Honda 2009 Annual Report Download - page 47

Companies listed on the New York Stock Exchange (NYSE) must
comply with certain standards regarding corporate governance un-
der Section 303A of the NYSE Listed Company Manual.
However, listed companies that are foreign private issuers,
such as Honda, are permitted to follow home-country practice in
lieu of certain provisions of Section 303A.
The following table shows the significant differences between
the corporate governance practices followed by U.S. listed compa-
nies under Section 303A of the NYSE Listed Company Manual and
those followed by Honda.
Corporate Governance Practices Followed by NYSE-
Listed U.S. Companies
Corporate Governance Practices Followed by Honda
An NYSE-listed U.S. company must have a majority of directors meeting the
independence requirements under Section 303A of the NYSE Listed Company
Manual.
For Japanese companies that employ a corporate governance system based on
a board of corporate auditors (the “corporate auditor system”), including Honda,
Japan’s Company Law has no independence requirement with respect to
directors. The task of overseeing management and, together with the
accounting audit firm, accounting is assigned to the corporate auditors, who are
separate from the company’s management and meet certain independence
requirements under Japan’s Company Law. In the case of Japanese companies
that employ the board of corporate auditors system, including Honda, at least
half of the corporate auditors must be “outside” corporate auditors who must
meet additional independence requirements under Japan’s Company Law. An
outside corporate auditor is defined as a corporate auditor who has not served
as a director, accounting councilor, executive officer, manager, or any other
employee of the company or any of its subsidiaries. Currently, Honda has three
outside corporate auditors which constitute 60% of Honda’s five corporate
auditors.
An NYSE-listed U.S. company must have an audit committee composed entirely
of independent directors, and the audit committee must have at least three
members.
Like a majority of Japanese listed companies, Honda employs the board of
corporate auditors system as described above. Under this system, the board of
corporate auditors is a legally separate and independent body from the board of
directors. The main function of the board of corporate auditors is similar to that
of independent directors, including those who are members of the audit
committee, of a U.S. company: to monitor the performance of the directors, and
review and express an opinion on the method of auditing by the company’s
accounting audit firm and on such accounting audit firm’s audit reports, for the
protection of the company’s shareholders.
Japanese companies that employ the board of corporate auditors system,
including Honda, are required to have at least three corporate auditors.
Currently, Honda has five corporate auditors. Each corporate auditor has a four-
year term. In contrast, the term of each director of Honda is one year.
With respect to the requirements of Rule 10A-3 under the U.S. Securities
Exchange Act of 1934 relating to listed company audit committees, Honda relies
on an exemption under that rule which is available to foreign private issuers with
boards of corporate auditors meeting certain criteria.
An NYSE-listed U.S. company must have a nominating/corporate governance
committee composed entirely of independent directors.
Honda’s directors are elected at a meeting of shareholders. Its Board of
Directors does not have the power to fill vacancies thereon. Honda’s corporate
auditors are also elected at a meeting of shareholders. A proposal by Honda’s
Board of Directors to elect a corporate auditor must be approved by a resolution
of its Board of Corporate Auditors. The Board of Corporate Auditors is
empowered to request that Honda’s directors submit a proposal for election of a
corporate auditor to a meeting of shareholders. The corporate auditors have the
right to state their opinion concerning election of a corporate auditor at the
meeting of shareholders.
An NYSE-listed U.S. company must have a compensation committee
composed entirely of independent directors.
Maximum total amounts of compensation for Honda directors and corporate
auditors are proposed to, and voted on, by a meeting of shareholders. Once the
proposals for such maximum total amounts of compensation are approved at
the meeting of shareholders, each of the Board of Directors and Board of
Corporate Auditors determines the compensation amount for each member
within the respective maximum total amounts.
An NYSE-listed U.S. company must generally obtain shareholder approval with
respect to any equity compensation plan.
Currently, Honda does not adopt stock option compensation plans. When
Honda adopts it, it must obtain shareholder approval for stock options only if
the stock options are issued with specifically favorable conditions or price
concerning the issuance and exercise of the stock options.
Annual Report 2009 45
Corporate Governance