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Deere & Company Corporate Governance
Deere & Company CORPORATE GOVERNANCE POLICIES
The following Corporate Governance Policies were adopted by the Deere & Company Board of Directors on February 24, 1999 and amended by the Board on December 3, 2003 and August 25, 2004.
RESOLVED, that the Deere & Company Corporate Governance policies are as follows:
Deere & Company ("Deere" or the "Company") recognizes
the importance of corporate governance as a component of providing long-term shareholder
value. The policies set forth below have been guiding principles in Deere's approach
to corporate governance, and will continue to be reviewed periodically and revised
as appropriate by the Board of Directors to ensure they consistently reflect the
board's governance objectives.
BOARD COMPOSITION AND FUNCTIONS
- Separation of Chairman and CEO
While some of the conventional functions of the Chairman (e.g., the setting of agendas for board and committee meetings) have been and are shared by all directors, the position of Chairman has traditionally been held by Deere's Chief Executive Officer. The board generally believes separation to be a mechanism that is unnecessary under normal circumstances.
- Presiding Director Concept
In addition to the rotation of committee chairs as presiding directors for executive sessions of the board as described below, committee chairs act as "presiding directors" on specific subjects for board discussion. For example, the Chair of the Compensation Committee leads board discussions of CEO compensation in relationship to performance, while the Chair of the Corporate Governance Committee is responsible for ensuring that management presents to the board an annual review of succession plans.
- Board Access to Senior Management and Independent Advisors
Any board member has access to any employee of the Company. The Secretary's office is available to assist directors in making contact with Company employees, and will participate in discussions between the director and employee only where the director so requests. Committees of the board shall, in their discretion, have access to, and may consult with and may retain such independent advisors as each committee deems appropriate. The Company shall provide appropriate funding for advisors as determined by such committee.
- Size of the Board
The size of the board is determined by the board. Through its nominating function, the Corporate Governance Committee makes recommendations regarding the size of the board as well as its composition.
- Mix of Inside and Outside Directors
The CEO is the only active or former Deere employee currently on the board. At all times, a majority of the members of the board shall meet the criteria for independence established by applicable laws and regulations and the New York Stock Exchange.
- Board Definition of What Constitutes Director Independence
NYSE Standards of Independence
A director may not be considered independent if the director does not meet the
criteria for independence established by the New York Stock Exchange (NYSE)
and applicable law. A director is considered independent under the NYSE criteria
if the board finds that the director has no material relationship with the Company.
Under the NYSE rules, a director will not be considered independent if, within
the past three years:
- the director has been employed by Deere, either directly or through a
personal or professional services agreement;
- an immediate family member of the director was employed by Deere as an
executive officer;
- the director receives more than $100,000 per year in direct compensation
from Deere, other than for service as an interim chairman or CEO and 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);
- an immediate family member of the director receives more than $100,000
per year in direct compensation from Deere, other than for service as a
non-executive employee and 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);
- the director was affiliated with or employed by Deere's independent auditor;
- an immediate family member of the director was affiliated with or employed
in a professional capacity by Deere's independent auditor;
- a Deere executive officer has served on the compensation committee of
a company that, at the same time, employed the director or an immediate
family member of the director as an executive officer; or
- the director is employed, or the immediate family member of a director
is employed as an executive officer of another company and the annual payments
to, or received from Deere exceed in any single fiscal year the greater
of $1 million or 2% of such other company's consolidated gross annual revenues;
Categorical Standards of Independence
The Board of Directors has established the following additional categorical
standards of independence to assist it in making independence determinations:
Business Relationships. Any payments by Deere to a business employing,
or 10% or more owned by, a director or an immediate family member of a director
for goods or services, or other contractual arrangements, must be made 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. The following
relationships are not considered material relationships that would impair a
director's independence:
- if a director (or an immediate family member of the director) is an officer
of another company that does business with Deere and the annual sales to,
or purchases from Deere during such company's preceding fiscal year are
less than one percent of the gross annual revenues of such company;
- if a director is a partner of or of counsel to a law firm, the director
(or an immediate family member of the director) does not personally perform
any legal services for Deere, and the annual fees paid to the firm by Deere
during such firm's preceding fiscal year does not exceed $100,000;
- if a director is a partner, officer or employee of an investment bank
or consulting firm, the director (or an immediate family member of the director)
does not personally perform any investment banking or consulting services
for Deere, and the annual fees paid to the firm by Deere during such firm's
preceding fiscal year does not exceed $100,000.
For purposes of these standards, "Deere" shall mean Deere & Company and its direct and indirect subsidiaries, and "immediate family member" shall have the meaning set forth in the NYSE independence rules, as may be amended from time to time.
Relationships with Not-for-Profit Entities. A director's independence will not be considered impaired solely for the reason that the director or an immediate family member is an officer, director, or trustee of a foundation, university, or other not-for-profit organization that receives from Deere or its foundation during any of the prior three fiscal years, contributions in an amount not exceeding the greater of $1 million or two percent of the not-for profit organization's aggregate annual charitable receipts during the entity's fiscal year. (Any automatic matching of employee charitable contributions by Deere or its foundation are not included in Deere's contributions for this purpose.) All contributions by Deere in excess of $100,000 to not-for-profit entities with which the director is affiliated shall be reported to the Corporate Governance Committee and may be considered in making independence determinations.
- Board Membership Criteria
As a part of its screening of candidates for nomination to the full board, the
Corporate Governance Committee considers issues of skills, experience, international
versus domestic background, diversity, age, and legal and regulatory requirements
in the context of an assessment of the perceived needs of the board.
- Selection, Orientation and Continuing Education of Directors
Suggestions for director-candidates are received from shareholders and from
directors. The Corporate Governance Committee can also elect to retain a director
placement consultant. The Corporate Governance Committee is responsible for
screening candidates and making recommendations to the full board, which nominates
a slate for directors for election at the annual meeting of shareholders, and
also elects directors to fill vacancies or newly-created seats on the board.
The board and the Company have an orientation process for new directors, and
both new and continuing directors receive ongoing education and background materials,
meet with Company management and visit Company facilities. The Company annually
will pay for a director to attend one seminar, symposium or similar educational
opportunity related to that director's service on the board.
- Extending the Invitation to a New Potential Director to Join the Board
The process of interviewing director candidates provides the opportunity for
direct contact between director candidates and members of the Corporate Governance
Committee as well as other board members. Traditionally, the actual invitation
to join the board has been extended on behalf of the board by Deere's CEO.
- Assessing the Board's Performance
The Corporate Governance Committee is responsible for advising the board on
criteria for retention of directors unrelated to age or tenure (such as attendance,
health, or responsibilities that are incompatible with effective service as
a director), and may advise the board upon removal of a director in unusual
circumstances. In general, directors are expected to attend board meetings and
meetings of committees on which they serve, and to spend the time needed and
meet as frequently as necessary to properly discharge their responsibilities.
Information and data that are important to the board's understanding of the
business to be conducted at a board or committee meeting should generally be
distributed in writing to the directors before the meeting, and directors should
review these materials in advance of the meeting. The Corporate Governance Committee
conducts an annual review of the performance and effectiveness of the board,
and reports to the full board, which determines whether it and its committees
are functioning effectively.
- Directors Who Change Present Job Responsibilities
A director who retires or who has a material change in her or his occupation,
career or principal activity shall tender a resignation from the board to the
Chair of the Corporate Governance Committee. The board, upon the recommendation
of the Corporate Governance Committee, shall determine whether to accept the
resignation.
- Retirement Age
A director shall retire from the board effective with the first annual meeting
of stockholders following such director's 71st birthday.
- Board Interaction with Institutional Investors, the Press, Customers, etc.
Under normal circumstances, the board believes management should be the primary
contact with these constituencies. However, there are no constraints upon the
directors' ability to communicate with outsiders (other than such legal constraints
as may be required by the securities laws, in acquisition or divestiture situations,
or otherwise).
- Number of Boards on Which a Director May Serve
The Board of Directors sets no specific limitation on the number of publicly-held
companies' boards on which a Deere director may sit. However, directors may
not exceed any limitations on board or committee memberships as established
by law, regulation or the New York Stock Exchange. The Corporate Secretary is
available to assist directors in assessing the implications of additional board
affiliations, and the Secretary should be notified on behalf of the Corporate
Governance Committee when a director is considering an invitation to sit on
another company's board. In the event that a director's effectiveness was materially
compromised by other affiliations, the Corporate Governance Committee would
address the situation ad hoc. The board has determined that no director should
serve on the audit committee of more than four public companies.
BOARD MEETINGS
- Frequency and Length of Meetings
The full board normally has four regular meetings per year and meets otherwise
as needed. These meetings provide an adequate opportunity for the directors
to discharge their duties. The board resolutions establishing the committees
typically require a minimum of two meetings per year, with the exception of
the Executive Committee, which meets as required. However, meetings are held
whenever there is a need, with the result that most committees meet more frequently.
The Audit Review Committee and the Compensation Committee meet quarterly.
- Board Meeting Agendas
The board is responsible for its agenda. The CEO proposes agenda items based
on input from directors and Company management. A draft agenda is sent to board
members with the background materials for each meeting. Forward agendas showing
regularly-scheduled business and planned presentations for the following year
are distributed to each director prior to each regularly-scheduled meeting.
- Board Materials Distributed in Advance
Supporting materials are sent to the directors for their review before each
board and committee meeting. These materials are generally sent one week before
the meeting. Management attempts to make the information as informative as possible.
- Presentations
Where an oral presentation is the most efficient and informative way to present
an item for discussion, or where sensitive matters are at issue, background
information may or may not be sent.
- Attendance of Non-Directors at Board Meetings
The business sessions of Deere Board meetings are attended by the Company's
Senior Management, which includes the Presidents of the major business divisions
of the enterprise. Other employees are invited to make presentations on specific
subjects, or where their presence might be useful to the deliberations of the
board.
- Executive Sessions
Each board meeting normally begins with a session between the CEO and the independent
directors. This provides a platform for discussions outside the presence of
the non-board management attendees, as well as an opportunity for the independent
directors to go into executive session (without the CEO) if requested by any
director. The outside directors may meet in executive session, without the CEO,
at any time, and are scheduled for such non-management executive sessions at
the December and May meetings. The committee chairs will preside over the non-management
executive sessions on a rotating basis as established by the Corporate Governance
Committee. The Company will publish a method for directly contacting the director
presiding at the executive sessions.
BOARD COMMITTEES
- Number of Committees
There are currently six committees of the board: Audit Review, Compensation,
Special Subcommittee of the Compensation Committee, Corporate Governance, Executive
and Pension Plan Oversight. The Corporate Governance Committee is responsible
for submitting recommendations on committee composition and structure, upon
request of the CEO or the board.
- Assignment and Rotation of Committee Members
The CEO periodically makes recommendations to the Corporate Governance Committee
regarding committee assignments. The consensus of the board is that committee
rotation is desirable, but that such considerations as changes in board membership
can necessitate longer or shorter committee assignments. In addition, rotation
of assignments must be considered in the context of legal and regulatory requirements,
and must be balanced against the need for increasing levels of expertise in
each board committee's area. Accordingly, the board has not set a specific number
of years of service as a guideline.
- Committee Agenda
Proposed agenda items are submitted by committee members or by management to
the committee chair. Forward agendas are established for the Pension Plan Oversight
Committee and the Audit Review Committee. Forward agendas are established for
other committees only with regard to the requirements of specific projects.
BOARD COMPENSATION
- Board Compensation Review
The Corporate Governance Committee is responsible for furnishing recommendations
to the full board on directors' retainers and meeting fees. Compensation is
then formally approved by the board. The board's practice is to reexamine and
adjust directors' compensation approximately every three to four years, or more
often as appropriate. In determining appropriate compensation and assessing
director independence, the board will evaluate the forms and amounts of director
compensation, including legal and regulatory requirements, customary and comparative
compensation, and relationships with affiliated and charitable organizations.
- Stock Ownership Requirements for Directors
The Board of Directors recognizes the importance of stock ownership in aligning
directors' interests with those of shareholders. Paying a significant portion
of directors' compensation in restricted stock assures this alignment. In addition,
directors may elect to defer all or part of their cash compensation in a phantom
stock account.
MANAGEMENT EVALUATION AND SUCCESSION PLANNING
- Formal Evaluation of the Chief Executive Officer
Deere's outside directors meet annually in executive session to review the performance
of the Chief Executive Officer. The evaluation should include objective criteria
such as performance of the business, accomplishment of strategic objectives,
and development of management. In addition, the Compensation Committee makes
a regular evaluation of the CEO with regard to performance-related compensation
issues.
- Succession Planning and Management Development
The board has responsibility for the policies regarding the succession plan
for the CEO. This shall include both long- and short-term succession planning.
The long-term plan should include identification of senior management candidates
and a discussion of the CEO's plan for their long-term development.
The short-term plan is to be used in the event of the unexpected disability
of the CEO, in which case the Chair of the Corporate Governance Committee is
responsible for convening the Executive Committee to execute the plan or otherwise
address management succession.
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