|Corporate Governance Principles|
Corporate Governance Principles
Adopted on October 28, 2003
(Amended and Restated on May 5, 2015)
The Board of Directors (the “Board”) of West Pharmaceutical Services, Inc. (the “Company”) has adopted these principles to promote the effective operation of the Board and lay out a common framework for how the Board, its committees, individual directors and management should perform their duties. These principles, together with the Company’s Restated Articles of Incorporation, Bylaws, Board Committee charters and Code of Business Conduct, provide the overall framework for the governance of the Company. They are not intended to limit, expand or change the responsibilities of the directors as determined by applicable law and the Articles, Bylaws and charters.
The Board periodically will review these principles and may amend them on the recommendation of the Nominating and Corporate Governance Committee.
- Functions of the Board of Directors
The responsibility of the Board is to supervise and direct the management of the Company’s business and affairs. Except for matters reserved to the shareholders, the Board is the ultimate decision-making body of the Company. Directors must exercise their business judgment and act in good faith in what they reasonably believe to be the best interests of the Company. While directors must fulfill their responsibilities consistent with their fiduciary duties to the Company and to its shareholders, in compliance with all applicable laws and regulations, they may also take into account the interests of other constituencies, including employees, customers, suppliers and the communities in which the Company operates.
In addition to other responsibilities outlined below, the Board, acting directly or through Committees, has the following duties:
- Overseeing the conduct of the Company’s business to evaluate whether the business is being properly managed;
- Reviewing, approving, and monitoring overall operating, financial and strategic plans, operating goals and performance of the Company;
- Selecting, evaluating, retaining and approving the compensation of the Company’s Chief Executive Officer (the “CEO”), and providing oversight of the selection, evaluating and compensation of other executive officers;
- Planning for succession with respect to the position of CEO and monitoring management’s succession planning for other key executives;
- Overseeing appropriate policies of corporate conduct and compliance with laws; and
- Reviewing the major risks facing the Company and reviewing measures to address and mitigate such risks.
The Board may, by resolution, delegate its authority to Company management or to Committees of the Board, subject to applicable law, regulation or listing standard. In this regard, the Board has delegated to the CEO, working with the other executive officers of the Company and its affiliates, the authority and responsibility for managing the business of the Company consistent with the standards of the Company and according to any specific instructions or directions of the Board.
Board review and approval of significant actions or transactions may be appropriate because of legal or regulatory requirements, the materiality of the transaction to the Company’s financial performance, risk profile or business, or other factors, such as entering into a new line or business or variation from the Company’s strategic plan. The Board may develop standards for determining what types of transactions should be submitted to the Board for prior review and approval.
- Board Composition and Director Qualifications
Size of the Board. The Board believes that generally 8 to 12 directors is an appropriate size. The Board recognizes, however, that at times more than 12 directors may be appropriate to accommodate the availability of one or more outstanding candidates or to ensure that particular expertise or backgrounds are represented on the Board.
Majority of Independent Directors . It is the policy of the Board that a substantial majority of the directors be independent of the Company and the Company’s management (the “Independent Directors”). The Board will affirmatively determine annually and at other times required by the listing standards that the directors designated as Independent Directors have no direct or indirect material relationships to the Company that may interfere with the exercise of their independence from management and the Company. In making this determination, the Board broadly considers all relevant facts and circumstances and applies the following standards:
- A director who is, or has been within the last three years, an employee of the Company, or whose immediate family member is, or has been within the last three years, an executive officer of the Company, is not independent.
- A director who has received, or who has an immediate family member who has received, during any 12-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 with the Company (provided that such compensation is not contingent in any way on continued service), is not independent.
- (A) A director who is a current partner or employee of a firm that is the Company’s external auditor; (B) a director who has an immediate family member who is a current partner of such firm; (C) a director who has an immediate family member who is a current employee of such firm and who participates in the firm’s audit, assurance or tax compliance (but not tax planning) practice; or (D) a director who was, or whose immediate family member was, within the last three years a partner or employee of such a firm and personally worked on the Company’s audit within that time is not independent.
- A director who is, or whose 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 executive officers at the same time serves or served on that company’s compensation committee is not independent.
- A director who is an executive officer or employee, or whose immediate family member is an 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, or 2% of such other company’s consolidated gross revenues is not independent.
- No director, or immediate family member of a director, may serve as a paid consultant or advisor to the Company or to any executive officer of the Company, or may have a personal services contract with the Company or with any executive officer of the Company.
Audit Committee members may not have any direct or indirect financial relationship with the Company other than as directors, and may not be affiliated persons of the Company. Audit Committee members may receive directors’ fees, in the form of cash, stock, stock units or other in-kind consideration ordinarily available to directors.
The following not-for-profit relationship will not be considered to be a material relationship that would impair a director’s independence: if a director of the Company, or a director’s spouse, serves as an executive officer of a not-for-profit organization, and the Company’s or the Herman O. West Foundation’s discretionary annual charitable contributions to the organization, in the aggregate, are less than $1 million or 2% of that organization’s annual revenues, whichever is greater.
In addition, in affirmatively determining the independence of any director who will serve on the Compensation Committee, the Board will consider all factors specifically relevant to determining whether a director has a relationship to the Company that is material to that director’s ability to be independent from management in connection with the duties of a Compensation Committee member, including:
- the source of compensation of the director, including any consulting, advisory or other compensatory fee paid by the Company to the director; and
- whether the director is affiliated with the Company, a subsidiary of the Company or an affiliate of a subsidiary of the Company.
Each director must disclose to the Board any other circumstances that he or she believes could pose a conflict, including any consulting or personal services contracts between the director and the Company and any Company contributions to charitable institutions with which the director has significant affiliations.
For purposes of these Principles, the terms:
- "affiliate” means any consolidated subsidiary of the Company and any other Company or entity that controls, is controlled by or is under common control with the Company, as evidenced by the power to elect a majority of the board of directors or comparable governing body;
- "executive officer” means an “officer” within the meaning of Rule 16a-1(f) under the Securities Exchange Act of 1934; and
- "immediate family” means spouse, parents, children, siblings, mothers- and fathers-in-law and anyone (other than employees) sharing a person’s home, but excluding any person who is no longer an immediate family member as a result of legal separation or divorce, or death or incapacitation.
Board Membership Criteria. The Board strives in its membership profile to have a mix of backgrounds and expertise that enhances the ability of the directors collectively to understand the issues facing the Company and to fulfill the Board’s and Board Committees’ responsibilities. The Board and the Nominating and Corporate Governance Committee will periodically review the experience and characteristics appropriate for board members and director candidates in light of the Board’s composition at the time, and the skills and expertise needed for the effective operation of the Board and its committees. It is the policy of the Board that the Board reflects the following characteristics:
- Each director must at all times exhibit high standards of integrity, commitment and independence of thought and judgment.
- The Board as a whole will contain a range of talent, skill and expertise sufficient to provide sound and prudent guidance with respect to all of the Company’s operations and interests, which may include experience at senior levels of public companies, leadership positions in the healthcare or public-health fields, science or technology backgrounds and financial expertise.
- Each director should exhibit confidence and a willingness to express ideas and engage in constructive discussion with other Board members, Company management and all relevant persons.
- Each director should be willing and able to devote sufficient time, energy and attention to the affairs of the Company.
- Each director should actively participate in the decision-making process, be willing to make difficult decisions in the best interest of the Company and its shareholders, and demonstrate diligence and faithfulness in attending Board and committee meetings.
- Each director should be free of any conflict of interest that would impair the director’s ability to fulfill the responsibilities of a member of the Board of Directors.
The Nominating and Corporate Governance Committee is responsible for articulating, refining and recommending to the full Board specific criteria for board membership to supplement the general criteria set forth in these Principles.
- Selection of Directors
The Board is responsible for selecting its own members. The Board delegates to the Nominating and Corporate Governance Committee the process of identifying, evaluating and recommending candidates for election to the Board by the shareholders at their annual meeting and, as appropriate, by the Board itself between such meetings. With respect to directors standing for re-election, the Nominating and Corporate Governance Committee annually evaluates each director before deciding whether to recommend the director for inclusion on the slate of nominees to be submitted to the shareholders.
Directors are expected not to undertake commitments as directors of other publicly traded companies that could impair their ability to devote sufficient time and attention to the Company’s Board responsibilities. The Board believes that directors should not sit on more than four other public-company boards. The Board may, however, make exceptions to this standard as it deems appropriate in the interest of the Company’s shareholders. In the event that a director decides to join the board of directors of another public company, the director will notify the Chairman of the Board or the Chairman, Independent Directors (as the case may be) of his or her decision.
The Company assists the Board by providing an orientation program for directors who are new to the Board or who are new members of board committees. The Company also makes continuing education opportunities available with respect to governance responsibilities, industry practices, market developments and particular issues facing directors.
- Board Leadership
The Board shall annually elect the Chairman of the Board, who may or may not be the CEO. The Board may in its discretion separate the roles of Chairman of the Board and CEO if it deems advisable and in the best interest of the Company to do so.
The Chairman of the Board shall preside at all meetings of the shareholders and shall chair all meetings of the Board. In addition, the Chairman of the Board shall perform all duties which may be required by law and such other duties as are specified from time to time by the Board.
If the Chairman of the Board is not an Independent Director, the Board shall annually elect a Chairman, Independent Directors to preside over executive sessions of the Company’s Independent Directors, facilitate the flow of information and communication between the Independent Directors and the Chairman of the Board, and perform such other duties as may be specified from time to time by the Board. The responsibilities of the Chairman, Independent Directors will include:
- presiding at all sessions of the independent directors;
- calling meetings of the independent directors whenever he or she deems appropriate;
- approving agendas and schedules for each Board meeting;
- approving and reviewing minutes of meetings of the Board;
- conferring with the CEO to assure that (i) board agendas contain those items that the independent directors believe are important to their understanding and evaluation of the Company and its affairs and (ii) information provided to and presentations made to the Board, and other communications are in keeping with the Board’s needs and wishes;
- acting as chairman for Board discussion of any subject where the CEO would not, in the judgment of the Chairman, Independent Directors, be the appropriate person to chair such discussion;
- serving as principal liaison between the CEO and the independent directors; and
- performing such other duties as the Board may from time to time delegate to assist the Board in fulfilling its responsibilities.
No director may serve more than four annual terms as Chairman, Independent Directors, unless the Board determines that it is appropriate to extend this limit.
- Director Conduct and Review
The Board has previously adopted a Code of Business Conduct that applies to all employees, officers and directors of the Company. The Board continues to be responsible for the oversight of the Code of Business Conduct and periodically evaluates the Code to ensure that it conforms to applicable laws and best practices. Members of the Board comply at all times with the Code of Business Conduct and programs and procedures that apply to them. Any waiver of the Code of Business Conduct pertaining to an individual director must be reported to, and be subject to the approval of, the Board of Directors. In addition, all directors are expected to:
- become familiar with the Company’s business, the factors that drive the business and the Company’s public disclosures;
- review in advance of Board meetings any preparatory materials provided to them;
- attend all regularly scheduled Board and committee meetings, unless prevented from doing so by special circumstances; and
- attend the Annual Meeting of Shareholders unless prevented from doing so due to illness or unavoidable conflict.
The Board conducts an annual evaluation to determine whether the Board and each of the Committees are functioning effectively and seeks to identify any areas in need of improvement or strengthening. The Nominating and Corporate Governance Committee is responsible for ensuring that the annual review and evaluation are carried out.
- Board Tenure Policy
The Board does not believe it should limit the number of terms a director can serve because the Board believes term limits may cause the loss of experience and expertise that are critical to the operation of the Board.
Each non-employee director must submit a letter of resignation on the date of the Annual Meeting of Shareholders immediately following his or her 72nd birthday. The Board may make individual exceptions to this policy to allow the retiring director to serve up to an additional year. Each employee director must submit his or her resignation to the Nominating and Corporate Governance Committee effective the date he or she ceases to be an executive of the Company.
When a director has a significant change in principal employment or career, the director must submit his or her resignation to the Nominating and Corporate Governance Committee, which will then be responsible for recommending to the Board whether or not to accept the resignation. The Board is free to accept or reject this letter of resignation, and will act promptly with respect to the letter and promptly notify the director of its decision.
- Board Committees and Committee Membership
The Board establishes Committees from time to time to facilitate and assist in the execution of the Board’s responsibilities. The Board currently has four standing committees: Audit, Compensation, Nominating and Corporate Governance, and Innovation and Technology. The Board may establish additional committees as it deems necessary or appropriate. Each committee has a written charter of responsibilities, duties and authorities, which is periodically reviewed by the Board. Each committee reports to the full Board on the committee’s activities, findings and recommendations after each meeting. Each committee conducts an annual evaluation of its performance.
The Audit, Compensation and Nominating and Corporate Governance committees must be composed solely of independent directors under these Principles and any applicable regulatory requirements or listing standards. Each member of the Audit Committee must meet the additional requirements of the NYSE listing standards and any other legal requirements for members of this committee. Each member of the Compensation Committee must, in addition to being independent, meet the requirements of Section 162(m) of the Internal Revenue Code and regulations adopted pursuant to that statute, and be a “non-employee director” pursuant to Rule 16b-3 under the Securities Exchange Act of 1934, as amended.
- Assignment and Rotation of Committee Members
After considering the requests of the various board members and after consultation with the CEO (and the Chairman, Independent Directors, as the case may be), the Nominating and Corporate Governance Committee proposes committee assignments for each director. The appointment of committee members will be made by the Board. The Board will consider rotating the committee members every five years, if not earlier, but such rotation will not be mandatory as the needs of the Company at any particular time may necessitate non-rotation.
- Board Meeting Procedures
The Chairman of the Board (or the Chairman, Independent Directors, as the case may be) is responsible for creating the agenda for each Board meeting. Each independent director may reasonably require inclusion of particular items on the agenda. Independent directors meet in regularly scheduled executive sessions and in special executive sessions as may be called by the Chairman of the Board (or the Chairman, Independent Directors, as the case may be).
- Board and Committee Materials
Written material, both analytical and informational, that is important to the Board’s and its Committees’ understanding of a particular agenda item are distributed to the members of the Board or Committee to enable meetings to be conducted efficiently and allow adequate time for questions the members may have about the material. Any advance material is delivered in sufficient time to allow the members to prepare for meetings. Management also regularly provides material and timely information about the Company, its financial condition and prospects, as well as matters relevant to each Committee. Directors may request that the CEO or appropriate members of senior management present to the Board information on specific topics relating to the Company and its operations.
- Access to Management and Advisers
Directors, individually and as a group, have full and free access to communicate with the Company’s management. Members of senior management attend Board and committee meetings as required and are available for consultation upon a director’s request.
The Board and its Committees may retain the services of such advisers and experts, including counsel, as they deems appropriate, and any such advisers shall report directly to the Board or Committee that engages them. The Company shall pay the fees and expenses of any such advisers. The Board and its Committees may rely on the Company’s senior executives and outside advisers and auditors.
- Director Stock-Ownership Guidelines
To align directors’ interests with the long-term interests of shareholders, directors are expected to acquire within three years of appointment, and to retain during their tenure on the Board, shares of the Company’s common stock having a market value of at least five times the amount of the annual cash retainer. For purposes of these guidelines, restricted shares, deferred stock units or restricted stock units (whether or not the restrictions have lapsed), but not stock options, awarded to a director under a Company plan count toward his or her ownership goals.
- Director Compensation
The compensation of directors who are not employees of the Company will be determined annually by the Board of Directors acting on the recommendations of the Nominating and Corporate Governance Committee, which may obtain the advice of such experts as it deems appropriate. The Board believes that directors’ total compensation should be at a level comparable to that provided by similarly situated U.S. companies and in a manner determined by the Board to be appropriate for attracting and retaining qualified directors. The Board’s policy is to provide a meaningful portion of a director’s compensation in, or based on, the Company’s common stock. The Company’s practices with respect to Board compensation will be described in its annual Proxy Statement.
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