A. Governance Philosophy
We have a long history of respecting the laws and ethical standards of the places where we do business. We strive to be a good business partner. Though our business environment will change, our commitment to ethical and moral standards of business conduct must remain constant.
Our reputation is a priceless asset. Safeguarding our reputation requires each of us to make sound judgments every day. Consistently operating by the highest standards of business conduct in all our relationships generates trust in us as individuals and as a company.
To accomplish those goals requires effective Board governance. We believe there are three elements that when combined create effective Boards – structure, policies and procedures, and cultural factors.
We believe that cultural factors are the keystone to good governance. First, top leaders of an organization must be open and public about the value they place on truth and ethical behavior. Their actions and spoken words need to send a clear message as to the importance of transparency and full disclosure. They must demonstrate a zero tolerance for bending the rules.
Next, top leaders and Board members need to have a strong ethical compass. They need to be able to describe in real terms the difference between right and wrong.
Board members must be actively involved before, during, and after the formal meetings. There should also be a tolerance to dissent at the meetings. Board members must have the capacity to challenge one another’s different viewpoints. It should also be in an environment that includes a balanced dialogue. There should be no dominant voices, and no silent voices.
The Board must also have an appropriate working relationship with management. There must be a high level of trust between the Board and the CEO. It should be through a process of collaboration where the Board and management work together to set and achieve common goals.
Lastly, all Board members need to feel accountable for the company’s performance. Directors need to take their responsibilities seriously and let their fellow directors know they are expected to do the same.
B. Responsibilities of the Board of Directors
General Authority and Responsibility
The Board is elected by the stockholders to oversee their interests in the long-term performance and overall success of the enterprise. The Board serves as the ultimate decision-making body of the company except for those matters reserved to or shared with its stockholders. The primary responsibilities of the Board are oversight, counseling, and direction to the management of the company in the interest and for the benefit of the company. The Board’s detailed responsibilities, some of which are conducted through Committees of the Board, include:
(a) Selecting, regularly evaluating the performance of, and approving the compensation of the Chief Executive Officer and other senior executives;
(b) Planning for succession with respect to the position of Chief Executive Officer and monitoring management’s succession planning for other senior executives.
(c) Reviewing and, where appropriate, approving the company’s major financial objectives, strategic and operating plans and actions;
(d) Overseeing the conduct of the company’s business to evaluate whether the business is being properly managed;
(e) Overseeing the processes for maintaining the integrity of the company with regard to its financial statements and other public disclosures, and compliance with law and ethics;
(f) Reviewing the major risks facing the company and helping to develop strategies to address these risks; and
(g) Implementing and overseeing the operation of appropriate reporting systems or controls designed to inform the Board of material risks.
The Board of Directors has delegated to the Chief Executive Officer, working with the other executive officers of the company, the authority and responsibility for managing the business of the company in a manner consistent with the standards and practices of the company and in accordance with any specific plans, instructions or directions of the Board. The Chief Executive Officer and management are responsible to seek the advice and, in appropriate situations, the approval of the Board with respect to extraordinary actions to be undertaken by the company. The descriptions of the Board’s authority and responsibilities in the Governance Guidelines are not intended to create any binding legal obligations, to interpret applicable laws and regulations or to modify the company’s Articles of Incorporation or Bylaws.
C. Board Composition
1. Size of the Board
The Board will have between nine (9) and thirteen (13) members as determined by the Board of Directors from time to time. The Board also has a Secretary to the Board who attends meetings but does not vote.
2. Classified Board
Board members shall be elected for staggered terms of generally three years. As a company that focuses on innovation, we believe it is critical to maintain Board continuity during product investment and business cycles. There shall be a majority of independent directors on the Board.
3. Majority Voting for Directors
If, in an election of directors that is not a Contested Election, neither an incumbent director nominated for election nor any successor to such incumbent is elected, such incumbent director shall, promptly following certification of the shareholder vote, offer his or her resignation to the Board of Directors for consideration. Promptly after the Board of Directors receives such a resignation, the Governance and Corporate Responsibility Committee will make a recommendation to the Board as to whether to accept or reject the tendered resignation, or whether other action is recommended. In reaching its decision, the Board will consider the Governance and Corporate Responsibility Committee’s recommendation and may consider any other factors it deems relevant.
The Board will act on the resignation within 90 days following the certification of the shareholder vote for the meeting and will promptly publicly disclose its decision and rationale as to whether to accept the resignation (or the reasons for rejecting the resignation, if applicable) in a press release, in a filing with the Securities and Exchange Commission or by other public announcement, including a posting on the Company’s website.
4. Board Definition of What Constitutes Independence for Non-Employee Directors
Our company defines an “independent” director in accord with the relevant NASDAQ requirements for independent directors. Because it is not possible to anticipate or explicitly provide for all potential conflicts of interest that may affect independence, the Board is also responsible to affirmatively determine that each independent director has no other material relationship with the company or its affiliates or with any executive officer of the company or his or her affiliates. A relationship will be considered “material” if in the judgment of the Board it would interfere with the director’s independent judgment.
5. Business Relationships with Directors and Executive Officers
Any transaction between the company and any executive officer or director of the company (including that person’s spouse, children, stepchildren, parents, stepparents, siblings, parents-in-law, children-in-law, siblings-in-law and persons sharing the same residence) must be disclosed to the Board of Directors and is subject to the approval of the Board of Directors or the Governance and Corporate Responsibility Committee unless the proposed transaction is part of a general program available to all directors or employees equally under an existing policy or is a purchase of company products consistent with the price and terms of other transactions of similar size with other purchasers.
6. Selection of New Director
The Governance and Corporate Responsibility Committee screens all potential candidates for participation on the Board and makes recommendations to the Board for appointments and nominations. The Board will fill vacancies within the range established in the by-laws. All new directors will stand for vote by the shareholders after the term for which they were appointed expires if they are nominated for election after such expiration.
7. Board Member Criteria
To meet the needs of our company in a rapidly changing environment, Herman Miller requires a high-performance Board whose members subscribe to our values and meet the specific resource needs of the business. As an appropriate check and balance to the management team, employees other than the CEO and President will not normally be members of the Board. The Governance and Corporate Responsibility Committee is responsible for determining and reviewing with the Board from time to time the attributes and experience appropriate for Board members in the context of the current make-up of the Board, including experience and knowledge of the company's history and culture; technical experience and backgrounds such as manufacturing, design, marketing, technology, finance, management structure and philosophy, experience as a senior executive in a public company and diversity. These factors, and others as considered useful by the Board and by the Governance and Corporate Responsibility Committee, are reviewed in the context of an assessment of the perceived needs of the Board at a particular point in time. Each Board member will maintain as confidential all information about the company received in his or her capacity as a director.
Board members are expected to rigorously prepare for, attend, and participate in all Board and applicable Committee meetings. Each Board member is expected to ensure that other existing and planned future commitments do not materially interfere with the member’s service as a director.
8. Other Board Memberships
Board members will disclose to the company all involvement in business and philanthropic boards. These commitments will be considered as part of the review process. Board members are limited to no more than three public company boards if the Board member is employed on a substantially full-time basis and no more than five if the Board member is not employed on a full-time basis.
9. Directors with a Material Change in Status
Board members who retire or change positions held when they came on the Board, or otherwise have a material change in status, should offer to resign from the Board. This will prompt a review by the Governance and Corporate Responsibility Committee, which will recommend to the Board whether to accept such offer. The change may or may not have an impact on the member’s ability to continue to participate on the Board.
Any employee who becomes a member of the Board, including the CEO, will resign from the Board upon termination of employment. The employee may be invited, however, to serve the remainder of his or her term and be nominated for additional terms at the discretion of the Board.
10. Retirement Policy
No person shall be elected as a director after he or she attains age seventy-two (72), and a director who attains age seventy-two (72) while in office shall be required to tender his or her written resignation, which resignation shall be effective as of (or no later than) the annual meeting of stockholders at or immediately after such person attains age seventy-two (72).
11. Separation of the Position of Chairperson and CEO
The Board believes the roles of CEO and Chairperson should normally be separated. If the positions are combined, the Board will closely monitor the performance and working relationship between the CEO/Chairperson and the Board and will establish a Lead Director who is an independent director and has appropriate authority and duties who acts as a liaison between the directors and the CEO/Chairman and who chairs meetings of the independent directors.
12. Board Compensation
It is the policy of the Board that Board compensation should be a mix of cash and equity-based compensation, with a minimum of 50% required to be equity-based. Directors who are full-time employees of the company will not be paid for Board participation in addition to their regular employee compensation. Independent directors may not receive consulting, advisory or other compensatory fees from the company in addition to their Board compensation.
13. Stock Ownership Guidelines
It is the policy of the Board that all directors, consistent with their responsibilities to the stockholders of the company as a whole, hold an equity interest in the company. Toward this end, the Board requires that each director will have an equity interest after one year on the Board, and the Board encourages each director within five years of joining the Board to have shares of common stock or options for common stock of the company with a value of at least two times the amount of the annual retainer paid to each director.
The Board, through the Executive Compensation Committee, will maintain stock ownership guidelines for executive officers.
The Board recognizes that exceptions to this policy may be necessary or appropriate in individual cases and may approve such exceptions from time to time as it deems appropriate in the interest of the company’s stockholders. The Board may also approve a policy recognizing compliance with stock ownership guidelines once a director or officer has achieved the required ownership even if that ownership falls below the required values because of a reduction in the price of company stock.
D. Board Meetings and Materials
1. Scheduling and Selection of Agenda Items for Board Meetings
Board meetings are scheduled in advance, typically every quarter plus an annual meeting. In addition to regularly scheduled meetings, additional Board meetings may be called upon appropriate notice at any time to address specific needs of the company. The Board may also take action from time to time by unanimous written consent.
The Chairman of the Board, in consultation with the Chief Executive Officer (or with the Lead Director if the Chairperson and CEO positions are held by the same person), and with the assistance of management, drafts the agenda for each meeting and distributes it in advance to the Board. Each director may propose the inclusion of items on the agenda, request the presence of or a report by any member of the company’s management, or at any Board meeting raise subjects that are not on the agenda for that meeting.
The annual cycle of agenda items for Board meetings is expected to change on a periodic basis to reflect, among other things, Board requests, changing business and legal issues and the work done by the Board Committees. It is expected that the Board will have regularly scheduled presentations from finance, product development, operations, sales and marketing, human resources (with respect to succession), the company’s vertical markets, and the other major business segments of the company. The Board’s annual agenda will include the long-term strategic plan for the company and the principal issues that the company expects to face in the future.
2. Board Material Distributed in Advance
Information that is important to the Board’s understanding of the business, Board or Committee meeting minutes and agenda items and material related to agenda items should be distributed in writing (either in hard copy or electronically) to the Board or posted on the company’s Executive Website, or made available through other electronic sources, before the Board meets. Supplemental written materials will be provided to the Board on a periodic basis and at any time upon request of Board members.
As a general rule, materials on specific agenda topics should be sent to the Board and Committee members in advance so the meeting’s time may be conserved and discussion time focused on questions that the Board or Committee has about the material.
3. Access to Employees and Board Presentations
The Board has complete access to contact and meet with Herman Miller employees. The Board encourages management to schedule managers to present at Board meetings who: (a) can provide additional insight into the items being discussed because of personal involvement in these areas, or (b) have future potential that management believes should be given exposure to the Board.
4. Independent Directors’ Discussions
The Board’s policy is to have a separate meeting time for the independent directors during each regularly scheduled Board meeting. The Chairman or the Lead Director will assume the responsibility of chairing the meetings of independent directors and shall bear such further responsibilities that the independent directors as a whole might designate from time to time.
5. Board Communications with Shareholders
Shareholders who wish to communicate with one or more members of the Board of Directors may do so by addressing written comments, c/o the Corporate Secretary, 855 East Main Avenue, P.O. Box 302, Zeeland, Michigan 49464-0302. The Corporate Secretary will receive the correspondence and forward it to the Governance and Corporate Responsibility Committee and to any director or directors to whom the communication is directed. The Corporate Secretary is authorized to forward communications that are clearly more appropriately addressed by other departments, such as customer service, human resources or accounting, to the appropriate department. Communications that are forwarded to other departments will be made available to any director who wishes to review them. The Board believes that management speaks for the company and recognizes that, without coordination of information, the company could inadvertently breach its Fair Disclosure obligations to all parties. Individual Board members may, from time to time, meet or otherwise communicate with analysts, the media, any personal outside the company or any constituencies that are involved with the company, but only with prior approval of the Board or the Executive Committee or with the knowledge and approval of and coordination with management and, in most instances, only at the request of management.
6. Biannual Review of Directors and the Board
The Governance and Corporate Responsibility Committee, in conjunction with the CEO, will conduct a biennial review of the overall Board and individual directors. This should include feedback from the Board and may include input from management and some external sources. In addition, a more comprehensive review will be done periodically for individual Board members.
7. Director Orientation and Continuing Education
The Governance and Corporate Responsibility Committee, in conjunction with the Chief Executive Officer, is responsible for new-director orientation programs and for director continuing education programs. The orientation programs are designed to familiarize new directors with the company’s businesses, strategies and challenges and to assist new directors in developing and maintaining skills necessary or appropriate for the performance of their responsibilities. Continuing education programs for Board members may include a mix of in-house and third party seminars.
8. Attendance of Annual Shareholders Meeting
The company encourages directors to attend the company’s annual meeting of shareholders.
E. Board Committees
Committees shall be established by the Board from time to time as required by NASDAQ and to facilitate and assist in the execution of the Board’s responsibilities. Committees may be standing or ad hoc. There are currently four standing committees:
Executive Compensation Committee
Governance and Corporate Responsibility Committee
Each member of the Audit Committee, Executive Compensation Committee, and Governance and Corporate Responsibility Committee must be independent, as provided under the NASDAQ Rules, each member of the Audit Committee must meet the independence standards imposed by the Sarbanes-Oxley Act of 2002, and the Board must determine the independence of each member of the Executive Compensation Committee in accordance with the NASDAQ Rules.
Each committee will have a written charter, approved by the Board, which describes the Committee’s general authority and responsibilities and which will be posted on the company’s website. Each Committee will undertake an annual review of its charter and will recommend the Board make such revisions as are considered appropriate.
Each Committee has the authority to engage outside experts, advisors and counsel to the extent it considers appropriate to assist the Committee in its work.
Each Committee will regularly report to the Board concerning the Committee’s activities.
2. The Executive Committee acts on behalf of the Board of Directors subject to limitations in the Company’s bylaws
3. Audit Committee
The Audit Committee is responsible for the hiring, oversight and compensation of the independent certified public accountants that audit the company’s financial statements, for monitoring the effectiveness of the company’s internal financial, and accounting organization and controls and of the company’s financial reporting and disclosure controls, and for monitoring business risks of the company. The company will ask shareholders to ratify the appointment of the independent auditor. The Audit Committee will strive to maintain the non-audit fees of the independent auditor at a lesser amount than the audit fees in any year.
4. Executive Compensation Committee
The Executive Compensation Committee reviews and recommends to the Board salaries and other matters relating to compensation of the Chief Executive Officer, establishes the salaries and other matters relating to compensation of other executive officers of the company, and administers the company’s long-term incentive plan, including the granting or recommending to the Board the grant of stock options and other forms of equity-based compensation. The Board has a policy against re-pricing of stock options.
5. Governance and Corporate Responsibility Committee
The Governance and Corporate Responsibility Committee reviews and reports to the Board on matters of corporate governance (that is, the relationships of the Board, the Stockholders and management in determining the direction and performance of the company) and on the adoption and monitoring of corporate policies to comply with statutory and regulatory requirements, and reviews and addresses these Governance Guidelines and recommends revisions as appropriate. The Governance and Corporate Responsibility Committee also reviews all proposals submitted by stockholders for action at the Annual Stockholders’ Meeting, and recommends action by the Board with regards to each such proposal. The Governance and Corporate Responsibility Committee also makes recommendations to the Board regarding the size and composition of the Board, establishes procedures for the nomination process, recommends candidates for election or appointment to the Board, recommends members and chairpersons of committees, and recommends to the Board compensation for directors, Committee members, and Committee Chairpersons.
6. Assignment and Term of Service of the Committee Members
The Board is responsible for the annual appointment of Committee members and Committee chairpersons.
F. Annual Review of Governance Guidelines
The Governance and Corporate Responsibility Committee of the Board of Directors shall review these Governance Guidelines on at least an annual basis and report to the Board with any recommendations it may have in connection therewith.
G. Availability of Guidelines
These Governance guidelines shall be posted on the corporation’s website and referenced in the company’s annual proxy statements.