Honda 2011 Annual Report Download - page 39

Corporate Governance
Companies listed on the New York Stock Exchange (the “NYSE”)
must comply with certain standards regarding corporate govern-
ance under 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 com-
panies 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 which employ a corporate governance system based on a
board of corporate auditors (the “board of corporate auditors 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 ad-
ditional independence requirements under Japan’s Company Law. An outside cor-
porate 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 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 direc-
tors. 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 which 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’s 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 re-
spective 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. If Honda were
to adopt such a plan, Honda 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.
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