Eli Lilly 2012 Annual Report Download - page 122

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candidate based on publicly available information and
any additional information supplied by the party
recommending the candidate. If the candidate appears
to satisfy the selection criteria and the committee’s
initial evaluation is favorable, the committee, assisted by
management or the search firm, gathers additional data
on the candidate’s qualifications, availability, probable
level of interest, and any potential conflicts of interest. If
the committee’s subsequent evaluation continues to be
favorable, the candidate is contacted by the chairman of
the board and one or more of the independent directors
for direct discussions to determine the mutual levels of
interest in pursuing the candidacy. If these discussions
are favorable, the committee makes a final
recommendation to the board to nominate the candidate
for election by the shareholders (or to select the
candidate to fill a vacancy, as applicable).
Process for Submitting Recommendations and
Nominations
A shareholder who wishes to recommend a director
candidate for evaluation by the committee should
forward the candidate’s name and information about the
candidate’s qualifications to the chair of the directors
and corporate governance committee, in care of the
corporate secretary, at Lilly Corporate Center,
Indianapolis, Indiana 46285. The candidate must meet
the selection criteria described above and must be
willing and expressly interested in serving on the board.
Under Section 1.9 of the company’s bylaws, a
shareholder who wishes to directly nominate a director
candidate at the 2014 annual meeting (i.e., to propose a
candidate for election who is not otherwise nominated
by the board through the recommendation process
described above) must give the company written notice
by November 25, 2013 and no earlier than
September 22, 2013. The notice should be addressed to
the corporate secretary at Lilly Corporate Center,
Indianapolis, Indiana 46285. The notice must contain
prescribed information about the candidate and about
the shareholder proposing the candidate as described in
more detail in Section 1.9 of the bylaws. A copy of the
bylaws is available online at http://investor.lilly.com/
governance.cfm. The bylaws will also be provided by
mail upon request to the corporate secretary.
Prior Management Proposals to Eliminate Classified
Board and Supermajority Voting Requirements
In each of the past six years, we submitted management
proposals to eliminate the company's classified board
structure. The proposals did not pass because they
failed to receive a “supermajority vote” of
80 percent of the outstanding shares, as required in the
company's bylaws. In addition, in each of the past three
years, we submitted management proposals to
eliminate the supermajority voting requirements
themselves. Those proposals also fell short of the
required 80 percent vote.
Prior to 2012, these proposals received support ranging
from 72 to 77 percent of the outstanding shares. In 2012,
the vote was even lower, approximately 63 percent of the
outstanding shares, driven in part by a 2012 NYSE rule
revision prohibiting brokers from voting their clients'
shares on corporate governance matters absent specific
instructions from such clients. In preparation for 2013,
we discussed these matters with our proxy solicitor and
our major shareholders, including those who have
supported and opposed these proposals in the past. We
have concluded that the proposals would not be
successful in 2013 and therefore we are not
resubmitting them. We will continue to monitor this
situation and engage in dialogue with our shareholders
on these and other governance topics to ensure that
Lilly continues to demonstrate strong corporate
governance and accountability to shareholders.
Audit Committee Matters
Audit Committee Membership
All members of the audit committee are independent as
defined in the SEC regulations and NYSE listing
standards applicable to audit committee members. The
board of directors has determined that Mr. Eskew,
Mr. Hoover, and Mr. Oberhelman are audit committee
financial experts, as defined in the rules of the SEC.
Audit Committee Report
The audit committee reviews the company’s financial
reporting process on behalf of the board. Management
has the primary responsibility for the financial
statements and the reporting process, including the
systems of internal controls and disclosure controls. In
this context, the committee has met and held
discussions with management and the independent
auditor. Management represented to the committee that
the company’s consolidated financial statements were
prepared in accordance with generally accepted
accounting principles (GAAP), and the committee has
reviewed and discussed the audited financial statements
and related disclosures with management and the
independent auditor, including a review of the
significant management judgments underlying the
financial statements and disclosures.
The independent auditor reports to the committee,
which has sole authority to appoint and to replace the
independent auditor.
The committee has discussed with the independent
auditor matters required to be discussed by Statement
on Auditing Standards No. 61 (Communication with
Audit Committees), as amended and as adopted by the
Public Company Accounting Oversight Board (PCAOB) in
Rule 3200T, including the quality, not just the
acceptability, of the accounting principles, the