Corporate Governance and Board Practices
| Compliance. Praxair's Board of Directors and senior management oversee the Company's compliance program, which is designed to promote a culture of integrity and respect for the law. The corporate compliance function is led by our Chief Compliance Officer (“CCO”). |  |
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The Corporate Compliance Review Board meets quarterly to oversee the development and implementation of the Company's compliance program. Each business unit or regional organization within Praxair, through its own Compliance Review Board, meets regularly to assess compliance risks, set priorities for addressing risks, participate in the development of training programs, assess the need for monitoring and auditing programs, and establish appropriate performance objectives. The business units’ performance of these responsibilities is measured through compliance metrics that are reported quarterly to the Corporate Compliance Review Board.
The CCO gives an annual compliance update to the Audit Committee to assist the committee in meeting its governance and oversight responsibilities.
Director Independence. Your Board has adopted independence standards for service on Praxair's Board of Directors. Your Board has applied these standards to all of the incumbent non-management directors, and to Ms. Dicciani who has been nominated for election as a director for the first time, and has determined that all of them are independent. Your Board is not otherwise aware of any relationship with the Company or its management that could potentially impair a director's exercise of independent judgment.
Board Leadership. The independent directors elected Claire W. Gargalli as Executive Session Presiding Director effective January 1, 2008. Ms. Gargalli presides over private meetings of the non-management directors and performs other duties, including conducting a performance review of the Chief Executive Officer. Mr. LeBoeuf had served in this capacity from 2005-2007.
Mandatory Director Retirement. Your Board's policy is that a director who has attained the age of 72 must retire from the Praxair Board prior to the first annual shareholders meeting held after his/her 72nd birthday. As noted above, Ronald L. Kuehn, Jr. and G. Jackson Ratcliffe, Jr. will retire from the Board in 2008 in accordance with this policy. Your Board also has a policy against service on the Board by an officer of the Company after his/her retirement, resignation or removal as an officer.
Limits to Service on Other Boards. Your Board's policy is that no non-management director may serve on more than five additional public company boards and no member of the Audit Committee may serve on more than two additional public company audit committees. Also, the Chief Executive Officer may not serve on more than two other public company boards.
Director Nomination Process. For a description of your Board's policy regarding nominees for election as directors, see "The Governance & Nominating Committee".
Director Election and Resignation Policy. In December 2007, your Board adopted amendments to Praxair's Bylaws that require a director nominee to receive a majority of the votes cast at an annual meeting in order to be elected (meaning a greater number of "for" votes than "against" votes in an uncontested election of directors). Your Board also amended its Corporate Governance Guidelines to require that any director nominee who is then serving as a Director must tender his or her resignation if he/she fails to receive this majority vote. The Governance & Nominating Committee of the Board would then consider the resignation offer and recommend to the Board whether to accept or reject the resignation, or whether other action should be taken. The Board would take action on the committee's recommendation within 90 days following certification of the vote, and promptly thereafter publicly disclose its decision and the reasons therefor.
Communications with the Board. Your Board believes that the most efficient means for shareholders and other interested parties to raise issues and questions and to get a response is to direct such communications to the Company through its Investor Relations Department or other methods as described in the "Contact Us" section.
If, notwithstanding these methods, a shareholder or other interested party wishes to direct a communication specifically to the Company's Board of Directors, then the following means are available (to ensure that the communication is properly directed in a timely manner, it should be clearly identified as intended for the Board):
(1) | | Telephone (Voice Mail): 1-800-719-0719 within the U.S.A., or +1(203)837-2960 for outside the U.S.A. |
(2) | | Mail: Praxair, Inc. Attn: Board of Directors P.O. Box 2478 Danbury, CT, U.S.A. 06813-2478 |
(3) | | Email: praxair_integrity@praxair.com |
The above addresses are supervised by the Company's Security Department which will promptly forward to the Corporate Secretary's Office any communication intended for the Board. The Corporate Secretary's Office will collect and organize all such communications, deleting any that are sales or other solicitations and any which contain offensive material. A summary of communications received will be periodically provided to the Executive Session Presiding Director who will make the final determination regarding the disposition of any such communication.
Your Board believes that the Company should speak with one voice and has empowered management to speak on the Company's behalf subject to your Board's oversight and guidance on specific issues. Therefore, in most circumstances, the Board will not respond directly to inquiries received in this manner but may take into consideration ideas, concerns and positions that are presented in a concise, clear, supported and constructive manner.
Director Attendance at the Annual Shareholders' Meeting. Absent extenuating circumstances, each member of the Board is expected to attend the Annual Meeting of Shareholders. All of the then incumbent directors attended the 2008 annual meeting.
Policy Statement on Rights Agreements. Your Board will adopt or materially amend a Stockholder Protection Rights Agreement only if, in the exercise of its fiduciary responsibilities under Delaware law, and acting by a majority of its independent directors, it determines that such action is in the best interests of Praxair's shareholders. If the Board adopts or materially amends a Stockholder Protection Rights Agreement, it will submit such action to a non-binding shareholder vote as a separate ballot item at the first annual meeting of shareholders occurring at least six months after such action.
Director Stock Ownership Guidelines. Your Board's policy is that non-management directors must acquire and hold during their service as a Praxair Board member shares of the Company's stock equal in value to at least 5 times the base cash retainer for non-management directors. Directors have five years from their initial election to meet this guideline. As shown in the stock ownership table, all non-management directors have met this guideline or are within the transition period; and most substantially exceed the guideline. In addition, any new non-management director must, no later than the effective date of his/her election, acquire, using his/her own personal resources, shares of the Company's stock equal in value to the base cash retainer then in effect.
Executive Stock Ownership Guidelines. Your Board believes that it is important for Executive Officers to acquire a substantial ownership position in Praxair. In this way, their interests will be more closely aligned with those of shareholders. Significant stock ownership focuses the executives' attention on managing Praxair as equity owners.
Accordingly, stock ownership guidelines have been established for the Company's officers as follows. Twenty-two executives are currently covered under this stock ownership policy. Individuals are expected to meet the applicable guideline no more than five years after first becoming subject to it.
| Shares To Be Owned |
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| Chief Executive Officer | 100,000 |
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| Executive Vice Presidents | 30,000 |
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| Chief Financial Officer | 25,000 |
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| Senior Vice Presidents | 20,000 |
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| Other Executive Officers | 10,000 - 15,000 |
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| Other Officers | 5,000 |
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As of the date of this Proxy Statement, all covered individuals have met or exceeded their guidelines, where permitted by law, or are within their compliance periods. Stock ownership of the five most highly compensated Executive Officers in 2007 can be found on the "Stock Ownership" page.
Succession Planning and Personnel Development. Under the leadership of the Compensation & Management Development Committee, it is your Board's practice to annually conduct a formal Succession Planning and Personnel Development session in which evaluations of senior executives are reviewed with respect to their potential for promotion into senior leadership positions, including that of the CEO. In addition, a wide variety of senior executives are purposely exposed to your Board by way of Board and Committee presentations and directors have unrestricted access to management for management assessment and development as well as for information gathering.
CEO Performance Evaluation. Your Board has in place a process whereby the Executive Session Presiding Director conducts a performance review at least annually of the Chief Executive Officer taking into account the views of all of the other independent directors. This is in addition to the evaluation inherent in the Compensation & Management Development Committee's determination of the CEO's compensation.
Strategy Review and Oversight. It is your Board's practice to conduct a full-day session at least annually to review the strategies of the Company overall and of its key business components and to provide advice and counsel to management regarding the strategic issues facing the Company. Throughout the year, management reports to your Board on the status of significant strategic initiatives and issues.
Board Effectiveness Assessment. As set forth in the Corporate Governance Guidelines and under the leadership of the Governance & Nominating Committee, your Board assesses its effectiveness at least annually. Typically, this assessment includes evaluating its effectiveness in the areas of Performance of Core Responsibilities, Decision-making Support, the Quality of Deliberations, and Director Performance, as well as consideration of additional Board practices and policies recommended as best practices by recognized governance authorities. In addition, directors are given measures of individual director effectiveness for purposes of self-assessment, reflection and self-improvement.
Auditor Independence. Your Board recognizes the importance of ensuring the independence of the Company's independent auditor. See "The Independent Auditor" for a summary of some of the policies designed to monitor and support such independence.
Director Compensation. The compensation paid to non-management directors in 2007 and a description of the Company's director compensation program, are presented under the caption "Director Compensation." The principles used by the Board in determining director compensation are set forth in the Board's Corporate Governance Guidelines.
Review, Approval or Ratification of Transactions with Related Persons
Relevant Polices. The Company's Compliance with Laws and Business Integrity and Ethics Policy ("Ethics Policy,") prohibits employees, officers and Board members from having a personal, financial or family interest that could in any way prevent the individual from acting in the best interests of the Company (a "conflict of interest") and provides that any conflict of interest waiver relating to Board members or executive officers may be made only after review and approval by the Board upon the recommendation of its Governance & Nominating Committee.
In addition, the Board's Corporate Governance Guidelines require that any "related party transaction" by an executive officer or director be pre-approved by a committee of independent and disinterested directors. For this purpose, a "related party transaction" means any transaction or relationship that is reportable under the SEC's Regulation S-K, Item 404 or that, in the case of a non-management director, would violate the Board's independence standards.
Reporting and Review Procedures. To implement the foregoing policies, the Governance & Nominating Committee has adopted a written procedure for the Handling of Potential Conflicts of Interests which specifies a process for the referral of potential conflicts of interests to the Board and standards for the Board's evaluation of those matters. This policy applies to any transaction or relationship involving an executive officer, a member of the Board of Directors, a nominee for election as a director of the Company, or a family member of any of the foregoing which (1) could violate the Company's Ethics Policy provisions regarding conflicts of interest, (2) would be reportable under the SEC's disclosure rules, or (3), in the case of a non-management director, would violate the Board's independence standards.
In summary, under this procedure, potential conflicts of interest are reported to the Corporate Secretary for preliminary analysis to determine whether referral to the Governance & Nominating Committee is appropriate. Potential conflicts of interest can be self-identified by the director or executive officer or may arise from internal audits, integrity hotline or other referrals or through periodic due diligence conducted by the Corporate Secretary's office. The Governance & Nominating Committee then examines the facts and circumstances of each matter referred to it and makes a final determination as to (1) whether the transaction or relationship would (or does) constitute a violation of the conflicts of interest provisions of the Company's Ethics Policy, and (2) whether the transaction or relationship should be approved or ratified and the conditions, if any, of such approval or ratification. In determining whether a transaction or relationship constitutes a violation of the conflicts of interest provisions of the Company's Ethics Policy, the Governance & Nominating Committee considers, among other factors, the materiality of the transaction or relationship to the individual's personal interest, whether the individual's personal interest is materially adverse to or competitive to the interests of the Company, and whether the transaction or relationship materially interferes with the proper performance of the individual's duties or loyalty to the Company. In determining whether to approve or ratify a transaction or relationship, the Governance & Nominating Committee considers, among other factors, whether the matter would constitute a violation of the conflicts of interest provisions of the Company's Ethics Policy, whether the matter would violate the NYSE listing standards, the expected practical impact of the transaction or relationship on the individual's independence of judgment or ability to act in the best interests of the Company, the availability, practicality and effectiveness of mitigating controls or safeguards such as recusal, restricted access to information, reassignment etc., and the best interests of the Company and its shareholders generally.
Application of Policies & Procedures. The employment of Mr. Ratcliffe's son-in-law in a non-executive position as disclosed below under "Certain Relationships and Transactions" does not violate the Company's Ethics Policy or the Board's independence standards. In addition, his hiring predated the Board's 2004 adoption of the self-imposed requirement that certain relationships reportable under SEC rules be pre-approved by a committee of independent and disinterested directors.
Certain Relationships and Transactions
When determining whether any director or nominee is independent, your Board considers all facts and circumstances and any relationships that a director or nominee may have with the Company, directly or indirectly, other than serving as a director. To assist your Board in making independence determinations, it also applies the independence standards set forth in this Proxy Statement.
As noted above, Messrs. Kuehn and Ratcliffe are retiring from the Board and are not seeking reelection at the Annual Meeting. In 2007, the Board determined that each of them was independent and that the following transactions and relationships did not impair the ability of either of these directors to exercise independent judgement as a director: (a) ordinary course sales of products to, or purchases of products from, the company of which Mr. Kuehn is the non-executive Chairman that were no more than 1.4% of the other company's, and less than 1% of Praxair's, consolidated revenues for the last three fiscal years; and (b) the Company's employment of Mr. Ratcliffe's son-in-law in a non-executive position whose cash compensation was in the range of $115,000 to $135,000 for 2007.
In determining that each other non-management director and director nominee is independent, your Board considered the following circumstances and relationships of those directors and nominees who had any direct or indirect relationship with the Company: in the ordinary course of its business, Praxair sells products to, or purchases products from, the companies of which Ms. Dicciani and Messrs. Smith and Wood are executive officers. The dollar value of these transactions is far below the limits set forth in your Board's independence standards and, in each case for the last three fiscal years, were significantly less than 1% of either Praxair's or the director's or director nominee's company's consolidated revenues. Therefore, your Board has determined that such relationships are not material and do not otherwise impair the ability of either of these directors or the director nominee to exercise his/her independent judgment as a director
Section 16(a) Beneficial Ownership Reporting Compliance
Based solely upon a review of SEC Forms 3, 4 and 5 furnished to the Company and written representations from the Company's executive officers and directors, the Company believes that those persons complied with all Section 16(a) filing requirements during 2007 with respect to transactions in the Company's stock, except for one inadvertent late filing with respect to a stock option grant for Mr. Galante.
