Honda 2014 Annual Report Download - page 28

Corporate Governance Practices Followed by
NYSE-listed U.S. Companies
Corporate Governance Practices 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 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 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 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.
In addition, the listing rules of the Tokyo Stock Exchange, which Honda is subject to, require listed companies to have at least one “ independent” director or
corporate auditor, and to make efforts to have at least one “independent” director. Requirements for an independent director/corporate auditor are more strin-
gent than those for outside directors or outside corporate auditors. Unlike an outside director/corporate auditor, an independent director/corporate auditor may
not be a person who is an executive officer, manager or employee of the parent company of the company or of the major business counterparties, or someone
who is a professional advisor receiving significant remuneration from the company. Honda already has one independent Director out of two outside Directors
and two independent Corporate Auditors out of three outside Corporate Auditors.
A NYSE-listed U.S. company must have an audit commit-
tee 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 protec-
tion 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 governance committee 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 pro-
posal 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.
A NYSE-listed U.S. company must have a compensation
committee composed entirely of independent directors.
Compensation committee members must satisfy the addi-
tional independence requirements under Section 303A.02(a)
(ii) of the NYSE Listed Company Manual. A compensation
committee must also have authority to retain or obtain the
advice of compensation and other advisers, subject to
prescribed independence criteria that the committee must
consider prior to engaging any such adviser.
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 respective maximum total amounts.
A NYSE-listed U.S. company must generally obtain share-
holder 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.
* For information about Honda’s corporate governance practices, please refer to (http://world.honda.com/CSR/governance)
Corporate Governance
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 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 companies under Section 303A of the NYSE Listed Company Manual
and those followed by Honda.
Honda Motor Co., Ltd. Annual Report 2014 27
5 Corporate Governance
1 The Power of Dreams
2 Financial Highlights
3 To Our Shareholders
4 Review of Operations
6 Financial Section
7
Investor Relations
Information
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