Corporate Governance Committee's own performance annually and review this Charter annually and recommend any changes to the Board for approval.
- In carrying out its duties, the Committee and the Nominating Subcommittee will consult with and solicit the views of the CEO.
III. Offices of the Chairman and the CEO
The Board does not have a firm policy as to whether the position of the Chairman and the position of the CEO should be separate and intends to preserve the freedom to decide what is in the best interest of the company at any point of time.
However, the Board does strongly endorse the concept of one of the independent directors being in a position of leadership for the rest of the outside directors. If at any time the CEO and Chairman are the same or if the Chairman is not otherwise independent, the Corporate Governance Committee will elect a Chair of the Corporate Governance Committee from the membership of the Committee to serve as the lead director.
The principal duties of the Chairman of the Board are attached as Exhibit 5.
IV. Committees - Structure and Procedures
The standing committees of the Board shall be:
- Corporate Governance Committee and its Nominating Subcommittee
- Audit Committee
- Compensation Committee
- Technology and Quality Committee
Each of these committees consists solely of independent directors. In addition, directors who serve on the Audit Committee must be "independent" within the meaning of the New York Stock Exchange independence criteria for audit committee members.
Each committee shall have a charter approved by that committee and by the Board of Directors. The Board will adopt a charter, attached as Exhibit 6, to assist directors to understand their responsibilities and the role of the Board.
Each committee assesses the adequacy of its charter annually and recommends changes to the Board as appropriate. All committees report regularly to the full Board with respect to their activities.
Each committee shall be chaired by an independent director. In the interest of rotating committee leadership as determined by the Board to be appropriate (taking into account all relevant circumstances), the Board shall consider rotation of Committee chairs after a chairman has served for three successive years (5 successive years in the case of the chairman of the Corporate Governance Committee).
As a general rule, independent directors shall serve on two committees in addition to the Corporate Governance Committee. Membership on committees shall be rotated as appropriate to provide directors experience on committees; however, this principle of rotation should not deprive the Board of expertise that directors possess.
V. Board Composition, Selection and Tenure of Directors
Directors who are currently employed by the company shall be deemed 'inside' directors and all others shall be deemed 'outside' directors, including former employees of the company.
Independent directors shall always constitute a majority of the Board and there shall be no more than three inside directors on the board at any time. An "independent" director is a director who meets the New York Stock Exchange definition of "independent," as determined by the Board. The Board makes an affirmative determination regarding the independence of each director annually, based upon the recommendation of the Corporate Governance Committee.
The Corporate Governance Committee reviews and determines the philosophy underlying directors' compensation. The Compensation Committee reviews and establishes the components of compensation for directors and recommends changes in compensation to the Board. Outside director compensation consists of a combination of equity, cash, and the right to receive equity in lieu of cash.
To more closely align their interests with those of shareholders generally, directors are encouraged to own stock of the Company in an amount equal to five times the annual Board retainer fees. Such holdings should be considered long-term investments and be achieved within five years of joining the Board.
Outside directors must also retain, for a period of three years, 75% of the net after-tax profit shares realized from option exercises or share issuances unless the director can otherwise demonstrate ownership of an equivalent number of shares. Trading in the company's stock is discouraged.
An inside director shall submit his or her resignation from the Board upon termination of his or her active service as an employee.
A director shall retire from the Board at the annual meeting of shareholders next following his or her attaining the age of 72.
All directors, inside and outside,shall tender a written offer to resign from the Board after a material change in that director's full-time position or responsibilities.
VI. Majority Election of Directors; Procedure for Resignation
In an uncontested election of directors (i.e., an election where the only nominees are those recommended by the Board), any nominee for director who receives a greater number of votes “withheld” from his or her election than votes “for” his or her election by shareholders present in person or by proxy at the Annual Meeting of the Shareholders and entitled to vote in the election of directors ("Majority Withheld Vote"), shall tender a written offer to resign from the Board within five business days of the certification of the shareholder vote by the Inspector of Elections.
The Corporate Governance Committee shall promptly consider the resignation offer and recommend to the full Board whether to accept it. In considering whether to accept or reject the resignation offer, the Corporate Governance Committee will consider all factors deemed relevant by members of the Corporate Governance Committee, including, without limitation, (i) the perceived reasons why shareholders withheld votes 'for' election from the director, (ii) the length of service and qualifications of the director, (iii) the director's contributions to the Company, (iv) compliance with listing standards, (v) possible contractual ramifications in the event the director in question is a management director, (vi) the purpose and provisions of these principles, and (vii) the best interests of the Company and its shareholders.
To the extent that one or more directors' resignation are accepted by the Board, the Corporate Governance Committee will recommend to the Board whether to fill such vacancy or vacancies or to reduce the size of the Board.
Any director who tenders his or her offer to resign from the Board pursuant to this provision shall not participate in the Corporate Governance Committee or Board deliberations regarding whether to accept the offer of resignation.
The Board will act on the Corporate Governance Committee's recommendation within 90 days following the certification of the shareholder vote by the Inspector of Elections, which action may include, without limitation, acceptance of the offer of resignation, adoption of measures intended to address the perceived issues underlying the Majority Withheld Vote, or rejection of the resignation offer. Thereafter, the Board will disclose its decision whether to accept the director's resignation offer and the reasons for rejecting the offer, if applicable, on Form 8-K to be filed with the Securities and Exchange Commission within four business days of the Board's determination.
This process relating to nominees for directors who receive a Majority Withhold Vote will be summarized or included in each proxy statement relating to an election of directors of the Company. The Board believes that this process enhances accountability to shareholders and responsiveness to shareholders votes, while allowing the Board appropriate discretion in considering whether a particular director's resignation would be in the best interests of the Company and its shareholders.
VII. Board Meetings
At this time six regular meetings are held each year. One meeting is usually an extended meeting focusing on long-range strategies of the company and will normally be held away from Minneapolis, preferably at or near one of the company's facilities. The Corporate Governance Committee shall determine from time to time the appropriate number of meetings. Appropriate officers of the company may be invited by the Chief Executive Officer and Chairman of the Board to attend the general session of all Board meetings. The independent directors meet in executive session without management present at every regularly scheduled Board meeting. The independent Board Chairman or, if none, the Chair of the Corporate Governance Committee, presides at these sessions. Members of the Board's standing committees meet in executive session without management present at each committee meeting.
Prior to a regular Board meeting, with direction from the Chairman of the Board or Chair of the Corporate Governance Committee and the Chief Executive Officer, an agenda for the meeting and any information or material for review will be sent to the directors. Development of the agenda is the responsibility of the Chairman of the Board, in collaboration with the Chair of the Corporate Governance Committee. Directors may request that additional subjects be placed on the agenda.
VIII. Director Access to Management, Employees and Advisors
Directors have full and free access to members of management and to employees of the Company. The Board and each of its standing committees have the authority to engage outside counsel, accountants, experts and other advisors as they determine appropriate to assist them in the performance of its functions.
IX. Management Evaluation and Succession
The Corporate Governance Committee conducts an annual review of the performance of the CEO and senior management. The results of the review are shared with the CEO and the Compensation Committee, which considers the evaluation and establishes the compensation of the CEO and other senior management based on this evaluation.
The Board plans for succession to the position of the CEO. The Corporate Governance Committee periodically reviews the Company's succession plans and makes recommendations to the Board regarding the selection of individuals to fill these positions.
X. Annual Performance Evaluation
The Board conducts an annual self-evaluation to assess its performance. Each of the Corporate Governance, Audit, and Compensation Committees also conducts an annual self-evaluation. The contributions of individual directors are assessed in connection with the renomination process based on the Criteria for Evaluation of Individual Director Performance attached hereto as Exhibit 4.
XI. Director Orientation and Continuing Education
The Company has an orientation process for new directors that includes materials and meetings with key management designed to familiarize new directors with the Company's business, operations, finances, and governance practices. The Board encourages directors to participate in education programs to assist them in performing their responsibilities as directors.