Eli Lilly 2004 Annual Report Download - page 64

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PROXY STATEMENT
6262
Highlights of the Company’s Corporate Governance Guidelines
The board of directors has established guidelines that it follows in matters of corporate governance. The following
summary provides highlights of those guidelines. A complete copy of the guidelines is available online at
http://investor.lilly.com/guidelines.cfm or in paper form upon request to the company’s secretary.
I. Role of the Board
The directors are elected by the shareholders to oversee the actions and results of the company’s management.
Their responsibilities include:
• providing general oversight of the business
• approving corporate strategy and major management initiatives
• providing oversight of legal and ethical conduct
• nominating, compensating, and evaluating directors
• evaluating board processes and performance
• selecting, evaluating, compensating, and, when necessary, replacing the chief executive offi cer and
compensating other executive offi cers.
II. Composition of the Board
Mix of Independent Directors and Offi cer-Directors
There should always be a substantial majority (75 percent or more) of independent, nonemployee directors. The
chief executive offi cer should be a board member. Other offi cers may from time to time be board members, but no
offi cer other than the chief executive offi cer should expect to be elected to the board by virtue of his or her offi ce.
Selection of Director Candidates
The board is responsible for selecting candidates for board membership and for establishing the criteria to be
used in identifying potential candidates. The board delegates the screening process to the directors and corporate
governance committee. For more information on the director nomination process, including the current selection
criteria, see Directors and Corporate Governance Committee Matters on pages 66–67.
Independence Determinations
The board annually determines the independence of directors based on a review by the directors and corporate
governance committee. No director is considered independent unless the board has determined that he or she has
no material relationship with the company, either directly or as a partner, shareholder, or offi cer of an organization
that has a material relationship with the company. Material relationships can include commercial, industrial, bank-
ing, consulting, legal, accounting, charitable, and familial relationships, among others. To evaluate the materiality
of any such relationship, the board has adopted categorical independence standards consistent with the revised
New York Stock Exchange listing guidelines adopted in November 2003 and amended in November 2004.
Specifi cally, a director is not considered independent if (i) the director or an immediate family member is a
current partner of Lilly’s independent auditor (currently Ernst & Young LLP); (ii) the director is a current employee
of such fi rm; (iii) the director has an immediate family member who is a current employee of such fi rm and who
participates in the fi rm’s audit, assurance or tax compliance (but not tax planning) practice; or (iv) the director or
immediate family member was within the last three years (but is no longer) a partner or employee of such fi rm and
personally worked on the listed company’s audit within that time.
In addition, a director is not considered independent if any of the following relationships existed within the
previous three years:
• a director who is an employee of Lilly, or whose immediate family member is an executive offi cer of Lilly.
Temporary service by an independent director as interim chairman or chief executive offi cer will not disqualify
the director from being independent following completion of that service.
• a director who receives any direct compensation from Lilly other than the director’s normal director
compensation, or whose immediate family member receives more than $100,000 per year in direct
compensation from Lilly other than for service as a non-executive employee.
• a director who is employed (or whose immediate family member is employed as an executive offi cer) by another
company where any Lilly executive offi cer serves on that company’s compensation committee.
• a director who is employed by, who is a 10 percent shareholder of, or whose immediate family member is an
executive offi cer of a company that makes payments to or receives payments from Lilly for property or services
that exceed the greater of $1 million or 2 percent of that company’s gross revenues in a single fi scal year.