Eli Lilly 2011 Annual Report Download - page 103

PROXY STATEMENT
Other Board Service
Effective November 1, 2009, no new director may serve on more than three other public company boards, and no
incumbent director may accept new positions on public company boards that would result in service on more than
three other public company boards. The directors and corporate governance committee or the chair of that commit-
tee may approve exceptions to this limit upon a determination that such additional service will not impair the direc-
tor’s effectiveness on the board.
Voting for Directors
In an uncontested election, any nominee for director who fails to receive a majority of the votes cast shall promptly
tender his or her resignation following certification of the shareholder vote. The directors and corporate governance
committee will consider the resignation offer and recommend to the board whether to accept it. The board will act
on the committee’s recommendation within 90 days following certification of the shareholder vote. Board action on
the matter will require the approval of a majority of the independent directors.
The company will disclose the board’s decision on a Form 8-K within four business days after the decision,
including a full explanation of the process by which the decision was reached and, if applicable, the reasons why the
board rejected the director’s resignation. If the resignation is accepted, the directors and corporate governance
committee will recommend to the board whether to fill the vacancy or reduce the size of the board.
Any director who tenders his or her resignation under this provision will not participate in the committee or
board deliberations regarding the resignation offer. If all members of the directors and corporate governance com-
mittee fail to receive a majority of the votes cast at the same election, the independent directors who did receive a
majority of the votes cast will appoint a committee amongst themselves to consider the resignation offers and
recommend to the board whether to accept them.
III. Director Compensation and Equity Ownership
The directors and corporate governance committee annually reviews board compensation. Any recommendations for
changes are made to the board by the committee.
Directors should hold meaningful equity ownership positions in the company; accordingly, a significant portion
of director compensation is in the form of Lilly stock. Directors are required to hold Lilly stock valued at not less than
five times their annual cash retainer; new directors are allowed five years to reach this ownership level.
IV. Key Board Responsibilities
Selection of Chairman and Chief Executive Officer; Succession Planning
The board currently combines the role of chairman of the board with the role of chief executive officer, coupled with
a lead director position to further strengthen the governance structure. The board believes this provides an efficient
and effective leadership model for the company. Combining the chairman and CEO roles fosters clear accountability,
effective decision-making, and alignment on corporate strategy. To assure effective independent oversight, the
board has adopted a number of governance practices, including:
• a strong, independent, clearly-defined lead director role (see below for a full description of the role)
• executive sessions of the independent directors after every regular board meeting
• annual performance evaluations of the chairman and CEO by the independent directors.
However, no single leadership model is right for all companies and at all times. Depending on the circum-
stances, other leadership models, such as a separate independent chairman of the board, might be appropriate.
Accordingly, the board periodically reviews its leadership structure.
The lead director recommends to the board an appropriate process by which a new chairman and CEO will be
selected. The board has no required procedure for executing this responsibility because it believes that the most
appropriate process will depend on the circumstances surrounding each such decision.
A key responsibility of the CEO and the board is ensuring that an effective process is in place to provide con-
tinuity of leadership over the long term. Each year, succession-planning reviews culminate in a detailed review of top
leadership talent by the compensation committee and a summary review by the independent directors as a whole.
During this review, the CEO and the independent directors discuss future candidates for senior leadership positions,
succession timing, and development plans for the highest-potential candidates.
In addition, the CEO maintains in place at all times, and reviews with the independent directors, a confidential
plan for the timely and efficient transfer of his or her responsibilities in the event of an emergency or his or her
sudden departure, incapacitation, or death.
Evaluation of Chief Executive Officer
The lead director is responsible for leading the independent directors in executive session to assess the perform-
ance of the chief executive officer at least annually. The results of this assessment are reviewed with the chief
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