Honda 2013 Annual Report Download - page 31

Companies listed on the New York Stock Exchange (the
“NYSE”) must comply with certain standards regarding
corporate governance under Section 303A of the NYSE
Listed Company Manual.
However, listed companies that are foreign private issu-
ers, such as Honda, are permitted to follow homecountry
practice in lieu of certain provisions of Section 303A.
The following table shows the significant differ-
ences between the corporate governance practices
followed by U.S. listed companies under Section 303A
of the NYSE Listed Company Manual and those
followed by Honda.
A 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 over-
seeing 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
which 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 indepen-
dence 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.
A 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 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 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 Board of Corporate Auditors meeting
certain criteria.
A NYSE-listed U.S. company must
have a nominating/corporate gover-
nance committee entirely of indepen-
dent 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 share-
holders. The Corporate Auditors have the right to state their opinion concerning election of a
Corporate Auditor at the meeting of shareholders.
A 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 maxi-
mum 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.
A NYSE-listed U.S. company must
generally obtain shareholder approval
with respect to any equity compensa-
tion 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.
* For information about Honda’s corporate governance practices, please refer to (http://world.honda.com/CSR/governance)
Corporate Governance
Corporate Governance
Practices Followed by
NYSE-listed U.S. Companies
Corporate Governance Practices Followed by Honda
Honda Motor Co., Ltd. 29