Governance Commitment in Action
Colgate's Corporate Governance Commitment
Colgate’s Board believes that good corporate governance accompanies and greatly aids Colgate's long-term business success. Colgate’s key strategic business priorities are growing sales through engaging with consumers, developing world-class innovation and working with retail partners; driving efficiency on every line of the income statement to increase margins; generating strong cash flow performance and utilizing that cash effectively to enhance total shareholder return; and leading to win by staying true to the Company’s culture, developing Colgate people and focusing on all of its stakeholders. Colgate’s Board has been at the center of these key strategies, helping to design and implement them, and seeing that they guide the Company’s operations.
The Board believes that the Company has consistently been at the forefront of good corporate governance. Reflecting its commitment to continuous improvement, the Board reviews its governance practices on an ongoing basis to ensure that they promote shareholder value.
Board Independence, Expertise and Accountability
- Strict Director Independence Standards. With the exception of Ian Cook, Colgate’s Executive Chairman, and Noel R. Wallace, Colgate’s President and Chief Executive Officer (the “CEO”), Colgate’s Board is composed entirely of independent directors. All members of the Audit Committee, the Finance Committee, the Nominating and Corporate Governance Committee (the “Governance Committee”) and the Board’s compensation committee, known as the Personnel and Organization Committee (the “P&O Committee”), are independent directors. The Board believes that an independent director should be free of any relationship with Colgate or its senior management that may in fact or in appearance impair the director’s ability to make independent judgments or compromise the director’s objectivity and loyalty to stockholders. Based on this principle, the Board adopted director independence standards that outline the types of relationships, both personal and professional, between directors and the Company, its senior management, other directors and third parties that, if present, would preclude a finding of independence. These standards, which are stricter than those required by the listing standards of the New York Stock Exchange (the “NYSE”), guide the Board’s annual affirmative determinations of independence. Click here to view Colgate’s Director Independence Standards.
- Executive Sessions/Lead Director. The independent directors of the Board meet in executive session, without any members of management present, at every regularly scheduled Board meeting. The Lead Director chairs these sessions. The Lead Director serves a three-year term and is selected by the independent directors following nomination by the Governance Committee. Stephen I. Sadove is currently serving as Lead Director. Colgate’s Corporate Governance Guidelines include a description of the responsibilities of the Lead Director. Click here to view Colgate’s Board Guidelines on Significant Corporate Governance Issues.
- All Directors Elected Annually by Majority Vote. Colgate’s Board is accountable to stockholders through the annual election of all directors by majority vote. Colgate has never had a staggered board. Under Colgate’s by-laws, in uncontested elections for directors, if a nominee for director who is an incumbent director is not re-elected by a majority of the votes cast, the by-laws require the director to promptly tender his or her resignation to the Board. The Governance Committee will then consider the resignation and make a recommendation to the Board.
- Director Attendance at Annual Meetings. It is the Company’s policy that all members of the Board should attend the Company’s Annual Meeting of Stockholders, unless extraordinary circumstances prevent a director’s attendance. All of the directors who were elected to the Board at the 2018 Annual Meeting were in attendance.
- Proxy Access. In January 2016, the Board approved amendments to the Company’s by-laws to permit a group of up to 20 stockholders who have owned at least three percent of Colgate’s outstanding Common Stock continuously for at least three years to submit director nominees (up to the greater of two individuals or 20% of the Board) for inclusion in the Company’s proxy statement if the stockholder(s) and the nominee(s) satisfy the requirements specified in the Company’s by-laws.
- Audit Committee Independence and Financial Literacy. All members of the Audit Committee are independent directors. The Board has also determined that all members of the Audit Committee are “audit committee financial experts,” as that term is defined under the rules of the Securities and Exchange Commission (the “SEC”), and that they meet the independence and financial literacy requirements of the NYSE.
- Board Experience and Diversity. As its present directors exemplify, Colgate values enterprise leadership experience, relevant sector experience in the fields of business, industry, regulatory and public service and information technologies, international experience, corporate governance experience, educational achievement, strong moral and ethical character and diversity. Colgate’s Independent Board Candidate Qualifications describe the criteria for Board membership. Click here to view Colgate’s Independent Board Candidate Qualifications.
Board Focused on Key Business Priorities
- Strategic Role of Board. The Board plays a major role in overseeing Colgate’s business strategy. It reviews the Company’s strategic plan and receives detailed briefings throughout the year on critical aspects of its implementation. These include performance reviews of operating divisions, product category reviews, presentations regarding research and development initiatives and reports from specific disciplines such as supply chain and information technology.
- Role of Board in Risk Management (including Cybersecurity). The Board oversees the Company’s risk management process to ensure it is properly designed, well-functioning and consistent with Colgate’s overall corporate strategy. Annually, the Board or a relevant committee reviews each of the top risk areas identified by management and receives reports more regularly for certain risk areas to ensure risks are being adequately managed. The Company’s Chief Information Security Officer provides a report to the Board on cybersecurity at each in-person Audit Committee meeting.
- Succession Planning and People Development. The Board has extensive involvement in succession planning and people development, with special focus on CEO succession. It discusses potential successors to key executives and examines backgrounds, capabilities and appropriate developmental assignments. Regular reviews of professional training programs, benefit programs and career development processes assist the Board in guiding the Company’s people development initiatives.
Directors are Stockholders
- Director Compensation in Stock. On average, 82% of a non-employee director’s compensation was paid in Colgate equity in 2018.
- Significant Levels of Director Stock Ownership. Board members own significant amounts of Colgate stock. Under the Company’s stock ownership guidelines, independent directors are required to own stock equal in value to at least five times their annual share grant. For more information on director stock ownership, please see the table included in “Stock Ownership—Stock Ownership of Directors and Executive Officers” in Colgate’s 2019 Proxy Statement.
Established Policies Guide Governance and Business Integrity
- Corporate Governance Guidelines. First formalized in 1996, the corporate governance guidelines reflect the Board’s views and Company policy regarding significant corporate governance issues, which the Board believes are best practice. As part of its ongoing review of best practices in corporate governance, the Board periodically reviews and updates the guidelines. Click here to view Colgate’s Board Guidelines on Significant Corporate Governance Issues.
- Code of Conduct. The Board sponsors the Company’s Code of Conduct, which promotes the highest ethical standards in all of the Company’s business dealings. The Global Ethics and Compliance function, headed by a corporate officer who reports to the CEO and provides reports directly to the Audit Committee, oversees compliance with these standards and periodically reviews and updates the Code of Conduct in conjunction with the Company’s Global Legal Organization. The Code of Conduct applies to the Company’s directors and employees, including the CEO, the Chief Financial Officer and the chief accounting officer (the Controller), and satisfies the SEC’s requirements for a code of ethics for senior financial officers. Click here to view Colgate’s Code of Conduct.
- Business Integrity Initiatives. The Board supports the Company’s efforts to effectively communicate its commitment to ethical business practices, which are led by the Company’s Global Ethics and Compliance function. To further this goal, all Company employees worldwide are required to annually certify that they understand and comply with the Code of Conduct. In addition, the Company’s executives and key managers worldwide participate in training programs regarding the Code of Conduct, Colgate’s values, effective leadership and the applicable laws and regulations that govern Colgate’s business practices around the world. Colgate directors also annually certify their compliance with the Code of Conduct.
- Political Expenditures. As set forth in the Company’s Code of Conduct, the Company has a longstanding policy against making contributions to any political party or candidate. In addition, each year, the Company advises its U.S. trade associations of this policy to prevent the use of Company dues or contributions for any such expenditures and requests that such associations which receive at least $10,000 annually from the Company confirm their compliance with this policy.
- Sustainability. Colgate places a high priority on operating in a responsible and respectful manner, with a focus on three key areas—People, Performance and Planet. To provide incentives for Colgate people to integrate sustainability into business strategy and operations, Colgate’s global sustainability initiatives are among the individual objectives used to determine the compensation for many of Colgate’s senior managers. Click here to view Colgate’s Sustainability Report.
- Restrictions on Hiring Audit Firm Employees. To bolster the independence of Colgate’s independent registered public accounting firm and the integrity of Colgate’s internal financial reporting and audit processes, Colgate has a longstanding policy prohibiting the Company from hiring any partners or managers engaged in an audit of the Company or any employees engaged in the corporate portion of an audit of the Company from PricewaterhouseCoopers LLP, Colgate’s independent registered public accounting firm, within five years of the end of their engagement without the approval of the Audit Committee.
- Hedging and Pledging Policies. To further ensure that the interests of Colgate’s directors, officers and senior managers are aligned with those of Colgate’s stockholders, the Company's hedging policy prohibits Colgate’s directors, officers and employees who receive stock-based compensation from engaging in transactions to hedge against declines in the value of Colgate’s stock. The policy also discourages all other employees from entering into such transactions. Further, to prevent forced sales of Colgate stock by Colgate’s directors and officers, the Company prohibits Colgate’s directors and officers from pledging Colgate stock.
- Clawback Policy. The Company's clawback policy permits Colgate to recoup cash and equity- based incentive awards made to an officer subject to the policy if the financial results on which such awards were based are subsequently restated and such officer’s intentional misconduct contributed to the restatement.
Direct Access to Management
- Management Participation at Board Meetings. Key senior managers regularly attend Board meetings. Topics are presented to the Board by the members of management who are most knowledgeable about the issue at hand irrespective of seniority. An open and informal environment allows dialogue to develop between directors and management, which often produces new ideas and areas of focus.
- Direct Access to Management. The Board’s direct access to management continues outside the boardroom during discussions with corporate officers, division presidents and other employees, often without the CEO present. Directors are invited to contact senior managers directly with questions and suggestions.
Ensuring Management Accountability
- Performance-Based Compensation. Colgate has linked the pay of its managers and employees at all levels to the Company’s performance. As described in greater detail in the Compensation Discussion and Analysis in Colgate’s 2019 Proxy Statement, the P&O Committee adheres to this pay-for-performance philosophy, and stock-based incentive awards are a significant component of senior management’s overall compensation.
- CEO Evaluation Process. The Board’s evaluation of the CEO is a formal annual process. The CEO is evaluated by the Board against the goals set each year, including both objective measures (such as earnings per share) and subjective criteria reflective of the Company’s strategy and core values. As part of the overall evaluation process, the Board meets informally with the CEO to give feedback on a regular basis.
Board Practices Promote Effective Oversight
- Board Size. Designed to maximize board effectiveness, Colgate’s by-laws fix the number of directors between seven and 15. The number of directors is currently fixed at twelve, to be decreased to eleven upon completion of Ellen Hancock’s current term. Eleven directors have been nominated for election at the Annual Meeting.
- Directorship Limits. To ensure that directors are able to devote sufficient time to properly discharge their duties, Colgate’s corporate governance guidelines provide that directors should not serve on more than three other public company boards.
- Meeting Attendance. On average, the incumbent directors attended 97% of the meetings of the Board and the committees on which they served in 2018. No incumbent director attended less than 75% of these meetings.
Continuous Improvement through Evaluation and Education
- Board Self-Evaluation Process. Each year, the Board evaluates its performance against criteria that it has determined are important to its success. One or more of the following topics may be considered during such evaluations: financial oversight, succession planning, executive compensation, strategic planning, corporate governance, ethics and compliance and Board structure and role. The Board then considers the results of the evaluation and identifies steps to enhance its performance.
- Board Committee Evaluations. Self-evaluations of the Board’s committees are also conducted annually. The results of these evaluations are reviewed with each committee, and further enhancements are agreed for each committee.
- Individual Director Evaluations. Complementing the Board and committee self-evaluations, the Board has also developed an individual director evaluation process to be used every three years. Using director effectiveness criteria selected by the Board following a review of external best practices, directors evaluate their peers and the resulting feedback is shared with individual directors by an external facilitator. This process, which the Board intends to conduct again in 2019, enables the directors to provide valuable feedback to one another and identifies areas of strength and areas of focus for enhanced effectiveness.
- Ongoing Director Education. Outside experts periodically present to the Board on various subjects. During 2018, such subjects included executive compensation trends and regulatory and governance topics. From time to time, Colgate’s directors also visit Colgate operations around the world, deepening their understanding of Colgate’s business.