The Clorox Company

Board of Directors Governance Guidelines

 

General

 

The Board of Directors of The Clorox Company represents the owners' interest in perpetuating a successful business, including optimizing long-term financial returns. The Board is responsible for determining that the Company is managed in such a way as 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, including the execution of its strategies, and to provide for management succession.

 

Directors

 

Membership on the Board should be confined to those individuals who can, on the basis of their experience and know-how, make valuable contributions to the overall conduct of the business. In assessing potential new directors, the Nominating and Governance Committee considers individuals from various disciplines and diverse backgrounds. Board candidates are considered based upon various criteria, such as their broad-based business skills and experiences, prominence and reputation in their profession, global business and social perspective, concern for the long-term interests of the stockholders and personal integrity and judgment - all in the context of an assessment of the perceived needs of the Board at that point in time.

 

 

The size of the Board should be limited to a relatively small number of members so it can operate effectively as a body of the whole. However, it must be large enough to handle the activities of the various Board Committees. This means that on a going basis the ideal size of the Board should be from 9 to 15, although in some unusual situations, the Board may want to deviate temporarily from this ideal range.

 

 

The Board should be composed of a substantial majority of independent members. Independence for purposes of this provision is defined in the section entitled "Independence" below.

 

 

An independent Director must retire at the Annual Meeting of Stockholders next following attainment of age 70. A management Director must resign or retire concurrently with resignation or upon retirement from active management at that director's normal or early retirement date under the Company's retirement plan. Non-management directors should offer their resignation in the event of any significant change in their personal circumstances, including a change in their principal job responsibilities.

 

 

A director should engage in discussion with the Chairman prior to accepting an invitation to serve on an additional public company board or on the audit committee of another public company if the director already serves on five or more other public company boards or serves on the Company's audit committee and on at least two other public company audit committees.

 

 

The Board expects all directors, as well as officers and employees, to act ethically at all times and to adhere to the Company's Standards of Conduct. If an actual or potential conflict of interest arises for a director, the director shall promptly inform the Chairman. If a significant conflict exists and cannot be resolved, the director should resign. All directors will recuse themselves from any discussion or decision affecting their business or personal interests.

 

 

The Board believes that the linkage of directors' interests to those of stockholders is strengthened when Board members are also stockholders. The Board therefore requires that directors, within three years of being first elected to the Board, own Company stock with a market value of at least two times their annual retainer. In addition, a portion of directors' annual fees are paid into a deferred stock compensation plan to purchase deferred shares that cannot be disposed of until the director leaves the Board.

 

 

The Board requires that new directors receive an orientation to the Company and to Board members' responsibilities. The Board also requires that board members receive accredited continuing education with respect to changes in the Company and in their responsibilities. The Nominating and Governance Committee is responsible for oversight of the orientation and continuing education program.

 

 

Only non-employee directors receive payment for serving on the Board. Non-employee directors receive an annual retainer. Committee Chairs receive an increased retainer. In addition, directors receive initial awards of options to company stock when they join the Board and annual awards thereafter. Directors also receive a deferred stock grant annually, which stock may not be transferred until a director leaves the board. Directors' compensation is reviewed at least once every two years by the Nominating and Governance Committee, which makes recommendations to the Board with respect to any changes. The Board believes that its total compensation should be set at approximately the median compensation for directors of comparable organizations.

 

 

Directors are expected to attend Board and committee meetings regularly, to participate actively in the work of the Board and committees to which they are appointed and to prepare for Board and committee meetings by reviewing material distributed in advance.

 

 

The Board shall hold an executive session at least three times each year attended only by non-management directors. If there are non-management directors who are not independent, as defined below, the Board shall hold at least one executive session each year attended only by independent directors. The independent Chairman of the Board shall chair the executive sessions. If there is no independent Chairman, the Nominating and Governance Committee shall designate a presiding director to chair executive sessions.

 

 

The Board shall annually conduct a self-evaluation of its performance. The Nominating and Governance Committee shall be responsible for oversight of the self-evaluation process.

 

 

Directors shall have free and open access to employees. Both parties must recognize that all such contacts can involve only an exchange of information, not an exercise of authority. Both parties are expected to express their own views openly and directly, being careful also to state that they differ from the official position if they know that to be the case. Both parties are responsible for ensuring that any such discussions that are more than casual are communicated to the Chief Executive Officer.

 

 

The Board shall have access to independent advisors as necessary to conduct its duties. Certain Board committees have specific authority granted in their charters to retain directly independent advisors.

Committees of the Board

 

The Board has established Committees of the Board and has delegated important responsibilities to them. Committees of the Board may also select subcommittees from time to time subject to Board approval. The responsibilities of each Committee and subcommittee should be spelled out in a charter approved by the full Board before implementation.

 

 

All independent Directors should take an active role in Committee activities with each serving on at least one, and in most cases, two or more Committees. The Nominating and Governance Committee shall make recommendations to the Board for Committee appointments based on the interest and expertise of each individual Board member. All such appointments are subject to Board approval.

 

All Committee Chairpersons should be independent Directors except for the Executive Committee, which will be chaired by the Chief Executive Officer.

 

Participation on the various Committees should be rotated from time to time so as to provide both continuity on each Committee and exposure of the activities of each Committee to all independent Directors. In some cases, the Chairperson of a Committee may want to invite others to attend all or part of a Committee meeting.

 

 

At present, the Board has established the following Committees of the Board:

 

 

Executive Committee.

Audit Committee.

Finance Committee.

Employee Benefits and Management Compensation Committee.

Nominating and Governance Committee.

 

 

The members of the Audit Committee, the Employee Benefits and Management Compensation Committee and the Nominating and Governance Committee shall be independent as that term is defined in the Section below labeled "Independence."

 

 

The responsibility and authority of the Board Committees is set forth in their respective charters. The areas of responsibility for each committee are as follows:

 

 

Executive Committee Acts for the Board in most matters when the full Board cannot be convened.

Audit Committee Oversees the Company's accounting and financial controls, including the independent and internal auditors, and risk management activities.

 

Finance Committee Oversees and makes recommendations to the Board with respect to the Company's financial condition, including capital structure and borrowing.

 

Employee Benefits and Management Compensation Committee Approves compensation for executive management and welfare and benefit plans for the Company as a whole.

 

Nominating and Governance Committee Oversees and makes recommendations to the Board with respect to these Governance Guidelines, director selection and compensation and board evaluation.

CEO Evaluation and Succession Planning

 

The Chairman is responsible, with the Employee Benefits and Management Compensation Committee, for conducting an annual evaluation of the Chief Executive Officer's performance. That evaluation is based on an evaluation of Chief Executive Officer's achievement with respect to a number of financial and non-financial performance goals that are established at the beginning of each fiscal year.

 

 

The Board is responsible for planning for succession of the Chief Executive Officer and for overseeing succession planning for Management Executive Committee. The Chief Executive Officer will provide a report on succession planning annually to the Nominating and Governance Committee.

 

 

There should be available, on a continuing basis, the Chairman's and the Chief Executive Officer's recommendation as to a successor in the event of an unexpected disability.

Independence

 

The Board shall review annually the relationships that each director has with the Company. Only those directors who the Board affirmatively determines have no material relationship with the Company (either directly or as a partner, shareholder or officer of an organization that has a relationship with the Company) will be considered independent.

 

The Board has established the following criteria to be used in determining whether a director has a material relationship with the Company:

 

A director will be presumed not to be independent if, within the preceding three years, the director or an immediate family member received more than $100,000 per year in direct compensation from the Company, other than director and committee fees, pension or other forms of deferred compensation for prior service (provided that such compensation is not contingent in any way on continued service), compensation for former service as an interim chairman or interim chief executive officer or dividends on Company stock beneficially owned by the director. The Board of Directors may negate this presumption with respect to the director if the Board determines, and no independent director dissents, that, based on the relevant facts and circumstances, such compensatory relationship is not material. Any such affirmative determination of independence must be specifically explained in the proxy statement.

 

 

A director will not be deemed to be independent if, within the preceding three years: (i) the director was affiliated with or employed by, or an immediate family member was affiliated with or employed in a professional capacity by, the Company's present or former internal or external auditor; (ii) the director or an immediate family member is or was employed as an executive officer of another company where any of the Company's present executives serve or served on that company's compensation committee; or (iii) the director is an executive officer or an employee, or an immediate family member is an executive officer, of a another company (a) that accounts for at least two percent or $1 million, whichever is greater, of the Company's consolidated gross revenues or (b) for which the Company accounts for at least two percent or $1 million, whichever is greater, of such other company's consolidated gross revenues.

 

 

A director who owns, or is a partner, stockholder, officer, director or employee of, an entity that owns not more than 30% of the outstanding stock of the Company shall be considered independent unless the director or the entity owning the Company's stock has a relationship with the Company that, under paragraphs 1 or 2 above or otherwise, requires a finding of non-independence, provided that, for purposes of assessing the independence of members of the Audit Committee, the stock ownership threshold shall be 10% if the director is an executive officer of an entity owning the Company's stock, or if the director owns, directly or indirectly, at least 10% of such entity's voting securities.

 

 

A director who holds, or whose immediate family member holds, the position of director, trustee, executive officer, fund-raising campaign chairman or other responsible position with a non-profit institution that receives from the Company and its Foundation more than $100,000 in contributions or other support in any year shall be presumed not to be independent. The Board of Directors may negate this presumption with respect to the director if the Board determines, and no independent director dissents, that, based on the relevant facts and circumstances, such relationship is not material.

 

For purposes of these criteria (i) "immediate family member" includes a person's spouse, parents, children, siblings, mothers and fathers-in-law, sons and daughters-in-law, brothers and sisters-in-law, and anyone, other than domestic employees, who shares such person's home and (ii) during the period from November 4, 2003 through November 3, 2004, the look-back period under paragraphs 1 and 2 above shall be one year.