Corporate Governance Guidelines
(Adopted October 10, 2003)
The Board of Directors (the "Board") of Innovex, Inc. (the "Company") has adopted a set of corporate governance guidelines to promote the functioning of the Board and its committees and to set forth a common set of expectations as to how the Board should perform its functions. The Board recognizes that there is ongoing public discussion about corporate governance and will periodically review these Corporate Governance Guidelines in light of evolving circumstances and standards.
1. Basic Responsibilities of Directors and the Board
The Board represents the owners' interests in perpetuating a successful business, including optimizing long-term financial returns. The Board is responsible for determining that the Company is managed in a way to ensure this result. This is an active, not a passive, responsibility. The Board has the responsibility to ensure that in good times as well as difficult ones, management is capably executing its responsibilities. The Board's responsibility is to regularly monitor the effectiveness of management policies and decisions and the execution of management's strategies.
The property, affairs and business of the Company shall be managed by or under the direction of the Board. The basic responsibility of the directors is to exercise their business judgment and to act in good faith in a manner that they believe to be in the best interests of the Company and its shareholders and with such care, including reasonable inquiry, as an ordinarily prudent person in a like position would use under similar circumstances. In discharging these obligations, directors should be entitled to rely on the honesty and integrity of the Company's officers and employees and its advisors and auditors. The Board has adopted a code of ethics and business conduct for all employees of the Company.
Directors are expected to prepare for, attend and participate actively in all regularly scheduled Board meetings and meetings of Board committees on which they serve and to meet as frequently as needed to discharge their responsibilities properly.
In addition to its general oversight of management, the Board also performs a number of specific functions, including:
- selecting, evaluating and compensating the Chief Executive Officer ("CEO") and overseeing management succession planning;
- reviewing, approving and monitoring fundamental financial and business strategies and major corporate actions;
- assessing major risks facing the Company and reviewing options for their mitigation; and
- ensuring processes are in place for maintaining the integrity of the Company, its financial statements, its compliance with law and ethics, its relationships with employees, its relationships with customers and suppliers, and its relationships with investors and shareholders.
2. Board Composition
- Board Size. The Board believes a number of directors between 5 and 9 is an appropriate size based on the Company's present circumstances. The Board periodically evaluates whether a different number or range would better serve the Company's goals and needs, including the goals reflected in these Guidelines.
- Selection of Board Members. All Board members are elected annually by the Company's shareholders, except as noted below with respect to vacancies. Each year at the Company's annual meeting, the Board’s Governance Committee recommends a slate of directors for election by the shareholders. The Governance Committee’s recommendations are based on its determination as to the suitability of each individual and the slate as a whole to serve as directors of the Company, taking into account the membership criteria discussed below.
The Board may fill vacancies in existing or new director positions, upon recommendation of the Governance Committee. Such directors are elected by the Board to serve only until the next election of directors by the shareholders.
- Qualifications. The policy of the Board is to encourage selection of directors who will contribute to the Company's overall corporate goals of technology leadership, effective execution, high customer satisfaction, superior employee working environment, and creation and preservation of shareholder value. In general, directors should possess the highest personal and professional ethics, integrity and values, and be committed to representing the long-term interests of the shareholders.
The Governance Committee is responsible for reviewing with the Board, from time to time, specific skills and characteristics required of Board members in the context of the current make-up and needs of the Board.
In evaluating the suitability of individual candidates for election or re-election to the Board, the Governance Committee takes into account many factors, including understanding of technology, manufacturing, sales and marketing, finance and other elements relevant to the Company's business, educational and professional background, age, past performance as a Board member and consistency with the other provisions of these Guidelines relating to the composition of the Board and eligibility for Board membership. The Governance Committee evaluates each individual in the context of the composition and needs of the Board as a whole, with the objective of recommending a group that can best perpetuate and build on the success of the business and represent shareholder interests. In determining whether to recommend a director for re-election, the Governance Committee also considers the director's past attendance at, and participation in, meetings of the Board and its committees and contributions to their activities.
- Majority of Independent Directors. The Board believes that, whenever all director positions are filled, a majority of its directors should be "independent". To be "independent" within the meaning of these Guidelines, a person must meet published Nasdaq National Market requirements for independent directors (Nasdaq Stock Market Rule 4200) and must have no "material relationship" with the Company.
Persons with "material relationships" include:
In addition to these criteria, three or more directors should meet the standards of independence required for service on the Audit Committee under applicable law, regulations and the requirements of the Nasdaq National Market.
- a person who is employed by the Company or by any parent or subsidiary of the Company;
- a person who is a family member of an individual who is employed by the Company or any parent or subsidiary of the Company as an executive officer;
- a person who was a partner or employee of the Company's outside auditor or worked on the Company's audit;
- a person who accepts, or is a family member of a person (other than an employee of the Company or a parent or subsidiary of the Company) who accepts, payments (other than fees for service as directors and/or board committee members, reimbursement of out-of-pocket expenses and director orientation and continuing education costs, and indemnification payments) from the Company or any of its affiliates in excess of $60,000 during the current or any of the past three fiscal years of the Company;
- a person who is a partner in, or a controlling shareholder or an executive officer of, any organization to which the Company made, or from which the Company received, payment that exceeded 5% of the recipient's consolidated gross revenues or $200,000, whichever is more, for the current or any of the past three fiscal years; or
- a person who is employed as an executive officer of another company where any of the Company's executive officers serve on the other company's compensation committee.
If a director becomes aware of a change in circumstances which the director believes may affect his or her independent status with respect to general board service or service on a particular committee, he or she should promptly advise the Board.
- Management Directors. The Governance Committee may nominate members of the Company's management whose experience and role at the Company are expected to help the Board fulfill its responsibilities.
- Chair. The Board will periodically appoint a Chair with the approval of a majority of the directors then in office or as otherwise provided in the Company’s Bylaws.. Both management and non-management directors, including the CEO, are eligible for appointment as the Chair.
- Limits on Other Board Service. Directors must be willing to devote sufficient time to carrying out their duties and responsibilities effectively, and should be committed to serve on the Board for an extended period of time. The Board does not believe that directors who retire from or change their principal occupation, business association or position should necessarily leave the Board; however, there should be an opportunity for the Board and the Governance Committee to review the appropriateness of continued Board membership under the changed circumstances. By joining the Board, a director who retires from or changes his or her principal occupation, business association or position agrees to submit a letter offering to resign as a director of the Company in such event.
Directors who also serve as CEOs or in equivalent positions should not serve on the boards of more than 2 other companies and other directors should not serve on the boards of more than 4 other public companies, in addition to the Innovex Board.
- Term Limits. The Board does not believe that arbitrary term limits on directors' service are appropriate. Directors who have served on the Board for an extended period of time are able to provide valuable insight into the operations and future of the Company based on their experience with and understanding of the Company's history, policies and objectives. The Board believes that, as an alternative to term limits, it can ensure that fresh ideas and viewpoints are available to the Board and that the Board continues to evolve through the selection and review processes and qualifications described in these Guidelines.
At the same time, the Board does not believe that directors should expect to be renominated annually until they reach the mandatory retirement age. The selection and review processes and qualifications described in these Guidelines will also serve as determinants for Board tenure.
- Retirement Age. In the absence of special circumstances, directors will not be nominated after their 70th birthday for election to the Board.
- Former Chief Executive Officer's Board Membership. The Board believes a departing or former CEO's continued Board membership is a matter to be decided in each instance by the Governance Committee.
- Invitation to a Potential Director to Join the Board. The invitation to join the Board should be extended by the Chair of the Governance Committee and/or the CEO.
3. Board Compensation
The Board, through the Compensation Committee, will review, or request management or outside consultants to review, appropriate compensation policies for the directors serving on the Board and its committees. The Compensation Committee shall be guided by three goals: compensation should fairly pay directors for work required in a company of Innovex's size and scope; compensation should align directors' interests with the long-term interests of shareholders; and the structure of the compensation should be clearly disclosed to shareholders. In addition, the Compensation Committee will consider contributions to Board functions, service as committee chairs, and other appropriate factors. Changes in Board compensation, if any, should come at the suggestion of the Compensation Committee, with the concurrence of the Governance Committee, and with discussion and concurrence by the Board.
The Board believes that a meaningful portion of director compensation should be in common stock of the Company to further the direct correlation of directors' and shareholders' economic interests.
The Company will not make any personal loans or extensions of credit to directors or executive officers.
4. Meetings of the Board and Committees
- Frequency of Board Meetings. A minimum of four regular meetings of the Board are held each year. Additional meetings will be held as needed and will be called in accordance with the Company's Bylaws. In appropriate circumstances, the Board may also act by written consent, as permitted by the Company's Bylaws.
- Scheduling of Full Board Meetings. Board meetings will be scheduled in advance, ordinarily for a full day every quarter and generally at the Company's principal executive office.
- Agenda and Materials. In preparing the agenda, the CEO will solicit and collect possible agenda items from other members of the Board and from senior management. Each Board committee and each individual director is encouraged to suggest items for inclusion on the agenda. The Board, however, will ultimately be responsible for its own agenda. An agenda will be distributed in advance of each meeting to each director. The Board reserves authority to meet in executive sessions to discuss sensitive matters without distribution of written materials.
- Director Attendance. Proxy materials of the Company prepared in connection with the Annual Meeting of the shareholders must identify each director who attends less than 75% of the total number of Board and applicable committee meetings (in person or by telephone) held during the preceding fiscal year.
- Attendance at Board and Committee Meetings. Appropriate officers, other employees of the Company and others may be invited by the Chair or the CEO to attend the general session of the regular meetings of the Board, to attend executive sessions of the independent directors, or by the chair of each committee to attend meetings of that committee. The Board encourages management to bring managers into Board and committee meetings from time to time who: (a) can provide additional insight on items beings discussed, or (b) have potential for additional leadership responsibilities.
5. Access to Employees and the Company's Outside Advisors
The Company's executive management will provide the Board, the independent directors as a group, and the Board's committees with access to Company employees and the Company's outside auditors and legal advisors in order to ensure that directors can obtain all information necessary to fulfill their duties. The Board will specify protocols for making such inquiries and contacts. In general, outside the context of Board and committee meetings and executive sessions of the independent directors where employees and advisors are present, except in unusual circumstances, directors should coordinate their inquiries and contacts through the Chair. The Chair in turn will, in the absence of unusual circumstances, normally route such inquiries to the CEO, or to the Chief Financial Officer and will normally arrange such contacts with Company employees through the CEO and the business unit head or functional area head to whom such employee reports.
The Board, each committee of the Board and the non-management directors as a group may retain and have access to independent legal, financial or other advisors of their choice with respect to any issue relating to their activities at the Company's expense.
6. Board Committees
- Number and Type of Committees. The Board currently has an Audit Committee, a Compensation Committee, and a Governance Committee. The Board may add new committees or remove existing committees as it deems advisable for purposes of fulfilling its primary responsibilities. Each committee will have a charter that sets forth the purposes, goals and responsibilities of the committee as well as qualifications for committee membership, procedures for committee member appointment and removal, committee structure and operations, and committee reporting to the Board. The charters will also provide that each committee will annually evaluate its performance. The full authority and responsibilities of each committee may be fixed by the Company's Bylaws, resolutions of the full Board and the committee's charter.
- Committee Member Selection. The Board will, upon recommendation of the Governance Committeee, designate the members and Chair of each committee, endeavoring to match the committee's function and needs for expertise with the individual skills and experience of the appointees to the committee. The Audit, Compensation, and Governance Committees shall consist solely of independent directors. Members of the Audit and Compensation Committees shall also meet any additional criteria for independence, and the Chair and members of the Audit Committee shall meet any additional criteria for financial literacy, expertise and experience, that statutes and SEC, Nasdaq National Market and stock-option-related tax rules may require for those committees. If any director ceases to be independent under the standards set forth herein while serving on any committee whose members must be independent, he or she shall promptly resign from that committee.
- Committee Functions. The frequency, length and content of committee meetings and other matters of committee governance will be determined by each committee in light of the authority delegated by the full Board to the committee, the committee's charter, if any, approved by the Board, and legal, regulatory, accounting or governance principles applicable to that committee's function. The Company will provide each committee with access to Company employees and the Company's outside auditors and legal advisors and other resources, as required, to enable the committee to carry out its responsibilities. Minutes of each committee meeting will be made available to each Board member to assure that the Board remains fully apprised of topics discussed and actions taken. The Chair of each committee will report at Board meetings on committee actions, as appropriate.
7. Performance Evaluation; Succession Planning
- Assessing the Board and Committees. The Board will conduct an annual self-evaluation to determine whether the Board and its committees are functioning effectively. The Governance Committee shall solicit and receive comments from the directors and report its assessment of the Board’s performance. Each committee of the Board will conduct an annual self-evaluation to determine whether it is functioning effectively.
- Annual CEO Evaluation. The independent directors will conduct a review at least annually of the performance of the CEO. The independent directors will establish the evaluation process and determine the specific criteria on which the performance of the CEO is evaluated.
- Succession Planning. As part of the annual CEO evaluation process, the independent directors will work with the CEO to plan for CEO succession as well as to develop plans for interim succession for the CEO in the event of an unexpected occurrence.
8. Ethics and Conflicts of Interest
The Board expects Innovex directors, officers and employees to act ethically at all times and to acknowledge their adherence to the policies comprising Innovex's code of ethics and business conduct. In the absence of exceptional circumstances, the Board will not permit any waiver of any ethics policy for any director or executive officer. If a director becomes aware that he or she has a conflict of interest with the Company (or that a significant potential exists that he or she will have a conflict of interest with the Company in the foreseeable future), the director shall promptly inform the Chair. If a significant ongoing long-term conflict exists and cannot be resolved, the director should offer to resign. All directors will recuse themselves from any discussion or decision affecting their personal, business or professional interests. The Board will be responsible for resolving or addressing any conflict of interest question involving the CEO or any other Board-elected officer, and the CEO will be responsible for resolving or addressing any conflict of interest issue involving any other employee of the Company.
9. Financial Reporting, Legal Compliance and Ethical Conduct
The Board's governance and oversight functions do not relieve the Company's executive management of its primary responsibility for preparing financial statements which accurately and fairly represent the Company's financial results and condition. Executive management shall maintain systems, procedures, controls and a corporate culture that promote the accuracy of the Company's financial reports and compliance with legal and regulatory requirements and the ethical conduct of the Company's business.
10. Reporting of Concerns to Non-Employee Directors or Committees
Anyone who has a concern about the conduct of the Company or any of its officers or employees, or about the Company's accounting, internal controls, disclosure controls and procedures, auditing, compensation and governance matters may communicate that concern directly to the Audit, Governance, or Compensation Committees, as appropriate in light of the specific concern involved. Communications of this type may be confidential or anonymous, and may be communicated in the manner posted from time to time on the Company's website. Concerns relating to accounting, internal controls, disclosure controls and procedures, auditing, corporate conduct or conduct of any corporate officer or employee shall be forwarded to the chair of the Audit Committee. The Company's policies prohibit retaliation or adverse action against anyone for raising or helping to resolve an integrity concern.
11. Board Interaction with Institutional Investors, Press, Customers, etc.
The Board believes that management speaks for the Company. Individual Board members may, from time to time, meet or otherwise communicate with various constituencies that are involved with the Company, but it is expected that Board members would do this with the knowledge (and, other than in exceptional circumstances, at the request and with the concurrence) of the CEO and/or CFO.