From the November 2008 issue of Treasury & Risk magazine

Gold AHA Award Winner in Corporate Governance

When the Sarbanes-Oxley Act became law in July 2002, Honeywell was emerging from a tumultuous period that included a failed merger with General Electric, three CEO's in 12 months and major organizational realignment. As the then-new Chairman and CEO Dave Cote began efforts to revitalize the company and drive sustainable profit growth, he made clear from the outset that a culture of governance and integrity was a top priority, and essential for Honeywell to succeed. As he told shareholders in 2002: "Credibility is our most valuable asset."

Governance groups have given Honeywell high marks for its program, which mandates a code of conduct and embraces the One Honeywell performance culture. RiskMetrics Group awarded it a corporate governance quotient of 100 in the capital goods industry group, making it No. 1 in that category. RiskMetrics based its scores on factors including board policies, takeover defenses, compensation and ownership issues, audit integrity and compliance.

The success has been reflected in financial results, too. From 2003 to 2007, Honeywell generated compounded annual growth of 11%, 17%, 20% and 20%, respectively, in sales, segment profit, per share earnings and free cash flow.

The company isn't resting on its laurels. The governance team constantly monitors developments and continually adapts corporate policies where appropriate. "We're proactive when it comes to change," says Thomas Larkins, vice president, corporate secretary and deputy general counsel. Larkins leads the effort to maintain and further improve on the company's world-class corporate governance program.

Case in point: While many companies adopted a wait-and-see approach after the Securities and Exchange's (SEC) 2007 ruling to allow electronic distribution of proxies, Larkins and Jacqueline Whorms, assistant secretary and assistant general counsel, in collaboration with investor relations immediately went to work to implement a more efficient and cost-effective method of delivery of proxy materials, saving about $500,000 in printing and postage costs without suffering a drop-off in shareholder votes, as other companies experienced.

Honeywell also has enhanced accountability. Conduct and ethics training is required for all 125,000 Honeywell employees in more than 100 countries. In addition, in recent years, the board of directors has taken several significant corporate governance actions. It adopted majority voting for the election of directors, eliminated the supermajority voting provisions in the certificate of incorporation and bylaws, amended the bylaws to give shareholders approval of poison pills and amended its corporate governance guidelines to provide for the recoupment of bonuses in the event of a significant restatement.

Meanwhile, its Hometown Solutions outreach program has taught 13 million children potential life-saving lessons to help prevent abduction and accidents; repaired more than 160 homes and community centers for low-income, elderly and disabled individuals; inspired countless students to pursue science and technology careers and helped whole regions recover from natural disasters.

Direction comes from the top. Cote and the senior leadership team regularly stress the need for integrity and commitment to full compliance with all laws in all countries. This message is reinforced in town hall meetings broadcast via satellite to all employees globally, in the CEO's address to the top 250 executives at the annual senior leadership meeting and in meetings.

In addition, RiskMetrics has high praise for the annually elected board, in which nine of ten directors are independent. "The board members represent a wide diversity of backgrounds, experience and geographies that enable them to understand the challenges faced by complex, global, multi-industry organizations and to foresee and avoid the risks that arise when driving performance," says Larkins. "There will never be any traction if you don't have a strong tone from the top."


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