Eli Lilly 2005 Annual Report Download - page 69

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PROX Y S TATEM ENT
6767
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 corporate 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
• selecting, compensating, and evaluating directors
• evaluating board processes and performance
• selecting, compensating, evaluating, and, when necessary, replacing the chief executive officer, and
compensating other executive officers
• ensuring that a succession plan is in place for all senior executives.
II. Composition of the Board
Mix of Independent Directors and Officer-Directors
There should always be a substantial majority (75 percent or more) of independent directors. The chief executive
officer should be a board member. Other officers may, from time to time, be board members, but no officer other
than the chief executive officer should expect to be elected to the board by virtue of his or her office.
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 page 73.
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 officer 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.
Specifically, 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 firm; (iii) the director has an immediate family member who is a current employee of such firm and who
participates in the firm’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 firm 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 officer of Lilly.
Temporary service by an independent director as interim chairman or chief executive officer 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 officer) by another
company where any Lilly executive officer 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 officer of a company that makes payments to or receives payments from Lilly for property or services