Eli Lilly 2009 Annual Report Download - page 110

Voting for Directors
In an uncontested election, any nominee for director who fails to receive a majority of the votes cast shall
promptly tender his or her resignation following certification of the shareholder vote. The directors and corporate
governance committee will consider the resignation offer and recommend to the board whether to accept it. The
board will act on the committee’s recommendation within 90 days following certification of the shareholder vote.
Board action on the matter will require the approval of a majority of the independent directors.
The company will disclose the board’s decision on a Form 8-K furnished to the SEC within four business
days after the decision, including a full explanation of the process by which the decision was reached and, if
applicable, the reasons why the board rejected the director’s resignation. If the resignation is accepted, the
directors and corporate governance committee will recommend to the board whether to fill the vacancy or
reduce the size of the board.
Any director who tenders his or her resignation under this provision will not participate in the committee or
board deliberations regarding whether to accept the resignation offer. If all members of the directors and
corporate governance committee fail to receive a majority of the votes cast at the same election, then the
independent directors who did receive a majority of the votes cast will appoint a committee amongst themselves
to consider the resignation offers and recommend to the board whether to accept them.
III. Director Compensation and Equity Ownership
The directors and corporate governance committee annually reviews board compensation. Any recommendations
for changes are made to the board by the committee.
Directors should hold meaningful equity ownership positions in the company; accordingly, a significant
portion of overall director compensation is in the form of company equity. Directors are required to hold company
stock valued at not less than five times their annual cash retainer; new directors are allowed five years to reach
this ownership level.
IV. Key Responsibilities of the Board
Selection of Chairman and Chief Executive Officer; Succession Planning
The board currently combines the role of chairman of the board with the role of chief executive officer, coupled
with a lead director position to further strengthen the governance structure. The board believes this provides an
efficient and effective leadership model for the company. Combining the chairman and CEO roles fosters clear
accountability, effective decision-making, and alignment on corporate strategy. To assure effective independent
oversight, the board has adopted a number of governance practices, including:
• a strong, independent, clearly-defined lead director role (see below for a full description of the role)
• executive sessions of the independent directors after every board meeting
• annual performance evaluations of the chairman and CEO by the independent directors.
However, no single leadership model is right for all companies and at all times. The board recognizes that
depending on the circumstances, other leadership models, such as a separate independent chairman of the
board, might be appropriate. Accordingly, the board periodically reviews its leadership structure.
The lead director recommends to the board an appropriate process by which a new chairman and chief
executive officer will be selected. The board has no required procedure for executing this responsibility because
it believes that the most appropriate process will depend on the circumstances surrounding each such decision.
A key responsibility of the CEO and the board is ensuring that an effective process is in place to provide
continuity of leadership over the long term at all levels in the company. Each year, succession-planning reviews
are held at every significant organizational level of the company, culminating in a full review of senior leadership
talent by the independent directors. During this review, the CEO and the independent directors discuss future
candidates for senior leadership positions, succession timing for those positions, and development plans for the
highest-potential candidates. This process ensures continuity of leadership over the long term, and it forms the
basis on which the company makes ongoing leadership assignments. It is a key success factor in managing the
long planning and investment lead times of our business.
In addition, the CEO maintains in place at all times, and reviews with the independent directors, a
confidential plan for the timely and efficient transfer of his or her responsibilities in the event of an emergency
or his or her sudden incapacitation or departure.
Evaluation of Chief Executive Officer
The lead director is responsible for leading the independent directors in executive session to assess the
performance of the chief executive officer at least annually. The results of this assessment are reviewed with the
chief executive officer and considered by the compensation committee in establishing the chief executive officer’s
compensation for the next year.
Succession Management and Election of Officers
The independent directors are responsible for overseeing the succession and management development program
for senior leadership. The chief executive officer develops and maintains a process for advising the board on
succession planning for the chief executive officer and other key senior leadership positions. The chief executive
officer reviews this plan with the independent directors at least annually.
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