Corporate Governance Guidelines
Corporate Governance Guidelines of
Wesco Aircraft Holdings, Inc.
The following principles have been approved by the board of directors of Wesco Aircraft Holdings, Inc. (the “Company” or “Wesco”), and, along with the charters and key practices of the committees of the board of directors (the “Board”), provide the framework for the governance of the Company. The Board recognizes that there is an ongoing and energetic debate about corporate governance, and it will review these principles and other aspects of Company governance annually or more often if deemed necessary.
1. Role of Board and Management
The Company’s business is conducted by its employees, managers and officers, under the direction of the chief executive officer (“CEO”) and the oversight of the Board, to enhance the long-term value of the Company for its shareholders. The Board is elected by the shareholders to oversee management and to assure that the long-term interests of the shareholders are being served. Both the Board and management recognize that the long-term interests of shareholders are advanced by responsibly addressing the concerns of other stakeholders and interested parties including employees, recruits, customers, suppliers, Wesco communities, government officials and the public at large.
2. Functions of Board
The Board has four (4) scheduled meetings a year at which it reviews and discusses the performance of the Company, its plans and prospects, as well as immediate issues facing the Company. Directors are expected to attend all scheduled Board and committee meetings. In addition to its general oversight of management, the Board also performs a number of specific functions, including:
selecting, evaluating and compensating the CEO and overseeing CEO succession planning;
providing counsel and oversight on the selection, evaluation, development and compensation of senior management;
reviewing, monitoring and, where appropriate, approving fundamental financial and business strategies and major corporate actions;
assessing major risks facing the Company and reviewing options for their mitigation; and
ensuring processes are in place for maintaining the integrity of the Company, including the integrity of the financial statements, the integrity of compliance with law and ethics, the integrity of relationships with customers and suppliers and the integrity of relationships with other stakeholders.
Directors should possess the highest personal and professional ethics, integrity and values, and be committed to representing the long-term interests of the shareholders. They must also have an inquisitive and objective perspective, practical wisdom and mature judgment. We endeavor to have a Board representing a range of experience at policy-making levels in business, government, education and technology, and in areas that are relevant to the Company’s global activities. Directors must be willing to devote sufficient time to carrying out their duties and responsibilities effectively, and should be committed to serve on the Board for an extended period of time.
Directors who also serve as CEOs or in equivalent positions should not serve on more than two boards of directors of public companies in addition to the Wesco board of directors, and other directors should not serve on more than four other boards of directors of public companies in addition to the Wesco board of directors.
When a director’s principal occupation or job responsibilities change significantly during his or her tenure as a director, that director shall tender his or her resignation for consideration by the Nominating and Corporate Governance Committee. The Nominating and Corporate Governance Committee will recommend to the Board the action, if any, to be taken with respect to the resignation.
The Board does not believe that term limits on directors’ service are appropriate, nor does it believe that directors should expect to be re-nominated annually. The Board self-evaluation process described below will be an important determinant for Board tenure.
4. Independence of Directors
Wesco will comply at all times with the independent director requirements in the New York Stock Exchange listing requirements (the “NYSE rules”), as independence is determined by the Board based on the guidelines set forth below. Directors who do not satisfy Wesco’s independence guidelines also make valuable contributions to the Board and to the Company by reason of their experience and wisdom.
For a director to be considered independent, the Board must determine that the director does not have any direct or indirect material relationship with Wesco. The Board has established guidelines to assist it in determining director independence, which conform to or are more exacting than the independence requirements in NYSE rules. In addition to applying these guidelines, the Board will consider all relevant facts and circumstances in making an independence determination.
The Board will make and publicly disclose its independence determination for each director when the director is first elected to the Board and annually thereafter for all nominees for election as directors. If the Board determines that a director who satisfies the NYSE rules is independent even though he or she does not satisfy all of Wesco’s independence guidelines, this determination will be disclosed and explained in the next proxy statement.
In accordance with NYSE rules, independence determinations under the guidelines in section (a) below will be based upon a director’s relationships with Wesco during the 36 months preceding the determination. Similarly, independence determinations under the guidelines in section (b) below will be based upon the extent of commercial relationships during the three (3) completed fiscal years preceding the determination.
A director will not be independent if:
the director is employed by Wesco, or an immediate family member is an executive officer of Wesco;
the director, or an immediate family member, receives more than $120,000 per year in direct compensation from Wesco, other than director and committee fees and pension or other forms of deferred compensation for prior service (provided such compensation is not contingent in any way on continued service);
the director is a current partner or employee of Wesco’s internal or external auditor, or an immediate family member is a current partner of such firm, or an immediate family member is a current employee of such firm and such immediate family member personally works on Wesco’s audit, or the director or immediate family member was a partner or an employee of such firm and personally worked on Wesco’s audit; or
a Wesco executive officer is on the compensation committee of the board of directors of a company which employs the Wesco director or an immediate family member as an executive officer.
A director will not be independent if, at the time of the independence determination, the director is an employee, or if an immediate family member is an executive officer, of another company that does business with Wesco and the sales by that company to Wesco or purchases by that company from Wesco, in any single fiscal year during the evaluation period, are more than the greater of two percent (2%) of the annual consolidated gross revenues of that company or $1 million.
A director will not be independent if, at the time of the independence determination, the director serves as an executive officer, director or trustee of a charitable organization, and Wesco’s discretionary charitable contributions to the organization are the greater of $1 million or two percent (2%) of that organization’s annual consolidated gross revenues during its last completed fiscal year. (Wesco’s automatic matching of employee charitable contributions will not be included in the amount of Wesco’s contributions for this purpose.)
5. Size of Board and Selection Process
The directors are elected each year by the shareholders at the annual meeting of shareholders. Shareholders may propose nominees for consideration by the Nominating and Corporate Governance Committee by submitting the names and supporting information to: Secretary, Wesco Aircraft Holdings, Inc., 24911 Avenue Stanford, Valencia, CA 91355. The Board proposes a slate of nominees to the shareholders for election to the Board. The Board also determines the number of directors on the Board provided that there are at least seven (7). Between annual shareholder meetings, the Board may elect directors to serve the remainder of the term of the class to which each such director has been elected. The Chairman and the Chair of the Nominating and Corporate Governance Committee, on behalf of the entire Board, extend invitations to join the Board. The Board believes that, given the size and breadth of Wesco and the need for diversity of Board views, the size of the Board should be in the range of seven (7) to eleven (11) directors.
6. Board Committees
The Board has established the following committees to assist the Board in discharging its responsibilities: (i) Audit; (ii) Compensation; (iii) Nominating and Corporate Governance; and (iv) Finance. The current charters and key practices of the Audit, Compensation and Nominating and Corporate Governance Committees are published on the Wesco website, and will be mailed to shareholders upon written request. The committee chairs report the highlights of their meetings to the full Board following each meeting of the respective committees. The committees occasionally hold meetings in conjunction with the full Board. For example, it is the practice of the Audit Committee to meet in conjunction with the full Board in November so that all directors may participate in the review of the annual financial statements and Management’s Discussion and Analysis of Financial Condition and Results of Operations for the prior year and financial plans for the current year. The Board reserves oversight of the major risks facing the Company and has delegated risk oversight responsibility to committees of the Board as follows: the Audit Committee oversees the Company’s risk assessment and risk management guidelines, policies and processes as well as risk relating to the financial statements and financial reporting process of the Company; the Compensation Committee oversees risk related to senior executive compensation; the Nominating and Corporate Governance Committee oversees risk related to corporate governance; and the Finance Committee oversees risk related to the Company's financing activities and oversees the Company's enterprise risk management.
7. Independence of Committee Members
In addition to the Board independence standards discussed in section 4 above, and subject to any applicable phase-in periods provided for by the New York Stock Exchange Listed Company Manual, all members of the Audit Committee must be independent by those standards and also satisfy an additional Securities and Exchange Commission independence requirement. Specifically, they may not accept directly or indirectly any consulting, advisory or other compensatory fee from Wesco or any of its subsidiaries other than their directors’ compensation. As a matter of policy, the Board will also apply a separate and heightened independence standard to members of both the Compensation Committee and the Nominating and Corporate Governance Committee. No member of either committee may be a partner, member or principal of a law firm, accounting firm or investment banking firm that accepts consulting or advisory fees from Wesco or any of its subsidiaries.
8. Meetings of Non-Management Directors
The Board will have regularly scheduled meetings for the non-management directors without any management directors or employees present, at least one of which annually will include only independent directors. The presiding director (as described below in Section 9) will preside at such meetings. The non-management directors may meet without management present at such other times as determined by the presiding director.
9. Board Leadership
The CEO may serve as the chairman of the Board. The independent directors shall appoint an independent, non-management member of the Board to serve as the presiding director. However, if the Board elects an independent, non-management director as the chairman of the Board, such chairman shall serve as the presiding director. The presiding director leads meetings of the non-management directors, calls additional meetings of the non-management directors as deemed appropriate and performs such other functions as the Board may direct, including (1) advising the Nominating and Corporate Governance Committee on the selection of committee chairs, (2) approving the agenda, schedule and information sent to the directors for Board meetings, (3) working with the chairman of the Board to propose an annual schedule of major discussion items for the Board’s approval and (4) providing leadership to the Board if circumstances arise in which the role of the chairman may be, or may be perceived to be, in conflict, and otherwise act as chairman of Board meetings when the chairman is not in attendance. The presiding director also makes himself available for consultation and direct communication with the Company’s major shareholders. The Board periodically reviews the Wesco Board leadership structure to evaluate whether it remains appropriate for the Company.
As described more fully in the key practices of the Nominating and Corporate Governance committee, the Board and each of the committees will perform an annual self-evaluation. Each August, each director will provide to an independent governance expert his or her assessment of the effectiveness of the Board and its committees, as well as director performance and Board dynamics. The individual assessments will be organized and summarized by this independent governance expert for discussion with the Board and the committees in November.
11. Setting Board Agenda
The Board shall be responsible for its agenda. At the Board meeting in which third quarter results of operations are discussed, the chairman of the Board and the presiding director will propose for the Board’s approval key issues of strategy, risk and integrity to be scheduled and discussed during the course of the next fiscal year. Before that meeting, the Board will be invited to offer its suggestions. As a result of this process, a schedule of major discussion items for the following year will be established, including discussion of key material risks. Prior to each Board meeting, the chairman of the Board will discuss the other specific agenda items for the meeting with the presiding director, who shall have authority to approve the agenda for the meeting. The chairman of the Board and the presiding director, or committee chair as appropriate, shall determine the nature and extent of information that shall be provided regularly to the directors before each scheduled Board or committee meeting. Directors are urged to make suggestions for agenda items, or additional pre-meeting materials, to the chairman of the Board, the presiding director, or appropriate committee chair at any time.
12. Ethics and Conflicts of Interest
The Board expects Wesco directors, as well as officers and employees, to act ethically at all times and to acknowledge their adherence to the policies comprising Wesco’s code of conduct set forth in the Company’s Code of Ethics. Wesco will not make any personal loans or extensions of credit to directors or executive officers. No non-management director may provide personal services for compensation to Wesco, other than in connection with serving as a Wesco director. The Board will not permit any waiver of any ethics policy for any director or executive officer. If an actual or potential conflict of interest arises for a director, the director shall promptly inform the CEO and the presiding director. The Nominating and Corporate Governance Committee shall resolve any such conflicts. If a significant conflict exists and cannot be resolved, the director should resign. All directors will recuse themselves from any discussion or decision affecting their personal, business or professional interests. The Nominating and Corporate Governance Committee shall resolve any conflict of interest question involving the CEO, a vice chairman or a senior vice president, and the CEO shall resolve any conflict of interest issue involving any other officer of the Company.
13. Reporting of Concerns to Non-Management Directors or the Audit Committee
The Audit Committee and the non-management directors have established the following procedures to enable anyone who has a concern about Wesco’s conduct, or any employee who has a concern about the Company’s accounting, internal accounting controls or auditing matters, to communicate that concern directly to the General Counsel or to the Audit Committee. Such communications may be confidential or anonymous, and may be e-mailed, submitted in writing or reported by phone to special addresses and a toll-free phone number that are published on the Company’s website. Comments, complaints and concerns are initially processed by the General Counsel or other designated Company legal counsel (in either case, “Company Counsel”), who acknowledges receipts to the person submitting the communication. Company Counsel supplies any such communication that relates to accounting, internal accounting controls or auditing matters (or a summary) directly to the Audit Committee.
With respect to all other communications, Company Counsel provides regular reports to the Audit Committee and Wesco’s presiding director at least four times a year. These reports summarize the communications by subject matter and frequency, and break out significant concerns. The reports also include a summary of the status of significant matters that are under review or investigation in response to a concern. This approach ensures that concerns are raised to the directors in an effective manner that accurately informs them of the nature and frequency of the concerns. The presiding director or the Audit Committee chair may direct that certain matters be presented to the Audit Committee or the full Board and may direct special treatment, including the retention of outside advisors or counsel, for any concern addressed to them. The Company’s integrity manual prohibits any employee from retaliating or taking any adverse action against anyone for raising or helping to resolve an integrity concern.
14. Compensation of the Board
The Compensation Committee shall have the responsibility for recommending to the Board compensation and benefits for non-management directors. In discharging this duty, the committee shall be guided by the following goals: compensation should fairly pay directors for work required in a company of Wesco’s size and scope; compensation should align directors’ interests with the long-term interests of shareholders; and the structure of the compensation should be simple, transparent and easy for shareholders to understand. Stock in the Company should be a significant portion of director compensation. Each year, the Compensation Committee shall review non-management director compensation and benefits. In discharging the duties described in this paragraph, the Compensation may, at its discretion, seek recommendations from independent compensation consultants.
15. Succession Plan
The Board shall approve and maintain a succession plan for the CEO and senior executives, based upon recommendations from the Compensation Committee. The Board views CEO selection and management succession as one of its most important responsibilities. In coordination with the Compensation Committee, the Board: (1) develops criteria for the CEO position that reflects Wesco’s business strategy; (2) routinely reviews and discusses succession planning; and (3) identifies potential internal successors for the CEO. The Board also maintains an emergency succession plan that is reviewed periodically.
16. Annual Compensation Review of Senior Management
The Compensation Committee has primary responsibility for assisting the Board in developing and evaluating potential candidates for executive positions, including the CEO, and for overseeing the development of executive succession plans. As part of this responsibility, the committee oversees the design, development and implementation of the compensation program for the CEO and the other executive officers. The committee evaluates the performance of the CEO and determines CEO compensation in light of the goals and objectives of the compensation program. The CEO and the committee together assess the performance of the other executive officers and determine their compensation, based on initial recommendations from the CEO.
17. Access to Senior Management
Directors have full and free access to officers, employees and the books and records of the Company. Any meetings or contact that a director wishes to initiate may be arranged through the CEO or the Secretary or directly by the director. The directors should use their judgment to ensure that any such contact is not disruptive to the business operations of the Company.
The Board welcomes the regular attendance at Board meetings of non-Board members who are in the most senior management positions in the Company. The Chairman of the Board shall extend such invitations.
18. Access to Independent Advisors
The Board and its committees shall have the right at any time to retain independent outside accounting, financial, legal or other advisors, and the Company shall provide appropriate funding, as determined by the Board or any committee, to compensate such independent outside advisors, as well as to cover the ordinary administrative expenses incurred by the Board and its committees in carrying out their duties.
19. Policy on Poison Pills
The term “poison pill” refers to the type of shareholder rights plan that some companies adopt to make a hostile takeover of the Company more difficult. Wesco does not have a poison pill and has no intention of adopting a poison pill because a hostile takeover of a company of our size is impractical and unrealistic. However, if Wesco were ever to adopt a poison pill, the Board would seek prior shareholder approval unless, due to timing constraints or other reasons, a committee consisting solely of independent directors determines that it would be in the best interests of shareholders to adopt a poison pill before obtaining shareholder approval. If the Board were ever to adopt a poison pill without prior shareholder approval, the Board would either submit the poison pill to shareholders for ratification, or would cause the poison pill to expire, without being renewed or replaced, within one year.
20. Election of Directors
Article II, Section 2.02 of the By-Laws sets forth the Company’s voting requirements for the election of directors, as follows: At each meeting of the stockholders for the election of Directors, provided a quorum is present, the Directors shall be elected by a plurality of the votes validly cast in such election.
21. Potential Impact on Compensation from Executive Misconduct
If the Board determines that an executive officer has engaged in conduct detrimental to the Company, the Board may take a range of actions to remedy the conduct, prevent its recurrence, and impose such discipline as would be appropriate. Discipline would vary depending on the facts and circumstances, and may include, without limit, (1) termination of employment, (2) initiating an action for breach of fiduciary duty, and (3) if the conduct resulted in a material inaccuracy in the Company’s financial statements or performance metrics, which affect the executive officer’s compensation, seeking reimbursement of any portion of performance-based or incentive compensation paid or awarded to the executive that is greater than would have been paid or awarded if calculated based on the accurate financial statements or performance metrics; provided that if the Board determines that an executive engaged in fraudulent misconduct it will seek such reimbursement. These remedies would be in addition to, and not in lieu of, any actions imposed by law enforcement agencies, regulators or other authorities.
22. Board Interaction with the Investment Community, the Media, Customers or Third Parties
The Board looks to management to speak for the Company, but recognizes that individual directors may sometimes communicate with third parties on matters affecting the Company. For information about the Company’s policy regarding interactions with the investment community or the media, please see “Role of the Board of Directors” in the Company’s Corporate Disclosure Policy. With respect to interactions with customers or other third parties, before engaging in such communications, to the extent feasible, directors are encouraged to consult with management.