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Corporate Governance Principles Purpose and Nature Relationship with Roche Role of the Board and Management Functions of the Board Board Membership Board Meetings and Agenda Board Committees Ethics and Conflicts of Interest Reporting Concerns to Non-Employee Directors, the Audit Committee or gCom Periodic Review
I. Purpose and Nature The following Principles of Corporate Governance (the "Principles") were adopted by the Board of Directors (the "Board") of Genentech, Inc. ("Genentech" or the "Company"). These Principles, together with Genentech's amended and restated Certificate of Incorporation, the bylaws, the Affiliation Agreement between Genentech and Roche Holdings, Inc. (as described below) and the charters of certain Board committees, provide the framework for the governance of Genentech. The Board believes that these Principles will enhance our ability to achieve Genentech's goals, govern Genentech with high standards of integrity and increase stockholder value.
II. Relationship with Roche As of December 31, 2007, Roche Holdings, Inc. ("Roche") owned approximately 55.8% of Genentech's common stock. Our Proxy Statement for the 2008 Annual Meeting of Stockholders, on file with the Securities and Exchange Commission, describes under the heading "Relationship with Roche" those corporate governance matters, including Roche's proportional representation on the Board, provided for in an Affiliation Agreement, dated July 22, 1999, as amended, between Genentech and Roche.
III. Role of the Board and Management The Board is the ultimate decision-making body of Genentech except with respect to those matters reserved to the stockholders. It is responsible for the oversight of Genentech's business conducted by its officers, managers and employees under the direction of the Chief Executive Officer (the "CEO"). The Board also elects Genentech's officers, including its executive management team called the "Executive Committee," and acts as an advisor and counselor to executive management and ultimately monitors and evaluates the performance of the CEO and other members of the Executive Committee.
Both the Board and management recognize that stockholders' short-term and long-term interests are advanced by responsibly providing stewardship for Genentech's business and addressing the concerns of various other stakeholders essential to Genentech's success, including employees, customers, suppliers, the medical profession, patients, payors and other communities in which Genentech does business, the government and the public.
IV. Functions of the Board In addition to its general oversight of management, the Board also performs a number of specific functions, including:
- electing and approving the compensation of Genentech's officers as well as approving Genentech's annual bonus plan;
- reviewing succession planning for the CEO and other executive officers;
- reviewing, approving and overseeing certain fundamental financial and business strategies and certain major corporate actions;
- reviewing and approving, as appropriate, long-term strategic and business plans, including the annual budget and long-range plan, and overseeing the execution of, and monitoring Genentech's performance against, such plans;
- nominating directors, reviewing the structure and operation of the Board and its committees, and overseeing effective corporate governance;
- approving changes to Genentech's capital structure as well as corporate transactions of Genentech involving its stock, including declaration of stock dividends or stock repurchases;
- assessing major risks facing Genentech and reviewing options for their mitigation; and
- assuring processes are in place for maintaining the integrity of Genentech, including the integrity and transparency of its financial statements, compliance with laws and regulations and Genentech's Good Operating Principles and the Code of Ethics for the CEO and Senior Financial Officials, and the integrity of relationships with third parties and other stakeholders.
V. Board Membership A. Chairman and CEO; Lead Director. The positions of Chairman of the Board and CEO are currently held by the same person, Dr. Arthur D. Levinson. We believe this combination has served us well over the past several years since Dr. Levinson was elected Chairman in addition to being CEO. Genentech has designated Dr. Charles A. Sanders as lead director from among its independent directors. As discussed in VI.D. and IX below, Dr. Sanders leads executive sessions of non-management directors and serves as an independent point of contact for stockholders wishing to communicate with the Board other than through the Chairman. Communications may be addressed to Dr. Sanders at c/o Genentech, Inc., 1 DNA Way, South San Francisco, CA 94080-4990 or at csanders@gene.com.
B. Director Candidate Criteria. In selecting independent director nominees, the Board may assess independence (for non-Roche candidates only), character, judgment, business acumen and scientific expertise, and familiarity with national and international issues affecting the biotechnology and pharmaceutical industries. Director nominees should also possess the highest personal and professional ethics and be committed to representing both the short-term and the long-term interests of Genentech's stockholders.
C. Board Compensation. On an annual basis, the Board, through the Compensation Committee, reviews, or requests management or outside consultants to review, appropriate compensation policies for the directors serving on the Board and its committees. This review considers, among other factors, board compensation practices of comparable public companies, including a peer group of biotechnology and pharmaceutical companies, contributions to Board committees, service as committee chairs, and other relevant factors. All non-employee non-Roche directors are granted stock options in Genentech as part of their compensation. The Board targets overall compensation of directors to be competitive with those of directors at comparable biotechnology and pharmaceutical companies.
D. Changes in Principal Position or Responsibility. Any director who experiences a material change in his or her principal employment or professional position will offer to resign from the Board. The Board will review such offer of resignation and may by majority vote either accept or reject the offer of resignation depending on what it believes to be in the best interest of Genentech.
E. Membership on other Boards. Directors are permitted to sit on the boards of no more than six (6) public companies, including that of Genentech, at any one time. The CEO is permitted to sit on the boards of only two (2) other public or private companies. Each director is expected to ensure that other existing and future commitments do not materially interfere with his or her service as a director of Genentech and must be willing to devote sufficient time to effectively carry out his or her duties and responsibilities as a director of Genentech.
F. Term Limits. Membership on the Board is not subject to term limits. We believe that term limits could be a disadvantage and cause us to lose the contribution of directors who have been able to develop, over a period of time, increasing insight into Genentech and its operations.
G. Director Orientation and Continuing Education The Executive Committee, working with the Board, will provide an orientation process for new directors. The orientation process will include background material with respect to Genentech and its business, and as requested by a new director, meetings scheduled with senior management, including the Executive Committee, and/or visits to Genentech's offices and manufacturing facilities in South San Francisco, California or other locations as appropriate.
As appropriate, senior management will prepare additional educational sessions for directors on matters relevant to Genentech and its business. Directors are encouraged to pursue continuing education programs designed to address issues germane to being a director. Each director shall cooperate in fulfilling any applicable continuing education guidelines established and periodically updated by the Corporate Governance Committee of the Board.
VI. Board Meetings and Agenda A. Frequency of Board Meetings. A minimum of five (5) regular meetings of the Board are currently held each year. Additional meetings are held as needed and are called in accordance with our bylaws. At least one meeting per year may be an extended meeting focusing on long-range strategies and business planning. The Board reviews reports by management on Genentech's performance and its plans and prospects during the regularly scheduled meetings and any special meetings. Directors are expected to prepare for, attend and participate in all scheduled Board and applicable committee meetings. In addition, directors are encouraged to attend any annual meeting of stockholders in which they stand for election or re-election to the Board.
B. Agendas for Meetings. The Chairman and CEO sets the agenda for Board meetings. Meeting agendas are sent in advance of the meeting to Board members along with appropriate written information and background materials so that Board meeting time may be efficiently utilized and discussion time focused on questions that the Board has about the materials or subjects being addressed. The Board reviews operational matters at Genentech at each meeting and reviews other items pertinent to the Board's advisory and monitoring functions on a periodic basis. Any member of the Board may request that an item be included on the agenda.
C. Board Presentations and Access to Information. The Board encourages executive management to arrange presentations at Board meetings by managers and to provide other reports that will enhance the flow of meaningful business, financial, scientific, medical, regulatory and other relevant information to the Board. The Board encourages the presentation at meetings by members of management who can provide additional insight into matters being discussed or who have executive management potential that the CEO believes should be given exposure to the Board. Each Board member also has free access to Genentech's management and other employees at, and outside of, Board meetings.
D. Non-management Director Meetings. As described in V.A. above, Dr. Sanders leads regularly scheduled meetings of non-management directors to discuss those matters regarding Genentech as such directors consider appropriate. Such meetings are scheduled for each Board meeting.
E. Annual CEO Evaluation and Succession Planning. The Compensation Committee of the Board establishes the evaluation process for the CEO's performance and determines the specific criteria on which the performance of the CEO is evaluated, including individual performance, comparisons with other biotechnology and pharmaceutical companies, and achievement of Genentech's annual corporate goals, as disclosed in the Compensation Committee Report of the 2004 Proxy Statement. The Compensation Committee of the Board reviews the CEO's performance on an annual basis and communicates the results of the review to the CEO.
The Board has coordinated with the CEO to establish a succession plan in the event of the retirement or the permanent disability or death of the CEO. If a new CEO must be appointed, the Board will convene a special meeting to determine whether to appoint an internal successor or to conduct an external search to locate a successor. The Board's decision may depend on the circumstances in which a new CEO must be appointed. If necessary, the Board may appoint an interim CEO while conducting a search to locate a qualified candidate for CEO.
F. Access to Independent Advisors/Experts. The Board and each of its committees have the right at any time to retain and direct independent financial, legal or other advisors or experts, with funding provided by Genentech.
G. Board and Committee Evaluations. Board members perform on an annual basis a self-evaluation and a peer evaluation of the performance and effectiveness of each Board member and of the Board as a whole, as well as its committees. The individual assessments are organized and summarized for discussion with the Board at the Board meeting following the evaluation.
VII. Board Committees A. Committees. It is the general policy of Genentech that all major decisions be considered by the Board as a whole. The committee structure of the Board reflects this and is limited to those committees considered to be basic to or required for the operation of a public company. The current five committees of the Board are the Audit Committee, Compensation Committee, Corporate Governance Committee, Executive Committee, and Nominations Committee. From time to time the Board may establish a new committee or disband a current committee depending upon internal circumstances or external requirements.
B. Committee Member Selection. The Board designates the members and chair of each committee, endeavoring to match the committee's function and needs for expertise with individual skills and experience of the appointees to the committee. The membership of the Audit, Compensation, Corporate Governance and Nominations Committees consist solely of directors who are not officers of Genentech. For the Audit Committee, the members also meet applicable criteria for independence under NYSE, SEC and/or tax rules applicable to such committees.
C. Committee Functions. The number and content of committee meetings and other matters of committee governance are determined by each committee and its chair in light of the authority delegated by the full Board to the committee, the committee's charter, if any, approved by the Board, and legal, regulatory, accounting or governance principles applicable to that committee's function. Management can also recommend appropriate agenda items. Genentech provides to each committee access to employees and other resources to enable committee members to carry out their responsibilities. The full authority and responsibilities of each committee is fixed by the committee's charter, if applicable, or by our bylaws.
VIII. Ethics And Conflicts Of Interest A. Genentech's Good Operating Principles and Code of Ethics for the CEO and Senior Financial Officials. The Board is committed to legal and ethical conduct in fulfilling its responsibilities. The Board expects all directors, as well as officers and employees, to act ethically at all times and to adhere to the policies comprising Genentech's Good Operating Principles, including Genentech's policy on insider trading. The Board also expects the CEO, the CFO and all senior financial officials to adhere to the Code of Ethics for the CEO and Senior Financial Officials, especially in matters of public disclosures relating to Genentech.
B. Director/CEO Conflict of Interest. Each director is required to disclose to the Board any activities or interests that result in an actual or potential conflict of interest with Genentech. The Board will determine an appropriate resolution on a case-by-case basis. All directors will recuse themselves from any discussion or decision affecting their personal, business or professional interests. The Board shall resolve any conflict of interest question involving the CEO, and the CEO shall resolve any conflict of interest issue involving any other officer of Genentech.
IX. Reporting Concerns to Non-Employee Directors, the Audit Committee or gComAny employee, stockholder or third party who has a concern about Genentech's business conduct or about its accounting, internal accounting controls or financial or auditing matters may communicate that concern directly to the lead director or to the Chairman of the Audit Committee of the Board. Currently serving as the lead director and Chairman of the Audit Committee of the Board are Dr. Charles A. Sanders and Ms. Debra L. Reed, respectively. Communications may be addressed to Dr. Sanders at c/o Genentech, Inc., 1 DNA Way, South San Francisco, CA 94080-4990 or via e-mail at csanders@gene.com, and to Ms. Reed at c/o Genentech, Inc., 1 DNA Way, South San Francisco, CA 94080-4990 or via e-mail at reed.debra@gene.com. Such communications may be confidential. Such individuals may also call Genentech's Compliance and Ethics Phone Line, gCom, at (866) 411-4266 to report any issues, complaints or concerns about potential breaches in ethics, compliance requirements, financial accounting or auditing matters, or company policy. All such concerns will be forwarded to one or more appropriate individuals, inside or outside of Genentech, for their review. The status of all outstanding concerns addressed to the lead director or the Chairman of the Audit Committee will be reported to the Audit Committee periodically. The non-employee directors or the Audit Committee may direct specialized support, including the retention of outside advisors or counsel with payment by Genentech, for any concern addressed to them.
X. Periodic Review These Principles will be subject to the periodic review and update by the Board from time to time.